Blue Bird Corp (BLBD) 2016 Q2 法說會逐字稿

Greetings and welcome to the Blue Bird Corporation second-quarter fiscal year 2016 earnings conference call and webcast. (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. Thank you, you may begin.

Thank you, Darren, welcome to Blue Bird's fiscal second quarter 2016 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 Investor Relations landing page of our website.

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 Chief Executive Officer Phil Horlock, and Chief Financial officer Phil Tighe. Then we will take some questions. So let's get started. Phil.

Well, thanks, Jeff. Good afternoon and thank you all for joining us today for our second-quarter earnings call. We welcome this opportunity to take you through our latest quarterly results. But first I'd like to start by giving a sense of the winning culture we are building at Blue Bird and, importantly, what we stand for at Blue Bird. So let's turn to slide 4.

It starts with our experienced school bus team where our employees have an average of 14 years of employment with us. In fact, when you exclude the new employees we've hired over the last three years, our average tenure is almost 20 years. That is best (inaudible) experience in making school buses.

We constantly challenge ourselves to drive the business forward and seize opportunities to improve and win in the market while demanding innovation throughout all activities to provide Blue Bird with competitive advantages that customers want and they value. And we reward these behaviors through our management compensation process.

The fact that we have the broadest array of products with many features that are exclusive to us in the industry, and have been the fastest growing school bus Company over the past few years, are outcomes of the winning culture we are building. What we stand for is straightforward: to design, build, sell and service the world's finest school bus.

Unique among the school -- the major school bus OEMs, we are exclusively focused on the school bus business from our purpose built chassis and body designs and right through our dealer network. This focus resonates with our customers where in a recent blind survey that we commissioned transportation directors ranked Blue Bird number one in our four priorities: safety, quality, durability and serviceability. We are proud of that fact and will continue to drive to win in the marketplace.

So let's now look at our second-quarter highlights on slide 5. It has been an eventful second quarter for Blue Bird with a lot of positives. Our net sales were about 4% above last year. And although not shown on the slide, our unit sales of 2,132 buses in the second quarter were 2% higher than a year ago and, importantly, more than 50% higher than our sales in the first quarter.

Our propane bus momentum continues to be very strong with unit sales up 20% from the same period last year. And through the first half of the year our propane bus unit sales were up a substantial 46% from a year ago. I'll be discussing our propane performance in a little more detail a bit later.

We continue to see strong quote activity through our dealer network providing us with a solid pipeline of potential future orders as a successful bid can turn into a firm order in a matter of days or several months later as school Board's release funds for bus purchases to support school start.

Because of our strong pipeline I can tell you now that our third-quarter production slots are completely filled with firm non-cancelable orders covering the period April through June and unit sales will be about 20% above last year's third quarter.

Now to support our expected second half surge in volume and to align our production capacity with a seasonal customer demand, we successfully launched our second shift this past quarter. We will be hiring about 200 full-time associates this year and today we are scheduling and building 64 buses a day compared with our peak capacity last year of 42 buses a day.

We will continue to ramp up our capacity and we will reach 70 buses a day by the end of June ensuring we can meet the important school start dates for new bus deliveries.

We are committed to providing innovative and different data products that customers want and value. And to this end we are progressing toward the launch of four exciting and brand-new powertrains this year. We are the first and only manufacturer to offer a gasoline powered bus in the large school bus segment. And I will cover this in more detail later.

Our all new CNG powered Blue Bird Vision bus provides a lower price Type C bus option compared with today's CNG powered Type C bus option. Both of these engines are from our exclusive partnership with Ford and ROUSCH CleanTech, deploying Ford's modern 6.8 liter V10 engine and fuel systems developed uniquely by the ROUSCH team, just for us.

In fact, along with our class leading propane offering we will have three distinct powertrains using the same Ford engine and transmission architecture. Now this is great news for the mechanics and service techs who work on those engines.

Next, we will be first to market with Cummins all new 5 liter V8 diesel which is a new lighter weight engine offering a low acquisition price than any other diesel option while delivering improved fuel economy.

Last, our new Eaton Procision transmission option will be available on most diesel engines this year and is the first dual clutch, 7 speed automatic available on school buses in North America. It provides efficient acceleration, optimized shift points and improved fuel economy and a host of features that make the bus easy to drive.

To showcase these and other new products and features we held two ride and drive events in Dallas and Nashville this past quarter with all of our dealers and many of the customers in attendance. I can tell you the responses were outstanding and there is real excitement about these all new products into the marketplace.

