Blue Bird Corporation (BLBD) Q3 2020 Earnings Report, Transcript and Summary

Greetings and welcome to Blue Bird Corporation Fiscal 2020 Third Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Mark Benfield, Executive Director, Profitability and Investor Relations. Thank you. You may begin.

Thank you and welcome to Blue Bird's fiscal 2020 third quarter 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 Jeff Taylor. Then we will take some questions. So, let's get started. Phil?

Okay. Well, thanks Mark. Well, good afternoon everybody and thank you for joining us today for our third quarter earnings call for fiscal 2020. Before I jump into the presentation, I'd like to give you a brief introduction on how I assess our position today. The third quarter was a difficult one. With employee concerns over the coronavirus pandemic and supplier shutdowns causing Blue Bird to close its plant for two weeks, schools were also closed and transportation employees were sheltering in place. School boards were deliberating over plans for school start in the fall and new bus orders were delayed significantly. Let me state, however, that Blue Bird is in a strong financial position with ample liquidity. We have a history of robust cash generation, a culture of winning, and leadership in growing segments, a clearly defined margin growth strategy, and an experienced team with a proven track record of delivering results and handling difficult times. And COVID-19 has not changed any of these factors. Fourth quarter volume will be up substantially from the third quarter although still significantly down from last year. The delay in new bus purchases is being driven by the uncertainty surrounding COVID-19 impact in the school classroom and consequent decisions by many school districts to extend online teaching at least through the first semester. However, when schools begin to reopen for in-classroom teaching, we expect to see increased demand to replace the aging school bus fleet and we are well-prepared to handle that. We're continuing to drive business structure improvements despite the pandemic impact as evidenced by higher unit revenue and lower costs in the third quarter, which has been a consistent pattern over the past two years. And we have taken austerity measures to preserve cash and improve profitability and our liquidity is very strong at over $100 million. Importantly, though I'd like to give better recognition to our incredible employees for their commitment and dedication put to Blue Bird during this pandemic. Despite these unprecedented challenges, I'm so proud of the positive attitude and outstanding morale of the Blue Bird team in ensuring we stay open for business and continue to deliver buses that will keep our children safe and our company healthy. So, with that introduction, let's move on to slide four and take a closer look at the state of our business. As the headline says, while we are dealing with market and industry challenges, we are confident in the state of our company as we continue to improve our business structure. The challenge that we faced during the third quarter were entirely the result of the coronavirus pandemic. As a result of increasing employee concerns and supply plant closures, we elected to close our plant in early April for two weeks. And then after reopening, we had to deal with continued supply disruption that impacted our production efficiencies causing additional overtime, rework, and expedited freight. The good news is that is now substantially behind us. With uncertainty over classroom start in the fall, the slower order intake continues through the first half of the quarter. Consequently, we have lowered our industry volume outlook for fiscal 2021 to 28,000 to 29,000 new buses from the recent highs of 34,000. It's important to note these challenges were and still remain very significant, but they're temporary and we'll get through this. We'll just have to deal with them and importantly, position ourselves to be stronger when the industry recovers. In that regard, we made a number of positive strides in the third quarter. We deployed strict countermeasures against COVID-19, protecting our employees, ensuring 100% business continuity after restarting production. We took the opportunity to move to a single production shift on June 1, and this has been a seamless transition with significant productivity and quality gains. And we'll expand the daily capacity by January 2021, enabling us to meet any bus demand increases for the second quarter of fiscal 2021. Supply chain disruptions also eased significantly as we ended the third quarter, although we do continue to aggressively monitor and address material supply risks on a daily basis. Our three-pronged margin growth strategy namely, pricing for economics, growing in alternative fuels and reducing structural costs delivered strong results again this quarter as it has for the past two years. On the cost improvement and cash generation side, in addition to the transformational structural cost reductions that we have discussed with you each quarter, we have initiated significant additional plans to achieve annualized cost savings of $15 million, mainly through cutting SG&A expenses and also cash preservation actions totaling a further $40 million in the second half of fiscal 2020. I will cover this in more detail later. And finally, I can tell you that our production slots are filled for the balance of the fiscal year and fourth quarter unit sales are expected to be more than 40% higher than in the third quarter. All in all, we are facing up the challenges of COVID-19. And importantly, we're positioning Blue Bird to be stronger and more efficient when demand recovers. Let's now turn to Slide 5 and review the key financial results. Not surprisingly and as most companies are reporting, our third quarter financial results were significantly impacted by COVID-19 and were down from last year. At about 1,950 buses, our unit sales were down 1,472 units from last year. That's a decline of 43%. Now about 500 units of that decline were a result of the two-week plant shutdown that we were forced to take. Similarly, net sales of $189 million were 39% below last year. But on a positive note, our average bus selling price was a substantial 9% above last year at $92,700 per unit. That growth in selling price is a cornerstone of our margin growth strategy and it's working. Adjusted EBITDA of $12.5 million was $16.6 million below the same period last year, more than accounted for by the lower unit sales. Importantly, the third quarter profit was only $200,000 below the second quarter, despite selling 650 fewer buses and incurring additional copper-related costs of about $4 million in the third quarter. This is strong evidence that our business structure continues to improve and that our plans are working and delivering results. Adjusted free cash flow for the quarter was $30.3 million negative