Good day, ladies and gentlemen and welcome to the Blue Bird Fiscal 2018 Fourth Quarter Earnings Conference Call and Webcast. Today’s conference is being recorded. At this time, I’d like to turn the conference over to Mr. Mark Benfield, Director of Investor Relations. Please go ahead.

Thank you, Keith. Welcome to Blue Bird’s fiscal fourth quarter and full-year 2018 earnings conference call. The audio for our call is webcast live on investors.blue-bird.com. You can access the supporting slides by clicking on the Presentations portion of our IR website. Our comments today include forward-looking statements that are subject to risks and may cause actual results to be materially different. Those risks include, among others, matters we have noted in our latest earnings release and filings with the SEC. Blue Bird disclaims any obligation to update the information in this call. This afternoon, you will hear from Blue Bird’s CEO, Phil Horlock and CFO, Phil Tighe. Then, we will take some questions. Let’s get started. Phil?

Okay, thanks, Mark. Well, good afternoon, everybody, and thank you for joining us today for our fourth quarter and full-year earnings call for fiscal 2018. It's been a very busy year at Blue Bird, and all of us love this opportunity to take you through our latest quarterly and full-year results. So, let's start with an overview of those financial results on slide four. Our fourth quarter results were strong, and I'm very pleased with the progress we've made this year. Our unit sales were the highest in the fourth quarter since 2008, with 3,757 buses sold. That represented a 4% increase over last year. And correspondingly, we saw a 6% growth in total net sales, which amounted to $332 million. The high growth in net sales versus unit sales reflects a richer product mix and to a lesser extent, the pricing action we took late in the year to address the rapid escalation in commodity prices. Now, a feature of this is seasonality. And it's worth noting that fourth quarter net sales represented 32% of our full-year sales and the second half with substantial 64% of our full-year. Our adjusted EBITDA grew 16% or $4 million over last year to a strong $29 million, which is a solid 9% EBITDA margin. It was also our best fourth quarter result for more than 10 years. As Phil Tighe will show you later, we achieved this improvement despite escalating steel and commodity prices, as we drove fourth quarter cost reductions through our transformational initiatives, which we mentioned in our prior earnings call. Adjusted net income and adjusted diluted earnings per share were both significantly higher than the fourth quarter a year ago, up $12 million and $0.40, respectively. On a GAAP basis, both net income and diluted earnings per share also…

Thank you, Phil, and good afternoon, everyone. The next few slides are a summary of our financial performance for the full year and also for the fourth quarter of fiscal year ‘18. You will find additional information in the appendix that deals with the reconciliations between GAAP and non-GAAP measures mentioned in this review, as well as some important disclaimers that have already been mentioned by Mark Benfield. Detailed material will be available in our 10-K, which will be filed early next week. We encourage you to read the 10-K and the important disclosures that it contains. The material we are discussing today is based on the close as of September 29, 2018 for fiscal ‘18 and September 30, 2017 for fiscal 2017. There were no significant changes in our critical accounting policies or in our risk factors versus the previously filed 10-K. Let’s now take a look at the summary of key results for the fourth quarter on slide nine. Phil’s already talked about volume. Fourth quarter was a very good quarter for Blue Bird. We hit 3,757 units, up 4% versus prior year, and importantly our best fourth quarter in more than 10 years. As Phil already said, we achieved a 47% mix of alternative fuel buses in the fourth quarter, up about 7 points from the prior year and 47% is our record to-date since we started our leadership of the alternative fuel industry. Our net revenue, you can see, was $331.6 million, up about $19 million versus the prior year. It was up for both bus and for parts; both of them were up by about 6% year-over-year. The year-to-year increase for bus was about two-thirds driven by volume and the balance was due to a combination of higher average revenues for our buses. The average…

Okay. Well, thanks, Phil. Thanks for that. So, let's now focus on the fiscal 2019 outlook and our full-year guidance and turn to slide 16. Just talking about the industry first. Recent industry trends running at 34,000 to 35,000 units annually, we are at some 30 years highs on the industry, and we do anticipate another strong year in fiscal 2019. So, the industry is probably around 35,000 units; that's where we think we're going to be. But, we see continued growth in housing price and property taxes being a big factor there along with new funding from the VW settlement fund that will support our position. So, I think, all-in-all, we don't see this industry turning down; we see it solid, strong and continuing. The demand is clearly there. Now, our plan for fiscal 2019 is focused on key elements of improving gross margin and EBITDA margin from three key areas. First, is the impact of the cost recovery pricing that we took in late fourth quarter to address the escalating commodity costs and freight costs that Phil clearly showed you in the bridge earlier. This will have a full annual benefit in fiscal 2019. Second, the full-year impact of the transformational cost reduction initiatives that we implemented in late fiscal 2018. And again, I think you clearly saw those, particularly on that fourth quarter bridge, you saw the improvements we were making later in the year. Well that obviously will have a favorable full-year effect as we move into 2019. And we're going to continue that initiative too. This is a key thing. This isn't just for one year and it's over. We are continuing to do that and run it throughout our organization. And third, the plant facility and process improvements we are making to increase manufacturing…

