UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
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☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended July 2,December 31, 2022
OR
| | | | | |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ................................ to ...............................................
Commission File Number 001-36267
BLUE BIRD CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 46-3891989
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
3920 Arkwright Road, 2nd Floor, Macon, Georgia 31210
(Address of principal executive offices and zip code)
(478) 822-2801
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | | | | | | | |
Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
Common stock, $0.0001 par value | | BLBD | | NASDAQ Global Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | | | | | | | | | | |
Large accelerated filer | ☐ | | | Accelerated Filer | | ☒ |
Non-accelerated filer | ☐ | | | Smaller reporting company | | ☐ |
| | | | Emerging growth company | | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
At August 8, 2022, 32,024,911February 2, 2023, 32,032,067 shares of the registrant’s common stock, $0.0001 par value, were outstanding.
BLUE BIRD CORPORATION
FORM 10-Q
TABLE OF CONTENTS
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
BLUE BIRD CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
| (in thousands of dollars, except for share data) | (in thousands of dollars, except for share data) | July 2, 2022 | | October 2, 2021 | (in thousands of dollars, except for share data) | December 31, 2022 | | October 1, 2022 |
Assets | Assets | | | | Assets | | | |
Current assets | Current assets | | Current assets | |
Cash and cash equivalents | Cash and cash equivalents | $ | 26,509 | | | $ | 11,709 | | Cash and cash equivalents | $ | 5,664 | | | $ | 10,479 | |
Accounts receivable, net | Accounts receivable, net | 13,004 | | | 9,967 | | Accounts receivable, net | 9,125 | | | 12,534 | |
Inventories | Inventories | 216,725 | | | 125,206 | | Inventories | 129,120 | | | 142,977 | |
Other current assets | Other current assets | 9,901 | | | 9,191 | | Other current assets | 14,048 | | | 8,486 | |
Total current assets | Total current assets | $ | 266,139 | | | $ | 156,073 | | Total current assets | $ | 157,957 | | | $ | 174,476 | |
Restricted cash | | Restricted cash | $ | 236 | | | $ | — | |
Property, plant and equipment, net | Property, plant and equipment, net | 102,124 | | | 105,482 | | Property, plant and equipment, net | 99,110 | | | 100,608 | |
Goodwill | Goodwill | 18,825 | | | 18,825 | | Goodwill | 18,825 | | | 18,825 | |
Intangible assets, net | Intangible assets, net | 47,936 | | | 49,443 | | Intangible assets, net | 46,931 | | | 47,433 | |
Equity investment in affiliate | Equity investment in affiliate | 11,312 | | | 14,817 | | Equity investment in affiliate | 10,727 | | | 10,659 | |
Deferred tax assets | Deferred tax assets | 10,706 | | | 4,413 | | Deferred tax assets | 13,892 | | | 10,907 | |
Finance lease right-of-use assets | Finance lease right-of-use assets | 4,363 | | | 5,486 | | Finance lease right-of-use assets | 1,560 | | | 1,736 | |
Other assets | Other assets | 1,765 | | | 1,481 | | Other assets | 2,367 | | | 1,482 | |
Total assets | Total assets | $ | 463,170 | | | $ | 356,020 | | Total assets | $ | 351,605 | | | $ | 366,126 | |
Liabilities and Stockholders' Equity (Deficit) | | | | |
Liabilities and Stockholders' (Deficit) Equity | | Liabilities and Stockholders' (Deficit) Equity | | | |
Current liabilities | Current liabilities | | Current liabilities | |
Accounts payable | Accounts payable | $ | 129,911 | | | $ | 72,270 | | Accounts payable | $ | 124,789 | | | $ | 107,937 | |
Warranty | Warranty | 6,637 | | | 7,385 | | Warranty | 6,525 | | | 6,685 | |
Accrued expenses | Accrued expenses | 18,472 | | | 12,267 | | Accrued expenses | 18,713 | | | 16,386 | |
Deferred warranty income | Deferred warranty income | 7,152 | | | 7,832 | | Deferred warranty income | 7,238 | | | 7,205 | |
Finance lease obligations | Finance lease obligations | 1,366 | | | 1,327 | | Finance lease obligations | 571 | | | 566 | |
Other current liabilities | Other current liabilities | 4,626 | | | 8,851 | | Other current liabilities | 6,681 | | | 6,195 | |
Current portion of long-term debt | Current portion of long-term debt | 18,563 | | | 14,850 | | Current portion of long-term debt | 19,800 | | | 19,800 | |
Total current liabilities | Total current liabilities | $ | 186,727 | | | $ | 124,782 | | Total current liabilities | $ | 184,317 | | | $ | 164,774 | |
Long-term liabilities | Long-term liabilities | | | | Long-term liabilities | | | |
Revolving credit facility | Revolving credit facility | $ | 60,000 | | | $ | 45,000 | | Revolving credit facility | $ | 5,000 | | | $ | 20,000 | |
Long-term debt | Long-term debt | 135,035 | | | 149,573 | | Long-term debt | 124,341 | | | 130,390 | |
Warranty | Warranty | 9,507 | | | 11,165 | | Warranty | 9,055 | | | 9,285 | |
Deferred warranty income | Deferred warranty income | 10,986 | | | 12,312 | | Deferred warranty income | 12,052 | | | 11,590 | |
Deferred tax liabilities | Deferred tax liabilities | 3,883 | | | 3,673 | | Deferred tax liabilities | 72 | | | — | |
Finance lease obligations | Finance lease obligations | 3,506 | | | 4,538 | | Finance lease obligations | 1,428 | | | 1,574 | |
Other liabilities | Other liabilities | 11,880 | | | 14,882 | | Other liabilities | 8,633 | | | 11,107 | |
Pension | Pension | 19,659 | | | 22,751 | | Pension | 15,903 | | | 16,024 | |
Total long-term liabilities | Total long-term liabilities | $ | 254,456 | | | $ | 263,894 | | Total long-term liabilities | $ | 176,484 | | | $ | 199,970 | |
Guarantees, commitments and contingencies (Note 6) | Guarantees, commitments and contingencies (Note 6) | 0 | | 0 | Guarantees, commitments and contingencies (Note 6) | | | |
Stockholders' equity (deficit) | | |
Preferred stock, $0.0001 par value, 10,000,000 shares authorized, 0 shares outstanding at July 2, 2022 and October 2, 2021 | $ | — | | | $ | — | | |
Common stock, $0.0001 par value, 100,000,000 shares authorized, 31,990,860 and 27,205,269 shares outstanding at July 2, 2022 and October 2, 2021, respectively | 3 | | | 3 | | |
Stockholders' (deficit) equity | | Stockholders' (deficit) equity | |
Preferred stock, $0.0001 par value, 10,000,000 shares authorized, 0 shares outstanding at December 31, 2022 and October 1, 2022 | | Preferred stock, $0.0001 par value, 10,000,000 shares authorized, 0 shares outstanding at December 31, 2022 and October 1, 2022 | $ | — | | | $ | — | |
Common stock, $0.0001 par value, 100,000,000 shares authorized, 32,032,067 and 32,024,911 shares outstanding at December 31, 2022 and October 1, 2022, respectively | | Common stock, $0.0001 par value, 100,000,000 shares authorized, 32,032,067 and 32,024,911 shares outstanding at December 31, 2022 and October 1, 2022, respectively | 3 | | | 3 | |
Additional paid-in capital | Additional paid-in capital | 172,814 | | | 96,170 | | Additional paid-in capital | 173,592 | | | 173,103 | |
Accumulated deficit | Accumulated deficit | (56,417) | | | (33,753) | | Accumulated deficit | (90,806) | | | (79,512) | |
Accumulated other comprehensive loss | Accumulated other comprehensive loss | (44,131) | | | (44,794) | | Accumulated other comprehensive loss | (41,703) | | | (41,930) | |
Treasury stock, at cost, 1,782,568 shares at July 2, 2022 and October 2, 2021 | (50,282) | | | (50,282) | | |
Total stockholders' equity (deficit) | $ | 21,987 | | | $ | (32,656) | | |
Total liabilities and stockholders' equity (deficit) | $ | 463,170 | | | $ | 356,020 | | |
Treasury stock, at cost, 1,782,568 shares at December 31, 2022 and October 1, 2022 | | Treasury stock, at cost, 1,782,568 shares at December 31, 2022 and October 1, 2022 | (50,282) | | | (50,282) | |
Total stockholders' (deficit) equity | | Total stockholders' (deficit) equity | $ | (9,196) | | | $ | 1,382 | |
Total liabilities and stockholders' (deficit) equity | | Total liabilities and stockholders' (deficit) equity | $ | 351,605 | | | $ | 366,126 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
BLUE BIRD CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | |
(in thousands of dollars except for share data) | (in thousands of dollars except for share data) | July 2, 2022 | | July 3, 2021 | | July 2, 2022 | | July 3, 2021 | (in thousands of dollars except for share data) | December 31, 2022 | | January 1, 2022 | |
Net sales | Net sales | $ | 206,083 | | | $ | 196,659 | | | $ | 542,965 | | | $ | 491,791 | | Net sales | $ | 235,732 | | | $ | 129,223 | | |
Cost of goods sold | Cost of goods sold | 184,490 | | | 170,500 | | | 502,018 | | | 432,671 | | Cost of goods sold | 228,275 | | | 113,026 | | |
Gross profit | Gross profit | $ | 21,593 | | | $ | 26,159 | | | $ | 40,947 | | | $ | 59,120 | | Gross profit | $ | 7,457 | | | $ | 16,197 | | |
Operating expenses | Operating expenses | | | | | | | | Operating expenses | | | | |
Selling, general and administrative expenses | Selling, general and administrative expenses | 20,505 | | | 18,073 | | | 58,596 | | | 50,124 | | Selling, general and administrative expenses | 16,832 | | | 18,233 | | |
Operating profit (loss) | $ | 1,088 | | | $ | 8,086 | | | $ | (17,649) | | | $ | 8,996 | | |
Operating loss | | Operating loss | $ | (9,375) | | | $ | (2,036) | | |
Interest expense | Interest expense | (3,908) | | | (2,805) | | | (9,481) | | | (7,069) | | Interest expense | (4,196) | | | (3,082) | | |
Interest income | — | | | — | | | — | | | 1 | | |
Other income, net | 735 | | | 426 | | | 2,215 | | | 1,491 | | |
| Other (expense) income, net | | Other (expense) income, net | (236) | | | 736 | | |
Loss on debt modification | Loss on debt modification | — | | | — | | | (561) | | | (598) | | Loss on debt modification | (537) | | | (561) | | |
(Loss) income before income taxes | $ | (2,085) | | | $ | 5,707 | | | $ | (25,476) | | | $ | 2,821 | | |
Income tax (expense) benefit | (2,860) | | | (1,892) | | | 6,317 | | | (888) | | |
Equity in net (loss) income of non-consolidated affiliate | (1,490) | | | 517 | | | (3,505) | | | 166 | | |
Net (loss) income | $ | (6,435) | | | $ | 4,332 | | | $ | (22,664) | | | $ | 2,099 | | |
Loss before income taxes | | Loss before income taxes | $ | (14,344) | | | $ | (4,943) | | |
Income tax benefit | | Income tax benefit | 2,981 | | | 1,762 | | |
Equity in net income (loss) of non-consolidated affiliate | | Equity in net income (loss) of non-consolidated affiliate | 69 | | | (901) | | |
Net loss | | Net loss | $ | (11,294) | | | $ | (4,082) | | |
| (Loss) earnings per share: | | |
Loss per share: | | Loss per share: | | |
Basic weighted average shares outstanding | Basic weighted average shares outstanding | 31,990,860 | | | 27,172,162 | | | 30,687,406 | | | 27,116,915 | | Basic weighted average shares outstanding | 32,026,311 | | | 28,118,450 | | |
Diluted weighted average shares outstanding | Diluted weighted average shares outstanding | 31,990,860 | | | 27,428,877 | | | 30,687,406 | | | 27,337,360 | | Diluted weighted average shares outstanding | 32,026,311 | | | 28,118,450 | | |
Basic (loss) earnings per share | $ | (0.20) | | | $ | 0.16 | | | $ | (0.74) | | | $ | 0.08 | | |
Diluted (loss) earnings per share | $ | (0.20) | | | $ | 0.16 | | | $ | (0.74) | | | $ | 0.08 | | |
Basic loss per share | | Basic loss per share | $ | (0.35) | | | $ | (0.15) | | |
Diluted loss per share | | Diluted loss per share | $ | (0.35) | | | $ | (0.15) | | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
BLUE BIRD CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOMELOSS
(Unaudited)
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | |
(in thousands of dollars) | (in thousands of dollars) | July 2, 2022 | | July 3, 2021 | | July 2, 2022 | | July 3, 2021 | (in thousands of dollars) | December 31, 2022 | | January 1, 2022 | |
Net (loss) income | $ | (6,435) | | | $ | 4,332 | | | $ | (22,664) | | | $ | 2,099 | | |
Net loss | | Net loss | $ | (11,294) | | | $ | (4,082) | | |
Other comprehensive income, net of tax: | Other comprehensive income, net of tax: | | Other comprehensive income, net of tax: | | |
Net change in defined benefit pension plan | Net change in defined benefit pension plan | 221 | | | 354 | | | 663 | | | 1,061 | | Net change in defined benefit pension plan | 227 | | | 221 | | |
| Total other comprehensive income | Total other comprehensive income | $ | 221 | | | $ | 354 | | | $ | 663 | | | $ | 1,061 | | Total other comprehensive income | $ | 227 | | | $ | 221 | | |
Comprehensive (loss) income | $ | (6,214) | | | $ | 4,686 | | | $ | (22,001) | | | $ | 3,160 | | |
Comprehensive loss | | Comprehensive loss | $ | (11,067) | | | $ | (3,861) | | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
BLUE BIRD CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| | | Nine Months Ended | | Three Months Ended |
(in thousands of dollars) | (in thousands of dollars) | July 2, 2022 | | July 3, 2021 | (in thousands of dollars) | December 31, 2022 | | January 1, 2022 |
Cash flows from operating activities | Cash flows from operating activities | | | | Cash flows from operating activities | | | |
Net (loss) income | $ | (22,664) | | | $ | 2,099 | | |
Adjustments to reconcile net (loss) income to net cash used in operating activities: | | |
Depreciation and amortization | 10,089 | | | 10,145 | | |
Net loss | | Net loss | $ | (11,294) | | | $ | (4,082) | |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | | Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | |
Depreciation and amortization expense | | Depreciation and amortization expense | 3,361 | | | 3,288 | |
Non-cash interest expense | Non-cash interest expense | 3,084 | | | 2,219 | | Non-cash interest expense | 417 | | | 1,143 | |
Share-based compensation | 3,153 | | | 1,923 | | |
Equity in net loss (income) of non-consolidated affiliate | 3,505 | | | (166) | | |
Loss (gain) on disposal of fixed assets | 12 | | | (681) | | |
Impairment of fixed assets | 1,354 | | | — | | |
Deferred taxes | (6,293) | | | 350 | | |
Share-based compensation expense | | Share-based compensation expense | 589 | | | 1,673 | |
Equity in net (income) loss of non-consolidated affiliate | | Equity in net (income) loss of non-consolidated affiliate | (69) | | | 901 | |
Loss on disposal of fixed assets | | Loss on disposal of fixed assets | — | | | 9 | |
| Deferred income tax benefit | | Deferred income tax benefit | (2,986) | | | (1,704) | |
Amortization of deferred actuarial pension losses | Amortization of deferred actuarial pension losses | 872 | | | 1,397 | | Amortization of deferred actuarial pension losses | 299 | | | 291 | |
Loss on debt modification | Loss on debt modification | 561 | | | 598 | | Loss on debt modification | 537 | | | 561 | |
Changes in assets and liabilities: | Changes in assets and liabilities: | | Changes in assets and liabilities: | |
Accounts receivable | Accounts receivable | (3,037) | | | (2,828) | | Accounts receivable | 3,409 | | | 3,827 | |
Inventories | Inventories | (91,519) | | | (77,017) | | Inventories | 13,857 | | | (16,747) | |
Other assets | Other assets | 80 | | | 1,682 | | Other assets | (5,227) | | | (2,554) | |
Accounts payable | Accounts payable | 56,280 | | | 55,150 | | Accounts payable | 16,572 | | | (11,115) | |
Accrued expenses, pension and other liabilities | Accrued expenses, pension and other liabilities | (9,928) | | | (9,109) | | Accrued expenses, pension and other liabilities | 461 | | | (8,568) | |
| Total adjustments | Total adjustments | $ | (31,787) | | | $ | (16,337) | | Total adjustments | $ | 31,220 | | | $ | (28,995) | |
Total cash used in operating activities | $ | (54,451) | | | $ | (14,238) | | |
Total cash provided by (used in) operating activities | | Total cash provided by (used in) operating activities | $ | 19,926 | | | $ | (33,077) | |
Cash flows from investing activities | Cash flows from investing activities | | | | Cash flows from investing activities | | | |
Cash paid for fixed assets | Cash paid for fixed assets | $ | (4,748) | | | $ | (10,304) | | Cash paid for fixed assets | $ | (1,146) | | | $ | (1,570) | |
Proceeds from sale of fixed assets | — | | | 901 | | |
| Total cash used in investing activities | Total cash used in investing activities | $ | (4,748) | | | $ | (9,403) | | Total cash used in investing activities | $ | (1,146) | | | $ | (1,570) | |
Cash flows from financing activities | Cash flows from financing activities | | | | Cash flows from financing activities | | | |
Revolving credit facility borrowings | Revolving credit facility borrowings | $ | 15,000 | | | $ | — | | Revolving credit facility borrowings | $ | 5,000 | | | $ | 35,000 | |
Revolving credit facility repayments | | Revolving credit facility repayments | (20,000) | | | (75,000) | |
| Principal payments of senior term loan borrowings | (11,138) | | | (7,425) | | |
Principal payments of finance lease borrowings | (993) | | | (1,147) | | |
Term loan repayments | | Term loan repayments | (4,950) | | | (3,713) | |
Principal payments on finance leases | | Principal payments on finance leases | (141) | | | (328) | |
Cash paid for debt costs | Cash paid for debt costs | (2,468) | | | (2,476) | | Cash paid for debt costs | (3,211) | | | (2,468) | |
Proceeds from Private Placement (Note 11) | 75,000 | | | — | | |
Cash paid for stock issuance costs | (202) | | | — | | |
Cash paid for repurchases of common stock in connection with employee stock award exercises | (1,503) | | | (518) | | |
Cash received from employee stock option exercises | 303 | | | 1,923 | | |
Sale of common stock | | Sale of common stock | — | | | 75,000 | |
| Total cash provided by (used in) financing activities | $ | 73,999 | | | $ | (9,643) | | |
Change in cash and cash equivalents | 14,800 | | | (33,284) | | |
Cash and cash equivalents, beginning of period | 11,709 | | | 44,507 | | |
Cash and cash equivalents, end of period | $ | 26,509 | | | $ | 11,223 | | |
Repurchase of common stock in connection with stock award exercises | | Repurchase of common stock in connection with stock award exercises | (57) | | | (1,484) | |
| Total cash (used in) provided by financing activities | | Total cash (used in) provided by financing activities | $ | (23,359) | | | $ | 27,007 | |
Change in cash, cash equivalents, and restricted cash | | Change in cash, cash equivalents, and restricted cash | (4,579) | | | (7,640) | |
Cash, cash equivalents, and restricted cash at beginning of period | | Cash, cash equivalents, and restricted cash at beginning of period | 10,479 | | | 11,709 | |
Cash, cash equivalents, and restricted cash at end of period | | Cash, cash equivalents, and restricted cash at end of period | $ | 5,900 | | | $ | 4,069 | |
| Supplemental disclosures of cash flow information | Supplemental disclosures of cash flow information | | Supplemental disclosures of cash flow information | |
Cash paid or received during the period: | Cash paid or received during the period: | | Cash paid or received during the period: | |
Interest paid, net of interest received | Interest paid, net of interest received | $ | 10,408 | | | $ | 8,855 | | Interest paid, net of interest received | $ | 3,170 | | | $ | 3,648 | |
Income tax paid, net of tax refunds | 48 | | | 52 | | |
Income tax (received) paid, net of tax refunds | | Income tax (received) paid, net of tax refunds | (90) | | | — | |
Non-cash investing and financing activities: | Non-cash investing and financing activities: | | Non-cash investing and financing activities: | |
Changes in accounts payable for capital additions to property, plant and equipment | Changes in accounts payable for capital additions to property, plant and equipment | $ | 1,718 | | | $ | 400 | | Changes in accounts payable for capital additions to property, plant and equipment | $ | 672 | | | $ | 469 | |
| Accrue debt modification costs | | Accrue debt modification costs | 61 | | | — | |
Accrue common stock issuance costs | | Accrue common stock issuance costs | — | | | 178 | |
Right-of-use assets obtained in exchange for operating lease obligations | Right-of-use assets obtained in exchange for operating lease obligations | — | | | 107 | | Right-of-use assets obtained in exchange for operating lease obligations | 199 | | | — | |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
BLUE BIRD CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY (DEFICIT)
(Unaudited)
| | | Three Months Ended | | Three Months Ended |
(in thousands of dollars, except for share data) | (in thousands of dollars, except for share data) | Common Stock | | Convertible Preferred Stock | | Treasury Stock | | (in thousands of dollars, except for share data) | Common Stock | | Convertible Preferred Stock | | Treasury Stock | |
| | Shares | | Par Value | | Additional Paid-In-Capital | | Shares | | Amount | | Accumulated Other Comprehensive Loss | | Accumulated Deficit | | Shares | | Amount | | Total Stockholders' Equity (Deficit) | | Shares | | Par Value | | Additional Paid-In-Capital | | Shares | | Amount | | Accumulated Other Comprehensive Loss | | Accumulated Deficit | | Shares | | Amount | | Total Stockholders' (Deficit) Equity |
