BigBear.ai Holdings, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; unaudited. BigBear.ai provides AI-enabled decision-intelligence software and services in supply chains and logistics, autonomous systems, and cybersecurity. It reorganized its reporting structure and now reports one operating segment.
Financial results and position
- Revenue: $42.2 million, up 15.8% from $36.4 million, primarily from new awards and higher volume on certain Army contracts. Most revenue is recognized over time.
- Gross profit and margin: Gross profit was $10.2 million versus $9.9 million; gross margin was approximately 24.2%, down from 27.1%. The filing attributes the lower margin primarily to cumulative estimated cost increases on the GFIM Phase 2 contract.
- Operating results: Operating loss improved to $12.0 million from $16.4 million. SG&A fell 7.5% to $20.4 million, while R&D declined 60.8% to $1.1 million; Q1 2023 included $0.8 million of restructuring charges.
- Net loss: $26.2 million, or $0.19 per share, versus $18.8 million, or $0.14 per share. The 2023 loss included a $10.6 million unfavorable fair-value change in derivatives, principally PIPE warrants; the comparable 2022 period included a $1.3 million favorable change.
- Adjusted EBITDA: Non-GAAP loss of $3.8 million, compared with a $2.9 million loss. Operating cash flow was negative $12.0 million versus negative $7.5 million; free cash flow was negative $12.0 million versus negative $7.9 million.
- Cash and liquidity: Cash was $21.8 million at March 31, up from $12.6 million at year-end, mainly reflecting private-placement proceeds. Reported available liquidity was $21.8 million; the company could not draw on its revolver.
- Debt and balance sheet: Total debt was $201.3 million before $7.2 million of unamortized issuance costs, including $200 million of 6% convertible notes due in 2026. Total liabilities were $258.6 million and stockholders’ deficit was $54.0 million.
- Contract indicators: Remaining performance obligations were $72 million, with about 96% expected to be recognized within 12 months. Total backlog was $196.5 million, down from $218.5 million at December 31, 2022; funded backlog was $52.2 million, down from $57.2 million.
Material changes and notable items
- On January 19, 2023, the company issued 13.9 million shares and warrants to purchase another 13.9 million shares in a private placement at $1.80 per share-and-warrant package. Gross proceeds were approximately $25 million; reported net proceeds were $22.0 million.
- The new PIPE warrants have a $2.39 exercise price and generated a $25.4 million derivative liability at quarter-end. Their fair-value remeasurement materially affected reported net loss.
- Customer concentration increased: four customers each contributed approximately 10% or more of Q1 revenue; together they represented 58% of revenue. The largest accounted for 21%.
- Management recorded a $0.75 million bad-debt reserve related to Virgin Orbit, which filed for Chapter 11 in early April. Net unfavorable estimates-at-completion adjustments on contracts were $1.3 million before tax.
- The income statement reports cost of revenue of $31.941 million, while an MD&A comparison table reports $31.928 million. The filing text does not explain this discrepancy; investors may wish to verify the correct figure.
Outlook, liquidity, and risks
- No specific revenue or earnings guidance is provided. Management expects operating cash generated during the year to cover anticipated needs for the next 12 months, including payroll, working capital, leases, capital expenditures, and debt service.
- The $25 million Bank of America revolver remained unavailable because the company did not meet the required Adjusted EBITDA threshold. Management said it may also fail to meet the threshold in future periods. A subsequent April 21, 2023 amendment waived missed borrowing-base certificate submissions and suspended that reporting requirement until borrowing eligibility returns.
- Management cited government customers’ focus on immediate needs related to the war in Ukraine as slowing contract awards and shifting revenue to later periods. It expects heightened geopolitical demand could support long-term adoption, while noting continued conflict or broader disruption could hurt results.
- Federal contract costs are subject to government audit and negotiation; changes in estimates on long-term contracts can materially affect results. Management also maintains a full valuation allowance against deferred tax assets.
- Disclosure controls were reported ineffective because of previously identified material weaknesses in internal control over financial reporting. Remediation efforts include improved segregation of duties, revenue-recognition documentation, IT controls, and monitoring; management expected remediation before year-end 2023.
- The filing reports no material change to previously disclosed risk factors. Ordinary-course litigation, claims, investigations, and audits were not expected to have a material financial impact.
Important facts for investors to verify
- Whether the company can generate positive operating cash flow and meet its 12-month liquidity expectations while the revolver remains unavailable.
- Progress toward the revolver’s Adjusted EBITDA threshold and the effect of the credit-facility amendments.
- Further cost or schedule changes on GFIM Phase 2 and other long-term contracts, and the evolution of backlog and funded awards.
- The dilution and potential accounting volatility associated with the private-placement warrants, convertible notes, and outstanding equity awards.
- Resolution of the cost-of-revenue discrepancy in the MD&A table and remediation of the reported control weaknesses.