Good day, ladies and gentlemen. Welcome to the Blue Bird Corporation Fiscal 2019 Third Quarter Earnings Conference Call and Webcast. Today's program is being recorded. At this time, I would like to hand the conference over to Mr. Mark Benfield, Director of Investor Relations. Please go ahead, sir.

Thank you, Lisa. Welcome to Blue Bird's fiscal third quarter 2019 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 IR 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 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?

Thanks, Mark. Well, good afternoon everybody, and thank you all for joining us today for our third quarter earnings call for fiscal 2019. We have some great things going on at Blue Bird today and we always welcome this opportunity to share our latest quarter results with you. So, let's start with an overview of those financial results on Slide 4. As the first headline says, we had a really strong third quarter with adjusted EBITDA of $29 million, which is about $5 million higher than the same period last year. That's a 20% year-over-year profit increase. Importantly, this was our fourth consecutive quarter where profits increased over the prior year despite higher commodity costs. I'd first like to set the scene. During this earnings call, you'll hear a recurring theme of how we are driving our overall profit and margin improvement through three distinct key initiatives. First, the bus pricing that we took in late fiscal 2018 to address the escalation in tariff-led commodity costs. This is resulting in significant increases in average bus selling price for us. And as you'll hear later, we plan to price each year to recover economic increases. Second, cost reductions that we are achieving through our transformational initiatives. We saw the results in the second half of fiscal 2018 and we continued to generate further cost savings in every quarter this year, and going forward. And third, continued leadership and growth in alternative fuels, increasing our mix of alternative fuel-powered buses as a percentage of total sales, while we earn a superior sales price and margin, compared with conventional fuel. Our growth in this segment continues to outpace the overall market by a long way. All three of these actions are significantly improving our results over the last year and are cornerstones of…

Thank you, Phil, and good afternoon, everyone. The next few slides are a summary of our financial performance for the third quarter of fiscal 2019. I would remind you that today we are discussing data that's based on a close of June 29 of 2019, for fiscal 2019, and June 30, 2018, for fiscal year 2018. Detailed material will be available in our 10-Q, which we will file tomorrow. We encourage you to read the 10-Q and the important disclosures that it contains. There is some appendix material attached to today's presentation and that deals with reconciliations between certain GAAP and non-GAAP measures that are mentioned in this review. In addition, there are some important disclaimers already mentioned by Mark. There were no new accounting pronouncements adopted in the third quarter of fiscal year 2019, although as previously mentioned, we did adopt a number of new standards in the first quarter and they are discussed in the 10-Q, in note 2. You'll be able to see that when it comes out tomorrow. It's also included in the 10-Q that was published for the second quarter results. Those pronouncements included revenue, leases, pension, hedges, cash flow, and internal use of software. There were no changes to risk factors from the previously published 10-K. So, now we'll turn to Slide number 10 and this is a summary of the third quarter, but for fiscal year 2019 and fiscal year 2018. Phil has mentioned a lot of this data for you, so I won't laboriously take you through every line. I'll just try and add a few insights for you. You can see the unit volume at the top and the fact that it's about 326 units below last year. I would point out that this week we are closing out orders for…

Okay. Thanks, Phil. So, let's now take a focus on the full-year fiscal 2019 outlook and our full-year guidance, and please turn to Slide 15. With recent industry running at 34,000 to 35,000 units, so we are at 30-year highs. And we do anticipate another strong year in fiscal 2019 with industry just around about the same level. As we have consistently said, our plants at fiscal 2019 and beyond focus on achieving significant gross margin and EBITDA margin improvement from three key areas. First, the impact of the cost recovery pricing that took effect in late fourth quarter of last year. This will have a full-year, full annual effect in fiscal 2019 and we saw significant benefit in the first half and third quarter. We'll see further benefits in the fourth quarter. And we priced another 2% across the board last month, and this will benefit fiscal 2020 in offsetting economics. Second, the full-year impact of the transformational cost reductions implemented in the second half of fiscal 2018 and the continuation of those through 2019. Again, we saw the favorable impact in the first half and third quarter of fiscal 2019 and that will flow through obviously into the fourth quarter as well. Now, the next phase of our transformational initiatives includes the impact of our new paint facility, which also enables significant production line rearrangements and process improvements and will increase manufacturing efficiencies and improve quality, particularly as we move into Fiscal 2020. So, this is a significant initiative to impact margins next year. And third, as we have been doing for several years, we will continue to pursue growth and maintain our leadership position in alternative fuels, which command a superior margin and higher customer loyalty. A 53% mix of sales in the third quarter, there's a…

