Blue Bird Corporation — Q1 FY2023 Form 10-Q
Reporting period: Three months ended December 31, 2022; comparative period ended January 1, 2022. Blue Bird designs and manufactures school buses and sells replacement parts. Amounts below are in millions of dollars unless stated otherwise.
Financial results and liquidity
| Metric | Q1 FY2023 | Q1 FY2022 |
|---|---|---|
| Net sales | $235.7 | $129.2 |
| Gross profit / margin | $7.5 / 3.2% | $16.2 / 12.5% |
| Operating loss | $(9.4) | $(2.0) |
| Net loss | $(11.3) | $(4.1) |
| Diluted loss per share | $(0.35) | $(0.15) |
| Adjusted EBITDA / margin | $(4.2) / (1.8)% | $3.6 / 2.8% |
| Operating cash flow | $19.9 | $(33.1) |
| Free cash flow | $18.8 | $(34.6) |
- Revenue increased 82.4%, reflecting higher bus volume, product mix and pricing. Bus sales were $213.2 million; Parts sales were $22.5 million.
- Bus segment gross loss was $3.7 million, versus $9.6 million gross profit a year earlier. Parts gross profit rose to $11.2 million from $6.6 million.
- Cost of goods sold grew 102%, faster than sales. Bus cost per unit was 23.9% higher year over year, driven by raw materials, component and freight costs. Older fixed-price backlog orders limited the benefit of announced price increases.
- Operating cash flow improved by $53.0 million year over year, chiefly from lower inventory and higher accounts payable. The quarter’s positive cash generation therefore reflects working-capital movements despite the net loss.
- At December 31, cash and cash equivalents were $5.7 million; restricted cash was $0.2 million. Revolver availability was $78.7 million, after $5.0 million drawn and $6.3 million of letters of credit. Current assets were $158.0 million versus current liabilities of $184.3 million. Stockholders’ equity was a deficit of $9.2 million.
- Term-loan principal outstanding was $146.7 million; stated interest was 10.5% at quarter-end. Total interest expense was $4.2 million, up from $3.1 million. Debt maturities were extended to December 31, 2024 under the sixth credit amendment.
Material changes and management commentary
- Supply-chain availability improved slightly, supporting increased production and deliveries; backlog nevertheless remained above 5,000 units at quarter-end. The company reported 1,957 bus units booked in the quarter.
- Management said supplier costs continued to outpace price increases on buses delivered from older backlog orders. It expects pricing actions on newer backlog and fiscal 2023 orders to benefit sales and gross profit during the remainder of fiscal 2023; this is not quantified guidance.
- The sixth credit amendment reduced the revolver commitment to $90 million, with $80 million available subject to borrowing terms and an additional $10 million requiring lender approval. It also set minimum liquidity of $30 million through December 30, 2023 and specified minimum EBITDA requirements for fiscal quarters ending July 1 and September 30, 2023. The company reported covenant compliance at December 31, 2022.
Outlook, risks and contingencies
- The filing gives no specific revenue, earnings or production forecast. Management cautions that supply-chain conditions, cost inflation and seasonal patterns make future results and liquidity uncertain.
- Risks include continued component shortages, supplier price increases, freight costs, production disruption, and inability to pass costs through to customers. Management also cited indirect effects from Russia’s invasion of Ukraine on commodity, inventory and freight costs.
- Failure to satisfy credit covenants could require covenant relief or refinancing; the company warns that success is not assured and replacement financing could cost more. It may also seek additional debt or equity capital, without assurance of success.
- Product-liability and other legal matters are pending; management does not expect their resolution to materially adversely affect the financial statements. The company reported no material environmental proceedings.
Key investor verification points
- Whether improved production and the reported backlog translate into deliveries and whether backlog pricing supports a recovery in bus gross margins.
- How much of the positive operating cash flow came from working-capital changes, particularly accounts payable and inventory, and whether cash generation persists.
- Revolver availability, covenant calculations and compliance, especially minimum liquidity and EBITDA requirements, alongside the 10.5% term-loan rate and December 2024 maturity.
- Whether supplier, freight and commodity costs continue to ease and whether pricing actions offset those costs in subsequent quarters.
- Progress on converting the more-than-5,000-unit backlog into sales, while accounting for seasonality and potential supply disruptions.