Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of financial condition and results of operations of the Company should be read in conjunction with the Company’s audited financial statements for the fiscal years ended September 27, 2025, September 28, 2024 and September 30, 2023 and related notes appearing elsewhere in this 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 titled “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 subjected 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.
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 manufacturer of chassis and body production specifically designed for school bus applications in the 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.
Impact 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 COVID-19 pandemic. 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 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 to 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 keep pace with increased costs to procure inventory to produce the buses, allowed the Company to report gross profit and gross margin that were better than 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 3,070 units as of September 28, 2024 and September 27, 2025, respectively, despite selling 9,000 units in fiscal 2024 and over 9,400 units in 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. 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 beginning during the second half of fiscal 2021 and continuing into fiscal 2025 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 in future periods. See PART I, Item 1A. "Risk Factors," of this Report for a discussion of the material risks we believe we face particularly related to supply chain disruptions and related constraints.
Impacts of Governmental Policies, Programs, Regulations and/or Laws on Our Business
Changes in trade policies and tariffs began to materially impact our procurement costs for certain imported inventory during the second half of fiscal 2025. However, such higher inventory purchase costs did not negatively impact our operating results or cash flows during this same period as such impact was offset by increases in the sales prices we charged for our products. However, they could materially impact our operating results and cash flows in future periods if we are unable to (i) mitigate the increased cost of (a) procuring inventory to produce buses and (b) purchasing parts for resale and/or (ii) increase the sales prices we charge for our products to partially or fully offset these cost increases. Actions we have taken, and/or are taking, to mitigate the impact from changes in trade
policies and tariffs include increasing the volume of steel we purchase at fixed prices up to four quarters in advance, working with our suppliers to identify alternative supply chain sources to minimize the increase in inventory costs and proactively announcing price increases to partially or fully offset our increased costs to produce buses.
In addition to supply chain constraints discussed previously above, the deferral of funds relating to governmental grants, subsidies and/or other incentives that are intended to partially, or fully, offset the higher price of alternative powered school buses impacted, to a lesser extent, the mix of school buses that we produced and sold during the first nine months of fiscal 2025. Although we noted an increase in the flow of government grant money during the second half of fiscal 2025, the timing of some of these payments occurred too late in the year to adjust our production schedule to build and sell more higher priced alternative powered school buses. However, such funding should positively impact subsequent quarters in fiscal 2026 and perhaps beyond. Nonetheless, any future decrease in such funds could impact the purchasing decisions of our customers that elect to buy less, or none, of our products in future periods.
Management believes that changes in governmental policies, programs, regulations and/or laws could materially impact our results in future periods as described previously above. They could result in significant economic disruption and adversely impact our business during future periods. Significant uncertainty exists concerning the magnitude of the impact and duration of changes in governmental policies, programs, regulations and/or laws and their potential impact on the overall economy, both within the U.S and globally. Accordingly, the magnitude and duration of such changes and their related financial impacts on our business cannot be estimated at this time. See PART I, Item 1A. "Risk Factors," of this Report for a discussion of the material risks we believe we face particularly related to governmental policies, programs, regulations and/or laws.
Factors Affecting Our Revenues
Our revenues are driven primarily by the following factors:
• Property tax revenues . Property tax revenues are one of the major sources of funding for school districts, and therefore new school buses. Property tax revenues are a function of land and building prices, based on assessments of property value by state or county assessors and millage rates voted by the local electorate.
• Student enrollment and delivery mechanisms for learning . Increases or decreases in the number of school bus riders have a direct impact on school district demand. Evolving protocols for public health concerns and/or continued technological advancements could shift the future form of educational delivery away from in-person learning on a more permanent basis, with increased remote learning reasonably expected to decrease the number of school bus riders.
• Revenue mix . We are able to charge more for certain of our products (e.g., Type C propane powered school buses, electric powered buses, Type D buses, and buses with higher option content) than other products. The mix of products sold in any fiscal period can directly impact our revenues for the period.
• Strength of the dealer network . We rely on our dealers, as well as a small number of major fleet operators, to be the direct point of contact with school districts and their purchasing agents. An effective dealer is capable of expanding revenues within a given school district by matching that district’s needs to our capabilities, offering options that would not otherwise be provided to the district.
• Pricing . Our products are sold to school districts throughout the U.S. and Canada. Each state and each Canadian province has its own set of regulations that govern the purchase of products, including school buses, by their school districts. We and our dealers must navigate these regulations, purchasing procedures, and the districts’ specifications in order to reach mutually acceptable price terms. Pricing may or may not be favorable to us, depending upon a number of factors impacting purchasing decisions. Additionally, in certain cases, prices originally quoted with dealers and school districts may have become less favorable, or more unfavorable, to us given increasing inventory costs between the time the sales order was contractually agreed upon and the bus is built and delivered as a result of ongoing supply chain disruptions, general inflationary pressures and/or changes in trade policies and tariffs.
• Buying patterns of major fleets . Major fleets regularly compete against one another for existing accounts. Fleets are also continuously trying to win the business of school districts that operate their own transportation services. These activities can have either a positive or negative impact on our sales, depending on the brand preference of the fleet that wins the business. Major fleets also periodically review their fleet sizes and replacement patterns due to funding availability as well as the profitability of existing routes. These actions can impact total purchases by fleets in a given year.
• Seasonality. 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.
• Inflation. 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 fiscal 2025. Additionally, the imposition of tariffs on certain imported inventory that became effective during the second half of fiscal 2025 has further increased our inventory purchase costs. In response, the Company announced a number of sales price increases over this same period that applied to new sales orders and, in limited circumstances, to backlog orders that were both intended to mitigate the impact of rising purchase costs on our operations, results and cash flows. These cumulative price increases have had a significant, positive impact on sales and gross profit during fiscal 2023, fiscal 2024 and continuing into fiscal 2025.
• Governmental grants, subsidies and/or other incentives. Funds provided by federal, state and/or local governments are often times targeted to partially, or fully, offset the higher price of alternative powered school buses. The deferral and/or elimination of such funds can impact the buying decisions of school districts and fleet customers, including impacting the volume, mix and/or timing of school bus purchases that can directly impact our revenues during a fiscal period.