compared with $1.7 million positive last year. The adverse change from last year is primarily explained by lower trade working capital, as we ran with higher inventory throughout the quarter to protect the supplier disruption together with lower adjusted EBITDA. Our trade working capital position and adjusted free cash flow will improve significantly in the fourth quarter as we run down our raw material inventory. Consistent with the decline in adjusted EBITDA, adjusted net income and adjusted diluted earnings per share were down $40 million and $0.53 respectively from last year. Operationally, there were three significant results in the second quarter that bolstered our profits and are the cornerstone of our margin growth strategy. First, at 47% sales mix for alternative-fuel-powered buses, we beat last year's third quarter record by one point. I am really pleased with that result in a down market and we remain the undisputed market leader in the fastest-growing segment of the business. Second, we saw earlier that the pricing we took in July 2019 to recover economics is holding and is a key contributor to our $7,300 increase in average unit per selling price versus last year. I should also add that we took additional pricing at approximately 1% across all buses earlier this month. Third, our transformational initiative to reduce structural costs, encompassing purchase material, bus design and manufacturing are delivering ongoing savings and are on track. And finally, with liquidity at $102.5 million at the end of the third quarter, we are in a strong position to weather the COVID-19 pandemic. Overall, the third quarter was extremely challenging with COVID-19 entirely responsible for the lower volume and supply disruption. However, I am very pleased with our team's underlying operating accomplishments that will improve our business structure and importantly make us stronger going forward. Let's take a closer look now at our alternative-fuel bus sales performance on slide 6. Despite the adverse impact of COVID-19 and slowdown in bus orders, our mix of alternative-fuel-powered buses remained strong at 48% of our bookings and firm order backlog the same as last year. Our market share is as strong as ever in this segment and is presently running at 64% for the fiscal year through June. Now as a measure of our strength in this area let me provide you with a market share breakdown by fuel type. We are number one in propane with 75% market share. We are number one in gasoline with 58% market share. We are number one in electric with 51% market share, and we are number two in compressed natural gas with 46% market share having sold just 12 fewer buses than a competitor. Now that's what I call leadership across the Board. Significantly 291 customers have purchased or ordered alternative-fuel buses from us for the first time ever this year. That's on top of more than 400 customers who tried our new alternative fuel options last year for the first time. Importantly, our alternative-fuel powered buses have enabled us to conquest new business from our competitors, bringing 113 new customers to the Blue Bird family so far this year. These are compelling facts. And with the higher customer loyalty we achieve from these products, it's a great endorsement of our exclusive alternative fueled buses the Blue Bird brand and importantly our dealer network. So far this fiscal year, we have either sold or have firm orders in hand for more than 160 electric buses and we expect more to follow with all the customer interest we are seeing for the newest addition to our alternative-fuel lineup. Now there's a lot of interest and buzz around electric-powered vehicles be it buses, be it trucks or be it cars. But there's a lot of hype too from companies that haven't delivered a single product to date. Well that's certainly not the case at Blue Bird. We are building and we're delivering electric buses today and have been doing so for the past two years. We are the broadest EV range in the industry with Type A, Type C and Type D offerings and we are number one in market share this year. We are very excited about our electric bus growth opportunities going forward. Looking ahead, the vast majority of the VW mitigation funding is still ahead of us too and will help us boost sales over the next three years or so with many states earmarked it specific funds for school bus purchases. We are really pleased with the success we've had so far with our propane and electric buses from the funds that have been issued. So in summary, I'm very proud of our strong and undisputed leadership position on alternative fuels. We have the best partners, we have the best products and they're exclusive to Blue Bird. And with less than 15% of school districts having purchased an alternative fuel powered school bus today, we have plenty of runway ahead for continued growth in this area. So let's now change gears and turn to slide 7 and spend some time looking at the profit improvement and cash conservation initiatives that we launched specifically to address the COVID-19 pandemic. As the left box shows, we are implementing a cost reduction plan to generate $15 million in annualized savings. The savings comprise of two key elements; an approximately 15% reduction in SG&A costs, targeting compensation and benefits and organizational restructuring. We have already begun this process and expect to have this wave of annualized cost savings substantially in place by the end of this month. The second element comprises of the annual savings in production related costs with a movement to a single production shift, which was implemented in June. As mentioned, both initiatives are expected to increase profitability by $50 million annually going forward. Turning to the right-hand box. Actions conserved cash totaled $40 million and will be realized by the end of this fiscal year. First, we have shifted our capital spending plan to well below last year's level and below our original plans. Second, we have been successful in securing early payment for sales to a large fleet that otherwise would have covered as a receivable for several months. That's a great effort by our treasury team. And third, we have implemented a number of compensation and benefit-related reductions, including pension payments and payroll tax deferrals and lower income tax payments. As you will see later, these fiscal 2020 cash austerity initiatives are a significant contributor to the strong adjusted free cash flow outlook for the fourth quarter. These are ongoing initiatives to partially address the impact of COVID-19 on profitability and cash today and we will continue to update you on our progress. So I'm now going to turn it over to our CFO, Jeff Taylor, who'll take you through our third quarter financial results in more detail, then I'll be back later to cover the fiscal 2020 full year outlook and wrap up the formal presentation. Over to you, Jeff.

