Blue Bird Corp (BLBD) 2015 Q1 法說會逐字稿

Greetings and welcome to the Blue Bird Corporation first-quarter 2015 earnings call. (Operator Instructions). As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Mr. Jeff Merten, Director of Investor Relations for Blue Bird Corporation. Thank you. You may begin.

Thank you, Melissa, and welcome to Blue Bird's fiscal first-quarter 2015 earnings conference call and our First Call as a publicly traded Company. 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 webcast by clicking on the presentations tab in the IR portion of the website.

Our comments include forward-looking statements that are subject to risks that could cause actual results to be materially different. Those risks include, among other matters, we have noted in our latest earnings release and filings with the SEC. Blue Bird disclaims any obligation to update information in this call.

This morning, 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, Jeff. Good morning and thank you all for joining us today. These are exciting times for Blue Bird.

Let's turn to slide 6. So this past Tuesday we closed on our business combination with Hennessy Capital Acquisition Corporation and began trading on NASDAQ under the ticker symbol BLBD on Wednesday. I can tell you the entire Blue Bird team and our dealer network are very excited to be a publicly traded Company.

By way of background, Hennessy selected Blue Bird from a list of over 125 companies based on our iconic brand and demonstrated ability to drive growth and profitability. We are excited by the prospects of continued growth as we execute on our strategy.

I will continue to serve as President and CEO of Blue Bird and the remainder of our leadership team will also remain in place and we are committed to continue to deliver outstanding customer service, support and value. The Company will continue to be located in Fort Valley, Georgia, where we have been since 1927.

Blue Bird has a new Board of Directors that will bring in six members of Blue Bird's former Board, including Chan Galbato, who will serve as nonexecutive Chairman of the Board and me. Chan has been our Chairman of Blue Bird since 2009; Dan Hennessy will serve as Vice Chairman of the Board.

Let's now turn to slide 7. Since this is our first earnings call as a public Company, I thought I would start by providing a brief overview of our mission. At Blue Bird we come to work every day with one common goal, to design, build, sell and service the world's finest schoolbus with no distractions and no competing priorities, safety of our schoolchildren is at the forefront of everything we do.

We've given ourselves the four driving priorities; safety, quality, durability and serviceability. More than a business, this is what is our heritage and we have been at this since 1927. We have been 100% focused on the school bus business. Our products are purpose built school buses and we will never compromise our unique schoolbus design for other applications. This makes us unique in the industry and resonates with our customers.

As you can see on the slide, we offer four primary bus parts and provide aftermarket parts support. Our highest volume bus, shown at the top left of the slide, is our Blue Bird Vision. This Type C bus represented 65% of our sales last year.

To its right, the Blue Bird All American, our industry-leading Type D bus, represented about 22% of our sales last year and is available in both front and rear engine versions. And the Blue Bird Sigma at the bottom left, and other specialty buses represented 7% of our sales.

The green bus pictured is a transit bus that we sell in Bogota, Colombia. It utilizes the same chassis as our Type D schoolbus but customers who buy these buses love the quality, durability and toughness that the schoolbus foundation provides.

The bottom right of the slide shows a Blue Bird Micro Bird T-Series bus. Now Micro Bird is a joint venture we have in Drummondville, Quebec, in Canada. We produce all of our smaller Type A buses through Micro Bird. We own 50% of the business but the results of this operation are not consolidated in our financials as the operator is run by our Canadian partner, Girardin. Our buses are offered with diesel, propane and compressed natural gas engines. Gasoline engines are also offered on our Micro Bird bus lines.

Blue Bird is proud to be the market leader in alternative fuel powered buses. In fact, we have sold over six times the number of alternative fuel powered buses than all of our competitors combined since 2010. We offer a bus to virtually every application in the schoolbus industry. We are proud to be the fastest-growing schoolbus brand in the business since 2010.

Okay. That gives you a good view of the overview of our product offerings; let's get to the financials and let's turn to page 8.

Before I get into our financial highlights, I think it's important to set some context around the seasonal (inaudible) of the schoolbus business. The majority of our business is done in the second half of our fiscal year from April through September. This is driven by timing of the new school year and when school districts are willing to take delivery of their new buses. The first quarter new bus industry that we are talking about today is the lowest volume quarter in the year, being that it immediately follows the start of a new school year.

