Blue Bird Corp (BLBD) 2016 Q4 法說會逐字稿

Welcome to the Blue Bird Corporation FY16 fourth-quarter and full-year conference call and webcast.

(Operator Instructions)

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mark Benfield, Director of Investor Relations. Please go ahead, sir.

Thank you, Kevin. Welcome to Blue Bird's fiscal fourth-quarter and full-year 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.

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 releases and filings with the SEC. Blue Bird disclaims any obligation to update the 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?

Well thanks, Mark. Good morning, everybody. Thank you all for joining us today for our fiscal fourth-quarter and full-year earnings call. We welcome this opportunity to share our latest quarter results with you. It's been a very busy year for us and we've made significant progress in FY16.

So before we cover Blue Bird's performance, let's first turn to slide 4 and take a look at the overall size of the school bus industry and importantly, its relevance in transportation. As a reminder, there are over 0.5 million school buses on the road in the United States and Canada, transporting 26 million children to and from school each day. It is the largest mass transit system in the US and Canada, at about 10 times the size of all other transit bus systems combined.

There are three major manufacturers, with each having between 30% to 35% market share. Approximately two-thirds of all school buses are purchased and operated directly by some 10,000 school districts with about 3,400 independent contractors purchasing and operating the remaining one-third of buses on the road today. Bottom line, it's a robust and institutionalized transportation system and it's a well-supported industry.

So let's see how the new school bus industry fared in FY16. Let's turn to slide 5. At 32,700 [rig] buses, new vehicle registrations for full-year FY16 were the highest since 2007. This was an increase of 9% over FY15. Clearly, this is a strong increase but it should be noted that vehicle registrations can lag booked OEM sales to dealers and national fleets by several weeks or even months.

We estimate that the FY16 industry as measured by auto [poll] registrations benefited by between 1,000 to 1,500 units from the surge in deliveries for school start in the fourth quarter of FY15. In other words, the OEM sale was recognized in FY15 but the vehicle registration by the end customer was recognized in FY16. So the underlying real industry growth was probably between 5% to 6% in FY16. Nevertheless, the new bus industry exhibited another solid year of growth.

In particular, vehicle registrations through the dealer network were very strong, with 12% growth across the entire industry. Importantly, at Blue Bird, we saw 18% growth in registrations for sales through our dealer network. As you will see later, this translates into higher Blue Bird market share. Seasonality in our business remained similar to prior years with about two-thirds of all vehicle registrations occurring in the second half of the fiscal year.

We saw industry growth in the registrations of alternative fuel powered school buses, up from 6% to 9% of industry, propelled substantially by the growth in propane bus registrations, which were up 77%. Incidentally, for Blue Bird, our propane registrations represented 22% of our total sales. The need to replace older buses and increased funding from higher property taxes bodes well for continued industry growth next year.

Let's now turn to Blue Bird's performance on slide 6. Full-year market share of 31% was up 1 point. Importantly, our market share from sales through the dealer network was 32%, up 2 points. This was buoyed by the 18% growth in vehicle registrations through the dealer channel that I mentioned on the previous slide. This is a great result by the Blue Bird dealer network. We sold just over 10,600 buses in FY16. That's a record for our Fort Valley plant and made possible by the second shift we added in January.

Now, while fourth-quarter sales were down 160 buses from a year ago, both the fourth quarter and full year were impacted by the delay in emission certification and consequently shipments of our new gasoline engine. We estimate this resulted in up to 400 fewer gas powered bus sales in FY16. Nevertheless, following that late certification, we were able to ship 406 gasoline engines in September that we had previously built.

We continue to lead in propane powered bus sales, securing more than 75% share of total propane registrations in 2016. Importantly, at 2,340 propane bus sales, we saw a substantial 33% increase in our sales over FY15. That is a terrific result and represents our ninth year in the propane bus business. No one can match our experience in this sector.