On the personnel front we brought on board a new Chief Commercial Officer this month. Mark Terry joined us from our Dealer of the Year winner, Yancey Bus Sales of Georgia where he was a general manager bringing great dealer experience into the Blue Bird family. Mark also has extensive experience at Caterpillar and is a great add to our Blue Bird leadership team.

Dale Wendell has been running our sales and marketing activities for the past five years and will be retiring at the end of this month. We wish Dale all the best for the future and thank him for his drive and key accomplishments in growing Blue Bird sales in each of the past five years. Thanks, Dale, for a great job done.

So, it was a busy and eventful second quarter for Blue Bird. And with solid financial results in line with our expectations, our third-quarter production slots filled and a strong pipeline for new orders we are reforming our for your guidance for sales, profitability and free cash flow.

So, let's now take a closer look at our second-quarter financial results on slide 6. Second-quarter net sales of $191.2 million was $8.2 million or 4% higher than the same period last year. And both bus sales and parts sales grew by about 4% in the second quarter. At $10.1 million we reported a solid adjusted EBITDA, which is slightly [up] higher than a year ago and included higher engineering and support [costs] required to deliver our new powertrain initiatives.

Through the first half of the year net sales are down about (technical difficulty) percent as we have seen customers continue to shift order timing and bus deliveries to later in the year. Now our 20% growth in firm production orders in hand for the third quarter is evidence of the shift in order timing and we are well positioned from a production capacity standpoint to accommodate customer's second half needs and ensure our buses are delivered in time to meet school start.

Turning now to slide 7, let's take a closer look at our propane bus sales performance. Blue Bird's propane powered Vision bus continues to be our number one product differentiator in the marketplace and we are the undisputed sales leader with nine times more propane buses registered and on the road today than all of our competitors combined. Now that is leadership.

Our propane Vision bus also registers the highest owner loyalty in the industry. Our first half propane bus unit sales were up a substantial 36% (sic - see slide 7) compared with last year and year to date more than 40% of our customers are new to propane. Furthermore, 18% of our unit sales in the first half were propane buses, up from 11% mix last year. These are significant results that we are very pleased with.

The advantages of propane over other fuels are clearly understood and market consensus is growing as customer testing models confirm the total cost of ownership and other key benefits. As a reminder, our proven modern efficient propane engine is exclusive to Blue Bird and developed and supported by our partnership with Ford and ROUSCH CleanTech.

At Blue Bird we believe in being first to market with differentiated products and where we can we strive for exclusivity. And our propane success is a great example of this. So let's now turn to slide 8 to look at another great example of an exclusive and innovative new product launching in fiscal 2016 that is important to our continued growth.

We are the first and only manufacturer to offer a gasoline powered bus in the large school bus segment. Mechanics and technicians understand gasoline engines, they are simpler to maintain, servicing costs are lower and they perform exceptionally well in cold climate conditions.

As I mentioned earlier, this bus will utilize the same proven engine transmission used in our propane powered bus as another product from our exclusive partnership with Ford and ROUSCH CleanTech. The bus will be a great choice of customers who want the lowest acquisition price of any fuel type and simple maintenance for their technicians.

We have had terrific interest from customers since we announced this engine is coming in 2016. Incoming orders are strong and we will begin shipping buses to customers in our fiscal fourth quarter, again in time to meet school start.

We are excited about the growth potential for our gasoline powered bus which builds on the success we have achieved with our propane product. Now I am going to turn it over to Phil Tighe who will cover our financial results. Phil.

Thank you, Phil, good afternoon, everyone. It is my pleasure to present to you the fiscal year 2016 second-quarter results for Blue Bird Corporation. Please remember that our fiscal year for Blue Bird Corporation is a 52-, 53-week period. And the closing day for each quarter is the Saturday closest to the last calendar day of each quarter. The second-quarter material that we are discussing today is based on a close of April 4, 2015 for the 2015 fiscal year and April 2, 2016 for the fiscal year 2016 period.

If we can go to slide number 10. We added this slide to the deck to try and show you some of what is occurring on a quarter-by-quarter basis. It is a pretty simple graphic and shows you the ramp up in unit volume revenues, EBITDA and net income between the first quarter and the second quarter.

As you can see, all of these four measures are substantially causative -- our unit volume up by about 51%, revenue up by about 46%, adjusted EBITDA was up by over 90% and net income of $1.4 million compared to a loss of $2.3 million in the first quarter.

