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Item 2. Management’s Discussion and Analysis

2024-05-08 compared with 2024-02-07 · 184 added, 93 removed, 312 unchanged (47% 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 Blue Bird Corporation (the "Company," "Blue Bird," "we," "our," or "us") should be read in conjunction with the Company’s unaudited condensed consolidated financial statements as of and for the three months ended December 30, 2023 and December 31, 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 Blue Bird Corporation (the "Company," "Blue Bird," "we," "our," or "us") should be read in conjunction with the Company’s unaudited condensed consolidated financial statements as of and for the three and six months ended March 30, 2024 and April 1, 2023 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 entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s fiscal 2023 Form 10-K, filed with the SEC on December 11, 2023.

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Throughout this Report, we refer to the fiscal year ending September 28, 2024 as "fiscal 2024," the fiscal year ended September 30, 2023 as "fiscal 2023," the fiscal year ended October 1, 2022 as "fiscal 2022," the fiscal year ended October 2, 2021 as “fiscal 2021” and the fiscal year ended October 3, 2020 as "fiscal 2020." There will be or were 52 weeks in fiscal 2024, fiscal 2023 and fiscal 2022.

The first quarters of fiscal 2024 and fiscal 2023 both included 13 weeks.

The second quarters of fiscal 2024 and fiscal 2023 both included 13 weeks.

The six month periods in fiscal 2024 and 2023 both included 26 weeks.

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 fiscal 2020 and first half of 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.

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.

Additionally, the already challenged global supply chain for automotive parts that began in fiscal 2021 was further impacted, including continuing escalating inventory purchase costs, by additional stress resulting from Russia’s invasion of Ukraine in February 2022 (see further discussion below).

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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.

prices we charged for those buses generally outpacing the higher costs we paid to procure inventory, resulting in gross profit during the quarters.

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.

Supply chain disruptions continued into the first half 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.

New bus orders during fiscal 2023 and continuing into fiscal 2024 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 that began during the latter half of fiscal 2021 and continued through the first quarter of fiscal 2024.

Accordingly, the Company's backlog remained strong at approximately 4,600 units and as of both September 30, 2023 and December 30, 2023 despite it selling over 8,500 units during fiscal 2023, the majority of which were included in the backlog that existed as of October 1, 2022, and 2,100 units in the first quarter of fiscal 2024.

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 half of fiscal 2024 that were consistent with, or better than, historic levels experienced prior to the COVID-19 pandemic.

Accordingly, the Company's backlog remained strong at approximately 4,600 units and 5,900 units as of September 30, 2023 and March 30, 2024 despite it selling over 8,500 units during fiscal 2023, the majority of which were included in the backlog that existed as of October 1, 2022, and almost 4,400 units in the first half of fiscal 2024.

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.

They have resulted, and could to continue to result, in significant economic disruption and have adversely affected our business.

They have resulted, and could continue to result, in significant economic disruption and have adversely affected our business.

They could adversely impact our business for the remainder of fiscal 2024 and perhaps beyond.

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

The impacts from supply chain constraints on the Company's business and operations during the second half of fiscal 2021 and continuing into fiscal 2024 negatively affected our inventory procurement costs, gross profit, income and cash flows.

The impacts from supply chain constraints on the Company's business and operations beginning during the second half of fiscal 2021 and continuing into fiscal 2024 negatively affected our inventory procurement costs, gross profit, income and cash flows.

We continue to monitor and assess the ability of suppliers to maintain operations and to provide parts and supplies in sufficient quantities to meet our production needs and our ability to maintain continuous production during the remainder of fiscal 2024 and beyond.

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On February 24, 2022, Russian military forces launched a large-scale invasion of Ukraine.

While the Company has no assets or customers in either of these countries, this military conflict has had a significant negative impact on the Company’s operations, cash flows and results during fiscal 2022 and continuing into fiscal 2024, primarily in an indirect manner since the Company does not sell to customers located in, or source goods directly from, either country.

