Q3 2024 Bridger Aerospace Group Holdings Inc Earnings Call
Speaker Change: Good day, everyone, and welcome to today's Bridger Aerospace third quarter 2024 conference call. At this time, all participants are in a listen only mode. Later, you will have the opportunity to ask questions during the question and answer session.
Speaker Change: Please note today's call will be recorded and I will be standing by should you need any assistance.
Speaker Change: It is now my pleasure to turn the conference over to CFO of Bridger Aerospace, Eric Gerratt. Please go ahead.
Eric Gerratt: Good afternoon and thank you for joining us today. Joining me on the call this afternoon is Chief Executive Officer Sam Davis and Senior Vice President of Finance and Capital Markets John Saunders.
Eric Gerratt: 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.
Eric Gerratt: 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.
Eric Gerratt: 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 U.S. Securities and Exchange Commission, including expectations regarding financial results for 2024.
Eric Gerratt: Management cannot control or predict many factors that ultimately impact future results.
Eric Gerratt: Listeners should not place undue reliance on forward-looking statements which reflect management's views only as of today.
Eric Gerratt: 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 statement or to make any other forward-looking statement.
Eric Gerratt: Throughout this afternoon's earnings release and our call today, we refer to the non-GAAP financial measure adjusted EBITDA. The definition, calculation, and a reconciliation to the financial statements of adjusted EBITDA can be found in Exhibit A of our earnings release, which is available on our website.
Speaker Change: We believe adjusted EBITDA is useful in evaluating our reported results as a supplement to, and not a substitute for, results reported under GAAP. With that, I'd like to turn the call over to Sam.
Sam Davis: Thank you, Eric. Before I begin, I just want to recognize all of our veterans today on Veterans Day.
Sam Davis: We are extremely proud to announce our third quarter results, which include the height of the 2024 wildfire season, with revenue reaching nearly $65 million, net income of $27.3 million, and adjusted EBITDA of $47 million.
Sam Davis: 2024 is representative of the trend of longer and more intense wildfire seasons and the financial results Bridger can generate with its current fleet of six scoopers and six air attack aircraft.
Sam Davis: Overall, we consider 2020 for a more typical wildfire season, particularly when compared to last year.
Sam Davis: While we saw a late start to the peak of the season, the U.S. spent a total of 59 days at Preparedness Level 5, which we refer to as PL5, including 10 days in October.
Sam Davis: As a reminder, PL5 is the National Interagency Fire Center's highest level, and it signifies that major fire incidents are occurring across multiple geographic areas with the potential to exhaust all agency fire resources.
Sam Davis: In comparison, last year there were zero days at PL5 and only 21 days at PL4.
Sam Davis: The last time we saw PL5 was actually in 2021 with 68 days at PL5 and an additional 31 at PL4.
Sam Davis: through November 1st, 2024, over 8 million acres of burn nationally. This compares to just 2.7 million acres burned last year.
Sam Davis: For comparison, the five-year average is 7.7 million total acres burned.
Sam Davis: While 2024 was an above average year in duration, and even the East Coast has seen unprecedented wildfire activity this fall, a combination of factors can impact whether Bridger gets called. Overall, we believe the days of work and flight hours were only slightly above average for Bridger.
Sam Davis: A state scrambled this summer to secure aerial firefighting resources against the backdrop of government agency contracting lags and budgeting delays.
Sam Davis: We continue to focus on maximizing the number of these exclusive use commitments, ensuring our fleet remains dedicated to critical wildfire response efforts with the goal of maximizing price and flight hours.
Sam Davis: We're also focusing on securing multi-year contracts, which will serve to guarantee overall revenue and smooth out seasonality associated with peak wildfire season days and hours. Much of this groundwork happens in the winter months as government budgeting and planning cycles are underway.
Sam Davis: As the 2024 wildfire season winds down, the task orders for our two Pilatus PC-12 Multi-Mission Aircraft, or MMA, guaranteed for 150 days apiece were extended to greater than 190 days apiece.
