Good day. Welcome to the Blue Bird Corporation Fiscal 2020 First Quarter Earnings Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Mark Benfield, Director of Investor Relations. Please go ahead, sir.
Thank you, Nadia. Welcome to Blue Bird's Fiscal 2020 First Quarter Earnings Conference Call. The audio for our call is webcast live on investors.blue-bird.com. You can access the supporting slides by clicking on the Presentations portion of our IR webpage. Our comments today include forward-looking statements that are subject to risks that may cause actual results to be materially different. Those risks include, among others, matters we have noted in our latest earnings release and filings with the SEC. Blue Bird disclaims any obligation to update the information in this call. This afternoon, you'll hear from Blue Bird's CEO, Phil Horlock, and CFO, Phil Tighe. We will take some questions. Let's get started. Phil?
Okay. Well, thanks, Mark. Good afternoon, everyone, thank you all for joining us today for our first quarter earnings call for fiscal 2020. We're continuing to make great progress at Blue Bird as we strive to improve both overall profitability and margins. We always welcome this opportunity to share with you our latest quarter results, let's start with an overview of those financial results on slide four. As we've previously explained, the school bus industry is extremely seasonal, the first quarter is always the softest quarter of the year, with unit sales typically representing no more than 14%-15% of the full year volume. This is also our expectation for fiscal 2020, I'm pleased to report that despite the soft sales quarter, we had a really strong first quarter financial performance relative to prior years.
In fact, it was the second highest profit in more than 10 years with adjusted EBITDA of $8 million, which is $800,000 or 11% over a year ago. Importantly, this is our sixth consecutive quarter where profits increased over the prior year, despite higher commodity surcharges from our suppliers to address tariffs that impacted us from the second quarter of last year. Before proceeding further, as I mentioned on our prior earnings call, let me set the strategy that we are pursuing. Throughout this and future earnings calls, you will hear a recurring theme of how we are driving our overall profit and margin improvement through three key initiatives. First, following the bus pricing we took in late fiscal 2018 to address the escalation in tariff-led commodity costs, we plan to price each year to recover economic increases.
As you will recall, we took pricing again in July 2019, and we will see the benefits throughout this year. Second, cost reductions that we are achieving through our transformational initiatives. We began this journey two years ago and have seen significant year-over-year savings in every quarter since then, and we intend to continue to do so going forward. Third, continued leadership and growth in alternative fuels. Increasing our mix of alternative fuel-powered buses as a percentage of our total sales is key to profit growth as we earn a superior selling price and gross margin compared with conventional fuel buses. Our growth in this segment continues to outpace the overall market by a long way, as you will hear later.
All three of these actions improved our results over the first quarter last year and are cornerstones of our ongoing plan to increase both gross profit and EBITDA margins. Let me get back to our first quarter results. We improved profitability despite selling 140 fewer buses than last year. We mentioned on our last earnings call that first quarter volume would be down versus a year ago as we launched our new robotic paint facility, requiring additional planned downtime in October and a gradual production ramp-up. This is simply a retiming of volume to later in the year. While volume was down 9% from a year ago, fourth quarter net sales revenue of $153 million was only 1% below last year.
The increased sales revenue mainly reflects a richer mix of higher-priced alternative fuel-powered buses and the favorable impact of our bus pricing actions that I just mentioned. In fact, our average bus selling price was over $5,000 per unit higher than in the first quarter last year. Parts sales also grew substantially, at 17% over the first quarter last year, although about half of that is explained by an additional sales week we had in the first quarter of fiscal 2020 compared to last year. Overall, we had a very strong revenue performance. Now, adjusted free cash flow was about $90 million negative for the quarter. As you know, traditionally, we are always negative in this first quarter, this was $34 million worse than a year ago.
This was largely due to higher raw inventory having the end of December 2019 to address some unique circumstances. Phil Tighe will describe those later. Suffice to say, we will return to normal inventory levels as the year progresses. This is just a timing issue. Adjusted net income of $2 million and adjusted diluted earnings per share of $0.07 were up $800,000 and $0.02 respectively from a year ago. As we look at the underlying strength of the industry and Blue Bird's results, we remain upbeat about the business fundamentals. We are forecasting an industry of around 34,000 school buses in fiscal 2020, which is about the same as last year.
That's a near record level over the past 30 years and compares favorably with the average over that same period of 31,000 school buses. With a strong outlook for property values and corresponding property taxes, which are the major funding sources for school buses, together with the fact that 190,000 school buses on the road today have been in service for more than 15 years and school enrollment is increasing, we are confident that the industry outlook remaining at around this level for the foreseeable future. Bottom line, the demand for school buses is clearly very strong, with funding the only limiting factor. We saw yet another record first quarter sales mix for alternative fuel-powered school buses, surpassing last year's previous record. At an impressive 39% mix of our total unit sales, we beat last year's first quarter mix by 5 points.