Balance, April 2, 2022 | 31,990,860 | | | $ | 3 | | | $ | 172,191 | | | — | | | $ | — | | | $ | (44,352) | | | $ | (49,982) | | | 1,782,568 | | | $ | (50,282) | | | $ | 27,578 | | |
Balance, October 1, 2022 | | Balance, October 1, 2022 | 32,024,911 | | | $ | 3 | | | $ | 173,103 | | | — | | | $ | — | | | $ | (41,930) | | | $ | (79,512) | | | 1,782,568 | | | $ | (50,282) | | | $ | 1,382 | |
| Restricted stock activity | | Restricted stock activity | 7,156 | | | — | | | (57) | | | — | | | — | | | — | | | — | | | — | | | — | | | (57) | |
| Share-based compensation expense | Share-based compensation expense | — | | | — | | | 623 | | | — | | | — | | | — | | | — | | | — | | | — | | | 623 | | Share-based compensation expense | — | | | — | | | 546 | | | — | | | — | | | — | | | — | | | — | | | — | | | 546 | |
| Net loss | Net loss | — | | | — | | | — | | | — | | | — | | | — | | | (6,435) | | | — | | | — | | | (6,435) | | Net loss | — | | | — | | | — | | | — | | | — | | | — | | | (11,294) | | | — | | | — | | | (11,294) | |
Other comprehensive income, net of tax | Other comprehensive income, net of tax | — | | | — | | | — | | | — | | | — | | | 221 | | | — | | | — | | | — | | | 221 | | Other comprehensive income, net of tax | — | | | — | | | — | | | — | | | — | | | 227 | | | — | | | — | | | — | | | 227 | |
Balance, July 2, 2022 | 31,990,860 | | | $ | 3 | | | $ | 172,814 | | | — | | | $ | — | | | $ | (44,131) | | | $ | (56,417) | | | 1,782,568 | | | $ | (50,282) | | | $ | 21,987 | | |
Balance, December 31, 2022 | | Balance, December 31, 2022 | 32,032,067 | | | $ | 3 | | | $ | 173,592 | | | — | | | $ | — | | | $ | (41,703) | | | $ | (90,806) | | | 1,782,568 | | | $ | (50,282) | | | $ | (9,196) | |
| Balance, April 3, 2021 | 27,153,872 | | | $ | 3 | | | $ | 91,078 | | | — | | | $ | — | | | $ | (57,690) | | | $ | (35,697) | | | 1,782,568 | | | $ | (50,282) | | | $ | (52,588) | | |
Balance, October 2, 2021 | | Balance, October 2, 2021 | 27,205,269 | | | $ | 3 | | | $ | 96,170 | | | — | | | $ | — | | | $ | (44,794) | | | $ | (33,753) | | | 1,782,568 | | | $ | (50,282) | | | $ | (32,656) | |
Private placement | | Private placement | 4,687,500 | | | — | | | 74,822 | | | — | | | — | | | — | | | — | | | — | | | — | | | 74,822 | |
| Restricted stock activity | | Restricted stock activity | 82,505 | | | — | | | (1,484) | | | — | | | — | | | — | | | — | | | — | | | — | | | (1,484) | |
| Stock option activity | 50,563 | | | — | | | 794 | | | — | | | — | | | — | | | — | | | — | | | — | | | 794 | | |
| Share-based compensation expense | Share-based compensation expense | — | | | — | | | 297 | | | — | | | — | | | — | | | — | | | — | | | — | | | 297 | | Share-based compensation expense | — | | | — | | | 1,642 | | | — | | | — | | | — | | | — | | | — | | | — | | | 1,642 | |
| Net income | — | | | — | | | — | | | — | | | — | | | — | | | 4,332 | | | — | | | — | | | 4,332 | | |
Net loss | | Net loss | — | | | — | | | — | | | — | | | — | | | — | | | (4,082) | | | — | | | — | | | (4,082) | |
Other comprehensive income, net of tax | Other comprehensive income, net of tax | — | | | — | | | — | | | — | | | — | | | 354 | | | — | | | — | | | — | | | 354 | | Other comprehensive income, net of tax | — | | | — | | | — | | | — | | | — | | | 221 | | | — | | | — | | | — | | | 221 | |
Balance, July 3, 2021 | 27,204,435 | | | $ | 3 | | | $ | 92,169 | | | — | | | $ | — | | | $ | (57,336) | | | $ | (31,365) | | | 1,782,568 | | | $ | (50,282) | | | $ | (46,811) | | |
Balance, January 1, 2022 | | Balance, January 1, 2022 | 31,975,274 | | | $ | 3 | | | $ | 171,150 | | | — | | | $ | — | | | $ | (44,573) | | | $ | (37,835) | | | 1,782,568 | | | $ | (50,282) | | | $ | 38,463 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Nine Months Ended |
(in thousands of dollars, except for share data) | Common Stock | | Convertible Preferred Stock | | | | | | Treasury Stock | | |
| Shares | | Par Value | | Additional Paid-In-Capital | | Shares | | Amount | | Accumulated Other Comprehensive Loss | | Accumulated Deficit | | Shares | | Amount | | Total Stockholders' Equity (Deficit) |
Balance, October 2, 2021 | 27,205,269 | | | $ | 3 | | | $ | 96,170 | | | — | | | $ | — | | | $ | (44,794) | | | $ | (33,753) | | | 1,782,568 | | | $ | (50,282) | | | $ | (32,656) | |
Private Placement (Note 11) | 4,687,500 | | | — | | | 74,798 | | | — | | | — | | | — | | | — | | | — | | | — | | | 74,798 | |
| | | | | | | | | | | | | | | | | | | |
Restricted stock activity | 82,505 | | | — | | | (1,484) | | | — | | | — | | | — | | | — | | | — | | | — | | | (1,484) | |
Stock option activity | 15,586 | | | — | | | 284 | | | — | | | — | | | — | | | — | | | — | | | — | | | 284 | |
| | | | | | | | | | | | | | | | | | | |
Share-based compensation expense | — | | | — | | | 3,046 | | | — | | | — | | | — | | | — | | | — | | | — | | | 3,046 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Net loss | — | | | — | | | — | | | — | | | — | | | — | | | (22,664) | | | — | | | — | | | (22,664) | |
Other comprehensive income, net of tax | — | | | — | | | — | | | — | | | — | | | 663 | | | — | | | — | | | — | | | 663 | |
Balance, July 2, 2022 | 31,990,860 | | | $ | 3 | | | $ | 172,814 | | | — | | | $ | — | | | $ | (44,131) | | | $ | (56,417) | | | 1,782,568 | | | $ | (50,282) | | | $ | 21,987 | |
| | | | | | | | | | | | | | | | | | | |
Balance, October 3, 2020 | 27,048,404 | | | $ | 3 | | | $ | 88,910 | | | — | | | $ | — | | | $ | (58,397) | | | $ | (33,464) | | | 1,782,568 | | | $ | (50,282) | | | $ | (53,230) | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Restricted stock activity | 36,404 | | | — | | | (517) | | | — | | | — | | | — | | | — | | | — | | | — | | | (517) | |
Stock option activity | 119,627 | | | — | | | 1,922 | | | — | | | — | | | — | | | — | | | — | | | — | | | 1,922 | |
| | | | | | | | | | | | | | | | | | | |
Share-based compensation expense | — | | | — | | | 1,854 | | | — | | | — | | | — | | | — | | | — | | | — | | | 1,854 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Net income | — | | | — | | | — | | | — | | | — | | | — | | | 2,099 | | | — | | | — | | | 2,099 | |
Other comprehensive income, net of tax | — | | | — | | | — | | | — | | | — | | | 1,061 | | | — | | | — | | | — | | | 1,061 | |
Balance, July 3, 2021 | 27,204,435 | | | $ | 3 | | | $ | 92,169 | | | — | | | $ | — | | | $ | (57,336) | | | $ | (31,365) | | | 1,782,568 | | | $ | (50,282) | | | $ | (46,811) | |
The accompanying notes are an integral part of these consolidated financial statements.
BLUE BIRD CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Nature of Business and Basis of Presentation
Nature of Business
Blue Bird Body Company ("BBBC"), a wholly-owned subsidiary of Blue Bird Corporation, was incorporated in 1958 and has manufactured, assembled and sold school buses to a variety of municipal, federal and commercial customers since 1927. The majority of BBBC’s sales are made to an independent dealer network, which in turn sells buses to ultimate end users. References in these notes to condensed consolidated financial statements to “Blue Bird,” the “Company,” “we,” “our,” or “us” relate to Blue Bird Corporation and its wholly-owned subsidiaries, unless the context specifically indicates otherwise. We are headquartered in Macon, Georgia.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant inter-company transactions and accounts have been eliminated in consolidation.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial reporting and Article 8 of Regulation S-X. The Company’s fiscal year ends on the Saturday closest to September 30 with its quarters consisting of thirteen weeks in most years. The fiscal years ending September 30, 2023 ("fiscal 2023") and ended October 1, 2022 ("fiscal 2022") and ended October 2, 2021 ("fiscal 2021") consist or consisted of 52 weeks. The thirdfirst quarters of fiscal 20222023 and fiscal 20212022 both included 13 weeks. The nine month periods in fiscal 2022 and 2021 both included 39 weeks.
In the opinion of management, all adjustments considered necessary for a fair presentation of financial results have been made. Such adjustments consist of only those of a normal recurring nature. Operating results for any interim period are not necessarily indicative of the results that may be expected for the entire year. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements.
The Condensed Consolidated Balance Sheet data as of October 2, 20211, 2022 was derived from the Company’s audited financial statements but does not include all disclosures required by U.S. GAAP. For additional information, including the Company’s significant accounting policies, refer to the consolidated financial statements and related footnotes as of and for the fiscal year ended October 2, 20211, 2022 as set forth in the Company's fiscal 20212022 Form 10-K filed with the Securities and Exchange Commission ("SEC") on December 15, 2021.12, 2022.
Impacts of COVID-19 and Russia's Invasion of UkraineSubsequent Supply Chain Constraints on our Business
Towards the end of our second quarter of the fiscal year that ended October 3, 2020 ("fiscal 2020") and continuing through the third quarter of fiscal 2022,, the novel coronavirus known as "COVID-19" spread throughout the world, resulting in a global pandemic. Countermeasures taken to address the COVID-19 pandemic included virtual and hybrid schooling in many jurisdictions throughout the United States of America ("U.S.") and Canada. The pandemic has significantly impacted our financial results fromuncertainty of when and how schools would open materially affected demand for new buses and replacement/maintenance parts during the second half of fiscal 2020 and first half of the fiscal year that ended October 2, 2021 ("fiscal 2021"), significantly impacting our business and operations.
Demand for school buses strengthened substantially during the second half of fiscal 2021 as COVID-19 vaccines were administered and many jurisdictions began preparing for a return to in-person learning environments for the new school year that began in mid-August to early September 2021. However, during this same period of time, the Company, and automotive industry as a whole, began experiencing significant supply chain constraints resulting from, among others, labor shortages; the lack of maintenance on, and acquisition of, capital assets by suppliers during the extended COVID-19 global lockdowns; significant increased demand for consumer products containing certain materials required for the production of vehicles, such as microchips, as consumers spent stimulus and other funds on items for their homes; etc. These supply chain disruptions had a significant adverse impact on our operations and results during the second half of fiscal 2021 and all of fiscal 2022 due to higher purchasing costs, including freight costs incurred to expedite receipt of critical components, increased manufacturing inefficiencies and our inability to complete the production of buses to fulfill sales orders. Towards the end of fiscal 2022 and continuing throughthroughout the thirdfirst quarter of fiscal 2023, there were slight improvements in the supply chain's ability to deliver the parts and components necessary to support our production operations, resulting in increased (i) manufacturing efficiencies and (ii) production of buses to fulfill sales orders during the first quarter of fiscal 2023. However, the higher costs charged by suppliers to procure inventory continued into the first quarter of fiscal 2023 and had a significant adverse impact on our operations and results as such costs outpaced the increases in sales prices that we
charged for the buses that were sold during the quarter, all of which were included in the backlog of fixed price sales orders originating in fiscal 2021 and 2022 causing, among other matters, reduced demand for school buses and major supply chain disruptions during portions of this period of time.that carried forward into fiscal 2023.
Additionally, Russian military forces launched a large-scale invasion of Ukraine on February 24, 2022.2022, which further exacerbated global supply chain disruptions. While the Company has no assets or customers in either of these countries, this military conflict significantly impacted our financial results during the thirdsecond half of fiscal 2022 and continuing into the first quarter of fiscal 2022,2023, primarily in an indirect manner since the Company does not sell to customers located in, or source goods directly from, either country. Specifically, it has contributed to increased a) costs charged by suppliers for the purchase of inventory that is at least partially dependent on resources originating from either of the countries and b) freight costs, both of which negatively impacted the gross profit recognized on sales during the thirdsecond half of fiscal 2022 and continuing into the first quarter of fiscal 2022.2023.
The continuing development and fluidity of the pandemic and military conflict in Ukrainesubsequent supply chain constraints and their trailing impacts preclude any prediction as to the ultimate severity of the adverse impacts on our business, financial condition, results of operations, and liquidity.
Use of Estimates and Assumptions
The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions. At the date of the financial statements, these estimates and assumptions affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities, and during the reporting period, these estimates and assumptions affect the reported
amounts of revenues and expenses. For example, significant management judgments are required in determining excess, obsolete, or unsalable inventory; the allowance for doubtful accounts; potential impairment of long-lived assets, goodwill and intangible assets; and the accounting for self-insurance reserves, warranty reserves, pension obligations, income taxes, environmental liabilities and contingencies. Future events, including the extent and duration of any COVID-19 outbreaks and continued supply chain constraints and their related economic impacts, and their effects cannot be predicted with certainty, and, accordingly, the Company’s accounting estimates require the exercise of judgment. The accounting estimates used in the preparation of the Company’s condensed consolidated financial statements may change as new events occur, as more experience is acquired, as additional information is obtained and as the Company’s operating environment changes. The Company evaluates and updates its assumptions and estimates on an ongoing basis and may employ outside experts to assist in the Company’s evaluations. Actual results could differ from the estimates that the Company has used.
2. Summary of Significant Accounting Policies and Recently Issued Accounting Standards
The Company’s significant accounting policies are described in the Company’s fiscal 20212022 Form 10-K, filed with the Securities and Exchange Commission (“SEC”)SEC on December 15, 2021.12, 2022. Our senior management has reviewed these significant accounting policies and related disclosures and determined that there were no significant changes in our critical accounting policies in the ninethree months ended July 2,December 31, 2022.
Recently Issued Accounting Standards
ASU 2020-04 On March 12, 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, providing temporary guidance to ease the potential burden in accounting for reference rate reform primarily resulting from the discontinuation of LIBOR (defined below), which was initially expected to occur on December 31, 2021. The amendments in ASU 2020-04 are elective and apply to all entities that have contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued.
ASU 2021-01 On January 7, 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope, which refines the scope of Accounting Standards Codification Topic ("ASC") 848, Reference Rate Reform, and clarifies some of its guidance as part of the FASB’s ongoing monitoring of global reference rate reform activities. The ASU permits entities to elect certain optional expedients and exceptions when accounting for derivative contracts and certain hedging relationships affected by changes in the interest rates used for discounting cash flows, computing variation margin settlements, and calculating price alignment interest in connection with reference rate reform activities under way in global financial markets.
ASU 2022-06 On December 21, 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848, which defers the sunset date of ASC 848 from December 31, 2022 to December 31, 2024, after which entities will no longer be permitted to apply the relief in ASC 848.
The above amendments are effective for all entities from March 12, 2020 through December 31, 2022.2024. An entity may elect to apply the amendments to contract modifications on a (i) full retrospective basis as of any date from the beginning of an interim period that
includes or is subsequent to March 12, 2020 or (ii) prospective basis from any date within an interim period that includes or is subsequent to March 12, 2020 through the date that the interim financial statements are issued or available to be issued.
On March 5, 2021, the Intercontinental Exchange, Inc. ("ICE") Benchmark Administration ("IBA"), the administrator of the United States Dollar London Interbank Offering Rate ("LIBOR"), issued a statement, following the completion of a formal consultation process, reaffirming the preliminary announcement it made on November 30, 2020, to cease publication of (i) 1 week and 2 month LIBOR subsequent to December 31, 2021 and (ii) the overnight and 1, 3, 6 and 12 month LIBOR tenors subsequent to June 30, 2023. The IBA’s statement regarding such cessation dates primarily resulted from a majority of LIBOR panel banks communicating to the IBA that they would be unwilling to continue contributing to the relevant LIBOR settings after such dates. As a result, the IBA determined that it would be unable to publish the relevant LIBOR settings on a representative basis after such dates. The United Kingdom Financial Conduct Authority ("FCA"), which regulates the IBA, confirmed that, based on information it received from LIBOR panel banks, it does not expect that any LIBOR settings will become unrepresentative before the announced cessation dates summarized above.
Currently,With the Company’smaturity of the interest rate collar which is not designated in a hedge accounting relationship,on September 30, 2022 and execution of the Fifth Amended Credit Agreement (defined below) areon September 2, 2022, which, among other things, changed one of the onlymarket interest rate indices that the Company can elect to accrue interest on outstanding borrowings from LIBOR to the Secured Overnight Financing Rate as administered by the Federal Reserve Bank of New York (“SOFR”) and became effective at the end of the applicable interest period for any LIBOR borrowings outstanding on the fifth amendment effective date, the Company no longer has any contracts that reference an interest rate index (i.e., 3 month LIBOR) that is subjectLIBOR as of December 31, 2022 and has no plans to the reference rate reform guidance included in the above amendments. While the termination date of the interest rate collar, September 30, 2022, occursenter such contracts prior to the July 1,discontinuation of LIBOR. The change in interest rate indices from LIBOR to SOFR had virtually no impact on the first quarter of fiscal 2023 as the LIBOR interest rate on outstanding borrowings on the fifth amendment effective date on whichremained in place through approximately the IBA will no longer publish 3 month LIBOR, the Amended Credit Agreement matures on September 13, 2023, approximately 2.5 months subsequent to such cessation date. However, as management does not currently forecast thatend of December 2022. Accordingly, interest was accrued utilizing SOFR for only a short period of time and the Company will have sufficient cash to fundadjusted the term loan borrowings that are expected to be outstanding under the terms of the Amended Credit Agreement upon maturity, it is expecting to refinance such borrowings prior to maturity, with such refinancing likely to occur before the July 1, 2023 LIBOR cessation date. Therefore, it is likely that neither theeffective interest rate collar nor Amended Credit Agreement will be modified to reflect the discontinuation of 3 month LIBOR effective July 1, 2023 and accordingly, the Company will not be required to decide whether or not to elect to adopt such amendments prior to or on December 31, 2022 (i.e., the last effective date for adopting the amendments). However, to the extent that either or both of the contracts are
modified prior to December 31, 2022, the Company plans to adopt the amendmentsoutstanding borrowings on a prospective basis, by adjusting the derivative fair value and/or debt effective interest rate, as applicable, neither of which is expected todid not have a material impact on the condensed consolidated financial statements.
