Good day. Welcome to the Blue Bird Corporation Fiscal 2019 Second Quarter Earnings Conference Call and Webcast. Today's conference is being recorded. At this time, I would like to turn the conference over to Mark Benfield, Director of Investor Relations. Please go ahead, sir.
Thank you, Carolyn. Welcome to Blue Bird's Fiscal Second Quarter 2019 Earnings Conference Call. Our call is webcast live on bluebird.com under the Investor Relations tab. You can access the supporting slides on our website by clicking on the presentations portion of the IR web 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 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?
Okay, thanks, Mark. Good afternoon. Thank you all for joining us today for our second quarter earnings call for fiscal 2019. We have some great things going on at Blue Bird, and we welcome this opportunity to share with you our latest quarter results. Let's start with an overview of those financial results on slide four. We had a strong second quarter with adjusted EBITDA of $12.2 million, which was $2.2 million or 22% higher than the same period last year. This was our second highest profit in the second quarter in more than a decade. As Phil Tighe will show you later, we increased profitability despite significantly higher commodity prices than we had in the second quarter last year. You will recall that the escalation in steel costs began largely in the second half of last year, and we remain at those elevated levels today.
During this earnings call, you are going to hear a recurring theme of how we are driving our profit improvement. First, bus pricing that we took in late fiscal 2018 to address the escalation in commodity costs. This is resulting in a significant increase in our average bus selling price. Second, cost reductions that we are achieving through our transformational initiatives. Both of these actions are significantly improving our results over last year and are cornerstones in our plan to increase gross profit and EBITDA margins. Third, continued leadership and growth in alternative fuels where we earn a superior margin compared with conventional fuel. We improved profitability in the second quarter despite selling 170 fewer buses than last year. I think it is important to explain that the entire volume decline versus last year was due to a parts shortage by one supplier.
This resulted in us exiting the second quarter with 182 buses built, but we couldn't deliver them because of missing parts. Consequently, we held the units in inventory and are now delivering those buses this quarter as the supplier in question progresses through their recovery plan. Importantly, we didn't lose a single customer order because of this issue, but it did delay our bookings and shifted about $2 million in profits from our second quarter to third quarter. Even though unit sales were down, the second quarter volume of 2,471 buses was 42% higher than the first quarter, illustrating once again the seasonal business in which we operate. Typically, our first half volume represents around 33%-36% of the full year. We have a similar outlook for this year, with strong second half volume and profits anticipated.
While second quarter net sales revenue of $212 million was down $5 million from a year ago, this decline of 2% was much less than the decline of 7% in unit sales. The low decline in sales revenue mainly reflects the favorable impact of our bus pricing action that I just referred to. In fact, our average bus selling price was $3,200 per unit higher than the second quarter last year, with price increasing from $82,700 a bus to $85,900 this year. That's a strong 4% increase in unit bus price, and it also benefited from the richer mix of alternative fuel powered buses that we are selling that command a higher price. Our adjusted free cash flow for the second quarter was $14.4 million, up $13.4 million from last year, and adjusted diluted earnings per share was equal to last year at $0.15 a share.
As we look at the underlying strength of the industry and Blue Bird's results, we remain upbeat about the business fundamentals. With a strong outlook for property values and corresponding property taxes, which are the major funding source of school buses, together with the fact that 150,000 school buses on the road today have been in service for more than 15 years, we are confident the industry outlook remains at around the 35,000 unit mark in fiscal 2019. I should mention that's a near record level over the past 30 years. We did see yet another record sales mix for our alternative fuel powered school bus sales in the second quarter at a very strong 42% of our total bus sales. This mix is eight points higher than last year and leads the industry by a long way.
As a reminder, 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. As I just mentioned, we have not slowed down this year. We'll cover our alternative fuel performance in more detail a little later. As I commented earlier, we saw the impact of both our pricing and structural cost reduction actions in the second quarter, as evidenced by a strong increase in our gross profit margin of 2.3 points increase over last year to 12.3%. We expect to see additional favorable benefits from both of these initiatives throughout the year.
Our transformational initiatives are well underway and on track, targeted at lowering our cost structure, driving plant efficiencies and product quality, increasing capacity, and bringing major product and feature upgrades to the market in the coming years. All in all, I'm very pleased with our second quarter results. We increased our gross profit margin through pricing, cost reductions, and a richer mix of alternative fuel-powered buses. Our results were in line with our expectations, and they support our full-year guidance. Importantly, we are on path to our stated goal for an adjusted EBITDA margin of at least 10% by 2020. Let me now review our key operating achievements on slide five. We recorded a number of significant achievements in the second quarter, and each one will make us more competitive and support our growth going forward.
