Student Transportation Management Discusses Q3 2013 Results - Earnings Call Transcript

May.10.13 | About: Student Transportation (STB)

Student Transportation (NASDAQ:STB)

Q3 2013 Earnings Call

May 10, 2013 11:00 am ET

Executives

Keith P. Engelbert - Director of Investor Relations

Denis J. Gallagher - Chairman, Chief Executive Officer, Chairman of Student Transportation of America Holdings, Inc and Chief Executive Officer of Student Transportation of America Holdings, Inc

Patrick J. Walker - Chief Financial Officer and Executive Vice President

Analysts

Mark Neville - Scotiabank Global Banking and Markets, Research Division

David J. Tamberrino - Stifel, Nicolaus & Co., Inc., Research Division

Greg Colman - National Bank Financial, Inc., Research Division

Theoni Pilarinos - Raymond James Ltd., Research Division

Operator

Good day, ladies and gentlemen, and welcome to the Student Transportation, Inc. Fiscal 2013 Third Quarter Results Call. [Operator Instructions] I would now like to introduce your host for today's conference, Mr. Keith Engelbert, Director of Investor Relations. Please go ahead.

Keith P. Engelbert

Hi. Thank you, Kate. Good morning, everyone, and thank you for joining us to discuss the third quarter fiscal 2013 results, which ended March 31, 2013. Joining me today on the call are Denis Gallagher, Chief Executive Officer; and Pat Walker, Executive Vice President and Chief Financial Officer.

Yesterday, the earnings release, MD&A and financials were disseminated. The release, MD&A and financials are accessible on SEDAR, EDGAR and our website at www.ridestbus.com. This morning, we also released a message to shareholders from CEO, Denis Gallagher. Feel free to take a look at the letter when you get a chance.

In addition to our standard disclaimer about forward-looking statements, please also note that all figures are in U.S. dollars, unless otherwise specified. I will also remind you that this conference call is being webcast live.

With that, I'll turn the call over to Denis Gallagher.

Denis J. Gallagher

Thank you, Keith. Good morning, everyone, and thanks again for joining us. Obviously, I'm pleased to report that our operating results for the third quarter of the fiscal year improved over the same quarter last year. But more importantly, our year-end forecast, despite the weather deferrals and calendar shifts, are in line with our internal expectations as we fully expect to make up our deferred contract revenue days as we have done historically. In fact, we're already well into achieving that during April and now in May. I'll talk about the impact of the winter storms compounded by the earlier hurricane on our Northeastern and Midwest operations a little later. I'm also very pleased to note that next week, our company will pay its 100th consecutive monthly cash dividend since our IPO in December of 2004 and our first dividend payment to shareholders back on February 15, 2005. These dividend payments have been a hallmark of our successes, and reaching this milestone is a tribute to our Board of Directors, our shareholders, our dedicated management team and thousands of outstanding employees.

As I have stated in previous calls, we entered into the new fiscal year anticipating an approximately 15% increase in annualized revenues for fiscal '13 over fiscal '12. In fact, year-to-date, revenues are up -- up to March have increased by 13.5%, which puts us right on target with the anticipated 15% increase in annualized revenues we forecasted in the beginning of the year once we add back the recoverable days in the fourth quarter. Since we last spoke to you, we have broadened our company initiatives to reduce costs, secure several new contracts and, again, renewed over 95% of our existing contracts up for term this year. Our long-term contract visibility has never been greater. Some of the new contracts we have won will expand our use of environmentally friendly vehicles equipped with liquid propane auto gas fuel systems, or LPG, as we call it, for the start of the next school year.

Our growth efforts recently have been concentrated on bids, conversions and managed contracts. So looking to fiscal 2014 beginning this July, we are forecasting approximately 10% growth over fiscal 2013 with what we already have booked. There are potentially a few additional bids we are waiting on before the start of the school year, that we have not completed any acquisitions this fiscal year, we have not had any capital -- new capital raises in over a year, and we have no need, at this time, to go back to the capital markets for funding of our new or proposed growth for fiscal 2014 with the levels I just mentioned. We have made great progress in lowering future operating costs through a reduction of our long-term fuel costs and lowering our future payout ratio by securing more non-asset and asset-light businesses, as well as extending the life of our current revenue contracts with existing vehicles.

Pat Walker, our CFO, will review our complete financial results for this quarter of 2013 in detail in just a few minutes. Those deferred revenues from school closings this quarter were primarily due to the seemingly endless winter storms that crippled much of the Northeast, the Midwest and even into Ontario. On top of that, we were still struggling to make up schooldays lost during the effect of Hurricane Sandy 3 months earlier. And of course, Easter was in March this year versus April last year.

However, and more importantly, the great thing about our contracted business is that we can predict pretty well the revenues we will receive during the fiscal year due to the revenue contracts we hold. Now this is not the first time we have had severe weather hit our operations, nor will it be the last. However, as in past years, we recoup those revenues deferred in the second and third quarters during the fourth quarters, as schools adjust their calendars to make up for the lost schooldays, giving us a strong finish to 2013 fiscal year. When this has happened in the past, I would hear from folks who would say, "Wow, you had a great fourth quarter." And I would say, "Yes, thank you. It's because we had a crummy weather in our second and third quarter." So it's just math. We have 180 schools -- 180 days of schools in almost all of our contracts. So while I can't predict the weather, I can forecast that the number of schooldays will generally remain constant. That is one of the main reasons our revenues are so predictable. If we close an acquisition during the school year, we can figure out how many days are left in a year, and that's the revenue we'll get from those. When we announce we win new bids, those start in the beginning of the school year and go 180 days. So while the revenue is predictable and our fixed costs are spread over the year, the variable in which schooldays fall and what determines which months and which quarters.

As we do know, fuel cost is a variable in our business. The steps we have been taking to tackle those costs are starting to show positive results and expected to continue as we move into 2014 and beyond. First, we have increased the number of contracts that include customer-paid fuel provisions or fuel mitigation clauses, and we're making consistent good progress in this area. Currently, over 60% of our contracts include some form of fuel protection, which is mitigated annually, and 28% is now 100% customer-paid. That's up from 10% customer-paid just a few years ago, plus we've been growing it at about 15% a year.

Now smart technology like GPS systems and fuel-idling monitors on our buses we've been using to reduce excess idling and lower our fuel costs have also begun to literally pay for themselves. Our operational teams are focused on this daily, and we're committed to continuing our progress to reduce fuel costs at the local level.

We've entered into new contracted arrangements with our major fuel suppliers, and we're anticipating to see a reduction in expense from improved procurement practices on that portion of the fuel which we purchase, some of that which, by the way, is in very rural communities.

