BigBear.ai Holdings, Inc. (BBAI) is a leading provider of Edge AI-powered decision intelligence solutions for national security, supply chain management, and digital identity. The company's mission is to help deliver clarity for the world's most complex decisions, and its customers and partners rely on its predictive analytics capabilities in highly complex, distributed, mission-based operating environments.

Business Overview

BigBear.ai is a technology-led solutions organization, providing both software and services to its customers. The company's offerings span data ingestion, data enrichment, data processing, artificial intelligence, machine learning, predictive analytics, and predictive visualization. BigBear.ai serves a diverse base of customers, including government defense, government intelligence, and various commercial enterprises.

Recent Developments

In February 2024, BigBear.ai completed the acquisition of Pangiam, a leader in vision AI for the global trade, travel, and digital identity industries. The combination of BigBear.ai and Pangiam creates one of the industry's most comprehensive vision and edge AI portfolios, positioning the company as a foundational leader in how artificial intelligence is operationalized at the edge.

Financials

For the full year 2023, BigBear.ai reported annual revenue of 155,164,000 and a net loss of 60,366,000. The company's annual operating cash flow was -18,307,000, and its annual free cash flow was -22,137,000.

In the first quarter of 2024, the company reported revenues of 33,121,000, a decrease of 21.4% compared to the same period in 2023. This decrease was primarily driven by the planned wind-down of the Air Force EPASS program, the elimination of revenue from Virgin Orbit due to their bankruptcy, and contract award delays due to continuing resolutions. The decrease was partially offset by revenue of 3,439,000 attributed to the Pangiam acquisition.

Cost of revenues as a percentage of total revenues increased to 79% in the first quarter of 2024, compared to 76% in the same period in 2023. This increase was primarily driven by an increase in equity-based compensation expense and the elimination of gross margin from Virgin Orbit.

Selling, general, and administrative (SG&A) expenses as a percentage of total revenues increased to 51% in the first quarter of 2024, compared to 48% in the same period in 2023. This increase was primarily driven by increased employer payroll taxes related to equity-based compensation.

During the first quarter of 2024, the company recognized a non-cash goodwill impairment charge of 85,000,000, primarily driven by a decrease in share price during the quarter compared to the share price of the equity issued as consideration for the purchase of Pangiam.

Liquidity

As of March 31, 2024, BigBear.ai had cash and cash equivalents of 81,412,000. The company's primary sources of liquidity are cash flows provided by its operations and access to existing credit facilities, if available.

BigBear.ai is a party to a senior Bank of America Credit Agreement, which provides the company with a 25,000,000 senior secured revolving credit facility (the "Senior Revolver"). As of March 31, 2024, the company was not in compliance with the covenants of the Senior Revolver and is currently unable to draw on the facility.

However, based on the company's projected cash flow and liquidity needs, management believes that its current cash balance, as well as cash from operating activities generated from continuing operations during the year, will be adequate for the next 12 months to meet its anticipated uses of cash flow, including payroll obligations, working capital, operating lease obligations, capital expenditures, and debt service costs.

Risks and Challenges

BigBear.ai operates in a complex and evolving security environment, and its business is affected by geopolitical issues. Conflicts in Ukraine, the Middle East, and heightened tension in the Pacific region have elevated global geopolitical tensions and security concerns, which could impact the company's government customers and slow the pipeline and pace of contract awards.

Additionally, the company's revenue is primarily derived from federal government contracts, and U.S. government spending levels, particularly defense spending, and timely funding thereof can affect its financial performance over the short and long term. The federal budget is subject to debate and compromise, which could result in shifting funding priorities and have material impacts on defense spending broadly and the company's federal government contracts.

Outlook

BigBear.ai has not provided any specific financial guidance or outlook for the full year 2024. However, the company's management has expressed confidence in the long-term growth potential of its business, driven by the heightened need for advanced AI tools that provide enhanced intelligence and full-spectrum cyber operations – areas where BigBear.ai has unmatched capabilities.

Conclusion

BigBear.ai is a leading provider of Edge AI-powered decision intelligence solutions, serving a diverse customer base across government and commercial sectors. The company's recent acquisition of Pangiam has strengthened its portfolio of vision and edge AI capabilities, positioning it as a foundational leader in the operationalization of artificial intelligence.

While the company faces near-term challenges, including the impact of geopolitical tensions and federal budget uncertainties, BigBear.ai's management remains confident in the long-term growth potential of its business. Investors should closely monitor the company's ability to navigate these complexities and capitalize on the growing demand for its advanced AI-powered solutions.