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Item 2. Management’s Discussion and Analysis

2023-08-09 compared with 2023-05-11 · 148 added, 128 removed, 390 unchanged (41% of the section changed)

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 six months ended April 1, 2023 and April 2, 2022 and related notes appearing in Part I, Item 1 of this Quarterly Report on Form 10-Q ("Report").

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 1, 2023 and July 2, 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.

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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.

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 2022 Form 10-K, filed with the SEC on December 12, 2022.

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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" and the fiscal year ended October 2, 2021 as “fiscal 2021.” There will be or were 52 weeks in fiscal 2023, fiscal 2022 and fiscal 2021.

The second quarters of fiscal 2023 and fiscal 2022 both included 13 weeks.

The six month periods in fiscal 2023 and 2022 both included 26 weeks.

The third quarters of fiscal 2023 and fiscal 2022 both included 13 weeks.

The nine month periods in fiscal 2023 and 2022 both included 39 weeks.

Impacts of COVID-19 and Subsequent Supply Chain Constraints on Our Business

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These supply chain disruptions have had a significant adverse impact our operations and results 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 primarily during the latter half of fiscal 2021 and most of fiscal 2022.

or completing, as applicable, the production process for certain units that were otherwise scheduled to be delivered to customers during the year.

Specifically, management estimates that the sale of approximately 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 the year.

Including these units, the Company's backlog exceeded 4,200 units as of October 2, 2021.

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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 had a positive impact on sales and gross profit during the second quarter of fiscal 2023, which is expected to continue for the remainder of fiscal 2023, as the Company fulfills sales orders (i) from the backlog existing as of the end of fiscal 2022 and (ii) that are taken during fiscal 2023, both of which contained, or will contain, most or all of the cumulative sales prices increases that have been announced since July 2021.

New bus orders during the first half 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 5,700 units as of April 1, 2023 despite it selling over 4,200 units during the first half of fiscal 2023, most of which were included in the backlog that existed as of October 1, 2022.

However, they had a positive impact on sales and gross profit during the second and third quarters of fiscal 2023, which is expected to continue for the remainder of fiscal 2023, as the Company fulfills sales orders (i) from the backlog existing as of the end of fiscal 2022 and (ii) that are taken during fiscal 2023, both of which contained, or will contain, most or all of the cumulative sales prices increases that have been announced since July 2021.

New bus orders during fiscal 2023 remained 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 strong at approximately 5,200 units as of July 1, 2023 despite it selling almost 6,400 units during fiscal 2023, many of which were included in the backlog that existed as of October 1, 2022.

In general, management believes that supply chain disruptions could continue in future periods and could materially impact our results if we are unable to i) obtain parts and supplies in sufficient quantities to meet our production needs and/or ii) pass along rising costs to our customers.

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The COVID-19 pandemic and subsequent supply chain constraints have resulted, and could to continue to result, in significant economic disruption and have adversely affected our business.

They could continue to adversely impact our business for the remainder of fiscal 2023 and perhaps beyond.

They could adversely impact our business for the remainder of fiscal 2023 and perhaps beyond.

Significant uncertainty exists concerning the magnitude of the impact and duration of any future COVID-19 outbreaks and their potential impact on the overall economy, both within the 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 impacts from the COVID-19 pandemic and subsequent supply chain constraints on the Company's business and operations during the second half of fiscal 2020 and continuing through the first half of fiscal 2023 negatively affected our revenues, gross profit, income and cash flows.

The impacts from the COVID-19 pandemic and subsequent supply chain constraints on the Company's business and operations during the second half of fiscal 2020 and continuing into fiscal 2023 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 2023 and beyond.

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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 per ton the last week in September 2022.

During fiscal 2023, the decrease in the price of steel continued during the first quarter to $664 per ton the last week in December 2022 but began to increase significantly during the second quarter to $1,152 per ton the last week in March 2023 and continuing into April 2023 (source for all per ton prices:

During fiscal 2023, the decrease in the price of steel continued during the first quarter to $664 per ton the last week in December 2022 but began to increase significantly during the second quarter to $1,152 per ton the last week in March 2023 before slowly decreasing during the third quarter to $878 per ton the last week in June 2023 (source for all per ton prices:

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 up to six months 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 increased the price that they charge the Company to acquire such inventory, primarily on a lagged basis, during the latter half of fiscal 2022 and continuing into the first half of fiscal 2023.

These inventory costs impact gross profit when school buses are sold and cash flows when the related invoices are paid.

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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 as high as $5.810 per gallon the week ending June 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 $4.128 per gallon during the first half of fiscal 2023 (source:

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 as high as $5.810 per gallon the week ending June 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 $3.767 per gallon during the first three quarters of fiscal 2023 (source:

U.S Energy Information Administration - Weekly U.S.