The final fuel-related area which I -- which will see a significant impact on improving margins and lower operating costs involves alternative fuels. We have successfully operated with these fuels in 2 states, California and Minnesota, over the past 3 years and have significant orders for the coming year that will add 600 alternative fuel vehicles to our operations in Nebraska, Pennsylvania and Texas. By the start of the new year, we will operate over 1,000 alternative fuel vehicles, consisting of liquid petroleum gas, LPG; and CNG, compressed natural gas, in the U.S. And we continue to run the largest bio fleet in Canada, with over 1,600 vehicles. The benefits are really turning green, both environmentally and cash flow-wise. This is not a fad. The payback is real. Now, we have done a great job of negotiating reduced asset cost for these new engines, making them more affordable and significantly reducing the payback period.

A gallon equivalent of propane is currently about 50% less than the cost of a gallon of diesel, and it's domestically produced here in North America. Alternative fuel vehicles, such as LPG, produce 60% less carbon monoxide than gasoline engines, which parents, politicians, school boards and environmental groups strongly support. Our position to leverage LPG propane-powered buses was supercharged by our major contract win in Omaha, Nebraska, which we announced during our last earnings call. It's factored well into the decision by school boards, with new contract wins this quarter in Texas and with 2 school districts in Pennsylvania. Both of these states have large gas resources.

By the start of fiscal 2014, so far, our operations will have added approximately 800 vehicles. Of that, we will have deployed 600 new LPG vehicles, and we will be operating the largest propane school bus fleet in the United States. The Blue Bird Corporation is manufacturing these vehicles in Fort Valley, Georgia, for us, which are being equipped with ROUSH CleanTech liquid propane autogas fuel systems of Detroit, Michigan. The 125 of the 400-plus LPG vehicles for our Omaha contract have already been delivered and were most recently showcased in the Cinco de Mayo Parade this week in the city.

We have hired our staff, our facilities are leased, and a new one is being built. We have received applications from hundreds of folks anxious to work with us. We have trained and completed background checks on over 500 potential new employees, and we intend to make this a showcase, so other school districts, cities and states can see what can be done if they let us help.

Now all of this is necessary to have a great start-up in our next fiscal year in July. The Mayor of Omaha, the Governor of Nebraska and maybe even the Oracle [ph] himself, plus many others, have been excited to have their city be in the spotlight for reducing their carbon footprint by over 2.3 million pounds each year of our contract. Now that's a significant reduction.

We're also using propane in some of our smaller vehicles that are made by Collins Bus Corporation in Kansas called NEXBUS. In fact, we're working very closely with all of our manufacturers to help find alternatives in making a safer, cleaner bus.

More and more schools in the U.S. and Canada will be looking towards us to come in with solutions like LPG to reduce their carbon footprint and to more efficiently manage their operations. We are well positioned to offer them a creative solution, experience and a competitive price. Again, if we keep growing with targeted bids, conversions of public fleets to our private model, plus expanding our managed fleet concept, where schools own the feet but we operate it for them in a more efficient manner, we will have less pollution and less dilution.

In my closing remarks, I'll talk about how these contracts in the new leasing and operations programs managed by our SchoolWheels subsidiary fit into our vision to strengthen our company and our fleet.

Now I'll turn it over to Pat, our CFO, for a full review of our third quarter financials. Pat?

Patrick J. Walker

Thank you, Denis. Good morning, everyone, and thank you for attending our third quarter conference call for fiscal 2013. As Keith noted, we released our Q3 results yesterday, and we also filed the quarterly financial statement and the MD&A for the third quarter on SEDAR and EDGAR yesterday. Both will include more detailed information. And again, unless otherwise noted, all financial information discussed is in U.S. dollars. The operating results summarized in the press release include revenue and adjusted EBITDA for the third quarter and first 9 months of fiscal 2013. We use adjusted EBITDA internally as a useful measure for tracking performance. And as you know, adjusted EBITDA is a non-GAAP measure.

Before turning to a discussion of the operating results for the third quarter and the first 9 months of fiscal '13, I'd like to note 2 things up front: the first is the seasonality of the school bus transportation industry and thus, the company's operations; and the second is the impact of weather on the company's operations for interim periods.

The company's operations follow the school calendars of the public and private schools that we serve. School calendars include 180 days of instruction. So missed school days during the year due to weather are made up to meet the 180-day calendar before the end of the school year. At March 31, 2013, we had a $5 million revenue deferral compared to our current expectation resulting from missed school days in the interim periods related to Superstorm Sandy and heavy snowstorms that hit the Northeast and Midwest in March. Similar to our experiences from past years, we expect to recover the $5 million revenue deferral in the fourth quarter, as schools make up the missed school days to meet their 180-day calendars. Thus, the financial results of the company for any one quarter are not indicative of the financial results for the full fiscal year.

While temporarily offsetting or offset by the weather day revenue deferral, the company's Q3 results continue to reflect the growth of the company through the execution of the ABC growth strategy. As previously reported, the company started operations on 9 new bid contracts in July for 2013: 6 were in the U.S., and 3 were in Canada. We have not closed any acquisitions in the current year, as Denis had noted.

And regards to the prior year acquisitions, please note that we closed 7 acquisitions during fiscal '12: 3 during the first quarter of fiscal '12; 3 in the second quarter of fiscal '12; and then 1 in the fourth quarter of fiscal '12. As such, the prior year fiscal third quarter and first 9 months do not include any operations for the new bid wins secured for 2013. And with respect to the fiscal 2012 acquisitions, the third quarter and first 9 months of this year include -- or I'm sorry, in regards to the fiscal '12 acquisitions, the prior year fiscal third quarter and first 9 months include only partial year operations for the acquisitions included in the first 2 quarters of last year and no operations for the acquisition completed in the fourth quarter of last year.

And looking at the third quarter and first 9 months operating results, revenue for the third quarter of fiscal 2013 totaled $120.5 million, an increase of $7.1 million or 6.3% over the third quarter of fiscal '12. The revenue increase for the third quarter was partially offset by interim timing differences related to fewer school days due to the weather days just discussed and due to the timing of the spring break holiday, which occurred in the third quarter of the current fiscal year compared to falling into the fourth quarter of the prior fiscal year. Combining these timing differences amounted to approximately $6.1 million. $11.2 million and $2.1 million of the revenue increase for the third quarter of fiscal '13 are attributable to the net new business noted along with the same terminal operations, respectively. The change in the exchange rate between the Canadian dollar and the U.S. dollar from the third quarter of fiscal '12 to the third quarter of fiscal '13 in connection with the translation of the company's Canadian operations into U.S. dollars had a $100,000 negative impact on the period-over-period change in revenue.

