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Item 2. Management’s Discussion and Analysis

2025-02-05 compared with 2024-08-07 · 139 added, 284 removed, 240 unchanged (64% 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 and nine months ended June 29, 2024 and July 1, 2023 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 months ended December 28, 2024 and December 30, 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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• challenges or unexpected costs related to manufacturing;

• future impacts from the novel coronavirus pandemic known as "COVID-19," and any other pandemics, public health crises, or epidemics, on capital markets, manufacturing and supply chain abilities, consumer and customer demand, school system operations, workplace conditions, and any other unexpected impacts, which include or could include, among other effects:

• future impacts from pandemics, epidemics or similar widespread disease or illness outbreaks (collectively, "public health crises") on capital markets, manufacturing and supply chain abilities, consumer and customer demand, school system operations, workplace conditions, and any other unexpected impacts, which include or could include, among other effects:

◦ disruption in global financial and credit markets;

◦ supply shortages and supplier financial risk, especially from our single-source suppliers impacted by the pandemic;

◦ supply shortages and supplier financial risk, especially from our single-source suppliers impacted by public health crises;

◦ negative impacts to manufacturing operations or the supply chain from shutdowns or other disruptions in operations;

◦ negative impacts on capacity and/or production in response to changes in demand due to the pandemic, including possible cost containment actions;

◦ financial difficulties of our customers impacted by the pandemic;

◦ reductions in market demand for our products due to the pandemic;

◦ potential negative impacts of various actions taken by federal, state and/or local governments in response to the pandemic.

• future impacts resulting from Russia's invasion of Ukraine, which include or could include, among other effects:

◦ negative impacts on capacity and/or production in response to changes in demand due to public health crises, including possible cost containment actions;

◦ financial difficulties of our customers impacted by public health crises;

◦ reductions in market demand for our products due to public health crises;

◦ potential negative impacts of various actions taken by federal, state and/or local governments in response to public health crises.

• future impacts resulting from current and/or future military conflicts, which include or could include, among other effects:

◦ disruption in global commodity and other markets;

◦ supply shortages and supplier financial risk, especially from suppliers providing inventory that is dependent on resources originating from either of these countries;

◦ supply shortages and supplier financial risk, especially from suppliers providing inventory that is dependent on resources originating from countries impacted by military conflicts;

◦ negative impacts to manufacturing operations resulting from inventory cost volatility or the supply chain due to shutdowns or other disruptions in operations.

These forward-looking statements are based on information available as of the date of this Report (or, in the case of forward-looking statements incorporated herein by reference, as of the date of the applicable filed document), and current expectations, forecasts and assumptions, and involve a number of judgments, risks and uncertainties.

Accordingly, forward-looking statements should not be relied upon as representing our views as of any subsequent date, and we do not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

future events or otherwise, except as may be required under applicable securities laws.

As a result of a number of known and unknown risks and uncertainties, our actual results or performance may be materially different than those expressed or implied by these forward-looking statements.

Any expectations based on these forward-looking statements are subject to risks and uncertainties and other important factors, including those discussed in the reports we file with the Securities and Exchange Commission (“SEC”), specifically the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s fiscal year 2023 Form 10-K, filed with the SEC on December 11, 2023.

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 year 2024 Form 10-K, filed with the SEC on November 25, 2024.

Other risks and uncertainties are and will be disclosed in the Company’s prior and future SEC filings.

The following information should be read in conjunction with the financial statements included in the Company’s fiscal year 2023 Form 10-K, filed with the SEC on December 11, 2023.

The following information should be read in conjunction with the financial statements included in the Company’s fiscal year 2024 Form 10-K, filed with the SEC on November 25, 2024.

Available Information

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Government, state governments, and authorized dealers in certain limited foreign countries.

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 third quarters of fiscal 2024 and fiscal 2023 both included 13 weeks.

The nine month periods in fiscal 2024 and 2023 both included 39 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.

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).

These supply chain disruptions had a significant adverse impact on our operations and results during the second half of fiscal 2021 and all of fiscal 2022 due to higher purchasing costs, including freight costs incurred to expedite receipt of critical components, increased manufacturing inefficiencies and our inability to complete the production of buses to fulfill sales orders.

Towards the end of fiscal 2022 and continuing 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 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 nine months 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.

Throughout this Report, we refer to the fiscal year ending September 27, 2025 as "fiscal 2025," the fiscal year ended 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” and the fiscal year ended October 2, 2021 as "fiscal 2021." There will be or were 52 weeks in fiscal 2025 and fiscal 2024.

The first quarters of fiscal 2025 and fiscal 2024 both included 13 weeks.

Impacts of Supply Chain Constraints on Our Business

During the second half of fiscal 2021, the Company, and automotive industry as a whole, began experiencing significant supply chain constraints that arose subsequent to the novel coronavirus pandemic known as "COVID-19." Additionally, the already challenged global supply chain for automotive parts was further impacted, including continuing escalating inventory purchase costs, by additional stress resulting from Russia’s invasion of Ukraine in February 2022.

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.

Specifically, they resulted in 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, that outpaced the sales prices that we charged for the buses we sold during these periods.

During fiscal 2023 and fiscal 2024, 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.

However, the higher costs charged by suppliers to procure inventory continued over these same periods and adversely impacted our operations and results.

However, the cumulative increases in sales prices we charged for our buses outpaced the higher costs we paid to procure inventory, resulting in gross profit and gross margin in fiscal 2023 and fiscal 2024 that were consistent with, or better than, historic levels experienced prior to the COVID-19 pandemic.

Supply chain disruptions continued into the first quarter of fiscal 2025 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 and/or mix 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 nine months 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 third quarter of fiscal 2024.

Accordingly, the Company's backlog remained strong at approximately 4,600 units and 5,200 units as of September 30, 2023 and June 29, 2024, respectively, 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 over 6,500 units in the first nine months 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.