F actors Affecting Our Expenses and Other Items
Our expenses and other line items in our 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 and/or mix, efforts by certain suppliers to pass through the economics associated with key commodities as well as changes in trade policies and tariffs, 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 challenges, and the impact of overhead items such as utilities.
• Selling, general and administrative expenses . Our selling, general and administrative expenses include costs associated with our selling and marketing efforts, engineering, centralized finance, human resources, purchasing, information technology services, along with other administrative matters and functions. In most instances, other than direct costs associated with sales and marketing programs, the principal component of these costs is compensation expense. Changes from period to period are typically driven by the number of our employees, as well as by merit increases provided to experienced personnel.
• Interest expense . Our interest expense relates to costs associated with our debt instruments and reflects both the amount of indebtedness and the interest rate that we are required to pay on our debt. Interest expense also includes unrealized gains or losses from interest rate hedges, if any, and changes in the fair value of interest rate derivatives not designated in hedge accounting relationships, if any, as well as expenses related to debt guarantees, if any.
• Income taxes . 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, if any.
• Other expense/income, net . This balance includes periodic pension expense or income as well as gains or losses on foreign currency, if any. Other amounts not associated with operating expenses may also be included in this balance.
• Equity in net income or loss of non-consolidated affiliate(s) . 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
The consolidated financial statements included in this Report in Item 8. "Financial Statements and Supplementary Data" are prepared in conformity with accounting principles generally accepted in the U.S. (“U.S. GAAP”). This Report also includes the following financial measures that are not prepared in accordance with U.S. GAAP ("non-GAAP"): “Adjusted EBITDA,” “Adjusted EBITDA Margin,” and “Free Cash Flow.” Adjusted EBITDA and Free Cash Flow are financial metrics that are utilized by management and the Board of Directors, as and when applicable, to determine (a) the annual cash bonus payouts, if any, to be made to certain employees based upon the terms of the Company’s Management Incentive Plan, and (b) whether the performance criteria have been met for the vesting of certain equity awards granted annually to certain members of management based upon the terms of the Company’s Omnibus Equity Incentive Plan. Additionally, consolidated EBITDA, which is an adjusted EBITDA metric defined by our Credit Agreement (defined below) that could differ from Adjusted EBITDA discussed above as the adjustments to the calculations are not uniform, is used to determine the Company's ongoing compliance with several financial covenant requirements, including being utilized in the denominator of the calculation of the Total Net Leverage Ratio ("TNLR"), which is also utilized in determining the
interest rate we pay on borrowings under our Credit Agreement (defined below). Accordingly, management views these non-GAAP financial metrics as key for the above purposes and as a useful way to evaluate the performance of our operations as discussed further below.
Adjusted EBITDA is defined as net income or loss prior to interest income; interest expense including the component of operating lease expense (which is presented as a single operating expense within cost of goods sold or selling, general and administrative expenses in our U.S. GAAP financial statements) that represents interest expense on lease liabilities; income taxes; and depreciation and amortization including the component of operating lease expense (which is presented as a single operating expense within cost of goods sold or selling, general and administrative expenses in our U.S. GAAP financial statements) that represents amortization charges on right-of-use lease assets; 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. Adjusted EBITDA and Adjusted EBITDA Margin are not measures of performance defined in accordance with U.S. GAAP. The measures are used as a supplement to U.S. GAAP results in evaluating certain aspects of our business, as described below.
We believe that Adjusted EBITDA and Adjusted EBITDA Margin are useful to investors in evaluating our performance because the measures consider the performance of our ongoing operations, excluding decisions made with respect to capital investment, financing, and certain other significant initiatives or transactions as outlined in the preceding paragraphs. We believe the non-GAAP measures offer additional financial metrics that, when coupled with the U.S. GAAP results and the reconciliation to U.S. GAAP results, provide a more complete understanding of our results of operations and the factors and trends affecting our business.
Adjusted EBITDA and Adjusted EBITDA Margin should not be considered as alternatives to net income or loss as an indicator of our performance or as alternatives to any other measure prescribed by U.S. GAAP as there are limitations to using such non-GAAP measures. Although we believe that Adjusted EBITDA and Adjusted EBITDA Margin may enhance an evaluation of our operating performance because they exclude the impact of prior decisions made about capital investment, financing, and certain other significant initiatives or transactions, (i) other companies in Blue Bird’s industry may define Adjusted EBITDA and Adjusted EBITDA Margin differently than we do and, as a result, they may not be comparable to similarly titled measures used by other companies in Blue Bird’s industry, and (ii) Adjusted EBITDA and Adjusted EBITDA Margin exclude certain financial information that some may consider important in evaluating our performance.
We compensate for these limitations by providing disclosure of the differences between Adjusted EBITDA and U.S. GAAP results, including providing a reconciliation to U.S. GAAP results, to enable investors to perform their own analysis of our ongoing operating results.
Our measure of Free Cash Flow is used in addition to and in conjunction with results presented in accordance with U.S. GAAP and it should not be relied upon to the exclusion of U.S. GAAP financial measures. Free Cash Flow reflects an additional way of evaluating our liquidity that, when viewed with our U.S. GAAP results, provides a more complete understanding of factors and trends affecting our cash flows. 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 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, we expect Free Cash Flow to be less than operating cash flows.
Our Segments
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 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 CODM in evaluating segment
performance and deciding how to allocate resources to segments. The President and CEO 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 fiscal years ended September 27, 2025 and September 28, 2024:
(in thousands)
Net sales
Cost of goods sold
Gross profit
Operating expenses
Selling, general and administrative expenses
Operating profit
Interest expense
Interest income
Other income (expense), net
Loss on debt refinancing or modification
Income before income taxes
Income tax expense
Equity in net income of non-consolidated affiliate(s)
Net income
Other financial data:
Adjusted EBITDA
Adjusted EBITDA Margin
The following provides the results of operations of Blue Bird's two reportable segments:
(in thousands)
Net Sales by Segment
Bus
Parts
Total
Gross Profit by Segment
Bus
Parts
Total
Net sales . Net sales were $1,480.1 million for fiscal 2025, an increase of $132.9 million, or 9.9%, compared to $1,347.2 million for fiscal 2024. The increase in net sales is primarily due to an increase in Bus unit bookings, Bus customer and product mix changes and cumulative Bus price increases, including increases that were intended to mitigate the impact of increased procurement costs for certain of our imported inventory as a result of the imposition of tariffs during the second half of fiscal 2025, which were partially offset by a small decrease in Parts sales.
