Good day, and welcome to the Blue Bird fiscal fourth quarter and full year 2017 earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mark Benfield, Director of Investor Relations. Please go ahead, sir.
Thank you, Tiffany. Welcome to Blue Bird's fiscal fourth quarter and full year 2017 earnings conference call. The audio for our call is webcast live on blue-bird.com under the Investor Relations tab. You can access the supporting slides on our website by clicking on the presentations box on the Investor Relations landing page. Our comments today include forward-looking statements that are subject to risks that could cause actual results to be materially different. Those risks include, among others, matters we have noted in our latest earnings press release and filings with the SEC. Blue Bird disclaims any obligation to update the information in this call. This afternoon, you will hear from Blue Bird's President and CEO, Phil Horlock, and CFO, Phil Tighe. We will take some questions. Let's get started. Phil?
Thanks, Mark. Good afternoon, everybody, and thank you all for joining us today for our final quarter earnings call for fiscal 2017. It's been a busy year at Blue Bird, and we welcome this opportunity to share with you our fourth quarter and full-year results. Let's start with an overview of our financial results on slide four. Our fourth quarter results were strong. Our bus sales were the highest in the fourth quarter since 2008, with 3,608 buses sold. This represented a strong 9% increase over last year, and we saw the same 9% growth in total net sales, amounting to $313 million. A feature of our business is seasonality, and it's worth noting that fourth quarter net sales represented 32% of our full-year sales, and the second half was a substantial 65% of the full year.
Adjusted EBITDA was $25.1 million, $800,000 above last year, and net income was also strong at $14.5 million, $3.8 million higher than a year ago. Let's shift now to the full year. All three of our key financial metrics either met or exceeded guidance. Net sales at $991 million and adjusted EBITDA at about $69 million were both at the midpoint of our guidance range. At $44 million, adjusted free cash flow beat the high end of the guidance by about $7 million and remains a strong feature of our business model. Net income and adjusted diluted earnings per share were both above last year by $21.9 million and $0.13 respectively. As we look at the underlying strength of the industry and Blue Bird's results, our view is that the outlook is positive.
With about 35,000 new Type C and D school buses sold in fiscal year 2017, we are now above pre-recession industry levels. In fact, this was the second highest annual industry in more than 30 years. With a strong outlook for property values and corresponding property taxes, we are bullish on the industry outlook remaining at the fiscal 2017 level or a little higher. Second, we sold over 11,300 buses in fiscal year 2017, an annual growth of 7%, which is slightly above the industry growth. Importantly, sales through our franchise and exclusive dealer channel grew by 9%. This is our sixth consecutive year of volume growth, and we have solid momentum. Third, we recorded our highest-ever sales mix of alternative fuel-powered school buses at a substantial 34% of our total bus sales.
This compares with 26% mix last year. In fact, through the second half of the year, alternative fuel bus sales represented 41% of our total unit sales. That's leadership and momentum in the fastest-growing segment of the business. As a reminder, in alternative fuels, we do count all of our propane, compressed natural gas, and gasoline-powered buses, as all of these are alternatives to diesel, which has been the staple fuel for years. For the last several years, though, we have been achieving significant growth in alternative fuel bus sales. As just mentioned, we have not slowed down this year. We'll cover alternative fuel performance in more detail in a little while. Fourth, we are passionate about product and being first to market with vehicles and features that customers want and value. Next up for us, we are launching a complete lineup of electric-powered buses next year.
These are on the road now, undergoing durability and performance testing. Once again, these first-to-market buses are exclusive to Blue Bird through our sales and technology partnership with Adomani and EDI out of California. Customer reaction to date has been outstanding. We'll be ready to take orders early in the new year. As we look now to fiscal 2018, in addition to our product leadership strategy, we are focusing on profit growth, with particular emphasis on improving our EBITDA margin. While meeting guidance, fiscal 2017 achieved an adjusted EBITDA margin of 7%. For fiscal 2018, we are targeting adjusted EBITDA margin of around 8%, supporting our midterm 10% margin goal. To this end, in fiscal 2018 and beyond, we'll be upgrading our Fort Valley production facilities. Together with a focused cost reduction program, we are driving improvements in efficiencies, quality, and product cost.
