Blue Bird Corporation (BLBD) on Q1 2021 Results - Earnings Call Transcript
Operator: Greetings, and welcome to Blue Bird Corporation Fiscal 2021 First Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note, this conference is being recorded. I would now like to turn the conference over to your host, Mark Benfield, Executive Director, Profitability and Investor Relations. Thank you. You may begin.
Mark Benfield: Thank you. And welcome to Blue Bird's fiscal 2021 first quarter earnings conference call. The audio for our call is webcast live on blue-bird.com under the Investor Relations tab. You can access the supporting slides on our website by clicking on the presentations box on our IR landing page.
Phil Horlock: Thanks, Mark. Well, good afternoon, and thank you all for joining us today for our first earnings call for fiscal 2021, we will first quarter results. Before I jump into our financial performance, I'd like to give you an assessment of how I see our business environment today and importantly how we are adapting to the market conditions and prioritizing our plans going forward. So let's turn to slide four. As the headline says, in a challenging market, we continue to drive business structure improvements, and importantly for our future, substantially increasing our focus on the growing electric vehicle business. From an industry standpoint, not surprisingly, the first quarter was another challenging one. As we dealt with about 40% of students attending only virtual classes, with a balanced split fairly evenly between in-classroom teaching and the hybrid program. As I have stated on previous earnings calls, one fact is clear and obvious. When schools are closed, buses aren't being ordered. The good news is that when schools are open, it's business as usual, with school bus orders being placed. That's great for us to know as we move forward. Following the recent holiday break, however, we have been seeing more schools resuming in-classroom teaching, and that's led to increased quarter activity for our new buses. This is a leading indicator the industry recovery is on the horizon, bolstered by increasing deployment of the COVID vaccine and the new administration’s declared intent to open all schools within the first 100 days of its term. As it's consistently stated, it's our expectation that the industry recovery will begin in the second half of fiscal 2021 in support of the next school year start. Shifting now to Blue Bird. Our first quarter results was solid, despite dealing with COVID as we continue to improve our business structure and underlying margins. We significantly improved working capital in the quarter compared with last year as we drove down inventory operating at much leaner levels than in prior years.
Jeff Taylor: Thanks, Bill. And good afternoon, everyone. It's my pleasure to share with you the financial highlights from Blue Bird's first quarter of fiscal 2021. The quarter end is based on a close date of January 2, 2021. Whereas the prior year first quarter was based on the January 4, 2020 close date. We will file the 10-Q tomorrow February 11, which includes additional material and disclosures regarding our business and financial performance. We encourage you to read the 10-Q and the important disclosures that it contains. The appendix attached to today's presentation reconciles differences between GAAP and non-GAAP measures mentioned on this call, as well as other important disclaimers already mentioned. With that, please refer to slide 11 and I will review the key results for the quarter. Overall it was a solid quarter for Blue Bird, especially considering it was a seasonally slow quarter, which was further impacted by lower demand due to the global pandemic. Every one across the company executed well. But our operations areas deserve to be highlighted for their outstanding performance. First Quarter volume of 1,255 units was down 14% compared to the prior year period, and lower industry volumes due entirely to the COVID pandemic. Net revenue of $130 million was $23 million or 15% lower year-over-year for the quarter. Bus net revenue of $118 million was down $17 million on lower volume. Bus average selling price or ASP was 93,900 per unit, a year-over-year increase of 1,600 per unit due to favorable product mix and option content, in addition to price increases to offset inflationary cost pressures. Our alternative fuel mix was 46% in the first quarter, which is up seven percentage points over the same quarter last year. Very strong performance. Parts revenue for the quarter was $12.6 million, representing a decrease of $5.8 million year-over-year, as many maintenance facilities were shut down due to the virus inconsistent with lack of in person schooling. Gross margin of 11.1% was 