Thank you. [Operator Instructions] We’ll take our first question from Eric Stine with Craig-Hallum. Please go ahead.

Hi, everyone Thanks for taking the questions. I mean, maybe just starting with alternative fuels and I know that, you’ve been pretty clear about the expectation that because of the VW funding that propane, some volumes pushing into fiscal ‘19. But, it’s still the gasoline number being I think 600 more or so than the propane number for fiscal ‘18. Does that do anything to change your view that longer term propane is probably the higher component of the overall mix or is that changing a little bit that you think gasoline actually could be the one -- could be number one for you?

Well, I mean, it's a good question; I mean, they've both done extremely well obviously for us. And gasoline probably exceeded our expectations to be honest. I think, there's quite a bit of pushback against the complexity of diesel. Everyone understands gasoline is pretty easy. What we've been seeing though this year is even some of our guys who first got into gasoline two years ago who haven't actually tried propane, they now are actually trying propane. So, I think, gasoline is actually finding us a good leading tool for getting someone into a less familiar alternative fuel such as propane. I honestly believe I think all the time there's no question to me, we're going to see the pressure on NOx emissions, the pressure on total cost of ownership. Propane is the best product; it really is. And I think I really truly believe that we've seen it consistently that folks in school districts are waiting to say, “look I’ve got VW money coming; it's coming later in the year.” And gasoline by the way is not funded by the VW settlement. You can't buy a bus with VW settlement funds for gasoline. You can buy propane, compressed natural gas; you can buy electric; you can buy the clean diesel. So, I do think, we've seen it clearly time after time, people say, I'm just going to hold off on my propane because I've got some money coming for that, but I'll take a gas bus right now. So, I feel very confident about both. And I think over time, you'll see propane I think recovering that trend and growing heavily in next few years.

Got it. And then, in terms of the revenue guide and it sounds like you're -- given that the industry is near its high and say maybe not an uncharted territory, but pretty strong that you're being conservative. I mean, are you -- maybe how are you factoring in VW funding into that guide, I mean, knowing that that funding is going to play out over a number of years?

[Technical Difficulty] at this stage is I am just feeling what you said I'm being somewhat prudent. I mean, we have a pipeline and we track very carefully where the money is off of VW by state. I mean, we go out to reach one of those; we've been working with our partners at ROUSH CleanTech on the -- for the propane and CNG side of the business. And I think, we just -- we'll manage the pipeline. I think as we go through the year, we'll keep updating you on where things stand.

Okay. Fair enough. And last one for me, just on the EBITDA guide. Maybe just talk about the puts and takes. I mean, it looks like you're guiding to around 8% to 8.5% margin, fourth quarter you just did 8.8%, and you really have had very minimal impact from the price increases. I mean, is that -- where you said it is, is that based on what you alluded to right at the end of your comments that there is an operational -- when the paint shop comes on that might impact some volumes and might impact some things operationally, or is there something else to factor into where you’ve said it?

Yes. I think what we've done is -- let's talk about our paint shop issue first. You are absolutely right. What we've done is we've been prudent to recognize the intent to get launch losses. You don't turn a paint shop on and start building 65 buses a day and paint it. You start it off building two or three or four. I think, mean, we may have some losses that we can't recover during the fiscal year, just because our capacity on line we might get, we just might be limited. So, we've been prudent on that. That's why you see that move downtick there on the sales side. What I think -- what was the second part of your question? I am sorry. What's was the second part you asked me?

Well, just is that the reason? I mean, is that the primary reason for it or are there other things we should factor in? Because you still haven't really gotten the impact of the price increase.

