Good day, and welcome to the Blue Bird Fiscal Fourth Quarter and Full Year 2017 Earnings Conference Call. 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.

Thank you, Stephanie. Welcome to Blue Bird's fiscal fourth quarter and full year 2017 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 press 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. So, let's get started. Phil?

Well thanks Mark. Well, good afternoon everybody and thank you all joining us today for our final quarterly earnings call for fiscal 2017. It's been a busy year at Blue Bird and we welcome this opportunity to share with you our fourth quarter and full year results. So let's start with an overview of our financial results on Slide 4. Our fourth quarter results were strong. Our bus sales were the highest in the fourth quarter since 2008 with 3,608 buses sold. This represents a strong 9% increase over last year and we saw the same 9% growth in total net sales, amounting to $313 million. A feature of our business is seasonality and it's worth noting that fourth quarter net sales represented 32% of our full year sales and the second half was a substantial 65% of the full year. Adjusted EBITDA was $25.1 million $0.8 million above last year and net income was also strong at $14.5 million, $3.8 million higher than the year ago. So let's shift now to the full year. All three of our key financial metrics either met or exceeded guidance. Net sales at $991 million and adjusted EBITDA at about $69 million were both at the mid-point of our guidance range. At $44 million adjusted free cash flow beat the high-end of the guidance by about $7 million and remains a strong feature of our business model. Net income and adjusted diluted earnings per share were both above last year by $21.9 million and $0.13 respectively. As we look at the underlying strength of the industry and Blue Bird's results our view is that the outlook is positive. First, the school bus industry grew by 6% last year and with about 35,000 new Type C and D school buses sold in fiscal year…

Thank you, Phil and good afternoon everyone. The next few slides that I'll take you through our summary of the financial performance for the fourth quarter and the full year of fiscal 2017. I would point out that there is additional information in the appendix the deals was primarily reconciliations between GAAP and non-GAAP measures mentioned in this review. Detailed material will be available in our 10-K which we expect to file later this week. The material we discussed today is by somewhere close of September 30, for 2017 and October 2 of 2016 for fiscal year 2016. I should report that there were no new accounting pronouncements that impacted Blue Bird in this report and risk factors remain largely unchanged from the previously filed 10-K with only minor reductions to content from prior years in a number of areas. Also please note that there are important disclaimers at the end of the deck. So if we turn to the next slide, this Slide 9 covers summary of fourth quarter results for fiscal year 2017 and compares those results to the same period in fiscal year 2016. Phil as already mentioned, fourth quarter volume was 3,608 units an improvement of 9% versus prior year and the highest fourth quarter sales result in about nine years. Production volume in the fourth was only about 6% lower than the record we achieved in the third quarter and we continue to experience some production challenges caused by an extremely high mix of our popular rear engine bus; these are very complex buses and very labor intensive units. And the high demand in the second half has represented a number of challenges in line balancing and skill management. We also had in the production area a number of issues with timeliness of deliveries and…

Okay thank you, Phil. So as Phil just said let's now move forward and take a look at next year fiscal 2018 and our outlook for that year and our full year guidance. So please let's turn to Slide 17. As the headlines says we are targeting margin growth in fiscal 2018. With the industry of 30 year high, we do anticipate growth slowing, although I have to say we are well positioned and ready to capitalize any opportunity that exist. But we are not banking on the industry surge going forward. With modest Blue Bird sales growth focus at 1% to 2% our focus is on transforming our business structure and improving EBITDA margin to all the mid-term goal of 10% EBITDA margin up from 7% last year. To support this, we are undertaking a significant facility upgrade in fiscal 2018 to derive efficiencies, higher quality and provide additional capacity. This will progress the implemented through fiscal 2018 and into the following year. Additionally we are partnering with insist specialist to attack all cost elements while continuing to work on our passion providing best in class products that want in value. We plan to report progress throughout the year and expect to see the impact of these actions starting in the second quarter. So let's now turn to fiscal 2018 guidance on Slide 18 which reflects these initiatives. Net sales guidance is between $1 billion and $1.30 billion up $9 million to $39 million from fiscal 2017, a fairly modest growth but aligned with the industry outlook. Adjusted EBITDA guidance is now between $78 million to $82 million a significant $9 million to $13 million increase over fiscal 2017 as we focus increasing efficiencies and driving down cost when these hit the bottom line. Adjusted free cash flow is between $36 million to $40 million and continues to be a strong feature of our business model. This represents over 40% of adjusted EBITDA despite the plant facility upgrade investments in fiscal 2018. So wrapping up with the strong fiscal 2017 performance both operationally and financially and we met guidance. We look to profit and margin growth in fiscal 2018 and our plans and guidance support this. We will continue to update on our progress each quarter at these earnings calls. So that concludes our formal presentation. I will now pass it back to our moderator Stephanie to begin the Q&A session. Over to you Stephanie.

