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Blue Bird Corporation (NASDAQ:BLBD)
Q2 2019 Earnings Call
May. 09, 2019, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good day, and welcome to the Blue Bird Corporation fiscal 2019 second-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 of Investor Relations

Thank you, Carolyn. Welcome to Blue Bird's fiscal second-quarter 2019 earnings conference call. 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 portion of the IR webpage.

Our comments today include forward-looking statements that are subject to risks that could cause actual results to be materially different. Those risks include, among others, matters we have noted in our latest earnings release and filings with the SEC. Blue Bird disclaims any obligation to update the information in this call. This afternoon you will hear from Blue Bird's President and CEO Phil Horlock, and CFO Phil Tighe.

Then we will take some questions. So let's get started, Phil?

Phil Horlock -- President and Chief Executive Officer

OK. Thanks, Mark. Well, good afternoon, and thank you all for joining us today for our second-quarter earnings call for fiscal 2019. We have some great things going on at Blue Bird and we welcome this opportunity to share with you our latest quarter results.

So let's start with an overview of those financial results on Slide 4. We had a strong second quarter with adjusted EBITDA of $12.2 million, which was 2.2 million or 22% higher than the same period last year. This is our second-highest profitable second quarter in more than a decade. As Phil Tighe will show you later, we increased profitability despite significantly higher commodity prices than we had in the second quarter last year.

You'll recall that the escalation in steel costs began largely in the second half of last year and we remain at those elevated levels today. During this earnings call you're going to hear a recurring theme of how we are driving our profit improvement. First, bus pricing that we took in late fiscal 2018 to address the escalation in commodity costs. This is resulting in a significant increase in our average bus selling price.

Second, cost reductions that we're achieving through our transformational initiatives. Both of these actions are significantly improving our results over last year, and are cornerstones in our plan to increase gross profit and EBITDA margins. And third, continued leadership and growth in alternative fuels will reearn a superior margin compared with conventional fuel. Now we improved profitability in the second quarter, despite selling 170 fuel buses in the last year.

I think it's important to explain that the entire volume decline versus last year was due to a part shortage by one supplier. This resulted in us exiting the second quarter with 182 buses built but we couldn't deliver them because of missing parts. Consequently, we held these units in inventory and are now delivering those buses this quarter as the supplier in question progresses through their recovery plan. Importantly, we didn't lose a single customer order because of this issue, but it did delay our bookings and shifted about $2 million in profits from our second quarter to third quarter.

Even though unit sales were down, the second-quarter volume of 2,271 buses was 42% higher than the first quarter, illustrating once again the seasonal business in which we operate. Typically, our first-half volume represents around 33 to 36% of the full year. We have a similar outlook for this year with strong second-half volume and profits anticipated. Now, while second-quarter net sales revenue of 212 million was down 5 million from a year ago, this decline of 2% was much less than the decline of 7% in unit sales.

The low decline in sales revenue may not reflect the favorable impact of our bus pricing action that I just referred to. In fact, our average bus selling price was $3,200 per unit higher than second quarter last year with price increasing from $82,700 a bus to $85,900 this year. That's a strong 4% increase in unit bus price and it also benefited from the richer mix of alternative-fuel-powered buses that we're selling, that command a higher price. Our adjusted free cash flow for the second quarter was $14.4 million, up $13.4 million from last year, and adjusted diluted earnings per share was equal to last year at $0.15 a share.

As we look at the underlying strength of the industry and Blue Bird results, we remain upbeat about the business fundamentals. With a strong outlook for property values and corresponding property taxes, which are the major funding source for school buses, together with the fact that 150,000 school buses on the road today that have been in service for more than 15 years, we are confident the industry outlook remains at around a 35,000-unit mark in fiscal 2019. I should mention, that's a near-record level over the past 30 years. We did see yet another record sales mix for alternative-fuel-powered school bus sales in the second quarter, at a very strong 42% of our total bus sales.

This mix is 8 points higher than last year, and leads the industry by a long way. As a reminder, in alternative fuels we call propane, compressed natural gas, electric, and gasoline-powered motors, as all of these are alternatives to diesel which has been the staple fuel for years. For the last several years we've been achieving significant growth in alternative-fuel bus sales. As I just mentioned, we have not slowed down this year.

We'll cover our alternative fuel performance in more detail a little later. As I commented earlier, we saw the impact of both our pricing and structural cost-reduction actions in the second quarter as evidenced by a strong increase in our gross profit margin, a 2.3 increase, 2.3 points increase over last year to 12.3%. We expect to see additional favorable benefits from both of these initiatives throughout the year. Our transformational initiatives are well under way and on track, targeted at lowering our cost structure, driving plant efficiencies and product quality, increasing capacity and bringing major product and future upgrades to the market in the coming years.

