Greetings and welcome to the Blue Bird Corporation Fiscal 2016 Fourth Quarter and Full Year Conference Call and Webcast. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mark Benfield, Director of Investor Relations. Please go ahead, sir.

Thank you, Kevin. Welcome to Blue Bird’s fiscal fourth quarter and full year 2016 earnings conference call. The audio for our call is webcast live on blue-bird.com under the Investor Relations tab. You can access the supporting slides on our website by clicking on the Presentations box on the 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 Horlock; 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 and we’ve made significant progress in fiscal 2016. So, before we cover Blue Bird performance, let’s just 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 half a million school buses on the road of the United States and Canada transporting 26 million children to and from school each day. It is the largest mass transit system in the U.S. and Canada at about 10 times a 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 2016. Let’s turn to slide five. At 32,700 buses, new vehicle registrations for full year fiscal 2016 were the highest since 2007. This was an increase of 9% over fiscal 2015. 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 2016 industry, as measured by [indiscernible] registrations, benefited by between a 1,000 to 1,500 units from the surge deliveries for school…

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 2016 fourth quarter and full year. Just as a reminder, the fiscal year for Blue Bird is a 52, 53-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 October 1, 2016 for fiscal year 2016 and October 3, 2015 for fiscal year 2015. 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-K this week. For any of you 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 thought 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 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, but volume in the…

Okay. Thanks, Phil. So, let’s now our shift our focus now to fiscal 2017 and turn to slide 17 please. As the headline says, we are forecasting continued growth in both industry and for Blue Bird. We are projecting new bus sales growing slightly from 32,700 buses in fiscal 2016 to 33,000 buses in 2017. This is for the industry. You’ll recall earlier that I mentioned how the life between bus sales and registrations appears to have boosted the industry registrations in fiscal 2016. Now, when we adjust for this, we see real underlying industry growth of about 4% to 5% in fiscal 2017. That’s a really nice stronger projection as we look forward and it 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? Our order backlog and quote activity remain strong, up from last year. And with the C part of our business, we project growth in financial performance particularly in the second half of the year with highest sales in support of school starts. 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 busses 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 2017 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 million and $1,010 million, up $48 million to $78 million from fiscal 2016. Adjusted EBITDA, we are forecasting guidance at $72 million to $76 million, flat to an increase of $4 million. 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 million to $42 million, an increase of $5 million to $9 million over fiscal 2016. So, in wrapping up, we had a strong fiscal 2016 performance, both operationally and financially and we met our guidance. We look to continued growth in fiscal 2017, and our guidance supports this. We’ll continue to update you 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&A session. Over to you, Kevin.

Thank you, sir. We’ll now be conducting a question-and-answer session. [Operator Instructions] Our first question today is coming from Eric Stine fiscal Craig-Hallum. Please proceed with your question.

Good morning, everyone. Maybe, -- 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 bus and maybe some volumes that flowed into 2017 that it could be skewed a little bit?

Good morning, Eric. No, I think 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. Surge is going to be later in the year as we always see.

Can you just remind me how you manage the second shift? Because clearly, you can handle significant volumes end of the year, just how you managed that in the first quarter and maybe how that plays into your strategy of getting into the commercial bus market and the international market?

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 first quarter and second quarter, we are holding it in the 50s. This allows us to hold on to some people that we spend a lot of time investing in skills. We don’t want to 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 efficiencies and quality by hanging onto the skill set.

Got it. Thank you for that. Maybe, could you -- or I just want to turn to 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?

Yes. The contractors we deal with, they’re still working on what their plans are for the year; typically that will pick up in the January, February timeframe. It’s early days yet for contractors. Obviously, we have a -- we typically sell a lot of buses and we have a great relationship with STI, as you know Student Transportation Incorporated and we’ll look to do business with them again this coming year. But I think it will be more -- you’ll start to see that coming in the second quarter, those orders appearing.

Okay. I will save that question for later then. But, maybe, I guess last one from me just more high level as well. But with what happened in Tennessee, what was it about a month ago, there has been talk of seat belt legislation. Curious is there a retrofit opportunity for you or is this something that -- I know there has 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?

It’s possible. Here is the thing. We offer seatbelts, we offer lap belts, we offer three-point seatbelts in all our products. They are all engineered in. We offer them to school districts; it’s their choice whether they want to take them. We are able to have -- we offer convertible seats as well. So, in fact we offer seats that can be retrofitted later on with those three-point belts. It’s up to the customer to do that. We just want to give the customer all choices and flexibility. And we’ve been successful in doing that in the past and we look to continue to do that going forward.

