Blue Bird Corporation — Q3 FY2020 Form 10-Q
Reporting period: Quarter ended July 4, 2020 (13 weeks); nine months ended July 4, 2020 (40 weeks). Comparable 2019 nine-month period was 39 weeks. Financial statements are unaudited. Blue Bird designs and manufactures school buses and sells replacement parts, primarily through dealers.
Financial results
| Metric | Q3 FY2020 | Q3 FY2019 | Nine months FY2020 | Nine months FY2019 |
|---|---|---|---|---|
| Net sales | $189.2 million | $308.8 million | $597.8 million | $675.3 million |
| Gross profit / margin | $21.1 million / 11.1% | $41.8 million / 13.5% | $66.6 million / 11.1% | $86.8 million / 12.9% |
| Operating profit / margin | $3.3 million / 1.7% | $20.8 million / 6.7% | $8.4 million / 1.4% | $25.6 million / 3.8% |
| Net income | $1.3 million | $14.6 million | $0.2 million | $12.7 million |
| Diluted EPS | $0.05 | $0.55 | $0.01 | $0.47 |
| Adjusted EBITDA / margin | $12.5 million / 6.6% | $29.0 million / 9.4% | $32.8 million / 5.5% | $48.5 million / 7.2% |
For the quarter, sales fell 38.7% year over year; bus sales declined 38.2% and parts sales 48.3%. Bus bookings were 1,948 versus 3,420. For the nine-month period, sales fell 11.5%, with bus bookings of 6,002 versus 7,291. Higher bus selling prices partly offset lower volume, but manufacturing cost per bus rose amid pandemic-related absenteeism and supply disruption. Q3 cost of goods sold increased to 88.9% of sales from 86.5%.
Cash flow: Operating activities used $78.3 million in the first nine months, versus $19.1 million used a year earlier. Capital spending was $16.7 million, making reported free cash flow negative $95.0 million, compared with negative $49.3 million. Cash declined $58.4 million to $12.5 million.
Debt and liquidity at July 4, 2020: The company had $45.0 million drawn on its revolving facility and $6.9 million of letters of credit, with $90.0 million of additional borrowing availability. The facility’s total revolving commitments were increased to $141.9 million and mature September 2023. Term-loan principal was $178.8 million; total remaining principal payments, including the revolver, were $223.8 million. Current assets were $191.4 million and current liabilities $152.1 million. The company reported compliance with its credit covenants at quarter-end.
Management commentary, outlook and risks
- Management attributed the deterioration mainly to COVID-19: reduced school-bus orders and parts demand, early school closures, uncertainty over in-person learning, supply interruptions, production inefficiencies, and a two-week factory shutdown in early April. Manufacturing restarted in late April.
- Management said pandemic effects could continue for the remainder of FY2020 and beyond; a prolonged downturn could materially harm sales, earnings, and liquidity. The filing provides no specific revenue or earnings guidance.
- Blue Bird increased its revolving commitments by $41.9 million in May 2020 and incurred $0.9 million in amendment fees. It deferred employer Social Security tax payments, estimating $4.0–$6.0 million could be delayed, and expected to defer approximately $3.2 million of FY2020 pension contributions.
- Management warned that further profit or liquidity contraction could create covenant-compliance challenges and require covenant relief or refinancing, which might not be available or could increase borrowing costs. Other highlighted exposures include reliance on single-source suppliers, production interruption, reduced school transportation demand, and unpredictable seasonality.
- Pending product-liability and other litigation, environmental matters, and a $3.0 million dealer-related debt guarantee were disclosed. Management did not expect pending litigation or environmental matters to have a material adverse effect; it considered performance under the guarantee remote.
Important facts for investors to verify
- Whether school reopening plans and district budgets restore bus orders, and how bookings and backlog develop.
- Whether suppliers and factory operations normalize, and whether higher unit manufacturing costs persist.
- Cash usage, year-end seasonal working-capital recovery, and the availability of the $90.0 million revolver capacity.
- Future covenant headroom, debt refinancing needs, and the repayment timing of deferred payroll taxes and pension contributions.
- The composition and recurring nature of Adjusted EBITDA add-backs, including restructuring, product redesign, and COVID-19 costs.