Item 8. Financial Statements and Supplementary Data
Item 8.
Financial Statements and Supplementary Data.
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BRIDGER AEROSPACE GROUP HOLDINGS, LLC
(PREDECESSOR TO BRIDGER AEROSPACE
GROUP HOLDINGS, INC.)
INDEX TO FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
74
Consolidated Balance Sheets as of December 31, 2022 and 2021
75
Consolidated Statements of Operations for the years ended December 31, 2022 and 2021
76
Consolidated Statements of Comprehensive Loss for the years ended December 31, 2022 and 2021
77
Consolidated Statements of Members Deficit for the years ended December 31, 2022 and 2021
78
Consolidated Statements of Cash Flows for the years ended December 31, 2022 and 2021
79
Notes to Consolidated Financial Statements
80
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Shareholders and the Board of Directors of
Bridger Aerospace
Group Holdings, Inc.
Belgrade, Montana
Opinion on the
Financial Statements
We have audited the accompanying consolidated balance sheets of Bridger Aerospace Group Holdings, LLC (the Company)
as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive loss, members deficit, and cash flows for each of the two years in the period ended December 31, 2022, and the related notes
(collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of
its operations and its cash flows for each of the two years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the
responsibility of the Companys management. Our responsibility is to express an opinion on the Companys financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight
Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial
reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the
financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits
also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Crowe LLP
We have
served as the Companys auditor since 2022.
Atlanta, Georgia
March 20, 2023
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BRIDGER AEROSPACE GROUP HOLDINGS, LLC
(PREDECESSOR TO BRIDGER AEROSPACE GROUP HOLDINGS, INC.)
CONSOLIDATED BALANCE SHEETS
(All amounts in U.S. dollars)
As of December 31,
2022
2021
ASSETS
Current assets:
Cash and cash equivalents
$
30,162,475
$
13,689,091
Restricted cash
12,297,151
3,572,041
Investments in marketable securities
54,980,156
Accounts receivable
28,902
34,992
Aircraft support parts
1,761,270
1,944,660
Prepaid expenses and other current assets
1,835,032
2,825,687
Deferred offering costs
5,800,144
Total current assets
106,865,130
22,066,471
Property, plant and equipment, net
192,091,413
168,677,309
Intangible assets, net
208,196
307,954
Goodwill
2,457,937
2,457,937
Other noncurrent assets
4,356,225
1,602,568
Total assets
$
305,978,901
$
195,112,239
LIABILITIES, MEZZANINE EQUITY AND MEMBERS DEFICIT
Current liabilities:
Accounts payable
$
3,170,354
$
4,021,177
Accrued expenses and other current liabilities
16,483,289
474,644
Operating
right-of-use current liability
21,484
4,973
Current portion of Series B Preferred shares
66,412,637
Current portion of long-term debt, net of debt issuance costs
2,445,594
2,155,926
Total current liabilities
22,120,721
73,069,357
Long-term accrued expenses and other noncurrent liabilities
45,659
1,456,949
Operating
right-of-use noncurrent liability
754,673
608,571
Long-term debt, net of debt issuance
costs 1
205,471,958
58,117,473
Total liabilities
228,393,011
133,252,350
COMMITMENTS AND CONTINGENCIES
MEZZANINE EQUITY
Series A Preferred shares, $0.001 par value; 10,500,000 shares authorized, issued and outstanding
at December 31, 2021
146,668,028
Series C Preferred shares, $0.001 par value; 315,789.473684 shares authorized, issued and
outstanding at December 31, 2022
489,021,545
MEMBERS DEFICIT
Accumulated deficit
(413,114,152
)
(84,832,845
)
Accumulated other comprehensive income
1,678,497
24,706
Total members deficit
(411,435,655
)
(84,808,139
)
Total liabilities, mezzanine equity and members deficit
$
305,978,901
$
195,112,239
1
Includes related party debt of $10,000,000 for the 2022 taxable industrial revenue bond.
The accompanying notes are an integral part of these consolidated financial statements.
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BRIDGER AEROSPACE GROUP HOLDINGS, LLC
(PREDECESSOR TO BRIDGER AEROSPACE GROUP HOLDINGS, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(All Amounts in U.S. dollars)
For the years ended December 31,
2022
2021
Revenues
$
46,387,963
$
39,384,182
Cost of revenues:
Flight operations
18,762,172
15,823,713
Maintenance
15,123,806
10,755,471
Total cost of revenues
33,885,978
26,579,184
Gross profit
12,501,985
12,804,998
Selling, general and administrative expense
35,128,322
11,215,027
Operating (loss) income
(22,626,337
)
1,589,971
Interest expense 1
(20,017,177
)
(9,293,928
)
Other income
521,555
1,163,160
Net loss
$
(42,121,959
)
$
(6,540,797
)
Series C Preferred shares adjustment to maximum redemption value
(200,505,236
)
Series A Preferred shares adjustment for redemption, extinguishment, and accrued interest
(85,663,336
)
(15,913,184
)
Net loss attributable to common shareholders basic and diluted
(328,290,531
)
(22,453,981
)
Net loss per share attributable to common shareholders basic and diluted
$
(8.15
)
$
(0.56
)
Weighted-average shares outstanding basic and diluted
40,287,478
40,122,651
1
Includes related party interest of approximately $517,000 for the 2022 taxable industrial revenue bond.
The accompanying notes are an integral part of these consolidated financial statements.
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BRIDGER AEROSPACE GROUP HOLDINGS, LLC
(PREDECESSOR TO BRIDGER AEROSPACE GROUP HOLDINGS, INC.)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(All Amounts in U.S. dollars)
For the years ended December 31,
2022
2021
Net loss
$
(42,121,959
)
$
(6,540,797
)
Other comprehensive income:
Foreign currency translation adjustment
(413
)
(776
)
Unrealized gain on derivative instruments
1,381,653
527,610
Unrealized gain on investments in marketable securities
272,551
Total other comprehensive income
1,653,791
526,834
Comprehensive loss
$
(40,468,168
)
$
(6,013,963
)
The accompanying notes are an integral part of these consolidated financial statements.
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BRIDGER AEROSPACE GROUP HOLDINGS, LLC
(PREDECESSOR TO BRIDGER AEROSPACE GROUP HOLDINGS, INC.)
CONSOLIDATED STATEMENTS OF MEMBERS DEFICIT
(All Amounts in U.S. dollars)
Accumulated
Deficit
Accumulated
Other
Comprehensive
Income (Loss)
Total Members
Deficit
Balance at January 1, 2021
$
(62,378,864
)
$
(502,128
)
$
(62,880,992
)
Liquidation preference on Series A Preferred shares
(15,913,184
)
(15,913,184
)
Unrealized gain on derivative instruments
527,610
527,610
Foreign currency translation adjustment
(776
)
(776
)
Net loss
(6,540,797
)
(6,540,797
)
Balance at December 31, 2021
$
(84,832,845
)
$
24,706
$
(84,808,139
)
Series A Preferred shares adjustment for redemption, extinguishment and revaluation
(85,663,336
)
(85,663,336
)
Series C Preferred shares adjustment to maximum redemption value
(200,505,236
)
(200,505,236
)
Unrealized gain on derivative instruments
1,381,653
1,381,653
Unrealized gain on investments in marketable securities
272,551
272,551
Foreign currency translation adjustment
(413
)
(413
)
Stock based compensation
9,224
9,224
Net loss
(42,121,959
)
(42,121,959
)
Balance at December 31, 2022
$
(413,114,152
)
1,678,497
(411,435,655
)
The accompanying notes are an integral part of these consolidated financial statements.
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BRIDGER AEROSPACE GROUP HOLDINGS, LLC
(PREDECESSOR TO BRIDGER AEROSPACE GROUP HOLDINGS, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All Amounts in U.S. dollars)
For the years ended
December 31,
2022
2021
Cash Flows from Operating Activities:
Net loss
$
(42,121,959
)
$
(6,540,797
)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities
Loss on sale of fixed assets
1,769,732
995,528
Depreciation and amortization
9,091,219
6,673,685
Stock based compensation expense
9,224
Amortization of debt issuance costs
601,161
173,761
Loss (gain) on extinguishment of debt
844,925
(774,300
)
Change in fair value of Series A Preferred shares
3,918,636
Change in fair value of Series C Preferred shares embedded derivatives
1,039,330
Accrued interest on Series B Preferred shares
3,586,586
6,335,608
Changes in operating assets and liabilities
Accounts receivable
6,090
2,227,649
Aircraft support parts
183,390
(1,195,346
)
Prepaid expense and other current and non current assets
(372,287
)
(1,807,123
)
Accounts payable, accrued expenses and other liabilities
11,526,345
(67,795
)
Net cash (used in) provided by operating activities
(9,917,608
)
6,020,870
Cash Flows from Investing Activities:
Investments in construction in progress - aircraft
(28,000,000
)
Investments in construction in progress - buildings
(9,809,946
)
(3,195,769
)
Purchases of marketable securities
(60,207,605
)
Proceeds from sales and maturities of marketable securities
5,500,000
Investment in Overwatch Imaging, Inc.
(1,000,000
)
Sale of property, plant and equipment
286,400
Purchases of property, plant and equipment
(25,582,065
)
(22,567,083
)
Net cash used in investing activities
(89,813,216
)
(54,762,852
)
Cash Flows from Financing Activities:
Contributions from Series A Preferred shares members
5,000,000
Contributions from Series B Preferred shares members
50,000,000
Payment to Series A Preferred shares members
(236,250,000
)
Payment to Series B Preferred shares members
(69,999,223
)
Borrowings from Series C Preferred shares members, net of issuance costs
288,516,309
Payment of finance lease liability
(26,747
)
(23,310
)
Borrowings from 2022 taxable industrial revenue
bond 1
160,000,000
Borrowings from 2021 taxable industrial revenue bond
7,330,000
Extinguishment of 2021 taxable industrial revenue bond
(7,549,900
)
Borrowings from IPFS insurance loan
667,013
Borrowings from various First Interstate Bank vehicle loans
202,217
175,712
Payment of debt issuance costs
(4,417,807
)
(670,298
)
Payment of offering costs
(3,508,675
)
Repayments on debt
(2,036,443
)
(1,721,113
)
Net cash provided by financing activities
124,929,731
60,758,004
Effects of exchange rate changes
(413
)
(776
)
Net change in cash, cash equivalents and restricted cash
25,198,494
12,015,246
Cash, cash equivalents and restricted cash beginning of the year
17,261,132
5,245,886
Cash, cash equivalents and restricted cash end of the year
$
42,459,626
$
17,261,132
Less: Restricted cash end of the year
12,297,151
3,572,041
Cash and cash equivalents end of the year
$
30,162,475
$
13,689,091
Supplemental cash flow information
Interest paid 2
$
12,746,793
$
2,686,442
Deferred offering costs included in accrued expenses and other current liabilities
$
2,291,469
$
Fixed assets in accounts payable
$
910,581
$
2,446,383
Adjustment of Series C Preferred shares to maximum redemption value
$
200,505,236
$
1
Includes related party debt of $10,000,000 for the 2022 taxable industrial revenue bond.
2
Includes related party interest paid of approximately $128,000 for the 2022 taxable industrial revenue bond.
The accompanying notes are an integral part of these consolidated financial statements
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Note 1 Organization and Basis of Presentation
Nature of Business
Bridger
Aerospace Group Holdings, LLC and its subsidiaries (Bridger, the Company, we, us or our) provides aerial wildfire management, relief and suppression and delivering firefighting services
using next generation technology and sustainable and environmentally safe firefighting methods.