3. Supplemental Financial Information
Inventories
The following table presents the components of inventories at the dates indicated:
| (in thousands of dollars) | (in thousands of dollars) | July 2, 2022 | | October 2, 2021 | (in thousands of dollars) | December 31, 2022 | | October 1, 2022 |
Raw materials | Raw materials | $ | 152,191 | | | $ | 74,862 | | Raw materials | $ | 89,099 | | | $ | 106,070 | |
Work in process | Work in process | 59,832 | | | 41,257 | | Work in process | 36,961 | | | 35,398 | |
Finished goods | Finished goods | 4,702 | | | 9,087 | | Finished goods | 3,060 | | | 1,509 | |
Total inventories | Total inventories | $ | 216,725 | | | $ | 125,206 | | Total inventories | $ | 129,120 | | | $ | 142,977 | |
Restricted Cash
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported on the Condensed Consolidated Balance Sheets that sum to the total of such amounts reported on the Condensed Consolidated Statements of Cash Flows:
| | | | | | | | | | | |
(in thousands of dollars) | December 31, 2022 | | January 1, 2022 |
Cash and cash equivalents | $ | 5,664 | | | $ | 4,069 | |
Restricted cash | 236 | | | — | |
Total cash, cash equivalents, and restricted cash reported on the Condensed Consolidated Statements of Cash Flows | $ | 5,900 | | | $ | 4,069 | |
Amounts included in restricted cash represent those required by a contractual agreement with a financial institution to serve as collateral against outstanding balances pertaining to the Company's corporate credit card program.
Product Warranties
The following table reflects activity in accrued warranty cost (current and long-term portions combined) for the periods presented: | | | Three Months Ended | | Nine Months Ended | | Three Months Ended | |
(in thousands of dollars) | (in thousands of dollars) | July 2, 2022 | | July 3, 2021 | | July 2, 2022 | | July 3, 2021 | (in thousands of dollars) | December 31, 2022 | | January 1, 2022 | |
Balance at beginning of period | Balance at beginning of period | $ | 16,985 | | | $ | 19,181 | | | $ | 18,550 | | | $ | 21,374 | | Balance at beginning of period | $ | 15,970 | | | $ | 18,550 | | |
Add current period accruals | Add current period accruals | 1,894 | | | 2,040 | | | 5,181 | | | 4,932 | | Add current period accruals | 2,033 | | | 1,236 | | |
Current period reductions of accrual | Current period reductions of accrual | (2,735) | | | (2,441) | | | (7,587) | | | (7,526) | | Current period reductions of accrual | (2,423) | | | (2,534) | | |
Balance at end of period | Balance at end of period | $ | 16,144 | | | $ | 18,780 | | | $ | 16,144 | | | $ | 18,780 | | Balance at end of period | $ | 15,580 | | | $ | 17,252 | | |
Extended Warranties
The following table reflects activity in deferred warranty income (current and long-term portions combined), for the sale of extended warranties of two to five years, for the periods presented:
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | |
(in thousands of dollars) | (in thousands of dollars) | July 2, 2022 | | July 3, 2021 | | July 2, 2022 | | July 3, 2021 | (in thousands of dollars) | December 31, 2022 | | January 1, 2022 | |
Balance at beginning of period | Balance at beginning of period | $ | 18,414 | | | $ | 20,724 | | | $ | 20,144 | | | $ | 22,588 | | Balance at beginning of period | $ | 18,795 | | | $ | 20,144 | | |
Add current period deferred income | Add current period deferred income | 1,908 | | | 1,921 | | | 4,268 | | | 4,421 | | Add current period deferred income | 2,336 | | | 939 | | |
Current period recognition of income | Current period recognition of income | (2,184) | | | (2,137) | | | (6,274) | | | (6,501) | | Current period recognition of income | (1,841) | | | (1,995) | | |
Balance at end of period | Balance at end of period | $ | 18,138 | | | $ | 20,508 | | | $ | 18,138 | | | $ | 20,508 | | Balance at end of period | $ | 19,290 | | | $ | 19,088 | | |
The outstanding balance of deferred warranty income in the table above is considered a "contract liability," and represents a performance obligation of the Company that we satisfy over the term of the arrangement but for which we have been paid in full at the time the warranty was sold. We expect to recognize $2.0$5.6 million of the outstanding contract liability during the remainder of fiscal 2022, $6.52023, $5.7 million in fiscal 2023,2024, and the remaining balance thereafter.
Self-Insurance
The following table reflects our total accrued self-insurance liability, comprised of workers' compensation and health insurance related claims, at the dates indicated:
| (in thousands of dollars) | (in thousands of dollars) | July 2, 2022 | | October 2, 2021 | (in thousands of dollars) | December 31, 2022 | | October 1, 2022 |
Current portion | Current portion | $ | 3,876 | | | $ | 2,781 | | Current portion | $ | 3,813 | | | $ | 3,996 | |
Long-term portion | Long-term portion | 1,805 | | | 1,732 | | Long-term portion | 1,893 | | | 1,794 | |
Total accrued self-insurance | Total accrued self-insurance | $ | 5,681 | | | $ | 4,513 | | Total accrued self-insurance | $ | 5,706 | | | $ | 5,790 | |
The current and long-term portions of the accrued self-insurance liability are reflected in accrued expenses and other liabilities, respectively, on the Condensed Consolidated Balance Sheets.
Shipping and Handling Revenues
Shipping and handling revenues were $4.2$4.3 million and $3.3$3.4 million for the three monthsquarters ended July 2,December 31, 2022 and July 3, 2021, respectively, and $11.1 million and $9.2 million for the nine months ended July 2,January 1, 2022, and July 3, 2021, respectively. The related cost of goods sold was $3.7$3.8 million and $2.9$3.1 million for the three monthsquarters ended July 2,December 31, 2022 and July 3, 2021, respectively, and $9.9 million and $8.0 million for the nine months ended July 2,January 1, 2022, and July 3, 2021, respectively.
Pension Expense
Components of net periodic pension benefit expense (income) expense were as follows for the periods presented: | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
(in thousands of dollars) | July 2, 2022 | | July 3, 2021 | | July 2, 2022 | | July 3, 2021 |
Interest cost | $ | 1,092 | | | $ | 1,057 | | | $ | 3,276 | | | $ | 3,171 | |
Expected return on plan assets | (2,122) | | | (1,944) | | | (6,366) | | | (5,832) | |
Amortization of prior loss | 291 | | | 466 | | | 873 | | | 1,397 | |
Net periodic benefit income | $ | (739) | | | $ | (421) | | | $ | (2,217) | | | $ | (1,264) | |
Amortization of prior loss, recognized in other comprehensive income | (291) | | | (466) | | | (873) | | | (1,397) | |
Total recognized in net periodic pension benefit income and other comprehensive income | $ | (1,030) | | | $ | (887) | | | $ | (3,090) | | | $ | (2,661) | |
Derivative Instruments
We are charged variable rates of interest on our indebtedness outstanding under the Amended Credit Agreement (defined below) which exposes us to fluctuations in interest rates. On October 24, 2018, the Company entered into a four-year interest rate collar with a $150.0 million notional value with an effective date of November 30, 2018. The collar was entered into in order to partially mitigate our exposure to interest rate fluctuations on our variable rate debt. The collar establishes a range whereby we will pay the counterparty if the three month LIBOR rate falls below the established floor rate of 1.5%, and the counterparty will pay us if the three month LIBOR rate exceeds the ceiling rate of 3.3%. The collar settles quarterly through the termination date of September 30, 2022. No payments or receipts are exchanged on the interest rate collar contract unless interest rates rise above or fall below the contracted ceiling or floor rates. During the nine months ended July 2, 2022, the three month LIBOR rate fell below the established floor, which required us to make $1.2 million in total cash payments to the counterparty.
Changes in the interest rate collar fair value are recorded in interest expense as the collar does not qualify for hedge accounting. At July 2, 2022, the fair value of the interest rate collar contract was $0. The fair value of the interest rate collar is a Level 2 fair value measurement, based on quoted prices of similar items in active markets. | | | | | | | | | | | | | | | |
| Three Months Ended | | |
(in thousands of dollars) | December 31, 2022 | | January 1, 2022 | | | | |
Interest cost | $ | 1,509 | | | $ | 1,092 | | | | | |
Expected return on plan assets | (1,630) | | | (2,122) | | | | | |
Amortization of prior loss | 299 | | | 291 | | | | | |
Net periodic benefit expense (income) | $ | 178 | | | $ | (739) | | | | | |
Amortization of prior loss, recognized in other comprehensive income | (299) | | | (291) | | | | | |
Total recognized in net periodic pension benefit expense (income) and other comprehensive income | $ | (121) | | | $ | (1,030) | | | | | |
4. Debt
On November 24, 2021, the Company21, 2022, BBBC (as "Borrower") executed a fourthsixth amendment to the Credit Agreement, dated as of December 12, 2016;2016 ("Credit Agreement"); as amended by the first amendment to the Credit Agreement, dated as of September 13, 2018 (the "First Amended Credit Agreement"), the second amendment to the Credit Agreement, dated as of May 7, 2020 (the "Second Amended Credit Agreement"), and the third amendment to the Credit Agreement, dated as of December 4, 2020 (the "Third Amended Credit Agreement"); the fourth amendment to the Credit Agreement, dated as of November 24, 2021 (the "Fourth Amended Credit Agreement:); the fifth amendment and limited waiver to the Credit Agreement, dated as of September 2, 2022 (the "Fifth Amended Credit Agreement"); and as further amended by the fourthsixth amendment (the "Fourth"Sixth Amended Credit Agreement" and collectively, the "Amended Credit Agreement"). The FourthSixth Amended Credit Agreement, among other things, extends the maturity date for both the term loan and revolving credit facilities from September 13, 2023 to December 31, 2024. The total revolving credit facility commitment is reduced to an aggregate principal amount of $90.0 million, of which $80.0 million is available for Borrower to draw, with the remaining $10.0 million subject to written approval from the lenders, which, once obtained, will be irrevocable. There was no change in the term loan facility commitment; however, the Sixth Amended Credit Agreement requires principal repayments approximating $5.0 million on a quarterly basis through September 30, 2024, with the remaining balance due upon maturity.There were $151.6 million of term loan borrowings outstanding on the sixth amendment effective date.
The Sixth Amended Credit Agreement also provides for certain temporary amendments to certain financial performance covenants during the Credit Agreementperiod from the third amendment effective date, December 4, 2020, through and including (a) April 1, 2023 (the “Amended Limited Availability Period”Period:) or (b), which will terminate on the first date on which BBBC (the "Borrower"the Company’s Total Net Leverage Ratio ("TNLR") elects, defined as the ratio of (a) consolidated net debt to terminate(b) consolidated EBITDA, for the two fiscal quarters most recently ended is each less than 4.00x and no default or event of default has occurred and is continuing. However, the Amended Limited Availability Period in each case, subject to (x) the absence ofcan re-occur upon a default or event of default and (y) pro forma compliance withor if the financial covenant performance covenants underTNLR for the Fourth Amended Credit Agreement.immediately preceding fiscal quarter is equal to or greater than 4.00x.
With respect to the financial performance covenants, during the Amended Limited Availability Period for the fiscal quarters ending January 1, 2022 through October 1, 2022, the Total Net Leverage Ratio ("TNLR") requirement is not applicable, although it continues to impact the interest rate that is charged on outstanding borrowings as discussed below. Instead, theThe minimum consolidated EBITDA that the Company is required to maintain during the Amended Limited Availability Period wasis updated to include fiscal 2022 as set forth in the table below (in millions):
| | | | | | | | | | | | | | |
| Period | | Minimum Consolidated EBITDA | |
| Fiscal quarter ending JanuaryJuly 1, 20222023 | | $14.550.0 | |
| Fiscal quarter ending April 2, 2022September 30, 2023 | | $(4.5) | |
| Fiscal quarter ending July 2, 2022 | | $(6.8) | |
| Fiscal quarter ending October 1, 2022 | | $20.060.0 | |
However, inFor purposes of complying with the event that Borrower elects to terminateabove minimum consolidated EBITDA covenant, the Amended Limited Availability Period inCompany’s consolidated EBITDA for the (i) two fiscal 2022, the maximum TNLR permittedquarter period ending July 1, 2023 is 3.50x.multiplied by 2 and (ii) three fiscal quarter period ending September 30, 2023 is multiplied by 4/3.
The minimum liquidity (in the form of undrawn availability under the revolving credit facility and unrestricted cash and cash equivalents) that the Company mustis required to maintain at the end of each fiscal month during the Amended Limited Availability Period wasis amended as set forth in the table below (in millions):
| | | | | | | | |
Period | | Minimum Liquidity |
FourthSixth amendment effective date through January 1, 2022December 30, 2023 | | $10.0 |
January 2, 2022 through April 2, 2022 | | $5.0 |
April 3, 2022 through July 2, 2022 | | $15.0 |
Thereafter | | $20.030.0 |
Additionally, a newthe financial performance covenant was added in the Fourth Amended Credit Agreement, requiring that school bus units manufactured by the Company (“Units”) not fall below thecertain pre-set thresholds set forth in the table below on a three month trailing basis (“Units Covenant”). is amended for Units to be calculated at the end of each applicable fiscal month on a cumulative basis, with the minimum cumulative threshold that the Company is required to maintain during the Amended Limited Availability Period amended as set forth in the table below. The Units Covenant is triggered only if the Company’s liquidity for the most-recently ended fiscal month is less than $50$50.0 million during the Amended Limited Availability Period:
| | | | | | | | |
Period | | Minimum Units Manufactured |
Three month periodPeriod from October 2, 2022 and ending November 27, 2021 | | 1,128 |
Three month period ending January 1, 2022 | | 776 |
Three month period ending JanuaryOctober 29, 2022 | | 748450 |
Three month periodPeriod from October 2, 2022 and ending FebruaryNovember 26, 2022 | | 727900 |
Three month periodPeriod from October 2, 2022 and ending April 2,December 31, 2022 | | 7631,400 |
Three month periodPeriod from October 2, 2022 and ending April 30, 2022January 28, 2023 | | 1,1111,900 |
Three month periodPeriod from October 2, 2022 and ending May 28, 2022February 25, 2023 | | 1,5252,400 |
Three month periodPeriod from October 2, 2022 and ending July 2, 2022April 1, 2023 | | 2,053 |
Three month period ending July30, 2022 | | 2,072 |
Three month period ending August 27, 2022 | | 2,199 |
Three month period ending October 1, 2022 | | 2,3063,000 |
IfThe Company is not required to comply with a maximum TNLR financial maintenance covenant for any fiscal quarters from the Units during any three fiscal month period set forth above is less thansixth amendment effective date through September 30, 2023, with the minimum required by the Units Covenant, Borrower may elect to carry forward up to 50% of certain applicable excess Units to satisfy the Units Covenant requirement. However, Borrower may not make such election in two consecutive three fiscal month periods.maximum threshold amended thereafter as follows:
| | | | | | | | |
Period | | Maximum Total Net Leverage Ratio |
Fiscal Quarter ending December 30, 2023 through the fiscal quarter ending March 30, 2024 | | 4.00:1.00 |
Fiscal quarter ending June 29, 2024 and thereafter | | 3.50:1.00 |
The pricing grid in the Fourth Amended Credit Agreement, which is based on the TNLR, is applicable to both term loan and revolving borrowings and is determined in accordance with the amended pricing matrix set forth below:
| Level | Level | | Total Net Leverage Ratio | | ABR Loans | | Eurodollar Loans | Level | | Total Net Leverage Ratio | | ABR Loans | | SOFR Loans |
I | I | | Less than 2.00x | | 0.75% | | 1.75% | I | | Less than 2.00x | | 0.75% | | 1.75% |
II | II | | Greater than or equal to 2.00x and less than 2.50x | | 1.00% | | 2.00% | II | | Greater than or equal to 2.00x and less than 2.50x | | 1.00% | | 2.00% |
III | III | | Greater than or equal to 2.50x and less than 3.00x | | 1.25% | | 2.25% | III | | Greater than or equal to 2.50x and less than 3.00x | | 1.25% | | 2.25% |
IV | IV | | Greater than or equal to 3.00x and less than 3.25x | | 1.50% | | 2.50% | IV | | Greater than or equal to 3.00x and less than 3.25x | | 1.50% | | 2.50% |
V | V | | Greater than or equal to 3.25x and less than 3.50x | | 1.75% | | 2.75% | V | | Greater than or equal to 3.25x and less than 3.50x | | 1.75% | | 2.75% |
VI | VI | | Greater than or equal to 3.50x and less than 4.50x | | 2.00% | | 3.00% | VI | | Greater than or equal to 3.50x and less than 4.00x | | 2.00% | | 3.00% |
VII | VII | | Greater than or equal to 4.50x and less than 5.00x | | 3.25% | | 4.25% | VII | | Greater than or equal to 4.00x and less than 4.50x | | 2.75% | | 3.75% |
VIII | VIII | | Greater than 5.00x | | 4.25% | | 5.25% | VIII | | Greater than or equal to 4.50x and less than 5.00x | | 3.75% | | 4.75% |
IX | | IX | | Greater than 5.00x | | 4.75% | | 5.75% |
DuringFurther, the Amended Limited Availability Period,pricing margins for levels VII though IX above are each increased (x) by 0.25% if the aggregate revolving borrowings are equal to or greater than $50.0 million and less than or equal to $80.0 million and (y) by 0.50% if the aggregate revolving borrowings are greater than $80.0 million.On the sixth amendment effective date, the interest rate was set at SOFR plus 5.75% and will be adjusted, as applicable, rate for outstanding revolving loans is the sum of the rate determined by the administrative agentfuture fiscal quarter in accordance with the amended pricing grid set forth above, plus 0.50%.above.
Additional allowances were made in the Fourth Amended Credit Agreement for the Company to issue or incur up to $100.0 million of qualified equity interests issued by the Company, unsecured subordinated indebtedness or unsecured convertible indebtedness (collectively, “Junior Capital”). Upon the issuance or incurrence of any Junior Capital,Finally, the Company is required to prepay the outstanding revolving loans (with no permanent reduction in the revolving commitments) in an amount equaldeliver to the lesseradministrative agent, on a quarterly basis, a projected consolidated balance sheet and consolidated statements of (a) 100% ofprojected operations and cash flows containing the net proceeds from such Junior Capital and (b) the aggregate of revolving exposures then outstanding. Prior to the initial issuance or incurrence of any Junior Capital, any issuance, amendment, renewal, or extension of credit during the Amended Limited Availability Period may not cause the aggregate outstanding Revolving Credit Facility principal to exceed $110.0 million (“Availability Cap”). Following the issuance and sale of $75.0 million of common stock in a private placement transaction on December 15, 2021 (see Note 11 for further details), the Availability Cap was permanently reduced to $100.0 million.
For the duration of the Amended Limited Availability Period, the Fourth Amended Credit Agreement sets forth additional monthly reporting requirements in connection with the manufactured school bus units required by the financial performance covenants, when applicable.next four fiscal quarters.
The Company incurred approximately $2.5$3.3 million in lender fees and other issuance costs relating to the fourthsixth amendment. Of such total, approximately $1.1$1.2 million and $0.8$1.5 million was capitalized within other assets and long-term debt (as a contra-balance), respectively, on the Condensed Consolidated Balance Sheets and will be amortized as an adjustment to interest expense on a straight-line basis and utilizing the effective interest method, respectively, until maturity of the Amended Credit Agreement. The remaining approximate $0.5 million was recorded to loss on debt modification on the Condensed Consolidated Statements of Operations.
In conjunction with executing the fourth amendment, previously capitalized lender fees and other issuance costs incurred in prior periods totaling approximately $0.1 million were also expensed to loss on debt modification on the Condensed Consolidated Statements of Operations.
Term debt consisted of the following at the dates indicated:
| (in thousands of dollars) | (in thousands of dollars) | July 2, 2022 | | October 2, 2021 | (in thousands of dollars) | December 31, 2022 | | October 1, 2022 |
2023 term loan, net of deferred financing costs of $1,715 and $2,027, respectively | $ | 153,598 | | | $ | 164,423 | | |
2023 term loan, net of deferred financing costs of $2,509 and $1,410, respectively | | 2023 term loan, net of deferred financing costs of $2,509 and $1,410, respectively | $ | 144,141 | | | $ | 150,190 | |
Less: current portion of long-term debt | Less: current portion of long-term debt | 18,563 | | | 14,850 | | Less: current portion of long-term debt | 19,800 | | | 19,800 | |
Long-term debt, net of current portion | Long-term debt, net of current portion | $ | 135,035 | | | $ | 149,573 | | Long-term debt, net of current portion | $ | 124,341 | | | $ | 130,390 | |
Term loans are recognized on the Condensed Consolidated Balance Sheets at the unpaid principal balance, and are not subject to fair value measurement; however, given the variable rates on the loans, the Company estimates that the unpaid principal balance approximates fair value. If measured at fair value in the financial statements, the term loans would be classified as Level 2 in the fair value hierarchy. At July 2,December 31, 2022 and October 2, 2021, $155.31, 2022, $146.7 million and $166.5$151.6 million, respectively, were outstanding on the term loans.
