blbd-20231230

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 30, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ................................ to ...............................................

Commission File Number 001-36267

BLUE BIRD CORPORATION

(Exact name of registrant as specified in its charter)

Delaware 46-3891989

(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)

3920 Arkwright Road, 2nd Floor, Macon, Georgia 31210

(Address of principal executive offices and zip code)

(478) 822-2801

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, $0.0001 par value

BLBD

NASDAQ Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated Filer

☒

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

At February 2, 2024, 32,198,592 shares of the registrant’s common stock, $0.0001 par value, were outstanding.

BLUE BIRD CORPORATION

FORM 10-Q

TABLE OF CONTENTS



PART I – FINANCIAL INFORMATION			2
Item 1. Financial Statements (Unaudited)			2
Condensed Consolidated Balance Sheets			2
Condensed Consolidated Statements of Operations			3
Condensed Consolidated Statements of Comprehensive Income (Loss)			4
Condensed Consolidated Statements of Cash Flows			5
Condensed Consolidated Statements of Stockholders' Equity (De ficit)			7
Notes to Condensed Consolidated Financial Statements			8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.			18
Item 3. Quantitative and Qualitative Disclosures About Market Risk.			30
Item 4. Controls and Procedures.			30
PART II – OTHER INFORMATION			31
Item 1. Legal Proceedings.			31
Item 1A. Risk Factors.			31

Item 5. Other Information.			31
Item 6. Exhibits.			32
SIGNATURES			33

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

BLUE BIRD CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


(in thousands of dollars, except for share data)	December 30, 2023		September 30, 2023
Assets
Current assets
Cash and cash equivalents	$	77,296	$	78,988
Accounts receivable, net	11,107		12,574
Inventories	142,457		135,286
Other current assets	12,485		9,215
Total current assets	$	243,345	$	236,063

Property, plant and equipment, net	$	95,563	$	95,101
Goodwill	18,825		18,825
Intangible assets, net	44,956		45,424
Equity investment in affiliate	24,007		17,619
Deferred tax assets	1,001		2,182
Finance lease right-of-use assets	858		1,034
Other assets	2,723		1,518
Total assets	$	431,278	$	417,766
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable	$	113,911	$	137,140
Warranty	6,601		6,711
Accrued expenses	32,454		32,894
Deferred warranty income	8,351		8,101
Finance lease obligations	980		583
Other current liabilities	20,500		24,391
Current portion of long-term debt	5,000		19,800
Total current liabilities	$	187,797	$	229,620
Long-term liabilities
Revolving credit facility	$	36,220	$	—
Long-term debt	93,486		110,544
Warranty	8,682		8,723
Deferred warranty income	15,767		15,022
Deferred tax liabilities	2,516		2,513
Finance lease obligations	445		987
Other liabilities	8,522		7,955
Pension	2,266		2,404
Total long-term liabilities	$	167,904	$	148,148
Guarantees, commitments and contingencies (Note 6)
Stockholders' equity
Preferred stock, $0.0001 par value, 10,000,000 shares authorized, 0 shares outstanding at December 30, 2023 and September 30, 2023	$	—	$	—
Common stock, $0.0001 par value, 100,000,000 shares authorized, 32,198,592 and 32,165,225 shares outstanding at December 30, 2023 and September 30, 2023, respectively	3		3
Additional paid-in capital	187,159		177,861
Accumulated deficit	(29,550)		(55,700)
Accumulated other comprehensive loss	(31,753)		(31,884)
Treasury stock, at cost, 1,782,568 shares at December 30, 2023 and September 30, 2023	(50,282)		(50,282)
Total stockholders' equity	$	75,577	$	39,998
Total liabilities and stockholders' equity	$	431,278	$	417,766

The accompanying notes are an integral part of these condensed consolidated financial statements.

BLUE BIRD CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Three Months Ended
(in thousands of dollars except for share data)	December 30, 2023		December 31, 2022
Net sales	$	317,660	$	235,732
Cost of goods sold	254,102		228,275
Gross profit	$	63,558	$	7,457
Operating expenses
Selling, general and administrative expenses	25,602		16,832
Operating profit (loss)	$	37,956	$	(9,375)
Interest expense	(3,631)		(4,196)
Interest income	1,088		—
Other expense, net	(1,221)		(236)
Loss on debt refinancing or modification	(1,558)		(537)
Income (loss) before income taxes	$	32,634	$	(14,344)
Income tax (expense) benefit	(8,446)		2,981
Equity in net income of non-consolidated affiliate	1,962		69
Net income (loss)	$	26,150	$	(11,294)

Earnings (loss) per share:
Basic weighted average shares outstanding	32,170,779		32,026,311
Diluted weighted average shares outstanding	32,429,127		32,026,311
Basic earnings (loss) per share	$	0.81	$	(0.35)
Diluted earnings (loss) per share	$	0.81	$	(0.35)

The accompanying notes are an integral part of these condensed consolidated financial statements.

BLUE BIRD CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)


	Three Months Ended
(in thousands of dollars)	December 30, 2023		December 31, 2022
Net income (loss)	$	26,150	$	(11,294)
Other comprehensive income, net of tax:
Net change in defined benefit pension plan	131		227

Total other comprehensive income	$	131	$	227
Comprehensive income (loss)	$	26,281	$	(11,067)

The accompanying notes are an integral part of these condensed consolidated financial statements.

BLUE BIRD CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Three Months Ended
(in thousands of dollars)	December 30, 2023		December 31, 2022
Cash flows from operating activities
Net income (loss)	$	26,150	$	(11,294)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization expense	3,618		3,361
Non-cash interest expense	132		417
Share-based compensation expense	2,051		589
Equity in net income of non-consolidated affiliate	(1,962)		(69)
Dividend from equity investment in affiliate	2,991		—
Loss on disposal of fixed assets	4		—


Deferred income tax expense (benefit)	1,143		(2,986)
Amortization of deferred actuarial pension losses	172		299
Loss on debt refinancing or modification	1,558		537
Changes in assets and liabilities:
Accounts receivable	1,467		3,409
Inventories	(7,171)		13,857
Other assets	(3,095)		(5,227)
Accounts payable	(23,103)		16,572
Accrued expenses, pension and other liabilities	(3,738)		461

Total adjustments	$	(25,933)	$	31,220
Total cash provided by operating activities	$	217	$	19,926
Cash flows from investing activities
Cash paid for fixed assets	$	(2,904)	$	(1,146)
Proceeds from sale of fixed assets	—		—
Total cash used in investing activities	$	(2,904)	$	(1,146)
Cash flows from financing activities
Revolving credit facility borrowings (Note 4)	$	36,220	$	5,000
Revolving credit facility repayments	—		(20,000)
Term loan borrowings - new credit agreement (Note 4)	100,000		—
Term loan repayments - previous credit agreement (Note 4)	(131,800)		(4,950)
Principal payments on finance leases	(145)		(141)
Cash paid for debt costs (Note 4)	(3,128)		(3,211)


Repurchase of common stock in connection with stock award exercises	(301)		(57)
Cash received from stock option exercises	149		—

Total cash provided by (used in) financing activities	$	995	$	(23,359)
Change in cash, cash equivalents, and restricted cash	(1,692)		(4,579)
Cash, cash equivalents, and restricted cash at beginning of period	78,988		10,479
Cash, cash equivalents, and restricted cash at end of period	$	77,296	$	5,900


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

Supplemental disclosures of cash flow information
Cash paid or received during the period:
Interest paid, net of interest received	$	1,807	$	3,170
Income tax paid (received), net of tax refunds	2		(90)
Non-cash investing and financing activities:
Changes in accounts payable for capital additions to property, plant and equipment	$	953	$	672



Accrue debt modification costs	—		61

Right-of-use assets obtained in exchange for operating lease obligations	1,241		199
Warrants issued for equity investment in affiliate	7,416		—

The accompanying notes are an integral part of these condensed consolidated financial statements.

BLUE BIRD CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

(Unaudited)


	Three Months Ended
(in thousands of dollars, except for share data)	Common Stock					Convertible Preferred Stock							Treasury Stock
	Shares	Par Value		Additional Paid-In-Capital		Shares	Amount		Accumulated Other Comprehensive Loss		Accumulated Deficit		Shares	Amount		Total Stockholders' Equity (Deficit)
Balance, September 30, 2023	32,165,225	$	3	$	177,861	—	$	—	$	(31,884)	$	(55,700)	1,782,568	$	(50,282)	$	39,998


Issuance of warrants (Note 12)	—	—		7,416		—	—		—		—		—	—		7,416
Restricted stock activity	22,115	—		(301)		—	—		—		—		—	—		(301)
Stock option activity	11,252	—		149		—	—		—		—		—	—		149

Share-based compensation expense	—	—		2,034		—	—		—		—		—	—		2,034



Net income	—	—		—		—	—		—		26,150		—	—		26,150
Other comprehensive income, net of tax	—	—		—		—	—		131		—		—	—		131
Balance, December 30, 2023	32,198,592	$	3	$	187,159	—	$	—	$	(31,753)	$	(29,550)	1,782,568	$	(50,282)	$	75,577

Balance, October 1, 2022	32,024,911	$	3	$	173,103	—	$	—	$	(41,930)	$	(79,512)	1,782,568	$	(50,282)	$	1,382


Restricted stock activity	7,156	—		(57)		—	—		—		—		—	—		(57)


Share-based compensation expense	—	—		546		—	—		—		—		—	—		546


Net loss	—	—		—		—	—		—		(11,294)		—	—		(11,294)
Other comprehensive income, net of tax	—	—		—		—	—		227		—		—	—		227
Balance, December 31, 2022	32,032,067	$	3	$	173,592	—	$	—	$	(41,703)	$	(90,806)	1,782,568	$	(50,282)	$	(9,196)

BLUE BIRD CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Nature of Business and Basis of Presentation

Nature of Business

Blue Bird Body Company ("BBBC"), a wholly-owned subsidiary of Blue Bird Corporation, was incorporated in 1958 and has manufactured, assembled and sold school buses to a variety of municipal, federal and commercial customers since 1927. The majority of BBBC’s sales are made to an independent dealer network, which in turn sells buses to ultimate end users. References in these notes to condensed consolidated financial statements to “Blue Bird,” the “Company,” “we,” “our,” or “us” relate to Blue Bird Corporation and its wholly-owned subsidiaries, unless the context specifically indicates otherwise. We are headquartered in Macon, Georgia.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant inter-company transactions and accounts have been eliminated in consolidation.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial reporting and Article 10 of Regulation S-X. The Company’s fiscal year ends on the Saturday closest to September 30 with its quarters consisting of thirteen weeks in most years. The fiscal years ending September 28, 2024 ("fiscal 2024") and ended September 30, 2023 ("fiscal 2023") consist or consisted of 52 weeks. The first quarters of fiscal 2024 and fiscal 2023 both included 13 weeks.

In the opinion of management, all adjustments considered necessary for a fair presentation of financial results have been made. Such adjustments consist of only those of a normal recurring nature. Operating results for any interim period are not necessarily indicative of the results that may be expected for the entire year. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements.

The Condensed Consolidated Balance Sheet data as of September 30, 2023 was derived from the Company’s audited financial statements but does not include all disclosures required by U.S. GAAP. For additional information, including the Company’s significant accounting policies, refer to the consolidated financial statements and related footnotes as of and for the fiscal year ended September 30, 2023 as set forth in the Company's fiscal 2023 Form 10-K filed with the Securities and Exchange Commission ("SEC") on December 11, 2023.

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

As discussed in detail in the fiscal 2023 Form 10-K filed with the SEC on December 11, 2023, the novel coronavirus known as "COVID-19" materially affected demand for new buses and replacement/maintenance parts during the second half of our fiscal year that ended October 3, 2020 ("fiscal 2020") and first half of our fiscal year that ended October 2, 2021 ("fiscal 2021"), significantly impacting our business and operations. Although demand for school buses strengthened substantially during the second half of fiscal 2021, the Company, and automotive industry as a whole, began experiencing significant supply chain constraints around this same period of time. These supply chain disruptions had a significant adverse impact on our operations and results during the second half of fiscal 2021 and all of fiscal 2022 due to higher purchasing costs, including freight costs incurred to expedite receipt of critical components, increased manufacturing inefficiencies and our inability to complete the production of buses to fulfill sales orders.

Additionally, Russian military forces launched a large-scale invasion of Ukraine on February 24, 2022, which further exacerbated global supply chain disruptions. While the Company has no assets or customers in either of these countries, this military conflict has significantly impacted our financial results, primarily in an indirect manner since the Company does not sell to customers located in, or source goods directly from, either country. Specifically, it contributed to increased a) costs charged by suppliers for the purchase of inventory that is at least partially dependent on resources originating from either of the countries and b) freight costs, both of which negatively impacted the gross profit recognized on sales during fiscal 2022, fiscal 2023 and continuing into fiscal 2024.

included in the backlog of fixed price sales orders originating in fiscal 2021 and the early months of fiscal 2022 that carried forward into fiscal 2023. During the remainder of fiscal 2023, the buses that were sold were generally included in the backlog of fixed price sales orders originating more recently (i.e., the latter months of fiscal 2022 and in fiscal 2023), with the cumulative increases in sales prices we charged for those buses generally outpacing the higher costs we paid to procure inventory, resulting in gross profit during the quarters. While the gross margin on bus sales during the second quarter of fiscal 2023 lagged the historical gross margin reported prior to the COVID-19 pandemic, it returned to more normal historical levels during the latter half of fiscal 2023.

Supply chain disruptions continued into the first quarter of fiscal 2024 as there were still occasional shortages of certain critical components as well as ongoing increases in raw materials costs, both of which impacted our business and operations by limiting the number of school buses that we could produce and sell as well as increasing the costs to manufacture buses. Nonetheless, the lessons learned, and resulting actions taken, by management over the past three fiscal years allowed the Company to better navigate these supply chain challenges and consistently produce buses to fulfill sales orders. Ongoing improvements in manufacturing operations, when coupled with periodic pricing actions taken by the Company to ensure that the increased sales prices charged for buses kept pace with increased costs to procure inventory to produce the buses, allowed the Company to report gross profit and gross margin during the first quarter of fiscal 2024 that were consistent with, or better than, historic levels experienced prior to the COVID-19 pandemic.

Use of Estimates and Assumptions

The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions. At the date of the financial statements, these estimates and assumptions affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities, and during the reporting period, these estimates and assumptions affect the reported amounts of revenues and expenses. For example, significant management judgments are required in determining excess, obsolete, or unsalable inventory; the allowance for doubtful accounts; potential impairment of long-lived assets, goodwill and intangible assets; and the accounting for self-insurance reserves, warranty reserves, pension obligations, income taxes, environmental liabilities and contingencies. Future events, including the extent and duration of continued supply chain constraints and their related economic impacts, and their effects cannot be predicted with certainty, and, accordingly, the Company’s accounting estimates require the exercise of judgment. The accounting estimates used in the preparation of the Company’s condensed consolidated financial statements may change as new events occur, as more experience is acquired, as additional information is obtained and as the Company’s operating environment changes. The Company evaluates and updates its assumptions and estimates on an ongoing basis and may employ outside experts to assist in the Company’s evaluations. Actual results could differ from the estimates that the Company has used.

2. Summary of Significant Accounting Policies and Recently Issued Accounting Standards

The Company’s significant accounting policies are described in the Company’s fiscal 2023 Form 10-K, filed with the SEC on December 11, 2023. Our senior management has reviewed these significant accounting policies and related disclosures and determined that there were no significant changes in our critical accounting policies in the three months ended December 30, 2023.

Recently Issued Accounting Standards

ASU 2023-07 On November 27, 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires public entities to disclose information about their reportable segments’ significant expenses on an interim and annual basis. The ASU is effective for fiscal years beginning after December 15, 2023, and interim periods beginning after December 15, 2024, with early adoption permitted.

ASU 2023-09 On December 14, 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires entities to disclose more detailed information in their reconciliation of their statutory tax rate to their effective tax rate. Public business entities ("PBEs") are required to provide this incremental detail in a numerical, tabular format. The ASU also requires entities to disclose more detailed information about income taxes paid, including by jurisdiction; pretax income (or loss) from continuing operations; and income tax expense (or benefit). The ASU is effective for PBEs in fiscal years beginning after December 15, 2024, and interim periods beginning after December 15, 2025, with early adoption permitted.

The new ASUs will not impact amounts recorded in the financial statements but instead, will require more detailed disclosures in the footnotes to the financial statement. The Company plans to provide the updated disclosures required by the ASUs in the periods in which they are effective.

3. Supplemental Financial Information

Inventories

The following table presents the components of inventories at the dates indicated:


(in thousands of dollars)	December 30, 2023		September 30, 2023
Raw materials	$	96,045	$	88,116
Work in process	40,223		45,875
Finished goods	6,189		1,295
Total inventories	$	142,457	$	135,286

Restricted Cash

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported on the applicable Condensed Consolidated Balance Sheets that sum to the total of such amounts reported on the Condensed Consolidated Statements of Cash Flows:


(in thousands of dollars)	December 30, 2023		December 31, 2022
Cash and cash equivalents	$	77,296	$	5,664
Restricted cash	—		236
Total cash, cash equivalents, and restricted cash reported on the Condensed Consolidated Statements of Cash Flows	$	77,296	$	5,900

Amounts included in restricted cash represent those that were required by a contractual agreement with a financial institution to serve as collateral against outstanding balances pertaining to the Company's corporate credit card program.

Product Warranties

The following table reflects activity in accrued warranty cost (current and long-term portions combined) for the periods presented:


	Three Months Ended
(in thousands of dollars)	December 30, 2023		December 31, 2022
Balance at beginning of period	$	15,434	$	15,970
Add current period accruals	2,341		2,033
Current period reductions of accrual	(2,492)		(2,423)
Balance at end of period	$	15,283	$	15,580

Extended Warranties

The following table reflects activity in deferred warranty income (current and long-term portions combined), for the sale of extended warranties of two to five years, for the periods presented:


	Three Months Ended
(in thousands of dollars)	December 30, 2023		December 31, 2022
Balance at beginning of period	$	23,123	$	18,795
Add current period deferred income	2,998		2,336
Current period recognition of income	(2,003)		(1,841)
Balance at end of period	$	24,118	$	19,290

The outstanding balance of deferred warranty income in the table above is considered a "contract liability," and represents a performance obligation of the Company that we satisfy over the term of the arrangement but for which we have been paid in full at the time the warranty was sold. We expect to recognize $6.4 million of the outstanding contract liability during the remainder of fiscal 2024, $6.9 million in fiscal 2025, and the remaining balance thereafter.

Other Current Liabilities

The balance in other current liabilities as of December 30, 2023 includes approximately $7.1 million of funds awarded by the U.S. Environmental Protection Agency in administering the U.S. Infrastructure Investment and Jobs Act ("IIJA") that was signed into law in mid-November 2021. The IIJA allocates federal funds to help local school jurisdictions purchase zero and low emission school buses over a five year period. The Company expects to recognize this amount as revenue during fiscal 2024 as the underlying buses are produced and delivered.

Self-Insurance

The following table reflects our total accrued self-insurance liability, comprised of workers' compensation and health insurance related claims, at the dates indicated:


(in thousands of dollars)	December 30, 2023		September 30, 2023
Current portion	$	4,392	$	4,475
Long-term portion	2,009		1,771
Total accrued self-insurance	$	6,401	$	6,246

The current and long-term portions of the accrued self-insurance liability are reflected in accrued expenses and other liabilities, respectively, on the Condensed Consolidated Balance Sheets.

Shipping and Handling Revenues

Shipping and handling revenues were $4.7 million and $4.3 million for the three months ended December 30, 2023 and December 31, 2022, respectively. The related cost of goods sold was $4.3 million and $3.8 million for the three months ended December 30, 2023 and December 31, 2022, respectively.

Pension Expense

Components of net periodic pension benefit expense were as follows for the periods presented:


	Three Months Ended
(in thousands of dollars)	December 30, 2023		December 31, 2022
Interest cost	$	1,484	$	1,509
Expected return on plan assets	(1,620)		(1,630)
Amortization of prior loss	172		299
Net periodic pension benefit expense	$	36	$	178
Amortization of prior loss, recognized in other comprehensive income	(172)		(299)
Total recognized in net periodic pension benefit expense and other comprehensive income	$	(136)	$	(121)

4. Debt

On November 17, 2023 (the “Closing Date”), BBBC, as Borrower, executed a $250.0 million five-year credit agreement with Bank of Montreal, acting as administrative agent and an issuing bank; several joint lead arranger partners and issuing banks, including Bank of America; and a syndicate of other lenders (the "Credit Agreement").

The credit facilities provided for under the Credit Agreement consist of a term loan facility in an aggregate initial principal amount of $100.0 million (the “Term Loan Facility”) and a revolving credit facility with aggregate commitments of $150.0 million. The revolving credit facility includes a $25.0 million letter of credit sub-facility and $5.0 million swingline sub-facility (the “Revolving Credit Facility,” and together with the Term Loan Facility, each a “Credit Facility” and collectively, the “Credit Facilities”).

A minimum of $100.0 million of additional term loans and/or revolving credit commitments may be incurred under the Credit Agreement, subject to certain limitations as set forth in the Credit Agreement, and which additional loans and/or commitments would require further commitments from existing lenders or from new lenders.

Borrower has the right to prepay the loans outstanding under the Credit Facilities without premium or penalty (subject to customary breakage costs, if applicable). Additionally, proceeds from asset sales, condemnation, casualty insurance and/or debt issuances (in

certain circumstances) are required to be used to prepay borrowings outstanding under the Credit Facilities. Borrowings under the Term Loan Facility, which were made on the Closing Date, may not be reborrowed once they are repaid while borrowings under the Revolving Credit Facility may be repaid and reborrowed from time to time at our election.

The Term Loan Facility is subject to amortization of principal, payable in equal quarterly installments on the last day of each fiscal quarter, commencing on March 30, 2024, with 5.0% of the $100.0 million aggregate principal amount of all initial term loans outstanding at the Closing Date payable each year prior to the maturity date of the Term Loan Facility. The remaining initial aggregate principal amount outstanding under the Term Loan Facility, as well as any outstanding borrowings under the Revolving Credit Facility, will be payable on the November 17, 2028 maturity date of the Credit Agreement.

The Credit Facilities are guaranteed by all of the Company’s wholly-owned domestic restricted subsidiaries (subject to customary exceptions) and are secured by a security agreement which pledges a lien on virtually all of the assets of Borrower, the Company and the Company’s other wholly-owned domestic restricted subsidiaries, other than any owned or leased real property and subject to customary exceptions.

The $100.0 million of Term Loan Facility proceeds and $36.2 million of Revolving Credit Facility proceeds that were borrowed on the Closing Date were used to pay (i) the $131.8 million of term loan indebtedness outstanding under the previous credit agreement ("Amended Credit Agreement"), (ii) interest and commitment fees accrued under the Amended Credit Agreement through the Closing Date and (iii) transaction costs associated with the consummation of the Credit Agreement.

Under the terms of the Credit Agreement, Borrower, the Company and the Company’s other wholly-owned domestic restricted subsidiaries are subject to customary affirmative and negative covenants and events of default for facilities of this type (with customary grace periods, as applicable, and lender remedies).

Borrowings under the Credit Facilities bear interest, at our option, at (i) base rate ("ABR") or (ii) the Secured Overnight Financing Rate as administered by the Federal Reserve Bank of New York ("SOFR") plus 0.10%, plus an applicable margin depending on the Total Net Leverage Ratio ("TNLR," which is defined in the Credit Agreement as the ratio of consolidated net debt to consolidated EBITDA on a trailing four quarter basis) of the Company as follows:


Level	TNLR	ABR Loans	SOFR Loans
I	Less than 1.00x	0.75%	1.75%
II	Greater than or equal to 1.00x and less than 1.50x	1.50%	2.50%
III	Greater than or equal to 1.50x and less than 2.25x	2.00%	3.00%
IV	Greater than or equal to 2.25x	2.25%	3.25%

Pricing on the Closing Date was set at Level III until receipt of the financial information and related compliance certificate for the first fiscal quarter ending after the Closing Date.

Borrower is also required to pay lenders an unused commitment fee of between 0.25% and 0.45% per annum on the undrawn commitments under the Revolving Credit Facility, depending on the TNLR, quarterly in arrears.

The Credit Agreement also includes a requirement that the Company comply with the following financial covenants on the last day of each fiscal quarter through maturity: (i) a pro forma TNLR of not greater than 3.00:1.00 and (ii) a pro forma fixed charge coverage ratio (as defined in the Credit Agreement) of not less than 1.20:1.00. The Company was in compliance with such covenants as of December 30, 2023.

The Company incurred approximately $3.1 million in lender fees and other issuance costs relating to the Credit Agreement. Of such total, approximately $1.9 million and $0.8 million was capitalized within other assets and long-term debt (as a contra-balance), respectively, on the Condensed Consolidated Balance Sheets and will be amortized as an adjustment to interest expense on a straight-line basis and utilizing the effective interest method, respectively, until maturity of the Credit Agreement. The remaining approximate $0.4 million was recorded to loss on debt refinancing or modification on the Condensed Consolidated Statements of Operations.

In conjunction with executing the Credit Agreement, previously capitalized lender fees and other issuance costs relating to the Amended Credit Agreement and incurred in prior periods totaling $1.1 million were also expensed to loss on debt refinancing or modification on the Condensed Consolidated Statements of Operations.

Term loan borrowings consisted of the following at the dates indicated:


(in thousands of dollars)	December 30, 2023		September 30, 2023
Term loan borrowings, net of deferred financing costs of $1,514 and $1,456, respectively	$	98,486	$	130,344
Less: current portion of long-term debt	5,000		19,800
Long-term debt, net of current portion	$	93,486	$	110,544

Term loan borrowings are recognized on the Condensed Consolidated Balance Sheets at the unpaid principal balance, and are not subject to fair value measurement; however, given the variable rates on the loans, the Company estimates that the unpaid principal balance approximates fair value. If measured at fair value in the financial statements, the term loans would be classified as Level 2 in the fair value hierarchy. At December 30, 2023 and September 30, 2023, $100.0 million and $131.8 million, respectively, were outstanding on the term loans.

At December 30, 2023 and September 30, 2023, the stated interest rates on the term loans were 8.5% and 10.0%, respectively. For the three month periods ended December 30, 2023 and September 30, 2023, the weighted-average annual effective interest rates for the term loans were 9.9% and 10.9%, respectively.

At December 30, 2023, $6.7 million of letters of credit were outstanding, which reduces the availability on the revolving line of credit. There were $36.2 million borrowings outstanding on the Revolving Credit Facility; therefore, the Company would have been able to borrow $107.1 million on the revolving line of credit.

Interest expense on all indebtedness was $3.6 million and $4.2 million for the three months ended December 30, 2023 and December 31, 2022, respectively.

The schedule of remaining principal payments through maturity for the term loans is as follows:


(in thousands of dollars)
Fiscal Year	Principal Payments
2024	$	3,750
2025	5,000
2026	5,000
2027	5,000
2028	5,000
Thereafter	76,250
Total remaining principal payments	$	100,000

5. Income Taxes

Income tax provisions for interim periods are based on estimated annual income tax rates, adjusted to reflect the effects of any significant infrequent or unusual items that are required to be discretely recognized within the current interim period. The effective tax rates in the periods presented are largely based upon the annual forecasted pre-tax earnings mix and allocation of certain expenses in various taxing jurisdictions where the Company conducts its business, primarily in the United States of America ("U.S."). In periods where our pre-tax income approximates or is equal to break-even, the effective tax rates for quarter-to-date and full-year periods may not be meaningful due to discrete period items.

Three Months

The effective tax rate for the three months ended December 30, 2023 was 25.9% and differed from the statutory federal income tax rate of 21%. The increase was primarily due to the impacts from state taxes and certain permanent items on the federal rate, which were partially offset by the impacts from federal and state tax credits (net of valuation allowances) and discrete period items during the quarter.

The effective tax rate for the three months ended December 31, 2022 was 20.8%, which aligned with the statutory federal income tax rate of 21% and is comprised of normal tax rate items, including impacts from state taxes and federal and state tax credits (net of valuation allowances), with discrete period items having a nominal impact on the effective rate during the quarter.

6. Guarantees, Commitments and Contingencies

Litigation

At December 30, 2023, the Company had a number of product liability and other cases pending. Management believes that, considering the Company’s insurance coverage and its intention to vigorously defend its positions, the ultimate resolution of these matters will not have a material adverse effect on the Company’s financial statements.

Environmental

The Company is subject to a variety of environmental regulations relating to the use, storage, discharge and disposal of hazardous materials used in its manufacturing processes. Failure by the Company to comply with present and future regulations could subject it to future liabilities. In addition, such regulations could require the Company to acquire costly equipment or to incur other significant expenses to comply with environmental regulations. The Company is currently not involved in any material environmental proceedings and therefore, management believes that the resolution of pending environmental matters will not have a material adverse effect on the Company’s financial statements.

7. Segment Information

We manage our business in two operating segments: (i) the Bus segment, which includes the manufacturing and assembly of buses to be sold to a variety of customers across the U.S., Canada and in certain limited international markets; and (ii) the Parts segment, which consists primarily of the purchase of parts from third parties to be sold to dealers within the Company’s network and certain large fleet customers. Management evaluates the segments based primarily upon revenues and gross profit, which are reflected in the tables below for the periods presented:


Net sales
	Three Months Ended
(in thousands of dollars)	December 30, 2023		December 31, 2022
Bus (1)	$	293,437	$	213,249
Parts (1)	24,223		22,483
Segment net sales	$	317,660	$	235,732

(1) Parts segment revenue includes $1.6 million and $1.1 million for the three months ended December 30, 2023 and December 31, 2022, respectively, related to the inter-segment sale of parts that was eliminated by the Bus segment upon consolidation.


Gross profit (loss)
	Three Months Ended
(in thousands of dollars)	December 30, 2023		December 31, 2022
Bus	$	51,294	$	(3,731)
Parts	12,264		11,188
Segment gross profit	$	63,558	$	7,457

The following table is a reconciliation of segment gross profit to consolidated income (loss) before income taxes for the periods presented:


	Three Months Ended
(in thousands of dollars)	December 30, 2023		December 31, 2022
Segment gross profit	$	63,558	$	7,457
Adjustments:
Selling, general and administrative expenses	(25,602)		(16,832)
Interest expense	(3,631)		(4,196)
Interest income	1,088		—
Other expense, net	(1,221)		(236)
Loss on debt refinancing or modification	(1,558)		(537)
Income (loss) before income taxes	$	32,634	$	(14,344)

Sales are attributable to geographic areas based on customer location and were as follows for the periods presented:


	Three Months Ended
(in thousands of dollars)	December 30, 2023		December 31, 2022
U.S.	$	302,532	$	204,541
Canada	15,119		30,521
Rest of world	9		670
Total net sales	$	317,660	$	235,732

8. Revenue

The following table disaggregates revenue by product category for the periods presented:


	Three Months Ended
(in thousands of dollars)	December 30, 2023		December 31, 2022
Diesel buses	$	84,998	$	71,494
Alternative power buses (1)	195,329		131,946
Other (2)	13,697		10,455


Parts	23,636		21,837
Net sales	$	317,660	$	235,732

(1) Includes buses sold with any power source other than diesel (e.g., gasoline, propane, compressed natural gas ("CNG") or electric).

(2) Includes shipping and handling revenue, extended warranty income, surcharges and chassis and bus shell sales.

9. Earnings (Loss) Per Share

The following table presents the earnings (loss) per share computation for the periods presented:


	Three Months Ended
(in thousands except for share data)	December 30, 2023		December 31, 2022
Numerator:
Net income (loss)	$	26,150	$	(11,294)

Denominator:
Weighted-average common shares outstanding	32,170,779		32,026,311
Weighted-average dilutive securities, restricted stock	145,759		—
Weighted-average dilutive securities, stock options	100,170		—
Weighted-average dilutive securities, warrants (Note 12)	12,419		—

Weighted-average shares and dilutive potential common shares (1)	32,429,127		32,026,311

Earnings (loss) per share:
Basic earnings (loss) per share	$	0.81	$	(0.35)
Diluted earnings (loss) per share	$	0.81	$	(0.35)

(1) Potentially dilutive securities representing 0.2 million and 0.8 million shares of common stock were excluded from the computation of diluted earnings per share for the three month periods ending December 30, 2023 and December 31, 2022, respectively, as their effect would have been antidilutive.

10. Accumulated Other Comprehensive Loss

The following table provides information on changes in accumulated other comprehensive loss ("AOCL") for the periods presented:


	Three Months Ended
(in thousands of dollars)	Defined Benefit Pension Plan		Total AOCL
December 30, 2023
Beginning Balance	$	(31,884)	$	(31,884)

Amounts reclassified and included in earnings	172		172
Total before taxes	172		172
Income taxes	(41)		(41)
Ending Balance December 30, 2023	$	(31,753)	$	(31,753)

December 31, 2022
Beginning Balance	$	(41,930)	$	(41,930)

Amounts reclassified and included in earnings	299		299
Total before taxes	299		299
Income taxes	(72)		(72)
Ending Balance December 31, 2022	$	(41,703)	$	(41,703)

11. Stockholder Transaction Costs

On December 14, 2023, the Company entered into an underwriting agreement with BofA Securities, Inc. and Barclays Capital Inc., as representatives of the several underwriters and American Securities LLC ("Selling Stockholder"), pursuant to which the Selling Stockholder agreed to sell 2,500,000 shares of common stock at a purchase price of $25.10 per share (“Offering”).

The Offering was conducted pursuant to a prospectus supplement, dated December 14, 2023, to the prospectus, dated December 22, 2021, included in the Company’s registration statement on Form S-3 (File No. 333-261858) that was initially filed with the SEC on December 23, 2021.

The Offering closed on December 19, 2023. Although the Company did not sell any shares or receive any proceeds from the Offering, it was required to pay certain expenses in connection with the Offering that totaled approximately $1.2 million for the three month period ending December 30, 2023, with no similar expense recorded during the same period of fiscal 2023. The $1.2 million of expense is included within other expense, net on the Condensed Consolidated Statements of Operations for the three month period ending December 30, 2023.

12. Joint Ventures

Micro Bird Holdings, Inc.

During the three month period ended December 30, 2023, Micro Bird Holdings, Inc., our unconsolidated Canadian joint venture, paid dividends to all common stockholders, with the Company's proportionate share totaling $3.0 million, gross of required withholding taxes. The dividend was recorded as a reduction in the balance of equity investment in affiliate on the Condensed Consolidated Balance Sheets and is presented as a cash inflow in the operating section of the Condensed Consolidated Statements of Cash Flows.

Clean Bus Solutions, LLC

On December 7, 2023, the Company, through its wholly owned subsidiary, BBBC, and GC Mobility Investments I, LLC, a wholly owned subsidiary of Generate Capital, PBC (“Generate Capital”), a sustainable investment company focusing on clean energy, transportation, water, waste, agriculture, smart cities and industrial decarbonization, executed a definitive agreement (“Joint Venture Agreement”) establishing a joint venture, Clean Bus Solutions, LLC, to provide a fleet-as-a-service ("FaaS") offering using electric school buses manufactured and sold by the Company (“Joint Venture”). The service will be offered to qualified customers of the Company. Through the Joint Venture, the Company will provide its end customers with turnkey electrification solutions, including a wide product range consisting of, among others, electric school buses, financing of electric buses and supporting charging infrastructure, project planning and management, and fleet optimization.

The Company and Generate Capital will initially have an equal common ownership interest in the Joint Venture, and will initially jointly share management responsibility and control, with each party having certain customary consent and approval rights and control triggers. The parties have each agreed to contribute up to $10.0 million to the Joint Venture, as agreed from time to time, for common interests to fund administrative expenses, and up to an additional $100.0 million of capital in the form of preferred interests to fund the purchase, delivery, installation, operation and maintenance of FaaS projects, inclusive of Blue Bird electric school buses and associated charging infrastructure. Of this amount, the Company has committed to provide up to $20.0 million and Generate Capital has committed to provide up to $80.0 million, with the Company’s aggregate commitment in any one year not to exceed $10.0 million without its consent.

In accordance with the terms of the Joint Venture Agreement, the Company will promote the Joint Venture as the Company’s preferred FaaS offering for electric school buses and has agreed to not participate as a joint venture partner in any other similar FaaS offering for electric school buses, except as an original equipment manufacturer of buses. The Company’s obligations do not prevent or limit any activities of its dealers.

The Joint Venture has a perpetual duration subject to the right of either party to terminate early upon the occurrence of certain events of default or the failure to achieve certain milestones set forth in the terms of the Joint Venture Agreement.

In connection with the execution of the Joint Venture Agreement, the Company granted Generate Capital warrants to purchase an aggregate of 1,000,000 shares of Company common stock at an exercise price of $25.00 per share during a five-year exercise period (“Warrants”). Two-thirds of the Warrants were immediately exercisable while the remaining Warrants will become exercisable upon Generate Capital satisfying certain funding conditions. The exercise price and the number of shares issuable upon exercise of the Warrants are subject to adjustment in the event of a recapitalization, stock dividend or similar event.

The Company recorded the $7.4 million fair value of the Warrants upon issuance as permanent equity within additional paid-in capital on the Condensed Consolidated Balance Sheets and is not required to subsequently record changes in fair value as long as the Warrants continue to be classified within stockholders' equity. Additionally, since the Warrants were provided in exchange for an investment in the Joint Venture, the Company recorded the cost of its investment based on the fair value of the Warrants upon issuance, which increased the balance of equity investment in affiliate on the Condensed Consolidated Balance Sheets by a corresponding $7.4 million. No other activity was recorded relating to the Joint Venture during the three month period ended December 30, 2023.

Item 2. 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"). Our actual results may not be indicative of future performance. This discussion and analysis contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to, those discussed or incorporated by reference in the sections of this Report entitled “Special Note Regarding Forward-Looking Statements” and “Risk Factors.” Actual results may differ materially from those contained in any forward-looking statements. Certain monetary amounts, percentages and other figures included in this Report have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables may not be the arithmetic aggregation of the figures that precede them, and figures expressed as percentages in the text may not total 100% or, as applicable, when aggregated, may not be the arithmetic aggregation of the percentages that precede them.

Special Note Regarding Forward-Looking Statements

This Report contains forward-looking statements intended to qualify for the safe harbors from liability established by the Private Securities Litigation Reform Act of 1995. Except as otherwise indicated by the context, references in this Report to “we,” “us” and “our” are to the consolidated business of the Company. All statements in this Report, including those made by the management of the Company, other than statements of historical fact, are forward-looking statements. These forward-looking statements are based on management’s estimates, projections and assumptions as of the date hereof and include the assumptions that underlie such statements. Forward-looking statements may contain words such as “may,” “will,” “should,” “could,” “would,” “expect,” “plan,” “estimate,” “project,” “forecast,” “seek,” “target,” “anticipate,” “believe,” “predict,” “potential” and “continue,” the negative of these terms, or other comparable terminology. Examples of forward-looking statements include statements regarding the Company’s future financial results, research and development results, regulatory approvals, operating results, business strategies, projected costs, products, competitive positions, management’s plans and objectives for future operations, and industry trends. These forward-looking statements relate to expectations for future financial performance, business strategies or expectations for our business. Specifically, forward-looking statements may include statements relating to:

•the future financial performance of the Company;

•negative changes in the market for Blue Bird products;

•expansion plans and opportunities;

•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:

◦disruption in global financial and credit markets;

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

◦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; and

◦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:

◦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; and

◦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. 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. 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 2023 Form 10-K, filed with the SEC on December 11, 2023.

Available Information

We are subject to the reporting and information requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and as a result are obligated to file or furnish, as applicable, annual, quarterly, and current reports, proxy statements, and other information with the SEC. We make these documents available free of charge on our website (http://www.blue-bird.com) as soon as reasonably practicable after we electronically file them with, or furnish them to, the SEC. Information on our website does not constitute part of this Report. In addition, the SEC maintains a website (http://www.sec.gov) that contains our annual, quarterly, and current reports, proxy and information statements, and other information we electronically file with, or furnish to, the SEC.

Executive Overview

Blue Bird is the leading independent designer and manufacturer of school buses. Our longevity and reputation in the school bus industry have made Blue Bird an iconic American brand. We distinguish ourselves from our principal competitors by dedicating our focus to the design, engineering, manufacture and sale of school buses, and related parts. As the only principal manufacturer of chassis and body production specifically designed for school bus applications in the United States of America ("U.S."), Blue Bird is recognized as an industry leader for school bus innovation, safety, product quality/reliability/durability, efficiency, and lower operating costs. In addition, Blue Bird is the market leader in alternative powered product offerings with its propane-powered, gasoline-powered and all-electric-powered school buses.

Blue Bird sells its buses and parts through an extensive network of U.S. and Canadian dealers that, in their territories, are exclusive to Blue Bird on Type C and Type D school buses. Blue Bird also sells directly to major fleet operators, the U.S. 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 first quarters of fiscal 2024 and fiscal 2023 both included 13 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.

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.

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 could 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 ongoing supply chain constraints and their potential impact on the overall economy, both within the U.S and globally. 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. 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. 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 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.

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.

SEC Form 10-Q filed by Blue Bird Corporation