Blue Bird Corporation — Q1 FY2021 Form 10-Q
Reporting period: Three months ended January 2, 2021; the comparable prior-year quarter ended January 4, 2020. The quarters comprised 13 and 14 weeks, respectively. Blue Bird designs, manufactures and sells school buses and related parts.
Financial performance
| Metric | Q1 FY2021 | Q1 FY2020 | Change |
|---|---|---|---|
| Net sales | $130.4 million | $153.2 million | Down 14.9% |
| Gross profit / margin | $14.5 million / 11.1% | $21.3 million / 13.9% | Margin down 2.8 percentage points |
| Operating income (loss) | $(0.2) million | $0.8 million | Declined about $1.0 million |
| Net income (loss) | $(1.6) million | $(0.4) million | Loss increased |
| Loss per share, diluted | $(0.06) | $(0.02) | Loss per share increased |
| Adjusted EBITDA and margin | $5.8 million / 4.4% | $8.0 million / 5.2% | Down 28.0%; margin down 0.8 points |
| Cash used in operations | $11.5 million | $86.0 million | Use decreased by $74.5 million |
| Free cash flow | $(14.8) million | $(95.3) million | Improved by $80.5 million |
Revenue declined in both segments: Bus sales were $117.8 million, down 12.6%, and Parts sales were $12.6 million, down 31.7%. Bus units booked fell to 1,255 from 1,460; the average bus selling price rose 1.7%. Gross profit fell by $6.8 million. Management cited lower sales volume and higher manufacturing costs, including absenteeism and supply disruptions. SG&A declined $5.8 million to $14.7 million, partly offsetting the gross-profit decline.
Cash and cash equivalents were $23.9 million at quarter-end, down from $44.5 million at the fiscal year-end. Current assets were $106.1 million and current liabilities $109.0 million. Term-loan principal outstanding was $173.9 million; no revolving-credit borrowings were outstanding. The company reported $97.3 million of additional revolving availability. Cash used in investing was $3.3 million, primarily fixed-asset spending; financing used $5.8 million, including $2.5 million in credit-amendment costs and $2.5 million in scheduled term-loan repayments.
Changes, liquidity and outlook
- COVID-19 continued to weigh on demand for buses and parts as school districts faced uncertainty about in-person learning. The first-quarter comparison also reflects the prior-year quarter having one additional week.
- Cost of goods sold declined less than sales, rising to 88.9% of sales from 86.1%; bus cost per unit increased 4.9%, which management attributed to pandemic-related production inefficiencies and supply disruption.
- A December 2020 credit-agreement amendment established a limited-availability period, including a minimum liquidity covenant of $15 million, a 0.50% additional interest margin, temporary financial covenants and restrictions on certain payments, investments and dispositions. The company reported covenant compliance at January 2, 2021.
- Management said the pandemic’s duration and financial effects could not be estimated and could adversely affect demand, production, supply chains and liquidity. It anticipated continued adverse effects through a significant portion of FY2021 and potentially beyond. No specific revenue or earnings guidance was provided.
- Historically, the third and fourth fiscal quarters are busier, but management said school-calendar uncertainty has made seasonality and working-capital patterns less predictable. Cost-control actions included minor headcount rationalization; further spending and hiring restraint remained under consideration.
Risks, contingencies and unusual items
- The credit amendment generated approximately $2.5 million in lender fees and issuance costs; $0.6 million was recorded as a debt-modification loss, and the remainder was capitalized. Interest rates on term loans were variable, and a $150 million interest-rate collar generated cash payments when LIBOR fell below its floor.
- Warranty liabilities totaled $19.7 million; deferred extended-warranty income was $21.7 million. The company also reported pension liabilities of $46.4 million.
- Outstanding letters of credit totaled $6.9 million. A $3.0 million dealer-debt guarantee was outstanding; management considered the likelihood of payment remote and recorded $0.2 million of estimated fair value.
- Product-liability and other legal matters were pending; management did not expect their resolution to materially adversely affect the financial statements. No material environmental proceedings were reported.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Investor facts to verify
- Whether school-district orders and in-person learning recover, and how that affects bus bookings, parts demand and the seasonal sales pattern.
- Whether production and supplier conditions improve enough to reduce per-unit costs and restore gross margins.
- Whether cash, revolving availability and covenant headroom remain adequate under the amended credit agreement, especially if the downturn persists.
- How much of Adjusted EBITDA reflects exclusions such as restructuring, product redesign, COVID-related costs and debt-modification charges; this is a non-GAAP measure.
- Whether warranty, pension, dealer-guarantee and litigation exposures change materially in subsequent filings.