The Company was formed on
November 20, 2018 and registered in the State of Delaware. The legal name of the Company was officially changed from ElementCompany Operations, LLC to Bridger Aerospace Group Holdings, LLC through an amendment with the State of Delaware,
effective January 1, 2020.
As of December 31, 2022, the Company owns 17 aircraft, including 5 Twin Commander surveillance
platforms, 4 Quest Kodiaks, 5 Viking CL415EAFs, 2 Aurora eVTOL Skiron and 1 Pilatus PC-12.
Basis of
Presentation
The consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting
principles (US GAAP). The consolidated financial statements include the financial statements of the Company, all entities that are wholly-owned by the Company and all entities in which the Company has a controlling financial interest.
Business Combination
On
January 24, 2023, (the Closing Date), Jack Creek Investment Corp (JCIC) completed the business combination (the Business Combination or the Closing) with the Company contemplated by the agreement
and plan of merger (the Transaction Agreements) entered into on August 3, 2022. On the Closing Date, pursuant to the Transaction Agreements, JCIC and the Company became a wholly owned subsidiary of a new public entity that was
renamed Bridger Aerospace Group Holdings, Inc. (New Bridger).
Liquidity
The Company had $30,162 thousand and $13,689 thousand of cash and cash equivalents as of December 31, 2022 and 2021,
respectively. As of December 31, 2022, the Company had $54,980 thousand of investments in debt securities classified as available-for-sale with short-term
maturities of less than one year and carried at fair value.
The Company has entered into various term loan agreements and other long-term
debt to fund the purchase of aircraft, finance the construction of aircraft hangars and to supplement its cash balance. As of December 31, 2022 the Company has $2,446 thousand of current portion of long-term debt, net of debt issuance
costs. As of December 31, 2022, future contractual payments related to the purchase of aircraft and the construction of the third hangar are $9,098 thousand and $3,756 thousand, respectively, for the next twelve months.
The Company believes it will be sufficiently funded for its short-term liquidity needs and the execution of its business plan for at least 12
months following the date at which the consolidated financial statements were available to be issued. As of February 28, 2023, the Company has cash and cash equivalents of $16,819 thousand (unaudited), restricted cash of
$12,365 thousand (unaudited) and investments in debt securities classified as available-for-sale of $32,199 thousand (unaudited).
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Note 2 - Summary of Significant Accounting Policies
Principles of Consolidation
The
Company consolidates those entities in which it, through the existing owners, has control over significant operating, financial or investing decisions of the entity. All significant intercompany balances and transactions have been eliminated in
consolidation.
Variable Interest Entities
The Company follows ASC 810-10-15 guidance with respect to
accounting for variable interest entities (VIE). These entities do not have sufficient equity at risk to finance their activities without additional subordinated financial support from other parties or whose equity investors lack any of
the characteristics of a controlling financial interest. A variable interest is an investment or other interest that will absorb portions of a VIEs expected losses or receive portions of its expected returns and are contractual, ownership or
pecuniary in nature and that change with changes in the fair value of the entitys net assets. A reporting entity is the primary beneficiary of a VIE and must consolidate it when that party has a variable interest, or combination of variable
interests, that provide it with a controlling financial interest. A party is deemed to have a controlling financial interest if it meets both of the power and loss/benefits criteria. The power criterion is the ability to direct the activities of the
VIE that most significantly impact its economic performance. The losses/benefits criterion is the obligation to absorb losses from, or right to receive benefits from, the VIE that could potentially be significant to the VIE. The VIE model requires
an ongoing reconsideration of whether a reporting entity is the primary beneficiary of a VIE due to changes in the facts and circumstances.
For the year ended December 31, 2022 Northern Fire Management Services, LLC (NFMS, LLC) is considered to be a VIE, as it
lacks sufficient equity and is consolidated in the Companys financial statements. For the year ended December 31, 2021 the following entities were considered to be VIEs, as they lack sufficient equity and are consolidated in the
Companys financial statements: NFMS, LLC and Mountain Air, LLC (MA, LLC). For the years ended December 31, 2022 and 2021, NFMS, LLC held immaterial assets and liabilities in its financial statements. For the years ended
December 31, 2021, MA, LLC held immaterial assets and liabilities in its financial statements. For the years ended December 31, 2022 and 2021, the following entities were considered to be VIEs but were not consolidated in the consolidated
financial statements due to the lack of the power criterion or the losses/benefits criterion: AE Côte-Nord Canada (Côte-Nord) and Ensyn BioEnergy
Canada, Inc (EBC).
Northern Fire Management Services, LLC: The Company assisted in designing and organizing NFMS, LLC
with a business purpose of employing Canadian aviation professionals for the Company. A master services agreement exists between NFMS, LLC and the Company, Bridger Air Tanker, LLC, a wholly owned subsidiary of the Company, to transfer all annual
expenses incurred to the Company in exchange for the Canadian employees to support the Companys water scooper aircraft. NFMS, LLC is 50% owned by a member of the executive team, Timothy Sheehy, who is also an owner of the Company and 50% owned
by a Bridger Aerospace Group, LLC (BAG, LLC) employee. The ownership split is economic only and common control is retained by the ownership of the executive member. The Company is responsible for the decisions related to all of its
expenditures, which solely relates to payroll. Based on these facts, it was determined that the Company is the primary beneficiary of NFMS, LLC. Therefore, NFMS, LLC has been consolidated by the Company. All intercompany expenses associated with
NFMS, LLC and its service agreement have been eliminated in consolidation.
Mountain Air, LLC: As of November 7, 2022, MA, LLC
is a wholly-owned subsidiary of Bridger. Prior to the transfer of their interests to Bridger for $1.00 on November 7, 2022, MA, LLC was owned 50% by Timothy Sheehy, the Chief Executive Officer and, after the Closing, a director of New Bridger,
and 50% by an entity affiliated with Matthew Sheehy, Chairman of Bridger prior to Closing, and after the Closing, a director of New Bridger. MA, LLC is a Federal Aviation Administration (FAA) part 135 certificate holder and is designed
to hold aerial firefighting contracts. Bridger Aviation Services, LLC (Bridger Aviation), a wholly-owned subsidiary of Bridger, was a party to that certain Management Services Agreement (the Aviation Agreement), dated
April 13, 2018, with MA, LLC. Pursuant to the Aviation Agreement, Bridger Aviation leased certain aircraft to MA, LLC. MA, LLC operated the aircraft and paid Bridger Aviation a fee equal to 99% of all revenue it received from the use and
deployment of Bridger Aviations aircraft. MA, LLC was obligated to operate and maintain the aircraft in accordance with Federal Aviation.
Timothy Sheehy originally conducted aerial operations through MA, LLC before New Bridgers legal organizational structure was put into
place to accommodate Bridgers capital structure and financing, which created the need for the Aviation Agreement and resulting VIE treatment. MA, LLC had not been previously transferred into the Bridger legal organizational structure due to
the administrative convenience.
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Seasonality
The Companys business is generally seasonal, with a significant portion of total revenue occurring during the second and third quarters
of the fiscal year due to the North American fire season. However, the weather dependency and seasonal fluctuation in the need to fight wildfires based upon location and the varying intensity of the fire season may lead our operating results to
fluctuate significantly from quarter to quarter and year to year.
Use of Estimates
The preparation of financial statements in conformity with US GAAP, requires management to make assumptions and estimates that affect the
reported amounts of assets and liabilities, disclosure of gain or loss contingencies as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from their
estimates and such differences could be material to the consolidated financial statements. Significant items subject to such estimates and assumptions include: (a) excess and aging aircraft support parts reserves, (b) allowance for
doubtful accounts, (c) useful lives of property, plant and equipment, net (d) impairment of long-lived assets, goodwill and other intangible assets, (e) disclosure of fair value of financial instruments, (f) variable interest
entities, (g) accounting for Series A Preferred shares, Series B Preferred shares and Series C Preferred shares, (h) revenue recognition, (i) estimates and assumptions made in determining the carrying values of goodwill and other
intangible assets and (j) incentive units.
Reclassifications
Certain amounts from prior periods have been reclassified to conform to the current period presentation. The Company previously separately
presented General and administrative and Business development operating expenses, which are now presented combined within Selling, general and administrative expense on the Consolidated Statement of Operations. The reclassification had
no impact on previously reported net loss or accumulated deficit. The Company previously presented all subscription costs as Prepaid expenses and other current assets. Long term subscription costs are now presented as other noncurrent assets on the
Consolidated Balance Sheets.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and all highly liquid, readily convertible investments with a maturity of three months or less. Cash
equivalents are placed primarily in time deposits and money market funds including commercial paper of $29,890 thousand due in three months or less. The Companys subsidiaries generally maintain cash account balances sufficient to meet
their short-term working capital requirements and periodically remit funds to the parent company to pay intercompany lease, maintenance and other charges. Substantially all of the Companys cash is concentrated in a few financial institutions.
At times, deposits in these institutions exceed the federally insured limits.
Restricted Cash
Restricted cash includes cash and cash equivalents that are not readily available for use in the Companys operating activities. The
Company had $12,297 thousand and $3,572 thousand of restricted cash as of December 31, 2022 and 2021, respectively. Restricted cash consists of proceeds from taxable industrial development revenue bonds under the Committee on Uniform
Securities Identification Procedures (CUSIP) of Gallatin County, issued in August 2022. These funds are held in a demand deposit account or highly rated money market fund. As of December 31, 2022, the company had
$9,290 thousand in restricted cash related to the CUSIP bond and $3,007 thousand of restricted cash held in escrow.
Investments in
Marketable Securities
Investments in debt securities are classified as available-for-sale and are carried at fair value, with unrealized gains and losses reported as accumulated other comprehensive income (loss). Gains and losses are recognized when realized. Unrealized losses
are evaluated for impairment to determine if the impairment is credit related. An other-than-temporary credit impairment would be recognized as an adjustment to income. Gains and losses are determined using the first-in first-out method. Investments
in marketable securities are classified as current assets with short-term maturities of less than one year.
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Accounts Receivable
Accounts receivable consist of amounts due from our customers. The Company maintains an allowance for doubtful accounts equal to the estimated
losses expected to be incurred based upon a review of the outstanding accounts receivable, historical collection information and existing economic conditions. For the years ended December 31, 2022 and 2021, the Company did not record any bad
debt expense as accounts receivable have historically been collected in accordance with the policy and there is no history of write-offs.
Aircraft
Support Parts
Aircraft support parts consist of repairables and expendables that are used for servicing aircraft and support parts
for universal application amongst the aviation fleet. Aircraft support parts are tracked by serial number and capitalized at cost in the Consolidated Balance Sheets and expensed in the Consolidated Statements of Operations when used in operations.
Property, Plant and Equipment, net
Property, plant and equipment are recorded at cost when acquired. Except for aircraft, engines and rotable parts, depreciation is computed on
the straight-line basis over the estimated useful life of property, plant and equipment and is recorded in Cost of revenues and Selling, general and administrative expense in the Consolidated Statements of Operations. Depreciation for aircraft,
engines and rotable parts is recorded over the estimated useful life based on flight hours. The table below summarizes depreciable lives by asset category:
Estimated useful life
Aircraft, engines and rotable parts
1,500 6,000 flight hours
Unmanned aerial vehicles
5 10 years
Vehicles and equipment
3 5 years
Buildings
40 years
Aircraft undergo maintenance activities including routine repairs, inspections, part replacements and
overhauls as required by regulatory authorities or manufacturer specifications. Costs of routine maintenance of aircraft are expensed as incurred as Cost of revenues in the Consolidated Statements of Operations. Costs that increase the value of the
aircraft are capitalized as property, plant and equipment, net in the Consolidated Balance Sheets and are depreciated over the assets useful life.