Thanks, Phil, and good afternoon to everyone on the call today. It's my pleasure to be able to share an overview of Blue Bird's 2020 third quarter financial details. We closed the third quarter on July 4, 2020, whereas our prior year close was June 29, 2019. We expect to file the 10-Q by the end of day Thursday, which includes additional details on our quarterly performance and other important disclosures. The appendix attached to today's presentation details the reconciliations between GAAP and non-GAAP measures mentioned today, as well as other important disclaimers already mentioned by Mark. With that, please refer to slide nine and I will review the key results for the quarter. The current operating environment was unlike any that the company has faced in the past, due to the global pandemic. It was a challenging quarter for us, with the manufacturing operations shutdown for the first two weeks in April, in response to supplier disruptions and as a precaution to protect our employees. Additionally, supply shortages and disruptions persisted throughout the quarter. Nevertheless, we responded swiftly by taking precautions to protect the health and safety of all Blue Bird employees while concurrently taking cost control actions to protect our liquidity and balance sheet. As Phil mentioned, we are taking additional cost control actions, as the pandemic continues, resulting in delays to schools reopening. Third quarter volume was 1,948 units, 1,472 units lower than the prior year, due to the order disruption caused by COVID-19. Consolidated revenue of $189.2 million was down $119.6 million, or 39%, compared to the prior year quarter. Bus net revenue of $180.6 million was down $111.6 million, driven by lower volume. Bus net revenue per unit, however, was approximately $92,700 which represented a strong $7,300 per unit increase from the prior year. This increase was driven by three primary factors: one, pricing actions taken in July of 2019 to offset the impact of inflation; two, a strong mix of alternative-fuel buses, notably a higher mix of electric vehicles; and three, a successful program that we implemented to improve the revenue on each sale. We're pleased with the improvement in ASPs as we've been able to achieve. Parts revenue for the quarter was $8.6 million, representing a decrease of $8 million, as maintenance facilities were broadly shut down due to the COVID-19. Gross margin at 11% was approximately 240 basis points lower than the prior year quarter. The decline in gross margin was almost entirely the result of cost impacts in our plant caused by COVID-related items, including supplier shortages and disruptions, higher freight costs to expedite materials and components, the two-week unplanned shutdown at the beginning of April, increased cost to clean and sanitize our facilities, cost of personal protective equipment for our employees and other costs related to the current operating environment. As a comparison, gross margin, when adjusting for COVID cost, would have been approximately 15% or 150 basis points above last year at normal volumes, which is indicative of the productivity and efficiency improvements that we've implemented. Selling, general and administrative, or SG&A, of $17.8 million for the quarter was down year-over-year by $3.2 million, as a result of lower engineering expenses and cost actions implemented earlier this year. Third quarter GAAP net income of $1.3 million was $13.3 million lower than the prior year consistent with the decline in gross profit. On an adjusted basis net income was $4.4 million down $14 million versus last year. Adjusted EBITDA of $12.5 million was down $16.6 million compared to the prior year, which I will cover on the next slide. The adjusted EBITDA margin was 6.6%, a decrease of 280 basis points. The deterioration versus prior year is more than explained by the reduction in volume and the impact of COVID as previously discussed. Diluted EPS of $0.05 per share was $0.5 worse than the prior year. Adjusted diluted EPS at $0.16 