Bus sales increased $134.2 million, or 10.8%, reflecting a 4.5% increase in units booked and a 6.0% increase in average sales price per unit. In fiscal 2025, 9,409 units were booked compared to 9,000 units booked for fiscal 2024. The increase in units sold was primarily due to product and customer mix changes as well as slight improvements in supply chain constraints impacting the Company's ability to produce and deliver buses due to shortages of critical components during fiscal 2025 compared to fiscal 2024. The increase in average unit sales price was primarily due to customer and product mix changes as well as price increases implemented to offset increases in inventory costs.
Parts sales decreased $1.3 million, or 1.2%, for fiscal 2025 compared to fiscal 2024. This small decrease is primarily attributed to slight variations due to product and channel mix that were slightly larger than price increases that were implemented to offset increases in inventory costs.
Cost of goods sold . Total cost of goods sold was $1,176.6 million for fiscal 2025, an increase of $85.6 million, or 7.8%, compared to $1,091.0 million for fiscal 2024. As a percentage of net sales, total cost of goods sold decreased from 81.0% to 79.5%, primarily due to the impact of ongoing pricing actions taken by management that exceeded the impact of increasing costs resulting from inflationary pressures and the imposition of tariffs 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. The improvement was also impacted by product and customer mix changes.
Bus segment cost of goods sold increased $86.3 million, or 8.3%, for fiscal 2025 compared to fiscal 2024. The increase was primarily attributable to the 4.5% increase in units booked discussed above as well as the 3.6% increase in the average cost of goods sold per unit in fiscal 2025 compared to fiscal 2024. This increase primarily resulted from increases in manufacturing costs attributable to a) increased raw materials costs resulting from ongoing inflationary pressures and the imposition of tariffs during the second half of fiscal 2025, 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 increase was also impacted by customer and product mix changes.
The $0.7 million, or 1.3%, decrease in parts segment cost of goods sold for fiscal 2025 compared to fiscal 2024 was primarily due to slight variations due to product and channel mix that were slightly larger than increased product costs driven by inflationary pressures and tariffs.
Operating profit . Operating profit was $167.2 million for fiscal 2025, an increase of $27.8 million, or 20.0%, compared to $139.3 million for fiscal 2024. Profitability was positively impacted by an increase of $47.4 million in gross profit, as outlined in the revenue and cost of goods sold discussions above. However, it was negatively impacted by an increase of $19.5 million in selling, general and administrative expenses, primarily due to an increase in a) share-based compensation expense recorded in the second quarter of fiscal 2025 relating to the retirement of our former President and CEO, b) labor costs and c) research and development expense.
Interest expense . Interest expense was $7.2 million for fiscal 2025, a decrease of $3.4 million, or 31.9%, compared to $10.6 million for fiscal 2024. The decrease was primarily attributable to a decrease in the stated term loan interest rate from 6.9% at September 28, 2024 to 6.1% at September 27, 2025, as well as lower outstanding borrowings during fiscal 2025 when compared with fiscal 2024.
Other expense/income, net. Other income, net, was $3.4 million for fiscal 2025, an increase of $7.8 million, or 177.5%, compared to $4.4 million of other expense, net, in fiscal 2024.
We recorded $1.7 million of net periodic pension income during fiscal 2025 when compared with $0.1 million of net periodic pension expense recorded during fiscal 2024.
Also, during fiscal 2025 and fiscal 2024, the Company sold certain state emissions credits that it was not projecting to use for approximately $2.6 million and $1.5 million, respectively. The proceeds from these sales were recorded in other income (expense), net in the Consolidated Statements of Operations as this transaction is not indicative of our normal revenue generating activities.
Additionally, on May 23, 2024, eligible members of the USW voted to ratify a three-year CBA with Blue Bird Body Company ("BBBC"), a subsidiary of the Company. Among other items, the CBA requires the payment of a (i) lump-sum payment to certain employees who are not eligible for an annual wage increase because their hourly wage rate exceeds the rate required by the terms of the CBA as well as (ii) one-time $750 signing bonus to the approximate 1,500 covered production workers in our Fort Valley and Macon, Georgia facilities at the time the CBA was executed. During the third quarters of both fiscal 2025 and 2024, the Company paid the above applicable 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 was competitive with that of unionized employees performing comparable job functions. These payments totaled $1.1 million and $2.7 million during fiscal 2025 and fiscal 2024, respectively, and were recorded in other income (expense), net in the Consolidated Statements of Operations 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.
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 ("2024 Selling Stockholder"), pursuant to which the 2024 Selling Stockholder agreed to sell 2,500,000 shares of common stock at a purchase price of $25.10 per share ("December Offering").
On February 15, 2024, the Company entered into an underwriting agreement with Barclays Capital Inc., as representative of the several underwriters and the 2024 Selling Stockholder, pursuant to which the 2024 Selling Stockholder 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, the "2024 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 ("December 2021 Prospectus").
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 2024 Offerings, it was required to pay certain expenses in connection with these transactions that totaled approximately $3.2 million in fiscal 2024. No similar expense was recorded during fiscal 2025.
Income taxes . Income tax expense was $43.9 million for fiscal 2025 and $33.2 million for fiscal 2024.
The effective tax rate for fiscal 2025 was 25.9% and differed from the statutory Federal income tax rate of 21.0%. The increase was primarily due to the impacts of state taxes and certain permanent items on the federal rate, which were partially offset by the impacts from discrete period items.
The effective tax rate for fiscal 2024 was 26.2% and differed from the statutory Federal income tax rate of 21.0%. The increase was primarily due to the impacts of 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.
Adjusted EBITDA . Adjusted EBITDA was $221.3 million, or 15.0% of net sales, for fiscal 2025, an increase of $38.4 million, or 21.0%, compared to $182.9 million, or 13.6% of net sales, for fiscal 2024. The increase primarily results from the a) increase in gross profit, when adjusting for the impact of expenses that are excluded in calculating Adjusted EBITDA, as outlined in the revenue and cost of goods sold discussions above and b) $1.1 million increase in the sale of certain state emissions credits included in the other income (expense), net discussion above, both of which were partially offset by a smaller increase in selling, general and administrative expenses, when adjusting for the impact of expenses that are excluded in calculating Adjusted EBITDA, as discussed above.