Yes. I think, that's a market environment thing. I wanted to make it stick and we've got it on every vehicle now that pricing. Again, we're going to keep you updated in every quarter. I think, I want to picture -- I would actually portray this year ‘19 as obviously, our goal is to improve the margins, you hit it right. I'd like to be at the least at mid 8% some, such around that number on the margin, 8.4%, 8.5% on our pathway to 10%. It's very much a -- the way we put the guidance together, it's a very much, I call it a cost-led margin improvement plan. Now, if we can pick up on the revenue too, and you are right, we've set ourselves some good pricing end of the year; that will help us as well. But right now, we're sort of just -- at this early point of the year, the only juncture of the year when we just first put in guidance out there. This is in our control. So, we know our cost, we know our cost basis, and we feel comfortable reporting this guidance out. And as I say through the year, we'll keep updating you, [indiscernible].

[Operator Instructions] We'll go next to Matt Koranda with Roth Capital Partners.

I wanted to clarify the revenue outlook. So, industry units look like they're up about 1,000 units for fiscal ‘19. You're putting through pricing. It sounds like you have customers that potentially use VW settlement money, which I assume would be a positive, but maybe you're not counting on that yet. But the revenue guide is essentially kind of flat to down a touch. I know you alluded to and you just kind of talk about paint shop and then potential production inefficiencies, but does that mean that you're just taking less that you’re going turn away bookings this year to be prudent and cautious on the startup? I mean, just clarify that for me.

Well, what we're trying to do is I said I will push them out. So, we may have slipping some of those into fiscal 2020 is a way to think about it. And last thing I want to do is tell a customer we're not going to take care of you. And obviously, I also want to recognize that we're committed to improving the margins here. And so, I mean, when I look at the business deals we've got, if we are going to be somewhat more constrained on capacity, because we got a lower paint shop capability initially, we're going to be somewhat selective too in the business we bid on, a little bit -- probably a little more. But right now, we're seeing how it goes. We're on track with our paint shop. We're feeling good about it. And I did use the word prudent in there for a reason. Obviously, it’s not first time we put guidance at this. So, we're very mindful of this. I mean, I’d rather minimize many of those launch losses and take every opportunity we can get, Matt. But right now, that's what we choose. We chose to put, show it this way and just recognize there may be some launch losses along the way.

And then on the EBITDA outlook, I mean, maybe could you guys walk us through -- I mean you provided the waterfall charts for the fiscal year ‘18 EBITDA walk, but is this possible to sort to get a walk to '19 based on the midpoint of your $80 million to $85 million in EBITDA guidance for the year?

We don't. Matt, this is Phil. We don't normally do that. I think, what we'll do is think about providing it on a quarterly basis. On a fine level though, we will have -- unless something changes, we will continue to see some escalation of new tariffs coming out of China. So, we have to be a bit prudent worrying about that. We'll be looking at steel. And while it's nudged down a little bit versus the height that it gets in 2019, it's still substantially above where it was in the first half in fiscal year ‘18. So, we think we may see a little bit more there. We are starting to see fuel prices down versus the high level they got to in fiscal year ‘18. And yet, they are still up a bit. And as you’ve read undoubtedly, OPEC is talking about cutting capacity. So, that could lead us to a higher fuel price again. On the trucking industry, we've started to see that there's some easing in the capacity, but we haven't seen it right at the present time. So, I think, all-in-all, we know we've got a lot of good news coming in cost. We are, as Phil said, being fairly prudent on how we measure sales going forward until we see how the paint shop launches and how some of the other things move. So, we could have some negative news in there. And then, we’re obviously protecting against any other cost increases that come around us.

Hey, Matt. I know -- I don’t know what the last guidance we sort of put a visual out there for ‘19. I think, we did put numbers on it, put some bars on I think on the bridge that we did, remember that we did that. I think, what I would characterize a bit in line with this, if you think about a bridge, we're going from ‘18 to ‘19, how do I get from $10 million to $15 million up, if you look at the market, what I call the market, particularly the volume and the pricing sort of offset, there might be a little -- if we've got some launch losses that take a bit more price initially about washout, that will be neutral. At the same time, you're going to see economics below the chart, because we -- obviously there is a full-year effect of economics too, the steel impact, the tariffs came on sort of in the midyear. So, now having said that, the future look pretty good to us. I mean, they were better than they are right now. But nevertheless, they're probably -- there is some additional economics we think. But, as Phil showed you, our transformational cost reductions that we took, those initiatives that took place were very much second half of the year. So that -- we know that's going to exceed the economics. That's the way to look at it, flat on the market practice, negative below the line on economics, but a big bar going up I guess on cost reductions, which we're in control of. We feel good about it, because we've done a lot -- we've already done the vast majority of that. That's already implemented.