in third quarter of 2020 was $0.53 worse than prior year. Weighted average diluted shares were $27.1 million versus $26.7 million shares last year. Liquidity was $102.5 million at the end of the third quarter. We feel like we are well positioned in terms of liquidity to manage the business in the current environment and weather any further Corona virus disruption. We have taken a number of measures to augment our liquidity levels. As discussed on the second quarter call, we amended our credit facility on May 7 to increase revolving commitments from $100 million to $141.9 million. We cut our anticipated capital spending by roughly 1/3 and took advantage of several of the CARES Act relief mechanisms that will allow us to defer payroll tax and pension contribution outflows. We've also cut back on travel and other discretionary spending items. Moving on to Slide 10 which is the third quarter adjusted EBITDA bridge on a year-over-year basis. As you can see the volume impact of negative $20 million is the big driver and there are some other smaller impacts as well. Pricing and economics were up $3.7 million and transformation initiatives were favorable up $2.3 million. Efficiencies and OpEx were favorable by $4.6 million with OpEx being the biggest portion. As we mentioned last quarter, our manufacturing operations transitioned to a single shift in June and we expect to capture further benefit of this change in the fourth quarter. The COVID impact in the quarter was negative $7.3 million which includes the 2-week shutdown, supplier disruptions, higher rates of absenteeism which drives increased overtime, and increased cost to protect our employees. Let's now move to slide 11, talk about free cash flow. In the current environment, we are highly focused on cash generation and maintaining a strong balance sheet. This slide details our free cash flow bridge for the quarter. Fiscal year 2020 third quarter adjusted free cash flows were negative $30.3 million as compared to $1.7 million in the same period last year. The use of cash in the quarter was a result of; adjusted EBITDA was lower by $16.6 million year-over-year, higher trade working capital of $39.3 million. This was primarily driven by higher inventory levels as we increase safety stocks to manage the supplier disruptions we were experiencing. We expect to recover the majority of our inventory increase from the prior year-end in our fourth quarter as we implemented specific initiatives to improve trade working capital. Cash interest costs were $1.8 million in the quarter, capital spending was $2.5 million, down almost $5 million from the prior year quarter and taxes were a refund of $2.0 million. Finally the net change in other accrued expenses was a negative $1.2 million for the third quarter. Moving to Slide 12, cash at the end of the third quarter was $12.5 million, $16.5 million lower than last year. Debt of $22.4 million was up by $11.5 million. The higher debt level is more than explained by the revolver balance of $45 million at the end of the quarter compared to our $20 million revolver balance last year. Net debt was $209 million at the end of the quarter. Our net debt leverage ratio for the third quarter was 3.3:1 which is still below the 3.75:1 threshold, however, it increased in the quarter as a result of lower EBITDA. To summarize our financial position, we are operating in unprecedented business conditions, however, we acted quickly and decisively to lower our cost and improve our liquidity. Actions like transitioning to a single-shift manufacturing operation and expanding our revolving credit facility are proving to be impactful. We are well positioned with ample liquidity to manage the business in the foreseeable future. The backlog is set for the remainder of this fiscal year and we remain focused on executing three key strategic elements: number one, improving pricing; two, lowering costs; three, alternative fuels industry leadership. With that, I'll turn the call back to Phil Horlock who will describe the outlook.