Thank you. [Operator Instructions] We'll take our first question from Matt Koranda with Roth Capital. Please go ahead.

Hey guys. Thanks. So it sounds like the emphasis in fiscal 2018 is on margin improvement and you guys are looking to track toward the 10% EBITDA margin sort of long term goal that you have. But just trying to understand how that's factoring into the outlook, because it looks like at the midpoint we're only looking at about 20 basis points of EBITDA margin improvement for the year. So, can you just give us sort of what are the puts and takes around the expectations that went into to building that up and I would expect maybe some tailwinds from higher margin in our fuel power trains but maybe are there some headwinds that we haven't factored in yet here?

Just picking up a little bit, this is Phil Horlock. Just picking a little bit on what you said there, I mean what we look at the margin objective next year is about an 8% margin, I think we were about 7% next year this is in 2017, so we are looking to go into an 8% EBITDA margin. Couple of things going on, obviously we are going to continue to capitalize on alternative-fuel leadership, we're well established there, we'll see new customers everyday coming to us looking for that opportunity, it's a great product for us. We like the margin of that business, and we are going to continue to keep pushing that. I think the emphasis we wanted to get across today is that, this is a plan for 2018 that's really, we're going to focus a lot on cost efficiencies, driving quality, spending, we are spending money in the plant we sort of - if you look at this plant back in 2010 when we were building four or five thousand units a year, we've significantly grown this plant, it's time to invest in it, invest in automation, efficiencies, new processes and they'll also help to take our cost down we believe and then drive efficiencies, we got experts on the ground here today working with us on that. And so I just want to really say to you, it's not that we sort of been somewhat prudent I think on the sales end of it, because I want to show what our emphasis and focus is for 2018, but we are well positioned to capitalize opportunities on the sales side, but that's also realistic recognizing we just come up a 35,000 unit industry well above anything we've seen in the last nine years or so, I think the last time we saw a number that big was in 2007 and then prior to that it was way back to 1985. So, I think we feel pretty strong about where we are and the actions we have in place. But product for us remains critical, we're investing in product, we are not holding back on product and that's the way we win over time in the marketplace.

Okay. Got it. Can you guys quantify the cost that are associated with the production challenges on the Type D units that you've referenced in the prepared remarks and then maybe could you talk in a little bit more detail about the operational improvements that you've made to address the inefficiencies there?

Hey. Matt. This is Phil. The Type D unit efficiency level was probably running in the mid, roundabout the mid 80s percent versus a target of 100. These things can be somewhat difficult to build and we have put a lot of time into training some people to deal with the increased capacity in that area. We did have to spend a lot of overtime work building those units because of the lower efficiency levels. The second part of your question dealt with operational improvements, is that correct?

Yes, that's right.

So, we have taken a pretty wide look at this, again this plant has grown by a factor more than two and it's been quite a while since we actually went through it and took apart pretty much every operating station and decided which is the best way to build. So, we've gone through a significant practice, a significant set of work there. Realistically, you won’t to see the full result of it until later in the year, but we will see improvements through the year as we redesign how material gets to the line and how people work. So, I think that's going to deliver a lot of opportunities for us and it will also free up some bottlenecks that we have discovered as we go forward.