Our transformational initiatives to increase margins are on track, driving improvements in quality, cost, efficiencies, and capacity. We are seeing those results now in the second quarter, and there is much more to come. Equipment is now fully installed in our all-new fully automated paint shop. Testing is underway, and the first bus is scheduled to be painted early next month. As we will show you later, this is an important initiative to drive efficiency improvements throughout the plant. As I covered earlier, we increased second quarter school bus selling price by $3,200 or 4%, while winning business with a significant number of customers that are new to the Blue Bird brand. In fact, 16% of our customers in the second quarter were conquest accounts. That was up from 15% conquest account number in the first quarter. We're performing very well there in picking up new customers.
We continue to be the undisputed leader in alternative fuel-powered school buses. As of the start of this week, our year-to-date sales and firm order backlog of these buses represented an impressive 46% mix of the total. That compares with a 34% mix at the same time last year. Further, the total number of alternative fuel buses sold and in our firm order bank is up 24% from a year ago. That's leadership and real momentum in the fastest-growing segment in the school bus market. Remaining on the topic of alternative fuels, we're seeing very strong interest in our latest product, our all-new zero-emission electric-powered school bus, which is powered by a Cummins electric drivetrain. I told you last quarter that we had quoted over 100 units.
I'm pleased to tell you now that we have received more than 100 firm customer orders this fiscal year, and we expect more orders to come. Finally, based on our second quarter performance and outlook for the balance of the year, we are reaffirming full-year guidance for all the metrics on which we report. We'll cover this in more detail toward the end of the call. I think it's fair to say that we continue to advance the business on multiple fronts, and we are focused on profitable growth. Let's now take a closer look at our second quarter financial results on slide six. I touched on many of these financial results earlier, and Phil Tighe will run through the details later.
Just to summarize the second quarter, total net sales were down about $5 million from last year, more than explained by 170 fewer sales of buses caused by a supplier parts shortage issue that is being resolved. These units will be delivered in the third quarter. The 4% increase in average bus selling price, however, was a partial offset to the volume shortfall. Parts sales for the second quarter were up $1.7 million from last year, representing a very strong 11% growth as we successfully introduced new products and tailored incentive programs through our dealer network. I should add that this followed 9% growth in the first quarter. We're off to a great start in parts this year. Despite lower volume and the impact of higher steel and commodity prices, adjusted EBITDA of $12.2 million was $2.2 million higher than a year ago.
Turning now to slide seven, let's take a closer look at our alternative fuel bus sales performance. In the first quarter earnings call, I told you that we've seen a significant surge in orders of alternative fuel-powered buses as we move from the softest quarter of the year into the second quarter. That's clearly translated into higher unit sales, which were a substantial 15% over last year's second quarter, achieving a very strong alternative fuel bus mix of 42% of total sales. As I said earlier, that mix has since grown to a record 46% mix of all buses booked or are in our firm order backlog today. It's clear we are not slowing down in this segment. No other school bus manufacturer comes close to this mix.
You might find it interesting to know that just three years ago, in 2016, our alternative fuel sales mix was 26%, 20 points below today. Our sales have grown more than 30% from the prior year, 2015. I remember being asked back then if we could see that number reaching 50%, and I'm totally comfortable in confirming that. Back to the second quarter. We saw 57 new customers taking delivery of their first ever alternative fuel-powered Blue Bird bus. In fact, through the first half of the year, more than 100 customers purchased a Blue Bird alternative fuel bus for the first time. This is a strong endorsement of our exclusive alternative fuel buses, the Blue Bird brand, and our dealer network.
I previously covered the fact that we now have more than 100 electric bus orders in hand. We expect more to follow with all the customer interest we are 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 be a boost to the industry, with many states earmarking specific funds for school bus purchases. With the widest range of alternative fuel-powered buses, the most modern and proven engine in the industry, which is exclusive to Blue Bird, and our leadership position in low NOx emissions, we are well-positioned to capitalize on the VW funding and other growth opportunities. In fact, reduction in NOx gases is the major criteria in funding 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 any other manufacturer and also the EPA standard. Our propane bus is widely recognized as having the lowest operating cost of any other school bus in the market. You can have it all with Blue Bird propane. You can have the lowest operating cost and the lowest NOx emissions of any internal combustion engine in a school bus. There are a growing number of customers understand this, and sales are up. We're also seeing continued strong growth of our gasoline-powered bus in fiscal 2019. It's readily understood by technicians and mechanics who really appreciate the emission simplicity and cold weather start capability it shares with propane.