Additionally, customers frequently change the timing of the new bus purchases from year to year which can impact quarterly results. For Blue Bird, the first quarter typically represents a few percentage points below 20% of our full-year volume. Phil Tighe, our CFO, will get into this in more detail later but I wanted to mention it upfront to provide you a better understanding of the rhythm of our business.

Now let's get on to the numbers. We delivered strong sales results in the quarter with bus unit sales up 18% to 1824 buses, and overall net sales up 14% to $166 million. Adjusted EBITDA came in at $7.4 million which is a solid result for our lowest sales quarter and the second consecutive year of positive adjusted EBITDA in the first quarter. This result is consistent with our plan and our supplemental proxy statement.

We are also reaffirming our full-year guidance that we provided in our proxy filing in January.

Now let's go to slide 9. Blue Bird continues to maintain its leadership in propane bus sales. We had another strong quarter where propane buses grew as a percentage of our overall sales mix. Over half of the customers who ordered propane buses in the first quarter were first-time buyers of propane. Now our research shows that once customers try propane buses, they come back for more because they love the product. Blue Bird propane powered buses have outstanding owner loyalty.

Here is a fact. We've only penetrated about 4% of the 10,000 school districts in North America with our propane bus offering, so this is a significant strategic growth opportunity for Blue Bird.

We also saw sales success with our diesel buses in the quarter. In fact, diesel bus sales were up a double-digit percentage as we won a number of new customers with our Cummins diesel engine offering. Blue Bird is recognized in the marketplace as the leader in quality, reliability and durability based on a study that was conducted by Freedonia Custom Research in 2013. Transportation directors like the dependability of our product and this aids our sales efforts.

Our operation had a strong quarter as well with labor productivity about 2% higher than a year ago and continued reductions in defects per unit. Our manufacturing team has a continuous improvement philosophy and is always looking for ways to continually improve quality and productivity.

Parts sales were up almost 15% in the quarter. We are benefiting from increased partnering with suppliers on specific parts promotions and we're constantly adding new parts to our catalog.

So bottom line, we are seeing momentum in propane buses, diesel buses, operations improvement and also in the parts business with a lot of good things going on today at Blue Bird.

Now let's turn to slide 10. We are very focused on delivering new and innovative products and features that our customers will want and value. We started taking orders in the first quarter for our new Micro Bird bus that we believe will be class leading in the small bus market; we call it the Micro Bird T-Series. This bus utilizes the all new Ford Transit cutaway chassis and Blue Bird's Micro Bird bus will be the first in market with this product. The bus, which is available in both diesel and gasoline applications, delivers approximately a 20% increase in fuel economy over other market offerings. Consequently, it will have the lowest cost of ownership of buses carrying under 25 passengers and also will provide superior maneuverability because of its narrow body and aerodynamic design.

The bus is being produced now at our Micro Bird plant in Quebec. The Micro Bird T-Series is another example of where Blue Bird is aiming to set the standard as an industry leader in the bus business.

Now let's turn to slide 11. [Core] innovation isn't just about new buses and a new engine. We are always looking at ways to better meet our customers' wants and needs. In fact, we started shipping some innovative new products and features that do just that in this past quarter.

Let's start with our all new branded E-Z Windows. These kid-friendly windows are fitted with innovative weatherstripping to reduce noise, wind, dust and water intrusion. They were tested to withstand over 50,000 up and down cycles, well exceeding the usage of the life of the bus. Window sealing and durability are a really big deal on school buses and these new windows have been a home run so far with our customers.

We also started shipping our redesigned luggage compartment, a full perimeter bolt seal and strengthened panels on the luggage compartment itself ensure that the contents stay clean and dry. Frankly, this new luggage compartment sets the standard again for schoolbus luggage storage.

A new factory installed air-conditioning system was introduced also this past quarter. Unlike most aftermarket AC systems, our factory installed solution does not encroach on the passenger compartment and provides dedicated in-dash cooling for the driver. Products like air conditioner are a great example of where Blue Bird is bringing items into the plant that are frequently installed in the aftermarket business. This is good for the customer, it's good for our dealers and generates revenue and profitability for the Company.

