Good day everyone and welcome to the Blue Bird Corporation Fiscal 2020 Second Quarter Earnings Conference Call. As a reminder, today’s conference is being recorded. At this time, I'd like to turn the conference over to Mr. Mark Benfield, Executive Director of Profitability & Investor Relations. Please go ahead, sir.

The audio for our call is webcast on our websiteblue-bird.com under the Investor Relations tab. You can access the supporting slides on our website by clicking on the presentations portion of our IR landing page. Our comments today include forward-looking statements that are subject to risks that 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'll hear from Blue Bird’s President and CEO, Phil Horlock; and CFO, Phil Tighe. Then we will take some questions. Let's get started. Phil?

Well, thanks, Mark. Well, good afternoon, everyone and thank you for joining us today for our second quarter earnings call for fiscal 2020. Before I jump into the presentation, I would like to give a brief introduction on how I assess our position today. A lot has changed since our first quarter earnings call in January, and these are clearly not normal times. But let me just state that Blue Bird is well positioned to weather this unprecedented pandemic or will continue to grow and thrive in the long run. We're in a very strong financial position with ample liquidity. We have a history of robust cash generation, a culture of winning and leadership in growing segments, a fully defined multi growth strategy, an experienced team with a proven track record of delivering results and handling difficult times. COVID-19 has not change any of these factors. As you will see shortly we had a great second quarter result. We expect the third quarter volume will be down from last year has not surprised anyone. All this has slowed and schools being closed since mid-March and shelter-in-place mandates established throughout the U.S. and Canada. However, as states reopen and school transportation teams return to work, we expect to see new bus orders increase with higher fourth quarter production in support of school staff. We have strong business fundamentals, as evidenced by our year-over-year profit growth in each of the past seven consecutive quarters. We have taken austerity measures to preserve cash. We increased our revolving credit facility as an insurance measure, and we acted swiftly and decisively to protect our employees and to secure our supply chain. So we continue to build and deliver buses to our customers on time. In particular, I'd like to give a special thanks to our…

Thank you, Phil and good afternoon to everyone. It's my pleasure to be able to share with you the financial details of Blue Bird's second quarter fiscal year 2020. The material that we are discussing today is a close of April 4 of 2020 and March 30, 2019 or fiscal year '19. Detailed material is available in our 10-Q, which was filed today. and the attention which was filed today. We encourage you to read the 10-Q and the important disclosures that it contains. You'll note that we have included two new items in our 10-Q filing. First is a discussion about the potential impact with COVID-19. This is included in both the MD&A and as a new risk factor. The major issues at Blue Bird and most other companies face is uncertainty on many levels, demand, availability of funds to buy products, safety of people and supply of components. As Phil, has mentioned the uncertainties have forced us to throw products system in 2020. We also included the subsequent event. And so -- he's already touched on this, Blue Bird, did go other way banks syndicate for an increase to our existing system revolver. We have recently successfully closed the Second Amendment and the revolver is now at about a $142 million, up by $42 million from the prior level. We see this as prudent planning to ensure adequate liquidity in most potential risks scenarios. The appendix attached to today's presentation deals with reconciliation between GAAP and non-GAAP measures mentioned in this review, as well as important disclaimers already mentioned by Mark. There were no significant accounting pronouncements adopted in the second quarter of fiscal year of '20. So now let's move to Slide 12, then take a look at a summary of the results for the second quarter.…

Thanks, Phil. So let's now cover the fiscal 2020 full-year outlook. Turn to Slide 17. As the headline says, we are accompanying our ability to weather the storm well experiencing. But the economic and market outlook remains uncertain. This headline isn't unique to Blue Bird as we’ve seen many companies given the same message over the past several weeks. But we are confident in our ability because as the second quarter results show, Blue Bird's business fundamentals remain strong. As we continue to deliver on our profit growth strategy, as we have done so over the past two years. Turning to the market, it's worth noting that customer demand remains very high for new school buses. 25% of the U.S. and Canadian fleets of buses are 50 years of age or older. This represents more than a 150,000 buses that customers want to replace. So customer demand is very high. The limiting factor is funding availability. While property values and property taxes still continue to be the major funding mechanism for school buses, and are expected to remain strong in the near-term, the impact of lost state sales taxes and state income taxes could impact overall intestate funding for education, which includes school buses. The precise impact on potential federal government assistance are unclear. Although the recent [indiscernible] funding action provided $16 billion in late April to assist in education needs for K-12 public schools. However, if we're putting into context the size of school bus expenditures, this is the total annual cost of education for K-12 public schools. Out of that $2 billion a year, the annual capital outweigh the new school bus purchases typically represents less than 0.3% of the total capital and expense budget of $700 billion for education in the United States. I think it's important…

Thank you, sir. [Operator Instructions] And first we'll hear from Eric Stein with Craig-Hallum.