While the Company has no assets or customers in either of these countries, this military conflict has had a significant negative impact on the Company’s operations, cash flows and results beginning in fiscal 2022 and continuing into fiscal 2024, primarily in an indirect manner since the Company does not sell to customers located in, or source goods directly from, either country.

Specifically, Ukraine has historically been a large exporter of ferroalloy materials used in the manufacture of steel and the disruption in the supply of these minerals has resulted in significant volatility in the price of steel.

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Russia’s invasion of Ukraine has resulted, and is likely to continue to result, in significant economic disruption and has adversely affected our business.

Specifically, it has contributed to higher inventory purchase costs, including freight costs, that negatively impacted the gross profit recognized on sales during the latter part of fiscal 2022 and continuing into fiscal 2024.

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 2024 and perhaps beyond.

Specifically, it has contributed to higher inventory purchase costs, including freight costs, that negatively impacted the gross profit recognized on sales beginning during the latter part of fiscal 2022 and continuing into fiscal 2024.

Because peace negotiations do not appear to be productive and because Russia has continued to intensify its military operations in Ukraine, we currently believe that this matter will continue to adversely impact our business for the remainder of fiscal 2024 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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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 fiscal 2023 Form 10-K, filed with the SEC on December 11, 2023, 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 three months ended December 30, 2023.

Recent Accounting Pronouncements

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We and our dealers must navigate these regulations, purchasing procedures, and the districts’ specifications in order to reach mutually acceptable price terms.

Pricing may or may not be favorable to us, depending upon a number of factors impacting purchasing

Pricing may or may not be favorable to us, depending upon a number of factors impacting purchasing decisions.

Additionally, in certain cases, prices originally quoted with dealers and school districts may have become less favorable, or more unfavorable, to us given increasing inventory costs between the time the sales order was contractually agreed upon and the bus is built and delivered as a result of ongoing supply chain disruptions and general inflationary pressures.

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However, they began to have a more significant, positive impact on sales and gross profit during the remainder of fiscal 2023, as the Company fulfilled sales orders (i) from the backlog existing as of the end of fiscal 2022 that originated more recently (i.e., during the latter months of fiscal 2022) and (ii) that were taken during fiscal 2023, both of which contained most or all of the cumulative sales prices increases that have been announced.

These cumulative price increases also continued to have a significant, positive impact on sales and gross profit during the first quarter of fiscal 2024.

These cumulative price increases also continued to have a significant, positive impact on sales and gross profit during the first half of fiscal 2024.

Factors Affecting Our Expenses and Other Items

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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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We define Free Cash Flow as total cash provided by/used in operating activities as adjusted for cash paid for the acquisition of fixed assets and intangible assets.

We use Free Cash Flow, and ratios based on Free Cash Flow, to conduct and evaluate our business because, although it is similar to cash flow from operations, we believe it is a more conservative measure of cash flow since purchases of fixed assets and intangible assets are a necessary component of ongoing operations.

Accordingly, Free Cash Flow will be less than operating cash flows.

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Management evaluates the segments based primarily upon revenues and gross profit.

Consolidated Results of Operations for the Three Months Ended December 30, 2023 and December 31, 2022:

Consolidated Results of Operations for the Three Months Ended March 30, 2024 and April 1, 2023:

Three Months Ended

(in thousands of dollars) December 30, 2023 December 31, 2022

(in thousands of dollars) March 30, 2024 April 1, 2023

$ 345,915 $ 299,814

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Selling, general and administrative expenses 27,571 23,205

Operating profit (loss) $ 37,956 $ (9,375)

Operating profit $ 36,068 $ 12,444

Interest expense (2,812) (5,192)

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Other expense, net (1,968) (342)

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

Income before income taxes $ 32,342 $ 6,922

Income tax expense (8,261) (1,389)

Equity in net income of non-consolidated affiliate 1,942 1,597

Net income (loss) $ 26,150 $ (11,294)

Net income $ 26,023 $ 7,130

Other financial data:

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Adjusted EBITDA margin

15.0 % (1.5) %

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

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Net Sales by Segment

December 30, 2023 December 31, 2022

March 30, 2024 April 1, 2023

$ 317,959 $ 273,472

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$ 63,639 $ 35,649

Net sales were $317.7 million for the first quarter of fiscal 2024, an increase of $81.9 million, or 34.8%, compared to $235.7 million for the first quarter of fiscal 2023.