We delivered full-year financial results in line with guidance on our key financial metrics: revenue, adjusted EBITDA, and adjusted free cash flow. While fourth-quarter volume and financial results were down a little from last year, it is worth remembering that this was following an outstanding third quarter, when our unit sales were up 26% with corresponding growth in profitability. Bottom line, this was a strong year for Blue Bird.

Let's now turn to our operating achievements on slide 7. I covered many of these significant achievements during the third-quarter earnings call and each initiative will make us more competitive and support our growth going forward. In particular, the launch of four new powertrains: gasoline, V8 diesel and Eaton Transmission in FY16; and our all new Type-C CNG engine that was launched in the first quarter of FY17, provide us with the broadest array of engine choices in the industry, each one with a unique value proposition for the customer.

Together with propane, our new gasoline and CNG engines provide three modern, powerful and affordable alternatives to diesel, all using the same Ford/ROUSH CleanTech engine platform. That is product simplification that customers and technicians really appreciate.

A brand-new achievement is the refinancing of our term loan and revolver that we just completed. Phil Tighe will cover the details later, but at very competitive terms, we will reduce our interest rate by 4 points and will save about $4 million in cash interest expense in FY17.

Last, I'd like to acknowledge the terrific performance by our Type-A bus, Micro Bird. Our joint venture in Quebec sold a record number of buses in FY16, almost 3,000, and secured market share leadership in Type-A school buses across North America. That's a great achievement by the Micro Bird team.

Let's now turn to an area where Blue Bird's strives to be the clear leader, alternative fuels on slide 8. Blue Bird's propane powered Vision bus continues to be our number one product differentiator in the market, with 10 times more propane buses registered on the road today than all of our competitors combined. Our propane Vision bus also had registered the highest owner loyalty in the industry. We sold 2,240 propane buses in FY16, up 33% from the prior year.

We launched gasoline late in the year and sold and shipped 406 gasoline powered school buses, all in the month of September. We are really excited by the customer interest in this product. We're the only OEM to offer a gasoline engine on a large school bus. Together with our latest Type-C CNG offering, we have a compelling and broad range of engine choices, the widest in the industry. All together, our alternative fuel bus sales in FY16 totaled 2,752 units, representing 26% of our total sales. We are the clear leader in this space.

As a reminder, our proven, modern and efficient propane engine is contractually exclusive to us, as are our new gasoline and Type-C CNG products, developed and supported by our partnership with Ford/ROUSH CleanTech. At Blue Bird, we believe in being first to market with differentiated products that customers want and value. Where we can, we strive for exclusivity. Our alternative fuel results are a clear demonstration of this. Let me now turn it over to Phil Tighe, who will take you through the financials. I'll be back later to cover the FY17 outlook and guidance. Over to you, Phil.

Thank you, Phil. Good morning, everyone. It's my pleasure to present you with the financial results for Blue Bird Corporation for FY16 fourth quarter and full year. Just as a reminder, the fiscal year for Blue Bird is a 52/53 week period. The closing day for each quarter is the Saturday closest to the last calendar day of each quarter. So for the fourth-quarter and full-year material we are discussing today, it's based on a close of October 1, 2016 for FY16 and October 3, 2015 for FY15.

Mark mentioned that we use a number of non-GAAP measures in this presentation, due to the fact that these are generally the metrics used by management in the business. We have included important pages that walk from the applicable GAAP to non-GAAP metrics and a discussion of the uses of the non-GAAP measures. We would remind you to consider these as you read the results. Finally, we will be filing the 10-K this week. For any of you who are looking at it, it's probably going to be filed tomorrow.

Okay, if we can move to slide 10, which is a financial summary. This slide shows the results for 2016 for a number of metrics with comparison to 2015. We felt it was useful to present the slide in this fashion. We showed it, I think, in our last full-year earnings call, as it shows also the impact of seasonality in our business. We keep talking about this but I think it's worthwhile when we see the full year laid out to have a look at what the differences are between first half and full year. If you look quickly at the chart, you can do the math later, but volume in the first half in FY15 was 38% of the full year, in FY16 was 33% of the full year.

