Blue Bird Corporation — FY2023 Form 10-K
Reporting period: Fiscal year ended September 30, 2023 (52 weeks), compared primarily with fiscal 2022, ended October 1, 2022. Blue Bird designs and manufactures school buses and sells replacement parts. Its reportable segments are Bus and Parts.
Financial performance
| Metric | FY2023 | FY2022 |
|---|---|---|
| Net sales | $1,132.8 million | $800.6 million |
| Gross profit; gross margin | $138.9 million; 12.3% | $36.5 million; 4.6% |
| Operating profit (loss); operating margin | $51.7 million; 4.6% | $(40.7) million; (5.1)% |
| Net income (loss); diluted EPS | $23.8 million; $0.74 | $(45.8) million; $(1.48) |
| Adjusted EBITDA; margin | $87.9 million; 7.8% | $(14.7) million; (1.8)% |
| Operating cash flow | $119.9 million | $(24.4) million |
| Free cash flow (non-GAAP) | $111.4 million | $(30.9) million |
Net sales rose 41.5%. Bus-segment sales were $1,034.6 million, up 43.0%; Parts sales were $98.2 million, up 27.3%. Bus unit bookings increased to 8,514 from 6,822, and average bus selling price per unit increased 14.6%, reflecting pricing actions and product/customer mix. Parts represented 8.7% of company net sales.
At September 30, 2023, cash and cash equivalents were $79.0 million, versus $10.5 million a year earlier. The company reported $83.7 million of additional borrowing availability under its then-existing revolver, with no revolver borrowings outstanding and $6.3 million of letters of credit. Current assets were $236.1 million and current liabilities $229.6 million. Term-loan principal was $131.8 million; the balance sheet reported $19.8 million current and $110.5 million long-term debt, net of financing costs.
Operating cash flow improved by $144.4 million year over year, supported by higher earnings and favorable working-capital movements, including lower inventory. Capital spending was $8.5 million. The company’s free cash flow measure is non-GAAP and is defined as operating cash flow less purchases of fixed and intangible assets.
Material changes and unusual items
- Gross profit increased $102.3 million, and the company returned to operating and net profitability after losses in FY2022. Management attributed the recovery chiefly to higher production and deliveries, improved supply availability, and cumulative selling-price increases. Bus margins remained below pre-pandemic levels in FY2023’s second quarter but returned to more normal historical levels in the latter half.
- Supply constraints eased somewhat, enabling higher output, but supplier, raw-material and freight costs remained elevated. Management said early FY2023 deliveries included older fixed-price orders with weaker economics; newer orders generally included price increases that better covered costs.
- Other expense included $7.4 million of costs tied to secondary share offerings by existing stockholders. Blue Bird itself sold no shares and received no proceeds. Interest expense increased to $18.0 million from $14.7 million, partly reflecting higher rates; the stated term-loan rate was 10.0% at year-end.
- Cash provided by financing activities was $(42.9) million, including $19.8 million of term-loan repayments and net revolver repayments. FY2022 financing had included $74.8 million of net proceeds from a private placement.
- The pension plan’s projected benefit obligation was $108.4 million and plan assets were $106.0 million, leaving a $2.4 million net liability, down from $16.0 million. The plan is frozen to future benefit accruals.
Outlook, risks and contingencies
- Outlook: The filing provides no quantified FY2024 revenue, earnings or unit-sales guidance. Management described demand and backlog as robust: backlog was approximately 4,600 buses at September 30, 2023, despite FY2023 sales of over 8,500 buses. Management cited an aging fleet, school-age population growth, and public funding for cleaner buses as demand supports, while noting uncertainty around the timing and durability of demand and supply recovery.
- Funding and electrification: Federal programs support zero- and low-emission school-bus purchases. The company recorded $18.5 million of EPA-related funds as deferred revenue at year-end and expected to recognize most in the first half of FY2024 as buses were produced and delivered. In December 2023, after year-end, Blue Bird and Generate Capital agreed to form an electric-bus fleet-as-a-service joint venture. Blue Bird committed up to $20 million in preferred capital, subject to terms, and granted warrants for 1 million shares at $25 per share.
- Refinancing after year-end: On November 17, 2023, the company refinanced its prior facility with a five-year agreement comprising a $100 million term loan and $150 million revolving commitments. The facility has quarterly covenants of total net leverage no greater than 3.00:1.00 and fixed-charge coverage of at least 1.20:1.00. The filing warns that covenant noncompliance could require relief or refinancing. The company reported compliance with its prior facility covenants at September 30, 2023.
- Principal risks: Continued or renewed shortages, single-source supplier dependence, commodity and freight inflation, fixed-price contracts, variable interest rates, municipal/property-tax budgets, seasonality, competition, labor costs and union negotiations could pressure production, margins, cash flow or covenant compliance. A union was certified to represent approximately 1,400 employees; bargaining had begun, with no agreement in place at year-end.
- Other exposures: The Fort Valley facility has an ongoing environmental corrective-action process involving an old landfill; management said risks were substantially reduced but not eliminated. Recorded environmental liabilities were $0.3 million. Product liability and other cases were pending, but management did not expect a material adverse effect. The $15.4 million warranty reserve is based on estimates; the auditor identified its evaluation as a critical audit matter.
Most important facts for investors to verify
- Whether the approximately 4,600-bus backlog converts into deliveries on schedule and at margins consistent with management’s expectations.
- Whether supplier availability and input costs continue to improve, and how much pricing protects margins on fixed-price orders.
- Quarterly performance against the new credit agreement’s leverage and fixed-charge coverage covenants, including borrowing levels and interest costs.
- Timing and recognition of the $18.5 million deferred EPA-related funds, and the funding, economics and execution risks of the electric-bus joint venture.
- Actual labor-cost and operating effects of collective bargaining, and developments in the landfill corrective-action process and warranty claims.