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 keep pace with increased costs to procure inventory to produce the buses, allowed the Company to report gross profit and gross margin that are materially consistent with those reported in fiscal 2024.

New bus orders during fiscal 2024 and continuing into fiscal 2025 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 as discussed previously above.

Accordingly, the Company's backlog remained strong at approximately 4,800 units and 4,400 units as of September 28, 2024 and December 28, 2024, respectively, despite it selling 9,000 units in fiscal 2024 and over 2,100 units in the first quarter of fiscal 2025.

In general, management believes that supply chain disruptions, including those resulting from current or future military conflicts, 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 continue to result, in significant economic disruption and have adversely affected our business.

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See PART I, Item 1.A.

"Risk Factors," of our fiscal 2023 Form 10-K, filed with the SEC on December 11, 2023, for a discussion of the material risks we believe we face particularly related to supply chain disruptions and related constraints.

Impact of Russia’s Invasion of Ukraine on Our Business

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

While the Company has no assets or customers in either of these countries, this military conflict has had a significant negative impact on the Company’s operations, cash

flows and results 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.

While the Company has generally mitigated its direct exposure to steel prices by executing fixed price purchase contracts (generally purchased up to four quarters in advance) for the majority of the significant amount of steel used in the manufacture of school bus bodies, many suppliers from which the Company purchases components containing steel increased the price that they charge the Company to acquire such inventory, primarily on a lagged basis, starting from the latter half of fiscal 2022 and continuing into fiscal 2024, as applicable.

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

Additionally, Russia has historically been a large global exporter of oil and many countries have ceased buying Russian oil in protest of the invasion and to comply with sanctions imposed by the U.S.

and many European countries.

Accordingly, the disruption in the supply of oil has significantly impacted the price of goods refined from oil, such as diesel fuel, the price of which has been volatile and has remained high since the latter half of fiscal 2022.

These higher costs significantly impacted the Company both as a result of the price that suppliers charge the Company to acquire inventory (since diesel fuel impacts their cost of acquiring the inventory used in producing their goods) and the price that the Company pays for freight to deliver the inventory that it acquires.

Additionally, such increases are generally implemented with very little lag so that they impact the purchase cost of inventory and cash flows on an almost real-time basis.

Finally, both countries have large quantities of other minerals that impact commodity costs, such as rubber and resin, among others, and the disruption caused by the ongoing military conflict increased the cost and/or decreased the supply of components containing these materials, further impacting an already challenged global supply chain for automotive parts.

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

Specifically, it has contributed to higher inventory purchase costs, including freight costs, that negatively impacted the gross profit recognized on sales 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.

and globally.

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

"Risk Factors," of our fiscal 2024 Form 10-K, filed with the SEC on November 25, 2024, for a discussion of the material risks we believe we face particularly related to supply chain disruptions and related constraints.

Critical Accounting Policies and Estimates, Recent Accounting Pronouncements

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Application of these accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates.

The Company’s accounting policies that we believe are the most critical to aid in fully understanding and evaluating our reported financial results are described in the Company’s 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 nine months ended June 29, 2024.

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 2024 Form 10-K, filed with the SEC on November 25, 2024, 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.

Recent Accounting Pronouncements

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• Seasonality.

Historically, our sales have been subject to seasonal variation based on the school calendar with the peak season during our third and fourth fiscal quarters.

Sales during the third and fourth fiscal quarters are typically greater than the first and second fiscal quarters due to the desire of municipalities to have any new buses that they order available to them at the beginning of the new school year.

With the COVID-19 pandemic impacting the demand for Company products and the impact of the subsequent supply chain constraints hindering the Company's ability to produce and sell buses, seasonality has become unpredictable.

In the fiscal years preceding the 2020 COVID-19 pandemic, our sales were subject to seasonal variation based on the school calendar with the peak season during our third and fourth fiscal quarters.

Sales during the third and fourth fiscal quarters were typically greater than the first and second fiscal quarters due to the desire of municipalities to have any new buses that they ordered available to them at the beginning of the new school year.

Since 2020, with the COVID-19 pandemic impacting the demand for Company products and the impact of the subsequent supply chain constraints hindering the Company's ability to produce and sell buses as discussed previously above, seasonality has become unpredictable.

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

As discussed previously above, supply chain disruptions developing subsequent to the COVID-19 pandemic and Russia's invasion of Ukraine have significantly increased our inventory purchase costs, including freight costs incurred to expedite receipt of critical components, reflected in cost of goods sold during the latter half of fiscal 2021, all of fiscal 2022 and continuing, to a lesser extent, into fiscal 2023 and fiscal 2024.

In response, beginning in July 2021, the Company announced several sales price increases that applied to new sales orders and partially applied to backlog orders that were both intended to mitigate the impact of rising purchase costs on our operations and results.

Most of these price increases only began to marginally impact sales and gross profit in the latter half of fiscal 2022.

Specifically, they did not offset the significant continued increase in the Company's production costs, resulting in further deterioration of the Company's gross profit during the second half of fiscal 2022 and continuing into the first quarter of fiscal 2023 as it produced and sold the oldest units included in the backlog as of the end of fiscal 2022.

However, they 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 nine months of fiscal 2024.

As discussed previously above, supply chain disruptions developing subsequent to the COVID-19 pandemic and Russia's invasion of Ukraine have significantly increased our inventory purchase costs, including freight costs incurred to deliver critical components, reflected in cost of goods sold during all of fiscal 2022 and continuing, to a lesser extent, into fiscal 2023, fiscal 2024 and the first quarter of fiscal 2025.

In response, the Company announced a number of sales price increases over this same period that applied to new sales orders and, in one limited circumstance, partially applied to backlog orders that were both intended to mitigate the impact of rising purchase costs on our operations and results.

These cumulative price increases have had a significant, positive impact on sales and gross profit during fiscal 2023, fiscal 2024 and continuing into the first quarter of fiscal 2025.