Revenue followed pretty much the same pattern. Profits are actually more pronounced seasonality, with around 25% of the profits in the first half and 75% in the second half. That's really driven by a rather stable fixed cost or operating expense view by quarter versus some pretty severe moves in volume.

As Phil mentioned, Blue Bird sold 3,308 buses in the fourth quarter and generated $289.4 million of revenue. Volume was down about 4.6% in the fourth quarter. Again, this was due to the late release of the certification for gas buses. Revenue was down about 6.9%. Again, due to the volume of 160 units and also due to a lower per unit average selling price, which was the combination of 400 gasoline units. They have a lower revenue than diesel units, although they have a very strong margin, and the non-recurrence of a very high revenue CNG fleet that we did in fourth quarter of 2015.

It's worth pointing out also that fourth quarter in 2015 was actually the highest sales quarter whereas in 2016 the highest quarter was the third quarter. So if you look at a half-to-half basis on the year, second half of FY16 was 7,076 units or about 10% higher than the second half of FY15, which we think was a great result. The full-year sales were 10,616. They were 238 units higher than the prior year.

Revenue of $932 million was an improvement of around $13 million. The improvement in revenue is really due to volume offset by some adverse mix. Revenue, as Phil indicated, was in line with guidance. Sales included around 10,100 school buses. Then it also included commercial buses, exports and sales to the government. Just in commenting on mix, one of the things that impacted us in revenues was, direct fleet and government sales were down versus the prior year.

We're on slide 10. These were areas where Blue Bird had expected to get more volume, but purchase requirements changed with the government and the fleet people. Adjusted EBITDA on the lower right-hand box -- lower left-hand box was $24.3 million for the fourth quarter, which was down about $4.7 million from the prior year. Again, this was due to lower volumes and an increase in operating expenses. Gross margin importantly for the fourth quarter was about equal to FY15.

The full-year adjusted EBITDA of $72.2 million is slightly above guidance and $2.3 million better than FY15, due to higher volumes and improved gross margins. This is somewhat offset by capacity costs, new product costs and personnel increases. Our full-year margins of 7.7% on the bottom right box was slightly above FY15. You can see we had very good margins in the third quarter and good margins in the fourth quarter.

If we move to slide 11, this is a brief look at the move from full year of FY15 to full year of FY16. So the total move was $2.3 million. You can see that bus gross profit was up about $8.9 million or almost 9% due to increased sales and improved gross margins. Gross margins for the full year were about 13.9% for bus, which is up about 80 basis points. The margin improvement was to some degree also driven by lower material cost efficiencies. The resulting cost of goods sold reduction was about 1.5%, due to material cost reductions and efficiencies. There was a partial offset in mix.

Parts gross profits were largely the same year-over-year, about $0.1 million improvement despite some lower revenue due to some changes in distribution of cameras and one less week of selling in FY16 versus FY15. Operating and other expenses were up about $6.7 million. This is basically due to spending on new products, higher salary costs associated with supporting the second shift, salary economics and some increases in group insurance and pension expense that was, I think, driven by the change in the discount rate.

Operating expenses on an adjusted basis were about 7.3% of revenue in FY16, which is well below our long-term view of about 8% as an affordable cost. At the bottom of the slide you can see adjusted income from continuing operations was pretty much flat at about $30 million, with higher taxes offsetting lower interest cost and increased income from our Micro Bird joint venture.

Slide 12 takes a look at the fourth quarter. Just briefly, you can see the fourth quarter is down. We had lower volume and some margin issues worth about $2 million. The real issue with the margins was the non-recurrence of a CNG -- a very profitable CNG deal which occurred in 2015. Parts gross profit was down about $0.2 million, again due to lower sales. Operating expenses were up about $2 million due to the same issues that I discussed previously. Again, at the bottom of the slide you can see the change in adjusted income from continuing operations. That was down by about $3.9 million to $13.4 million.

We move to slide 13, which is free cash flow. This slide shows the trend of free cash flow and adjusted free cash flow for 2015 and 2016. Free cash flow adjusted for business combination and special combination payments was $44.6 million in 2015 and $33.3 million in 2016. The $33.3 million is in line with guidance.