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.

Bus sales increased $80.2 million, or 37.6%, reflecting a 8.8% increase in units booked and a 26.5% increase in average sales price per unit.

In the first quarter of fiscal 2024, 2,129 units were booked compared to 1,957 units booked for the same period in fiscal 2023.

The increase in units sold was primarily due to slight improvements in supply chain constraints impacting the Company's ability to produce and deliver buses due to shortages of critical components during the first quarter of 2024 relative to the first quarter of fiscal 2023.

The increase in unit price for the first quarter of fiscal 2024 compared to the same period in fiscal 2023 reflects pricing actions taken by management as well as product and customer mix changes.

Parts sales increased $1.7 million, or 7.7%, for the first quarter of fiscal 2024 compared to the first quarter of fiscal 2023.

Net sales were $345.9 million for the second quarter of fiscal 2024, an increase of $46.1 million, or 15.4%, compared to $299.8 million for the second quarter of fiscal 2023.

The increase in net sales is primarily due to product and mix changes, as well as pricing actions taken by management in response to increased inventory purchase costs, all of which were partially offset by a small decrease in unit bookings.

Bus sales increased $44.5 million, or 16.3%, reflecting an 18.8% increase in average sales price per unit that was partially offset by a 2.2% decrease in units booked.

In the second quarter of fiscal 2024, 2,254 units were booked compared to 2,304 units booked for the same period in fiscal 2023.

The small decrease in units sold was primarily due to product mix changes as well as a slight increase in supply chain constraints impacting the Company's ability to produce and deliver buses due to shortages of critical components during the second quarter of 2024 relative to the second quarter of fiscal 2023.

The increase in unit price for the second quarter of fiscal 2024 compared to the same period in fiscal 2023 reflects pricing actions taken by management as well as product and customer mix changes.

Parts sales increased $1.6 million, or 6.1%, for the second quarter of fiscal 2024 compared to the second quarter of fiscal 2023.

This increase is primarily attributed to price increases, driven by ongoing inflationary pressures, as well as higher fulfillment volumes and slight variations due to product and channel mix.

Cost of goods sold .

Total cost of goods sold was $254.1 million for the first quarter of fiscal 2024, an increase of $25.8 million, or 11.3%, compared to $228.3 million for the first quarter of fiscal 2023.

Total cost of goods sold was $282.3 million for the second quarter of fiscal 2024, an increase of $18.1 million, or 6.9%, compared to $264.2 million for the second quarter of fiscal 2023.

As a percentage of net sales, total cost of goods sold improved from 88.1% to 81.6%, primarily due to the pricing actions discussed above taking effect.

Bus segment cost of goods sold increased $25.2 million, or 11.6%, for the first quarter of fiscal 2024 compared to the same period in fiscal 2023.

The increase was primarily driven by the 8.8% increase in units booked in the first quarter of fiscal 2024 compared to the same period in fiscal 2023.

Also contributing was increased inventory costs, as the average cost of goods sold per unit for the first quarter of fiscal 2024 was 2.6% higher compared to the first quarter of fiscal 2023, 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.

The $0.7 million, or 5.9%, increase in parts segment cost of goods sold for the first quarter of fiscal 2024 compared to the first quarter of fiscal 2023 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 $38.0 million for the first quarter of fiscal 2024, an increase of $47.3 million, compared to operating loss of $9.4 million for the first quarter of fiscal 2023.

Bus segment cost of goods sold increased $18.0 million, or 7.2%, for the second quarter of fiscal 2024 compared to the same period in fiscal 2023.

The increase was primarily driven by increased inventory costs, as the average cost of goods sold per unit for the second quarter of fiscal 2024 was 9.6% higher compared to the second quarter of fiscal 2023, 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.

