Item 7. Management’s Discussion and Analysis
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion and analysis is intended to help you understand our business, financial condition, results of operations, liquidity and capital resources. The discussion should be read together with the historical audited annual Consolidated Financial Statements as of and for the years ended December 31, 2024 and 2023, and the related notes thereto, that are included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements based upon our current expectations, estimates and projections that involve risks and uncertainties. Actual results could differ materially from those anticipated in these forward-looking statements due to, among other considerations, the matters discussed in the sections entitled “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements.”
BUSINESS OVERVIEW
Bridger provides aerial wildfire surveillance, relief and suppression and aerial firefighting services using next-generation technology and environmentally friendly and sustainable firefighting methods primarily throughout the United States, as well as airframe modification and integration solutions for governmental and commercial customers. Our mission is to save lives, property and habitats threatened by wildfires, leveraging our high-quality team, specialized aircraft and innovative use of technology and data. We are meeting an underserved and growing need for next-generation full-service aerial firefighting platforms.
Our portfolio is organized across three core offerings:
Fire Suppression : Consists of deploying specialized Viking CL-415EAF (“Super Scooper”) aircraft to drop large amounts of water quickly and directly on wildfires.
Aerial Surveillance : Consists of providing aerial surveillance via manned (“Air Attack”) aircraft for fire suppression aircraft over an incident and providing tactical coordination with the incident commander.
Maintenance, Repair and Overhaul (“MRO”) : Consists of maintenance and repair services for return-to-service upgrades of certain Canadair CL-215T Amphibious (“Spanish Scoopers”) aircraft as well as airframe modification and integration solutions for governmental and commercial customers.
We manage our operations as a single segment for purposes of assessing performance, making operating decisions and allocating resources.
We have made and will continue to make significant investments in capital expenditures to build and expand our integrated response solutions. We expect that our existing cash and cash equivalents as well as cash generated from our operations will be sufficient to meet our current working capital and capital expenditure requirements for a period of at least 12 months from the date of this Annual Report on Form 10-K. Refer to the Liquidity and Capital Resources section below and “ Note 1 – Organization and Basis of Presentation ” of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for additional details on management’s assessment of the Company’s ability to continue as a going concern.
The Reverse Recapitalization
On January 24, 2023 (the “Closing Date”), Jack Creek Investment Corp. (“JCIC”) completed the reverse recapitalization (the “Closing” and the “Reverse Recapitalization”) with the Company’s predecessor, Bridger Aerospace Group Holdings, LLC and its subsidiaries (collectively, “Legacy Bridger”). As a result of the Reverse Recapitalization, JCIC and Legacy Bridger each became wholly-owned subsidiaries of a new public company that was renamed Bridger Aerospace Group Holdings, Inc. and JCIC shareholders and Legacy Bridger equity holders converted their equity ownership in JCIC and Legacy Bridger, respectively, into equity ownership in Bridger. Legacy Bridger was determined to be the accounting acquirer as of the Closing Date with respect to the Reverse Recapitalization, which has been accounted for as a reverse recapitalization, with no goodwill or other intangible assets recorded, in accordance with GAAP.
Upon consummation of the Reverse Recapitalization, the most significant change in Legacy Bridger’s future reported financial position and results of operations was a gross decrease in cash and cash equivalents (as compared to Legacy Bridger’s balance sheet at December 31, 2022), of approximately $17.0 million. Total direct and incremental transaction costs of Bridger, JCIC and Legacy Bridger paid at the closing of the Reverse Recapitalization on January 24, 2023 (the “Closing”) were approximately $16.6 million and have been treated as a reduction of the cash proceeds and deducted from our additional paid-in capital.
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KEY FACTORS AFFECTING OUR RESULTS OF OPERATIONS
We are exposed to certain risks inherent to an aerial firefighting business. These risks are further described in the section entitled “ Risk Factors ” in this Annual Report on Form 10-K.
Seasonality Due to the North American Fire Season
Our operating results are impacted by seasonality. Climate conditions and other factors that may influence the revenues of our services may vary each season and year. Historically, the demand for our services has been higher in the second and third quarters of each fiscal year due to the timing and duration of the North American fire season. Consequently, revenues, expenses and operating cash flows from our services are generated mostly in the second and third quarters of our fiscal year. However, the seasonal fluctuations in the need to fight wildfires based upon location and the varying intensity of the fire season have and may continue to lead our operating results to fluctuate significantly from quarter to quarter and year to year.
Weather Conditions and Climate Trends
Our business is highly dependent on the needs of government agencies to surveil and suppress fires. As such, our financial condition and results of operations are significantly affected by the weather, as well as environmental and other factors affecting climate change, which impact the number and severity of fires in any given period. The intensity and duration of the North American fire season is affected by multiple factors, some of which, according to a 2023 article by Climate Central, a nonprofit climate science news organization, are weather patterns including warmer springs and longer summers, decreasing relative humidity which lead to drier soils and vegetation and frequency of lightning strikes. Based on the climate change indicators published by the Environmental Protection Agency (“EPA”), these factors have shown year over year increases linked to the effects of climate change and the overall trend in increased temperatures. We believe that rising global temperatures have been, and in the future are expected to be, one factor contributing to increasing rates and severity of wildfires. Historically, our revenue has been higher in the summer season of each fiscal year due to weather patterns which are generally correlated to a higher prevalence of wildfires in North America. Larger wildfires and longer seasons are expected to continue as droughts increase in frequency and duration, according to a 2024 article by the EPA.
Per the 2024 National Centers for Environmental Information annual report, approximately 8.8 million acres of U.S. land burned in 2024, 25.7% above the 2001-2020 annual average and the total number of wildfires during 2024 was approximately 90.0% of the 2001-2020 annual average with approximately 61,000 wildfires reported. Additionally, according to data from the National Interagency Coordination Center, the national wildland fire preparedness level reached Level 5 in 2024 and Level 4 in 2023.
Limited Supply of Specialized Aircraft and Replacement and Maintenance Parts
Our results of operations are dependent on sufficient availability of aircraft, raw materials and supplied components provided by a limited number of suppliers. Our reliance on limited suppliers exposes us to volatility in the prices and availability of these materials which may lead to increased costs and delays in operations.
Economic and Market Factors
Our operations, supply chain, partners and suppliers are subject to various global macroeconomic factors. We expect to continue to remain vulnerable to a number of industry-specific and global macroeconomic factors that may cause our actual results of operations to differ from our historical results of operations or current expectations. The factors and trends that we currently believe are or will be most impactful to our results of operations and financial condition include, but are not limited to, the impact on us of significant operational challenges by third parties on which we rely, inflationary pressures, short-term and long-term weather patterns, potential labor and supply chain shortages affecting us and our partners, volatile fuel prices, aircraft delivery delays and changes in general economic conditions in the markets in which we operate.
