Blue Bird Corporation — Q1 Fiscal 2019 Form 10-Q
Reporting period: 13 weeks ended December 29, 2018, compared with the 13 weeks ended December 30, 2017. Blue Bird designs and manufactures school buses and sells replacement parts; amounts below are in U.S. dollars.
Key financial metrics
| Metric | Q1 FY2019 | Prior-year quarter | Change |
|---|---|---|---|
| Net sales | $154.9 million | $162.5 million | Down 4.7% |
| Gross profit / margin | $19.1 million / 12.3% | $20.6 million / 12.7% | Gross profit down $1.5 million |
| Operating profit (loss) | $1.8 million | $(4.8) million | Improved $6.6 million |
| Net loss | $(1.2) million | $(7.8) million | Loss narrowed |
| Loss per share | $(0.05) | $(0.36) | Improved |
| Adjusted EBITDA and margin (non-GAAP) | $7.2 million / 4.7% | $7.1 million / 4.3% | Up 2.1% |
| Cash from operating activities | $(48.2) million | $(33.8) million | Cash use increased $14.4 million |
| Free cash flow (non-GAAP) | $(59.0) million | $(37.3) million | Cash use increased $21.7 million |
Liquidity and debt: Cash was $18.8 million at quarter-end, down from $60.3 million at September 29, 2018. The company reported $73.1 million of additional revolver availability, after $20.0 million of revolver borrowings and $6.9 million of letters of credit. Term-loan principal was $193.7 million; including the revolver, total principal debt was $213.7 million. Carrying debt was lower, at approximately $209.9 million, net of deferred financing costs. Management said existing cash and expected operating cash flows should fund requirements for at least the next 12 months. Current assets exceeded current liabilities by approximately $8.3 million.
Material changes and drivers
- Bus sales declined $8.9 million (6.0%); bus bookings fell to 1,600 units from 1,705. Average net selling price per unit increased 0.2%, primarily due to mix. Parts sales rose 8.8% on higher volume.
- Gross profit fell despite lower sales, with gross margin decreasing to 12.3% from 12.7%. Management cited higher raw-material costs; average bus cost of goods sold per unit rose 0.9%.
- Operating results improved chiefly because SG&A declined $8.2 million, reflecting operational transformation and product-redesign initiatives. Adjusted EBITDA increased modestly, while GAAP net loss remained.
- Interest expense nearly doubled to $2.9 million, primarily because of higher borrowing levels and a higher stated term-loan rate.
- Operating cash use reflected a $20.8 million unfavorable working-capital change, including inventory growth and reduced accounts payable. Capital spending was $10.8 million, versus $3.4 million a year earlier.
Outlook, risks and unusual items
- The filing gives no numerical revenue, earnings, or cash-flow guidance. Management emphasizes substantial seasonality: the third and fourth fiscal quarters are typically busiest; the first quarter usually uses working capital.
- In October 2018, the company drew a $50.0 million incremental term loan, with proceeds substantially used for a tender offer. It repurchased 1,782,568 common shares at $28 per share and 364 preferred shares; total tender-offer cash cost was $50.3 million, including fees and expenses. The amended credit agreement extended facility maturity to September 2023 and increased revolver commitments to $100 million.
- All remaining preferred stock converted into 799,615 common shares in November 2018. The tender offer and conversion contributed to a $79.7 million stockholders’ deficit at quarter-end.
- The company adopted ASC 606 and ASC 842 in fiscal Q1. Revenue-standard adoption produced a $0.7 million opening retained-earnings reduction; lease adoption recognized operating-lease liabilities and right-of-use assets. Reported revenue impact from ASC 606 in the quarter was immaterial.
- A four-year, $150 million interest-rate collar partially hedges variable-rate debt exposure, with a 1.5% LIBOR floor and 3.3% ceiling. Quarter-end fair value was $0.1 million.
- Risks include seasonal demand and school-district funding, commodity and labor costs, customer and product mix, variable-rate debt, and the ability to generate operating cash. Management said pending litigation and environmental matters were not expected to have a material adverse effect; $4.0 million of dealer-related guarantees were outstanding, with required performance considered remote.
Investor facts to verify
- Whether bus bookings, deliveries, and pricing recover after the year-over-year decline, particularly as seasonal peak quarters approach.
- Whether working-capital requirements and manufacturing investment continue to pressure cash and liquidity.
- Debt reduction, interest expense, covenant compliance, and availability under the revolver; the company reported covenant compliance at quarter-end.
- How much of the reported operating improvement depends on transformation and redesign savings, and how those savings compare with the related adjustment add-backs in non-GAAP EBITDA.
- Future effects of commodity costs, the interest-rate collar, warranty obligations, and the accounting estimates and contingencies described in the filing.