Sam Davis: We also added some non-fire related missions throughout the year for additional work. We currently have stationed two scoopers in Texas on standby positioned for activity under continued high threat of fire activity, a testament to the growing demand during the late season.
Sam Davis: Turning to FMS, as a reminder we closed the acquisition on June 28th, so this was FMS's first quarter as a part of Bridger and it contributed approximately 1.6 million dollars to revenue.
Sam Davis: Adding FMS's strong engineering, modification, and manufacturing capabilities to Bridger has already created exciting growth opportunities in mission-critical areas such as aerospace modifications and defense systems engineering.
Sam Davis: And we hope these opportunities will enable us to diversify our customer base and add more year-round revenue to help offset the seasonal nature of our aerial firefighting business.
Sam Davis: FMS also continues to build a pipeline to support Bridger aircraft for modifications to solidify our competitive advantage and to incorporate leading edge sensor technologies as well as separate projects in Bridger aircraft to enhance performance, reliability, and safety.
A quick update on Ignis Technologies.
Sam Davis: Our software subsidiary launched its mobile platform this year to support firefighters in the field.
Sam Davis: A major focus of ongoing development is linking Bridger's real-time sensor imagery with the Ignis app, creating a seamless data flow from air to ground.
Sam Davis: This capability promises to unlock new levels of situational awareness, supporting multi-mission aviation contracts, and enhancing both operational effectiveness and safety.
Sam Davis: We remain on track with plans to expand into Europe through our partnership with Marathon Asset Management LP and Avenue Sustainable Solutions Fund, which completed the purchase of four super scoopers from the Spanish government last fall.
Sam Davis: We are pleased with the progress of the return to service process managed by our Spanish subsidiary Albacete Aero, and we remain on schedule for all four scoopers to be available during the 2025 wildfire season.
Sam Davis: We recognized approximately $2.2 million of revenue related to this return to service work in the quarter, with the majority of that also hitting our cost line as well.
Sam Davis: We are in the process of sourcing operating contracts for all four of these aircraft while their services remain in high demand.
Sam Davis: At that point, we will determine how best to bring these high margin assets into the business.
Sam Davis: As we look ahead to the fourth quarter, we see continued use of Bridger aircraft as the intensity of the wildfire season extended into October nationally and into November in certain parts of the country.
Speaker Change: Year to date, we have dropped just shy of 9 million gallons of water. As a result, we expect a record year, including the generation of positive free cash flow after maintenance, capital expenditures, and debt service. Let me now turn it back to Eric, who will talk about our financial performance in the quarter.
Thanks, Sam.
Eric Gerratt: Looking at results for the third quarter of 2024, revenue increased approximately 20% to $64.5 million from $53.6 million in the third quarter of 2023.
Eric Gerratt: Revenue in the third quarter of 2024 benefited from higher flight revenue, as well as approximately $2.2 million related to return to service work.
Eric Gerratt: performed on the Spanish Super Scoopers by our Spanish subsidiary, Albacete Aero, as part of our partnership agreement with MAB Funding LLC, as well as approximately $1.6 million of revenue from the company's June acquisition of FMS.
Eric Gerratt: Cost of revenues was $23 million in the third quarter of 2024, up from $16 million in the third quarter last year.
Eric Gerratt: Cost of revenues for the third quarter of 2024 was comprised of flight operation expenses of $15.1 million and maintenance expenses of $7.9 million.
Eric Gerratt: This compares the $10.2 million of flight operation expenses and $5.7 million of maintenance expenses in the third quarter of 2023.
Eric Gerratt: The increase in cost of revenues is primarily due to increased flight hours in the third quarter this year compared to the third quarter of 2023, resulting in increased depreciation, maintenance, and travel expenses.
Eric Gerratt: tied to higher utilization in the field. Also reflected were the expenses associated with the return-to-service work for the Spanish scoopers, which is largely pass-through, as well as the addition of FMS and some inflationary pressure.
