Blue Bird - Earnings Call - Q4 2016
December 13, 2016
Transcript
Speaker 0
Greetings, and welcome to the Blue Bird Corporation Fiscal twenty sixteen Fourth Quarter and Full Year Conference Call and Webcast. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mark Bengfield, Director of Investor Relations.
Please go ahead, sir.
Speaker 1
Thank you, Kevin. Welcome to Blue Bird's fiscal fourth quarter and full year twenty sixteen earnings conference call. The audio for 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 box on the Investor Relations landing page. Our comments today include forward looking statements that are subject to risks that could cause actual results to be materially different.
Those risks include, among others, matters we have noted in our latest earnings releases and filings with the SEC. Blue Bird disclaims any obligation to update the information in this call. This morning, you will hear from Blue Bird's President and CEO, Phil Lorac and CFO, Phil Tighe. Then we will take some questions. So let's get started.
Phil? Well, thanks, Mark. Well, good morning, everybody, and thank you all for joining us today for our fiscal fourth quarter and full year earnings call. We welcome this opportunity to share our latest quarter results with you. It's been a very busy year for us, we've made significant progress in fiscal twenty sixteen.
So before we cover Blue Bird's performance, let's first turn to Slide four and take a look at the overall size of the school bus industry and importantly, its relevance in transportation. As a reminder, there are over 5,000,000 school buses on the road in The United States and Canada, transporting 26,000,000 children to and from school each day. It is the largest mass transit system in The U. S. And Canada at about 10 times the size of all other transit bus systems combined.
There are three major manufacturers with each having between 30% to 35% market share. Approximately two thirds of all school buses are purchased and operated directly by some 10,000 school districts with about 3,400 independent contractors purchasing and operating the remaining one third of buses on the road today. Bottom line, it's a robust and institutionalized transportation system, and it's a well supported industry. So let's see how the new school bus industry fared in fiscal twenty sixteen. Let's turn to Slide five.
At 32,700 buses, new vehicle registrations for full full year fiscal two thousand sixteen were the highest since 02/2007. This was an increase of 9% over fiscal two thousand fifteen. Clearly, this is a strong increase, but it should be noted that vehicle registrations can lag booked OEM sales to dealers and national fleets by several weeks or even months. We estimate that the fiscal two thousand sixteen industry as measured by RO pulp registrations benefited by between 1,000 to 1,500 units from the surge in deliveries for school staff in the 2015. In other words, the OEM service recognized in fiscal twenty fifteen, but the vehicle registration by the end customers recognized in fiscal twenty sixteen.
So the underlying real industry growth was probably between 5% to 6% in fiscal twenty sixteen. Nevertheless, the new bus industry exhibited another solid year of growth. In particular, vehicle registrations through the dealer network were very strong with 12% growth across the entire industry. Importantly, at Blue Bird, we saw 18% growth in registrations for sales through our dealer network. As you will see later, this translates into higher Blue Bird market share.
Seasonality in our business remains similar to prior years with about two thirds of all vehicle registrations occurring in the second half of the fiscal year. We saw industry growth in the registrations of alternative fuel powered school buses, up from 6% to 9% of industry propelled substantially by the growth in propane bus registrations, which were up 77%. Incidentally, for Blue Bird, our propane registrations represent 22% of our total sales. The need to replace older buses and increased funding from higher property taxes bodes well for continued industry growth next year. Let's now turn to Bluebird performance on Slide six.
Full year market share at 31% was up one point. Importantly, our market share from sales to the dealer network was 32%, up two points. This was buoyed by the 18% growth in broker registrations through the dealer channel that I mentioned on the previous slide. This is a great result by the Blue Bird dealer network. We sold just over 10,600 buses in fiscal twenty sixteen, and that's a record for our Fort Valley plant and made possible by the second ship we added in January.
Now while fourth quarter sales were down 160 buses from a year ago, both the fourth quarter and full year were impacted by the delay in emission certification and consequently shipments of our new gasoline engine. We estimate this resulted in up to 400 fewer gas powered bus sales in fiscal twenty sixteen. Nevertheless, following that late certification, we were able to ship four zero six gasoline engines in September that we've previously built. We continue to lead in propane powered bus sales, securing more than 75% share of total propane registrations in 2016. And importantly, at 2,240 propane bus sales, we saw substantial 33% increase in our sales over fiscal twenty fifteen.
