Blue Bird Corporation — Q2 FY2022 Form 10-Q
Reporting period: 13 weeks ended April 2, 2022; six-month year-to-date period also ended April 2, 2022. Comparatives are the periods ended April 3, 2021. Blue Bird designs and manufactures school buses and sells replacement parts.
Financial performance
| Metric | Q2 FY2022 | Q2 FY2021 | Six months FY2022 | Six months FY2021 |
|---|---|---|---|---|
| Net sales | $207.7 million | $164.7 million | $336.9 million | $295.1 million |
| Gross profit / (loss) | $3.2 million | $18.5 million | $19.4 million | $33.0 million |
| Gross margin | 1.5% | 11.2% | 5.7% | 11.2% |
| Operating profit / (loss) | $(16.7) million | $1.1 million | $(18.7) million | $0.9 million |
| Net profit / (loss) | $(12.1) million | $(0.6) million | $(16.2) million | $(2.2) million |
| Adjusted EBITDA and margin | $(10.7) million; (5.1)% | $7.5 million; 4.6% | $(7.1) million; (2.1)% | $13.3 million; 4.5% |
| Operating cash flow | Not separately reported | Not separately reported | $(11.4) million | $(11.2) million |
| Free cash flow | Not separately reported | Not separately reported | $(14.9) million | $(18.2) million |
For the six months, cash used in investing activities was $3.5 million, primarily fixed-asset spending. Financing provided $18.0 million, including $75.0 million of private-placement proceeds, partly offset by repayment of $45.0 million of revolver borrowings. Cash increased by $3.2 million to $14.9 million.
At April 2, 2022, total assets were $397.9 million and stockholders’ equity was $27.6 million, versus a deficit of $32.7 million at October 2, 2021. Inventories were $155.7 million, up from $125.2 million. Current assets of $194.6 million were below current liabilities of $168.9 million? Correction: current assets exceeded current liabilities by $25.7 million.
Term-loan principal was $159.0 million; the balance-sheet carrying amount was $156.9 million, net of financing costs. No revolver borrowings were outstanding; $93.7 million was available after letters of credit. Term-loan stated interest was 6.1%, compared with 4.0% at October 2, 2021. The company reported covenant compliance at quarter-end.
Changes and operating drivers
- Q2 sales grew 26.1%, principally from higher bus volume; bus units booked were 1,931 versus 1,489. Six-month sales grew 14.1%, with bus units booked of 3,080 versus 2,744.
- Despite higher sales, Q2 gross margin fell to 1.5% from 11.2%; six-month gross margin was 5.7% versus 11.2%. Management attributed pressure to higher component and freight costs, critical-part shortages, and manufacturing inefficiencies. Average bus cost of goods sold per unit rose 8.1% in Q2 and 7.2% year to date.
- Parts sales increased 33.2% in both the quarter and six-month period, supported by more in-person schooling and pricing actions. In Q2, the Bus segment recorded a $4.0 million gross loss while Parts generated $7.1 million gross profit.
- SG&A increased $2.5 million in Q2 and $6.0 million year to date, with higher payroll, professional services, and research and development costs. Interest expense also rose year to date, reflecting higher rates.
Outlook, risks, and unusual items
- Management reported backlog above 6,600 units at April 2, 2022, compared with more than 4,200 at October 2, 2021, and said no orders had been canceled due to production delays.
- The filing provides no formal full-year revenue or earnings guidance. Management expected supply-chain disruption and related adverse effects to continue through the remainder of FY2022 and potentially beyond. Announced bus price increases had not yet benefited first-half results; management said this lag was expected to persist at least through Q3 FY2022.
- COVID-19-related supply shortages constrained production and delivery, while input and freight inflation and off-line labor increased costs. Management cited uncertainty around supplier capacity, school demand and in-person learning, and potential production interruptions.
- The November 2021 credit amendment imposed minimum liquidity, EBITDA, and, when triggered, bus-unit manufacturing covenants. Required minimum liquidity rose to $15 million for April 3–July 2, 2022 and $20 million thereafter. The company warned that further deterioration could threaten covenant compliance and require relief or refinancing.
- Unusual items included a $1.4 million fixed-asset impairment charge in Q2 and $9.2 million of income-tax benefit year to date. The December 2021 private placement issued 4,687,500 shares at $16 each, yielding approximately $74.8 million net and diluting existing shareholders; the investor group received an approximately 15% stake and a board seat.
- Management said pending litigation and environmental matters were not expected to have a material adverse effect. A $3.0 million dealer-loan guarantee was outstanding; management considered required performance remote. The filing also notes an interest-rate collar and variable-rate debt exposure.
Important facts for investors to verify
- Whether production and deliveries improve enough to convert the elevated backlog into sales without further cost overruns.
- Whether pricing actions catch up with inflation in components, freight, labor, and other manufacturing costs—and how that affects gross margin.
- Liquidity, cash burn, and compliance with minimum-liquidity, EBITDA, and any triggered unit-production covenants.
- Debt refinancing plans, variable-rate borrowing costs, and the effect of the scheduled term-loan maturity and amortization.
- Future demand and school purchasing patterns, supply availability, and the assumptions behind management’s COVID-19 and operating outlook.