Hi, everyone. Thanks for taking the questions.

Hi, Eric.

So you just mentioned it a little bit on the funding side, and I know that near-term, some of the issues, it's more about timing rather than availability. But even though it's a small part of spending, school spending, talking about school buses, I mean, what are your thoughts long-term, given municipal budgets stretched, given what's going on right now? Is that something that you feel like would be relatively insulated from maybe some of the other needs of a municipality, or how do you think about that?

Well, I think, Eric, that's why we talk about withdrawing guidance at this time. Truly, tough this to say. I think what the outlook is. This are just starting to reopen. States are reopening. Shelter-in-place are being lifted, we're going to see what the outlook is. The federal government, did they have an appetite to support the states? Because obviously states have lost significant amounts of sales taxes with -- over the last couple of months or so. State income tax have been obviously impacted, too. So I just -- we don't see how that plays out. I mentioned that there are relatively small piece of what the school budget is for a bus purchase. It only just to give a reference point there, because our major funding mechanism, 70% of school bus funding they stole from property taxes. We expect they'll stay high. Housing prices are still holding up, the collection of those bumps is critical for our bus business. So we're just going to see how these rides are. Obviously, we've taken out 10% to 12% this year from a full industry outlook. So that's the near-term look. We just got to see how the government reacts. and when budgets start to get released, the first sign of that will be in June time. Typically, that's when education budgets for schools are set and approved by school boards. And that then triggers the buying of buses late in the seat to support school schools. So we should start to see that in the next four weeks or so and get a replay of what the Prichard report. You're right now like everybody else -- I’m just else on just that. We just we can conjecture. We can try and do a forecast, but we have just limited information, I think, at this point. So if this thing is move so rapidly on this. I do. I hope I get that confidence. How do you feel confident into the balance of this year that we will. We'll see an increase in volume, an increase in the requirements coming through from June onwards to support school staff new to the bosses. I don’t think that will happen.

Yes. Okay, thanks for that. And maybe just turning to cash generation. Obviously you're pulling guidance and your previous guidance you've been talking about for the last three quarters of the year, generating, I think, $120 million. I mean, I know, with that with strong guidance, a lot of uncertainty. But just any commentary on the cash generation expectation going forward? I mean, clearly, that's still a big objectives and very likely for you. Is that fair to say?

Eric, this is Phil. The other Phil. So cash generation of true month. The traditional source, which is sales, which will be down as we get through at least the third quarter, and the fourth quarter, still a little hard to predict. As Phil said, we want to get a lot of input on that until we -- in terms of some of the school budget stock here, well, it's open

We did mention in the call that we’ve put a team in place to reduce a lot of our cash spending for the balance of the year. I've got a target of $40 million initially, and I've identified all of the items to get to that target. So we're very comfortable that they will succeed. And if need be, we will squeeze that a bit more. But I still say that we will we will have positive cash in the second half and we just can't predict exactly where.

I get that. I mean, it sounds -- I mean, yes, uncertainty, but I mean from a high level, the typical pattern of, you know, that first quarter there's a big usage and then that flips for the remainder of the year. It sounds like that's still in place.

Yes. Okay Well, I think maybe like for me. [Indiscernible] I mean, well, yes, I'm always down. I think a combination of more volume. But we have been working on these cash preservation, cash conservation initiatives and cash generation, so I will call them generation, will [indiscernible] call then. We will call distribution cash flow positive this year. We don’t anticipate we are eaten into our base core business. We are -- we tend to be positive this year and we will see that unfold. But we have plans in place to do that. And that's a go.

Okay. Got it. Last one for me. One of the unintended consequences is COVID. I think it's just more of a focus on the environmental side. Any thoughts about you, given your leadership position in alternative fuels, the ability to pick up share as: things "normalize" whatever that looks like going forward?