Upon retirement or sale, the property, plant and equipment disposed of and the related accumulated depreciation are removed from the
Consolidated Balance Sheets and any resulting gain or loss is recorded as Selling, general and administrative expense in the Consolidated Statements of Operations.
Interest on long-term debt for the development or manufacturing of Company assets is capitalized to the asset until the asset enters
production or use, and thereafter all interest is charged to expense as incurred.
Goodwill
Goodwill represents the excess of purchase price over fair value of the net assets acquired in an acquisition. Other intangible
assets consist of finite-lived intangible assets acquired through the Companys historical business combinations and software developed for internal-use. In accordance with ASC Topic 350-40, Software - Internal-Use Software (ASC 350-40), the Company capitalizes certain direct costs of developing internal-use software that are incurred in the application development stage, when developing or obtaining software for internal use. Once the internal use software is ready for its intended use, it is amortized on
a straight-line basis over its useful life. Refer to Note 8 - Goodwill and Intangible Assets.
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The Company tests goodwill for impairment annually as of December 31 or more frequently
if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit or indefinite-lived intangible asset below its carrying value. Goodwill is tested for impairment at the reporting unit level using a
fair value approach. The Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value, a Step 0 analysis. If, based on a review of
qualitative factors, it is more likely than not that the fair value of a reporting unit is less than its carrying value the Company performs Step 1 of the goodwill impairment test by comparing the fair value of a reporting unit with its
carrying amount. The Company determines the fair value of a reporting unit by estimating the present value of expected future cash flows, discounted by the applicable discount rate. If the carrying value exceeds the fair value, the Company measures
the amount of impairment loss, if any, by comparing the implied fair value of the reporting unit goodwill with its carrying amount, the Step 2 analysis. No impairment charges have been required.
Intangible Assets
Intangible
assets are initially recorded at fair value and subsequently amortized over their useful lives using the straight-line method, which reflects the pattern of benefit, and assumes no residual value. Intangible assets with definite lives are reviewed
for impairment whenever events or circumstances indicate that the carrying value of an asset may not be recoverable. The carrying value of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result
from the use and eventual disposition of the asset. If the carrying value is deemed not to be recoverable, an impairment loss is recorded equal to the amount by which the carrying value of the long-lived asset exceeds its fair value. The remaining
estimated useful lives of definite-lived intangible assets are routinely reviewed and, if the estimate is revised, the remaining unamortized balance is amortized over the revised estimated useful life.
Impairment of Long-Lived Assets
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. If the carrying amount of the asset exceeds its estimated undiscounted net cash flow, excluding interest, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds its fair value.
The Company identified impairment indicators within their investment in Côte-Nord which arose
from the risk that this entity will not be able to meet its initial growth projections. This facility is currently not in operation and reduced to minimal activity to avoid the obsolescence of its equipment. In 2021, the facility began the process
of a bankruptcy filing. In 2021, the Company wrote-off its loan receivable in Selling, general and administrative expense and associated accrued interest in Other income with
Côte-Nord for $414 thousand in the Consolidated Statements of Operations. This decision was made based on the estimation the loan will not be recoverable given the
Côte-Nords bankruptcy status.
Investments accounted for under the equity method are
recorded based upon the amount of the Companys investment and are adjusted each period for the Companys share of the investees income or loss. Investments are reviewed periodically for changes in circumstances or the occurrence of
events that suggest an other-than-temporary event where the investment may not be recoverable.
Cost Method Investments
The Company holds equity securities without a readily determinable fair value, which are only adjusted for observable price changes in orderly
transactions for the same or similar equity securities or any impairment, totaling $1,000 thousand as of December 31, 2022 and 2021, and are included within Other noncurrent assets in the Companys Consolidated Balance Sheets.
Deferred Offerings Costs
Deferred offering costs primarily consist of capitalized legal, accounting and other third-party costs incurred that are directly related to
the Business Combination, which is to be accounted for as a reverse recapitalization. These costs will be charged to Members deficit as a reduction of Accumulated deficit generated upon the completion of the Business Combination. As of
December 31, 2022 the Company recorded $5,800 thousand of deferred offering costs in the Consolidated Balance Sheets. The Company did not record any deferred offering costs as of December 31, 2021.
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Debt Issuance Costs
Debt issuance costs consist of expenditures associated with obtaining debt financing, principally legal and bank commitment fees. Such costs
are deferred and amortized over the term of the related credit arrangements using a method that approximates the effective interest method. Debt issuance costs are included in the Consolidated Balance Sheets as a direct deduction from the carrying
amount of long-term debt and are included in Interest expense in the Consolidated Statements of Operations. The payment of debt issuance costs is recorded under financing activities in the Consolidated Statements of Cash Flows.
Fair Value of Financial Instruments
The Company follows guidance in ASC 820, Fair Value Measurement (ASC 820), where fair value is defined as the price that would be
received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements are determined within a framework that establishes a three-tier hierarchy which
maximizes the use of observable market data and minimizes the use of unobservable inputs to establish a classification of fair value measurements for disclosure purposes. Inputs may be observable or unobservable. Observable inputs reflect the
assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs reflect the Companys own assumptions about the assumptions market
participants would use in pricing the asset or liability based on the information available.
ASC 820 classifies the inputs used to
measure these fair values into the following hierarchy:
Level 1 Unadjusted quoted prices in active markets for identical
assets or liabilities.
Level 2 Observable inputs and quoted prices in active markets for similar assets and liabilities.
Level 3 Unobservable inputs and models that are supported by little or no market activity.
In all cases, the level in the fair value hierarchy within which the fair value measurement in its entirety has been determined based on the
lowest level of input that is significant to the fair value measurement.
Revenue Recognition
The Company charges daily and hourly rates depending upon the type of firefighting service rendered and under which contract the services are
performed. These services are primarily split into flight revenue and standby revenue. Flight revenue is earned primarily at an hourly rate when the engines of the aircraft are started and stopped upon request of the customer, tracked via a Hobbs
meter. Standby revenue is earned primarily as a daily rate when aircraft are available for use at a fire base, awaiting request from the customer for flight deployment.
The Company enters into short, medium and long-term contracts with customers, primarily with government agencies during the firefighting
season, to deploy aerial fire management assets. Revenue is recognized when performance obligations under the terms of a contract with our customers are satisfied and payment is typically due within 30 days of invoicing. This occurs as the services
are rendered and include the use of the aircraft, pilot and field maintenance personnel to support the contract.
Contracts are based on
either a Call-When-Needed (CWN) or Exclusive Use (EU) basis. Rates established are generally more competitive based on the security of the revenue from the contract (i.e., an EU versus only on an as-needed basis in CWN). These rates are delineated by the type of service, generally flight time or time available for deployment. Once an aircraft is deployed on a contract the fees are earned at these rates and
cannot be obligated to another customer. Contracts have no financing components and consideration is at pre-determined rates. No variable considerations are constrained within the contracts.
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The transaction prices are allocated on the service performed and tracked real-time by each
operator in a duty log. On at least a monthly basis, the services performed and rates are validated by each customer. Acceptance by the customer is evidenced by the provision of their funded task order or accepted invoice.
The Company has not incurred incremental costs for obtaining contracts with customers. In addition, the Company evaluates whether or not it
should capitalize the costs of fulfilling a contract. Such costs would be capitalized when they are not within the scope of other standards and: (1) are directly related to a contract; (2) generate or enhance resources that will be used to
satisfy performance obligations; and (3) are expected to be recovered. The Company has elected to use the practical expedient detailed in ASC
340-40-25-4 to expense any costs to fulfill a contract as they are incurred when the amortization period would be one year or
less.
Contract assets are classified as a receivable when the reporting entitys right to consideration is unconditional, which is
when payment is due only upon the passage of time. As the Company invoices customers for performance obligations that have been satisfied, at which point payment is unconditional, contracts do not typically give rise to contract assets. Contract
liabilities are recorded when cash payments are received or due in advance of performance.
Payment terms vary by customer and type of
revenue contract. The Company generally expects that the period of time between payment and transfer of promised goods or services will be less than one year. In such instances, the Company has elected the practical expedient to not evaluate whether
a significant financing component exists. As permitted under the practical expedient available under ASC Topic 606, Revenue from Contracts with Customers (ASC 606), the Company does not disclose the value of unsatisfied performance
obligations for (i) contracts with an original expected length of one year or less, and (ii) contracts for which the Company recognizes revenue at the amount which it has the right to invoice for services performed.
Other revenue consists of leasing revenues for facilities as well as external repair work performed on customer aircraft.
Revenue Disaggregation
The
following shows the disaggregation of revenue by service for the years ended December 31, 2022 and 2021.
For the years ended December 31,
2022
2021
Fire suppression
$
38,845,227
$
30,442,001
Aerial surveillance
7,215,997
8,632,535
Other services
326,739
309,646
Total revenues
$
46,387,963
$
39,384,182
The following shows the disaggregation of revenue by type for the years ended December 31, 2022 and 2021.
For the years ended December 31,
2022
2021
Flight revenue
$
25,105,027
$
20,377,442
Standby revenue
20,772,018
18,550,067
Other revenue
510,918
456,673
Total revenues
$
46,387,963
$
39,384,182
Concentration Risk
During the year ended December 31, 2022, the Company had one customer who individually accounted for 95% of total revenues. As of
December 31, 2022, one customer accounted for 62% of accounts receivable. During the year ended December 31, 2021, the Company had two customers who individually accounted for 74% and 18% of total revenues, respectively. As of
December 31, 2021, one customer accounted for 92% of accounts receivable.
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Income Taxes
The Company is treated as a partnership for federal income tax purposes. Consequently, federal income taxes are not payable or provided for by
the Company. Members are taxed individually on their pro rata ownership share of the Companys earnings. The Companys net income or loss is allocated among the members in accordance with the Companys operating agreement.
Segment Reporting
Operating
segments are defined as components of an entity for which separate financial information is available and that is regularly reviewed by the Chief Operating Decision Maker (CODM) in deciding how to allocate resources to an individual
segment and in assessing performance. The Companys Chief Executive Officer is the Companys CODM. The Company manages its operations as a single segment for purposes of assessing performance, making operating decisions and allocating
resources. This one operating and reporting segment primarily focuses on aerial firefighting.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash accounts in a financial
institution, which, at times may exceed the Federal Depository Insurance Coverage of $250 thousand. During the years ended December 31, 2022 and 2021, the Company did not experience losses on these accounts and management believes the
Company is not exposed to significant risks on such accounts.
Hedging Transactions and Derivative Financial Instruments
The Company is directly and indirectly affected by changes in certain market conditions. These changes in market conditions may adversely
impact the Companys financial performance and are referred to as market risks. The Company, when deemed appropriate, uses derivatives as a risk management tool to mitigate the potential impact of certain market risks. The Company
manages interest rate risk through the use of derivative instruments. A swap agreement is a contract between two parties to exchange cash flows based on specified underlying notional amounts, assets and/or indices. The Company does not enter into
derivative financial instruments for trading purposes.