You will see the outcome of these actions reflected in our fiscal 2018 guidance, which I will cover later. All in all, these are exciting times at Blue Bird. Let me now review with you our full year 2017 key operating achievements on slide five. We recorded a number of significant achievements. Each one will make us more competitive and support our growth going forward. In selling 11,317 buses last year, we achieved our highest sales volume in 15 years. All these units were built at our Fort Valley plant on two shifts. It was a record production year. It's also worth noting that since the school bus industry trough of 2011, Blue Bird's annual sales have grown by over 70% through a combination of industry recovery and significant market share growth. As a reminder, in the last 18 months we launched our latest generation propane-powered bus.
We call it our Gen4. This year, we improved it again with certification by CARB to the lowest NOx emissions level in the industry by a factor of four. With just over a year in the market, we are the only gasoline-powered larger school bus on the road today. About a year ago, we launched our all-new Type C powered bus, powered by compressed natural gas. These three products, which are all exclusive to us through our contractual partnership with Ford Motor Company and Roush CleanTech, together with our compressed natural gas Type D bus, represented nearly 4,000 Blue Bird bus sales in fiscal 2017, and importantly, grew by a substantial 41% over last year. You'll be interested in noting, I think, that in fiscal 2017, 504 customers placed their first-ever orders for a specific Blue Bird alternative fuel-powered bus.
Interestingly, 90% of those customers had no prior experience with any alternative fuel. This is not a case of customers switching from propane to gasoline. We have had a terrific customer response to our new engines, and I will cover alternative fuels more in a couple of slides. As I mentioned earlier, we've unveiled a full range of electric-powered school buses that are under development and scheduled for launch next year. Just this past month with the California Air Resources Board, our Type D electric bus has received the HVIP certification, which allows it to qualify immediately for the maximum grants available for zero-emission vehicles in California. Next week, our Type C electric bus is heading to Florida for customer ride and drives in a number of cities. We'll be ready to take orders early next year.
I'd like to acknowledge as well the terrific performance by our Type A bus, Micro Bird. Our 50/50 joint venture in Quebec sold a record number of buses in fiscal 2017, just over 3,100, and secured market share leadership for the second year running in Type A school buses across North America. That's a great achievement by our Micro Bird team. We're always excited to appoint new growth-oriented dealers in our territories, and this year we added two of those. Blanchard Bus Centers of South Carolina took over the territory in late 2016 and has had a great year. With the backing of being the Caterpillar distributor in South Carolina, they are well capitalized and well-positioned for growth.
Our new dealer in Virginia was appointed just a few months ago, and it's great to see an existing dealer with more than 40 years in the business expanding and now covering three markets: western Pennsylvania, West Virginia, and now Virginia. We love seeing an existing dealer investing in our Blue Bird brand. Finally, early in fiscal 2017, we refinanced our term loan and a revolver at very competitive terms, reduced our interest rates by four points, and saving about $6 million in cash interest expense in fiscal 2017. At the last earnings call, we mentioned that we were initiating a stock repurchase program, buying back up to $50 million in stock over the next 24 months. To date, we have repurchased $34 million of stock and are on track to complete the program in fiscal 2018.
I think it's fair to say we've advanced the business on multiple fronts in fiscal 2017. Let's now take a closer look at our second quarter financial results on slide six. I touched on many of these financial results earlier, and Phil Tighe will run through the details later. Just to summarize the fourth quarter, we exceeded our fiscal 2016 results in every category: total net sales, total bus sales, total parts sales, and adjusted EBITDA. Total net sales for the fourth quarter were up a strong 9%, and adjusted EBITDA was 3% above last year. Turning to the full year, total net sales of $991 million were up 6% from fiscal 2016, with similar growth in both bus and parts sales segments. Although meeting guidance, adjusted EBITDA of $69 million was down $3.3 million from a year ago.
While bus volume was higher, this was more than offset by customer mix differences and higher operating expenses, particularly in support of new products and growth. I'm turning now to slide seven. Let's take a closer look at our alternative fuel bus sales performance. At 3,888 unit sales, alternative-powered school buses represent slightly more than one-third of our total volume. That compares with only a 17% sales mix just two years ago. That's exciting growth. With an impressive growth of 41% over last year, Blue Bird continues to be the undisputed leader in the fastest-growing school bus segment, with our market share running at over 85% in this category. With less than 15% of school districts having purchased an alternative fuel-powered bus, we are well-positioned for future growth.