So these are just a few examples of how Blue Bird continues to introduce products that surprise and delight our customers and differentiate us from the competition. I can tell you we have a full product cycle plan with many more products and features coming.

Now I'd like to turn it over to Phil Tighe for a review of our financial results. Phil?

Thank you, Phil. Good morning, everyone. It is my pleasure to provide you some additional detail on the first fiscal year 2015 first-quarter results for Blue Bird and Phil Horlock has already shown you some of the highlights there.

Just a note for you, please remember that Blue Bird's fiscal year runs from October through September and we run a 52- to 53-week period ending on the Saturday closest to the last calendar day of each quarter. So the quarter that we are addressing today completed on January 3 of 2015.

If we can turn to slide 13, just to give you some more data on the seasonality of the schoolbus business -- Phil Horlock mentioned this -- it is a highly seasonal business. If you look at the new bus registration data on the slide that is provided by R.L. Polk, this clearly illustrates the seasonality. The chart shows the [specific] registrations for the past three years between the first and second half of the year. As you can see, the first half represents only about one-third of full-year new bus registrations.

The seasonality is driven by the buying pattern of school districts which traditionally emphasizes delivery and preparation of new buses for the start of the new school year and is also influenced by release of local budgets, which usually occur in the sort of May through July periods. So we really get into a very high volume scenario in the second half of the year, April through September.

The fourth quarter, which is October through December, is our lowest volume quarter of the year, and also we take the advantage of low volumes to take planned shutdowns, give the employees vacations and do necessary maintenance.

Production sales profit from working capital obviously are all impacted by the buying pattern and we continue to look for opportunities to increase production and sales in the first and second quarters.

If we go to slide 14, this chart summarizes the key sales and revenue data for the first quarter. As Phil Horlock mentioned earlier, our overall sales came in at $166 million, up 14% from 2014, and we sold 1824 new buses in the quarter, which again was a very solid increase of 18% compared to the prior year, a testament to the fact that we are making progress in improving our first-quarter each year.

Bus sales revenue was $152 million and this was up 13% driven by higher volume. The increase in bus revenue of 13% was lower than the 18% increase in volume due to a very successful plan that we implemented to invest in conquesting a number of new accounts for Blue Bird. This was a targeted plan to improve the first quarter sales and should not be viewed as an indication of lower unit revenues for the balance of the year. We furthermore expect that these new accounts will become loyal Blue Bird customers.

Parts sales revenue was up almost $14 million, which was up 15% compared to 2014. We benefited from a number of successful promotions, as Phil mentioned. We are working closely with suppliers on a number of promotional activities, so we benefited from successful promotions in the quarter coupled with a very intense focus on working with our dealers on the fundamentals required to continue to grow the parts business.

We believe this double-digit growth in bus sales volume and in both of our reporting segments is a good result for the toughest quarter of the fiscal year.

We can go to slide 15. This slide looks at first-quarter 2015 gross profit. For the first quarter, the Company made $19.5 million, and that was down $1 million versus the prior year. Bus parts profits were $14.3 million, down $1.7 million. Profit in the bus segment were positively impacted by higher volumes, a higher mix of propane sales and lower production costs, which were driven by labor efficiencies and favorable material costs.

As discussed on the prior slide, however, average revenue was lower due to a higher mix of new conquest accounts, which largely offset the profits from incremental volume. A small number of one-time and timing adjustments combined to reduce total bus profits compared with the prior year.

Parts gross margin, on the other hand of $5.2 million, was up $0.7 million versus the prior year. As previously discussed, higher sales of parts are driving up revenue and this slide shows the improvement in profits going with the revenue.

I would point out for you at the bottom of the slide, the first-quarter profits are consistent with our full-year guidance and on our plan.

We can go to slide 16. This slide shows you the walk from first-quarter 2014 to 2015 on an adjusted EBITDA basis. Adjusted EBITDA in first-quarter 2015 at $7.4 million, met our expectations. You can see that the adjusted EBITDA was $2.2 million lower than the prior year. However, we did see roughly an $800,000 improvement versus prior-year resulting from cost reductions and volume and mix. This was offset by $3 million in other items.