The accounting for gains and losses that result from changes in the fair values of
derivative instruments depends on whether the derivatives have been designated and qualify as hedging instruments and the type of hedging relationships. The changes in fair values of derivatives that have been designated and qualify as cash flow
hedges are recorded in accumulated other comprehensive income and are reclassified into the line item in the Consolidated Statements of Comprehensive Loss in which the hedged items are recorded in the same period the hedged items affect earnings.
The Company formally assesses whether the financial instruments used in hedging transactions are effective at offsetting changes in
either the fair values or cash flows of the related underlying exposures. Any ineffective portion of a financial instruments change in fair value is immediately recognized into earnings. The fair value is based on prevailing market data and
using standard valuation models based on reasonable estimates about future relevant market conditions. Refer to Note 13 Long-term Debt. The notional amounts of the derivative financial instruments do not necessarily represent amounts
exchanged by the parties and, therefore, are not a direct measure of the Companys exposure to the financial risks described above.
Grants
The Company applies for and receives new hire, training and other grants. In December 2020, the Big Sky Economic Development Trust
Fund Job Creation Program awarded $5 thousand per employee for eligible Gallatin Valley new hires in 2021 up to $138 thousand, net of fees. As of December 31, 2021, the Company had received approval and reimbursement for
$101 thousand. The grant completion date was December 31, 2021, at which point $37 thousand remained unused. Grants are recognized as reductions of expense when received in the Consolidated Statements of Operations.
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Paycheck Protection Program
Under the Paycheck Protection Program (PPP), on April 16, 2020, a Company SBA loan application was approved and the Company
received loan proceeds in the amount of $774 thousand. On April 2, 2021, this PPP loan was forgiven in full by the SBA and removed from the Companys Balance Sheet under Section 1106 of the CARES Act. The forgiveness of this loan
was recognized in Other income on the Consolidated Statements of Operations. The Company has accounted for this under the guidance of ASC 470.
Net
Loss Per Share
Basic net loss per share is computed by dividing net loss attributable to the common shareholders by the
weighted-average number of common shares outstanding during the period. Diluted net loss per share is computed by dividing net loss attributable to the common shareholders by the weighted-average number of common shares outstanding during the
period, adjusted for the impact of securities that would have a dilutive effect on net loss per share.
Commitments and Contingencies
Liabilities for loss contingencies arising from claims, assessments, litigation, fines, penalties and other sources are recorded when it is
probable that a liability has been incurred and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred.
Collaboration Agreements
The
Company analyzes its collaboration arrangement to assess if it is within the scope of ASC Topic 808, Collaborative Agreements (ASC 808) by determining whether such an arrangement involves joint operating activities performed by parties
that are both active participants in the activities and exposed to significant risks and rewards dependent on the commercial success of such activities. This assessment is performed throughout the life of the arrangement based on changes in the
responsibilities of all parties in the arrangement. If the Company concluded that it has a customer relationship with its collaborator, the collaboration arrangement would be accounted for under ASC 606.
Stock-Based Compensation
The
Company accounts for its stock-based compensation in accordance with provisions of ASC 718, Compensation-Stock Compensation (ASC 718) at the grant date fair value.
Select board members and an executive were granted incentive unit awards (Incentive Units) which contain service and performance
vesting conditions. Compensation cost for Incentive Units is measured at their grant-date fair value and is equal to the value of the Companys Class D Common shares, which is estimated using an option pricing model. Compensation cost for
service based units is recognized over the requisite service period on a straight-line basis. For performance related units, expense is recognized when the performance related condition is considered probable.
Advertising Expense
Advertising
costs are expensed as incurred and are included in Selling, general and administrative expense in the Consolidated Statement of Operations. Advertising expense for the years ended December 31, 2022 and 2021 was $687 thousand and
$89 thousand, respectively.
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Recent Accounting Pronouncements
Recently Issued Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326):
Measurement of Credit Losses on Financial Instruments. The amendments in this ASU replace the incurred loss model for recognition of credit losses with a methodology that reflects expected credit losses over the life of the loan and requires
consideration of a broader range of reasonable and supportable information to calculate credit loss estimates. The new guidance is effective for the Company for its fiscal years beginning after December 15, 2022, including interim periods
within those fiscal years. The Company is currently evaluating the impact of adopting the new accounting guidance on the Companys consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350):
Intangibles - Goodwill and Other: Simplifying the Test for Goodwill Impairment. This update modifies the concept of impairment from the condition that exists when the carrying amount of goodwill exceeds its implied fair value to the condition that
exists when the carrying amount of a reporting unit exceeds its fair value. In order to reduce complexity, an entity no longer will determine goodwill impairment by calculating the implied fair value of goodwill by assigning the fair value of a
reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination. The new guidance is effective for the Company for its fiscal years beginning after December 15, 2022. The Company is
currently evaluating the impact of adopting the new accounting guidance on the Companys consolidated financial statements.
In March
2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, and in January 2021, issued ASU No. 2021-01, Reference Rate Reform: Scope. These updates provide optional expedients and exceptions for applying US GAAP to contracts, hedging relationships and other transactions affected by reference
rate reform if certain criteria are met. The optional guidance is provided to ease the potential burden of accounting for reference rate reform. The guidance is effective and could be adopted no later than December 31, 2022. In December 2022,
the FASB issued ASU No. 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848, to extend the temporary accounting rules under Topic 848 from December 31, 2022 to
December 31, 2024. The Company is currently evaluating the impact of adopting the new accounting guidance on the Companys consolidated financial statements.
Note 3 Cash Equivalents and Investments in Marketable Securities
The investments in marketable securities are classified as
available-for-sale debt securities with short-term maturities of less than one year. The fair values, gross unrealized gains and losses of the available-for-sale securities by type are as follows:
As of December 31,
2022
Carrying Value
Cash equivalents
Commercial paper
$
29,890,313
Money market fund
12,640
Total cash equivalents
$
29,902,953
Restricted cash
Money market fund
$
9,284,362
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As of December 31, 2022
Purchase
Price
Unrealized
Gains
Unrealized
Losses
Fair Value
Investment in marketable securities
Commercial paper
$
32,635,849
$
277,674
$
$
32,913,523
Corporate bonds and notes
15,413,122
3,668
15,416,790
Government securities
6,658,634
(8,791
)
6,649,843
Total marketable securities
$
54,707,605
$
281,342
$
(8,791
)
$
54,980,156
The net unrealized gain included in accumulated other comprehensive income for the year ended
December 31, 2022 is $273 thousand. The Company did not have investments in marketable securities as of December 31, 2021.
The proceeds from sales of available-for-sale securities and
gross realized gains included in earnings for the year ended December 31, 2022 are $5,500 thousand and $627 thousand, respectively. The Company determines gains and losses using the first-in first-out method. There have been no impairments measured and no amounts reclassified out of accumulated other comprehensive income for the years ended December 31, 2022 and 2021.
Note 4 Accounts Receivable
Accounts
receivable consisted of the following:
As of December 31,
2022
2021
Trade accounts receivable
$
28,902
$
Other receivables
34,992
Total accounts receivable
$
28,902
$
34,992
Note 5 Aircraft Support Parts
Aircraft support parts consist of the following:
As of December 31,
2022
2021
Repairables and expendables
$
1,734,292
$
1,855,143
Other support parts
26,978
89,517
Total aircraft support parts
$
1,761,270
$
1,944,660
Note 6 Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist of the following:
As of December 31,
2022
2021
Prepaid insurance
$
968,721
$
1,202,946
Prepaid subscriptions
770,724
1,559,266
Other current assets
95,587
63,475
Total prepaid expenses and other current assets
$
1,835,032
$
2,825,687
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Note 7 Property, Plant and Equipment, net
Property, plant and equipment, net consist of the following:
As of December 31,
2022
2021
Aircraft
$
158,235,666
$
121,824,576
Less: accumulated depreciation
(16,418,098
)
(8,451,678
)
Aircraft, net
141,817,568
113,372,898
Construction-in-progress -
Aircraft
16,992,010
33,792,009
Buildings
16,519,231
16,465,087
Vehicles and equipment
4,687,955
2,859,568
Construction-in-progress -
Buildings
13,780,316
3,293,229
Finance lease right-of-use-asset
130,378
121,399
Licenses
234,682
Less: accumulated depreciation
(2,070,727
)
(1,226,881
)
Buildings and equipment, net
33,281,835
21,512,402
Property, plant and equipment, net
$
192,091,413
$
168,677,309
For the year ended December 31, 2022, the Company recorded $7,864 thousand and $1,136 thousand
of depreciation expenses in Cost of revenues and Selling, general and administrative expense, respectively. For the year ended December 31, 2021, the Company recorded $6,046 thousand and $595 thousand of depreciation expenses in Cost
of revenues and Selling, general and administrative expense, respectively.
For the years ended December 31, 2022 and 2021, the
Company recorded losses on disposals and sale of assets of $1,769 thousand and $996 thousand, respectively, in Selling, general and administrative expense in the Consolidated Statements of Operations related to the obsolescence of aging
aircraft.
For the years ended December 31, 2022 and 2021, capitalized interest to equipment from debt financing was
$677 thousand and $89 thousand, respectively. Aircraft that is currently being manufactured is considered construction in process and is not depreciated until the aircraft is placed into service. Aircraft that is temporarily not in service
is not depreciated until placed into service.
Note 8 Goodwill and Intangible Assets
The Companys goodwill originated from the acquisition of MA, LLC in April 2018. The carrying amount of goodwill was $2,458 thousand
as of December 31, 2022 and 2021. There were no impairment charges recorded for goodwill for the years ended December 31, 2022 and 2021.
Other intangible assets consisted of the following:
As of December 31, 2022
Estimated
Life (Years)
Gross
Carrying
amount
Accumulated
Amortization
Net
Carrying
Amount
Licenses
10
$
67,623
$
(47,177
)
$
20,446
Internal-use software
3
296,675
(108,925
)
187,750
Total intangible assets
$
364,298
$
(156,102
)
$
208,196
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As of December 31, 2021
Estimated
Life (Years)
Gross
Carrying
amount
Accumulated
Amortization
Net
Carrying
Amount
Licenses
10
$
85,131
$
(45,229
)
$
39,902
Internal-use software
3
73,601
(28,623
)
44,978
Capitalized internal-use software in progress
N/A
223,074
223,074
Total intangible assets
$
381,806
$
(73,852
)
$
307,954
During 2018, intangible assets arose from the acquisition of MA, LLC. These intangibles relate to the value of
the FAA part certification licenses acquired as a part of the business.
During 2020, the Company created a website for internal-use specific for the tracking of fire-fighting assets and contract deliverables to support operations. Additional internal-use software is in progress for the
development of an application meant to provide end-users with consolidated imagery and data regarding critical wildfire incidents. This included costs associated with salaries, administration expenses and
contractor fees.
Amortization expense for intangible assets and other noncurrent assets was $91 thousand and $33 thousand for
the years ended December 31, 2022 and 2021, respectively. Amortization expense is included in Selling, general and administrative expense in the Consolidated Statements of Operations.