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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 first half of fiscal 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 for the remainder of fiscal 2023 and perhaps beyond.

Because peace negotiations do not appear to be productive and because Russia has recently intensified its military operations in Ukraine, we currently believe that this matter will continue to adversely impact our business for the remainder of fiscal 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.

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Accordingly, the duration of any production and supply chain disruptions, and related financial impacts, cannot be estimated at this time.

Labor Union Representation Petition

In April 2023, the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied & Industrial Service Workers International Union, AFL-CIO, CLC ("USW") filed a petition with the National Labor Relations Board ("NLRB") seeking a representation election for the Company's full-time and regular part-time production, maintenance, quality control, and warehouse employees at the Company's Fort Valley and Macon (warehouse) facilities, with certain exceptions.

The election is expected to be held in mid-May 2023.

Labor Union Representation

On May 22, 2023, the National Labor Relations Board (“NLRB”) certified the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied & Industrial Service Workers International Union, AFL-CIO, CLC (“USW”) as the exclusive bargaining representative for a bargaining unit of the Company’s full-time and regular part-time production, maintenance, quality control, and warehouse employees at the Company’s Fort Valley and Macon, Georgia locations, with certain exceptions.

The bargaining unit consists of approximately 1,350 employees.

As a result, the Company is obligated to bargain with the USW as the bargaining representative for employees within the designated bargaining unit.

The Company has recently commenced bargaining sessions and thus, has not yet entered into any collective bargaining agreement as of July 1, 2023.

The Company's business is labor intensive.

As a result of the USW election, a large majority of our workforce is now represented by a labor union.

The Company expects to negotiate in good faith toward a collective bargaining agreement, and any such resulting agreement may cause it to incur higher labor costs for our employees than we would have incurred absent such agreement.

At this time, it is uncertain as to when and if an agreement with the USW will be reached.

As such, uncertainty exists regarding labor costs and labor actions, which may include increased labor costs, strikes, work stoppages, unfair labor practices claims and other disturbances and disputes.

Union actions that may occur in the future could cause disruptions to our operations and may cause us to incur additional costs, any of which could have a material adverse effect on our cash flow, results of operations and financial condition.

Critical Accounting Policies and Estimates, Recent Accounting Pronouncements

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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.

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 2022 Form 10-K, filed with the SEC on December 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 six months ended April 1, 2023.

Recent Accounting Pronouncements

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Seasonality and variations from historical seasonality have impacted the comparison of results between fiscal periods.

As discussed previously above, supply chain disruptions developing subsequent to the 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 first half of fiscal 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.

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Factors Affecting Our Expenses and Other Items

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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.

Other amounts not associated with operating expenses may also be included in this balance.

• Equity in net income or loss of non-consolidated affiliate .

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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.

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.

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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.

The 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 April 1, 2023 and April 2, 2022:

Consolidated Results of Operations for the Three Months Ended July 1, 2023 and July 2, 2022:

Three Months Ended

(in thousands of dollars) April 1, 2023 April 2, 2022

(in thousands of dollars) July 1, 2023 July 2, 2022

$ 294,284 $ 206,083

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Selling, general and administrative expenses 26,328 20,505

Operating profit (loss) $ 12,444 $ (16,701)

Operating profit $ 19,422 $ 1,088

Interest expense (4,507) (3,908)

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Income (loss) before income taxes $ 8,740 $ (2,085)

Income tax (expense) benefit (1,389) 7,415

Income tax expense (1,884) (2,860)

Equity in net income (loss) of non-consolidated affiliate 2,502 (1,490)

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Adjusted EBITDA margin

6.6 % (5.1) %

The following provides the results of operations of Blue Bird’s two reportable segments:

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Net Sales by Segment

April 1, 2023 April 2, 2022

July 1, 2023 July 2, 2022

$ 270,282 $ 186,631

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$ 45,750 $ 21,593

Net sales were $299.8 million for the second quarter of fiscal 2023, an increase of $92.2 million, or 44.4%, compared to $207.7 million for the second quarter of fiscal 2022.

Net sales were $294.3 million for the third quarter of fiscal 2023, an increase of $88.2 million, or 42.8%, compared to $206.1 million for the third quarter of fiscal 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.

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 throughout fiscal 2022.

However, during the first half of fiscal 2023, supply chain constraints began to improve slightly, allowing for increased production during the second quarter of fiscal 2023 relative to the second quarter of fiscal 2022.

However, during fiscal 2023, supply chain constraints began to improve slightly, allowing for increased production during the third quarter of fiscal 2023 relative to the third quarter of fiscal 2022.

Bus sales increased $83.7 million, or 44.8%, reflecting a 23.8% increase in units booked and a 17.0% increase in average sales price per unit.

In the second quarter of fiscal 2023, 2,304 units were booked compared to 1,931 units booked for the same period in fiscal 2022.

