Bridger Aerospace Group Holdings, Inc. — Form 10-Q Summary
Business context and reporting period
Bridger provides aerial wildfire surveillance, suppression, relief and firefighting services, primarily for government customers in the United States and Canada. As of June 30, 2023, it owned 17 aircraft. Results are highly seasonal, with revenue and operating cash flow concentrated in the second and third quarters because of the North American wildfire season.
This unaudited Form 10-Q covers the three and six months ended June 30, 2023, compared with the corresponding 2022 periods. On January 24, 2023, Bridger completed a reverse recapitalization with Jack Creek Investment Corp. Legacy Bridger was treated as the accounting acquirer, so historical results primarily represent Legacy Bridger.
Key financial metrics
| Metric | Three months ended June 30, 2023 | Three months ended June 30, 2022 | Six months ended June 30, 2023 | Six months ended June 30, 2022 |
|---|---|---|---|---|
| Revenue | $11.6 million | $12.8 million | $12.0 million | $12.8 million |
| Gross income (loss) | $1.1 million | $3.3 million | $(5.8) million | $(3.1) million |
| Gross margin | 9.5% | 26.1% | (48.2)% | (24.4)% |
| Operating loss | $(14.1) million | $(2.4) million | $(54.2) million | $(13.7) million |
| Net loss | $(19.0) million | $(4.6) million | $(63.7) million | $(19.4) million |
| Adjusted EBITDA | $1.0 million | $2.0 million | $(9.7) million | $(6.9) million |
| Net cash used in operating activities | Not separately provided | Not separately provided | $(53.4) million | $(10.0) million |
Second-quarter revenue declined 9%, primarily because the 2023 U.S. wildfire season started later following wet spring weather. Fire suppression revenue fell 11% to $10.4 million, while aerial surveillance revenue increased 12% to $1.1 million. Six-month revenue declined 7%.
Cost of revenue increased 12% in the second quarter and 11% for the six-month period. Selling, general and administrative expense increased to $15.2 million in the quarter and $48.4 million year to date, driven primarily by non-cash restricted stock unit compensation. Six-month stock-based compensation was $32.0 million, compared with negligible expense in the prior-year period.
Interest expense rose 142% in the second quarter and 87% year to date, primarily due to the 11.5% Series 2022 bonds. Other income included interest income and realized gains on marketable securities.
Balance sheet, debt and liquidity
- Cash and cash equivalents were $0.8 million at June 30, 2023, compared with $30.2 million at December 31, 2022.
- Restricted cash was $12.2 million and short-term marketable securities were $12.6 million. Management reported cash of $2.6 million, restricted cash of $12.3 million and marketable securities of $10.2 million as of July 31, 2023.
- Total debt was approximately $212.7 million before debt issuance costs, including $160.0 million of 2022 bonds bearing 11.5% interest and maturing September 1, 2027. Long-term debt, net of issuance costs, was $205.1 million.
- The company reported a violation of the Rocky Mountain Bank senior leverage covenant as of June 30, 2023. The acceleration of the obligation was waived for the quarter. The company stated that it was not in violation of the applicable debt service coverage ratio.
- The 2022 bond agreements require minimum liquidity of $8.0 million and impose additional financial covenants, including a debt service coverage ratio exceeding 1.25x beginning with the quarter ending December 31, 2023.
- Management stated that existing liquidity is sufficient for working capital, capital expenditures and execution of the business plan for at least 12 months from the filing date. However, unrestricted cash was limited, and warrant proceeds are uncertain because the $11.50 exercise price exceeded the June 30 common stock closing price of $5.60.
Material changes versus the prior comparable period
- Revenue decreased $1.1 million, or 9%, in the second quarter and $0.8 million, or 7%, for the first six months.
- Gross margin deteriorated to 9.5% in the quarter from 26.1%; the six-month gross loss widened to $5.8 million.
- Operating loss increased to $14.1 million in the quarter and $54.2 million year to date, substantially reflecting higher stock-based compensation, public-company costs, insurance, operating costs and aircraft-related expenses.
- Adjusted EBITDA declined to $1.0 million in the quarter from $2.0 million and to negative $9.7 million for the six months from negative $6.9 million.
- Operating cash burn increased to $53.4 million year to date, partly offset by $42.7 million of proceeds from sales and maturities of marketable securities.
- Property, plant and equipment increased to $202.1 million from $192.1 million, reflecting aircraft and hangar investment. The company recorded a $0.6 million impairment charge on a Twin Commander surveillance platform and a $0.4 million loss on asset disposals.
- Stockholders’ deficit was $319.6 million at June 30, 2023. Series A Preferred Stock was recorded as mezzanine equity at a $342.7 million redemption value and is convertible into approximately 31.2 million common shares.
Guidance, outlook, risks and unusual items
Management did not provide a clear numerical revenue or Adjusted EBITDA forecast in the filing text. Management stated that long-term demand should benefit from increasing wildfire activity and demand for aerial firefighting, while acknowledging near-term volatility from weather, wildfire timing, aircraft availability, supply-chain constraints, inflation, labor availability and fuel prices.
- The business is highly dependent on the timing and severity of wildfire seasons and government contracting activity.
- Customer concentration remains significant: three customers represented 41%, 30% and 27% of second-quarter revenue, and three customers represented 37%, 29% and 27% of accounts receivable at June 30, 2023.
- The company relies on a limited supply of specialized aircraft, parts and suppliers. Aircraft delivery and deployment delays have affected prior periods.
- Public and private warrants are liability-classified and subject to recurring fair-value changes. Approximately 26.7 million warrants were outstanding at June 30, 2023.
- The company identified material weaknesses in internal control over financial reporting involving complex transactions, IT general controls, account reconciliations and financial statement review controls. Disclosure controls were deemed ineffective as of June 30, 2023, and remediation remains in process.
- The company revised previously issued financial statements for an immaterial error involving a freestanding derivative related to Legacy Bridger Series C Preferred Shares.
- On July 21, 2023, Bridger agreed to acquire Big Horn Airways for $39.25 million, consisting of $14.75 million in unregistered common stock and the remainder in cash, subject to customary closing conditions, including raising cash and regulatory approvals. The transaction had not closed as of the filing date.
Most important facts for investors to verify
- Whether wildfire activity and aircraft deployment in the remainder of 2023 improve revenue, gross margin and Adjusted EBITDA.
- Compliance with Rocky Mountain Bank and Series 2022 bond covenants, including the $8.0 million minimum liquidity requirement and the future 1.25x debt service coverage requirement.
- The company’s unrestricted cash needs, operating cash burn and ability to fund aircraft, hangar, acquisition and other capital commitments without additional financing.
- The terms, funding and closing status of the Big Horn Airways acquisition, including the required cash consideration and stock issuance.
- The effect of $205.1 million of net debt, 11.5% bond interest and Series A Preferred Stock redemption and conversion obligations.
- Progress in remediating material weaknesses and whether future filings identify additional accounting revisions or control deficiencies.
- The extent to which non-cash stock-based compensation, warrant remeasurement and preferred-stock accounting affect reported earnings per share and dilution.