Historically, our results of operations have not been materially impacted by other factors. We continue to monitor the potential favorable or unfavorable impacts of these and other factors on our business, operations, financial condition and future results of operations, which are dependent on future developments. Our future results of operations may be subject to volatility and our growth plans may be delayed, particularly in the short term, due to the impact of the above factors and trends. However, we believe that our long-term outlook remains positive due to the increasing demand for our services and our ability to meet those demands consistently, despite adverse market factors. We believe that this expected long-term increase in demand will offset increased costs and that the operational challenges we may experience in the near term can be managed in a manner that will allow us to support increased demand, though we cannot provide any assurances.
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KEY COMPONENTS OF OUR RESULTS OF OPERATIONS
Revenues
Our primary source of revenues is from providing services, which are disaggregated into fire suppression, aerial surveillance, MRO and other services. Revenues and growth for our fire suppression and aerial surveillance services are driven by climate trends, specifically the intensity and timing of the North American fire season. MRO includes revenue from return-to-service and maintenance and repair services performed externally for third parties. Other services primarily consist of extraneous fulfillment of contractual services such as extended availability and mobilizations.
Cost of Revenues
Cost of revenues includes costs incurred directly related to flight operations including expenses associated with operating the aircraft on revenue generating contracts. These include labor, depreciation, fees, travel and fuel. Cost of revenues also includes routine aircraft maintenance expenses and repairs, including maintenance and modification repair work for third-party aircraft, consisting primarily of labor, parts, consumables and travel unique to each airframe.
Selling, General and Administrative Expense
Selling, general and administrative expenses include all costs that are not directly related to satisfaction of customer contracts. Selling, general and administrative expenses include costs for our administrative functions, such as finance, legal, human resources, and IT support, and business development costs that include contract procurement, public relations and business opportunity advancement. These functions include costs for items such as salaries, benefits, stock-based compensation and other personnel-related costs, maintenance and supplies, professional fees for external legal, accounting, and other consulting services, insurance, intangible asset amortization and depreciation expense. Selling, general and administrative expenses also include gains or losses on the disposal of fixed assets.
Interest Expense
Interest expense consists of interest costs related to our Gallatin municipal bond issuances by Legacy Bridger that closed in July and August 2022 (the “Series 2022 Bonds”), our permanent and term loan agreements and the net effect of our interest rate swap. Interest expense also includes amortization of debt issuance costs associated with our loan agreements. Refer to “ Liquidity and Capital Resources—Indebtedness ” included in this Annual Report on Form 10-K for a discussion of our loan commitments.
RESULTS OF OPERATIONS
Comparison of the Year Ended December 31, 2024 to the Year Ended December 31, 2023
The following table sets forth our Consolidated Statements of Operations information for the years ended December 31, 2024 and 2023.
For the years ended December 31,
$s in thousands 2024 2023 Period Over Period Change ($) Period Over Period Change (%)
Revenues $ 98,613 $ 66,708 $ 31,905 48%
Cost of revenues:
Flight operations 31,016 24,412 6,604 27%
Maintenance 26,459 16,928 9,531 56%
Total cost of revenues 57,475 41,340 16,135 39%
Gross income 41,138 25,368 15,770 62%
Selling, general and administrative expense 35,820 82,863 (47,043) (57%)
Operating income (loss) 5,318 (57,495) 62,813 (109)%
Interest expense (23,714) (23,218) (496) 2%
Other income 2,067 3,053 (986) (32)%
Loss before income taxes (16,329) (77,660) 61,331 (79)%
Income tax benefit 762 302 460 152%
Net loss $ (15,567) $ (77,358) $ 61,791 (80%)
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Revenues
Revenue increased by $31.9 million, or 48%, to $98.6 million for the year ended December 31, 2024, from $66.7 million for the year ended December 31, 2023.
Revenues by service offering for the years ended December 31, 2024 and 2023 were as follows:
For the years ended December 31,
$s in thousands 2024 2023 Period Over Period Change ($) Period Over Period Change (%)
Fire suppression $ 66,765 $ 56,022 $ 10,743 19%
Aerial surveillance 13,062 9,730 3,332 34%
MRO 13,918 48 13,870 28,896%
Other services 4,868 908 3,960 436%
Total revenues $ 98,613 $ 66,708 $ 31,905 48%
Fire suppression revenue increased by $10.7 million, or 19%, to $66.8 million for the year ended December 31, 2024, from $56.0 million for the year ended December 31, 2023. The increase was partially driven by increased flight hours for our Super Scoopers in the year ended December 31, 2024 compared to the year ended December 31, 2023 resulting from a more intense U.S. wildfire season. The increase was also partially due to an earlier start to the 2024 wildfire season in March and April of 2024 for our Super Scoopers for the year ended December 31, 2024 compared to the year ended December 31, 2023. In 2023, the Company actively expanded our aerial firefighting operations in Canada. The Company had no aerial firefighting operations in Canada in 2024. The increase in fire suppression revenue accounted for 34% of the total increase in revenues for the year ended December 31, 2024.
Aerial surveillance revenue increased by $3.3 million, or 34%, to $13.1 million for the year ended December 31, 2024, from $9.7 million for the year ended December 31, 2023. The increase was primarily driven by the higher rate of the Pilatus PC-12 (“Pilatus”) aircraft operating for the year ended December 31, 2024 compared to the Twin Commander aircraft operating for the year ended December 31, 2023. The increase was also partially due to an earlier deployment of our surveillance aircraft in the year ended December 31, 2024 compared to the year ended December 31, 2023. The increase in aerial surveillance revenue accounted for 10% of the total increase in revenues for the year ended December 31, 2024.
MRO revenue was $13.9 million for the year ended December 31, 2024, compared to $48,000 for the year ended December 31, 2023. This amount is primarily due to the return-to-service work performed on the Spanish Scoopers in connection with the MAB Funding, LLC (“MAB”) services agreement and MRO work performed by Flight Test & Mechanical Solutions, Inc. (“FMS”) which was acquired in June 2024. Refer to “Note 2 – Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for additional details. The increase in MRO revenue accounted for 43% of the total increase in revenues for the year ended December 31, 2024.
Other services revenue increased by $4.0 million, or 436%, to $4.9 million for the year ended December 31, 2024, from $0.9 million for the year ended December 31, 2023. The increase was primarily due to third-party training and flight operations services utilizing our aircraft for the year ended December 31, 2024 that did not occur for the year ended December 31, 2023. The increase in other services revenue accounted for 12% of the total increase in revenues for the year ended December 31, 2024.