The increase in inventory costs was partially offset by a 2.2% decrease in units booked in the second quarter of fiscal 2024 compared to the same period in fiscal 2023.

The $0.1 million, or 0.8%, increase in parts segment cost of goods sold for the second quarter of fiscal 2024 compared to the second quarter of fiscal 2023 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 $36.1 million for the second quarter of fiscal 2024, an increase of $23.6 million, compared to operating profit of $12.4 million for the second quarter of fiscal 2023.

Profitability was primarily impacted by an increase of $28.0 million in gross profit as outlined in the revenue and cost of goods sold discussions above.

The increase in gross profit was partially offset by an increase of $4.4 million in selling, general and administrative expenses, primarily due to an increase in labor costs.

Additionally, selling, general and administrative expenses during the first quarter of fiscal 2023 benefited from actions taken by management to reduce labor costs and certain discretionary spending to mitigate the significant adverse impact of ongoing supply chain constraints on the Company's operations and results.

Interest expense .

Interest expense was $3.6 million for the first quarter of fiscal 2024, a decrease of $0.6 million, or 13.5%, compared to $4.2 million for the first quarter of fiscal 2023.

The decrease was primarily attributable to a decrease in the stated term loan interest rate from 10.5% at December 31, 2022 to 8.5% at December 30, 2023, as well as lower outstanding borrowings in the first quarter of fiscal 2024 compared to the first quarter of fiscal 2023.

Interest expense was $2.8 million for the second quarter of fiscal 2024, a decrease of $2.4 million, or 45.8%, compared to $5.2 million for the second quarter of fiscal 2023.

The decrease was primarily attributable to a decrease in the stated term loan interest rate from 10.5% at April 1, 2023 to 7.2% at March 30, 2024, as well as lower outstanding borrowings in the second quarter of fiscal 2024 compared to the second quarter of fiscal 2023.

Other expense, net.

Other expense, net, was $1.2 million for the first quarter of fiscal 2024, an increase of $1.0 million, or 417.4%, compared to $0.2 million of other expense, net, for the same period in fiscal 2023.

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”).

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.

Other expense, net, was $2.0 million for the second quarter of fiscal 2024, an increase of $1.6 million, or 475.4%, compared to $0.3 million of other expense, net, for the same period in fiscal 2023.

On February 15, 2024, the Company entered into an underwriting agreement with Barclays Capital Inc., as representative of the several underwriters and American Securities LLC ("Selling Stockholder"), pursuant to which the Selling Shareholder agreed to sell 4,042,650 shares of common stock at a purchase price of $32.90 per share ("February Offering").

The February Offering was conducted pursuant to a prospectus supplement, dated February 15, 2024, 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 February Offering closed on February 21, 2024.

Although the Company did not sell any shares or receive any proceeds from the February Offering, it was required to pay certain expenses in connection with the February Offering that totaled approximately $1.9 million for the three month period ended March 30, 2024, with $0.7 million of similar expense recorded during the three month period ended April 1, 2023.

However, the $0.7 million of expense was included within selling, general and administrative expenses for the three month period ended April 1, 2023, but was subsequently reclassified to other expense, net, during the third quarter of fiscal 2023.

Income taxes .

Income tax expense was $8.4 million for the first quarter of fiscal 2024 compared to income tax benefit of $3.0 million for the same period in fiscal 2023.

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%.

Income tax expense was $8.3 million for the second quarter of fiscal 2024 compared to $1.4 million for the same period in fiscal 2023.

The effective tax rate for the three months ended March 30, 2024 was 25.5% 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.

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 was 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.

Adjusted EBITDA .

Adjusted EBITDA was $47.6 million, or 15.0% of net sales, for the first quarter of fiscal 2024, an increase of $51.1 million, or 1,446.3%, compared to $(3.5) million, or (1.5)% of net sales, for the first quarter of fiscal 2023.

Adjusted EBITDA was $45.8 million, or 13.2% of net sales, for the second quarter of fiscal 2024, an increase of $24.7 million, or 117.0%, compared to $21.1 million, or 7.0% of net sales, for the second quarter of fiscal 2023.