Factors Affecting Our Expenses and Other Items

Our expenses and other line items on our unaudited Condensed Consolidated Statements of Operations are principally driven by the following factors:

Our expenses and other line items on our Condensed Consolidated Statements of Operations are principally driven by the following factors:

• Cost of goods sold .

The components of our cost of goods sold consist of material costs (principally powertrain components, steel and rubber, as well as aluminum and copper) including freight costs, labor expense, and overhead.

Our cost of goods sold may vary from period to period due to changes in sales volume, efforts by certain suppliers to pass through the economics associated with key commodities, fluctuations in freight costs, design changes with respect to specific components, design changes with respect to specific bus models, wage increases for plant labor, productivity of plant labor, delays in receiving materials and other logistical problems, and the impact of overhead items such as utilities.

Our cost of goods sold may vary from period to period due to changes in sales volume and/or mix, efforts by certain suppliers to pass through the economics associated with key commodities, fluctuations in freight costs, design changes with respect to specific components, design changes with respect to specific bus models, wage increases for plant labor, productivity of plant labor, delays in receiving materials and other logistical problems, and the impact of overhead items such as utilities.

• Selling, general and administrative expenses .

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We make estimates of the amounts to recognize for income taxes in each tax jurisdiction in which we operate.

In addition, provisions are established for withholding taxes related to the transfer of cash between jurisdictions and for uncertain tax positions taken.

In addition, provisions are established for withholding taxes related to the transfer of cash between jurisdictions and for uncertain tax positions taken, if any.

• Other expense/income, net.

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

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

We include in this line item our 50% share of net income or loss from our investment in Micro Bird Holdings, Inc., our unconsolidated Canadian joint venture.

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

We include in this line item our 50% share of net income or loss from our investments in Micro Bird Holdings, Inc.

and Clean Bus Solutions, LLC, our unconsolidated joint ventures.

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

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GAAP financial statements) that represents amortization charges on right-of-use lease assets;

net gains or losses on the disposal of assets as well as certain charges such as (i) significant product design changes;

(ii) transaction related costs;

or (iii) discrete expenses related to major cost cutting and/or operational transformation initiatives.

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.

as adjusted for certain non-cash charges or credits that we may record on a recurring basis such as share-based compensation expense and unrealized gains or losses on certain derivative financial instruments as well as certain charges such as (i) transaction related costs or (ii) discrete expenses related to major cost cutting and/or operational transformation initiatives.

While certain of the charges that are added back in the Adjusted EBITDA calculation, such as transaction related costs and major cost cutting and/or operational transformation initiatives, represent operating expenses that may be recorded in more than one annual period, the significant project or transaction giving rise to such expenses is not considered to be indicative of the Company’s normal operations.

Accordingly, we believe that

these, as well as the other credits and charges that comprise the amounts utilized in the determination of Adjusted EBITDA described above, should not be used in evaluating the Company’s ongoing annual operating performance.

We define Adjusted EBITDA Margin as Adjusted EBITDA as a percentage of net sales.

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We strongly encourage investors to review our financial statements and publicly-filed reports in their entirety and not to rely on any single financial measure.

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

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

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

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

Accordingly, we expect Free Cash Flow to be less than operating cash flows.

We manage our business in two operating segments, which are also our reportable segments:

(i) the Bus segment, which involves the design, engineering, manufacture and sales of school buses and extended warranties;

(i) the Bus segment, which involves the design, engineering, manufacture and sale of school buses and extended warranties;

and (ii) the Parts segment, which includes the sale of replacement bus parts.

Financial information is reported on the basis that it is used internally by the chief operating decision maker (“CODM”) in evaluating segment performance and deciding how to allocate resources to segments.

The Chief Executive Officer of the Company has been identified as the CODM.

The President and Chief Executive Officer of the Company has been identified as the CODM.

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

Consolidated Results of Operations for the Three Months Ended June 29, 2024 and July 1, 2023:

Consolidated Results of Operations for the Three Months Ended December 28, 2024 and December 30, 2023:

Three Months Ended

(in thousands of dollars) June 29, 2024 July 1, 2023

(in thousands of dollars) December 28, 2024 December 30, 2023

$ 313,872 $ 317,660

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Interest income 1,568 1,088

Other expense, net (2,729) (6,421)

Other income (expense), net 2,916 (1,221)

Loss on debt refinancing

Income before income taxes $ 35,611 $ 32,634

Income tax expense (8,693) (8,446)

Equity in net income of non-consolidated affiliate 2,767 2,502

Equity in net income of non-consolidated affiliates 1,804 1,962

Net income $ 28,722 $ 26,150

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Net Sales by Segment

June 29, 2024 July 1, 2023

December 28, 2024 December 30, 2023

$ 288,147 $ 293,437

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$ 60,317 $ 63,558

Net sales were $333.4 million for the third quarter of fiscal 2024, an increase of $39.1 million, or 13.3%, compared to $294.3 million for the third quarter of fiscal 2023.

The increase in net sales is primarily due to product and mix changes, pricing actions taken by management in response to increased inventory purchase costs and a small increase in unit bookings.

Bus sales increased $37.8 million, or 14.0%, reflecting an 13.2% increase in average sales price per unit and a 0.7% increase in units booked.

In the third quarter of fiscal 2024, 2,151 units were booked compared to 2,137 units booked for the same period in fiscal 2023.

The small increase in units sold was primarily due to customer and product mix changes, although both quarters were negatively impacted by supply chain constraints that limited the Company's ability to produce and deliver buses due to shortages of critical components.

The increase in unit price for the third 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 $1.3 million, or 5.5%, for the third quarter of fiscal 2024 compared to the third quarter of fiscal 2023.

Net sales were $313.9 million for the first quarter of fiscal 2025, a decrease of $3.8 million, or 1.2%, compared to $317.7 million for the first quarter of fiscal 2024.