This is that is a terrific result and represents our ninth year in the propane bus business. No one can match our experience in this sector. We delivered full year financial results in line with guidance on our key financial metrics, revenue, adjusted EBITDA and adjusted free cash flow. While fourth quarter volume and financial results were down a little from last year, it is worth remembering that this was following an outstanding third quarter when our unit sales were up 26% with corresponding growth in profitability. Bottom line, this was a strong year for Blue Bird.
Let's now turn to our operating achievements on Slide seven. I covered many of these significant achievements during the third quarter earnings call, and each initiative will make us more competitive and support our growth going forward. In particular, the launch of four new power frames, gasoline, V eight diesel and Eaton Transmission in fiscal twenty sixteen and our all new Type C CNG engine that was launched in the 2017 provide us with the broadest array of engine choices in the industry, each one with a unique value proposition for the customer. Together with propane, our new gasoline and CNG engines provide three modern, powerful, and affordable alternatives to diesel, all using the same Ford and Ranch Cleantech engine platform. That is product simplification that customers and technicians really appreciate.
A brand new achievement is a refinancing of our term loan and revolver that we just completed. Phil Tighe will cover the details later. But at very competitive terms, we will reduce our interest rate by four points and will save about $4,000,000 in cash interest expense in fiscal twenty seventeen. Last, I'd like to acknowledge a terrific performance by our Taipei bus, MicroBird. Our joint venture in Quebec sold a record number of buses in fiscal twenty sixteen, almost 3,000, and secured market share leadership in type A school buses across North America.
That's a great achievement by the MicroBird team. Let's now turn to an area where Blue Bird's track to be the clear leader, alternative fuels on Slide 8. Blue Bird's propane powered vision bus continues to be our number one product differentiator in the market with 10x more propane buses registered on the road today than all of our competitors combined. Our propane vision bus also have registered the highest on a loyalty in the industry. We sold 2,240 propane buses in fiscal two thousand sixteen, up 33% from the prior year.
We launched gasoline late in the year and sold and shipped four zero six gasoline powered school buses all in the month of September. We are really excited about the customer interest in this product, and we're the only OEM to offer a gasoline engine on a large school bus. Together with our latest Type C CNG offering, we have a compelling and broader range of engine choices, the widest in the industry. Altogether, our alternative fuel bus sales in fiscal twenty sixteen totaled 2,752 units, representing 26% of our total sales. We are the clear leader in this space.
As a reminder, our proven, modern and efficient propane engine is contractually exclusive to us as are our new gasoline and type C CNG products developed and supported by our partnership with Ford and Raft CleanTech. At Blue Bird, we believe in being first to market with differentiated products that customers want and value. And where we can, we strive for exclusivity. This our Authority Fuel results are a clear demonstration of this. Let me now turn it over to Phil Tighe, who will take you through the financials, and I'll be back later to cover the fiscal twenty seventeen outlook and guidance.
Over to you, Phil. Thank you, Phil, and good morning, everyone. It's my pleasure to present you with the financial results for Blue Bird Corporation for fiscal year 'sixteen fourth quarter and full year. Just as a reminder, the fiscal year for Blue Bird is two, fifty three week period, and the closing day for each quarter is the Saturday closest to the last calendar day of each quarter. So for the fourth quarter and full year material we are discussing today, it's based on a close of 10/01/2016 for fiscal year 'sixteen and 10/03/2015 for fiscal year 'fifteen.
Mark mentioned that we use a number of non GAAP measures in this presentation due to the fact that these are generally the metrics used by management in the business. We have included important pages that walk from the applicable GAAP to non GAAP metrics and a discussion of the use of the non GAAP measures, and we would remind you to consider these as you read the results. Finally, we will be filing the 10 ks this week. For any of you who are looking at it, it's probably going to be filed tomorrow. Okay.
If we can move to Slide 10, which is a financial summary. This slide shows the results for 2016 for a number of metrics with comparison to 2015. We felt it was useful to present the slide in this fashion. We showed it, I think, in our last full year earnings call. And it shows also the impact of seasonality in our business, we keep talking about this, but I think it's worthwhile when we see the full year laid out to have a look at what the differences are between first half and full year.
