Blue Bird Corporation — Q3 FY2023 Form 10-Q
Reporting period: Three and nine months ended July 1, 2023; comparable periods ended July 2, 2022. Blue Bird designs, manufactures and sells school buses and replacement parts. Amounts below are in U.S. dollars.
Financial performance
| Metric | Q3 FY2023 | Q3 FY2022 | Nine months FY2023 | Nine months FY2022 |
|---|---|---|---|---|
| Revenue | $294.3M | $206.1M | $829.8M | $543.0M |
| Gross profit | $45.8M | $21.6M | $88.9M | $40.9M |
| Gross margin | 15.5% | 10.5% | 10.7% | 7.5% |
| Operating income (loss) | $19.4M | $1.1M | $22.5M | ($17.6M) |
| Net income (loss) | $9.4M | ($6.4M) | $5.2M | ($22.7M) |
| Diluted EPS | $0.29 | ($0.20) | $0.16 | ($0.74) |
| Adjusted EBITDA and margin | $28.0M; 9.5% | $8.8M; 4.3% | $43.6M; 5.3% | $1.7M; 0.3% |
Q3 revenue increased 42.8% year over year. Bus sales rose 44.8%, reflecting 23.8% more units and a 17.0% increase in average sales price per unit; parts sales increased 23.4%. For the nine months, bus sales increased 55.3% and parts sales 31.4%. Alternative-power bus revenue was $172.2M in Q3 versus $96.9M a year earlier.
Q3 gross margin improved as increased production and pricing actions helped offset higher material, component and freight costs. Management said bus gross margin returned to more normal historical levels in Q3. SG&A rose to $26.3M in Q3 from $20.5M, primarily due to higher labor costs. Interest expense was $4.5M for Q3 and $13.9M for the nine months, reflecting higher borrowing rates in part.
Cash flow, debt and liquidity
- Operating cash flow was $84.1M for the nine months, compared with cash used of $54.5M in the prior-year period. Free cash flow, a company-defined non-GAAP measure, was $77.7M versus negative $59.2M.
- Cash and cash equivalents were $50.5M at July 1, 2023, with an additional $0.2M restricted cash. Inventory was $129.2M, down from $143.0M at October 1, 2022. Current assets of $200.7M were below current liabilities of $217.7M.
- Term-loan principal was $136.8M; the balance-sheet carrying amount was $134.9M, net of deferred financing costs. No revolving borrowings were outstanding. Revolver availability was $83.7M after letters of credit, giving $134.2M in cash and undrawn availability combined. The stated term-loan rate was 11.1% at period-end.
- The amended credit facilities mature December 31, 2024. The agreement includes financial and liquidity covenants; the company reported compliance with all covenants at July 1, 2023. It reported a $30M minimum liquidity requirement through December 30, 2023.
Material changes, outlook and risks
- Supply-chain availability improved somewhat, supporting higher production and deliveries. Backlog remained approximately 5,200 units at July 1, 2023; management reported 6,398 units booked in the first nine months.
- Management said pricing actions were expected to continue benefiting gross profit through the remainder of fiscal 2023. The filing provides no specific revenue, earnings or full-year margin guidance.
- Q3 and nine-month other expense included approximately $6.3M in costs related to a secondary stock offering by existing stockholders. Blue Bird did not sell shares or receive offering proceeds. The costs reduced reported earnings; they are also added back in the company’s Adjusted EBITDA reconciliation.
- On May 22, 2023, a union was certified to represent approximately 1,350 production and related employees at the company’s Georgia locations. Bargaining had begun, but no labor agreement had been reached by quarter-end; labor costs and potential operational disruptions remain uncertain.
- Management cited ongoing supply-chain and inflation risks, including supplier and freight costs, as well as indirect effects of the Russia-Ukraine conflict. It also warned that renewed supply disruptions or inability to pass on higher costs could pressure profitability, liquidity and covenant compliance. Seasonality and working-capital patterns remain less predictable than historically.
- Product-liability and other litigation was pending; management did not expect the resolution of these matters to have a material adverse effect. The filing reported no material environmental proceedings.
Important facts for investors to verify
- Whether improved production, backlog conversion and pricing continue to support gross margin and cash generation.
- How much of Adjusted EBITDA improvement reflects recurring operating performance versus exclusions, including the stockholder-offering costs.
- Debt-service capacity at the stated 11.1% term-loan rate, upcoming principal repayments and compliance with credit covenants.
- Outcomes of union negotiations, including potential labor-cost increases or work disruptions.
- Whether supply-chain constraints, commodity and freight costs, school-district demand and seasonality alter the company’s outlook.