Blue Bird Corporation — Q3 FY2021 Form 10-Q
Reporting period: Quarter ended July 3, 2021 (13 weeks); nine-month period ended July 3, 2021 (39 weeks). Comparatives are the quarter ended July 4, 2020 and nine months ended July 4, 2020 (40 weeks). Blue Bird designs and manufactures school buses and sells replacement parts.
Financial performance
Amounts below are in millions of dollars, except per-share data and percentages.
| Metric | Q3 FY2021 | Q3 FY2020 | 9M FY2021 | 9M FY2020 |
|---|---|---|---|---|
| Net sales | $196.7 | $189.2 | $491.8 | $597.8 |
| Gross profit / margin | $26.2 / 13.3% | $21.1 / 11.1% | $59.1 / 12.0% | $66.6 / 11.1% |
| Operating profit / margin | $8.1 / 4.1% | $3.3 / 1.7% | $9.0 / 1.8% | $8.4 / 1.4% |
| Net income | $4.3 | $1.3 | $2.1 | $0.2 |
| Diluted EPS | $0.16 | $0.05 | $0.08 | $0.01 |
| Adjusted EBITDA / margin | $13.2 / 6.7% | $12.5 / 6.6% | $26.5 / 5.4% | $32.8 / 5.5% |
Cash flow and liquidity: For the first nine months, operating cash use was $14.2 million, investing cash use was $9.4 million, and free cash flow (a company-defined non-GAAP measure) was negative $24.5 million. Cash declined by $33.3 million to $11.2 million from $44.5 million at October 3, 2020. At July 3, the company had $93.1 million available under its revolving facility, with no revolver borrowings and $6.9 million of letters of credit outstanding.
Debt and balance sheet: Term-loan principal was $168.9 million; the balance-sheet carrying amount was $166.6 million, including current and long-term portions. The term loan matures in 2023. Total current assets were $162.2 million and current liabilities $172.2 million; stockholders’ deficit was $46.8 million. Inventory rose to $133.5 million from $56.5 million at fiscal year-end, while accounts payable increased to $113.2 million from $57.6 million.
Material changes and operating drivers
- Q3 sales increased 4.0% year over year, led by parts revenue, up 73.8%; bus revenue rose 0.6%. Bus bookings were 2,024 versus 1,948. Alternative-power bus revenue was $95.9 million versus $81.0 million.
- Q3 gross profit improved by $5.1 million, and cost of goods sold fell to 86.7% of sales from 88.9%. Management cited improved labor absenteeism and manufacturing efficiencies, partly offset by higher freight and supply-chain costs.
- Nine-month sales fell 17.7%, primarily from pandemic-related lower demand and production constraints. Bus bookings declined to 4,768 from 6,002; parts sales decreased 4.2%. Nine-month adjusted EBITDA declined 19.2% and its margin eased to 5.4% from 5.5%.
- Nine-month SG&A declined $8.0 million, helping operating profit rise modestly despite lower gross profit. Nine-month interest expense declined to $7.1 million from $10.0 million, while a $0.6 million debt-modification loss was recorded.
Outlook, risks and unusual items
- Management reported a backlog exceeding 3,900 units at July 3, including more than 500 units deferred from Q3 because shortages prevented production completion; management said no orders had been canceled due to those delays.
- Supply disruptions, higher raw-material costs, expedited freight, production inefficiencies, workforce absenteeism and COVID-19 uncertainty remained material risks. Management expected disruptions to continue and said they could materially affect results if production could not meet higher-volume periods or cost increases could not be passed to customers.
- In July 2021, the company announced two price increases for new orders intended to mitigate rising purchase costs. The filing gives no quantified earnings or revenue guidance.
- The amended credit agreement imposes a minimum liquidity requirement of $15.0 million during its Limited Availability Period, additional covenant and operating restrictions, and a 0.50% additional interest margin. The company reported covenant compliance at July 3, 2021. Management cautioned that a severe downturn could threaten covenant compliance and that amendment or refinancing might not be available on acceptable terms.
- The company recorded $0.5 million of gross unrecognized tax benefits and $0.3 million of accrued interest and penalties related to uncertain tax positions. It also disclosed pending product-liability and other cases, which management did not expect to have a material adverse effect, and a $3.0 million dealer-loan guarantee assessed as remote likelihood of payment.
Investor verification priorities
- Whether the deferred units and reported backlog convert to deliveries and cash as supply constraints ease.
- Whether announced price increases offset material, freight and labor-cost pressures without weakening demand.
- Cash usage, inventory and payable movements, revolver availability, and continued compliance with credit-agreement liquidity and financial covenants.
- Debt refinancing plans and terms ahead of the 2023 term-loan maturity.
- Developments in COVID-19 impacts, uncertain tax positions, and disclosed legal and guarantee exposures.