The increase in units sold was primarily due to constraints in the Company's ability to produce and deliver buses due to shortages of critical components in the second quarter of fiscal 2022.

The 21.6% increase in unit price for the second quarter of fiscal 2023 compared to the same period in fiscal 2022 reflects pricing actions taken by management as well as product and customer mix changes.

Parts sales increased $7.2 million, or 37.4%, for the second quarter of fiscal 2023 compared to the second quarter of fiscal 2022.

This increase is primarily attributed to pricing actions taken by management to offset increases in purchased parts costs and increased inventory availability as supply chain constraints began to improve slightly during the second quarter of fiscal 2023 relative to the second quarter of fiscal 2022.

In the third quarter of fiscal 2023, 2,137 units were booked compared to 1,726 units booked for the same period in fiscal 2022.

The increase in units sold was primarily due to constraints in the Company's ability to produce and deliver buses due to shortages of critical components in the third quarter of fiscal 2022.

The 17.0% increase in unit price for the third quarter of fiscal 2023 compared to the same period in fiscal 2022 reflects pricing actions taken by management as well as product and customer mix changes.

Parts sales increased $4.6 million, or 23.4%, for the third quarter of fiscal 2023 compared to the third quarter of fiscal 2022.

This increase is primarily attributed to pricing actions taken by management to offset increases in purchased parts costs and increased inventory availability as supply chain constraints began to improve during the third quarter of fiscal 2023 relative to the third quarter of fiscal 2022.

Cost of goods sold .

Total cost of goods sold was $264.2 million for the second quarter of fiscal 2023, an increase of $59.7 million, or 29.2%, compared to $204.5 million for the second quarter of fiscal 2022.

Total cost of goods sold was $248.5 million for the third quarter of fiscal 2023, an increase of $64.0 million, or 34.7%, compared to $184.5 million for the third quarter of fiscal 2022.

As a percentage of net sales, total cost of goods sold improved from 89.5% to 84.5%.

Bus segment cost of goods sold increased $57.9 million, or 30.1%, for the second quarter of fiscal 2023 compared to the same period in fiscal 2022.

The increase was primarily driven by the 19.3% increase in units booked, in the second 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 second quarter of fiscal 2023 was 9.0% higher compared to the second quarter of fiscal 2022, 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.

The $1.8 million, or 14.6%, increase in parts segment cost of goods sold for the second quarter of fiscal 2023 compared to the second quarter of fiscal 2022 was primarily due to increased purchased parts costs, driven by ongoing inflationary pressures and supply chain disruptions, as well as slight variations due to product and channel mix.

Operating profit (loss) .

Operating profit was $12.4 million for the second quarter of fiscal 2023, an increase of $29.1 million, compared to operating loss of $16.7 million for the second quarter of fiscal 2022.

Bus segment cost of goods sold increased $63.1 million, or 36.5%, for the third quarter of fiscal 2023 compared to the same period in fiscal 2022.

The increase was primarily driven by the 23.8% increase in units booked in the third 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 third quarter of fiscal 2023 was 10.2% higher compared to the third quarter of fiscal 2022, 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.

The $0.9 million, or 8.2%, increase in parts segment cost of goods sold for the third quarter of fiscal 2023 compared to the third quarter of fiscal 2022 was primarily due to increased purchased parts costs, driven by ongoing inflationary pressures and supply chain disruptions, as well as slight variations due to product and channel mix.

Operating profit .

Operating profit was $19.4 million for the third quarter of fiscal 2023, an increase of $18.3 million, compared to operating profit of $1.1 million for the third quarter of fiscal 2022.

Profitability was primarily impacted by an increase of $24.2 million in gross profit as outlined in the revenue and cost of goods sold discussions.

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Interest expense .

Interest expense was $5.2 million for the second quarter of fiscal 2023, an increase of $2.7 million, or 108.4%, compared to $2.5 million for the second quarter of fiscal 2022.

The increase was primarily attributable to an increase in the stated term loan interest rate from 6.1% at April 2, 2022 to 10.5% at April 1, 2023.

Interest expense was $4.5 million for the third quarter of fiscal 2023, an increase of $0.6 million, or 15.3%, compared to $3.9 million for the third quarter of fiscal 2022.

The increase was primarily attributable to an increase in the stated term loan interest rate from 7.9% at July 2, 2022 to 11.1% at July 1, 2023, which was partially offset by lower borrowings.

Other expense/income, net.

Other expense, net, was $6.4 million for the third quarter of fiscal 2023, an increase of $7.2 million, or 973.6%, compared to $0.7 million of other income, net, for the same period in fiscal 2022.

We recorded $0.2 million of net periodic pension expense during the third quarter of fiscal 2023 when compared with $0.7 million of net periodic pension income recorded during the third quarter of fiscal 2022.

