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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2024
OR
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______

Commission file number 001-40031
BigBear.ai Holdings, Inc.
(Exact name of registrant as specified in its charter)
Delaware85-4164597
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
6811 Benjamin Franklin Drive, Suite 200, Columbia, MD
21046
(Address of Principal Executive Offices)(Zip Code)
(410) 312-0885
Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stock, $0.0001 par valueBBAINew York Stock Exchange
Redeemable warrants, each full warrant exercisable for one share of common stock at an exercise price of $11.50 per shareBBAI.WSNew York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer
o
Accelerated filer
x
Non-accelerated filer
o
Smaller reporting company
o
Emerging growth company
x
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x
There were 246,076,078 shares of our common stock, $0.0001 par value per share, outstanding as of May 3, 2024.



BIGBEAR.AI HOLDINGS, INC.
Quarterly Report on Form 10-Q
March 31, 2024

TABLE OF CONTENTS

ItemPage
Item 1. Financial Statements (Unaudited)
2

PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
BIGBEAR.AI HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited; in thousands, except share and per share data)
March 31,
2024
December 31,
2023
Assets
Current assets:
Cash and cash equivalents
$81,412 $32,557 
Accounts receivable, less allowance for credit losses of $171 as of March 31, 2024 and $230 as of December 31, 2023
36,584 21,949 
Contract assets
2,379 4,822 
Prepaid expenses and other current assets
4,661 4,449 
Total current assets
125,036 63,777 
Non-current assets:
Property and equipment, net
1,570 997 
Goodwill
119,769 48,683 
Intangible assets, net
120,444 82,040 
Right-of-use assets9,701 4,041 
Deferred tax assets
  
Other non-current assets
1,107 372 
Total assets
$377,627 $199,910 
Liabilities and stockholders’ deficit
Current liabilities:
Accounts payable
$6,215 $11,038 
Short-term debt, including current portion of long-term debt
826 1,229 
Accrued liabilities
21,516 16,233 
Contract liabilities
3,853 879 
Current portion of long-term lease liability848 779 
Derivative liabilities24,956 37,862 
Other current liabilities
4,856 602 
Total current liabilities
63,070 68,622 
Non-current liabilities:
Long-term debt, net
194,761 194,273 
Long-term lease liability11,300 4,313 
Deferred tax liabilities
14 37 
Other non-current liabilities
  
Total liabilities
269,145 267,245 
Commitments and contingencies (Note M)
Stockholders’ deficit:
Common stock, par value $0.0001; 500,000,000 shares authorized and 246,061,379 shares issued and outstanding at March 31, 2024 and 157,287,522 at December 31, 2023
25 17 
Additional paid-in capital604,384 303,428 
Treasury stock, at cost 9,952,803 shares at March 31, 2024 and December 31, 2023
(57,350)(57,350)
Accumulated deficit
(438,577)(313,430)
Total stockholders’ deficit
108,482 (67,335)
Total liabilities and stockholders’ deficit
$377,627 $199,910 

The accompanying notes to the consolidated financial statements are an integral part of these statements.
3


BIGBEAR.AI HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited; in thousands, except share and per share data)


Three Months Ended March 31,
20242023
Revenues
$33,121 $42,154 
Cost of revenues
26,135 31,941 
Gross margin
6,986 10,213 
Operating expenses:
Selling, general and administrative
16,948 20,362 
Research and development
1,144 1,128 
Restructuring charges860 755 
Transaction expenses
1,103  
Goodwill impairment85,000  
Operating loss(98,069)(12,032)
Interest expense
3,555 3,556 
Net increase in fair value of derivatives
23,992 10,567 
Other income
(455) 
Loss before taxes(125,161)(26,155)
Income tax (benefit) expense
(14)59 
Net loss$(125,147)$(26,214)
Basic net loss per share
$(0.67)$(0.19)
Diluted net loss per share
$(0.67)$(0.19)
Weighted-average shares outstanding:
Basic
187,279,204 138,548,599 
Diluted
187,279,204 138,548,599 




The accompanying notes to the consolidated financial statements are an integral part of these statements.
4



BIGBEAR.AI HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
(unaudited; in thousands, except share data)


