Good day. Welcome to the Blue Bird Fiscal 2019 first 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, Vicki. Welcome to Blue Bird's Fiscal 2019 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 web page. 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 will hear from Blue Bird's CEO, Phil Horlock, and CFO, Phil Tighe. We will take some questions. Let's get started. Phil?
Thanks, Mark. Good afternoon, everyone. Thanks for joining us today for our first-quarter earnings call for Fiscal 2019. We welcome this opportunity to share our latest quarter results with you. Let's get started with an overview of those financial results on slide four. As we have 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 15% of the full-year volume. This is also our expectation for Fiscal 2019. I'm pleased to report that our financial results were strong, coming in slightly above last year's levels. We sold 1,600 buses in the first quarter. While this was 105 units below last year, it was our third highest first quarter volume in the past 10 years.
Importantly, the shortfall versus a year ago is more than explained by 120 fewer sales to one customer, the government, our General Services Administration, as they're known. This is simply timing of deliveries. Through the course of the year, we expect the GSA to honor their usual volume of buses promised. Net sales of $155 million were about $8 million below last year, more than explained by the lower government sales I just discussed. It's important to note, however, that when we look at school bus sales only, which represented 96% of our first quarter volume this year, revenue per unit is up by about $2,500 per unit or 3% from last year. This reflects the pricing action we took late last year to address the rapid tariff-led escalation in steel and other commodity prices. That's a great result for us in the first quarter.
At $7.2 million, adjusted EBITDA was about $100,000 higher than a year ago. As Phil Tighe will show you later, we achieved this slight profit improvement despite significantly higher steel-led commodity prices and lower volume than in the first quarter last year. You'll recall we had substantially lower steel costs in the early part of our fiscal 2018, the significant escalation began in the second half of last year, and we do remain at those elevated levels today. As I mentioned, Phil will cover more of this a little later. Our pricing action, together with the cost reductions from our transformational initiatives that started in the second half of fiscal 2018, drove our profit improvement. As we've mentioned in prior earnings calls, our transformational initiatives are the cornerstone of our profit growth plans, and we saw the favorable impact in the first quarter of this year.
Adjusted net income and adjusted diluted earnings per share were both higher than the first quarter a year ago, at $1.3 million and $0.09 respectively. On a GAAP basis, both net income and diluted earnings per share also improved from a year ago by $6.6 million and $0.31 respectively. Our adjusted free cash flow for the first quarter was $57 million negative, reflecting the seasonality of our business as we grew inventory through the quarter from a very low level at the end of fiscal 2018 in September. We also had the impact of higher plant spending for our all-new paint facility. As is typical with our seasonal business, cash flow will turn positive as it moves through the year. As we look at the underlying strength of the industry and Blue Bird's results, we remain upbeat about the business fundamentals.
With the strong outlook for property values and corresponding property taxes, which are the major funding source for school buses, together with the fact that 150,000 school buses on the road today have been in service for more than 15 years, we are confident on the industry outlook remaining around the 35,000 unit mark in 2019. In fact, that's a near record again for our industry size over the past 30 years. We did see yet another first-quarter record sales mix for alternative fuel-powered school bus sales at 34% of our total bus sales. This compares with a mix of 31% last year. 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 seen significant growth in alternative fuel bus sales. As I just mentioned, we have not slowed down this year. We'll cover alternative fuel performance in more detail a little later. We are passionate about product and being first to market with vehicles and features that customers want and value. In fiscal 2018, we launched two new exclusive products, our all-new zero emissions electric-powered Type D bus and our ultra-low NOx propane-powered bus, which by the way, at 0.02 grams of NOx per brake horsepower is 10 times cleaner than the EPA standard and any other brand of propane-powered school buses on the road.
Additionally, our Type C electric-powered bus will launch later this year, and I can tell you that we have a very strong pipeline of customer orders for both electric and propane buses that we're pursuing. As I mentioned earlier, we did see the profit impact of both our pricing and structural cost reduction actions in the first quarter, and we expect to see additional favorable benefits 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 months and years. All in all, I'm very pleased with our first quarter results and particularly the specific actions we took to offset both higher commodity costs and lower volume compared with last year.
Our results were in line with our expectations, and they support our full-year guidance. I should mention, these results are on the path to our stated goal for an adjusted EBITDA margin of at least 10% by 2020. Let me now review our full year 2019 key operating achievements. I should say our first quarter 2019 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 growth going forward. We launched our transformational plans to improve margins last year, and they're on track, driving improvements in quality, cost and efficiencies, and capacity. We achieved significant structural cost savings in the first quarter of 2019, and this initiative is key to delivering continued profitable growth.