All in all, I'm very pleased with our second-quarter results. We increased our gross profit margin through pricing, cost reductions and a richer mix of alternative fuel-powered buses. Our results were in line with our expectations and they support our full-year guidance. Importantly, we're on path to our stated goal for an adjusted EBITDA margin of at least 10% by 2020.

Let me now review our key operating achievements on Slide 5. We recorded a number of significant achievements in the second quarter and each one will make us more competitive and support our growth going forward. Our transformational initiative to increase margins are on track, driving improvements in quality, cost, efficiencies and capacity, and we are seeing those results now in the second quarter and there is much more to come. Equipment is now fully installed in our all-new, fully automated paint shop.

Testing is under way and the first bus is scheduled to be painted early next month. As we will show you later, this is an important initiative to drive efficiency improvements throughout the plant. As I covered earlier, we increased second quarter school bus selling price by $3,200 or 4%, while winning business with a significant number of customers that are new to the Blue Bird brand. In fact, 16% of our customers in the second quarter were conquest accounts.

That was on top of 15% conquest account number in the first quarter, so we're performing very well there and picking up new customers. We continue to be the undisputed leader in alternative fuel-powered school buses, and as of the start of this week, our year-to-date sales and firm-order backlog of these buses represented an impressive 46% mix of the total. That compares with 34% mix at the same time last year. Further, the total number of alternative-fuel buses sold and in our firm order bank is up 24% from a year ago, and that's leadership and real momentum in the fastest-growing segment in the school bus market.

Remaining on a couple of alternative fuels, we're seeing very strong interest in our latest product, our all-new, zero-emission, electric-powered school bus which is powered by a Cummins electric drivetrain. I told you last quarter that we have quoted over 100 units. Well, I'm pleased to tell you that we have received more than 100 firm customer orders this fiscal year and we expect more orders to come. And finally, based on our second-quarter performance and outlook for the balance of the year, we are reaffirming full-year guidance for all the metrics on which we report.

I will cover this in more detail toward the end of the call. I think it's fair to say that we continue to advance the business on multiple fronts and we are focused on profitable growth. Let's now take a closer 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 second quarter, total net sales were down about 5 million from last year, more than explained by 170 fewer sales of buses caused by a supplier parts shortage issue that has been resolved. Now, these units will be delivered in the third quarter. The 4% increase in average bus selling price, however, was a partial offset to the volume shortfall. Parts sales for the second quarter were up $1.7 million from last year, representing a very strong 11% growth, as we successfully introduce new products and tailor incentive programs through our dealer network.

I should add that this followed 9% growth in the first quarter, so we're off to a great start in parts this year. Despite lower volume of the impact of higher steel-led commodity prices, adjusted EBITDA of 12.2 million was 2.2 million higher than a year ago. Turning now to Slide 7. Let's take a closer look at our alternative-fuel bus sales performance.

Now, in the first-quarter earnings call, I told you that we've seen a significant surge in orders of alternative-fuel-powered buses, as we move from the softest quarter of the year into the second quarter. Well, that clearly translated into higher unit sales, for a substantial 15% over last year's second quarter, achieving a very strong alternative fuel bus mix of 42% of total sales. And as I said earlier, that mix has since grown to a record 46% mix of all buses booked or are in our firm order backlog today. So it's clear we are not slowing down in this segment.

No other school bus manufacturer comes close to this mix. You might find it interesting to note that just three years ago in 2016, our alternative fuel sales mix was 26%, 20 points below today, and our sales had grown more than 30% from the prior-year 2015. I remember being asked back then if we could see that number reaching 50%, and I'm totally comfortable in confirming that. So back to the second quarter, we saw 57 new customers taking delivery of their first-ever alternative-fuel-powered Blue Bird bus.

In fact, for the first half of the year, more than 100 customers purchased a Blue Bird alternative-fuel bus for the first time. This is a strong endorsement of our exclusive alternative-fuel buses, the Blue Bird brand, and our dealer network. I previously covered the fact that we now have more than 100 electric bus orders in hand and we expect more to follow with all the customer interest we are seeing for the newest addition to our alternative fuel lineup. Now looking forward, the vast majority of the VW mitigation funding is still ahead of us and should be a boost to the industry with many states earmarking specific funds for school bus purchases.

With the widest range of alternative-fuel-powered buses, the most modern and proven engine in the industry which is exclusive to Blue Bird, and our leadership position in low NOx emissions, we are well-positioned to capitalize on the VW funding and other growth opportunities. In fact, reduction in NOx gases is the major criteria in funding for the VW settlement. To this point, our new ultra-low-NOx propane bus is certified at one-tenth of the NOx emissions output of any other manufacturer, and also the EPA standard. Plus, our propane bus is widely recognized as having the lowest operating cost of any other school bus in the market.