The reason for the higher number in 2015 was that we spent less CapEx in 2015 than we did in 2016. We took the opportunity in FY16 to make a major restructuring of our IT infrastructure with new data centers and all new servers. This is very good for us from the percent -- from the point of view of reliability and security, all important things in the IT world. I think that's a positive thing that we've gone ahead and done that.

Taxes in FY15 were lower. Also FY15 had a one-time reduction in inventory that flows through but you want to get -- you get to record the good news one time, unfortunately. So, that's really the difference between the two years. Again, the $33.3 million was in line with guidance. Our outlook will continue to be in the $30 millions for adjusted free cash flow.

Slide 14, net debt. This is very good story. Our net debt at the end of FY16 was just on $100 million, including $52 million of cash. The net leverage ratio, which is the important ratio with the existing -- with the then existing loan was 1.7 versus a covenant of 4, so as you can see lots of cushion in there. Liquidity stood at $107 million.

Briefly, I'd like to talk to you about slide 15. There will be a filing with respect to this. Our prior credit agreement, which was led with Soc Gen was an initial term loan of $235 million with a revolver of $60 million. You can see some of the key highlights of that term loan and revolver listed on this page. The interest rate was LIBOR with a floor of 1 and 5.5 points, there's 5% amortization and the revolver at $60 million.

Yesterday, we actually closed on a new loan agreement to replace the Soc Gen agreement. The new agreement is led by BMO, with support from a number of other very solid banks. The new loan is for $160 million for the term loan, which replaces what was outstanding on the Soc Gen line. The revolver increases from $60 million to $75 million.

You can see the grid for the pricing. So effectively, we're going to be at around about 2.7% on the interest rate versus the existing level of 6.5%. Amortization for the next three years is still 5%, but that's on $160 million versus the $235 million in the old loan. The revolver size was increased by another $15 million to $75 million. All in all, this has been a great piece of work by a lot of people. We had a good relationship with the Soc Gen team. We're looking forward to the same type of relationship with BMO and the banks that are in the new syndicate.

If you look at the impact of it on our ongoing net income and cash flow, the full-year interest saving will be in the range of $4 million to $6 million, probably $4 million in FY17 on a before-tax basis because it's a partial year. We will have another $4 million saving in our amortization. So both a good increase in bottom line profits and a substantial increase in cash flow. So with that, thank you for your attention. I'll pass it back to Phil Horlock and he'll talk about the outlook for 2017. Thank you.

Okay. Thanks, Phil. So let's now shift our focus now to FY17 and turn to slide 17, please. As the headline says, we are forecasting continued growth in both the industry and for Blue Bird. We are projecting new bus sales growing slightly from 32,700 buses in FY16 to 33,000 buses in 2017, this is for the industry. You'll recall earlier that I mentioned how the lag between bus sales and registrations appears to have boosted the industry registrations in FY16.

Now, when we adjust for this, we see real underlying industry growth of about 4% to 5% in FY17. That's a really nice, strong projection as we look forward and shows a robustness, I think, of the school bus industry. We are forecasting Blue Bird unit sales growth of between 6% to 8%, outpacing the industry growth and supported in part by the full-year availability of our -- all of our new engine choices.

How are we doing today? Our order backlog and quote activity remains strong, up from last year. With the [C part] of our business, we project growth in financial performance particularly in the second half of the year with higher sales in support of school starts. You've seen this before, it's typical of our business. Growth tends to happen in the second half of the year as schools gear up for their new buses in support of the new school year. That said, we are continuing to invest in the development of new and exciting products that will foster future growth. We are mindful of increasing commodity prices, particularly steel.

So let's now turn to FY17 guidance on slide 18, which reflects these factors. Growth is projected in each of the three elements in which we provide guidance. We are projecting net sales between $980 million and $1.010 billion, up $48 million to $78 million from FY16. Adjusted EBITDA, we are forecasting guidance at $72 million to $76 million, flat to an increase of $4 million. Adjusted free cash flow, as you know, continues to be a strong feature of our business model, representing over 50% of our adjusted EBITDA. We are providing guidance of between $38 million to $42 million, an increase of $5 million to $9 million over FY16.