Three Months Ended March 31, 2024
Common StockAdditionalTreasuryAccumulatedTotal stockholders’
SharesAmountpaid in capitalstockdeficitdeficit
As of December 31, 2023157,287,522 $17 $303,428 $(57,350)$(313,430)$(67,335)
Net loss— — — — (125,147)(125,147)
Equity-based compensation expense— — 5,157 — — 5,157 
Exercise of options
64,544 — 86 — — 86 
Issuance of common shares as consideration for the acquisition of Pangiam61,838,072 6 207,770 — — 207,776 
Issuance of shares for equity-based compensation awards, net4,096,003 — (2,762)— — (2,762)
Proceeds from exercise of 2023 warrants
22,775,144 2 90,705 — — 90,707 
Convertible debt conversion
94 — — — — — 
As of March 31, 2024246,061,379 $25 $604,384 $(57,350)$(438,577)$108,482 
Three Months Ended March 31, 2023
Common StockAdditionalTreasuryAccumulatedTotal stockholders’
SharesAmountpaid in capitalstockdeficitdeficit
As of December 31, 2022
127,022,363 $14 $272,528 $(57,350)$(253,064)$(37,872)
Net loss— — — — (26,214)(26,214)
Equity-based compensation expense— — 3,805 — — 3,805 
Issuance of Private Placement shares13,888,889 2 7,079 — — 7,081 
Issuance of shares for equity-based compensation awards, net911,861 — (839)— — (839)
Issuance of shares for exercised convertible notes94 — — — — — 
As of March 31, 2023141,823,207 $16 $282,573 $(57,350)$(279,278)$(54,039)




The accompanying notes to the consolidated financial statements are an integral part of these statements.
5

BIGBEAR.AI HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited in thousands)

Three Months Ended March 31,
20242023
Cash flows from operating activities:
Net loss$(125,147)$(26,214)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization expense
2,439 1,986 
Amortization of debt issuance costs
506 500 
Equity-based compensation expense
5,157 3,805 
Goodwill impairment85,000  
Non-cash lease expense94 (35)
Provision for doubtful accounts
171 882 
Deferred income tax (benefit) expense
(23)54 
Net increase in fair value of derivatives
23,992 10,567 
Loss on sale of property and equipment  8 
Changes in assets and liabilities:
(Increase) in accounts receivable
(8,957)(3,469)
Decrease (increase) in contract assets
2,443 (1,115)
Decrease in prepaid expenses and other assets
950 1,488 
(Decrease) in accounts payable
(5,960)(4,914)
Increase in accrued liabilities
2,599 4,066 
Increase in contract liabilities
1,826 325 
Increase in other liabilities
551 49 
Net cash used in operating activities
(14,359)(12,017)
Cash flows from investing activities:
Acquisition of business, net of cash acquired
13,935  
Purchases of property and equipment
(38) 
Capitalized software development costs
(1,643) 
Net cash provided by investing activities
12,254  
Cash flows from financing activities:
Proceeds from issuance of shares for exercised RDO and PIPE warrants
53,809  
Proceeds from issuance of Private Placement shares
 25,000 
Payment of Private Placement transaction costs
 (3,025)
Repayment of short-term borrowings
(403)(763)
Proceeds from exercise of options
86  
Payments of tax withholding from the issuance of common stock
(2,532) 
Net cash provided by financing activities
50,960 21,212 
Net increase in cash and cash equivalents
48,855 9,195 
Cash and cash equivalents at the beginning of period
32,557 12,632 
Cash and cash equivalents at the end of the period
$81,412 $21,827 
Supplemental schedule of non-cash investing and financing activities:
Issuance of common stock as consideration for Pangiam acquisition
$207,776 $ 


The accompanying notes to the consolidated financial statements are an integral part of these statements.
6

BIGBEAR.AI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of U.S. dollars unless stated otherwise)

Note ADescription of the Business

BigBear.ai Holdings, Inc.’s (“BigBear.ai”, “BigBear.ai Holdings”, or the “Company”) mission is to help deliver clarity for the world’s most complex decisions. BigBear.ai is a leading provider of Edge AI-powered decision intelligence solutions for national security, supply chain management and digital identity. Customers and partners rely on BigBear.ai’s predictive analytics capabilities in highly complex, distributed, mission-based operating environments. We are a technology-led solutions organization, providing both software and services to our customers. Unless otherwise indicated, references to “we”, “us” and “our” refer collectively to BigBear.ai Holdings, Inc. and its consolidated subsidiaries.