Construction is well underway for our all-new fully automated paint shop, with robotic equipment now on site and pilot runs and validation scheduled over the next few months. This is a key initiative to drive efficiency and quality improvements across our Blue Bird product line. We increased first quarter school bus revenue per unit by about $2,500 or 3% from the pricing action we took in late fiscal 2018, while at the same time winning business with a significant number of customers that are new to the Blue Bird brand. In fact, 15% of our customers in the first quarter were conquest accounts. That's a great result. We continue to be the undisputed leader in alternative fuel-powered school buses. As of Monday this week, our year-to-date sales and firm order backlog of these buses represented a very strong 42% mix of the total.
That compares with a 30% mix at the same time last year. Furthermore, the total number of alternative fuel buses sold and in our firm order backlog is up 25% from a year ago. That's leadership and real momentum in the fastest growing segment of the school bus market. Remaining on the topic of alternative fuels, we are seeing very strong interest in our latest product, our all-new zero emission electric-powered Type D school bus, which is powered by a Cummins electric drivetrain following their acquisition of Californian-based EDI. We have now quoted over 100 units, and as you will hear from me later, many of these are now turning into firm orders. Finally, based on our first quarter performance and outlook for the balance of the year, we are reaffirming full year guidance for all the metrics I want to report.
I'll cover this in more detail towards the end of the call. It's fair to say that we continue to advance the business on multiple fronts, and we're 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 and I will run through the details a little later. Just to summarize the first quarter, total net sales was down about $8 million from last year, more than explained by 120 fewer sales of buses to the GSA. This is simply a delivery timing issue, not indicative at all of any change in full-year order plans. In fact, we continue to be the preferred bus supplier to the General Services Administration.
Parts sales for the first quarter were up $1.3 million from last year, representing a strong 9% growth as we successfully introduced new products to our customer base and tailored incentive programs to our entire dealer network. It's been a really good first quarter for the parts business. Despite lower volume and the impact of higher steel and commodity prices, adjusted EBITDA of $7.2 million was slightly higher than a year ago. Now turning to slide seven, let's take a closer look at our alternative fuel bus sales performance. In the first quarter, we grew sales of alternative fuel-powered school buses by 4% and achieved a record mix for the first quarter at 34% of total sales. As we move from the softest volume quarter of the year, however, we've seen a significant surge in orders.
As of Monday this week, we had 1,860 units booked or in our firm order backlog. That reflects a very strong 25% increase over the same time last year. As I did mention earlier, alternative fuel school buses represent a 40% mix of all buses booked or in our firm order backlog today, it's clear we are slowing down in this segment. No other school bus manufacturer comes close to this mix level of alternative fuels. In the first quarter, more than 50 new customers took delivery of their first ever alternative fuel-powered Blue Bird bus. This is a strong endorsement of our exclusive alternative fuel buses, the Blue Bird brand, and our dealer network. So far, 30 states have finalized their plans for deploying the VW settlement funds, the good news is that 40% of their funding in the first year has been directed towards school buses.
That's potentially another strong boost to the industry, we're in a great leadership position to capitalize on these funds. We offer the widest range of alternative fuel-powered buses and the most modern and proven engine in the industry. With our exclusive long-term partnership with Ford and ROUSH CleanTech across various alternative fuel engines, it makes it easy for our customers to grow their alternative fuel fleet. With the same engine architecture, same transmission, and same service requirements across all three products, propane, compressed natural gas, and gasoline, it's an easy move for a school district or a fleet operator. Propane is widely recognized as having the lowest total cost of ownership in the market and is a green engine, especially our new ultra-low NOx propane bus, which is certified at one-tenth of the NOx emissions output of other manufacturer buses and the EPA standard.
These nitrogen oxide gases contribute to the formation of acid rain and smog, and they are a contributor to asthma in children. The best-in-class level of NOx is another great reason for choosing Blue Bird propane. In fact, you can have it all with Blue Bird propane, the lowest operating cost and the lowest emissions of any internal combustion engine in a school bus. All is great news for our school districts and fleet operators, but it's even better news for the children who ride our buses and their parents. I mentioned earlier we've quoted business for more than 100 electric buses across 14 states. I can tell you now that more than 50% of those quotes have turned into firm orders. We expect considerably more to follow.