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Revenues by geographic area for the years ended December 31, 2024 and 2023 were as follows:
For the years ended December 31,
$s in thousands 2024 2023 Period Over Period Change ($) Period Over Period Change (%)
United States $ 88,527 $ 49,486 $ 39,041 79%
Spain 10,086 48 10,038 20,913%
Canada — 17,174 (17,174) (100%)
Total revenues $ 98,613 $ 66,708 $ 31,905 48%
United States revenue increased by $39.0 million, or 79%, to $88.5 million for the year ended December 31, 2024, from $49.5 million for the year ended December 31, 2023. The increase was primarily driven by increased flight hours due to an earlier start to the 2024 wildfire season and a more intense wild fire season for the year ended December 31, 2024 compared to the year ended December 31, 2023.
Spain revenue was $10.1 million for the year ended December 31, 2024, compared to $48,000 for the year ended December 31, 2023. This amount is due to the return-to-service work performed on the Spanish Scoopers in connection with the MAB services agreement. Refer to “Note 2 – Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for additional details.
Canada revenue was zero for the year ended December 31, 2024 compared to 17.2 million for the year ended December 31, 2023. The Company had no aerial firefighting operations in Canada in 2024.
Cost of Revenues
Total cost of revenues increased by $16.1 million, or 39%, to $57.5 million for the year ended December 31, 2024, from $41.3 million for the year ended December 31, 2023.
Flight Operations
Flight operations costs increased by $6.6 million, or 27%, to $31.0 million for the year ended December 31, 2024, from $24.4 million for the year ended December 31, 2023. The increase was primarily attributable to an increase in depreciation expense of $3.4 million, an increase in employee labor expenses of $1.6 million, an increase in training expenses of $0.8 million and an increase in aircraft lease expense of $0.8 million due to two Pilatus operating leases commencing in July 2023 and a Twin Otter operating lease commencing in April 2023, in each case for the year ended December 31, 2024 compared to the year ended December 31, 2023.
Maintenance
Maintenance costs increased by $9.5 million, or 56%, to $26.5 million for the year ended December 31, 2024, from $16.9 million for the year ended December 31, 2023. The increase was primarily driven by an increase in aircraft maintenance and modification expense of $5.2 million, an increase in employee labor expenses of approximately $2.9 million and increase in depreciation expense of $1.4 million, in each case for the year ended December 31, 2024 compared to the year ended December 31, 2023.
Selling, General and Administrative Expense
Selling, general and administrative expense decreased by $47.0 million, or 57%, to $35.8 million for the year ended December 31, 2024, from $82.9 million for the year ended December 31, 2023. The decrease was primarily attributable to the decrease in stock-based compensation of $32.1 million primarily associated with the immediate vesting of RSUs issued to executives and senior management of Bridger in connection with the Reverse Recapitalization in January 2023. The remaining decrease was partially attributable to a decrease of $5.7 million in business development, insurance, professional services and other expenses associated with becoming a public company in 2023, a decrease in the market value of the Warrants of $4.3 million, impairment charges of $2.4 million associated with three of our Twin Commander aircraft and our two Aurora eVTOL Skiron drone aircraft due to our plan to phase out our use of these specific platforms in our aerial surveillance operations for the year ended 2023, a decrease in employee labor expenses of approximately $0.9 million, and an increase in capitalized software development costs of $0.8 million for the year ended December 31, 2024 compared to the year ended December 31, 2023.
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Interest Expense
Interest expense increased by $0.5 million, or 2%, to $23.7 million for the year ended December 31, 2024, from $23.2 million for the year ended December 31, 2023. The increase was primarily driven by a lower capitalized interest associated with the financing of the construction of fixed assets for the year ended December 31, 2024 compared to the year ended December 31, 2023.
Other Income
Other income decreased by $1.0 million, or 32%, to $2.1 million for the year ended December 31, 2024, from $3.1 million for the year ended December 31, 2023. The decrease was primarily attributable to non-recurring interest income earned in 2023, prior to the sale of certain investments by December 31, 2023.
Income Tax Benefit
Income tax benefit increased by $0.5 million, or 152%, to $0.8 million for the year ended December 31, 2024, from $0.3 million for the year ended December 31, 2023. The increase was attributable to a discrete benefit generated from the FMS acquisition during 2024.
NON-GAAP FINANCIAL MEASURES
Although we believe that net income or loss, as determined in accordance with GAAP, is the most appropriate earnings measure, we use EBITDA and Adjusted EBITDA as key profitability measures to assess the performance of our business. We believe these measures help illustrate underlying trends in our business and use the measures to establish budgets and operational goals, and communicate internally and externally, in managing our business and evaluating its performance. We also believe these measures help investors compare our operating performance with its results in prior periods in a way that is consistent with how management evaluates such performance.
Each of the profitability measures described below is not recognized under GAAP and do not purport to be an alternative to net income or loss determined in accordance with GAAP as a measure of our performance. Such measures have limitations as analytical tools and should not be considered in isolation or as substitutes for our results as reported under GAAP. EBITDA and Adjusted EBITDA exclude items that can have a significant effect on our profit or loss and should, therefore, be used only in conjunction with our GAAP profit or loss for the period. Our management compensates for the limitations of using non-GAAP financial measures by using them to supplement GAAP results to provide a more complete understanding of the factors and trends affecting the business than GAAP results alone. Because not all companies use identical calculations, these measures may not be comparable to other similarly titled measures of other companies.
EBITDA and Adjusted EBITDA
EBITDA is a non-GAAP profitability measure that represents net income or loss for the period before the impact of interest expense, income tax expense (benefit) and depreciation and amortization of property, plant and equipment and intangible assets. EBITDA eliminates potential differences in performance caused by variations in capital structures (affecting financing expenses), the cost and age of tangible assets (affecting relative depreciation expense) and the extent to which intangible assets are identifiable (affecting relative amortization expense).
Adjusted EBITDA is a non-GAAP profitability measure that represents EBITDA before certain items that are considered to hinder comparison of the performance of our businesses on a period-over-period basis or with other businesses. During the periods presented, we exclude from Adjusted EBITDA certain costs that are required to be expensed in accordance with GAAP, including stock-based compensation, business development and integration expenses, offering costs, gains and losses on disposal of fixed assets, non-cash adjustments to the fair value of earnout consideration and non-cash adjustments to the fair value of Warrants issued in connection with the Reverse Recapitalization. Our management believes that the inclusion of supplementary adjustments to EBITDA applied in presenting Adjusted EBITDA are appropriate to provide additional information to investors about certain material non-cash items and about unusual items that we do not expect to continue at the same level in the future.