280 basis points lower than the prior year period. The deterioration in margin in the first quarter was almost entirely the result of lower fixed cost absorption through the lower volume, higher cost associated with COVID and lower mix from the parts segment. Selling general and administrative was $14.7 million, which was down $5.8 million on reduced spending and cost control actions in our management and engineering areas. Once again very strong performance. GAAP net loss was $1.6 million as compared with $0.4 million for the first quarter of 2020. On an adjusted basis net income was $0.1 million, down approximately $2 million versus last year. Adjusted EBITDA of $5.8 million was down by $2.2 million compared with the prior year quarter, which I will cover in more detail on the next slide. Our adjusted EBITDA margin was 4.4%, a decrease of approximately 80 basis points. Diluted EPS of negative $0.06 per share was $0.04 per share lower than prior year. Well-adjusted diluted EPS was $0.00 per share or $0.07 per share lower than the prior year quarter. Weighted average diluted shares were $27.1 million during the first quarter versus $26.5 million in the same period last year. Liquidity was approximately $121 million as our revolver balance was untapped and fully available at quarter end. Looking at the first quarter on slide 12, year-over-year adjusted EBITDA bridge, starting on the left of the chart, lower bus volume of 205 units and lower parts volume of approximately 32% were partially offset by favorable mix and lower freight and warranty expense. All of these factors combined to decrease adjusted EBITDA by $4.2 million, with volume being the primary factor. Pricing and transformational initiatives, such as strategic sourcing, and product redesign projects added $1.8 million combined. Lastly, operating expenses were lower due to cost controls, while manufacturing costs were unfavorably impacted by lower fixed cost absorption on lower volume partially offset by improved efficiency that resulted in adjusted EBITDA of $5.8 million for the quarter. Moving on to free cash flow slide 13. The table shows both first quarter free cash flow in addition to adjusted free cash flow. The first quarter is normally a seasonally low quarter for free cash flow due to low demand and building working capital. First quarter adjusted free cash flow was negative $13.9 million, a year-over-year improvement of $77 million, largely on $64 million lower trade working capital. While free cash flow was negative $14.8 million, an $80 million improvement year-over-year. I couldn't be happier with the control of trade working capital this quarter, and particularly the supply chain organization managing inventory in a difficult environment. Looking at net debt and leverage and liquidity on slide 14, net debt of $147 million was $61 million lower versus prior year, due to lower borrowing on the revolver approximately $35 million significantly improved trade working capital required term loan payments over the past year, approximately $10 million and increased cash balances year over year approximately $16 million. Our net leverage ratio for the first quarter was 3.1 times. While the net leverage covenant is suspended for 2021 under the amended credit agreement, it is still relevant to set the rate of interest on our outstanding borrowings. We have two active financial covenants for the period. First, the trailing 12 months EBITDA as defined under the credit agreement was $48.7 million versus a minimum requirement of $24.5 million. Second, liquidity was $121 million at quarter end versus a minimum covenant of $15 million. Our liquidity continues to remain strong as our cost controls working capital discipline and structural margin improvement are clearly paying dividends. Furthermore, we are continuing all of these activities for the foreseeable future to further protect our cash and liquidity. In conclusion, the first quarter was a good start to the year and a smooth quarter from the perspective of supplier disruptions and COVID impacts. However, the operating environment has gotten more choppy in the second quarter, with a higher level of supplier issues and disruptions, as well as high levels of absenteeism. However, our team is rising to the challenge and addressing these on a daily basis. We continue to execute our margin growth strategy, as Phil discussed. And finally, there are positive trends regarding COVID vaccinations that should allow schools to reopen for a fall 2021 school start, if not sooner. We continue to be optimistic the school bus demand will recover in the second half of the year. I will now turn the discussion back to Phil, who will describe the outlook for the second quarter and give his closing remarks. Phil?