Propane continues to be the market leader in this segment, with 2,027 Blue Bird propane-powered bus sales in fiscal 2017, and it also records the highest owner loyalty of any school bus in the market. Gasoline has quickly climbed the charts with sales of more than 1,750 buses in its first full year in the market. While propane is widely recognized as having the lowest total cost of ownership in the market and is a green engine, and as I said before, we have the cleanest product in the market by a mile. The gasoline engine is readily understood by technicians and mechanics who really appreciate the simplicity and cold weather start capability it shares with propane. With our exclusive partnership with Ford and Roush CleanTech across all alternative fuel engines, it makes it easier for customers to grow their alternative fuel fleet.
With the same engine architecture, the same transmission, and the same service requirements across all three products, it's an easy move for a school district or a fleet operator to take the Blue Bird product range. I mentioned earlier that 504 customers placed their first-ever orders for a specific Blue Bird alternative fuel-powered bus, while importantly, 238 of those customers shifted from our competitors to Blue Bird. That is the strength of having leading and unique products to offer your customers. Let me now turn it over to Phil Tighe, who will take you through the financials, then I'll be back later to cover the fiscal 2018 outlook and guidance. Over to you, Phil.
Thank you, Phil, and good afternoon, everyone. The next few slides that I'll take you through are a summary of our financial performance for the fourth quarter and the full year of fiscal 2017. I would point out that there is additional information in the appendix that deals with primarily reconciliations between GAAP and non-GAAP measures mentioned in this review. Detailed material will be available in our 10-K, which we expect to file later this week. The material we discuss today is based on a close of September 30 for 2017 and October 2 of 2016 for fiscal year 2016. I should report there were no new accounting pronouncements that impacted Blue Bird in this report, and risk factors remain largely unchanged from the previously filed 10-K, with only minor reductions to content from prior years in a number of areas.
Also, please note that there are important disclaimers at the end of the deck. If we turn to the next slide. This slide nine, covers a summary of fourth quarter results for fiscal year 2017 and compares those results to the same period in fiscal year 2016. Phil's already mentioned fourth quarter volume was 3,608 units, an improvement of 9% versus prior year and the highest fourth quarter sales result in about nine years. Production volume in the fourth quarter was only about 6% lower than the record we achieved in the third quarter, and we continued to experience some production challenges caused by an extremely high mix of our popular rear engine bus. These are very complex buses and very labor-intensive units. The high demand in the second half has presented a number of challenges in line balancing and skill management.
We also had in the production area a number of issues with timeliness of deliveries and quality of some of our components. Net revenue was up by 9.2% versus fiscal year 2016. The total growth in bus net revenue included in the net revenue number was about 9.6%, a majority of that driven by volume. Per unit revenue, however, was up by about a half a point, due primarily to product mix and the higher alternative fuel mix. Net revenue in the fourth quarter was also higher than the first half on a per unit basis, which was an encouraging sign. Gross profit margin was 12.6%, about 9.9 points lower than last year, driven largely by higher production costs during the peak season, a more complex build mix that resulted in lower efficiencies and some higher economics. Net income and earnings per share.
Net income was about $14.5 million or an improvement of 34% versus last year for the same period. Adjusted diluted earnings per share was $0.51 for the fourth quarter versus $0.42 last year. Net income, I should point out, was positively impacted by higher operating profits, due in part to the non-recurrence of expenses incurred in fiscal 2016 with the change of control. Lower interest expense resulting from the terms of the new loan agreement and lower debt balances, as well as higher profits from our JV in Canada. We also had higher income tax expense, which partially offset the above. I'll talk about adjusted EBITDA in a few slides. With respect to debt and cash, our cash closed out at $62.6 million, which was an improvement of about $10 million versus prior year, and we'll discuss that on a later slide.
The debt of $151.2 million also reduced slightly. I should point out that actual debt reduced by about $8 million year-over-year. The reason you don't see this is due to the inclusion of net issuance costs in the debt totals in both fiscal 2017 and fiscal 2016. Turning to slide 10, which is the full year summary. Phil has already commented on volume. I would point out, I think this was our highest sales volume for Blue Bird since about 2003. I think Phil talked about the continuous growth we've been having for the last few years, but this was a good achievement for Blue Bird. Net revenue was up by about 6.3%, and we had increases in both bus and parts revenue.
The total improvement in net bus revenue was about 6.2%, although I should report that per unit revenue for buses was down about three-tenths of a point, due primarily to product and customer mix. Although the per unit revenue was down, we did see a fairly good shift in per unit revenues between the first half of the year and the second half. That's an encouraging sign. Parts revenue was up by about 7% due to the continuing expansion of product offerings, volume incentives, and improved shipping arrangements to our dealers. Our gross profit margin was 12.9%, or about a point below last year. Bus gross margin within that was 11.4%, also a point below last year, driven partially by the lower unit revenue and by higher production costs and economics.
Parts gross margin was down by about 2.9 points as a result of a more aggressive position that we've been taking on a selection of our parts to become more competitive out in the market and grow sales. Also we had some higher freight costs in the parts business. As Phil pointed out, margins are a very key focus of our management team, and we're implementing some really significant actions to improve our ability to efficiently build higher volumes and drive costs down. We will see the results from those activities over the next 12 months. Net income and EPS for the full year. Net income was $28.8 million, and adjusted diluted EPS was $1.27 for the year.
The net income was up by almost $22 million, and this was partly due to the fact that the fiscal year 2016 net income was impacted by costs associated with the change of control. Adjusted diluted earnings per share was up by $0.13. Again, the delta there is a little lower than you might expect given the increase in net income, but the change of control costs are added back in the non-GAAP metric of adjusted diluted earnings per share. A comparison of the income statements that you will see when we file will show you that operating profits were higher. Interest expenses are lower due to the new loan agreement. However, the savings in interest expense were largely offset due to the debt extinguishment costs that we had to record. We did have higher profits from our joint venture in Canada.
We also obviously had higher income tax expense. We will talk more about the EBITDA when we get to the bridge, the debt and cash numbers are the same as the prior slide, and we already discussed that. Moving to slide 11. This page briefly shows a walk between fiscal year 2016 and fiscal year 2017 for the fourth quarter. You can see we are up by about 0.8 to a profit level of $25 million. Bus gross profit of just over $1 million was due to a higher volume of 300 units and a slightly higher average per unit revenue. That was partially offset by the production costs that I alluded to earlier. The lower parts gross profit was $300,000. Again, we have been moving our pricing quite aggressively, and we did have higher freight costs. Operating expenses and other were about equal to the prior year.
Moving to slide 12, which is the bridge for the full year. This shows the profit at $68.9 million versus $72.2 million in fiscal year 2016, so a reduction of about 3.3%. The bus gross profit was down by $1.8 million, despite the fact that volumes were up by 700 units. We did have a slightly lower mix, and as I said, we did have issues with efficiencies in the plant at the high production levels and the mix of production, and we did have some higher economics. Parts gross margin, again, was due to the revised go-to-market structure we have got with parts. Operating expenses and other, about $1.3 million higher. The principal cause for these were the product spending, growth, support, and economics. Partially offsetting that was higher equity income from our JV in Canada that we earned in fiscal year 2017 versus fiscal year 2016.
We move to slide 13. This is the free cash flow slide, and we show both the fourth quarter and the full year for both fiscal year 2016 and fiscal year 2017. For the full year, the adjusted free cash flow was $43.7 million, up about $10 million versus the prior year. As you can see, the key drivers for the improvement versus 2016 were lower interest costs, lower trade working capital and lower other changes, basically in the area of accrued expenses. The fact that partially offset the good news items were a reduction in EBITDA and higher income tax. We did show on the page, the walk from free cash flow to adjusted free cash flow. You can see there that the $38.6 million in free cash flow that we earned was just about double the result in 2016.
Again, that was largely due to the special compensation payments with the change of control that occurred in fiscal year 2016. Moving on to slide 14, this shows net debt leverage and liquidity at the end of fiscal year 2017. Net debt stood at $88.6 million, including $62 million of cash. This is an improvement of $11.2 million versus the same time last year, and had higher cash by $10.3 million. The net leverage ratio was 1.6, substantially below the required net leverage ratio at the end of fiscal year 2017, which was 3.75. The 1.6, also by the way, is just about the same level that we had at the same time last year. Liquidity stood at $130.6 million. There were no drawings on our revolver. Liquidity at the same time last year was about $107 million.
I would remind everyone that we have a highly seasonal business, and the year-end cash level is generally the peak of our cash holdings, due to the substantially higher profits generated in the second half and the low level of inventories as we come out of the fiscal year and go into the slower period of bus production, which occurs in the first quarter. The final slide from me is just a brief update on the share repurchase program. Phil already touched on this. You can see some of the details here. I'll remind you that the board of directors approved a share buyback program during fiscal year 2017 of up to $50 million. The company during fiscal year 2017 has paid out $34.3 million to repurchase common stock. You can see that warrants and preferred.
As has been previously announced, the majority of the money spent in fiscal year 2017 was for the repurchase of common warrants and preferred previously held by Coliseum Capital Management, LLC. That was worth $32 million. Coliseum was one of our original investors and we wish them well in the new endeavors that they're taking. We continue to purchase shares. I think since the end of the fiscal year, we've probably purchased about another $2 million worth. As Phil suggested, our target is to complete the purchase of the shares in fiscal year 2018. With that, I'll thank you for your attention, and I'll now pass you back to Phil Horlock, who will discuss the outlook for fiscal year 2018, our new guidance, and then wrap up for questions. Thanks, Phil.
Okay. Thank you, Phil. As Phil just said, let's now move forward and take a look at next year, fiscal 2018, and our outlook for that year and our full-year guidance. Please, let's turn to slide 17. As the headline says, we're targeting margin growth in fiscal 2018. With the industry at a 30-year high, we do anticipate growth slowing, although I have to say, we are well-positioned and ready to capitalize on any opportunities that exist. We're not banking on an industry surge going forward. With modest Blue Bird sales growth forecast at 1%-2%, our focus is on transforming our business structure and improving EBITDA margin toward the midterm goal of 10% EBITDA margin, up from 7% last year. To support this, we are undertaking a significant facility upgrade in fiscal 2018 to drive efficiencies, higher quality, and provide additional capacity.
This work will progressively be implemented through fiscal 2018 and into the following year. Additionally, we are partnering with industry specialists to attack all cost elements while continuing to work on our passion, providing best-in-class products that customers want and value. We plan to report progress throughout the year and expect to see the impact of these actions starting in the second quarter. Let's now turn to fiscal 2018 guidance on slide 18, which reflects these initiatives. Net sales guidance is between $1 billion and $1,030,000,000, up $9 million-$39 million from fiscal 2017. A fairly modest growth, but in line with the industry outlook. Adjusted EBITDA guidance is now between $78 million-$82 million. A significant $9 million-$13 million increase over fiscal 2017 as we focus on increasing efficiencies and driving down costs and letting these hit the bottom line.
Adjusted free cash flow is between $36 million-$40 million and continues to be a strong feature of our business model. This represents over 40% of adjusted EBITDA despite the planned facility upgrade investments in fiscal 2018. In wrapping up, we had a strong fiscal 2017 performance, both operationally and financially, and we met guidance. We look to profit and margin growth in fiscal 2018 and our plans and guidance support this. We will continue to update you on our progress each quarter at these earnings calls. That concludes our formal presentation. I will now pass it back to our moderator, Tiffany, to begin the Q&A session. Over to you, Tiffany.
Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off. To allow your signal to reach our equipment, again, press star one to ask a question. We'll take our first question from Matt Randall with ROTH Capital. Please go ahead.
Hey, guys. Thanks. It sounds like the emphasis in fiscal 2018 is on margin improvement, and you guys are looking to track towards the 10% EBITDA margin sort of long-term goal that you have. Just trying to understand how that's factoring into the outlook, because it looks like at the midpoint, we're only looking at about 20 basis points of EBITDA margin improvement for the year. Could you just give us sort of what are the puts and takes around the expectations that went into building that up? I would expect maybe some tailwinds from higher margin, alt-fuel powertrains, but maybe are there some headwinds that we haven't factored in yet here?
Just picking up a little bit, Matt, it's Phil Horlock here. Just picking up a little bit on what you said there. What we look at the margin objective next year is about an 8% margin. I think we're about seven next year, this in 2017, so we're looking at going to an 8% EBITDA margin. A couple of things going on. Obviously, we're going to continue to capitalize on alternative fuel leadership. We're well-established there. We're seeing new customers every day coming to us, looking for that opportunity. It's a great product for us. We like the margins of that business, and we're going to continue to keep pushing that. I think the emphasis we wanted to get across today is that this is a plan for 2018 that's really, we're going to focus a lot on cost efficiencies, driving quality. We are spending money on the plant.
If you look at this plant back in 2010, when we were building 4,000 or 5,000 units here, we've significantly grown this plant. It's time to invest in it. We invest in automation, efficiencies, new processes, and they'll also help to take our costs down, we believe, and then drive efficiencies. We've got experts on the ground here today working with us on that. I just want to really say to you, it's not that we've sort of been somewhat prudent, I think, on the sales end of it, because we want to show what our emphasis and focus is for 2018. We are well-positioned to capitalize opportunities on the sales side. That's also realistic, recognizing we've just come off a 35,000-unit industry, well above anything we've seen in the last nine years or so.
I think the last time we saw a number that big was in 2007. Prior to that, it was way back to 1985. I think we feel sort of pretty strong about where we are and the actions we have in place. Product for us remains critical. We're investing in product. We're not holding back on product, and we believe that's the way we win over time in the marketplace.
Okay, got it. Can you guys quantify the costs that are associated with the production challenges on the Type D units that you'd referenced in the prepared remarks? Maybe could you talk in a little more detail about the operational improvements that you've made to address the inefficiencies there?
Yeah, Matt, this is Phil. The Type D unit efficiency level was probably running in around about the mid 80s% versus a target of 100. These things can be somewhat difficult to build, and we have put a lot of time into training some people to deal with the increased capacity in that area. We did have to spend a lot of overtime work building those units because of the lower efficiency levels. The second part of your question dealt with operational improvements. Is that correct?
Yeah, that's right.
Yeah. We're taking a pretty wide look at this. Again, this plant has grown by a factor of more than two, and it's been quite a while since we actually went through it and took apart pretty much every operating station and decided which is the best way to build. We're going through a significant set of work there. Realistically, you won't see the full result of it until later in the year, but we will see improvements through the year as we redesign how material gets to the line and how people work. I think that's going to deliver a lot of opportunities for us. It will also free up some bottlenecks that we have discovered as we go forward.
Yeah. Hey, Matt, this is Phil Horlock. One way to think about this, as Phil said correctly, that what I said before was this has been a record production year in Fort Valley. When you hit record, you sort of stress the system. You hit more and more of your bottlenecks, as Phil pointed out. One simple thing we're going to do is we're going to put more stations in the production line, give us more chance to have quality checks along the line here. The stations are now less dense, less folks sitting on top of each other in the plant, which is what we've had to do. We've had to literally put more people in to build the higher demand we've had.
We're going through station by station of really laying out a better production line for us that we know will be much more efficient for us, and it's rebalancing the entire line. Then, as I mentioned earlier, bringing in assisting tools to help our workers easier so they can have a faster cycle time. That does take capacity up on some of those actions they do, and then select levels of automation along the way as well will be something we're going after. We're taking a real good fresh eyes look.
Got it. I guess your comments imply maybe a year where we've got a little bit of a higher CapEx spend, and I think that foots with sort of what you gave for free cash flow guidance. Could you break out what do you expect CapEx to be for fiscal 2018? I guess my back of the envelope says maybe $12-plus million. Is that about right?
Not sure we want to go all the way there, Matt. Let's just say that as Phil mentioned, we're adding some automation and some improved tools. We're also looking at what to do in some of the bigger areas of the plant where high levels of skill are required. There's a lot going on in the plant. The good news is, we will do this without losing production. We don't have to take the plant down based on our present plan. We will install this stuff while we're still in full production. Matt, recently we've spent about, what, $10 million? We sort of tell you, I know previously we said we plan on $15 million, somewhere between $10 million and $15 million. I think we spent about $10 million this past year in 2017. It's obviously going to be above that.
I think what we'll do is, as we go through the year, we'll inform you more about that as we go. Just right now, these plans are sort of a little fluid towards the end of the year, but we certainly have a good action plan for a good nine months out here. We know exactly what we're doing and where our plans are, but we'll sort of fill you in as the year goes along. It will be up on the traditional level. You're right, looking at it that way.
Got it. Okay. Maybe one more from me. I'll squeeze one in here and then leave it to the rest of the guys. Tax reform, I guess there's probably some puts and takes for you guys. If it impacts housing values in some way, maybe that hurts the tax take at the local level a touch, but then obviously the corporate rate would be a benefit for you guys in terms of the reduction in the rate. Could you talk about sort of your current views and your analysis as to sort of what the impact would be for Blue Bird and how you factored that into guidance, if at all?
Quite frankly, Matt, we haven't done a lot on it at the moment, apart from read what everybody else is reading. I think once we get closer to some sort of agreement between the House and the Senate, we'll start doing some detailed works with some tax advisors on where it will go. I'm not sure that the housing thing is going to be a big concern for us. It looks like the people who will get really hurt are the people with very expensive places. There's a lot of buses bought in areas where the deduction will remain in place. It's a little bit too early for us. I would suspect that when we do our first quarter call, we'd probably have a much better feel of at least analytically what we think it's going to do.
Got it. Thanks, guys. I'll jump back in queue.
Thanks, Matt.
As a reminder, that is star one for questions. We'll go to our next question from Chris Moore with CJS Securities.
Hey, guys. Thank you for taking my questions. At the Q3 call, you talked about that there was roughly 200 buses that were going to be built in Q4, not likely shipped until Q1. Can you just, maybe I missed it, give us an update in terms of those buses? Did they ship in Q4? Are they ready to go now?
Shipped in Q1. About 75 of those did ship actually in Q4. We got them out, but the balance will ship in the first quarter of fiscal 2018.
Got you. Okay.
Yeah.
In terms of looking at the mix for an alternative fuel, roughly 52% propane, 45% gas. Given the trajectory of gas, is it likely that that'll be more than 50% of alternative fuel sales in fiscal 2018? Is that a reasonable assumption?
I think we still see propane as being the preferred choice. It's still the best TCO model, and that's what we tell our dealers. We explain that to customers. They understand it. Obviously, with gasoline, you've got the first year of it. You get the early adopters jump in. They jumped in quickly. Having said that, I tell you, we're off to a great start this year. Without giving the store away, the gas orders have gone really well in what I call the quiet season, the slow season, which it traditionally is. I still think we still expect that propane will be the number one alternative fuel for us, but we'll keep you apprised as it goes through. Frankly, do I care about it? I like propane, and I like it a lot.
I think it's a great product, we do push that hard because we believe in it. If a customer's got his heart set on gasoline, we're going to sell him gasoline, too. Actually, if he's got his heart set on diesel, we'll sell him diesel as well. Hopefully that's helpful to you. The priority for us is we still think that propane, because we believe in it. It's got the best install base, and that's another important point. We sold, just so you know, Matt, with this past year, we sold our 10,000th propane-powered school bus, obviously, we've sold now, we got in the market over 2,000 gasoline-powered school buses. The install base certainly helps us certainly on propane as people look to renew that business with us.
Got it. Thank you. Skipping around a little bit. The adjusted EBITDA margins midpoint is just about 8% up, about 100 basis points. Is most or all that soon to be coming from improved gross margins?
That's correct, Chris.
Got it. Last question, just in terms of on the electric vehicle side. My understanding is, at least at this point in time, they are extremely expensive. I was trying to get a feel for what would have to happen for that to be an important part of the revenue mix a few years down the line.
Well, everything you read about battery technology, obviously the battery is a key cost of an electric vehicle. You can imagine moving a 33,000-pound school bus. That is a lot of batteries and a lot of cost. You read all the reports tells you in two, three years from now, the battery costs are going to halve, and they are going to come, and another two years is going to halve again. I mean, right now, frankly, near term, it is all about grants. California has certainly led the way, and there is constantly some grant opportunity out there to buy electric buses in California. Obviously, they are leading the way here on zero emissions. We have also seen other cities, other states, lower volume selectively follow. A lot of interest in Florida around electric-powered school buses.
First of all, we want to capitalize, I think, next year, first of all, where the grants are available. There will certainly be what I call specific opportunities that might appear where there is a district wants to have zero emissions, wants to show their parents, if you like, that we are going for a zero-emission solution, and there will be opportunistic sales. We are heavily targeting, I would say, first and foremost, California, also Florida is pretty close behind that, is the way we look at it. I think the real big surge is going to be two or three years down the road.
Got it. All right. I appreciate it, guys.
Yeah. Thank you.
As a reminder, that is star one for questions. We'll go ahead and pause for a moment to allow more to assemble. We'll go next to Eric Stine with Craig-Hallum.
Hi, everyone. First, just wanted to start with the parts business. I know that in fiscal 2017, it was a big initiative, it continues to be. You are pricing a lot of your parts aggressively to try to gain share versus incumbents. I mean, is there any way to maybe quantify or talk a little more in detail about the progress made there, maybe the share across your dealer network that you feel you've got with your parts? Where you think that that can go?
Yeah, Eric, that's a good question. I think on parts, we've talked a lot, I think in the past about parts we think should outperform the school bus growth. I mean, and probably should, except that obviously we've had a great success in alternative fuel, that's catapulted us somewhat on the growth curve. I think on parts, the way we look at it is we've been doing all sorts of things to make us competitive. There are a lot of players out there trying to sell parts to school districts. A lot of suppliers go directly. A lot of third-party operators go. A lot of, I call non-OEM parts providers like to tap school districts because guess what? There are over half a million school buses out there.