The decrease in net sales is primarily due to Bus customer and product mix changes that were partially offset by a slight increase in Parts sales.

Bus sales decreased $5.3 million, or 1.8%, reflecting a 1.9% decrease in average sales price per unit.

In the first quarter of fiscal 2025, 2,130 units were booked compared to 2,129 units booked for the same period in fiscal 2024.

The small decrease in unit price for the first quarter of fiscal 2025 compared to the same period in fiscal 2024 was primarily due to customer and product mix changes, although both quarters were negatively impacted by supply chain constraints that limited the Company's ability to produce and deliver buses due to shortages of critical components.

Parts sales increased $1.5 million, or 6.2%, for the first quarter of fiscal 2025 compared to the first quarter of fiscal 2024.

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 $264.0 million for the third quarter of fiscal 2024, an increase of $15.5 million, or 6.2%, compared to $248.5 million for the third quarter of fiscal 2023.

As a percentage of net sales, total cost of goods sold improved from 84.5% to 79.2%, primarily due to the pricing actions discussed above.

Bus segment cost of goods sold increased $15.4 million, or 6.5%, for the third 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 third quarter of fiscal 2024 was 5.8% higher compared to the third quarter of fiscal 2023, primarily due to product and mix changes as well as 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 also partially resulted from the 0.7% increase in units booked in the third 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 third quarter of fiscal 2024 compared to the third 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.

Total cost of goods sold was $253.6 million for the first quarter of fiscal 2025, a decrease of $0.5 million, or 0.2%, compared to $254.1 million for the first quarter of fiscal 2024.

As a percentage of net sales, total cost of goods sold increased from 80.0% to 80.8%, primarily due to the impact of ongoing inflationary pressures relating to the procurement of inventory as well as finalizing the union contract in May 2024, which increased the labor costs for our covered production and supply chain employees.

Bus segment cost of goods sold decreased $1.2 million, or 0.5%, for the first quarter of fiscal 2025 compared to the same period in fiscal 2024.

The decrease was primarily driven by customer and product mix changes as the average cost of goods sold per unit for the first quarter of fiscal 2025 was 0.5% lower compared to the first quarter of fiscal 2024.

However, such decrease was partially offset by increases in manufacturing costs attributable to a) increased raw materials costs resulting from ongoing inflationary pressures, b) ongoing supply chain disruptions that resulted in higher purchase costs for components and c) higher labor costs resulting from finalizing the union contract in May 2024.

The $0.6 million, or 5.2%, increase in Parts segment cost of goods sold for the first quarter of fiscal 2025 compared to the first quarter of fiscal 2024 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 $39.7 million for the third quarter of fiscal 2024, an increase of $20.3 million, compared to operating profit of $19.4 million for the third quarter of fiscal 2023.

Profitability was primarily impacted by an increase of $23.6 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 $3.3 million in selling, general and administrative expenses, primarily due to an increase in labor costs.

Operating profit was $33.0 million for the first quarter of fiscal 2025, a decrease of $4.9 million compared to operating profit of $38.0 million for the first quarter of fiscal 2024.

Profitability was primarily impacted by a decrease of $3.2 million in gross profit as outlined in the revenue and cost of goods sold discussions above.

It was also impacted by an increase of $1.7 million in selling, general and administrative expenses, primarily due to an increase in labor costs.

Interest expense .

Interest expense was $2.1 million for the third quarter of fiscal 2024, a decrease of $2.4 million, or 53.3%, compared to $4.5 million for the third quarter of fiscal 2023.

The decrease was primarily attributable to a decrease in the stated term loan interest rate from 11.1% at July 1, 2023 to 7.2% at June 29, 2024, as well as lower outstanding borrowings in the third quarter of fiscal 2024 compared to the third quarter of fiscal 2023.

Other expense, net.

Other expense, net was $2.7 million for the third quarter of fiscal 2024, a decrease of $3.7 million, or 57.5%, compared to $6.4 million of other expense, net for the same period in fiscal 2023.

On May 23, 2024, eligible members of the United Steelworkers Union (“USW”) voted to ratify a three-year collective bargaining agreement (“CBA”) with Blue Bird Body Company ("BBBC"), a wholly-owned subsidiary of Blue Bird Corporation.

Among other items, the CBA required the payment of a $750 signing bonus to the approximate 1,500 covered production workers in our Fort Valley and Perry, Georgia facilities as well as a lump-sum payment to certain employees who were not eligible for the approximate 12%, on average, year one wage increase because their current hourly wage rate exceeded the rate required by the terms of the CBA.

During the third quarter of fiscal 2024, the Company paid the above amounts to those employees covered by the CBA as well as similar amounts to a small number of hourly employees not covered by the CBA so that their total compensation is competitive with that of unionized employees performing comparable job functions.

These payments totaled $2.7 million for the three months ended June 29, 2024 and were recorded in other expense, net because such compensation is not reflective of wages paid for services provided by the direct and indirect employees who support our operating activities and is expensed within cost of goods sold.

There was no similar expense recorded during the three months ended July 1, 2023.

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

and Barclays Capital Inc., as representatives of the several underwriters and American Securities LLC, Coliseum Capital Partners, L.P., and Blackwell Partners LLC – Series A ("2023 Selling Stockholders"), pursuant to which the 2023 Selling Stockholders agreed to sell 5,175,000 shares of common stock, including the sale of 675,000 shares pursuant to the underwriters’ exercise of their over-allotment option, at a purchase price of $20.00 per share (“2023 Offering”).

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

Interest expense was $1.9 million for the first quarter of fiscal 2025, a decrease of $1.7 million, or 47.3%, compared to $3.6 million for the first quarter of fiscal 2024.

The decrease was primarily attributable to a decrease in the stated term loan interest rate from 8.5% at December 30, 2023 to 6.4% at December 28, 2024, as well as lower outstanding borrowings in the first quarter of fiscal 2025 compared to the first quarter of fiscal 2024.

