Operator: Greetings, and welcome to the BigBear.ai Holdings Incorporated First Quarter ‘25 Earnings Call and Webcast. At this time, all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce David Cronlow. Thank you, David. You may begin.

David Cronlow: Thank you all for joining today for our first quarter 2025 Earnings Call. I’m joined today by our CEO, Kevin McAleenan and our CFO, Julie Peffer. During the call today, we may make certain forward-looking statements. Business cautions not to put undue reliance on forward-looking statements, and Big Bear specifically disclaims any obligation to update the forward-looking statements that may be discussed during this call. Many factors could cause actual events to differ materially from those forward-looking statements, statements that are based on current expectations and assumptions, and as a result are subject to risk and uncertainty. For more information about these risks and uncertainties, please refer to the forward-looking statements section of the earnings press release, which is due today on our SEC filings.

We will also discuss some non-GAAP financial measures during the call today. These non-GAAP financial measures should not be considered a replacement for and should be read together with GAAP results. You can find the GAAP and non-GAAP reconciliations within our earnings release. Let me now turn it over to Kevin.

Kevin McAleenan : Thank you, David, and good afternoon, everyone. It’s a privilege to be speaking with you for the first time as CEO of BigBear.ai. I’m honored to be leading this company at such a pivotal time and excited to share with you how we are positioning BigBear.ai for sustainable growth and long-term performance, and value. Today, I’ll start by introducing myself and sharing my perspective on the market and our company. I’ll walk through our strategic priorities for 2025 and I’ll highlight our progress so far this year, both in terms of growth and key operational improvements. Julie will then review our financial results for the first quarter and I’ll provide some brief closing thoughts. Before we begin, a note on our new format for our earnings process.

As we begin this next chapter in BigBear.ai’s growth, you will notice an evolution in the way we communicate. We are committed to providing more context, greater transparency and a sharper focus on aligning with all of our stakeholders, our shareholders, our employees, our customers and our partners. This approach reflects our sense of accountability to the missions we serve, our excitement to share how we are tackling opportunities and our desire to involve our stakeholders in the path to the long-term success of BigBear.ai. Let me start by sharing a bit about my background and how it shapes my leadership philosophy at BigBear.ai. During my time leading operational government organizations at U.S. Customs and Border Protection and later the Department of Homeland Security, I saw firsthand the power of equipping teams with the right tools and technology, clear direction, and strong support to succeed in complex high stakes environments.

Those experiences taught me that technological innovation is critical, but alone, it is not enough. Success comes when technology is fused with operational expertise and a deep understanding of the problem at hand. That belief in the right approach to innovation is what drew me to this critical area of the private sector. I’m convinced that sustaining American economic dynamism and security requires a unique blend of deep subject matter expertise and cutting-edge innovation, applying artificial intelligence and advanced technologies in areas as important as national security and critical infrastructure. It was with that conviction that I co-founded Pangiam, a company dedicated to solving real-world problems at the intersection of AI and security.

When Pangiam was acquired by BigBear.ai, I had the opportunity to continue that mission at a larger scale. Over the past year as President of BigBear.ai, I worked closely with our teams, customers and partners and that experience has only deepened my belief in the company’s potential and purpose. That same commitment and mission driven innovation will guide my approach as I now lead the company as CEO. At BigBear.ai, we are uniquely positioned at the convergence of artificial intelligence, national security and critical infrastructure. We have a strong foundation of trust with some of the most demanding customers in the world. Our team of over 600 professionals combines exceptional technical capabilities with a deep shared sense of mission and purpose.

I cannot be more excited to serve along our outstanding team. Turning to the broader market environment, we are operating at a time of profound change. Change that is creating significant new opportunities, but also challenges and transition turbulence. First, the global security environment is driving a renewed focus and investment in defense technology, creating opportunities to capitalize on American AI innovation to safeguard our security and national interests and those of our allies and partners. Second, there are fundamental transitions underway in global trade, creating demand for smarter, more resilient supply chains powered by automation and dynamic decision-making tools to support the reshoring of key manufacturing sectors, modernization of critical infrastructure and new trading relationships.

Third, the imperative to increase the efficiency of operations through technological modernization is being approached with growing urgency across both government and industry, setting the stage for rapid development of new commercial solutions and accelerated technology deployment and implementation of both interoperable and secure open architecture solutions, and importantly, we are starting to see a shift in federal procurement practices with an increased emphasis on efficiency and the adoption of advanced commercial technologies. Across all of these trends, one thing is clear: government and enterprise customers are no longer simply buying software. They are seeking to solve their critical problems with tailored solutions. That is precisely the space where BigBear.ai excels.