The $500,000 improvement in cost reductions was driven by improved productivity and lower material costs. Labor productivity as defined as standard hours required to build a bus divided by actual hours, increased from 105% in the first quarter of 2014 to 107% in 2015. Volume and mix contributed a positive $300,000 to adjusted EBITDA.

As we mentioned earlier, we had significant higher bus sales and parts volume that were partially offset by the program implemented to conquest new accounts in the first quarter.

Other (inaudible) accounts for the reduction in EBITDA and this is the result of a one-time adjustment to warranty in 2014 that did not repeat in 2015, we also added some selling expense and other expense items to support ongoing growth activities. These were planned actions that we took to strengthen the organization.

Net income is also shown on the slide and reflects a decline of $4.7 million and the details are included on slide 27. The key items in the decline in EBITDA discussed on this slide and higher interest cost as a result of a loan taken in June 2014 to pay a dividend more than account for the change in net income.

Slide 17 looks at first-quarter adjusted EBITDA to free cash flow walk for fiscal year 2015 and fiscal year 2014. The Company defines free cash flow as cash flow from operations less CapEx. We've commented previously on the impact of seasonality in the school bus industry and it can be seen clearly in this slide.

As you can see, the fundamental change between fiscal year 2014 and fiscal year 2015 is the inclusion of interest that has been paid on the loan that was taken in June 2014 to support our dividend payment. This cash interest payment in 2015 is approximately double the normal quarterly payment due to the timing of the payments and the timing of the opening and closing of our first quarter.

On an ongoing basis, we expect to see cash interest payments of about $4 million a quarter, depending of course on interest rates and the schedule to pay down principal.

Working capital and other is a major outflow in the first quarter as production ramps down from peak levels in the fourth quarter of the prior fiscal year and consequently, payables run down. In addition, we have year-end payments that are made in the December period to employees as a part of a Company- and Board-approved bonus plan and there is a cash outflow for vacations that are taken when the plants shut down for the Christmas and New Year period.

The fiscal year 2015 period also includes cash outflows for some transaction costs associated with the recent Business Combination.

Clearly, as volumes and profits build in the balance of the year, we will see positive changes to cash and I would point out again the bottom line take out on the slide that the free cash flow is in line with our seasonal expectation.

Slide 18 looks at first-quarter 2015 net debt leverage and liquidity. Net debt, as you can see at January 3, was $197 million and this represents about 3 times on a trailing 12-month average at the adjusted EBITDA level. This ratio is comfortably below the covenant in our loan agreement. The liquidity number of $78 million, that's shown on the slide, reflects cash in the bank of $28 million and the available revolver of $55 million.

Please note that we present cash on the balance sheet net of outstanding checks, consistent with GAAP principles.

Thank you for your attention. I'll now turn back to Phil Horlock who will talk to you about closing and then take Q&A.

Okay. Thanks, Phil. Let's go to slide 20. We mentioned this earlier in our presentation but I just wanted to reiterate. We are confirming our guidance for full-year 2015 that we provided in our proxy filing in January. We project full-year revenue in fiscal 2015 to be up between 7% to 10% from fiscal 2014 which would outpace the industry growth. Incidentally, this is on top of the 10% sales growth we achieved in fiscal 2014. In fact, between 2011 in 2014, we grew our sales revenue by more than 50%. We still have momentum on the sales front, that's for sure.

So we estimate full-year 2015 sales revenue to be in the range of $918 million to $940 million. Our guidance for full-year adjusted EBITDA is for an increase of 7% to 12% over fiscal 2014 resulting in an adjusted EBITDA range of $72 million to $75 million. As I mentioned earlier, our first-quarter results are on plan and consistent with our guidance, so bottom line, we are on track.

Now let's turn to slide 21 where I summarized what we saw in the first quarter. So with unit bus sales increasing 18% and total Company sales up 14%, we delivered strong top-line growth. Adjusted EBITDA of $7.4 million was a solid result in the lowest volume quarter of the year where, as Phil Tighe explained, we take planned downtime due to seasonally low demand. Importantly, in aggressively growing our first-quarter bus sales we acquired new customers in new markets compared with a year ago and this is great news for our future business.