Revenue for the first 9 months of fiscal year '13 totaled $301.4 million, an increase of $35.9 million or 13.5% over the first 9 months of fiscal '12. Similar to the third quarter discussion, the year-to-date revenue increase was also partially offset by the interim timing differences related to fewer school days due to weather days discussed and the timing of the spring break holiday. Combined, these timing differences amounted to $8.7 million for the first 9 months of fiscal '13 compared with the first 9 months of the prior fiscal year. $40.3 million and $4.1 million of the revenue increase for the third quarter of fiscal 2013 are attributable to the net new business noted along with the same terminal operations, respectively. The change in exchange rates between the Canadian dollar and the U.S. dollar for the first 9 months in relation to the company's Canadian operations being translated into U.S. dollars had a $700,000 positive impact on the period-over-period change in revenue.

Hurricane Sandy hit the Northeast states of New Jersey, New York, Connecticut, Rhode Island and New Hampshire in the second quarter. Then the March snowstorms hit the same area, in addition to the Midwest, resulting in additional revenue deferrals in the third quarter. Combined, as I just noted, we ended the third quarter with a $5 million revenue deferral at March 31, 2013, that is expected to be recovered over the remainder of the school year. In addition to the interim school calendars for the current fiscal year, that -- they already reflect the passing of the spring break holiday. Again, this holiday fell in the third quarter of the current fiscal year as opposed to spring break falling in the fourth quarter of the prior fiscal year.

Adjusted EBITDA for the third quarter of fiscal '13 totaled $25.9 million, an increase of $0.4 million or 1.4% over the adjusted EBITDA for the third quarter of fiscal '12. The adjusted EBITDA for fiscal -- the third quarter of fiscal '13 was likewise partially offset by the interim timing differences related to the fewer school days due to the weather days and the timing of the spring break holiday. The change in exchange rate between the Canadian dollar and the U.S. dollar in terms of the translation of the company's Canadian operations had a minimal impact on the period-over-period change in adjusted EBITDA. $3.1 million of the net increase in adjusted EBITDA for the third quarter of '13 is attributable to the net new business noted earlier. Same terminal operations reflect the adjusted EBITDA contribution associated with the $2.1 million same-terminal revenue increase previously noted, combined with reductions in salaries and wages of $0.9 million, fuel expense of $0.4 million, insurance expense of $0.2 million and fringe benefits of $0.1 million, all of which were partially offset by increases in operating expenses and maintenance cost.

Increases in operating expenses and maintenance costs reflect an additional year of vehicle leasing and higher parts and repair expense in the interim period, respectively. The decrease in salaries and wages reflects lower driver wages, primarily associated with the fewer school days in the interim period.

Insurance expense decreased for the third quarter of fiscal '13 by $0.2 million compared to the third quarter of fiscal '12 due to a combination of lower fixed costs and favorable liability claims experience.

And then in terms of fuel, while we have noted the anticipated 15% in year-over-year revenue increase for fiscal '13, for the full year of fiscal '13, we have also increased the percentage of our contracts in fuel -- that include fuel mitigation that Denis noted from 60% in fiscal '12 up to 63% during fiscal '13, with the majority of that increase coming from customer-paid fuel. While we have increased our fuel mitigation, I would continue to note that we are still exposed to the impacts of higher fuel prices under some of those mitigation features. In addition, we also locked in an additional 20% of our fuel exposure with fixed price contracts in the first half of the year. While we continue to review additional fixed price contracts, we have not locked in any contracts in the third quarter or for the remainder of the 2013 fiscal year. The increase in fuel mitigation, combined with fewer school days in the interim period and some fuel-saving strategies associated with the reduced idling and the deployment of alternative fuel vehicles, had helped us lower fuel expense compared to the prior year third quarter.

Same-terminal expense for School Bus Transportation decreased for the third quarter of fiscal '13 by $0.4 million compared to the third quarter of fiscal '12.

Adjusted EBITDA for the first 9 months of fiscal year 2013 totaled $50.8 million, an increase of $4 million or 8.5% over the adjusted EBITDA for the first 9 months of fiscal '12. The increase for the first 9 months of fiscal '13 primarily results from a net new business identified and the adjusted EBITDA contribution associated with the $4.1 million same-terminal revenue increase, both of which were off -- were partially offset by the interim timing differences related to fewer school days associated with the weather days and the timing of the spring break holiday. In addition, adjusted EBITDA for the first 9 months of fiscal '13 was also impacted by increases in operating expenses, maintenance costs, fringe benefits, salaries and wages, all 4 of which were partially offset by lower fuel costs and insurance expense.

Similar to the quarter, the $2.4 million increase in operating expense and the $0.7 million increase in maintenance costs reflect an additional year of operating leases and higher parts and repair expense in the interim period, respectively. The $0.7 million increase in fringe benefits primarily relates to increased workers' compensation costs, while the $0.2 million increase in wages primarily relates to higher driver development and safety wages and some operations wages.

Net income for the third quarter of fiscal 2013 was $1.8 million, reflecting net income per share of $0.02, compared to net income of $3 million or $0.05 per share for the third quarter of fiscal '12. The $1.2 million decrease in net income for the current fiscal year third quarter is primarily attributable to the combination of the $2.4 million noncash unrealized swing in the remeasurement gain/loss on the 6.25% convertible debentures; the $1 million increase in depreciation, depletion and amortization expense; the $0.9 million increase in operating lease expense; the $0.5 million swing in unrealized gain/loss on FX contracts; and the $200,000 decrease in realized FX gains, all of which were partially offset by the $0.4 million increase in adjusted EBITDA, the $0.7 million swing in noncash gain/loss on the 6.25% convertible debentures' conversion feature, the $1.6 million swing in other income and expense, the $0.4 million decrease in noncash stock-based compensation, the $0.2 million decrease in interest expense and the $0.5 million decrease in tax provision.

Net income for the first 9 months of fiscal '13 totaled a loss -- net loss totaled $2.9 million compared to a net loss of $7 million for the first 9 months of fiscal '12. The $4.1 million improvement for the first 9 months of fiscal 2013 primarily results from the $4 million increase in adjusted EBITDA, the $2 million swing in unrealized remeasurement gain/loss on the 6.25% convertible debentures, the $2.5 million swing in noncash gain/loss on the 6.25% convertible debentures' conversion feature, a $2.5 million increase in other income, a $1.3 million swing in unrealized gain/loss on the FX contracts, $0.7 million decrease in interest expense and the $0.7 million decrease in noncash stock-based compensation, all of which was partially offset by a $2 million decrease in tax benefit; a $4.4 million increase in depreciation, depletion and amortization expense; the $2.3 million increase in operating lease expense; and a $900,000 decrease in FX gains.