Other income (expense), net.

Other income, net was $2.9 million for the first quarter of fiscal 2025, an increase of $4.1 million, or 338.8%, compared to $1.2 million of other expense, net for the same period in fiscal 2024.

During the first quarter of fiscal 2025, the Company recorded pension income of approximately $0.4 million compared with pension expense of less than $0.1 million for the same period in fiscal 2024.

Additionally, during the first quarter of fiscal 2025, the Company sold certain state emissions credits that it was not projecting to use for approximately $2.6 million, with no similar income recorded during the first quarter of fiscal 2024.

The proceeds from this sale were recorded in other income (expense), net in the Condensed Consolidated Statements of Operations as this transaction is not indicative of our normal revenue generating activities.

Finally, 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.

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

The 2023 Offering closed on June 12, 2023.

Although the Company did not sell any shares or receive any proceeds from the 2023 Offering.

it was required to pay certain expenses in connection with the 2023 Offering that totaled $6.3 million (approximately $0.7 million of which were expensed in the second quarter of fiscal 2023 within selling, general and administrative expenses and reclassified to other expense, net during the third quarter of fiscal 2023), with no similar expense recorded during the same period of fiscal 2024.

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 transaction that totaled approximately $1.2 million during the first quarter of fiscal 2024.

There was no similar expense recorded during the first quarter of fiscal 2025,

Income taxes .

Income tax expense was $9.9 million for the third quarter of fiscal 2024 compared to $1.9 million for the same period in fiscal 2023.

The effective tax rate for the three months ended June 29, 2024 was 27.7% and differed from the statutory federal income tax rate of 21%.

Income tax expense was $8.7 million for the first quarter of fiscal 2025 compared to $8.4 million for the same period in fiscal 2024.

The effective tax rate for the three months ended December 28, 2024 was 24.4% 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 July 1, 2023 was 21.6%, which aligned with the statutory federal income tax rate of 21% and was comprised of normal tax rate items, including impacts from state taxes, federal and state tax credits (net of valuation allowances) and permanent differences, which were partially offset by the impact of discrete period items during the quarter.

The effective tax rate for the three months ended December 30, 2023 was 25.9% and differed from the statutory federal income tax rate of 21%.

Adjusted EBITDA .

Adjusted EBITDA was $48.2 million, or 14.5% of net sales, for the third quarter of fiscal 2024, an increase of $18.6 million, or 62.6%, compared to $29.7 million, or 10.1% of net sales, for the third quarter of fiscal 2023.

The increase is primarily the result of the $19.4 million increase in net income as a result of the factors discussed above.

Adjusted EBITDA was $45.8 million, or 14.6% of net sales, for the first quarter of fiscal 2025, a decrease of $1.9 million, or 3.9%, compared to $47.6 million, or 15.0% of net sales, for the first quarter of fiscal 2024.

The decrease primarily relates to the $4.9 million decrease in operating profit as a result of the factors discussed above, which was partially offset by the $2.9 million of other income, net recorded during the first quarter of fiscal 2025 discussed above.

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

Three Months Ended

(in thousands of dollars) June 29, 2024 July 1, 2023

(in thousands of dollars) December 28, 2024 December 30, 2023

Net income $ 28,722 $ 26,150

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Depreciation, amortization, and disposals (2) 4,243 4,210

Operational transformation initiatives — 196

Share-based compensation expense

Stockholder transaction costs — 1,221

Subtotal (Adjusted EBITDA as previously presented) $ 46,394 $ 28,015

Loss on debt refinancing

Micro Bird Holdings, Inc.

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(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 $0.3 million and $0.5 million for the three months ended June 29, 2024 and July 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 Nine Months Ended June 29, 2024 and July 1, 2023:

Nine Months Ended

(in thousands of dollars) June 29, 2024 July 1, 2023

$ 996,942 $ 829,830

Cost of goods sold

800,392 740,974

$ 196,550 $ 88,856

Operating expenses

Selling, general and administrative expenses

82,798 66,365

Operating profit $ 113,752 $ 22,491

Interest expense (8,550) (13,895)

Interest income 3,132 258

Other expense, net (5,918) (6,999)

Loss on debt refinancing or modification

(1,558) (537)

Income before income taxes $ 100,858 $ 1,318

Income tax expense (26,645) (292)

Equity in net income of non-consolidated affiliate 6,671 4,168

Net income $ 80,884 $ 5,194

Other financial data:

Adjusted EBITDA

$ 141,601 $ 47,217

Adjusted EBITDA margin

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

(in thousands of dollars) Nine Months Ended

Net Sales by Segment June 29, 2024 July 1, 2023

$ 919,433 $ 757,003

77,509 72,827

Total $ 996,942 $ 829,830

Gross Profit by Segment

$ 157,428 $ 53,544

39,122 35,312

$ 196,550 $ 88,856

Net sales were $996.9 million for the nine months ended June 29, 2024, an increase of $167.1 million, or 20.1%, compared to $829.8 million for the nine months ended July 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 $162.4 million, or 21.5%, reflecting a 2.1% increase in units booked and a 18.9% increase in average sales price per unit.

6,534 units booked in the nine months ended June 29, 2024 compared with 6,398 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 nine months of fiscal 2024 relative to the same period in fiscal 2023.

The increase in unit price for the first nine months 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 $4.7 million, or 6.4%, for the nine months ended June 29, 2024 compared to the nine months ended July 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 $800.4 million for the nine months ended June 29, 2024, an increase of $59.4 million, or 8.0%, compared to $741.0 million for the nine months ended July 1, 2023.

As a percentage of net sales, total cost of goods sold improved from 89.3% to 80.3%.

Bus segment cost of goods sold increased $58.5 million, or 8.3%, for the nine months ended June 29, 2024 compared to the nine months ended July 1, 2023.