Future amortization expense for intangible assets subject to amortization is:
Year Ending December 31:
2023
$
105,654
2024
95,621
2025
6,762
2026
159
2027
Thereafter
Total
$
208,196
Note 9 Other noncurrent assets
Other noncurrent assets consisted of the following:
As of December 31,
2022
2021
Investment in Overwatch
$
1,000,000
$
1,000,000
Operating lease
right-of-use asset
671,054
577,086
Interest rate swap
1,407,135
25,482
Prepaid subscriptions
1,246,128
Other assets
31,908
Total other noncurrent assets
$
4,356,225
$
1,602,568
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Note 10 Accrued Expense and Other Liabilities
Accrued expenses and other liabilities consisted of the following:
As of December 31,
2022
2021
Accrued salaries, wages, and bonuses
$
6,515,774
$
1,636,000
Finance
right-of-use liability
68,310
82,944
Accrued professional fees
2,291,469
Embedded derivative of Series C Preferred shares
1,039,330
Accrued interest expense and other accrued liabilities
6,614,065
212,649
Total accrued expenses and other liabilities
16,528,948
1,931,593
Less: Current accrued expenses and other current liabilities
(16,483,289
)
(474,644
)
Total long-term accrued expenses and other noncurrent liabilities
$
45,659
$
1,456,949
The Companys bonus pool was accrued throughout the year and was based upon 2022 performance milestones.
On August 19, 2022, the Company also granted $10.1 million of discretionary cash bonuses to employees and executives in connection with the issuance of the Bridger Series C Preferred Shares, issuance of the Series 2022 Bonds and execution
of the Transaction Agreements. As of December 31, 2022, $3,087 thousand of the discretionary cash bonuses remained accrued and unpaid.
Note 11 Interest Rate Swap
The Company assesses interest rate cash flow risk by continually identifying and monitoring changes in interest rate exposures that may
adversely affect expected future cash flows and by evaluating hedging opportunities.
The Company entered an interest rate swap with Rocky
Mountain Bank (RMB) on March 12, 2020 to reduce risk related to variable-rate debt from the term loan, which was subject to changes in market rates of interest as discussed in Note 13-
Long-term Debt. The interest rate swap is designated as a cash flow hedge. The Company records its corresponding derivative asset on a gross basis in Other noncurrent assets at fair value on the Consolidated Balance Sheets.
Each month, the Company makes interest payments to RMB under its loan agreement based on the current applicable
one-month LIBOR rate plus the contractual LIBOR margin then in effect with respect to the term loan, without reflecting the interest rate swap. At the end of each calendar month, the Company receives or makes
payments on the interest rate swap difference, if any, based on the receive interest rate set forth in the table below. Interest payments on the Companys term loan and payments received or made on the interest rate swap are reported net in the
Consolidated Statements of Operations as interest expense.
The Company had the following interest rate swap designated as a cash flow
hedge:
As of December 31,
2022
Effective
Date
Maturity
Date
Notional
Amount
Fair Value
Pay Fixed
Receive Rate
4/15/2020
3/15/2030
$11,110,484
$1,407,135
3.887%
1 Month LIBOR + 2.5%
As of December 31,
2021
Effective
Date
Maturity
Date
Notional
Amount
Fair Value
Pay Fixed
Receive Rate
4/15/2020
3/15/2030
$11,754,570
$25,482
3.887%
1 Month LIBOR + 2.5%
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The Company accounts for the interest rate swap as a cash flow hedge for accounting purposes
under US GAAP. The Company reflects the effect of this hedging transaction in the consolidated financial statements. The unrealized gain is reported in other comprehensive income. If the Company terminates the interest rate swap agreement, the
cumulative change in fair value at the date of termination would be reclassified from Accumulated other comprehensive income, which is classified in members deficit, into earnings on the Consolidated Statements of Operations. No amounts were
reclassified relating to the Companys designated cash flow hedge during 2022 or 2021.
Note 12 - Fair Value Measurements
Long-term debt, net of debt issuance costs
As of December 31, 2022, the Company has $156,329 thousand of fixed rate and $51,589 thousand of variable rate debt outstanding.
Based on current market rates, the fair value of the fixed rate debt as of December 31, 2022 was estimated to be 161,793 thousand. The majority of the fixed rate debt was entered into recently, and therefore, based on current market rates.
The Company estimated the fair value of the fixed rate debt using quoted market prices (Level 2 inputs) within the fair value hierarchy. The variable rate debt approximates fair value based on the closing or estimated market prices of similar
securities comparable to the Companys debts as of December 31, 2022 and 2021. Debt financing activities and loan agreements are further described in Note 13.
Recurring Fair Value Measurement
Our cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, and other current assets and liabilities (excluding
derivative instruments) are carried at amounts which reasonably approximate their fair values due to their short-term nature.
The
following tables summarizes the Companys assets and liabilities that are measured at fair value on a recurring basis, by level, within the fair value hierarchy:
As of December 31, 2022
Level 1
Level 2
Level 3
Assets
Cash
$
259,522
$
$
Cash equivalents:
Commercial paper
29,890,313
Money market fund
12,640
Total Cash and cash equivalents
272,162
29,890,313
Restricted cash:
Money market fund
9,284,362
Other restricted cash
3,012,789
Total Restricted cash
12,297,151
Investments in marketable securities
54,980,156
Interest rate swap
1,407,135
Total assets
$
12,569,313
$
86,277,604
$
Liabilities
Embedded derivative of Series C Preferred shares
$
$
$
1,039,330
Total liabilities
$
$
$
1,039,330
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As of December 31, 2021
Level 1
Level 2
Level 3
Assets
Cash and cash equivalents
$
13,689,091
$
$
Restricted cash
3,572,041
Interest rate swap
25,482
Total assets
$
17,261,132
$
25,482
$
Liabilities
Mandatorily redeemable Series B Preferred shares
$
$
66,412,637
$
Total liabilities
$
$
66,412,637
$
Interest Rate Swap
The Companys derivative financial instruments are measured at fair value on a recurring basis based on quoted market prices or using
standard valuation models as described in Note 11 - Interest Rate Swap. The notional amounts of the derivative financial instruments do not necessarily represent amounts exchanged by the parties and, therefore, are not a direct measure of our
exposure to the financial risks described in Note 2 - Summary of Significant Accounting Policies.
The fair value of the Companys
interest rate swap agreement was determined based on the present value of expected future cash flows using discount rates appropriate with the terms of the swap agreement. The fair value indicates an estimated amount the Company would be required to
receive if the contracts were canceled or transferred to other parties. The Company used a Level 2 valuation methodology to assess this interest rate swap.
Mandatorily Redeemable Series B Preferred shares
The Companys mandatorily redeemable Series B Preferred shares are measured at fair value based on capital contributions, plus accrued but
unpaid interest. The Series B Preferred shares were redeemed during the year ended December 31, 2022 as furthered discussed in Note 19 Mandatorily Redeemable Preferred Stock.
Embedded derivative of Series C Preferred shares
The Company identified a redemption feature of the Series C Preferred shares that required bifurcation from the host instrument as an embedded
derivative liability, as discussed in Note 18 Mezzanine Equity. The embedded derivative was initially valued and remeasured using a with-and-without
method. The with-and-without methodology involved valuing the entire instrument both with and without the embedded derivative using a discounted cash flow
approach. Under this methodology, the difference in the estimated fair value between the instrument with the embedded derivative and the instrument without the embedded derivative represents the estimated fair value of the embedded derivative. This
valuation methodology is based on unobservable estimates and judgements, and therefore is classified as a Level 3 fair value measurement. The significant unobservable input used in the estimated fair value measurement of the embedded derivative
is the timing for which the Company may be in default of certain financing facilities that would require an increase of 2% interest per annum to be accrued by the holders of the Series C Preferred shares.
Commercial Paper and Investments in marketable securities
The fair values of the commercial paper and available-for-sale
marketable securities are based on observable market prices, and therefore classified as a Level 2 fair value measurement. Refer to Note 3 Cash Equivalents and Investments in Marketable Securities for additional details.
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Non-Recurring Fair Value Measurements
The Company measures certain assets at fair value on a non-recurring basis, including long-lived assets
and goodwill and cost and equity method investments, which are evaluated for impairment. Long-lived assets include property, plant and equipment, net, and certain intangible assets. The inputs used to determine the fair value of long-lived assets
are considered Level 3 measurements due to their subjective nature.
As of December 31, 2022 and 2021, the Company did not have
any significant assets or liabilities that were remeasured at fair value on a non-recurring basis in periods subsequent to initial recognition.
Note 13 Long-term Debt
Long-term debt consisted of the following:
As of December 31,
2022
2021
Permanent loan agreement, dated August 21, 2020, greater of Prime + 1.5% or 4.75% interest
rate, maturing August 21, 2035
$
18,852,476
$
19,000,000
Permanent loan agreement, dated October 1, 2020, greater of Prime + 1.5% or 4.75% interest
rate, maturing October 1, 2035
18,924,229
19,000,000
Term loan agreement dated September 30, 2019, LIBOR + 2.5%, maturing March 15,
2030
11,110,484
11,754,570
Term loan agreement dated February 3, 2020, LIBOR + 2.5%, maturing February 3,
2027
4,371,000
4,929,000
Taxable industrial revenue bonds, dated February 24, 2021, 6.5% interest rates, maturing
February 21, 2040
7,330,000
Taxable industrial revenue bonds, dated July 21, 2022, 11.5% interest rates, maturing
September 1, 2027
160,000,000
Various term loan agreements with earliest start at November 18, 2020, 3.89-4.52% interest rates, latest maturation on November 18, 2022
554,940
Various term loan agreements, with earliest start at September 9, 2021, 5-5.5% interest rates, latest maturation on November 17, 2027
317,073
170,763
Loans payable
213,575,262
62,739,273
Less: noncurrent debt issuance costs
(4,664,552
)
(2,303,974
)
Less: current debt issuance costs
(993,157
)
(161,900
)
Less: current portion of long-term debt, net of debt issuance costs
(2,445,595
)
(2,155,926
)
Total long-term debt, net of debt issuance costs
$
205,471,958
$
58,117,473
2020 Loan Agreements
In 2020, the Company entered into two separate credit facilities brokered through Live Oak Bank (LOB) and backed by the US
Department of Agriculture (USDA) for the completed purchase of the Companys first two Viking Cl415EAF aircraft. The Company issued two $19,000 thousand promissory notes to LOB, established as
15-year maturity, first 2 years interest only payments monthly, then 13-year term principal plus interest due monthly at the rate of the greater of prime plus 1.5% or
4.75% per annum. The first of these notes was issued on August 21, 2020 and the second was issued October 1, 2020 to BAT1, LLC and BAT2, LLC, respectively. Debt issuance costs for BAT1 and BAT2 were $951 thousand and
$877 thousand, respectively. Both of these notes are subject to financial covenants requiring the Company to maintain a debt service coverage ratio (DSCR), generally calculated as the ratio of the net cash flow (as defined in the
applicable note agreements) to the amount of interest and servicing fees required to be paid over the succeeding 12 months on the principal amount of the note, as applicable, that will be outstanding on the payment date following such date of
determination, that exceeds 1.25x at the aircraft or entity level and for the Companys debt to worth ratio to not exceed 5.00x at the aircraft or entity level.
On February 3, 2020, the Company entered into a credit facility with RMB to finance in part the purchase of four Quest Kodiak aircraft. A
promissory note was issued for $5,580 thousand, established as a 7-year maturity, first 8 months interest only payments monthly, 60 day draw period, then 76-month
term plus principal interest due monthly on a 10-year amortization at the rate of 1 month LIBOR plus 2.5%. Debt issuance costs for this loan was $86 thousand.
