Bridger Aerospace Isn't Worth A Flyer

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At this constituent successful nan inclination of businesses going nationalist via mergers pinch SPACs (special intent acquisition companies), it would look for illustration location almost has to beryllium immoderate worth somewhere. So-called de-SPAC mergers person been abysmal performers, with nan smallest de-SPACs posting nan steepest declines:

SPACInsider.com/stats

That capacity has made de-SPACs somewhat of a punchline successful nan investing world, and nary uncertainty led galore investors to simply disregard nan group entirely. That estimation successful move mightiness (should?) create astatine slightest a fewer opportunities for risk-tolerant, contrarian investors.

But looking astatine de-SPACs, and peculiarly nan astir caller de-SPACs, connected an individual basis, that thesis starts to autumn flat. Bridger Aerospace (NASDAQ:BAER), whose merger pinch Jack Creek Investment Corp. closed past month, is conscionable 1 example.

Admittedly, connected its face, BAER banal looks interesting, peculiarly pinch nan stock already down 60% from its $10 merger price. Valuation arsenic described by nan institution looks reasonable, and nan wood fire-fighting institution should person (unfortunately) a increasing book of business ahead.

A person look, however, shows an tremendous problem connected nan equilibrium sheet, and existent questions astir whether this business tin beryllium ample capable to beryllium a nationalist institution astatine all. And because of an tremendous redemption complaint up of nan merger pinch Jack Creek, nan value of communal equity to wide valuation present is comparatively small: nan plunging BAER banal value doesn't really make shares that overmuch much charismatic from a basal perspective.

Like different low-float de-SPACs, location whitethorn beryllium immoderate crazy trading present — BAER spiked connected Friday day for nary evident logic — but nan basal communicative present looks weak. There whitethorn beryllium a heavy worth play location successful nan de-SPAC group, but Bridger Aerospace doesn't look to beryllium it.

What Bridger Aerospace Does

Bridger provides occurrence suppression and surveillance services successful nan occidental U.S. As of December, per nan astir caller investor presentation, nan institution had 20 craft successful its fleet, pinch plans to adhd different 9 this year.

Most of nan company's gross comes from a mini information of that fleet. Bridger operates 5 CL-415EAF planes (one much should beryllium delivered this year), known arsenic "Super Scoopers". (In 2021, Business Insider provided a elaborate look astatine those planes.) The exemplary is truthful named because it tin really "scoop" h2o from a earthy root (like a lake) to refill its tanks:

Bridger/Jack Creek presentation, December 2022

Bridger purchases nan planes from a backstage institution (Canada's Viking Air) and has a attraction subscription arsenic good to meet authorities requirements. But Bridger is nan usability of nan planes, hiring pilots, managing refueling, and determining onslaught plans. That is existent for nan remainder of nan fleet arsenic well, which includes 13 craft utilized for surveillance and occurrence suppression, arsenic good arsenic 2 drones.

The Bull Case for BAER Stock

Bridger remains a comparatively mini institution astatine nan moment. According to nan past amended S-4 earlier nan merger (p. 145), guidance expects 2022 gross of roughly $46 million. But there's a runway present for growth.

Bridger itself plans to build retired its fleet complete time, adding much Scoopers arsenic good arsenic different aircraft. Management argues that nan added planes will spot beardown utilization (see p.147 of nan S-4) because a) a customer requesting Scoopers will request arsenic galore arsenic are disposable and b) if conditions are specified that 1 customer is asking for aircraft, it's apt that akin conditions will thrust akin requests elsewhere.

That gross maturation successful move should thrust a accelerated description successful margins. This is mostly a fixed-cost model. Once nan planes are purchased and staffed, added revenues, whether done "standby days", successful which Bridger is paid simply to beryllium available, aliases existent formation hours, frankincense are highly profitable.

When Bridger and Jack Creek announced nan merger successful August, they projected gross to summation from $39 cardinal successful 2021 to $106 cardinal successful 2023. Adjusted EBITDA was guided to emergence astir 6x connected nan backmost of little than 200% gross growth, pinch EBITDA margins skyrocketing from 27% to 60%.

Meanwhile, arsenic noted above, location should unluckily beryllium nary shortage of demand. Wildfires are projected to go some more predominant and much intense. In nan occidental U.S., wherever Bridger presently operates, location is much improvement successful much areas pinch vulnerability to wildfires. That successful move increases nan imaginable costs successful spot (and sometimes lives) and frankincense nan inducement of national and authorities agencies to walk aggressively connected occurrence suppression.

Bridger's acquisition pinch Scoopers is different imaginable advantage. A study funded by nan national authorities past decade recovered that nan craft are some more effective and much cost-effective. Yet location aren't that Scoopers galore being produced by Viking Air; successful fact, accumulation isn't guaranteed past 2025.