The increase is primarily the result of the $18.9 million increase in net income as a result of the factors discussed above as well as the $6.9 million corresponding increase in income tax expense.

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

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

Three Months Ended

(in thousands of dollars) December 30, 2023 December 31, 2022

Net income (loss) $ 26,150 $ (11,294)

(in thousands of dollars) March 30, 2024 April 1, 2023

Net income $ 26,023 $ 7,130

Interest expense, net (1) 1,860 5,281

Income tax expense (benefit) 8,446 (2,981)

Income tax expense 8,261 1,389

Depreciation, amortization, and disposals (2) 3,988 4,181

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Stockholder transaction costs 1,933 743

Loss on debt refinancing or modification

Other (1) 281

Subtotal (Adjusted EBITDA as previously presented) $ 44,556 $ 19,841

$ 46,209 $ (4,245)

Micro Bird Holdings, Inc.

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Adjusted EBITDA margin (percentage of net sales)

15.0 % (1.5) %

(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 $0.6 million and $0.4 million for the three months ended December 30, 2023 and December 31, 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.

(2) Includes $0.3 million and $0.4 million for the three months ended March 30, 2024 and April 1, 2023, 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 March 30, 2024 and April 1, 2023:

Six Months Ended

(in thousands of dollars) March 30, 2024 April 1, 2023

$ 663,575 $ 535,546

Cost of goods sold

536,378 492,440

$ 127,197 $ 43,106

Operating expenses

Selling, general and administrative expenses

53,173 40,037

Operating profit $ 74,024 $ 3,069

Interest expense (6,443) (9,388)

Interest income 2,142 12

Other expense, net (3,189) (578)

Loss on debt modification (1,558) (537)

Income (loss) before income taxes $ 64,976 $ (7,422)

Income tax (expense) benefit (16,707) 1,592

Equity in net income of non-consolidated affiliate 3,904 1,666

Net income (loss) $ 52,173 $ (4,164)

Other financial data:

Adjusted EBITDA

$ 93,355 $ 17,552

Adjusted EBITDA margin

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 March 30, 2024 April 1, 2023

$ 611,396 $ 486,721

52,179 48,825

Total $ 663,575 $ 535,546

Gross Profit by Segment

$ 100,883 $ 19,368

26,314 23,738

$ 127,197 $ 43,106

Net sales were $663.6 million for the six months ended March 30, 2024, an increase of $128.0 million, or 23.9%, compared to $535.5 million for the six months ended April 1, 2023.

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.

Bus sales increased $124.7 million, or 25.6%, reflecting a 2.9% increase in units booked and a 22.1% increase in average sales price per unit.

4,383 units booked in the six months ended March 30, 2024 compared with 4,261 units booked during the same period in fiscal 2023.

The increase in units sold was primarily due to slight improvements in supply chain constraints impacting the Company's ability to produce and deliver buses due to shortages of critical components during the first half of fiscal 2024 relative to the same period in fiscal 2023.

The increase in unit price for the first half of fiscal 2024 compared to the same period in fiscal 2023 reflects pricing actions taken by management as well as product and customer mix changes.

Parts sales increased $3.4 million, or 6.9%, for the six months ended March 30, 2024 compared to the six months ended April 1, 2023.

This increase is primarily attributed to price increases, driven by ongoing inflationary pressures, as well as higher fulfillment volumes and slight variations due to product and channel mix.

Cost of goods sold .

Total cost of goods sold was $536.4 million for the six months ended March 30, 2024, an increase of $43.9 million, or 8.9%, compared to $492.4 million for the six months ended April 1, 2023.

As a percentage of net sales, total cost of goods sold improved from 92.0% to 80.8%.

Bus segment cost of goods sold increased $43.2 million, or 9.2%, for the six months ended March 30, 2024 compared to the six months ended April 1, 2023.

The increase was partially attributable to the 2.9% increase in units booked in the six months ended March 30, 2024 compared to the same period in fiscal 2023.