Thank you. [Operator Instructions] We'll go first to Eric Stine, Craig Hallum.

Yes, hello, it's Aaron Spychalla on for Eric Stine. Thanks for taking the questions.

Hi, [Eric].

First for us, obviously congrats on the alternative fuel number. It's really impressive. One thing that caught my eye was just the Volkswagen settlement funding really kind of only beginning now. Can you just kind of talk about what the next steps are there, and when you expect those funds to start to be released?

Yes. Aaron, I expect, like you saw on the slide, you probably saw that the total funds we're talking about for the transit and school bus business, $2.7 billion. Only $150 million have so far been released. And that said, the first phase has been quite tentative in terms of people figuring out where to put the money and how quickly to put it out there. But I think we can expect now, with 47 states having finalized their plans, over the course of the next year, particularly probably from October through the middle of next year, you'll see quite a few phases coming through and probably surpassing, certainly surpassing the amount of money that's been released so far. So, I think we can all look confident to that -- those funds really supporting our industry outlook.

Alright. And then, maybe second for us, just on – you kind of touched on it a little bit, but on purchasing. Can you just talk about what inning you are in, in that respect, and just what the next steps are there?

Yes, I mean, I think we're probably about the fourth innings, really, of a baseball game. A British guy saying that is very confusing for most people, but we're probably on about the fourth innings of our baseball game. I mean, what we did – you know, when we – today we really work very hard on just looking at our current suppliers, commercial agreements, you know. We're recognizing we've increased volume for many of them over the years. We've grown business. So, we renegotiate a lot of commercial agreements and we're able to get significant cost reductions. I think the next phase for us, which gets excited about, is opportunities to look at other markets. We have some significant sourcing studies going on right now and it's – we want to make sure we can bring the best competitive costs with great quality into our business. So, and then you couple that with looking at design cost stack initiatives both with our supply base and internally, which obviously is a little longer runway to us. We see quite a good road ahead for us here. So, I guess what I'm saying was, phase 1 was commercial. Now, we're looking more at sourcing and then we start to turn to design. So, we have a good set of phases here with our supply base.

Alright, thanks for the color there. And then maybe just last for me, I saw a mention of significant new product and feature upgrades under development. Anything new that you can share on what those might be, anything on timing, etc.?

No, not today. I mean obviously, we'd like to keep those confidential. But we will – the first opportunity when we're ready to publicly declare, we'll certainly use this opportunity of an earnings call to tell you what we're doing. But we have some pretty exciting things in our product cycle planned that you'll be pleased to hear about as we go forward.

Alright. Sounds good. We’ll stay tuned. Thanks for taking the questions.

Thanks, Aaron.

[Operator Instructions] Gentlemen, at this time there are no further questions.

Okay. Well, thank you, Lisa, and thanks to all of you for joining us on the call today. We do appreciate your continued interest in Blue Bird. And as you can see by our third quarter results and outlook for the year, we are focused on driving profitable growth and we intend to deliver on our commitments. And I believe are well-positioned for growth today and in the future. So, please, contact our head of Investor Relations, Mark Benfield, should you have any follow-up questions. Our thanks again from all of us here at Blue Bird and have a great evening. Goodbye.

And once again, that does conclude today's conference. We would like to thank you all for your participation. You may now disconnect.