The increase was partially attributable to the 2.1% increase in units booked in the nine months ended June 29, 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 nine months ended June 29, 2024 was 6.1% higher compared to the nine months ended July 1, 2023, primarily due to product and mix changes as well as 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 $0.9 million, or 2.3%, increase in parts segment cost of goods sold for the nine months ended June 29, 2024 compared to the nine months ended July 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 $113.8 million for the nine months ended June 29, 2024, an increase of $91.3 million compared to operating profit of $22.5 million for the nine months ended July 1, 2023.

Profitability was primarily impacted by an increase of $107.7 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 $16.4 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 $8.6 million for the nine months ended June 29, 2024, a decrease of $5.3 million, or 38.5%, compared to $13.9 million for the nine months ended July 1, 2023.

The decrease was primarily attributable to a decrease in the stated term loan interest rate from 11.1% at July 1, 2023 to 7.2% at June 29, 2024, as well as lower outstanding borrowings in the first nine months of fiscal 2024 compared to the first nine months of fiscal 2023.

Other expense, net.

Other expense, net was $5.9 million for the nine months ended June 29, 2024, a decrease of $1.1 million, or 15.4%, compared to $7.0 million for the nine months ended July 1, 2023.

We recorded $0.1 million of net periodic pension expense during the nine months ended June 29, 2024 when compared with $0.5 million recorded during the nine months ended July 1, 2023.

On May 23, 2024, eligible members of the USW voted to ratify a three-year CBA with BBBC.

These payments totaled $2.7 million for the nine months ended June 29, 2024 and were recorded in other expense, net because such compensation is not reflective of wages paid for services provided by the direct and indirect employees who support our operating activities and is expensed within cost of goods sold.

There was no similar expense recorded during the nine months ended July 1, 2023.

Additionally, on December 14, 2023, the Company entered into an underwriting agreement with BofA Securities, Inc.

On February 15, 2024, the Company entered into an underwriting agreement with Barclays Capital Inc., as representative of the several underwriters and the 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," and collectively with the December Offering, "Offerings").

The December Offering was conducted pursuant to a prospectus supplement, dated December 14, 2023, and the February Offering was conducted pursuant to a prospectus supplement, dated February 15, 2024, both 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 and the February Offering closed on February 21, 2024.

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 nine months ended June 29, 2024, with $6.3 million of similar expense recorded for the nine months ended July 1, 2023.

However, approximately $0.7 million of the $6.3 million of expense recorded for the nine months ended July 1, 2023 was initially recorded within selling, general and administrative expenses during the second quarter of fiscal 2023 and reclassified to other expense, net during the third quarter of fiscal 2023.

Income taxes .

Income tax expense was $26.6 million for the nine months ended June 29, 2024 compared to $0.3 million for the nine months ended July 1, 2023.

The effective tax rate for the nine months ended June 29, 2024 was 26.4% and differed from the statutory federal income tax rate of 21%.

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

Adjusted EBITDA .

Adjusted EBITDA was $141.6 million, or 14.2% of net sales, for the nine months ended June 29, 2024, an increase of $94.4 million, or 199.9%, compared to $47.2 million, or 5.7% of net sales, for the nine months ended July 1, 2023.

The increase in Adjusted EBITDA is primarily the result of the $75.7 million increase in net income as a result of the factors discussed above as well as the $26.4 million corresponding increase in income tax expense.

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

Nine Months Ended

(in thousands of dollars) June 29, 2024 July 1, 2023

Net income $ 80,884 $ 5,194

Interest expense, net (1) 5,729 13,923

Income tax expense 26,645 292

Depreciation, amortization, and disposals (2) 12,253 13,477

Operational transformation initiatives — 1,133

Loss on debt refinancing or modification

Share-based compensation expense

Stockholder transaction costs 3,154 6,252

Other (81) 574

Subtotal (Adjusted EBITDA as previously presented) $ 137,159 $ 43,611

Micro Bird Holdings, Inc.

total interest expense, net;

income tax expense or benefit;

depreciation expense and amortization expense

Adjusted EBITDA $ 141,601 $ 47,217

Adjusted EBITDA margin (percentage of net sales) 14.2 % 5.7 %

(1) Includes $0.3 million for both nine 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 $1.3 million for both nine 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.

(2) Includes $0.4 million and $0.6 million for the three months ended December 28, 2024 and December 30, 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.

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 June 29, 2024, the Company had $88.4 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.

Company’s revolving line of credit is available for working capital requirements, capital expenditures and other general corporate purposes.

At December 28, 2024, the Company had $136.1 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.

Credit Agreement

On November 17, 2023 (the “Closing Date”), BBBC ("Borrower") executed a $250.0 million five-year credit agreement with Bank of Montreal, acting as administrative agent and an issuing bank;

On November 17, 2023 (the “Closing Date”), Blue Bird Body Company ("Borrower"), a wholly-owned subsidiary of Blue Bird Corporation, 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;

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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.

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.

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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, with pricing as of June 29, 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.

1 unchanged sentence

(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.

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 June 29, 2024, Borrower and the guarantors under the Credit Agreement were in compliance with all covenants.

At December 28, 2024, Borrower and the guarantors under the Credit Agreement were in compliance with all covenants.

Short-Term and Long-Term Liquidity Requirements

Our ability to make principal and interest payments on borrowings under our Credit Facilities, as applicable, and our ability to fund planned capital expenditures will depend on our ability to generate cash in the future, which, to a certain extent, is subject to general economic, financial, competitive, regulatory and other conditions.

The adverse impacts from ongoing supply chain disruptions materially impacted our operations and results during the second half of fiscal 2021 and all of fiscal 2022 due to higher purchasing costs, including freight costs incurred to expedite receipt of critical components, increased manufacturing inefficiencies and our inability to complete the production of buses to fulfill sales orders.

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

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 nine months 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.