Additionally, on June 7, 2023, the Company entered into an underwriting agreement with BofA Securities, Inc.

and Barclays Capital Inc., as representatives of the several underwriters and American Securities LLC, Coliseum Capital Partners, L.P., and Blackwell Partners LLC – Series A ("Selling Stockholders"), pursuant to which the Selling Stockholders agreed to sell 5,175,000 shares of common stock, including the sale of 675,000 shares pursuant to the underwriters’ exercise of their over-allotment option, at a purchase price of $20.00 per share (“Offering”).

The Offering was conducted pursuant to a prospectus supplement, dated June 7, 2023, to the prospectus, dated December 22, 2021, included in the Company’s registration statement on Form S-3 (File No.

333-261858) that was initially filed with the SEC on December 23, 2021.

The Offering closed on June 12, 2023.

Although the Company did not sell any shares or receive any proceeds from the Offering.

it was required to pay certain expenses in connection with the Offering that totaled $6.3 million (approximately $0.7 million of which were expensed in the second quarter of fiscal 2023 within selling, general and administrative expenses and reclassified to other expense, net, during the third quarter of fiscal 2023), with no similar expense recorded during the same period of fiscal 2022.

Income taxes .

Income tax expense was $1.4 million for the second quarter of fiscal 2023, compared to income tax benefit of $7.4 million for the same period in fiscal 2022.

The effective tax rate for the three months ended April 1, 2023 was 20.1%, 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 April 2, 2022 was 40.2%, which differed from the statutory federal income tax rate of 21%.

The difference was mainly due to normal tax rate items, including impacts from state taxes and federal and state tax credits (net of valuation allowances), which were partially offset by discrete period tax expense resulting from net non-deductible compensation expenses and other tax adjustments.

Income tax expense was $1.9 million for the third quarter of fiscal 2023 compared to $2.9 million for the same period in fiscal 2022.

The effective tax rate for the three months ended July 1, 2023 was 21.6%, which aligned with the statutory federal income tax rate of 21% and is comprised of normal tax rate items, including impacts from state taxes, federal and state tax credits (net of valuation allowances) and permanent differences, which were partially offset by the impact of discrete period items during the quarter.

The effective tax rate for the three months ended July 2, 2022 was (137.2)%, 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.

Adjusted EBITDA .

Adjusted EBITDA was $19.8 million, or 6.6% of net sales, for the second quarter of fiscal 2023, an increase of $30.5 million, or 285.6%, compared to $(10.7) million, or (5.1)% of net sales, for the second quarter of fiscal 2022.

The increase in Adjusted EBITDA is primarily the result of the $19.3 million increase in net income and the related $8.8 million increase in income tax expense, as well as the $2.7 million increase in interest expense, as a result of the factors discussed above.

Adjusted EBITDA was $28.0 million, or 9.5% of net sales, for the third quarter of fiscal 2023, an increase of $19.2 million, or 218.6%, compared to $8.8 million, or 4.3% of net sales, for the third quarter of fiscal 2022.

The increase in Adjusted EBITDA is primarily the result of the $15.8 million increase in net income as a result of the factors discussed above as well as a $1.8 million increase in depreciation, amortization, and disposals and a $5.5 million increase in stockholder transaction costs, which were

partially offset by a $3.9 million decrease in operational transformation initiative costs that we incurred in fiscal 2022 to address the supply chain constraints that were having a significant adverse impact on our operations and financial results, with only minor amounts of such activity recorded during fiscal 2023.

The following table sets forth a reconciliation of net income (loss) to Adjusted EBITDA for the periods presented:

Three Months Ended

(in thousands of dollars) April 1, 2023 April 2, 2022

(in thousands of dollars) July 1, 2023 July 2, 2022

Net income (loss) $ 9,358 $ (6,435)

Interest expense, net (1) 4,353 3,976

Income tax expense (benefit) 1,389 (7,415)

Income tax expense 1,884 2,860

Depreciation, amortization, and disposals (2) 5,481 3,642

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Product redesign initiatives — 15

Other 1,024 8

Stockholder transaction costs 5,509 —

Adjusted EBITDA

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Adjusted EBITDA margin (percentage of net sales)

6.6 % (5.1) %

(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 the three months ended April 1, 2023 and April 2, 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.

Consolidated Results of Operations for the Six Months Ended April 1, 2023 and April 2, 2022:

Six Months Ended

(in thousands of dollars) April 1, 2023 April 2, 2022

(2) Includes $0.5 million and $0.2 million for the three months ended July 1, 2023 and July 2, 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.

