Blue Bird Corp (BLBD) 2017 Q4 法說會逐字稿

Good day, and welcome to the Blue Bird Fiscal Fourth Quarter and Full Year 2017 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mark Benfield, Director of Investor Relations. Please go ahead, sir.

Thank you, Tiffany. Welcome to Blue Bird's Fiscal Fourth Quarter and Full Year 2017 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 press release and filings with the SEC. Blue Bird disclaims any obligation to update the information in this call.

This afternoon, you will hear from Blue Bird's President and CEO, Phil Horlock; and CFO, Phil Tighe. Then we will take some questions. So let's get started. Phil?

Well, thanks, Mark. Well, good afternoon, everybody, and thank you all for joining us today for our final quarterly earnings call for fiscal 2017. It's been a busy year at Blue Bird, and we welcome this opportunity to share with you our fourth quarter and full year results. So let's start with an overview of our financial results on Slide 4.

Our fourth quarter results were strong. Our bus sales were the highest in a fourth quarter since 2008, with 3,608 buses sold. This represented a strong 9% increase over last year, and we saw the same 9% growth in total net sales amounted to $313 million.

A feature of our business is seasonality, and it's worth noting that fourth quarter net sales represented 32% of our full year sales, and the second half was a substantial 65% of the full year. Adjusted EBITDA was $25.1 million, $800,000 above last year, and net income was also strong at $14.5 million, $3.8 million higher than the year ago. So let's shift now to the full year.

All 3 of our key financial metrics either met or exceeded guidance. Net sales of $991 million and adjusted EBITDA of about $69 million were both at the midpoint of our guidance range. At $44 million, adjusted free cash flow beat the high end of the guidance by about $7 million and remains a strong feature of our business model. Net income and adjusted diluted earnings per share were both above last year by $21.9 million and $0.13, respectively.

As we look at the underlying strength of the industry and Blue Bird results, our view is that the outlook is positive. First, the school bus industry grew by 6% last year and with about 35,000 Type C and D school buses sold in fiscal year '17, we are now above pre-recession industry levels. In fact, this was the second highest annual industry in more than 30 years. With the strong outlook of property values and corresponding property taxes, we are bullish on the industry outlook remaining at the fiscal '17 level or a little higher.

Second, we sold over 11,300 buses in fiscal year 2017, an annual growth of 7%, which was slightly above the industry growth. But importantly, sales through our franchise and exclusive dealer channel grew by 9%. This is our sixth consecutive year of all-in growth and we have solid momentum.

Third, we recorded our highest ever sales mix of alternative-fuel powered school buses at a substantial 34% of our total bus sales. This compares with 26% mix last year. In fact, through the second half of the year, alternative fuel bus sales represented 41% of our total unit sales. That's leadership and momentum in the fastest-growing segment of the business.

As a reminder, in alternative fuels, we do count all of our propane, compressed natural gas and gasoline-powered buses as all of these are alternatives to diesel, which has been the staple fuel for years. For the last several years though, we've been achieving significant growth on alternative fuel bus sales, and I've just mentioned, we have not slowed down this year. We'll cover alternative fuel performance in more detail in a little while.

Fourth, we are passionate about product and being first to market with the vehicles and features that customers want and value. Next up for us, we are launching a complete line of electric-powered buses next year. These are on the road now undergoing durability and performance testing. Once again, these first-to-market buses are exclusive to Blue Bird through our sales and technology partnership with ADOMANI and EDI out of California. Customer reaction to date has been outstanding. We'll be ready to take orders early in the new year.

As we look now to fiscal 2018, in addition to our product leadership strategy, we are focusing on profit growth with particular emphasis on improving our EBITDA margin. While meeting guidance, fiscal 2017 achieved an adjusted EBITDA margin of 7%. For fiscal 2018, we are targeting adjusted EBITDA margin of around 8%, supporting our midterm 10% margin goal. To this end, in fiscal 2018 and beyond, we'll be upgrading our Fort Valley production facilities, and together with a focused cost reduction program, we are driving improvements in efficiencies, quality, and product costs. You will see the (inaudible) of these actions affecting our fiscal 2018 guidance, which I will cover later. All in all, these are exciting times at Blue Bird.

Let me now review with you our full year 2017 key operating achievements on Slide 5. We recorded a number of significant achievements, and each one will make us more competitive and support our growth going forward. In selling 11,317 buses last year, we achieved our highest sales volumes in 15 years. All of these units were built at our Fort Valley plant on 2 shifts and is a record production year. It's also worth noting that the since the school bus industry trough of 2011, Blue Bird's annual sales have grown by over 70% through a combination of industry recovery and significant market share growth.