In looking at the cash flow statement, I would highlight the following. As reflected in the investment activities, purchases of property and equipment totaled $1.1 million and $20.2 million for the third quarter and first 9 months of fiscal 2013, respectively, while proceeds from equipment sales totaled $300,000 and $1.5 million in those same periods, respectively.

Of the $18.7 million in year-to-date net capital expenditures for fiscal '13, so net of the proceeds on equipment sales, $13.4 million relates to the 9 new bid contracts and additional routes secured as part of the net new business for fiscal '13, $4.1 million related to net replacement capital expenditures spending purchased, and $1.2 million relates to oil and gas investments.

In regards to the 2013 growth and replacement CapEx, in addition to the $13.4 million and the $4.1 million in growth and replacement CapEx just noted, that was reflected in the cash flow statement, in the fiscal 2013 first quarter timeframe, we also financed and replaced the equivalent of approximately $29.7 million in fleet value under operating leases. These operating leases at 6-year terms with effective fixed rate as low as 2.8%, with 4.6% at the upper end of the range. Thus combined, the purchased and leased replacement CapEx deployed totaled approximately $33 million or approximately 7.5% to 8% of anticipated revenue for the full 2013 fiscal year.

As discussed on prior calls, the company finances the replacement fleet value through purchases of the buses, where the company owns the buses outright; and through our operating lease financing program, where the lessor owns the buses. The buses purchased by the company are included as assets on the balance sheet and are included in replacement capital spending. The buses leased are not included as assets, as the lessor retains ownership of these buses. The operating lease payments are included in operating expenses on the income statement and thus, are reflective as cash outflows on the cash flows provided by -- used in operating activities line for the cash flow statement.

Included in the net replacement CapEx purchased for fiscal '13 is approximately $1.1 million in lease buyouts for leases entered into for the 2007, 2008 fiscal year. That was the first year we utilized lease financing. We purchased approximately 120 vehicles related to the lease buyouts. The value of those vehicles was approximately $3.3 million, and they have remaining useful life of 6 to 8 years. We will most likely continue to purchase these leased vehicles at the end of their lease term to benefit from that remaining 6 to 8 years of asset life. The lease buyouts for leases entered into for the 2008, 2009 fiscal year, which was our second year of leasing, was approximately $1 million in fiscal 2014. We continue to review leasing as a financing option available to us in addition to our credit agreement.

Included in financing activities, you will see cash dividends associated with the third quarter and 9-month period ended March 31 were $9.1 million and $25.8 million, respectively. With respect to the currency exposure on future proposed dividends going forward, we have hedged approximately 38% of such dividends, along with the interest on the 6.75% convertible debentures, which are denominated in Canadian dollars, for the 1.5 years based on the current dividend rate in effect for the past year. Additionally, our Canadian dollar operating cash flows serve as a natural hedge against currency fluctuations.

And turning to the balance sheet, in March 31, 2013, our outstanding debt balances totaled approximately $224 million, which include $108 million in convertible debentures, $35 million of senior secured notes, $80.8 million in credit agreement debt and $100,000 in salary and other debt. In February, we -- in February of this year, 2013, we amended the company's credit agreement to extend the maturity date for another 5 years to February 27, 2018. The amendment included an increase in commitments to $155 million from the previous commitment level of $140 million and also reflects lower interest costs as we lowered the borrowing rate by 50 basis points. The increase in the facility results from the existing lenders increasing their commitments, as well as the new lender joining the bank group, who replaced an existing lender. The amended agreement maintains the $100 million accordion feature for additional capacity when needed. The $35 million in senior notes have a fixed rate of 4.24% and a maturity date of November 10, 2016.

The last time we went into the public markets was the March 2012 equity offering that we completed. Prior to that, we had issued convertible debentures at the STI levels at 3 previous times we went to market based on the attractive rates of the convertible debentures at those -- at that time. The first 2 issuances were in Canadian dollars, and the last issuance was in -- denominated in U.S. dollars. As disclosed during the second quarter of fiscal '13, the remaining 7.5% convertible debentures, which was the first issuance of debentures we did, were redeemed in November 2012 and thus, are no longer outstanding.

Before I turn it back over to Denis, I'd like to conclude with the following thoughts. As I mentioned at the start of my section, the results of any interim period are not indicative of the results for a full fiscal year. And as previously noted, we fully expect to recover the $5 million in revenue deferral that's there at March 31, 2013, that resulted from the weather days that occurred in the earlier interim periods during the fourth quarter. We entered fiscal 2013 with an estimated 15% growth in year-over-year revenues, as we previously reported. We also indicated that we would pause on the acquisition front during fiscal '13 in order to focus on fully integrating the 7 acquisitions secured during fiscal '12 and the 9 new bid wins for fiscal '13. And that with the pause on the acquisition front, we further noted that we didn't expect any market offerings during fiscal '13. To date, we are on track with all of those initiatives.

In December, we announced the early award of the Omaha public schools contract, which will begin this coming July for the 2014 fiscal year. We have also announced the several other bid wins in Pennsylvania, Texas and Ontario for the 2014 fiscal year. We continue to review some last-minute bid opportunities for the fiscal 2014 year as well. We continue to explore ways to improve and expand our debt financing availability.

We continually review and monitor the senior debt markets, as well as exploring new lease financing proposals. Currently, we have approximately $70 million to $75 million of availability under the credit agreement commitments. And as noted earlier, we extended the credit agreement with additional commitments at lower interest rates.

In addition, we currently have several proposals for additional lease financings in connection with our capital expenditure plans for fiscal 2014. We have proposals for over $80 million in lease financing with 6-year terms, with indicative interest rates in 2.5% range in the U.S. and 4.2% range in Canada.

Our current replacement capital expenditures for fiscal 2014 is in the $25 million range. As in prior years, we will look to utilize lease financing to cover majority of our replacement capital expenditures, as well as for some of our growth capital expenditures. With the financial availability under both the credit agreement and the lease financing proposals, we are in good shape to cover the 2014 growth secured to date and potential additional bid opportunities or small acquisition opportunities, along with the initial range of replacement CapEx deployment for fiscal 2014. Now, I'll turn it back over to Denis for some concluding remarks.

Denis J. Gallagher

Thanks, Pat. As I said earlier, our contracts are in place. Schooldays are being made up as we speak. We will pick up speed in the fourth quarter for a strong finish to this fiscal year. We are always focused on safety first, contract renewals for extended revenue visibility, innovation, continuing lowering our payout ratio and improving our margins.