The following table sets forth a reconciliation of net income to Adjusted EBITDA for the fiscal years presented:
(in thousands)
Net income
Adjustments:
Interest expense, net (1)
Income tax expense
Depreciation, amortization, and disposals (2)
Loss on debt refinancing or modification
Share-based compensation expense
Clean Bus Solutions impairment
Stockholder transaction costs
Micro Bird total interest expense, net; income tax expense or benefit; depreciation expense and amortization expense
Other
Adjusted EBITDA
Adjusted EBITDA Margin (percentage of net sales)
(1) Includes $0.3 million and $0.4 million for fiscal 2025 and fiscal 2024, respectively, representing interest expense on operating lease liabilities, which are a component of lease expense and presented as a single operating expense within cost of goods sold or selling, general and administrative expenses on our Consolidated Statements of Operations.
(2) Includes $1.6 million for both fiscal 2025 and fiscal 2024, representing amortization charges on right-of-use operating lease assets, which are a component of lease expense and presented as a single operating expense within cost of goods sold or selling, general and administrative expenses on our Consolidated Statements of Operations.
Consolidated Results of Operations for the fiscal years ended September 28, 2024 and September 30, 2023:
(in thousands)
Net sales
Cost of goods sold
Gross profit
Operating expenses
Selling, general and administrative expenses
Operating profit
Interest expense
Interest income
Other expense, net
Loss on debt refinancing or modification
Income before income taxes
Income tax expense
Equity in net income of non-consolidated affiliate(s)
Net income
Other financial data:
Adjusted EBITDA
Adjusted EBITDA Margin
The following provides the results of operations of Blue Bird's two reportable segments:
(in thousands)
Net Sales by Segment
Bus
Parts
Total
Gross Profit by Segment
Bus
Parts
Total
Net sales . Net sales were $1,347.2 million for fiscal 2024, an increase of $214.4 million, or 18.9%, compared to $1,132.8 million for fiscal 2023. The increase in net sales is primarily due to increased unit bookings, product and mix changes, as well as pricing actions taken by management in response to increased inventory purchase costs.
Bus sales increased $208.3 million, or 20.1%, reflecting a 5.7% increase in units booked and a 13.6% increase in average sales price per unit. In fiscal 2024, 9,000 units were booked compared to 8,514 units booked for fiscal 2023. The increase in units sold was primarily due to product and customer mix changes as well as slight improvements in supply chain constraints impacting the Company's ability to produce and deliver buses due to shortages of critical components during fiscal 2024 compared to fiscal 2023. The increase in average unit sales price reflects pricing actions taken by management as well as product and customer mix changes.
Parts sales increased $6.1 million, or 6.2%, for fiscal 2024 compared to fiscal 2023. This increase is primarily attributed to price increases, driven by ongoing inflationary pressures, as well as higher fulfillment volumes and slight variations due to product and channel mix.
Cost of goods sold . Total cost of goods sold was $1,091.0 million for fiscal 2024, an increase of $97.1 million, or 9.8%, compared to $993.9 million for fiscal 2023. As a percentage of net sales, total cost of goods sold decreased from 87.7% to 81.0%, primarily due to the pricing actions discussed above.
Bus segment cost of goods sold increased $95.5 million, or 10.1%, for fiscal 2024 compared to fiscal 2023. The increase was partially attributable to the 5.7% increase in units booked during fiscal 2024 compared to fiscal 2023. Also contributing was increased
inventory costs, as the average cost of goods sold per unit for fiscal 2024 was 4.2% higher compared to 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 $1.6 million, or 3.1%, increase in parts segment cost of goods sold for fiscal 2024 compared to fiscal 2023 was primarily due to increased purchased parts costs, driven by ongoing inflationary pressures and supply chain disruptions, as well as slight variations due to product and channel mix.
Operating profit . Operating profit was $139.3 million for fiscal 2024, an increase of $87.7 million, or 169.7%, compared to $51.7 million for fiscal 2023. Profitability was primarily impacted by an increase of $117.3 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 $29.6 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 $10.6 million for fiscal 2024, a decrease of $7.4 million, or 41.3%, compared to $18.0 million for fiscal 2023. The decrease was primarily attributable to a decrease in the stated term loan interest rate from 10.0% at September 30, 2023 to 6.9% at September 28, 2024, as well as lower outstanding borrowings during fiscal 2024 when compared with fiscal 2023.
Other expense/income, net. Other expense, net, was $4.4 million for fiscal 2024, a decrease of $3.9 million, or 47.1%, compared to $8.3 million of other expense, net, in fiscal 2023. We recorded $0.1 million of net periodic pension expense during fiscal 2024 when compared with $0.7 million recorded during fiscal 2023.
During fiscal 2024, the Company sold certain state emissions credits that it was not projecting to use for approximately $1.5 million, with no similar income recorded during fiscal 2023. The proceeds from this sale were recorded in other income (expense), net in the Consolidated Statements of Operations as this transaction is not indicative of our normal revenue generating activities.
Also, on May 23, 2024, eligible members of the USW voted to ratify a three-year CBA with BBBC. Among other items, the CBA required the payment of a $750 signing bonus to the approximate 1,500 covered workers in our Fort Valley and Macon, 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 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 was competitive with that of unionized employees performing comparable job functions. These payments totaled $2.7 million in fiscal 2024 and were recorded in other income (expense), net in the Consolidated Statements of Operations 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 fiscal 2023.
Additionally, on December 14, 2023, the Company entered into an underwriting agreement with BofA Securities, Inc. and Barclays Capital Inc., as representatives of the several underwriters and the 2024 Selling Stockholder, pursuant to which the 2024 Selling Stockholder agreed to sell 2,500,000 shares of common stock at a purchase price of $25.10 per share. On February 15, 2024, the Company entered into an underwriting agreement with Barclays Capital Inc., as representative of the several underwriters and the 2024 Selling Stockholder, pursuant to which the 2024 Selling Stockholder agreed to sell 4,042,650 shares of common stock at a purchase price of $32.90 per share.