As a reminder, in the last 18 months, we launched our latest generation propane-powered bus. We call it our Gen 4. And then this year, we have proved it again with certification by CARB to the lowest NOx emissions levels in the industry by a factor of 4.

With just over a year in the market, we are the only gasoline-powered largest school bus on the road today. And about a year ago, we launched our all-new Type C powered bus powered by compressed natural gas. These 3 products, which are all exclusive to us through our contractual partnership with Ford Motor Company and ROUSH CleanTech, together with our compressed natural gas Type D bus, represented nearly 4,000 Blue Bird bus sales in fiscal 2017 and importantly, grew by a substantial 41% over last year.

(inaudible) noting, I think, that in fiscal 2017, 504 customers placed their first-ever orders for a specific Blue Bird alternative fuel powered bus. Interestingly, 90% of those customers had no prior experience with any alternative fuel. This is not the case of customers switching from propane to gasoline. We have had a terrific customer response to our new engines, and I will cover alternative fuels more in a couple of slides.

As I mentioned earlier, we've unveiled the full range of electric powered school buses that are under development and scheduled for launch next year. Just this past month with the California Air Resources Board, our Type D electric bus has received the HVIP certification, which allows it to qualify immediately for the maximum grants available for zero-emission vehicles in California. Next week, our Type C electric bus is heading to Florida for customer Ride and Drives in a number of cities. We'll be ready to take orders early next year.

I'd like to acknowledge as well the terrific performance by our Type A bus, Micro Bird. Our 50-50 joint venture in Quebec sold a record number of buses in fiscal 2017, just over 3,100, and secured market share leadership for the second year running in Type A school buses across North America. That's a great achievement by our Micro Bird team.

We're always excited to appoint new growth-oriented dealers in our territories, and this year, we added 2 of those. Blanchard Bus Sales of South Carolina took over the territory in late 2016 and had a great year. With the backing of being the Caterpillar distributor in South Carolina, they are well capitalized and well positioned for growth.

Our new dealer in Virginia was appointed just a few months ago, and it's good to see an existing dealer with more than 40 years in the business expanding and now covering 3 markets, Western Pennsylvania, West Virginia and now Virginia. We love seeing an existing dealer investing in our Blue Bird brand.

And finally, early in fiscal 2017, we refinanced our term loan and revolver at very competitive terms, reduced our interest rates by 4 points and saving about $6 million in cash interest expense in fiscal 2017. And in the last earnings call, we mentioned that we were initiating a stock repurchase program, buying back up to $50 million in stock over the next 24 months. To date, we have repurchased $34 million of stock and are on track to complete the program in fiscal 2018.

I think it's fair to say we've got tons of business on multiple fronts in fiscal 2017, so now let's take a close look at our second quarter financial results on Slide 6. I touched on many of these financial results earlier, and Phil Tighe will run through the details later. So just to summarize the fourth quarter, we exceeded our fiscal 2016 results in every category, total net sales, total bus sales, total parts sales and adjusted EBITDA. Total net sales for the fourth quarter were up a strong 9%, and adjusted EBITDA was 3% above last year.

Turning to the full year. Total net sales of $991 million were up 6% from fiscal 2016, with similar growth in both bus and parts sales segments. Although meeting guidance, adjusted EBITDA of $69 million was down $3.3 million from a year ago. While bus volume was higher, this was more than offset by cost of mix differences and higher operating expenses, particularly in support of new products and growth.

Turning now to Slide 7. Let's take a closer look at our alternative fuel bus sales performance. At 3,888 unit sales, alternative-powered school buses represent slightly more than 1/3 of our total volume. That compares with only a 17% sales mix just 2 years ago. Now that's exciting growth. With an impressive growth of 41% over last year, Blue Bird continues to be the undisputed leader in the fastest-growing school bus segment, with our market share running at over 85% in this category. With less than 15% of school districts having purchased an alternative fuel powered bus, we are well positioned for future growth. Propane continues to be the market leader in this segment, with 2,027 Blue Bird propane-powered bus sales in fiscal 2017, and it also records the highest owner loyalty of any school bus in the market.