Interest across the country is strong, especially the opportunity of funds from the VW settlement, and we're also seeing other unique state funds increasing in frequency as they look to electric buses as a way of their future. We began delivering buses in the fourth quarter of fiscal 2018, and we're excited about the prospects of fiscal 2019 and beyond as we work closely with our exclusive electric drivetrain provider, Cummins. We are seeing continued strong growth of our gasoline-powered bus in fiscal 2019. It's really understood by technicians and mechanics who truly appreciate the emissions simplicity and cold weather start capability that it shares with propane. It's also at a lower price point than diesel, so it really works for those customers where acquisition price is a key concern.
As we look forward to next year and beyond, with the broadest range of the cleanest low NOx school bus in the industry, eight times more alternative fuel powered vehicles on the road than all of our competitors combined, and still with less than 15% of customers having tried an alternative fuel powered bus, Blue Bird is in a very strong position. With forecast sales for fiscal 2019 in excess of 4,650 units, we are planning another record sales year for Blue Bird alternative fuel powered school buses. We'll keep you updated on our progress, obviously, through the year. I'm going to hand it over to Phil Tighe, who will take you through the financials. I'll be back later to cover the fiscal 2019 outlook and guidance. Over to you, Phil.
Thank you, Phil, and good afternoon, everyone. The next few slides are a summary of our financial performance for the first quarter of fiscal year 2019. There is additional information in the appendix that deals with reconciliations between GAAP and non-GAAP measures meant to be distributed, as well as important disclaimers already mentioned by Rob. This material will be available in our 10-Q, and that will be filed early tomorrow morning. We encourage you to read the 10-Q and the important disclosures which it contains. Material that we are discussing today is based on a close of December 29, 2018, for the first quarter of fiscal year 2019, and December 30, 2017, for the first quarter of fiscal year 2018. There were several new accounting pronouncements adopted in the first quarter of fiscal 2019, and they are discussed in the footnotes and the Appendix 10-Q.
Pronouncements included are revenue, leases, pension, leases, cash flow, and the internal use of software. There were no changes to risk factors from the previously published 10-K. Now we'll take a look at some of the key financial results on slide number nine. Phil's already talked about the volume, which was 1,600, about 100 units lower than last year. As previously noted, this level was on plan, and all of the reduction versus 2018 was due to the timing differences with the delivery of government service units. We are still planning to build the usual number of government units that we do on an annual basis. I want to point out that in 1,600 units, the result was about 9% higher than our average first quarter sales over the past 10 years. We are running at a good level.
Phil's already mentioned the first quarter with alternative fuel sales at 34% of total, up about three points from the prior year, including electric buses that Blue Bird started delivering. Net revenue, although down by $7.6 million, was really in line with the plan. About $9 million of the decline was due to the volume of the buses. The government units are all the large rear-engine buses with higher revenues. Parts, as mentioned, is up $1.3 million or about 9% year-over-year. Our parts team is doing an excellent job of growing the business. You can think about the decline in parts sales being due to the 105 lower units, and due to the fact that the decline was made up of higher revenue on Type D and rear-engine buses. We did have higher revenue per unit on our school buses, as Phil mentioned.
That was up about 3% year-over-year, and that's a good indicator that the pricing that we announced late last fiscal year actually taken hold and sticking. We're pleased with that. Gross margin was about 40 basis points lower than a year ago at 12.3%. This was despite higher average revenue on school buses and was really attributable to a one-time action that occurred in the first quarter of 2018, where we had lower costs in one of our variable cost lines, basically due to a system change that was occurring and the costs were then timed into the fourth quarter of fiscal year 2017. If we continue on to net income or net loss. The net loss was $1.2 million, a substantial improvement of $6.6 million over the prior year. You can think about the net income as largely due to the transformational initiatives.
We also had some lower tax, but we also paid about $1 million more in interest costs, a partial offset to that, and that interest cost was largely due to the higher debt that we'll talk about in a minute. Adjusted net income was again better than last year at about $1.3 positive. It was up by $1.6 million. That's largely driven by the adjustment for our ongoing initiatives that we discussed previously, product and transformation. We've talked a little about adjusted EBITDA, and we will go through a bridge on the next slide. I won't spend really any time on that. The final one was the EBITDA margin. We were pleased there at 4.7%. That was up about 30 basis points versus last year. A good result there.
Diluted earnings per share at a loss of $0.05 was $0.31 better than the prior year. Adjusted diluted earnings per share at $0.05 positive was about $0.09 better than the prior year. Our cash at $18.8 million was down about $4.4 million compared to last year. This result was about in line with where we thought we would end up. We are going through the CapEx spend on the paint shop, and first quarter had higher than normal CapEx due to that, as well as there were some activities in trade working capital that probably caused us to spend a little more cash. Our debt at $209.9 million finished up about $60 million versus the prior year. In part, that was due to the incremental loan that we took of $50 million in, I think it was October of 2018, as part of the tender offer.
