Blue Bird Corporation — FY2021 Form 10-K
Reporting period: Fiscal year ended October 2, 2021 (52 weeks), compared with fiscal 2020 ended October 3, 2020 (53 weeks). This is an annual filing, not a standalone fourth-quarter report. Blue Bird designs and manufactures school buses and sells replacement parts; its reportable segments are Bus and Parts.
Financial performance
| Metric | FY2021 | FY2020 |
|---|---|---|
| Net sales | $684.0 million | $879.2 million |
| Gross profit / margin | $72.1 million / 10.5% | $96.2 million / 10.9% |
| Operating profit / margin | $6.5 million / 1.0% | $22.0 million / 2.5% |
| Net income (loss) | $(0.3) million | $12.2 million |
| Adjusted EBITDA / margin | $34.1 million / 5.0% | $54.7 million / 6.2% |
| Cash from operations | $(54.2) million | $3.5 million |
| Free cash flow | $(66.5) million | $(15.5) million |
Bus-segment sales fell 24.0% to $625.2 million; Parts sales rose 3.9% to $58.8 million. The company booked 6,679 buses versus 8,878 in FY2020. The filing reports 6,679 buses sold worldwide, including 3,358 alternative-powered buses; 146 were electric.
At year-end, cash was $11.7 million, inventory $125.2 million, and current assets $156.1 million versus current liabilities of $124.8 million. Term-loan principal was $166.5 million and revolver borrowings were $45.0 million, for total reported borrowings of approximately $211.5 million before finance leases. A further $48.7 million was available under the revolving facility, net of letters of credit. The company reported compliance with its covenants at year-end.
Changes and drivers
- Revenue declined 22.2%, primarily because COVID-related shortages of critical components limited bus production and deliveries. Management estimated about 2,000 bus deliveries were deferred into FY2022; backlog exceeded 4,200 units at year-end, and management said no orders had been canceled due to production delays.
- Higher component and freight costs, workforce absenteeism, and manufacturing inefficiencies pressured bus costs and margins. Higher selling prices partly offset cost inflation; two price increases announced in July 2021 were intended to address rising costs on new orders.
- Operating cash flow deteriorated mainly as inventory rose by $68.7 million, including parts received that could not be used because other components were unavailable. Financing cash flow included $45.0 million of net revolver borrowings.
- Interest expense fell to $9.7 million from $12.3 million, mainly reflecting changes in the fair value of the interest-rate collar, partly offset by higher effective borrowing rates. The company recorded a $0.6 million debt-modification loss.
Outlook, risks and other notable items
- Management expected strong demand to continue, but warned that supply-chain constraints could limit production and make historical seasonality unpredictable. It expected higher costs on inventory accumulated at year-end to weigh on first-half FY2022 gross profit. The filing does not provide quantified company revenue or earnings guidance.
- Management cited replacement demand, an aging fleet, student-population growth and alternative-fuel adoption as longer-term opportunities. The filing noted the Infrastructure Investment and Jobs Act, signed in November 2021, allocated $5 billion over five years for alternative-powered school buses; this was a post-year-end development.
- On November 24, 2021, the company amended its credit agreement, extending temporary covenant and liquidity provisions through April 1, 2023, with minimum EBITDA, liquidity and, when triggered, bus-production requirements. Failure to meet covenants could require further relief or refinancing.
- On December 15, 2021, Blue Bird raised $75.0 million net by privately issuing 4,687,500 shares at $16.00 per share. The proceeds were intended for working capital and general corporate purposes; the issuance diluted existing holders. Coliseum Capital was to hold about 15% and receive a board seat.
- Principal risks include reliance on single-source suppliers, fixed-price contracts without broad cost-escalation provisions, customer and school-budget uncertainty, competition, debt and covenant requirements, product warranty/liability exposure, and environmental obligations at the Fort Valley facility. The company recorded a $0.2 million environmental liability; estimated undiscounted costs over six years were $0.5 million. Management did not expect pending legal matters to have a material adverse effect.
- The $19.0 million warranty reserve was identified as a critical audit matter because its estimate depends on assumptions about warranty costs and claim-payment patterns. The auditor issued unqualified opinions on the financial statements and internal control; management also concluded disclosure controls were effective.
Investor verification priorities
- Track supplier availability, production recovery, the timing of the estimated 2,000 deferred deliveries, backlog conversion and any order cancellations.
- Assess whether pricing actions and cost reductions offset component, freight and labor inflation, and monitor gross margin and Adjusted EBITDA alongside GAAP results.
- Monitor inventory normalization, operating cash flow, liquidity and revolver availability, as well as compliance with amended EBITDA, liquidity and production covenants.
- Confirm use of the $75.0 million equity proceeds and evaluate dilution, potential further capital needs and debt refinancing plans.
- Review warranty claims and reserve adequacy, environmental remediation developments, and whether alternative-bus funding translates into orders and deliveries.