So in wrapping up, we had a strong FY16 performance, both operationally and financially and we met our guidance. We look to continued growth in FY17 and our guidance supports this. We'll continue to update you on our progress each quarter. Well, that concludes our formal presentation. I'll now pass it back to our moderator, Kevin, to begin the Q&A session. Over to you, Kevin.

(Operator Instructions)

Our first question today is coming from Eric Stine from Craig-Hallum. Please proceed with your question.

Good morning everyone. Maybe -- well, you mentioned seasonality and that you expect this year's first half to be flat versus last year's. But just so we're thinking about the first quarter correctly, is this something where we should also expect a similar first quarter to last year's? Or is it something where because of the gasoline bus and maybe some volumes that flowed into 2017, that it could be skewed a little bit?

Good morning, Eric. No, I think when we look at the first quarter, it is such a slow quarter. I mean, you're talking October through December. We have Thanksgiving. We have Christmas vacation. We have shutdown period. It's right after school starts. It tends to be -- it is by far the slowest quarter. I think the first quarter is, looking at last year, it's going to be somewhat similar to last year's performance. Surge is going to be late in the year as we always see.

Okay. Got it. Can you just remind me how you manage the second shift? Because clearly you can handle significant volumes, end of the year, just how you managed that in the first quarter? Maybe how that plays into your strategy of getting into the commercial bus market and the international market.

Yes, Eric, this is Phil. We elected to maintain the second shift in the first quarter, albeit at lower line rates. So when the second shift is fully operational in the second half of the year, it's at 70 jobs a day. In the first quarter and second quarter, we're holding it in the high -- in the 50s. This allows us to hold on to some people that we spent a lot of time investing in skills. We don't want to lose those folks. So there's a bit of a cost penalty probably in holding that, but in the long run, I think, we save in efficiencies and quality by hanging onto the skill set.

Got it. Thank you for that. Maybe -- could you or I just want to turn to -- well, the overall market and also what you're seeing, but I know 2016 was relatively quiet in terms of the large contractors and activity there. Any thoughts on what you may see in 2017 on that front?

Yes. Well, the contractors we deal with, they're still working on what their plans are for the year. Typically that will pick up in the January/February time frame. It's early days yet for contractors. Obviously, we typically sell a lot of buses and we have a great relationship with STI, as you know, Student Transportation Incorporated. We'll look to do business with them again this coming year, but I think it'll be more -- you'll start to see that coming in the second quarter, those orders appearing.

Okay. I will save that question for later, then. But maybe I guess last one from me, just more high level as well, but with what happened in Tennessee, what was it about a month ago, there's been talk of seat belt legislation. Curious, is there a retrofit opportunity for you? Or is this something that -- I know there's been this backlog of buses that are well beyond their useful life. Do you think that this is potentially something that maybe speeds that replacement cycle?

It's possible. Here's the thing, we offer seat belts, we offer lap belts, we offer three point seat belts in all our products. They're all engineered in. We offer them to school districts. It's their choice whether they want to take them. We are able to have -- we offer convertible seats as well. So in fact, we offer seats that can be retrofitted later on with those three point belts. It's up to the customer to do that. We just want to give the customer those choices and flexibility. We've been successful in doing that in the past. We look to continue to do that going forward.

Okay. Thanks a lot.

Thanks, Eric.

Thank you. Our next question today is coming from Mike Baudendistel from Stifel. Please proceed with your question.

Hello, thanks. Good morning. Just wanted to ask you on the 2017 guidance, it looks like the implied EBITDA margin is showing just a little bit of degradation, maybe 20 basis points or so. Can you walk us through the change in EBITDA margin from 2016 to 2017? I wonder if that maybe would have been up, with a little bit higher revenue.