It also has a lower price point than diesel, so it really works well for those customers where acquisition price is a real concern. With our year-to-date bookings and order backlog for alternative fuel buses up 24% from the same time last year, and with propane sales leading the pack, we are raising our forecast sales for fiscal 2019 to over 4,800 units. That will be yet another record sales year for Blue Bird's alternative fuel-powered school buses. Let's now take a closer look at how we are driving cost reductions throughout Blue Bird and turn to slide eight. We are showing a new slide here to provide more color and texture on how we are driving down total costs throughout the company. We began it last year with results achieved primarily in the second half of fiscal 2018.
You might recall that at our fourth quarter and full year earnings call in December, we showed a profit bridge for fiscal 2017 to 2018, which included a gain of $26.5 million for cost reduction actions, which more than offset the impact of escalating commodities led by steel costs. These actions are depicted at the top of the slide, where our initial focus was on driving down purchased material costs and services through a combination of initiatives, including commercial deals with suppliers, resourcing, and extensive design changes. We worked significantly with external automotive experts to ensure best practices and processes were applied, and we delivered results. We'll continue to pursue these initiatives today and plan on further additional savings throughout the year. We're also benefiting this year from the full year impact of the savings that began the second half of fiscal 2018.
You'll see this clearly when Phil Tighe shows you the bridge for our second quarter results compared with last year. Our next phase will focus on driving down the cost of production, as shown in the bottom two-thirds of the slide. Our new fully automated paint facility provides the opportunity for it to reduce rework with increased first-time run capability, to reduce labor and material costs through robotic application of paint, and to achieve savings in warranty expense as it produce a better quality paint on the vehicle. The new paint facility breaks today's key capacity bottleneck, enabling higher straight time capacity.
Now, savings will largely be realized in fiscal 2020 as we undertake what we call a soft launch of the facility, with limited production from June 29 as we get to grips with our new paint shop, and we ramp up fully in-process and onboard in October 2019. Importantly, with a new paint facility attached to the exterior of our present assembly building, we are freeing up space within the plant to allow more efficient line rearrangement of tasks and stations, and the addition of several stations for more efficient operations and improved quality control. We deploy industrial engineering resources to optimize in-station workflow in the newly rearranged production line, and we are confident of achieving significant efficiencies going forward. This systemic approach to driving down total costs over multiple years is key to delivering higher gross profit and EBITDA margins.
We'll continue to share the results with you in our quarterly earnings calls. Let me now turn it over to Phil Tighe, who will take us through the financials, and I'll be back later to cover the fiscal 2019 outlook and guidance. Over to you, Phil.
Thank you Phil, Good afternoon, everyone. The next few slides are a summary of our financial performance for the second quarter of 2019. I would advise that the material we're discussing today is based on a close of March 30, 2019 for the second quarter and March 31, 2018 for the prior year comparisons. More detailed material is available in our 10-Q, which has been filed. We encourage you to read the 10-Q and the important disclosures therein. Attached to this report, there is an appendix which deals with some of the reconciliations between GAAP and non-GAAP measures that are mentioned in the review, as well as some important disclosures and revenues bottom line.
We had no new accounting pronouncements in the second quarter of 2019, although, as previously mentioned, we did adopt a number of new standards in the first quarter, and they are discussed in further detail in the 10-Q. Those pronouncements included revenue, leases, pensions, hedges, cash flow, and internal. There were also no changes to the risk factors from the 10-Q previously published. Now let's look at an overview of some of the key results on slide 10. Phil's mentioned quite a few of them around volume and revenue, so I won't take you back through all that. I'll make one brief comment on the volume, just so everybody is clear. We booked 2,271 units in the second quarter. We actually produced over 2,450 units through the plant based on firm orders from customers.
Just to reemphasize, the gap between those is about 180 units, which are buses already built and waiting for supply of components that we're short from one of our suppliers. When they are provided, we expect to book those units to the customers who are waiting for them. That will occur in the very short term. I would also mention that in the first half, our sales were 3,871 units, versus just over 4,000 units last year. Again, the supplier production shortage impacted the first half. Moving down to net loss for the second quarter. You can see that we had a small net loss of about $700,000 versus a profit of $1.8 million last year. The net loss was really due to two things. One was higher interest costs of about $2.2 million.