At July 2,December 31, 2022 and October 2, 2021,1, 2022, the stated interest rates on the term loans were 7.9%10.5% and 4.0%7.9%, respectively. At July 2,December 31, 2022 and October 2, 2021,1, 2022, the weighted-average annual effective interest rates for the term loans were 7.7%9.6% and 6.0%8.0%, respectively, which includes amortization of the deferred financing costs and interest relating to the interest rate collar, as applicable.
At July 2,December 31, 2022, $6.3 million of letters of credit were outstanding, which reduces the availability on the revolving line of credit. There were $60.0$5.0 million in borrowings outstanding on the revolving credit facility; therefore, the Company would have been able to borrow $33.7$78.7 million on the revolving line of credit.
Interest expense on all indebtedness was $3.9$4.2 million and $2.8$3.1 million for the three months ended July 2,December 31, 2022 and July 3, 2021, respectively, and $9.5 million and $7.1 million for the nine months ended July 2,January 1, 2022, and July 3, 2021, respectively.
The schedule of remaining principal payments through maturity for the term loans is as follows:
| (in thousands of dollars) | (in thousands of dollars) | (in thousands of dollars) |
Fiscal Year | Fiscal Year | | Principal Payments | Fiscal Year | | Principal Payments |
2022 | | $ | 3,713 | | |
2023 | 2023 | | 151,600 | | 2023 | | $ | 14,850 | |
| 2024 | | 2024 | | 19,800 | |
2025 | | 2025 | | 112,000 | |
| Total remaining principal payments | Total remaining principal payments | | $ | 155,313 | | Total remaining principal payments | | $ | 146,650 | |
5. Income Taxes
Income tax provisions for interim periods are based on estimated annual income tax rates, adjusted to reflect the effects of any significant infrequent or unusual items that are required to be discretely recognized within the current interim period. The effective tax rates in the periods presented are largely based upon the annual forecasted pre-tax earnings mix and allocation of certain expenses in various taxing jurisdictions where the Company conducts its business, primarily in the United States of America ("U.S."). In periods where our operatingpre-tax income approximates or is equal to break-even, the effective tax rates for quarter-to-date and full-year periods may not be meaningful due to discrete period items.
Three Months
The effective tax rate for the three months ended July 2,December 31, 2022 was (137.2)%20.8%, which aligned with the statutory federal income tax rate of 21% and is comprised of normal tax rate items, including impacts from state taxes and federal and state tax credits (net of valuation allowances), with discrete period items having a nominal impact on the effective rate during the quarter.
The effective tax rate for the three months ended January 1, 2022 was 35.6%, which differed from the statutory federal income tax rate of 21%. In addition, the amount recorded represents income tax expense in a three month period in which the Company recorded loss before income taxes. This unusual relationship exists as the amount recorded was necessary to adjust the income tax benefit for the nine months ended July 2, 2022, discussed below, to reflect the Company's revised estimated annual income tax rate, including the effects of discrete period tax items.
The effective tax rate for the three months ended July 3, 2021 was 33.2%, which differed from the statutory federal tax rate of 21%. The difference is mainly due to normal tax rate items, including impacts from state taxes, net non-deductible compensation expenses and other tax adjustments. The effective tax rate was also impacted by discrete period tax expense resulting from recording a liability for uncertain tax positions ("UTPs"), including accrued interest and penalties, that was partially offset by discrete period tax benefits resulting from share-based compensation expenses and prior year tax return adjustments.
Nine Months
The effective tax rate for the nine months ended July 2, 2022 was 24.8% and differed from the statutory federal tax rate of 21%. The difference is mainly due to normal tax rate items, including impacts from state taxes and federal and state tax credits (net of valuation allowances), which was partially offset by discrete period tax expense resulting from net non-deductible compensation expenses and other tax adjustments.
The effective tax rate for the nine months ended July 3, 2021 was 31.5% and differed from the statutory federal income tax rate of 21%. The difference is mainly due to normal tax rate items, including impacts from state taxes, net non-deductible compensation expenses and other tax adjustments. The effective tax rate was also impacted by discrete period tax expense resulting from recording a liability for UTPs, including accrued interest and penalties, that was partially offset by discrete period tax benefits resulting from share-based compensation expenses and prior year tax return adjustments.
6. Guarantees, Commitments and Contingencies
Litigation
At July 2,December 31, 2022, the Company had a number of product liability and other cases pending. Management believes that, considering the Company’s insurance coverage and its intention to vigorously defend its positions, the ultimate resolution of these matters will not have a material adverse effect on the Company’s financial statements.
Environmental
The Company is subject to a variety of environmental regulations relating to the use, storage, discharge and disposal of hazardous materials used in its manufacturing processes. Failure by the Company to comply with present and future regulations could subject it to future liabilities. In addition, such regulations could require the Company to acquire costly equipment or to incur other significant expenses to comply with environmental regulations. The Company is currently not involved in any material environmental proceedings and therefore, management believes that the resolution of pending environmental matters will not have a material adverse effect on the Company’s financial statements.
Guarantees
In the ordinary course of business, we may provide guarantees for certain transactions entered into by our dealers. At July 2, 2022, we had a $3.0 million guarantee outstanding that relates to a guarantee of dealer indebtedness for a term loan with remaining maturity up to 0.5 years. The $3.0 million represents the estimated maximum amount we would be required to pay upon default of all guaranteed indebtedness, and we believe the likelihood of required performance to be remote. At July 2, 2022, $0.1 million was included in other current liabilities on our Condensed Consolidated Balance Sheets for the estimated fair value of the guarantee.
7. Segment Information
We manage our business in 2two operating segments: (i) the Bus segment, which includes the manufacturing and assembly of buses to be sold to a variety of customers across the U.S., Canada and in certain limited international markets; and (ii) the Parts segment, which consists primarily of the purchase of parts from third parties to be sold to dealers within the Company’s network. The tables below present segment net salesnetwork and certain large fleet customers. Management evaluates the segments based primarily upon revenues and gross profit, which are reflected in the tables below for the periods presented:
| Net sales | Net sales | | Net sales | | |
| | Three Months Ended | | Nine Months Ended | | | Three Months Ended | |
(in thousands of dollars) | (in thousands of dollars) | July 2, 2022 | | July 3, 2021 | | July 2, 2022 | | July 3, 2021 | | (in thousands of dollars) | December 31, 2022 | | January 1, 2022 | |
Bus (1) | Bus (1) | $ | 186,631 | | | $ | 181,735 | | | $ | 487,552 | | | $ | 449,876 | | | Bus (1) | $ | 213,249 | | | $ | 112,437 | | |
Parts (1) | Parts (1) | 19,452 | | | 14,924 | | | 55,413 | | | 41,915 | | | Parts (1) | 22,483 | | | 16,786 | | |
Segment net sales | Segment net sales | $ | 206,083 | | | $ | 196,659 | | | $ | 542,965 | | | $ | 491,791 | | | Segment net sales | $ | 235,732 | | | $ | 129,223 | | |
(1) Parts segment revenue includes $0.7$1.1 million and $0.9$0.8 million for the three months ended July 2,December 31, 2022 and July 3, 2021, respectively, and $2.6 million and $2.9 million for the nine months ended July 2,January 1, 2022, and July 3, 2021, respectively, related to inter-segment sales of parts that were eliminated by the Bus segment upon consolidation.
| Gross profit | Gross profit | | Gross profit | | |
| | Three Months Ended | | Nine Months Ended | | Three Months Ended | |
(in thousands of dollars) | (in thousands of dollars) | July 2, 2022 | | July 3, 2021 | | July 2, 2022 | | July 3, 2021 | (in thousands of dollars) | December 31, 2022 | | January 1, 2022 | |
Bus | Bus | $ | 13,632 | | | $ | 20,471 | | | $ | 19,290 | | | $ | 43,265 | | Bus | $ | (3,731) | | | $ | 9,642 | | |
Parts | Parts | 7,961 | | | 5,688 | | | 21,657 | | | 15,855 | | Parts | 11,188 | | | 6,555 | | |
Segment gross profit | Segment gross profit | $ | 21,593 | | | $ | 26,159 | | | $ | 40,947 | | | $ | 59,120 | | Segment gross profit | $ | 7,457 | | | $ | 16,197 | | |
The following table is a reconciliation of segment gross profit to consolidated (loss) incomeloss before income taxes for the periods presented: | | | Three Months Ended | | Nine Months Ended | | Three Months Ended | |
(in thousands of dollars) | (in thousands of dollars) | July 2, 2022 | | July 3, 2021 | | July 2, 2022 | | July 3, 2021 | (in thousands of dollars) | December 31, 2022 | | January 1, 2022 | |
Segment gross profit | Segment gross profit | $ | 21,593 | | | $ | 26,159 | | | $ | 40,947 | | | $ | 59,120 | | Segment gross profit | $ | 7,457 | | | $ | 16,197 | | |
Adjustments: | Adjustments: | | Adjustments: | | |
Selling, general and administrative expenses | Selling, general and administrative expenses | (20,505) | | | (18,073) | | | (58,596) | | | (50,124) | | Selling, general and administrative expenses | (16,832) | | | (18,233) | | |
Interest expense | Interest expense | (3,908) | | | (2,805) | | | (9,481) | | | (7,069) | | Interest expense | (4,196) | | | (3,082) | | |
Interest income | — | | | — | | | — | | | 1 | | |
Other income, net | 735 | | | 426 | | | 2,215 | | | 1,491 | | |
| Other (expense) income, net | | Other (expense) income, net | (236) | | | 736 | | |
Loss on debt modification | Loss on debt modification | — | | | — | | | (561) | | | (598) | | Loss on debt modification | (537) | | | (561) | | |
(Loss) income before income taxes | $ | (2,085) | | | $ | 5,707 | | | $ | (25,476) | | | $ | 2,821 | | |
Loss before income taxes | | Loss before income taxes | $ | (14,344) | | | $ | (4,943) | | |
Sales are attributable to geographic areas based on customer location and were as follows for the periods presented:
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | |
(in thousands of dollars) | (in thousands of dollars) | July 2, 2022 | | July 3, 2021 | | July 2, 2022 | | July 3, 2021 | (in thousands of dollars) | December 31, 2022 | | January 1, 2022 | |
United States | United States | $ | 193,571 | | | $ | 179,850 | | | $ | 488,363 | | | $ | 436,286 | | United States | $ | 204,541 | | | $ | 100,547 | | |
Canada | Canada | 12,009 | | | 15,072 | | | 50,506 | | | 49,257 | | Canada | 30,521 | | | 26,304 | | |
Rest of world | Rest of world | 503 | | | 1,737 | | | 4,096 | | | 6,248 | | Rest of world | 670 | | | 2,372 | | |
Total net sales | Total net sales | $ | 206,083 | | | $ | 196,659 | | | $ | 542,965 | | | $ | 491,791 | | Total net sales | $ | 235,732 | | | $ | 129,223 | | |
8. Revenue
The following table disaggregates revenue by product category for the periods presented: | | | Three Months Ended | | Nine Months Ended | | Three Months Ended | |
(in thousands of dollars) | (in thousands of dollars) | July 2, 2022 | | July 3, 2021 | | July 2, 2022 | | July 3, 2021 | (in thousands of dollars) | December 31, 2022 | | January 1, 2022 | |
Diesel buses | Diesel buses | $ | 79,355 | | | $ | 76,753 | | | $ | 221,669 | | | $ | 212,578 | | Diesel buses | $ | 71,494 | | | $ | 46,033 | | |
Alternative power buses (1) | Alternative power buses (1) | 96,897 | | | 95,877 | | | 237,267 | | | 214,133 | | Alternative power buses (1) | 131,946 | | | 57,637 | | |
Other (2) | Other (2) | 10,952 | | | 9,495 | | | 30,320 | | | 24,240 | | Other (2) | 10,455 | | | 9,297 | | |
| Parts | Parts | 18,879 | | | 14,534 | | | 53,709 | | | 40,840 | | Parts | 21,837 | | | 16,256 | | |
Net sales | Net sales | $ | 206,083 | | | $ | 196,659 | | | $ | 542,965 | | | $ | 491,791 | | Net sales | $ | 235,732 | | | $ | 129,223 | | |
(1) Includes buses sold with any power source other than diesel (e.g., gasoline, propane, compressed natural gas ("CNG") or electric).
(2) Includes shipping and handling revenue, extended warranty income, surcharges and chassis and bus shell sales.
9. (Loss) EarningsLoss Per Share
The following table presents the (loss) earningsloss per share computation for the periods presented:
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | |
(in thousands except for share data) | (in thousands except for share data) | July 2, 2022 | | July 3, 2021 | | July 2, 2022 | | July 3, 2021 | (in thousands except for share data) | December 31, 2022 | | January 1, 2022 | |
Numerator: | Numerator: | | | | | | | | Numerator: | | | | |
Net (loss) income | $ | (6,435) | | | $ | 4,332 | | | $ | (22,664) | | | $ | 2,099 | | |
Net loss | | Net loss | $ | (11,294) | | | $ | (4,082) | | |
| Denominator: | Denominator: | | Denominator: | | |
Weighted-average common shares outstanding | Weighted-average common shares outstanding | 31,990,860 | | | 27,172,162 | | | 30,687,406 | | | 27,116,915 | | Weighted-average common shares outstanding | 32,026,311 | | | 28,118,450 | | |
Weighted-average dilutive securities, restricted stock | — | | | 121,399 | | | — | | | 144,835 | | |
| Weighted-average dilutive securities, stock options | — | | | 135,316 | | | — | | | 75,610 | | |
| | Weighted-average shares and dilutive potential common shares (1) | Weighted-average shares and dilutive potential common shares (1) | 31,990,860 | | | 27,428,877 | | | 30,687,406 | | | 27,337,360 | | Weighted-average shares and dilutive potential common shares (1) | 32,026,311 | | | 28,118,450 | | |
| Loss per share: | Loss per share: | | Loss per share: | | |
Basic (loss) earnings per share | $ | (0.20) | | | $ | 0.16 | | | $ | (0.74) | | | $ | 0.08 | | |
Diluted (loss) earnings per share | $ | (0.20) | | | $ | 0.16 | | | $ | (0.74) | | | $ | 0.08 | | |
Basic loss per share | | Basic loss per share | $ | (0.35) | | | $ | (0.15) | | |
Diluted loss per share | | Diluted loss per share | $ | (0.35) | | | $ | (0.15) | | |
(1) Potentially dilutive securities representing 0.60.8 million and 0.00.4 million shares of common stock were excluded from the computation of diluted (loss) earningsloss per share for the three months ending July 2,December 31, 2022 and July 3, 2021, respectively, and potentially dilutive securities representing 0.4 million and 0.1 million shares of common stock were excluded from the computation of diluted (loss) earnings per share for the nine months ending July 2,January 1, 2022, and July 3, 2021, respectively, as their effect would have been antidilutive.
10. Accumulated Other Comprehensive Loss
The following table provides information on changes in accumulated other comprehensive loss ("AOCL") for the periods presented:
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | |
(in thousands of dollars) | (in thousands of dollars) | | Defined Benefit Pension Plan | | | Total AOCL | | Defined Benefit Pension Plan | | | Total AOCL | (in thousands of dollars) | | Defined Benefit Pension Plan | | | Total AOCL | |
July 2, 2022 | | | | | | | | | | | |
December 31, 2022 | | December 31, 2022 | | | | | | |
Beginning Balance | Beginning Balance | | $ | (44,352) | | | | $ | (44,352) | | | $ | (44,794) | | | | $ | (44,794) | | Beginning Balance | | $ | (41,930) | | | | $ | (41,930) | | |
| Amounts reclassified and included in earnings | Amounts reclassified and included in earnings | | 291 | | | | 291 | | | 873 | | | | 873 | | Amounts reclassified and included in earnings | | 299 | | | | 299 | | |
Total before taxes | Total before taxes | | 291 | | | | 291 | | | 873 | | | | 873 | | Total before taxes | | 299 | | | | 299 | | |
Income taxes | Income taxes | | (70) | | | | (70) | | | (210) | | | | (210) | | Income taxes | | (72) | | | | (72) | | |
Ending Balance July 2, 2022 | | $ | (44,131) | | | | $ | (44,131) | | | $ | (44,131) | | | | $ | (44,131) | | |
Ending Balance December 31, 2022 | | Ending Balance December 31, 2022 | | $ | (41,703) | | | | $ | (41,703) | | |
| July 3, 2021 | | | | | | |
January 1, 2022 | | January 1, 2022 | | | | |
Beginning Balance | Beginning Balance | | $ | (57,690) | | | | $ | (57,690) | | | $ | (58,397) | | | | $ | (58,397) | | Beginning Balance | | $ | (44,794) | | | | $ | (44,794) | | |
| Amounts reclassified and included in earnings | Amounts reclassified and included in earnings | | 466 | | | | 466 | | | 1,397 | | | | 1,397 | | Amounts reclassified and included in earnings | | 291 | | | | 291 | | |
Total before taxes | Total before taxes | | 466 | | | | 466 | | | 1,397 | | | | 1,397 | | Total before taxes | | 291 | | | | 291 | | |
Income taxes | Income taxes | | (112) | | | | (112) | | | (336) | | | | (336) | | Income taxes | | (70) | | | | (70) | | |
Ending Balance July 3, 2021 | | $ | (57,336) | | | | $ | (57,336) | | | $ | (57,336) | | | | $ | (57,336) | | |
Ending Balance January 1, 2022 | | Ending Balance January 1, 2022 | | $ | (44,573) | | | | $ | (44,573) | | |
11. Stockholders' Equity (Deficit)
Sale of Common Stock
On December 15, 2021, the Company issued and sold through a private placement transaction an aggregate 4,687,500 shares of its common stock at $16.00 per share (“Private Placement”) to Coliseum Capital Partners, L.P. and Blackwell Partners LLC - Series A (collectively, “Coliseum”). Subsequent to the sale, Coliseum owns an approximate 15% equity interest in the Company. In connection
with the purchase of the shares, Coliseum received customary registration rights and the Company added Adam Gray of Coliseum as a Class II director. The Company used the net proceeds (approximately $74.8 million) from the Private Placement to repay outstanding revolving loans as required by the terms of the Fourth Amended Credit Agreement.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of financial condition and results of operations of the Company should be read in conjunction with the Company’s unaudited condensed consolidated financial statements as of and for the three and nine months ended July 2,December 31, 2022 and July 3, 2021January 1, 2022 and related notes appearing in Part I, Item 1 of this Quarterly Report on Form 10-Q ("Report"). Our actual results may not be indicative of future performance. This discussion and analysis contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to, those discussed or incorporated by reference in the sections of this Report titled “Special Note Regarding Forward-Looking Statements” and “Risk Factors.” Actual results may differ materially from those contained in any forward-looking statements. Certain monetary amounts, percentages and other figures included in this Report have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables may not be the arithmetic aggregation of the figures that precede them, and figures expressed as percentages in the text may not total 100% or, as applicable, when aggregated, may not be the arithmetic aggregation of the percentages that precede them.
Special Note Regarding Forward-Looking Statements
This Report contains forward-looking statements intended to qualify for the safe harbors from liability established by the Private Securities Litigation Reform Act of 1995. Except as otherwise indicated by the context, references in this Report to “we,” “us” and “our” are to the consolidated business of the Company. All statements in this Report, including those made by the management of the Company, other than statements of historical fact, are forward-looking statements. These forward-looking statements are based on management’s estimates, projections and assumptions as of the date hereof and include the assumptions that underlie such statements. Forward-looking statements may contain words such as “may,” “will,” “should,” “could,” “would,” “expect,” “plan,” “estimate,” “project,” “forecast,” “seek,” “target,” “anticipate,” “believe,” “predict,” “potential” and “continue,” the negative of these terms, or other comparable terminology. Examples of forward-looking statements include statements regarding the Company’s future financial results, research and development results, regulatory approvals, operating results, business strategies, projected costs, products, competitive positions, management’s plans and objectives for future operations, and industry trends. These forward-looking statements relate to expectations for future financial performance, business strategies or expectations for our business. Specifically, forward-looking statements may include statements relating to:
•the future financial performance of the Company;
•negative changes in the market for Blue Bird products;
•expansion plans and opportunities;
•challenges or unexpected costs related to manufacturing;
•future impacts from the novel coronavirus pandemic known as "COVID-19," and any other pandemics, public health crises, or epidemics, on capital markets, manufacturing and supply chain abilities, consumer and customer demand, school system operations, workplace conditions, and any other unexpected impacts, which include or could include, among other effects:
◦disruption in global financial and credit markets;
◦supply shortages and supplier financial risk, especially from our single-source suppliers impacted by the pandemic;
◦negative impacts to manufacturing operations or the supply chain from shutdowns or other disruptions in operations;
◦negative impacts on capacity and/or production in response to changes in demand due to the pandemic, including possible cost containment actions;
◦financial difficulties of our customers impacted by the pandemic;
◦reductions in market demand for our products due to the pandemic; and
◦potential negative impacts of various actions taken by federal, state and/or local governments in response to the pandemic.