Thank you. Our next question today is coming from Mike Baudendistel from Stifel. Please proceed with your question.

I just 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, or if that maybe would have been up, with a little bit higher revenue?

Yes. Mike, this is Phil Tighe. We’ve been a little cautious. We’re seeing some upward ticks in some of the commodities, particularly steel where the second half of last year was pretty good for us on steel; we bought very well. We are not seeing that we can hold on to that position and we think the price levels are going to go up. So, we are expecting some -- we are expecting to pay more for steel ourselves and we are expecting to see some pressure coming from some of the suppliers who are heavy steel users. Steel is really the one that we are starting to focus in on but there are a number of commodities that appear to be ticking up during the year. As you know, in the school bus industry, you don’t necessarily get the flow through cost increases as they occur. So that’s really where we are seeing a bit margin degradation for those 2017 as opposed to 2016.

Yes, just one thing, Mike, I would say on this is that if you look at the range we gave on adjusted EBITDA guidance, I mean, we are cognizant of this. As Phil said, as we watch it, we’re mindful about it, we’ve 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 quarter results that was growing. We had a really good year last year in terms of material costs. I mean, our team worked extremely well with our supply base. We have still a lot of savings there. The question is whether you can hold on to that in fiscal 2017. So, we’re just -- I think we’re being prudent right now. I think it’s a way to do it. We’d like to come -- we’d like to be able to come each quarter and show you solid results, and we’ll just take it in quarter’s time is the way to look at this.

Thank you. That’s great detail. Also I 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.

You sort of just about summarized it for us, Mike. Thank you. So, basically, we do expect to see propane continuing to grow in 2017. We expect to see gasoline probably 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 slipped off a bit when everybody realized that we weren’t going to be able to provide a lot of those to gasoline buses for the start of the new school year in the August, September period. We’re seeing a lot of activity around gas and expect quite a high mix of gas in fiscal year 2017. And as we said, the reason we’ve brought gas in to the school bus world is it offers school districts the absolute lowest acquisition price and a very competitive ongoing maintenance cost structure. So, the fact that it comes in at that lower price, and we’re expecting to see quite a spike of gasoline in 2017, it is going to sort of reduce the average selling price. So, 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 that where we started from.

And then, also just wanted to ask, in one of your recent presentations at a conference, you mentioned that you are in a process of upgrading -- some upgrading of your dealers as required. Can you just explain exactly what you are doing and sort of how far along you’re in that process?

Yes, there are few several things we’re doing there. I mean, we have around let’s say around 50 dealer principals, if you like, to operate in all the states and provinces across North America. And 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. And now, it’s the dealer side, I think you can see this last year, I mean the 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 - very best dealer has 75% market share in the territory. At the other end of spectrum, we’re averaging 32% shares, we’ve got some other dealers below that level. So, what we’re going to do is work very proactively with many of our dealers to move them up that market share and to increase the penetration. I would also add that we’ve been proactive in bringing in new dealers to improve our situation. We just launched our new dealer in South Carolina, Blanchard, [ph] replacing Palmetto Bus Sales who have been the dealer there for 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 is really launched very, very effectively. So, if it’s going to be a combination, working without dealers, together with our dealers, improving their capabilities through everything from new bus sales, used bus sales, parts and service, I mean a representation 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.

[Operator Instructions] Our next question today is coming Scott Blumenthal with Emerald Advisers. Please proceed with your question.

Phil, 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?

It’s early days, 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 commercial buses on the road every day of the week visiting customers who are 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. And these things take a little time to progress. I think this is a good one I think for maybe upcoming quarters, Scott. We can tell you the progress with this, very much work in progress right now. But I can tell you, lot of interest, lot of excitement about the product, customers love the price point that we have for 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 second place in bus of the show -- the first place is actually the new Micro Bird with the unique commercial product. So, we won the bus of show with that along with a mid entry door. And second place was to our rear engine diesel business, commercial bus. So, I guess what I’m telling is a long winded way here, lot of excite, lot of interest, early days yet but we’re certainly quoting business and that look to give you a good update as the year progresses on that one.

Okay. And then maybe something might you be able to tell us anything about the V8 diesel uptake at this point?