What we have been doing is we have been very aggressively, we've been adjusting parts price and making them competitive. Doesn't simply mean we cut the price. We go back to a supplier and negotiate a new price in many cases. What has happened is we've certainly seen a significant uptake, I'd say, in the number of parts that we're selling through our dealer channel. You see a volume of parts through our dealer channel is significantly up. Obviously, that's come down a little bit because we have lowered the revenue. What we want to do is get our install base up. I think we are succeeding in that regard. We've got more SKUs out there than we've ever had before.
You look at alternative fuels, you probably know this, when you look at the way that the industry goes, on the diesel side of the business through Cummins, the transmissions out to Allison, which is a big piece of a chassis. Those guys control through the distributors the parts business. With the Ford products, we have exclusivity to sell those parts at very competitive prices. We can sell Ford engines, be it propane, gas, CNG. We can sell the Ford transmission. I do think as we continue to grow disproportionately alternative fuels, we also continue to grow disproportionately the parts opportunities in those segments. We are still very bullish on parts. We track the units, what we call the revenue per UIO, which means we look at every single dealer. Think of it, we have 50 of those dealers across this country.
We track every revenue on parts per unit in operation, that dealer's market area. I can tell you, it's growing everywhere versus where it had been in the prior years. We feel very confident we're on the right track.
Okay. That's helpful. Thanks for that. Maybe just two more quick on alternative fuels. I appreciate you giving the number of new customers for Blue Bird because of alt fuels, I think that maybe it's the first time you've given that number, just curious, I mean, from a high level, maybe you don't want to be too specific, break that down between propane and gasoline. I mean, are the majority of those gasoline, given that you've got a huge head start and the only one in the market, or are some of those customers propane, given your leadership with that product?
Well, they're both. I mean, you've got both in there. I'm not going to give you the breakdown. I would just say, obviously, I said earlier, we have a large install base, a fairly large install base of customers who are familiar with propane. The good thing is we got a lot of repeat business. You might recall, I said this is the highest loyalty of any product in the marketplace. By definition, loyal customers keep coming back to us. With it being the first year of gasoline, obviously, we did grow significantly in our customer base through gas, but we also grew significantly through new propane customers. It really was both. It wasn't like these are all gas customers and coping with all the old guys that worked with us before. It was a good blend of both.
Okay. Maybe last one for me, and you touched on this relative to electric, but just curious on natural gas and some of the funding in California from the Cap-and-Trade program, if you're seeing any requests or demand or any thoughts that you might add the Near-Zero Cummins Westport engines as part of your offering.
Well, on the CNG situation, first of all, just stepping aside from it, the thing is, CNG, from a standpoint of why do we. We actually, we've been, over the years, the market leader in compressed natural gas work sales. When we look at it, you can see the propane that sells at over 10 to one. The reason being, because of things like infrastructure you got to put in place, the sheer cost of upgrade, the tanks for propane, because they're compressed, they're Kevlar coated. It's a very expensive upgrade. Economically, it is tough to make it work. Now, you mentioned the Cap-and-Trade and the virtual zero emissions. That's some product information I really don't want to get into.
Okay
put it this way, we're going to be competitive. We're going to be very competitive.
Yeah.
Yeah.
I just know, yes, it's a very small part of the market, but it is an area that I-
Yeah
I've been keeping tabs on, and there's potentially some very significant money. Just wondering, it seems like that could be a bigger part of your mix going forward.
Yeah.
Okay. Thank you.
We will be competitive, I can tell you that. Yep, absolutely. Thanks.
With no further questions, I'd like to turn the call back over to Phil Horlock for any additional or closing remarks.
Okay. Well, thank you, Tiffany, and thanks to all of you for joining us on the call today. I have to say, we do appreciate your continued interest in Blue Bird. We are focused on profitable growth and intend to deliver on our commitments. I think we are very well positioned for future growth today and in the future. As I've said several times on this call today, we have a passion for product, because in the long run, products is what wins with our customers. Please don't hesitate to contact our Head of Investor Relations, Mark Benfield, should you have any follow-up questions. Mark's always here to help you. Thanks again from all of us at Blue Bird. Wish you a good evening, and I should also add, happy holidays. Thanks, everyone.
This concludes today's call. Thank you for your participation. You may now disconnect.