The 2024 Offerings were conducted pursuant to prospectus supplements, dated December 14, 2023 and February 15, 2024, respectively, to the December 2021 Prospectus. The 2024 Offerings closed on December 19, 2023 and February 21, 2024, respectively.
Finally, 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 (collectively, the "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. On September 11, 2023, the Company entered into another underwriting agreement with Barclays Capital, Inc. and the 2023 Selling Stockholders, pursuant to which the 2023 Selling Stockholders agreed to sell 2,500,000 shares of common stock, at a purchase price of $21.00 per share (collectively, the "2023 Offerings").
The 2023 Offerings were conducted pursuant to prospectus supplements, dated June 7, 2023 and September 11, 2023, respectively, to the December 2021 Prospectus. The 2023 Offerings closed on June 12, 2023 and September 14, 2023, respectively.
Although the Company did not sell any shares or receive any proceeds from the 2024 Offerings or 2023 Offerings, it was required to pay certain expenses in connection with these transactions that totaled approximately $3.2 million and $7.4 million in fiscal 2024 and fiscal 2023, respectively.
Income taxes . Income tax expense was $33.2 million for fiscal 2024 and $9.0 million for fiscal 2023.
The effective tax rate for fiscal 2024 differed from the statutory Federal income tax rate of 21.0%. The increase in the effective tax rate to 26.2% was primarily due to the impacts of 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.
The effective tax rate for fiscal 2023 differed from the statutory Federal income tax rate of 21.0%. The increase in the effective tax rate to 34.7% was primarily due to the impacts of state taxes and certain permanent items on the federal rate.
Adjusted EBITDA . Adjusted EBITDA was $182.9 million, or 13.6% of net sales, for fiscal 2024, an increase of $95.0 million, or 108.0%, compared to $87.9 million, or 7.8% of net sales, for fiscal 2023. The increase in Adjusted EBITDA is primarily the result of the $81.7 million increase in net income, as a result of the factors discussed above, as well as the corresponding $24.3 million increase in income tax expense. Among other smaller offsetting items, these increases were partially offset by the $10.5 million decrease in interest expense, net as a result of the factors discussed above.
The following table sets forth a reconciliation of net income to Adjusted EBITDA for the fiscal years presented:
(in thousands)
Net income
Adjustments:
Interest expense, net (1)
Income tax expense
Depreciation, amortization, and disposals (2)
Operational transformation initiatives
Loss on debt refinancing or modification
Share-based compensation expense
Stockholder transaction costs
Micro Bird total interest expense, net; income tax expense or benefit; depreciation expense and amortization expense
Other
Adjusted EBITDA
Adjusted EBITDA Margin (percentage of net sales)
(1) Includes $0.4 million for both fiscal 2024 and fiscal 2023, representing interest expense on operating lease liabilities, which are a component of lease expense and presented as a single operating expense within cost of goods sold or selling, general and administrative expenses on our Consolidated Statements of Operations.
(2) Includes $1.6 million and $1.8 million for fiscal 2024 and fiscal 2023, respectively, representing amortization charges on right-of-use operating lease assets, which are a component of lease expense and presented as a single operating expense within cost of goods sold or selling, general and administrative expenses on our 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 September 27, 2025, the Company had $229.3 million of available cash and cash equivalents (net of outstanding checks) and $141.7 million of additional borrowings available under the revolving line of credit portion of its credit facility. The Company’s revolving line of credit is available for working capital requirements, capital expenditures and other general corporate purposes.
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; 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 at the Closing Date, may not be reborrowed once they are repaid while borrowings under the Revolving Credit Facility may be repaid and reborrowed from time to time at our election.
The Term Loan Facility is subject to amortization of principal, payable in equal quarterly installments on the last day of each fiscal quarter, 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 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, which was also the amount outstanding as of September 28, 2024 (there were no amounts outstanding on the revolving credit facility portion of the previous credit agreement on either date), (ii) interest and commitment fees accrued under the previous credit agreement through the Closing Date and (iii) transaction costs associated with the consummation of the Credit Agreement. During fiscal 2025 and fiscal 2024, we used cash generated from operations to make (i) $5.0 million of required quarterly principal payments on the Term Loan Facility and (ii) $3.8 million of required quarterly principal payments on the Term Loan Facility and repay all $36.2 million of Revolving Credit Facility borrowings from the Closing Date, respectively.
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 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
Less than 1.00x
Greater than or equal to 1.00x and less than 1.50x
III
Greater than or equal to 1.50x and less than 2.25x
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 September 27, 2025 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.
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.
At September 27, 2025, 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. Based on the current level of operations, we believe that our existing cash and cash equivalent balances and expected cash flows from operations will be sufficient to meet our operating requirements for at least the next 12 months.
We have operating leases for office and warehouse space, or a combination of both, as well as equipment. Our leases have remaining lease terms ranging from 0.5 years to 5.0 years, with the option to extend certain leases for up to 1.0 year, and total payments of approximately $7.1 million, of which approximately $2.6 million is due in fiscal 2026.
In the ordinary course of business, the Company enters into short-term contractual purchase orders for manufacturing inventory and capital assets. At September 27, 2025, total purchase commitments were $107.0 million, of which $106.5 million is expected to be paid in fiscal 2026.
To increase our liquidity in future periods, we could pursue raising additional capital via an equity or debt offering utilizing a currently effective "automatic shelf" registration statement. However, we can offer no assurance that we would be successful in raising this additional capital, which could also lead to increased expense and larger up-front fees when compared with our historical financial statements.
Seasonality
In the years preceding the 2020 COVID-19 pandemic, our business was highly seasonal with school districts buying their new school buses so that they would be available for use on the first day of the school year, typically in mid-August to early September. This historically 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. With the COVID-19 pandemic and subsequent supply chain constraints, seasonality and working capital trends have become unpredictable. Seasonality and variations from historical seasonality have impacted the comparison of working capital and liquidity results between fiscal periods.