But gasoline has quickly climbed the chart, with sales of more than 750 buses in its first full year in the market. Now while propane is widely recognized as having the lowest total cost of ownership in the market and is a green engine, and as I said before, we have the cleanest product in the market by a mile, the gasoline engine is readily understood by technicians and mechanics who really appreciate the simplicity and cold weather start capability it shares with propane. With our exclusive partnership with Ford and ROUSH CleanTech across all alternative fuel engines, it makes it easier for customers to grow their alternative fuel fleet. With the same engine architecture, the same transmission and the same service requirements across all 3 products, it's an easy move for a school district or a fleet operator to take the Blue Bird product range.

I mentioned earlier that 504 customers placed their first-ever orders for a specific Blue Bird alternative fuel powered bus, while importantly, 238 of those customers shifted from our competitors to Blue Bird. That is the strength of having leading and unique products to offer your customers.

Let me now turn it over to Phil Tighe, who will take you through the financials, and then I'll be back later to cover the fiscal 2018 outlook and guidance. Over to you, Phil.

Thank you, Phil, and good afternoon, everyone. The next few slides that I'll take you through are a summary of our financial performance for the fourth quarter and the full year fiscal 2017. I would point out that there is additional information in the appendix that deals with primarily reconciliations between GAAP and non-GAAP measures mentioned in this review. Detailed material will be available in our 10-K, which we expect to file later this week.

The material we discuss today is based on the close of September 30 for 2017 and October 2, 2016 for fiscal year '16. I should report there were no new accounting pronouncements that impacted Blue Bird in this report, and risk factors remain largely unchanged from the previously filed 10-K, with only minor reductions to content from prior years in a number of areas. Also, please note that there are important disclaimers at the end of the deck.

So if we turn to the next slide. This slide, Slide 9, covers a summary of fourth quarter results for the fiscal year 2017 and compares those results to the same period in the fiscal year 2016. Phil's already mentioned fourth quarter volume was 3,608 units, an improvement of 9% versus prior year and the highest fourth quarter sales result in about 9 years.

Our production volume was, in the fourth quarter, was only about 6% lower than the record we achieved in the third quarter, and we continue to experience some production challenges caused by an extremely high mix of our popular rear engine bus. These are very complex buses and very labor-intensive units. And the high demand in the second half has presented a number of challenges in line balancing and skill management. We also had in the production area a number of issues with timeliness of deliveries and quality of some of our components.

Net revenue was up by 9.2% versus fiscal year '16. The total growth in bus net revenue was -- included in the net revenue number was about 9.6%, a majority of that driven by volume. Our per unit revenue, however, was up by about 0.5 point due primarily to product mix and the higher alternative fuel mix. Net revenue in the fourth quarter was also higher than the first half on a per unit basis, which was an encouraging sign.

Gross profit margin was 12.6%, about 9 -- 0.9 points lower than last year, driven largely by higher production costs during the freight season, a more complex build mix that resulted in lower efficiencies and some higher economics.

Net income and earnings per share. Net income was about $14.5 million or an improvement of 34% versus last year for the same period and adjusted diluted earnings per share was $0.51 for the fourth quarter versus $0.42 last year. Net income, I should point out, was positively impacted by higher operating profits due in part to the nonrecurrence of expenses incurred in fiscal '16 with the change of control, lower interest expense resulting from the terms of the new loan agreement and lower debt balances as well as higher profits from our JV in Canada. We also had higher income tax expense, which partially offset the above.

I'll talk about our adjusted EBITDA in a few slides. With respect to debt and cash, our cash closed out at $62.6 million, which was an improvement of about $10 million versus prior year, and we'll discuss that on a later slide. The debt of $151.2 million also reduced slightly. I should point out that actual debt reduced by about $8 million year-over-year. The reason you don't see this is due to the inclusion of net issuance costs in the debt totals in both fiscal '17 and fiscal '16.

Turning to Slide 10, which is the full year summary. Phil has already commented on volume. I would point out, I think this was our highest sales volume for Blue Bird since about 2003. I think Phil talked about the continuous growth we've been having for the last few years, but this was a good achievement for Blue Bird.

Net revenue was up by about 6.3%, and we had increases in both bus and part revenue. The total improvement in net bus revenue was about 6.2%, although I should report that per unit revenue for buses was down about 0.3 point due primarily to product and customer mix. Although the per unit revenue was down, we did see a fairly good shift in per unit revenues between the first half of the year and the second half, so that's an encouraging sign. Parts revenue was up by about 7% due to continuing expansion of product offerings, volume incentives and improved shipping arrangements to our dealers.