Two of the contracts we won this quarter will be managed by our new subsidiary, SchoolWheels. Under our new management contract and municipal leasing programs, SchoolWheels arranges for the leasing of new state-of-the-art vehicles and acts as the transportation management company and advisory company for school districts. As part of our asset-light initiatives, SchoolWheels also offers a variety of services and arranges necessary third-party financing of new vehicles for districts that want to continue to own the assets.

Right now, propane costs about $1.60 per gallon equivalent compared to about $3.50 per gallon for diesel. So these customers are embracing the idea that cost savings can go hand-in-hand with environmental stewardship. We also generally offer districts a 10% to 15% operating cost savings compared to their in-house operations due to our efficiencies, our regionalization and our purchasing power and expertise. We're excited about the potential of the new managed contracts and leasing program and how new alternative fuel vehicles significantly change the industry and our company's fleet profile.

Now the model is similar in many respects to an OpCo/PropCo business model in some companies and represents a new vision to strengthen our company, a vision in which an increased portion of our business will be managed contracts, where schools own the assets, and an increase in the leasing of our fleet. The large deployment of new propane-powered vehicles in Nebraska, Pennsylvania and Texas at the start of the 2013, '14 school year, along with those we currently operate in California and Minnesota, will be the catalysts that alternative fuels need to gain more traction as a viable and reliable fuel source for the school transportation industry. It also represents our commitment to lead that change in the industry that benefit our customers and our communities.

As Pat mentioned, we currently have approximately $70 million of borrowing availability in the credit agreement. We got $80 million of low-cost lease proposals so far received from many financial institutions, where we have 6-year fixed financing alternatives with all-time low rates. We don't need anywhere near that amount of financing, but it's good to know that we have it available. These low-cost financing alternatives will more than sufficiently fund the new contacts secured for 2014 that have already been announced to date, along with other bid or small opportunities that may arise.

While our managed business has historically been about 5% of our fleet and leasing approximately 10% of our fleet the past few years, we estimate that our model will shift the balance so that 25% of our total fleet will be leased or managed contracts by the start of fiscal 2014. At the same time, we're working hard improving margins and lowering replacement capital costs through contracts extensions. Thanks to our family of dedicated managers and employees, we have again had tremendous success in renewing our existing business, with CPI increases of 2% to 2.5% on most of our contracts and 95-plus percent contract renewal rate again over the past 16 years, which remains very strong. It's that steady, predictable contracted revenue and cash flows that have allowed us to pay shareholders our 100th consecutive monthly cash dividend since our initial public offering in December of 2004. We'll celebrate that accomplishment with a special acknowledgment to our employees and those dedication -- and those that are dedicated to getting children to and from school safely everyday and make it possible.

May 15 is also our 16th anniversary since I started the company, so 8 years private and 8 years public. Our job for the remainder of fiscal 2013 is to stay safe, collect those lost days, which we're already doing, stay focused on our goals and continue to treat our customers and our people right.

Now that concludes our remarks. And we'll take a few of your questions from our analysts. Kate, if you'd like to open the line for some questions, we'd be glad to take some.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Mark Neville with Scotiabank.

Mark Neville - Scotiabank Global Banking and Markets, Research Division

Last call, you talked about the potential to realize 300 to 400 basis points in margin improvements. This quarter, excluding growth in the business, it looks like the cost of operations were essentially flat. Can you help us maybe better understand how we should think about the margin improvements in terms of cost savings versus operational leverage versus growing that managed fleet, as well as maybe timing and how that -- you see that rolling out?

Denis J. Gallagher

Yes, I can take some of that, and Pat, you can jump in too. Mark, I think what we are indicating was we are still anticipating that we're going to have similar improved margins for this year. But on a go-forward basis, the more managed contracts we do, the more alternative fuel vehicles we put in. In other words, our fuel, for example, has been running, historically, around 9%, and our goal is to get that back into the 4% to 5% range. So more customer-paid fuel, more alternative fuel vehicles and more technology, i.e. the idling and programming systems are going to help us lower that. Now from a margin perspective also, you've got -- and I'm sure you understand this -- the more leasing that we do, the less EBITDA, the less D&A we have to do. So our margins will, in fact, look like they're coming down, but our return on invested capital, our return on assets is actually improving, and that's what we're try to drive that for. So when we look at adjusted EBITDA, which basically is the old EBITDAR, our margins should be slightly improving. And so far, we're forecasting for 2014 our lowest payout ratio ever and improve in -- pretty nice improvement in the margins. Pat, did you want to add any?

Patrick J. Walker

The other thing I would add, Mark, is as we do look at more managed contracts too, where we do not own the fleet, so one of the ones we've secured for next year is a management deal, where the school district owns the fleet, and we'll enter into a municipal lease program directly with the lender. Those managed contracts, because there is no capital investment whatsoever on our part, they will have a bit of a lower margin compared to a contract where you have to invest.

Mark Neville - Scotiabank Global Banking and Markets, Research Division

Right. On the managed fleet and the leased fleet, specifically, I believe you said that by the beginning of '14, that could be 25% of your fleet or your operations. Am I correct in remembering that, that is sort of at the max of where you can take that? Or can that move higher, that percent?

Patrick J. Walker

I'm sorry, the max of what?

Mark Neville - Scotiabank Global Banking and Markets, Research Division

The percentage of your fleet that's managed and leased versus owned, was there -- I thought I -- previously, there was some sort of covenant placed where there is restriction on how much that could grow. Is that correct or not correct?

Patrick J. Walker

Under our senior note agreement, Mark, there's a 25% limit on leased vehicles but, certainly, something that, I think, easily is amended if needed be. And of that 25% were probably 19% or 20% leased, and the other 5% is managed.

Mark Neville - Scotiabank Global Banking and Markets, Research Division

Okay. So that does not include the managed? The 25% range or anything?

Denis J. Gallagher

No, no, no. The covenant [indiscernible] deals with the leased side of the fleet? The other part of the covenant is literally just tied to EBITDA. So one of the things we're talking to the bank group about -- and we just literally got a new 5-year deal -- but we're talking to the bank group about is the bank group participating more in the leasing process, and thus, we would be looking to change that whole model as we go forward anyway.

Mark Neville - Scotiabank Global Banking and Markets, Research Division

Okay. So maybe just one last question, then. On that managed fleet, I think you said 5% now. How large would you let it -- or to where you envision sort of that going?

