BigBear.ai (BBAI) Q3 2026 earnings review
BigBear's backlog grows 22%, but it writes down its acquisitions
BigBear.ai, which sells AI software to US defense and border agencies, grew fast and won far more work, but wrote down past acquisitions. Revenue rose 31%, led by the generative AI platform it bought last December. Chief executive Kevin McAleenan raised the full-year revenue outlook for the first time, though by our math its middle has fourth-quarter sales about level with the third.
| Revenue | $43.6M +31% from a year ago |
|---|---|
| Gross margin | 31.2% 22.4% a year ago; 32.8% last quarter |
| Backlog | $330M +22% from June; −12% from a year ago |
| Full-year revenue outlook | Raised bottom of the range up $15M to $150M; middle: 23% growth |
⚖️ Verdict: 🟢 Bullish
The story got better because backlog and outlook rose together after a year in which the backlog mostly shrank. The bad news: BigBear wrote off $77 million of goodwill because its own forecast changed, and gross margin slipped from last quarter again.
The question now is whether the business BigBear owned before buying the platform grows on its own, since it counts organic growth quarter over quarter and gives no year-over-year figure. Either the platform pulls the older services along, or it hides a shrinking base the write-down already reflects. The platform's revenue in the coming quarterly filing will tell.
🐂 Bull Case
Expenses Fell While Revenue Rose 19%
For six quarters BigBear.ai's costs grew faster than its gross profit, so the loss before one-off items widened almost every quarter. This quarter that reversed: revenue rose 19% from the second quarter while operating expenses, excluding the goodwill charge, fell 9%.
- Overhead (selling, general and administrative expense): $31.3 million, down 2% from last quarter
- Overhead as a share of revenue: 72%, from 87% last quarter
- Research and development: $5.4 million, down 29% from last quarter
- Adjusted EBITDA, the loss before interest, tax, depreciation and one-off items: $9.1 million, from $11.6 million last quarter
The AI contractor blamed the year-over-year rise in overhead on amortization from the Ask Sage purchase and on "increased labor spend of $2.5 million driven by increased headcount". Against last quarter, though, overhead stopped growing, so most of the extra revenue went to narrowing the loss. The gap remains wide, because expenses of $36.8 million sit against gross profit of $13.6 million. The adjusted figure also leaves out $2.1 million of integration costs that appeared for the first time.
What to watch: fourth-quarter operating expenses against this quarter's level. A flat figure on higher revenue would mean the second quarter's spending was the peak rather than the new base.
Backlog Rebuilds as the Outlook Floor Rises
Backlog is the value of signed contracts BigBear.ai has not yet delivered. It had shrunk from $385 million in early 2025 to $270 million in June even as revenue grew, so the concern was that revenue would follow it down. This quarter the book rose to $330 million, "including wins executed through September 30, 2026".
The new work includes two five-year subcontracts supporting Customs and Border Protection, won through SAIC and Unissant, that extend "one of our longest-running federal programs".
- Backlog: up 22% from June, still down 12% from a year ago
- Contracts since June: more than 25, worth more than $225 million in contract value, a non-GAAP figure that can include options
- Bookings this quarter: about $104 million by our math, 2.4 times revenue, against 0.7 times in the second quarter
The concern has eased rather than gone, because management raised the outlook floor knowing what sits in the book. But the release again picks the comparison that shows growth, and it does not split funded work from unexercised options, which made up 59% of the June total.
What to watch: the funded share of backlog in the quarterly filing. A funded figure above June's $79 million would mean the new awards carry appropriated money and not only options.
The Outlook Floor Rises to the Old Middle
Three months ago, by our math, the full-year plan needed about $79 million of second-half revenue, a 30% rise on a weak base, and the risk was a landing at the bottom of the range. This quarter settled most of that. BigBear.ai moved the bottom of its range up to $150 million, the old middle, and left the top at $165 million.