And if you look quickly at the chart, you can do the math later, volume in the first half in fiscal year 'fifteen was 38% of the full year and fiscal year twenty sixteen was 33% of the full year. Revenue followed pretty much the same pattern. Profits are actually a more pronounced seasonality with around onefour of the profit in the first half and 75% in the second half. And that's really driven by a rather stable fixed cost or operating expense view by quarter versus some pretty severe moves in volume. As Phil mentioned, Blue Bird sold 3,308 buses in the fourth quarter and generated $289,400,000 of revenue.
Volume was down about 4.6% in the fourth quarter. Again, this was due to the late release of the certification for gas buses. Revenue was down about 6.9%, again, due to the volume of a 160 units and also due to lower a per unit average selling price, which was was a combination of of 400 gasoline units. They have a lower revenue than the diesel units, although they have a very strong margin, and the non recurrence of a very high revenue CNG fleet that we did in 2015. It's worth pointing out also that fourth quarter in 2015 was actually the highest sales quarter, whereas in 'sixteen, the highest quarter was the third quarter.
So if you look at a half to half basis on the year, second half of fiscal year 'sixteen was 7,076 units or about 10% higher than the second half of fiscal year 'fifteen, which we think was a great result. The full year sales were 10,616. They were two thirty eight units higher than the prior year. Revenue of $932,000,000 was an improvement of around $13,000,000 The improvement in revenue is really due to volume offset by some adverse mix. Revenue, as Phil indicated, was in line with guidance and sales included around 10,100 school buses and then it also included commercial buses, exports, and sales to the government.
Just in in commenting on mix, one of the things that impacted us in revenue was direct fleet and government sales were down versus the prior year. On Slide 10. These were areas where Blue Bird had expected to get more volume, but purchase requirements changed with the government and the fleet people. Adjusted EBITDA on the lower right hand box lower left hand box was $24,300,000 for the fourth quarter, which was down about $4,700,000 from the prior year. Again, this was due to lower volumes and an increase in operating expenses.
Gross margin, importantly, for the fourth quarter was about equal to fiscal year twenty fifteen. The full year adjusted EBITDA of $72,200,000 is slightly above guidance and $2,300,000 better than fiscal year twenty fifteen due to higher volumes and improved gross margins. This is somewhat offset by capacity costs, new product costs and personnel increases. Full year margins of 7.7% on the bottom right box was slightly above fiscal year 'fifteen. And you can see we had very good margins in the third quarter and good margins in the fourth quarter.
If we move to Slide 11, this is a brief look at the move from full year of fiscal year 'fifteen to full year of fiscal year 'sixteen. So the total move was $2,300,000 and you can see that bus gross profit was up about $8,900,000 or almost 9% due to increased sales and improved gross margins. Gross margins for the full year were about 13.9% for bus, which is up about 80 basis points. The margin improvement was, to some degree, also driven by lower material costs and efficiencies. The resulting cost of goods sold reduction was about 1.5% due to material cost reductions and efficiencies, and there was a partial offset in mix.
Parts gross profits were largely the same year over year, about oneten improvement despite some lower revenue due to some changes in distribution of cameras and one less week of selling in fiscal year sixteen versus fifth fiscal year fifteen. Operating and other expenses were up about 6.7. This is basically due to spending on new products, higher salary costs associated with supporting the second shift, salary economics, and some increases in group insurance and pension expense that was, I think, driven by the change in the discount rate. Operating expenses on an adjusted basis were about 7.3% of revenue in fiscal year 'sixteen, which is well below our long term view of about 8% as an affordable cost. At the bottom of the slide, can see adjusted income from continuing operations was pretty much flat at about $30,000,000 with higher taxes offsetting lower interest cost and increased income from our Micro Bird joint venture.
Slide 12 takes a look at the fourth quarter just briefly. You can see the fourth quarter is down. We had lower volume and some margin issues worth about $2,000,000 The real issue with the margins was the non recurrence of CNG, a very profitable CNG deal, which occurred in 'fifteen. Parts gross profit was down about 200,000.0 again due to lower sales. And operating expenses were up about $2,000,000 due to the same issues that I discussed previously.
Again, at the bottom of the slide, you can see the change in adjusted income from continuing operations that was down by about $3,900,000 to 13.4 We move to Slide 13, which is free cash flow. This slide shows the trend of free cash flow and adjusted free cash flow for 'fifteen and 'sixteen. Free cash flow adjusted for business combination and special combination payments was $44,600,000 in 'fifteen and $33,300,000 in 'sixteen. The $33,300,000 is in line with guidance. The reason for the higher number in 'fifteen was that we spent less CapEx in 'fifteen than we did in 'sixteen.