One of the reasons I’m excited about our path forward is that BigBear.ai is positioned with intention to support and capitalize on these trends. These beliefs about the structural shifts in the market inform the values and principles that shape how we operate, where we invest, and how we lead. At BigBear.ai, we are responding to the macro dynamics with deliberate strategic focus. That’s why, as I stepped into this role, I’ve been centered on a few core tenets that reflect both the demands of the current environment and the opportunities we see ahead.demands First, mission expertise. We believe our deep experience embedded with the supporting national security and critical infrastructure customers we serve is our true competitive edge. We recruit professionals who have lived the missions we serve and equip them with the technology and tools to help enhance them.

By bringing operators and technologists together, we are building flexible, mission-driven solutions that can adapt and scale at the pace of technology innovation. Second, international growth. We see a vital opportunity to extend American innovation to our allies and partners around the world. In an era of intensifying technological competition, we have the opportunity and responsibility to ensure American-developed AI technologies are deployed where they can strengthen global stability and shared security. Third, business alliances and partnerships. We will pursue collaborations and remain open to strategic acquisitions that enable us to innovate faster, grow into new areas, and deliver greater value to our customers. And finally, relentless innovation and AI.

We’re focused on delivering mission-ready AI, operationalizing artificial intelligence in the real world to enable human-machine teaming and bring cutting edge technologies to the point of decision in ways that are timely, adaptable and integrated. Building on these anchors, our growth strategy for 2025 is focused on a clear dual mandate, strengthened within our core markets where we have proven success, while expanding selectively into high-potential adjacencies where our expertise and technology provide a competitive edge. In our core markets, we are continuing to deepen our leadership. In border security, travel, and trade, we continue to support border security missions at the Department of Homeland Security, and we are expanding AI infrastructure at major U.S., and partner nation gateways.

Our ability to integrate federal and commercial solutions through the Pangiam portfolio gives us a powerful advantage, creating better, faster solutions for both mission sets. In Defense and Intelligence, we are orchestrating AI at the mission edge, sourcing and fusing critical data and delivering actionable insights directly to the point of need, integrating with emerging AI operating systems, and connecting diverse sensor types to fuse operational data. In manufacturing and supply chain, we are well-positioned to help modernize the American industrial base and streamline global supply chains. Our goal is to improve visibility into challenges, accelerate decision making, and unlock efficiency gains, particularly in critical sectors like shipbuilding.

At the same time, we are strategically expanding into new markets. Internationally, we are focused on converting successful pilots into enduring programs, monetizing R&D where export of American innovation is in our national interest and where our national partnerships are strongest, and starting to build regional go-to-market partnerships with leading companies. Domestically, we are pursuing adjacencies that leverage our core competencies, for example, adapting technologies built for one federal agency’s needs to address similar challenges in another or introducing innovations developed for the commercial sector into government and vice versa. Our growth is accelerated by a portfolio of technologies, including commercial and software solutions like Pangiam Threat Detection, veriScan, Trueface, Pro Model AI, ConductorOS, and Shipyard.ai, and a suite of underlying assets from computer vision models to data pipelines.

Additionally, we believe that a collaborative approach is critical given the pace of innovation and the variety of mission sets we seek to serve. We are focused on working with strategic partners through alliances and joint ventures, and will also consider strategic acquisitions, giving us the ability to move swiftly, precisely, and with a shared risk in a complex dynamic market. As we enter the second quarter, we are seeing early and encouraging signs that our strategic focus is resonating, particularly in sectors where we’ve built deep relationships, have a clear understanding of the mission, and are deploying proven technologies. In National Security, we secured a significant new contract to deliver and maintain the Department of Defense Joint Staff J35’s Orion Decision Support Platform.

This award is a powerful validation of our AI capabilities and their direct alignment with mission-critical needs at the highest levels of defense decision making. In manufacturing and shipbuilding, we are deepening our partnerships with key industry players like Austal USA, demonstrating our solutions can drive meaningful impact in industries that are most critical to American interests. On the border and travel security front, we successfully deployed advanced AI solutions at major points of entry and exit, including U.S. Airports like Dallas Fort Worth and Denver International Airport, enhancing operational efficiency and traveler experience while strengthening security postures. We are also proud to support enhanced primary processing for arrivals at Los Angeles International Airport and the Port of Seattle.

Internationally, we are beginning to see results from our increased focus. Our collaboration with Smith Detection on applying BigBear.ai automated prohibited item detection using advanced algorithms and integrated with computed tomography scanners is a prime example, unlocking new international distribution channel for our threat detection technologies and helping us accelerate our reach in the global security markets. Given the progress we are seeing across these areas, we are confident in our strategy and we are reaffirming our 2025 full year guidance. We recognize that we are operating in an exceptionally dynamic business and macroeconomic environment, which creates opportunity, but also potential short-term risks. Among these, changes in federal procurement processes and government efficiency efforts are creating temporary variability, including delays in funding and award timing.

We remain focused on capitalizing on this dynamic market and driving disciplined, sustained execution. Now, let me turn it over to Julie to share our financial results for this quarter.

