Blue Bird Corp quarterly report, Q3 FY2020

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

MetricQ3 FY2020Q3 FY2019Nine months FY2020Nine 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.