Yes, we certainly always wanted to pick up share. Nothing when you look at the, fact that even in a bumpy last month of the year, in the last quarter we just had, we still pick [indiscernible]. We got a quite a bit of conquest business, which, frankly, is scheduled for us. Elements from the call is 65% market share for us in terms we feel it actually is up a little bit from last year and we're almost 80% on propane. So we always try to emphasize those products, which is great for the environment. It's great for the children who ride our buses. It's the right thing to do. And the fact we've grown yet again, a significant seven percentage points up in our mix in this last quarter, I think bode well for us. So, yes, we intend to keep trying to go forward and see if we can pick up share because what I call in school district business. That's our bread and butter business selling directly to our schools -- through our dealer channel, to the school district. So that's our goal, to keep pushing on that front.

Okay, thanks.

Thanks, Eric.

[Operator Instructions] Next we will hear from Craig Irwin with ROTH Capital Partners.

God evening and thanks for taking my questions. So your prepared remarks seemed to point to your confidence in a V shaped recovery. And a strong inflection up out of what you've been working through right now. Can you maybe share with us the specific data points that give you this confidence and this optimism about the next few months? And second part of the question is what portion of your production slots for the fourth fiscal quarter recovered by orders in hand? And how does that compare to last year?

Well, let's take without give you specific, because we want to get to some specific on what we call our bookings and backlog and where we stand today. I think if you look at the decline we are showing in the industry projection. That's pretty much what we see right now in our bookings and backlog. And that's what's really happened in the last couple of months as well as pandemic has really taken hold. So that number of -- it was a 10% to 12%. It's probably about where we think we would we'd be looking to be down. And that's what we're seeing right now at that pace. In terms of where we are right now to filling our slots were worried to July. So we are not we don't know our volume in the third quarter. We know what we have to build there will fall through June and we're still in July right now. We've got August, September, and I'm three weeks in July. So to go that's where we are. When it comes to optimism and want to look at, this report was we talked to transportation directors. I mean, these are the guys who are out there every day trying to keep kids safe from the other guys who buy out buses. You don't get a guy to talk to their school boards about what their needs are. And these are dealer network as well as our seats on the ground out there. In terms of real hard data points, we look at property values. We correlate our business [indiscernible] is very closely with property taxes. As values homes still stay high. I mean, collapsed in the last couple of months. We remain optimistic about that being the major funding mechanism as I said before though, the bigger knowledge [indiscernible] state budgets. They're clearly our sales tax revenue, we lost that Income tax. We don’t quite know what the federal government's going to do to support that. What we found interesting was, last week of April, as I mentioned on in my comments earlier, the cast funding did allocate $16 billion to education. The public school, which is pretty powerful, pretty powerful dividend act. So quickly in this pandemic process. So I think looking at that, house prices, talking against countries, obviously wait to see as June unfolds and hearing what are school boards approving for their budgets for this year, for this coming year. That's the most important thing. Virtually all states finalize their budget through June and release funds in July, beginning of July. So that's hence the four to six weeks I talked about when things will become very clear for us.

Great. Thank you for that. So the most important question on the minds of your largest shareholders and the institutions that look at your stock are the parallels back to the financial crisis. Seven, Eight, Nine. It took a few years, actually, a handful of years to us for us to actually scraping the bottom in overall school bus sales in the market. Is there anything that you would point to specifically that would have this be a shorter duration, the obvious onset of COVID and the pandemic and work from home for everybody has obviously been much more abrupt. But can you point to anything that would point to a more rapid bottoming process and potentially a much shorter process of us finding the bottom in the market than that handful of years from similar to last time?

Yes, let me take that one. I’m sure Phil will have some comments on this too. But when the last crisis happened in 2008, it was driven really by the banking financial crisis. I mean, that's what I learned about credit default swaps and all sorts of things going on. We learned about, people I have a mortgage and I'm foreclosing. And that took a while to actually to bed it and house prices precipitously fell between 2008, and the trough for us was 2011. We lack significantly, because it took a good three years for house prices to hit the bottom. And that was a foreclosures increase and defaults on mortgages occurred. You had people defaulting on their car loans. I mean, also say we don't we aren't in that situation here. That because that is the major funding that the school buses. So once property taxes fell, we saw eventually over that three to precipitous drop from the 35000 units we sold in 2007 to about 24,000 units industry in 2011. And then we clawed our way out of that as housing prices recovered. The difference is here we don't see a precipitous drop in housing prices. We just don't see anyone talking about that, we researched it. We've talked to some of those experts to look at that thing. This is a different issue. This is a pandemic that shut business down significantly from the last two months. I look it that way. And we're all trying to get out of the states we reopen. I think the other factor is remains to be seen what the federal government does. I mean, the federal government reacted quickly with a stimulus package. In fact they supported education, quickly, got $16 billion injection from the CARES funding. I think…

Okay. Looks like there's got nothing else to say, okay?