Also contributing was increased inventory costs, as the average cost of goods sold per unit for the six months ended March 30, 2024 was 6.2% higher compared to the six months ended April 1, 2023, 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.

The $0.8 million, or 3.1%, increase in parts segment cost of goods sold for the six months ended March 30, 2024 compared to the six months ended April 1, 2023 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 $74.0 million for the six months ended March 30, 2024, an increase of $71.0 million compared to operating profit of $3.1 million for the six months ended April 1, 2023.

Profitability was primarily impacted by an increase of $84.1 million in gross profit as outlined in the revenue and cost of goods sold discussions.

The increase in gross profit was partially offset by an increase of $13.1 million in selling, general and administrative expenses, primarily due to an increase in labor costs.

Interest expense .

Interest expense was $6.4 million for the six months ended March 30, 2024, a decrease of $2.9 million, or 31.4%, compared to $9.4 million for the six months ended April 1, 2023.

The decrease was primarily attributable to a decrease in the stated term loan interest rate from 10.5% at April 1, 2023 to 7.2% at March 30, 2024, as well as lower outstanding borrowings in the first half of fiscal 2024 compared to the first half of fiscal 2023.

Other expense, net.

Other expense, net, was $3.2 million for the six months ended March 30, 2024, an increase of $2.6 million, or 451.7%, compared to $0.6 million for the six months ended April 1, 2023.

We recorded $0.1 million of net periodic pension expense during the six months ended March 30, 2024 when compared with $0.4 million recorded during the six months ended April 1, 2023.

Additionally, 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 the 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 (“December Offering” and collectively with the February Offering, “Offerings”).

The December 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 December Offering closed on December 19, 2023.

Although the Company did not sell any shares or receive any proceeds from the Offerings, it was required to pay certain expenses in connection with the Offerings that totaled approximately $3.2 million for the six month period ended March 30, 2024, with $0.7 million of similar expense recorded during the six month period ended April 1, 2023.

However, the $0.7 million of expense was included within selling, general and administrative expenses for the six month period ended April 1, 2023, but was subsequently reclassified to other expense, net, during the third quarter of fiscal 2023.

Income taxes .

Income tax expense was $16.7 million for the six months ended March 30, 2024 compared to income tax benefit of $1.6 million for the six months ended April 1, 2023.

The effective tax rate for the six months ended March 30, 2024 was 25.7% and differed from the statutory federal income tax rate of 21%.

The effective tax rate for the six months ended April 1, 2023 was 21.4%, 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 period.

Adjusted EBITDA .

Adjusted EBITDA was $93.4 million, or 14.1% of net sales, for the six months ended March 30, 2024, an increase of $75.8 million, or 431.9%, compared to $17.6 million, or 3.3% of net sales, for the six months ended April 1, 2023.

The increase in Adjusted EBITDA is primarily the result of the $56.3 million increase in net income as a result of the factors discussed above as well as the $18.3 million corresponding increase in income tax expense.

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

Six Months Ended

(in thousands of dollars) March 30, 2024 April 1, 2023

Net income (loss) $ 52,173 $ (4,164)

Interest expense, net (1) 4,515 9,570

Income tax expense (benefit) 16,707 (1,592)

Depreciation, amortization, and disposals (2) 8,198 7,996

Operational transformation initiatives — 937

Loss on debt refinancing or modification

Share-based compensation expense

Stockholder transaction costs 3,154 743

Other (83) 281

Subtotal (Adjusted EBITDA as previously presented) $ 90,765 $ 15,596

Micro Bird Holdings, Inc.

total interest expense, net;

income tax expense or benefit;

depreciation expense and amortization expense

Adjusted EBITDA $ 93,355 $ 17,552

Adjusted EBITDA margin (percentage of net sales) 14.1 % 3.3 %

(1) Includes $0.2 million for both six month 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 $0.9 million for both six month periods, 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 revolving credit facility.

At December 30, 2023, the Company had $77.3 million of available cash (net of outstanding checks) and $107.1 million of additional borrowings available under the revolving line of credit portion of its credit facility.