We also had some borrowings on the revolver. We will continue to probably have for the next few months as we get through the higher levels of CapEx spending. Net debt. The change in net debt, if you look at the difference in cash and debt, can really be explained by the stock repurchase program we did last year. There was a warrant exercise that was about $56 million, and then the higher CapEx. I think we understand what these issues are, and they are within our plans. Let's go to the bridge. Bridge is on slide number 10. You can see the impact of bus volume and product mix was about $1.4 million. We had favorable news from parts worth about $300,000. The two big columns on the bridge, we have economics and other.
Basically, the economics is due to the fact that in the first quarter of fiscal year 2018, we were still enjoying relatively lower steel prices. The tariffs were still months away, and we had some attractive buy prices at that time. Now in the first quarter of 2019, of course, we've got a very different scenario. Steel prices are up as a result of the tariffs and other changes and a few other commodities. Also, as I said, we had a low cost recorded in fiscal year 2017 in one of our variable cost lines, and that's normalized in fiscal year 2018. On the transformational initiatives side, I think this is the one where we are really pleased. About $6.5 million comes in this area.
Again, this is the result of the work we've been doing to reduce the cost of everything we purchase and to improve our plant efficiencies. On an ongoing basis, we will see more positive results coming out of that through when we commence the operation of the paint shop and build out the other activities. That was a strong result for us to get that through vehicle programs and other activities generating $6.5 million. We turn to the cash flow on slide 11 quickly. You can see we were $56.6 million negative on an adjusted free cash flow basis. Really two issues there. First is the higher CapEx as we continue to complete the construction and the installation of the paint shop. The second is in trade working capital.
The trade working capital, I have to say, this is the time of year when we do start to see an increase in trade working capital normally. We tend to start to build up inventory as we come out of the peak selling season in September of the year, and we start to build inventory, getting ready for higher sales as we move out of the first quarter into the second. We do see some of that. This year, it's exacerbated by the fact that we are doing a buildup of inventory to support a major product change that will be coming. We have to stockpile some pretty expensive items, and we expect to have that stockpile for some period. I think by the time we get through the year, this issue with the higher inventories will be put behind us.
If we go to slide twelve, which is net debt and leverage. You can see we have a total debt of $209. That includes the incremental $50 million that we borrowed, cash of $18.8 million. We've got $191 of net debt. For those of you who follow us closely, you'll also note that we did increase our revolver capacity last year from $75 million to $100 million, really to provide an insurance policy against any unexpected drains on cash. We did know that we had some stockpiling we would have to do, although I can guarantee you we're not going to get anywhere near to $75 million in that area. We found it prudent to cover ourselves a little there. We do now, as you see, have a net leverage ratio of 2.8, still substantially below the 4. That's the covenant that we have with the banks.
Our liquidity is at $92 million, which we believe is a good level for us coming out of the first quarter of the fiscal year. With that, I will turn you back to Phil, and he'll talk about looking forward to guidance, and then I'm sure we'll have some questions.
Okay. Well, thanks, Phil. Let's now focus on the fiscal 2019 outlook for the year and our full-year guidance. Let's turn to slide 14. With the recent industry running at between 34,000-35,000 units annually, we are at a 30-year high, and we do anticipate another strong year in fiscal 2019, with the industry, again, around 35,000 units. As we look at the reasons for that, continued growth in housing prices and property taxes, customers' desire to replace their aging buses, with 150,000 of them older than 15 years, along with the boost of new funding ahead from the VW settlement, all support that position for a very strong industry once again in 2019. Our plans for fiscal 2019 focus on gross margin and EBITDA margin improvement from three key areas.
First, the impact of the cost recovery pricing that took effect in late fourth quarter of last year. This will have a full annual effect in fiscal 2019, and we saw the benefit of that in the first 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. Once again, we saw the favorable impact in the first quarter of 2019. Third, the plant facility and process improvements that we are making that's still ahead of us to increase manufacturing efficiencies and improve quality. They'll begin to take hold in 2019, later in the year, and ultimately will benefit us substantially moving forward. Of course, I would be remiss if I didn't mention our class-leading products because they also are a contributor.