Hey, Matt. This is Phil Horlock. One way to think about this is, as Phil said correctly that when I said before was this has been record production year in Fort Valley, when you hit records you sort of stress the system, you hit more and more of your bottlenecks as Phil pointed out. So one simple thing we're going to do is we are going to put more stations in the production line, give us more chance to have quality checks along the line here, the stations are now less dense, less folks sitting on top of each other in the plant which is what we have had to do, we have got to literally put more people in to build the high demand we've had. So we're going through station by station, with a laying out to better production line for us that we know will be much more efficient for us and it’s rebalancing the entire line and now as I mentioned earlier bring it in assisting tools to help our workers easier so they can have a faster cycle time that helps take capacity up on some of those actions they do. And then select levels of automation along the way as well would be something we're going after. So, we're taking a [Indiscernible] look.

Got it, got it. I guess your comments imply maybe a year where we got a little bit of a higher CapEx spend and I think that foots with sort of what you gave for free cash flow guidance, but could you break out what you expect CapEx to be for fiscal 2018, I guess my back of the envelope says maybe 12 plus million, is that about right?

Not sure we want to go all the way there, Matt, let's just say that we are adding some as Phil just mentioned we are adding some automation and some improved tools and we're also looking at what to do in some of the bigger areas of the plant where high levels of skill are required. There is a lot going on in the plant. The good news is we will do this without losing production. So, we don't have to take the plant down based on our present plan and we will install this stuff while we are still in full production. A – Phil Horlock: I mean Matt, we've spent about $10 million, we sort of tell you I know previously we said we plan on 15, somewhere between 10 and 15, I think we spent about 10 this past year in 2017, it’s obviously going to be above that and I think that will do is as we go through the year we'll inform you more about as we go. Just right now these plans are sort of little fluid towards the end of the year, but we still had a good action plan for the good nine months so we know exactly what we're doing and what are plans are. But we'll sort of fill you in as the year goes along, it will be up on [traditional] [ph] level, you are right looking at that way.

Got it, got it, okay. Maybe one more from me I will squeeze on here and then I'll leave it to the rest of the guys. So the tax reform, I guess there is probably some puts and takes for you guys, if it impacts housing values in some way maybe that hurts the tax take at the local level touch, but then obviously the corporate would be a benefit for you guys in terms of the reduction in the rate. Could you talk about sort of your current views and your analysis as to sort of what the impact would be for Blue Bird and how you factored that into guidance if at all?

Quite frankly Matt. We haven't done a lot on our department apart from REIT what everybody else is reading, I think once we get closer to some sort of agreement between the have sent the Senate, we'll start doing some detailed works with some tax advices on where we'll go. I'm not sure that the housing thing is going to be a big concern for us. It looks like the people who will get really hurt, the people with very expensive places. There is a lot of buses both in areas where the houses where they have, they the deduction will still remain in place. So, it's a little bit too early for us, I would suspect that when we do our first quarter call, we'd probably have a much better feel of at least analytically what we think it's going to do.

Got it, thanks guys. I'll jump back in queue.

Thanks Matt.

[Operator Instructions] We'll go to our next question from Chris Moore with CJS Securities.

Hey, guys. Thanks for taking my questions. So, at the Q3 call, you talked about that there was roughly 200 buses that were going to be built in Q4, not likely shipped until Q1. Can you just -- maybe I missed, give us an update in terms of those buses, did they ship in Q4, are they ready to go now.

About 75 of those did ship actually in Q4. We got them out. But, the balance we will ship in the first quarter of fiscal 2018.

Got you. Okay. In terms of looking at the mix for -- and they will turn to fuel, roughly 52% propane, 45% gas, given trajectory of gas, is it likely that will be more than 50% of alternative fuel sales in fiscal 2018? Is that a reasonable assumption?