It's clear that we lead the industry by a long way in alternative fuel-powered school buses. As a reminder, which I do this every earnings call, in alternative fuels, we count all of our propane, compressed natural gas, electric, and gasoline-powered buses, as all of these are alternatives to diesel, which has been the staple fuel for years. For the last several years, we've been achieving significant growth in alternative fuel bus sales, and as I just mentioned, we have not slowed down this year. We'll cover our performance in this area in more detail a little later. All in all, I'm very pleased with our first quarter results. We increased our gross profit margin significantly versus a year ago through a richer mix of alternative fuel buses, cost reductions, and pricing.
That was the fourth consecutive quarter of gross margin growth and is a key element to improving our EBITDA margin, and we expect continued gross margin improvement from these actions as we move forward through the fiscal year. We're maintaining fiscal year 2020 guidance for all three metrics on which we report, with midpoints of range for adjusted EBITDA at 13% above fiscal 2019, at $92.5 million. Importantly, we are on the path to our stated goal for an adjusted EBITDA margin run rate of at least 10% by the end of fiscal 2020. Let me now review with you our key operating achievements on slide five. We recorded a number of significant achievements in the first quarter, and each one will make us more competitive and support our profitable growth plans going forward.
Our transformational initiatives to increase margins are on track, driving improvements in quality, cost, and efficiencies, and capacity. We are seeing those results now, as evidenced by our gross profit margin increase of 1.6 points in the first quarter over last year, and there is much more to come. Following a carefully planned ramp-up in October and November, our all-new automated paint shop is fully operational, and every bus is now being painted in that facility. The painted buses look great, and we're beginning to see the quality and the efficiency benefits we expected. As I will show you later, this is an important initiative to drive efficiency improvements throughout the plant. As I covered earlier, we increased our full-year school bus selling price significantly by about $5,000 a unit, representing a 6% increase.
This reflects our increased mix of higher-priced alternative fuel-powered buses and our recent pricing actions, together with the favorable impact of higher option take and standardization of selected priceable features. While adjusted EBITDA margin increased by six tenths of a point in the first quarter of fiscal 2020 over last year, which is a great result, this is on top of achieving higher margins in every single quarter of fiscal 2019. I believe that to be a strong indicator of how a consistent and effective strategy can deliver continuous improvement. As I mentioned earlier, we continue to be the undisputed leader in alternative fuel-powered school buses, with an impressive 46% of our total year-to-date sales and firm order backlog. That's quite a mix, that's actually four points above the same time last year.
Furthermore, the total number of alternative fuel buses sold and in our backlog are up 5% from a year ago. That's strong growth performance in an overall flat school bus industry, particularly when we consider the major sales season is ahead of us. Simply put, that's leadership and real momentum in the fastest-growing segment of the school bus market. Remaining on the topic of alternative fuels, we continue to see strong and growing interest in our latest product, our zero-emission electric-powered school bus, which is powered by a Cummins electric drivetrain. We delivered 24 buses in the first quarter of fiscal 2020, and altogether, we have more than 90 buses delivered or in our firm order backlog so far this fiscal year. We anticipate many more orders for the year based on the quote activity we are seeing.
Needless to say, with the widest range of electric-powered school buses on the market today, covering Type A, Type C, and Type D configurations, we are really excited about this opportunity. Finally, we are reaffirming guidance for fiscal 2020, and that reflects continued growth in sales and profits as we continue to deploy our three focus initiatives to drive higher growth and EBITDA margins, namely annual pricing to cover economics, structural cost reductions, and increased mix of alternative fuels. It's fair to say we continue to advance the business on multiple fronts, and we are focused entirely on profitable growth. Now let's take a closer look at the third quarter financial results on slide six. I touched on many of these results earlier, and Phil Tighe will run through the details later. So let me just summarize the first quarter.
Our bus sales and total net sales were down 3% and 1% from prior year respectively, which is significantly less than the planned 9% volume decline, as we achieved 6% higher average selling price per bus. Parts sales were 17% higher than a year ago, although half of that growth was due to the extra sales week in the first quarter this year compared with last year. We are pleased with the 8% organic growth we achieved in the first quarter, which comes on the back of a full year growth of 7% last year. That's really impressive performance by the sales team. Adjusted EBITDA was $800,000, or 11% above a year ago. The end result was the second highest first quarter profit for more than 10 years, and the sixth consecutive quarter that we have grown profits over the prior year. Going now to slide seven.