Consolidated Results of Operations for the Nine Months Ended July 1, 2023 and July 2, 2022:

Nine Months Ended

(in thousands of dollars) July 1, 2023 July 2, 2022

$ 829,830 $ 542,965

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Loss on debt modification (537) (561)

Loss before income taxes $ (7,422) $ (23,391)

Income tax benefit 1,592 9,177

Income (loss) before income taxes $ 1,318 $ (25,476)

Income tax (expense) benefit (292) 6,317

Equity in net income (loss) of non-consolidated affiliate 4,168 (3,505)

Net loss $ (4,164) $ (16,229)

Net income (loss) $ 5,194 $ (22,664)

Other financial data:

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Adjusted EBITDA margin

2.9 % (2.1) %

The following provides the results of operations of Blue Bird’s two reportable segments:

(in thousands of dollars) Six Months Ended

Net Sales by Segment April 1, 2023 April 2, 2022

(in thousands of dollars) Nine Months Ended

Net Sales by Segment July 1, 2023 July 2, 2022

$ 757,003 $ 487,552

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$ 88,856 $ 40,947

Net sales were $535.5 million for the six months ended April 1, 2023, an increase of $198.7 million, or 59.0%, compared to $336.9 million for the six months ended April 2, 2022.

Net sales were $829.8 million for the nine months ended July 1, 2023, an increase of $286.9 million, or 52.8%, compared to $543.0 million for the nine months ended July 2, 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.

However, during the first half of fiscal 2023, supply chain constraints began to improve slightly, allowing for increased production relative to the first half of fiscal 2022.

However, during fiscal 2023, supply chain constraints began to improve slightly, allowing for increased production relative to the first three quarters of fiscal 2022.

Bus sales increased $269.5 million, or 55.3%, reflecting a 33.1% increase in units booked and a 16.6% increase in average sales price per unit.

4,261 units booked in the six months ended April 1, 2023 compared with 3,080 units booked during the same period in fiscal 2022.

The increase in units sold was primarily due to constraints in the Company's ability to produce and deliver buses due to shortages of critical components in the first half of fiscal 2022.

The increase in unit price for the first half of fiscal 2023 compared to the same period in fiscal 2022 reflects pricing actions taken by management as well as product and customer mix changes.

Parts sales increased $12.9 million, or 35.8%, for the six months ended April 1, 2023 compared to the six months ended April 2, 2022.

This increase is primarily attributed to pricing actions taken by management to offset increases in purchased parts costs and increased inventory availability as supply chain constraints began to improve slightly during the first half of fiscal 2023 relative to the first half of fiscal 2022.

6,398 units booked in the nine months ended July 1, 2023 compared with 4,806 units booked during the same period in fiscal 2022.

The increase in units sold was primarily due to constraints in the Company's ability to produce and deliver buses due to shortages of critical components in the first three quarters of fiscal 2022.

The increase in unit price for the first three quarters of fiscal 2023 compared to the same period in fiscal 2022 reflects pricing actions taken by management as well as product and customer mix changes.

Parts sales increased $17.4 million, or 31.4%, for the nine months ended July 1, 2023 compared to the nine months ended July 2, 2022.

This increase is primarily attributed to pricing actions taken by management to offset increases in purchased parts costs and increased inventory availability as supply chain constraints began to improve slightly during fiscal 2023 relative to the first three quarters of fiscal 2022.

Cost of goods sold .

Total cost of goods sold was $492.4 million for the six months ended April 1, 2023, an increase of $174.9 million, or 55.1%, compared to $317.5 million for the six months ended April 2, 2022.

As a percentage of net sales, total cost of goods sold decreased from 94.3% to 92.0%.

Bus segment cost of goods sold increased $172.1 million, or 58.3%, for the six months ended April 1, 2023 compared to the six months ended April 2, 2022.

The increase was primarily driven by the 38.3% increase in units booked in the six months ended April 1, 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 six months ended April 1, 2023 was 14.4% higher compared to the six months ended April 2, 2022, 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.

The $2.8 million, or 12.7%, increase in parts segment cost of goods sold for the six months ended April 1, 2023 compared to the six months ended April 2, 2022 was primarily due to increased purchased parts costs, driven by ongoing inflationary pressures and supply chain disruptions, as well as slight variations due to product and channel mix.

Total cost of goods sold was $741.0 million for the nine months ended July 1, 2023, an increase of $239.0 million, or 47.6%, compared to $502.0 million for the nine months ended July 2, 2022.

As a percentage of net sales, total cost of goods sold improved from 92.5% to 89.3%.

Bus segment cost of goods sold increased $235.2 million, or 50.2%, for the nine months ended July 1, 2023 compared to the nine months ended July 2, 2022.

The increase was primarily driven by the 33.1% increase in units booked in the nine months ended July 1, 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 nine months ended July 1, 2023 was 12.9% higher compared to the nine months ended July 2, 2022, 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.

The $3.8 million, or 11.1%, increase in parts segment cost of goods sold for the nine months ended July 1, 2023 compared to the nine months ended July 2, 2022 was primarily due to increased purchased parts costs, driven by ongoing inflationary pressures and supply chain disruptions, as well as slight variations due to product and channel mix.