As a result, Bridger's mini size is really alternatively ample successful nan discourse of a niche capability. And standard will matter: nan biggest institution (which Bridger intelligibly plans to be) will beryllium capable to get nan astir knowledgeable and astir qualified pilots (of which location are few).

The Bullish Valuation

So there's seemingly nan imaginable for a large business here. Perimeter Solutions SA (PRM), which focuses connected providing occurrence retardant chemicals, besides went nan de-SPAC route. PRM banal hasn't been a immense victor — it trades beneath $9 — but nan institution has an endeavor worth of astir $1.9 billion. Including a humble magnitude of nett indebtedness ($113 cardinal astatine nan extremity of Q3, per nan S-4), and utilizing nan superior building delineated successful nan SPAC position (shares outstanding of ~111 million), astatine Thursday's adjacent of $3.93 Bridger's endeavor worth sits astatine $550 million.

That fig beneath 10x nan updated projection for 2023 EBITDA ($58 cardinal — much connected nan update successful a moment). That's a seemingly charismatic model, peculiarly because superior expenditures present are comparatively low. Bridger will walk aggressively connected caller aircraft, but yearly attraction capex should beryllium comparatively modest. That successful move intends plentifulness of free rate flow, which Bridger tin usage initially to further adhd standard and, eventually, to supply returns to shareholders.

It's difficult to pin down precisely what nan aggregate should be, fixed a deficiency of nonstop peers. But PRM trades astatine ~15x trailing twelve-month EBITDA, and its ~36% margins, while impressive, lag those projected by Bridger. Given akin secular tailwinds (no pun intended), moreover discounting for higher consequence (Bridger is little mature) and a weaker equilibrium sheet, bulls would reason BAER easy deserves astatine worst a humble discount to PRM. Add aggregate description to further bottom-line maturation beyond 2023, and there's a beautiful clear way for BAER to reclaim nan $10 merger value and past immoderate successful nan coming years.

Shares Outstanding

At first glance, I was alternatively intrigued by nan imaginable bull case. BAER was trading for illustration truthful galore caller de-SPACs — a weird, brief, and illogical post-merger spike, followed by a crisp plunge — yet seemed to person a acold much reasonable valuation and a acold much sustainable business model.

But looking closer, nan bull lawsuit present has holes. A large rumor sits connected nan equilibrium sheet. Here's really Bridger and Jack Creek elaborate nan superior building up of nan merger:

Bridger/Jack Creek merger presentation, August 2022

As contemplated astatine nan clip Bridger would person 110.9 cardinal outstanding shares. That includes 34.5 cardinal shares from shareholders of nan JCIC SPAC, 39.6 cardinal from existing Bridger shareholders, and 6.9 cardinal for nan Jack Creek sponsor (subject to a bid of adjustments depending connected really nan merger really functioned). And arsenic a footnote successful nan descent details, it besides includes 29.9 cardinal shares from nan conversion of Bridger Series C convertible stock.

Yet, successful nan Form 8-K revenge upon merger adjacent (see nan 3rd page), astatine adjacent Bridger really had just 43.8 cardinal shares outstanding.

Two factors relationship for nan monolithic disparity betwixt nan pro forma stock count described successful August (and December) and nan existent count successful February. The first is that JCIC saw an unthinkable magnitude of redemptions. Of nan 34.5 cardinal communal shares outstanding, 34,245,643 shares were redeemed (per that aforesaid 8-K).

More than 99% of SPAC shares were redeemed for rate alternatively of rolled into nan merger. Even by nan standards of nan sector, wherever mean rates are starting to clear 80%, that's an unthinkable ballot against nan attractiveness of Bridger arsenic a merger target.

More importantly astatine this point, nan redemptions time off Bridger successful a comparatively questionable financial position. At September 30, nan institution had $94 cardinal successful rate connected nan equilibrium sheet. It expects to walk $133 cardinal full successful 2022 and 2023 connected superior expenditures, including craft purchases. But it's only spent ~$32 cardinal done nan first 3 quarters of 2022.

In different words, nan remaining capex fund done nan extremity of 2023 is ~$101 cardinal — much than nan company's rate connected hand. That's a problem considering that nan business posted antagonistic operating rate travel successful nan first 3 quarters of 2022.

Bridger either has to propulsion backmost connected its capex plans aliases raise capital. The second action is exceptionally difficult: nan institution really has a marketplace headdress of conscionable $172 cardinal astatine Thursday's close, meaning immoderate important superior raise would dilute shareholders and vessel nan BAER banal price. The erstwhile seems much apt — but that successful move intends nan projected EBITDA maturation from ~$4 cardinal successful 2022 to ~$58 cardinal successful 2023 simply isn't going to happen.

The Preferred Stock

Redemptions are nan problem. The preferred banal is another.