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The reconciliation of Net loss, the most directly comparable GAAP measure, to EBITDA and Adjusted EBITDA for the years ended December 31, 2024 and 2023 is as follows:
For the years ended December 31,
($s in thousands) 2024 2023 Period Over Period Change ($) Period Over Period Change (%)
Net loss $ (15,567) $ (77,358) $ 61,791 (80%)
Income tax benefit (762) (302) (460) 152%
Depreciation and amortization 17,451 11,089 6,362 57%
Interest expense 23,714 23,218 496 2%
EBITDA 24,836 (43,353) 68,189 (157%)
Stock-based compensation 1
16,160 47,796 (31,636) (66%)
Business development & integration expenses 2
1,140 5,687 (4,547) (80%)
Change in fair value of earnout consideration 3
(393) 167 (560) (335%)
Change in fair value of Warrants 4
(4,530) (267) (4,263) 1,597%
Offering costs 5
123 5,773 (5,650) (98%)
Loss on disposals and non-cash impairment charges 6
— 2,869 (2,869) (100%)
Adjusted EBITDA $ 37,336 $ 18,672 $ 18,664 100%
Net loss margin 7
(16) % (116) %
Adjusted EBITDA margin 7
38 % 28 %
1 Represents non-cash stock-based compensation expense associated with employee and non-employee equity awards.
2 Represents expenses related to integration costs for completed acquisitions and expenses related to potential acquisition targets and additional business lines.
3 Represents non-cash fair value adjustment for earnout consideration issued in connection with the acquisitions of Ignis Technologies, Inc. (“Ignis”) and FMS.
4 Represents the non-cash fair value adjustment for Warrants issued in connection with Reverse Recapitalization.
5 Represents one-time costs for professional service fees related to the preparation for potential offerings that have been expensed during the period.
6 Represents loss on the disposal of an aging aircraft and non-cash impairment charges on aircraft with projected cash flow losses.
7 Net loss margin represents Net loss divided by Total revenue and Adjusted EBITDA margin represents Adjusted EBITDA divided by Total revenue.
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LIQUIDITY AND CAPITAL RESOURCES
For the year ended December 31, 2024, the Company had an operating income of $5.3 million, net loss of $15.6 million and cash flow provided by operating activities of $9.4 million. In addition, as of December 31, 2024, the Company had unrestricted cash and investments of $39.3 million.
In the prior reporting period, the Company identified certain conditions that raised substantial doubt about its ability to continue as a going concern. These conditions included noncompliance with certain financial covenants, including maintaining minimum liquidity requirements and uncertainty regarding the Company’s ability to diligently prosecute a cost reduction plan. However, in the subsequent period, the Company is in compliance with all financial covenants and successfully improved cash flow. As a result, management has concluded that substantial doubt no longer exists.
As of March 10, 2025, $5,869,526 is available for potential future sales under the 2024 ATM Agreement, which may be utilized for future financings under our effective shelf registration statement. The amount registered for potential future sales under the 2024 ATM Agreement was reduced to $5,869,526 on April 15, 2024 in accordance with General Instruction I.B.6 of Form S-3 in connection with the Company’s Registered Direct Offering of 2,183,366 shares of Common Stock described in “ Note 19 – Stockholders' Deficit ” of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.
Cash and Marketable Securities
As of December 31, 2024, our principal sources of liquidity were cash and cash equivalents of $39.3 million which were held for working capital purposes and restricted cash of $13.7 million. Restricted cash consists primarily of cash reserved for debt servicing on the Series 2022 Bonds. From time to time, the Company invests its excess cash in highly rated available-for-sale securities, with the primary objective of minimizing the potential risk of principal loss. As of December 31, 2024, the Company had zero investments in debt securities classified as available-for-sale.
We may receive up to $306.5 million from the exercise of the 9,400,000 private placement warrants and 17,249,874 public warrants of the Company outstanding (collectively, the “Warrants”), assuming the exercise in full of all the Warrants for cash, but not from the sale of the shares of Common Stock issuable upon such exercise. On December 31, 2024, the closing price of our Common Stock was $2.13 per share. For so long as the market price of our Common Stock is below the exercise price of our Warrants ($11.50 per share), our Warrants remain “out-of-the money,” and holders of our Warrants are unlikely to cash exercise their Warrants, resulting in little or no cash proceeds to us. There can be no assurance that our Warrants will be in the money prior to their January 24, 2028 expiration date, and therefore, we may not receive any cash proceeds from the exercise of our Warrants to fund our operations. Accordingly, we have not relied on the receipt of proceeds from the exercise of our Warrants in assessing our capital requirements and sources of liquidity.
We may in the future seek to raise additional funds through various potential sources, such as equity and debt financing for general corporate purposes or for specific purposes, including in order to pursue growth initiatives. Based on our unrestricted cash and cash equivalents balance as of December 31, 2024, and our projected cash use, we would anticipate the need to raise additional funds through equity or debt financing (or the issuance of stock as acquisition consideration) to pursue any significant acquisition opportunity, at the time of such acquisition opportunity. Our ability to generate proceeds from equity financings will significantly depend on the market price of our Common Stock.
We believe our cash on hand, and cash expected to be generated from operating activities will be sufficient to fund our operations for the next twelve months. As described in “Item 1A. Risk Factors” included in this Annual Report on Form 10-K, our quarterly and annual operating results have fluctuated in the past and may vary in the future due to a variety of factors, many of which are external to our control. If the conditions in our industry deteriorate (such as due to the seasonality of our business), or if we are unable to sufficiently increase our revenues or further reduce our expenses, we may experience, in the future, a significant negative impact to our financial results and cash flows from operations. In such a situation, we could need to seek liquidity from sources other than our operations.
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Indebtedness
Series 2022 Bonds
On July 21, 2022, we closed our Series 2022 Bond Offering in a taxable industrial development revenue bond transaction with Gallatin County, Montana for $160.0 million (the “Series 2022 Bond Offering”). Pursuant to the Series 2022 Bond Offering, Gallatin County issued $135.0 million of bonds on July 21, 2022 and an additional $25.0 million of bonds on August 10, 2022. The proceeds from the offering, together with cash on hand, were used to redeem the capital contributions plus accrued interest for all of the remaining Legacy Bridger Series A-1 preferred shares and Legacy Bridger Series A-2 preferred shares totaling $134.0 million, the principal plus accrued interest for the Series 2021 Gallatin County municipal bond, totaling $7.7 million, to finance the construction and equipping of the Company’s third aircraft hangar in Belgrade, Montana and to fund the purchase of additional Super Scooper aircraft. The Series 2022 Bonds mature on September 1, 2027, with an annual interest rate of 11.5%. Interest is payable semiannually on March 1 and September 1 of each year until maturity and commenced on September 1, 2022. Debt issuance costs for the Series 2022 Bonds was $4.2 million.