Phil Horlock: Thanks, Jeff. So let me now summarize the outlook that we see for the balance of this year and beyond. Turning to slide 16. We all want to see the resumption of safe in classroom teaching. It's good for students. It's good for parents, and it's good for industry. We have the vaccine being distributed and we're seeing more schools gradually reopening. These are great signs that the initial recovery is beginning. I thought it would be worth reminding all of us, however, of the new administration stance on this topic. You can see the supportive comments highlights from various speeches given by President Biden in recent weeks. It's clear that the administration's commitment to reopening schools safely within 100 days, and converting America's largest mass transportation system of more than 500,000 buses to electric power is great news for our industry and for our business. So now let's turn to the outlook for Blue Bird’s business on slide 17. Our emphasis at Blue Bird is on delivering superior operating performance. We can't change the industry outcome this year. But we can focus on improving every element of our business so that we're well positioned when the industry rebounds, as it inevitably will, so that we also rebound. That means executing our margin growth strategy by improving the selling price, alternative powered bus mix and cost structure. As I mentioned earlier, an example of structural change that drives superior operating performance was our move to a single shift production schedule. We know we build a bus more efficiently and better quality when all of our team is working together on the same single shift. That's great news for us as the industry recovers. We have established electric vehicle leadership and growth as a top priority. And they're organizing the EV business as a unique division within Blue Bird. We'll be offering our chassis to the commercial vehicle industry later this year with our factory installed electric powertrain at the forefront. Moving into the external environment. There are a number of factors that will influence the industry outlook, the most important being the return to in-classroom teaching. We know that when children in the classroom, school buses are needed to transport children safely. And we see all this for new buses. The positive recent developments in COVID vaccine distribution and President Biden's 100 day goal to open schools should impact the school bus industry favorably. Additionally, with 25% of the North American school bus fleet being 15 years or older and aging more when schools are closed. There is great demand for new buses from school districts. It's not a question of if the industry rebounds, but a question of when and we expect to see improvements later in fiscal 2021. With so much uncertainty and speculation on when schools are fully resuming classroom teaching, however, we are maintaining the wide guidance range we provided in the last earnings call. We are prepared however for a surge in orders should the industry recover faster. Let's turn to our guidance range now on slide 18. This slide shows a key metrics which we provide guidance and is unchanged. But net sales revenue we're forecasting a range of between $750 million and $175 million. Adjusted EBITDA between $40 million and $65 million and adjusted free cash flow between $5 million negative and $20 million positive. Now our guidance reflects industry assumptions ranging from 26,000 to 30,000 buses, with the lower end assuming COVID causes increased disruption to classroom teaching and minimal industry recovery in the second half of fiscal 2021. The higher industry outlook of 30,000 units reflect resumption of in-classroom teaching right from fiscal 2021 and an increase in orders in support of 2022 schools start. As the heading says, we believe it's important to plan prudently and somewhat conservatively, while aggressively pursuing operational improvements. We’ll narrow guidance as a control the pandemic becomes clearer and keep you informed. As I did on the prior earnings call, I'd now like to share our view on when we expect it back on track to achieving our goal of at least a 10% EBITDA margin. Let's turn to slide 19. This slide illustrates adjusted EBITDA impact at COVID-19 on fiscal 2020, and 2021. We were on track to achieve original guidance last year until the pandemic hits in the third quarter. While they do expect some industry recovery in the second half of fiscal 2021, we expect a significant industry rebound to all pre-COVID levels in fiscal 2022 commencing with school start. And as the volume recovers, we plan to resume our glide path towards at least a 10% adjusted EBITDA margin in the fiscal 2022 and 2023 timeframe. So despite the COVID challenges, and its impact on today's school bus industry, we haven't lost sight of our mission; to grow profitability and increase EBITDA margin to at least 10% in the near term. To this end, we'll continue to drive improvements across all elements of our business, thereby improving our underlying margins and we're reporting our progress to you each quarter. That concludes our formal presentation. I'm now going to pass it back to our moderator to begin the Q&A session.
Operator: At this time, we will be conducting a question-and-answer session. Our first question comes from Eric Stine with Craig-Hallum. Please proceed with your question.
Eric Stine: Hi, everyone.
Phil Horlock: Hi, Eric.
Eric Stine: Hey maybe just starting on the commercial truck opportunity. And then clearly, you're making this move with insight into the market opportunity curious what kind of interest levels you're seeing from OEMs. And maybe how the pipeline's developing and various end markets and curious, I mean is this because this is chassis only is this kind of above and beyond the 1000 or so electric buses that you can produce a year?
