Blue Bird (BLBD) 8-K Blue Bird's Third Quarter Profits Higher Than Prior Year

BLUE BIRD'S THIRD QUARTER PROFITS HIGHER THAN PRIOR YEAR

FOURTH CONSECUTIVE QUARTER OF PROFIT GROWTH

STRATEGIC ACTIONS TAKE HOLD

GAAP net income $14.6 million

GAAP Diluted EPS of $0.55

Adjusted EBITDA of $29.0 million, up $4.9 million from prior year

Adjusted Diluted EPS of $0.69

FY2019 Guidance Reaffirmed

Macon, GA, August 7, 2019 – Blue Bird Corporation (“Blue Bird”) (Nasdaq: BLBD), the leading independent designer and manufacturer of school buses, announced today its fiscal 2019 third quarter results. Compared with prior year, Blue Bird improved Adjusted EBITDA by $4.9 million, or20%, in the quarter to $29.0 million, despite higher commodity costs and lower volume. Diluted EPS and Adjusted Diluted EPS were lower than last year, down 22 cents and 23 cents, more than explained by a one-time tax benefit recorded in the third quarter of FY2018.

Highlights

(in millions except EPS data)	Three Months Ended June 29, 2019		B/(W)   2018			Nine Months Ended June 29, 2019		B/(W)   2018
Unit Sales	3,420		(326		)	7,291		(601		)
GAAP Measures:
Revenue	$	308.8	$	(5.4	)	$	675.3	$	(18.0	)
Net income	$	14.6	$	(7.3	)	$	12.7	$	(3.2	)
Diluted earnings per share	$	0.55	$	(0.22	)	$	0.47	$	(0.08	)
Non-GAAP Measures1:
Adjusted EBITDA	$	29.0	$	4.9		$	48.5	$	7.2
Adjusted Net Income	$	18.3	$	(7.9	)	$	23.5	$	(7.0	)
Adjusted Diluted Earnings per Share	$	0.69	$	(0.23	)	$	0.87	$	(0.20	)

¹ Reconciliation to relevant GAAP metrics shown below

“We are pleased with our third quarter performance and our continued progress in key areas of the business," said Phil Horlock, President and Chief Executive Officer of Blue Bird Corporation. “The bus pricing we took in late fiscal 2018 to offset rapidly-increasing commodity costs, together with a record 53% mix of alternative-fueled bus sales, contributed to an eight percent increase in net revenue per bus in the third quarter, compared with last year. We achieved significant structural cost reductions from the Transformational Initiatives we started last year, and expect continued gains through FY2019 and beyond from the implementation of these plans. The lower volume was primarily driven by delivery timing with units produced at the end of the third quarter being delivered and sold in the fourth quarter. We are pleased to reaffirm our FY2019 full-year revenue guidance of $990 - $1,025 million and Adjusted EBITDA guidance of $80 - 85 million.

"We are focused on delivering differentiated and innovative products that customers want and value, as demonstrated by our continued growth in alternative-fueled bus sales, with year-to-date bookings and firm order backlog at 21% above last year. With the broadest range of alternative-fueled school bus offerings in the market, offered at the lowest emission levels, we are the clear product and sales leader in the fastest growing segment of the business.

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"While making significant capital investments in the business this year for our all-new, robotic paint facility, we will continue to generate positive cash flow and are reaffirming our full year Adjusted Free Cash Flow guidance of $24 - $28 million."

Fiscal2019ThirdQuarter Results

Net Sales

Net sales were $308.8 million for the third quarter of fiscal 2019, a decrease of $5.4 million, or 1.7%, from prior year period. Bus unit sales were 3,420 units for the quarter compared with 3,746 units for the same period last year.

Gross Profit

Third quarter gross profit of $41.8 million represented an increase of $4.8 million from the third quarter of last year. Gross profit margin improved 1.7 points to 13.5%.

Net Income

Net income was $14.6 million for the third quarter of fiscal 2019, representing a decrease in profit of $7.3 million compared with the same period last year, more than accounted for by the non-recurrence of tax benefits realized in third quarter of FY2018.

Adjusted Net Income

Adjusted Net Income was $18.3 million, representing a decrease of $7.9 million compared with the same period last year.

Adjusted EBITDA

Adjusted EBITDA was $29.0 million, representing an increase of $4.9 million compared with the third quarter last year. Bus pricing and cost reductions more than offset the impact of commodity-cost headwinds and lower volume.

Year-to-Date 2019 Results

Net Sales

Net sales were $675.3 million for the nine months ended June 29, 2019, a decrease of $18.0 million, or 2.6%, compared with the prior year. Bus unit sales were 7,291 units for the nine months ended June 29, 2019 compared with 7,892 units for the same period last year.