Let's just take a closer look at our alternative fuel bus sales performance. At 2,074 units, our booked sales and backlog today of alternative fuel buses is 5% higher than a year ago, importantly, a record for this time of the year. As I mentioned earlier, alternative fuel bus sales represented 46% of our total sales, which is up again from the previous record of 42% that we set a year ago at the same time. Significantly, too, 111 customers have purchased or ordered alternative fuel-powered buses from us for the first time ever this year. That's on top of more than 400 customers who tried alternative fuel options last year for the first time.
Those are compelling facts and really help drive customer loyalty and conquest business, and are a great endorsement of our exclusive alternative fuel buses, the Blue brand name, and our franchise exclusive dealer network. I think it's pretty evident that we aren't slowing down in this segment of the industry. No other school bus manufacturer comes close to our alternative fuel sales mix or our market share. I previously covered the fact we have now either sold or have firm orders in hand for more than 90 electric bus orders for delivery in fiscal 2020, and we expect more to follow with all the customer interest we're seeing for the newest addition to our alternative fuel lineup.
Looking forward, the vast majority of the VW mitigation funding is still ahead of us and should support a strong industry over the next three years or so, with many states earmarking specific funds for school bus purchases. We are really pleased with the success we have had so far from the funds that have been issued. With the widest range of alternative fuel-powered buses, the most modern and proven engine in the industry, which is exclusive to Blue Bird through our partnership with both Ford and ROUSH CleanTech, and our leadership position in low NOx emissions, we are well positioned to capitalize on the VW funding and other growth opportunities going forward. In fact, reduction in NOx gases is the major criteria in funding through the VW settlement.
To this point, our new ultra-low NOx propane bus is certified at one tenth of the NOx emissions output of other manufacturers' buses and to the EPA standard. Plus, our propane bus is widely recognized as having the lowest operating cost of any other school bus on the market, and we've been very successful to date in utilizing VW funds for our propane bus customers. With Blue Bird propane, there's one simple message, you can have it all. The lowest operating costs and the lowest NOx emissions of any internal combustion engine in a school bus. A growing number of customers understand this, and as you can clearly see, sales are up again and we're achieving record levels of sales so far this year. We are also seeing continued strong growth of our gasoline powered bus in fiscal 2020.
It is regularly listed by technicians and mechanics who really appreciate the emissions simplicity and cold weather start capability that it shares with propane. It also has a lower price point than diesel, so really works for those customers where acquisition price is a key concern. In summary, we are proud of our strong leadership position in alternative fuels and the significant growth and market share we are achieving. With less than 15% of school districts still having purchased an alternative fuel powered school bus, we have plenty of runway ahead for continued growth. Let's now take a closer look at how we are driving cost reductions throughout Blue Bird, turning to slide eight. Now, we showed you this slide on our last earnings call, and it illustrates the progression of our transformation initiatives over the past two years and into fiscal 2020.
Importantly, you can see this is a cumulative approach where additional processes and tools are being added as we strive to drive down our total cost. In fiscal 2018, our initial focus was on reducing purchased material costs and services through a combination of initiatives, including new commercial agreements with suppliers and resourcing, with minimal product design change involved. We worked extensively with external automotive experts to ensure best practices and processes were applied, and we delivered results. In fact, you might recall that we recorded savings of over $20 million in fiscal 2018 from our transformational initiatives. Now we continued with a series of initiatives in fiscal 2019 and began to add design changes to our process to reduce cost without compromising quality.
In this Phase 2, we also focused heavily on the build, launch, testing, and validation of our new robotic paint facility, which also necessitated plant rearrangements to optimize our process. We achieved additional savings of $18 million in fiscal 2019, and as Phil will show you later, we continue to derive further significant savings in fiscal 2020 from these actions. Of 2020. Phase 3 now supplements the earlier processes by driving down the cost of production, both from a fully operational robotic paint facility and from focused plant productivity actions. Our new automated paint facility provides the opportunity to reduce rework with increased first-time run capability, to reduce labor material through robotic application of paint, and to achieve savings in warranty expense and deliver higher straight-time capacity.
Importantly, with the new paint facility attached to the exterior of our present assembly building, we freed up space in the plant to allow more efficient line rearrangement of tasks and stations, and the addition of several stations for more efficient operations and improved quality control. All these actions are designed to improve efficiencies and drive down total cost. We have deployed industrial engineering resources to optimize in-station workflow in the newly arranged production line. We are applying engineering resources to focus on design for manufacturing capability, targeted at reducing production costs and improving quality and rework. We are confident of achieving significant efficiencies. We have many more actions planned over the next few years. This systemic and cumulative approach of driving down total cost over multiple years is key to delivering higher gross profit and EBITDA margins.
