BigBear.AI (BBAI) -- Time to Get Off? Or go full regard? Here's my DD.
*\*Second submission attempt with hopefully appropriate position screenshot\**
First, let me give credit where credit is due and give props to this BBAI rally we're witnessing. Pretty impressive, though speculative.
Please see my short position below and allow me to explain why I'm bearish on BBAI and why this party may come to an end soon if retail FOMO/hype runs out. I'll try to keep this high level and brief.
https://preview.redd.it/e400jt6zi0je1.jpg?width=1170&format=pjpg&auto=webp&s=23ba9b2b06c43c486b81abf2d48febd7491883e3
I wanna get into the catalysts that have started this rally. The typical news people praise includes the new CEO and his relationship with Trump, government contracts and backlog. I'll end by giving my thoughts on the stock.
**1. Kevin McAleenan, recently appointed CEO and former DHS Secretary under Trump**
There's speculation that with Trump back in the White House, McAleenan's past relationship with the President will be beneficial for BBAI and may help secure future contracts. I believe this is false and would go as far as saying it actually may be a detriment given their history and here's why:
* BBAI CEO Kevin McAleenan only served as DHS Secretary from April 11, 2019 to November 13, 2019 which was essentially a brief 7-month interim tenure. His tenure was not only short but publicized; CNN reported that Trump referred to him as an "Obama guy" and their relationship ran hot and cold. Additionally, Trump never officially stated if he would give McAleenan the position permanently. McAleenan resigned before we could see otherwise, becoming one of the shortest-serving secretaries in the department's history. *Source:* [Acting Homeland Security chief McAleenan was prepared to resign in June, felt undermined by subordinates](https://www.cnn.com/2019/08/08/politics/mcaleenan-immigration-hardliners-white-house/index.html)
* **BBAI CEO Kevin McAleenan on PBS, publicly spoke out about Trump and stated Trump's rhetoric during the attempted insurrection at the State Capitol created a dangerous situation. He went as far as saying that it was an assault on our democracy.** *Source:* [Former head of Homeland Security on the dangers of Trump's rhetoric](https://www.youtube.com/watch?v=8DNoXrWyJiw)
While I won't go as far and say they had a contentious relationship, it certainly appears that there may not have been mutual respect. You can do a quick google search to find more detail on this, there are a bunch of publications and articles available online speaking to BBAI CEO's resignation and speaking out about Trump.
**2. Government Contracts/Backlog (Financial Analysis)**
*Historical*
Based on historical 9/30/24 TTM, cash burn for operating activities was $23.4 million with cash reserves of $65.6 million that gives them just 2.8 years runway to operate and that's before debt servicing, taxes or extraordinary costs. **So they essentially only have 3 more years of operations in their current financial condition.**
In regards to debt, they reported total debt of $196 million which has recently been restructured and extended from a 2026 maturity to a 2029 maturity. While this 3-year extension is a positive note, it cancelled their $25 million working capital revolver and BBAI will likely need to find additional financing to support operations in the near future. **Given their current leveraged debt position, they will likely not be able to find traditional bank financing which leads them to** **trade equity for cash AKA additional issuance of shares or more dilution**.
BBAI has been and will remain upside down for the foreseeable future. They also do not hold any meaningful tangible assets in a liquidation scenario, most of their assets contain intangible assets (software IP) and Goodwill (acquisition).
*Forward-looking*
Management reports ending backlog at 9/30/24 was $437 million. Unfortunately detail for each contract is not publicly available but we can make some assumptions.
* We know the Army contract is $165 million over 5 years (we'll assume straight-line for simplicity). If we assume the same gross profit margin of \~26% reported for the 9/30/24 period; the Army contract would provide $8.6 million in annual gross profit or $715 thousand monthly gross income.
* $272 million would be remaining in backlog and if assuming a 10 year duration this would provide $7.1 million in annual gross profit or $59 thousand monthly gross income. I'm assuming that the FAA contract is the next largest and that was disclosed to have a 10 year duration. I think this is a reasonable assumption.
* In total we have $15.7 million in annual gross profit for at least the next 5 years. Keep in mind this is also assuming there are no issues/delays with deliverables/work-in-progress or contract draws. My math also assumes that backlog amount is unchanged at the start of 2025 (most likely lower given the work done in Q4 2024).