We are focused on building the world's finest school buses. To this end, we introduced a number of innovative and differentiated products and features this past year. Customer feedback has been favorable and we have lots more coming.

Manufacturing productivity increased again this past quarter over last year and we expect more gains through our continuous improvement initiatives.

Finally, we continue to be the undisputed sales leader in alternative fuel vehicle sales with our exclusive propane powered Vision bus leading the way. So with our first-quarter behind us, we are reaffirming our full-year guidance for fiscal 2015 that we provided in our January proxy filing.

That concludes our former presentation, I'll hand it back to Melissa where we will be happy to take your questions. Thank you.

(Operator Instructions). Joel Tiss, BMO Capital Markets.

Hey, guys. How's it going? Just a couple of things. One, why are the inventories and the warranty costs going down with your volumes growing and it sounds like your expectations for the year of continued growth?

Inventory costs generally go down in our first quarter, Joel, with lower production. So I think -- you will see inventory grow as we go forward and production ramps up so our purchase overall will go up and our in-process inventory will go up. As you know, Joel, I think you will remember from our discussions, we don't hold any finished goods inventory because we build to order, so what you will see is as the production ramps, you'll see [raw] and in-process increase.

Okay, and I just wonder if you could spend a couple minutes talking about the competitive landscape also. Just when I talk to your competitors, they all had like they're gaining share and they're the leader in propane and all that kind of stuff. So I just wonder -- everyone's got a little bit of the same story so I just wonder if you could give some idea, like who is giving up business, your conquest customers, where are they coming from and just a sense of the competitive landscape. Thank you.

Yes, obviously, competitive landscape, there are two major competitors out there. As you know, there is commerce and there is IC, and I think when you look at the fact we've grown our sales -- unit volume by 18% in the first quarter, when we -- I think when the dust settles we will be looking to grow market share; that would be our expectation.

We actually, by the way, we are going through just an ongoing -- we are going to sort of say here is a market share by quarter. This is sort of a lumpy business; it grows during the year, and frankly, the first quarter industry volume is relatively low versus the full year. It wouldn't be appropriate to start picking out quarterly share. So we will just have to look at share more when we want to reach the full-year position.

Look, frankly, when we talk about conquests sales, the way we go after it, we go after aggressively every opportunity that is out there, so we are happy to do conquest business from anybody (inaudible) is what we do. I think the propane product in general -- you talked about others, they mentioned the propane business. Sure, we've been doing it for eight years now, and we sold, I think, about 99% of (inaudible) in the industry is a Blue Bird propane bus. I mean that said; we dominate that market.

We are excited about the fact that they are coming in, because it really does now, I think, say propane is a mainstream product. It's mainstream in this business, and for years I would say I think there was a lot of comments from our competitors that, hey, I am not sure about propane, is it really going to last? I think this actually shows it's here and it's for real. It's green, it saves money, the fuel is made in America, it is fantastic cold-weather start, it's low maintenance costs, it's a great product. And the product we have is exclusive to us, it is a terrific product we have, lightweight engine, aluminum head, dual fuel pumps, I mean a lot of great competitive advantages.

So we feel really good about it and propane has been a great conquest tool for us. In fact, about half the time when we sell propane, we are taking a product or a customer away from a competitor. So we're excited about that.

All right. Thank you very much.

[Doug Mattle], Stifel.

Hi, guys. Good morning. A couple questions for you, just a little more meat on the bones on the propane opportunity. It sounds like an exciting area for growth both on the top line as well as margins. Can you give us a little bit more color on the -- in terms of who is buying this? Is it a lot of districts buying a couple buses or is it a concentrated group of guys that have really just jumped all the way into the pool here?

And also a little bit about the education process in terms of how you market this. What are the economics of people in terms of the breakeven? What are the economics of the fueling stations? Just a little bit more on the sales process on the propane side. Thanks.

Sure, Doug, let me take that. You're right, propane for us is a very critical product and we believe it's a very significant differentiator for us in the marketplace and we are really pleased and proud to have a great product there.