We'll continue to share these results with you in the quarterly earnings calls. Let me now turn it over to Phil Tighe, who will take you through the financials, and I'll then come back later to cover the fiscal 2020 outlook and reaffirm our full-year guidance. All yours, Phil.
Thank you, Phil. Good afternoon to everyone. The next few slides are a summary of our financial performance for the first quarter of 2020. The material that we're discussing is based on a close of January 4, 2020, for the first quarter of 2020, and December 29, 2019 for the first quarter of 2019. Detailed material will be available in our 10-K, and that will be filed tomorrow, February 13th. We encourage you to read the 10-K and the important disclosures that it contains. There is also an appendix attached to today's presentation that deals with reconciliations between GAAP and non-GAAP measures, as well as some important disclaimers already mentioned by Mark. With respect to accounting pronouncements, there was nothing significant adopted in the first quarter of fiscal year 2020.
We did elect to adopt ASU 2019-12, which simplifies the process for calculating interim income taxes and the accounting for deferred tax liabilities for foreign equity method investments. There was no material impact to Blue Bird from adopting this standard. Now let's have a look at the summary of key results for the first quarter on slide 10. I think you can see from this, and Phil's already mentioned a lot of it, that we had improvement versus the prior year in quite a number of the items. Our gross margin percent was up, net loss was down, adjusted net income was up, adjusted EBITDA was up, the adjusted EBITDA margin was up, and the diluted earnings per share improved by $0.03 from a loss of $0.05 to a loss of $0.02, and the adjusted and diluted was up by about $0.02.
We've already talked about the fact that the volume was down. Net revenue was down, and we'll go into a little more detail on the net revenue when we get to the bridge so that you can perhaps have a better understanding of that. We will spend a little bit of time talking about cash when we get to the free cash flow slide. I think on the net revenue, we can probably talk about the $1.7 million that was down. That's about 1% down. Lower bus volumes of 140 units or 9% was worth about $12 million. Phil mentioned that bus revenues were up by over $5,000. The higher revenues actually drove about $8 million in offset to the loss in the volume. Then, of course, Parts was up by about $2.7 million or 17%, which has already been mentioned.
We basically offset a large chunk of the amount that the volume was down through a lot of good work by the team on bus revenue and on parts revenue. Again, the bus revenue per unit increase of 6%, it was due to a number of factors. One was the pricing actions we had taken in fiscal year 2018 and 2019 to offset inflation, including steel and commodity prices, as well, of course, as the higher mix of alternative fuels. Also, our sales team has been working diligently, trying to identify the best revenue we can get on every sale in every state. Gross margin at 13.9% was up 160 basis points versus a year ago. Bus gross profit was 11%, which was up 130 basis points compared to a year ago.
The mix of parts sales improved from 11.3% of total to 12% at an average margin of about almost 35%. Our net loss obviously reduced to about $0.4 million. That was an improvement of $800,000. Lower interest costs improved other income and JV income and lower taxes drove the improvement. On an adjusted basis, net income was $2 million positive, up from $0.8 million last year. Adjusted EBITDA, we've already mentioned, was up 8%, 10% or 11%, and we'll talk more about that on the bridge. The EBITDA margin of 5.2% for the first quarter was up by a half a point versus the prior year, and this is the fifth consecutive quarter with positive year-over-year margin improvement. Diluted earnings per share we've covered, and we will talk a little more about the impact of cash and debt when we get to the free cash flow slide.
Slide 11 is the bridge, walks from first quarter fiscal 2019 to first quarter fiscal 2020. Key takeaways are volume and product mix improved by $600,000. We know that the volume was down, we did have favorable product mix. That is, we sold more of the bus and fuel sales, also parts sales mix in total was up, which contributed to the positive news for volume and product mix. Pricing net of economics was about a million and a half unfavorable, this was largely due to higher material costs. The higher material costs were net of some favorable movement that we're now seeing in steel, also higher tariffs. You will recall there were tariffs that were implemented in the first half of calendar 2019. We are still seeing some flow-through of those tariffs into our fiscal year 2020.
Transformational cost initiatives added nine tenths, which was largely around about continued improvement in design cost and in reducing supplier costs. Efficiencies were favorable. This was despite the fact that we were in launch of the paint shop in the first half, in the first month or so of the first quarter. There were a lot of costs involved in getting the paint shop up and running. Despite all of that, we were able to bring in some favorable news in efficiencies, including favorable news in freight and warranty, as well as manufacturing. Operating expense and other was unfavorable. That was largely due to the non-recurrence of a temporary rebate program that one of our major suppliers gave us in the first quarter of fiscal 2019. That did not carry forward into fiscal year 2020. Is a large part of the deterioration for that.
Overall, I think profits up by 11% in the first quarter was a good result for us. I would just say that, and I think this is reiterating things that Phil said, we continue to work on improving both the per-unit revenue and the cost structure at Blue Bird as key enablers for achieving our long-term objectives. We talked about bus revenue, gross margin. We are continuing to push on gross margin. I would say that this could have been higher for the first quarter, except that we did incur some costs for the paint shop launch. That dropped us back, but we're seeing good traction on gross margin. Finally, the transformation initiative. I know you look at $900,000 and say, "Well, that wasn't very much," but it is our lowest quarter in terms of volume, and most of the savings are driven by bus sales.
It's an important thing in reducing the cost of each bus we sell. If you put it into perspective, that 900,000 was worth about $600 a unit on every bus we sold in the first quarter. Of course, that will flow through to the buses we sell in the rest of the year, and provide for improving our profitability as volumes grow through the year. The next slide 12, is the free cash flow. As you can see here that the free cash flow is off by around about $34 million, at least for the adjusted free cash flow, and a similar number for the free cash flow. The big issue is clearly in trade working capital. Everything else is pretty stable.
The year-over-year increase in trade working capital is fundamentally all temporary items, and they will be eliminated, if not in the second quarter, at least in the balance of the year. There were four principal areas. The first is we have a number of stockpiling actions on some major powertrain components due to some supplier capacity constraints. We have stockpiled a number of engines, and that stockpile will run down as we go out of this fiscal year and will be gone by the end of the fiscal year. We also had a work pattern change versus 2019 in the first quarter. Typically, we bring in inventory for production in the second quarter, in the first week of that quarter, which we all get confused about calendars, but basically the first week of the second quarter is just after New Year. We tend to bring it in then.
Unfortunately, due to the timing of our production pattern in fiscal year 2020, we had to bring in a lot of inventory to support October production in the latter part of December. That caused us quite a run-up in inventory going out of the first quarter. That will sort itself out as we go through the second quarter. Blue Bird has been on a major program to consolidate all of our inventory into a single major warehouse to improve flow to the plant and to improve efficiency and profitability. We did all of that move in basically the first quarter of fiscal 2020. We did build up inventory to ensure that we were protected against any glitches as we were moving parts from a number of warehouses to a central warehouse.
We took a fairly conservative approach to protect production during this overhaul, and I think that while it was a strain on our cash, it certainly paid dividends in not losing production. Finally, we did have a number of buses that were still in work in process at the end of the first quarter. In other words, they were largely built but still being finished. These were the more complex buses that we build for the federal government and some buses that we were building for some major fleets that were more like transit buses than school buses and require a lot of incremental work. Those buses will all be delivered before the end of the second quarter. We'll get the majority of that stockpiling or inventory out of the way.
Again, I'd say that the engine stockpiling will probably run out by the end of the fiscal year. Everything else, work pattern change, protection against the warehouse move and the buses that were still in production, will be cleaned out over the next several months. Final slide 13, looks at our net debt leverage and liquidity. Debt at $215 million, was up about $6 million during the prior year due to $15 million drawn on the revolver, higher than the prior year at that time. That was really drawn to fund some of the trade working capital. Our net leverage ratio came in at 2.5, again, well below the threshold of the covenant at 3.75.
We believe our liquidity at $66 million is good for this time of year, and particularly, it gives us a fairly solid amount of cushion while we're carrying higher than normal inventories, and we would expect to see that grow as we run down the inventories. That's a brief summary for you, and I'll now turn the discussion back to Phil Horlock, who will describe the outlook for fiscal year 2020 and our position on guidance. Over to you, Phil.
Thank you, Phil. Let's now focus on the fiscal 2020 outlook, as Phil just said, and our full-year guidance. Please turn to slide 15. The headline on this slide says, we are simply continuing to follow the plan we laid out to grow margins. We started this two years ago, and we're well on track and well underway with it. Before I just get into the details of that, just a quick comment again about the industry. For three years now, we've been running at about 34,000 units, and these are really 30-year highs that we're seeing. The great thing is, when you look at the outlook here for profit factors, as I mentioned before, property values, funding available and the likes of Volkswagen funds to boost some decisions there and make them earlier in the cycle.
It does give us real confidence we see in the foreseeable future holding at this level. It's important also to note, as I mentioned previously, 190,000 buses in a 500,000 fleet across North America is over 15 years of age. There's tremendous demand to buy new buses. This industry is not slowing down because of lack of demand. As we consistently stated, our plans for continued profit growth focus on achieving significant gross margin and EBITDA margin improvement from three key areas. I'm going to repeat myself here, but I think it's worth reminding ourselves our strategy is very straightforward, very simple, and we're executing it. First is annual cost recovery pricing. We took pricing in 2018 for surcharges for steel and other commodity increases, and in late fiscal 2019, we took a further 2% price increase on all vehicles and options.