Gross Profit

Year-to-date gross profit was $86.8 million, an increase of $7.6 million from the prior year.

Net Income

Net income was $12.7 million for the nine months ended June 29, 2019, which was $3.2 million below the same period in the prior year.

Adjusted Net Income

Year-to-date Adjusted Net Income was $23.5 million, representing a decrease of $7.0 million compared with the prior year. The decline is more than accounted for by the non-recurrence of tax benefits realized in third quarter of FY2018.

Adjusted EBITDA

Adjusted EBITDA was $48.5 million for the nine months ended June 29, 2019, an increase of $7.2 million over the prior year.

Conference Call Details

Blue Bird will discuss its third quarter 2019 results and other related matters in a conference call at 4:30 PM ET today. Participants may listen to the audio portion of the conference call either through a live audio webcast on the Company's website or by telephone. The slide presentation and webcast can be accessed via the Investor Relations portion of Blue Bird's website at www.blue-bird.com.

• Webcast participants should log on and register at least 15 minutes prior to the start time on the Investor Relations homepage of Blue Bird’s website at http://investors.blue-bird.com. Click the link in the events box on the Investor Relations landing page.

• Participants desiring audio only should dial 1-800-263-0877 or 1-646-828-8143

A replay of the webcast will be available approximately two hours after the call concludes via the same link on Blue Bird’s website.

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About Blue Bird Corporation

Blue Bird is the leading independent designer and manufacturer of school buses, with more than 550,000 buses sold since its formation in 1927 and approximately 180,000 buses in operation today. Blue Bird’s longevity and reputation in the school bus industry have made it an iconic American brand. Blue Bird distinguishes itself from its principal competitors by its singular focus on the design, engineering, manufacture and sale of school buses and related parts. As the only manufacturer of chassis and body production specifically designed for school bus applications, Blue Bird is recognized as an industry leader for school bus innovation, safety, product quality/reliability/durability, operating costs and drivability. In addition, Blue Bird is the market leader in alternative fuel applications with its propane-powered and compressed natural gas-powered school buses. Blue Bird manufactures school buses at two facilities in Fort Valley, Georgia. Its Micro Bird joint venture operates a manufacturing facility in Drummondville, Quebec, Canada. Service and after-market parts are distributed from Blue Bird’s parts distribution center located in Delaware, Ohio.

Key Non-GAAP Financial Measures We Use to Evaluate Our Performance

This press release includes the following non-GAAP financial measures “Adjusted EBITDA,” "Adjusted EBITDA Margin," "Adjusted Net Income," "Adjusted Diluted Earnings per Share," “Free Cash Flow” and “Adjusted Free Cash Flow” because management views these metrics as a useful way to look at the performance of our operations between periods and to exclude decisions on capital investment and financing that might otherwise impact the review of profitability of the business based on present market conditions.

Adjusted EBITDA is defined as net income prior to discontinued operations income or loss, interest income, interest expense including the component of lease expense (which is presented as a single operating expense in selling, general and administrative expenses in our GAAP financial statements) that represents interest expense on lease liabilities, income taxes, depreciation and amortization including the component of lease expense (which is presented as a single operating expense in selling, general and administrative expenses in our GAAP financial statements) that represents amortization charges on right-to-use lease assets, and disposals, as adjusted to add back certain charges that we may record each year, such as stock-compensation expense, as well as non-recurring charges such as (i) significant product design changes; (ii) transaction related costs; or (iii) discrete expenses related to major cost cutting initiatives. We believe these expenses are non-recurring charges and not considered an indicator of ongoing company performance. We define Adjusted EBITDA margin as Adjusted EBITDA as a percentage of net sales. Adjusted Net Income is net income as adjusted to add back certain costs as mentioned above. Adjusted diluted earnings per share represents Adjusted Net Income available to common stockholders by diluted weighted average common shares outstanding (as if we had GAAP net income during the respective period). Adjusted EBITDA, Adjusted EBITDA margin, Adjusted Net Income, and Adjusted Diluted Earnings per Share are not measures of performance defined in accordance with GAAP. The measures are used as a supplement to GAAP results in evaluating certain aspects of our business, as described below.

We believe that Adjusted EBITDA, Adjusted EBITDA margin, Adjusted Net Income, and Adjusted Diluted Earnings per Share are useful to investors in evaluating our performance because the measures consider the performance of our operations, excluding decisions made with respect to capital investment, financing, and other non-recurring charges as outlined in the preceding paragraph. We believe the non-GAAP metrics offer additional financial metrics that, when coupled with the GAAP results and the reconciliation to GAAP results, provide a more complete understanding of our results of operations and the factors and trends affecting our business.