See PART I, Item 1.A.

"Risk Factors," of our fiscal 2023 Form 10-K, filed with the SEC on December 11, 2023, for a discussion of the material risks we believe we face particularly related to health epidemics and supply chain constraints.

Future health epidemics and/or continuing supply chain constraints could cause a contraction in our profits and/or liquidity, which could lead to issues complying with our Credit Agreement covenants.

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.

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.

Based on the current level of operations, we believe that our existing cash balances and expected cash flows from operations will be sufficient to meet our operating requirements for at least the next 12 months.

To increase our liquidity in future periods, we could pursue raising additional capital via an equity or debt offering utilizing a currently effective "shelf" registration statement.

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Historically, our business has been highly seasonal with school districts buying their new school buses so that they will be available for use on the first day of the school year, typically in mid-August to early September.

This has, in fiscal years prior to the COVID-19 pandemic, resulted in our third and fourth fiscal quarters representing our two busiest quarters from a sales and production perspective, the latter ending on the Saturday closest to September 30.

Our quarterly results of operations, cash flows, and liquidity have

historically been, and are likely to be in future periods, impacted by seasonal patterns.

This has, in fiscal years prior to the COVID-19 pandemic, resulted in our third and fourth fiscal quarters representing our two busiest quarters from a sales and production perspective,

the latter ending on the Saturday closest to September 30.

Our quarterly results of operations, cash flows, and liquidity have historically been, and are likely to be in future periods, impacted by seasonal patterns.

Working capital has historically been a significant use of cash during the first fiscal quarter due to planned shutdowns and a significant source of cash generation in the fourth fiscal quarter.

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

Nine Months Ended

(in thousands of dollars) June 29, 2024 July 1, 2023

Three Months Ended

(in thousands of dollars) December 28, 2024 December 30, 2023

Cash, cash equivalents and restricted cash at beginning of period $ 127,687 $ 78,988

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Total cash used in investing activities (5,094) (2,904)

Total cash used in financing activities (36,195) (37,485)

Total cash (used in) provided by financing activities (12,884) 995

Change in cash, cash equivalents and restricted cash $ 8,432 $ (1,692)

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Total cash provided by operating activities

Cash flows provided by operating activities totaled $55.8 million for the nine months ended June 29, 2024, a decrease of $28.4 million from the $84.1 million of cash flows provided by operating activities during the nine months ended July 1, 2023.

The net decrease primarily resulted from the effect of net changes in operating assets and liabilities that negatively impacted operating cash flows by $111.7 million during the nine months ended June 29, 2024 when compared with the nine months ended July 1, 2023.

The primary drivers in this category were unfavorable changes in accounts receivable;

accounts payable and accrued expenses, pension and other liabilities of $22.5 million, $23.1 million, $37.9 million and $29.1 million, respectively, as follows:

• A shift in our customer mix resulted in increases in the accounts receivable and inventory balances (a net use of cash) at the end of the third quarter of fiscal 2024 when compared with the corresponding period in fiscal 2023.

Specifically, we had a significant increase in fleet orders during fiscal 2024 when compared with fiscal 2023, with the delivery of many of the buses scheduled to occur in the months leading up to the beginning of the school year.

We built many of these units during the third quarter of fiscal 2024, a portion of which were booked in the latter part of the quarter that resulted in an increase in accounts receivable, with the remainder to be booked in the early part of the fourth quarter that resulted in an increase in finished goods inventory, at the end of the third quarter of fiscal 2024 when compared with the corresponding period in fiscal 2023.

In comparison, we became more efficient at managing supply chain disruptions, and thus building and selling buses, during the first nine months of fiscal 2023 when compared with the corresponding period in fiscal 2022.

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

• At the end of fiscal 2022 and during the first nine months 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 nine months of fiscal 2023, resulted in a significant increase in the accounts payable balance (a net source of cash).

Although inflationary pressures continued during the first nine months of fiscal 2024, they were smaller when compared with the corresponding period of fiscal 2023.

This factor, when coupled with our production and sales volumes largely stabilizing during the first nine months of fiscal 2024, resulted in a decrease in the accounts payable balance during the first nine months of fiscal 2024 (a net use of cash).

• Our profitability increased significantly during the first nine months of fiscal 2024 when compared with the corresponding period in fiscal 2023.

Because we were able to utilize net operating loss carryforwards generated in fiscal 2021 and fiscal 2022 to offset federal and state income tax obligations relating to the income we generated in the first nine months of fiscal 2023, we made no estimated tax payments during this period.

Because of our significant profitability and due to the fact that we primarily utilized available net operating loss carryforwards during fiscal 2023, we made $18.9 million of estimated federal and state income tax payments during the first nine months of fiscal 2024, resulting in a significant use of cash impacting other current liabilities (which is included within accrued expenses, pension and other liabilities) during this period.

Additionally, as of the end of the third quarter of fiscal 2023, we had received approximately $13.2 million of advanced funds awarded by the U.S.

Environmental Protection Agency in administering the U.S.

Infrastructure Investment and Jobs Act

("IIJA") that were recorded as unearned revenue within other current liabilities (which is included within accrued expenses, pension and other liabilities).

As we built and sold the underlying buses in subsequent quarters, we recognized this amount in revenue and had no corresponding balance as of the end of the third quarter of fiscal 2024, representing a net use of cash when comparing the two periods.

The above decreases were partially offset by a $75.7 million increase in net income and a $3.0 million increase in the dividend received from our unconsolidated Canadian joint venture during the first nine months of fiscal 2024 when compared with the corresponding period in fiscal 2023.

Cash flows provided by operating activities totaled $26.4 million for the three months ended December 28, 2024, an increase of $26.2 million from the $0.2 million of cash flows provided by operating activities during the three months ended December 30, 2023.

The increase primarily resulted from the effect of net changes in operating assets and liabilities that positively impacted operating cash flows by $30.7 million during the three months ended December 28, 2024 when compared with the three months ended December 30, 2023.