Operating profit (loss) .

Operating profit was $3.1 million for the six months ended April 1, 2023, an increase of $21.8 million compared to operating loss of $18.7 million for the six months ended April 2, 2022.

Operating profit was $22.5 million for the nine months ended July 1, 2023, an increase of $40.1 million compared to operating loss of $17.6 million for the nine months ended July 2, 2022.

Profitability was primarily impacted by an increase of $47.9 million in gross profit as outlined in the revenue and cost of goods sold discussions.

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Interest expense .

Interest expense was $9.4 million for the six months ended April 1, 2023, an increase of $3.8 million, or 68.5%, compared to $5.6 million for the six months ended April 2, 2022.

The increase was primarily attributable to an increase in the stated term loan interest rate from 6.1% at April 2, 2022 to 10.5% at April 1, 2023.

Interest expense was $13.9 million for the nine months ended July 1, 2023, an increase of $4.4 million, or 46.6%, compared to $9.5 million for the nine months ended July 2, 2022.

The increase was primarily attributable to an increase in the stated term loan interest rate from 7.9% at July 2, 2022 to 11.1% at July 1, 2023, which was partially offset by lower borrowings.

Other expense/income, net.

Other expense, net, was $7.0 million for the nine months ended July 1, 2023, an increase of $9.2 million, or 416.0%, compared to $2.2 million of other income, net, for the nine months ended July 2, 2022.

We recorded $0.5 million of net

periodic pension expense during the nine months ended July 1, 2023 when compared with $2.2 million of net periodic pension income recorded during the nine months ended July 2, 2022.

Additionally, we were required to pay certain expenses in connection with the Offering that totaled $6.3 million during the nine months ended July 1, 2023, with no similar expense recorded during the same period of fiscal 2022.

Income taxes .

Income tax benefit was $1.6 million and $9.2 million for the six months ended April 1, 2023 and April 2, 2022, respectively.

The effective tax rate for the six months ended April 1, 2023 was 21.4%, which aligned with the statutory federal 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 period.

The effective tax rate for the six months ended April 2, 2022 was 39.2%, which differed from the statutory federal income tax rate of 21%.

Income tax expense was $0.3 million for the nine months ended July 1, 2023 compared to income tax benefit of $6.3 million for the nine months ended July 2, 2022.

The effective tax rate for the nine months ended July 1, 2023 was 22.2%, which aligned with the statutory federal tax rate of 21% and is comprised of normal tax rate items, including impacts from state taxes, federal and state tax credits (net of valuation allowances) and permanent items, which were partially offset by the impact of discrete period items during the period.

The effective tax rate for the nine months ended July 2, 2022 was 24.8%, 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 and federal and state tax credits (net of valuation allowances), which were partially offset by discrete period tax expense resulting from net non-deductible compensation expenses and other tax adjustments.

Adjusted EBITDA .

Adjusted EBITDA was $15.6 million, or 2.9% of net sales, for the six months ended April 1, 2023, an increase of $22.7 million, or 319.9%, compared to $(7.1) million, or (2.1)% of net sales, for the six months ended April 2, 2022.

The increase in Adjusted EBITDA is primarily the result of the $12.1 million decrease in net loss and the related $7.6 million decrease in income tax benefit, as well as the $3.8 million increase in interest expense, as a result of the factors discussed above.

The following table sets forth a reconciliation of net loss to adjusted EBITDA for the periods presented:

Six Months Ended

(in thousands of dollars) April 1, 2023 April 2, 2022

Net loss $ (4,164) $ (16,229)

Adjusted EBITDA was $43.6 million, or 5.3% of net sales, for the nine months ended July 1, 2023, an increase of $41.9 million, or 2,463.8%, compared to $1.7 million, or 0.3% of net sales, for the nine months ended July 2, 2022.

The increase in Adjusted EBITDA is primarily the result of the $27.9 million increase in net income and the related $6.6 million increase in income tax expense, as well as a $4.4 million increase in interest expense, as a result of the factors discussed above.

Additionally, it was further impacted by a $2.7 million increase in depreciation, amortization, and disposals and a $6.3 million increase in stockholder transaction costs, which were partially offset by a $4.5 million decrease in operational transformation initiative costs that we incurred in fiscal 2022 to address the supply chain constraints that were having a significant adverse impact on our operations and financial results, with only minor amounts of such activity recorded during fiscal 2023.