So you can have it all with Blue Bird propane. You can have the lowest operating cost, and the lowest NOx emissions of any internal combustion engine in a school bus and now a growing number of customers understand this and sales are up. We're also seeing continuous strong growth of our gasoline-powered bus in Fiscal 2019. It's regularly understood by technicians and mechanics.

They really appreciate the emissions simplicity and cold-weather start capability it shares with propane. It's also at a lower price point than diesel so it really works well for those customers where acquisition price is a real concern. So with our year-to-date bookings and order backlog for alternative fuel buses up 24% for the same time last year, and with propane sales leading the pack, we are raising our forecast sales for fiscal 29 to over 4,800 units. That will be another record sales year for Blue Bird's alternative-fuel-powered school buses.

Let's now take a closer look at how we are driving cost reductions throughout Blue Bird and turning to Slide 8. We are showing a new slide here to provide more color and texture on how we are driving down total costs throughout the company. Now, we began last year with results achieved primarily in the second half of fiscal 2018. You might recall that in our fourth quarter and full-year earnings call in December, we showed a profit bridge of fiscal 2017 to 2018 which included a gain of $26.5 million of cost reduction actions, which more than offset the impact of escalating commodities led by steel costs.

These actions are depicted at the top of the slide where our initial focus was on driving down purchased material costs and services through a combination of initiatives including commercial deals with suppliers, new sourcing and extensive design changes. We worked significantly with external automotive experts to ensure best practice and processes were applied, and we delivered results. Now we continue to pursue those initiatives today and plan on further additional savings throughout the year. We're also benefiting this year from the full-year impact of the savings that began the second half of fiscal 2018.

You'll see this clearly when Phil Tighe shows you the bridge for second-quarter results compared with last year. Our next phase will focus on driving down the costs of production as shown in the bottom two-thirds of the slide. Now the new, fully automated paint facility provides the opportunity to reduce rework with increased first-time-run capability, to reduce labor and material costs through robotic application of paint, and to achieve savings in warranty expense as it did produce a better-quality paint on the vehicle. The new paint facility breaks the today's bottleneck and even higher straight-time capacity.

Now, savings will largely be realized in fiscal 2020 as we undertake what we call a soft launch of the facility, with limited production from June 29 as we get to grips with our new paint shop and with ramp-up fully in process and on board in October 2019. Importantly, with a new paint facility attached to the exterior of our present assembly building, we are freeing up space within the plant to allow more efficient line rearrangement for tasks and stations and the addition of several stations for more efficient operations and improved quality control. We've employed industrial engineering resources to optimize in-station workflow in the newly rearranged production line, and we are confident in achieving significant efficiencies going forward. This systemic approach to driving down total cost over multiple years is key to delivering higher gross profit and EBITDA margins.

We'll continue to share the results with you in our quarterly earnings calls. Let me hand it over to Phil Tighe who will take us through the financials, and I'll be back later to cover the fiscal 2019 outlook and guidance. Over to you, Phil.

Phil Tighe -- Chief Financial Officer

Thank you, Phil, and good afternoon, everyone. The next few slides are a summary of our financial performance for the second quarter of 2019. I would advise the material we are discussing today is based on a close at March 30, 2019, for the second quarter, March 31, 2019 for prior-year comparisons. And more detailed material is available in our 10-Q which has been filed.

We encourage you to read the 10-Q and the full disclosure statement, please. Attached to this report there is an appendix which deals with some of the reconciliations between GAAP and non-GAAP measures that are mentioned in the review, as well as some important disclaimers already mentioned by Mark. We had no new accounting pronouncements in the second quarter of '19, although it was previously mentioned we did adopt a number of these statements in the first quarter and they are discussed in the 10-Q. Those pronouncements included revenue, losses, pensions, hedges, cash flow and internal use of software.

There were also no changes to the risk factors from 10-Q previously published. So now let's look at an overview of some of the key results on Slide 10. Phil's mentioned quite a few of them around volume and revenue, so I won't take you back through all that. I'll make one brief comment on the volume just so everybody's clear.

We booked 2,271 units in the second quarter. We actually produced over 2,450 units through the plant based on firm orders from customers. Just to reemphasize, the gap between those is about 180 units which are buses already built and awaiting, just a delay of components that we're short from one of our suppliers. When they are provided, we expect to put those units to the customers who are waiting for them [Inaudible] in the third quarter.

I would also mention that in the first half, sales were 3,871 units versus just under 4,000 units last year, and again the supplier production shortage impacted the first half. Moving down to net loss for the second quarter, you can see that we had a small net loss of about $700,000 versus a profit of 1.8 million last year. The net loss was really due to two things. One was higher interest costs of about $2.2 million.