Our gross profit margin was 12.9% or about 1 point below last year. Bus gross margin was in that, was 11.4%, also 1 point below last year, driven partially by the lower unit revenue and by higher production costs and economics. Parts gross margin was down by about 2.9 points as a result of a more aggressive position that we've been taking on a selection of our parts to become more competitive out in the market and grow sales. And also, we had some higher freight costs in the parts business. As Phil pointed out, margins are a very key focus of our management team, and we're implementing some really significant actions to improve our ability to efficiently build higher volumes and drive costs down. We will see the results from those activities over the next 12 months.

Net income and EPS for the full year. Net income was $28.8 million, and adjusted diluted EPS was $1.27 for the year. The net income was up by $20 million -- almost $22 million, and this was partly due to the fact that the fiscal year '16 net income was impacted by costs associated with the change of control. Adjusted diluted earnings per share were up by $0.13. Again, the delta there is a little lower than you might expect given the net -- the increase in net income, but the change of control, costs are added back in the non-GAAP metric of adjusted diluted earnings per share.

A comparison of the income statements that you will see when we file will show you that operating profits were higher. Interest expenses are lower due to the new loan agreement. However, this was largely offset -- the savings in interest expense were largely offset due to the debt extinguishment costs we had record. We did have higher profits from our joint venture in Canada. We also obviously had higher income tax expense. We'll talk more about EBITDA when we get to the bridge and the cash and -- debt and cash numbers are the same as the prior slide, and we already discussed that.

Moving to Slide 11. This page briefly shows a walk between fiscal year '16 and fiscal year '17 for the fourth quarter. You can see we're up by about 8/10 to a profit level of $25 million. Bus gross profit of just over $1 million was due to higher volume of 300 units and a slightly higher average per unit revenue, and that was partially offset by the production costs that I alluded to earlier. The lower parts gross profit was $300,000. Again, we have been moving our pricing quite aggressively, and we did have higher freight costs. Operating expenses and other were about equal to the prior year.

Moving to Slide 12, which is the bridge for the full year. This shows the profit at $68.9 million versus $72.2 million in fiscal year '16, so a reduction of about $3.3 million. The bus gross profit was down by $1.8 million despite the fact that volumes were up by 700 units. We did have a slightly lower mix. And as I said, we did have issues with efficiencies in the plant with -- at the high production levels and the mix of production, and we did have some higher economics. Parts gross margin, again, were due to the revised go-to-market structure we've got with parts.

Operating expenses and other, about $1.3 million higher. The principal cause for this was the product spending, growth support, and economics. Partially offsetting that was equity -- higher equity income from our JV in Canada that we earned in fiscal year '17 versus fiscal year '16.

We move to Slide 13. This is the free cash flow slide, and we show both the fourth quarter and the full year for both fiscal year '16 and fiscal year '17. For the full year, the adjusted free cash flow was $43.7 million, up about $10 million versus the prior year. As you can see, the key drivers for the improvement versus '16 were lower interest costs, lower trade working capital and lower other changes basically in the area of accrued expenses.

The factors that partially offset the good news items were a reduction in EBITDA and higher income tax. We did show on the page the walk from free cash flow to adjusted free cash flow, and you can see there that the $38.6 million in the free cash flow that we earned was just about double the result in 2016. Again, that was largely due to the special compensation payments with the change of control that occurred in fiscal year '16.

Moving on to Slide 14. This shows net debt, leverage, and liquidity at the end of fiscal year '17. Net debt stood at $88.6 million, including $62 million of cash. This is an improvement of $11.2 million versus the same time last year and had hiring -- had higher cash by $10.3 million.

The net leverage ratio was 1.6, substantially below the required net leverage ratio at the end of fiscal year '17, which was 3.75. The 1.6 also, by the way, is just about the same level that we had at the same time last year. Liquidity stood at $130.6 million. There were no drawings on our revolver. Liquidity at the same time last year was about $107 million.

I would remind everyone that we have a highly seasonal business and the year-end cash level is generally the peak of our cash holdings due to the substantially higher profits generated in the second half and the low level of inventories as we come out of the fiscal year and go into the slower period of bus production, which occurs in the first quarter.