That was a result of a number of factors, including an additional $50 million, which was taken out as a term loan to pay for the tender offer that we did last year. Some higher rates, as you have seen, interest rates have There were also no changes to the risk factors from the 10-Q previously published. Now let's look at an overview of some of the key results on slide 10. Phil's mentioned quite a few of them around volume and revenue, so I won't take you back through all that. I'll make one brief comment on the volume, just so everybody is clear. We booked 2,271 units in the second quarter. We actually produced over 2,450 units through the plant based on firm orders from customers.
Just to reemphasize, the gap between those is about 180 units, which are buses already built and waiting for supply of components that we're short from one of our suppliers. When they are provided, we expect to book those units to the customers who are waiting for them. That will occur in the very short term. I would also mention that in the first half, our sales were 3,871 units, versus just over 4,000 units last year. Again, the supplier production shortage impacted the first half. Moving down to net loss for the second quarter. You can see that we had a small net loss of about $700,000 versus a profit of $1.8 million last year. The net loss was really due to two things. One was higher interest costs of about $2.2 million.
That was a result of a number of factors, including an additional $50 million, which was taken out as a term loan to pay for the tender offer that we did last year. Some higher rates, as you have seen, interest rates have Phil's mentioned quite a few of them, around volume and revenue, so I won't take you back through all that. I'll make one brief comment on the volume, just so everybody is clear. We booked 2,271 units in the second quarter. We actually produced over 2,450 units through the plant based on firm orders from customers. Just to reemphasize, the gap between those is about 180 units, which are buses already built and waiting for supply of components that we're short from one of our suppliers.
When they are provided, we expect to book those units to the customers who are waiting for them, and that will occur in the very short term. I would also mention that in the first half, sales were 3,871 units versus just over 4,000 units last year. Again, the supplier production shortage impacted the first half. Moving down to net loss for the second quarter, you can see that we had a small net loss of about $700,000 versus a profit of $1.8 million last year. The net loss was really due to two things. One was higher, you know, interest costs of about $2.2 million.
That was a result of a number of factors, including an additional $50 million, which was taken out as a term loan to pay for the tender offer that we did last year. Some higher rates, as you have seen, you know, interest rates have. Cash was $25.6 million, about $15.3 million better than the prior year. I believe this was a good result given that the volume was lower and CapEx was up by more than $15 million. Cash flows from operating activities were about $6 million better than the prior year. Debt at $207.6 million was up by $60 million. This includes the incremental debt raised in October 2019 to fund the tender offer, as well as borrowings on the revolver.
I do think we are on track to make our plan for cash and debt for the year. Both of these numbers were in line with where we had planned. If we can flip to page 11, this is a bridge that talks from second quarter of 2018 to second quarter of 2019. You can see the first bar is pricing. That was worth $4.2 million to us in the second quarter. This was, you will recall we took pricing late last year, late last fiscal year to largely offset steel and other commodity costs. The results of that are clearly shown. Of this bridge. The transformational initiative cost improvements were $4.6 million for the quarter, and that's a good result for us.
Would've been a little better had we got some more units out, but 4.6 shows you just the power of the work that we've been doing. As Phil pointed out on his last slide, there is a lot more to come as we progressively introduce things like the new paint shop and the important rearrangements to the plan. This 4.6 you see here is largely the first item, which is the material and other service cost reductions. More to come. Volume and mix was a fairly minor number. The 170 buses or 180 buses that we missed were worth about $2 million. Partially offsetting that, we had favorable parts use. Parts has been up for both the first and the second quarter of this year. The parts team is doing a really good job, so we look forward to that continuing.
Also, we had favorable mix, and Phil mentioned the fact that alternative fuels are up. So I think we've been doing a good job there with improving our mix. Some of you might recall from prior discussions that we used to have problems with things like customer mix, and we tried to talk through that. Finally, we seem to have come to a year where we're making a positive mix, which is good for us. Finally, of course, there's economics and other costs. This is largely driven by commodity costs, including steel. There are also some other cost increases in there that were planned. I would say that the pricing does largely offset commodity and economics. I think all in all, it was a good quarter for us at 12.2%.
We would have liked it to be 14% if we could have got all the volume out. Again, I do think it shows that we're making progress with the things that we've committed to. We'll go on briefly to Slide 12. This shows you the free cash flow. You can see the adjusted free cash flow was $14.4 million. That's about $13.4 million better than the second quarter of 2018. The drivers were higher profits, improvements in trade working capital, and other items. I think a pretty good result in the adjusted free cash flow and also in free cash flow, which came in $9.5 million payable, or about just over $12 million better than the prior year. As I said, I think we're on target to achieve our cash projections. Slide 13 is net debt and leverage.