We took the opportunity in fiscal year 'sixteen to make a major restructuring of our IT infrastructure with new data centers and all new servers. This is this is very good for us for from the percent from the point of view of reliability and security, all all important things in the IT world. And I and I think that's a that's a positive thing that we've gone ahead and done that. Taxes in in fiscal year fifteen were lower. And also, fiscal year fifteen had a onetime reduction in inventory that flows through, but you only get the you you get to record the good news onetime, unfortunately.
So that's really the difference between the two years. Again, the 33,300,000.0 was in line with guidance and our outlook will continue to be in the 30s for adjusted free cash flow. Slide 14, net debt. This is a very good story. Net debt at the end of fiscal year twenty sixteen was just on $100,000,000 including $52,000,000 of cash.
The the net leverage ratio, which is the important ratio with the existing with the the then existing one was, 1.7 versus a covenant of four. So as you can see, lots of cushion in there, and liquidity stood at 107,000,000. Briefly, I'd like you to talk to you about slide 15. There will be a filing with respect to this. Our prior credit agreement, which was led with SocGen, was an initial term loan of 235,000,000 with a revolver of 60,000,000.
And you can see some of the key highlights of that term loan and and revolver listed on this page. The interest rate was live with a floor of one and five and a half points. That's 55% amortization and the revolver at 60. Yesterday, we actually closed on a new loan agreement to replace the SoftGen agreement. The the the the new agreement is led by BMO with support from a number of other very, very solid banks.
The the the the new loan is for a 160,000,000 for the term loan, which replaces the what was outstanding on the soft gen loan. And the revolver increases for $60,000,000 to $75,000,000 You can see the grid for the pricing. So effectively, we're going to be at around about 2.7 on the interest rate versus the existing level of 6.5. Amortization for the next three years is still 5%, but that's on $160,000,000 versus the $235,000,000 in the old loan. And the revolver size was increased by another 15,000,000 to 75,000,000.
All in all, this has been a great piece of work by a lot of people. We we we had a good relationship with the SoftGen team, and we're looking forward to the same type of relationship with BMO and the banks that are in the new the new syndicate. And if you if you look at the impact of it on our ongoing net income and cash flow, the the full year interest saving will be in the range of 4 to 6,000,000, probably 4,000,000 in fiscal year seventeen on a before tax basis because it's a partial year. And we will have another $4,000,000 saving in our amortization. So both both a good increase in bottom line profits and a substantial increase in cash flow.
So with that, thank you for your attention, and I'll pass it back to Phil Horlock, and he'll talk about the outlook for 'seventeen. Thank you. Okay. Thanks, Phil. So let's now shift our focus now to fiscal twenty seventeen, and turn to Slide '17, please.
As the headline says, we are forecasting continued growth in both the industry and for Blue Bird. We are projecting new bus sales growing slightly from 32,700 buses in fiscal twenty sixteen to 33,000 buses in 2017. This is for the industry. You'll recall earlier that I mentioned how the lag between bus sales and registrations appears to have boosted the industry registrations in fiscal twenty sixteen. Now when we adjust for this, we see real underlying industry growth of about 4% to 5% in fiscal twenty seventeen.
That's a really nice, strong projection as we look forward and shows the robustness, I think, of the school bus industry. We are forecasting Blue Bird unit sales growth of between 6% to 8%, outpacing the industry growth and supported in part by the full year availability of all of our new engine choices. How are we doing today? Well, our order backlog and quote activity remains strong, up from last year. And with the seatbelt of our business, we project growth in financial performance, particularly in the second half of the year with higher sales in support of school staff.
You've seen this before. It's typical of our business. Growth tends to happen in the second half of the year as schools gear up for their new buses in support of the new school year. That said, we are continuing to invest in the development of new and exciting products that will foster future growth, and we are mindful of increasing commodity prices, particularly steel. So let's now turn to fiscal twenty seventeen guidance on Slide 18, which reflects these factors.
