Bridger Aerospace Group Holdings, Inc. — Q3 2023 Form 10-Q Summary
Business context and reporting period
Bridger provides aerial wildfire surveillance, suppression, relief and firefighting services, primarily to government agencies in the United States. The company reported unaudited results for the three and nine months ended September 30, 2023, compared with the corresponding 2022 periods. Its business is highly seasonal, with revenue concentrated in the second and third quarters because of the North American wildfire season.
Bridger completed a reverse recapitalization with Jack Creek Investment Corp. on January 24, 2023. Historical financial statements represent a continuation of Legacy Bridger, while the company began trading on Nasdaq under “BAER” on January 25, 2023. The company owned 17 aircraft at September 30, 2023.
Key financial metrics
| Metric | Q3 2023 | Q3 2022 | 9M 2023 | 9M 2022 |
|---|---|---|---|---|
| Revenue | $53.6 million | $32.5 million | $65.6 million | $45.3 million |
| Gross income | $38.4 million | $19.8 million | $32.6 million | $16.7 million |
| Gross margin | 71.6% | 61.1% | 49.7% | 36.9% |
| Operating income (loss) | $22.6 million | $1.8 million | $(31.6) million | $(11.9) million |
| Net income (loss) | $17.5 million | $(5.7) million | $(46.2) million | $(25.1) million |
| Net income (loss) margin | 32.6% | (17.4)% | (70.5)% | (55.4)% |
| Adjusted EBITDA | $38.7 million | $19.1 million | $29.0 million | $12.2 million |
| Adjusted EBITDA margin | 72.2% | 58.9% | 44.2% | 26.9% |
Q3 revenue increased 65%, led by fire suppression revenue of $46.2 million, up 74%, and aerial surveillance revenue of $7.4 million, up 26%. Flight revenue rose 56% to $28.3 million and standby revenue rose 77% to $25.0 million. One customer represented 75% of Q3 revenue and 67% of nine-month revenue.
Q3 operating income benefited from higher revenue and lower selling, general and administrative expense. Nine-month operating loss widened because selling, general and administrative expense increased 124% to $64.2 million, including substantial non-cash stock-based compensation. Q3 stock-based compensation was $9.0 million; nine-month stock-based compensation was $38.7 million.
Reported nine-month net loss attributable to common stockholders was affected by preferred-stock accounting adjustments, including a $48.3 million deemed dividend and a $156.4 million adjustment eliminating the former 50% redemption multiplier. Basic and diluted earnings per share attributable to common stockholders were $0.25 and $0.15 for Q3, and $1.02 and $0.59 for the nine-month period, respectively. These per-share results are significantly affected by the reverse recapitalization and preferred-stock adjustments.
Cash flow, liquidity, debt and balance sheet
- Cash and cash equivalents were $19.4 million at September 30, 2023, compared with $30.2 million at December 31, 2022.
- Restricted cash was $12.3 million, and marketable securities were $2.2 million, producing cash, restricted cash and marketable securities of approximately $34.0 million.
- Net cash used in operating activities was $41.5 million for the first nine months, versus $8.0 million used in the prior-year period. The 2023 usage included a $25.4 million increase in accounts and note receivable and a $19.1 million decrease from accounts payable, accrued expenses and other liabilities.
- Investing activities provided $35.9 million, primarily because of $53.1 million of proceeds from sales and maturities of marketable securities, partially offset by $18.1 million of property and equipment purchases.
- Financing activities used $5.1 million, including $6.8 million of reverse recapitalization costs and $1.5 million of debt repayments.
- Total debt was approximately $212.1 million before debt issuance costs, including $160.0 million of 11.5% taxable industrial revenue bonds maturing September 1, 2027. Long-term debt, net of issuance costs, was $205.2 million.
- Stockholders’ deficit was $298.2 million, while Series A Preferred Stock was recorded as mezzanine equity at a redemption value of $348.8 million. The preferred stock is convertible into approximately 31.2 million common shares as of September 30, 2023.
- Contractual obligations totaled $195.4 million, consisting of $187.0 million of debt obligations and $8.3 million of lease obligations.
