Blue Bird Corporation — Q1 FY2020 Form 10-Q
Reporting period: 14 weeks ended January 4, 2020; comparable quarter was 13 weeks ended December 29, 2018. Amounts below are in U.S. dollars; financial statement amounts are rounded to millions unless stated otherwise.
Business context and results
Blue Bird designs, manufactures and sells school buses and replacement parts. Sales are seasonal, with the third and fourth fiscal quarters typically busiest. The company reported a net loss, despite higher gross profit and Adjusted EBITDA than in the prior-year quarter.
| Metric | Q1 FY2020 | Prior comparable quarter |
|---|---|---|
| Net sales | $153.2 million | $154.9 million |
| Gross profit / margin | $21.3 million / 13.9% | $19.1 million / 12.3% |
| Operating profit / margin | $0.8 million / 0.5% | $1.8 million / 1.2% |
| Net loss | $0.4 million; $(0.02) per share | $1.2 million; $(0.05) per share |
| Adjusted EBITDA / margin (non-GAAP) | $8.0 million / 5.2% | $7.2 million / 4.7% |
| Cash used in operations | $86.0 million | $48.2 million |
| Free cash flow (non-GAAP) | $(95.3) million | $(59.0) million |
Revenue, profitability and period-over-period changes
- Net sales decreased 1.1%. Bus sales fell 3.2% to $134.8 million; parts sales rose 17.4% to $18.4 million. Bus bookings were 1,460 units versus 1,600, while average bus unit price increased 6.1%.
- Diesel bus revenue declined to $76.8 million from $89.8 million; alternative-fuel bus revenue increased to $51.7 million from $43.1 million.
- Cost of goods sold fell 2.9%, improving gross margin to 13.9% from 12.3%. Management attributed the improvement in gross profit partly to cost savings and pricing, while bus cost per unit increased 4.5%, reflecting commodity costs and tariffs.
- SG&A increased $3.2 million to $20.5 million, more than offsetting the $2.2 million increase in gross profit and contributing to lower operating profit. Interest expense decreased to $1.9 million from $2.9 million, primarily due to changes in the interest-rate collar’s fair value.
- Adjusted EBITDA increased 11.2%, primarily reflecting higher gross profit, partly offset by higher adjusted SG&A. This is a company-defined non-GAAP measure and is not equivalent to GAAP profit.
Cash, debt and liquidity
- Cash and cash equivalents were $7.7 million at January 4, 2020, down from $71.0 million at September 28, 2019. Operating cash outflow was $86.0 million, driven mainly by a $59.8 million inventory increase and working-capital movements. The company noted that first-quarter working capital is typically a significant use of cash.
- Investing activities used $9.1 million, including $9.3 million of fixed-asset purchases. Financing activities provided $31.9 million, including $35.0 million drawn on the revolving credit facility.
- Debt included $183.8 million of term-loan principal and $35.0 million drawn on the revolver; the balance sheet reported $35.0 million of revolving debt and $180.9 million of term debt net of financing costs, including its current portion. The company had $58.1 million of additional revolver availability after $6.9 million of letters of credit.
- At quarter-end, current assets were $164.1 million and current liabilities were $134.2 million. Management reported compliance with credit covenants and stated that existing cash and expected operating cash flows should meet operating requirements for at least 12 months. Term-loan principal payments total $218.8 million through maturity, with $186.6 million scheduled for 2023.
Outlook, commentary and notable items
- The filing provides no numerical earnings or revenue guidance. Management emphasized seasonality, order timing, customer delivery requirements, municipal budgets and replacement cycles as factors affecting demand and quarterly comparisons.
- Management identified commodity costs, tariffs, material availability and labor and operating costs among factors that can affect results. It also described exposure to variable interest rates and foreign-currency and commodity risks; it reported no material change in previously disclosed market risks.
- The company changed the amortization period for deferred losses on its frozen pension plan from approximately seven years to approximately 23 years because fewer than 10% of participants remained active. Pension expense and other comprehensive income may be affected by this accounting change.
- Product-liability and other cases were pending; management did not expect their resolution to have a material adverse effect. A $3.0 million dealer-related debt guarantee was outstanding, with estimated fair value of $0.4 million; management considered performance unlikely. No material environmental proceedings were reported.
- At January 4, 2020, 683,674 warrants to purchase 341,837 common shares remained outstanding and were due to expire February 24, 2020.
Important facts for investors to verify
- Whether the first-quarter cash drawdown and inventory build unwind as seasonal bus deliveries and working-capital patterns progress.
- Revolver usage, remaining availability, covenant compliance and the company’s ability to manage its 2023 term-loan maturity.
- Bus order and booking trends, pricing, product mix, and the effects of commodity costs and tariffs on unit economics.
- The reconciliation and assumptions underlying Adjusted EBITDA and free cash flow, and the effect of the pension amortization change on reported results.
- Developments in litigation, warranty and self-insurance obligations, and the dealer guarantee.