Phil Horlock: Yes, good. Good questions, Eric. You know, these is early days yet, so I want to let you know what the CRN is. That's why I made a point to telling you, it's late 2021. You know, when we look at the classroom, seven entire industry, you're looking at 250,000 vehicles and more. And obviously one of those complete OEM supervisor own shafts is they put into their products, they may or may not accomplish electric product drive train. So we're looking at a subset that obviously not the 250 level has something significantly lower. In the discussions we've had with a number of potential customers, and I'm not telling you that I'm going to write a robust pipeline that I can share with you. But what we're hearing is, they really want what I call it an OEM solution for a select -- for an electric drivetrain fully installed by an OEM. I know we know too many conversions are taking place. I mean, you got a lot of relatively small companies taking that gasoline chassis taking the engine out, putting electric drum training. And they are saying to us look, we like we're interested in talking to you and meeting with you. Because we think we know what's going to be robust that he's built in the factory. And you certainly got the chassis business figured out with all of us he got on the road today. And obviously, we've got a significant number of electric vehicles on the road today. So I think what I'm telling you, this point is a little early to be sharing pipelines with you, like I said, we've specifically said I said specifically, we're looking at launching this later in the app. So we'll have more to tell you on the next earnings call. But we're optimistic about it. Now, when it comes to our capacity, we can scale up pretty easily. The 1000 units I talked about before were very much it was school buses in mind, but we have a lot of capacity. And we're able to ramp up very easily with well over that number and we get the demand for it. So I’m trying to go wherever.
Eric Stine: Okay, so that's great. And I realize it is early, but maybe just on the topic of on that capacity number just for school buses. I mean, I know it's another quarter that has gone by and if you look at whether it's developments in vehicle to grid or third party ownership potentially of buses, who would then lease to a school district at the same price as diesel or utility doing that. I mean when you add all that up I mean, any thoughts on when the timeframe might come where you would reach that level, or kind of how you're thinking about it maybe from a high level?
Phil Horlock: Well, certainly you have a little bit of chocolate sugar on our on our EV ecosystem, showing me with blueberry Centrum, and we are heavily looking on that a lot of different partners now. Just you touch something like , I mean, virtually every bus we sold for example, in the state of California, is B2G capable. So, I was working with utility companies to take advantage of that. While it was for the benefit of the school district or a third party are all things we are working on with those partners in our ecosystem. Financing is shown on there. Obviously, right now, today, electric buses, a soul with drums are available. There are significant backgrounds being provided, particularly in California, but all across the nation. And people who are getting a chance to get into an electric vehicle; they want it, especially as a nice brand support behind it. But on the financing side, too, we are -- we talking with several different partners, who we want to align with, who can maybe have a creative way of reducing upfront from acquisition price by taking some risk on some of the assets that are in that vehicle. And I'm excited by it. I mean, when you look at B2G opportunities to financing opportunities to try and take acquisition sticker shock, a little bit of where we’re right now for battery costs do come down to levels of we expect to do in the next 5,6,7 or so years. We're excited about those opportunities that we can arrange. So we're going to keep working with those partners, we're going to solidify relationships with them. I expect some will be exclusive to us. We like being exclusivity; it's good for us and good for our customers. And you know, we'll keep you apprised as we move along.
Eric Stine: Got it. No, that's great. And then maybe this last one for me. I do want to drill down a little bit into Jeff's comment about in the second quarter, you've seen higher levels of supplier disruptions and absenteeism at the plant. I mean, is this something you can give some color? Where it stands today? I mean, do you feel like it's something that you get your arms around? Or is it something that might be a factor in that white guidance range?