Yes. I mean, V8 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 yet, here we are in December, I mean this is a small part of the season, so to speak. And I think that’s something we’ll see growing as more activity we get closer to school start, you’ll start to see those pick up and then volume picking up. But, right now it’s in the mix. Every single customer we talk to, we always quote, let’s give you the V8 diesel, let’s show you the price of the gasoline and lot of interest. But again, early days yet in our fiscal year.

Thank you. Our next question today is coming from Chris Moore from CJS. Please proceed with your question.

I know you don’t break out specifics on the gross margins, but kind of on a relative basis, I want to make sure that I am 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 little help in terms of how to look at that?

That’s about right, Chris. The propane is still the best overall gross margin vehicle. Even as the volume has grown, we’ve managed to maintain a reasonable premium for propane versus diesel, and I think that’s in recognition of the savings that come with propane over the life of the bus. So, that continues I think to be a great product for us and a very good investment for school districts. If you really compare gasoline to diesel, the thing there to think about is I think -- and again you’ve got to talk specific bids or -- but I think on an apples-to-apples comparison, gasoline, you sort of get a lower price but the same margin as the diesel at a higher price. So, that’s a way to think about it. CNG is so to spotty. There is not a lot of CNG buses sold. So, it’s a bit hard to really look at it. And CNG, the CNG sales depend heavily on subsidies that come from various grants. So, the CNG margins can look right, but there is not much volume to them.

Got you. Okay.

Chris, one thing I would mention just on it -- I can just give a little more color and flavor on this because I’m a huge believer in propane. I mean, I truly believe, we talk about the biggest differentiator, I believe it’s the industry’s biggest change in the last 20 years. There is a little premium for it when we price for it, but the benefits you get, the customer see it and they understand it. They’re going to say, even at today’s depressed prices for diesel, they’re going to save about $3,000 a year in fuel and maintenance savings. Aside from that, the quietness of the 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 is all the technology in that product. We also -- we train our customers -- we talk about training and education; this is why we can justify that price. When you look at it though, despite that premium price, our sales grew 33% last year, 33% in our ninth year of offering propane, we grew 33%. So, I think it shows you 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 and they understand it, and they get the payback very quickly and they got the best technology and best solution on the road. So, in a nutshell, like I say, I think it’s a product we’re very -- continue to be very excited about. I think the growth we have in that business shows that the customer likes it too.

Last question again on seasonality, I know 2015 Q4 was the good 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?

I think, Chris, the answer to the question is it will move around on a year-by-year basis. Quite frankly, personally, I tend to look at it at half-to-half rather than at quarter-to-quarter. Quarters can get really squirrelly based on the timing that orders come in and delivery dates. I think you sort of 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 I was -- and I tried to point it out on that long and horrible explanation I gave on one of the earlier slides, but if you look at that chart with the four quarters, I would tend to study those on a half-to-half basis if I was you.

Thank you. Our next question today is coming from Peter van Roden from Spitfire Capital. Please proceed with your question.

Just a quick -- couple quick questions for you. On the adjusted EBITDA guidance, does that include any allocation for stock-based comp this year?

No.

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 get to a much higher cash savings than kind of a $4 million number. So, do you guys have to make a payment in the beginning of fiscal 2017 that is causing cash interest to be a little bit higher than the implied savings?

So, in fiscal year 2017, Peter, to start with, we’re really going to be dealing with less than a full year, which would reduce the savings maybe by a quarter. And there are some upfront fees associated with changing over. There’s always lots of lawyers to pay. So, I think maybe that’s way we could be -- so I think that’s way you could be seeing a sort of a shortfall to what you would expect.

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 try to improve pricing? Just walk us through the dynamics there.

We have seen pricing for commodities few years back, Peter. I think if commodities do start to spike, there is an opportunity. We have to be very careful, because again this is a bid based business. And if the competitors don’t follow, that’s a problem. But right now, we’re planning for commodity increases based on the projections of the firms out there that forecast commodities. And so, we’ve got the plan for the increase in -- prior to really getting any offset with revenue. If the increases do in fact occur in the way that the indices suggest they might, then I would suggest that probably in fiscal 2018, we’d be looking at revenue recovery.

Thank you. We have reached the end of our question-and-answer session. I’d like to turn the floor back over to Mr. Horlock for any further or closing comments.

Yes. Thanks, Kevin, and thanks to all of you for joining us on our call today. I have to say, I appreciate the questions, really good, and I appreciate your continued interest in Blue Bird. I can tell you 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 2017, 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. Thanks again from all of us at Blue Bird and wish you a good day.

Thank you. That does conclude today’s teleconference. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.