Growth is projected in each of the three elements in which we provide guidance. We are projecting net sales between $980,000,000 and 1,010,000,000.00 up $48 $78,000,000 from fiscal twenty sixteen. Adjusted EBITDA, we are forecasting guidance at 72,000,000 to $76,000,000 flat to an increase of $4,000,000 Adjusted free cash flow, as you know, continues to be a strong feature of our business model, representing over 50% of our adjusted EBITDA. And we are providing guidance of between 38,000,000 to 42,000,000 an increase of 5,000,000 to $9,000,000 over fiscal twenty sixteen. So in wrapping up, we had a strong fiscal twenty sixteen performance, both operationally and financially, and we met our guidance.
We look to continued growth in fiscal twenty seventeen, and our guidance supports this. We'll continue to update on our progress each quarter. Well, that concludes our formal presentation. I'll now pass it back to our moderator, Kevin, to begin the Q and A session. Over to you, Kevin.
Speaker 0
Thank you, sir. We'll now be conducting a question and answer session. Our first question today is coming from Eric Stine from Craig Hallum. Maybe
Speaker 2
well, you mentioned seasonality and that you expect this year's first half to be flat versus last year's. But just so we're thinking about the first quarter correctly, I mean, is this something where we should also expect a similar first quarter to last year's? Or is it something where because of the gasoline bust and maybe some volumes that flowed into 2017, then it could be skewed a little bit?
Speaker 1
Eric, I when we look at the first quarter, it is such a slow quarter. I mean, you're talking October through December. We have Thanksgiving. We have Christmas vacation. We have shutdown period.
It's right after school start. It tends to be it is by far the slowest quarter. I think the first quarter is looking at last year, it's going to be somewhat similar to last year's performance. So it's just going to be later in the year as we always see.
Speaker 2
Got it. Got it. And can you just remind me how you manage the second shift? Because clearly, I mean, you can handle significant volumes end of the year, just how you manage that in the first quarter and maybe how that plays into your strategy of getting into the commercial bus market and the international market?
Speaker 1
Yes, Eric, this is Phil. We elected to maintain the second shift in the first quarter, albeit at lower line rates. So when the second shift is fully operational in the second half of the year, it's at 70 jobs a day. In the in the first quarter and second quarter, we're we're holding it in the high in the fifties. This allows us to hold on to some people that we spend a lot of time investing in skills.
We don't wanna lose those folks. So there's a bit of a cost penalty probably in holding that, but in the long run, I think we save in in in in efficiencies and quality by hanging on to the skill set.
Speaker 2
Got it. Thank you for that. Maybe could you or just want to turn to, well, the overall market and also what you're seeing. But I know 2016 was relatively quiet in terms of the large contractors and activity there. Any thoughts on what you may see in 2017 on that front?
Speaker 1
Yes. Well, the contractors we deal with we we they're they're still working on what their plans are for the year. Typically, that that will pick up in the January, February time frame. It's early days yet for contractors. Yep.
Obviously, we have a we we typically sold a lot of buses, and we have a great relationship with STI, as you know, School Transportation Incorporated. And, you know, we'll we'll we'll look to do business with them again this this coming year. But I think it'll be more you'll start to see that coming in the second quarter, those orders appearing.
Speaker 2
Okay. I will save that question for later then. But maybe, I guess, one for me, just more high level as well. But with what happened in Tennessee, what was it, about a month ago, There's been talk of seat belt legislation. Curious, is there a retrofit opportunity for you?
Or is this something that I know there's been this backlog of buses that are well beyond their useful life. Do you think that this is potentially something that maybe speeds that replacement cycle?
Speaker 1
It's possible. Here's the thing. We offer seatbelts. We offer lap belts, we offer three point seat belts in all our products. They're all engineered in.
We offer them to school districts as their choice whether they want to take them. We are able to have we offer convertible seats as well. So in fact, you know, we offer seats that can be retrofitted, later on with the with those three point valves. It's up to the customer, to do that. We just wanna give the customer choices and flexibility, and we've been successful in doing that in the past.
And we'll look to continue to do that going forward.
Speaker 0
Our next question today is coming from Mike Bordenstiel from Stifel. Just
Speaker 3
wanted to ask you on the 2017 guidance. It looks like the implied EBITDA margin is showing just a little bit of degradation, maybe 20 basis points or so. Can you just walk us through the change in EBITDA margin from 2016 to 2017? Thought maybe it would have been up with a little bit higher revenue.