The final slide for me is just a brief update on the share repurchase program. Phil already touched on this. You can see some of the details here. I'll remind you that the Board of Directors approved the share buyback program during fiscal year '17 of up to $50 million. The company, during fiscal year '17, has paid out $34.3 million to repurchase common stock. You can see that, warrants and preferred. And as has been previously announced, the majority of the money spent in fiscal year '17 was for the repurchase of common warrants and preferred previously held by Coliseum Capital Management LLC, and that was worth $32 million. Coliseum was one of our original investors, and we wish them well in their new endeavors that they're taking.

We continue to purchase shares. I think since the end of the fiscal year, we'll probably purchase about another $2 million worth. And as Phil suggested, our target is to complete the purchase of the shares in fiscal year '18.

So with that, I'll thank you for your attention, and I'll now pass you back to Phil Horlock who will discuss the outlook for fiscal year '18, our new guidance, and then wrap up for questions. Thanks, Phil.

Okay. Thanks, Phil. So as Phil just said, let's now move forward and take a look at next year, fiscal 2018, and our outlook for that year and our full year guidance. So please let's turn to Slide 17.

As the headline says, we're targeting margin growth in fiscal 2018. With the industry at a 30-year high, we do anticipate growth slowing. Although I have to say, we are well positioned and ready to capitalize on any opportunity that can exist, but we're not banking on an industry surge going forward. With modest Blue Bird sales growth forecast at 1% to 2%, our focus on transforming our business structure and improving EBITDA margin toward the midterm goal of 10% EBITDA margin, up from 7% last year.

To support this, we are undertaking a significant facility upgrade in fiscal 2018 to drive efficiencies, high quality and provide additional capacity. This will -- progress will be implemented through fiscal 2018 and into the following year. Additionally, we are partnering with industry specialists to attack all cost elements while continuing to work on our passion, providing best-in-class products that customers want and value. We plan to report progress throughout the year and expect to see the impact of these actions starting in the second quarter. So let's now turn to fiscal 2018 guidance on Slide 18, which reflects these initiatives.

Net sales guidance of between $1 billion and $1,030,000,000, up $9 million to $39 million from fiscal 2017, a fairly modest growth but in line with the industry outlook. Our adjusted EBITDA guidance is now between $78 million to $82 million, a significant $9 million to $30 million increase over fiscal 2017 as we focus increasing efficiencies and driving down costs (inaudible) the bottom line. Adjusted free cash flow is between $36 million to $40 million and continues to be a strong feature of our business model. This represents over 40% of adjusted EBITDA despite the plant facility upgrade investments in fiscal 2018.

So in wrapping up, we had a strong fiscal 2017 performance, both operationally and financially and we met guidance. We look to profit in margin growth in fiscal 2018, and our plans and guidance support this. We will continue to update on our progress each quarter at these earnings calls.

So that concludes our formal presentation, I will now pass it back to our moderator, Tiffany, to begin the Q&A session. Over to you, Tiffany.

(Operator Instructions) We'll take our first question from Matt Koranda with Roth Capital.

So it sounds like the emphasis in fiscal '18 is on margin improvement, and you guys are looking to attract toward the 10% EBITDA margin sort of long-term goal that you have. But just trying to understand how that's factoring into the outlook because it looks like at the midpoint, we're only looking at about 20 basis points of EBITDA margin improvement for the year. So could you just give us sort of what are the puts and takes around the expectations that went into building that up? And I would expect maybe some tailwinds from higher margin, alt-fuel, powertrains, but maybe are there some headwinds that we haven't factored in yet here?

Just picking up a little bit, Matthew. It's Phil Horlock here. Just picking a little bit on what you said there. I mean, what we look at the margin -- the objective next year is about an 8% margin. I think we're about 7% next year, this '17, so a little bit going to an 8% EBITDA margin. Couple of things going on. Obviously, we're going to continue to capitalize on alternative fuel leadership. We're well established there. We'll see new customers every day coming to us, looking for that opportunity. It's a great product for us. We like the margin of that business and we'll continue to keep pushing that. I think what we want to get across today is that this is a plan for '18. It's really -- we're going to focus a lot on cost efficiencies, driving quality, spending -- we are spending money in the plant. We sort of -- if you look at this plant back in 2010, when we were building 4,000, 5,000 units a year, which is significantly grown this plant, it's time to invest in it. We will invest in automation, efficiencies, new processes and they'll also help to take our costs down we believe and then drive efficiencies. We get experts on the ground here today, working with us on that. So I just want to really say to you, it's not that we sort of some more prudent, I think, on the sales end of it because we want to show you what our emphasis and focus is for '18. But we are well positioned to capitalize opportunities on the sales side, with our sales are realistic, recognizing we just come up at 35,000-unit industry, well above anything we've seen in the last 9 years or so. I think it was last -- the last time we saw a number that big was in 2007. And then prior to that, it was way back to in 1985. So I think we feel sort of pretty strong about where we are and the acts are in place. So product for us remains critical. We're investing in product. We're not holding back on product, and we think that's the way we'll win over time in the marketplace.