With Blue Bird firmly established as the undisputed leader in alternative fuel-powered bus sales and our sights set on yet another record sales year in this segment, we are well positioned to drive profitable growth through our product strengths. That is a key initiative that we've worked on the last several years, and I think you'd all agree, we've been pretty successful at it. We're going to keep moving in that space. No question. Our financial targets for fiscal 2019, are on the glide path towards our previously communicated EBITDA margin goal of at least 10% by fiscal 2020. Now let's turn to slide 15 to review our fiscal 2019 full year guidance. Based on our strong fiscal first quarter 2019 results and the outlook for the remainder of the year, we are reaffirming guidance on all three reported metrics.
Net sales guidance is between $990 million-$1,025 million. As mentioned in 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 facility and make other facility and process improvements in the plant. These type of production losses are typical for an automotive company undertaking significant plant upgrades, and our approach will be to minimize them as much as possible. I want to assure you, we'll be looking for every opportunity to maximize sales throughout the year. We'll 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. However, as you know, 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 automated paint facility. In wrapping up, we had a strong first quarter performance both operationally and financially. On our prior earnings call, we explained how we exited fiscal 2018 with significant run rate benefits from structural cost reductions and cost recovery pricing taken in late fiscal 2018. We saw the impact of these benefits clearly in the first quarter compared with last year, as we were able to offset the rapid rise in commodity costs led by the impact of the steel tariffs and lower unit sales.
These run rate benefits will help us drive significant profit and margin growth in fiscal 2019, with adjusted EBITDA higher than our targets, projected to be 14%-21%. I should repeat that, 14%-21% higher than fiscal 2018. Our plans and our guidance support this. We'll continue to update you on progress each quarter. Well, that concludes our formal presentation. I'm going to now pass it back to our moderator, Vicky, 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're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question. I will pause for just a moment to allow everyone an opportunity to signal for questions. We'll go first to Matt Koranda with ROTH Capital.
Hey, guys. Good afternoon.
Hey, Matt.
Just wanted to start off with the paint booth startup and how things are proceeding there. I know you guys mentioned, I think early in the year, that you'd be doing some test runs and validation. Do you feel like everything's on track for completion by the high season? What are the remaining hurdles that you need to get over before feeling comfortable with scaling the booth?
Well, we've got some equipment to install in the booth. The booth is a very I understand it's more like a unique plant itself, it looks like when you see it. There's still some construction work to do, but we're on target really for end of April. We have a date in mind, specific day, but pretty much towards the end of April is your one when we sort of start to run our first units through it. Prior to that date, we're making sure all the safety standards are met, the equipment's ready, the emission requirements are met, all the things you have to do to complete certification. We've been looking for, as we look towards the end of April, we'll start up with a slow ramp and progressively increase that through the year.
I don't expect that through the course of this year, we'll be anywhere near every single bus running completely through the paint shop. If we do, that will be a complete home run. Certainly that will be our target as we start the next fiscal year. In October, we'll be fully operational with every bus going through that paint shop. Our goal is to ramp it up aggressively through the year and learn how this works, make sure it's efficient, build us what we want. I guess, to answer your question that you raised first of all, we believe we're on track, yeah.
Okay, great. Yeah, the reason I ask is because you guys mentioned there's some conservatism, I guess, factored into your top-line guidance for fiscal 2019, the large sort of the bulk of that conservatism seems based around the launch of the paint facility. I was trying to get a sense for, I guess, when you think you'll have the visibility into how that's running so that would give you confidence to sort of change the top-line guidance, I guess. It sounds like April or later at the very least. Is that fair to say?
Yeah. Look, I think, Matt, I think it's a fair question. I think we'll give you an update at the end of the second quarter. I think obviously we'll know by then. We will certainly have started production. I think the real reality check will be at the end of the third quarter because we'll have three months or so under our belt. We'll know where things stand, how it's going. I think it'll be an interim check next quarter, and then the real full year outlook check at the end of the third.
Okay. It seemed like working capital was a bit larger of a drag on cash than I would have anticipated during the quarter. I know you guys mentioned a little bit higher inventory quarter that you built. Could you give a little more color on sort of the product change that you're dealing with the inventory build? It would be helpful.
Yeah. I just want to mention, I'll let Phil take this as well, we talked about the fact this is inventory build through a quarter. One thing we have to look at, too, is where you're starting from. We did a great job in controlling the inventory at the end of last year. Actually, we finished with an inventory at the end of fiscal 2018 that was about $20 million lower than it was at the end of 2017. Now you're building from a lower inventory level. Not necessarily building a much higher endpoint, but you've got a bigger growth plan to work. We benefited obviously in 2018 from that fact we did shave the inventory down, we like to do at the end of the year, did a great job at it.
