BigBear.ai Share Authorization Raises Questions as 10x Increase Looms Over Five Years

Key Points

• BigBear.ai has increased its share count tenfold over the past five years.

• The company recently asked shareholders to approve authorization of a doubling of the share count.

• This could give management flexibility or just lead to massive dilution.

Image source: Getty Images.

Corporate leadership teams usually don’t ask much of their shareholders beyond approving board slates and executive compensation packages. But the board of BigBear.ai (NYSE: BBAI) just made a big ask of its shareholders, who responded with a move that could come back to bite them.

Here’s what happened and why it could be good (or bad) for the stock.

Running on empty

BigBear.ai is a defense company that has created AI-powered systems for various government entities, including facial scanners used at ports of entry and secure battlefield operations networks. Unlike fellow AI defense and security company Palantir Technologies (NASDAQ: PLTR)BigBear has had limited success expanding beyond its niche into larger markets.

About the only thing BigBear has grown is its outstanding share count. The company has increased the number of shares outstanding by more than tenfold over the past five years, from 46 million in 2021 to over 477 million today. Those shares have been used for acquisitions, executive and board compensation, and debt retirement.

But BigBear was slowly running out of shares to issue. Its Certificate of Incorporation limited it to issuing only 500 million shares in total, with less than 23 million remaining. That’s why the board made its big ask.

Double or nothing

Image source: Getty Images.

At the most recent annual meeting, shareholders were asked to vote on an amendment to double the number of shares the company was authorized to issue from 500 million to 1 billion. The vote easily succeeded 89% to 10%.

On one hand, the company will likely need some of those shares soon. At BigBear’s current share price of $3.53 per share, it had just $81 million in shares available on its old authorization. Even if you added the entire $100.7 million of cash on the company’s balance sheet, that’s just $181.7 million, not enough to make another acquisition the size of its recent modest Ask Sage acquisition, which cost $250 million.

The increase in share authorization at least buys the company some time and gives management the flexibility to consider its options.

Financial Challenges and Uncertain Outlook

However, any further share issuances will result in further share dilution… and the stock is already down more than 60% since it went public via a SPAC merger in 2021.

Meanwhile, BigBear’s net losses have grown, it’s been burning ever more cash, and its revenue has increased only 13.5%. That’s a sharp contrast to Palantir, which has grown revenue, net income, and operating cash flow by triple- or quadruple-digit percentages during roughly the same time frame.

The new share authorization may be used to make strategic acquisitions that complement the company’s offerings and allow it to tap into new markets. On the other hand, there’s little evidence that the 10x growth in share count over the last five years has driven meaningful value creation. There’s also no indication that the company has been waiting on this authorization to execute some game-changing strategy.

Until management provides a clear explanation of how it plans to leverage recent acquisitions and this new authorization into a coherent business strategy, many investors may prefer to avoid this particular bear.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Source link