So this is further evidence of the impact of seasonality in our business. It is also evidence of the momentum going from first into second and that momentum will grow as we move into the third and fourth quarters, which, as we have explained previously, are the quarters when we generally make the majority of the money in Blue Bird.

Moving to slide 11. This slide looks at the second-quarter results versus prior year. We believe the results are very encouraging, Phil Horlock has mentioned some of these, so I won't spend a lot of time repeating the data, but I will point out a number of facts you might find useful.

We have already talked about the volumes and the fact that third quarter is full; we are also now rapidly filling the fourth quarter. Revenue of $191.2 million is up by about 4.5%, that is due to both volume and an improvement of about 2.6% in per unit revenues on our buses.

Gross margin of 13.1% is about 50 basis points better than the second quarter of last year. And as you look through the 10-Q that has been filed today you will see margins by segment and the tech and quarter bus margins are about 60 basis points higher than second quarter last year. And this is basically due to a higher mix of propane, as Phil mentioned, it is also due to a better customer mix and lower material costs.

With respect to the EBITDA, we will talk about the causal factors for the change in EBITDA on the next slide.

Net income clearly a big improvement. I would point out to you that net income in the second quarter last year did include a substantial amount of money for business combination and special compensation payments. And finally, cash is better than the same period last year. And importantly, debt is considerably lower than in the same period last year.

So if we can move to slide 12, which is the bridge which walks us from quarter two of 2015 to quarter two of 2016. The first item I will talk about is cost reductions. The net cost reductions of about $1.6 million or about $750 a bus, lower material costs more than account for the cost reductions.

Phil mentioned that during the second quarter we launched the second shift in our assembly plant to -- it was a fairly slow ramp up so that we could be ready with high quality for the peak production period in the third quarter and leading into the fourth quarter. That launch cost us about $800,000. So we -- our other savings were a bit higher than the $1.6 million given that we covered off the launch in the second quarter.

Volume and mix was positive by about $1.1 million, about $300,000 of that was due to volume, the balance was due to a higher mix of propane and favorable customer mix. Other includes obviously the higher costs for both product and launch activities associated with our new initiatives.

Phil has talked to you about the powertrain upgrades; I will hasten to point out that none of those products are earning revenue for us at this point in time. The first one that will come in will be the Cummins ISV and then the Eaton Transmission in the third quarter. And then as Phil said, in the fourth quarter we will have sales of the gasoline engine and we are receiving quite a lot of orders for that.

So, that will improve our revenues in the third and fourth quarters and help offset some of the costs that we are incurring as we get ready to launch these important initiatives in Blue Bird.

If we move to slide 13, this is a look at free cash flow. You can see that we are on a bottom-line basis positive for each cash flow for the second quarter of 2016 of almost $26 million, substantial improvement versus the same period last year, negative $11.4 million. Although again I would point out if you look at that, we had the special compensation payment and we had the business combination expenses.

So on an adjusted basis free cash flow in 2015 would have been $14 million positive, still lower than the adjusted cash flow that we have achieved in the second quarter this year. So I think all in all good performance in cash flow and we will continue to generate cash through the balance of this year.

Finally, for me, slide 14 takes a look at our net debt leverage and liquidity. Our debt was $192.7 million; our net debt was $154 million after accounting for cash of about $28.6 million. Importantly, our net leverage ratio was 2.3 which was substantially below our covenant of 4.5, and liquidity stood at $83.5 million.

So, all in all better than the covenant and strong liquidity, so we feel like we are in good shape with respect to this. So I will now pass you back to Phil to discuss the outlook for 2016 and to wrap up before we go into our Q&A period. Phil.

Okay, thanks, Phil. So what I'd like to do now is focus on the balance of the year and our full-year guidance. So let's turn to slide 16. The new bus registration data provided by R.L. Polk, which you have seen before on this chart, illustrates seasonality in the school bus business and the chart on the right clearly shows that.

As we discussed in prior earnings calls, this seasonality is driven by the buying pattern of school districts [who traditionally] emphasized delivery and preparation of new business for the start of the new school year and by releasing municipal budgets as well to fund them. Usually it is after the May through July period.

Now this leads to much higher demand in the second half of our fiscal year of April through September causing about two-thirds of our annual vehicle registrations to occur in the second half, this is what we have seen year after year in our industry.

Now as we mentioned earlier, we have taken steps to add capacity in the second half of the year to ensure that we can better accommodate the delivery needs of our customers. And we are well positioned to handle the anticipated surge in orders and to meet school start.