The presentation calls it the first raise in BigBear's history, and chief executive Kevin McAleenan tied it to "another strong quarter of revenue growth, a series of contract wins, and improved margins".
The caution is what the middle of the new range implies. By our math it has fourth-quarter revenue about level with this quarter, so the raise mostly moved the floor up to a level the company has already reached. That removes the risk of a technical miss; it does not describe a plan for a further step up.
What to watch: fourth-quarter revenue against this quarter's $43.6 million. A result above it would mean the new range was set with the same caution as the old one.
Five Federal Agencies Adopt the Generative AI Platform
The generative AI platform BigBear.ai bought as Ask Sage gives government staff "secure access to the latest generative AI models and agentic tools". Finance chief Sean Ricker said: "AI adoption in our markets is still in its early stages, and our recent wins show strong and growing demand."
The FBI, the Coast Guard, the Department of Energy and the Department of Veterans Affairs joined NASA on the platform this quarter. The release gives no platform revenue or user count for these wins, so the claim holds on breadth, not yet on size.
The presentation does not mention Conductor OS, the software for coordinating autonomous systems from different vendors, and a two-year renewal of FutureFlow Rx at Children's Minnesota, a pediatric hospital system, was the only commercial news.
What to watch: the platform's user count, last given as 100,000 across 16,000 government teams before the deal closed. A larger figure would mean the agencies are rolling it out rather than running pilots.
🐻 Bear Case
Goodwill Write-Down Contradicts the Higher Outlook
Goodwill is the premium a buyer pays above the accounting value of a business. BigBear.ai wrote off $76.7 million of it this quarter, a charge the release ties to "a change in forecast during the third quarter of 2026".
The write-down sits in the same release that raised the full-year revenue outlook, and the company does not say which forecast changed or for which business. Chief executive Kevin McAleenan meanwhile still lists "pursuing M&A targets" as one of his two priorities for the rest of the year.
- Goodwill: $161.7 million at September 30, from $241.1 million at year-end
- Goodwill carried before the Ask Sage purchase: about $51 million by our math, so the charge cannot rest on older deals alone
- Written off since BigBear's formation: about $286 million by our math
A goodwill test rests on long-term cash flow, so a cut large enough to remove a third of the balance is a statement about the years ahead. The raised outlook covers three months, so both can be true at once. But the last acquisition cycle also ended in write-downs, and McAleenan wants to buy more.
What to watch: the goodwill note in the quarterly filing, which should name the forecast that changed. A lower forecast for the generative AI platform would mean that business is worth less than BigBear paid for it.
Gross Margin Slips for a Second Quarter
"Just as important, we achieved the wins while growing margins and keeping our strong cash position," chief executive Kevin McAleenan said. Against a year ago that holds: gross margin, the share of revenue left after the cost of delivering the work, rose almost 9 percentage points to 31.2%.
- Gross margin by quarter this year: 34.0%, 32.8%, 31.2%
- Cost of delivering the work: up 21% from last quarter, while revenue grew 19%
Against last quarter it does not hold: the margin has fallen twice in a row. That matters because the company credits the step up to the generative AI platform, and the platform kept winning customers this quarter. A margin that falls while revenue grows suggests the new work is mostly services, or that platform costs are rising.
What to watch: fourth-quarter gross margin against this quarter's 31.2%. A third decline would mean the mix shift management credits has stopped lifting BigBear.
Organic Growth Here Means Quarter Over Quarter
BigBear.ai bought Ask Sage, a generative AI platform for government users, last December. Finance chief Sean Ricker called this "our third straight quarter of organic growth since the end of last year".
The presentation shows what he means: a "sequential quarter of organic revenue growth in 2026", that is, growth from the previous quarter. Neither document gives a year-over-year organic figure, and the release says the 31% rise was "substantially driven by" the acquired platform. By our math from the last quarterly filing, revenue outside the platform fell about 6% from a year ago in the second quarter.