You can see the debt level there of $207 million. Of course, that's largely driven by the new borrowing for the tender offer. We've just looked at the cash. We ended up with net debt of $182 million. Our net leverage ratio was 2.5x. That's pretty comfortably under the covenant of 4, so we feel good about that. We also feel good about the liquidity of $98.7 million, which I believe is about $20 million better than where we were at the same time last year. With that, I'll turn you back to Phil, who will wrap up the presentation, and then we'll obviously take questions.
Well, thanks, Phil. Let's now focus on the fiscal 2019 outlook and on our full-year guidance. Turn to Slide 15. With recent industry running at around 34,000-35,000 units annually, we are at a 30-year high. We do anticipate another strong year in fiscal 2019 with an industry again of around 35,000 units. As I mentioned earlier, strong housing prices and property taxes, the fact that 30% of school buses in operation are older than 15 years, along with a boost of new funding ahead from the Volkswagen settlement, all support this position. Outlook into fiscal 2019 and beyond as we start to think about 2020 and beyond those periods, focus on gross margin and EBITDA margin improvement from three key areas. First, the impact of the cost recovery pricing that took effect in late fourth quarter of last year.
This will have a full annual effect in fiscal 2019. We saw significant benefit in the second quarter. Second, the full-year impact of the transformational cost reductions implemented in the second half of fiscal 2018 and the continuation of this initiative in 2019. Again, we saw the favorable impact in the second quarter. Third, the new paint facility, which also enables significant manufacturing rearrangements and process improvements, will increase manufacturing efficiencies and improve quality, particularly as we move into fiscal 2020, when we'll get the full benefits of a fully up and running paint shop. Of course, as we have been doing for several years, we will continue to pursue growth and maintain our leadership position in alternative fuels, which commands a superior margin and higher customer loyalty.
Our financial targets for fiscal 2019 are on the glide path towards our previously and our communicated EBITDA margin goal of at least 10% by fiscal 2020. Let's now turn to slide 16 to review our fiscal 2019 full year guidance. Based on our fiscal first quarter 2019 results, sorry, second quarter 2019 results and the outlook for the remainder of the year, we are reaffirming guidance in all three reported metrics. Net sales guidance is between $990 million-$1,025,000,000. As mentioned on our prior earnings call, we are being prudent in planning our sales outlook, recognizing that we may have to push out some unit sales as we launch our new paint shop and make other facility and process improvements in the plant.
These type of production launch losses are typical for an automotive company undertaking significant facility upgrades. Our approach will be to minimize them as much as possible. I can assure you we'll be looking for every opportunity to maximize sales throughout the year and will provide updates as necessary. Adjusted EBITDA guidance is between $80 million-$85 million, a significant $10 million-$15 million increase over fiscal 2018 as we focus on driving down costs, increasing unit revenue and improving EBITDA margin. Adjusted free cash flow guidance is between $24 million-$28 million. Adjusted free cash flow continues to be a strong feature of our business model and typically represents more than 50% of our adjusted EBITDA. Of course, our fiscal 2019 guidance for adjusted free cash flow is being impacted by the unique capital expenditures required to complete construction of our all-new paint facility.
I should point out the box we're showing on the right of this slide, which shows the outlook for the second half of the year based on our full-year guidance. As you can see, profitability is heavily weighted towards the second half. Not surprising with all the increased volume and activity we see in the second half, we significantly improved EBITDA margin as a result. In wrapping up, we had a strong second quarter performance both operationally and financially. As I mentioned at the start of the call, the recurring theme that is driving our improvements today reflects higher bus pricing, substantial cost reductions, and alternative fuels leadership. We saw the positive impacts of these benefits clearly in the second quarter compared with last year as we increased profitability, despite the impact of higher steel and commodity costs and lower unit sales.
These actions are driving profit and margin growth in fiscal 2019, with adjusted EBITDA projected to be 14%-21% higher than fiscal 2018. Our plans and our guidance support this. We'll continue to update you on our progress each quarter. That concludes our formal presentation. I'll now hand you back to our moderator, Carolyn, to begin the Q&A session.
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. We'll pause for a moment to allow everyone an opportunity to signal for questions. We'll go first to Matt Koranda with ROTH Capital Partners.
Hey, guys. Good evening. Thanks.
Hey, Matt.
