Blue Bird Corp (BLBD) Q1 2019 Earnings Conference Call Transcript

BLBD earnings call for the period ending December 29, 2018.

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Blue Bird Corp  (NASDAQ:BLBD)
Q1 2019 Earnings Conference Call
Feb. 06, 2019, 4:30 p.m. ET

Contents:

Prepared Remarks:

Operator

Good day, and welcome to the Blue Bird Fiscal 2019 First Quarter Earnings Conference Call and Webcast. 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.

Mark Benfield -- Director, Investor Relations

Thank you, Betty. And welcome to Blue Bird's fiscal 2019 first quarter earnings conference call. The audio for our call is webcast live on investors.blue-bird.com. You can access supporting slides by clicking on the Presentations portion of our IR webpage.

Our comments today include forward-looking statements that are subject to risks that may 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 CEO, Phil Horlock and CFO, Phil Tighe. Then we will take some questions. Let's get started. Phil?

Phil Horlock -- President and Chief Executive Officer

Okay. Well, thanks, Mark. Well, good afternoon everyone, and thanks for joining us today for our first quarter earnings call for fiscal 2019. We welcome this opportunity to share our latest quarterly results with you. So let's get started with an overview of those financial results on Slide 4.

As we have previously explained, the school bus industry is extremely seasonal and the first quarter is always the softest quarter of the year, with unit sales typically representing no more than 15% of the full-year volume, which is also expectation of fiscal 2019. And so I'm pleased to report that our financial results were strong coming in slightly above last year's levels. We sold 1,600 buses in the first quarter. And while this was 105 units below last year, it was our third highest first quarter volume in the past 10 years. Importantly, the shortfall versus a year ago is more than explained by 120 fewer sales to one customer, the government, or General Services Administration as they're known. This is simply timing of deliveries. And through the course of the year, we expect the GSA to order their usual volume of buses from us.

Net sales of $155 million, were about $8 million below last year, more than explained by the lower government sales I just discussed. It's important to note however that when we look at school bus sales only, which represented 96% of our first quarter volume this year, revenue per unit is up by about $2,500 per unit or 3% from last year. This reflects the pricing action we took late last year to address the rapid tariff-led escalation in steel and other commodity prices. That's a great result for us in the first quarter.

At $7.2 million, adjusted EBITDA was about $100,000 higher than the year ago. As Phil Tighe will show you later, we achieved this slight profit improvement despite significantly higher steel-led commodity prices and lower volume than in the first quarter last year. Now you'll recall, we had substantially lower steel cost in the early part of our fiscal 2018. And the significant escalation began in the second half of last year, and we do remain at those elevated levels today. As I mentioned, Phil will cover more on this a little later.

Our pricing action, together with the cost reduction from our transformational initiatives, that started in the second half of fiscal 2018 drove our profit improvement. As we have mentioned in prior earnings calls, our transformational initiatives are the cornerstone of our profit growth plans and we saw the favorable impact in the first quarter this year.

Adjusted net income and adjusted diluted earnings per share were both higher than the first quarter a year ago, at $1.3 million and $0.09 respectively. On a GAAP basis, both net income and diluted earnings per share also improved from a year ago by $6.6 million and $0.31 respectively. Our adjusted free cash flow for the first quarter was $57 million negative, reflecting seasonality of our business as we grew inventory through the quarter from a very low level at the end of fiscal 2018 in September. And we have also have the impact of higher fund spending for all new paint facility. As is typical in our seasonal business, cash flow will turn positive as we move through the year.

As we look at underlying strength of the industry and Blue Bird's results, we remain upbeat about the business fundamentals. With a strong year with property values and corresponding property taxes, which are the major funding source of school buses, together with the fact that 150,000 school buses on the road today have been in service for more 15 years, we are confident on the industry outlook remaining around the 35,000 unit mark in 2019. In fact, that's a near record again for our industry side over the past 30 years.

We did see yet another first quarter record sales mix for alternative-fuel powered school bus sales up 34% of our total bus sales. This compares with a mix of 31% last year. As a reminder, in alternative fuels, we count all of our propane, compressed natural gas, the electric, 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, we've seen significant growth in alternative-fuel bus sales. As I just mentioned we've not slowed down this year. I'll cover alternative fuel performance in more detail a little later, but we are passionate about products and being first to market with vehicles and features that customers want and value.

In fiscal 2018, we launched two new exclusive products. Our all new zero emission electric power Type D bus and our ultra-low NOx propane-powered bus, which by the way at 0.02 grams of NOx per brake horsepower-hour is 10 times cleaner than the EPA standard and any other brand of propane-powered school buses on the road. Additionally, our Type C electric powered bus will launch later this year. And I can tell you that we have a very strong pipeline of customer orders for both electric and propane buses that we're pursuing.

And as I mentioned earlier, we did see the profit impact of both our pricing and structural cost reduction actions in the first quarter and we expect to see additional favorable benefits throughout the year. Our transformational initiatives are well under way and on track, partly the lower cost structure, plant (ph) efficiency and product quality, increasing capacity and bringing major products and feature upgrades to the market in the coming months and years.