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The Company also maintained a credit facility with RMB issued in 2019 for
$12,882 thousand, established as a 10-year maturity, 6-month draw period, first 6 months interest only payments monthly, then
10-year term principal plus interest due monthly on a 20-year amortization at the rate of 1 month LIBOR plus 2.5%. Debt issuance costs for this loan were
$116 thousand. Both of these notes with RMB are subject to financial covenants requiring the Company to maintain a debt service coverage ratio (DSCR), calculated as the ratio of adjusted EBITDA (as defined in the applicable note
agreements) to the amount of interest and principal payments for the fiscal year ending on the compliance date, that exceeds 1.25x for the Company. These notes are also subject to financial covenants requiring the Company to maintain a Senior
Leverage Ratio on a quarterly basis not to exceed 7.00 to 1.00 through Quarter 3, 2024, 6.00 to 1.00 through Quarter 3, 2025 and 5.00 to 1.00 thereafter. This is calculated as Total Funded Senior Debt (as defined in the applicable note agreements)
less municipal debt, divided by adjusted EBITDA (as defined in the applicable note agreements).
In response to the COVID-19 pandemic, the U.S. Small Business Administration (the SBA) made available low-interest rate loans to qualified small businesses, including under its
Paycheck Protection Program (the PPP). On April 7, 2020, in order to supplement its cash balance, the Company applied for this PPP loan. On April 16, 2020, the Companys SBA loan application was approved, and the Company
received loan proceeds in the amount of $774 thousand. The SBA loan had an interest rate of 1% and was scheduled to mature on April 16, 2022. On April 2, 2021, this PPP loan was forgiven in full by the SBA and removed from the
Companys Consolidated Balance Sheets under Section 1106 of the CARES Act. The forgiveness of this loan was recognized in Other income on the Consolidated Statements of Operations.
The Company entered into a short-term loan to finance aviation insurance premiums through Insurance Premium Financing Leader
(IPFS) on November 18, 2020. This was financed for $432 thousand with a maturity of one year and at a rate of 4.52%. No debt issuance costs were incurred.
As of December 31, 2022, the Company was not in violation of the Senior Leverage Ratio requirement related to the credit facilities
entered with RMB, as RMB amended the loan agreements prior to year-end. These amendments modified the definition of EBITDA to be used in the Senior Leverage Ratio calculation to include certain allowable
addbacks and modified the timing requirement of the Senior Leverage Ratio.
2021 Loan Agreements
On February 24, 2021, the Company issued taxable industrial development revenue bonds under the CUSIP of Gallatin County for
$7,330 thousand (2021 Bonds). This was done through an offering of the first tranche of which the Company is approved to issue up to $160,000 thousand. These proceeds are designated to finance the construction and equipping of
the Companys third aircraft hangar in Belgrade, Montana. They were issued with a 15-year maturity, first two years interest only payments monthly at the rate of 6.5%. Debt issuance costs for this loan
were $570 thousand.
On July 21, 2022, upon the closing of a taxable industrial development revenue bond transaction under the
CUSIP of Gallatin County for $160,000 thousand (2022 Bonds), the Company redeemed in full the 2021 Bonds, and recorded a loss of $845 thousand on debt extinguishment in Other (expense) income in the Consolidated Statements of
Operations.
The Company re-entered into a new short-term loan to finance aviation insurance
premiums with IPFS on November 18, 2021. This was financed for $610 thousand with a maturity of one year and at a rate of 3.89%. No debt issuance costs were incurred.
The Company entered into six various term loan agreements for the purchase of vehicles through First Interstate Bank with the earliest date of
September 9, 2021. These loans ranged from $29 thousand to $66 thousand and were at rates from 5% to 5.5% and at durations from 5 to 6 years, with the latest maturation on November 17, 2027.
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2022 Loan Agreements
The Company entered into two various term loan agreements for the purchase of vehicles through First Interstate Bank with the date of
April 21, 2022. These loans ranged from $65 thousand to $72 thousand and were at a rate of 4.8% and at a duration of 5 years, with the maturation on May 5, 2027.
On July 21, 2022, the Company closed on the 2022 Bonds, upon which the Company received from aggregate proceeds of $135,000 thousand
on July 21, 2022 and $25,000 thousand on August 10, 2022. The proceeds were designated to redeem in full the 2021 Bonds and the Series A Preferred shares, to finance the construction and equipping of the Companys third and
fourth aircraft hangar in Belgrade, Montana and to fund the purchase of additional CL415EAF aircraft. The 2022 Bonds mature on September 1, 2027, with an annual interest rate of 11.5% payable semiannually on March 1 and September 1 of
each year, commencing on September 1, 2022. Debt issuance costs for the 2022 Bonds were $4,224 thousand.
The 2022 Bonds are
subject to redemption or prepayment prior to maturity, as follows: (a) optional redemption in whole or in part, on any day thereafter at par plus accrued interest, and on certain dates, a premium; (b) mandatory redemption at par plus any
premium applicable to optional redemptions and a 3% premium if such redemptions are made prior to September 1, 2025, in whole or in part, in the event of the occurrence of certain events; and (c) extraordinary redemption at par plus
accrued interest due to the occurrence of certain casualty, condemnation, or other unexpected events. Optional redemptions are subject to 3%, 2%, and 0% premiums if redemptions are made on or after September 1, 2025, September 2026, and
September 2027, respectively. At the Companys direction, the 2022 Bonds may be redeemed by Gallatin County at any time, at a redemption price equal to 100% of the principal amount plus accrued interest upon the occurrence of certain events.
The 2022 Bonds are subject to financial covenants requiring the Company to maintain a DSCR that exceeds 1.25x commencing with the fiscal quarter ending December 31, 2023, operate in such a manner to produce gross revenues so as to be at all
relevant times in compliance with the DSCR covenant and have $8,000 thousand in the form of cash or investments (excluding margin accounts and retirement accounts) at all times and to be reported.
Amortization of debt issuance costs was $601 thousand and $173 thousand for the years ended December 31, 2022 and 2021,
respectively.
Principal maturities of the outstanding debt as of December 31, 2022 are as follows:
Year Ending December 31:
2023
$
3,438,752
2024
3,544,234
2025
3,664,628
2026
3,780,164
2027
165,430,178
Thereafter
33,717,306
Total
$
213,575,262
Note 14 Commitments and Contingencies
Legal Matters
From time to time,
the Company is subject to various litigation and other claims in the normal course of business. No amounts have been accrued in the consolidated financial statements with respect to any matters.
Due to the nature of our business, we may become, from time to time, involved in routine litigation or subject to disputes or claims related
to our business activities. In the opinion of our management, there are no pending litigation, disputes or claims against us which, if decided adversely, will have a material adverse effect on our financial condition, cash flows or results of
operations. In the ordinary course of its operations, the Company will continue to vigorously enforce its legal and contractual rights to ensure that its business and operations continue on an unimpaired basis.
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Commitments
On April 13, 2018, the Company executed an aircraft purchase agreement with Longview Aviation Asset Management, Inc. and Viking Air
Limited (Viking) for the purchase of six Viking CL415EAF aircraft. Payments made under the aircraft purchase agreement were $9,098 thousand and $19,381 thousand for the years ended December 31, 2022 and 2021, respectively.
Un-invoiced commitments were $9,098 thousand and $18,196 thousand as of December 31, 2022 and 2021, respectively.
On January 21, 2021, the Company entered as statement of work with Viking Air Limited (Viking) to provide a Supplemental
Structural Life Management Program (SSLMP) Subscription. This program is a 5-year subscription service providing the Company with a structural program for the 6 CL415EAF purchased aircraft to meet
contractual inspection requirements from the US Forest Service. The undiscounted cost of the program will be $3,500 thousand payable through the delivery of the 6 th aircraft, the first
payment of which was due and paid January 2021.
On March 23, 2022, the Company entered into a statement of work with Sievert
Construction, Inc (Sievert) for the construction of a hangar at the Bozeman Yellowstone International Airport in Belgrade, Montana. Payments made under the agreement were $9,810 thousand for the year ended December 31, 2022.
There were no payments made for construction of the hangar under the Sievert contract for the year ended December 31, 2021. Un-invoiced commitments were $3,756 thousand as of December 31, 2022.
As of December 31, 2022, future payments related to the purchase of aircraft under the aircraft purchase agreement and for the
construction of the hangar are as follows:
As of December 31:
Aircraft
Hangar
2023
$
9,097,771
3,755,517
2024
2025
2026
2027
Thereafter
Total
$
9,097,771
3,755,517
Leases
Under ASC 842, leases are separated into two classifications: operating leases and financial leases. Lease classification under ASC 842 is
relatively similar to ASC 840. For a lease to be classified as a finance lease, it must meet one of the five finance lease criteria: (1) transference of title/ownership to the lessee, (2) reasonably certain to exercise a purchase option,
(3) lease term for major part of the remaining economic life of the asset, (4) present value represents substantially all of the fair value of the asset and (5) asset specialization. Any lease that does not meet these criteria is
classified as an operating lease. ASC 842 requires all leases to be recognized on the Companys balance sheet. Specifically, for operating leases, the Company recognizes an ROU asset and a corresponding lease liability upon lease commitment.
Company as a lessee
The Company is
the lessee in a lease contract when the Company obtains the right to use the asset. Operating leases are included in the line items. The ROU asset represents the Companys right to use an underlying asset for the lease term and lease
obligations represent the Companys obligations to make lease payments arising from the lease, both of which are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. The
Company has also elected the short-term lease exception. Leases with a term of 12 months or less at inception are not recorded on the Consolidated Balance Sheets and are expensed on a straight-line basis over the lease term in our Consolidated
Statements of Operations. The Company determines the lease term by agreement with the lessor. Options to renew are considered in lease terms if reasonably considered to be exercised.
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ASC 842 requires a lessee to use the rate implicit in the lease whenever that rate is
readily determinable, otherwise the incremental borrowing rate (IBR) should be used. Given the nature of the Companys lease portfolio, which consists of leases of hangar spaces, aircraft, vehicles, copiers, buildings, aircraft
equipment, this information is not readily available. As a result, the Company is not able to use the borrowing rate implicit in the lease but will use its incremental borrowing rate as the discount rate. The IBR is the rate of interest that a
lessee would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. The determination of the incremental borrowing rate requires judgment and is determined using
the Companys current unsecured borrowing rate.
The following schedule represents the components of the Companys operating and
finance lease assets and liabilities as of December 31, 2022 and 2021:
As of December 31,
Leases
Classification
2022
2021
Assets
Operating lease
right-of-use asset
Other noncurrent assets
$
671,054
$
577,086
Finance lease
right-of-use asset
Property, plant and equipment, net
$
61,933
$
79,701
Liabilities
Operating lease
right-of-use liabilities (current)
Operating right-of-use liability (current)
$
21,484
$
4,973
Finance lease
right-of-use liabilities (current)
Accrued expenses and other current liabilities
$
22,651
$
6,928
Operating lease
right-of-use liabilities (non-current)
Operating right-of-use liability (noncurrent)
$
754,673
$
608,571
Finance lease
right-of-use liabilities (non-current)
Accrued expenses and other noncurrent liabilities
$
45,659
$
76,016
The Company leases various property and premises on a short-term basis and leases some of its premises under non-cancelable operating leases that expire on various dates through January 2051.
The Company recorded
$493 thousand and $785 thousand of expenses associated with these operating leases in Cost of Revenues and Selling, general and administrative expense in the Consolidated Statements of Operations for the years ended December 31, 2022
and 2021. The Company recorded expenses associated with finance leases in Cost of revenues and Selling, general and administrative expense in the Consolidated Statements of Operations. Operating lease cost includes $204 thousand of short-term
lease expense and $182 thousand of variable lease expense for the year ended December 31, 2022. Operating lease cost includes $104 thousand of short-term lease expense and $576 thousand of variable lease expense for the year
ended December 31, 2021.