I'm gonna start off on the implied EBITDA guide for the second half of the year. It looks like we're still sort of counting on about $11 million of year-over-year improvement in the back half to get to the midpoint of the full year guide. When I think about the waterfall chart that you guys showed in, I think it was on slide 11 for the quarterly walk, it looks like sort of pricing and cost, and transformational initiatives are sort of relatively evenly split in terms of the improvement that you've made year-over-year in 2Q. Is that what it's gonna look like in the back half of the year? Just trying to get a sense for sort of, are you counting on more price or cost to get you there?
How much more of a headwind does commodity and component increase represent for the remainder of the year in your guide?
Let me start with the last bit, Matt. This is Phil. You recall that the real increase in steel framing in the second half for us last year. What you're seeing in the second quarter is a bit higher than we actually expected to see. The caveat to that is the raw steel cost increase came very quickly in the second half. Some of the supplier pass-through of steel came a bit slower, so we've still got to see some pick up for that. I would expect that the commodity pricing will ease a bit on a year-over-year basis as we go through the second half. I would add that everybody's been reading the press, we don't yet know what's going to come out of the discussions with the Chinese delegation in Washington this evening or tomorrow.
Assuming for a minute that there is no agreement, we could see a number of items impacted by additional duties. That could impact us by maybe a couple of million dollars through the balance of the year. We're looking at ways to offset that, these things take a little time. We do see maybe an incremental couple of million dollars coming in from tariffs, assuming that there is no agreement reached either tonight or tomorrow in Washington.
Just to clarify that, Phil, the couple million dollars of swing, is that still envisioned in the lower end of the lower band of your EBITDA guidance then?
Yeah.
Would that be below the low end? No, that's me being too elaborate.
Hey, Matt, this is Phil Horlock. Let me just pick up a couple of the other points you raised. Look, when we implemented our pricing to handle the commodities, there was very little impact of that in 2018, right at the back end. When you see our year-over-years by quarter coming through this year, you can expect to see a significant pricing benefit year-over-year in each quarter of 2019 versus 2018. That's going to happen. Significant and similarly so, while the bulk of our cost reductions, obviously, last year occurred in the second half, we'll continue to drive costs down. There's a bigger full-year effect of those from last year, plus we're continuing to drive aggressively cost reduction. I think you can expect to see significant pricing every quarter and also continued significant cost reductions each quarter.
As Phil mentioned, when you get to the second half of the year, you're not going to see the significant bump or the substantial bump up in commodity costs that you saw in the first half of this year because we already had those baked in last year. Does that make sense?
Very helpful.
Okay.
Very helpful, guys. Yeah. The 182 buses worth about $2 million in gross profit, and I'm assuming that's gross profit. I guess that would suggest.
Yes
that the buses were worth, call it somewhere around $16 million in revenue. Have those already gone out during the quarter? To the extent that you're able to describe, what the component was that drove the delay?
Yeah.
That'd be helpful.
Simply because of confidentiality agreements, I can't really disclose the supplier. Needless to say, we've been working with that supplier. About 50% of those buses are now out, but we're working through it. We're getting production now. We're getting constant supply of those parts now, I can tell you. We aren't missing a bus at all now, and we're also at the same time getting surplus so we can fix the buses that are still sitting there with some parts that need to be addressed. The bottom line is, half those have been taken care of. The rest will certainly be out in the next, I would say, two to three weeks, and we're getting it handled. Going forward, we believe we've stabilized the situation and addressed it with our supplier.
Okay, good to hear. On the alt fuels mix in the backlog at 46%, that's pretty substantially ahead of where I would have anticipated. I guess, how much of that do you think you can attribute directly to the Volkswagen settlement money that's being disbursed? I know you said the bulk of that's still ahead of you. Any way to try to parse that out in any meaningful way?
I'd say very little at this point. Maybe a couple of 100 units, seriously. A couple of 100 units might be in there, which are propane, I would say. We got some diesel in there, too, because diesel is also clean diesels, including the Volkswagen money, but is an alternative fuel mix, obviously. Look, there's very little been issued. Even the states that actually have granted some funding, they're doing such small stages of parceling this out. There's been very little out. This really is well ahead of us. The great thing is propane stands on its own. Honestly, I've said this before. It is the only true alternative fuel that makes sense with any grants, any support or anything because it's the best value cost of ownership vehicle, and it's got the clean aspect to it, too.
I think what you're seeing is a really strong endorsement of that product. I mentioned about the 57 new customers coming to the alternative fuel family. 55% of those were propane customers. That's still growing, and that's our fastest-growing alternative fuel right this year when we look at the growth we're seeing in alternative fuels, so very strong.