The primary drivers in this category were favorable changes in accounts receivable and accounts payable of $43.6 million and $17.6 million, respectively, as follows:

• A shift in our customer mix resulted in an increase in the accounts receivable balance at the end of fiscal 2024 when compared with the end of fiscal 2023.

Specifically, we had a significant increase in fleet revenue towards the end of fiscal 2024 relating to school buses that were delivered to coincide with the start of the new school year, with such revenue representing the majority of sales we make on credit.

During the first quarter of fiscal 2025, the accounts receivable balances relating to fiscal 2024 fleet revenue were collected, representing a significant cash inflow (a large source of cash).

There was no similar activity during the first quarter of fiscal 2024.

• During 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 fiscal year, resulted in a significant increase in the accounts payable balance at the end of fiscal 2023.

Although inflationary pressures continued during the first quarter of fiscal 2024, they were smaller when compared to fiscal 2023.

This factor, when coupled with our production and sales volumes largely stabilizing during the period, resulted in a significant decrease in the accounts payable balance as of December 30, 2023 when compared with the end of fiscal 2023 (a large use of cash).

Although inflationary pressures continued into the first quarter of fiscal 2025, they were relatively small when compared to fiscal 2024.

This factor, when coupled with our production and sales volumes remaining relatively consistent in the first quarters of fiscal 2025 and 2024, resulted in a small decrease in the accounts payable balance as of December 28, 2024 when compared with the end of fiscal 2024, representing a significantly smaller use of cash when compared with the first quarter of fiscal 2024.

The above favorable changes were partially offset by unfavorable changes in inventory and other assets of $28.2 million and $6.1 million, respectively, as follows:

• We had a large increase in the balance of our inventory during the first quarter of fiscal 2025 when compared with the first quarter of fiscal 2024 (an increase in the use of cash).

Specifically, the bus orders that we produced during the first quarter of fiscal 2025 contained a higher mix of units for certain customers, primarily fleet and specific governmental customers, for which the sales cycle is longer when compared with sales to dealers, resulting in a significant increase in units in finished goods inventory as of December 28, 2024 when compared with December 30, 2023.

Additionally, at the end of the first quarter of fiscal 2025, we elected to strategically acquire larger quantities of certain critical components that have longer lead times and could impact our production schedule in future periods if not manufactured by our suppliers and delivered to us in a timely manner, with no similar activity in the first quarter of fiscal 2024.

This purchasing activity resulted in a large increase in our

raw materials inventory as of December 28, 2024 when compared with December 30, 2023.

There was not a corresponding increase in accounts payable for this activity in the first quarter of fiscal 2025 as we had not received the inventory as of the end of the quarter as our manufacturing and supply chain operations were closed for planned maintenance the last week in December, so we recorded the obligation relating to the purchase of this inventory within accrued expenses.

Additionally, there was not a corresponding large increase in accrued expenses in the first quarter of fiscal 2025 as the increase for the strategic acquisition of inventory discussed above was largely offset by other activity, including a decrease in the balance of bonuses accrued as of the end of fiscal 2024 that were paid in the first quarter of fiscal 2025.

• The changes in other assets were primarily driven by larger increases in certain prepaid assets (a use of cash), including prepaid software contracts and insurance premiums, in the first quarter of fiscal 2025 compared to the first quarter of fiscal 2024 given the continued increases in the costs of these services.

Total cash used in investing activities

Cash flows used in investing activities totaled $10.1 million for the nine months ended June 29, 2024 as compared to $6.4 million for the nine months ended July 1, 2023.

The $3.7 million increase was primarily due to an increase in spending on fixed assets, as increased profitability in the first nine months 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 $36.2 million for the nine months ended June 29, 2024 as compared to $37.5 million for the nine months ended July 1, 2023.

The $1.3 million decrease between fiscal periods was primarily attributable to $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 $0.9 million increase in cash received from stock option exercises, which were partially offset by a $119.5 million increase in term loan principal repayments.

Cash flows used in investing activities totaled $5.1 million for the three months ended December 28, 2024 as compared to $2.9 million for the three months ended December 30, 2023.

The $2.2 million increase was primarily due to an increase in spending on fixed assets, as increasing recent profitability has allowed for more capital spending.

Total cash (used in) provided by financing activities

Cash flows used in financing activities totaled $12.9 million for the three months ended December 28, 2024 as compared to $1.0 million provided by financing activities for the three months ended December 30, 2023.

The $13.9 million decrease between fiscal periods was primarily attributable to $10.0 million in purchases of Company stock in the first quarter of fiscal 2025, with no similar activity in the same period in fiscal 2024.

Additionally, as a result of executing the Credit Agreement in the three months ended December 30, 2023 with no similar activity in three months ended December 28, 2024, there was a $5.7 million net decrease in proceeds from borrowings under the Credit Agreement, which was partially reduced by the $3.1 million of costs we incurred in completing the debt refinancing in the first quarter of fiscal 2024.

Free cash flow

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

Nine Months Ended

(in thousands of dollars) June 29, 2024 July 1, 2023

Three Months Ended

(in thousands of dollars) December 28, 2024 December 30, 2023

Net cash provided by operating activities $ 26,410 $ 217

2 unchanged sentences

$ 21,816 $ (2,687)

Free Cash Flow for the nine months ended June 29, 2024 was $32.1 million lower than for the nine months ended July 1, 2023 due to a $28.4 million decrease in net cash provided by operating activities and a $3.7 million increase in cash paid for fixed assets, both as discussed above.

Free Cash Flow for the three months ended December 28, 2024 was $24.5 million higher than for the three months ended December 30, 2023 due to a $26.2 million increase in net cash provided by operating activities and a $1.7 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 June 29, 2024, 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 December 28, 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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What changed 10-Q

Item 2. Management’s Discussion and Analysis