Bridger Aerospace Group Holdings, Inc. Common Stock (BAER) Q4 2022 Earnings Report, Transcript and Summary

Greetings, and welcome to Bridger Aerospace Fourth Quarter and Year-end 2022 Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Eric Gerratt, I apologize, Chief Financial Officer. Thank you. Mr. Gerratt, you may begin.

Good afternoon, and thank you for joining us today. Joining me on the call this afternoon are Chief Executive Officer, Founder and Director, Tim Sheehy; and Chief Investment Officer and Director, McAndrew Rudisill. Before we begin, please note that certain statements contained in this conference call that do not describe historical facts are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Since forward-looking statements are based on various assumptions, risks and uncertainties, actual results may differ materially from those expressed or implied by such statements. Factors that could cause results to differ materially from those expressed include, but are not limited to, those discussed in the company's filings with the Securities and Exchange Commission, excluding expectations regarding -- including expectations regarding financial results for 2023. Management cannot control or predict many factors that ultimately impact future results. Listeners should not place undue reliance on forward-looking statements, which reflect management's views only as of today. We anticipate that subsequent events and developments will cause our assessments to change. However, we undertake no obligation to revise or update any forward-looking statements or to make any other forward-looking statements. For those joining by webcast, you can follow along with today's presentation. For those listening by phone, you can access today's presentation on our website at www.bridgeraerospace.com under the Investor Relations tab. Throughout this afternoon's earnings release and our call and presentation today, we will refer to non-GAAP financial measure adjusted EBITDA. The definition, calculation and reconciliation to the financial statements of adjusted EBITDA can be found in Exhibit A of our earnings release, which is available on our website. We believe adjusted EBITDA is useful in evaluating our reported results as a supplement to and not a substitute for our reported results under GAAP. With that, I'd like to turn the call over to Tim.

Thank you, Eric. Good afternoon, everyone, and welcome. Happy to be joining everyone today on our first earnings call as a public company. Bridger Aerospace began trading on the NASDAQ Global Market under the symbol BAER on January 25. While Eric will discuss our 2022 results in more detail in a moment. Since this is our first earnings call as a public company, I'd like to provide a brief overview of Bridger Aerospace and the market opportunity it. Prior to founding Bridger, I was a Navy SEAL Officer leading operations overseas coordinating close air support for my ground teams and was [indiscernible] and subsequently discharged. Seeing how effective in the air-to-ground task force was together on the battlefield. I look to bring that same aerial intelligence capability to BAER on public safety tasks in the U.S. We founded a Bridger in 2014 with one surplus government plan and a basic sensor system we had developed to map wildfires. Over the first several years, we grew organically until 2018 when we took an investment from Blackstone to grow our business more substantially. Today, Bridger is one of the nation's largest aerial firefighting companies. We have a fleet of over 20 aircraft, including 6 CL-415EAF Super Scoopers, which fight fires by scooping water from nearby lakes, rivers, reservoirs or oceans and dropping it directly on the fire. As of today, it is the only purpose-built firefighting aircraft in the world. The CL-415 family of aircraft is the safest, most efficient and most effective aerial firefighting platform in the world. We also have a fleet of surveillance aircraft that do fire mapping with immediate data transfer to enable awareness of what fires are doing in real time. We are well positioned to efficiently address and combat the growing economic and environmental damage caused by wildfires. The need for aerial firefighting services continues to grow as fire seasons are becoming longer and more aggressive, typically mid-April to mid-November. And because the Wildland Urban Interface is rapidly growing worldwide. At the same time, tanker modernization requirements instituted decades ago to bring aerial firefighting standards in line with 21st Century aviation standards, significantly reduced the U.S. supply of EU large air tanker aircraft from over 50 in early 2000s to around 20 today. This has meant that demand is outstripping supply for aerial firefighting capabilities. Related directly to our business, our contracts are with the U.S. Forest Service Department of Interior as well as many state governments and oftentimes last between 5 and 10 years. Most of our contracts include provisions that cover operating costs such as fuel and airports fees, providing protection from commodity variability. This has created a very attractive aircraft unit economics, and we are well positioned to drive incremental margins with the [indiscernible] fleet expansion. As we have reported previously, Each Scooper can generate between $6 million to $11 million in adjusted EBITDA annually. 2022 was a year of preparation for our public debut as well as adding infrastructure and personnel to support our fleet expansion. Looking out to 2023, we will have 6% operation, the most recent of which was delivered in February 2023, up from 4 for the majority of the 2022 fire season. As a result, we are well positioned to leverage the infrastructure we put in place in 2022 for significant growth this year. We expect this to lead to significant improvements to revenue, margins and adjusted EBITDA, which McAndrew will discuss in more detail later in the call. With that, I will turn it over to Eric, who will talk about our financial performance in 2022.