Okay, got it. Can you guys quantify the costs that are associated with the production challenges on the Type D units that you referenced in the prepared remarks? And then maybe, could you talk in a little more detail about the operational improvements that you made to address the inefficiencies there?

Matt, this is Phil. The Type D unit efficiency level was probably running in the mid to -- in around about the mid-80% versus a target of 100%. These things can be somewhat difficult to build, and we had put a lot of time into training some people to deal with the increased capacity in that area. We did have to spend a lot of overtime work building those units because of the lower efficiency levels. The second part of your question dealt with operational improvements, is that correct?

Yes, that's right.

Yes. So we're taking a pretty wide look at this. Again, this plant has grown by a factor of more than 2, and it's been quite a while since we actually went through it and took apart pretty much every operating station and decided which is the best way to build. So we're going through a significant practice -- a significant set of work there. Realistically, you won't see the full result of it until later in the year, but we will see improvements through the year as we redesign how material gets to the line and how people work. So I think that's going to deliver a lot of opportunities for us and will also free up some bottlenecks that we have discovered as we go forward.

It's Phil Horlock. One way to think about this is, as Phil said correctly, that we -- what I said before was this has been a record production year in Fort Valley. When you hit record, you sort of stress the system. You hit more and more of your bottlenecks, as Phil pointed out. So one simple thing we're going to do is we're going to put more stations in the production line, give us more chance to have quality checks along the line here, what you call, you -- the [sectors] are now less dense, less folks sitting on top of each other in the plant, which is what we've had to do. We've had to put a little bit more people in to build the higher demand we've had. So we're going through station by station and really laying out a better production line for us, that we'll all be -- much more efficient for us, and it's rebalancing the entire line. And now as I mentioned earlier, bringing in assisting tools to help our workers easier for the kind of faster cycle time, those take capacity up on some of those actions they do, and then select levels of automation along the way as well is something we're going after. So we're taking a fresh outlook.

Got it, got it. I guess, your comments implied maybe your -- where we've got a little bit of a higher CapEx spend, and I think that's what -- sort of what you gave for the free cash flow guidance. But you could you break out what you expect cash flow or -- sorry, what you expect CapEx to be for fiscal '18? I guess, my back of the envelope says maybe $12-plus million. Is that about right?

Not sure we want to go all the way there, Matt. Let's just say that we are adding some, as Phil mentioned, we're adding some automation and some improved tools, and we're also looking at what to do in some of the bigger areas of the plant where high levels of skill are required. So there's a lot going on in the plant. The good news is, we will do this without losing production. So we don't have to take a plant down based on our present plan, and we will install this stuff while we're still in full production.

I mean, Matt, we (inaudible) we spent about, what, $10 million. We sort of tell you, I know previously, we said we plan on $15 million, somewhere between $10 million and $15 million. I think we spent about $10 million this past year in '17. It's obviously going to be above that. And I think what we'll do is as we go through the year, we'll have probably more as we go. Just right now, these plans are sort of a little fluid towards the end of year, but we still have a good action plan for a good 9 months out of here. We know exactly what we're doing and where our plans are. But we'll fill you in as the year goes along. It will be up on the traditional level, you're right, looking at it that way.

Got it, got it. Okay. Maybe one more for me. I'll squeeze one in here and leave it to the rest of the guys. So tax reform, I guess, there's probably some puts and takes for you guys. If it impacts housing values in some way, maybe that hurts the tax take at the local level a touch. But then obviously, the corporate would be a benefit for you guys in terms of the reduction in the rate. Could you talk about sort of your current views and your analysis as to sort of what the impact would be for Blue Bird and how you factored that into guidance, if at all?

Quite frankly, Matt, we haven't done a lot on it at the moment apart from read what everybody else is reading. I think once we get closer to some sort of agreement between the House and Senate, we'll start doing some detailed work with some tax advisers on where it will go. I'm not sure that the housing thing is going to be a big concern for us. It looks like the people will get really hurt, people with very expensive places. There's a lot of buses bought in areas where the houses -- where the deduction will still -- will remain in place. So it's a little bit too early for us. I would suspect that when we do our first quarter call, we'd probably have a much better feel of, at least analytically, of what we think it's going to do.