At March 30, 2024, the Company had $93.1 million of available cash (net of outstanding checks) and $143.3 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.

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Borrowings under the Term Loan Facility, which were made at 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 Term Loan Facility is subject to amortization of principal, payable in equal quarterly installments on the last day of each fiscal quarter, which commenced 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.

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IV Greater than or equal to 2.25x

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.

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, with pricing as of March 30, 2024 set at Level I.

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.

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Detailed descriptions of the Amended Credit Agreement 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 September 30, 2023, filed with the SEC on December 11, 2023.

At December 30, 2023, Borrower and the guarantors under the Credit Agreement were in compliance with all covenants.

At March 30, 2024, Borrower and the guarantors under the Credit Agreement were in compliance with all covenants.

Short-Term and Long-Term Liquidity Requirements

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Nonetheless, 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.

Nonetheless, 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 half of fiscal 2024 that were consistent with, or better than, historic levels experienced prior to the COVID-19 pandemic.

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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If we are not able to comply with covenants, we may need to seek amendment for covenant relief or even refinance the debt to a "covenant lite" or "no covenant" structure.

We can offer no assurance that we would be successful in amending or refinancing the existing debt.

We can offer no

assurance that we would be successful in amending or refinancing the existing debt.

An amendment or refinancing of our existing debt could lead to higher interest rates and possible up-front expenses not included in our historical financial statements.

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

Three Months Ended

(in thousands of dollars) December 30, 2023 December 31, 2022

Six Months Ended

(in thousands of dollars) March 30, 2024 April 1, 2023

Cash, cash equivalents and restricted cash at beginning of period $ 78,988 $ 10,479

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Total cash used in investing activities (5,643) (3,740)

Total cash provided by (used in) financing activities 995 (23,359)

Total cash used in financing activities (35,020) (33,444)

Change in cash, cash equivalents and restricted cash $ 14,108 $ 7,532

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Total cash provided by operating activities

Cash flows provided by operating activities totaled $0.2 million for the three months ended December 30, 2023, a decrease of $19.7 million from the $19.9 million of cash flows provided by operating activities during the three months ended December 31, 2022.

The effect of net changes in operating assets and liabilities negatively impacted operating cash flows by $64.7 million during the three months ended December 30, 2023 compared to the three months ended December 31, 2022.

Cash flows provided by operating activities totaled $54.8 million for the six months ended March 30, 2024, an increase of $10.1 million from the $44.7 million of cash flows provided by operating activities during the six months ended April 1, 2023.

The increase was primarily attributable to a $56.3 million increase in net income and a $3.0 million increase in the dividend received from our unconsolidated Canadian joint venture during the first half of fiscal 2024 when compared with the corresponding period in fiscal 2023.

However, these increases werre partially offset by the effect of net changes in operating assets and liabilities that negatively impacted operating cash flows by $54.1 million during the six months ended March 30, 2024 when compared with the six months ended April 1, 2023.

The primary drivers in this category were unfavorable changes in inventory and accounts payable of $23.9 million and $25.8 million, respectively.

At the end of fiscal 2022 and during the first quarter of fiscal 2023, inflationary pressures and supply chain disruptions significantly increased our purchase costs for components and freight, which, when coupled with increased production and sales volumes during the first quarter of fiscal 2023, resulted in a significant increase in the accounts payable balance (a net source of cash) when compared with a significant decrease in the accounts payable balance at the end of the first quarter of fiscal 2024 (a net use of cash).

Additionally, we became more efficient at managing supply chain disruptions, and thus building and selling buses, during the the first quarter of fiscal 2023.

These efficiencies resulted in us consuming more inventory in production, which resulted in a significant decrease in the inventory balance at the end of the first quarter of fiscal 2023 (a net source of cash).

In comparison, we had a marginal increase in the inventory balance at the end of the first quarter of fiscal 2024 (a net use of cash) as we elected to strategically acquire larger quantities of certain components (i) that have longer lead times and could impact our production schedule if not manufactured by our suppliers and delivered to us in a timely manner and (ii) in anticipation of model year changeovers by some of our larger suppliers that are expected to decrease the availability of such inventory later in fiscal 2024.