Cash Flows
The following table sets forth general information derived from our statement of cash flows for the fiscal years presented:
(in thousands)
Cash and cash equivalents, beginning of year
Total cash provided by operating activities
Total cash used in investing activities
Total cash used in financing activities
Change in cash and cash equivalents
Cash and cash equivalents, end of year
Total cash provided by operating activities
Cash provided by operating activities totaled $176.2 million for fiscal 2025 and $111.1 million for fiscal 2024. The primary drivers of the $65.1 million increase were as follows:
The increase primarily resulted from the a) $22.2 million increase in net income and b) effect of net changes in operating assets and liabilities that positively impacted operating cash flows by $28.9 million during fiscal 2025 when compared with fiscal 2024. The primary drivers in this category were favorable changes in accounts receivable and accounts payable of $85.0 million and $1.4 million, respectively, that were partially offset by unfavorable changes in inventory, other assets and accrued expenses, pension and other liabilities of $19.2 million, $16.8 million, and $21.5 million, respectively, as follows:
• A shift in our customer mix resulted in an increase in the accounts receivable balance (a net use of cash) 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 fiscal 2025, the accounts receivable balances relating to fiscal 2024 fleet revenue were collected, representing a significant cash inflow. There were no similar significant collections of fiscal 2023 accounts receivable balances during fiscal 2024.
• There was a larger increase in accounts payable (a source of cash) and a larger net increase in inventory (a use of cash) during fiscal 2025 when compared to fiscal 2024. These changes were driven by an increase in the volume of buses we produced in fiscal 2025 when compared with fiscal 2024, as well as an increase in the cost of procuring inventory that is attributable to inflationary pressures resulting from ongoing supply chain disruptions and the imposition of tariffs beginning during the second half of fiscal 2025. Finally, during the second half 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 fiscal 2024.
• There was an increase in other assets (a use of cash) during fiscal 2025 when compared to fiscal 2024. Such change primarily relates to federal and state income taxes paid in excess of our obligations at the end of fiscal 2025 as well as an increase in our prepaid insurance at the end of fiscal 2025 when compared with fiscal 2024 as a result of increases in our insurance premiums between years.
• Accrued expenses, pension and other liabilities increased during fiscal 2024 (a source of cash) while decreasing minimally during fiscal 2025 (a use of cash). The increase in fiscal 2024 primarily resulted from an increases in the bonus accrual and our federal and state income tax obligations in fiscal 2024 when compared with fiscal 2023, both due to the significant increase in profitability between fiscal years. In fiscal 2025, our federal and state income tax position flipped to a prepaid asset, as discussed above, from an obligation, resulting in a decrease in the accrued balances between fiscal years.
Cash provided by operating activities totaled $111.1 million for fiscal 2024 and $119.9 million for fiscal 2023. The primary drivers of the $8.8 million decrease were as follows:
The net decrease primarily resulted from the effect of net changes in operating assets and liabilities that negatively impacted operating cash flows by $84.1 million during fiscal 2024 when compared with fiscal 2023. The primary drivers in this category were unfavorable changes in accounts receivable; accounts payable; and accrued expenses, pension and other liabilities of $46.5 million, $22.0 million, and $15.9 million, respectively, as follows:
• A shift in our customer mix resulted in an increase in the accounts receivable balance (a net use of cash) at the end of the fiscal 2024 when compared with fiscal 2023. Specifically, we had a significant increase in fleet orders, which make up the majority of orders on credit, during fiscal 2024 when compared with fiscal 2023.
• At the end of fiscal 2022 and 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 fiscal 2023, resulted in a significant increase in the accounts payable balance (a net source of cash). Although inflationary pressures continued during fiscal 2024, they were smaller when compared to fiscal 2023. This factor, when coupled with our production and sales volumes largely stabilizing during fiscal 2024, resulted in a smaller increase in the accounts payable balance during fiscal 2024 compared to fiscal 2023 (a smaller net source of cash).
• As of the end of fiscal 2023, we had received approximately $18.5 million of advanced funds awarded by the U.S. EPA in administering the CSBP 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 during fiscal 2024, we recognized this amount in revenue. As of the end of fiscal 2024, we had a corresponding balance of $2.2 million, representing a $16.3 million net use of cash when comparing the two periods.
The above decreases were partially offset by the $81.7 million increase in net income during fiscal 2024 when compared to fiscal 2023.
Total cash used in investing activities
Cash used in investing activities totaled $23.9 million and $15.8 million for fiscal 2025 and fiscal 2024, respectively. The $8.1 million increase in cash used was primarily due to an increase in spending on fixed assets, as increased profitability in fiscal 2025 and fiscal 2024 has allowed for more capital spending.
Cash used in investing activities totaled $15.8 million and $8.5 million for fiscal 2024 and fiscal 2023, respectively. The $7.3 million increase in cash used was primarily due to an increase in spending on fixed assets, as increased profitability in fiscal 2024 when compared 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 used in financing activities totaled $50.7 million for fiscal 2025 and $46.6 million for fiscal 2024. The $4.1 million increase in cash used was primarily attributable to a $38.3 million increase in the purchase of common stock in connection with the Company's repurchase programs and stock award exercises in fiscal 2025 when compared with fiscal 2024. This increase was partially offset by a $30.6 million decrease in net term loan repayments during fiscal 2025 when compared with fiscal 2024, primarily as a result of executing the Credit Agreement in the prior year. Additionally, there was a $3.1 million decrease resulting from debt costs paid in executing the Credit Agreement in fiscal 2024, with no similar activity in fiscal 2025.
Cash used in financing activities totaled $46.6 million for fiscal 2024 and $42.9 million for fiscal 2023. The $3.7 million increase in cash used was primarily attributable to a $115.8 million increase in term loan repayments and $9.9 million increase in purchases of Company stock in fiscal 2024 when compared with fiscal 2023. These increases were partially offset by $100.0 million of proceeds received from term loan borrowings under the Credit Agreement, a $20.0 million net increase in revolving line of credit borrowings, and a $2.7 million increase in cash received from stock option exercises in fiscal 2024 when compared with fiscal 2023.
Free cash flow
Management believes the non-GAAP measurement of Free Cash Flow, defined as net cash used in or provided by operating activities less cash paid for fixed assets and acquired intangible assets, fairly represents the Company’s ability to generate surplus cash that could fund activities not in the ordinary course of business. See “Key Measures We Use to Evaluate Our Performance” for further discussion. The following table sets forth the calculation of Free Cash Flow for the fiscal years presented:
(in thousands)
Total cash provided by operating activities
Cash paid for fixed assets and acquired intangible assets
Free Cash Flow
Free Cash Flow for fiscal 2025 was $57.5 million higher than for fiscal 2024, due to a $65.1 million increase in cash provided by operating activities, which was partially offset by a $7.6 million increase in cash paid for fixed assets, both as discussed above.