Yes, Mike, this is Phil Tighe. We're being a little cautious. We're seeing some upward ticks in some of the commodities, particularly steel, where the second half of last year was pretty good for us on steel. We bought very well. We're not seeing that we can hold onto that position. We think the price levels are going to go up. So we're expecting some -- we're expecting to pay more for steel ourselves. We're expecting to see some pressure coming from some of the suppliers who are heavy steel users.

Steel is really the one that we're starting to focus in on, but there are a number of other commodities that appear to be ticking up during the year. As you know, in the school bus industry you don't necessarily get to flow through cost increases as they occur. So that's really where we're seeing a bit of margin degradation from 2017 to 2016.

Just one thing, Mike, I would say on this is that, if you look at the range we gave on the adjusted EBITDA guidance, we are cognizant of this. As Phil said, we watch it. We're mindful about it. We've sort of been a little cautious I think as we put our plan together. We listed the guidance out there. But we'll continue to -- as I said before, we'll continue to look at this each time we report on our quarter results and right now, they're strong.

We had a really good year last year in terms of material costs. I mean, our team worked extremely well with our supplier base. We saw a lot of savings there. The question is whether you can hold onto that in FY17. I think we're being prudent right now. I think it's the way to do it. We like to come -- we like to be able to come each quarter and show you solid results. We'll just take it quarter at a time is the way we look at this.

Thank you. That's great detail. Also I wanted to ask about ASP. It looks like from the guidance, it's implied that it's maybe flattish in 2017 versus 2016. Maybe you can just walks us through how we should think about ASP, given that you're selling more propane buses, which are high ASP at the same time, more gasoline buses which are lower.

You sort of just about summarized it for us, Mike, thank you. So basically, we do expect to see propane continuing to grow in 2017. We expect to see gasoline probably grow quicker than propane because it's still in that launch phase. We saw pretty high demand for it when we first announced it. That slipped off a bit when everybody realized that we weren't going to be able to provide a lot of the gasoline buses for the start of the new school year in the August/September period. We're seeing a lot of activity around gas and expect quite a high mix of gas in FY17.

As we said, the reason we brought gas into the school bus world is it offers school districts the absolute lowest acquisition price and a very competitive ongoing maintenance cost structure. So, the fact that it comes in at that lower price and we're expecting to see quite a spike of gasoline in 2017 is going to sort of reduce the average selling price. So yes, you've got higher propane on one side boosting it up and gas engines on the other side dragging it down. We sort of ended up back where we started from.

Okay. Great. That's helpful. Then also I just wanted to ask, in one of your recent presentations at a conference you mentioned that you're in the process of upgrading, some upgrading of your dealers is required. Can you just explain exactly what you're doing? How far along you are in that process?

Yes, there's a few -- several things we're doing there. We have around let's say around 50 dealers -- dealer principals, if you like, who operate in all the states and provinces across North America. We've put in a very dedicated dealer development activity, working under Mark Terry, our Chief Commercial Officer. Their role is to really work with each dealer to maximize their representation of their individual markets. That's really what we do.

It's one thing -- this has been a product-led recovery, a dealer-led recovery, a quality improvement-led recovery. I've looked at all these things we've done over the last several years and now it's the dealer side. I think you can see this last year. The fact that registrations in the dealer network was up 18%. We have a lot of dealers who are knocking the ball out of the park. Our very best dealers -- our very best dealer has a 75% market share in their territory. The other end of the spectrum, we're averaging 32% share so we've got some other dealers below that level.

So what we're going to do is work very proactively with many of our dealers to move them up that market share and help increase their penetration. I would also add that we've been proactive in bringing in new dealers to improve our situation. We just launched a new dealer in South Carolina, Blanchard, replacing Palmetto Bus Sales, who have been the dealer there for a long time. We're very excited.

Blanchard is also the Caterpillar dealer in that state. So it comes with tremendous service facilities, a great brand name in the state of South Carolina and has really launched very, very effectively. So it's just going to be a combination of working with our dealers, together with our dealers, improving their capabilities through everything from: new bus sales, used bus sales, parts and service, our representatives across the state. Where we can and where we need to, we will look at alternative dealers where we -- if we see that we can't make the progress we want to.