Adjusted EBITDA, Adjusted EBITDA margin, Adjusted Net Income and Adjusted Diluted Earnings per Share should not be considered as alternatives to net income or GAAP earnings per share as an indicator of our performance or as alternatives to any other measure prescribed by GAAP as there are limitations to using such non-GAAP measures. Although we believe the non-GAAP measures 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 other expenses, (i) other companies in Blue Bird’s industry may define Adjusted EBITDA, Adjusted EBITDA margin, Adjusted Net Income, and Adjusted Diluted Earnings per Share 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, Adjusted EBITDA margin, Adjusted Net Income, and Adjusted Diluted Earnings per Share 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, Adjusted EBITDA margin, Adjusted Net Income, and Adjusted Diluted Earnings per Share and GAAP results, including providing a reconciliation to GAAP results, to enable investors to perform their own analysis of our operating results.

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Our measures of “Free Cash Flow” and "Adjusted Free Cash Flow" are used in addition to and in conjunction with results presented in accordance with GAAP and free cash flow and adjusted free cash flow should not be relied upon to the exclusion of GAAP financial measures. Free cash flow and adjusted free cash flow reflect an additional way of viewing our liquidity that, when viewed with our 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 net cash provided by/used in operating activities minus cash paid for fixed assets. We define adjusted free cash flow as free cash flow minus cash paid for (i) significant product design changes; (ii) transaction related costs; or (iii) discrete expenses related to major cost cutting initiatives. We use free cash flow and adjusted free cash flow, and ratios based on both, 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 are a necessary component of ongoing operations. In limited circumstances in which proceeds from sales of fixed assets exceed purchases, free cash flow would exceed cash flow from operating activities. However, since we do not anticipate being a net seller of fixed assets, we expect free cash flow to be less than cash flows from operating activities.

Forward Looking Statements

This press release includes forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements relate to expectations for future financial performance, business strategies or expectations for our business. Specifically, forward-looking statements include statements in this press release regarding guidance, seasonality, product mix and gross profits and may include statements relating to:

• Inherent limitations of internal controls impacting financial statements

• Growth opportunities

• Future profitability

• Ability to expand market share

• Customer demand for certain products

• Economic conditions (including tariffs) that could affect fuel costs, commodity costs, industry size and financial conditions of our dealers and suppliers

• Labor or other constraints on the Company’s ability to maintain a competitive cost structure

• Volatility in the tax base and other funding sources that support the purchase of buses by our end customers

• Lower or higher than anticipated market acceptance for our products

• Other statements preceded by, followed by or that include the words “estimate,” “plan,” “project,” “forecast,” “intend,” “expect,” “anticipate,” “believe,” “seek,” “target” or similar expressions

These forward-looking statements are based on information available as of the date of this press release, 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. The factors described above, as well as risk factors described in reports filed with the SEC by us (available at www.sec.gov), could cause our actual results to differ materially from estimates or expectations reflected in such forward-looking statements.

Forward-looking statements in this document also may include, but are not limited to, statements regarding the pricing of the share repurchase, the potential tender offer by Blue Bird for shares of its common stock, and the benefits and timing of any potential tender offer. Many risks, contingencies and uncertainties could cause actual results to differ materially from Blue Bird’s forward-looking statements. Among these factors are the risk that Blue Bird may decide not to commence the tender offer, and that if Blue Bird does commence a tender offer, that the offer may not be completed.

Contact:

Mark Benfield

Investor Relations & Government Affairs

(478) 822-2315

Mark.Benfield@blue-bird.com

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BLUE BIRD CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands except for share data)	June 29, 2019				September 29, 2018
Assets
Current assets
Cash and cash equivalents	$	29,075			$	60,260
Accounts receivable, net	40,229				24,067
Inventories	140,688				57,333
Other current assets	12,036				8,183
Total current assets	$	222,028			$	149,843
Property, plant and equipment, net	94,727				66,054
Goodwill	18,825				18,825
Intangible assets, net	55,492				55,472
Equity investment in affiliate	12,281				11,123
Deferred tax assets	4,559				4,437
Other assets	466				1,676
Total assets	$	408,378		��	$	307,430
Liabilities and Stockholders' Deficit
Current liabilities
Accounts payable	$	135,902			$	95,780
Warranty	9,008				9,142
Accrued expenses	28,163				21,935
Deferred warranty income	8,408				8,159
Other current liabilities	15,691				3,941
Current portion of long-term debt	9,900				9,900
Total current liabilities	$	207,072			$	148,857
Long-term liabilities
Revolving credit facility	$	25,000			$	—
Long-term debt	175,479				132,239
Warranty	13,512				13,504
Deferred warranty income	15,177				15,032
Deferred tax liabilities	1,088				197
Other liabilities	12,402				4,924
Pension	19,834				21,013
Total long-term liabilities	$	262,492			$	186,909
Stockholders' deficit
Preferred stock, $0.0001 par value, 10,000,000 shares authorized, 0 and 93,000 issued with liquidation preference of $0 and $9,300 at June 29, 2019 and September 29, 2018, respectively	$	—			$	9,300
Common stock, $0.0001 par value, 100,000,000 shares authorized, 26,460,456 and 27,259,262 shares outstanding at June 29, 2019 and September 29, 2018, respectively	3				3
Additional paid-in capital	83,189				70,023
Accumulated deficit	(57,241		)		(69,235		)
Accumulated other comprehensive loss	(36,855		)		(38,427		)
Treasury stock, at cost, 1,782,568 and 0 shares at June 29, 2019 and September 29, 2018, respectively	(50,282		)		—
Total stockholders' deficit	$	(61,186	)		$	(28,336	)
Total liabilities and stockholders' deficit	$	408,378			$	307,430

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BLUE BIRD CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

	Three Months Ended						Nine Months Ended
(in thousands except for share data)	June 29, 2019			June 30, 2018			June 29, 2019			June 30, 2018
Net sales	$	308,774		$	314,186		$	675,342		$	693,363
Cost of goods sold	266,992			277,213			588,496			614,074
Gross profit	$	41,782		$	36,973		$	86,846		$	79,289
Operating expenses
Selling, general and administrative expenses	20,996			20,489			61,197			64,226
Operating profit	$	20,786		$	16,484		$	25,649		$	15,063
Interest expense	(3,369		)	(1,834		)	(10,241		)	(5,112		)
Interest income	—			25			9			42
Other expense, net	(410		)	(667		)	(1,034		)	(399		)
Income before income taxes	$	17,007		$	14,008		$	14,383		$	9,594
Income tax (expense) benefit	(3,248		)	7,485			(2,833		)	5,662
Equity in net income of non-consolidated affiliate	842			398			1,158			632
Net income	$	14,601		$	21,891		$	12,708		$	15,888
Earnings per share:
Net income (from above)	$	14,601		$	21,891		$	12,708		$	15,888
Less: preferred stock dividends	—			182			—			1,715
Net income available to common stockholders	$	14,601		$	21,709		$	12,708		$	14,173
Basic weighted average shares outstanding	26,451,107			26,209,697			26,449,751			24,677,838
Diluted weighted average shares outstanding	26,720,110			28,556,914			26,920,285			25,809,491
Basic earnings per share	$	0.55		$	0.83		$	0.48		$	0.57
Diluted earnings per share	$	0.55		$	0.77		$	0.47		$	0.55

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BLUE BIRD CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Nine Months Ended
(in thousands of dollars)	June 29, 2019			June 30, 2018
Cash flows from operating activities
Net income	$	12,708		$	15,888
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization	7,406			6,325
Non-cash interest expense	2,172			572
Share-based compensation	3,146			2,380
Equity in net income of affiliate	(1,158		)	(632		)
Loss on disposal of fixed assets	50			115
Deferred taxes	500			8,422
Amortization of deferred actuarial pension losses	2,068			2,640
Foreign currency hedges	109			(828		)
Changes in assets and liabilities:
Accounts receivable	(16,162		)	(12,422		)
Inventories	(83,355		)	(36,872		)
Other assets	(5,014		)	(1,502		)
Accounts payable	42,429			41,959
Accrued expenses, pension and other liabilities	15,988			(19,023		)
Total adjustments	$	(31,821	)	$	(8,866	)
Total cash (used in) provided by operating activities	$	(19,113	)	$	7,022
Cash flows from investing activities
Cash paid for fixed and acquired intangible assets	(30,154		)	(15,572		)
Proceeds from sale of fixed assets	—			12
Total cash used in investing activities	$	(30,154	)	$	(15,560	)
Cash flows from financing activities
Borrowings under the revolving credit facility	$	25,000		$	—
Borrowings under the senior term loan	50,000			—
Repayments under the senior term loan	(7,425		)	(6,000		)
Cash paid for capital leases	—			(118		)
Payment of dividends on preferred stock	—			(1,715		)
Cash paid for employee taxes on vested restricted shares and stock option exercises	(622		)	(571		)
Proceeds from exercises of warrants	1,499			15,114
Common stock repurchases under share repurchase programs	—			(18,864		)
Tender offer repurchase of common stock and preferred stock	(50,370		)	—
Total cash provided by (used in) financing activities	$	18,082		$	(12,154	)
Change in cash and cash equivalents	(31,185		)	(20,692		)
Cash and cash equivalents, beginning of period	60,260			62,616
Cash and cash equivalents, end of period	$	29,075		$	41,924