Speaker 1
Mike, this is Phil Tighe. We've been a little cautious. We're seeing some upward ticks in in some of the commodities, particularly steel where we've where, you know, the second half of last year was was pretty good for us on steel. We bought very well. We're not seeing that we can hold on to that position, and we think the price levels are gonna go up.
So we're expecting some we're we're expecting to pay more for steel ourselves, and we're expecting to see some pressure coming from some of the suppliers who are heavy steel users. Steel is is really the one that we're we're starting to to focus in on, but there are a number of other commodities that appear to be ticking up during the year. As you know, in the school bus industry, you don't necessarily get to flow through cost increases as they occur. So that's really where we're seeing a bit of margin degradation for 2017 versus 2016. Yes.
Just one thing, Mike, I would say on this is that if you look at the range we gave on the adjusted EBITDA guidance, I mean, we are cognizant of this. As Phil said, we watch it. We're mindful about it. We've sort of been a little cautious, I think, as we put our plan together, and we listed the guidance out there. But we'll continue to as I said before, we'll continue to look at this each time we report on our quarterly results and let you know how it's going.
We had a really good year last year on in terms of material costs. I mean our team worked extremely well with our supply base. We saw a lot of savings there. The question is whether you can hold on to that in fiscal twenty seventeen. So we'll just I think we're being prudent right now.
I think it's the way to do it. We like to come we like to be able to come each quarter and show the solid results, and we'll just take it quarter at a time is the way they look at this.
Speaker 3
Thank you. That's great detail. I also wanted to ask about ASP. It looks like from the guidance, it's implied that it's maybe flattish in 2017 versus 2016. Maybe you can just walk us through how we should think about ASP given that you're selling more propane buses, which are high ASP at the same time, more gasoline buses, which are lower.
Speaker 1
Well, you sort of just about summarized it for us, Mike. Thank you. But so, basically, we do expect to see propane continuing to grow in '17. We we expect to see gasoline probably grow grow quicker than propane because it's still in that launch phase. We saw pretty high demand for it when we first announced it.
That that slipped off a bit when when everybody realized that we weren't gonna be able to provide a lot of the the gasoline buses for the start of the new school year in the August, September period. We're we're seeing a lot of activity around gas and expect, you know, quite a high mix of gas in in fiscal year seventeen. And as we said, you know, the reason we brought gas in to the school bus world is it offers school districts the absolute lowest acquisition price a very competitive ongoing maintenance cost structure. So, you know, the the fact that it comes in at that lower price, and we're expecting to see quite a quite a spike of gasoline in '17 is going to is going to sort of reduce the average selling price. So, yeah, you've got higher propane on one side boosting it up and gas engines on the other side dragging it down, and we sort of ended up back where we started from.
Speaker 3
Okay, great. That's helpful. And then also just wanted to ask, in one of your recent presentations at a conference, you mentioned that you're in the process of upgrading your some upgrading of your dealers is required. Can you just explain exactly what you're doing and sort of how far along you are in that process?
Speaker 1
Yes. There's a few several things we're doing there. I know, we have around, let's say, around 50 dealers dealer principals, if you like, who operate in all the states and provinces across North America. And we're we've put in a very dedicated dealer development activity, working under Mark Terry, our Chief Commercial Officer. And their role is to really work with each dealer to maximize their representation of their individual markets.
And that's really what we do. I mean, it's one thing. This has been a product led recovery, a dealer led recovery, a quality improvement led recovery. I look at all these things we've done over the last several years. Now it's the dealer side, I think you can see this last year.
I mean, fact that registrations in the dealer network was up 18%. We have a lot of dealers who are knocking the ball out of the park. Our very best dealers our very best dealer has a 75% market share in their territory. Our the other end of the spectrum, we're averaging 32% shares. We've got some other dealers below that level.
So our what we're gonna do is work very proactively with with many of our dealers to move them up that market share and increase their penetration. I would also add that we've, been proactive in bringing in new dealers to improve our situation. We just launched a new dealer in South Carolina, Blanchard, replacing Palmetto bus sales. We've been the dealer there for a long time, and we're very excited. Blanchard is also the Caterpillar dealer in that state.
So it comes with tremendous service facilities, great brand name in the state of South Carolina, and has really launched very, very effectively. So it's just gonna be a combination of working with our dealers, together with our dealers, improving their capabilities through everything from new bus sales, u bus sales, parts and service. I mean, our representatives across the state. And where we can and where we need to, we will look at alternative dealers where we if we see that we can't make the progress we want to.