That was a result of a number of factors including an additional 50 which was taken out of the term loan to pay for the tender offer that we did last year on some higher rates, as you have seen, you know, rates have nosed up a little. And also we wrote off an interest collar that we've been tethering which you could consider a one-time action. The other action that impacted us was low recurrence of foreign currency gain that we reported in the second quarter of 2018. So in large part they are, they explain the deterioration of net income, despite the fact that our EBITDA was up, too.

First-half adjusted EBITDA was $19.4 million. It's not shown on the page, but this was up $2.3 million [Inaudible] prior year, you can see that in Q. The first-half net loss of $1.9 million was in fact $4.1 million better than the prior year so I think that's a [Inaudible] while I'm sure it's moving in the right direction. I do think it's noteworthy that we would have come close to the same second-quarter net income last year if the supplier production shortage had not occurred and if we didn't have the one-time loss on the interest call.

So while all that's sort of explaining why we didn't get there, I do think it points out that with the way we are operating today the revenues we're getting and the margins we're getting, we would have been equal to or better than the profitability for second quarter of last year, and in fact we would have been about break-even for the first half on a net income basis. Just moving down, I'll go to the earnings per share discussion. You can see that the earnings per share for the second quarter was about a loss of $0.03, or down $0.07 versus last year. Again, this was driven by the net income that we discussed previously.

The first-half loss per share was $0.07. That, importantly, is an improvement of about $0.25 versus last year. Adjusted diluted earnings per share is equal to last year, and the result of the first-half adjusted diluted was $0.19 a share or about $0.07 better than the prior year. Cash was 25.6 million, about 15.3 million better than prior year.

I believe this is a good result given that the volume was lower and capex was up by more than $15 million. Cash flows from operating activity were about 6 million better than the prior year. Debt at 207.6 million was up by 60 million. This includes the incremental debt range over 2019 from the tender offer, as well as [Inaudible] from the revolver.

I do think we are on track to make our plan for cash and debt for the year. Obviously -- so if we can flip to Page 11, this is the bridge that talks -- talks from second quarter of 2018 to second quarter of 2019. You can see the first bar is pricing. That was worth 4.2 million to us in the second quarter.

This was, you will recall we took pricing late last year, late last fiscal year, to largely offset steel and other commodity costs. And the results of that are clearly shown on this -- on this bridge. The transformational initiative cost improvements were $4.6 million for the quarter. That's a good result for us.

It would have been a little better had we got some more units out, but 4.6 shows you just the power of the work that we've been doing and as Phil pointed out on his last slide, there is a lot more to come as we progressively introduce things like the new paint shop and the important rearrangements to the plant. So this 4.6 you see here is largely the first item which is the material amount of service cost reductions, some more to come. Volume and mix was a fairly minor number. The 170 buses or 180 buses that we missed were worth about 2 million.

Partially offsetting that we had favorable parts use, you know parts has been up for both the first and the second quarter of this year. The parts team is doing a really good job, so we're pulling for that continuing. And also, we've had -- we had favorable mix, as Phil mentioned, the fact that alternative fuels are up. So we've been doing a good job there with improving the mix.

Some of you might recall from prior discussions that we used to have problems with things like customer mix. We try to talk through that. And finally, we seem to have come to making a positive mix which is good for us. Finally, of course is economics and other costs.

This is largely driven by commodity costs including the steel, there are price and other cost increases in there that were played. But I would say that the pricing does largely offset the commodity impact and enrollments. So I think all-in-all, it was a good quarter for us at 12.2 million. We would have liked it to be 14 million if we could have got all the volume out, but again, I just think it shows that we're doing -- we're making progress with things that they say.

We'll go on briefly to Slide 12. This shows you the free cash flow. You can see the adjusted free cash flow was 14.4 million, that's about 13.4 million better than the second quarter of 2018. The drivers were higher profits, improvements in trade working capital, and other items.

So I think a pretty good result in adjusted free cash flow, and also in free cash flow which came in at $9.5 million for about, just over 12 million better than prior year. So I think -- as I said, I think we're on-target to achieve our cash projections. Slide 13 is net debt, leverage. You can see the debt level there of 207 million, and of course, that's largely driven by the amount borrowed to the tender offer.

We just looked at the cash. So we ended up with net debt of 182 million. A net leverage ratio was 2.5. That's pretty comfortably under the covenant of four, so we feel good about that.

We also feel good about the liquidity of 98.7 million, which I believe is about 20 million better than where we were the same time last year. And with that I'll turn you back to Phil, who will wrap up the presentation and then we'll obviously take questions.

Phil Horlock -- President and Chief Executive Officer

Thanks, Phil. So let's now focus on the fiscal 2019 outlook and our full-year guidance. Turn to Slide 15. With recent industry running at around 34,000 to 35,000 units annually, we are at a 30-year high.

We anticipate another strong year in fiscal 2019 with an industry again of around 35,000 units. As I mentioned earlier, strong housing prices and property taxes, the fact that 30% of school buses in operation are older than 15 years, along with the boost of new funding ahead from the VW settlement all support this position. Our plans for fiscal 2019 and beyond, as we start to think about 2020 and beyond those periods, focus on gross margin and EBITDA margin improvement from three key areas. First, the impact of the cost recovery pricing that took effect in late fourth quarter of last year, this will have a full annual effect in fiscal 2019 and we saw significant benefit in the second quarter.

Second, the full-year impact of the transformational cost reductions implemented in the second half of fiscal 2018 and the continuation of this initiative in 2019. Again, we saw the favorable impact in the second quarter. And third, the new paint facility which also will enable significant manufacturing rearrangements and process improvements, will increase manufacturing efficiencies and improve quality, particularly as we move into fiscal 2020 when we get the full benefits of a full-year for our new paint shop. Of course, as we have been doing for several years, we will continue to pursue growth and maintain our leadership position in alternative fuels which commands a superior margin and higher customer loyalty.

Our financial targets for fiscal 2019 are on the right path toward our previously communicated EBITDA margin goal of at least 10% by fiscal 2020. So let's now turn to Slide 16 to review our fiscal 2019 full-year guidance. Based on our fiscal first-quarter 2019 results and -- sorry, second-quarter 2019 results, and the outlook for the remainder of the year, we are reaffirming guidance in all three reported metrics. Net sales guidance is between $990 million to $1.025 billion.

As mentioned in our prior earnings calls, we are being prudent in planning our sales outlook, recognizing that we may have to push out some unit sales as we launch our new paint shop and make other facility and process improvements in the plant. These type of production launch losses are typical for an automotive company undertaking significant facility upgrades, and our approach will be to minimize them as much as possible. I can assure you we'll be looking for every opportunity to maximize sales throughout the year and will provide updates as necessary. Adjusted EBITDA guidance is between 80 to 85 million, a significant 10 to 15 million increase over fiscal 2018 as we focus on driving down costs, increasing EBIT revenue, and improving EBITDA margin.

Adjusted free cash flow guidance is between 24 to 28 million. Adjusted free cash flow continues to be a strong piece of our business model and typically represents more than 50% of our adjusted EBITDA. Of course, 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 paint facility. I should point out the box we're showing on the right of this slide, which shows the outlook for the second half of the year based on our full-year guidance.

As you can see, profitability is heavily weighted toward the second half, not surprising with all the increased volume and activity we see in the second half, with significantly improved EBITDA margin as a result. So in wrapping up, we had a strong second-quarter performance, both operationally and financially. As I mentioned at the start of the call, the recurring theme is driving parallel improvements today, reflects higher bus pricing, substantial cost reductions and alternative fuels leadership. We saw the positive impacts of these benefits clearly in the second quarter compared with last year as we increased profitability, despite the impact of higher steel and commodity costs and lower unit sales.

These actions are driving profit and margin growth in fiscal 2019 with adjusted EBITDA projected to be 14 to 21% higher than fiscal 2018. Our plans and our guidance support this, and we'll continue to update you on our progress each quarter. That concludes our formal presentation. I'll now hand you back to our moderator, Carolyn, to begin the Q&A session.

Questions & Answers:


Operator

[Operator instructions] We'll go first to Matt Koranda with Roth Capital Partners.

Matt Koranda -- ROTH Capital Partners -- Analyst

Hey, guys. Good evening. Thanks. I'll start off on the implied EBITDA guide for the second half of the year.

So it looks like we're still sort of counting on about $11 million of year-over-year improvement in the back half to get to the midpoint of the full-year guide. So when I think about the waterfall chart that you guys showed, I think it was on Slide 11 for the quarterly walk, it looks like pricing and cost and transformational initiatives are sort of relatively evenly split in terms of the improvement that you've made year over year in 2Q. Is that what it's going to look like in the back half of the year? Just trying to get a sense for sort of, are you counting on more price or cost to get you there? And then how much more of a headwind does commodity and component increase represent for the remainder of the year in your guide?

Phil Tighe -- Chief Financial Officer

Let me start with the last bit, Matt. So you recall that the commodity -- the real increase in steel came in the second half for us last year. So what you're seeing in the second quarter is a bit higher than we actually expect. The caveat to that is the raw steel cost increase came very quickly in the second half, on top of the supplier passthrough on steel kind of went slower.

So these [Inaudible] pick up that. But I would expect the commodity pricing will ease a bit on a year-over-year basis as we go through the second half. Now, I would add that everybody's been reading in the press, and we don't yet know what's going to come out of the discussions with the Chinese delegation in Washington this evening or tomorrow. But assuming for a minute that there is no agreement, we could see a number of items impacted by the addition of duties.

That could impact us by maybe a couple million dollars through the balance of the year. We're looking at ways to offset that but you know, these things take a little time. But we do see maybe an incremental couple million dollars coming from tariffs, assuming that there is a very good [Inaudible].

Matt Koranda -- ROTH Capital Partners -- Analyst

Just to clarify that, Phil, the couple million dollars of swing, is that still envisioned in the lower end of the lower band of your EBITDA guide then? Or would that be below the low end?

Phil Tighe -- Chief Financial Officer

No. That's envisioned in the lower end.

Phil Horlock -- President and Chief Executive Officer

Hey, Matt, let me just pick up a couple of the other points you raised. I mean, certainly, look. We -- when we implemented our pricing to handle the commodities, that was really -- there was very little impact of that in 2018. It was right at the back end.

So when you think of, when you see our year over years by quarter coming through this year, you can expect to see a significant pricing benefit year over year in each quarter of 2019 versus '18. That's going to happen. And similarly so, while the bulk of our cost reductions obviously last year occurred in the second half, we'll continue to drive costs down. So there is more -- there's more -- there's more of a -- there's a bigger, full-year effect of those from last year plus what's continued to drive aggressively, cost reduction.

So I think you can expect to see significant pricing every quarter and also continued significant cost reductions each quarter. As Phil mentioned, once you get to the second half of the year, you're not going to see the significant bump, the substantial bump up in commodity costs that you saw in the first half of this year because we already had those baked in last year. Does that make sense?

Matt Koranda -- ROTH Capital Partners -- Analyst

Very helpful. And then so the 182 buses worth about 2 million in gross profit, and I'm assuming that's gross profit, I guess that would suggest that the buses were worth, call it somewhere around 16 million in revenue. Have those already gone out during the quarter? And then to the extent that you're able to describe what the component was that drove the delay, would be helpful.

Phil Horlock -- President and Chief Executive Officer

Because of confidentiality agreements, I can't really disclose the supplier. Needless to say, we've been working with that supplier. About 50% of those buses are now out but we're working through it. We're getting production now; we're getting constant supply of those parts now.

I can tell you; we haven't missed a bus at all now. And we're also at the same time getting a surplus so we can fix the buses that are still sitting there with some incomplete -- with some parts that need to be addressed. So the bottom line is, half those have been taken care of. The rest will certainly be out in the next, I would say, two to three weeks, and we're getting it handled.

But going forward we believe we've -- it looks like maybe we stabilized the situation and addressed it with our supplier.

Matt Koranda -- ROTH Capital Partners -- Analyst

Good to hear. And then on the alt fuels mix, in the backlog at 46%, that's pretty substantially ahead of where I would have anticipated. I guess how much of that do you think you can attribute directly to the VW settlement money that's being disbursed? I know you said the bulk of that's still ahead of you. Any way to try to parse that out in any meaningful way?

Phil Horlock -- President and Chief Executive Officer

I'd say very little at this point. Maybe a couple hundred units. Seriously, a couple hundred units might be in there, which are propane I would say. We've got some diesel in there too because diesel is also, clean diesel is included in the VW money, but isn't in the alternative fuel mix, obviously.

But look, there's very little beneath. Even in the states that actually have actually granted some funding, they're doing it in such small stages, they're like, parceling this out. And so, there's been very little out. It really is well ahead of us.

So the great thing is prompting somebody, so I honestly have said this before. It is the only true alternative fuel that makes sense at any grant, any support, or anything. It's the best value cost of ownership vehicle, and it's got the clean aspect to it too. So it's -- I think what you see there, there's a really strong endorsement of that product.

I mentioned about the 57 new customers coming to the alternative fuel family. 55% of those were propane customers. That's still growing and that's our fastest-growing alternative fuel, like, this year when we look at the growth we see in alternative fuels. So, very strong.

Matt Koranda -- ROTH Capital Partners -- Analyst

OK, great. And then you had been quoting on 100 units I think last quarter and now you have 100 in the backlog. So can you explain, I mean, it seems a little high to assume a 100% win rate there. But is that just a product of the fact that you guys are the only guys in production with the electric bus? Only big OEM, I guess I would say? What's going on there?

Phil Horlock -- President and Chief Executive Officer

Well I think it was -- I think I said last quarter we told you there were 100 out there. I mean, between last quarter and this quarter there's been several -- there's been 100 more bids at least being put out there. Obviously, we think we are the -- we're the only major OEM in town. I mean, our two major manufacturers don't have an electric bus to offer yet.

So I think it bodes well for us in that. And this is obviously, not surprisingly, heavily weighted to California where there are grants being offered and our dealer there, A to Z Bus Sales out of California did a terrific job in marketing that for us. So yeah, we're excited and we have a -- you know, we have initial units in our pipeline that we're pursuing, but we're off to a great start. Excited about that.

Matt Koranda -- ROTH Capital Partners -- Analyst

Excellent. I'll just do one more and then I'll stop hogging the floor, here, but on the paint facility and the progress there, there were two dates that you guys mentioned and I just wanted to get some clarification. So I think June 6 was one date where you said the first bus painted. And then June 29th was limited production? Just help me understand the difference between those two dates, and then how do we get -- what needs to happen between those two to get to kind of limited production?

Phil Horlock -- President and Chief Executive Officer

You know what, I think that was a mistake by me. I think I meant to say 2019 and not June 29. June 6th is when we -- that's job one, so to speak, when we launch our -- we pick up this production bus through it. Prior to that we're in testing mode right now, making sure things work and it's -- you know, it's -- the coating is working well.

Job one is there but I meant to say, progressing I think through 2019 we will ramp up the production where the full implementation will be October of '19. That's where we'll be fully running the entire plant will be switched over to 100% to our new facility. Until then we're going to run parallel. We're still painting manual and we've still got robotic, and we'll progressively increase that through the year and then eventually switch over 100% in October.

Matt Koranda -- ROTH Capital Partners -- Analyst

OK. I could have misheard you there, too, but thanks for the clarification.

Operator

We'll hear next from Chris Moore with CJS Securities.

Chris Moore -- CJS Securities -- Analyst

Hey, good afternoon guys.  Yes, with the little bit of shift of revenue into Q3, just trying to get a sense. Sometimes Q3 is the strongest, sometimes Q4. On a relative basis, any reason to think that either of the quarters are going to be much different than the other?

Phil Horlock -- President and Chief Executive Officer

I think we're thinking of it pretty close. I mean, you've summed it up right. Sometimes Q3 is stronger, sometimes Q4 is stronger. I think they're pretty close right now in terms of our outlook.

Is that right, Phil?

Phil Tighe -- Chief Financial Officer

Q4 will be a little bit stronger.

Phil Horlock -- President and Chief Executive Officer

Yeah. I think -- so Phil's reminding me, Q4 might be a little bit stronger than Q3. A little bit stronger. And that's probably because you know, we see some of these VW funds.

I think we're seeing some of that might be coming out later in the year which could be certainly a nice boost for Q4. So we'll keep everyone posted on that.

Chris Moore -- CJS Securities -- Analyst

Got it. In terms of aftermarket parts, obviously the first half, the percentage of revenue is a little bit higher because of mix. Given those relative margins are so strong, any meaningful way to increase the aftermarket contribution? I know that you had talked in the past that you had -- you're in a better position with the alt-fuel process on that front. As they age a couple years out can that mix go up a little bit?

Phil Horlock -- President and Chief Executive Officer

Yes. We have a very, very favorable agreement with Ford and ROUSH CleanTech on all of the propane, the gasoline, the CNG products. And they come with a five-year warranty obviously, so everything's including warranty up to the first five years. And many of those, you know, we started that deal in 2012 with those folks.

So they're now actually rolling off, see they're rolling off that warranty now. And we are seeing definitely increased revenue from that -- from those business lines. Good revenue, good service revenue, maintenance revenue.

Chris Moore -- CJS Securities -- Analyst

That's helpful. One last for me. Just in terms of the free cash flow, I'm looking at the -- obviously the other was a big contributor, accrued expenses, other receivables. Any further detail on that?

Phil Tighe -- Chief Financial Officer

You might recall from the prior one, Chris, that we have a lot of expense, and that's sort of worked its way through the system. So we're seeing that wash out.

Chris Moore -- CJS Securities -- Analyst

OK. All right. Let me jump back in line I appreciate it, guys.

Operator

Next, we'll go to Eric Stine with Craig Hallum.

Eric Stine -- Craig-Hallum Capital Group -- Analyst

Hi everyone there. I jumped on late, I was juggling multiple calls so I apologize if I touch on something that you've already talked about. So it sounds like that 46% alt fuel number, percent of the mix, just curious. Conquest customers, is there any way that you can break out or how do you think about conquest customers that you have because the other OEMs at least until recently haven't had a gasoline but don't have an electric vehicle?

Phil Horlock -- President and Chief Executive Officer

Yes. Well first of all, I don't think the conquest number right now in the numbers I'm giving you, is -- let me try and spread that out. The conquest is interesting. Let's talk about what the definition is.

Conquest means we switch a customer from a competitive bus, to our bus. Someone who's recently been buying competitives, and hasn't been buying our buses, he moves to us. And I gave you, I think we gave you a number that I think was like 16% of our sales were conquest. Then when I talked about the new customers to the alternative fuel family, those are actually -- they can be our customers, too.

They can be referred, they can be Blue Bird diesel deciding, I'm going to try a Blue Bird propane or a Blue Bird gasoline or a Blue Bird CNG or a Blue Bird electric. And then they could also be Thomas and IC customers coming, trying out our products. So there's a bit of a mixture there, but you know, that's all our -- our competitors, by the way, they have a propane product. Both of them have propane.