•future impacts resulting from Russia's invasion of Ukraine, which include or could include, among other effects:
◦disruption in global commodity and other markets;
◦supply shortages and supplier financial risk, especially from suppliers providing inventory that is dependent on resources originating from either of these countries; and
◦negative impacts to manufacturing operations resulting from inventory cost volatility or the supply chain due to shutdowns or other disruptions in operations.
These forward-looking statements are based on information available as of the date of this Report (or, in the case of forward-looking statements incorporated herein by reference, as of the date of the applicable filed document), and current expectations, forecasts and assumptions, and involve a number of judgments, risks and uncertainties. Accordingly, forward-looking statements should not be relied upon as representing our views as of any subsequent date, and we do not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. As a result of a number of known and unknown
risks and uncertainties, our actual results or performance may be materially different than those expressed or implied by these forward-looking statements.
Any expectations based on these forward-looking statements are subject to risks and uncertainties and other important factors, including those discussed in the reports we file with the Securities and Exchange Commission (“SEC”), specifically the sections titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s 20212022 Form 10-K, filed with the SEC on December 15, 2021.12, 2022. Other risks and uncertainties are and will be disclosed in the Company’s prior and future SEC filings. The following information should be read in conjunction with the financial statements included in the Company’s 20212022 Form 10-K, filed with the SEC on December 15, 2021.12, 2022.
Available Information
We are subject to the reporting and information requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and as a result are obligated to file annual, quarterly, and current reports, proxy statements, and other information with the SEC. We make these filings available free of charge on our website (http://www.blue-bird.com) as soon as reasonably practicable after we electronically file them with, or furnish them to, the SEC. Information on our website does not constitute part of this Report. In addition, the SEC maintains a website (http://www.sec.gov) that contains our annual, quarterly, and current reports, proxy and information statements, and other information we electronically file with, or furnish to, the SEC.
Executive Overview
Blue Bird is the leading independent designer and manufacturer of school buses. Our longevity and reputation in the school bus industry have made Blue Bird an iconic American brand. We distinguish ourselves from our principal competitors by dedicating our focus to the design, engineering, manufacture and sale of school buses, and related parts. As the only principal manufacturer of chassis and body production specifically designed for school bus applications in the United States of America ("U.S."), Blue Bird is recognized as an industry leader for school bus innovation, safety, product quality/reliability/durability, efficiency, and lower operating costs. In addition, Blue Bird is the market leader in alternative powered product offerings with its propane-powered, gasoline-powered, compressed natural gas ("CNG")-powered, and all-electric-powered school buses.
Blue Bird sells its buses and parts through an extensive network of U.S. and Canadian dealers that, in their territories, are exclusive to Blue Bird on Type C and Type D school buses. Blue Bird also sells directly to major fleet operators, the U.S. Government, state governments, and authorized dealers in a number ofcertain limited foreign countries.
Throughout this Report, we refer to the fiscal year ending September 30, 2023 as "fiscal 2023," the fiscal year ended October 1, 2022 as "fiscal 2022,"2022" and the fiscal year ended October 2, 2021 as "fiscal 2021" and the fiscal year ended October 3, 2020 as “fiscal 2020.2021.” There will be or were 52 weeks in fiscal 2022 and fiscal 2021, respectively, and there were 53 weeks in fiscal 2020. The third quarters of2023, fiscal 2022 and fiscal 20212021. The first quarters of fiscal 2023 and fiscal 2022 both included 13 weeks. The nine month periods in fiscal 2022 and 2021 both included 39 weeks.
ImpactImpacts of COVID-19 and Subsequent Supply Chain Constraints on Our Business
Beginning in our second fiscal quarter of the fiscal year that ended October 3, 2020 ("fiscal 2020"), the novel coronavirus known as "COVID-19" began to spread throughout the world, resulting in a global pandemic. The pandemic triggered a significant downturn in global commerce as early as February 2020 and the challenging market conditions continued throughinto the third quarterearly months of calendar year 2021. Countermeasures taken to address the COVID-19 pandemic included virtual and hybrid schooling in many jurisdictions throughout the U.S. and Canada. The uncertainty of when and how schools would open materially affected demand within the Type C and Type D school bus industry in the second half of the Company's fiscal 2022 and may continue for an extended period of time.2020.
SupplyWhile demand for school buses remained suppressed during the first half of fiscal 2021 as a result of the continuing impact of the COVID-19 pandemic, it strengthened substantially during the second half of the fiscal year as COVID-19 vaccines were administered and many jurisdictions began preparing for a return to in-person learning environments for the new school year that began in mid-August to early September 2021. However, during the second half of fiscal 2021, the Company, and automotive industry as a whole, began experiencing significant supply chain constraints resulting from, among others, labor shortages due to the ‘great resignation;’ the lack of maintenance on, and acquisition of, capital assets during the extended COVID-19 global lockdowns; significant increased demand for consumer products containing certain materials required for the production of vehicles, such as microchips, as consumers spent stimulus and other funds on items for their homes; etc. These supply chain disruptions significantly impactedhave had a significant adverse impact our operations and results during the latter half of fiscal 2021 and continuing into the third quarter of fiscal 2022. We incurreddue to higher inventory purchasepurchasing costs, including freight costs incurred to expedite receipt of critical components, and experienced increased manufacturing inefficiencies dueand our inability to the shortage of critical components that hindered our ability to efficiently complete the production of buses to fulfill sales orders.orders primarily during the latter half of fiscal 2021 and most of fiscal 2022. Specifically, management estimates that the sale of overapproximately 2,000 units was deferred from fiscal 2021 into fiscal 2022 as a result of the shortage of critical components that prevented the Company from initiating
or completing, as applicable, the production process for certain units that were otherwise scheduled to be delivered to customers during this period.the year. Including these units, as applicable, the Company's backlog exceeded 4,200 and 6,200 units as of October 2, 2021.
Although there were pockets of COVID-19 outbreaks in the U.S. throughout fiscal 2022, most school systems maintained partial or full in-person learning environments for the entirety of the school year. Accordingly, new bus orders during fiscal 2022 remained extremely robust, primarily due to pent-up demand resulting from the cumulative effect of the COVID-19 pandemic when many school systems conducted virtual learning (i.e., approximately January 2020 through June 2021). This strong demand, when coupled with an already challenged global supply chain for automotive parts that continued from fiscal 2021 but that was further impacted, including continuing escalating inventory purchase costs, by additional stress resulting from Russia’s invasion of Ukraine in February 2022 (see further discussion below) and July 2, 2022, respectively, as demand for our products remains strong, with no sales orders canceledseveral complete shutdowns in China as a result of widespread COVID-19 outbreaks, resulted in the Company’s order backlog continuing to grow during fiscal 2022, exceeding 5,000 units as of October 1, 2022 (only minimal sales orders were canceled during the fiscal year as a result of continued delays in our production process.process).
The Company's increased purchase costs for certainShortages of its raw materials during the pandemic have negatively impacted the gross profit recognized on sales, includingkey components during the second half of fiscal 2021 and most of fiscal 2022 hindered the Company's ability to complete the production of buses to fulfill sales orders, which had a significant, adverse impact on the Company's revenues during these periods. The Company has also experienced significant increased purchase costs for many of its raw materials as a result of supply chain disruptions over these same periods and continuing throughinto the thirdfirst quarter of fiscal 2022.2023 that have negatively impacted the gross profit it recognized on sales. In response, beginning in July 2021 and continuing throughout fiscal 2022, the Company announced severala number of sales price increases that apply to new sales orders and partially applied to backlog orders
that were both intended to mitigate the impact of rising purchase costs on our operations and results. TheseAdditionally, during fiscal 2022, the Company began including price escalation provisions when bidding on contracts so that it can consider economic fluctuations between the bid date and the contract date to determine whether increased costs should be passed along to customers. Most of these price increases were generally not realized in the first half of fiscal 2022 as sales recorded during such quarters related to the backlog of orders that existed prior, and therefore were not subject, to the price increases. While they began to impact sales and gross profit in the latter half of fiscal 2022, such impact did not offset the significant continued increase in the Company's production costs, resulting in further deterioration of the Company's gross profit during the second half of fiscal 2022 and continuing into the first quarter of fiscal 2023 as it produced and sold the oldest units included in the backlog as of the end of fiscal 2022. However, they beganare expected to have a positive impact on sales and gross profit induring the third quarterremainder of fiscal 2023 as the Company fulfills sales orders (i) from the backlog existing as of the end of fiscal 2022 and management is expecting them to continue being reflected in(ii) that are taken during fiscal 2023, both of which contained, or will contain, most or all of the revenuecumulative sales prices increases that is realized inhave been announced since July 2021.
New bus orders during the fourthfirst quarter of fiscal 2023 remained extremely robust, primarily due to a combination of (i) pent-up demand resulting from the cumulative effect of the COVID-19 pandemic when many school systems conducted virtual learning and (ii) the challenged global supply chain for automotive parts that hindered the school bus industry's ability to produce and sell buses during the latter half of fiscal 2021 and most of fiscal 2022. Accordingly, the Company's backlog remained in excess of 5,000 units as of December 31, 2022 and continuing intodespite it selling almost 2,000 units during the first quarter of fiscal 2023. 2023 that were included in the backlog that existed as of October 1, 2022.
In general, management believes that such supply chain disruptions willcould continue in future periods and could materially impact our results if we are unable to i) produce during quarters having higher sales volumes and/or ii) pass along rising costs to our customers. Additionally, although we have not experienced any pervasive COVID-19 illnesses to-date,to date, if we were to experience some form of outbreak within our facilities, we would take all appropriate measures to protect the health and safety of our employees, which could include aanother temporary halt in production.
The COVID-19 pandemic hasand subsequent supply chain constraints have resulted, and is likelycould to continue to result, in significant economic disruption and hashave adversely affected our business. We currently believe that it willThey could continue to adversely impact our business throughoutfor the remainder of fiscal 20222023 and perhaps beyond. Significant uncertainty exists concerning the magnitude of the impact and duration of theany future COVID-19 pandemicoutbreaks and itstheir potential impact on the overall economy, both within the U.S.U.S and globally. Accordingly, the magnitude and duration of any demand reductions, production and supply chain disruptions, and related financial impacts on our business cannot be estimated at this time.
The continuing impacts from the COVID-19 pandemic and subsequent supply chain constraints on the Company's business and operations induring the second half of fiscal 2020 and continuing through the first three quartersquarter of fiscal 20222023 negatively affected our revenues, gross profit, income and cash flows. We continue to monitor and assess the level of future customer demand, the ability of school boards to maintain normal in-person learning in the foreseeable future, the ability of suppliers to resume and/or maintain operations and to provide parts and supplies in sufficient quantities to meet our production needs, the ability of our employees to continue to work, and our ability to maintain continuous production during the remainder of fiscal 20222023 and beyond. See PART I, Item 1.A. "Risk Factors," of our 20212022 Form 10-K, filed with the SEC on December 15, 2021,12, 2022, for a discussion of the material risks we believe we face particularly related to the COVID-19 pandemic.pandemic and subsequent supply chain constraints.
Impact of Russia’s Invasion of Ukraine on Our Business
On February 24, 2022, Russian military forces launched a large-scale invasion of Ukraine.While the Company has no assets or customers in either of these countries, this military conflict has had a significant negative impact on the Company’s operations, cash flows and results during fiscal 2022 and continuing into the thirdfirst quarter of fiscal 2022,2023, primarily in an indirect manner since the Company does not sell to customers located in, or source goods directly from, either country.
Specifically, Ukraine has historically been a large exporter of ferroalloy materials used in the manufacture of steel and the disruption in the supply of these minerals resulted in a significant increase in the price of steel from $1,057 per ton the third week of February 2022 to as high as $1,492 per ton the third week of April 2022 before finally decreasing to an average of $1,078 per ton the last two weeks of June and continuing to decline to $791 and $664 per ton the last weeks in September and December 2022, respectively (source: sheet prices published by the CRU Index every Wednesday that provide price benchmarking in North America for U.S. Midwest Domestic Hot-Rolled Coil Steel).While the Company has generally mitigated its direct exposure to steel prices by executing fixed price purchase contracts (generally purchased one quarter in advance) for the majority of the significant amount of steel used in the manufacture of school bus bodies, many suppliers from which the Company purchases components containing steel have increased the price that they charge the Company to acquire such inventory, primarily on a lagged basis, during the latter parthalf of fiscal 2022 and continuing into the thirdfirst quarter of fiscal 2022.2023. These inventory cost increasescosts impact gross profit when school buses are sold and cash flows when the related invoices are paid.
Additionally, Russia has historically been a large global exporter of oil and many countries have ceased buying Russian oil in protest of the invasion and to comply with sanctions imposed by the U.S. and many European countries.Accordingly, the disruption in the supply of oil has significantly impacted the price of goods refined from oil, such as diesel fuel, which increased from $4.055 per gallon the week ending February 21, 2022 to $5.783as high as $5.810 per gallon the week ending June 27,20, 2022, before decreasing slightly throughout the remainder of our fiscal 2022 to $4.889 per gallon the week ending September 26, 2022 and fluctuating within a range from $5.341 and $4.537 per gallon during our first quarter of fiscal 2023 (source: U.S Energy Information Administration - Weekly U.S. No 2 Diesel Retail Prices). This increase hasThese increases have significantly impacted the Company both as a result of the price that suppliers charge the Company to acquire inventory (since diesel fuel impacts their cost of acquiring the inventory used in producing their goods) and the price that the Company pays for freight to deliver the inventory that it acquires. Additionally, such increase wasincreases are generally implemented with very little lag so that it impacted gross profitthey impact the purchase cost of inventory and cash flows more significantly during the third quarter of fiscal 2022 than did the rising cost of steel.on an almost real-time basis.
Finally, both countries have large quantities of other minerals that impact commodity costs, such as rubber and resin, among others, and the disruption caused by the ongoing military conflict has increased the cost and/or decreased the supply of components containing these materials, further impacting an already challenged global supply chain for automotive parts.
Russia’s invasion of Ukraine has resulted, and is likely to continue to result, in significant economic disruption and has adversely affected our business.Specifically, it has contributed to higher inventory purchase costs, including freight costs, that negatively impacted the gross profit recognized on sales during the latter part of fiscal 2022 and continuing into the thirdfirst quarter of fiscal 2022.2023. Because peace negotiations do not appear to be productive and because Russia has announced its intention to continue military operations in Ukraine in the immediate term, we currently believe that this matter will continue to adversely impact our business throughoutfor the remainder of fiscal
2022 2023 and perhaps beyond. Significant uncertainty exists concerning the magnitude of the impact and duration of the ongoing military conflict and its impact on the overall economy, both within the U.S. and globally. Accordingly, the duration of any production and supply chain disruptions, and related financial impacts, cannot be estimated at this time.
Additional Measures Implemented by Management in Response to the Current Environment
The Company has taken actions to control spending and secure adequate liquidity, including headcount rationalization, temporary salary reductions and furloughs, changes to the minimum required financial covenants via execution of a fourth amendment to our Credit Agreement in November 2021, and raising $75.0 million of proceeds through the issuance and sale of an aggregate 4,687,500 shares of common stock at $16.00 per share in a private placement transaction on December 15, 2021. Further detail and discussion of the fourth amendment and private placement transaction can be found in the "Liquidity and Capital Resources" section of this Item 2. "Management’s Discussion and Analysis of Financial Condition and Results of Operations" of this Report. Even with adequate liquidity, we are evaluating and considering further actions to reduce costs and spending across our organization to be responsive to potential longer-term impacts on our business from the pandemic and Russia's invasion of Ukraine. Our actions may include reducing hiring activities, limiting discretionary spending, limiting spending on capital investment projects or other steps necessary to preserve adequate liquidity. We may also pursue raising additional capital via an equity or debt offering. We will continue to actively monitor the situations and may need to take further actions required by federal, state or local authorities, or enact measures we determine are in the best interests of our employees, customers, suppliers and stockholders. For further details and discussion about our liquidity, refer to the following "Liquidity and Capital Resources" section of this Item 2. "Management’s Discussion and Analysis of Financial Condition and Results of Operations" of this Report.
Critical Accounting Policies and Estimates, Recent Accounting Pronouncements
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Blue Bird evaluates its estimates on an ongoing basis, based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Application of these accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates.
The Company’s accounting policies that we believe are the most critical to aid in fully understanding and evaluating our reported financial results are described in the Company’s 20212022 Form 10-K, filed with the SEC on December 15, 2021,12, 2022, under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates,” which description is incorporated herein by reference. Our senior management has reviewed these critical accounting policies and related disclosures and determined that there were no significant changes in our critical accounting policies during the ninethree months ended July 2,December 31, 2022.
Recent Accounting Pronouncements
See Note 2 of Notes to Condensed Consolidated Financial Statements (Unaudited) included in Part I, Item 1 of this Report for a discussion of new and recently adopted accounting pronouncements.
Factors Affecting Our Revenues
Our revenues are driven primarily by the following factors:
•Property tax revenues. Property tax revenues are one of the major sources of funding for school districts, and therefore new school buses. Property tax revenues are a function of land and building prices, relying on assessments of property value by state or county assessors and millage rates voted by the local electorate.
•Student enrollment and delivery mechanisms for learning. Increases or decreases in the number of school bus riders have a direct impact on school district demand. Due to the COVID-19 pandemic and evolvingEvolving protocols for social distancing and public health concerns and/or continued technological advancements could shift the future form of educational delivery remains fluid and subject to change, andaway from in-person learning on a more permanent basis, with increased remote learning could reasonably be expected to decrease the number of school bus riders.
•Revenue mix. We are able to charge more for certain of our products (e.g., Type C propane-powered school buses, electric-powered buses, Type D buses, and buses with higher option content) than other products. The mix of products sold in any fiscal period can directly impact our revenues for the period.
•Strength of the dealer network. We rely on our dealers, as well as a small number of major fleet operators, to be the direct point of contact with school districts and their purchasing agents. An effective dealer is capable of expanding revenues within a given school district by matching that district’s needs to our capabilities, offering options that would not otherwise be provided to the district.
•Pricing. Our products are sold to school districts throughout the U.S. and Canada. Each state and each Canadian province has its own set of regulations that governs the purchase of products, including school buses, by their school districts. We and our dealers must navigate these regulations, purchasing procedures, and the districts’ specifications in order to reach mutually acceptable price terms. Pricing may or may not be favorable to us, depending upon a number of factors impacting purchasing decisions. Additionally, in certain cases, prices originally quoted with dealers and school districts may have become less favorable, or more unfavorable, to us given increasing inventory costs between the time the sales order was contractually agreed upon and the bus is built and delivered as a result of ongoing supply chain disruptions and general inflationary pressures.
•Buying patterns of major fleets. Major fleets regularly compete against one another for existing accounts. Fleets are also continuously trying to win the business of school districts that operate their own transportation services. These activities can have either a positive or negative impact on our sales, depending on the brand preference of the fleet that wins the business. Major fleets also periodically review their fleet sizes and replacement patterns due to funding availability as well as the profitability of existing routes. These actions can impact total purchases by fleets in a given year.
•Seasonality. Historically, our sales have been subject to seasonal variation based on the school calendar with the peak season during our third and fourth fiscal quarters. Sales during the third and fourth fiscal quarters are typically greater than the first and second fiscal quarters due to the desire of municipalities to have any new buses that they order available to them at the beginning of the new school year. With the COVID-19 pandemic impact on school systemsimpacting the demand for Company products and the uncertainty regarding (i) in-person schooling schedules and duration and (ii)impact of the severity and duration of ongoingsubsequent supply chain constraints hindering the Company's ability to produce and sell buses, seasonality has become unpredictable. Seasonality and variations from historical seasonality have impacted the comparison of results between fiscal periods.
