BRDS - Bird Global Rides Into A Possible Chapter 11

2023-06-05 01:04:43 ET

Summary

• Bird Global's stock has declined by 88% over the last year due to liquidity issues and a high cash burn rate.
• Despite aggressive cost-cutting measures, Bird's net loss in the first quarter of fiscal 2023 was $44.3 million, around 150% of revenue and 148% of the company's current market cap.
• BRDS's management is guiding for positive free cash flows by the end of fiscal 2023, but the current cash burn and debt position make the stock a risky investment to be avoided.

Bird Global's ( BRDS ) go-public story has become a classic tale of how SPACs became the harbinger of wealth destruction against initially buoyant expectations of growth. The Los Angeles-based company is down by 88% over the last year and has fallen 54% in 2023 alone. The decline has been relentless, led by an unprofitable business that has become entirely at odds with the current market risk-off sentiment. Bears, who form the 12% short interest, have a Chapter 11 filing in view as Bird faces a dearth of liquidity and consecutive quarters of high cash burn that has left it with a couple of quarters of cash runway as of the end of its fiscal 2023 first quarter. To be clear here, Bird is hurtling towards a bankruptcy filing and its common shares should be avoided.

Whilst Bird just initiated a 25-for-1 reverse stock split to maintain compliance with NYSE minimum listing rules, the company has been hit with another non-compliance notice with its current market cap at $30 million being below the requirement for a $50 million market cap. This forms a core risk for current shareholders as a reverse stock split does not increase market cap so the only near-term remedy to regain compliance would either be a fundamental led rally or a broader stock market rally that the company's commons are able to participate in. With the market pricing in a roughly 75% chance of the FOMC pausing rate hikes at their June 14th meeting, Bird could be handed an eleventh-hour salvo against its shares being moved to over-the-counter trading.

Cost Cuts Are Aggressive But Don't Go Far Enough

Bird's fiscal 2023 first-quarter earnings saw revenue come in at $29.5 million , a 16.5% decline over its year-ago comp and a miss by $33.95 million on consensus estimates. There was a drop in revenue across all their revenue segment with revenues from sharing seeing a $1.66 million drop year-over-year and with product sales collapsing by 92.6% over the same time frame following the company's decision to exit their retail business last year. This exit positively impacted gross profit margins which came in at $5 million during the first quarter, up from just $820,000 in the year-ago comp. Critically, whilst Bird was able to realize a 20.5% reduction in the cost of sharing versus the 16.5% decline in sharing revenue, the exit from their retail business did the heavy lifting for gross profit margins coming in at 17.2% during the first quarter.

Bird has been aggressive in cutting back its operational cost base. General and administrative expenses fell to $31.6 million from $84.6 million in the year-ago period with the company also reducing its selling and marketing expenses by 61.7% and cutting back on R&D by $3.5 million during the first quarter versus the year-ago comp. These combined initiatives saw total operating expenses fall by around 60% to $40.55 million from $100.2 million. However, it was not enough with net loss coming in at $44.3 million during the first quarter, around 150% of revenue and 148% of the company's current market cap.

Requiem For A Very 21st Century Mode Of Transport

A Chapter 11 filing is a relatively straightforward affair and is one of the options available to companies whose liabilities and obligations are in excess of what their business can meet. Bird's cash burn from operations came in at $21.7 million during the first quarter, down from $42.6 million in the year-ago comp but still at an excessive and unsustainable level. For some context, the company's cash and equivalents including restricted cash at the end of the first quarter stood at $18.3 million .

Critically, Bird's cash position against its current cash burn profile leaves the company with a short cash runway. Of course, the situation is fluid and Bird is still taking aggressive steps to reduce its cash burn so future quarters should see a reduced rate of outflows. Bears should also be careful with Bird guiding for positive free cash flows by the end of fiscal 2023 with a target of reducing its overall operating expenses to a ceiling of $100 million through 2023, down from $290.2 million in 2022. The company's management is also bullish and purchased around 1.5 million shares in May, highlighting what they thought was a mismatch between the company's current valuation and their positive free cash flow guidance. On a full-year basis, Bird now thinks it can generate positive free cash flow in the range of $5 million to $10 million.

However, I'd be skeptical about making an investment based on this guidance. Turning the current cash burn to positive cash flows will be difficult against a tepid cash position. Shares are to be avoided with a total debt position of $110.8 million as of the end of the quarter being a high mountain to climb for a company still losing such large sums even after aggressive cost cuts.

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