Share prices of BigBear.ai (BBAI 3.71%) climbed higher after the company reported better-than-expected third-quarter results and announced the acquisition of artificial intelligence (AI) company Ask Sage. Let's look at the company's results and announcement to see if now is a good time to buy the stock.
Can an acquisition spur a turnaround?
For those unfamiliar with BigBear.ai, it is an analytics and systems integrator that was created when analytics company BigBear merged with systems integrator NuWave. While it serves customers in several industries, it is mainly a U.S. government contractor. Among its areas of focus are national security, supply chain and logistics management, digital identity, and vision AI.
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In the third quarter, the company saw its revenue sink 20% year over year to $33.1 million, which it said was due to a lower volume of work from the U.S. Army. However, that was still above the $31.8 million consensus estimate.
While the company is involved in AI, and it's in its name, its gross margins are more reflective of a systems integrator and government contractor. The reason for this is that its engineers and data scientists must be on-premises for many of the government projects in which it is involved.
In the quarter, its gross margin sank to 22.4% from 25.9% a year ago. The company attributed the decline to certain higher-margin programs not rolling over to the current year. While investors sometimes want to compare the company to Palantir Technologies, the latter has gross margins above 80% and a business model that includes far more recurring revenue, so they are not cut from the same cloth.
NYSE: BBAI
Key Data Points
BigBear.ai saw its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) turn negative, dropping to a loss of $9.4 million compared to a gain of $0.9 million a year ago. The company had cash flow from operations of negative $9.6 million in the quarter and negative free cash flow of $9.8 million. It ended the period with cash and investments of $586.7 million and $104.9 million in debt after issuing over $637 million in equity this year.
Management forecasted full-year revenue to fall between $125 million and $140 million, unchanged from its August guidance. That would be a decline from the $158.2 million it produced in 2024. It said the acquisition of Ask Sage would close late in the fourth quarter or early 2026 and have little impact on its fourth-quarter results.
The company expects Ask Sage to help boost its growth with government and commercial clients. It said that Ask Sage's AI platform enables the distribution of secure AI models and agents, and that it was specifically designed for the government and other highly regulated industries. It added that it is the only model-agnostic generative AI platform with FedRAMP high accreditation.
Ask Sage has grown its annual recurring revenue (ARR) sixfold over the past year and is on track to record $25 million in ARR this year. BigBear.ai is paying $250 million to acquire the company, a multiple of 10.
Can the stock continue to roll?
BigBear.ai is up more than 200% over the past year, but its revenue hasn't grown in the last three years and will be down this year. At the same time, it has low gross margins and can hardly be viewed as an AI-focused software-as-a-service (SaaS) company because of this.
Its acquisition of Ask Sage is interesting because it should help drive revenue growth and improve margins. The price tag seems reasonable, and it appears BigBear.ai is on the hunt for more acquisitions like this.
The stock trades at a forward price-to-sales ratio (P/S) of just about 16 times 2026 analyst estimates. That's an absurd valuation, in my view, for a low-margin company that hasn't grown revenue in three years. As such, I would stay on the sidelines and wouldn't chase the stock.