Thanks Jeff. So let's now summarize the four business priorities that we are focused on today at Blue Bird. Turning to slide 14. First is the safety and well-being of our employees. We have taken significant measures to protect our employees from COVID-19 and have established a rigid protocol that has served us well to date both in our plant and our office buildings. We'll continue to explore new techniques and technologies to further assist in ensuring our employee safety and health are at the forefront. Needless to say a safe and healthy workforce is key to our business continuity and we have an incredibly loyal and dedicated team of professionals. Second, is annual pricing to recover economics and the introduction of new products and features with a 9% increase in average bus selling price in the last quarter, which includes pure pricing, a richer vehicle mix and higher option take, we are confident in our capability to price annually. Third, is our relentless focus on driving down structural costs through our transformational cost initiatives, which by the end of this year will have delivered more than $50 million in savings since we started three years ago. As you saw earlier, we are supplementing this program with targeted reductions in SG&A specifically in the area of compensation and benefits and organizational restructuring. And fourth, our continued growth in the mix of alternative fuel powered school buses where we benefit from higher margins and increased owner loyalty compared with conventional fuels. Our leadership position across all of these fuel types indicate our strategy is working and we look forward to continued strong growth in the years ahead. And as I mentioned earlier, the rapidly growing interest for electric buses is a really exciting opportunity for us at Blue Bird. Pursuing these opportunities is fundamental to achieving our EBITDA margin target of at least 10% in the near-term and we are setting the foundation in our business structure to achieve this target while dealing with the unprecedented impact of COVID-19 today. Let's now turn to slide 15 where I'll cover the financial outlook for the fourth quarter and full year. At the last earnings call as many public companies had done, we withdraw full year guidance because of the uncertain economic outlook. With fourth quarter production slots now full, however, we have a good visibility on the expected fourth quarter sales and full year financial outlook. The outlook for the three metrics on, which we typically provide guidance are shown on this slide. With fourth quarter unit sales projected to be more than 40% above the third quarter. Fourth quarter net revenue is projected to be between $250 million to $275 million with the full year outlook between $848 million and $873 million. Adjusted EBITDA for the fourth quarter is projected to be between $16 million to $20 million with a full year outlook between $49 million and $53 million. And the adjusted free cash flow range for the fourth quarter is forecasted a substantial $66 million to $82 million as a result of the cash generation initiatives that I covered earlier and the trade working capital improvement as inventory runs down in the fourth quarter. The full year outlook is predicted to be between $16 million negative and breakeven. So let's now turn to slide 16 for the wrap-up. As our headline says, we are confident in our ability to weather this storm that we're all experiencing but the economic and market outlook remains uncertain. This headline isn't unique to Blue Bird as we've seen many companies giving the same message over the past few months. But we are confident in our ability, because Blue Bird's business fundamentals and business structure improvements continue to be strong. Our three-pronged margin growth strategy of pricing, reducing costs and increasing mix of higher margin alternative fuel buses is working. The latter could not be accomplished without differentiated and class-leading products that are market disruptors namely our expensive and exclusive range of alternative fuel powered buses. We successfully moved to a single shift operation late in the third quarter that will deliver increased productivity and higher quality and will meet future demand needs. This is a great example of Blue Bird restructuring its business in response to a difficult time and making us more competitive going forward. While the school bus industry is down this year and is likely to remain so, until we see an increased resumption of in-classroom teaching, actual customer demand for new buses remains very high. As 25% of the U.S. and Canadian school bus fleet are 15 years of age are older. This represents more than 150,000 buses that customers want to replace with funding availability and school facility reopening being the limiting factors. As I mentioned on the prior earnings call, it's worth putting into context the size of school bus funding versus a total annual cost of education for K-12 public schools. At about $2 billion a year, the annual capital outlay for dual 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 to recognize this point when we think of funding availability for new buses with property taxes being the major source. It's a very small portion of the education budget. So in summary, despite the current industry challenges, we haven't lost sight of our mission, to grow profitability and increase EBITDA margin to at least 10% in the near term. To this end, we'll continue to drive improvements across all elements of our business, thereby improving our underlying margins and will report on our progress each quarter. That concludes our formal presentation. I'll now pass it back to our moderator to begin the Q&A session.