* OpEX -- TTM operating expenses were reported at $86.6 million which is a monthly amount of $7.2 million. I think it's also important to keep in mind that OpEx has been increasing period over period and that shouldn't be a surprised given the need for R&D in the AI space and scaling of operations like increased headcount to accommodate additional contracts/work size. Engineers aren't cheap but Glassdoor says differently in BBAI's case, which I'll talk about more below.
* So keeping all that rough math in mind, we have about **$70.9 million in annual operating losses** or $5.9 million in monthly operating losses projected in this year. **This is before taking into account debt repayment ($196 million), taxes, or any extraordinary costs that may arise (litigation, bad things, etc.). It also assumes they run into no bumps along the way, operationally, which they have already stated is to be expected and comes with the AI territory. AI space is a competitive space and with everything DOGE and the Trump administration is doing, I believe there is not only operational risk but reasonable contract risk.** This share price is obviously not reflecting the fundamentals. People are saying one more contract to the moon when in reality BBAI needs contracts just to get to sea-level.
* I should note that these figures do not include the recent contracts from the Navy ($5 billion) and DOD/CDAO ($1.3 million). The reason being, I consider the DOD/CDAO contract nominal at $1.3 million. More importantly, we have no idea how the Navy's SeaPort NxG contract is structured for BBAI besides the news that they've been included in the program and the total program's contract amount. There are thousands of vendors/companies who also have access to this $5 billion. For example. BBAI was among 1,023 companies that were awarded rolling admissions (2nd round) and access to the $5 billion Navy program. **Including first and second round, there are over 2,400 companies accepted in the Navy's SeaPort NxG program. Admitted vendors still compete/bid and are awarded contracts within this bubble. This is not guaranteed revenue. It's essentially on an Ad Hoc basis. This is the case with the FAA contract as well.** *Sources:* [Navy Selects Over 1K Vendors for SeaPort NxG Contract Under 2nd Rolling Admissions](https://www.govconwire.com/2025/01/navy-selects-over-1k-vendors-seaport-nxg-contract-2nd-rolling-admissions/) | [Harnessing Power, Navigating Change... TAKE THE HELM FOR PROFESSIONAL SERVICE SOLUTIONS](https://www.navsea.navy.mil/Business-Partnerships/SeaPort-NxG/)
* Quick and dirty math, the above assumptions would get us -$60.2 million in EBITDA (assuming $10.7 million depreciation addback) which would give us a P/S ratio of -0.24x based on 252 million outstanding shares. This ultimately equates to a P/E ratio of -41.7x if we assume an average share price of $10. All non-sense numbers in a nutshell.
* Additionally, they will have $12 million in annual interest expense on their $200 million facility and income taxes will increase with increased income which was previously reported at $22 million for 9-month 9/30/24.
* BBAI's [GlassDoor.com](http://glassdoor.com/) employee reviews reek of the same sentiment. **Summarized as bad work/life balance, paused inflationary raises (losing money working there), lack of direction from management, high turnover, etc.** *Source:* [GlassDoor: BigBear.ai overview](https://www.glassdoor.com/Overview/Working-at-BigBear-ai-EI_IE4857471.11,21.htm)
**Closing Thoughts**
Take my numbers/analysis with a grain of salt.
From a business standpoint, it's not all peaches and cream on the horizon for BBAI -- they need to keep churning and burning by improving their product and generate new contracts. Two very difficult and costly things to do in the AI space.
I have concerns over their financial condition, internal processes, and future cash flow as they do not seem to exist.
Stock price is insanely high for a business that's never turned a profit. Just because it has a few new contracts? Its got the new debt to match too, don't forget.
Not to mention the reputation to boom and bust around this time of year.
I do not know the timing but I think they will likely issue more shares to take advantage of this price action. This thing ain't just going to keep going up and they need all the capital they can get.
Future contracts are not guaranteed, they know this so they will look for additional liquidity/working capital...most obvious place for that is share issuance AKA lower share pricing.
I'll end with this, it's going to be interesting to see how this plays out, especially with the long weekend and earnings being around the corner. I feel like there's still a lot of hype and FOMO. Wish ya'll the best, hope everyone does well.
I welcome discussion on convincing me to go long.
This is not financial advice.