Great. That's all I had this morning. Thank you.

You bet. Thanks, Mike.

(Operator Instructions)

Our next question today is coming from Scott Blumenthal from Emerald Advisers. Please proceed with your question.

Good morning, gentlemen.

Good morning.

Good morning, Scott.

Phil, might you be able to give us any more information regarding your progress in the commercial market? Maybe some metrics around orders or inquiries or anything like that?

Yes, it's early days yet, I don't think we're ready yet to give you any -- declare a fit statement on where we are. I will tell you this, we're very active on the road with our dealers. We have demo commercial buses on the road every day of the week, visiting customers, who are new, if you like -- relatively new to the Blue Bird commercial bus brand. We have been quoting a lot of business in the last two months. These just take a little time to progress.

I think this is a good one I think for maybe upcoming quarters, Scott, when we can tell you the progress with these. Very much a work in progress right now, but I can tell you, a lot of interest, a lot of excitement about the product. Customers love the price point that we have for our 50-plus passenger, very nicely appointed commercial bus. Of course, we were at the BusCon show just about two to three months ago in Indianapolis, where we received first and second place in bus of the show.

The first place was actually the new Micro Bird with a unique commercial product. So we won that. We won the bus of the show with that one with a mid entry door. The second place was to our rear engine diesel bus, commercial bus. So I guess what I'm telling you is a long winded way here, a lot of excitement, a lot of interest, early days yet but we're certainly quoting business and look to give you a good update as the year progresses on that one.

Okay. Then maybe something -- might you be able to tell us anything about V8 diesel uptake at this point?

Yes, I mean, the V8 diesel, again, we're quoting that business. Obviously that business is -- when you think of the entry level product, it sort of competes with our other entry level product, the gasoline engine. But I'd say both of them, quoting a lot of business. Again, early days here. Here we are in December, this is a slow part of the season, so-to-speak.

I think that's something we'll see growing as more activity, we get closer to school start, you'll start to see those bips pick up and then volume picking up. But right now it's in the mix. Every single customer we talk to, we always quote let's give you the V8 diesel, let's show you the price of the gasoline. A lot of interest, but again, early days yet in our fiscal year.

Okay. I appreciate that. Good enough. Thank you.

Thank you, Scott.

Thank you. Our next question today is coming from Chris Moore from CJS. Please proceed with your question.

All right, thanks, guys. Just I know you don't break out specifics on the gross margins but kind of on a relative basis, I want to make sure that I'm looking at it correctly. Is it fair to say that the propane bus has the highest gross margin then it would be CNG and then the gas? Or can you just give me a little help in terms of how to look at that?

That's about right, Chris. The propane is still the best overall gross margin vehicle. Even as the volume has grown, we've managed to maintain a reasonable premium for propane versus diesel and I think that's in recognition of the savings that come with propane over the life of the bus. So that continues I think to be a great product for us and a very good investment for school districts.

If you look at -- if you really compare gasoline to diesel, the thing there to think about is, I think -- again, you've got to talk specific bids or -- but I think on an apples-to-apples comparison, gasoline you sort of get a lower price but the same margin as a diesel at a higher price. So that's a way to think about it. CNG is sort of spotty. There's not a lot of CNG buses sold, so it's a bit hard to really look at it and CNG -- CNG sales depend heavily on subsidies that come from various grants. So the CNG margins can look great but there's not much volume to them.

Got you. Okay.

One thing I would mention, just on -- I can just give a little bit more color and flavor on this. I'm a huge believer in propane. I truly believe -- we talk about the biggest differentiator. I believe it the industry's biggest change in the last 20 years. Yes, there's a premium for it when we price for it. But the benefits you get, the customers see it and they understand it. There going to say, even at today's depressed prices for diesel, they're going to save about $3,000 a year in fuel and maintenance savings.