Supplemental cash flow information related to leases is as follows:
Year Ended December 31,
2022
2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
$
(58,047
)
$
(51,039
)
Operating cash flows from finance leases
$
(8,671
)
$
(9,613
)
Financing cash flows from finance leases
$
(26,747
)
$
(23,310
)
Right-of-use
assets obtained in exchange for lease liabilities:
Operating leases
$
129,576
$
619,599
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As of December 31, 2022, future minimum lease payments with a weighted average
remaining lease term of 24.6 years are as follows:
Operating
Leases
Finance Leases
Year Ending December 31:
2023
$
56,702
$
28,700
2024
60,501
25,616
2025
60,501
21,036
2026
65,046
4,369
2027
69,592
Thereafter
2,376,822
Total lease payments
2,689,164
79,721
Less: interest
1,913,007
11,411
Total lease liabilities
$
776,157
$
68,310
Company as a lessor
The Company acts as a lessor of a facility and records this as Other Revenue in the Consolidated Statements of Operations. Lease revenue was
$253 thousand and $276 thousand for the years ended December 31, 2022 and 2021, respectively. The lease is a sublet arrangement and classified as an operating lease. This lease expired in 2022 and was not renewed. The minimum lease
payments received were recognized on a straight-line basis over the lease term. The leased asset was included in Property, Plant and Equipment, net in the Consolidated Balance Sheets and depreciated over its estimated useful life. There were no
variable lease conditions or purchase options.
Note 15 Collaborations
On February 22, 2022, the Company entered into a collaboration agreement (the Collaboration Agreement) with Overwatch Imaging,
Inc. (Overwatch), a Delaware corporation, under which the Company and Overwatch collaborate to develop and implement FireTrac. FireTrac is a program in which the Company will collect timely imagery of areas affected by wildland fire
using Overwatchs products and services.
Overwatch agrees to provide the products and services at a discount to the Company under
the Collaboration Agreement. Overwatchs products and services under the Collaboration Agreement include, but not limited to, imaging systems, software engineer labor related to software-as-a-service support, labor related to sensor operations, and cloud-based image data web service. In exchange, the Company agrees to pay Overwatch a 7.5% share of revenue from FireTrac on a
quarterly basis. As stipulated under the Collaboration Agreement, FireTrac is not expected to generate revenue until the second quarter of 2023.
The Collaboration Agreement will end upon termination by (i) a mutual agreement between the Company and Overwatch, (ii) either or
both parties upon revenue payment to Overwatch not meeting certain thresholds stipulated in the Collaboration Agreement within the second, third, or fourth anniversary of the effective date of the Collaboration Agreement, or (ii) either party
upon a material breach of the Collaboration Agreement uncured within thirty (30) days after written notice from the non-breaching party.
The Company determined that both the Company and Overwatch are active participants and exposed to the significant risks and rewards of the
collaboration under the Collaboration Agreement. The Company does not consider its obligations under the Collaboration Agreement as an output of the Companys ordinary activities in exchange for consideration and Overwatch is not considered a
customer under ASC 606. Therefore, the Company considers the collaboration to be within the scope of ASC 808.
For the year ended
December 31, 2022, the Company recorded $832 thousand of purchases of imaging systems under the Collaboration Agreement in Property, plant and equipment, net, and $366 thousand of engineering services provided by Overwatch under the
Collaboration Agreement in Selling, general and administrative expense.
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Note 16 Stock-Based Compensation
During the years ended December 31, 2022 and 2021, the Company granted Incentive Units to selected board members and executives. Within
each grant, 80% of the Incentive Units vest annually over a four year period subject to continued service by the grantee (the Time-Vesting Incentive Units), and the remaining 20% of the Incentive Units vest upon a qualifying change of
control event (the Exit-Vesting Incentive Units). Notwithstanding the above, any unvested Time-Vesting Incentive Units will become vested if a qualifying change of control event occurs prior to the respective awards four year
service-based vesting period. Upon termination of the board member or executive, the Company has the right, but not the obligation, to repurchase all or any portion of the vested Incentive Units at fair market value.
For the Time-Vesting Incentive Units, compensation cost is recognized over the requisite service period on a straight-line basis. Upon a
qualifying change of control event, the unrecognized compensation expense related to the Time-Vesting Incentive Units will be recognized when the change of control event is considered probable. For the Exit-Vesting Incentive Units, expense is
recognized when a qualifying change of control event is considered probable, which has not occurred as of December 31, 2022. Forfeitures are accounted for as they occur.
Compensation cost for the Incentive Units is measured at their grant-date fair value.
The value of the Companys common shares is derived through an option pricing model, which incorporates various assumptions. Use of a
valuation model requires management to make certain assumptions with respect to selected model inputs. Expected volatility was calculated based on the observed equity volatility for comparable companies. The expected time to liquidity event is based
on managements estimate of time to an expected liquidity event. The dividend yield was based on the Companys expected dividend rate. The risk-free interest rate is based on U.S. Treasury
zero-coupon issues. The weighted-average assumptions the Company used in the option pricing model for 2021 are as follows:
Dividend yield (%)
0
Expected volatility (%)
46.5
Risk-free interest rate (%)
1.26
Term (in years)
5.00
Discount for lack of marketability (%)
30
Incentive Unit activity under the Plan for the period from January 1, 2022 to December 31, 2022 was
as follows:
Time-Vesting Incentive Units
Exit-Vesting Incentive Units
Number of
Awards
Weighted
average
grant date
fair value
Number of
Awards
Weighted
average
grant date
fair value
Unvested as of January 1, 2022
242,424
$
0.15
80,808
$
0.11
Granted
Vested
80,808
0.11
Forfeited
Unvested as of December 31, 2022
161,616
$
0.17
80,808
$
0.11
On October 4, 2021, one of the Companys board members resigned from his board seat. At the time of
his resignation, 25% of his Time-Vesting Incentive Units had vested and the Company agreed to accelerate the vesting of all of his remaining unvested Time-Vesting Incentive Units and Exit-Vesting Incentive Units.
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For the year ended December 31, 2022, the Company recognized stock-based compensation
expense of $9 thousand within Selling, general and administrative expense on the Consolidated Statements of Operations. For the year ended December 31, 2021, the stock-based compensation expense related to the Incentive Units did not have
a material impact on the Companys consolidated financial statements. As of December 31, 2022, there was $27 thousand and $9 thousand of unrecognized compensation expense related to the unvested Time-Vesting Incentive Units and
Exit-Vesting Incentive Units, respectively.
Note 17 Related Party Transactions
In July 2022, the Company paid $3,850 thousand in cash for the acquisition of the Pilatus PC-12
aircraft from Mr. Timothy Sheehy, the Chief Executive Officer without any guarantees given or received. After the purchase, the Company repaired and upgraded the Pilatus PC-12 aircraft for use of the
Companys business. As of December 31, 2022, the Company had no outstanding payables or commitments related to the purchase of the Pilatus PC-12 aircraft.
On July 21, 2022, the Company closed on the 2022 Bonds, upon which the Company received from aggregate proceeds of $135,000 thousand
on July 21, 2022 and $25,000 thousand on August 10, 2022. In connection with the original issuance, three senior executives of the Company purchased approximately $10,000 thousand of the 2022 Bonds, which purchases were entered into
on an arms length basis during the public offering for the 2022 Bond, and on the same terms and conditions that were offered to all Bond purchasers. The Company has paid approximately $128 thousand in interest to these three bond holders.
Refer to Note 13 Long-term Debt.
Note 18 Mezzanine Equity
On April 25, 2022, the Company authorized and issued 315,789.473684 Series C Preferred shares with a par value of $0.001 per share for
aggregate proceeds of $288,516 thousand, net of issuance costs of $11,484 thousand. The Series C Preferred shares rank senior to the Companys common shares and rank subordinate to the Companys Series A Preferred shares, which
were later redeemed in 2022, with respect to the distribution of assets upon liquidation or certain triggering events. The Series C Preferred shares do not participate in earnings of the Company and are
non-voting shares.
Prior to the consummation of qualified public offering, the Series C Preferred
shares accrue interest daily at 7% per annum for the first year, 9% per annum for the second year and 11% per annum thereafter and are compounded semi-annually at June 30 th and December 31 st of each year. Following the consummation of a qualified public offering, the Series C Preferred shares accrue interest daily at 7% per annum for the first 6 years, 9% per annum for the seventh year
and 11% per annum thereafter, compounded semi-annually. Accrued interest for the Series C Preferred shares was $15,344 thousand as of December 31, 2022 recorded to increase the redemption amount in mezzanine equity.
The Series C Preferred shares are convertible at the election of the holder into shares of the Companys Class B Common shares after
the occurrence of certain specified events, including after a qualified public offering, without the payment of additional consideration by the holder into such number of Class B Common shares as determined by dividing the original issue price,
plus accrued interest by a conversion price in effect at the time of conversion. The Series C Preferred shares conversion price shall initially be equal to $12.929104. The applicable conversion price is subject to future adjustments upon the
occurrence of a qualified public offering.
The shares are mandatorily redeemable by the Company on April 25, 2032 at an amount
dependent on whether the redemption occurs prior or following a qualified public offering. If the mandatory redemption occurs prior to the consummation of a qualified public offering, the redemption amount is equal to the stated value, plus the
initial issue price multiplied by 50%, plus accrued but unpaid interest. If the mandatory redemption occurs following the consummation of a qualified public offering, the redemption amount is equal to the stated value, plus accrued but unpaid
interest. The Series C Preferred shares are also redeemable upon certain triggering events outside of the control of the Company. The redemption events include redemption by the holder after March 29, 2027 and prior to a qualified public
offering, or a fundamental change in the Companys voting and governance structure such as the sale of the Company or its subsidiaries representing more than 50% of the Companys voting stock or a similar liquidity event.
Given the conversion feature is considered substantive, the mandatory redemption date is not certain and the optional redemption is upon the
occurrence of certain events that are considered not solely within the Companys control, the Series C Preferred shares are classified as mezzanine equity.
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The Company identified certain conversion and redemption features that are required to be
bifurcated from the host instrument as embedded derivative liabilities. The Series C Preferred shares contains a clause which allows for an increase of 2% interest per annum to be accrued by the holders of the Series C Preferred shares in the event
of a default under certain financing facilities, including noncompliance with certain financial covenants, during the period from 30 days after the occurrence of such default until such default is cured or remediated. The Company expects to be
exposed to the 2% interest rate increase for no more than 2 months. As of December 31, 2022, the fair value of the embedded derivative is $1,039 thousand recorded as a liability in the consolidated balance sheets and remeasured to fair
value at each balance sheet date with changes in fair value recorded within Interest expense in the consolidated statements of operations.
The Company determined the fair value of the other features requiring bifurcation, both individually and in the aggregate were immaterial at
inception and as of December 31, 2022. The fair value of these features will be assessed at each reporting date and will be recognized and remeasured at fair value, if material.
As of December 31, 2022, it is probable that the Series C Preferred shares may become redeemable at either the holders option on or
after March 29, 2027 and prior to the consummation of a qualified public offering or in the event of a qualified public offering. The Company has elected to recognize changes in redemption value immediately, adjusting the preferred shares to
the maximum redemption value at each reporting date. As of December 31, 2022, the Series C Preferred shares had a carrying value of $331,134 thousand and a redemption value of $489,022 thousand.
