BigBear.ai Holdings, Inc. Q3 FY2023 earnings

BigBear.ai booked its first quarterly profit since going public in December 2021, but revenue kept shrinking. Revenue fell 16.4% in the third quarter of 2023 to $34.0 million, against $40.7 million in the prior-year quarter. Management tied the drop to the planned wind-down of certain Air Force programs in mid-July and to the absence of Virgin Orbit revenue after that customer's bankruptcy filing. Net income was $4.0 million, a swing from a net loss of $16.1 million in the prior-year quarter, and diluted earnings per share were $0.03 against a loss of $0.13. The company credited the profit mainly to non-cash income from remeasuring warrants issued in 2023. Revenue for the first nine months of 2023 was $114.60 million, flat against the prior-year period.

Margins moved the other way. Gross margin was 24.7%, down from 28.9% a year earlier, and gross profit fell 28.4% to $8.41 million. BigBear.ai again pointed to the loss of Virgin Orbit work, which had carried both revenue and margin before the bankruptcy. The operating loss narrowed to $8.21 million from $12.40 million in the prior-year quarter, and operating margin improved to negative 24.2% from negative 30.5%. Lower personnel costs after restructuring and the absence of prior-year integration costs helped the expense line. Selling, general and administrative expenses were $15.5 million for the quarter, a 23% reduction from $20.2 million a year earlier.

Cash generation was the standout. Operating cash flow was $6.58 million in the third quarter, up from $6.39 million used in operations in the prior-year quarter. Capital expenditures were $0 in the quarter, against $0.23 million a year earlier. Adjusted EBITDA, a non-GAAP measure, was $157 thousand against negative $3,940 thousand in the prior-year quarter. The company said cash and cash equivalents ended September 30, 2023 at $32.2 million, an increase of $2.3 million from June 30, 2023. For the first nine months, operating cash flow was negative $18.23 million, an improvement from negative $38.39 million, and free cash flow, a non-GAAP measure defined as operating cash flow less capital expenditures, was negative $18,235 thousand against negative $39,126 thousand.

Forward-looking indicators point to pressure. Remaining performance obligations were $57.00 million, down 49.6% from $113.00 million a year earlier, and current deferred revenue fell 51.2% to $2.32 million from $4.76 million. Total backlog was $170,212 thousand at September 30, 2023 against $218,473 thousand at December 31, 2022, and funded backlog dropped to $32,894 thousand from $57,234 thousand. Management tied slower awards to geopolitical tension, noting that the conflicts in Ukraine and Israel have slowed customer pipelines, and flagged that the continuing resolution signed on September 30, 2023 funds the government only through November 17, 2023 and does not authorize new program starts.

The balance sheet carries $200.0 million of convertible notes, and the company said it remained in compliance with their covenants. The Bank of America senior revolver stayed out of reach: BigBear.ai did not meet the facility's Adjusted EBITDA requirement during the nine months ended September 30, 2023 and could not draw on it as of that date. Management said its cash flow analysis supports the view that operations will cover its needs for the next 12 months. It also listed a material weakness in internal controls over financial reporting among the risks.

Guidance for the full fiscal year ending December 31, 2023 is unchanged. The company still projects revenue in its previously stated range and single-digit negative Adjusted EBITDA. The bigger strategic move came after quarter end. On November 6, 2023, BigBear.ai announced a definitive merger agreement to acquire Pangiam in an all-stock transaction valued at approximately $70 million on a cash-free, debt-free basis, with $3.5 million of the shares held back for post-closing adjustments. Closing needs approval from holders of a majority of BigBear.ai shares plus regulatory clearance, and either side can walk away if the deal is not done by August 4, 2024. Management expects the deal to close in the first quarter of 2024. On the operating side, the Air Force Research Laboratory extended and expanded Project AURORA, and Thomas Jefferson University Hospital expanded its use of the FutureFlow RX predictive platform.