From a sales standpoint at Blue Bird we are maintaining our forecasted sales projection of between 10,800 to 11,000 buses for the full year. And with first half sales of 3,540 buses already behind us we do closely [monitor] seasonality of industry registration. You can see that, when you just calculate it we are about 33% of our volume was booked in the first half of the year.

So let's now take a look at our full year guidance and turn to slide 17. Our second-quarter financial results were in line with our plan and we are reaffirming the full-year guidance we provided on our earnings call in December.

First, net sales revenue between $960 million to $985 million representing an increase of 4% to 7% over the prior year. Adjusted EBITDA between $72 million to $75 million, a $2 million to $5 million increase over fiscal 2015 or about a 3% to 7% growth. And free cash flow ranging from $30 million to $35 million.

Now while strong with plenty of adjusted EBITDA this free cash flow number is down from fiscal 2015 as we are choosing to increase our investment in new products, infrastructure upgrades and growth initiatives and, importantly, we are paying more taxes in fiscal 2016.

So let me now turn to wrap up on slide 18. We had a solid result in the second quarter with volume, net sales, gross margin, profitability and free cash flow all above last year's levels. Our results support our guidance as we expect significant growth in the second half supported by our production ramp up through the year with the addition of a second shift.

Our seasonal sales pattern will match typical customer demand timing as evidenced by our third-quarter production schedule being full. And importantly, about 20% higher than last year's third quarter. Our propane leadership position continues to be strong with a substantially higher mix of propane sales in the first half of this year where our unit propane bus sales were up some 46% from a year ago.

And we are on track to deliver four all new powertrains this year providing our customers with the broadest array of products in the industry and our gasoline bus orders are off to a really nice start.

Quote activity is well ahead of last year's levels which bodes well for sales growth in the second half and consequently we are reaffirming our full-year guidance. Well, that concludes our formal presentation. I'm happy to pass it back to our moderator, Darren, to begin the Q&A sessions. Over to you, Darren.

(Operator Instructions). Eric Stine, Craig-Hallum.

I was hoping to start with propane. I believe -- I just wanted to confirm, but did you say that 40% of the mix in the quarter was two new customers? I guess confirm that first.

Yes, 40% of our sales went to new customers in the quarter, yes.

Okay. And then maybe could you just focus on repeat customers? Just curious what you are seeing there? I mean when you look at those customers do you feel that it is now part of regular buying patterns of those customers where they go propane and they are very hesitant to do anything with diesel?

Or do you still feel like it is more of people sort of dipping their toe in the water and testing a little bit more here and there but that they have yet to really go full out on propane?

Well, I think on existing customers, Eric, we're definitely seeing folks very loyal to propane. I mentioned I think in my presentation that it is the highest loyalty product we have, it is substantially higher loyalty than diesel. What I mean by that is once a customer tries propane invariably they want to stick with it. And that is a very high percentage.

So we've seen a lot of the higher volume business coming from our existing customer base. But we are also seeing the less than 10 unit sort of levels of volume being acquired by new customers and we like that. Smaller volume but certainly we are seeing a very -- it is a very sticky business is the way to look at it. Very loyal customers for propane. It has been great for us.

When you -- maybe just turning to gasoline. When you look at gasoline, and I know that your propane launch goes back what -- it has been eight years, something like that?

Yes.

I mean are there any similarities that you see that maybe guide you -- because I have heard the same thing in terms of the demand for the gasoline offering coming here in fourth quarter. Any lessons you have learned or expectations you have for gasoline given what you learned with propane?

Yes. I think we have learned you have to go out and educate your customer base on what it is all about. Explain why we are doing it, what the advantages are very clearly. I mean in this case the tremendous gasoline advantage is it will be the lowest price bus that we offer. It is simpler, it is simpler product, simple to maintain.

I think I would say compared obviously with propane I mean I [wish] everyone operates a gasoline vehicle has had them in their own home, so they are used to gasoline. It is not a difficult sale. It is easy to -- when you take a long field trip with those school buses I can easily fill up with gasoline, it is no issue.

So, I think it is certainly -- what we have seen is people get it very quickly. I also think though having said because we have seen -- the fact that we have so much success with propane using the Ford engine and the Ford transmission, and we point out the gasoline engine uses the same engine, the same transmission, the same partnership, the same support, it is a great product (inaudible) sell to many of our customers.

Got it. And is it fair to say that when you think of sales there that gasoline likely takes away from diesel sales rather than propane or (multiple speakers)?