Thank you. Ladies and gentlemen, at this time we will be conducting a question-and-answer session [Operator Instructions] Our first question comes from the line of Eric Stine with Craig-Hallum. Please proceed with your question.

Hi, everyone.

Hi, Eric.

Hey, so I noticed in your presentation, it looks like you're planning to increase production or that it's in place for the second quarter of fiscal 2021. And just curious, I mean is that based on maybe feedback you're getting from your dealer network or customers? Or is that a target that you've got in place now and then as time goes by and as that gets closer you'll have a better indication if that is when you start to see some pick back up again in volumes or some of the recovered volumes based on timing? Any thoughts on that would be great.

Yes, Eric, this is Phil here. Yes I mean that's really our plan to – that's our production plan to increase capacity following a couple of actions we're going to take in the October shutdown and Christmas shutdown period, so we can really handle any surge in volume that will come because despite the fact with this COVID-19 environment, there's no question, there's always a surge in the second half of the year. And with some uncertainty now with obviously school – many schools being out with online teaching and being closed. And obviously, as soon as we get through this pandemic and cases start to slow, we know schools want to reopen. We want to be ready for when that happens because they're going to want buses. When schools open, they're going to want buses again. So we just put a plan in place recognizing the first quarter is always traditionally our lowest volume. We can handle that with the current capacity. We want to be ready to meet any demand surges that occur from the January, February time period onwards.

Understood. Understood. Okay. Maybe just turning to the paint shop. I know that you've got that ramped up. Early on you had some issues. I think it was the outside rail that perhaps you were outsourcing, you cook that in in-house and that things are going well. Maybe an update on the paint shop. And maybe is there a way to quantify, what type of impact that had on the margin strength this quarter?

Well, yes. I mean, first of all the paint shop, we've been making subtle changes all the way through this year. For example, I'll give you one comment that we had actually been running – I think we've told you this before, we've been running our old paint shop to put the primer on the bus and then put the top coat in the new paint shop because it was a compatibility issue we were seeing with the quality of the paint versus the new robotic paints job. We've overcome that now. In fact this – just this last six weeks, we are now completely painting every single bus through the new paint shop both the primer and top coat. It's called wet-on-wet system. So it's still -- we put a primer on and go straight into the top coat. We never touched that bus between the two coats, like we're doing previously. And, certainly, we're seeing definite productivity gains, less rework required because of that, which is what we wanted to see. I think you're going to see the full year effect of that really coming in as we get through into October with our new fiscal year. So a few things we want to do through the October shutdown. And that will benefit us as we go forward into next year. As far as impact this year, it's probably a little too recent to quantify what that is. I think there's certainly a few hundred thousand dollars of benefit we're seeing from that, but the big benefits we'll see will be as we get into next fiscal year, frankly.

Got it. Okay.

So we'll talk about -- as we talk about plans for next year, you'll start seeing our year-over-year plans, we'll, sort of, make an effort to talk about that, as we go through our results.

Okay. Sounds good. Maybe last one for me. Just on the price -- the ASP increase there. And I know alternative-fuels and, specifically, electric and maybe I missed it in results or in your commentary, but, I mean, was that an abnormally high level this quarter in terms of electric? Or is that a number based on what you see in backlog orders, et cetera, that you view as a sustainable level?

I got to tell you, we are seeing every quarter increased -- interest increased orders coming for electric. I mean, it's gone really well for us this year. And in fact, our biggest -- I'll tell you, our biggest quarter year for electric will be our fourth quarter. So we really feel good about where that's going. I think it's resonating with customers. There are grants available through the California Energy Commission in California, we got the VW grants available, just like anywhere else you sell, on trucks or anything, on your electric vehicles that are sold on big products, they tend to be supported by grants. But we're seeing a nice real uptick in that. And, in fact, we just recently increased our capacity capability even in our Fort Valley plant here to handle more on a daily basis. So, yes, it's going well. And that isn't a one-off thing. I think we look to this as a real good growth opportunity for us. And I'll be honest with you. I've been a little surprised by the way it's taken off, but now I'm not surprised anymore. And I keep pushing my guys for more sales. So we feel good about where it's going.