Optional Redemption —We may redeem the Series 2022 Bonds (i) during the period beginning on September 1, 2025 through August 31, 2026, at a redemption price equal to 103% of the principal amount plus accrued interest; (ii) during the period beginning on September 1, 2026 through August 31, 2027, at a redemption price equal to 102% of the principal amount plus accrued interest; and (iii) on or after September 1, 2027, at a redemption price equal to 100% of the principal amount plus accrued interest. At our direction, the Series 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 set forth in that certain Amended and Restated Trust Indenture, dated as of June 1, 2022 (the “Indenture”), between Gallatin County and U.S. Bank Trust Company, National Association, Salt Lake City, Utah.
Mandatory and Extraordinary Redemptions —Subject to the terms of the Indenture, the Series 2022 Bonds must be redeemed, including, among other things, (i) from all the proceeds of the sale of any Super Scooper, (ii) in an amount equal to (a) 50% of our operating revenues less the portion used to pay or establish reserves for all our expenses, debt payments, capital improvements, replacements, and contingencies (“Excess Cash Flow”) or (b) 100% of Excess Cash Flow, in each case, in the event we fall below certain debt service coverage ratio (“DSCR”) requirements set forth in the Indenture, and (iii) upon a change of control (each a “Mandatory Redemption”). For each Mandatory Redemption, the Series 2022 Bonds will be redeemed in whole or in part, at a redemption price equal to 100% of the principal amount of each Series 2022 Bond redeemed plus any premium that would be applicable to an optional redemption of the Series 2022 Bonds on such date (and if such redemption occurs prior to September 1, 2025, the applicable premium shall be three percent (3%)) and accrued interest. Furthermore, subject to the terms of the Indenture, at our direction, the Series 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, including, among other things, casualty, condemnation, or other unexpected events set forth in the Indenture.
Financial Covenants — In connection with the Series 2022 Bonds, we are a party to certain loan agreements that contain customary representation and warranties, negative covenants, including, limitations on indebtedness, reduction of liquidity below certain levels, and asset sales, merger and other transactions, and remedies on and events of default.
Under the terms of such loan agreements, we are subject to certain financial covenants, that require, among other things, that we operate in a manner and to the extent permitted by applicable law, to produce sufficient gross revenues so as to be at all relevant times in compliance with the terms of such covenants, including that we maintain (i) beginning with the fiscal quarter ended December 31, 2023, a minimum DSCR (generally calculated as the aggregate amount of our total gross revenues, minus operating expenses, plus interest, depreciation and amortization expense, for any period, over our maximum annual debt service requirements, as determined under such loan agreement) that exceeds 1.25x and (ii) beginning with the fiscal quarter ended September 30, 2022, a minimum liquidity of not less than $8 million in the form of unrestricted cash and cash equivalents, plus liquid investments and unrestricted marketable securities at all times.
Subject to the terms of the loan agreements, in the event we are unable to comply with the terms of the financial covenants, we may be required (among other potential remedial actions) to engage an independent consultant to review, analyze and make recommendations with respect to our operations or in some instances, this could result in an event of default and/or the acceleration of our debt obligations under the loan agreements. In addition, the acceleration of our debt obligations may in some instances (as set forth in our Amended and Restated Charter) result in an increase in the dividend rate of the Series A Preferred Stock by 2.00% per annum from the dividend rate otherwise in effect at such time.
The Company is in compliance with the DSCR covenant as of December 31, 2024 and management anticipates the Company will remain in compliance with the DSCR covenant at future quarterly measurement periods during the next 12 months. The Company is in compliance with the $8.0 million minimum liquidity requirement as of December 31, 2024.
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The Series 2022 Bonds agreements provide that, with regard to covenant violations, other than non-payment of principal or interest, no event of default shall be deemed to have occurred so long as a reasonable course of action to remedy a violation commences within 30 days of non-compliance and management diligently prosecutes the remediation plan to completion.
Live Oak Bank Loans
Our loans with Live Oak Bank are subject to financial covenants requiring the Company to maintain a 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 Company’s debt to worth ratio to not exceed 5.00x at the aircraft or entity level. The Company is in compliance with such financial covenants as of December 31, 2024.
Citywide Banks Loans
Through certain of our subsidiaries, we entered into two credit facilities with Citywide Banks (formerly known as Rocky Mountain Bank) to finance in part (i) the construction of airplane hangars on September 30, 2019 and (ii) the purchase of four Quest Kodiak aircraft on February 3, 2020. In connection with such credit facilities, we also entered into various term loan and other long-term debt agreements which contain certain financial covenants, including, that we maintain (i) a DSCR that exceeds 1.25x (generally calculated as the ratio of the net operating income over the debt service payments made or as the ratio of adjusted EBITDA over the aggregate amount of interest and principal payments, in each case, as determined in the applicable agreement) and (ii) certain senior leverage ratios that do not exceed 6.00x through the third quarter of 2025 or 5.00x thereafter (generally calculated as the ratio of the senior funded debt over EBITDA, as determined in the applicable agreement). The Company is in compliance with such financial covenants as of December 31, 2024.
Mezzanine and Permanent Equity
Preferred Shares
On April 25, 2022, we authorized and issued 315,789.473684 Legacy Bridger Series C Preferred Shares for aggregate proceeds of $288.5 million, net of issuance costs of $11.5 million. Legacy Bridger Series C Preferred Shares rank senior to our Common Stock and ranked subordinate to Legacy Bridger Series A Preferred Shares with respect to the distribution of assets upon liquidation or certain triggering events. Upon the Closing, Legacy Bridger Series C Preferred Shares were exchanged for shares of Series A Preferred Stock on a one-to-one basis as a portion of the merger consideration issued in connection with the Reverse Recapitalization. The Series A Preferred Stock is classified as mezzanine equity as it remains probable that they may become redeemable upon the mandatory redemption date of April 25, 2032. Series A Preferred Stock does not participate in earnings and is non-voting. For additional information regarding the terms and conditions of the Series A Preferred Stock, see “Note 18 – Mezzanine Equity” for additional details.
Prior to the Closing, Legacy Bridger Series C Preferred Shares accrued interest daily at 7% per annum for the first year, 9% per annum for the second year and 11% per annum thereafter. Following the Closing, the Series A Preferred Stock will continue to accrue interest daily at 7% per annum for the first six years, 9% per annum for the seventh year and 11% per annum thereafter. Accrued interest for Series A Preferred Stock was $25.3 million as of December 31, 2024.
As of December 31, 2024, it was probable that the Series A Preferred Stock may become redeemable at the holder’s option on or after March 29, 2027. We have 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, 2024, Series A Preferred Stock had a carrying value and redemption value of $380.2 million.