Now we have this build from a lower base. Actually, it's really good news, but it doesn't look like it sometimes when you look at these charts. It really was a good-use performance. I think on the product side, we don't like to announce what our product plans are because if we're doing something that's significant, I want to hit that mark at the right time. Just suffice to say, over the next 18 months or so, we're going to have some significant product changes coming in, and you'll see those, and we'll fill you in at the right time. We are having to build some inventory to handle that changeover for us.
Okay, great. Just last one, I guess, from me, in terms of the order activity, it looks like great news on the alt fuels front with a significant percentage of your new orders represented by that. Have you been seeing some of the, I guess, districts that were pushing decisions from back in December out into this year? Is that what's coming through and driving the strength in alt fuels with some of the Volkswagen settlement money that they're seeing?
I'd say we're starting to see it. I wouldn't say it's a flood of stuff coming through the Volkswagen money yet, it's more of a trickle. We're certainly seeing states that are now releasing that money, and we've done very well in those. I think Louisiana was one of the first ones, and we capitalized on that very well with our propane products. I think that's still ahead of us, actually, a lot of the Volkswagen money. I think we're just now entering that season. Once you get out the first quarter, the soft market, just delivered all your school buses for the year is slow. We all know that. Things around the January-February time frame, that's when the orders start to really pick up, and the interest comes, and the quote activity increases.
I just think we've been successful in marketing our product strengths and what we believe is great for the industry, which is our alternative fuel power product. It's a case, I think, of doing what we've been doing every year. We always had pretty good last year. Even though we're up this year, it came up very another record level last year when there was no Volkswagen money. I think we're just, again, we're out there, we work this hard, we work our strengths hard, and the Volkswagen money is a boost for a little bit of that. I think this is more like normal business right now that we've benefited from.
Okay, great. I'll jump back and queue here, guys. Thanks a lot.
Thanks, Matt.
Again, press star one to ask a question. We'll go next to Eric Stine with Craig-Hallum.
Hi, everyone.
Hi, Eric.
Hey, maybe just first, just a high-level question on alt fuels. You mentioned about 15% penetration of the overall market today and up from sub 10% a couple of years ago. I haven't asked you this in a while, but any updated thoughts on where you think that ultimately goes? Obviously, that's going to play out over a number of years, but where you think that can go with the offering that you and others have in the market?
Yeah. Well, I don't know about the other guys. I can talk to myself on our sales. Obviously, we ended that last year, full year at 38% mix of alternatives to diesel is the way I look at it. I think, Eric, you've talked about pretty big numbers over 50%. I think 50% is our next hurdle we look at, and that to me is on the horizon. I look at everything we're doing with electric power, the low NOx values of our propane products, all the things we're doing continuously, and every time we get a regulatory change, diesel gets tougher and tougher and more expensive. I think 50% is certainly something we look at in the next few years. I'm not going to tell you which year is in mind, but we're bullish about continued growth in our mix year after year.
Some of the products we've got, too, we feel very good about it.
Right. Absolutely. Okay. Maybe just turning to, again, another market question, but I know that it's often cited about 150,000 buses out there that are, what, 15 years or older. I'm just curious, do you see any regulatory triggers out there or any characteristics like I know you just launched the stability control system and the backup camera as being standard on your buses. Are there any things out there that you see speeds that upgrade cycle, or is this something that's out there's a hope that it's going to rectify itself, but unclear if it ever happens?
There isn't a lot of what I call significant product regulatory change that's been mandated yet in the years ahead as we look. We volunteered that, actually. Those two things you mentioned, we volunteered to put those on our products because we think it's right for safety. We've been doing those products as options for several years, and we thought it was the right time to standardize them. I think the one thing that does get a lot of comments is around seat belts. We don't put seat belts in every bus. We can put lap belts, three-point seat belts. We've got a great seat system, an all-new seat we introduced just about a year ago, which can accommodate even converting late-running cycle to a fully seat belt bus with limited cost. I think that's the one that gets the most discussion.
It's like anything else. When you've only got a new industry of 35,000 units, when you've got a park of 590,000 units, it's difficult to accelerate things very quickly. It's difficult to retrofit to an entire park that's out there. The best thing I think about replacing the cycle is the Volkswagen money, no question. There's a lot of money there. It's all about getting those 20-year-old buses off the road. Because when I'm talking older than 50, there's a lot over 20 years of age. Those are targeted at getting old emissions, the old diesel buses, where you see the black plume come out the back, we want to get rid of those. I think that's probably the best catalyst, I would say. It'll be spent over, I expect, the next three years, might be three to four years to utilize that money.