(Operator Instructions) We'll go to our next question from Chris Moore with CJS Securities.

So at the Q3 call, you talked about that there were roughly 200 buses that were going to be built in Q4 and not likely shipped until Q1. Can you just, maybe I missed it, give us an update in terms of those buses? Did they ship in Q4? Are they ready to go now?

Shipped in Q1.

About 75 of those did ship in Q4, we got them out. But the balance, we'll ship in the first quarter of fiscal '18.

Got you, okay. In terms of -- looking at the mix for alternative fuel, roughly 52% propane, 45% gas. Given the trajectory of gas, is it likely that that will be more than 50% of alternative fuel sales in fiscal '18? Is that a reasonable assumption?

I think we still see propane as being the preferred choice. I mean, it's still the best DCO model for our -- and that's what we tell our dealers. They explain that to customers. They understand it. Obviously, I think with gasoline, we've got the first year of it. You've got the early adopters jump in. They jumped in quickly. Having said that, I think we're off to a great start this year, without giving the store away, with the gas orders have gone really well in what I call a quiet season, a slow season, which this traditionally is. But I still think -- we still expect that propane will be the #1 alternative fuel for us, but we'll keep you apprised as to where it goes. Frankly, do I care about it? I like propane. I mean, I like it a lot. I think it's a great product, so we do push that hard because we believe in it. But if a customer's got his heart set on gasoline, we're going to sell him gasoline too. And actually, if we got his heart set on diesel, we'll sell him diesel as well. So hopefully, that's helpful to you. But then our priority for us is we still think that propane because we believe in it. It's got the best installed base, and that's the most important point. We sold, just so you know, with this past year, we sold our 10,000th propane-powered school bus and we just sold our -- obviously, we sold now. We got in the market over 2,000 gasoline-powered school buses. With the installed base only helps us certainly on propane as people look to renew that business.

Got it, got it. On the -- skipping around a little bit, so the adjusted EBITDA margin's midpoint is just about 8%, up about 100 basis points. Is most or all of that soon to be coming from improved gross margins?

That's correct, Chris.

Got it. Last question, just in terms of -- on the electric vehicle side. My understanding is, at least at this point in time, they're extremely expensive. Just trying to get a feel for what would have to happen for that to be an important part of the revenue mix a few years down the line?

Well, I mean, you look at all the -- I think you read about battery technology. Obviously, the battery is a key cost of an electric vehicle. You can imagine moving a 33,000-pound school bus. That's a lot of batteries and a lot of costs. But you read all the report, tells you in 2, 3 years from now, battery costs are going to half and they're going to come -- another 2 years, going to half again. Right now, frankly, near term, it's all about grants. And California certainly led that way, and there's constantly some grant opportunity out there to buy electric buses in California. They're -- obviously, they're leading the way here on 0 emissions. But we've also seen other cities, other states, lower volume, selectively follow. A lot of interest in Florida around electric-powered school buses. So first of all, we want to capitalize, I think next year, first of all, where the grants are available. But we'll still going to be up with these what I call, specific opportunities that might appear where there's a district wants to have 0 emissions, wants to show their -- parents are going to like, that we are going for 0 emissions solution and they'll be opportunistic sales. But we're heavily targeting, as we said, first and foremost, California, but also Florida is pretty close behind is the way look at it. But I think the real big surge is going to be 2, 3 years down the road.

(Operator Instructions) We'll go next to Eric Stine with Craig-Hallum.

First, just wanted to start with the parts business. I know that in fiscal '17, it's a big initiative and it continues to be. And your pricing, a lot of your parts aggressively try to gain share versus incumbents. I mean, is there any way to maybe quantify or talk a little more in detail about the progress made there? Maybe the share across your dealer network that you feel you've got with your parts and where you think that, that can go.