So when we look at what we are doing there and how winning that business and who we are winning it from, I mentioned earlier that probably half of the sales we see around that product are the conquest sales in the other half tend to be -- they are renewals so we get a lot of loyalty people renewing that business for us.

So typically what tends to happen is it starts with propane. Someone is trying it. A district wants to try it, test it, they will try one to two, three buses. They will convince the Board of Directors, let's give this product a chance, let's try it, let's see what we think of it. And what we are finding is tremendous loyalty in the next two or three years; that two to three sales then turns into five to 10 sales and 10 to 20 sales.

And so we've got a nice blend here in this last quarter of new customers coming in. Remember, this is the lowest quarter of the year; it's not like all the budgets are available now for all the districts to spend a lot of money on buses in the first quarter. But we saw a nice blend in the first quarter of new customers coming in, and existing customers of ours adding to their fleet.

Now the value proposition, yes, you pay a little more for a bus, but here is a nice thing about propane. Even with today's fuel prices having come down, everyone knows that diesel has come down; right about 25% per gallon from where it was a year ago. Here's the thing. Propane has come down almost 50% a gallon. It's about $1.01 the average price our customers are paying for propane across the country.

And so the value proposition for the customers is yes, you pay a little bit more at acquisition price but within two to three years of use of that bus, you're going to more than recover that incremental acquisition price and the reason is you are going to save upwards of $3000 to $4000 per year in fuel costs and maintenance costs.

So an average bus is kept for typically 15 years. That is a huge $45,000 plus savings over 15 years. It is half the price of what the initial bus cost. There is tremendous value proposition.

What we love about propane that makes it very attractive -- this has been an education process, Doug, for a lot of our customers to ask where do I get propane from? Where do I get -- it's really easy. We can install with a fuel provider an aboveground filling station right where the buses are parked, right in a [gap hole] where there is a park every day with any luck about 36 hours. It's a $25,000 to $35,000 acquisition cost to install an aboveground tank and that makes it very simple, very easy and very affordable. And in fact, in many cases we've been able to have some fuel providers with -- again a two- or three-year, four-year contract for fuel service. They will provide that station, that filling station for no upfront capital cost. So again, education process of explaining this, the value proposition, how it works, not only do you save money every day to run that bus but the infrastructure side is very affordable.

Okay, great. That's very helpful. And versus natural gas, it must be very compelling in terms of the upfront costs associated with filling stations and that kind of thing I would imagine.

Yes, absolutely. I mean we are the leader, by the way, in compressed natural gas sales. We have typically over 50% market share in that market. But propane outsells compressed natural gas sales by about 10 to 1. The reason is because -- I mentioned a small upfront acquisition price increase in propane is recovered in two to three years. The tanks on a compressed natural gas bus because it is compressed, they are very, very thick steel, and in fact, they are also Kevlar coated. So we have anywhere from two to four tanks on a bus, very heavy so the fact they are heavier means you have to put them on your biggest bus, the heaviest bus, the biggest engine and so it's typically tens of thousand dollars of upcharge on the price of a bus.

Then you talk about the filling station and the typical compressed natural gas filling station, it starts at around $0.5 million and runs to as high as $2 million. So usually when you find a compressed natural gas filling station, it's actually some metropolitan area has bought one and you know they are asking all their dump trucks and cab drivers to use it. But in our business, where there is -- a district can have 1000 school buses and they are all parked in a couple of these schoolyards. They don't want the inconvenience of going and filling up their compressed natural gas bus behind the dump trucks and the taxicabs. That makes it very inconvenient.

Now having said that, we offer this, it's a clean product. It is a nice product in the bus. We build a great compressed natural gas bus and we sell them primarily in California and Texas where there are grants available.

Okay. Is there any subsidies in the propane world that exist out there currently?

Yes, well, it's interesting, yes, there is. There is (inaudible) that just got retroactive with the last two years I believe it is, somehow over the last two years, might be even three years, retroactive the federal government apply gave a $0.50 per gallon tax credit back on all propane fuel purchases for the past 12 months. So that was implemented in December so basically every district now can come back and claim a rebate for that. By the way, the numbers I mentioned earlier, $1.01 per gallon, they include no federal rebate so that's gravy on top of this.