Speaker 3
Our
Speaker 0
next question today is coming from Scott Blumfall from Emerald Advisers. Please proceed with your question.
Speaker 4
Morning, gentlemen.
Speaker 1
Morning. Good morning, Scott.
Speaker 4
Bill, might you be able to give us any more information regarding your progress in the commercial market, maybe some metrics around orders or inquiries or anything like that?
Speaker 1
It's yes, mean, so we gave you. I don't think we're ready yet to give you any declarative statement on where we are. I will tell you this. We're very active on the road with our dealers. We have demo buses demo commercial buses on the road every day of the week visiting customers who are our newer delight relatively new to the Blue Bird commercial bus brand.
And we have been quoting a lot of business in the last two months. These take just take a little time to progress. I think this is a good one, I think, for maybe, you know, upcoming quarters. Scotland, I can tell you the progress we've made. It's very much work in progress right now.
But I can tell you, a lot of interest, a lot of excitement about the product. Customers love the price point that we have for a 50 plus passenger, very nicely appointed commercial bus. And of course, we were at the Buscon Show just about two to three months ago in Indianapolis where we received a little second place in Bus of the Show. The first place is actually the new MicroBird, which is with a unique commercial product. So we we we won that we won the box of the show with that one with a a mid entry door, and we we second place was to our rear engine our rear engine diesel bus, commercial bus.
So I guess what I'll tell you is a long winded way here. A lot of excitement, a lot of interest, early days yet, but we're certainly quoting business and look to give you a good update as the year progresses on that one.
Speaker 4
Okay. And then maybe something might be able to tell us anything about V eight diesel uptake at this point?
Speaker 1
Yes. I mean, the V eight diesel, again, we're quoting that business. Obviously, that business is when you think of the entry level product, it sort of competes with our other entry level product, the gasoline engine. But I'd say both of them, quoting a lot of business. Again, early days.
Here we are in December. I mean, this is a slow part of the season, so to speak. And I think that's something we'll see growing as the as more activity, we get closer to school start. You'll start to those bids pick up and then volume pick it up. But right now, it's it's in the mix.
Every single customer we we we talk to, we always quote, let's give you the VA diesel. Let's show you a price for the gasoline and lot of interest. But, again, early days we had in our in our fiscal year.
Speaker 4
Okay. I appreciate that. Good enough. Thank you.
Speaker 1
Thank you, Scott.
Speaker 0
Thank you. Our next question today is coming from Chris Moore from CJS. Please proceed with your question.
Speaker 5
All right. Thanks, guys. Just I know you don't break out specifics on gross margins, but kind of on a relative basis, I want to make sure that I'm looking at it correctly. So is it fair to say that the propane bus has the highest gross margin and then it would be CNG and then the gas? Or can you just give me a a little help in terms of how to look at that?
Speaker 1
Yeah. That's about right, Chris. The the propane is still the best overall gross margin vehicle. You know, even as the volume has grown, we've managed to maintain reasonable premium for propane versus diesel, and I think that's in recognition of of the the savings that come with propane over the life of the bus. So that continues, I think, to be a a great product for us and a very good investment for for school districts.
If you look at if you really compare gasoline to diesel, the the the thing there to think about is is I think and, again, you've gotta talk specific bids or but I think on a on a an apples to apples comparison, In gasoline, you'd sort of get a lower price, but the same margin as a as a diesel at a higher price. So that that's a way to think about it. CNG is sort of spotty. There's not a lot of CNG buses sold, so it's it's it's a bit hard to really look at it. And CNG CNG sales depend heavily on subsidies that come from various grants.
So the CNG margins can look great, but there's not much volume to them.
Speaker 5
Got you. Okay.
Speaker 1
Chris, one thing I would mention, just on this, I think, just give a little more color and flavor on this is, I'm a huge believer in propane. I mean, I truly believe we talked about being our biggest differentiator. I believe it's the industry's biggest change in the last twenty years. It's, yeah. There's a little there's a premium for it when we price for it.
But the benefits you get, the customers see it, and they understand it. They're gonna say, even today's depressed prices for diesel, they're gonna say it's about $3,000 a year in fuel and maintenance savings. Aside from that, the quietness of vehicle, the cold weather start capability, simplicity of the engine, the lack of expensive and then technically challenging emission hardware makes it a tremendous proposition. So we do charge a premium for it. There's a lot of technology in that product.
