Blue Bird Corporation — Q3 FY2022 Form 10-Q
Reporting period: Fiscal third quarter and nine months ended July 2, 2022; comparative periods ended July 3, 2021. Blue Bird designs and manufactures school buses and sells replacement parts through two segments: Bus and Parts. Amounts below are in millions of dollars unless stated otherwise.
Financial performance
| Metric | Q3 FY2022 | Q3 FY2021 | Nine months FY2022 | Nine months FY2021 |
|---|---|---|---|---|
| Net sales | $206.1 | $196.7 | $543.0 | $491.8 |
| Gross profit / margin | $21.6 / 10.5% | $26.2 / 13.3% | $40.9 / 7.5% | $59.1 / 12.0% |
| Operating income (loss) | $1.1 | $8.1 | $(17.6) | $9.0 |
| Net income (loss) | $(6.4) | $4.3 | $(22.7) | $2.1 |
| Adjusted EBITDA / margin | $8.8 / 4.3% | $13.2 / 6.7% | $1.7 / 0.3% | $26.5 / 5.4% |
Q3 sales increased 4.8%, but gross profit fell as costs rose faster than sales. Bus sales were $186.6 million and Parts sales were $19.5 million; Parts gross profit improved to $8.0 million, while Bus gross profit declined to $13.6 million. Q3 basic and diluted loss per share was $0.20; nine-month loss per share was $0.74.
Cash flow, balance sheet and debt
- Nine-month operating cash use was $54.5 million, versus $14.2 million a year earlier. Free cash flow, a non-GAAP measure, was negative $59.2 million versus negative $24.5 million. Inventory growth used $91.5 million of cash, partly offset by a $56.3 million increase in accounts payable.
- Cash was $26.5 million at July 2, 2022, up from $11.7 million at fiscal year-end. The company reported $33.7 million of additional revolver availability, for cash plus available borrowing capacity of about $60.2 million.
- Inventory increased to $216.7 million from $125.2 million at October 2, 2021. Current assets were $266.1 million and current liabilities $186.7 million.
- Term-loan principal was $155.3 million and revolver borrowings were $60.0 million; the term loan’s stated rate was 7.9%, up from 4.0% a year earlier. The term loan matures in 2023, with $151.6 million of principal scheduled in fiscal 2023. The company was in compliance with credit agreement covenants at quarter-end.
- Stockholders’ equity was $22.0 million, versus a deficit of $32.7 million at fiscal year-end. A December 2021 private placement raised $75.0 million gross through 4.69 million shares; net proceeds were used to repay revolver borrowings.
Material changes and management commentary
- Management attributed production constraints to shortages of critical components, supply-chain disruption, inflation and higher freight costs. Bus cost of goods sold per unit rose 25.8% in Q3 year over year; bus units booked fell 14.7% to 1,726, while average bus selling price rose 20.4%.
- Pricing actions began contributing positively to sales and gross profit in Q3. Management expected the benefit to continue in Q4 FY2022 and FY2023, while noting that future results depend on production volumes and the ability to pass through higher costs.
- Backlog exceeded 6,200 units at July 2, 2022, compared with more than 4,200 at October 2, 2021. Management said demand remained strong and no orders had been canceled due to production delays.
- COVID-19-related disruption and Russia’s invasion of Ukraine indirectly increased component and freight costs. Management said the duration and financial effects remained uncertain and expected adverse impacts to continue through the rest of FY2022 and possibly beyond.
- The credit agreement includes minimum liquidity and, when triggered, minimum bus-production requirements. The minimum liquidity requirement was $15 million through July 2 and $20 million thereafter during the amended availability period. Management warned that prolonged disruption could pressure covenant compliance and might require covenant relief or refinancing.
Outlook, risks and unusual items
The filing gives no specific full-year revenue or earnings guidance. Management described demand as strong but supply-constrained, and cited unpredictable seasonality and working-capital patterns. Other risks include further component shortages, commodity and freight inflation, higher variable-rate interest expense, refinancing needs and the possibility of additional capital raising.
Q3 included a $2.9 million income tax expense despite a pretax loss; the filing says this reflected an adjustment to the estimated annual tax rate and discrete tax items. For the nine months, the company recorded a $6.3 million tax benefit. Nine-month results also included a $0.6 million debt-modification loss and $1.4 million of fixed-asset impairment. Management characterized pending litigation and environmental matters as not expected to have a material adverse effect. A $3.0 million dealer-loan guarantee was outstanding, with performance considered remote.
Important facts for investors to verify
- Whether the backlog converts to deliveries as component availability improves, and whether production meets the credit agreement’s unit thresholds.
- Whether pricing increases offset higher material, freight and manufacturing costs sufficiently to restore gross margins.
- Whether operating cash use and elevated inventory moderate, and whether liquidity remains above covenant requirements.
- How higher interest rates and the 2023 term-loan maturity affect interest expense, refinancing options and covenant headroom.
- The impact of the private placement and resulting share count on per-share results; also assess Adjusted EBITDA and Free Cash Flow alongside GAAP results because both are non-GAAP measures.