Patrick J. Walker

Well, obviously, we're looking at -- in an OpCo/PropCo kind of a model, this is more geared towards the 10,000 school districts that own and operate their fleet. So how large would we like that? We would take -- I don't want to be telegraphing our punches to our competitors who are listening on kind of the margins that we're getting for that business, but if you assume the normal margins we get on the operating company level, minus whatever the D&A is, that's kind of where we are. So we'll take as much of that managed business that we can get. What we have found is that we've been pushing the conversion side of the business, and we've got a lot of school districts out there who just want to continue to own their fleet. Now at the same time, their fleets are getting older. So we've been able to put together a pool of funding both from credit -- or both from existing lenders that we use, plus a lot of new lenders that have come to us that want to participate in this pool. So the new pool will kind of make money available for school districts through this new Municipal Tax Lease Program that we've designed.

Operator

Our next question comes from the line of David Tamberrino with Stifel.

David J. Tamberrino - Stifel, Nicolaus & Co., Inc., Research Division

I heard the comments on the deferred revenue and read the release. So could you just clarify kind of the associated costs, specifically what variable costs will be incurred as those schooldays are made up in the fourth quarter?

Denis J. Gallagher

Pat, you want to take that?

Patrick J. Walker

Yes, I mean, David, it's primarily driver wages and fuel.

David J. Tamberrino - Stifel, Nicolaus & Co., Inc., Research Division

Okay. I mean, dispatchers, everyone would normally still be in there?

Patrick J. Walker

Exactly.

Denis J. Gallagher

Yes, those are all -- Dave, those are all fixed costs that are already there. So as we said, pretty much 50% or so of our deferred revenue literally falls to the bottom line.

David J. Tamberrino - Stifel, Nicolaus & Co., Inc., Research Division

Okay. And then for the contracts that you had that were up for renewal this year, how has that progressed? How many have been renewed so far? And then how many are still in negotiation?

Denis J. Gallagher

We have none left in negotiation. We lost one contract so far, and we've redeployed those vehicles to date. So we have about-- we probably normally have about 20 or so up for renewal. 19 of them have been retained and renewed, and 1 we just lost -- I mean, we lost by price. A competitor came in and reduced our price significantly, and we got the opportunity to match the price. We said no, and we were able to redeploy the vehicles at a higher margin.

David J. Tamberrino - Stifel, Nicolaus & Co., Inc., Research Division

Was that one of your larger competitors or a smaller shop?

Denis J. Gallagher

That was one of our larger competitors.

David J. Tamberrino - Stifel, Nicolaus & Co., Inc., Research Division

Okay, okay. How many -- I mean, What percentage of business where there's 20 contracts, and how much that represent and how much -- kind of looking at during next year?

Denis J. Gallagher

Well, our normal, what we call, weighted average remaining term is now extended out about probably 5 to 6 years. So it's pretty good. So I mean, normally, you could say about 20-or-so percent of our revenue would -- historically would kind of come up. We do watch that to make sure that there is no huge cliffs in any 1 year. So for example, we probably renewed this year about -- well, for example, there's one on the -- that hit the press release today, I saw in Naugatuck, Connecticut. So the district had the opportunity to renew with us. They gave us a new 5-year agreement with 2% increase a year and extended the life of the vehicles. So it's that kind of stuff that we're doing. So our guys are in there in year 3 of a 5-year deal kind of getting a new 5-year deal. And so we try not to let it get to full term.

David J. Tamberrino - Stifel, Nicolaus & Co., Inc., Research Division

Okay. And then your comments around the 2%, 3% CPI price increases, so is that your longer average, or is that what you've been seeing recently?

Denis J. Gallagher

No, we're seeing that in a lot of areas that, quite frankly, over the last few years, CPI has been 0 or 1. So this is kind of the first year where we're actually seeing some -- us being able to take some increases on the base revenues. And we've been very good at making sure that our drivers -- we do a lot to make sure our drivers are well respected and taken care of, and we like them to return each year. So a lot of our competitors kind of offer, "hey, whatever we get, you get." So if they got a reduction, they give the drivers a reduction. In our case, we've literally been maintaining our kind of normal CPI kind of increases with our drivers. So this is nice for us to be able to get back -- in New Jersey, I think it's 2.6%, and we've seen that in a lot of other states.

David J. Tamberrino - Stifel, Nicolaus & Co., Inc., Research Division

Okay. I've got one more for you, Denis, and a few for Pat. Could you speak to the amount of conversion opportunities that you're currently working on, and in progress? And when do you see -- when you think you may see some traction there in terms of winning a conversion over the next couple years?

Denis J. Gallagher

Okay, well, the -- for the balance of this year, there probably won't be any conversions left. We do continue to get phone calls. It's amazing how many school districts decide in May that they want to -- that their school board has decided that they need to look at alternatives, and then you've got to start school in July or August. So there's not a lot of time to put the fleets together and to do that, unless we're -- of course, we're buying their fleet out, and that kind of option. So what we added this year was the new twist of the Municipal Tax Lease. We are able to try to get out there and push that. We've gotten some recent calls just over the -- literally, by trying the market and sell the concept of the leasing with the propane. I think a lot of schools are going to see that. We're going to -- we're kind of remodeling and retooling SchoolWheels here to be the management company that is going to go out and do that. So I can't throw a dart and give you a number that says how many we'd like. It's kind of like Mark's question of how many managed contracts would we like. We'll take as many as we can get, providing that it's customers we like to deal with, and metrics that are kind of in the range where it works for us. So the conversions, by the way, it's two-pronged. We -- for example, we're working with school districts in certain states, again, where they want to continue to own the fleet, the facility and provide the fuel. So we would literally go in, manage the employees, and it's a no-asset-base conversion for us. Others literally want to get out of the business, and they're literally looking for us to -- us and to our competitors to kind of come in and do that. Now there are certain states that are doing more of it, and there are certain states that we're not participating in, and it's just that we've kind of targeted our markets that we think are better for the long run. And there's other markets where people have said to us, "Gee, why aren't you in that market?" But we look at a lot of different things. It's my 37th year in this business, and we don't have to be in every single market. We can pick the customers we want to deal with.

David J. Tamberrino - Stifel, Nicolaus & Co., Inc., Research Division

Okay. But were there any conversion options you might have been engaged in throughout the year, that maybe you are working on, that ended up didn't converting or someone else took the conversion?

Denis J. Gallagher

Yes, we normally will work on, generally, about -- I think about -- probably, I think this year was probably 5 or 6 conversions. We didn't get any of them. A couple of our competitors picked up some by literally low price. And then a couple of school districts chose not to go that way. One in Florida, for example, chose not to do it because they couldn't afford to get rid of their employee pension costs. The -- so it's kind of a dumb reason. Their fleet was too old, they said, and they weren't going to get a lot of money for their fleet, and their pension costs and sick day costs were too high to pay out. So in our mind, kind of a dumb reason not to get out, but they're going to continue to run the old fleet and have the long-term benefit cost and pension cost to deal with.