•Inflation. As discussed previously above, supply chain disruptions resulting fromdeveloping subsequent to the ongoing COVID-19 pandemic and, more recently, Russia's invasion of Ukraine, have significantly increased our inventory purchase costs, including freight costs incurred to expedite receipt of critical components, reflected in cost of goods sold during the latter half of fiscal 2021, all of fiscal 2022 and continuing into the thirdfirst quarter of fiscal 2022.2023. In response, the Company announced several sales price increases that apply to new sales orders and partially applied to backlog orders that were both intended to mitigate the impact of rising purchase costs on our operations and results. TheseMost of these price increases were generally not realized in the first half of fiscal 2022 as sales recorded during such quarters related to the backlog of orders that existed prior, and therefore were not subject, to the price increases. While they began to impact sales and gross profit in the latter half of fiscal 2022, such impact did not offset the significant continued increase in the Company's production costs, resulting in further deterioration of the Company's gross profit during the second half of fiscal 2022 and continuing into the first quarter of fiscal 2023 as it produced and sold the oldest units included in the backlog as of the end of fiscal 2022. However, they beganare expected to have a positive impact on sales and gross profit induring the third quarterremainder of fiscal 2023 as the Company fulfills sales orders (i) from the
backlog existing as of the end of fiscal 2022 and management is expecting them to continue being reflected in(ii) that are taken during fiscal 2023, both of which contained, or will contain, most or all of the revenuecumulative sales prices increases that is realized in the fourth quarter of fiscal 2022 and continuing into fiscal 2023.have been announced since July 2021.
Factors Affecting Our Expenses and Other Items
Our expenses and other line items on our unaudited Condensed Consolidated Statements of Operations are principally driven by the following factors:
•Cost of goods sold. The components of our cost of goods sold consist of material costs (principally powertrain components, steel and rubber, as well as aluminum and copper) including freight costs, labor expense, and overhead. Our cost of goods sold may vary from period to period due to changes in sales volume, efforts by certain suppliers to pass through the economics associated with key commodities, fluctuations in freight costs, design changes with respect to specific components, design changes with respect to specific bus models, wage increases for plant labor, productivity of plant labor, delays in receiving materials and other logistical problems, and the impact of overhead items such as utilities.
•Selling, general and administrative expenses. Our selling, general and administrative expenses include costs associated with our selling and marketing efforts, engineering, centralized finance, human resources, purchasing, information technology services, along with other administrative matters and functions. In most instances, other than direct costs associated with sales and marketing programs, the principal component of these costs is salary expense. Changes from period to period are typically driven by the number of our employees, as well as by merit increases provided to experienced personnel.
•Interest expense. Our interest expense relates to costs associated with our debt instruments and reflects both the amount of indebtedness and the interest rate that we are required to pay on our debt. Interest expense also includes unrealized gains or losses from interest rate hedges, if any, and changes in the fair value of interest rate derivatives not designated in hedge accounting relationships, if any, as well as expenses related to debt guarantees, if any.
•Income taxes. We make estimates of the amounts to recognize for income taxes in each tax jurisdiction in which we operate. In addition, provisions are established for withholding taxes related to the transfer of cash between jurisdictions and for uncertain tax positions taken.
•Other income/expense,expense/income, net. This balance includes periodic pension expense or income as well as gains or losses on foreign currency, if any. Other immaterial amounts not associated with operating expenses may also be included in this balance.
•Equity in net (loss) income or loss of non-consolidated affiliate. We include in this line item our 50% share of net income or loss from our investment in Micro Bird Holdings, Inc., our unconsolidated Canadian joint venture.
Key Non-GAAP Financial Measures We Use to Evaluate Our Performance
The condensed consolidated financial statements included in this Report in Item 1. "Financial Statements (Unaudited)" are prepared in conformity with U.S. GAAP. This Report also includes the following financial measures that are not prepared in accordance with U.S. GAAP ("non-GAAP"): “Adjusted EBITDA;” “Adjusted EBITDA Margin;” and “Free Cash Flow.” Adjusted EBITDA and Free Cash Flow are financial metrics that are utilized by management and the board of directors to determine (a) the annual cash bonus payouts, if any, to be made to certain members of management based upon the terms of the Company’s Management Incentive Plan, and (b) whether the performance criteria have been met for the vesting of certain equity awards granted annually to certain members of management based upon the terms of the Company’s Omnibus Equity Incentive Plan. Additionally, consolidated EBITDA, which is an adjusted EBITDA metric defined by our Amended Credit Agreement (defined below) that could differ from Adjusted EBITDA discussed above as the adjustments to the calculations are not uniform, is used to determine the (a) Company's ongoing compliance with several financial covenant requirements, including being utilized in the denominator of the calculation of the Total Net Leverage Ratio ("TNLR"), as and when applicable, and (b)which is also utilized in determining the interest rate that is chargedwe pay on outstanding borrowings in accordance with a pricing grid that is based upon the TNLR.under our Amended Credit Agreement (defined below). Accordingly, management views these non-GAAP financial metrics as key for the above purposes and as a useful way to evaluate the performance of our operations as discussed further below.
Adjusted EBITDA is defined as net income or loss prior to interest income; interest expense including the component of operating lease expense (which is presented as a single operating expense in selling, general and administrative expenses in our U.S. GAAP financial statements) that represents interest expense on lease liabilities; income taxes; and depreciation and amortization including the component of operating lease expense (which is presented as a single operating expense in selling, general and administrative expenses in our U.S. GAAP financial statements) that represents amortization charges on right-of-use lease assets; as adjusted for certain non-cash charges or credits that we may record on a recurring basis such as share-based compensation expense and unrealized gains or losses on certain derivative financial instruments; net gains or losses on the disposal of assets as well as certain charges such as (i) significant product design changes; (ii) transaction related costs; (iii) discrete expenses related to major cost cutting and/or operational transformation initiatives; or (iv) costs directly attributed to the COVID-19 pandemic. While certain of the charges that are
added back in the Adjusted EBITDA calculation, such as transaction related costs and operational transformation and major product redesign initiatives, represent operating expenses that may be recorded in more than one annual period, the significant project or transaction giving rise to such expenses is not considered to be indicative of the Company’s normal operations. Accordingly, we believe that these, as well as the other credits and charges that comprise the amounts utilized in the determination of Adjusted EBITDA described above, should not be used in evaluating the Company’s ongoing annual operating performance.
We define Adjusted EBITDA Margin as Adjusted EBITDA as a percentage of net sales. Adjusted EBITDA and Adjusted EBITDA Margin are not measures of performance defined in accordance with U.S. GAAP. The measures are used as a supplement to U.S. GAAP results in evaluating certain aspects of our business, as described below.
We believe that Adjusted EBITDA and Adjusted EBITDA Margin are useful to investors in evaluating our performance because the measures consider the performance of our ongoing operations, excluding decisions made with respect to capital investment, financing, and certain other significant initiatives or transactions as outlined in the preceding paragraphs. We believe the non-GAAP measures offer additional financial metrics that, when coupled with the U.S. GAAP results and the reconciliation to U.S. GAAP results, provide a more complete understanding of our results of operations and the factors and trends affecting our business.
Adjusted EBITDA and Adjusted EBITDA Margin should not be considered as alternatives to net income or loss as an indicator of our performance or as alternatives to any other measure prescribed by U.S. GAAP as there are limitations to using such non-GAAP measures. Although we believe that Adjusted EBITDA and Adjusted EBITDA Margin may enhance an evaluation of our operating performance based on recent revenue generation and product/overhead cost control because they exclude the impact of prior decisions made about capital investment, financing, and certain other significant initiatives or transactions, (i) other companies in Blue Bird’s industry may define Adjusted EBITDA and Adjusted EBITDA Margin differently than we do and, as a result, they may not be comparable to similarly titled measures used by other companies in Blue Bird’s industry, and (ii) Adjusted EBITDA and Adjusted EBITDA Margin exclude certain financial information that some may consider important in evaluating our performance.
We compensate for these limitations by providing disclosure of the differences between Adjusted EBITDA and U.S. GAAP results, including providing a reconciliation to U.S. GAAP results, to enable investors to perform their own analysis of our ongoing operating results.
Our measure of Free Cash Flow is used in addition to and in conjunction with results presented in accordance with U.S. GAAP and it should not be relied upon to the exclusion of U.S. GAAP financial measures. Free Cash Flow reflects an additional way of evaluating our liquidity that, when viewed with our U.S. GAAP results, provides a more complete understanding of factors and trends affecting our cash flows. We strongly encourage investors to review our financial statements and publicly-filed reports in their entirety and not to rely on any single financial measure.
We define Free Cash Flow as total cash provided by/used in operating activities as adjusted for net cash paid for the acquisition of fixed assets and intangible assets. We use Free Cash Flow, and ratios based on Free Cash Flow, to conduct and evaluate our business because, although it is similar to cash flow from operations, we believe it is a more conservative measure of cash flow since purchases of fixed assets and intangible assets are a necessary component of ongoing operations. Accordingly, Free Cash Flow will be less than operating cash flows.
Our Segments
We manage our business in two operating segments, which are also our reportable segments: (i) the Bus segment, which involves the design, engineering, manufacture and sales of school buses and extended warranties; and (ii) the Parts segment, which includes the sale of replacement bus parts. Financial information is reported on the basis that it is used internally by the chief operating decision maker (“CODM”) in evaluating segment performance and deciding how to allocate resources to segments. The President and Chief Executive Officer of the Company has been identified as the CODM. Management evaluates the segments based primarily upon revenues and gross profit.
Consolidated Results of Operations for the Three Months Ended July 2,December 31, 2022 and July 3, 2021:January 1, 2022:
| | | Three Months Ended | | Three Months Ended |
(in thousands of dollars) | (in thousands of dollars) | | July 2, 2022 | | July 3, 2021 | (in thousands of dollars) | | December 31, 2022 | | January 1, 2022 |
Net sales | Net sales | | $ | 206,083 | | | $ | 196,659 | | Net sales | | $ | 235,732 | | | $ | 129,223 | |
Cost of goods sold | Cost of goods sold | | 184,490 | | | 170,500 | | Cost of goods sold | | 228,275 | | | 113,026 | |
Gross profit | Gross profit | | $ | 21,593 | | | $ | 26,159 | | Gross profit | | $ | 7,457 | | | $ | 16,197 | |
Operating expenses | Operating expenses | | | | | Operating expenses | | | | |
Selling, general and administrative expenses | Selling, general and administrative expenses | | 20,505 | | | 18,073 | | Selling, general and administrative expenses | | 16,832 | | | 18,233 | |
Operating profit | | $ | 1,088 | | | $ | 8,086 | | |
Operating loss | | Operating loss | | $ | (9,375) | | | $ | (2,036) | |
Interest expense | Interest expense | | (3,908) | | | (2,805) | | Interest expense | | (4,196) | | | (3,082) | |
| Other income, net | | 735 | | | 426 | | |
| (Loss) income before income taxes | | $ | (2,085) | | | $ | 5,707 | | |
Income tax expense | | (2,860) | | | (1,892) | | |
Equity in net (loss) income of non-consolidated affiliate | | (1,490) | | | 517 | | |
Other (expense) income, net | | Other (expense) income, net | | (236) | | | 736 | |
Loss on debt modification | | Loss on debt modification | | (537) | | | (561) | |
Loss before income taxes | | Loss before income taxes | | $ | (14,344) | | | $ | (4,943) | |
Income tax benefit | | Income tax benefit | | 2,981 | | | 1,762 | |
Equity in net income (loss) of non-consolidated affiliate | | Equity in net income (loss) of non-consolidated affiliate | | 69 | | | (901) | |
| Net (loss) income | | $ | (6,435) | | | $ | 4,332 | | |
Net loss | | Net loss | | $ | (11,294) | | | $ | (4,082) | |
Other financial data: | Other financial data: | | | | | Other financial data: | | | | |
Adjusted EBITDA | Adjusted EBITDA | | $ | 8,792 | | | $ | 13,161 | | Adjusted EBITDA | | $ | (4,245) | | | $ | 3,599 | |
Adjusted EBITDA margin | Adjusted EBITDA margin | | 4.3 | % | | 6.7 | % | Adjusted EBITDA margin | | (1.8) | % | | 2.8 | % |
The following provides the results of operations of Blue Bird’s two reportable segments:
| (in thousands of dollars) | (in thousands of dollars) | | Three Months Ended | (in thousands of dollars) | | Three Months Ended |
Net Sales by Segment | Net Sales by Segment | | July 2, 2022 | | July 3, 2021 | Net Sales by Segment | | December 31, 2022 | | January 1, 2022 |
Bus | Bus | | $ | 186,631 | | | $ | 181,735 | | Bus | | $ | 213,249 | | | $ | 112,437 | |
Parts | Parts | | 19,452 | | | 14,924 | | Parts | | 22,483 | | | 16,786 | |
Total | Total | | $ | 206,083 | | | $ | 196,659 | | Total | | $ | 235,732 | | | $ | 129,223 | |
| Gross (Loss) Profit by Segment | Gross (Loss) Profit by Segment | | Gross (Loss) Profit by Segment | |
Bus | Bus | | $ | 13,632 | | | $ | 20,471 | | Bus | | $ | (3,731) | | | $ | 9,642 | |
Parts | Parts | | 7,961 | | | 5,688 | | Parts | | 11,188 | | | 6,555 | |
Total | Total | | $ | 21,593 | | | $ | 26,159 | | Total | | $ | 7,457 | | | $ | 16,197 | |
Net sales. Net sales were $206.1$235.7 million for the thirdfirst quarter of fiscal 2022,2023, an increase of $9.4$106.5 million, or 4.8%82.4%, compared to $196.7$129.2 million for the thirdfirst quarter of fiscal 2021.2022. The increase in net sales is primarily due to increased unit bookings, product and mix changes, as well as pricing actions taken by management in response to increased inventory purchase costs. During the first half of fiscal 2021, the COVID-19 pandemic caused many schools to shut down in-person learning, decreasing the demand for buses and related maintenance and replacement parts. However, by the third quarter of fiscal 2021, many schools began signaling a return to in-person learning by the beginning of the 2021/2022 school year (i.e., August and September 2021), resulting in a significant increase in the demand for buses and a corresponding increase in our net sales during the quarter. Although schools have generally continued to conduct in-person learning and demand for buses and related parts has remained strong as indicated by our sales backlog, significantSignificant supply chain disruptions began limiting the availability of certain critical components primarily beginning towards the end of the third quarter of fiscal 2021 and continuing throughthroughout fiscal 2022. However, by the end of the first three quartersquarter of fiscal 2022. Accordingly, such shortages have limited2023, supply chain constraints began to improve slightly, allowing for increased production relative to the numberfirst quarter of buses the Company could produce and deliver during this time period.fiscal 2022.
Bus sales increased $4.9$100.8 million, or 2.7%89.7%, reflecting a 20.4%70.3% increase in units booked and a 11.4% increase in average sales price per unit, which was partially offset by a 14.7% decrease in units booked.unit. In the thirdfirst quarter of fiscal 2022, 1,7262023, 1,957 units were booked compared to 2,0241,149 units booked for the same period in fiscal 2021.2022. The decreaseincrease in units sold was primarily due to constraints in the Company's ability to produce and deliver buses due to shortages of critical components.components in the first quarter of fiscal 2022. The 20.4%11.4% increase in unit price for the thirdfirst quarter of fiscal 20222023 compared to the same period in fiscal 20212022 reflects pricing actions taken by management as well as product and customer mix changes.
Parts sales increased $4.5$5.7 million, or 30.3%33.9%, for the thirdfirst quarter of fiscal 20222023 compared to the thirdfirst quarter of fiscal 2021.2022. This increase is primarily attributed to (a) more schools offering in-person learning during the 2021/2022 school year when compared with
the 2020/2021 school year, which increased school bus units in operation and thus increased bus repair and maintenance activities and (b) pricing actions taken by management to offset increases in purchased parts costs.costs and increased inventory availability as supply chain constraints began to improve slightly during the first quarter of fiscal 2023 relative to the first quarter of fiscal 2022.
Cost of goods sold. Total cost of goods sold was $184.5$228.3 million for the thirdfirst quarter of fiscal 2022,2023, an increase of $14.0$115.2 million, or 8.2%102.0%, compared to $170.5$113.0 million for the thirdfirst quarter of fiscal 2021.2022. As a percentage of net sales, total cost of goods sold increased from 86.7%87.5% to 89.5%96.8%.
Bus segment cost of goods sold increased $11.7$114.2 million, or 7.3%111.1%, for the thirdfirst quarter of fiscal 20222023 compared to the same period in fiscal 2021.2022. The increase was primarily driven by increasingthe 70.3% increase in units booked, in the first quarter of fiscal 2023 compared to the same period in fiscal 2022. Also contributing was increased inventory costs, as the average cost of goods sold per unit for the thirdfirst quarter of fiscal 20222023 was 25.8%23.9% higher compared to the thirdfirst quarter of fiscal 20212022, primarily due to increases in manufacturing costs attributable to a) increased raw materials costs resulting from ongoing inflationary pressures and b) ongoing supply chain disruptions that resulted in higher purchase costs for components and freight and c) increased manufacturing inefficiencies resulting from the shortage of certain critical components that required more off-line labor to produce buses. This increase was partially offset by the 14.7% decrease in units booked.freight.
The $2.3$1.1 million, or 24.4%10.4%, increase in parts segment cost of goods sold for the thirdfirst quarter of fiscal 2023 compared to the first quarter of fiscal 2022 comparedwas primarily due to the third quarter of fiscal 2021 largely aligned with the increase in sales volume noted above, with theincreased purchased parts costs, driven by ongoing inflationary pressures and supply chain disruptions, as well as slight variationvariations due to product and channel mix.
Operating profitloss. Operating profitloss was $1.1$9.4 million for the thirdfirst quarter of fiscal 2022, a decrease2023, an increase of $7.0$7.3 million, compared to operating profitloss of $8.1$2.0 million for the thirdfirst quarter of fiscal 2021.2022. Profitability was negatively impacted by a decrease of $4.6$8.7 million in gross profit as outlined in the revenue and cost of goods sold discussions,discussions. Specifically, the ongoing increases in manufacturing costs, when coupled with the fact that the Company produced and sold the oldest units in the backlog existing at the end of fiscal 2022, many of which had pricing from as wellearly as an increasefiscal 2021, resulted in the bus segment reporting gross loss of $2.4$3.7 million during the first quarter of fiscal 2023. The decrease in total gross profit was partially offset by a decrease of $1.4 million in selling, general and administrative expenses, primarily due to an increasea decrease in professional services, largely relatingshare-based compensation expense as a result of the accelerated vesting of all outstanding stock awards for two of the Company's former executives in connection with their retirements during the first quarter of fiscal 2022, without comparable expense in the first quarter fiscal 2023. Additionally, selling, general and administrative expenses during the first quarter of fiscal 2023 benefited from actions taken by management to several cost cuttingreduce labor costs and operational transformation initiatives.certain discretionary spending to mitigate the significant adverse impact of ongoing supply chain constraints on the Company's operations and results.
Interest expense. Interest expense was $3.9$4.2 million for the thirdfirst quarter of fiscal 2022,2023, an increase of $1.1 million, or 39.3%36.1%, compared to $2.8$3.1 million for the thirdfirst quarter of fiscal 2021.2022. The increase was primarily attributable to an increase in the stated term loan interest rate from 4.0%6.0% at July 3, 2021January 1, 2022 to 7.9%10.5% at July 2, 2022 and increased borrowings outstanding during the third quarter of fiscal 2022 when compared with the same period in the previous year.December 31, 2022.
Income taxes. We recorded income tax expensebenefit of $2.9$3.0 million and $1.8 million for the third quarterfirst quarters of fiscal 2023 and fiscal 2022, compared to income tax expense of $1.9 million for the same period in fiscal 2021.respectively.
The effective tax rate for the three months ended July 2,December 31, 2022 was (137.2)%20.8%, which aligned with the statutory federal income tax rate of 21% and is comprised of normal tax rate items, including impacts from state taxes and federal and state tax credits (net of valuation allowances), with discrete period items having a nominal impact on the effective rate during the quarter.
The effective tax rate for the three months ended January 1, 2022 was 35.6%, which differed from the statutory federal income tax rate of 21%. In addition, the amount recorded represents income tax expense in a three month period in which the Company recorded loss before income taxes. This unusual relationship exists as the amount recorded was necessary to adjust the income tax benefit for the nine months ended July 2, 2022 to reflect the Company's revised estimated annual income tax rate, including the effects of discrete period tax items.
