Blue Bird Corporation — Q2 FY2021 Form 10-Q
Reporting period: Fiscal quarter and six months ended April 3, 2021; comparative periods ended April 4, 2020. Blue Bird manufactures and sells school buses and replacement parts through dealer and other channels. Amounts below are in U.S. dollars.
Financial performance
| Metric | Q2 FY2021 | Q2 FY2020 | Six months FY2021 | Six months FY2020 |
|---|---|---|---|---|
| Net sales | $164.7 million | $255.4 million | $295.1 million | $408.6 million |
| Gross profit | $18.5 million | $24.2 million | $33.0 million | $45.5 million |
| Gross margin | 11.2% | 9.5% | 11.2% | 11.1% |
| Operating profit | $1.1 million | $4.3 million | $0.9 million | $5.1 million |
| Net loss | $0.6 million | $0.6 million | $2.2 million | $1.0 million |
| Adjusted EBITDA and margin | $7.5 million; 4.6% | $12.3 million; 4.8% | $13.3 million; 4.5% | $20.3 million; 5.0% |
Q2 diluted loss per share was $0.02, unchanged from the prior-year quarter; six-month diluted loss per share was $0.08 versus $0.04. Adjusted EBITDA is a non-GAAP measure.
Cash flow, debt and liquidity
- For the six months, operating cash outflow was $11.2 million, capital expenditures were $7.0 million, and free cash flow was negative $18.2 million. Free cash flow improved from negative $62.5 million in the prior-year period.
- Cash declined from $44.5 million at fiscal year-end to $18.7 million at April 3, 2021. Operating, investing and financing activities used $11.2 million, $7.0 million and $7.6 million, respectively.
- Term debt principal outstanding was $171.4 million; the balance-sheet carrying amount, net of financing costs and current portion, was $156.4 million long-term and $12.4 million current. No revolving borrowings were outstanding; reported additional revolver availability was $97.3 million. Letters of credit totaled $6.9 million.
- The amended credit agreement requires at least $15 million of liquidity during its Limited Availability Period, applies temporary financial covenants and an additional 0.50% interest margin. The company reported covenant compliance at quarter-end.
- Current assets were $124.3 million and current liabilities were $135.8 million. Inventory rose to $92.0 million from $56.5 million at October 3, 2020.
Material changes versus comparable periods
- Q2 sales fell 35.5% and six-month sales fell 27.8%, mainly because pandemic-related remote learning and uncertainty reduced bus orders. Bus bookings were 1,489 in Q2 versus 2,594; six-month bookings were 2,744 versus 4,054.
- Parts revenue also declined, reflecting reduced repair and maintenance activity as fewer buses were in operation.
- Q2 gross margin improved to 11.2% from 9.5%, while six-month gross margin was nearly flat. Management attributed pressure on per-unit costs to workforce absenteeism and supply disruptions; bus cost per unit increased 8.3% in Q2 and 6.4% for the six months.
- SG&A declined by $2.5 million in Q2 and $8.3 million for the six months as the company controlled spending. Lower interest expense also partly offset weaker operating results.
- Six-month operating cash use improved substantially year over year, mainly from a smaller working-capital cash outflow. Capital spending was lower, while financing included $2.5 million of credit-amendment costs and scheduled term-loan repayments.
Outlook, risks and unusual items
- Management said COVID-19 was expected to continue adversely affecting the business for the remainder of FY2021 and possibly beyond; it gave no numerical revenue or earnings guidance. The duration and scale of impacts were described as uncertain.
- Risks include lower school-bus demand, changing in-person school schedules, supplier disruptions and shortages, production inefficiencies, employee absenteeism, commodity costs, and possible further production interruptions. A one-week manufacturing pause occurred in March 2021 because of critical-component shortages; management said it did not materially affect Q2.
- The company had incurred a two-week manufacturing closure in April 2020. It was considering further cost and spending controls, including limiting hiring, discretionary spending and capital investment.
- The December 2020 credit amendment generated $2.5 million in lender and issuance costs, including $0.6 million recognized as a debt-modification loss over the six-month period. Covenant breaches could require relief or refinancing, which management said could carry higher rates and costs.
- Variable-rate debt is partly mitigated by an interest-rate collar. The collar had a $2.9 million fair-value liability at quarter-end; cash payments under the collar totaled $1.0 million during the six months.
- Product-liability and other legal matters were pending; management did not expect their resolution to materially adversely affect the financial statements. A $3.0 million dealer-debt guarantee was outstanding, with performance considered remote; $0.2 million was recorded as its estimated fair value.
Important facts for investors to verify
- Whether bus bookings and customer demand recover as schools resume in-person operations, and how seasonality affects upcoming quarters.
- Whether critical-component supply constraints, workforce availability and higher per-unit manufacturing costs persist or worsen.
- Whether cash generation and liquidity remain adequate under the amended credit agreement, including covenant compliance and refinancing needs for the 2023 term-loan maturity.
- How inventory growth, working-capital movements and planned capital expenditures affect cash balances.
- The composition and ongoing relevance of adjustments excluded from non-GAAP Adjusted EBITDA and free cash flow.