Phil Horlock: I think it's something with our arms around. Maybe Jeff could speak well. Might need a higher level what was behind, you know, he's specific on that. Look, I think we all know that the COVID cases across the country, they escalated later in the fall right coming through to November, December. We came back after Christmas. After the holidays, the people got together we saw COVID cases peak. We’ve seen that now it’s flattish. But we're also seeing some of them getting over that peak. As things have settled down, they had a problem. What I mean by problem is, we're watching these, we know we watch you our problem suppliers are we talk these guys every day, we're constantly in discussion to make sure they can supply to them get past, it might mean expedited freight we've got to use to get a part two is because it's the allocation got cut down for a couple of days in their production cycle. But we've been able to work our way through that with minimal interruption so far. But I think the term that Jeff used was chopping, that's what it is. And ourselves even we saw quite a spike, initially in the first week after we got back out to the after the holidays, which has significantly subsided. But we had a higher absenteeism for the first two weeks in January. And now we're back down to what I call a much more normal level. So it was a choppy period for us. I think Jeff has just highlighted. When I answer this here, I mean, no one is COVID still around, but I think he's done a great job of dealing with it. Jeff, you want to give any more commentary on that?
Jeff Taylor: Phil, I think you hit all of the key points there. The first quarter, which was October through December was actually pretty smooth for us. And it was really when we returned from the holidays that we did see some choppiness increase. So I think you covered all of the parts there, I mean, suppliers are seeing the same things we're seeing. And so there are, things that we do to keep our plant running and we've been able to effectively do that up to this point. But we will expedite parts, which increases our cost we do add rework, from time to time when things like that happen. And then obviously, absenteeism is a direct hit on our manufacturing cost when when it slows down our production a little bit. So the team has done a fantastic job managing through it, like I said on the call. We deal with these issues every day, but just certainly wanted to put that out there that the second quarter has been a little more choppy than what we saw in the first quarter.
Eric Stine: Okay, thanks a lot.
Phil Horlock: Thanks, Eric.
Operator: Our next question comes in line of Craig Irwin with ROTH Capital Partners. Please proceed with your question.
Craig Irwin: Hi, good evening, and thanks taking my questions. So your class three to class seven chassis, you're going to supply into the market with Cummins efficient drive train, drive train and the right, the electric drive train. Can you maybe framing out for us what you've been doing on the marketing side to launch us into the market? And what are the types of customers that you're directly marketing these to? And a lot of EV companies out there are getting really granular around expectations in EVs? Can you maybe share with us boundaries that would be reasonable for short term and maybe long term volumes of these chassis? And then also on the traditional electric school buses four hundred is a great number. But can you, can you maybe set some boundaries on electric school bus deliveries in your fiscal 2021 versus last year? What are the growth rates? What are the units that we should be looking for?
Phil Horlock: Yes when we started out at first I mean, I think we're up about 24% right now. Yes, a year at best in our bookings as a call to backlog for the year. We are in just the middle of February. I think that sort of number of maybe being 25% up is sort of a good number to plan on right now. As we look forward to see you know we 58% last year of our large buses type Cs and Ds, smaller number for our Taipei's, but I expected us to be in that region. I don't know why it wouldn't be in a reasonable 25% versus where it was last year. Now your first part of the question, you asked me for more granularity. I sort of said, Craig, right now, we're putting out and we done a lot of research in terms of looking at the industry. Looking at who is providing -- were these -- were folks getting the chassis found these days, electric powered chassis. I mentioned before, many of them today happened to be conversions. A lot of smaller companies out there doing these conversions. You could be talking about step-in vans, you could be talking about getting standard commercial delivery vehicles. There are some pretty good players out there. I think we all know that they are. But what we've heard from our research is, gosh, can we find an OEM that would do this and stand by it. He's got lot of experience in building the chassis that's tough and robust. Now, one thing we don't have to do in Blue Bird build a pretty tough chassis. I mean, I mentioned before, it's 150,000 school buses on the road, and many of them are 15, 20 years old with 300,000 miles on board. And we don't have to do that. We're three years into electric business. I love the fact we have a Type A electric product. We have a Type C, and we have a Type D. So we meet a lot of those requirements that those operators might want. Prior to COVID in fact and prior to electric, we did a lot of research around this particular area with some more conventional products like gasoline and move to electric and propane. And there are a lot of excess. We did sell a few in the market. And it's just given us an optimism that we think we can take this now across lot of different industries in the commercial world. I think one thing I would like to point out, the way we build our chassis. Our chassis has a lot of complexity in it. I mean, a lot of people tell you that, we have a lot of truck companies tell you that, we have a lot of complexity. It's federal complexity, state complexity, and that its done on the school district level. And I think we've shown an ability to be able to modify, change, make quick changes, satisfy unique customers’ needs through many, many years. And I think that's why we feel confident that we can, we can really do a good job in alternative industries, because we're very adaptable. And we're able to give a customer what they want and what they see. And the parallels to this truck classification three through seven against the Type A, Type C and Type D is remarkable. It's right on the money. I mean, it's a direct comparison to two different industries.