That’s all right. Question number new

I think and you covered it thorough but there's a really big difference between the state funding from the central state coffers driven by sales tax and income tax and the property tax funding. And Phil mentioned, the property taxes is about 70 % of the funds for school buses. The reason it took so long to come back in the last one is that once property taxes bottomed, it took some years to get back to the prior levels. And quite frankly, we are a little ahead of the prior levels now. We think that with the state income and sales tax, that can come back pretty quickly as long as the states can get up and running. relatively shorter term that there's no doubt that it will probably be bless because there'll be a lot of businesses to get hurt. But the majority of it should get up and running much more quickly than the curve for the rebound on property taxes, which took, as you rightly pointed out, three or four years.

Okay. Thank you for that. Thank you. So my last question I wanted ask is about the ability to flex spending. So you've obviously been really proactive in managing your expenses. And, issue and the SG&A number in the March quarter is obviously testimony to tightening the screws and doing what you need to do. Can you maybe talk specifically about whether or not you saw a waiver from the EPA for the environmental obligation you have to meet next year with a new engine package? One of the things that you've been investing in and whether or not you've made a decision yet about whether you would defer the investment in the next generation bus actually the lower cost to manufacture, of higher reliability design that you guys have been working around for the last number of quarters as you design the future.

That's a very specific, competitive question to us. And then, given -- talking about our product plans and what we’re going to try. We try and stay clear at that. We announced things already. I will tell you this. We talked to the EPA regularly. We talked to CARB regularly, when we looked at our [indiscernible] Ford or ROUSH CleanTech. They’re obviously connected very closely. So, yes, we will do whatever it takes to ensure we meet all the requirements and with meet him on a basis that recognize the environment we operate in. That's all we want to say on that matter this time. I think it's a good comment you've asked. Unfortunately, I can't get into too much details for competitive reasons on that one.

Completely understood. Congratulations for the strong deliveries number. And you guys should be commended for the proactive stance on cost controls and positioning for this market. So congratulations again for the quarter.

Thanks very much. I appreciate that. Thank you.

And there are no further questions at this time. Mr. Horlock, will turn the conference back over to you for any additional or closing remarks.

Yes. Thank you, Millender, and thanks to all of you for joining us on the call today. We appreciate the continued interest in Blue Bird. As you can see by our second quarter results, we made significant progress on multiple fronts and we will work our way through this COVID-19 pandemic adapting and restructuring as needed and we will continue to thrive and grow profitably over the long-term. I have no doubts about that. We've got a great team who's focused. Before I drop off the call though, I want to take the opportunity to thank my colleague and friend for more than 25 years. He's on the call today, Phil Tighe. After eight years of CFO Blue Bird, Phil will be stepping down from his role at the end of May. It's been a real pleasure to bid on this [indiscernible] with Phil, taking Blue Bird from a privately held company to a public company in 2015. I'm also be obliged to say that Phil won't be leaving us, but we'll be staying on a consulting capacity, working with me and our leadership team on strategic issues and special topics. I want to thank Phil for his endless number of contributions during his time with Blue Bird. I want to wish him all the best. Many of you on the call got to know Phil well over the past few years and I'm sure you share my sentiment. Please feel free to give him a call and thank him for everything he's done for us. So as Phil moves, I'm pleased to recognize that Jeff Taylor will be coming in as the new CFO effective July 1st. Jeff has enjoyed many years as a public company CFO, most recently as CFO of Wabash, and actually was on our call today. Jeff will be a great asset to our company and I'm sure many of you will be meeting him over the coming months. So thanks, Phil, for your terrific service to Blue Bird and welcome, Jeff, to the school bus business. And thanks to all of you for joining the call today. We're well positioned for dealing with this pandemic that faces us and we look forward to continued profitable long-term growth. So please don't hesitate to contact our Head of Profitability & Investor Relations, Mark Benfield, should you have any follow up questions. Thanks again from all of us here at Blue Bird and have a great evening.

That does conclude today's conference. We thank you for your participation. You may now disconnect.