All-in-all, I'm very pleased with our first quarter results, and particularly the specific actions we took to offset both higher commodity costs and lower volume compared to last year. Our results were in line with our expectations and they support our full year guidance. And I should mention, these results are on the path to our stated goal for adjusted EBITDA margin of at least 10% by 2020.

Let me now review our full year 2019 key operating achievements. I should say, our first quarter 2019 key operating achievements on slide 5. We recorded a number of significant achievements in the first quarter and each one will make us more competitive and support our growth going forward. We launched our transformational plans to improve margins last year and they are on track, driving improvements in quality, cost and efficiencies and capacity. We achieved significant structural cost savings in the first quarter of 2019 and this initiative is key to delivering continued profitable growth. Construction is well under way for our all new fully automated paint shop with robotic equipment now on site, and pilot runs and validations scheduled over the next few months. This is a key initiative to drive efficiency and quality improvements across our Blue Bird product line.

We increased first quarter school bus revenue per unit by about $2,500 or 3% from the pricing action we took in late fiscal 2018, while at the same time, winning business with a significant number of customers that are new to the Blue Bird brand. In fact 15% of our customers in the first quarter were conquest accounts. That's a great result. We continue to be the undisputed leader in alternative-fuel powered school buses. And as of Monday this week, our year-to-date sales and firm order catalog of these buses represent a very strong 42% mix of the total, that compares with 30% mix at the same time last year.

Furthermore, the total number of alternative-fuel buses sold and in our firm order backlog is up 25% from a year ago. Now that's leadership and real momentum in the fastest growing segment of the school bus market. Remaining on topic of alternative-fuels we are seeing very strong interest in our latest products, our all new zero-emission electric powered type D school bus, which is powered by a common electric drivetrain following the acquisition of California-based EDI. We have now ported over 100 units and you will hear from me later, many of these now turning into firm orders.

And finally, based on first quarter performance and outlook for the balance of the year, we are reaffirming full year guidance for all the metrics which we report. I will come to this in more detail toward end of the call. It's fair to say that we continue to advance the business on multiple fronts and we're focused on profitable growth.

So let's now take a close look at our second (ph) quarter financial results on Slide 6. I spoke on (ph) many of these financial results earlier, and Phil Tighe will run through the details a little later, but just to summarize the first quarter. Total net sales were down about $8 million from last year, more than explained by 120 fewer sales of buses to GSA. This is simply a delivery timing issue not indicative at all of any change in full-year order plans. In fact, we continue to be the preferred bus supplier to General Services Administration.

Parts sales for the first quarter were up $1.3 million from last year, representing a strong 9% growth as we successfully introduced new products to our customer base and tailored incentive programs through our entire dealer network. It's been really good first quarter for the parts business. Despite lower volume and the impact of higher steel-led commodity prices, adjusted EBITDA of $7.2 million was slightly higher than year-ago.

So referring to slide 7, let's take a closer look at our alternative-fuel bus sales performance. In the first quarter, we grew sales of alternative-fuel powered school buses by 4% and achieved a record mix for the first quarter at 34% of total sales. But as we move from the softest volume quarter of the year however, we've seen a significant surge in orders. As of Monday this week, we had 1,860 units booked or in our firm order backlog. That reflects a very strong 25% increase over the same time last year.

As I did mention earlier, alternative-fuel school bus represent a 40% mix of all buses booked or in our firm order backlog today. So it's clear we aren't slowing down in this segment. No other school bus manufacturer comes close to this mix levels of alternative fuels. In the first quarter, more than 50 new customers took delivery of their first ever alternative-fuel powered Blue Bird bus. This is a strong endorsement of our exclusive alternative-fuel buses, the Blue Bird brand, and our dealer network.

So far 30 states have finalized their plans for deploying the VW settlement funds and the good news is that 40% of the funding in the first year has been directed toward school buses. That's potentially another strong boost for the industry and we're in a great leadership position to capitalize on these fronts. We offer the widest range of alternative-fuel powered buses, and the most modern and proven engine in the industry, with our exclusive long-term partnership with Ford and ROUSH CleanTech across various alternative-fuel engines. It makes it easy for our customers to grow their alternative-fuel fleet. With the same engine architecture, same transmission, and same service requirements across all three products, propane, compressed natural gas, and gasoline, it's an easy move for a school district and fleet operators.

Now propane is widely recognized as having the lowest total cost of ownership in the market, (inaudible), especially our new ultra-low NOx propane bus, which is certainly about a one-tenth of NOx emissions output of other manufacturer of buses and the EPA standard. These nitrogen oxide gases contribute to the formation of acid rain and smog and are a contributor to asthma in children. So the best-in-class level of NOx is another great reason for choosing Blue Bird Propane. In fact you can have it all with Blue Bird Propane, lowest operating costs and the lowest emissions of any internal combustion engine in the school bus, always a great news for our school district and fleet operators. We are seeing embedded use (ph) for children riding our buses and their parents.

I mentioned earlier we have quoted business for more than 100 electric buses across 14 states. What I can tell you now that more than 50% of those quotes have turned into firm orders. We expect there is certainly more to follow. Interest across the country is strong especially, the opportunity of funds from the VW settlement and we are also seeing other unique state funds increasing in frequency as they look to electric buses as a way of the future. We began delivering buses in the fourth quarter fiscal 2018.