Free Cash Flow for fiscal 2024 was $15.6 million lower than for fiscal 2023, due to an $8.8 million decrease in cash provided by operating activities, as well as a $6.7 million increase in cash paid for fixed assets, both as discussed above.
Off-Balance Sheet arrangements
We had outstanding letters of credit totaling $8.3 million at September 27, 2025 that secure our a) self-insured workers compensation program and b) performance obligations relating to certain environmental matters, the collateral for both of which is regulated by the State of Georgia.
Share Repurchase Program and Treasury Stock Retirement
On January 31, 2024, the Board of Directors of the Company authorized and approved a share repurchase program for up to $60 million of outstanding shares of the Company’s common stock over a period of 24 months, expiring January 31, 2026. On August 5, 2025, the Board of Directors of the Company authorized and approved a second share repurchase program for up to $100 million of outstanding shares of the Company’s common stock, expiring January 1, 2028. Under both share repurchase programs, the Company may repurchase shares through open market purchases, privately negotiated transactions, accelerated share
repurchase transactions, block purchases or otherwise in accordance with applicable federal securities laws, including Rule 10b-18 of the Exchange Act.
Pursuant to the share repurchase plans, the Company repurchased 1,060,438 shares of its common stock for $39.5 million in fiscal 2025 and 201,818 shares of its common stock for $9.9 million in fiscal 2024. The total remaining authorization for future common stock repurchases under the Company's share repurchase programs was $110.5 million as of September 27, 2025.
In fiscal 2025 and fiscal 2024, the Company constructively retired the shares of common stock it repurchased by recording the $39.5 million and $9.9 million paid in excess of the $0.0001 par value of each share, respectively, as a reduction in retained earnings. In fiscal 2024, the Company also retired the shares of common stock that had previously been reflected as treasury stock within its historical consolidated financial statements by recording the amount paid in excess of the $0.0001 par value of each share as a $39.9 million reduction in retained earnings, which reduced the value in this account to zero, with the remaining $10.4 million recorded as a reduction in additional paid-in capital.
Critical Accounting Policies and Estimates
T he 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; 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 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 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, based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, and may employ outside experts to assist in the Company’s evaluations. Management has discussed the development, selection, and disclosure of accounting estimates with the Audit Committee of our Board of Directors. Actual results could differ from the estimates that the Company has used.
The estimates that require management to exercise the greatest extent of judgment in establishing assumptions and that could have a material impact on our consolidated financial statements should they change significantly in a future period are defined as "critical" in nature and include the following:
Self-Insurance Reserves
The Company is self-insured for the majority of its workers’ compensation and medical claims. The expected ultimate cost for claims incurred as of the balance sheet date is not discounted and is recognized as a liability. Self-insurance losses for claims filed and claims incurred but not reported are accrued based upon estimates of the aggregate liability for uninsured claims using loss development factors and actuarial assumptions followed in the insurance industry and historical loss development experience. The establishment of the reserves utilizing such estimates and assumptions is based on the premise that historical claims experience, both in terms of the volume of claims activity and related cost, is indicative of current or future expected activity, which could differ significantly. At September 27, 2025 and September 28, 2024, reserves totaled approximately $7.1 million and $7.3 million, respectively.
Goodwill and Intangible Assets
Goodwill represents the excess of the purchase price of acquired businesses over the fair value of the assets acquired less liabilities assumed in connection with such acquisition. In accordance with the provisions of Accounting Standards Codification ("ASC") 350, Intangibles—Goodwill and Other (“ASC 350”), goodwill and intangible assets with indefinite useful lives acquired in an acquisition are not amortized, but instead are tested for impairment at least annually or more frequently should an event occur or circumstances indicate that the carrying amount may be impaired. Such events or circumstances may be a significant change in business climate, economic and industry trends, legal factors, negative operating performance indicators, significant competition, changes in strategy or disposition of a reporting unit or a portion thereof. Although management believes the assumptions used in the determination of the value of the enterprise are reasonable, no assurance can be given that these assumptions will be achieved. As a result, impairment charges may occur when goodwill and intangible assets with indefinite useful lives are tested for impairment in the future.
We have two reporting units for which we test goodwill for impairment: Bus and Parts. In the evaluation of goodwill for impairment, we have the option to perform a qualitative assessment to determine whether further impairment testing is necessary or to perform a quantitative assessment by comparing the fair value of a reporting unit to its carrying amount, including goodwill. Under the
qualitative assessment, an entity is not required to calculate the fair value of a reporting unit unless the entity determines that it is more likely than not that its fair value is less than its carrying amount. If under the quantitative assessment the fair value of a reporting unit is less than its carrying amount, then the amount of the impairment loss, if any, must be measured under step two of the impairment analysis. In step two of the analysis, we would record an impairment loss equal to the excess of the carrying value of the reporting unit’s goodwill over its implied fair value should such a circumstance arise.
Fair value of the reporting units is estimated primarily using the income approach, which incorporates the use of discounted cash flow ("DCF") analysis. A number of significant assumptions and estimates are involved in the application of the DCF model to forecast operating cash flows, including markets and market shares, sales volumes and prices, costs to produce, tax rates, capital spending, discount rate and working capital changes. The cash flow forecasts are based on approved strategic operating plans.
During the fourth quarter of each fiscal year presented, we performed our annual impairment assessment of goodwill that did not indicate that an impairment existed.
In the evaluation of indefinite lived assets for impairment, we have the option to perform a qualitative assessment to determine whether further impairment testing is necessary, or to perform a quantitative assessment by comparing the fair value of an asset to its carrying amount. The Company’s intangible asset with an indefinite useful life is the Blue Bird trade name. Under the qualitative assessment, an entity is not required to calculate the fair value of the asset unless the entity determines that it is more likely than not that its fair value is less than its carrying amount. If a qualitative assessment is not performed or if a quantitative assessment is otherwise required, then the entity compares the fair value of an asset to its carrying amount and the amount of the impairment loss, if any, is the difference between fair value and carrying value. The fair value of our trade name is derived by using the relief from royalty method, which discounts the estimated cash savings we realize by owning the name instead of otherwise having to license or lease it.