Eric Gerratt: Selling general administrative expenses were $8.6 million in the third quarter of 2024 compared to $15.1 million in the third quarter of 2023.
Eric Gerratt: The increase was primarily due to a decline in the fair value of outstanding warrants as of the end of the third quarter of 2024 compared to the third quarter of 2023.
Eric Gerratt: The decrease was also partially attributable to lower non-cash stock-based compensation expense in the third quarter of 2024 compared to the third quarter last year.
Eric Gerratt: For the third quarter of 2024, we reported net income of $27.3 million or $0.31 per diluted share compared to net income of $17.5 million or $0.22 per diluted share in the third quarter of 2023. The increase in net income was primarily driven by strong fleet utilization in the third quarter of 2024.
Eric Gerratt: Due to our seasonality, the company typically generates a net loss and negative EBITDA in the first and fourth quarters each year, with the majority of our adjusted EBITDA generated primarily in the third quarter coinciding with the U.S. wildfire season.
Eric Gerratt: Looking at our results for the first nine months of 2024, revenue was $83 million compared to $65.6 million in the first nine months of 2023.
Eric Gerratt: Cost of revenues was $42.1 million, comprised of flight operation expenses of $25.2 million and maintenance expenses of $16.8 million.
Eric Gerratt: Cost of revenues for the first nine months of 2023 was $33.7 million, comprised of $20.3 million of flight operation expenses and maintenance expenses of $13.5 million.
Eric Gerratt: SG&A expenses declined to $28.2 million in the first nine months of 2024.
Eric Gerratt: compared to $63.5 million for the first nine months of 2023, which included non-cash, stock-based compensation expense of $39.7 million for RSUs, compared to only $13.7 million in the first nine months of 2024.
Eric Gerratt: The decrease was also partially attributable to a decrease in the fair value of outstanding warrants.
Speaker Change: Bridger also reported other income of $1.8 million for the first nine months of 2024 compared to $2.3 million for the first nine months of last year.
Speaker Change: Net loss was $2.7 million in the first nine months of 2024 compared to a net loss of $46.2 million in the first nine months of 2023.
Speaker Change: Adjusted EBITDA was $40.2 million for the first nine months of this year compared to $29 million in the same period last year.
Speaker Change: Turning to the balance sheet, we ended the third quarter with total cash and restricted cash of $42.6 million.
Speaker Change: Outstanding trade and unbilled receivables of over $26 million as of September 30, 2024 are expected to further increase the cash balance in the coming months.
Speaker Change: With that, I'd like to turn the call over now to John to discuss our 2024 guidance.
John Saunders: Thank you, Eric. As the bulk of the wildfire season has come to an end, Bridger is in a position to refine its guidance. Supported by record results in the third quarter and continued dry weather in the western U.S. that has led to multiple aircraft operating into October and even November, we are increasing our 2024 revenue guidance.
John Saunders: We now expect revenue to be in a range of $90 to $95 million. This is an increase of between 35 and 42% over our reported 2023 revenue, and an increase from our initial guidance of $70 million to $86 million.
John Saunders: It is also important to note that approximately $6 million to $7 million of anticipated 2024 revenue relates to pass-through return-to-service work performed on our four Spanish Super Scoopers by our Spanish subsidiary,
John Saunders: Albicete Aero, as well as the June 2024 acquisition of FMS Aerospace, neither of which was included in the initial guidance range.
John Saunders: Given the company's largely fixed cost structure and seasonality of its revenue, Bridger typically generates the majority of adjusted EBITDA in the third quarter each year during the bulk of the wildfire season.
John Saunders: As a result, 2024 adjusted EBITDA is expected to grow by over 85% to a range of $35 million to $40 million.
John Saunders: This compares to the company's initial adjusted EBITDA guidance range of $35 million to $51 million first provided last November.