That’s helpful, guys. I mean, I was kind of thinking about it in terms of -- I guess you referenced only 0.5 a year of sort of transformational cost initiative, efficiencies all that stuff in the $26.5 million that you got. So, if I just sort of apply roughly that as a plus up to the 70 in the bridge, then that sort of -- and I assume flat pricing and economics, then you’re still factoring in, I guess a fair amount of headwind from material economics, it’s going to how I was think about it. Is that a way to characterize it?

Yes. It’s a good way, Matt. But remember that the big increases in commodity costs, also come here in the second half of our fiscal year. So, we will see that as well.

Right. There is still some residual left over. Okay. And then, lastly, just in terms of the free cash flow outlook. Could you help us with CapEx? I mean, it’s down substantially in ‘19. And you referenced some spending initiatives in paint shop and everything. But what exactly is CapEx in your guidance?

Hey, just one second. Got it. I mentioned about CapEx being up in '19, because that's where we're really going to finish, finalize the paint shop.

We can that offline?

No, I mean, again, it's something we don't tend to report at this point because of ‘19. But, it's certainly higher than ‘18. So, the vast majority of the paint shop spending, we're going to see in ‘19.

And think about it this way. What we've done thus far is put up the majority of the building for the paint shop. Now, the expensive stuff that goes into the building has been paid for. Yes.

We currently have no further questions in the queue. [Operator instructions] We'll take our next question from Chris Moore, CJS Securities.

Yes. Maybe I could just stay on the EBITDA a little bit longer. So, just from a big picture standpoint, the 10% that we're talking about in fiscal ‘20, is that -- are you still looking at that as kind of cost driven versus ‘19 or is there more assumptions in terms of a little bit revenue leverage that's coming from there? Just trying to understand, the timing in ‘19, obviously not all of that cost benefit is going to be shown, but trying to understand kind of big picture where the incremental increase could come from.

Yes. Okay, I want to take a crack at that, Chris. Yes. I mean, when we look at -- we have a three-year plan we put together and '19 is like the mid-point of our three-year plan is where we looked at ‘18, ‘19 and ‘20. When we look at ‘20, the transformational initiatives, they're going to carry through, the sort of thing, we are implementing things in ‘19, will have their full-year effect in 2020, particularly on the through design side of our business that we're working through right now. We've appointed the leader of that. We feel good about that. So the transformational initiatives will definitely continue to grow, improve our margin through to 2020. And the other thing is I'm confident we'll continue to increase our mix of alternative-fuel vehicles, which do carry a better margin for us. And we've shown a consistent track record to do that. I think, we will continue to do that. So, those are the two main pieces of it. And I think we when you look at our product lineup that we've got, I mean, we have just such a broad range of [indiscernible]no one else has, I feel confident about the opportunity continue to acquire customers and grow the business. So, grow the business, alternative fuel mix, and the continued focus on cost reductions. That's our bread and butter I think for 2020.

Got it. And just one -- maybe we can do this offline. In terms of share count for -- that you're looking at for next year after the buyback et cetera, what's the reasonable number to be looking at?

Hey, Chris. I’ve got actually more, I can share with you after the call.

Fair enough. All right. I think that's it. Thanks, guys.

Thanks Chris.

We'll take our next question from John Sullivan with Olstein Capital Management.

Hi. Just not to belabor the CapEx comments. But, I was just curious as to once the paint shop and some of the initiatives are done, maybe heading into 2020, what’s the more normal level of capital expenditure?

Maybe $15 million to $20 million a year; probably about $20 million. The things we want to do, I think, what we've been doing in the paint shop, we realized the things we'd like to do to upgrade this plant and keep it going. So, I think, we'll look at maybe peak in at $20 million, low point $15 million as a range.

At this time, we have no further questions in the queue. I would like to turn the conference back to your speakers for any additional or closing remarks.

Thanks, Keith. This is Phil Horlock, again. I want to thank everyone for joining us today on the call. We do appreciate your continued interest in Blue Bird. And I think we had some great comments and great questions that we had. We are focused on profitable growth and we intend to deliver on our commitments, particularly around the margin improvement area. That's the key growth initiative for us this year and next year. And we're well-positioned for growth today and I believe in the future. So, please don't hesitate to contact our Head of Investor Relations, Mark Benfield, should you have any follow-up questions. Thanks again, from all of us at Blue Bird, and have a great day.

Ladies and gentlemen, this concludes today's conference. We appreciate your participation.