Then you had been quoting on 100 units, I think, last quarter, and now you have 100 in the backlog. Can you explain? It seems a little high to assume a 100% win rate there, is that just a product of the fact that you guys are the only guys in production with an electric bus? Only big OEM, I guess I would say. What's going on there?
Well, I think I said last quarter, we told you there were 100 out there. Between last quarter and this quarter, there's been 100 more bids at least been put out there. Obviously, we think we're the only major OEM in town. Our two major manufacturers don't have an electric bus to offer yet, I think it bodes well for us in that. This is obviously, not surprisingly, heavily weighted to California, where there are grants being offered, and our dealer there, A-Z Bus Sales out of California, is doing a terrific job in marketing that for us. Yeah, we're excited, and we have additional units in our pipeline that we're pursuing, we're off to a great start. We're excited about that.
Excellent. I'll just do one more, then I'll stop hogging the floor here. On the paint facility and the progress there were two dates that you guys mentioned, and I just wanted to get some clarification. I think June 6 was one date where you said the first bus painted, and then June 29 was limited production. Just help me understand the difference between those two dates, then what needs to happen between those two to get to limited production.
You know what? I think that was a mistake by me. I think I meant to say 2019 and not June 29. I think June 6 is when we launched job one, so to speak, when we launched our. We painted our first production bus through it. Prior to that, we're in testing mode right now, making sure things work and the coating is working well. Job one is there. I meant to say progressing, I think through 2019, we will ramp up the production with a full implementation will be October of 2019. That's when we'll be fully running the entire plant will be switched over to 100% to our new facility. Until then, we're going to run parallel. We're still painting manual, we've still got robotic. We'll progressively increase that through the year and then eventually switch over 100% in October.
Okay. I could have misheard you there, too, but thanks for the clarification.
Yeah.
I'll jump back and give you guys-
Thanks, Matt.
You bet, Matt. Thanks.
We'll hear next from Chris Moore with CJS Securities.
Good afternoon, guys. With the little bit of shift of revenue into Q3, just trying to get a sense. Sometimes Q3 is the strongest, sometimes Q4. On a relative basis, any reason to think that either of the quarters are going to be much different than the other?
I think we're thinking that they're pretty close. You summed it up right. Sometimes Q3 is strongest, sometimes Q4 is strongest. I think they're pretty close right now in terms of our outlook.
Got you.
Is that right, Phil?
Q4 will be a little stronger.
Yeah, I think Phil's reminding me Q4 might be a little bit stronger than Q3.
A little bit stronger.
That's probably because we keep talking about these Volkswagen funds. I think we're seeing some of that might be coming out later in the year, which could be a certainly nice boost to Q4. We'll keep everyone posted on that.
Got it. In terms of aftermarket parts, obviously, in the first half, its percentage of revenue is a little bit higher because of mix. Given those relative margins are so strong, any meaningful way to increase the aftermarket's contribution? I know that you had talked in the past that you're in a better position with the alt-fuel buses on that front. As they age a couple of years out, can that mix go up a little bit?
Yeah. We have a very, very favorable agreement with Ford and ROUSH CleanTech on all of the propane, the gasoline, the CNG products. They come with a five-year warranty, obviously. Everything's including warranty up to the first five years. We signed that deal in 2012 with those folks, they are nicely rolling off the deal. They're rolling off that warranty now, we are seeing definitely increased revenue from those business lines. Good revenue, good service revenue and maintenance revenue.
Got it. That's helpful. One last from me. Just in terms of the free cash flow, obviously, the other was a big contributor, accrued expenses, other receivables. Any further detail on that?
You might recall from the prior one, Chris, that we had a lot of accrued expenses, that sort of worked its way through the system, you're seeing that wash out.
Got it. Okay. All right. Let me jump back in line. I appreciate it, guys.
Thanks, Chris.
Next, we'll go to Eric Stine with Craig-Hallum.
Hi, everyone.
Eric.
I jumped on late, juggling multiple calls, I apologize if I touch on something that you've already talked about. It sounds like that 46% alt fuel number percent of the mix. Just curious, Conquest customers, is there any way that you can break out or how do you think about Conquest customers that you have because the other OEMs, at least till recently, haven't had a gasoline bus, don't have an electric vehicle?