That will have a significant annual effect in fiscal 2020 as we see the flow through of that late announcement back in fiscal 2019. Second, our continued transformational cost reductions. I explained earlier the processes we are attacking now, the various areas we're going into all across, whether it's purchasing, whether it's in plant, it's in the manufacturing situations, design. We're exploring every possible avenue. Look how we've done so far. In 2018 and 2019, we drove cumulative cost savings of $38 million in over those two years, and we expect significant benefits again in fiscal 2020 and beyond. Manufacturing efficiencies and quality will be a key area of focus this year and in future years. Third, as we've been doing for several years now, we will continue to pursue growth to maintain our leadership position in alternative fuels, which command a superior margin and higher customer loyalty.
With a record year-to-date mix of 46% of book sales and firm order backlog and the main second-half selling season still ahead of us, our alternative fuel leadership position will continue to be a significant boost to selling price and gross margin. Our financial targets for fiscal 2020 are on the right path towards our previously communicated EBITDA margin goal of a run rate of at least 10% by the end of this fiscal year. Let's now take a look at what all this means for fiscal 2020 guidance, turning to Slide 16. First, no change at all from the guidance that we announced at the December earnings call. Net sales guidance is between $1.02 billion-$1.05 billion, which would be between $2 million-$32 million higher than fiscal 2019.
I want to stress this is not a plan entirely based on higher volume, but rather a prudent margin-based approach to drive higher profits and revenue. Adjusted EBITDA guidance is now between $90 million-$95 million, a significant $8 million-$13 million, or 11%-16% increase over fiscal 2019. By the way, that's 13% higher at the midpoint of our guidance. As a reminder, we are in a very seasonal business, with typically two-thirds of our sales occurring in the second half of the fiscal year. That said, we expect fiscal 2020 to follow a similar pattern, with the vast majority of our profits and improvement over fiscal 2019 being earned in the second half of the year as we realize that higher volume. Adjusted free cash flow is between $30 million-$35 million and continues to be a strong feature of our business model.
While this is slightly down from our fiscal 2019 result, this is more than explained by unique spending to support plant upgrades and design changes that drive higher productivity. In wrapping up, we had a very strong first quarter result in the softest quarter of the year, both operationally and financially. Importantly, all of our production slots are filled for the first half of our year, and we are now filling slots in the second half of the year. We have good visibility on pricing, margins, and profits through the second quarter. Our guidance for fiscal 2020 reflects significant profit and margin growth over fiscal 2019 and is supported by the continuation of the strategy and plans we put in place and are executing over the past two years. Well, that concludes our formal presentation.
I'm now going to pass it back to our moderator to begin the Q&A session.
If you'd like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure that your mute function is turned off to allow your signal to reach our equipment. We'll first go with Justin Clare from ROTH Capital Partners. Please go ahead.
Hi, everyone. Thanks for taking my questions.
Hi, Justin.
First off, I guess, unit sales for Q1 were down 9% year-over-year. Was wondering if you could just give us a sense for how much of that decline was due to the extended shutdown that you took to ramp up the paint facility versus potentially a lower level of orders for that quarter or you being maybe more selective with customers?
It was entirely due to the paint shop. We took all the orders in. We just timed them out. I'd expect, it's fair to say you'll probably see those bouncing back in the second quarter. It's all due to the paint shop. We're building 50- 60 buses a day, so you can imagine. You ramp it up slowly. You don't build 40, 50 to 60 from the start point. You're building 15, then 20, then 30. This is just units, Justin, into the second quarter.
Okay, great. That's helpful. Gross margins and the adjusted EBITDA margin both improved year-over-year despite the lower volumes that you saw. As volumes ramp up through the year here, can we anticipate margins moving higher through the end of the year?
Well, I think, yeah. I think if you do the math on our guidance, you'd see that. Yeah, we certainly do. As we see much more volume coming through and we hold the pricing we put in place and we keep the alternative fuel mix going where we need to be, yeah, we do see improving margins throughout the year. Yes. Both the gross margin.
Okay.
The bottom line.
Okay. In terms of the inventory, you talked about stockpiling engines. Can you talk about what type of engines were in a shortage and what the cause was? Has the shortage been resolved at this point, or is this an issue that's ongoing?