We are excited about the prospects for fiscal 2019 and beyond, and we work closely with our exclusive electric drivetrain provider, Cummins. We are seeing continued strong growth from our gasoline powered bus in fiscal 2019, and further understood (ph) by technicians and mechanics, who truly appreciate emissions simplicity and hauling and stock (ph) capability it shares with propane. It's also at a lower price point than diesel. So really works for those customers where acquisition price is a key concern.

As we look forward to next year and beyond, with the broadest range and the cleanest, low NOx school bus in the industry, eight times more alternative-fuel powered vehicles on the road, than all of our combined, and still with less than 15% of customers having tried an alternative-fuel powered bus, Blue Bird is in a very strong position. With forecast sales for fiscal 2019 in excess of 4,650 units we are planning another record sales year Blue Bird alternative-fuel powered school buses. We will keep you update on our progress obviously through the year.

So let me now turn you all to Phil Tighe, he will take you through the financials. And I'll be back latter to cover the fiscal 2019 outlook and guidance. Over to you, Phil.

Phil Tighe -- Chief Financial Officer

Thank you, Phil and good afternoon, everyone.

Next few slides are a summary of our financial performance for the first quarter of fiscal year, 2019. There is additional information in the appendix that deals with reconciliations between GAAP and non-GAAP measures mentioned in this review, as well as important disclaimers already mentioned by Mark. Detailed material will be available in our 10-Q and that will be filed early tomorrow morning. We encourage you to read the 10-Q and the important disclaimers that it contains.

The material we are discussing today is based on the close of December 29, 2018 for the first quarter of (inaudible) 2017 for the fourth quarter (technical difficulty). There were several new accounting pronouncements adopted in the first quarter of fiscal '19. They are discussed in the footnotes in the 10-Q. Announcements included our revenue, leasing, pension, wages, cash flow and the internal use of inaudible). There were no changes with respect to risk factors from the previously published 10-K.

And now we will take a look at some of key financial results on slide number 9. Phil's already talked about the volume, which was 1,600 units lower than last year. As previously noted, this level was on plan, and all of the reduction was due to the lower delivery (ph) in government service units. We are still planning to build usual number of government units that we did in year's past. I would point out that at 1,600 units the result was about 9% higher than our average first quarter sales over the quarter in the past 10 years. So we are growing (inaudible) level.

Phil's already mentioned the first quarter was 30 -- alternative fuel sales at 34%, compared to 31% in the prior year, including electric buses that Blue Bird has started delivering. Net revenue was down by $7.6 million, but was really going to plan. About $9 million of the decline was due to the volume of the buses, the government unit (inaudible), pre-rented buses was higher in this year. Parts we have mentioned is about $1.3 million or about 9% year-over-year and our parts team is doing an excellent job of growing the business.

So you can think about the parts (ph) being -- due to 1,600 (ph) lower units and due to the fact that (inaudible) was up of higher revenue of type D in rear engine buses. We did have higher revenue per unit on school buses and as Phil mentioned that was up about 3% year-over-year. And that's a good indicator that the pricing that we announced late last fiscal year actually (inaudible), so with those effects.

Gross margin was about 40 basis points lower than a year ago at 12.3%. This was despite higher average revenue of school buses and was really attributable to a one time action we took in the first quarter of '18 where we had lower cost. We lowered our variable cost volume basically due to a system change that is occurring and the cost of that -- and the cost was entirely in fourth quarter of fiscal year '17.

If we continue onto next net income -- our net loss, the net loss was $1.2 million, that's substantially improved versus $6.6 million over the prior year. You can think about the net income as largely due to the transformational initiatives. We also had some lower tax, but we also paid about $1 million more in interest costs, as a partial offset to that and that is largely due to the higher debt. We will talk about in a minute. Adjusted net income was, again, better than last year at about $1.3 million positive. So it was up by $1.6 million, and that's likely driven by lower levels of -- that's likely driven by the adjustment of ongoing initiatives that we discussed previously, our transformation initiatives..

We talked a little about adjusted EBITDA and we will go through a bridge on the next slide. So I won't spend any time on that. And the final one was the EBITDA margin, we were pleased there at 4.7%, that's up about 30 basis point versus last year. So improvement of that. Diluted earnings per share at a loss of $0.05, was $0.31 better than prior year. And adjusted diluted earnings per share at $0.05 positive was about $0.09 better than the prior year.

Our cash at $18.8 million was down about $4.4 million compared to last year. This result was about in line with where we thought we would end up if we are going through the CapEx spend on the paint shop and the first quarter had higher than normal CapEx due to that (inaudible) there were some activities in the net working capital budget, that probably caused us to spend a little more cash. Debt at $209.9 million finished up about $60 million versus the prior year. In fact, that is due to the incremental mode we spoke of, $50 million in -- I think was up further in 2019 was about a (inaudible).. We also had some borrowing on the revolver. We will continue to probably over the next few months as we get to the higher amount of CapEx..

Net debt, and what's really -- we explained -- the change in net debt is a little bit, the difference actually -- change in net debt can really be explained by stock repurchase program we did last year. That was a 1 exercise at $56 million, and then the higher CapEx. So I think we understand what these issues are with can explain (ph).