The effective tax rate for the three months ended July 3, 2021 was 33.2%, which differed from the statutory federal tax rate of 21%. The difference iswas mainly due to normal tax rate items, including impacts from state taxes net non-deductible compensation expenses and otherfederal and state tax adjustments. The effective tax ratecredits (net of valuation allowances), which was also impactedpartially offset by discrete period tax expense resulting from recording a liability for uncertain tax positions ("UTPs"), including accrued interest and penalties, that was partially offset by discrete period tax benefits resulting from share-basednet non-deductible compensation expenses and prior yearother tax return adjustments.
Adjusted EBITDA. Adjusted EBITDA was $8.8$(4.2) million, or 4.3%(1.8)% of net sales, for the thirdfirst quarter of fiscal 2022,2023, a decrease of $4.4$7.8 million, or 33.2%217.9%, compared to $13.2$3.6 million, or 6.7%2.8% of net sales, for the thirdfirst quarter of fiscal 2021.2022. The decrease in Adjusted EBITDA primarily results from the $10.8 million decrease in net income, as a result of the factors discussed above. This decrease was partially offset by a $4.1$7.2 million increase in operational transformation initiatives, $1.1 million increase in interest expense and $1.0 million increase in income tax expensenet loss, as a result of the factors discussed above.
The following table sets forth a reconciliation of net (loss) incomeloss to adjusted EBITDA for the periods presented:
| | | Three Months Ended | | | Three Months Ended | |
(in thousands of dollars) | (in thousands of dollars) | July 2, 2022 | | July 3, 2021 | | (in thousands of dollars) | December 31, 2022 | | January 1, 2022 | |
Net (loss) income | $ | (6,435) | | | $ | 4,332 | | | |
Net loss | | Net loss | $ | (11,294) | | | $ | (4,082) | | |
Adjustments: | Adjustments: | | | Adjustments: | | |
Interest expense, net (1) | Interest expense, net (1) | 3,976 | | | 2,887 | | | Interest expense, net (1) | 4,289 | | | 3,157 | | |
Income tax expense | 2,860 | | | 1,892 | | | |
Income tax benefit | | Income tax benefit | (2,981) | | | (1,762) | | |
Depreciation, amortization, and disposals (2) | Depreciation, amortization, and disposals (2) | 3,642 | | | 2,851 | | | Depreciation, amortization, and disposals (2) | 3,815 | | | 3,523 | | |
Operational transformation initiatives | Operational transformation initiatives | 4,065 | | | 14 | | | Operational transformation initiatives | 800 | | | 1 | | |
Share-based compensation | Share-based compensation | 667 | | | 328 | | | Share-based compensation | 589 | | | 1,673 | | |
Product redesign initiatives | Product redesign initiatives | 15 | | | 641 | | | Product redesign initiatives | — | | | 253 | | |
| Restructuring and other charges | | Restructuring and other charges | — | | | 246 | | |
Costs directly attributed to the COVID-19 pandemic (3) | Costs directly attributed to the COVID-19 pandemic (3) | 2 | | | 216 | | | Costs directly attributed to the COVID-19 pandemic (3) | — | | | 29 | | |
| Loss on debt modification | | Loss on debt modification | 537 | | | 561 | | |
| Adjusted EBITDA | Adjusted EBITDA | $ | 8,792 | | | $ | 13,161 | | | Adjusted EBITDA | $ | (4,245) | | | $ | 3,599 | | |
Adjusted EBITDA margin (percentage of net sales) | Adjusted EBITDA margin (percentage of net sales) | 4.3 | % | | 6.7 | % | | Adjusted EBITDA margin (percentage of net sales) | (1.8) | % | | 2.8 | % | |
(1) Includes $0.1 million for both fiscal periods, representing interest expense on operating lease liabilities, which are a component of lease expense and presented as a single operating expense in selling, general and administrative expenses on our Condensed Consolidated Statements of Operations.
(2) Includes $0.4 million and $0.2 million for both fiscal periods,the three months ended December 31, 2022 and January 1, 2022, respectively, representing amortization charges on right-of-use lease assets, which are a component of lease expense and presented as a single operating expense in selling, general and administrative expenses on our Condensed Consolidated Statements of Operations.
(3) Primarily represents costs incurred for third party cleaning services and personal protective equipment for our employees in response to the COVID-19 pandemic.
Consolidated Results of Operations for the Nine Months Ended July 2, 2022 and July 3, 2021: | | | | | | | | | | | | | | |
| | Nine Months Ended |
(in thousands of dollars) | | July 2, 2022 | | July 3, 2021 |
Net sales | | $ | 542,965 | | | $ | 491,791 | |
Cost of goods sold | | 502,018 | | | 432,671 | |
Gross profit | | $ | 40,947 | | | $ | 59,120 | |
Operating expenses | | | | |
Selling, general and administrative expenses | | 58,596 | | | 50,124 | |
Operating (loss) profit | | $ | (17,649) | | | $ | 8,996 | |
Interest expense | | (9,481) | | | (7,069) | |
Interest income | | — | | | 1 | |
Other income, net | | 2,215 | | | 1,491 | |
Loss on debt modification | | (561) | | | (598) | |
(Loss) income before income taxes | | $ | (25,476) | | | $ | 2,821 | |
Income tax benefit (expense) | | 6,317 | | | (888) | |
Equity in net (loss) income of non-consolidated affiliate | | (3,505) | | | 166 | |
| | | | |
| | | | |
Net (loss) income | | $ | (22,664) | | | $ | 2,099 | |
Other financial data: | | | | |
Adjusted EBITDA | | $ | 1,701 | | | $ | 26,484 | |
Adjusted EBITDA margin | | 0.3 | % | | 5.4 | % |
The following provides the results of operations of Blue Bird’s two reportable segments:
| | | | | | | | | | | | | | |
(in thousands of dollars) | | Nine Months Ended |
Net Sales by Segment | | July 2, 2022 | | July 3, 2021 |
Bus | | $ | 487,552 | | | $ | 449,876 | |
Parts | | 55,413 | | | 41,915 | |
Total | | $ | 542,965 | | | $ | 491,791 | |
| | | | |
Gross Profit by Segment | | | | |
Bus | | $ | 19,290 | | | $ | 43,265 | |
Parts | | 21,657 | | | 15,855 | |
Total | | $ | 40,947 | | | $ | 59,120 | |
Net sales. Net sales were $543.0 million for the nine months ended July 2, 2022, an increase of $51.2 million, or 10.4%, compared to $491.8 million for the nine months ended July 3, 2021. The increase in net sales is primarily due to product and mix changes as well as pricing actions taken by management in response to increased inventory purchase costs. During the first half of fiscal 2021, the COVID-19 pandemic caused many schools to shut down in-person learning, decreasing the demand for buses and related maintenance and replacement parts. However, by the third quarter of fiscal 2021, many schools began signaling a return to in-person learning by the beginning of the 2021/2022 school year (i.e., August and September 2021), resulting in a significant increase in the demand for buses and a corresponding increase in our net sales during the quarter. Although schools have generally continued to conduct in-person learning and demand for buses and related parts has remained strong as indicated by our sales backlog, significant supply chain disruptions began limiting the availability of certain critical components primarily beginning towards the end of the third quarter of fiscal 2021 and continuing through the first three quarters of fiscal 2022. Accordingly, such shortages have limited the number of buses the Company could produce and deliver during this time period.
Bus sales increased $37.7 million, or 8.4%, reflecting a 7.5% increase in average sales price per unit resulting from pricing actions taken by management as well as product and customer mix changes. Units booked were consistent in both periods with 4,806 units booked in the nine months ended July 2, 2022 compared with 4,768 units booked during the same period in fiscal 2021.
Parts sales increased $13.5 million, or 32.2%, for the nine months ended July 2, 2022 compared to the nine months ended July 3, 2021. This increase is primarily attributed to (a) more schools offering in-person learning during the 2021/2022 school year when compared with the 2020/2021 school year, which increased school bus units in operation and thus increased bus repair and maintenance activities and (b) pricing actions taken by management to offset increases in purchased parts costs.
Cost of goods sold. Total cost of goods sold was $502.0 million for the nine months ended July 2, 2022, an increase of $69.3 million, or 16.0%, compared to $432.7 million for the nine months ended July 3, 2021. As a percentage of net sales, total cost of goods sold increased from 88.0% to 92.5%.
Bus segment cost of goods sold increased $61.7 million, or 15.2%, for the nine months ended July 2, 2022 compared to the nine months ended July 3, 2021. The increase was primarily driven by increasing inventory costs as the average cost of goods sold per unit for the nine months ended July 2, 2022 was 14.2% higher compared to the nine months ended July 3, 2021. This increase was primarily due to increases in manufacturing costs attributable to a) increased raw materials costs resulting from ongoing inflationary pressures, b) supply chain disruptions that resulted in higher purchase costs for components and freight and c) increased manufacturing inefficiencies resulting from the shortage of certain critical components that required more off-line labor to produce buses.
The $7.7 million, or 29.5%, increase in parts segment cost of goods sold for the nine months ended July 2, 2022 compared to the nine months ended July 3, 2021 largely aligned with the increase in sales noted above, with the slight variation due to product and channel mix.
Operating (loss) profit. Operating loss was $17.6 million for the nine months ended July 2, 2022, a decrease of $26.6 million compared to operating profit of $9.0 million for the nine months ended July 3, 2021. Profitability was negatively impacted by a decrease of $18.2 million in gross profit as outlined in the revenue and cost of goods sold discussions, as well as an increase of $8.5 million in selling, general and administrative expenses, primarily due to a $5.3 million increase in professional services, largely relating to several cost cutting and operational transformation initiatives, and a $3.5 million increase in payroll, largely resulting from merit increases for all Company employees that were effective at the beginning of fiscal 2022 and were intended to partially mitigate the impact of increasing inflation. Additionally, selling, general and administrative expenses during the first half of fiscal 2021 benefited from actions taken by management to reduce labor costs and certain discretionary spending during the early months of the pandemic with no similar actions taken to reduce labor costs during the first three quarters of fiscal 2022 given the competitiveness of the overall labor market primarily resulting from continuing labor shortages.
Interest expense. Interest expense was $9.5 million for the nine months ended July 2, 2022, an increase of $2.4 million, or 34.1%, compared to $7.1 million for the nine months ended July 3, 2021. The increase was primarily attributable to an increase in the stated term loan interest rate from 4.0% at July 3, 2021 to 7.9% at July 2, 2022, as well as increased revolving credit facility borrowings outstanding during the nine months ended July 2, 2022 when compared with the same period in the previous year.
Income taxes. Income tax benefit was $6.3 million for the nine months ended July 2, 2022, compared to income tax expense of $0.9 million for the same period in fiscal 2021.
The effective tax rate for the nine months ended July 2, 2022 was 24.8% and differed from the statutory federal tax rate of 21%. The difference is mainly due to normal tax rate items, including impacts from state taxes and federal and state tax credits (net of valuation allowances), which was partially offset by discrete period tax expense resulting from net non-deductible compensation expenses and other tax adjustments.
The effective tax rate for the nine months ended July 3, 2021 was 31.5%, which differed from the statutory federal income tax rate of 21%. The difference is mainly due to normal tax rate items, including impacts from state taxes, net non-deductible compensation expenses and other tax adjustments. The effective tax rate was also impacted by discrete period tax benefits resulting from share-based compensation expenses and prior year tax return adjustments that were partially offset by discrete period tax expense resulting from recording a liability for UTPs, including accrued interest and penalties.
Adjusted EBITDA. Adjusted EBITDA was $1.7 million, or 0.3% of net sales, for the nine months ended July 2, 2022, a decrease of $24.8 million, or 93.6%, compared to $26.5 million, or 5.4% of net sales, for the nine months ended July 3, 2021. The decrease in Adjusted EBITDA is primarily the result of a $24.8 million decrease in net income, as a result of the factors discussed above.
The following table sets forth a reconciliation of net (loss) income to adjusted EBITDA for the periods presented:
| | | | | | | | | | | |
| Nine Months Ended |
(in thousands of dollars) | July 2, 2022 | | July 3, 2021 |
Net (loss) income | $ | (22,664) | | | $ | 2,099 | |
Adjustments: | | | |
Interest expense, net (1) | 9,696 | | | 7,321 | |
Income tax (benefit) expense | (6,317) | | | 888 | |
Depreciation, amortization, and disposals (2) | 10,787 | | | 10,118 | |
Operational transformation initiatives | 5,651 | | | 222 | |
Loss on debt modification | 561 | | | 598 | |
Share-based compensation | 3,153 | | | 1,923 | |
Product redesign initiatives | 549 | | | 1,908 | |
Restructuring and other charges | 246 | | | 494 | |
Costs directly attributed to the COVID-19 pandemic (3) | 39 | | | 913 | |
| | | |
Adjusted EBITDA | $ | 1,701 | | | $ | 26,484 | |
Adjusted EBITDA margin (percentage of net sales) | 0.3 | % | | 5.4 | % |
(1) Includes $0.2 million and $0.3 million for the fiscal periods ended July 2, 2022 and July 3, 2021, respectively, representing interest expense on lease liabilities, which are a component of lease expense and presented as a single operating expense in selling, general and administrative expenses on our Condensed Consolidated Statements of Operations.
(2) Includes $0.6 million for both of the fiscal periods ended July 2, 2022 and July 3, 2021, representing amortization charges on right-of-use lease assets, which are a component of lease expense and presented as a single operating expense in selling, general and administrative expenses on our Condensed Consolidated Statements of Operations.
(3) Primarily costs incurred for third party cleaning services and personal protective equipment for our employees.
Liquidity and Capital Resources
The Company’s primary sources of liquidity are cash generated from its operations, available cash and cash equivalents and borrowings under its credit facility. At July 2,December 31, 2022, the Company had $26.5$5.7 million of available cash (net of outstanding checks) and $33.7$78.7 million of additional borrowings available under the revolving line of credit portion of its credit facility. The Company’s revolving line of credit is available for working capital requirements, capital expenditures and other general corporate purposes.
FourthSixth Amendment to the Credit Agreement
On November 24, 2021, the Company21, 2022, BBBC (as "Borrower") executed a fourthsixth amendment to the Credit Agreement, dated as of December 12, 2016;2016 ("Credit Agreement"); as amended by the first amendment to the Credit Agreement, dated as of September 13, 2018 (the "First Amended Credit Agreement"), the second amendment to the Credit Agreement, dated as of May 7, 2020 (the "Second Amended Credit Agreement"), and the third amendment to the Credit Agreement, dated as of December 4, 2020 (the "Third Amended Credit Agreement"); the fourth amendment to the Credit Agreement, dated as of November 24, 2021 (the "Fourth Amended Credit Agreement:); the fifth amendment and limited waiver to the Credit Agreement, dated as of September 2, 2022 (the "Fifth Amended Credit Agreement"); and as further amended by the fourthsixth amendment (the "Fourth"Sixth Amended Credit Agreement" and collectively, the "Amended Credit Agreement"). The FourthSixth Amended Credit Agreement, among other things, extends the maturity date for both the term loan and revolving credit facilities from September 13, 2023 to December 31, 2024. The total revolving credit facility commitment is reduced to an aggregate principal amount of $90.0 million, of which $80.0 million is available for Borrower to draw, with the remaining $10.0 million subject to written approval from the lenders, which, once obtained, will be irrevocable. There was no change in the term loan facility commitment; however, the Sixth Amended Credit Agreement requires principal repayments approximating $5.0 million on a quarterly basis through September 30, 2024, with the remaining balance due upon maturity.There were $151.6 million of term loan borrowings outstanding on the sixth amendment effective date.
The Sixth Amended Credit Agreement also provides for certain temporary amendments to certain financial performance covenants during the Credit Agreementperiod from the third amendment effective date, December 4, 2020, through and including (a) April 1, 2023 (the “Amended Limited Availability Period”Period:) or (b), which will terminate on the first date on which Blue Bird Body Company, a wholly-owned subsidiarythe Company’s TNLR, defined as the ratio of (a) consolidated net debt to (b) consolidated EBITDA, for the Company (the "Borrower"), elects to terminatetwo fiscal quarters most recently ended is each less than 4.00x and no default or event of default has occurred and is continuing. However, the Amended Limited Availability Period in each case, subject to (x) the absence ofcan re-occur upon a default or event of default and (y) pro forma compliance withor if the financial covenant performance covenants underTNLR for the Fourth Amended Credit Agreement.immediately preceding fiscal quarter is equal to or greater than 4.00x.
With respect to the financial performance covenants, during the Amended Limited Availability Period for the fiscal quarters ending January 1, 2022 through October 1, 2022, the TNLR requirement is not applicable, although it continues to impact the interest rate that is charged on outstanding borrowings as discussed below. Instead, theThe minimum consolidated EBITDA that the Company is required to maintain during the Amended Limited Availability Period wasis updated to include fiscal 2022 as set forth in the table below (in millions):
| | | | | | | | | | | | | | |
| Period | | Minimum Consolidated EBITDA | |
| Fiscal quarter ending JanuaryJuly 1, 20222023 | | $14.550.0 | |
| Fiscal quarter ending April 2, 2022September 30, 2023 | | $(4.5) | |
| Fiscal quarter ending July 2, 2022 | | $(6.8) | |
| Fiscal quarter ending October 1, 2022 | | $20.060.0 | |
However, inFor purposes of complying with the event that Borrower elects to terminateabove minimum consolidated EBITDA covenant, the Amended Limited Availability Period inCompany’s consolidated EBITDA for the (i) two fiscal 2022, the maximum TNLR permittedquarter period ending July 1, 2023 is 3.50x.multiplied by 2 and (ii) three fiscal quarter period ending September 30, 2023 is multiplied by 4/3.
The minimum liquidity (in the form of undrawn availability under the revolving credit facility and unrestricted cash and cash equivalents) that the Company mustis required to maintain at the end of each fiscal month during the Amended Limited Availability Period wasis amended as set forth in the table below (in millions):
| | | | | | | | |
Period | | Minimum Liquidity |
FourthSixth amendment effective date through January 1, 2022December 30, 2023 | | $10.0 |
January 2, 2022 through April 2, 2022 | | $5.0 |
April 3, 2022 through July 2, 2022 | | $15.0 |
Thereafter | | $20.030.0 |
Additionally, a newthe financial performance covenant was added in the Fourth Amended Credit Agreement, requiring that school bus units manufactured by the Company (“Units”) not fall below thecertain pre-set thresholds set forth in the table below on a three month trailing basis (“Units Covenant”). is amended for Units to be calculated at the end of each applicable fiscal month on a cumulative basis, with the minimum cumulative threshold that the Company is required to maintain during the Amended Limited Availability Period amended as set forth in the table below. The Units Covenant is triggered only if the Company’s liquidity for the most-recently ended fiscal month is less than $50$50.0 million during the Amended Limited Availability Period:
| | | | | | | | |
Period | | Minimum Units Manufactured |
Three month periodPeriod from October 2, 2022 and ending November 27, 2021 | | 1,128 |
Three month period ending January 1, 2022 | | 776 |
Three month period ending JanuaryOctober 29, 2022 | | 748450 |
Three month periodPeriod from October 2, 2022 and ending FebruaryNovember 26, 2022 | | 727900 |
Three month periodPeriod from October 2, 2022 and ending April 2,December 31, 2022 | | 7631,400 |
Three month periodPeriod from October 2, 2022 and ending April 30, 2022January 28, 2023 | | 1,1111,900 |
Three month periodPeriod from October 2, 2022 and ending May 28, 2022February 25, 2023 | | 1,5252,400 |
Three month periodPeriod from October 2, 2022 and ending July 2, 2022April 1, 2023 | | 2,053 |
Three month period ending July30, 2022 | | 2,072 |
Three month period ending August 27, 2022 | | 2,199 |
Three month period ending October 1, 2022 | | 2,3063,000 |
IfThe Company is not required to comply with a maximum TNLR financial maintenance covenant for any fiscal quarters from the Units during any three fiscal month period set forth above is less thansixth amendment effective date through September 30, 2023, with the minimum required by the Units Covenant, Borrower may elect to carry forward up to 50% of certain applicable excess Units to satisfy the Units Covenant requirement. However, Borrower may not make such election in two consecutive three fiscal month periods.maximum threshold amended thereafter as follows:
| | | | | | | | |
Period | | Maximum Total Net Leverage Ratio |
Fiscal Quarter ending December 30, 2023 through the fiscal quarter ending March 30, 2024 | | 4.00:1.00 |
Fiscal quarter ending June 29, 2024 and thereafter | | 3.50:1.00 |
The pricing grid in the Fourth Amended Credit Agreement, which is based on the TNLR, is applicable to both term loan and revolving borrowings and is determined in accordance with the amended pricing matrix set forth below:
| Level | Level | | Total Net Leverage Ratio | | ABR Loans | | Eurodollar Loans | Level | | Total Net Leverage Ratio | | ABR Loans | | SOFR Loans |
I | I | | Less than 2.00x | | 0.75% | | 1.75% | I | | Less than 2.00x | | 0.75% | | 1.75% |
II | II | | Greater than or equal to 2.00x and less than 2.50x | | 1.00% | | 2.00% | II | | Greater than or equal to 2.00x and less than 2.50x | | 1.00% | | 2.00% |
III | III | | Greater than or equal to 2.50x and less than 3.00x | | 1.25% | | 2.25% | III | | Greater than or equal to 2.50x and less than 3.00x | | 1.25% | | 2.25% |
IV | IV | | Greater than or equal to 3.00x and less than 3.25x | | 1.50% | | 2.50% | IV | | Greater than or equal to 3.00x and less than 3.25x | | 1.50% | | 2.50% |
V | V | | Greater than or equal to 3.25x and less than 3.50x | | 1.75% | | 2.75% | V | | Greater than or equal to 3.25x and less than 3.50x | | 1.75% | | 2.75% |
VI | VI | | Greater than or equal to 3.50x and less than 4.50x | | 2.00% | | 3.00% | VI | | Greater than or equal to 3.50x and less than 4.00x | | 2.00% | | 3.00% |
VII | VII | | Greater than or equal to 4.50x and less than 5.00x | | 3.25% | | 4.25% | VII | | Greater than or equal to 4.00x and less than 4.50x | | 2.75% | | 3.75% |
VIII | VIII | | Greater than 5.00x | | 4.25% | | 5.25% | VIII | | Greater than or equal to 4.50x and less than 5.00x | | 3.75% | | 4.75% |
IX | | IX | | Greater than 5.00x | | 4.75% | | 5.75% |
DuringFurther, the Amended Limited Availability Period,pricing margins for levels VII though IX above are each increased (x) by 0.25% if the aggregate revolving borrowings are equal to or greater than $50.0 million and less than or equal to $80.0 million and (y) by 0.50% if the aggregate revolving borrowings are greater than $80.0 million.On the sixth amendment effective date, the interest rate was set at SOFR plus 5.75% and will be adjusted, as applicable, rate for outstanding revolving loans is the sum of the rate determined by the administrative agentfuture fiscal quarter in accordance with the amended pricing grid set forth above, plus 0.50%.above.