Yeah. I wouldn't call it necessarily a shortage of engines that we were protecting for. This was just making sure we're ready for the second quarter start. Phil mentioned earlier. We started building back in fiscal 2019. January, the first week was a shutdown week. It was a holiday week, actually. In fiscal 2020, January was a production week. We brought some engines in earlier and then we contained it. There's no shortage of engines as such. We're just being prudent.
Okay. I guess related to that, I'm guessing that you didn't have to pay a higher price. Prices have not gone up for engines as a result of any shortage, so we shouldn't expect any margin impact there. Is that the right way to think of it?
That's the correct way. Yes. There's no margin impact on that, no.
Okay, great. I will pass it on.
Thanks, Justin.
We'll next go with Eric Stine from Craig-Hallum. Please go ahead.
Hi, everyone.
Hi, Eric.
Hey . As I always focus on, I would love to chat a little bit about the 111 new alt-fuel customers added. Just curious how that breaks down between existing Blue Bird customers who are going that direction for the first time, and I guess conquest customers, as you call them. Maybe if you could just talk about the competitive environment, given you've got a big lead and just what are some of the other players, whether it be different technologies, product launches, what are you seeing from them?
Well, first of all, your first question, yeah, it's a very good quarter, actually, or a very good year-to-date position with 111 new customers coming in. I think typically over the time, we've been about 50/50 between conquest customers, that means people not only new to alternative fuels, but new to the Blue Bird brand. When we look at new to the Blue Bird brand, we talk about in the last five years they've come to us.
Okay.
They may have bought our buses previously, obviously. When we talk about alternative fuels, we talk about specifically they're brand new to anything, whether it's gas, propane, or electric or CNG. What's interesting for us, actually, the way we count that too is if a guy bought gasoline before and now says, "Let me try some propane," we don't actually count that as a new customer. He's already in the family. I think we do a very conservative view of this when we look at it. We love getting people into alternative fuels because we find the loyalty of that customer base is very loyal because they love the product and there's nowhere else you can buy it from. You can't buy that powertrain for propane, for gasoline, or for CNG from anyone but Blue Bird.
In fact, you can't drive up by our electric drivetrain, which is powered by a Cummins product, Cummins drivetrain, from anyone else but Blue Bird. We like being different. We like being in that position. It's good for us.
Yep. That's a good segue to electric. Obviously, another strong quarter, that was one of the big drivers of ASP, the increase there. It seems like in the past, this has been more of a niche product. It's been more based on incentives and key markets. Do you feel like it is moving beyond that? I know it's a slow process, but moving beyond that and is becoming more of a mainstream outside of those specific examples?
Yeah. Well, let's put it this way. We're still in a situation where unless there are significant grants available, customers cannot afford to buy an electric-powered school bus. It's anywhere from 3x-4 x the price of a traditional combustion engine type of bus. That's a fact. What you are seeing is a lot of states saying, Let me try a few. I'm going to put some funds towards this. Let me try a few. They know the school districts will be so out of pocket. Everyone knows that battery technology is going to improve. They're going to come down in price. You see all of that data out there. A lot of intrigue around vehicle-to-grid, where it's going, and fast charge and all these things.
I think what I'm telling you is that I would say it's mainstream, although it probably is in California because they're so keen on zero emission in California. They put a lot of grants behind this. They're unique. They always have been in this space. That zero emission for them is mainstream. I would say that there's an incredible growing interest and fascination for trying this really across the country. What you see, like I said before, funds are available, the Volkswagen funds. In many cases, in most cases, I would say, there's always an element portion to let you buy a few electric buses. I think, yeah, it's picking up momentum. We just want to be there, obviously, and capitalize on these opportunities.
Yep. Okay. Last one for me, just on the parts business. That was another strong quarter, also a big driver of the margin improvement. Maybe just a discussion on that. I know you had the launch of the X-Parts, that offering, I believe it was last fiscal year. Maybe just outlook in the parts business and how that's played out versus your original expectations.
Well, I think if you look at last year, 7% growth was a nice growth in an industry that what I call it was flat, right? That was good. We grew, and we continued in the first quarter with, you take out the extra sales week we got, Eric, I mentioned, it's still a strong 8%-9% sort of growth level we got in that first quarter. Really nicely done. I think the X-Parts program, we're stocking that every month with new SKUs. We're putting new parts in there. Our dealers are picking it up. We're nowhere near, I can't declare victory yet. There's a long runway ahead, but it's got a lot of interest, and we're definitely picking up new business because of it, I can tell you that.
I think also, the second point is that we've been at this business with the Ford products since 2012. What we're seeing now is more and more units are coming off warranty. Now we're into getting to the service mode, replacing parts, and we weren't able to do that. Unlike other powertrains out there in the market, we're allowed, Ford gives us the right to be very competitive on all of those parts that they put into the engine and transmission. That's also a growth we're seeing. I guess that's, in a way, more access to the market, and we've got a bigger SKU base now than we had before. We think that's pretty important to grow this business. Yeah, I think it's going well, and I think it's 10% growth in the first quarter.