Also, there is an infrastructure tax credit to about 30% tax break on the cost of acquired -- building the infrastructure, so it's a nice mobile exist on this for propane.

Okay, great. All right. Congratulations on the public listing, guys. Look forward to following the story going forward.

(Operator Instructions). Mike Baudendistel, Stifel.

Hi. Thanks and good morning. I just want to ask you on the input costs what you are seeing in terms of trends in terms of the price inflation or deflation on raw materials and any trend you are paying for engines and transmissions or other components?

Yes, good morning. This is Phil Tighe. Obviously, the major commodities, steel, rubber, copper, aluminum, have been trending well for us, so we watch this very carefully. We have over the last two or three years done a lot of work through our purchasing group to what we call professionalize our purchasing. So about 80% of our value we buy is on newly sold long-term contracts with our key suppliers. They include defined material cost adjustment formulas that are based on the key commodity indices. They also include a grievance for a pass-through of efficiencies, based on [VAVE] or other efficiencies that the suppliers might have.

We haven't seen a lot of pressure in the last 12 months coming through from the suppliers and in fact, quite the reverse, we have picked up some quite good savings from suppliers. As we have grown our volume and rapidly over the last two years, a number of the suppliers have come to us with negotiated savings based on the fact that we have improved volume and so we continue to do this.

VAVE is a really important area for us. Our engineers work with the suppliers to find good ways of lowering our costs and we share this with the supplier so we both benefit. We, in fact, run an annual conference with our suppliers where they come in and it's a three-day event and the first day of the event, the suppliers bring in innovations. And it's quite an amazing sight to see all these suppliers lined up with their booths at the conference and our engineers and purchasing folks there. And I even get a finance guy there who from time to time having a look at all the innovations that the suppliers bring in. And we've learned a lot.

So I think Blue Bird is in a good position with its suppliers at the moment and clearly we're -- we will continue to work on that. We are all hopeful that commodity costs stay on the nice trend that they are on at the moment.

Great. Sounds like things are going well there. I just also wanted to ask, orders it sounds like you've picked up some shares and so forth. But can you just talk just so we understand sort of seasonally how -- I know this isn't a big time for orders seasonally, but just how you would expect -- how it's trended versus what you would expect for this time usually in the year?

Yes, I will maybe take a shot at that. I may as Phil mentioned, the orders do pick up in the year. Typically you saw the registration dates that we showed you earlier. In the first six months of our fiscal year, so that is from October through March, the registration -- now this is R.L. Polk Industry registration data, typically is -- we'd see around 33% of the volume in that first six months and about 67% in the latter six months. So you could imagine that third and fourth quarter for us we are ramping up significantly our production.

Now registrations like supply. Obviously, we sell a bus to a dealer, a dealer then might do some prep work for a district so there is a lag between it being registered versus sold from a few weeks can lie in between that. But it's just really that ongoing through the -- this is not a business we're in, this is really like a negative working capital business. You saw earlier yes, we use cash in the first quarter because we are coming off a very high volume base in the early part of the year when we got payment terms with suppliers which we are still paying the bills, if you like, as that high-volume that came off in the last -- in the fourth quarter of the prior fiscal.

We generated revenue immediately on our new sales. As volume picks up, though, in the second, third and fourth quarters, working capital gets really interesting -- actually it becomes negative.

So by the time we reach the fourth quarter we're -- I mentioned less than 20% of our sales in the first then we are well over 30% of sales in the fourth quarter is the way to look at it.

Okay, great. That's all for me. Thank you.

Thank you. Ladies and gentlemen, there are no further questions at this time. Mr. Horlock, I would like to turn the floor back to you for any closing or final remarks.

Yes, I would just like to say thanks everybody for attending our first earnings call. This is a monumental moment in Blue Bird's history. I'm very proud of the fact we were a private company for 88 years and we became a public company this past week. It's a pleasure to be able to share our story with all of you and look forward to many more of these events in the months ahead and telling you what we are all about at Blue Bird.

So thank you very much for attending and joining us today. Really appreciate it.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.