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Reconciliation of Net Income to Adjusted EBITDA

	Three Months Ended						Nine Months Ended
(in thousands of dollars)	June 29, 2019			June 30, 2018			June 29, 2019			June 30, 2018
Net income	$	14,601		$	21,891		$	12,708		$	15,888
Adjustments:
Discontinued operations income	—			—			—			(81		)
Interest expense, net (1)	3,472			1,809			10,544			5,070
Income tax expense (benefit)	3,248			(7,485		)	2,833			(5,662		)
Depreciation, amortization, and disposals (2)	2,750			2,203			7,989			6,483
Operational transformation initiatives	679			3,169			4,193			13,547
Foreign currency hedges	—			208			109			(828		)
Share-based compensation	1,101			870			3,146			2,380
Product redesign initiatives	3,075			1,497			6,876			4,526
Other	115			(10		)	62			(54		)
Adjusted EBITDA	$	29,041		$	24,152		$	48,460		$	41,269
Adjusted EBITDA margin (percentage of net sales)	9.4		%	7.7		%	7.2		%	6.0		%

(1) Includes $0.1 million and $0.3 million for the three and nine months ended June 29, 2019, 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 $0.2 million and $0.6 million for the three and nine months ended June 29, 2019, representing amortization charges on right-to-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.

Reconciliation of Free Cash Flow to Adjusted Free Cash Flow

	Three Months Ended						Nine Months Ended
(in thousands of dollars)	June 29, 2019			June 30, 2018			June 29, 2019			June 30, 2018
Net cash provided by (used in) operating activities	$	7,659		$	40,079		$	(19,113	)	$	7,022
Cash paid for fixed and acquired intangible assets	(7,448		)	(8,551		)	(30,154		)	(15,572		)
Free cash flow	$	211		$	31,528		$	(49,267	)	$	(8,550	)
Cash paid for product redesign initiatives	(3,075		)	(1,497		)	(6,876		)	(4,526		)
Cash paid for operational transformation initiatives	(679		)	(3,169		)	(4,193		)	(13,547		)
Adjusted free cash flow	3,965			36,194			(38,198		)	9,523

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Reconciliation of Net Income to Adjusted Net Income

	Three Months Ended					Nine Months Ended
(in thousands of dollars)	June 29, 2019		June 30, 2018			June 29, 2019		June 30, 2018
Net income	$	14,601	$	21,891		$	12,708	$	15,888
Adjustments, net of tax benefit or expense (1)
Operational transformation initiatives	509		2,377			3,145		10,160
Product redesign initiatives	2,306		1,123			5,157		3,395
Foreign currency hedges	—		156			82		(621		)
Share-based compensation	826		653			2,360		1,785
Discontinued operations income	—		—			—		(61		)
Other	86		(8		)	47		(41		)
Adjusted net income, non-GAAP	$	18,329	$	26,192		23,498		30,506
Less: preferred stock dividends	—		182			—		1,715
Adjusted net income available to common stockholders, non-GAAP	$	18,329	$	26,010		23,498		28,791

(1) Amounts are net of estimated statutory tax rates of 25%.

Reconciliation of Diluted EPS to Adjusted Diluted EPS

	Three Months Ended				Nine Months Ended
	June 29, 2019		June 30, 2018		June 29, 2019		June 30, 2018
Diluted earnings per share	$	0.55	$	0.77	$	0.47	$	0.55
One-time charge adjustments, net of tax benefit or expense	0.14		0.15		0.40		0.52
Adjusted diluted earnings per share, non-GAAP (1)	$	0.69	$	0.92	$	0.87	$	1.07
Weighted average dilutive shares outstanding (2)	26,720,110		28,556,914		26,920,285		28,600,959

(1) Numerator is adjusted net income, non-GAAP

(2) Weighted average dilutive shares outstanding excluded 2,791,468 shares for the nine months endedJune 30, 2018 as their effect would be anti-dilutive, but were included in the adjusted diluted earnings per share, non-GAAP calculation as their effect was dilutive.

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