That's still ahead of us. That should be a good boost, I think, to try and get rid of some of those buses off the road. Regulatory-wise, I don't really see anything that's going to be a boost for the industry.
Okay. That's helpful. Last one from me, I might have missed this in Phil's comments, but the paint shop, I know it's a key piece to you getting to that 10%-plus EBITDA mark for fiscal 2020. I know it'll be phased in throughout the second half. Have you ever quantified or could you quantify maybe the margin pickup that you expect from the paint shop?
I'm not sure we want to quantify that yet, Eric. Put it this way, we're investing a large amount of money in the paint shop, and we expect to get quite attractive payback on that money in the shortest possible time. It is substantial.
Okay. Thanks a lot.
Okay. Thank you, Eric.
We'll go next to Mike Baudendistel with Stifel.
Thank you. Just maybe a little bit similar to that last question. Just going from what you just had for guidance for 2019, about 8% EBITDA margin going to 10% by 2020. If you could just put us maybe items in buckets of what order of magnitude are the largest things that are going to get you 200 basis points from 2019 to 2020?
Look, I think you can think about it this way. The major work that we've been doing on reducing cost of all the things we procure to build the bus is clearly going to be the single largest piece of movement to 10%-plus. We're still delivering that. There's more that we're doing this year in that area. Quite frankly, we've done some reorganizations in the company, so this is not any longer going to be a one-time thing. It's something that we're putting into the culture of this company in terms of very aggressive cost focus organization. I think that's the single largest piece. In order of priority, I think the paint shop is clearly going to drive significant efficiency and quality improvements. After that, you've heard the discussion of where we think alternative fuels will go.
We do think the market is going to continue to grow for alternative fuels. Quite frankly, we think we will make better margins on alternative fuels through the future. That will contribute. The final piece really is a collection of things that we're doing within our total manufacturing area to grow efficiencies in areas other than the paint shop. We're putting a lot in there. We've mentioned that we're doing some stockpiling for new products. There are product initiatives coming as well, which we think can grow. We've got a pretty good shopping bag of things that are going to deliver this two-point margin improvement. Again, a lot of it is based purely on structural cost changes within the company, and then a higher mix of alternative fuels. Phil, do you want to add?
No, that's a fair assessment. I think when you look at what we do in this year, we're talking a lot about structural cost change that we implemented last year. We talk about the pricing. Ahead of us, we have the paint shop. As Phil mentioned, we haven't really got into this much, but we are doing a lot of other things in the plant. We're going through every one of our workstations, looking at efficiencies, what we can do better, how we can be more efficient, how we can drive out waste. It is a process we're going through, and we think that'll have a lot of benefits for us in next year and beyond. As Phil said, this isn't just a one-time project.
Continuously attacking costs, attacking waste, getting lean in your business is something we're driving through the entire Blue Bird system and culture, really. It becomes a cultural thing. I think we're confident. We have a plan. We have a track, and I think the results we've achieved so far that we saw in the fourth quarter. I see you saw some of that come on the cost side in this first quarter, and it shows the impact this can have. I'm often asked, how far are you along? If it was a baseball game, I'd probably say we're in about the fourth inning of a baseball game right now, so we've got some ways to go.
Got it. That's helpful. Not an official game. The other question I have is, you mentioned that about 15% of the conquest accounts in the quarter. What's a more typical percentage? I guess the implication there is that you're taking some share. Just wondering if you had any updated market share targets.
Yeah. I think it's probably more around Well, actually, you look at conquest. There's two ways of looking at it. One is traditional conquest, with diesel and ones with alternative fuels. I think certainly if you're above 10% conquest. It's actually as early in the year as we are, remember, this is a soft quarter. There isn't a lot out there. We have to go out and find this business. If you're getting 10% at this time of the year, that's pretty good. Being at 15%, I think we certainly like that, and we know exactly where it is, and these are folks who are new to Blue Bird, so that's our goal. 10% plus is a good, 15%, I think is very good.
Okay. Are you having any difficulty with just employee turnover or staffing? That's something that I've heard from other OEMs, they've had trouble with that.
Well, it's definitely a tighter labor market than it used to be. No question. I think certainly where we are in Middle Georgia, we've seen an influx of other businesses coming here. I think there's a great work ethic here, and we have a good set of employees. We work at it all the time. We've been here a long time in this area we're in. We're the staple company to like in Fort Valley, Georgia. We have quite a pipeline that we access when we need new employees. It's something you've got to watch. I think you're right, Eric, it's tightened up, but we have a process by which we go after it aggressively. Many ways, too.