These unfavorable changes were partially offset by a $37.4 million increase in net income and a $3.0 million increase in the dividend received from our unconsolidated Canadian joint venture during the first quarter of fiscal 2024 when compared with the corresponding period in fiscal 2023.

At the end of fiscal 2022 and during the first half of fiscal 2023, inflationary pressures and supply chain disruptions significantly increased our purchase costs for components and freight, which, when coupled with increased production and sales volumes during the first half of fiscal 2023, resulted in a significant increase in the accounts payable balance (a net source of cash) when compared with a small increase in the accounts payable balance during the first half of fiscal 2024 (a net source of cash).

Additionally, we became more efficient at managing supply chain disruptions, and thus building and selling buses, during the the first half of fiscal 2023.

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).

In comparison, we had an increase in the inventory balance at the end of the second quarter of fiscal 2024 (a net use of cash) as we elected to strategically acquire larger quantities of certain components (i) that have longer lead times and could impact our production schedule if not manufactured by our suppliers and delivered to us in a timely manner and (ii) in anticipation of model year changeovers by some of our larger suppliers that are expected to decrease the availability of such inventory later in fiscal 2024.

Total cash used in investing activities

Cash flows used in investing activities totaled $2.9 million for the three months ended December 30, 2023, as compared to $1.1 million for the three months ended December 31, 2022.

The $1.8 million increase was primarily due to an increase in spending on fixed assets, as increased profitability in the first quarter of fiscal 2024 when compared to the same period in fiscal 2023 allowed for more capital spending.

During the first quarter of fiscal 2023, 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 provided by (used in) financing activities

Cash flows provided by financing activities totaled $1.0 million for the three months ended December 30, 2023 as compared to $23.4 million of cash flows used in financing activities for the three months ended December 31, 2022.

The $24.4 million increase between fiscal periods was primarily attributable to $100.0 million of proceeds received from term loan borrowings under the Credit Agreement as well as a $51.2 million net increase in revolving line of credit borrowings, which were partially offset by a $126.9 million net decrease in term loan principal repayments under the previous credit agreement.

Cash flows used in investing activities totaled $5.6 million for the six months ended March 30, 2024 as compared to $3.7 million for the six months ended April 1, 2023.

The $1.9 million increase was primarily due to an increase in spending on fixed assets, as increased profitability in the first half of fiscal 2024 when compared with the same period in fiscal 2023 allowed for more capital spending.

During the first half of fiscal 2023, 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 financing activities

Cash flows used in financing activities totaled $35.0 million for the six months ended March 30, 2024 as compared to $33.4 million for the six months ended April 1, 2023.

The $1.6 million increase between fiscal periods was primarily attributable to a $123.2 million increase in term loan principal repayments, which was partially offset by $100.0 million of proceeds received from term loan borrowings under the Credit Agreement, a $20.0 million net increase in revolving line of credit borrowings and a $1.7 million increase in cash received from stock option exercises.

Free cash flow

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

Three Months Ended

(in thousands of dollars) December 30, 2023 December 31, 2022

Six Months Ended

(in thousands of dollars) March 30, 2024 April 1, 2023

Net cash provided by operating activities $ 54,771 $ 44,716

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$ 49,128 $ 40,976

Free Cash Flow for the three months ended December 30, 2023 was $21.5 million lower than for the three months ended December 31, 2022 due to a $19.7 million decrease in net cash provided by operating activities as well as an increase of $1.8 million in cash paid for fixed assets, both as discussed above.

Free Cash Flow for the six months ended March 30, 2024 was $8.2 million higher than for the six months ended April 1, 2023 due to a $10.1 million increase in net cash provided by operating activities that was partially offset by a $1.9 million increase in cash paid for fixed assets, both as discussed above.

Off-Balance Sheet Arrangements

We had outstanding letters of credit totaling $6.7 million at December 30, 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 $6.7 million at March 30, 2024, 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