John Saunders: We have not fully realized the anticipated benefits from targeted reductions to our cross-structure that we estimated a year ago. This includes the exit of certain subscription maintenance programs and leasing costs for aviation assets that we kept in place to support the high level of fire activity.
We also experienced some inflationary pressures.
John Saunders: Collectively, these factors are expected to prevent us from reaching the high end of our initial guidance range for 2024 Adjusted EBITDA.
John Saunders: In addition, we also pivoted from some EBITDA boosting opportunities to focus on growth of our non-FIRE revenue to help smooth seasonality, which are expected to benefit 2025 operations.
John Saunders: Based on this latest guidance, we expect to report positive free cash flow for the first time in Bridger's history in a range of $5 million to $10 million.
John Saunders: Free cash flow is defined as adjusted EBITDA, less debt service, and less maintenance capital expenditures.
John Saunders: Bridger intends to put a portion of this capital to work on low-cost, high-benefit aviation investments to find new and expanded revenue opportunities.
John Saunders: This includes aircraft modifications for additional customer opportunities, sensor enhancements, and download capabilities that will provide increased utilization, opportunity for new contracts, and multi-year work and increased customer satisfaction and brand awareness.
Speaker Change: With that, I would like to turn the call back to Sam for final comments.
Sam Davis: Thank you, John. At the heart of Bridger Aerospace remains the unshakable focus on the mission to protect lives, property, and habitat threatened by wildfires.
Sam Davis: This year we flew in 16 states and provided support for 385 fires.
Sam Davis: and gathered numerous success stories from suppression on major fires, preventing the loss of structures to early detection, preventing small lightning strikes from becoming large incidents.
Sam Davis: Bridger employees worked long days and nights in some of the harshest conditions to readily serve fellow Americans facing the rising threat of wildfires.
For more information visit www.FEMA.gov
Sam Davis: Being able to see the results of our hard work to protect others from loss, while supporting firefighters on the front lines is at the core of Bridger's make-up.
Sam Davis: What makes the effort of the Bridger team even more commendable was the onslaught of politically motivated attacks we endured as a company as our former CEO ran for public office in a highly contested race.
Sam Davis: Regardless of political affiliation, Bridger employees, customers, and partners were subject to a torrent.
Sam Davis: of speculative foreboding designed to tarnish the company's reputation and sabotage its laudable efforts to deliver record results while executing on a critical mission to save lives and property.
Sam Davis: Ultimately, the leadership team at Bridger and strength of its board has guided it through a crucial period in Bridger's life cycle, where it has finally stepped into its stride by exceeding expectations, and we continue to be ready and able to answer the call to fight wildfires around the country.
Sam Davis: Now that the election is decided and our founder and former CEO Tim Sheehy has been elected to the U.S. Senate, our nominating and corporate governance committee of the board has officially commenced the comprehensive CEO search process and will consider both internal and external candidates.
Rear Admiral Wyman Howard will chair the search committee.
Sam Davis: While there is no specified timeline for completion, the search is expected to be completed in 2025.
Speaker Change: I'm fully committed to being a part of the process and I'm confident that the board's ultimate decision will be in the best interest of Bridger shareholders.
Speaker Change: Additionally, to avoid any further allegations of potential conflicts of interest,
Speaker Change: Roger is a critical piece of the nation's aerial firefighting responding network and is proud to have aircraft deployed in support of firefighting in 10 out of the 12 months in 2024.
Speaker Change: With that, I would like to open up the call for questions.
Speaker Change: At this time, if you would like to ask a question, please press the star and 1 on your telephone keypad. You may withdraw yourself from the queue at any time by pressing star 2.
Speaker Change: And we'll take a question from Austin Mellor with Canaccord. Your line is open.
Hi, good afternoon. Congrats on the quarter, everyone.
Thank you, Austin.
Speaker Change: Just my, just my first question here. Can you go into a little bit more detail about the inflation in the quarter, the Trimney-Utah guidance, and was that in, like, aftermarket maintenance or pilot compensation, fuel costs? How should we think about that?
