BigBear.ai(BBAI)2024-11-07 21:28Revenue and Gross Margin - Revenue increased by $7.5 million (22.1%) in Q3 2024 compared to Q3 2023, driven by the Pangiam Acquisition, partially offset by decreased volumes in certain Air Force programs[172] - Gross margin for Q3 2024 was $10.8 million, up from $8.4 million in Q3 2023[171] - Revenues decreased by $0.2 million (0.2%) for the nine months ended September 30, 2024, compared to the same period in 2023, driven by the Pangiam Acquisition offset by decreased volume from the Air Force EPASS program[185] Operating and Net Loss - Operating loss for Q3 2024 was $10.5 million, compared to $8.2 million in Q3 2023[171] - Net loss for Q3 2024 was $12.2 million, compared to a net income of $4.0 million in Q3 2023[171] - Adjusted EBITDA for the nine months ended September 30, 2024, was $(4.358) million, compared to $(6.870) million in the same period in 2023[199] Acquisition and Strategic Initiatives - The company completed the acquisition of Pangiam on February 29, 2024, enhancing its vision and edge AI portfolio[150] - Transaction expenses decreased by $1.4 million (100.0%) for the three months ended September 30, 2024, compared to the same period in 2023, due to the completion of the Pangiam Acquisition[178] - Research and development expenses increased by $5.5 million (183.9%) for the nine months ended September 30, 2024, compared to the same period in 2023, driven by increased headcount and the inclusion of Pangiam's results[188] Financial Performance and Expenses - Cost of revenues decreased to 74% of total revenues for the three months ended September 30, 2024, compared to 75% in the same period in 2023, driven by a higher mix of higher margin solutions[174] - SG&A expenses as a percentage of total revenues decreased to 42% for the three months ended September 30, 2024, compared to 46% in the same period in 2023, primarily due to higher revenue[175] - SG&A expenses as a percentage of total revenues increased to 51% for the nine months ended September 30, 2024, compared to 46% in the same period in 2023, driven by non-recurring strategic initiatives and integration costs[187] - Research and development expenses increased by $4.2 million (1194.6%) for the three months ended September 30, 2024, driven by increased headcount and timing of certain projects[176] Backlog and Contract Delays - Total backlog as of September 30, 2024, was $437.494 million, a significant increase from $167.810 million as of December 31, 2023[209] - Funded backlog as of September 30, 2024, was $77.422 million, compared to $30.112 million as of December 31, 2023[209] - The company anticipates potential delays in new contract awards due to the continuing resolution funding the U.S. government through December 20, 2024[156] - Geopolitical tensions in Ukraine, the Middle East, and the Pacific region have slowed the pace of contract awards, pushing revenue into subsequent periods[159] Liquidity and Financing - The company raised $20.6 million through the exercise of RDO warrants and $33.2 million through the exercise of PIPE warrants in early 2024[151][152] - The company entered into a Controlled Equity Offering sales agreement on May 10, 2024, allowing it to sell up to $150.0 million in common stock[213] - The company's primary sources of liquidity are cash flows from operations and access to credit facilities, with projected cash flow expected to meet needs for the next 12 months[210] - Available cash and cash equivalents increased to $65.584 million as of September 30, 2024, compared to $32.557 million as of December 31, 2023[217] - Net cash used in operating activities was $23.3 million for the nine months ended September 30, 2024, primarily due to a net loss of $22.2 million and unfavorable changes in net working capital[232] - Net cash provided by investing activities was $6.2 million for the nine months ended September 30, 2024, primarily from cash acquired in the Pangiam Acquisition[234] - Net cash provided by financing activities was $50.2 million for the nine months ended September 30, 2024, mainly from the exercise of PIPE and RDO warrants[235] - The Company entered into warrant exercise agreements, raising approximately $53.8 million from the exercise of PIPE and RDO warrants[229][230] Debt and Convertible Notes - Total debt remained at $200.0 million as of September 30, 2024, with unamortized issuance costs of $4.262 million[218][221] - The Company issued $200.0 million of unsecured convertible notes with a 6.0% annual interest rate, convertible into 18,844,600 shares of common stock[219][220] - The Company has a $25.0 million senior secured revolving credit facility with Bank of America, maturing on December 7, 2025[222][223] - The Company's long-term debt, net of unamortized issuance costs, was $195.738 million as of September 30, 2024[218] - The conversion rate for the Convertible Notes was adjusted to 94.2230 shares per $1,000 principal amount due to the average daily volume-weighted average price of the common stock being less than $10.00 during the preceding 30 trading days[245] - The adjusted conversion price is $10.61, and the Convertible Notes are convertible into 18,844,600 shares, excluding interest payments settled with shares[245] - The outstanding principal amount of the company's long-term debt as of September 30, 2024, was $200.0 million, excluding unamortized discounts and issuance costs of $4.3 million[245] Tax and Valuation - Income tax expense for the nine months ended September 30, 2024, was $22 million, a decrease of 56.9% compared to $51 million in the same period in 2023[196] - The effective tax rate for the nine months ended September 30, 2024, was consistent with the previous year, primarily influenced by state and local taxes, permanent differences, and discrete items[196] - The company maintains a full valuation allowance against its deferred tax assets as of September 30, 2024, due to uncertainty about their realization[197] - The Company performed a quantitative goodwill impairment test as of September 30, 2024, using a discount rate of 12.0%, and determined no impairment was necessary[241][242] - Goodwill impairment charge of $85.0 million was recognized for the nine months ended September 30, 2024, primarily due to a decrease in share price[192] Market Risk and Management - The company is exposed to market risk related to interest rates, primarily through fixed-rate long-term debt and revolving credit[245] - The company has policies and procedures in place to manage and mitigate market risks[247] National Defense Budget - The FY 2024 National Defense budget was set at $886 billion, with $842 billion allocated to the DoD base budget[154] - The FY 2025 National Defense budget request is $895 billion, with $850 billion proposed for the DoD base budget[155] Derivatives and Fair Value - Net decrease in fair value of derivatives was $1.3 million for the three months ended September 30, 2024, compared to a decrease of $15.7 million in the same period in 2023, primarily due to the settlement of warrants[180] - Net increase in fair value of derivatives was $14.8 million for the nine months ended September 30, 2024, compared to a decrease of $1.9 million in the same period in 2023, driven by fair value remeasurements of warrants[193] Free Cash Flow - Free cash flow for the nine months ended September 30, 2024, was $(31.013) million, compared to $(20.979) million in the same period in 2023[201] Senior Revolver Covenants - The company was in compliance with the Senior Revolver covenants as of September 30, 2024, but is currently unable to draw on it due to Adjusted EBITDA requirements[214]