Redeemable Series C Preferred Shares
Shares
Amounts
Issuance of Series C Preferred shares
315,789.473684
$
288,516,309
Adjustment to maximum redemption value
200,505,236
Balance as of December 31, 2022
315,789.473684
$
489,021,545
Note 19 Mandatorily Redeemable Preferred Stock
Series B Preferred Shares
The
Company had 60,000,000 shares of Series B Preferred shares issued and outstanding as of December 31, 2021 at $1.00 per share. The Series B Preferred shares were non-voting and accrued interest at 17.5%
per annum, compounded quarterly. A mandatory redemption period was required for the Series B Preferred shares plus their accrued interest in March of 2022. Accrued interest for these Series B Preferred shares was $6,413 thousand for the year
ended December 31, 2021.
The shares were mandatorily redeemable by the Company at an amount equal to the capital contribution, plus
accrued but unpaid interest on the earlier of certain redemption events or March 31, 2022. The redemption events included the sale of the Company or its subsidiaries representing more than 50% of the Companys voting stock or assets, a
qualified IPO or a similar liquidity event. The shares were redeemable at any time at the option of the Company at a redemption price equal to face value, plus accrued, but unpaid interest. The shares had preference to the common shares of the
Company, were non-voting and did not participate in the earnings of the Company. These Series B Preferred shares accrued interest at 17.5% annually, compounded quarterly. If not redeemed on or prior to
March 31, 2022, the series B preferred stock would have accrued interest at 21.5% annually, compounded quarterly.
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As the shares of Series B Preferred shares were mandatorily redeemable at a specified date,
the security was classified as a liability in the Consolidated Balance Sheets.
On April 25, 2022, the Company used a portion of the
proceeds from the issuance of the Series C Preferred shares to redeem all 60,000,000 of the Companys outstanding Series B Preferred shares for $69,999 thousand, inclusive of $9,999 thousand in accrued interest.
Series A Preferred Shares
The
Company was authorized to issue 10,500,000 shares of Series A-1 and A-2 Preferred shares with a par value of $0.001 share for $105,000 thousand. The Series A-1 and A-2 Preferred Shares ranks senior to the Companys common shares and Series C Preferred shares with respect to distribution of assets upon liquidation or certain
triggering events, but do not participate in earnings of the Company. The Series A-1 and A-2 Preferred shares are voting and
non-voting shares, respectively.
On April 25, 2022, the Company used the proceeds from the
issuance of the Series C Preferred to redeem 4,444,444 shares of the Series A-1 and A-2 Preferred shares for $100,000 thousand. The loss on redemption of
$34,622 thousand was reflected as a reduction to Accumulated deficit on the Consolidated Balance Sheets.
On April 25, 2022, the
Company and its investors included a new mandatory redemption provision requiring the Series A-1 and Series A-2 Preferred shares to be redeemed on April 25, 2032.
Due to the mandatory redemption provision, the Series A-1 and A-2 Preferred shares have been reclassified from mezzanine equity to liability. The Company elected the
fair value option to measure the modification of the Series A-1 and A-2 Preferred shares, recording a value of $132,331 thousand at modification. The modification
of the Series A-1 and A-2 Preferred shares have been accounted for as an extinguishment, with the change in fair value of $45,609 thousand recorded to Accumulated
deficit on the Consolidated Balance Sheets with no gain or loss recorded to net loss. The loss on extinguishment has been included in net loss attributable to common shareholders used to calculate net loss per share.
The Series A Preferred shares accrue interest on a liquidation preference defined as the combined capital contributions plus accrued preferred
interest amounts at a rate of 12% per annum.
The Series A-1 and
A-2 Preferred shares are redeemable upon certain triggering events outside of the control of the Company in the event of board expansion and deemed liquidation. Failure to pay the Series A Preferred shares
interest amount on a timely basis triggers a board expansion event that provides the holders of the Series A Preferred shares the option to obtain control of the Companys board of directors and initiate a triggering event. The triggering
events include the sale of the Company or its subsidiaries representing more than 50% of the Companys voting stock or assets, a qualified IPO or a similar liquidity event. The Series A-1 and A-2 Preferred shares are redeemable at any time at the option of the Company at a redemption price equal to the greater of the product of the investment amount multiplied by 2.25 plus any indemnification amounts or
aggregate liquidation preference.
The Company identified certain redemption features that would be required to be considered for
bifurcation. The Company elected the fair value option and as such, valued the host preferred shares and embedded features as one instrument.
On July 21, 2022 and August 10, 2022, the Company used the proceeds from the 2022 Bonds plus cash on hand to redeem in full the
remaining 6,055,556 shares of the Series A-1 and A-2 shares for aggregate proceeds of $136,250 thousand. The fair values of the Series A-1 and A-2 Preferred shares were increased by $3,919 thousand from interest accrued since the modification on April 25, 2022 and no gain or loss were recorded to
net loss upon extinguishment.
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As of December 31, 2021, the Company had 10,243,936 shares of Series A-1 Preferred shares and 256,064 shares of Series A-2 Preferred shares issued and outstanding. As of December 31, 2021, the Series
A-1 and A-2 Preferred shares had a carrying value of $105,000 thousand and a redemption value of $146,668 thousand.
Note 20 Net Loss Per Share
Basic net loss per share is computed by dividing net loss attributable to common shareholders by the weighted-average number of common shares
outstanding. Change in fair value of Series A-1 and A-2 Preferred shares and the adjustment to maximum redemption value of Series C Preferred shares are subtracted from
net loss attributable to the Company in determining net loss per share attributable to common shareholders.
Diluted net loss per share is
computed by dividing net loss attributable to common shareholders by the weighted-average number of common shares outstanding plus the number of Class D common shares issuable upon the vesting of the Time-Vesting Incentive Units and
Exit-Vesting Incentive Units to the extent the effect would be dilutive.
The following table sets forth the computation of the
Companys basic and diluted earnings (loss) per share:
Year Ended December 31,
2022
2021
Basic and diluted net loss per share
Numerator:
Net loss
$
(42,121,959
)
$
(6,540,797
)
Series C Preferred shares adjustment to maximum redemption value
(200,505,236
)
Series A Preferred shares adjustment for redemption, extinguishment and accrued interest
(85,663,336
)
(15,913,184
)
Net loss attributable to common shareholders basic and diluted
$
(328,290,531
)
$
(22,453,981
)
Denominator:
Weighted average shares outstanding - basic and diluted
40,287,478
40,122,651
Net loss per share attributable to common shareholders - basic and diluted
$
(8.15
)
$
(0.56
)
The following table summarizes the potentially dilutive common shares that were excluded from diluted net loss
per share computations because the effect would have been anti-dilutive (in thousands):
For the year ended December 31,
2022
2021
Series C Preferred shares
25,611,505
Class D common shares upon vesting
242,424
323,232
Total
25,853,929
323,232
Note 21 Members Deficit
Common Shares The Company has 30,000,000 shares of Class A Common shares issued and outstanding as of
December 31, 2022 and 2021. The holders of these shares are entitled to one vote for each share held of record on all matters submitted to a vote of our shareholders. These Class A shares were issued to ElementCompany, LLC.
The Company has 9,756,130 shares of Class B Common shares issued and outstanding as of December 31, 2022 and 2021. The holders of
these shares are entitled to one vote for each share held of record on all matters submitted to a vote of our shareholders.
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The Company has 243,871 shares of Class C Common shares issued and outstanding as of
December 31, 2022 and 2021. The Company also has 606,061 shares of Class D Common shares issued and outstanding as of December 31, 2022 and 2021, respectively. These Class C and Class D shares are non-voting.
The current voting power of the Company follows the structure of the elected Board members
with 3 designees from the holders of Class A Common shares and 2 designees from the holders of Class B Common shares. This will remain in place while the holders of Class B Common shares in aggregate hold at least 10% of the common
shares outstanding and prior to any initial public offering, at which point voting power changes, based on the relevant shares outstanding. This structure will remain in place unless a board expansion event occurs as defined in the operating
agreement.
Note 22 Subsequent Events
The Company evaluated its activities through March 20, 2023, the date at which the consolidated financial statements were available to be
issued.
On January 23, 2023, the Company granted its executives and senior management a total of 8,826,168 shares of restricted
stock units (RSUs) under New Bridgers 2023 Omnibus Incentive Plan (2023 Omnibus Plan) in connection with the Business Combination. The RSUs are subject to performance and service vesting conditions with 21.5% of the
RSUs vested upon the Closing Date and the remaining 78.5% of the RSUs will vest annually from the Closing Date over graded service vesting periods of three years and six years for the executives and senior management, respectively. The estimated
grant date fair value of the RSUs is approximated to be $88.3 million based on the estimated fair value of New Bridgers common stock of $10.00 per share based on the Transaction Agreements.
On January 24, 2023, JCIC completed the Business Combination with the Company contemplated by the Transaction Agreements entered into on
August 3, 2022. The Business Combination will be accounted for as a reverse recapitalization in accordance with GAAP. Under this method of accounting, JCIC will be treated as the acquired company for financial reporting purposes.
Accordingly, for accounting purposes, the financial statements of Bridger Aerospace Group Holdings, Inc will represent a continuation of the financial statements of the Company with the Business Combination treated as the equivalent of the Company
issuing stock for the net assets of JCIC, accompanied by a recapitalization.
On the Closing Date, pursuant to the Transaction Agreements:
(i) JCIC and the Company became a wholly owned subsidiary of a new public entity that was renamed Bridger Aerospace Group Holdings, Inc., (ii) each of the Companys common shares then issued and outstanding was automatically surrendered
and exchanged into 0.96246 share of New Bridgers common stock, rounded down to the nearest share for each holder, and (iii) each of the Series C Preferred shares was automatically surrendered and exchanged into one New Bridgers
Series A Preferred Stock.
Upon the Closing, the Company expects to adjust the carrying value of New Bridgers Series A Preferred
Stock to approximately $332,659 thousand, to exclude an amount calculated from the product of the initial issue price multiplied by 0.50 historically included in the carrying value of Series C Preferred shares. Additionally, the Closing
triggered a down round conversion feature embedded in the Series C Preferred shares. The Company expects to recognize the effect of the down round conversion feature as a deemed dividend, increasing the loss available to common stockholders in the
computation of net loss per share by approximately $82,074 thousand based on a preliminary fair value estimate.
In addition, the
Company assumed all of JCICs issued and outstanding securities, which were converted into New Bridgers securities upon the Closing, including: (i) 2,084,357 shares of New Bridgers common stock held by public shareholders, (ii)
2,603,189 shares of New Bridgers common stock held by JCICs sponsor and independent directors, and (iii) 26,650,000 warrants issued by JCIC upon its initial public offerings (the Warrants), of which 17,250,000 were issued to
public shareholders (Public Warrants) and 9,400,000 were issued through a private sale (Private Placement Warrants). Each of the Warrants allows the holder to purchase one share of New Bridgers common stock at $11.50
per share. The Warrants remained liability classified instruments upon assumption at the Closing Date. The estimated fair value of the Warrants on the date of assumption is approximated to be $5.9 million based on the trading price of the
Public Warrants on the date of assumption, which was $0.22 per Warrant.
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On January 25, 2023, Bridger Aerospace Group Holdings, Inc. began trading on the NASDAQ
under the ticker symbol BAER.
On February 14, 2023, the Company paid $9.1 million and received its 6 th Viking CL415EAF, the remaining aircraft under the aircraft purchase agreement with Longview Aviation Asset Management, Inc. and Viking. See Note 14 Commitments and Contingencies for further
detail.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.