Greetings, and welcome to the Blue Bird Corporation Fiscal 2016 First Quarter Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to Mr. Jeff Merten, Director of Investor Relations. Thank you, Mr. Merten, you may now begin.

Well, thank you, Manny. Welcome to Blue Bird's Fiscal 2016 First Quarter Earnings Conference Call. You can access the audio and supporting slides for our webcast by clicking on the link in the Events box on the Investor Relations landing page of blue-bird.com. Our comments include forward-looking statements that are subject to risks that could cause the 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 information in this call. This morning, you will hear from Blue Bird's President and Chief Executive Officer, Phil Horlock; and Chief Financial Officer, Phil Tighe. Then we will take some questions. So let's get started. Phil?

Well, thanks, Jeff. Well, good morning, and thank you all for joining us today for our first quarter earnings call. We are approaching our one-year anniversary as a publicly traded company and I can tell you it's has been a busy and exciting 12 months of Blue Bird. We welcome this opportunity to share our fiscal 2016 first quarter results with you, so let's get started with an overview of our financial performance on Slide 4. As we previously explained, the school bus industry is extremely seasonal, and we achieved a solid results in the softest quarter of the year. Now what do we mean by the softest quarter of the year? Well, the first quarter covers a 3 months' immediately following the start of the new school year and consequently, it's the slowest quarter of the year for new bus sales, basically every district wants their buses ready for new school start. Net sales for the quarter were $131 million, which is $35 million below the same period a year ago. Now this decline was in line with our expectations and we mentioned this at our December earnings call as we saw a number of specific customers shifting their new bus purchases from the first quarter to later in the year. These type of shifts happen often from year-to-year and are particularly noticeable in the first quarter. Gross margins up 14.3% for the quarter were almost 3 points above a year ago. 2 factors drove this significant increase: First, a substantially higher mix of propane bus sales; and second, select customers requiring higher spec school buses with more options at higher prices. Our adjusted EBITDA of $5 million was down about $2 million from last year, but represents the third consecutive year in which we've achieved positive EBITDA in…

Thanks, Phil, and good morning to everyone. It is my pleasure to present you the fiscal year '16 first quarter results for Blue Bird Corporation. I'd just remind you that the fiscal year for Blue Bird is a 52-, 53-week period and our financial close for each quarter is on the Saturday closest to the last calendar day of each quarter, so the material that we are looking at today is based on a close of January 2, 2016 and January 3, 2015, for fiscal year '16 and '15 first quarters respectively. One other note that I would make is that the first quarter of 2016 had 13 weeks and that compared to 14 weeks in the first quarter of fiscal year 2015. So if we can go to Slide 12. This slide gives you an overview of some of the key data. Phil Horlock has already mentioned some of the data to you, so I want to sort of walk through each part of it, but I'll talk through some of the key points, I think. We've already talked about the fact that first quarter was down versus the prior year, but again, this was in line with our planning process, and we had visibility through our dealers in our account planning process. And we knew that some delays would be experienced in about 3 key accounts. We do not see this decline in the first quarter flowing through to the full year, and already 2 of the 3 dealers have submitted orders based on their major customers to build this back and so we will see these units coming back in the second and third quarters. Bus revenue of $118.5 million was down due to volume. However, I think, importantly, average per unit revenue was up by over…

Thanks, Phil. So let's take a look at our guidance for fiscal '16 on Slide 17. As you heard, our first quarter financial results were in line with plan, and we are reaffirming the full year guidance we provided on our earnings call in December. Let me just talk winding up those numbers up. First, net sales revenue between $960 million to $985 million, this represents an increase of 4% to 7% over last year. Our second adjusted EBITDA between $72 million to $75 million, between $2 million to $5 million increase over fiscal 2015 or 3% to 7% growth. And finally, our free cash flow went from $30 million to $35 million. As Phil mentioned that piece of our business is our strong free cash flow that we return out of our EBITDA. And what I'd say is still very strong, it's down a little bit from fiscal '15, as we are increasing our investment in new products, infrastructure upgrades and growth initiatives this coming year. So bottom line, we are reaffirming guidance and we're on track. So let me now turn to the wrap up slide, on #18, please. We had a solid result in the softest quarter of the year, very important to recognize that. This is the low-volume quarter. As you saw earlier from Phil, we use -- we're cash utilized in this quarter. For each of the remaining quarters, we generate cash. That's the way our model has always worked at Blue Bird. We expect to see health in our business. Our results were in line with our plan and guidance, where we expect significant growth in the second half, supported by our addition of a second shift this year. And our seasonal sales pipe will match typical customer demand timing, that's very important, matching your production with availability to the demands of the consumer. Our gross margin were about 3 percentage points in the first quarter, driven by a substantially higher mix of propane sales, with sales up a very strong 72% and we also had strong customer mix, meaning that customers who bought higher revenue vehicles from us. And we're on track to deliver 4 all-new powertrains this year, providing our customers with a broadly choice of products in the industry. Quote activity has almost doubled last year's level, which bodes well for volume growth in the quarters ahead and we are reaffirming our full year guidance. Bottom line, a strong quarter for us and we're on track to deliver our results for the year. So that concludes our formal presentation. I'll now pass it back to our moderator, Manny, to begin the Q&A session. Over to you, Manny.