First of all, I don't think the Conquest number right now in the numbers I'm giving you is. Let me try and thread that right. The Conquest is interesting. Let's talk about what the definition is. Conquest means-
Yep
we switch a customer from a competitive bus to our bus. Someone who's recently been buying competitive and hasn't been buying our bus as he moves to us. I think we gave you a number of that earlier. I think it was like 16% of our sales were Conquest. When I talked about the new customers to the alternative fuel family, those are actually. They can be our customers, too. To be fair, they can be Blue Bird diesel deciding, I'm going to try a Blue Bird propane or a Blue Bird gasoline or a Blue Bird CNG or a Blue Bird electric. They can also be Thomas and IC customers coming trying our products. There's a bit of a mixture there. First of all, our competitors, by the way, they have a propane product. Both of them have propane.
They market it, they sell it, obviously, we command that space. One of our competitors has a gasoline product, again, we do command that space, and we're mindful of that. electric, obviously, we are in there. We offer us to market. The major manufacturers are excited about that, I think it's good to get a foothold. I think it's placed in what we do very well. We've been very good at pioneering new business segments along the way, it's strong for us. I think we feel good about it.
Yep. Yeah, I guess maybe tough to quantify, but clearly, you're getting new customers because of your alt fuels.
Yeah. The nice thing is in alt fuels, though, what we have seen, Eric, is that I mentioned before, I use the line that owner loyalty is higher. Because of our products, let's face frank, the diesel engines, we've all got the same diesel engine. It's a great diesel engine, by the way. Cummins does a terrific job, and we love working with Cummins. All three of us use the same diesel engine. We're different. Alternative fuels, we're special because we have the best product by a country mile. No one could touch it. I mean, the relationship we have with Ford and ROUSH CleanTech, the way we work together. The way the product holds up in the marketplace, the success we've had, the fuel economy, the performance, and just the sheer emissions level, which is well below anybody else's level of emissions, just shows we're different.
Electric, I'm excited about being with Cummins right now. I'm sure we're Cummins' biggest electric vehicle customer, and we're excited about that, to be buying drivetrains from them. I look at it from the standpoint of competition comes in, they make us stronger. They make the product really have a mainstream acceptance. We like that, and we've clearly got leadership in that segment.
Yep. I guess follow up to that, can you talk about the difference that it is making in the market now that Cummins and EDI are buying EDI? Just having that name in the market, is that having a positive impact on uptake or interest levels?
Yeah. I think it does have. I think obviously everyone knows Cummins is a great brand name. They're a powerhouse engine manufacturer. I think they're coming into the game. I think it gives people really good confidence. EDI is a great company, but EDI is now Cummins of California, and I think that's a big strength I think we have going forward. I also think people look at us as, this is a Blue Bird electric bus, too.
Right.
They know we've done a great job in alternative fuels, and we support them. We have a very strong deal with that. It's a really nice combination. No, to me, Cummins makes us strong.
Yep. Got it. Maybe last one from me, and I hope you haven't touched on this, the supplier, the issues there. It sounds like in terms of the buses that were delayed and pushed into 3Q, that that is in good shape. Just curious how you feel about that supplier, given that you're getting into, obviously, your heaviest part of the year here, and whether that's in order to handle the volumes that you need.
Yeah. Well, obviously, when things like this happen, we work closely with that supplier. I'm pleased to say our supply chain folks and our leadership of our supply chain is heavily engaged with that supplier to ensure we understood what the inhibitors were, what the bottlenecks were that gave them that problem.
I think we've worked with them on the plan for recovery, the plan that right now is on track and is working. We continue to work it. We don't take anything for granted. They're a supplier we've worked with over the years. It's not a new supplier to us. We are working with them well, and I feel confident going forward, Eric, that we have a viable plan together. It was a blip. It was an unfortunate incident that caught us right at the end of the quarter. If this had happened probably back in, let me think about it, February timeframe or late January, we'd have handled that within the quarter. You wouldn't have even heard about this. I really feel we're over it now and we're addressing it.
Okay. I appreciate it. Thanks.
You bet. Thanks, Eric.
As a reminder, if anyone has a question at this time, please press star one on your touchtone telephone. It appears we have no further questions at this time.
Over again, it's Phil Horlock here. Thanks, Carolyn, and thanks to all of you for joining us on the call today. We do appreciate your continued interest in Blue Bird, and we really enjoy having the chance to talk to you on this quarterly earnings call. As you can see by our second quarter results and outlook for the full year, we are focused on profitable growth, and we intend to deliver on our commitments. I believe we're well-positioned for future growth and also growth today, of course. Please don't hesitate to contact the head of investor relations, Mark Benfield, should you have any follow-up questions. Thanks again from all of us at Blue Bird, and have a great evening.
That will conclude today's conference call. Thank you, everyone, for your participation. You may now disconnect.