Blue Bird Corporation — Q2 FY2023 Form 10-Q
Reporting period: 13 weeks ended April 1, 2023; year-to-date figures cover the six months ended that date. Comparisons are with the corresponding periods ended April 2, 2022. Blue Bird designs and manufactures school buses and sells replacement parts, primarily through dealer networks.
Financial performance
| Metric | Q2 FY2023 | Q2 FY2022 | Six months FY2023 | Six months FY2022 |
|---|---|---|---|---|
| Net sales | $299.8 million | $207.7 million | $535.5 million | $336.9 million |
| Gross profit | $35.6 million | $3.2 million | $43.1 million | $19.4 million |
| Gross margin | 11.9% | 1.5% | 8.1% | 5.7% |
| Operating income (loss) | $12.4 million | $(16.7) million | $3.1 million | $(18.7) million |
| Net income (loss) | $7.1 million | $(12.1) million | $(4.2) million | $(16.2) million |
| Diluted EPS | $0.22 | $(0.38) | $(0.13) | $(0.54) |
| Adjusted EBITDA and margin | $19.8 million; 6.6% | $(10.7) million; (5.1)% | $15.6 million; 2.9% | $(7.1) million; (2.1)% |
Q2 revenue rose 44.4%, with bus sales up 45.1% and parts sales up 37.4%. Bus revenue benefited from 19.3% more units booked and a 21.6% increase in average selling price. Alternative-power buses accounted for $171.3 million of Q2 sales, versus $82.7 million a year earlier. For the six months, bus sales increased 61.7%, including 38.3% more units booked and a 16.9% higher average selling price.
Cash flow: In the first six months, operating cash flow was $44.7 million, compared with cash used of $11.4 million a year earlier. Capital spending was $3.7 million, yielding company-defined free cash flow of $41.0 million, versus negative $14.9 million. Operating cash flow benefited from lower inventory, among other working-capital changes.
Balance sheet, debt and liquidity
- At April 1, 2023, cash and cash equivalents were $17.8 million; restricted cash was $0.2 million. The company reported $83.7 million of additional revolving-credit availability, net of $6.3 million of letters of credit.
- Term-loan principal outstanding was $141.7 million; the balance-sheet carrying amount was $139.6 million, net of deferred financing costs. No revolving-credit borrowings were outstanding. The term-loan stated rate was 10.5%, versus 7.9% at October 1, 2022; Q2 interest expense increased to $5.2 million from $2.5 million.
- Current assets were $172.0 million and current liabilities $198.4 million, a current ratio of approximately 0.87. Stockholders’ equity was a deficit of $1.1 million.
- A November 2022 credit amendment extended term-loan and revolver maturities to December 31, 2024, reduced revolving commitments to $90 million, and requires approximately $5 million of quarterly principal payments through September 2024. The remaining term-loan principal is due at maturity.
- The filing states the company was in compliance with all credit covenants at April 1, 2023. During the amended limited-availability period, minimum liquidity is $30 million through December 30, 2023; minimum consolidated EBITDA thresholds are $50 million for the quarter ending July 1, 2023 and $60 million for the quarter ending September 30, 2023, using specified annualization calculations.
Material changes, outlook and risks
- Results improved substantially year over year as supply-chain conditions eased somewhat, production and deliveries increased, and newer backlog orders reflected prior price increases. Management said Q2 bus margins remained below historical pre-pandemic levels and noted that higher supplier and freight costs continued to weigh on results.
- Management expected pricing benefits to continue for the remainder of FY2023 as the company fulfills more recently priced orders. This is not a specific quantitative earnings or revenue forecast.
- Backlog exceeded 5,700 units at April 1, 2023, despite more than 4,200 units sold in the first half. Supply-chain disruptions, component availability, inflation and freight costs remain uncertain; management said these factors could continue to adversely affect operations, liquidity and covenant compliance.
- Russia’s invasion of Ukraine contributed indirectly to higher material and freight costs. Steel prices rose during Q2 after declining in Q1, and diesel-price volatility also affected supplier and freight costs.
- The company’s debt amendment includes temporary covenant provisions and a higher interest-rate structure; failure to meet future requirements could require covenant relief or refinancing, which might not be available on acceptable terms.
- In April 2023, a union petition sought a representation election for certain production, maintenance, quality-control and warehouse employees. The election was expected in mid-May 2023.
- Product-liability and other legal matters are pending; management did not expect their resolution to materially adversely affect the company. The filing reports no material environmental proceedings.
Investor verification points
- Track whether production and deliveries convert the substantial backlog into revenue, and whether supply constraints or order cancellations change.
- Verify that price increases continue to offset input, labor and freight inflation, and assess bus gross margins against pre-pandemic levels.
- Monitor cash generation and working-capital movements, particularly inventory and accounts payable, rather than relying on one interim period’s free cash flow.
- Review interest expense, debt repayments, revolver availability and compliance with the amended liquidity, EBITDA and leverage covenants.
- Follow the union election and any resulting labor-cost or operating effects, as well as developments in litigation and supply-chain risks.