10-Q: BigBear.ai Reports Q1 2026 Financials Amid Acquisitions

BigBear.ai's Q1 2026 results show a slight revenue dip but improved gross margin, driven by the Ask Sage acquisition and cost management.

Summary

• BigBear.ai reported revenues of $34.4 million for the three months ended March 31, 2026, a slight decrease of 0.9% compared to $34.8 million in the same period last year.
• Gross margin improved significantly to 34% ($11.7 million) from 21% ($7.4 million) in Q1 2025, attributed to the inclusion of higher-margin Ask Sage revenues and lower cost of revenues.
• Operating expenses increased by 20.5% to $35.8 million, primarily due to higher Selling, General, and Administrative (SG&A) expenses, which rose by 28.6% to $29.2 million, and increased Research and Development (R&D) costs.
• The company reported a net loss of $56.8 million for the quarter, compared to a net loss of $62.0 million in the prior year's quarter.
• Adjusted EBITDA was a loss of $9.9 million, an improvement from a loss of $7.0 million in Q1 2025.
• The company completed the acquisition of Ask Sage, Inc. for $272.1 million and CargoSeer Ltd for $5.0 million during the period.
• Total backlog increased to $281.9 million as of March 31, 2026, up from $248.1 million at the end of 2025.

Sentiment

Score: 4

Explanation: StockSavvy.ai views this as a mixed report. While there are positives like improved gross margins and increased backlog, the slight revenue decline, significant increase in operating expenses, and continued net loss present challenges.

Positives

• Gross margin improved to 34% ($11.7 million) from 21% ($7.4 million) in Q1 2025, driven by the Ask Sage acquisition and lower cost of revenues.
• Cost of revenues decreased by 17.0% to $22.7 million, improving its as a percentage of revenue from 79% to 66%.
• Interest expense significantly decreased by 93.8% to $0.3 million due to lower average principal balances on convertible notes.
• Interest income increased by 580.8% to $3.8 million, attributed to higher average cash and investment balances.
• Total backlog increased to $281.9 million from $248.1 million, indicating future revenue potential.
• The company ended the quarter with $106.7 million in cash, cash equivalents, and restricted cash, an increase from $92.6 million at the end of 2025.

Negatives

• Revenues saw a slight decrease of 0.9% to $34.4 million compared to $34.8 million in the prior year.
• SG&A expenses increased by 28.6% to $29.2 million, representing 85% of revenues, up from 65% in the prior year, due to increased headcount and investments.
• Research and development expenses increased by 32.8% to $5.5 million, partly due to fewer projects qualifying for software capitalization.
• The company reported a net loss of $56.8 million for the quarter.
• Adjusted EBITDA remained a loss of $9.9 million, although it improved from a loss of $7.0 million in the prior year.

Risks

• Funding for U.S. Government programs is subject to budget requests, appropriation processes, and shifting priorities, which could impact financial performance.
• The U.S. government shutdown and potential future shutdowns could disrupt operations, delay contract awards, and affect payments.
• Shifting federal budget priorities, debt ceiling debates, regulatory changes, and potential tax reforms could materially impact defense spending and company programs.
• Executive Orders aimed at modernizing defense acquisitions and streamlining procurement processes could change how the company interacts with the U.S. Government.
• Cancellation of major defense programs in which the company provides solutions or services could adversely affect its business.
• The company's contracts generally include termination for convenience provisions, meaning contracts may not result in actual revenue or may differ from backlog estimates.
• The company's investments in debt securities are subject to market risk due to changes in interest rates, which could adversely affect their market value or lead to principal losses if sold at a decline.

Future Outlook

The company anticipates that the federal budget, debt ceiling, regulatory environment, and potential tax reform will continue to be debated and subject to compromise, which could shift funding priorities and impact defense spending and company programs. Management believes that its current cash position and projected cash flow from operations will be adequate to meet anticipated cash needs for the next 12 months. Medium-term to long-term cash requirements will depend on future financial results and the ability to generate cash.

Management Comments

• Management believes that the global economic and geopolitical environment will continue to drive adoption of its offerings over the long term due to the heightened need for advanced AI tools.
• The company's mission is to help deliver clarity for the world's most complex decisions.
• Management believes that its cash from operating activities and existing cash balance will be adequate for the next 12 months.

Industry Context

StockSavvy.ai notes that BigBear.ai's Q1 2026 results reflect the ongoing consolidation and integration challenges within the AI and defense technology sectors. The company's strategic acquisitions of Ask Sage and CargoSeer highlight a push towards expanding its AI capabilities, particularly in generative AI for government and specialized AI for customs and border operations. However, the slight dip in revenue and increased operating expenses, especially SG&A, underscore the costs associated with integrating these acquisitions and the competitive pressures in securing government contracts.

Comparison to Industry Standards

• The gross margin improvement to 34% is a positive step, but it still lags behind some established AI software providers who often report gross margins exceeding 70-80%. This suggests ongoing efforts are needed to optimize cost of revenues.
• The significant increase in SG&A as a percentage of revenue (85%) is a concern and is higher than typical for mature software companies, indicating substantial investment in growth and integration, which needs to translate into future revenue growth to be sustainable.
• The company's focus on U.S. government contracts places it in a sector with unique funding cycles and regulatory environments, making direct comparisons to commercial software companies challenging. However, the overall net loss and negative Adjusted EBITDA are common among early-stage or rapidly expanding AI companies investing heavily in R&D and acquisitions.

Legal Proceedings

• The company is subject to litigation, claims, investigations, and audits arising from time to time in the ordinary course of business.
• As of March 31, 2026, $0.3 million has been accrued for various ongoing legal disputes.

Stakeholder Impact

• Shareholders: Continued net losses and increased operating expenses may impact investor sentiment, while the growing backlog offers potential for future value creation.
• Employees: Increased headcount due to acquisitions and investments in R&D and SG&A may lead to new opportunities but also integration challenges.
• Creditors: The company's ability to generate future cash flow is crucial for servicing and repaying debt obligations.
• Government Customers: The company's reliance on U.S. government contracts exposes it to risks related to government funding and policy changes.

Next Steps

• Continue to monitor and assess the effects of U.S. Government reforms on business and financial results.
• Integrate Ask Sage and CargoSeer acquisitions to realize synergies and expand offerings.
• Focus on generating future cash flow to meet medium-term to long-term debt obligations and growth initiatives.

Key Dates

Recommendation

The company is in a transitional phase, integrating significant acquisitions while managing increasing operating costs and a continued net loss. While the improved gross margin and growing backlog are positive indicators, the overall financial performance requires further stabilization. A 'hold' recommendation is appropriate pending clearer evidence of revenue growth acceleration and improved profitability post-acquisition.

Keywords

BigBear.ai, SEC Filing, 10-Q, Quarterly Report, AI, Decision Intelligence, Edge AI, National Security, Supply Chain, Digital Identity, Acquisition, Ask Sage, CargoSeer, Financial Results, Revenue, Net Loss, Adjusted EBITDA, Backlog