Material changes versus the prior comparable period
- Revenue rose 45% for the nine-month period, primarily due to a larger number of aircraft operating and additional Super Scooper aircraft placed into service.
- Gross margin expanded materially because revenue growth exceeded the 15% increase in cost of revenues.
- Nine-month operating loss increased by $19.7 million despite higher gross income, primarily due to $38.7 million of stock-based compensation, higher operating and insurance costs, and a $0.6 million impairment charge related to a Twin Commander surveillance aircraft.
- Interest expense increased 32% to $17.2 million, mainly because of the 2022 Bonds and additional aircraft-related borrowing.
- On September 12, 2023, Bridger acquired Ignis Technologies for $11.6 million of stock consideration, including $3.2 million issued at closing and $8.3 million of contingent consideration. The preliminary allocation included $10.7 million of goodwill and $1.3 million of intangible assets.
- The company issued 426,531 shares for the Ignis acquisition and issued common stock in lieu of approximately $4.9 million of bonuses.
- Previously issued financial statements were revised for an immaterial error involving a freestanding derivative associated with Legacy Bridger Series C Preferred Shares.
Guidance, outlook, risks and unusual items
The filing does not provide a clear formal revenue or earnings guidance figure. Management states that existing cash and debt securities are expected to support working capital and capital expenditures for at least twelve months from the filing date, but it also discloses substantial doubt regarding continued operations if anticipated debt covenant violations cannot be remedied.
The company was in compliance with its debt covenants at September 30, 2023. However, management anticipates violating the 2022 Bond agreement’s minimum 1.25x debt service coverage ratio and $8.0 million minimum liquidity covenant during the twelve months following the filing, primarily because of lower-than-expected revenue and cash generation. The company has begun implementing a cost-reduction plan, but there is no assurance that the plan will succeed. An unremedied violation could accelerate the 2022 Bonds and create cross-defaults, and the company states that it would not have sufficient liquidity to pay the bonds if immediately due.
Management’s longer-term outlook is supported by expected demand for aerial firefighting services and potentially longer or more severe wildfire seasons. The company announced an accepted bid to purchase four Spanish Super Scooper aircraft for approximately €40.3 million, or approximately $43.1 million at the cited exchange rate, subject to funding and other tender conditions. Estimated refurbishment costs are $8 million to $12 million per aircraft. Completion and future contracting are uncertain.
The proposed $39.25 million acquisition of Big Horn Airways was terminated by mutual agreement in November 2023. No termination fee is payable, but Bridger agreed to reimburse transaction expenses; the amount was not estimable as of the filing.
Other important risks include customer concentration, seasonality and weather dependence, limited aircraft and parts suppliers, fuel and labor costs, flight safety, cybersecurity, competition, dependence on senior management, and the potential departure of CEO Timothy Sheehy if elected to the U.S. Senate. The company also reported material weaknesses in internal control over financial reporting involving complex transactions, IT general controls, account reconciliations and financial statement reviews. Disclosure controls were deemed ineffective as of September 30, 2023.
Most important facts for investors to verify
- Whether the anticipated 2024 debt service coverage and liquidity covenant breaches occur and whether lenders permit remediation without acceleration.
- Whether the disclosed substantial doubt about going-concern status is resolved through cost reductions, improved collections, asset sales, financing or other actions.
- The timing and collectability of the $25.4 million accounts and note receivable balance and the company’s continuing negative operating cash flow.
- The extent to which Q3 profitability and adjusted EBITDA depend on seasonal wildfire activity and non-GAAP adjustments, particularly stock-based compensation and other excluded items.
- The final purchase accounting for Ignis and the amount and timing of contingent stock consideration.
- Whether the Spanish Super Scooper acquisition closes, how it is financed, and whether refurbishment and contracting assumptions are achieved.
- Progress in remediating the material weaknesses and whether subsequent filings identify additional revisions or control deficiencies.
- The effect of Series A Preferred Stock conversion, outstanding warrants and restricted stock units on future common-share dilution.