I look at everything from the salary side to the hourly employee side, all the universities we've got affiliations with around here because a lot of the employees they know us very well. Internships, they become full-time hires. On the hourly base, like I said, actually, we have a process where we're constantly looking to test that pipeline or make sure there's availability. It is tightening. I think right now we feel fiscally strong about where we are.
Got it. That's all for me. Thank you.
We'll go next to Chris Moore with CJS Securities .
Hey, good afternoon, guys. The ASP in Q1 was up $2,500. Just trying to get a feel for if you think that's just going to flow through for the rest of the year. Obviously, I don't know when the pricing hit in fiscal 2018. I'm assuming that a portion of the buses were at those higher levels in Q4. Is it fair to think of Q2 and Q3 matching that same type of increase on an ASP basis?
Chris, the price increase really hit very late in the year, in fiscal year 2018. Not a lot of buses got the price increase, purely because of the cycle that we go through and how prices are firmed up when an order is placed and an order is anywhere from 8 to 10 weeks out from when we actually sell the bus. There wasn't a lot of room to move when we announced the pricing. Not too many buses got it in fiscal year 2018. It's our firm expectation that we will continue to get that revenue. Obviously, competitive situations change, but given the way we look at the market at the moment, we are comfortable that we will continue to generate higher revenues in previous years.
Got it. Can you maybe just remind me, I think you did say it at the end of last year, the mix between propane and gas buses in 2018? I'm just trying to get a feel for whether you'd expect that to change much in 2019.
Sorry, Eric.
The mix between propane and gasoline.
Chris, I'll give that to you offline.
Got you. Okay.
I think I'm going to look at the exact number. I thought it was sort of pretty close. We had a great year in gasoline.
Right
I think it was around about sort of 50/50. Yeah. It was a very close number, very close to 50/50.
Any reason to think that'll change materially either way this year?
Well, I think one thing is, we talk a little bit, there's Volkswagen money. Now gasoline can't access the Volkswagen money. Propane can, CNG can, and electric can. Obviously, I remember talking about it a lot in fiscal 2018, that we saw delays in folks ordering propane because they knew they got this Volkswagen money coming, so they may as well go and try a gas engine. I do think the Volkswagen money coming with us this year, being accessed, and we're seeing that now actually. We've seen it very strongly in the first few months of this year, shows, I think, that the propane is very much on the up and up. They're both doing well. By the way, last year, I guess it was something like about 46%-54%. 46% gasoline, 54% propane between the two.
Got it. That helps.
No, 46% propane, 54% gasoline.
46% propane or gas?
Propane.
Got it. Okay. Helpful. Let's just assume that you have to build a few less buses than you could've sold because of the initiatives going on. A couple things. Do you have any ability to cherry pick in terms of buses or customers that are more profitable? Two, are those sales gone, or can you potentially carry some of those over into fiscal 2020?
Let me take the second question first. I'll take that first. Yeah, we have shown an ability that we can carry them over. If you got to keep someone waiting for a little while, longer than they like to, you might have to help them get there a little bit.
Right.
Take a break at the school start, you could do it. That's about relationships, those are guys that really want your product. We've seen that. It does happen from time to time. I think we feel we can manage that. I don't think when I talk about pushing sales out, we hope to capture those in the long run, it might just go beyond school start is the way we think of it. Your first question about can you cherry pick? Obviously, we bid on business. It's a bid business we're in. Not all prices are the same, not all specs of vehicles are the same. States are different. We have different funding abilities, different spec of the vehicles, and so on and so forth. We are mindful of where we spend our production money, so to speak.
Yeah, we do look at that. We look at that very carefully of where we want to go out to business more aggressive than other places. We can, to a certain extent, do that. We want to sell school buses, basically. That's the bottom line. We can be a little selective when we need to be.
Got it. All right. I appreciate you guys's help.
Thanks, Chris.
At this time, we have no further questions in queue. I'll hand the call back over to Phil Horlock with any additional or closing remarks.
Well, thank you, Vicki, and thanks to all of you for joining us today on this call. We do appreciate your continued interest in Blue Bird. As I hope you can see by our first quarter results and outlook for the year, we are focused on profitable growth and intend to deliver on our commitments. I believe we're well-positioned for growth today and in the future. Now 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. Have a great day.
That does conclude today's conference. We thank you for your participation.