All right. That’s great. Thanks.

Okay. Hey, before I get to the next question, just one thing I want to point out, I did make one little misstatement when I was going through slide four. The slide was correct, but I said our industry volume outlook for fiscal 2021 is 28,000 to 29,000 buses. Obviously, I meant fiscal 2020, which is what the slide says, because we aren't giving an outlook or guidance yet on 2021. So I just want to correct that statement I made there. Thanks.

Our next question comes from the line of Craig Irwin with ROTH Capital Partners. Please proceed with your question.

Good evening and thanks for taking my questions. So, first question is the slide, the 160-plus electric buses. Can you maybe give us a little bit of color on the breakdown there? Is that all for California? Or are you making deliveries across the country? And is that for shipment exclusively in this fiscal year that ends in September?

Obviously, California, Craig, is the biggest market for us. I'd say about 75% of that are the California market, but we've been selling at Washington, we sold to New York. I know we've built in things in Georgia, Alabama just this last week, took delivery of a couple of buses. So it's all over the place. Texas, too. We're seeing a lot of states really picking up the interest here. And, I'd say, that the VW grant money is coming very well for us there. There's somewhat, what's called HVIP money as well which we can use for electric buses. So every state is really looking at it. There's no question. There's a ton of excitement around it, with school districts, parents and we want to be at the forefront of it. So it's not just California now, which it was sort of last year, it's growing to -- it's growing across the nation now.

Okay. And then you mentioned the VW mitigation funds, the Dieselgate funds, right? So I guess around a-quarter of that has been dispersed in the last year. Would you expect a greater amount to be dispersed in this upcoming fiscal year? What are you hearing about the probable disbursements there? And how do you feel about your competitive positioning for those awards?

Okay. So, I think, we're probably going to look at something similar to this year. Because I think what you're going to find a lot of districts that might be wondering about, hey, my school is closed, I'm doing online teaching. I want to get buses when it opens again. Obviously when there are grants available they can access that really quickly. It's a very easy sell with a school board to go in and say opportunity here to take some grant money. So we expect it to be something similar to this year. In terms of us why we think we're well positioned the products in there are diesel obviously the clean diesel that we all have now. We have a great partner in there with Cummins. So I think it's a fuller level playing field. But obviously propane, electric, compressed natural gas are all part of that. When it comes to propane -- and you'd remember why this money came about. It's because of -- I should just say simply, people were cheating on emissions. That engine was just not right was not true and the money was made of -- VW was fined when it became available. When you look at our engines though our propane product in particular, our NOx output nitrogen oxide is 1/10 of the EPA standard. So eventually you start to think about why are you -- why we -- what is money available for to book clean engines on the road and we have the cleanest affordable TCO message out there with our propane and we are the only one in the market with such a clean propane product. So I think it's great for us. It comes to electric again. Lots of states are doing that different ways. Some are normalizing it to make it the same as a conventional sort of product. Some are given significant investments just for fuel electric. But obviously when you look at sheer volume there's far more assigned to propane to CNG or to gasoline than the entire electric amount because electric cost so much. But I think I look at it how we're positioned. Of the three major manufacturers in this business, we're the only one with an electric bus on the road today who's delivering buses. So we feel good about that. So I think -- our leading position in propane, electric is following, where we are on CNG I think we're in really good shape and we keep working it.

Okay. And then the $15 million in EBITDA savings right? I think you indicated that 1/3 of that is from the move to a single shift and the other 2/3 is from adjustments in SG&A. Can you just confirm for us that, that was achieved in this past quarter so the full benefit should be there in the fourth fiscal quarter? And what do you see as flexible opportunities to increase that cost savings cushion as we go into fiscal '21, if many of these school districts that are remaining closed - just don't have the demand and you do see demand pushed out over the course of next fiscal year.

Okay. Let me take that first part, firstly your first section first then. So the paint shop we implemented -- sorry paint shop, the single shift was June one we put it in. So yes you're going to get a full quarter effect in the fourth quarter that we've only just been over 1.5 months into it. But the SG&A I think I've said on the call that -- well that will be substantially implemented I said at the end of this month. So we certainly won't get a full quarter effect of that. You're going to get really just one month effect of that. And now the $50 million was an annualized amount I put in there. So you think about your modeling next year and you think about SG&A and the single-shift impact essentially over this last year, it will be in the order of $15 million less the -- that we have our first quarter, we have one quarter this year of the single-shift benefit. Could I just...