It's not this quarter, the year is pretty good coming off school start.
Okay, thanks a lot.
You bet. Thanks, Eric.
Thank you. We'll next go with [audio distortion] Research. Please go ahead.
Hi, everyone. I'm somewhat new to the name. Just wanted to ask about, I know you're doing a lot better in your margins. Would you say that you'd reach profitability in the next coming year? Could you give us an idea on that?
Say that again. Reach profitability in what? I want to hear what you said again. I missed it. You just cut out a little bit, Chris.
Oh, okay. It seems like things are improving, so could you give an idea about maybe about what quarter you could reach profitability?
Well, I think, look, we don't give guidance by quarter. We give guidance to full year. We've certainly said that by the end of this year, we expect to be in a run rate to get to our 10% plus margin objective. That's where we want to be. That's all we're really putting out there right now in that. We'll take it a quarter at a time, see how we go, and keep delivering quarter by quarter. Every margin, so far, we're up nicely this year in both gross margin, EBITDA margin, and we look to improve.
Okay, great. One other thing. I know you mentioned about tariffs. Do you see those improving in this coming year? Will it make a big difference?
Well, when I last called the president, he wasn't willing to tell me he was pulling off the tariffs yet. No, I think what's happened is, we are not planning in our guidance what we've given of tariffs coming off, Chris. If they do, obviously that'll be a big boost. I'd like to think that over the course of time, we'll see tariffs coming down. Our guidance on our objectives we're putting out there do not reflect that. I think we've just got to wait and see what happens. It's also worth bearing in mind, we work with many of our suppliers. When they look at repricing, they look at what's happened to them in the last anywhere from 6-12 months.
For example, one of our major suppliers last year put on tariffs in early, I guess, at start of second quarter, basically 2019, because they looked back on what they would do or what had happened to them, and that's the way they work. They looked back at the last several months, and they put a surcharge on. That actually did impact us in 2019. I think most people think tariffs happened. We saw them later. The bottom line is, I think we don't plan on reducing tariffs, but I think we'd like to reach that opportunity, I guess, down the road.
What sort of impact did the tariffs have on your earnings per share?
Well, yeah, that's funny.
We'd have to get back on that. It wasn't major.
No.
certainly had an impact on earnings per share. I guess you'd have to look at it over the year rather than a quarter. Again, I think Phil said it exactly right. We're not planning on the tariff coming off. When it does come off, it will clearly be an improvement to margin.
Okay, great. Well, thanks for taking my question.
You bet. Thanks, Chris.
Thank you.
Thank you for your question, and just to remind everyone, if you'd like to ask a question, please signal by pressing star one on your telephone keypad. We'll next go with Lewis Mooser from Massax Investments.
Yes. I was wondering about the announcement you made, I believe it was yesterday afternoon and once again early this morning about a shareholder that is selling 11 million shares. Can you talk about that?
Paul, I'll let our Treasurer handle that comment.
Hi, Lewis. This is Paul Yousif. That pre-registration yesterday registered 11 million shares. We first registered those shares back in 2015 when Cerberus sold those shares. Subsequent to that, those were just sold under a private transaction to American Securities. We simply reregistered those shares. They own those shares. There'll be no proceeds to the company. That registration will be good for three years.
Okay, it's over a period of time.
Yeah, all this was, I thought, good housekeeping, right? Just reregistering the shares.
That's right.
That's all it is.
Okay. Thank you.
Thanks. Thanks, Lewis.
Thank you for your question. Once again, to remind everyone to ask a question, please signal by pressing star one on your telephone keypad. We'll give you a few seconds.
While people are waiting, this is Phil Tighe. I need to make one clarification. I believe in my opening address, I referred to filing of a 10-K tomorrow. It is actually a 10-Q, so I don't want anybody to be confused with my mistake. It is a 10-Q that will be filed tomorrow. Thank you.
This concludes today's question and answer session. I'd like to give the floor back to the moderators. Thank you.
Okay. Thank you, Nadia. Thanks to all of you for joining us on our call today. We appreciate your continued interest in Blue Bird. As you can see by our first quarter results and our full-year outlook, we are focused on total profit growth and margin growth, and we intend to deliver on our commitments. I believe we are well-positioned for growth today and in the future. Please don't hesitate to contact our Head of Profitability and Investor Relations, Mark Benfield, should you have any follow-up questions. Thanks again, from all of us here at Blue Bird, and have a great evening.