I think we still see propane is being the preferred choice, I mean it's still the best TCL model for our enough retailer dealers. We explain that to customers. They understand it. Obviously, I think with gasoline, I think they got the first year of it, you got the early adapters jump in; they jump in quickly. Having said that, I will tell you, we are off to a great start this year without giving the store away. The gas holders have gone really well and what I call the quiet season, the slow season which is traditionally. But, I still think we still expect the propane will be the number one alternative fuel for us. But, we will keep you posted as where it goes through, frankly do I care about it. I like propane. And I liked it a lot. I think it's a great product. So, we do push that hard, because we believe in it. But, if a customers got it is heart set on gasoline, we are going to sell him gasoline too. And actually if we got his heart set on diesel, we will sell him diesel as well. So, I guess hopefully that's helpful to you. But, then the priority for us is, we still think that propane because we believe in it. It's got the best installed base. And that's another important point. We sold just -- last year we sold our 10,000th propane powered school bus. And we just sold our -- obviously, we sold now; we got in the market over 2000 gasoline powered school bus. But, the installed base certainly helped us certainly on propane as people are to renew that business for this.

Got it. Thank you. On the -- skipping a little bit, on the -- so, you just said EBITDA margins mid-point is just about 8% up -- about 100 basis points, is most or all of that soon to be coming from improved gross margins?

That's correct, Chris.

Got it. And last question, just in terms of -- on the electric vehicle side, my understanding is that, at least at this point in time, they are extremely expensive. Just trying to get a feel for, what would have to happen for that to be an important part of the revenue mix a few years down the line?

Well, I mean, you look at -- everything to read about bus and technology. Obviously, the bus is a T-cost of an electric vehicle, you can imagine moving up 33,000 pound school bus that's a lot of buses and the cars. But, with all the reports tells you, in two, three years from now, the buses costs are going to be hard, and then, they are going to come in -- another two years, we are going to have again. I mean, right now, frankly, near-term, it's all about grants and California has certainly led the way and this constantly some grant opportunity as there are to buy electric buses in California, obviously, they are leading the way here on zero emissions. But, we have always seen other cities, other states lower volume selectively follow, lot of interest in Florida around electric powered school buses. So, that's how we want to capitalize I think next year, first of all, where the grants are available. But, we will be selling, what I call specific opportunities that might appear where there is district, once we have zero emissions, wants to show their [indiscernible] that we are going for zero emission solution, and there will be opportunistic sales. But, we are heavily targeting, let's say, first and foremost California, but also Florida is pretty close behind there, is the way they look at it. I think the real big surge is going to be two or three years down the road.

Got it. I appreciate it, guys.

You bet. Thank you.

[Operator Instructions] We will go next to Eric Stine with Craig-Hallum.

Hi, everyone. First, I just wanted to start with the parts business, I know that in fiscal 2017, it's a big initiative and it continues to be in your pricing. Lot of your parts aggressively try to gain share versus incumbents. I mean is there anyway to maybe quantify or talk a little more in detail about the progress made there maybe the share across your dealer network that you've seen, you got with your parts and where you think that can go?