Craig, the second part of your question was really what's the future opportunity there for additional savings and how do we balance that with our outlook for next year? And I would say that's -- yes that's really a work in progress. So we're taking significant actions this quarter to rightfully position the company for the environment that we're in today. And we'll continue to monitor that going forward. If the environment continues to deteriorate then obviously, we'll evaluate that for further actions that we may need to take. But remember, we really want to balance the opportunity to recover when the market recovers. And so, if we cut too deeply then we'll sacrifice some of our ability to really bounce back when the market bounces back. And so we're taking that into account as we evaluate those options going forward.

Great. And then last question if I may. Can you guys comment -- maybe comment on the electric school bus growth rates that we're likely to see over the next few quarters? Are you seeing growth rate's well over 100% right now? And do you expect similar growth rates to continue over the next handful of quarters?

Well I mean when you look at this year I think certainly versus last year, it probably is about 100% growth versus last year whether or not that continue -- I'd love to see that continue. It's hard to say really because it's so grant-focused right now, grant-driven right now that it's just -- it's a little different to school district just to see that I can just alter all my desired new buses into electric or try and increase it. However having said that, your point is right on spot on because the fourth quarter orders that we had that we were building in the fourth quarter and booking in the fourth quarter are quite a bit above the third quarter which is over the second quarter. So we definitely are seeing that growth. But I don't think I don't have double. Double will be great. We're just going to see what happens. I'm not prepared to put a number on that. But I will tell you this, it's going to grow. And it's going to grow substantially. But double might be a little bit optimistic.

Right. And I think we would expect to see strong growth rates return once the pandemic is cleared and we get that headwind really off of us. But in the short term that will impact the overall market and where that market grows.

But one thing I will say Craig, you hit on something really interesting because when you go talk to school districts, they're very familiar with diesel. Propane is now incredibly mainstream, so is gasoline, CNG is still not perfect for our market quite frankly. It's too expensive, filling station, filling infrastructure, what would they want to talk to is -- when they usually talk it's about tons of electric buses. What's going on there? What's the TCO benefit? What can I expect to say? How much does it cost? So there is definitely a strong buzz around it that we are excited about. We want to make sure that we're ready for it. Hence I talked about just this last quarter we increased our own daily capacity capability. So we're planning to be there when -- to capitalize any growth opportunities.

Great. And just a clarification, right. So the growth of electric buses we understand is greatly outstripping any activity in the regular school bus market. Can you confirm that we do continue to see really solid positive growth in electric school buses, despite COVID despite the headwinds on the rest of the business?

Well yes, I'd say so, yes. Yes. I mean we have to recognize too we're from a fairly small amount of volume right now. So it's easy to grow. I mean, if you look at what we've done with propane and gasoline over the years, we were 20%, 30% growth some years. And now we're selling in a good year, this year for example, we'd have been looking at 5000-plus of those two product lines versus 160 electric buses. So some of it's from the baseline it's from but certainly percentage growth-wise you're absolutely right. Electric is going to outpace the rest.

Excellent. Thanks again, for taking my questions and congratulations for decent results in this difficult environment.

Thanks Craig. Appreciate that. Thank you.

There are no further questions. I'd like to hand it back over to Mr. Horlock for closing remarks.

Thanks Doug and I want to thank everyone on the call today for joining us. We do appreciate your interest in Blue Bird and we look to updating you all again on our progress next quarter. Before I sign off, I'd like to just leave you with a final message from Blue Bird today. It's sort of somewhat repetitive, but I just want to get this across for everybody. First, we are very well positioned to handle this unprecedented pandemic. We have ample liquidity. We're improving our business structure which you saw certainly in the third quarter again when I talk about that, I'm talking about taking costs out and growing the base revenue that means the underlying margin is improving. And we're going to take whatever restructuring actions necessary to get through this period and our plan is to continue to grow and thrive in the long run. So if you have any follow-up questions, please don't hesitate to give a call to our Head of Profitability and Investor Relations; Mark Benfield. So thanks again from all of us at Blue Bird and have a great evening.

Ladies and gentlemen this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.