Yes, I think -- no, I do believe so. I mean look I have said all along the propane in my opinion is perfect for this industry. It is the lowest operating cost product in the business. When you look at it over the lifecycle it is the most efficient. But gasoline is also very simple and very easy.

And I think we are seeing a lot of folks who are -- who have sort of had their own issues with diesel, regeneration of the diesel engine, the emissions hardware, the complexity of diesel engines. Gasoline is a real simple product to get your arms around, and technicians are certainly looking forward to seeing that in the marketplace. So we feel pretty good about it.

Got it. Maybe just last one for me. Just great you have got the visibility you do into the second half and the second shift is coming on. Can you just remind us what you think that second shift means for your gross margins on the product side?

Well, we haven't really publicly given that data yet. I mean I certainly think -- from the standpoint of gross margin I think -- when we talk about gross margin about what comes out of the planned production levels of gross margin, I think we look at this as being very comparable to what we saw when we were operating on one shift. We pay a little bit of a shift premium, it is not that much. But at the same time we are making great use of our plant. And we are making great use of our labor force, our indirect labor, our plant facilities.

So, I think we certainly see moving to a second shift that we are able to really get a nice -- very effective gross margin contribution is the way to look at it. Obviously we aren't putting the same level of fixed costs in that we had to support that first shift. So I think we feel a [little bit] good (technical difficulty) going forward.

Okay, great, thank you very much.

Mike Baudendistel, Stifel.

I just wanted to ask you, you mentioned that ASP was up 2.6% in the quarter, you attribute that to product mix changes. I wonder if you could tell us on a sort of same equipment basis.

I'm sorry, Mike, I'm not -- could you help us a little bit with that?

I just meant if you sort of exclude the impact of the mix, I mean on similar pieces of equipment is pricing flattish, is it going one way or the other?

Yes, I would say the selling price was up a touch. But the way to think that through is there was a bit of a different customer mix in the second quarter versus the first quarter. So, and I think we have had this discussion before. Prices tend to vary around the country, so we had a little bit of a stronger customer mix there.

Okay. Okay, and then I also want to ask you, I guess to follow up on the last analyst's question, I guess historically have there been any special costs or productivity issues when you bring on a large number of new employees, which it sounds like you are doing here in the second -- in the third quarter?

Well, we have gone through a pretty -- I think I mentioned we took a fairly slow ramp up to this. And what I neglected to mention was we put the new employees through an extensive training program -- off-line training, basically classroom, which was done with the cooperation of the state of Georgia where we taught them about quality, we taught them about safety, we taught them about good operating practice.

And then we introduced them into the line while the rates were low and they got the chance to figure it all out. So I think in this case the manufacturing team has done a really nice job of ensuring that the people that go on the line are going to produce quality buses. It can happen in these assembly environments, that if you just throw people on the line without adequate trading you will get all sorts of bad habits.

Okay, that is good to hear. And then the last one for me is I just wanted to see if you had any expectations for gross margins on the new products whether it is a V-8 engine or the gasoline engine. You expect that to be sort of in line with your current diesel offering or any different?

Well, we haven't talked about it a lot, but we think as we can put a bus in the market that is a lower cost base it should allow us to improve a bit.

Great, that is all for me. Thank you.

John Rolfe, Argand Capital.

So, on the first-quarter call, which was, whatever, three or four months ago, you guys had indicated that you expected first-half volumes to be down about 4% to 6% year over year. And you ended up coming in with volumes for the first half down about 10%.

You now have I guess production locked in for 3Q up 20% year-to-year, which is very strong. So I guess there is too possible explanations that I can think of. One, the seasonality is even more pronounced than you were expecting several months ago. Or alternately possibly some production might have slipped from 2Q into 3Q.

So, was one of those responsible for sort of that shift? Or is it a combination of both? Or is there some sort of (technical difficulty) that I am not thinking of?

Yes, John, this is Phil Horlock. I mean you are spot on about it being a bit of both, really. But let's just put in perspective here. The actual change in the volume projection was 150 buses. And actually we produced 150 buses, we had a couple of customers who wanted to inspect those buses before they would release them.

So while we built them in the second quarter they will be booked as a sale in the third. In fact, they are already in the course of being inspected right now and they will be released. So it is just -- that is all it is going -- it is just lumpiness of our business we have between quarters that we had to deal with.

And was -- not that this is even terribly relevant, but was that the technical accounting issue that was referenced in the delay of the 10-Q?