Yes, Eric, that's a good question. I think -- look, I think on parts we've talked a lot, I think, in the past about parts we think should outperform the school bus growth. I mean, that probably should -- except that obviously, we've got a great success on alternative fuels, so that's catapulted us somewhat along the growth curve. But I think on parts, the way we look at it is we've made all sorts of things to make us competitive. There are a lot of players out there trying to sell parts to school districts. A lot of suppliers go directly. A lot of third-party operators go. A lot of, I call it, non-OEM parts providers like to tap school districts because guess what, there are over 1.5 million school buses out there. But what we have been doing is we have been very aggressively -- we've been adjusting parts price and making them competitive. Doesn't mean -- simply mean we cut the price, we go back to the supplier and then negotiate a new price in many cases. What has happened is we've certainly seen a significant uptake, I'd say, in a number of parts that we're selling through our dealer channel. You see a volume of parts through our dealer channel, it's significantly up. We obviously have to come down a little bit because we have lowered the revenue. But what we want to do is get our installed base up. And I think we are succeeding in that regard. We've got more SKUs out there that we've never had before. If you look on the alternative fuels, just -- you probably know this, but when you look up the way that the industry goes, on the dealer side of the business through Cummins, the transmission through Allison, which is the big piece of a chassis, they -- those guys control through distributors the parts business. With the Ford products, we have exclusivity to sell those products at very competitive prices, so we can sell Ford engines, be it propane, gas, CNG, we can sell the Ford transmission. So I do think that's -- as we continue to grow disproportionate alternative fuels, we also continue to grow disproportionately the parts opportunities in those segments. But we are still very bullish on parts. We track the units what we call the revenue per UIO, which means we look at every single dealer. Think of it, we have 50 of those dealers across this country. We track every revenue on parts or units in operations, that dealers' market area, and I can tell you, it's growing everywhere, and also with the prior year. So we feel very comfortable that we're on the right track.

Okay, that's helpful. Maybe there's just 2 more quick on alternative fuels. And I appreciate you giving the number of new customers for Blue Bird because of alt fuels, and I don't -- I think that maybe is the first time that you've given that number. But just curious, I mean, from a high level, if you don't want to be too specific, but break that down between propane and gasoline. I mean, are the majority of those gasoline given that you've got a huge head start, the only one in the market? Or are some of those customers propane, given your leadership with that product?

Well, they're both. I mean, you've got both in there. I'm not going to give you the breakdown. I would just say obviously, we have a large installed base, a fairly large installed base of customers who are filling with propane. So it's a good thing, you get a lot of repeat business. You might recall, I said, this is the highest loyalty of any part of the marketplace. So by definition, loyal customers keep coming back to us. With it being the first year of gasoline, obviously, we did you grow significantly in our customer base through gas, but we also grew significantly through new propane customers. So it really was both. It was heavy drawn gas customers (inaudible) the [old] guys who worked with us before. It was a good blend of both.

Okay. And maybe last one for me, and you touched on this relative to electric, but just curious on natural gas and some of the funding in California from the cap and trade program, if there -- if you're seeing any request or demand or any thoughts that you might have of the Near Zero Cummins Westport engine that's part of your offering.

Well, on the CNG situation, first of all, just stepping aside from it, I mean, the thing is that CNG, from a standpoint of why do we -- we're actually -- we've been, over the years, the market leader in compressed natural gas (inaudible) sales. But when we look at it, I mean, you can see the propane that sells it a little bit 10 to 1, and the reason being because of things like infrastructure you've got to put in place, the sheer cost of upgrade, the tanks for propane because they're compressed. They're Kevlar coated. It's a very expensive upgrade. Economically, it is tough to make it work. Now you mentioned the capital trade and the virtual 0 emissions, that's some product information I really don't want to get into. But put it this way, we're going to be competitive. We'll be (inaudible)

Yes, and I just know, I mean, yes, it's a very small part of the market, but it is an area that I've been keeping tabs on, and there's some potentially some very significant money. So I'm just wondering -- I mean, it seems like that could be a bigger part of your mix going forward.

Yes, we will be competitive, I can tell you that. Yes, absolutely. Thanks.

With no further questions, I'd like to turn the call back over to Phil Horlock for any additional or closing remarks.

Okay. Well, thank you, Tiffany, and thanks to all of you for joining us on the call today. I have to say, we do appreciate your continuing interest in Blue Bird. We are focused on profitable growth and intend to deliver on our commitments. And I think we're well -- very well positioned to grow today and in of future. And as I said several times on this call today, we have a passion for product because in the long run, products are what wins with our customers. So please don't hesitate to contact our Head of Investor Relations, Mark Benfield, if you have any follow-up questions. Mark's always here to help you. And thanks again from all of us at Blue Bird. We wish you a good evening and of course, I'll add happy holidays. Thanks, everyone.

This concludes today's call. Thank you for your participation. You may now disconnect.