During the fourth quarter of each fiscal year presented, we performed our annual impairment assessment of our trade name that did not indicate that an impairment existed.
Our intangible assets with definite useful lives include customer relationships and engineering designs, which are amortized over their estimated useful lives of 7 or 20 years using the straight-line method. These assets are tested for impairment whenever events or changes in circumstances indicate the carrying amount of the assets may not be recoverable. No impairments have been recorded.
The recorded balances for goodwill were $15.1 million and $3.7 million for the Bus and Parts segments, respectively, at both September 27, 2025 and September 28, 2024. The recorded balances for intangible assets were $41.7 million and $43.6 million at September 27, 2025 and September 28, 2024, respectively.
Pensions
We have pension benefit costs and obligations, which are developed from actuarial valuations. Actuarial assumptions attempt to anticipate future events and are used in calculating the expense and liability relating to our plan. These factors include assumptions we make about interest rates and expected investment return on plan assets. In addition, our actuarial consultants also use subjective factors such as mortality rates to develop our valuations. We review and update these assumptions on an annual basis at the beginning of each fiscal year. We are required to consider current market conditions, including changes in interest rates, as well as changes in other facts and circumstances in making these assumptions. Effective January 1, 2006, the benefit plan was frozen to all participants. No accrual of future benefits is earned or calculated beyond this date.
During the latter part of fiscal 2025, the Company initiated actions to terminate the pension plan, which is expected to be completed in the latter half of fiscal 2026. A pension plan termination does not impact the pension benefits earned by participants as amounts due to participants are settled either via (i) lump-sum cash payments, as applicable, or (ii) the transfer of the pension obligations to an insurance company via the purchase of group annuity contracts. Subsequent to such settlements, the pension plan will cease to exist for the Company.
As a result of the pending pension plan termination, the significant assumptions utilized in determining the benefit obligation due to participants as of September 27, 2025 were amended.
Specifically, the obligation estimate is based on benefits earned as of January 1, 2006, the date the plan was frozen as discussed above, discounted using (i) a required regulatory interest rate for our estimate of those participants who will elect a lump-sum cash payment and (ii) the estimated interest rate inherent in the group annuity contracts for our estimate of those participants whose benefit obligations will be transferred to an insurance company.
Additionally, in connection with initiation of the pension plan termination, all assets in the plan were converted to a money market fund comprised of high quality, highly liquid investments, primarily issued by the U.S. government, having maturities of less than one year to minimize the risk of significant fluctuations in the balance of the assets due to market volatility. Accordingly, the expected rate of return on plan assets was adjusted to reflect the average rate of earnings expected on the funds invested, or to be invested, to provide for the settlement of the pension benefit obligations during fiscal 2026. In estimating that rate, appropriate consideration was given to the returns being earned by the plan assets as well as input from an external pension investment adviser.
The actuarial assumptions that we use may differ materially from actual results due to changing market and economic conditions as well as longer or shorter life spans of participants. These differences may result in a significant impact to the measurement of our pension benefit obligations, and to the amount of pension benefits expense we may record. For example, at September 27, 2025, a one-half percent increase in the discount rate would reduce the projected benefit obligation of our pension plans by approximately $3.8 million, while a one-half percent decrease in the discount rate would increase the projected benefit obligation of our pension plans by approximately $4.0 million.
The projected benefit obligation for the pension plan was $109.6 million and $113.6 million at September 27, 2025 and September 28, 2024, respectively.
Product Warranty Costs
The Company’s products are generally warranted against defects in material and workmanship for a period of one to five years. A provision for estimated warranty costs is recorded at the time a unit is sold. The methodology to determine the warranty reserve calculates the average expected future warranty claims using historical warranty claims by body type, by month, over the life of the bus, which is then multiplied by remaining months under warranty, by warranty type. The establishment of the reserve utilizing such estimates and assumptions is based on the premise that historical claims experience, both in terms of the volume of claims activity and related cost, is indicative of future expected claims activity. Management believes the methodology is reasonable (i) since the Company's product offerings and manufacturing processes do not change quickly or significantly and (ii) given the significant investments that the Company has made, and expects to continue making, to improve the quality, reliability and safety of the school buses it manufactures. Accordingly, while management believes that this methodology provides an accurate reserve estimate, actual incurred could differ from the original estimates, requiring future adjustments. For example, at September 27, 2025, a 5% increase or decrease in the average lifetime historical warranty by body type, by month would increase or decrease accrued product warranty costs by approximately $0.9 million.
At September 27, 2025 and September 28, 2024, accrued product warranty costs totaled approximately $17.2 million and $16.2 million, respectively.
Income Taxes
The Company accounts for income taxes in accordance with the provisions of ASC 740, Income Taxes (“ASC 740”), which requires an asset and liability approach to financial accounting and reporting for income taxes. Under this approach, deferred income taxes represent the expected future tax consequences of temporary differences between the financial statement and tax basis of assets and liabilities. The Company evaluates its ability, based on the weight of evidence available, to realize future tax benefits from deferred tax assets and establishes a valuation allowance to reduce a deferred tax asset to a level which, more likely than not, will be realized in future years. At September 27, 2025 and September 28, 2024, deferred tax liabilities totaled approximately $26.4 million and $22.4 million, respectively, while deferred tax assets totaled approximately $23.7 million and $22.0 million, respectively.
The Company recognizes uncertain tax positions, if any, based on a cumulative probability assessment if it is more likely than not that the tax position will be sustained upon examination by an appropriate tax authority with full knowledge of all information. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Amounts recorded for uncertain tax positions are periodically assessed, including the evaluation of new facts and circumstances, to ensure sustainability of the positions. The Company records interest and penalties related to unrecognized tax benefits in income tax expense. There was no liability for uncertain tax positions at September 27, 2025 or September 28, 2024.
Recent Accounting Pronouncements
A discussion of recently issued accounting standards applicable to the Company is described in Note 2, Summary of Significant Accounting Policies and Recently Issued Accounting Standards, in the Notes to Consolidated Financial Statements contained elsewhere in this Report, and we incorporate such discussion by reference herein.