Julie Peffer: Thank you, Kevin. Now let’s turn to our first quarter results. As we have stated in the past, it’s important to reemphasize that our revenue can be lumpy and can fluctuate meaningfully depending on the quarter in which contracts are awarded, milestones achieved or contracts complete. Revenue for the quarter was $34.8 million up 5% year-on-year compared to $33.1 million in the first quarter of 2024. This is primarily driven by additional revenue from the Department of Homeland Security and digital identity awards including products such as veriScan and Trueface. Gross profit for the quarter is up 6% from $7 billion in first quarter of 2024 to $7.4 million in the first quarter of 2025. Gross margin was 21.3% this quarter, which is a slight improvement from 21.1% in Q1 2024.

Lower reported gross margin in both periods are impacted by higher annual incentive compensation that was settled in the form of stock awards issued in the first quarter, resulting in higher stock-based compensation noncash expense. If you look at adjusted gross margin, which removes the impact of equity compensation, it shows 28.6% in the first quarter of 2025 versus 29.1% in Q1 of 2024. Year-over-year, our R&D spend is up $3 million as we continue to invest in innovation and technology as you have seen over the last few quarters. We have recently progressed some R&D projects into general availability. Therefore, we have fewer projects being capitalized as part of the development cycle in Q1 of 2025. Net loss in the first quarter of 2025 was $62 million compared to the net loss of $127.8 million in the first quarter of 2024.

The primary drivers of change in net loss were all non-cash items. In the first quarter of 2024, we booked goodwill impairment charges of $85 million, and this was not repeated in the first quarter of 2025. This is partially offset by higher non cash losses on the increase in the fair value of derivatives of $9.5 million from $23.8 million in Q1 of 2024 to $33.3 million in Q1 of 2025. We also recognized non-cash losses on debt extinguishment of $2.6 million during the first quarter of 2025 related to voluntary conversions by holders of the convertible notes due in 2029. And finally, noncash stock-based compensation expense was higher in Q1 of 2025 versus Q1 of 2024 by $2.2 million. Now turning to adjusted EBITDA. This was negative $7 million for the first quarter of 2025 compared to negative $1.6 million in the first quarter of 2024, primarily driven by increased R&D expense and recurring SG&A due to the government funding delays creating excess resource capacity.

Our backlog was $385 million at the end of the first quarter, which is up 30% and $89 million compared to Q1 of 2024, indicating continued customer confidence in our solutions and long-term value proposition. And finally, I want to reinforce the renewed strength of our balance sheet and improved debt position. As shared last quarter, we made significant progress during Q1 to improve our cash position. We ended Q1 with $108 million in cash and cash equivalents, up from $81 million in Q1 of 2024 and $50 million at the end of 2024. The cash position provides us with increased financial flexibility to strategically invest, navigate market uncertainties, and drive long-term value for our shareholders. Our debt position has materially reduced during Q1 as several of our 2029 noteholders opted to convert into equity during Q1, resulting in a reduction of $58 million of debt in the period.

The outstanding principal on our convertible notes is $142 million at the end of this quarter, down from $200 million at the end of 2024. These new 2029 notes also provide us with the optionality to settle future interest payments in stock or in cash at our election. This gives us improved financial flexibility and gives us the ability to execute with confidence and discipline as we look ahead. As we mentioned last quarter, we will continue to be responsible with our strengthened balance sheet, and we will look to allocate capital only towards projects that aim to provide material improvement to our shareholder return. And now back to Kevin for a few closing remarks.

Kevin McAleenan: Thank you, Julie. As we’ve shown today, we are positioning BigBear for the long-term, and as we reaffirm our guidance for the full year, I’d like to remind everyone of three key building blocks of the business today. I’d like to highlight our financial foundation as we did in last quarter’s CEO letter. We closed the quarter with $108 million in cash and cash equivalents. This is a result of deliberate steps taken to strengthen our balance sheet, enhance liquidity and preserve the strategic flexibility we need to navigate near-term uncertainty while still investing decisively in our future growth. This strong financial footing allows us to be selective, patient, and opportunistic. Second, our backlog and pipeline remain healthy, closing the first quarter with a backlog of $385 million.

We’re taking a long view with our backlog and pipeline and focusing on building a portfolio of large multiyear programs and deep commercial relationships that provide stable compounding value over time. Third, innovation remains at the core of our identity. We are continuing to blend internal R&D with customer-funded development, while expanding our innovation ecosystem through partnerships that allow us to access cutting-edge technologies and talent across sectors. At BigBear.ai, we are building a durable, high-impact company at the forefront of AI-enabled national security and critical infrastructure modernization. We are doing so with focus, with urgency, and with a foundation that is designed to deliver lasting value for our customers, our partners, our employees, and our shareholders.

Thank you for your time today on our first quarter call.

Operator:

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