Craig Irwin: Okay. Can you maybe talk about what your capacity would be if we really did see the Blue Sky scenario where we have an aggressive change out of the legacy school bus fleet? How many units of electric drivetrains can you produce a year? How many can cummins EDI supply to you so that you can deliver, finished electric school buses into the market? Are we talking in the range of maybe several 100? Do we have the opportunity maybe to flex into the 1000s? And what sort of commitments do you have around capacity from your primary battery supplier?
Phil Horlock: Well, I think we have plenty of capacity in that front battery supplier. I mean, we just, obviously, I think when you look at what we sold is a -- so its a fairly -- it's a nice number, the way it's growing. And the scheme of things, it's still a relatively small, clearly for the rest of our business. So from a Blue Bird standpoint, and when I talk about chassis and school buses. I mean, if it comes to our plant, you'll see we're a very manual operating plant. That's why we have a pretty good free cash flow. We don't spend a lot of money every year on CapEx. We're very -- that's our flexibility. So in all cases, a lot of the time when we want to increase capacity or one particular product line, it's a case of putting men in the plant, manning it and getting it moving. The movement just makes a single shift to be able to build significantly more units on one shift than we built prior to COVID. Its a good testament to that. We're in very good shape and our ability to be able to build chassis and install electric drivetrains in it. And to be able to build bodies too for those school buses. When you talk about our Cummins partnership, they're in the same boat. Cummins is a terrific organization. They scale for demand. The demand is where it is right now, they scale forever. They are ready and willing when we sort of pull in orders and start to put orders their way, they'll step up and it’s a case we're going to just bring it down more resources. Again, what they do on that drivetrain. They're buying lot of assembled, a lot of components your pre buying as you know what electric vehicle business. It’s a case of putting it all together, and putting a control system to handle it all of that. They have lots of capacity to do that. So what do I think going forward? I think we're talking. I mentioned before, we have 1000 unit capacity right now that's readily available for us to build buses, we could easily flex up we think to a few 1000 above that on several 1000 chassis above. It’s a chassis.
Craig Irwin: Great. Thanks for taking my questions.
Phil Horlock: You bet. Thanks, Craig.
Operator: Our next question comes from the line of Jon Lopez with Vertical Group. Please proceed with your question.
Jon Lopez: I think so much. Can you hear me right?
Phil Horlock: Yes, Jon. We're able to hear you.
Jon Lopez: Great. Thank you. Thanks a ton. I had three questions. I just want to do them one at a time if that's okay. The first one is, I'm just wondering if you guys can talk a second about what a market recovery could look like. And I guess what I mean, when I say that is, obviously the industry was doing a couple 1000 buses more per year pre COVID. So on the one hand, that would seem like kind of a natural upward tendency when COVID clears. But on the other hand, just between budgeting cycles and sort of any other logistical issues, I would imagine like a direct snapback is somewhat more complicated than that. So could you just talk for a second about like, as the market comes back, just kind of how quickly would you think we can get back to kind of, I don't know, 2017, 2018 levels just procedurally?