Historical Cash Flows
Our consolidated cash flows from operating, investing and financing activities for the years ended December 31, 2024 and 2023 were as follows:
For the years ended December 31,
$s in thousands 2024 2023
Net cash provided by (used in) operating activities $ 9,355 $ (26,808)
Net cash provided by investing activities 2,056 27,158
Net cash provided by (used in) financing activities 4,673 (5,831)
Effects of exchange rate changes 62 (42)
Net change in cash and cash equivalents $ 16,146 $ (5,523)
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Operating Activities
Net cash provided by operating activities was $9.4 million for the year ended December 31, 2024, compared to Net cash used in operating activities of $26.8 million for the year ended December 31, 2023. Net cash provided by operating activities reflects Net loss of $15.6 million for the year ended December 31, 2024 compared to Net loss of $77.4 million for the year ended December 31, 2023. Net cash provided by operating activities for the year ended December 31, 2024 reflects add-backs to Net loss for non-cash charges totaling $28.0 million, primarily attributable to depreciation and amortization of $17.5 million, stock-based compensation expense of $16.2 million, and partially offset by the change in fair value of the Warrants of $4.5 million. Net cash used in operating activities for the year ended December 31, 2023 reflects add-backs to Net loss for non-cash charges totaling $62.2 million, primarily attributable to stock-based compensation expense of $47.8 million and depreciation and amortization of $11.1 million.
Investing Activities
Net cash provided by investing activities was $2.1 million for the year ended December 31, 2024, compared to Net cash provided by investing activities of $27.2 million for the year ended December 31, 2023. Net cash provided by investing activities for the year ended December 31, 2024 reflects purchases of property, plant and equipment of $4.1 million, which is primarily comprised of purchases, aircraft improvements and expenditures for capitalized software of $1.2 million, partially offset by the collection of cash from note receivable of $3.0 million, cash acquired through the FMS Acquisition of $2.6 million and proceeds from maturities of marketable securities of $1.1 million. Net cash provided by investing activities for the year ended December 31, 2023 primarily reflects proceeds from sales and maturities of marketable securities of $55.4 million, partially offset by purchases of property, plant and equipment of $20.7 million.
Financing Activities
Net cash provided by financing activities was $4.7 million for the year ended December 31, 2024, compared to Net cash used in financing activities of $5.8 million for the year ended December 31, 2023. Net cash provided by financing activities for the year ended December 31, 2024 primarily reflects gross proceeds from issuance of Common Stock in offerings of $9.3 million, partially offset by repayments on debt of $3.0 million and payment of issuance costs for Common Stock in offerings of $1.0 million. Net cash used in financing activities for the year ended December 31, 2023 primarily reflects costs incurred related to the Closing of $6.8 million and repayments of debt of $2.2 million partially offset by proceeds from the Closing of $3.2 million.
Contractual Obligations
Our principal commitments consist of obligations for outstanding leases and debt. The following table summarizes our contractual obligations as of December 31, 2024:
Payments Due by Period
$s in thousands Total Current Noncurrent
Lease obligations
$ 10,539 $ 2,449 $ 8,090
Debt obligations
208,387 3,173 205,214
Total
$ 218,926 $ 5,622 $ 213,304
On November 17, 2023, the Company entered into a series of agreements with MAB and its subsidiary designed to facilitate the purchase and return-to-service of four Spanish Scoopers originally awarded to the Company in September 2023 via a public tender process from the Government of Spain. The terms of the agreements provide that the Company will manage the return-to-service upgrades of the Spanish Scoopers while they are owned and funded by MAB. The Company has the right, but not the obligation, to acquire each plane as it is ready to be contracted and returned to service. In the event that the Company does not purchase the aircraft within the time periods set forth in the agreements, then either party may initiate a sales process for the sale of all aircraft that have not been purchased by the Company, which sales process the Company will oversee and manage. If the aircraft are sold to a third party through such process, then the Company must pay the MAB’s subsidiary a cash fee equal to the amount, if any, by which the aggregate price of the Company’s purchase options for such aircraft exceeds the consideration paid by the third-party purchaser for the same aircraft, not to exceed $15.0 million in aggregate. If the aircraft are not sold to a third party and MAB’s subsidiary has not otherwise entered into an operating lease with a third party for the aircraft, then the Company must pay MAB’s subsidiary $15.0 million.
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Off-Balance Sheet Arrangements
On November 17, 2023, we entered into a series of agreements designed to facilitate the purchase and return-to-service of the Spanish Scoopers originally awarded to the Company’s wholly-owned subsidiary, BAE, in September 2023 via a public tender process from the Government of Spain for €40.3 million. Under the terms of the agreements, we agreed to sell its entire outstanding equity interest in BAE to MAB and purchase $4.0 million of non-voting Class B units of MAB. We also entered into a services agreement with MAB whereby we will manage the return-to-service upgrades of the Spanish Scoopers through the Company’s wholly-owned Spanish subsidiary, Albacete Aero, S.L., while they are owned and funded by MAB. The service agreement also provides that we have the right, but not the obligation, to acquire each Spanish Scooper as it is ready to be contracted and returned to service. The Company assessed both MAB and BAE for variable interest entity accounting under ASC 810-10-15 and determined that MAB is a voting interest entity and BAE is a variable interest entity. However, neither entity is consolidated in the Consolidated Financial Statements as the Company does not have a controlling financial interest in MAB and the Company is not the primary beneficiary of BAE.
As of December 31, 2024 and 2023, we did not have any other relationships with special purpose or variable interest entities which have been established for the purpose of facilitating off-balance sheet arrangements, which have not been consolidated in the Consolidated Financial Statements of the Company. Refer to “ Note 2 – Summary of Significant Accounting Policies ” of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for additional information.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our Consolidated Financial Statements and the related notes included elsewhere in this Annual Report on Form 10-K are prepared in accordance with GAAP. The preparation of these Consolidated Financial Statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, provision for income taxes and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Changes in accounting estimates are reasonably likely to occur from period to period. Accordingly, actual results could differ significantly from the estimates made by our management. We evaluate our estimates and assumptions on an ongoing basis. To the extent that there are material differences between these estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected.
We believe that the following critical accounting policies involve a greater degree of judgment or complexity than our other accounting policies. Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of operations.
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. 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.
Revenue Recognition
We enter into short, medium and long-term contracts with customers, primarily with government agencies to deploy aerial fire management assets during the firefighting season. Contracts with our customers generally include a termination for convenience clause. The majority of our contracts are started and completed within the same year. We recognize revenue under Accounting Standards Codification 606, “Revenue from Contracts with Customers” (“ASC 606”), which utilizes a five-step model.
The definition of a contract for us is typically defined as a customer purchase order as this is when we achieve an enforceable right to payment. The deliverables within a customer purchase order are analyzed to determine the number of performance obligations.