The following table sets forth a reconciliation of net income (loss) to Adjusted EBITDA for the periods presented:

Nine Months Ended

(in thousands of dollars) July 1, 2023 July 2, 2022

Net income (loss) $ 5,194 $ (22,664)

Interest expense, net (1) 13,923 9,696

Income tax benefit (1,592) (9,177)

Income tax expense (benefit) 292 (6,317)

Depreciation, amortization, and disposals (2) 13,477 10,787

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Product redesign initiatives — 549

Stockholder transaction costs 6,252 —

Other 574 285

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Adjusted EBITDA margin (percentage of net sales) 5.3 % 0.3 %

(1) Includes $0.2 million and $0.1 million for the six months ended April 1, 2023 and April 2, 2022, respectively, 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 $0.9 million and $0.4 million for the six months ended April 1, 2023 and April 2, 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.

(1) Includes $0.3 million and $0.2 million for the nine months ended July 1, 2023 and July 2, 2022, respectively, 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 $1.3 million and $0.6 million for the nine months ended July 1, 2023 and July 2, 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.

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 April 1, 2023, the Company had $17.8 million of available cash (net of outstanding checks) and $83.7 million of additional borrowings available under the revolving line of credit portion of its credit facility.

At July 1, 2023, the Company had $50.5 million of available cash (net of outstanding checks) and $83.7 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.

Sixth Amendment to the Credit Agreement

On November 21, 2022, BBBC (as "Borrower") executed a sixth amendment to the Credit Agreement, dated as of December 12, 2016 ("Credit Agreement");

On November 21, 2022, Blue Bird Body Company ("BBBC," as "Borrower") executed a sixth amendment to the Credit Agreement, dated as of December 12, 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"), the third amendment to the Credit Agreement, dated as of December 4, 2020 (the "Third Amended Credit Agreement");

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and as further amended by the sixth amendment (the "Sixth Amended Credit Agreement" and collectively, the "Amended Credit Agreement").

The Sixth 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 Sixth 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.

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Additionally, the financial performance covenant requiring that school bus units manufactured by the Company (“Units”) not fall below certain pre-set thresholds 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 $50.0 million during the Amended Limited Availability Period:

The Units Covenant is triggered only if the

Company’s liquidity for the most-recently ended fiscal month is less than $50.0 million during the Amended Limited Availability Period:

Period Minimum Units Manufactured

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Detailed descriptions of the Credit Agreement as well as the First, Second, Third, Fourth, and Fifth 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 1, 2022, filed with the SEC on December 12, 2022.

At April 1, 2023, the Borrower and the guarantors under the Amended Credit Agreement were in compliance with all covenants.

At July 1, 2023, 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 adverse impacts from ongoing 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 into 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 half of fiscal 2023.

However, the higher costs charged by suppliers to procure inventory continued into the first half of fiscal 2023 and had a significant adverse impact on our operations and results.

Our ability to make principal and interest payments on borrowings under our credit facility 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 adverse impacts from ongoing 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.

However, the higher costs charged by suppliers to procure inventory that continued into fiscal 2023 had a significant adverse impact on our operations and results.

Specifically, such cost increases outpaced the increases in sales prices that we charged for the buses that were sold during the first quarter of fiscal 2023, many of which were included in the backlog of fixed price sales orders originating in fiscal 2021 and the early months of fiscal 2022 that carried forward into fiscal 2023.

During the second quarter of fiscal 2023, the buses that were sold were generally included in the backlog of fixed price sales orders originating more recently (i.e., the latter months of fiscal 2022 and in fiscal 2023), with the cumulative increases in sales prices we charged for those buses generally outpacing the higher costs we paid to procure inventory, resulting in gross profit during the quarter.

However, the gross margin on bus sales during the second quarter of

fiscal 2023 still lags the historical gross margin reported prior to the COVID-19 pandemic.

During the second and third quarters of fiscal 2023, the buses that were sold were generally included in the backlog of fixed price sales orders originating more recently (i.e., the latter months of fiscal 2022 and in fiscal 2023), with the cumulative increases in sales prices we charged for those buses generally outpacing the higher costs we paid to procure inventory, resulting in gross profit during the quarters.

While the gross margin on bus sales during the second quarter of fiscal 2023 lagged the historical gross margin reported prior to the COVID-19 pandemic, it returned to more normal historical levels during the third quarter of fiscal 2023.

The development and fluidity of ongoing 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.

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The following table sets forth general information derived from our Condensed Consolidated Statements of Cash Flows:

Six Months Ended

(in thousands of dollars) April 1, 2023 April 2, 2022

Nine Months Ended

(in thousands of dollars) July 1, 2023 July 2, 2022

Cash, cash equivalents and restricted cash at beginning of period $ 10,479 $ 11,709

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Total cash provided by (used in) operating activities

Cash flows provided by operating activities totaled $44.7 million for the six months ended April 1, 2023, an increase of $56.1 million from the $11.4 million of cash flows used in operating activities during the six months ended April 2, 2022.

The increase was primarily due to $44.3 million, $9.8 million, and $7.5 million increases in cash provided by favorable changes in inventory, accrued expenses, pension and other liabilities, and deferred income tax benefit, respectively, as well as the $12.1 million decrease in net loss.