Phil Horlock: Yes. Look, I think the snapback later this year, which I do expect as we get into 2022 school style. I mean, as we think about more vaccinations being available, schools reopening. We have protocols are really in place to handle this. I do think we're going to see quite a surge in orders in anticipation of 2022 school stuff. I've given industry range, I think its 26,000 to 30,000. Just quite a bit below the 35,000. We've been running out for about three years prior to COVID. I mean, that's probably about right. That's about the peak, I could see this year. They probably just -- they just had enough time, frankly, I don't think to get everything back in order, to get much above that 30,000 level, that would be great. Now, when you're looking to 2022, you get into buses, the schools are open, you have to remember that major funding mechanism for school buses is property taxes in municipalities. So if property values remain high, though, which they are, they're still not falling, those property values remain high. That's the funding mechanism for school buses and for education. I think I've mentioned a couple of other calls that people -- when they look at the average number of buses bought by a school district. Now there are 14,000 school districts, there are 35,000 industry is sort of two to three buses a year as the average. It show us big difference by 100. But in most cases, these three buys. I want four buses. I'll take two buses. And affordability is not a typical as probably people think because in this context and it's the total education budget for across North America. It's about 0.3% of the total education, capital expense budget is spent each year on school buses, sort of 3%. So it often added that what I was saying is you look at it, school buses are getting year old. There's a lot of interest, a lot of excitement. And as we come out this pandemic, making sure our children are safe. There is no safest method of transportation in the school bus. It's a fact. It's proved 50 times safer than any other method of transportation, look at accidents, injuries, and so on. We just got confirmation this week, this was a great example. I think other states stepped up. Fortunately, we don't have money to imposed for to accelerate the reflections of old school bus in the state of Georgia. That's on top of the property taxes that typically funds most of the replacements. And that's about 30% more, actually 100% more than it was a year ago, funding more than 500 buses on top of the traditional sort of level of changeover. So what I'm telling you is there's a lot of excitements I think about getting kids back in school. And I think there's a lot of desire and interest as to what grade that school bus fleet, which are very resilient industry when you look at it over a long cycle.
Jon Lopez: Got you. That's really helpful. Thanks for all that. I had further real quick. And if you wouldn't mind. The first one is, I'm wondering the sort of Biden stuff is relatively recent. I mean, I know conceptually, it's been discussed for a couple of months, but I think it probably has more force now. And I think the thing I'm wondering is, as you're engaging with customers, is there perhaps a rethink that's happening as people are thinking about a recovery, i.e. we thought we were going to do some portion diesel, some portion propane. Now we're thinking a different portion, EV. Is that a potential? I don't want to say impediment. But does that complicate the recovery to any great degree?
Phil Horlock: No, I don't think so. I think, look, there's still a lot of funding available for EV. I mean, DW grants. There's a South Coast Air Quality Management Group in California is making grant money available. They have CEC grants been wrapping up right now. There's a lot of unique funding available. We're talking every day with prospects all across the country who are interested in being able to utilize that VW grant. And I think there's still something like -- there's at least I think about $40 million left, about $600 million that's been carved out for school buses to apply to low emission vehicles as we just talking for. When it comes to the first quarter. I was pleased about. And I think this is - I'm trying to answer your question here is. We still want a terrific -- we have a terrific quarter for all fuel vehicles. And obviously I've got good electric models, we've got propane in there, a low emissions problems, which is incredibly affordable product from a TCL standpoint, from a school district. It held up at a time when people are probably scrutinizing what they're spending money on, things to payout resources before classrooms and fully back in the classroom. I think it just bodes well for the success of that business. I mean, what we're seeing right now is we're seeing increased demand from quote activity. Quote, I should say this would lead to an increased quote activity. We have some increased and we're seeing in pockets that when schools are going back, yes, we're clearly seeing increased orders coming in. So I think it was an excitement about what President Biden has said on two points, right. Schools reopening, but also this electrification school bus fleet. We all heard that. And when I first heard it during the campaign trail, but that's pretty impressive. And it reiterated its sense. I think it's exciting for everybody. But it's a journey. I mean, it's not going to happen overnight. I mean, that is a multiyear journey, I think that we can all enjoy.