The pro forma stock count successful nan merger position assumed nan preferred banal would beryllium converted into communal stock. But pinch nan conversion value astatine $11 — astir triple Thursday's adjacent — that's not going to happen. And without conversion, nan preferred banal (Series A aft nan merger) whitethorn beryllium called preferred stock, but successful believe is really debt.

After all, nan Series A preferred banal has a liquidation preference, giving it declare to immoderate assets should nan business upwind down. It receives dividends, paid successful benignant (through an summation successful that liquidation preference), which mimic paid-in-kind liking connected debt. If Bridger is sold, nan liquidation penchant is paid disconnected successful full, conscionable arsenic convertible bonds would beryllium successful a akin scenario. And, astir importantly, nan preferred banal must beryllium redeemed successful April 2032 — akin to a maturity day for firm debt.

For each intents and purposes, nan liquidation penchant (which astatine this constituent should full ~$340 million) should beryllium treated arsenic debt. It's high-interest indebtedness arsenic well, pinch a complaint of 7% until April 2028, 9% for nan pursuing 12 months, and past 11% from that constituent onward.

Accounting for nan preferred stock, then, Bridger's endeavor worth is $625 cardinal ($172 cardinal marketplace headdress + $113 cardinal accepted indebtedness nett of rate + $340 cardinal preferred stock). That's notably higher than nan merger position would propose pinch BAER trading adjacent $4.

A Tough Bull Case for BAER Stock

$625 cardinal is simply a astir 11x aggregate to nan $58 cardinal successful projected 2023 Adjusted EBITDA. That seems obscurity adjacent to attractive, fto unsocial compelling.

After all, Bridger already has trim its projections for some 2022 and 2023 since nan merger was announced. The sharply little 2022 outlook ($39 cardinal successful August, $4 cardinal successful December) was attributed mostly to a weaker-than-expected occurrence season, and connected that beforehand guidance appears to beryllium telling nan truth. Perimeter Solutions posted a double-digit diminution successful gross done nan first 3 quarters of 2022 (it hasn't released 4th fourth results yet, but that 4th is seasonally quiet). Again, this is simply a fixed-cost model, truthful gross movements person a immense effect connected nan bottommost statement — successful some directions.

The 2023 activity is acold little significant, coming down only astir 10%, but location are worries location arsenic well. Margin projections person already been pulled down astir 3 points connected fundamentally level revenue, suggesting higher-than-expected costs (perhaps from nationalist institution expenses). And, arsenic noted above, it's not astatine each clear that Bridger is going to beryllium capable to money nan craft description that was expected to underpin that growth. At nan very least, nan institution astir apt has to propulsion backmost heading into 2024; nan superior that was expected to beryllium raised successful nan merger.

Even nan aggregate is not needfully that attractive. Yes, PRM trades astatine 15x — but that institution generates gross from occurrence play nary matter who is flying nan planes. Bridger has to triumph nan contracts itself — and it only has a few. In fact, successful nan first 9 months of 2022, 1 customer — which appears to beryllium nan US Forest Service — accounted for 97% of revenue. In 2021, nan USFS generated 74% of full revenue.

In nan presentation, Bridger and Jack Creek cited contractors for illustration Kratos (KTOS), AeroVironment (AVAV), and Mercury Systems (MRCY) arsenic peers, and noted that those businesses mostly received mid-teens EV/EBITDA multiples. But those 'peers' are acold larger, and importantly acold much diversified, than Bridger. The USFS is not a fastener for renewal (the work has one-year options connected nan existing contracts); nan agency's 2018 budget, for instance, did not see Scoopers astatine all.

DLH Holdings (DLHC) is simply a authorities contractor successful a very different space, but 1 that has akin (if acold little pressing) concerns astir gross attraction pinch cardinal agencies, and a leveraged equilibrium expanse arsenic well. I'm agelong nan stock, truthful I judge it's attractive, but shares waste and acquisition for astir 8x EBITDA (pro forma for a caller merger). That benignant of aggregate seems much due for BAER astatine this constituent successful its maturity than nan mid-teens aggregate assigned established businesses for illustration Mercury (in particular).

Fundamentally, then, BAER is trading astatine a questionable aggregate to a very questionable EBITDA projection. It already is facing rate concerns which whitethorn limit its description plans and frighten nan maturation needed astatine this valuation.

Again, it's imaginable BAER goes nuts arsenic "traders" erstwhile again target these heavily-redeemed, debased float names for a speedy crippled of philharmonic chairs. But for investors, Bridger banal is simply a no-go.

Overlooked Alpha launched April 2022 - subscribe astatine overlookedalpha.com. Some OA articles are besides disposable present astatine Seeking Alpha.I've been contributing to Seeking Alpha and different finance websites since 2011, pinch a wide (though acold from rigid) attraction connected worth complete growth. I sewage my Series 7 and 63 backmost successful 1999, and watched nan dot-com bubble highest and past burst successful existent clip astatine a small, tech-focused unit brokerage successful NYC.