BigBear.ai's Kraft Partnership: A Drop in the Bucket Amid Structural Woes

What happened

BigBear.ai announced a partnership with Kraft Group's International Forest Products to enhance efficiency through advanced technologies, marking a small foray into commercial sectors. This aligns with the company's broader strategy to diversify beyond its core defense focus, as seen in the recent Ask Sage acquisition aimed at secure GenAI. However, BigBear faces severe financial headwinds, with 2025 revenue guidance cut to $125-140M, negative EBITDA, and a backlog stagnant around $376M due to Army program erosion. The partnership is immaterial relative to these challenges, offering no clear path to address persistent dilution from equity issuance or contract concentration risks. Investors should view this as a minor, non-transformative event that does not alter the company's fundamental operational struggles.

Implication

This partnership may open a new commercial vertical, but it is unlikely to generate meaningful revenue compared to BigBear's ~$130M annual run-rate and does not address the revenue decline from defense contract losses. The company's primary issues—negative cash flow, heavy shareholder dilution, and reliance on equity-funded cash—remain unaddressed, with success hinging on integrating Ask Sage to improve margins and backlog. Investors should focus on tangible metrics like backlog growth above $450M and gross margin improvements toward 30% as indicators of a turnaround, rather than peripheral partnerships. Without evidence of sustainable growth, the stock's ~$2.3B market cap appears overvalued given the persistent losses and dilution. Thus, this news does not change the cautious stance recommended in the DeepValue report.

Thesis delta

The Kraft Group partnership does not materially shift the investment thesis, as it represents an incremental commercial deal that fails to impact the key drivers of revenue decline, dilution, and margin pressure. The thesis remains unchanged: BigBear.ai is a 'POTENTIAL SELL' until it demonstrates backlog expansion and operating leverage from core initiatives like Ask Sage integration.