No, that was nothing to do with that. That was just simply something just took a little extra time for us to get through and that was no issue at all to do with this, no.

Okay, okay. And so then, just to close the loop on the volumes. Then if I plug in that 20% year-to-year volume growth in 3Q, in order to get to the midpoint of your volume expectations for the full year, you only need to show sequential growth in 4Q on a volume basis of about 5%, which would actually be well below what you have booked for sequential growth in 4Q each of the last two years.

So, is there any additional color you can kind of give there? I mean again, is it just this sort of lumpiness you are talking about year-to-year and there is really nothing else material going on with the trends with respect to seasonality?

Yes. I think at this time it is. I mean it is -- we would look at it right now and we look at what we're going to deliver in the third and the fourth quarter and to meet that range we mentioned earlier, I think. Yes, we would like to get these buses delivered earlier if possible so schools can have time to get them all prepped and ready for school start.

So you sort of get the job done for the year earlier if you can. So you are already -- by the end of August you are nicely done and I think you can worry about the next fiscal year. So, hey, if we can beat it we will beat it, but right now that is our projection is around that 10,800 to 11,000 number.

Okay, great. And just one more question. It has been impressive the increases in quoting activity. Could you address to what do you attribute these really significant increases in the quoting activity? And then secondly, any sort of qualitative color you could give on quoting activity conversion rates? I mean have those been in line with what you would hope or what you have seen in the past? How has that been trending?

Yes, I think -- I definitely think there is more -- I would think the [industry] is going to be up about 4% to 5% this year, more like 4%. So I think there is definitely more money available out there for school districts. And what we are seeing is a lot of school [districts] out there putting bids out, seeing what is available, encouraging all the manufacturers to bid for them.

I would say also that we have got some new vehicles out there we have never had before which is encouraging people to, hey, let's take a look at that product. May have thought of having a diesel previously, I am going to put a bid out, take a look at your new products out there.

I think (inaudible) probably the last point is that we are -- we are aggressive in looking at every opportunity. We try to make sure that we don't leave any stone unturned and (inaudible) deals to find those bids we go heavy on it. And we make sure we aggressively pursue every opportunity out there and every school district and every state.

Okay. Okay, great. Thanks very much. Appreciate it, guys.

Hey, did you have a question there on conversion rate by the way that I didn't answer? I think he did. Okay, so he dropped off, okay. Okay, any further questions?

Chris Moore, CJS Securities.

Just a couple quick ones; most of them have been answered. But you talked about currently 64 buses a day reaching 70. Is that a function of the specific buses that you are building? Can you do more diesel than you can propane or is there much of a difference there?

Between a basic what I call a type C diesel engine, a propane, yes, we can build that. That is a typically -- I call it typical spec type vehicle, [72] buses a day. Obviously if we get a very complex bus with lots of options in, a lot of content in that skews our mix it might be a little bit less than that.

We actually plan on the number of hours we can actually quote to building a bus every day. But 70 is like the nominal level. But some days you might build 68, you might build 72 depending on the mix. But 70 is a good capacity we plan on.

Got you, okay. With respect to the trajectory on the propane mix, obviously very big increase year over year. Longer-term do you think you can get this north of 30%, in the 35% range or any sense as to what can happen over the next year or two?

Yes, I look at it right now, we are at 18%, as we said, in the first half of the year. And we definitely think there is potential to take it up well above 20% and keep growing this business. So we are -- yes, I mean we are not putting a number out there saying it is 30%-35%, we are just going to keep being aggressive on it year after year, that is all I would say.

But, yes, certainly look at the trajectory we have been on the last few years, it has been great growth for us and we really believe in this product as do the customers. So I think certainly we see a lot of growth potential for this product for us.

Got you, okay. All right, guys. Everything else has been answered for me. Thanks much.

If there are no further questions I would like to turn the call back over to Mr. Phil Horlock for closing remarks.

Okay, I would just like to say thank you all for joining us on the call today. We appreciate your continued interest in Blue Bird. And I'll let you know -- I think you can see we are very focused on profitable growth, giving customers the products they want and they value and we intend to deliver on our commitments.

We do strive to be shareholder friendly and in this regard slide 21 does show our upcoming investor conferences. And we would be more than happy to meet any of you there. Please don't hesitate to contact our Head of Investor Relations, Jeff Merten, should you have any follow-up questions. So, thanks again from all of us at Blue Bird and wish you a good evening. Thanks.

This concludes today's teleconference. Thank you for your participation. You may disconnect your lines at this time.