Yes. That's a good question. I think on parts we talked a lot, I think in the past about, parts we think should outperform the school bus growth. I mean, probably should say, obviously we've got a great success in alternative fuel, so that's kind of focus us somewhat on the growth curve. But, I think on parts, the way we look at it is, we also did some things to make us competitive. There are a lot of players out there trying to sell parts to school districts. Lot of suppliers go directly, lot of third-party operators go. Lot of, I call it, no, no, the end parts provide us, like to tap school districts, because guess what, there are over half a million school buses out there. But, we have been doing is, we have been very aggressively -- we have been adjusting parts price and make them competitive. Doesn't it simply mean, we cut the price with a lot of supplier, negotiate a new price in many cases. What has happened is, we certainly seen a significant up tick, I would say in the number of parts that we are selling through our dealer channel. If you see a volume apart through our dealer channel, it's significantly up. Obviously, that comes out a little bit, because we have lowered the revenue. But, what we're going to do, get our installed base. And I think we will succeed in that regard. We got more SKUs out there that we've never had before. You look to alternative fuel. You probably know this, but, when you look at the way that the industry goes, on the diesel side of the business through Cummins, the transmission are through Allison, which is the big piece of a chassis. Those guys control the distributors, the parts business. With the four products, we have exclusivity and sell those products, at a very competitive prices, so we can sell Ford engines, be it propane, gas, CNG, we can sell the Ford transmission. So, I do think that's a -- as we continue to grow this proportion on alternative fuels, we also continue this to grow disproportionately, the parts opted in those segments. But, we are still very bullish on parts, we track the revenue per UIO, which means we look at every single dealer, think of it, we have 50 of those dealers across this country. We track every revenue on part or unit in operation that dealers market area and I can tell you, it's growing everywhere versus where it has been in the prior years, so we feel very comfortable on the right track.

Okay. That's helpful. Thanks for that. Maybe just two more quick on alternative fuels, I appreciate you've given the number of new customer for Blue Bird because of all fuels, I don't -- I think that maybe the first time you have given that number. But, just curious, I mean from a high-level, if you don't want to be too specific, but break that down between propane and gasoline, I mean, are the majority of those gasoline given that you've got a huge head start, the only one in the market or are some of those customers propane, given your leadership with that product?

Well, there is both. I mean, you got both in there. I'm not going to give you the break. I would just say obviously, I said earlier we have a large installed base -- a fairly large installed base of customers who are still with propane. So, it's a good thing as we've got a lot of repeat business, you might recall, I said this is the highest loyalty of any product to the marketplace. So, by definition, loyal customers keep coming back to us. Would it been the first year of gasoline, obviously, we did grow significantly, customer base through gas, but we also grew significantly through new propane customers. So, it really was bolt, and these are all gas customers. And talked with all the old guys, what it has been before, it was a good blend of both.

Okay. And maybe last one from me, you touched on this relative to electric, but just curious on natural gas and some of the funding in California from the cap and trade program, if you are seeing any request or demand, or any thoughts that you might have the near zero Cummins less part engines is part of your offering?

Well, on the CNG situation, first of all, just stepping aside from it, I mean the thing is CNG from a standpoint of -- we are actually -- we have been over the years the market leader in compressed natural gas. But, when we look at it, I mean, you can see the propane that sells it over 10 to 1 and the reason being because of things like infrastructure you got to put in place, the sheer cost of upgrade, the tanks, for propane it was compressed or Kevlar-coated, it's a very expensive upgrade. Economically it is tough to make it work. Now, you mentioned the cap and trade and the virtual zero emissions, that's some product information, I really don't want to get into. But, put it this way, we are going to be competitive; we are going to be very competitive.

Yes. I just know, I mean, yes, it's a very small part of the market, but it is an area that I have been keeping snaps on, and there is some potentially some very significant money, so just wondering, I mean it seems like that could be a bigger part of your mix going forward so. Okay, thank you.

We will be competitive. I can tell you that. Yes, absolutely. Thanks.

With no further questions, I would like to turn the call back over to Phil Horlock for any additional or closing remarks.

Okay. Well, thank you, Stephanie, and thanks to all of you for joining us on the call today. I have to say, we do appreciate your continuing interest in Blue Bird. We are focused on profitable growth and intend to deliver on our commitments. And I think we are very well positioned for future growth today and in the future. I've said several times in this call today. We have a passion for product because in the long run, products are what wins with our customers. So, please don't hesitate to contact our Head of Investor Relations, Mark Benfield, should you have any follow-up questions. Mark is always here to help you. And thanks again for [voting] [ph] to Blue Bird and wish you a good evening and I should also add happy holiday. Thanks everyone.

This concludes today's call. Thank you for your participation. You may now disconnect.