David J. Tamberrino - Stifel, Nicolaus & Co., Inc., Research Division

Yes, unless they change it. Okay. Pat, just a couple of quick hitters for you. In terms of the 800 buses that you'll be adding for fiscal year '14, how much of that CapEx and growth CapEx are you looking to spend or have already spent through Q4? And how much of that will fall in the first quarter of '14?

Patrick J. Walker

Well, probably, of that 800, as Denis had mentioned, we've got 125 on the ground in Omaha through the balance of the year, probably another 100 will hit, and then the rest will hit next year.

David J. Tamberrino - Stifel, Nicolaus & Co., Inc., Research Division

Okay. And then the view on that is, do you have a target debt balance at the end of the year? I know we're coming a little 1 month away, 1.5 months away. I didn't know what your -- any targeted levels that you have in mind.

Patrick J. Walker

No, I mean, we're in a very good position in terms of ratios, our leverage ratios, so I don't think we have any concerns there, David.

David J. Tamberrino - Stifel, Nicolaus & Co., Inc., Research Division

Okay. And then with the amendment agreement, what do you anticipate your fourth quarter interest expense to be?

Patrick J. Walker

Fourth quarter interest expense on our credit agreement -- bear with me 1 second. Hold on, David -- we are from a -- now about $4.5 million full year in senior, but that includes my senior notes. So between the credit agreement and my senior notes, we're right around $4.5 million.

David J. Tamberrino - Stifel, Nicolaus & Co., Inc., Research Division

Okay. And that's for the quarter?

Patrick J. Walker

No, that's full year.

David J. Tamberrino - Stifel, Nicolaus & Co., Inc., Research Division

That is full year. Then for the -- got it. I can back into that. And then for your comments around your lowest -- your payout ratio for fiscal year '14, what number are you targeting?

Patrick J. Walker

Well, Pat, doesn't like to target any numbers. But we've started off in December of 2004 with 105% payout ratio. We've worked our way down to the 80 kind of percent range. We have historically said we were targeting about 85%. I'd like to see us lower that target down by about 10 points. That's a goal for us, okay? That's not a statement that says we will be at that. I want to be really clear, that's the goal for us, that I think that we can attain certainly over the next couple of years easily. Hey, Dave, also, I went back and just looked -- just to give you an idea of the amount of opportunities we looked at this year, we actually have looked at $530 million of opportunities for business [ph] in conversions. $160 million of that, we deemed as attractive for us to actually do work on and a lot of due diligence on, and we won $40 million of that. So that's about a 25% success rate for us this year, which is generally high -- probably higher than normally that we would have. Our success rate is generally in the 10% to 15%. So I think what's happening is, obviously, we're getting smarter at the deemed attractive opportunities. And these are all at margins that are consistent or a little bit better than what we're historically used to.

Operator

Our next question comes from the line of Greg Colman with National Bank Financial.

Greg Colman - National Bank Financial, Inc., Research Division

Just a couple of quick ones here. Just turning to the Q3 results. Pat, I was wondering, do you have any idea of what your normalized EBITDA -- or EBITDA, rather, margin would have been had the weather impact not been there for the quarter? Just trying to back out what was specifically related to that and what might have been other types of changes in costs?

Patrick J. Walker

Yes, if Mark -- or not Mark, sorry...

Greg Colman - National Bank Financial, Inc., Research Division

Greg.

Denis J. Gallagher

Greg.

Patrick J. Walker

yes, Greg, if you -- I mean, we had talked about the revenue deferral for the third quarter due to weather was $3 million. So we had $2 million coming into the third quarter, so $2 reported at the end of last quarter -- you're on last quarter's call -- due to the hurricane, and then an increase of $3 million. So revenue deferral, about $3 million, and then, as I said, about 50% of that will fall to the bottom line. So we took our results and added about $2.5 million, $2.6 million, that would give you where our margin would have been if we didn't have that.

Greg Colman - National Bank Financial, Inc., Research Division

So it's just about a 30%-basis-point compression from last year then? It takes it up from 21.5 reported, maybe something more like low-22s if you just used the 50% on the $3 million?

Patrick J. Walker

Yes.

Greg Colman - National Bank Financial, Inc., Research Division

Okay, great. That's one. And then second question was just when we look to the replacement vehicles going through the summer months there, what, if any, of the assets you're going to be buying -- not the leased ones, but the buying ones -- are going to be buses you're purchasing off of older leases coming to the end of their term?

Patrick J. Walker

Yes, we're going to be buying out the second year of leases that we did. So I think that's going to be the 2008, 2009 fiscal year with our second year of leases. We are going to be spending -- it's right below $1 million, about $925,000, and that is for -- it's about 92 vehicles. So about 9 -- let's say 950 -- we'll buy out about $950,000, fleet value will be about $2.7 million, $2.8 million on those. And again, we'll have 6 to 8 years of life left in those.

Operator

[Operator Instructions] Our next question comes from the line of Theoni Pilarinos with Raymond James.

Theoni Pilarinos - Raymond James Ltd., Research Division

Looks like a lot of the questions have been asked, but one final one that I wanted to touch on was your acquisition strategy, when you think you'll get back on track after taking this break.

Denis J. Gallagher

Well, Theoni, I think we have an enormous amount of -- there's a couple of answers to that. Number one, we have an enormous amount of opportunities in targeted bid-in markets and also in the conversion market and the managed fleet market. And the reason kind of for that is that since I started the company 16 years ago. shareholders have allowed us to build the base of the business. And this is kind of like what I always say to our guys, they've allowed us to build the house. So we are set up with a very strong corporate office. We're set up with 5 regions around North America. We view North America as one unit. We have a Canadian unit, obviously, STC in Canada. But the operations team is half Canadian and half U.S. and very interchangeable. So we've got 5 regions around North America. We've got a house that is built for about $1 billion. We've got, coming into next year, probably close to $500 million or so in revenues. So we've got a long way to go with an infrastructure that is built. And we have built that infrastructure literally about 50% acquired and 50% kind of growing through the bid-in process. But by doing the acquisitions, we have spent money on goodwill, and we've spent money on literally buying some facilities and buying some management team along the way. So we think that, that infrastructure is there in place. When we go and do our bid-ins, we do our conversions, and we do our managed contracts, we're like the acquisition we bought last year, which was literally below asset value, and some of the deals that we have on the table now are literally small, tuck-in deals with retired guys I've known for 35 and 40 years, who want to retire. We can pick those up at asset value. There's no goodwill involved in that. So it's going to start to improve our balance sheet. It's less amortization of the contracts. It's less goodwill that's going in our books. It's literally more strictly just asset value. So if we do small tuck-in acquisitions, they'll be literally close to asset value, maybe just a little bit over. We're not -- we've done -- as Pat said, we did almost 12 acquisitions in the prior 1.5 years ago. Again, we have expanded that base. There's no need for us to kind of jump out and buy a bunch of acquisitions when we've already got our footprint set up in North America. And so that's where I think the value that I hope -- that we're trying to communicate to everybody, the value part is that the shareholders have allowed us to build that base. We used to go grow 15%, and we go back to the market for 15% of new shares just to help us pay for the growth, and that's part of having our dividend. That's part of giving the money back to shareholders and letting shareholders vote. So in this particular case, we can grow by 15% and not have to go back to the market. I think that's more of a significant value proposition for shareholders.