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A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account under ASC 606. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, control is transferred and the performance obligation is satisfied. The majority of our contracts have a single performance obligation as the promise to transfer the individual goods or services are highly interrelated or meet the series guidance. For contracts with multiple performance obligations, we allocate the contract transaction price to each performance obligation using our best estimate of the standalone selling price of each distinct good or service in the contract. The primary method used to estimate the standalone selling price is the expected cost plus a margin approach, under which we forecast our expected costs of satisfying a performance obligation and then add an appropriate margin for that distinct good or service.
For Aerial firefighting contracts, the Company primarily performs the following activities as part of a stand-ready obligation: (i) providing our aircraft, pilot, and field maintenance personnel necessary to operate the aircraft (ii) performing the services required on the contract, whether it be fire suppression or aerial surveillance services. The integrated firefighting services that we perform under each contract represent a single performance obligation satisfied over time, as a series of distinct time increments. The amounts billed to the customer are determined based on varying rates applicable to the specific activities performed on a daily basis. Such consideration is allocated to the distinct daily increment it relates to within the contract and therefore, recognized as we perform the daily firefighting services on the contract. We utilize the output method to recognize revenue over time as this depicts the Company’s performance toward complete satisfaction of the performance obligation
Maintenance repair revenue consists of maintenance repair and return-to-service work performed on customer aircraft. For maintenance repair contracts, we manufacture products to customer specifications and the product cannot be easily modified to satisfy another customer’s order or we perform return-to-service work on customer aircraft. As such, these products are deemed to have no alternative use once the manufacturing process begins. In the event the customer invokes a termination for convenience clause, we would be entitled to costs incurred to date plus a reasonable profit. Contract costs typically include labor, materials, overhead, and when applicable, subcontractor costs. For most of our products, we are building assets with no alternative use and have enforceable right to payment, and thus, we recognize revenue using the over-time method. For return-to-service contracts, the customer maintains control of the asset as we perform the services.
The majority of our performance obligations are satisfied over time as work progresses. Typically, revenue is recognized over time using an input measure (i.e., costs incurred to date relative to total estimated costs at completion, also known as cost-to-cost plus reasonable profit) to determine progress.
Contract estimates are based on various assumptions to project the outcome of future events that can span multiple months or years. These assumptions include labor productivity and availability; the complexity of the work to be performed; the cost and availability of materials; and the performance of subcontractors.
As a significant change in one or more of these estimates could affect the progress completed (and related profitability) on our MRO contracts, we review and update our contract-related estimates on a regular basis. We recognize such adjustments under the cumulative catch-up method. Under this method, the impact of the adjustment is recognized in the period the adjustment is identified. Revenue and profit in future periods of contract performance is recognized using the adjusted estimate. The impact of adjustments in contract estimates on our operating earnings can be reflected in either operating costs and expenses or revenue.
Business Combinations
The Company records tangible and intangible assets acquired and liabilities assumed in business combinations under the acquisition method of accounting in accordance with ASC 805, Business Combinations . Under the acquisition method of accounting, amounts paid for the acquisition are allocated to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition inclusive of identifiable intangible assets. Acquisition consideration includes contingent consideration with payment terms based on the achievement of certain targets of the acquired business. The estimated fair value of identifiable assets and liabilities, including intangibles, are based on valuations that use information and assumptions available to management. The Company allocates any excess purchase price over the fair value of the tangible and identifiable intangible assets acquired and liabilities assumed to goodwill. Significant management judgments and assumptions are required in determining the fair value of assets acquired and liabilities assumed, particularly acquired intangible assets, including estimated useful lives. The valuation of purchased intangible assets is based upon estimates of the future performance and discounted cash flows of the acquired business. Each asset acquired or liability assumed is measured at estimated fair value from the perspective of a market participant.
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Contingent consideration represents an obligation of the acquirer to transfer additional assets or equity interests to the seller if future events occur or conditions are met and is recognized when probable and reasonably estimable. Contingent consideration recognized is included in the initial cost of the assets acquired. Subsequent changes in the estimated fair value of contingent consideration are recognized as Selling, general and administrative expenses within the Consolidated Statements of Operations.
Stock-Based Compensation
In January 2023, the Company along with its board of directors established and approved and assumed the Bridger Aerospace Group Holdings, Inc. 2023 Omnibus Incentive Plan (the “Omnibus Plan”). The Omnibus Plan was developed to motivate and reward employees and other individuals to perform at the highest level and contribute significantly to the success of the Company, thereby furthering the best interests of the Company and its shareholders. The Omnibus Plan provides, among other things, the ability for the Company to grant options, stock appreciation rights, restricted stock, restricted stock units (“RSUs”), performance awards and other stock-based and cash-based awards to employees, consultants and non-employee directors.
The Omnibus Plan expires on January 23, 2033. As of December 31, 2024, the Omnibus Plan authorized an aggregate of 15,994,676 shares of Common Stock for issuance. As of December 31, 2024, 8,422,192 shares of Common Stock remain available under the Omnibus Plan.
As of December 31, 2024, the Company has granted participants RSUs and bonuses paid in Common Stock under the Omnibus Plan. The fair value of RSUs is determined based on the quoted market price of the Common Stock on the date of grant. Compensation cost for the RSUs is recognized over the requisite service period based on a graded-vesting method. The Company accounts for forfeitures as they occur. Stock-based compensation is included in both Cost of revenues and Selling, general and administrative expense in the Consolidated Statements of Operations. Upon vesting of each RSU, the Company will issue one share of Common Stock to the RSU holder.
Impairment of Goodwill and Long-Lived Assets
Goodwill
Goodwill represents the excess of purchase price over fair value of the net assets acquired in an acquisition. Beginning in 2023, the Company assesses goodwill for impairment as of October 1 annually or more frequently upon an indicator of impairment. The change to an October 1 annual goodwill impairment assessment date was made to ensure the completion of the Company’s assessment prior to the end of its annual reporting period, thereby aligning impairment testing procedures with its year-end financial reporting.
When we elect to perform a qualitative assessment and conclude it is more likely that the fair value of the reporting unit is greater than its carrying value, no further assessment of that reporting unit’s goodwill is necessary. Otherwise, a quantitative assessment is performed, and the fair value of the reporting unit is determined. If the carrying value of the reporting unit exceeds its fair value, an impairment loss equal to the excess is recorded. Conditions that would trigger an impairment assessment include, but are not limited to, a significant adverse change in legal factors or the business climate that could affect the value of an asset or an adverse reaction. As of the October 1, 2024 and 2023 annual goodwill impairment tests, the Company’s qualitative analysis indicated the fair value of the Company’s reporting units exceeded carrying value.