This matters because the platform enters the comparison base next quarter, after which growth must come from the older business, which the company does not report separately.
What to watch: the platform's third-quarter revenue in the acquisition note of the quarterly filing. A figure near its second-quarter level of about $6 million would mean the older business grew about 13% on its own, by our math.
Risks this quarter didn't answer
Five standing concerns got no decisive reading in the release or the presentation, and the quarterly filing that usually carries the detail has not yet arrived.
- Cost base: by our math, break-even needs about $118 million of quarterly revenue at this margin, close to three times this quarter's sales; a profit target with a date would move it.
- One-off add-backs: BigBear.ai excluded $2.9 million of costs labelled non-recurring from adjusted EBITDA, as it has in every quarter for a year and a half; a quarter without them would settle it.
- Funding: no new shares this quarter, but the share-sale programme is used up and the release does not say how BigBear will settle the convertible note due in December; the filing's liquidity note will say.
- Concentration: four customers supplied half of second-quarter revenue and the company has added a risk factor on DOGE contract terminations; the filing's customer table will show whether the new awards spread the base.
- Platform recurring revenue: BigBear last gave Ask Sage's annual recurring revenue before the deal closed, at about $25 million for 2025; any update would move the case either way.
👓 Other Themes
Management Names Four Demand Drivers for 2027
The presentation closes with the trends management says will drive demand next year: changes in how wars are fought, with record global military spending of $2.9 trillion in 2025; faster cargo processing for growing trade; rising international travel, with about a million people a day crossing US ports of entry; and attackers armed with generative AI. None comes with a revenue figure for 2027.
💲 Other KPIs
Down $10.8 million in the quarter, the smallest decline this year. Operating cash outflow was $9.6 million, against $22.2 million last quarter. The main reason is that customers paid $11.1 million ahead of delivery, so the underlying burn moved less. A $17.7 million convertible note matures in December.
Doubled from $10.2 million at the end of June. Contract liabilities are cash customers have paid for work not yet delivered, so they tend to lead revenue. The balance had fallen for two quarters from $14.8 million at year-end, and this quarter's rise supplied most of the improvement in operating cash flow.
Up 31% from the end of June, while revenue grew 19% in the same period, so BigBear.ai is collecting more slowly as it grows. By our math, receivables now equal about 85 days of quarterly revenue. Last quarter they covered 77 days. The balance stood at $22.7 million at year-end.
Almost unchanged from 479.5 million at the end of June, the first quarter this year without meaningful issuance. On a weighted basis the count is 21% higher than a year ago, because BigBear.ai sold shares through 2025 to fund the Ask Sage purchase. The company sold no shares this quarter and recorded no proceeds from its at-the-market programme.
🔮 Guidance
Raised. The bottom of the range moved up $15 million and the top did not move, so the middle now points to about 23% growth for the year. By our math, that leaves about $42.7 million for the fourth quarter, slightly below this quarter. It would still be 57% above last year's fourth quarter, when the Army programs ended. First raise; the range was held three times before.
❓ Key Questions
How much revenue did the platform earn this quarter?
The release credits the acquired generative AI platform for most of the 31% growth but gives no figure, and the organic growth management cites is quarter over quarter. Without the number, readers cannot tell whether the older business grew from a year ago.
Which forecast changed to trigger the $77 million write-down?
The charge removed a third of goodwill in the same quarter the outlook rose. The release names neither the business nor the period whose forecast fell, so nobody outside can tell whether it concerns the platform BigBear bought last December.
How much of the $330 million backlog is funded?
In June, 59% of backlog was unexercised customer options and the enforceable obligation under accounting rules was $9.2 million. The release reports only the total, so the quality of the new awards stays unknown until the filing arrives.
How will BigBear settle the December convertible note?
About $17.7 million of notes mature on December 15. Cash covers them many times over, but the notes carry a conversion option, and the release does not say whether holders will convert or receive cash.