Aside from that, the quietness of the vehicle, the cold weather start capability, simplicity of the engine, the lack of expensive and technically challenging emission hardware makes it a tremendous proposition. So we do charge a premium for it. There's a lot of technology in that product. We also -- we train our customers how to -- we talk about training and education. This is why we can justify that price. When you look at it, though, despite that premium price, our sales grew 33% last year. 33% in our ninth year of offering propane, we grew 33%.

So I think it shows you the traction this product has and the excitement about it that you can -- when you get the right product, you can charge a premium because it's right for the customer and they understand it and they get the payback very quickly and they got the best technology and best solution on the road. In a nutshell, like I say, I think it's our -- it's product we're very, indeed, we're very excited about. I think the growth we have in that business shows that, the customer likes it too.

Got you. Thank you. Last question. Again, on seasonality, I know 2015 Q4 was the big quarter, 2016 Q3 and that was obviously impacted by the gas buses in Q4. But any reason to think moving forward that Q3 or Q4 is necessarily going to be the big quarter or could flip-flop on a year-by-year basis?

I think, Chris, the answer to the question is it will move around on a year-by-year basis. Quite frankly, personally I tend to look at it at half to half rather than at quarter-to-quarter. Quarters can get really squirrelly based on the timing that orders come in and the delivery dates. I think you sort of managed to even the pattern out a bit on a of half-to-half basis. I understand that we have to report quarters because that's the way we report, but if I was -- and I tried to point it out on that long and horrible explanation I gave on one of the earlier slides, but if you look at that -- if you look at that chart with the four quarters, I would tend to study those on a half-to-half basis if I was you.

Right. Fair enough. All right. Appreciate it, guys.

Thanks, Chris.

Thank you. Our next question today is coming from Peter Van Roden from Spitfire Capital. Please proceed with your question.

Hi, guys.

Good morning, Peter.

Good morning, Peter. It's a bit early over there.

Just a quick couple quick questions for you. On the adjusted EBITDA guidance, does that include any allocation for stock-based comp this year?

No.

Okay. Got it. Then I'm a little bit -- I was a little bit curious because if I run the math on your prior credit agreement versus the new one, I get to a much higher cash savings than kind of a $4 million number. So, do you guys have to make a payment in the beginning of FY17 that is causing cash interest to be a little bit higher than the implied savings?

So in FY17, Peter, to start with, we're really going to be dealing with less than a full year, which would reduce the savings maybe by a quarter. There are some upfront fees associated with changing over. There's always lots of lawyers to pay. So I think maybe that's where we could be. So I think that's where we could -- you could be seeing a sort of a shortfall to what you would expect.

Got it. Then finally on the EBITDA margin guidance, sounds like it is commodities that are kind of holding back margin growth relative to the sales growth that you guys are forecasting. In years when you've seen kind of commodity pressure, is it possible to try to improve pricing? Just walk us through the dynamics there.

We have seen pricing for commodities a few years back, Peter. I think if commodities do start to spike, there is an opportunity. We have to be very careful, because again, this is a bid based business. If the competitors don't follow, that's a problem. But right now, we're planning for commodity increases, based on the projections of the firms out there that forecast commodities. So we've got the plan for the increasing prior to really getting any offset with revenue. If the increases do in fact occur the way that the indices suggest they might, then I would suggest that probably in FY18 we'd be looking at a revenue recovery.

Got it. Okay. Thanks so much.

Thanks, Peter.

Thank you. We have reached the end of our question-and-answer session. I'd like to turn the floor back over to Mr. Horlock for any further or closing comments.

Yes. Thanks, Kevin. Thanks to all of you for joining us on our call today. I have to say, I appreciate the questions. Those are really good and I appreciate your continued interest in Blue Bird. I can tell you that we're focused on profitable growth. We intend to deliver on our commitments. We're well positioned today for growth not only in FY17 but into the future. Please don't hesitate to contact our Head of Investor Relations, Mark Benfield, should you have any follow-up questions. We'll be happy to assist in any way we can. Thanks again from all of us at Blue Bird. I wish you a good day.

Thank you. That does conclude today's teleconference. You may disconnect your line at this time. Have a wonderful day. We thank you for your participation today.