Jon Lopez: Got you. Okay. Thanks for that as well. Sorry, the last one. I hope I have these numbers, right. And if I'm wrong, please forgive me and correct me. But I think two years ago, your fiscal 2019, you did something in the order of 50 electric buses delivered. Last year, I think you're in the ballpark of 150. So you did about an incremental 100 buses. If you were to do 25% more this year, kind of 200 buses in that ballpark that only be sort of an incremental 40. It seems like not a particularly large step up relative to some of the things you've discussed before. I'm wondering if I'm processing that number, right. Are there other complications, whether this be supplier related, manufacturing related? Is it just time to sort of educate the ecosystem? Like why -- I guess my question here is, why would you do kind of at least as many incremental buses, EV buses, as you did last year in the context of the environment?
Phil Horlock: Well, I think that's you summed up in the context of the environment. When you look at the 100 buses we got last year, we got a lot of those in the first half of last year. We actually expecting more. But what happened is COVID definitely put a little down grow on the back end of our year running from the middle of March onwards, that really put a down grow. We already have very much in hand that backlog of orders already. We're in hand for this. So that's actually electric. It slowed down a little bit towards the back end of last year, as people were dealing with COVID and classrooms were closed. So I think that seem for me a little bit prudent, being aggressive on the business and on the cost side, but be prudent on our volume projections. So here we are in the first half of the year, which is heavily influenced by COVID. On the and above last year, first half when it wasn't influenced by COVID. But the big thing is what's going to happen in the second half. I think what you said is a great point. It's something obviously question there what I think numbers are going to be. I think we sort of setting online 25%. It's roughly about 25% now. But I think it's possible we could see as break well through to 200. Let's just see how it goes. I'll keep updating everybody on that each quarter.
Jon Lopez: Got you. Hey, listen, thanks so much for all the help. I really appreciate it.
Phil Horlock: You bet. Thanks Jon.
Operator: And with that, we reached the end of our question and answer session. And I would like to turn the call back over to Phil Horlock for closing comments.
Phil Horlock: Okay. Well, thanks, Dave, and I will thank everybody for joining us on the call today. They've a great question by the way, got us all thinking and really appreciate that and your interest. And we look to look forward updating you to on our progress next quarter. So we can see what you're interested in. And so we'll make sure we cover as best we can the topic are on your mind. As a whole, you can see, we are dealing really well, I think with this unprecedented pandemic, and there's no question. I think its inevitable. Industry will rebound. It will rebound. So a lot of school this time they run their own fleets. Kids have to get to school. Mom and dad have to get to work. They need those school buses. And it's just temporary blown figure, lots of people. But the temporary blip we're going through that we will recover. In the meantime, just remember what we do. We're improving our business structure. We are growing what I call our underlying margin. You don't see it yet because the volume is low. We have the overhead absorption issues that Jeff mentioned. But believe me; our real underlying margins are improving. And we'll capitalize on that as the volume bounces back. And I think we're driving leadership alternative power. That's exciting. But we've been -- we've led this race for the last 10 years and we aren't stopped. We got we got a new tool now in our toolset is the way I look at it. We've led on propane. We've led on gasoline. You might say what's gasoline on that alternative power? It's an alternative to diesel. It's an alternative to diesel and that's what we've been focused on. Now we're looking at zero emissions. And electric vehicles and electric chassis they are top of mind for us now, as we see the incredible growth potential that has the changing aspects of our landscape of transportation. So that's what we're going to focus on what we're going to talk about in the next earnings call to you. I just do. I want to give a recognition to our incredible employees in Fort Valley and Macon, in Drummondville, Quebec and in Columbus, Ohio, we're in the past. They are great set of folks, and we couldn't be where we are without them. So again for questions please don't hesitate give us a call to Head of Profitability and Investor Relations. Mark Benfield, you know him well. And thanks again from the Blue Bird. Have a great evening.
Operator: This concludes today's teleconference. You may now disconnect your lines at this time. Thank you for your participation. And have a wonderful day.