At the end of fiscal 2022 and during the first half of fiscal 2023, 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 half of fiscal 2023 when compared with the first half 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 second 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 $10.8 million decrease in cash provided by changes in accounts payable, $3.7 million increase in equity in net income of non-consolidated affiliate, $1.7 million decrease in non-cash interest expense, $1.4 million decrease in impairment of fixed assets, and $1.2 million decrease in share-based compensation expense.

Cash flows provided by operating activities totaled $84.1 million for the nine months ended July 1, 2023, an increase of $138.6 million from the $54.5 million of cash flows used in operating activities during the nine months ended July 2, 2022.

The increase was primarily due to $105.3 million, $33.0 million, $4.1 million, $2.0 million, and $6.8 million increases in cash provided by favorable changes in inventory, accrued expenses, pension and other liabilities, accounts receivable, depreciation and amortization, and deferred income tax expense, respectively, as well as the $27.9 million increase in net income.

At the end of fiscal 2022 and continuing into fiscal 2023, we became more efficient at managing supply chain disruptions, and thus building and selling buses.

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 third 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 $28.3 million decrease in cash resulting from changes in accounts payable, $7.7 million increase in equity in net income of non-consolidated affiliate, $2.0 million decrease in non-cash interest expense, and $1.4 million decrease in impairment of fixed assets.

Total cash used in investing activities

Cash flows used in investing activities totaled $3.7 million for the six months ended April 1, 2023, as compared to $3.5 million for the six months ended April 2, 2022.

The $0.3 million increase was primarily due to a reduction in spending on fixed assets to mitigate the ongoing impact of supply chain constraints on our operations, financial results and cash flows.

Cash flows used in investing activities totaled $6.4 million for the nine months ended July 1, 2023, as compared to $4.7 million for the nine months ended July 2, 2022.

The $1.6 million increase was primarily due to an increase in spending on fixed assets, as increased profitability in the first three quarters of fiscal 2023 compared to the same period in fiscal 2022 allowed for more capital spending.

During this period in fiscal 2022, capital spending was reduced to lower than normal amounts in an effort to mitigate the impact of supply chain constraints on our operations, financial results and cash flows.

Total cash (used in) provided by financing activities

Cash flows used in financing activities totaled $33.4 million for the six months ended April 1, 2023, as compared to $18.0 million of cash flows provided by financing activities for the six months ended April 2, 2022.

The $51.5 million difference between fiscal periods was primarily attributable to $75.0 million of proceeds received from the issuance and sale of common stock in a private placement transaction during the first half of fiscal 2022 with no similar activity in the corresponding period of fiscal 2023.

This cash inflow was partially offset by a net $25.0 million decrease (i.e., repayments) in revolving credit facility borrowings in the six months ended April 1, 2023 compared to the six months ended April 2, 2022.

Cash flows used in financing activities totaled $37.5 million for the nine months ended July 1, 2023 as compared to $74.0 million of cash flows provided by financing activities for the nine months ended July 2, 2022.

The $111.5 million difference between fiscal periods was primarily attributable to $75.0 million of proceeds received from the issuance and sale of common stock in a private placement transaction during the first three quarters of fiscal 2022 with no similar activity in the corresponding period of fiscal 2023, as well as a net $35.0 million decrease (i.e., repayments) in revolving credit facility borrowings in the nine months ended July 1, 2023 compared to the nine months ended July 2, 2022.

Free cash flow

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The following table sets forth the calculation of Free Cash Flow for the periods presented:

Six Months Ended

(in thousands of dollars) April 1, 2023 April 2, 2022

Nine Months Ended

(in thousands of dollars) July 1, 2023 July 2, 2022

Net cash provided by (used in) operating activities $ 84,131 $ (54,451)

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$ 77,741 $ (59,199)

Free Cash Flow for the six months ended April 1, 2023 was $55.9 million higher than the six months ended April 2, 2022, due to a $56.1 million increase in cash provided by (used in) operating activities, as well as an increase of $0.3 million in cash paid for fixed assets, both as discussed above.

Free Cash Flow for the nine months ended July 1, 2023 was $136.9 million higher than the nine months ended July 2, 2022, due to a $138.6 million increase in cash provided by (used in) operating activities, which was partially offset by an increase of $1.6 million in cash paid for fixed assets, both as discussed above.

Off-Balance Sheet Arrangements

We had outstanding letters of credit totaling $6.3 million at April 1, 2023, the majority of which secure our self-insured workers compensation program, the collateral for which is regulated by the State of Georgia.

We had outstanding letters of credit totaling $6.3 million at July 1, 2023, the majority of which secure our self-insured workers compensation program, the collateral for which is regulated by the State of Georgia.

Quantitative and Qualitative Disclosures About Mar ket Risk.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis