Blue Bird Corp 10-Q

Item 1. Financial Statements (Unaudited) BLUE BIRD CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (in thousands of dollars, except for share data) December 30, 2023 September 30, 2023 Assets Current assets Cash and cash equivalents $ 77,296 $ 78,988 Accounts receivable, net 11,107 12,574 Inventories 142,457 135,286 Other current assets 12,485 9,215 Total current assets $ 243,345 $ 236,063 Property, plant and equipment, net $ 95,563 $ 95,101 Goodwill 18,825 18,825 Intangible assets, net 44,956 45,424 Equity investment in affiliate 24,007 17,619 Deferred tax assets 1,001 2,182 Finance lease right-of-use assets 858 1,034 Other assets 2,723 1,518 Total assets $ 431,278 $ 417,766 Liabilities and Stockholders' Equity Current liabilities Accounts payable $ 113,911 $ 137,140 Warranty 6,601 6,711 Accrued expenses 32,454 32,894 Deferred warranty income 8,351 8,101 Finance lease obligations 980 583 Other current liabilities 20,500 24,391 Current portion of long-term debt 5,000 19,800 Total current liabilities $ 187,797 $ 229,620 Long-term liabilities Revolving credit facility $ 36,220 $ — Long-term debt 93,486 110,544 Warranty 8,682 8,723 Deferred warranty income 15,767 15,022 Deferred tax liabilities 2,516 2,513 Finance lease obligations 445 987 Other liabilities 8,522 7,955 Pension 2,266 2,404 Total long-term liabilities $ 167,904 $ 148,148 Guarantees, commitments and contingencies (Note 6) Stockholders' equity Preferred stock, $ 0.0001 par value, 10,000,000 shares authorized, 0 shares outstanding at December 30, 2023 and September 30, 2023 $ — $ — Common stock, $ 0.0001 par value, 100,000,000 shares authorized, 32,198,592 and 32,165,225 shares outstanding at December 30, 2023 and September 30, 2023, respectively 3 3 Additional paid-in capital 187,159 177,861 Accumulated deficit ( 29,550 ) ( 55,700 ) Accumulated other comprehensive loss ( 31,753 ) ( 31,884 ) Treasury stock, at cost, 1,782,568 shares at December 30, 2023 and September 30, 2023 ( 50,282 ) ( 50,282 ) Total stockholders' equity $ 75,577 $ 39,998 Total liabilities and stockholders' equity $ 431,278 $ 417,766 The accompanying notes are an integral part of these condensed consolidated financial statements. 2 BLUE BIRD CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended (in thousands of dollars except for share data) December 30, 2023 December 31, 2022 Net sales $ 317,660 $ 235,732 Cost of goods sold 254,102 228,275 Gross profit $ 63,558 $ 7,457 Operating expenses Selling, general and administrative expenses 25,602 16,832 Operating profit (loss) $ 37,956 $ ( 9,375 ) Interest expense ( 3,631 ) ( 4,196 ) Interest income 1,088 — Other expense, net ( 1,221 ) ( 236 ) Loss on debt refinancing or modification ( 1,558 ) ( 537 ) Income (loss) before income taxes $ 32,634 $ ( 14,344 ) Income tax (expense) benefit ( 8,446 ) 2,981 Equity in net income of non-consolidated affiliate 1,962 69 Net income (loss) $ 26,150 $ ( 11,294 ) Earnings (loss) per share: Basic weighted average shares outstanding 32,170,779 32,026,311 Diluted weighted average shares outstanding 32,429,127 32,026,311 Basic earnings (loss) per share $ 0.81 $ ( 0.35 ) Diluted earnings (loss) per share $ 0.81 $ ( 0.35 ) The accompanying notes are an integral part of these condensed consolidated financial statements. 3 BLUE BIRD CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited) Three Months Ended (in thousands of dollars) December 30, 2023 December 31, 2022 Net income (loss) $ 26,150 $ ( 11,294 ) Other comprehensive income, net of tax: Net change in defined benefit pension plan 131 227 Total other comprehensive income $ 131 $ 227 Comprehensive income (loss) $ 26,281 $ ( 11,067 ) The accompanying notes are an integral part of these condensed consolidated financial statements. 4 BLUE BIRD CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Three Months Ended (in thousands of dollars) December 30, 2023 December 31, 2022 Cash flows from operating activities Net income (loss) $ 26,150 $ ( 11,294 ) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization expense 3,618 3,361 Non-cash interest expense 132 417 Share-based compensation expense 2,051 589 Equity in net income of non-consolidated affiliate ( 1,962 ) ( 69 ) Dividend from equity investment in affiliate 2,991 — Loss on disposal of fixed assets 4 — Deferred income tax expense (benefit) 1,143 ( 2,986 ) Amortization of deferred actuarial pension losses 172 299 Loss on debt refinancing or modification 1,558 537 Changes in assets and liabilities: Accounts receivable 1,467 3,409 Inventories ( 7,171 ) 13,857 Other assets ( 3,095 ) ( 5,227 ) Accounts payable ( 23,103 ) 16,572 Accrued expenses, pension and other liabilities ( 3,738 ) 461 Total adjustments $ ( 25,933 ) $ 31,220 Total cash provided by operating activities $ 217 $ 19,926 Cash flows from investing activities Cash paid for fixed assets $ ( 2,904 ) $ ( 1,146 ) Proceeds from sale of fixed assets — — Total cash used in investing activities $ ( 2,904 ) $ ( 1,146 ) Cash flows from financing activities Revolving credit facility borrowings (Note 4) $ 36,220 $ 5,000 Revolving credit facility repayments — ( 20,000 ) Term loan borrowings - new credit agreement (Note 4) 100,000 — Term loan repayments - previous credit agreement (Note 4) ( 131,800 ) ( 4,950 ) Principal payments on finance leases ( 145 ) ( 141 ) Cash paid for debt costs (Note 4) ( 3,128 ) ( 3,211 ) Repurchase of common stock in connection with stock award exercises ( 301 ) ( 57 ) Cash received from stock option exercises 149 — Total cash provided by (used in) financing activities $ 995 $ ( 23,359 ) Change in cash, cash equivalents, and restricted cash ( 1,692 ) ( 4,579 ) Cash, cash equivalents, and restricted cash at beginning of period 78,988 10,479 Cash, cash equivalents, and restricted cash at end of period $ 77,296 $ 5,900 5 Three Months Ended (in thousands of dollars) December 30, 2023 December 31, 2022 Supplemental disclosures of cash flow information Cash paid or received during the period: Interest paid, net of interest received $ 1,807 $ 3,170 Income tax paid (received), net of tax refunds 2 ( 90 ) Non-cash investing and financing activities: Changes in accounts payable for capital additions to property, plant and equipment $ 953 $ 672 Accrue debt modification costs — 61 Right-of-use assets obtained in exchange for operating lease obligations 1,241 199 Warrants issued for equity investment in affiliate 7,416 — The accompanying notes are an integral part of these condensed consolidated financial statements. 6 BLUE BIRD CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (Unaudited) Three Months Ended (in thousands of dollars, except for share data) Common Stock Convertible Preferred Stock Treasury Stock Shares Par Value Additional Paid-In-Capital Shares Amount Accumulated Other Comprehensive Loss Accumulated Deficit Shares Amount Total Stockholders' Equity (Deficit) Balance, September 30, 2023 32,165,225 $ 3 $ 177,861 — $ — $ ( 31,884 ) $ ( 55,700 ) 1,782,568 $ ( 50,282 ) $ 39,998 Issuance of warrants (Note 12) — — 7,416 — — — — — — 7,416 Restricted stock activity 22,115 — ( 301 ) — — — — — — ( 301 ) Stock option activity 11,252 — 149 — — — — — — 149 Share-based compensation expense — — 2,034 — — — — — — 2,034 Net income — — — — — — 26,150 — — 26,150 Other comprehensive income, net of tax — — — — — 131 — — — 131 Balance, December 30, 2023 32,198,592 $ 3 $ 187,159 — $ — $ ( 31,753 ) $ ( 29,550 ) 1,782,568 $ ( 50,282 ) $ 75,577 Balance, October 1, 2022 32,024,911 $ 3 $ 173,103 — $ — $ ( 41,930 ) $ ( 79,512 ) 1,782,568 $ ( 50,282 ) $ 1,382 Restricted stock activity 7,156 — ( 57 ) — — — — — — ( 57 ) Share-based compensation expense — — 546 — — — — — — 546 Net loss — — — — — — ( 11,294 ) — — ( 11,294 ) Other comprehensive income, net of tax — — — — — 227 — — — 227 Balance, December 31, 2022 32,032,067 $ 3 $ 173,592 — $ — $ ( 41,703 ) $ ( 90,806 ) 1,782,568 $ ( 50,282 ) $ ( 9,196 ) 7 BLUE BIRD CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Nature of Business and Basis of Presentation Nature of Business Blue Bird Body Company ("BBBC"), a wholly-owned subsidiary of Blue Bird Corporation, was incorporated in 1958 and has manufactured, assembled and sold school buses to a variety of municipal, federal and commercial customers since 1927. The majority of BBBC’s sales are made to an independent dealer network, which in turn sells buses to ultimate end users. References in these notes to condensed consolidated financial statements to “Blue Bird,” the “Company,” “we,” “our,” or “us” relate to Blue Bird Corporation and its wholly-owned subsidiaries, unless the context specifically indicates otherwise. We are headquartered in Macon, Georgia. Basis of Presentation The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant inter-company transactions and accounts have been eliminated in consolidation. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial reporting and Article 10 of Regulation S-X. The Company’s fiscal year ends on the Saturday closest to September 30 with its quarters consisting of thirteen weeks in most years. The fiscal years ending September 28, 2024 ("fiscal 2024") and ended September 30, 2023 ("fiscal 2023") consist or consisted of 52 weeks. The first quarters of fiscal 2024 and fiscal 2023 both included 13 weeks. In the opinion of management, all adjustments considered necessary for a fair presentation of financial results have been made. Such adjustments consist of only those of a normal recurring nature. Operating results for any interim period are not necessarily indicative of the results that may be expected for the entire year. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The Condensed Consolidated Balance Sheet data as of September 30, 2023 was derived from the Company’s audited financial statements but does not include all disclosures required by U.S. GAAP. For additional information, including the Company’s significant accounting policies, refer to the consolidated financial statements and related footnotes as of and for the fiscal year ended September 30, 2023 as set forth in the Company's fiscal 2023 Form 10-K filed with the Securities and Exchange Commission ("SEC") on December 11, 2023. Impacts of COVID-19 and Subsequent Supply Chain Constraints on our Business As discussed in detail in the fiscal 2023 Form 10-K filed with the SEC on December 11, 2023, the novel coronavirus known as "COVID-19" materially affected demand for new buses and replacement/maintenance parts during the second half of our fiscal year that ended October 3, 2020 ("fiscal 2020") and first half of our fiscal year that ended October 2, 2021 ("fiscal 2021"), significantly impacting our business and operations. Although demand for school buses strengthened substantially during the second half of fiscal 2021, the Company, and automotive industry as a whole, began experiencing significant supply chain constraints around this same period of time. These supply chain disruptions had a significant adverse impact on our operations and results during the second half of fiscal 2021 and all of fiscal 2022 due to higher purchasing costs, including freight costs incurred to expedite receipt of critical components, increased manufacturing inefficiencies and our inability to complete the production of buses to fulfill sales orders. Additionally, Russian military forces launched a large-scale invasion of Ukraine on February 24, 2022, which further exacerbated global supply chain disruptions. While the Company has no assets or customers in either of these countries, this military conflict has significantly impacted our financial results, primarily in an indirect manner since the Company does not sell to customers located in, or source goods directly from, either country. Specifically, it contributed to increased a) costs charged by suppliers for the purchase of inventory that is at least partially dependent on resources originating from either of the countries and b) freight costs, both of which negatively impacted the gross profit recognized on sales during fiscal 2022, fiscal 2023 and continuing into fiscal 2024. 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 fiscal 2023. 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 8 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 remainder 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 latter half of fiscal 2023. Supply chain disruptions continued into the first quarter of fiscal 2024 as there were still occasional shortages of certain critical components as well as ongoing increases in raw materials costs, both of which impacted our business and operations by limiting the number of school buses that we could produce and sell as well as increasing the costs to manufacture buses. Nonetheless, the lessons learned, and resulting actions taken, by management over the past three fiscal years allowed the Company to better navigate these supply chain challenges and consistently produce buses to fulfill sales orders. Ongoing improvements in manufacturing operations, when coupled with periodic pricing actions taken by the Company to ensure that the increased sales prices charged for buses kept pace with increased costs to procure inventory to produce the buses, allowed the Company to report gross profit and gross margin during the first quarter of fiscal 2024 that were consistent with, or better than, historic levels experienced prior to the COVID-19 pandemic. Use of Estimates and Assumptions The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions. At the date of the financial statements, these estimates and assumptions affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities, and during the reporting period, these estimates and assumptions affect the reported amounts of revenues and expenses. For example, significant management judgments are required in determining excess, obsolete, or unsalable inventory; the allowance for doubtful accounts; potential impairment of long-lived assets, goodwill and intangible assets; and the accounting for self-insurance reserves, warranty reserves, pension obligations, income taxes, environmental liabilities and contingencies. Future events, including the extent and duration of continued supply chain constraints and their related economic impacts, and their effects cannot be predicted with certainty, and, accordingly, the Company’s accounting estimates require the exercise of judgment. The accounting estimates used in the preparation of the Company’s condensed consolidated financial statements may change as new events occur, as more experience is acquired, as additional information is obtained and as the Company’s operating environment changes. The Company evaluates and updates its assumptions and estimates on an ongoing basis and may employ outside experts to assist in the Company’s evaluations. Actual results could differ from the estimates that the Company has used. 2. Summary of Significant Accounting Policies and Recently Issued Accounting Standards The Company’s significant accounting policies are described in the Company’s fiscal 2023 Form 10-K, filed with the SEC on December 11, 2023. Our senior management has reviewed these significant accounting policies and related disclosures and determined that there were no significant changes in our critical accounting policies in the three months ended December 30, 2023. Recently Issued Accounting Standards ASU 2023-07 On November 27, 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures , which requires public entities to disclose information about their reportable segments’ significant expenses on an interim and annual basis. The ASU is effective for fiscal years beginning after December 15, 2023, and interim periods beginning after December 15, 2024, with early adoption permitted. ASU 2023-09 On December 14, 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures , which requires entities to disclose more detailed information in their reconciliation of their statutory tax rate to their effective tax rate. Public business entities ("PBEs") are required to provide this incremental detail in a numerical, tabular format. The ASU also requires entities to disclose more detailed information about income taxes paid, including by jurisdiction; pretax income (or loss) from continuing operations; and income tax expense (or benefit). The ASU is effective for PBEs in fiscal years beginning after December 15, 2024, and interim periods beginning after December 15, 2025, with early adoption permitted. The new ASUs will not impact amounts recorded in the financial statements but instead, will require more detailed disclosures in the footnotes to the financial statement. The Company plans to provide the updated disclosures required by the ASUs in the periods in which they are effective. 9 3. Supplemental Financial Information Inventories The following table presents the components of inventories at the dates indicated: (in thousands of dollars) December 30, 2023 September 30, 2023 Raw materials $ 96,045 $ 88,116 Work in process 40,223 45,875 Finished goods 6,189 1,295 Total inventories $ 142,457 $ 135,286 Restricted Cash The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported on the applicable Condensed Consolidated Balance Sheets that sum to the total of such amounts reported on the Condensed Consolidated Statements of Cash Flows: (in thousands of dollars) December 30, 2023 December 31, 2022 Cash and cash equivalents $ 77,296 $ 5,664 Restricted cash — 236 Total cash, cash equivalents, and restricted cash reported on the Condensed Consolidated Statements of Cash Flows $ 77,296 $ 5,900 Amounts included in restricted cash represent those that were required by a contractual agreement with a financial institution to serve as collateral against outstanding balances pertaining to the Company's corporate credit card program. Product Warranties The following table reflects activity in accrued warranty cost (current and long-term portions combined) for the periods presented: Three Months Ended (in thousands of dollars) December 30, 2023 December 31, 2022 Balance at beginning of period $ 15,434 $ 15,970 Add current period accruals 2,341 2,033 Current period reductions of accrual ( 2,492 ) ( 2,423 ) Balance at end of period $ 15,283 $ 15,580 Extended Warranties The following table reflects activity in deferred warranty income (current and long-term portions combined), for the sale of extended warranties of two to five years , for the periods presented: Three Months Ended (in thousands of dollars) December 30, 2023 December 31, 2022 Balance at beginning of period $ 23,123 $ 18,795 Add current period deferred income 2,998 2,336 Current period recognition of income ( 2,003 ) ( 1,841 ) Balance at end of period $ 24,118 $ 19,290 The outstanding balance of deferred warranty income in the table above is considered a "contract liability," and represents a performance obligation of the Company that we satisfy over the term of the arrangement but for which we have been paid in full at the time the warranty was sold. We expect to recognize $ 6.4 million of the outstanding contract liability during the remainder of fiscal 2024, $ 6.9 million in fiscal 2025, and the remaining balance thereafter. 10 Other Current Liabilities The balance in other current liabilities as of December 30, 2023 includes approximately $ 7.1 million of funds awarded by the U.S. Environmental Protection Agency in administering the U.S. Infrastructure Investment and Jobs Act ("IIJA") that was signed into law in mid-November 2021. The IIJA allocates federal funds to help local school jurisdictions purchase zero and low emission school buses over a five year period. The Company expects to recognize this amount as revenue during fiscal 2024 as the underlying buses are produced and delivered. Self-Insurance The following table reflects our total accrued self-insurance liability, comprised of workers' compensation and health insurance related claims, at the dates indicated: (in thousands of dollars) December 30, 2023 September 30, 2023 Current portion $ 4,392 $ 4,475 Long-term portion 2,009 1,771 Total accrued self-insurance $ 6,401 $ 6,246 The current and long-term portions of the accrued self-insurance liability are reflected in accrued expenses and other liabilities, respectively, on the Condensed Consolidated Balance Sheets. Shipping and Handling Revenues Shipping and handling revenues were $ 4.7 million and $ 4.3 million for the three months ended December 30, 2023 and December 31, 2022, respectively. The related cost of goods sold was $ 4.3 million and $ 3.8 million for the three months ended December 30, 2023 and December 31, 2022, respectively. Pension Expense Components of net periodic pension benefit expense were as follows for the periods presented: Three Months Ended (in thousands of dollars) December 30, 2023 December 31, 2022 Interest cost $ 1,484 $ 1,509 Expected return on plan assets ( 1,620 ) ( 1,630 ) Amortization of prior loss 172 299 Net periodic pension benefit expense $ 36 $ 178 Amortization of prior loss, recognized in other comprehensive income ( 172 ) ( 299 ) Total recognized in net periodic pension benefit expense and other comprehensive income $ ( 136 ) $ ( 121 ) 4. Debt On November 17, 2023 (the “Closing Date”), BBBC, as Borrower, executed a $ 250.0 million five-year credit agreement with Bank of Montreal, acting as administrative agent and an issuing bank; several joint lead arranger partners and issuing banks, including Bank of America; and a syndicate of other lenders (the "Credit Agreement"). The credit facilities provided for under the Credit Agreement consist of a term loan facility in an aggregate initial principal amount of $ 100.0 million (the “Term Loan Facility”) and a revolving credit facility with aggregate commitments of $ 150.0 million. The revolving credit facility includes a $ 25.0 million letter of credit sub-facility and $ 5.0 million swingline sub-facility (the “Revolving Credit Facility,” and together with the Term Loan Facility, each a “Credit Facility” and collectively, the “Credit Facilities”). A minimum of $ 100.0 million of additional term loans and/or revolving credit commitments may be incurred under the Credit Agreement, subject to certain limitations as set forth in the Credit Agreement, and which additional loans and/or commitments would require further commitments from existing lenders or from new lenders. Borrower has the right to prepay the loans outstanding under the Credit Facilities without premium or penalty (subject to customary breakage costs, if applicable). Additionally, proceeds from asset sales, condemnation, casualty insurance and/or debt issuances (in 11 certain circumstances) are required to be used to prepay borrowings outstanding under the Credit Facilities. Borrowings under the Term Loan Facility, which were made on the Closing Date, may not be reborrowed once they are repaid while borrowings under the Revolving Credit Facility may be repaid and reborrowed from time to time at our election. The Term Loan Facility is subject to amortization of principal, payable in equal quarterly installments on the last day of each fiscal quarter, commencing on March 30, 2024, with 5.0% of the $ 100.0 million aggregate principal amount of all initial term loans outstanding at the Closing Date payable each year prior to the maturity date of the Term Loan Facility. The remaining initial aggregate principal amount outstanding under the Term Loan Facility, as well as any outstanding borrowings under the Revolving Credit Facility, will be payable on the November 17, 2028 maturity date of the Credit Agreement. The Credit Facilities are guaranteed by all of the Company’s wholly-owned domestic restricted subsidiaries (subject to customary exceptions) and are secured by a security agreement which pledges a lien on virtually all of the assets of Borrower, the Company and the Company’s other wholly-owned domestic restricted subsidiaries, other than any owned or leased real property and subject to customary exceptions. The $ 100.0 million of Term Loan Facility proceeds and $ 36.2 million of Revolving Credit Facility proceeds that were borrowed on the Closing Date were used to pay (i) the $ 131.8 million of term loan indebtedness outstanding under the previous credit agreement ("Amended Credit Agreement"), (ii) interest and commitment fees accrued under the Amended Credit Agreement through the Closing Date and (iii) transaction costs associated with the consummation of the Credit Agreement. Under the terms of the Credit Agreement, Borrower, the Company and the Company’s other wholly-owned domestic restricted subsidiaries are subject to customary affirmative and negative covenants and events of default for facilities of this type (with customary grace periods, as applicable, and lender remedies). Borrowings under the Credit Facilities bear interest, at our option, at (i) base rate ("ABR") or (ii) the Secured Overnight Financing Rate as administered by the Federal Reserve Bank of New York ("SOFR") plus 0.10 %, plus an applicable margin depending on the Total Net Leverage Ratio ("TNLR," which is defined in the Credit Agreement as the ratio of consolidated net debt to consolidated EBITDA on a trailing four quarter basis) of the Company as follows: Level TNLR ABR Loans SOFR Loans I Less than 1.00x 0.75 % 1.75 % II Greater than or equal to 1.00x and less than 1.50x 1.50 % 2.50 % III Greater than or equal to 1.50x and less than 2.25x 2.00 % 3.00 % IV Greater than or equal to 2.25x 2.25 % 3.25 % Pricing on the Closing Date was set at Level III until receipt of the financial information and related compliance certificate for the first fiscal quarter ending after the Closing Date. Borrower is also required to pay lenders an unused commitment fee of between 0.25 % and 0.45 % per annum on the undrawn commitments under the Revolving Credit Facility, depending on the TNLR, quarterly in arrears. The Credit Agreement also includes a requirement that the Company comply with the following financial covenants on the last day of each fiscal quarter through maturity: (i) a pro forma TNLR of not greater than 3.00:1.00 and (ii) a pro forma fixed charge coverage ratio (as defined in the Credit Agreement) of not less than 1.20:1.00. The Company was in compliance with such covenants as of December 30, 2023. The Company incurred approximately $ 3.1 million in lender fees and other issuance costs relating to the Credit Agreement. Of such total, approximately $ 1.9 million and $ 0.8 million was capitalized within other assets and long-term debt (as a contra-balance), respectively, on the Condensed Consolidated Balance Sheets and will be amortized as an adjustment to interest expense on a straight-line basis and utilizing the effective interest method, respectively, until maturity of the Credit Agreement. The remaining approximate $ 0.4 million was recorded to loss on debt refinancing or modification on the Condensed Consolidated Statements of Operations. In conjunction with executing the Credit Agreement, previously capitalized lender fees and other issuance costs relating to the Amended Credit Agreement and incurred in prior periods totaling $ 1.1 million were also expensed to loss on debt refinancing or modification on the Condensed Consolidated Statements of Operations. Term loan borrowings consisted of the following at the dates indicated: 12 (in thousands of dollars) December 30, 2023 September 30, 2023 Term loan borrowings, net of deferred financing costs of $ 1,514 and $ 1,456 , respectively $ 98,486 $ 130,344 Less: current portion of long-term debt 5,000 19,800 Long-term debt, net of current portion $ 93,486 $ 110,544 Term loan borrowings are recognized on the Condensed Consolidated Balance Sheets at the unpaid principal balance, and are not subject to fair value measurement; however, given the variable rates on the loans, the Company estimates that the unpaid principal balance approximates fair value. If measured at fair value in the financial statements, the term loans would be classified as Level 2 in the fair value hierarchy. At December 30, 2023 and September 30, 2023, $ 100.0 million and $ 131.8 million, respectively, were outstanding on the term loans. At December 30, 2023 and September 30, 2023, the stated interest rates on the term loans were 8.5 % and 10.0 %, respectively. For the three month periods ended December 30, 2023 and September 30, 2023, the weighted-average annual effective interest rates for the term loans were 9.9 % and 10.9 %, respectively. At December 30, 2023, $ 6.7 million of letters of credit were outstanding, which reduces the availability on the revolving line of credit. There were $ 36.2 million borrowings outstanding on the Revolving Credit Facility; therefore, the Company would have been able to borrow $ 107.1 million on the revolving line of credit. Interest expense on all indebtedness was $ 3.6 million and $ 4.2 million for the three months ended December 30, 2023 and December 31, 2022, respectively. The schedule of remaining principal payments through maturity for the term loans is as follows: (in thousands of dollars) Fiscal Year Principal Payments 2024 $ 3,750 2025 5,000 2026 5,000 2027 5,000 2028 5,000 Thereafter 76,250 Total remaining principal payments $ 100,000 5. Income Taxes Income tax provisions for interim periods are based on estimated annual income tax rates, adjusted to reflect the effects of any significant infrequent or unusual items that are required to be discretely recognized within the current interim period. The effective tax rates in the periods presented are largely based upon the annual forecasted pre-tax earnings mix and allocation of certain expenses in various taxing jurisdictions where the Company conducts its business, primarily in the United States of America ("U.S."). In periods where our pre-tax income approximates or is equal to break-even, the effective tax rates for quarter-to-date and full-year periods may not be meaningful due to discrete period items. Three Months The effective tax rate for the three months ended December 30, 2023 was 25.9 % and differed from the statutory federal income tax rate of 21 %. The increase was primarily due to the impacts from state taxes and certain permanent items on the federal rate, which were partially offset by the impacts from federal and state tax credits (net of valuation allowances) and discrete period items during the quarter. The effective tax rate for the three months ended December 31, 2022 was 20.8 %, which aligned with the statutory federal income tax rate of 21 % and is comprised of normal tax rate items, including impacts from state taxes and federal and state tax credits (net of valuation allowances), with discrete period items having a nominal impact on the effective rate during the quarter. 13 6. Guarantees, Commitments and Contingencies Litigation At December 30, 2023, the Company had a number of product liability and other cases pending. Management believes that, considering the Company’s insurance coverage and its intention to vigorously defend its positions, the ultimate resolution of these matters will not have a material adverse effect on the Company’s financial statements. Environmental The Company is subject to a variety of environmental regulations relating to the use, storage, discharge and disposal of hazardous materials used in its manufacturing processes. Failure by the Company to comply with present and future regulations could subject it to future liabilities. In addition, such regulations could require the Company to acquire costly equipment or to incur other significant expenses to comply with environmental regulations. The Company is currently not involved in any material environmental proceedings and therefore, management believes that the resolution of pending environmental matters will not have a material adverse effect on the Company’s financial statements. 7. Segment Information We manage our business in two operating segments: (i) the Bus segment, which includes the manufacturing and assembly of buses to be sold to a variety of customers across the U.S., Canada and in certain limited international markets; and (ii) the Parts segment, which consists primarily of the purchase of parts from third parties to be sold to dealers within the Company’s network and certain large fleet customers. Management evaluates the segments based primarily upon revenues and gross profit, which are reflected in the tables below for the periods presented : Net sales Three Months Ended (in thousands of dollars) December 30, 2023 December 31, 2022 Bus (1) $ 293,437 $ 213,249 Parts (1) 24,223 22,483 Segment net sales $ 317,660 $ 235,732 (1) Parts segment revenue includes $ 1.6 million and $ 1.1 million for the three months ended December 30, 2023 and December 31, 2022, respectively, related to the inter-segment sale of parts that was eliminated by the Bus segment upon consolidation. Gross profit (loss) Three Months Ended (in thousands of dollars) December 30, 2023 December 31, 2022 Bus $ 51,294 $ ( 3,731 ) Parts 12,264 11,188 Segment gross profit $ 63,558 $ 7,457 14 The following table is a reconciliation of segment gross profit to consolidated income (loss) before income taxes for the periods presented: Three Months Ended (in thousands of dollars) December 30, 2023 December 31, 2022 Segment gross profit $ 63,558 $ 7,457 Adjustments: Selling, general and administrative expenses ( 25,602 ) ( 16,832 ) Interest expense ( 3,631 ) ( 4,196 ) Interest income 1,088 — Other expense, net ( 1,221 ) ( 236 ) Loss on debt refinancing or modification ( 1,558 ) ( 537 ) Income (loss) before income taxes $ 32,634 $ ( 14,344 ) Sales are attributable to geographic areas based on customer location and were as follows for the periods presented: Three Months Ended (in thousands of dollars) December 30, 2023 December 31, 2022 U.S. $ 302,532 $ 204,541 Canada 15,119 30,521 Rest of world 9 670 Total net sales $ 317,660 $ 235,732 8. Revenue The following table disaggregates revenue by product category for the periods presented: Three Months Ended (in thousands of dollars) December 30, 2023 December 31, 2022 Diesel buses $ 84,998 $ 71,494 Alternative power buses (1) 195,329 131,946 Other (2) 13,697 10,455 Parts 23,636 21,837 Net sales $ 317,660 $ 235,732 (1) Includes buses sold with any power source other than diesel (e.g., gasoline, propane, compressed natural gas ("CNG") or electric). (2) Includes shipping and handling revenue, extended warranty income, surcharges and chassis and bus shell sales . 15 9. Earnings (Loss) Per Share The following table presents the earnings (loss) per share computation for the periods presented: Three Months Ended (in thousands except for share data) December 30, 2023 December 31, 2022 Numerator: Net income (loss) $ 26,150 $ ( 11,294 ) Denominator: Weighted-average common shares outstanding 32,170,779 32,026,311 Weighted-average dilutive securities, restricted stock 145,759 — Weighted-average dilutive securities, stock options 100,170 — Weighted-average dilutive securities, warrants (Note 12) 12,419 — Weighted-average shares and dilutive potential common shares (1) 32,429,127 32,026,311 Earnings (loss) per share: Basic earnings (loss) per share $ 0.81 $ ( 0.35 ) Diluted earnings (loss) per share $ 0.81 $ ( 0.35 ) (1) Potentially dilutive securities representing 0.2 million and 0.8 million shares of common stock were excluded from the computation of diluted earnings per share for the three month periods ending December 30, 2023 and December 31, 2022, respectively, as their effect would have been antidilutive. 10. Accumulated Other Comprehensive Loss The following table provides information on changes in accumulated other comprehensive loss ("AOCL") for the periods presented: Three Months Ended (in thousands of dollars) Defined Benefit Pension Plan Total AOCL December 30, 2023 Beginning Balance $ ( 31,884 ) $ ( 31,884 ) Amounts reclassified and included in earnings 172 172 Total before taxes 172 172 Income taxes ( 41 ) ( 41 ) Ending Balance December 30, 2023 $ ( 31,753 ) $ ( 31,753 ) December 31, 2022 Beginning Balance $ ( 41,930 ) $ ( 41,930 ) Amounts reclassified and included in earnings 299 299 Total before taxes 299 299 Income taxes ( 72 ) ( 72 ) Ending Balance December 31, 2022 $ ( 41,703 ) $ ( 41,703 ) 11. Stockholder Transaction Costs On December 14, 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 ("Selling Stockholder"), pursuant to which the Selling Stockholder agreed to sell 2,500,000 shares of common stock at a purchase price of $ 25.10 per share (“Offering”). 16 The Offering was conducted pursuant to a prospectus supplement, dated December 14, 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 December 19, 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 approximately $ 1.2 million for the three month period ending December 30, 2023, with no similar expense recorded during the same period of fiscal 2023. The $ 1.2 million of expense is included within other expense, net on the Condensed Consolidated Statements of Operations for the three month period ending December 30, 2023. 12. Joint Ventures Micro Bird Holdings, Inc. During the three month period ended December 30, 2023, Micro Bird Holdings, Inc., our unconsolidated Canadian joint venture, paid dividends to all common stockholders, with the Company's proportionate share totaling $3.0 million, gross of required withholding taxes. The dividend was recorded as a reduction in the balance of equity investment in affiliate on the Condensed Consolidated Balance Sheets and is presented as a cash inflow in the operating section of the Condensed Consolidated Statements of Cash Flows. Clean Bus Solutions, LLC On December 7, 2023, the Company, through its wholly owned subsidiary, BBBC, and GC Mobility Investments I, LLC, a wholly owned subsidiary of Generate Capital, PBC (“Generate Capital”), a sustainable investment company focusing on clean energy, transportation, water, waste, agriculture, smart cities and industrial decarbonization, executed a definitive agreement (“Joint Venture Agreement”) establishing a joint venture, Clean Bus Solutions, LLC, to provide a fleet-as-a-service ("FaaS") offering using electric school buses manufactured and sold by the Company (“Joint Venture”). The service will be offered to qualified customers of the Company. Through the Joint Venture, the Company will provide its end customers with turnkey electrification solutions, including a wide product range consisting of, among others, electric school buses, financing of electric buses and supporting charging infrastructure, project planning and management, and fleet optimization. The Company and Generate Capital will initially have an equal common ownership interest in the Joint Venture, and will initially jointly share management responsibility and control, with each party having certain customary consent and approval rights and control triggers. The parties have each agreed to contribute up to $ 10.0 million to the Joint Venture, as agreed from time to time, for common interests to fund administrative expenses, and up to an additional $ 100.0 million of capital in the form of preferred interests to fund the purchase, delivery, installation, operation and maintenance of FaaS projects, inclusive of Blue Bird electric school buses and associated charging infrastructure. Of this amount, the Company has committed to provide up to $ 20.0 million and Generate Capital has committed to provide up to $ 80.0 million, with the Company’s aggregate commitment in any one year not to exceed $ 10.0 million without its consent. In accordance with the terms of the Joint Venture Agreement, the Company will promote the Joint Venture as the Company’s preferred FaaS offering for electric school buses and has agreed to not participate as a joint venture partner in any other similar FaaS offering for electric school buses, except as an original equipment manufacturer of buses. The Company’s obligations do not prevent or limit any activities of its dealers. The Joint Venture has a perpetual duration subject to the right of either party to terminate early upon the occurrence of certain events of default or the failure to achieve certain milestones set forth in the terms of the Joint Venture Agreement. In connection with the execution of the Joint Venture Agreement, the Company granted Generate Capital warrants to purchase an aggregate of 1,000,000 shares of Company common stock at an exercise price of $ 25.00 per share during a five-year exercise period (“Warrants”). Two-thirds of the Warrants were immediately exercisable while the remaining Warrants will become exercisable upon Generate Capital satisfying certain funding conditions. The exercise price and the number of shares issuable upon exercise of the Warrants are subject to adjustment in the event of a recapitalization, stock dividend or similar event. The Company recorded the $ 7.4 million fair value of the Warrants upon issuance as permanent equity within additional paid-in capital on the Condensed Consolidated Balance Sheets and is not required to subsequently record changes in fair value as long as the Warrants continue to be classified within stockholders' equity. Additionally, since the Warrants were provided in exchange for an investment in the Joint Venture, the Company recorded the cost of its investment based on the fair value of the Warrants upon issuance, which increased the balance of equity investment in affiliate on the Condensed Consolidated Balance Sheets by a corresponding $ 7.4 million. No other activity was recorded relating to the Joint Venture during the three month period ended December 30, 2023. 17