So let's get to the bridge. So bridge is -- on slide number 10, you can see the impact of bus volume and product mix was about $1.4 million. We had favourable news from parts with that $300,000. So the two big columns on the bridge, we had economics and other. So basically, the economics is due to the fact that first quarter of fiscal year '18, we were still enjoying relatively lower steel prices. These tariffs were still months away and we had some attractive high prices at that time. So now in the first quarter of '19 of course is a very different scenario in steel prices, as a result of tariffs and alternatives, and a few other commodities. And also as I said we had a low cost recorded in fiscal year '17, in that variable cost line and that's normalizing in this year.

On the transformational initiatives side, I think, this is the one that we are really pleased about $6.5 million comes in this area. Again, this is the result of the work we have been doing to reduce costs of everything we purchase -- we improved our spend efficiency and on an ongoing basis we will see more positive results coming out of that when we miss the operation paint shop and other opportunities. So that was a strong result for us (inaudible) because of the foreseeable program and our other activities, general activities involved during this period (ph).

We turn to the cash flow on slide 11, quickly. You can see we were $56.6 million negative on our adjusted free cash flow basis. Really two issues there, first is the higher CapEx as we continued to complete the construction and the installation in paint shops. The second is working capital, return on working capital, I have to say, this is at the time of reviewed it, we did start to see an increase in trade working capital normally. We think that stuff to build up inventory as we come out of the peak selling season in September of the year, and we start to build it before we are getting ready for higher sales as we move out this quarter into the second. So we did see some of that.

This year it's exacerbated by the fact that we are seeing a buildup of inventory to support a major product change that will be coming. So we had to stop some pretty expensive items and we expect to have that stockpile for some period although, I think as we get through the year, this issue will -- the higher inventory -- will be lower this year.

We go to slide 12 which is net debt leverage. You can see we have total debt of $209 million, having closed the incremental $50 million that we borrowed, cash so about $100.1 million of net debt. For those of you who follow us closely, you will also know that we did increase our revolver capacity last year from $75 million to $102 million to really to provide an insurance policy against any unexpected claims (ph) and we did note that we had some stockpiling we had to guarantee it's not going to get any relief to $5 million in that area, but we kind of put to cover us a little there.

We did, as you see, debt-to-net leverage ratio of 2.8, still substantially below the 4% that will covenant that we have with the banks and our liquidity is that $2 9million that we believe a good level for us coming up, the full year.

So with that, I will turn you back to Phil, and he'll -- looking forward to guidance and there and I'm sure we'll have some questions.

Phil Horlock -- President and Chief Executive Officer

Okay. Well, thanks, Phil. So, let's now focus on the fiscal 2019 outlook for the year and our full year guidance. So let's turn to slide 14. With recent industry running at -- between 34% to 35% units annually, we're on a 30 year high. And we do anticipate another strong year in fiscal 2019 with industry again around 35,000 units. Let's look at the reasons for that continued growth in housing starts price and property taxes, customers' desire to replace their aging buses with 150,000 older than 15 years. Along with the boost of new funding ahead from the VW settlement also for acquisition, for a very strong industry once again in 2019.

Now in fiscal 2019 we focus on gross margin and EBITDA margin improvement from 3 key areas. First, the impact of the cost recovery pricing that impacted late fourth quarter of last year. This will have a full annual effect in fiscal 2019 and we saw the benefit of that in the first quarter. Second, the full year impact, the transformational cost initiatives implemented in second half of fiscal 2018 and the continuation of this initiative. And once again, we saw the favorable impact in the first quarter of 2019.

And third, the plant, facility and process improvements that we are making is still ahead of us, to increase manufacturing efficiencies and improve quality. That will begin to take hold in 2019 later in the year and also benefit us substantially moving forward. But of course, I would be remiss if I didn't mention our class leading products. Because they also are contributors. With Blue Bird firmly established as the undisputed leader in alternative fuel-powered bus sales and our sights set on yet another record sales year in this segment, we are well positioned to drive profitable growth through our product strengths. That's a key initiative that we worked on the last several years and I think you'll all agree we have been pretty successful at it. So we're going to keep moving in that space, no question. So our financial forecast for 2019 our only (inaudible) was our previously communicated EBITDA margin goal of at least 10% by fiscal 2020.

So now let's turn to slide 15 to review our fiscal 2019 full year guidance. Based on our strong fiscal first quarter 2019 results and the outlook for the remainder of the year, we are reaffirming guidance of all 3 reported metrics. Net sales guidance of between $990 million to $1,025 million. As mentioned in our prior earnings call, we are being prudent at funding ourselves (ph), recognizing that we may have to push out some unit sales as we launch our new pay facility and make other facility and cost improvements in the plant.

Now these type of production losses are typical for an automotive company undertaking significant plant upgrades and our approach will be to minimize them as much as possible. But I want to assure you, we will be looking for every opportunity to maximize sales throughout the year or provide updates as necessary. Adjusted EBITDA guidance is between $80 million to $85 million, a significant $10 million to $15 million increase over fiscal 2018 as we focus on driving down costs, increasing unit revenue and improving EBITDA margin, and adjusted free cash flow guidance of between $24 million to $28 million.

Now adjusted free cash flow continues to be a strong feature of our business model and typically represents more than 50% of our adjusted EBITDA. However, as you know, our fiscal 2019 guidance for adjusted free cash flow is being impacted by the unique capital expenditures required to complete construction of our all-new automated paint facility. So in wrapping up, we had a strong first quarter performance, both operationally and financially. On our prior earnings call, we explained how we exited fiscal 2018 with significant run rate benefits from structural cost reductions and cost recovery pricing taken in late fiscal 2018.

Where we saw the impact of these benefits, clearly in the first quarter compared with last year as we were able to offset the rapid rising commodity costs led by the impact of the steel tariffs and lower unit sales. These run rate benefits will help us drive significant profit and margin growth in fiscal 2019 with adjusted EBITDA higher than our targets to be 14% to 21%, I should repeat that, 14% to 21% higher than fiscal 2018. And our plans and our guidance support this.

We will continue to update you on the progress each quarter. Well that concludes our formal presentation. I'm going to hand it back to our moderator, Vicky to begin the Q&A session.


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Questions and Answers:

Operator

Thank you. (Operator Instructions) We'll go first to Matt Koranda with Roth Capital.

Matt Koranda -- ROTH Capital -- Analyst

Hey guys, good afternoon.

Phil Horlock -- President and Chief Executive Officer

Hey, Matt.

Matt Koranda -- ROTH Capital -- Analyst

Just wanted to start off with the paint booth start-up and how things are proceeding there. I know you guys mentioned I think earlier in the year that you'd be doing some test runs and validation. Do you feel like everything is on track for completion by the high season and what are the remaining hurdles that you need to get over before feeling comfortable with scaling the booth?

Phil Horlock -- President and Chief Executive Officer

Well, we got some equipment to install in the booth, and so the booth are pretty -- I understand, it is more like a unique plant itself, it looks like when you see it. So there's still some construction work to do, but we're on target really for end of April. We have a date in mind, specific date, but pretty much toward end of April job one, when we sort of start to run off this unit truly. Prior to that day, we are making sure all the safety standards are met, the equipment is ready, the emission requirements are met. All the things you have to do to complete certification, but we've been looking for -- as we look toward the end of April, we'll start up the small ramp-up and progressively increase that through the year.

I don't expect that through the course of this year, we'll be anywhere near, every single bus running completely through the paint shop. If we do that, it will be a complete home run, but we'll be certain that we are target as we start the next fiscal year in October then we will be fully operational with every bus going through that paint shop. But our goal is to ramp it up progressively through the year and run how this work, make sure it is efficient through the first ones, but I guess to answer your question if we are ready first of all, we believe we're on track, yeah.

Matt Koranda -- ROTH Capital -- Analyst

Okay, great. Yeah, I mean, the reason I ask is because you guys mentioned there is some conservatism, I guess, factored into your top line guidance for fiscal '19, and the large sort of the bulk of that conservatism seems based around the launch of the paint facility. So I was trying to get a sense for, I guess when you think you'll have the visibility and to how that's running so that you -- that would give you confidence to sort of change the top line guidance, I guess. So it sounds like April or later at the very least. Is that fair to say?

Phil Horlock -- President and Chief Executive Officer

Yes, look -- I think Matt, I think it's a great question. I think we'll give you an update at the end of the second quarter and I think obviously we'll know by then. That would be -- we should be a place will be -- if we -- we will certainly have started production. I think, the real reality check will be the end of the third quarter, because it's full three months or so under our belt. We will know where things stand, how it's going, but -- so I think there will be an interim check next quarter, and then the real full year outlook check at the end of the third.

Matt Koranda -- ROTH Capital -- Analyst

Okay, and then it seemed like working capital was a bit larger of a drag on cash than I would have anticipated during the quarter. I know you guys mentioned a little bit higher inventory quarter that you built. Could you give a little more color on sort of the product change that you're dealing with the inventory build? It would be helpful.

Phil Horlock -- President and Chief Executive Officer

Yeah, I just want to mention, -- I will let Phil also will take this as well, but just want to mention, we talked about the fact -- this is the inventory build through a quarter. And one thing you have to look at is where you are starting from. We did a great job in controlling the inventory at the end of last year. And naturally, we finished with an inventory at the end of fiscal 2018 that was about $20 million lower than it was at the end of '17. So now you're building from a lower inventory level. You are not necessarily building a much higher end point, but you got a bigger growth plan to work.

So we benefited obviously in 2018 from the fact we did share the inventory down which we like to do at the end of the year, did a great job at it, but now we have this build from a lower base. Actually, it's really good news, but it doesn't look like it sometimes when you look at these charts, but it was a good news performance. I think on the product side -- we don't like to announce what our product plans are because if we're doing something that's significant we are going to hit that one right time, but just suffice to say over the next 18 months or so we're going to have some significant product changes coming in and you'll see those and we'll fill you at the right time, but we are happy to build some inventory to handle that changeover for us.

Matt Koranda -- ROTH Capital -- Analyst

Great. And then just last one, I guess, from me in terms of the order activity, it looks like great news on the alt fuels front with a significant percentage of your new orders represented by that. Basically have you been seeing some of the -- I guess districts that were pushing decisions from back in December out into this year, is that what's coming through and driving the strength in alt fuels with some of the VW settlement money that they are seeing?

Phil Horlock -- President and Chief Executive Officer

I say we're starting to see it, I wouldn't say it's a flood of stuff coming through the VW money yet, it's more of a trickle, but we are certainly seen states that are now releasing that money and we are doing very well in those. I think Louisiana was one of the first ones. We capitalized on that very well with our propane products. So I think that's still ahead of us actually, lot of VW money. I think we're just now entering that season.

Once you got a first quarter soft market, just delivered all school buses for the year, it is slow we all know that. Things around January, February time frame that's when the orders start to really pick up and the interest comes and the quote activity increases and I just think we've been successful in marketing our product strengths and what we believe is great for the industry, which is our alternative fuel powered product. So it's a case, I think we've been doing ever year.

I mean, we all know, we had pretty good last year, I think we are up this year, came off very -- had another record level last year when there was no VW money. So I think we're just -- again we're out there, we worked this hard, we work our strengths hard and VW money is a little boost for -- little bit of that, but I think this will be like normal business right now that we've benefited from.

Matt Koranda -- ROTH Capital -- Analyst

Okay, great. I'll jump back in queue here guys. Thanks a lot.

Phil Horlock -- President and Chief Executive Officer

Thanks Matt.

Operator

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

Eric Stine -- Craig-Hallum -- Analyst

Hi, everyone.

Phil Horlock -- President and Chief Executive Officer

Hi Eric.

Eric Stine -- Craig-Hallum -- Analyst

Hey, so maybe just, first, just a high-level question on alt fuels, you mentioned that -- about 15% penetration of the overall market today and up from sub 10% a couple years ago. I haven't asked you this in a while, but any updated thoughts on where you think that ultimately goes. I mean obviously that's going to play out over a number of years, but where you think that can go with the offering that you and others have in the market?

Phil Horlock -- President and Chief Executive Officer

Yes. I don't (inaudible) talk to myself and ourself, I mean we obviously, we ended that last year, full year at 38% mix of alternative to diesel is the way I look at it. I think Eric you talked about pretty big numbers over 50%. I think 50% is our next hurdle we look at. And that certainly on the horizon. I look at everything we're doing with electric power, the low NOx values of our propane products, all the things we're doing continuously and diesel gets -- every time you get a regulatory change, diesel gets tougher and tougher and more expensive, and I think it's -- I think 50% is certainly something we'll look at in the next few years. I'm not going to tell you which year is in mind, but we can see -- we are bullish about continued growth in our mix year-after-year. Some of the products we've got to we feel very good about it.

Eric Stine -- Craig-Hallum -- Analyst

Right. Absolutely. Okay, then maybe just turning to, again another market question, but I know that it's often cited about 150,000 buses out there that are what 15 years or older. And I'm just curious, I mean do you see any regulatory triggers out there or any characteristics like I know you just launched the stability control system and the backup cameras being standard on your buses. I mean, are there any things out there that you see kind of speeds that upgrade cycle or is this something that it's out there, there is a hope that it's going to rectify itself, but unclear if that ever happens?

Phil Horlock -- President and Chief Executive Officer

You know, there isn't a lot of what I call, significant product regulatory change that we -- that's been mandated yet in the years ahead as we look. I mean you mentioned the two there, but we volunteered that. Actually those two things you mentioned we volunteered to put those on our products. We think it's right for safety and we've been doing that -- we got these -- those as options for several years and we thought it is the right time to standardize them.

I think the one thing that you'll get a lot of comments is around seat belts. We don't put seat belts in every bus, we offer seat belts, we can put lap belts, three point seat belts. We got a great seat system, an all new seat we introduced just about a year ago, which we can -- which can accommodate, even convert later on in cycle to a fully seat belt bus with limited cost, I think that's one that gets the most discussion, but it's like everything else. When you are running (ph) 35,000 units, where you've got a part, of average 90,000 units, it's difficult to sort of accelerate things very quickly, and it's difficult to retrofit to an entire part of the set there/

I think the best thing I think about replacing the cycle is on the VW money, no question there is a lot money there. It's all about getting those 20-year-old buses off the road. I mean, we are not talking over 15 years, there's a lot over 20 years of age. And all the time you are getting old emissions, the old diesel buses, where you see the black fume come out of the back we want to get rid of those. So I think that's probably the best catalyst I would say. And it will be spent over, I expect the next three years, probably three to four years too utilize that money. So that's still ahead of us. That should be a good boost I think to try and get all those buses off the road, but regulatory wise I don't really see anything that's going to be a boost for the industry.

Eric Stine -- Craig-Hallum -- Analyst

Okay, that's helpful. And then last one from me and I might have missed this in Phil's comments, but the paint shop. I know it's a key piece to you getting to that 10% plus EBITDA mark for fiscal '20. I mean I know it's going to come -- it will be phased in throughout the second half, but have you ever quantified or could you quantify maybe the margin pickup that you expect from the paint shop?

Phil Tighe -- Chief Financial Officer

I am not sure we want to qualify that yet, Eric. It's -- put it this way that we're investing a large amount of money in paint shop and we expect to get quite attractive payback on that money in the shortest possible time. So it's substantial.

Eric Stine -- Craig-Hallum -- Analyst

Okay, thanks a lot.

Phil Horlock -- President and Chief Executive Officer

Okay, thank you, Eric.

Operator

We'll go next to Mike Baudendistel with Stifel.

Michael Baudendistel -- Stifel Nicolaus -- Analyst

Thank you. Yeah, just maybe a little bit similar to the last question, I mean just going from what you have -- just have for guidance for 2019, about 8% EBITDA margin going to 10% by 2020, sort of if you could just put us maybe items and buckets of what order of magnitude are the largest things that are going to get to 200 basis points from '19 to '20?

Phil Tighe -- Chief Financial Officer

Well, I think you can think of that this way, the major work that we've been doing on reducing cost alone, paints, (inaudible) is clearly the (inaudible) of moving that to 10% plus. That -- and we are still delivering that. So this whole thing that we are doing this year, in that area. So and quite frankly, we have done some reorganizations in the company. So this is not any longer going to be one-part of failure (ph). It's something that we are putting into the culture of this company in terms of very aggressive (inaudible) organization.

So I think that's the single largest piece. Then in order of priority I think the paint shop is really going to drive significant efficiency on the improvements and then after that you heard the discussion of where we think alternative fuels will go, we do think the market is going to continue to grow the alternative fuels and quite frankly we think we will make better margin also through future. So that will contribute and then the final piece really is a collection of things that we're doing within our total manufacturing area to route efficiencies, in areas other than paint job we are putting the line there.

We've mentioned that we doing some stockpiling of new products. There are product initiatives (inaudible). So we've got a pretty good shopping bag of things that are going to deliver this two-point margin improvement. But again a lot of it is based purely on structural cost changes within the Company and then on higher mix of alternative-fuels. Phil you want to add?

Phil Horlock -- President and Chief Executive Officer

No, that's perfect (ph). I think when look at (inaudible) what we are doing this, we talked a lot about structural cost changes we've made the last year, we talk about the pricing. So ahead of us we have the paint shop and as Phil mentioned, we haven't really got into this much but we are really doing lot of other things at the plant. We are going through every one of our work stations, look at efficiencies, what we can do better, how we can be more efficient and drive out waste. It's just that it is a process we're going through. And we think that will have a lot of benefits for us in next year and beyond.

As Phil said, this isn't just a one-time project. We are continuously attacking costs, attacking ways of getting value (ph) in business, is something we're driving through the entire Blue Bird system and culture. It becomes a cultural thing, I think we're confident, we have a plan, we have a track, I think the results we have achieved so far that we saw in fourth quarter last year, saw some of that come over in the cost side this first quarter, I can show you the impact this can have. And I'm often asked, how far are you along, if it was a baseball game, I'd probably say we're in about the fourth innings of a baseball game right now. So we've got some ways to go.

Michael Baudendistel -- Stifel Nicolaus -- Analyst

Got it. That's helpful, not an official game. Another question I have is you mentioned that 50% of the (inaudible) accounts in the quarter, what's a more typical percentage. And I guess the implication there is that you're taking some share. Just wondering if you had any updated market share targets?

Phil Horlock -- President and Chief Executive Officer

Yeah, I think probably, it's probably more like around -- how should we -- you look at conquests (ph), I mean there is two ways to look at it. One is traditional conquest with diesel and ones with alternative fuels. I think certainly we are above 10% Comquest (ph) especially earlier in the year -- as early in the year as we are. Remember this is a soft quarter there isn't a lot out there. We have to go out to the find this business. When you are getting 10%, at this time of the year, that's was pretty good. So it's been a (inaudible). I think we certainly we like that and we know exactly where it is and (inaudible). so that's our goal, so 10% plus is good, 15%, I think is very good.

Michael Baudendistel -- Stifel Nicolaus -- Analyst

Okay, and just you are having any difficulty with employee turnover or staffing. I mean, that's something that I've heard from other OEMs, talk about that?

Phil Horlock -- President and Chief Executive Officer

It is definitely tied to labor market and the use of it (ph), no question, I think that certainly what we are in the middle. Georgia we have seen an influx of other businesses coming here. I think it is good work, great work here and we have a good set of employees, but we work on all the time. We've been a long time in this area, we are the staple company and like it in Georgia. So we have quite a pipeline that we access when we need new employees. But it's something you got to watch.

Phil Tighe -- Chief Financial Officer

I think you're right. Eric (ph), it's tightened up. But we have a process by which we go after aggressively. Many ways do we know, we know all the -- we look at everything from the salary side to the hourly employee side, all universities we got affiliation with around here with a lot of the employees they are always starting well, internships they become full time hires. But on the hourly base, like I said, we have a -- we are constantly, actually we have a process where we're constantly looking to test our pipeline, We will make sure there availability but it's timing. I think right now we feel strong about where we are.

Michael Baudendistel -- Stifel Nicolaus -- Analyst

Got it. That's all from me, thank you.

Operator

And we'll go next to Chris Moore from CJS Securities.

Christopher Moore -- CJS Securities -- Analyst

Hey, good afternoon guys. Maybe so the ASP in Q1 was up $2,500. Just trying to get a feel for, if you think that's just, it's going to flow through for the rest of the year. Obviously, I don't know when the pricing hits in fiscal '18, I'm assuming that a portion of the buses were at those high levels in Q4. But is it fair to think of kind of Q2 and Q3 matching that same type of increase on an ASP basis?

Phil Tighe -- Chief Financial Officer

Chris, this is Phil. The price increase really hit very late in the year, fiscal year I think. So I got not a lot about this price increase. (inaudible) it is a cycle that we got through when our prices have firmed up. I mean the older this plays, and an order is anywhere from 8 to 10 weeks out from when we actually sell the pars. There wasn't a lot of room to move. So when we -- so obviously when you got new products in this is where you have to take (ph). It's definitely the expectation that we will continue to that revenue. You know obviously the kind of situations given the way we look at the market, we are comfortable that we will generate product revenues and inquiries.

Christopher Moore -- CJS Securities -- Analyst

Got it. Can you maybe just remind me, I think you did say that end of last year, the mix between propane and gas buses in '18. I'm just trying to get a feel for whether you expect that to change much in '19?

Phil Horlock -- President and Chief Executive Officer

Chris, I will give that to you offline.

Christopher Moore -- CJS Securities -- Analyst

Got you.

Phil Tighe -- Chief Financial Officer

(Multiple Speakers) I think was sort of pretty close. I think we had a great year in cash flow. I think it was around 50/50 (Multiple Speakers).

Christopher Moore -- CJS Securities -- Analyst

Any reason to think that will change materially either way this year?

Phil Horlock -- President and Chief Executive Officer

Well, I think one thing is we talk about VW money that gasoline can't access the VW money, propane can, CNG can and electric can. So obviously I am not talking about it a lot in fiscal '18, we saw it delays in folks ordering propane because they really got the VW money coming. So they may -- I'm going to try a gas engine. So I do think VW money coming with us this year being accessed and we are seeing that now, actually we have seen it very strongly in the first few months of this year, shows I think the propane is very much on the up and up, so but they are both doing well.

By the way last year, I guess it was something like about in like 46%-54%, or 46% gasoline 54% propane between the two.

Christopher Moore -- CJS Securities -- Analyst

Got it, helps.

Phil Tighe -- Chief Financial Officer

46% propane 54% gas?

Christopher Moore -- CJS Securities -- Analyst

46% propane or gas?

Phil Horlock -- President and Chief Executive Officer

Propane.

Christopher Moore -- CJS Securities -- Analyst

Got it OK, helpful. Let's just assume that you have to build a few less buses than you could have sold because of the initiatives going on. A couple of things, do you have any ability to kind of cherry pick in terms of buses or customers that are more profitable. And two, are those sales gone and can you potentially carry some of those over into fiscal '20?

Phil Horlock -- President and Chief Executive Officer

Let me take the second question first. I'll take that. First of all, I think we have shown an ability we can carry them over. I mean, you might end up -- (inaudible) someone for a little while longer than they like, you might be able to help them get there a little bit and then take the right school staff (ph). You can do it, I mean that's about relationships and those guys really want your product. I mean, we've seen that, it just happens from time to time. I think we feel we can manage that, So I don't think, when I talk about pushing sales out, we hope to capture those in the long run and it might just go beyond schools starting the way we think of it.

Your first question about, can you cherry pick them? Obviously we've been on business, it is a bid business we are in. Not all prices are the same, not all specs of vehicles are the same, states are different, we have different funding abilities, different spec of vehicles, and so and so. So we are mindful of where we will be spending our production money, so to speak. Yes we do look at that. We look at that very carefully and where they want to go and we will have to bid this more aggressively in other places. So we can to a certain extent do that, but we want to sell school buses basically that's the bottom line, but we can be a little selective when we need to be.

Christopher Moore -- CJS Securities -- Analyst

Got it. All right I appreciate it guys. Helpful.

Phil Horlock -- President and Chief Executive Officer

Thanks, Chris.

Operator

At this time we have no further questions in queue, so I'll hand the call back over to Phil Horlock with any additional or closing remarks.

Phil Horlock -- President and Chief Executive Officer

Well, thank you Vicky. And thanks to all of you for joining us today on this call. We do appreciate your continued interest in Blue Bird. I hope you can see by our first quarter results and outlook for the year, we are focused on profitable growth and intend to deliver on our commitments and I believe we're well positioned for growth today and in the future. Please don't hesitate to contact our Head of Investor Relations, Mark Benfield, should you have any follow-up questions. Thanks again, from all of us at Blue Bird, and have a great day.

Operator

That does conclude today's conference. We thank you for your participation.

Duration: 58 minutes

Call participants:

Mark Benfield -- Director, Investor Relations

Phil Horlock -- President and Chief Executive Officer

Phil Tighe -- Chief Financial Officer

Matt Koranda -- ROTH Capital -- Analyst

Eric Stine -- Craig-Hallum -- Analyst

Michael Baudendistel -- Stifel Nicolaus -- Analyst

Christopher Moore -- CJS Securities -- Analyst

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