Long-Lived Assets
A long-lived asset (including amortizable identifiable intangible assets) or asset group is tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. Conditions that may indicate impairment include, but are not limited to, a significant adverse change in customer demand or business climate that could affect the value of an asset, or an adverse action or assessment by a regulator. When indicators of impairment are present, we evaluate the carrying value of the long-lived assets in relation to the operating performance and future undiscounted cash flows of the underlying assets. We adjust the net book value of the long-lived assets to fair value if the sum of the expected future cash flows is less than book value.
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Property, Plant and Equipment, net
Property, plant and equipment is stated at net book value, cost less depreciation. Depreciation for aircraft, engines and rotable parts is recorded over the estimated useful life based on flight hours. Depreciation for vehicles and equipment, buildings and leasehold improvements is computed using the straight-line method over the estimated useful lives of the property, plant and equipment. Airplane hangars located on leased airport property are considered leasehold improvements with useful lives determined based on the estimated life of the underlying ground lease. Depreciable lives by asset category are as follows:
Estimated useful life
Aircraft, engines and rotable parts
1,500 – 6,000 flight hours
Vehicles and equipment 3 – 5 years
Buildings 50 years
Leasehold improvements 27 - 29 years
Property, plant and equipment are reviewed for impairment as discussed above under “ Long-Lived Assets ”.
Cost Method Investments
We hold 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 $5.0 million as of December 31, 2024 and 2023.
Variable Interest Entities
In accordance with ASC 810-10-15, Consolidation , guidance with respect to accounting for VIEs, 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 VIE’s 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 entity’s 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 years ended December 31, 2024 and 2023, Northern Fire Management Services, LLC, a VIE of which the Company was identified as the primary beneficiary, is consolidated into our financial statements. Refer to “ Note 2 – Summary of Significant Accounting Policies ” of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for additional information.
Fair Value of Financial Instruments
In accordance with ASC 820, Fair Value Measurement , 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 our business. Unobservable inputs reflect our own assumptions about the assumptions market participants would use in pricing the asset or liability based on the information available.
Warrant Liabilities
We account for the Warrants issued in connection with the Reverse Recapitalization in accordance with the guidance contained in accordance with ASC 480, Distinguishing Liabilities from Equity and ASC 815-40, Derivatives and Hedging—Contracts in Entity’s Own Equity , under which the Warrants do not meet the criteria for equity treatment and must be recorded as liabilities. Accordingly, we classify the Warrants as liabilities at their fair value and adjust the Warrants to fair value at each reporting period. The warrant liabilities are subject to remeasurement at each balance sheet date until exercised. Refer to “ Note 12 – Accrued Expenses and Other Liabilities ” of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for additional information.
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RECENT ACCOUNTING PRONOUNCEMENTS
For additional information regarding recent accounting pronouncements adopted and under evaluation, refer to “ Note 2 – Summary of Significant Accounting Policies ” of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.
EMERGING GROWTH COMPANY AND SMALLER REPORTING COMPANY STATUS
Section 102(b)(1) of the JOBS Act exempts “emerging growth companies” as defined in Section 2(A) of the Securities Act of 1933, from being required to comply with new or revised financial accounting standards until private companies are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can choose not to take advantage of the extended transition period and comply with the requirements that apply to non-emerging growth companies, and any such election to not take advantage of the extended transition period is irrevocable. We are an “emerging growth company” and have elected to take advantage of the benefits of this extended transition period.
We will use this extended transition period for complying with new or revised accounting standards that have different effective dates for public business entities and non-public business entities until the earlier of the date that we (a) are no longer an emerging growth company or (b) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. The extended transition period exemptions afforded by our emerging growth company status may make it difficult or impossible to compare our financial results with the financial results of another public company that is either not an emerging growth company or is an emerging growth company that has chosen not to take advantage of this exemption because of the potential differences in accounting standards used. Refer to “ Note 2 – Summary of Significant Accounting Policies ” of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for the recent accounting pronouncements adopted and the recent accounting pronouncements not yet adopted for the years ended December 31, 2024 and 2023.
We will remain an “emerging growth company” under the JOBS Act until the earliest of (a) December 31, 2028, (b) the last date of our fiscal year in which we have total annual gross revenue of at least $1.235 billion, (c) the last date of our fiscal year in which we are deemed to be a “large accelerated filer” under the rules of the U.S. Securities and Exchange Commission with at least $700.0 million of outstanding securities held by non-affiliates or (d) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the previous three years.
We will be a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. We will remain a smaller reporting company until the last day of the fiscal year in which (i) the market value of our common stock held by non-affiliates is greater than or equal to $250 million as of the end of that fiscal year’s second fiscal quarter, and (ii) our annual revenues are greater than or equal to $100 million during the last completed fiscal year or the market value of our common stock held by non-affiliates exceeds $700 million as of the end of that fiscal year’s second fiscal quarter.
INTERNAL CONTROL OVER FINANCIAL REPORTING
We have identified two material weaknesses in our internal control over financial reporting, which we are in the process of, and are focused on, remediating. The material weaknesses are related to the accounting for complex transactions within our financial statement closing and reporting process, and maintaining and monitoring user access to certain IT systems contributing to our financial reporting.
While we remediated substantial parts of these pre-existing material weaknesses throughout the year, we concluded that we may be exposed to the risk of material misstatement in our financial reports by a deficiency in our precision of the review of the inputs provided by external technical accounting experts, as well as the assignment and monitoring of user access in some of our IT applications.
We have already begun the process of, and are focused on, increasing the effectiveness of our internal control over financial reporting and remediating the material weakness, including:
• improving the workflow for complex accounting transactions to include multiple levels of review and increase the time available to thoroughly evaluate the application of GAAP and improve the precision of review of assumptions made within third party accounting experts’ work product and
• hiring a Director of Technical Accounting and Reporting in December 2024 to augment and improve our review of third-party accounting advice.
• restricting privileged access in our general ledger and account reconciliation applications to ensure the strict enforcement of workflows, and
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• designing controls to closely monitor the way in which remaining privileged access to financially relevant IT applications is exercised by those who hold it.
While these ongoing and planned actions are subject to constant management evaluation and will require validation and testing of the design and operating effectiveness of internal controls over a sustained period of financial reporting cycles, we are committed to the improvement of our internal control over financial reporting and will continue to diligently review our internal control over financial reporting.
Although we plan to complete this remediation process as quickly as possible, we are unable, at this time, to estimate how long it will take, and our efforts may not be successful in remediating the identified material weaknesses. In addition, even if we are successful in strengthening our controls and procedures, we can give no assurances that in the future such controls and procedures will be adequate to prevent or identify errors or irregularities or to facilitate the fair preparation and presentation of our Consolidated Financial Statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Pursuant to Item 305(e) of Regulation S-K, the Company is not required to provide the information required by this Item as it is a “smaller reporting company” as defined by Rule 12b-2 of the Securities Exchange Act of 1934.
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