[Operator Instructions] Our first question is from John Rolfe of Argand Capital.

One question, Phil. So I think you -- the number you mentioned was that quoting activity from September through January was up 83%, and you said that the win rates were higher than in the past as well. So I'm just trying to understand a bit better how that feeds through to the 4% to 6% expectation for volume growth. What percentage of the quoting activity typically occurs in that September to January period? And I guess the real question behind that it seems like if a substantial portion of quoting activity occurs in that period that you guys might stand a chance of even coming in at or above the top end of that 4% to 6% volume growth guidance. So just trying to understand a little bit better how that all works.

Okay, John, this is Phil Horlock, that's a great question. Let me try and take this into pieces. So when we look at quotes, I mean, basically, when we quote business and we quote business everyday here in Blue Bird. I mean, we can see a quote turn into an order within a couple of weeks, we can see it take as long as 120 days. I mean, it varies. Some folks -- we're even quoting today for things that might hit us in June, June-July even and some situations. So it's a long time and we know that, we understand when it's going to go to a board for approval. From our quote performance, as Phil Tighe mentioned, we have seen certainly a higher level than last year. Yes, we've seeing a nice close rate on our quotes. And the way we get after this is really deeply understanding where our customers are positioned. What they're looking for on their buses? Do we have a spec that meet their needs? Do they like our dealerships support that we're having? And so it enables us to really very selective the way we handle our bids and offers for those guys. And so, yes, we're seeing -- and the nice thing about saying our quotes are up versus a year ago, it shows, I think, the vibrancy of the business we're seeing and that's coming to us to ask for a quote, which we're excited about. Phil Tighe mentioned that the quote close rate is up. I probably won't want to get into the specifics on that, but it's a strong conversion rate we've been seeing, several percentage points above last year. And I think it's going to the fact, we have the right products in place. I mean they love our diesel engines, they love our propane, they seem like they've got problem with gasoline down the pipe and we feel pretty good. And I think you mentioned about how do this translate to the growth we see for the year? We certainly want to see that we look internally. We're planning on growing market share a little bit this year. So, yes, we look to make sure these quotes eventually return a high level this into firm orders and we look to grow a little bit beyond the industry this year. So that's our objective.

Okay, great. And one quick follow-up, it looks like based on the seasonality that you're now projecting first half versus second half, this quarter versus what you were projecting during the fourth quarter call, you're expecting even a little more pronounced seasonality than you thought you were going to having a quarter ago. So what sort of accounts for that, that shift?

Well, I think actually I think if you go back to our December earnings call, we were very explicit saying we, the first quarter was going to be down versus a year ago. And in fact, we were right on the money with what we said in December because we have pretty good visibility at that time and where the first quarter was going to be obviously. So actually we were right in a way with our expectations. I think one thing I would mention is that the first quarter production, what Phil mentioned is pretty high at 1,600 units while we sold 1,400 units. So that means, we already got orders, obviously, we're fulfilling. Those units were built in the first quarter will be deliveries in the second quarter and beyond. I think, one thing I would say is, we try to sell some Blue Bird in what we call delivering the buses when we -- in line with our promise dates to our customers. We feel very strongly about that, it's a big strength of Blue Bird. And if you looked at our backlog, at the end of fiscal year '15, which was in our -- we published that in our SEC filings, it was down a little bit from a year ago. It was down because our customers told us, we really love you to deliver buses for school start rather than delivering them towards in October and November, and so we basically busted our peak, to try and get those buses out and we did it. So last year, we saw a really nice surge in the end of last year and that actually -- typically a year frankly that might have been a few extra units we would have sold in 2016 fiscal -- first quarter. Instead, they were sales in the fourth quarter of last year and our customers are lot happy because they had buses at the school start. And I'm just telling you that with the dynamics of the business, we're used to operating like this, John. I mean, we recognize that this quarter is lower, that's a quarter where we take an annual vacation shutdown for employees in October. We also have Thanksgiving holiday, and we have Christmas holiday. It's a low quarter generally and we accommodate that and recognize it. But I think hopefully you see, as Phil mentioned, despite the volume being down some 23% and 35% after revenue, the EBITDA was only down a couple of million, which was I think a testament to the tune of how we handle the cost of the business here, and how we run the business.

[Operator Instructions] And the next question is from Sean Kelley of OFS Asset Management.

Question on what you're seeing with the lower diesel prices. How they impacting the demand for the propane product?

Well, I think you saw us there, Sean [ph], the first quarter results on propane were pretty impressive, 27% of our vehicles sold were propane. Now last year, it was 12%. See what's happened on -- diesel prices have come down, terrific, so are propane, propane prices have come down, too. And we're seeing regularly well below $1 a gallon for propane across the nation. In fact, I know our lowest price we saw was about 6 weeks ago or a couple of months ago, I forgot to state it was within $0.45 a gallon, 1 customer secured a 2-year contract for. And coupled with that, so when you run the numbers, when you actually run a bus, look at lifetime of a diesel bus against a propane bus, with those fuel prices, and by the way, there was lower maintenance costs on propane, it's a clean fuel, less oil required, less filter change required, there's about $2,500 to $3,000 a year savings on a propane bus versus a diesel bus. So when you keep a bus for 15 years, it's a $35,000, $40,000 sort of saving here on the lifetime of bus, that's a tremendous value and our customers get that. Actually, I'll also add, that the Federal government in December, they reinstated the tax credit for propane, I believe they covered this year, it's actually $0.36 a gallon, so they get a $0.36 a gallon tax credit on every single gallon that's used. Those numbers are mentioned, those savings are before that credit, that's a tax bonus and that's been -- that actually was implemented retroactive it's '15 and forward looking to '16. So propane is still by far the best total cost of ownership value proposition. Having said that, we build a wonderful diesel engine products for -- with Cummins partner and it works well with diesel, we have the best in the business too.

Great. So the payback time is about the same in the current pricing environment?

Yes, typically about 2 to 3 years for the payback is the payback on the propane product, a little bit of premium, it's a premium product for us, but yes, it's 2- to 3-year payback.

This is Phil Tighe. Just one thing to add on, just in case you missed it in the presentation, but I think we did mention that we sold propane to 84 customers in the quarter, but half of the customers we sold to were new customers. So the importance is that despite where diesel is, we're continuing to get a lot of new customers coming in buying propane. And I think that's -- that to us is the really important trend because the word-of-mouth and the education we've been doing out there is clearly taking hold and new folks are coming in and the existing customers are coming back and continuing to buy propane, even though diesel is at probably historic lows.

And how's the propane being accepted by your competitors in terms of how much traction are they getting with their products?

Yes. Sean [ph], I think you have to ask those guys, I mean, I think there's no question, we're the absolute leader in this field. I mean we're actually pleased that our competitors decided to enter this business over the last year to 18 months, after years of that. They've really not been in the market. But I think it's proven this is a mainstream product, it's real, it's there. Filling is easy. It's simple. Infrastructure is great. I mean, but I'll ask that question, that I know for fact, as I mentioned before, we are by far the leader in this space and the product acquisition. We've been in the market...

Yes, are they catching up though on your first mover advantage? Or can you tell from units if they're catching up to you guys?

No, from units we've seen registered, no, they're not at all. No, we're very strong and we're in a very commanding position.

Okay, 2 more questions. On the just your pension obligations, it looked like and I haven't seen the first quarter, I guess, but your end [ph] moved up a little bit. How are you guys tackling that, be comfortable with the level of the underfunded pension?

Yes, we're comfortable with the level, it hasn't changed a lot. Obviously, with the swings in the market in 2015, we didn't quite achieve the level of return on the assets, that we felt we might get, but that extended the -- on the funding a little bit, but we've played very close attention to this, we have very good advisers and they work with us on a continuous basis. We have taken some actions to ensure that we minimize the risk, so we don't see it as a major issue.

How much do you need to spend in 2016 on catching up on those?

'16?

Okay.

Sorry, I think that data is laid out in the K and you'll see it in the Q today when it's published.

Great, and then I was a few minutes late to the call. So the driver on the top line miss was 3 dealers delayed some orders, but you've got a sense already that at least 2 out of the 3 are going to make up to similar levels of last year? Is that what I heard throughout the call?

Yes, that's exactly right. Yes, we can also -- we use a very technical term when describing the quarter, orders can be lumpy. [indiscernible] dealers saying -- we know and even behind the dealers, we know the customers' behind that are saying. Hey look, out in November last year, I'm going to put my order in February this coming year or March and we're on top of that, that's not an issue, probably, that's why we're saying this is just something you have to deal with in the softest quarter of the year, it happens, but it will come through for the full year.

Great, and final question, I didn't quite follow the working capital usage increase for this quarter year-over-year. Did you say you were building inventories for a particular reason?

No. No, because of the way our orders come in and the lead time on the orders and the time it takes to build the bus, we actually had this -- we actually set up about 200 more buses than we sold in the first quarter. Those buses are sold buses, are ordered, firm ordered buses, we're not building inventory, but those buses won't be delivered to the dealer until the second quarter. So we carried work-in-process inventory across the end of the quarter.

[Operator Instructions] In queue, it appears we have no further questions at this time, I would like to turn the conference back over to management for any closing comments.

Well, thanks, Manny, just going to hold back up again. Well, I want to thank you all for joining us on the call today. And we do appreciate your continued interest in Blue Bird. I can tell you we're focused on profitable growth, and we intend to deliver on our commitments. We also strive to be shareholder friendly and with this regard, you'll see in the appendix on Slide 21 of the presentation, we show all of our upcoming investor conferences, and we will be more than happy to meet you at any of those events. Please don't hesitate to contact our Head of Investor Relations, Jeff Merten, should you have any follow-up questions. And again, thanks from all of us at Blue Bird and wish you a good day. Thank you.

Thank you. Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time, and thank you for your participation.