Theoni Pilarinos - Raymond James Ltd., Research Division

That's excellent. And I just had a follow-up question to one of your earlier remarks about the 300 to 400 EBITDA base -- or 300- to 400-basis-point increase in your EBITDA. It seems like a big portion of that is a function of what percentage you have in terms of managed and leased contracts. And I'm wondering, having that 25% mix, where does that take you in terms of margin expansion near-term? And what is the mix, I guess, due to the 300- to 400-basis-point increase?

Denis J. Gallagher

I'll try to take a stab at it, and Pat, you can jump in. But I mean, again, I think from an adjusted EBITDA point of view, you're going to see some margin improvement for us. We're hoping for 2013, but really, the goal was to get that started in 2014 as we go -- as we increase the size of the managed contracts. We've put the fuels programs in place. Fuel is really going to be the thing that drives this, that fuel at 9% consistent. If anybody goes back and takes a look at our 2005 kind of public numbers, you'll see fuel in the 5 to 6 kind of percent range. So it was there once a long time ago. So we've kind of maintained our margin levels despite that fuel has gone up 4 or 5 points on us. Our goal now is how do we get fuel back to the 4 or 5 points because that's where we're going to be. We're not going to squeeze a lot out of driver wages. We like to maintain a good driver wage. We know what our parts cost, the maintenance costs are. We know what insurance costs are going to be. I mean, ours is kind of a very cookie-cutter kind of business. It's very easy, I always say, to model, to kind of see what the different expense categories are over the years. They really don't change. The one variable that has changed for us is fuel. So we've got to do the things that we do, like get the customers to buy the fuel, more of the fuel, that takes fuel out of the equation; get more CNG and LPG vehicles in, so we can lower our cost of fuel. The miles per gallon doesn't change a lot, but the cost of that changes a lot. So they're not necessarily more fuel-efficient, it's just the lower cost of the product. And we've been able -- as I put in the press release, I think, or the letter to the shareholders, we've been able to negotiate a very good capital cost with our manufacturers that I know Mark Neville has brought up in the past, the higher cost of those engines in the past. Well, guess what, they weren't selling a lot them. So the way to sell a lot of them is to convince them that they need to do a better job with the capital side of that thing. And so we've been able to negotiate a great rate on that. I think those are the steps that are going to get fuel down for us over the next 6 to -- I mean, the next year to 1.5 years. And I think we're going to see some nice -- I wouldn't say significant, but we're going to be on the track for some nice margin improvement. The new contracts we got are coming in at a higher rate. We've got CPI increases coming in that we've never gotten before. We're going to lower fuel cost. All of those things are positive steps to improving the margin. Pat, did you want to smack me or change it around or?

Patrick J. Walker

No, I think you've covered it.

Denis J. Gallagher

Okay.

Operator

Our next question is a follow-up from the line of David Tamberrino with Stifel.

David J. Tamberrino - Stifel, Nicolaus & Co., Inc., Research Division

One real final quick one. As we're running into the summer season, how is your summer charter business shaping up? And how does the company kind of attract or solicit any new business year-over-year?

Denis J. Gallagher

Well, the marketing effort for that, Dave, is kind of tough. I mean, ever since my grandfather was in this business in 1922, I mean, it's kind of tough. We're not allowed to do casino trips and things like that. I mean, it is yellow buses, and it is very much a seasonal business. So we probably operate about 25% to 35% of our fleet during the summer through summer camps, through school -- summer school and then, obviously, charter and curricular that we're allowed to do for student groups, for YMCAs, Boy Scouts, those kind of things. So we do have charter licenses in a lot of our operations, which do allow us to take adults to the ballgames and things like that. But it is -- when you look at our charter next to curricular, it runs generally a little bit around 10% of our revenues or so. We have some operations where it's 20%. There just have been higher markets, where it's more aggressive, more opportunities. We've got some markets, by the way, where -- again, where we manage the school districts' fleet. We don't own that fleet. We're not allowed to use that fleet for anything other than their school purposes.

David J. Tamberrino - Stifel, Nicolaus & Co., Inc., Research Division

Okay. But in terms of just asset utilization, obviously, during the downtime, probably a lot of maintenance that takes place during there, and I just didn't know if there's any push [indiscernible].

Denis J. Gallagher

No, that's a fallacy, buddy. By the way, we do maintenance 12 months at a year. So our maintenance costs are spread. It's not like we were on 10 months and then decide to fix the buses over the summer. That would be the worst mistake we can make because then you got high costs in July and August, which we already don't have any money in July and August anyway because schools don't start until September. So our maintenance costs are kind of a fixed cost. Our maintenance programs are -- we look at every bus every 3,000 miles or 3 months. So it's all miles-driven. They're inspected twice a year by the state police or motor vehicle or the Department of Transportation, whichever has the authority in those states. So again, maintenance costs are spread 12 months. For us, it's just revenue generation. The fixed costs -- like we talked about before, the fixed costs are already covered. Dispatchers are there. They're year-round, maintenance, managers, et cetera, facility costs. So any additional revenues that we can get, we love. We love when the Olympics come in town. We love when there's big games come in town, concerts, NASCAR events. We love those kind of things. We just don't get those all the time. By the way, everybody is looking for those same opportunities in the summer.

Operator

And I'm not showing any further questions at this time. I'd like to turn the call back over to Mr. Denis Gallagher for closing remarks.

Denis J. Gallagher

Thanks, Kate, and thank you all for joining us today. Please listen in next week if you can to our webcast at the TSX on May 15, beginning at 11:30, where we're going to do a presentation to our shareholders on behalf of our employees, who are going to be there, followed by brief management presentation on current events in our business. Again, the event will be webcast on our website at www.ridestbus.com and will be archived for a few weeks thereafter. This concludes our call, and thank you very much. Have a safe day, everyone.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a great day.

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