Thanks, Tim. Revenue for 2022 grew 18% to $46.4 million compared to $39.4 million in 2021. Fire suppression revenue was $38.8 million, up 28% from 2021, driven by 2 additional Scooper aircraft in service for the full season in 2022. Aerial Surveillance revenue declined to $7.2 million from $8.6 million in 2021 due to a decreased number of fires with high incident levels. Standby revenue as a percentage of total revenue was 45% in 2022 compared to 47% in 2021. Our cost of revenues increased 27% to $33.9 million in 2022 and was comprised of flight operation expenses of $18.8 million and maintenance expenses of $15.1 million. This compares to cost of revenues of $26.6 million in 2021, which included $15.8 million of flight operations expenses and $10.8 million of maintenance expenses. The increase is primarily related to costs added during the year in anticipation of the delivery of the additional Super Scooper aircraft, which were ultimately delivered later than expected and therefore did not contribute meaningfully to expected revenue during the 2022 fire season. Selling, general and administrative expenses were $35.1 million in 2022 compared to $11.2 million in 2021. The increase was partially driven by higher personnel expenses and professional services fees of $15.4 million in connection with the business combination and for our preparation of becoming a public company. Interest expense for 2022 was $20 million compared to $9.3 million in 2021. For 2022, the company reported a net loss of $42.1 million compared to a net loss of $6.5 million in 2021. Adjusted EBITDA was $3.7 million in 2022 compared to $9.8 million in 2021. Adjusted EBITDA excludes interest expense, depreciation and amortization, stock-based compensation, losses on disposal of assets, legal fees relating to financing transactions and business development expenses as well as non-recurring items such as gain/loss on extinguishment of debt, onetime discretionary bonus payments and transaction costs related to the business combination. Looking to the fourth quarter, which is the quarter where we typically schedule much of our annual maintenance activities for our fleet, revenue was $1.1 million compared to $0.7 million in the fourth quarter of 2021. The increase was due to higher deployment of aircraft early in the fourth quarter of 2022 compared to the same period in 2021. Cost of revenues for the fourth quarter of 2022 was $5.3 million compared to $4.4 million in the fourth quarter of 2021. Selling, general and administrative expenses were $6.5 million in the fourth quarter compared to $4.2 million in the fourth quarter of 2021. This increase was partially driven by higher personnel expenses and higher professional and third-party expenses to support the growth of the business and preparation of becoming a public company. Interest expense for the fourth quarter of 2022 was $7 million compared to $3.5 million in the prior period. For the fourth quarter of 2022, net loss was $17 million compared to a net loss of $11.1 million in the fourth quarter of 2021. Adjusted EBITDA was negative $8.5 million compared to negative $6.1 million in the fourth quarter of 2021. Turning to the balance sheet. We ended 2022 with cash, restricted cash and marketable securities of $97.4 million. Our outstanding debt was $207.9 million as of December 31, 2022. With that, I'll turn the call now over to McAndrew Rudisill, our Chief Investment Officer, who will discuss our guidance for 2023.

Thank you, Eric. Bridger's current fleet of over 20 aircraft, including 6 Super Scoopers is projected to generate revenue of $84 million to $96 million in 2023. This projected revenue growth is consistent with our public projections in connection with the business combination. However, it does not include any potential fleet additions, which we have previously referred to as a seventh Scooper equivalent. With much of the cost to support the 2 latest Scoopers, Scooper #5 and Scooper #6 already embedded in our cost structure. Adjusted EBITDA margins are projected to improve from 8% in 2022 to over 40% in 2023. As a result, adjusted EBITDA is projected to range from $37 million to $45 million in 2023, again, excluding the impact of any potential fleet additions. We continue to see a growing number of opportunities to further expand our fleet through M&A during 2023. We anticipate acting on one or more of these M&A opportunities this year, and we'll continue to explore these acquisitions and our growth plans. We expect to add revenue and adjusted EBITDA from potential future fleet expansion, if any, to our guidance upon transaction closings. While we won't provide specific quarterly guidance, as Tim mentioned, the fire season typically runs from mid-April to mid-November. As a result, the first and fourth quarters each year typically consist of a significant amount of off-season maintenance, training and recertification activities with minimal offsetting revenue. This means we expect to report negative EBITDA in the first and fourth quarters, while our most profitable quarters will be the second and third quarters. With that, operator, we are ready for questions.

Okay. With no shareholder questions. We'll answer a couple of frequent questions we've received from investors over the course of the last several months as we've gone through our process. Many of the questions have revolved around contracts, given that aerial firefighting is a relatively unique industry and the contracts we have are generally quite different than contracts and other aviation and aerospace realms. The way our contracts are structured are multiyear, 5 years, sometimes as long as 10 years. There are multiyear contracts classified under the indefinite delivery, indefinite quantity paradigm within the U.S. Federal Acquisition code. We charge daily and hourly rates depending on the type of firefighting services rendered, and these services are primarily split into flight revenue and standby revenue, so paid by the hour and paid by the day. These contracts exist over a 5- to 10-year horizon and do have annual renewal criteria based upon performance and technical compliance. Thus far in Bridger's life cycle, we have a 100% contract reaward ratio. Additionally, our mix between federal and state contracts is heavily weighted to the federal side with the majority of our revenue being between the DOI and U.S. Forest Service at roughly 75% of our rent revenue. I'll answer a couple more comment/questions we have related to guidance. Why has guidance changed from what was previously reported or provided in the 2023 EBITDA of $58 million? Guidance is not actually reduced for the base Bridger business as it stands currently. In fact, base Bridger business is in line, if not a bit higher than what we had in our estimates for last year. We felt it was more appropriate to base our updated guidance on our current fleet as exists today as opposed to assuming potential aircraft additions through aircraft acquisitions or M&A, which I previously referred to as the seventh Scooper equivalent. As we have said, there are a number of opportunities to further expand our fleet through M&A, and we will add the impact of future fleet expansion to our guidance throughout the year once these transactions close. The key metrics for us to focus on for our M&A transactions will relate primarily to free cash flow generation of the business and how that can be accretive to our bottom line and reinvested in the business for technical innovation and growth of our business. as well as technical differentiation related to specific aerial firefighting technologies for fire mapping, fire imaging and data sharing related to active wildfire incidents to support the fireflies on the ground. With no other further questions in the queue. Thank you for participating in today's call and for your support for the completion of becoming a public company and delivery of our latest Scoopers as well as a growing number of opportunities to further expand our fleet through M&A and geographic diversification. We are well positioned to see significant growth and drive shareholder returns while supporting our federal and state government clients in the growing battle against wildfires. We look forward to updating you on our progress when we report our first quarter fiscal year 2023 results in May. Have a great day.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.