Speaker Change: Yeah, thanks for the question. I'll turn this one over to Eric if you wouldn't mind speaking to some of the inflationary pressures.
Eric Gerratt: Yeah, sure, Austin. So, yeah, you mentioned a few, so we definitely saw some inflationary pressure in, like, like most companies in the area, salaries, wages, benefits.
Eric Gerratt: kind of on that piece of the puzzle, as well as, you know, we, especially during fire season, incur a lot of costs in terms of travel with our, with our crews and mechanics going all over the country to support our efforts. And so travel costs definitely.
Eric Gerratt: In terms of maintenance, you know, in addition to the labor and benefits side of things and travel, we also saw some some pressures in terms of some of our small parts and replacement parts that that we use. We're looking at opportunities and done some things to try to
Eric Gerratt: make our inventory as efficient as possible to try to reduce those impacts and kind of manage those costs.
Eric Gerratt: On the travel side, we also have looked at and have done some things in some areas where we leverage some crew housing, some things like that, so we're not always in hotels and things of that nature. So we've done a decent job of managing it, but there's definitely been those pressures there.
Speaker Change: That's helpful. How do you view the new administration's impact on federal firefighting funds? Presumably the committees that oversee the Department of the Interior and the Forest Service are bipartisan on this issue.
Speaker Change: Yeah, I'll take that one. Um, yeah, so you're right. And we speak to this all the time. Wildfires are a very bipartisan issue because they affect everybody and it's a national threat and a rising one year over year.
Speaker Change: Bridger has done what we will, will do what we've always done, which is
Speaker Change: continue to work with the administration and, you know, be on the forefront of talking with these different committees as we affect a lot on the legislative slide to
Speaker Change: increase some of our strategy in terms of getting more exclusive exclusive use contracts.
and Guaranteed Days because
Speaker Change: That is at the core of what everybody is trying to do to solve this threat. Even right now as we speak, there's fires on the East Coast outside of New York and in New Jersey.
Speaker Change: So, this is becoming a rising problem. There will maybe be some potential changes to the committees that we deal with, but Bridger continues to do work, especially in the off-season, meeting with those folks and being on the forefront of championing solutions that we have.
Speaker Change: Great. And just one more, if I may. Should we expect to see a reduction in cost structure, operating costs, and improved revenue volumes in the off-season now that you've required FMS and you might be getting some other government services work?
Speaker Change: Yeah I'll turn this one over to John who's been working on on this especially as we look at guidance for the end of the year and beyond.
John Saunders: Yeah, Austin, that's a great question. Absolutely. We expect to see OPEX down with lower flight levels throughout the winter. I would also comment that, you know, the cost rationalization that the company put in place in 2023 going into 2024, we're seeing the effect and impact of that cost rationalization really starting to go into the P&L in the back half of 2024 and into 2025. So, we have some cost rationalization over personnel, and Eric mentioned travel policy, vendors, professional services. We have some things that we believe will significantly reduce OPEX throughout the winter. On the revenue side,
absolutely FMS.
John Saunders: has been winning contracts and continues to deliver on engineering service contracts throughout Q4, Q1, helping to reduce seasonality. Also, the company has been successful with fire and non-fire work with its aviation assets this year. So we expect significant revenue from the core business in Q4 this year. So a very significant change with revenue levels in the outside of fire season quarters Q4 and Q1.
Unknown Executive, Timothy Sheehy, Sam Davis
Excellent. That's very exciting. Thanks for all the details.
Thank you, Austin.
Unknown Executive, Timothy Sheehy, Sam Davis
Speaker Change: Thanks again for joining our conference call today. We look forward to updating you on our progress when we report our final annual results in March.
Speaker Change: This does conclude today's program. Thank you for your participation. You may disconnect at any time and have a wonderful evening.
Temperment was the last one of the chamber orchestra.
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