Business Context and Reporting Period
Bridger Aerospace Group Holdings, Inc. provides aerial wildfire surveillance, suppression, relief and firefighting services. The company operated 18 aircraft as of March 31, 2023 and reports as a single operating segment. This unaudited Form 10-Q covers the three months ended March 31, 2023, compared with the three months ended March 31, 2022.
On January 24, 2023, Bridger completed its reverse recapitalization with Jack Creek Investment Corp. Legacy Bridger was the accounting acquirer, so historical results primarily represent Legacy Bridger. The company began trading on Nasdaq under BAER on January 25, 2023.
Key Financial Metrics
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Revenue | $0.4 million | $0.1 million | Up 427% |
| Gross loss | $(6.9) million | $(6.5) million | Loss increased 7% |
| Operating loss | $(40.1) million | $(11.3) million | Loss increased 255% |
| Net loss | $(44.7) million | $(14.9) million | Loss increased 200% |
| Adjusted EBITDA | $(10.7) million | $(9.1) million | Loss increased 17% |
| Net cash used in operations | $(36.7) million | $(7.4) million | Use increased |
| Net change in cash, cash equivalents and restricted cash | $(27.8) million | $(10.2) million | Greater cash decline |
- Revenue consisted entirely of other services; no fire suppression or aerial surveillance revenue was reported in the quarter. The increase was primarily from $321,244 of related-party work on an aircraft owned by the chief executive officer.
- Gross margin was approximately negative 1,883%, operating margin approximately negative 10,980%, and net loss margin negative 12,230%. These percentages are heavily distorted by the seasonal pre-fire-season quarter and very low revenue.
- Adjusted EBITDA margin was negative 2,921%, compared with negative 13,107% in the prior-year quarter.
- Cash and cash equivalents were $2.3 million at March 31, 2023, compared with $30.2 million at December 31, 2022. Restricted cash was $12.4 million and marketable securities were $30.3 million.
- Total debt was $213.1 million before debt issuance costs, including $160.0 million of 11.5% taxable industrial revenue bonds due September 2027. Long-term debt, net of issuance costs, was $205.2 million, and the current portion was $2.4 million.
- Total assets were $261.7 million and total liabilities were $230.8 million. Series A Preferred Stock was recorded as mezzanine equity at $336.9 million, and stockholders’ deficit was $306.1 million.
Material Changes Versus the Prior Comparable Period
- SG&A increased $28.4 million to $33.2 million, including approximately $25.6 million of stock-based compensation related primarily to restricted stock units issued in connection with the reverse recapitalization, $3.2 million of public-company-related professional fees, and higher operating costs.
- Cost of revenue increased 11% to $7.2 million, driven by additional Super Scooper aircraft and associated maintenance, personnel, subscriptions and depreciation.
- Interest expense increased 52% to $5.7 million, primarily due to the 2022 Bonds and higher aircraft-related borrowing costs, partly offset by the redemption of prior preferred shares.
- Operating cash use increased substantially because of the larger net loss, payments of accrued liabilities, prepaid expenses and transaction-related costs.
- Investing activities provided $13.0 million, principally because $25.1 million of marketable securities matured or were sold; the company also spent $11.2 million on property and equipment and $1.0 million on hangar construction.
- The company granted 6.6 million restricted stock units at an average grant-date fair value of $9.76 per unit. Approximately 2.4 million vested immediately, while 4.2 million remain unvested.
- Basic and diluted earnings per share were reported as $1.36 and $0.79, respectively, despite a $44.7 million net loss. The unusual positive attributable result reflects non-cash preferred-stock accounting adjustments, including a $156.4 million reduction from eliminating a 50% redemption multiplier, partly offset by a $48.3 million deemed dividend and other adjustments. This EPS is not representative of operating profitability.
Outlook, Risks, Contingencies and Unusual Items
- Management expects revenue and operating cash flow to be concentrated in the second and third quarters because of wildfire season. The filing does not provide a clear numerical 2023 revenue or Adjusted EBITDA guidance value in the supplied text.
- Management stated that cash, marketable securities and available liquidity should fund working capital, capital expenditures and the business plan for at least 12 months after filing. At April 30, 2023, cash was $3.7 million, restricted cash was $12.4 million and marketable securities were $24.6 million.
- The company was not considered in violation of its Rocky Mountain Bank debt covenants as of March 31, 2023. The bond agreements require, among other conditions, at least $8.0 million of unrestricted cash and qualifying liquid investments and a minimum 1.25x debt-service-coverage ratio beginning with the quarter ending December 31, 2023.
- Key risks include weather and wildfire variability, seasonality, limited aircraft and parts suppliers, aircraft delivery delays, inflation, labor and supply-chain shortages, fuel prices, flight safety, government customer concentration and competition.
- One customer represented 65% of first-quarter revenue and 83% of accounts receivable at March 31, 2023. Related-party revenue from the CEO’s aircraft represented approximately 88% of reported quarterly revenue.
- The company identified material weaknesses in internal control over financial reporting involving complex transactions, IT general controls and the precision of account reconciliation and financial statement review controls. Disclosure controls were therefore not effective as of March 31, 2023. Remediation is underway, but management cannot estimate when it will be complete.
- The company revised previously issued financial statements for an immaterial error involving a freestanding derivative. The revision increased December 31, 2022 liabilities and accumulated deficit by $2.2 million without affecting cash.
- The company had $2.5 million of remaining hangar construction commitments, $2.7 million of lease obligations and $210.1 million of debt obligations under its contractual-obligations table.
- On April 7, 2023, the company sold one Twin Commander surveillance aircraft for $0.7 million.
Investor Verification Points
- Verify second- and third-quarter contract awards, aircraft deployment, standby utilization and the conversion of the current pre-season revenue shortfall into operating revenue.
- Reconcile liquidity excluding restricted cash against the $8.0 million bond covenant and monitor operating cash burn.
- Review the maturity, interest burden and covenant requirements of the $160.0 million 2022 Bonds, including potential mandatory redemptions tied to aircraft sales or excess cash flow.
- Assess the effect of 6.6 million RSUs, approximately 30.3 million common shares issuable upon Series A Preferred Stock conversion, and 26.7 million warrants on future dilution.
- Evaluate the economic substance of the $336.9 million Series A Preferred Stock, its redemption rights beginning in 2027 and mandatory redemption provisions in 2032.
- Track remediation of the disclosed material weaknesses and any subsequent restatements or revisions.
- Review related-party revenue, receivables and bond interest paid to senior executives, as well as the customer concentration disclosures.