Additional allowances were made in the Fourth Amended Credit Agreement for the Company to issue or incur up to $100.0 million of qualified equity interests issued by the Company, unsecured subordinated indebtedness or unsecured convertible indebtedness (collectively, “Junior Capital”). Upon the issuance or incurrence of any Junior Capital,Finally, the Company is required to prepay the outstanding revolving loans (with no permanent reduction in the revolving commitments) in an amount equaldeliver to the lesseradministrative agent, on a quarterly basis, a projected consolidated balance sheet and consolidated statements of (a) 100% ofprojected operations and cash flows containing the net proceeds from such Junior Capital and (b) the aggregate of revolving exposures then outstanding. Prior to the initial issuance or incurrence of any Junior Capital, any issuance, amendment, renewal, or extension of credit during the Amended Limited Availability Period may not cause the aggregate outstanding Revolving Credit Facility principal to exceed $110.0 million (“Availability Cap”). Following the issuance and sale of $75.0 million of common stock in a private placement transaction on December 15, 2021 (see further discussion below), the Availability Cap was permanently reduced to $100.0 million.
For the duration of the Amended Limited Availability Period, the Fourth Amended Credit Agreement sets forth additional monthly reporting requirements in connection with the manufactured school bus units required by the financial performance covenants, when applicable.next four fiscal quarters.
Detailed descriptions of the Credit Agreement as well as the First, Second, Third, Fourth, and ThirdFifth Amended Credit Agreements are set forth under “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources”
contained in the Company’s Annual Report on Form 10-K for the fiscal year ended October 2, 2021,1, 2022, filed with the SEC on December 15, 2021.12, 2022.
At July 2,December 31, 2022, the Borrower and the guarantors under the Amended Credit Agreement were in compliance with all covenants.
Short-Term and Long-Term Liquidity Requirements
Our ability to make principal and interest payments on borrowings under our credit facilities and our ability to fund planned capital expenditures will depend on our ability to generate cash in the future, which, to a certain extent, is subject to general economic, financial, competitive, regulatory and other conditions. The continuing adverse impacts from the COVID-19 pandemic, when coupled with the more recent impacts resulting fromongoing supply chain disruptions, which were further exacerbated by Russia's invasion of Ukraine in February 2022, materially impacted our operations and results during the second half of fiscal 2021 and all of fiscal 2022 due to higher purchasing costs, including freight costs incurred to expedite receipt of critical components, increased manufacturing inefficiencies and our inability to complete the production of buses to fulfill sales orders. Towards the end of fiscal 2022 and continuing throughout the first quarter of fiscal 2023, there were slight improvements in the nine months ended July 2, 2022, primarilysupply chain's ability to deliver the parts and components necessary to support our production operations, resulting from significant supply chain disruptions that a) constrained our abilities to producein increased (i) manufacturing efficiencies and (ii) production of buses to fulfill sales orders during the first quarter of fiscal 2023. However, the higher costs charged by suppliers to procure inventory continued into the first quarter of fiscal 2023 and b) increasedhad a significant adverse impact on our manufacturingoperations and results as such costs as a resultoutpaced the increases in sales prices that we charged for the buses that were sold during the quarter, all of i) higher purchase costs for componentswhich were included in the backlog of fixed price sales orders originating in fiscal 2021 and freight and ii) increased manufacturing inefficiencies due to the shortage of certain critical components2022 that required more off-line labor to produce buses.carried forward into fiscal 2023. The continuing development and fluidity of the pandemic and military conflict in Ukraineongoing or future supply chain constraints preclude any prediction as to the ultimate severity of the adverse impacts on our business, financial condition, results of operations, and liquidity. See PART I, Item 1.A. "Risk Factors," of our 20212022 Form 10-K, filed with the SEC on December 15, 2021,12, 2022, for a discussion of the material risks we believe we face particularly related to the COVID-19 pandemic.pandemic and subsequent supply chain constraints.
The pandemic and a prolonged military conflict in UkraineFuture COVID-19 outbreaks and/or continuing supply chain constraints could cause a more severe contraction in our profits and/or liquidity which could lead to issues complying with our Amended Credit Agreement covenants. Our primary financial covenants are (i) for fiscal 2022, minimum consolidated EBITDA, which is an adjusted EBITDA metric that could differ from Adjusted EBITDA appearing in the Company’s periodic filings on Form 10-K or Form 10-Q as the adjustments to the calculations are not uniform, at the end of each fiscal quarter for the consecutivetrailing four fiscal quarter period most recently then ending;ended for fiscal 2022 and at the end of the third and fourth fiscal quarters of fiscal 2023 calculated on an annualized basis; (ii) for fiscal 2022 and through April 1,December 30, 2023, minimum liquidity at the end of each fiscal month; (iii) when applicable during fiscal 2022 through April 1, 2023, minimum school bus units manufactured calculated on a three month trailing basis at the end of each fiscal month;month for fiscal 2022 and on a cumulative basis at the end of each fiscal month for the first and second fiscal quarters of fiscal 2023; and (iv) beginning in the fiscal 2023year ending September 28, 2024 ("fiscal 2024") and thereafter, TNLR defined asat the ratioend of (a) consolidated net debt to (b) consolidated EBITDA.each fiscal quarter. If we are not able to comply with such covenants, we may need to seek amendment for covenant relief or even refinance the debt to a "covenant lite" or "no covenant" structure. We cannot assure our investors that we would be successful in amending or refinancing the existing debt. An amendment or refinancing of our existing debt could lead to higher interest rates and possible up-front expenses not included in our historical financial statements.
On December 15, 2021, we issued and sold through a private placement transaction an aggregate 4,687,500 shares of our common stock at $16.00 per share. The approximate $74.8 million of net proceeds that we received from this transaction were used to repay outstanding revolving loans as required by the terms of the Fourth Amended Credit Agreement. See Note 11 of Notes to Condensed Consolidated Financial Statements (Unaudited) included in Part I, Item 1 of this Report for additional information regarding this transaction.
To increase our liquidity in future periods, we maycould pursue raising additional capital via an equity or debt offering as we filedutilizing a Registration Statement on Form S-3 with the SEC in November 2021 that was declaredcurrently effective in December 2021."shelf" registration statement. However, we cannot assure our investors that we would be successful in raising this additional capital, which could also lead to increased expense and larger up-front fees when compared with our historical financial statements.
Seasonality
Historically, our business has been highly seasonal with school districts buying their new school buses so that they will be available for use on the first day of the school year, typically in mid-August to early September. This has resulted in our third and fourth fiscal quarters representing our two busiest quarters from a sales and production perspective, the latter ending on the Saturday closest to September 30. Our quarterly results of operations, cash flows, and liquidity have historically been, and are likely to continue to be in future periods, impacted by the seasonal patterns. Working capital has historically been a significant use of cash during the first fiscal quarter due to planned shutdowns and a significant source of cash generation in the fourth fiscal quarter. With the COVID-19 pandemic impact on school systems and the historical uncertainty regarding (i) in-person schooling schedules and duration and (ii) the severity and duration of ongoingsubsequent supply chain constraints, seasonality and working capital trends have become unpredictable. Seasonality and variations from historical seasonality have impacted the comparison of working capital and liquidity results between fiscal periods.
Cash Flows
The following table sets forth general information derived from our Condensed Consolidated Statements of Cash Flows: | | | Nine Months Ended | | Three Months Ended |
(in thousands of dollars) | (in thousands of dollars) | July 2, 2022 | | July 3, 2021 | (in thousands of dollars) | December 31, 2022 | | January 1, 2022 |
Cash and cash equivalents at beginning of period | Cash and cash equivalents at beginning of period | $ | 11,709 | | | $ | 44,507 | | Cash and cash equivalents at beginning of period | $ | 10,479 | | | $ | 11,709 | |
Total cash used in operating activities | (54,451) | | | (14,238) | | |
Total cash provided by (used in) operating activities | | Total cash provided by (used in) operating activities | 19,926 | | | (33,077) | |
Total cash used in investing activities | Total cash used in investing activities | (4,748) | | | (9,403) | | Total cash used in investing activities | (1,146) | | | (1,570) | |
Total cash provided by (used in) financing activities | 73,999 | | | (9,643) | | |
Total cash (used in) provided by financing activities | | Total cash (used in) provided by financing activities | (23,359) | | | 27,007 | |
Change in cash and cash equivalents | Change in cash and cash equivalents | $ | 14,800 | | | $ | (33,284) | | Change in cash and cash equivalents | $ | (4,579) | | | $ | (7,640) | |
Cash and cash equivalents at end of period | Cash and cash equivalents at end of period | $ | 26,509 | | | $ | 11,223 | | Cash and cash equivalents at end of period | $ | 5,900 | | | $ | 4,069 | |
|
Total cash used inprovided by (used in) operating activities
Cash flows used inprovided by operating activities totaled $54.5$19.9 million for the ninethree months ended July 2,December 31, 2022, an increase of $40.2$53.0 million from the $14.2$33.1 million of cash flows used in operating activities during the ninethree months ended July 3, 2021.January 1, 2022. The increase in cash used was primarily due to $30.6 million, $27.7 million, and $9.0 million increases in cash provided by favorable changes in inventory, accounts payable, and accrued expenses, pension and other liabilities, respectively. At the $24.8end of fiscal 2022 and during the first quarter of fiscal 2023, inflationary pressures and supply chain disruptions significantly increased our purchase costs for components and freight, which, when coupled with increased production and sales volumes during the first quarter of fiscal 2023, resulted in a significant increase in the accounts payable balance (a net source of cash) when compared with a significant decrease in the accounts payable balance at the end of the first quarter of fiscal 2022 (a net use of cash). Additionally, we became more efficient at managing supply chain disruptions, and thus building and selling buses, during the latter months of fiscal 2022 and continuing into the first quarter of fiscal 2023 when compared with the first quarter of fiscal 2022. These efficiencies resulted in us consuming more inventory in production, which resulted in a significant decrease in the inventory balance at the end of the first quarter of fiscal 2023 (a net source of cash) when compared with a significant increase in the inventory balance at the end of the corresponding period of fiscal 2022 (a net use of cash).
These favorable changes were partially offset by several unfavorable changes including a $7.2 million increase in net loss, a $1.1 million decrease in net incomeshare-based compensation, and a $14.5$2.7 million increasedecrease in inventory purchases.cash provided by changes in other assets.
Total cash used in investing activities
Cash flows used in investing activities totaled $4.7$1.1 million for the ninethree months ended July 2,December 31, 2022, as compared to $9.4$1.6 million for the ninethree months ended July 3, 2021.January 1, 2022. The $4.7$0.4 million decrease was primarily due to a reduction in spending on fixed assets.assets to mitigate the ongoing impact of supply chain constraints on our operations, financial results and cash flows.
Total cash (used in) provided by (used in) financing activities
Cash flows used in financing activities totaled $23.4 million for the three months ended December 31, 2022, as compared to $27.0 million of cash flows provided by financing activities totaled $74.0 million for the ninethree months ended July 2, 2022, as compared to $9.6January 1, 2022. The $50.4 million of cash flows used in financing activities for the nine months ended July 3, 2021. The $83.6 million increasedecrease between fiscal periods was primarily attributedattributable to $75.0 million of proceeds received from the issuance and sale of common stock in a private placement transaction during the first nine monthsquarter of fiscal 2022 with no similar activity in the corresponding period of the previous year, as well as $15.0fiscal 2023. This cash inflow was partially offset by a net $25.0 million ofdecrease (i.e., repayments) in revolving credit facility borrowings during this same period. These cash inflows were partially offset by a $3.7 million increase in principal payments of senior term loan borrowings, $1.0 million increase in cash paid for repurchases of common stock in connection with employee stock award exercises, and $1.6 million decrease in cash received from employee stock option exercises during the first ninethree months of fiscalended December 31, 2022 when compared withto the same period in fiscal 2021.three months ended January 1, 2022.
Free cash flow
Management believes the non-GAAP measurement of Free Cash Flow, defined as net cash used inprovided by (used in) operating activities plusless cash paid for fixed assets and acquired intangible assets, fairly represents the Company’s ability to generate surplus cash that could fund activities not in the ordinary course of business. See “Key Non-GAAP Financial Measures We Use to Evaluate Our Performance” for further discussion. The following table sets forth the calculation of Free Cash Flow for the periods presented:
| | | | | | | | | | | |
| Nine Months Ended |
(in thousands of dollars) | July 2, 2022 | | July 3, 2021 |
Net cash used in operating activities | $ | (54,451) | | | $ | (14,238) | |
Cash paid for fixed assets | (4,748) | | | (10,304) | |
Free Cash Flow | $ | (59,199) | | | $ | (24,542) | |
| | | | | | | | | | | |
| Three Months Ended |
(in thousands of dollars) | December 31, 2022 | | January 1, 2022 |
Net cash provided by (used in) operating activities | $ | 19,926 | | | $ | (33,077) | |
Cash paid for fixed assets | (1,146) | | | (1,570) | |
Free Cash Flow | $ | 18,780 | | | $ | (34,647) | |
Free Cash Flow for the ninethree months ended July 2,December 31, 2022 was $34.7$53.4 million lowerhigher than the ninethree months ended July 3, 2021,January 1, 2022, due to a $40.2$53.0 million increase in cash used inprovided by (used in) operating activities, partially offset byas well as a decrease of $5.6$0.4 million in cash paid for fixed assets.assets, both as discussed above.
Off-Balance Sheet Arrangements
We had outstanding letters of credit totaling $6.3 million at July 2,December 31, 2022, the majority of which secure our self-insured workers compensation program, the collateral for which is regulated by the State of Georgia.
We had a $3.0 million guarantee outstanding at July 2, 2022 that relates to a guarantee of indebtedness for a term loan obtained by one of our dealers with a remaining maturity up to 0.5 years. The $3.0 million represents the estimated maximum amount we would be required to pay upon default of all guaranteed indebtedness, and we believe the likelihood of required performance to be remote.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
There have not been any material changes to our interest rate, commodity or currency risks previously disclosed in Part II, Item 7A of the Company’s 20212022 Form 10-K.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
The Company maintains a system of disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) that are designed to provide reasonable assurance that information required to be disclosed in its reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including, as appropriate, the Chief Executive Officer and the Chief Financial Officer, to allow timely decisions regarding required disclosures. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
Based on their evaluations, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of July 2,December 31, 2022.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred during the fiscal quarter ended July 2,December 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
Items required under Part II not specifically shown below are not applicable.
Item 1. Legal Proceedings.
Blue Bird is engaged in legal proceedings in the ordinary course of its business. Although no assurances can be given about the final outcome of pending legal proceedings, at the present time management does not believe that the resolution or outcome of any of Blue Bird’s pending legal proceedings will have a material adverse effect on its financial condition, liquidity or results of operations.
Item 1A. Risk Factors.
In addition to the other information set forth in this Report, you should carefully consider the risk factors discussed in Part I, Item 1A of the Company's 20212022 Form 10-K. Such risk factors are expressly incorporated herein by reference, and they, and the risk factor included below, could materially adversely affect our business, financial condition, cash flows or operating results.
The military conflict in Ukraine could cause additional supply chain disruptions that could have a material adverse impact on our business, results of operations, financial condition and cash flows.
During the third quarter of fiscal 2022, the ongoing pressure on the global supply chain was further exacerbated as a result of Russia’s invasion of Ukraine towards the end of February 2022. Both countries have large quantities of minerals and other natural resources that impact commodity costs, such as diesel fuel, steel, rubber and resin, among others, and the conflict has further restricted access to inventory that is at least partially dependent upon such commodities, primarily for the Company’s suppliers. Such restricted access has, in certain cases, limited our ability to obtain critical component parts and/or resulted in us paying premium prices for freight and to access the limited supply of inventory. The degree to which this conflict impacts our future business, results of operations, financial condition and cash flows will depend on future developments, which are uncertain, including but not limited to the duration of, potential spread and severity of, and additional governmental actions in response to, the conflict and when and to what extent normal business and economic activity and conditions resume and continue without further disruption.
The risks described in the 20212022 Form 10-K and above are not the only risks facing the Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially adversely affect our business, financial condition, cash flows and/or operating results.
Item 6. Exhibits.
The following Exhibits are filed with this Report:
| | | | | | | | |
Exhibit No. | | Description |
3.1 | | |
| | |
3.2 | | |
| | |
10.1 | | FirstSixth Amendment to ConsultingCredit Agreement, dated June 6,as of November 21, 2022, between Philip Horlockby and among the Company, School Bus Holdings, Inc. and certain of its subsidiaries, including Blue Bird CorporationBody Company as the borrower, Bank of Montreal, as Administrative Agent and certain other financial institutions party thereto (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K, filed by the registrant with the SEC on June 8,November 28, 2022). |
| | |
31.1* | | |
| | |
31.2* | | |
| | |
32.1* | | |
| | |
101.INS*^ | | XBRL Instance Document |
| | |
101.SCH*^ | | XBRL Taxonomy Extension Schema Document |
| | |
101.CAL*^ | | XBRL Taxonomy Extension Calculation Linkbase Document |
| | |
101.DEF*^ | | XBRL Taxonomy Extension Definition Linkbase Document |
| | |
101.LAB*^ | | XBRL Taxonomy Extension Label Linkbase Document |
| | |
101.PRE*^ | | XBRL Taxonomy Extension Presentation Linkbase Document |
| | |
104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
| | |
* Filed herewith.
^ In accordance with Regulation S-T, XBRL (Extensible Business Reporting Language) related information in Exhibit No. 101 to this Quarterly Report on Form 10-Q shall be deemed “furnished” and not “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section, and shall not be incorporated by reference into any registration statement pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | | | | | |
| | Blue Bird Corporation |
| | |
| | |
Dated: | August 10, 2022February 8, 2023 | /s/ Matthew Stevenson |
| | Matthew Stevenson |
| | Chief Executive Officer |
| | |
Dated: | August 10, 2022February 8, 2023 | /s/ Razvan Radulescu |
| | Razvan Radulescu |
| | Chief Financial Officer |