They market it, they sell it, and obviously we command that space. And one of our competitors have a gasoline product, and again, we do command that space and we're mindful of that. Electric obviously we are in there, we are first to market of the major manufacturers. We're excited about that.

And I think it's good to get a foothold. I think this plays to what we do very well. We've been very good at pioneering new business segments along the way and so it's strong for us. We feel good about it.

Eric Stine -- Craig-Hallum Capital Group -- Analyst

Yes, I guess it may be tough to quantify, but clearly, you're getting new customers because of your alt fuels.

Phil Horlock -- President and Chief Executive Officer

Yes. The nice thing is, in alt fuels though, with what we have seen, Eric, is that I mentioned before, I used the line that owner loyalty is higher. Because of our products, let's be frank. The diesel engines, we've all got the same diesel engines.

It's a great diesel engine, by the way. Cummins does a terrific job and we love working with Cummins. But all three of us use the same diesel engine. Alternative fuels, we're special because we have the best product by a country mile.

No one can touch it. I mean, the relationship we have with Ford and ROUSH CleanTech, the way we work together, the way the product holds up in the market, the success we've had, the fuel economy, the performance -- just the sheer emissions level, which is well below anybody else's level of emissions, just shows we're different. And electric, I'm excited about being with Cummins. Right now, I think we're probably -- we are Cummins', I'm sure we're Cummins' biggest electric vehicle customer and we're excited about that to be buying drivetrains from them.

So you know, I look at it from the standpoint of, competition comes in, they make us stronger. They make the product really have a mainstream acceptance. And we like that, and we've clearly got leadership in that segment.

Eric Stine -- Craig-Hallum Capital Group -- Analyst

I guess a follow-up to that, I mean, can you talk about the difference that it is making in the market now that Cummins and -- the Cummins and EDI are buying EDI? You know, just having that name in the market, is that having a positive impact on uptake or interest levels?

Phil Horlock -- President and Chief Executive Officer

Yes. I think -- yeah, I think it does have. I think obviously everyone knows Cummins. It's a great brand name.

They're a powerhouse engine manufacturer. So I think they're coming into the game. I think it gives people really good confidence. I mean, EDI is a great company but EDI is now Cummins of California.

I think that's a big strength I think we have going forward. But I also think people look at us as, this is a Blue Bird electric bus, too. And they know we've done a great job in alternative fuels and we support them. We have a very strong dealer network.

So it's a really nice combination. But no doubt, to me, Cummins makes us stronger.

Eric Stine -- Craig-Hallum Capital Group -- Analyst

Got it. And maybe the last one for me and I hope you haven't touched on this, but the supplier -- the issue there. So it sounds like, I mean, in terms of the buses that were delayed and pushed into 3Q, that that is in good shape. You know, just curious how you feel about that supplier, given that you're getting into obviously your heaviest part of the year here, and whether that's in order to handle the volumes that you need?

Phil Horlock -- President and Chief Executive Officer

Yes. Well obviously, when things like this happen we work closely with that supplier. So we need to say our supply chain folks and our leadership of our supply chain is heavily engaged with that supplier to ensure we understood what the inhibitors were, what the bottlenecks where, that gave them that problem. I think we worked with them on the plan for recovery, and the plan that right now is on track, that is working.

But we continue to work it. You know, we don't take anything for granted. But like I say, and you know, they're a supplier we worked with over the years. They're not a new supplier to us.

But we are working with them well, and I feel confident going forward. I reckon that we have a viable plan together. It was a blip. It was an unfortunate incident that caught us right at the end of the quarter.

If this had happened probably in, you know, back in sort of the -- let me think about it. February time frame or late January, we would have handled that within the quarter. You wouldn't even have heard about it. So I think, I really feel we're over it now and we're addressing it.

Eric Stine -- Craig-Hallum Capital Group -- Analyst

OK. I appreciate it thanks. Thanks.

Operator

[Operator instructions] And it appears we have no further questions at this time.

Phil Horlock -- President and Chief Executive Officer

[Inaudible] thanks, Carolyn, and thanks to all of you for joining us on the call today. We do appreciate your continuous interest in Blue Bird and we really enjoy having the chance to talk to you on these quarterly earnings calls. As you can see by our second-quarter results and outlook for the full year, we are focused on profitable growth and we intend to deliver on our commitments. And I believe we're well-positioned for future growth and also growth today, of course.

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 evening.

Operator

[Operator signoff]

Duration: 53 minutes

Call participants:

Mark Benfield -- Director of Investor Relations

Phil Horlock -- President and Chief Executive Officer

Phil Tighe -- Chief Financial Officer

Matt Koranda -- ROTH Capital Partners -- Analyst

Chris Moore -- CJS Securities -- Analyst

Eric Stine -- Craig-Hallum Capital Group -- Analyst

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