We also you know, we we we train our customers how to we saw a ton of training and education. This is why we we can justify that price. When you look at it, though, despite that that premium price, our sales grew 33% last year. 33% in our in our ninth year of offering propane. We grew 33%.
So I think it shows you the the traction this product has and the excitement about it. You can. When you get the right product, you can charge a premium because it's right for the customer. They understand it, they get the payback very quickly, and they got the best technology and best solution on their own. So in a nutshell, like I say, I think it's our it's a product we're very we're very excited about.
And I think the growth we have in that business shows that the customer likes it too.
Speaker 5
Got you. Last question. Again, on seasonality, I know twenty fifteen Q4 was the big quarter, 2016 Q3 and that was obviously impacted by the gas buses in Q4. But any reason to think moving forward that Q3 or Q4 is necessarily going to be the big quarter or could flip flop on a year by year basis?
Speaker 1
I think, Chris, the answer to the question is it will move around on a year by year basis. Quite frankly, I personally, I tend to look at it at half to half rather than quarter to quarter. You know, quarters can get can get really squarely based on on on the timing that orders come in and the delivery dates. I I think you sorta managed to even the pattern out a bit on a half to half basis. I understand that we have to report quarters because that's the way we report.
But if if I was and I tried to point it out on that long and horrible explanation I gave on one of the earlier slides. But but if you look at that if you look at that chart with the four quarters, you know, I I would tend to study those on a half to half basis, if I was you.
Speaker 0
Our next question today is coming from Peter Van Roden from Spitfire Capital.
Speaker 6
Hey guys.
Speaker 1
Morning Peter. Mike Peter, it's a bit early over there.
Speaker 6
Just a quick a couple quick questions for you. On the adjusted EBITDA guidance, does that include any allocation for stock based comp this year?
Speaker 1
No.
Speaker 6
Okay. Got it. And then I'm a little bit I was a little bit curious because if I run the math on your prior credit agreement versus the new one, I I get two much higher cash savings than kind of a $4,000,000 number. So do you guys have to make a payment in the beginning of fiscal twenty seventeen that is causing cash interest to be a little bit higher than the implied savings?
Speaker 1
So so in in in fiscal year seventeen, Peter, to start with, we're we're we're really gonna be dealing with less than a full year, which would reduce the savings maybe by a quarter. And and there are some upfront fees associated with changing over. You know, there's always lots of lawyers to pay. So so so I think maybe that's where we could be So I think that's where we could you could be seeing a sort of a shortfall of what you would expect.
Speaker 6
Got it. And then finally, on the EBITDA margin guidance, it sounds like it is commodities that are kind of holding back margin growth relative to the sales growth that you guys are forecasting. In years when you've seen kind of commodity pressure, is it possible to to try to improve pricing? Just walk us through the the dynamics there.
Speaker 1
We we have seen pricing for commodities a few years back, Peter. I I think if if if commodities do start to spike, there there is an opportunity. We we have to be very careful because, again, this is a big base business and, you know, if the competitors don't follow, that's a problem. But, you know, right now, we're planning for commodity increases based on based on the projections of, you know, of the the firms out there that forecast commodities. And and so we we've got the plan for the increasing prior to really getting any any offset with revenue.
If we if if the increases do in fact occur the way that the indices suggest they might, then I would suggest that probably in fiscal 'eighteen, we'd be looking at a revenue recovery.
Speaker 6
Got it. Okay. Thanks so much.
Speaker 1
Thanks, Peter.
Speaker 0
Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over to Mr. Horlock for any further closing comments.
Speaker 1
Yes. Thanks, Kevin, and thanks to all of you for joining us on our call today. I have to say, I appreciate the questions. They're really good, and I appreciate your continued interest in Blue Bird. I can tell you that we're focused on profitable growth, and we intend to deliver on our commitments.
And we're well positioned today for growth not only in fiscal twenty seventeen but into the future. Please don't hesitate to contact our Head of Investor Relations, Mark Benfield, should you have any follow-up questions. We'll be happy to assist in any way we can. And thanks again from all of us at Blue Bird, and we wish you a good day.
Speaker 0
Thank you. That does conclude today's teleconference. You may disconnect your line at this time, and have a wonderful day. We thank you
Speaker 1
for your participation.