Note BSummary of Significant Accounting Policies

Basis of Presentation

We prepared these accompanying unaudited consolidated financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information, the instructions to Form 10-Q and Article 10 of SEC Regulation S-X. Accordingly, they do not include all information and notes required by GAAP for complete financial statements. Amounts presented within the consolidated financial statements and accompanying notes are presented in thousands of U.S. dollars unless stated otherwise, except for percentages, units, shares, per unit and per share amounts.

In the opinion of management, these consolidated financial statements reflect all adjustments that are of a normal recurring nature necessary for a fair presentation of our results of operations, financial condition and cash flows for the interim periods presented. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We base these estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying amounts of assets and liabilities that are not readily apparent from other sources. Our actual results may differ materially from these estimates. Significant estimates inherent in the preparation of our consolidated financial statements include, but are not limited to, accounting for revenue and cost recognition; evaluation of goodwill; intangible assets; and other assets for impairment; income taxes; equity-based compensation; fair value measurements; and contingencies. We eliminate intercompany balances and transactions in consolidation.

The results of operations for the interim periods presented are not necessarily indicative of results to be expected for the full year or future periods. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2023.

Emerging Growth Company

Section 102(b)(1) of the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that an emerging growth company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such an election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard.

This may make comparison of the Company’s financial statements with another public company that is neither an emerging growth company nor an emerging growth company that has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.

Recent Accounting Pronouncements

Recent Accounting Pronouncements Not Yet Adopted

In December 2023, the FASB issued Accounting Standards Update (“ASU”) No. 2023-09, Improvements to Income Tax
7

BIGBEAR.AI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of U.S. dollars unless stated otherwise)
Disclosures (“ASU 2023-09”). Under ASU 2023-09, public benefit entities must disclose specific categories and provide additional information in the tax rate reconciliation if the effect of those reconciling items is equal to or greater than 5 percent of the amount computed by multiplying pretax income or loss by the applicable statutory income tax rate. The amendments from ASU 2023-09 are effective for annual periods beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. The Company does not expect this guidance to have a material impact to its consolidated financial statements or related disclosures.

Recent Accounting Pronouncements Adopted

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments–Credit Losses: Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 broadens the information that an entity must consider in developing its expected credit loss estimate for assets measured either collectively or individually. The amendments in ASU 2016-13 require an entity to record an allowance for credit losses for certain financial instruments and financial assets, including accounts receivable, based on expected losses rather than incurred losses. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions and reasonable and supportable forecasts that affect the collectability of the reported amount. An entity must use judgment in determining the relevant information and estimation methods that are appropriate in its circumstances. The new guidance is effective for the years beginning after December 15, 2022, including interim periods. The Company prospectively adopted ASU 2016-13 as of January 1, 2023. The adoption of ASU 2016-13 did not have a material impact to the Company’s consolidated financial statements or related disclosures.

Note CRestructuring Charges

During the three months ended March 31, 2024, the Company refined its organizational structure resulting in employee separation costs of $859, net of tax benefits. The Company had completed this restructuring action as of March 31, 2024. There were $511 unpaid employee separation costs related to this restructuring action as of March 31, 2024.

During the three months ended March 31, 2023, the Company refined its organizational structure resulting in employee separation costs of $780, net of tax benefits. The Company had completed this restructuring action as of March 31, 2023. There were no unpaid employee separation costs related to this restructuring action as of December 31, 2023.

Note DBusiness Combinations

Pangiam Acquisition

On February 29, 2024, pursuant to the Agreement and Plan of Merger (the “Merger Agreement”), dated November 4, 2023, by and among BigBear, Pangiam Merger Sub, Inc., a Delaware corporation and a direct wholly-owned subsidiary of the Company (“Merger Sub”), Pangiam Purchaser, LLC, a Delaware limited liability company and a direct wholly-owned subsidiary of the Company (“Pangiam Purchaser”), Pangiam Ultimate Holdings, LLC, a Delaware limited liability company (the “Seller”), and Pangiam Intermediate Holdings, LLC, a Delaware limited liability company (“Pangiam Intermediate”), (i) Merger Sub merged with and into Pangiam Intermediate, with Merger Sub ceasing to exist and Pangiam Intermediate surviving as a wholly-owned subsidiary of the Company (the “First Merger”), and (ii) immediately following the First Merger, Pangiam Intermediate merged with and into Pangiam Purchaser, with Pangiam Intermediate ceasing to exist and Pangiam Purchaser continuing as a wholly-owned subsidiary of the Company (the “Second Merger”, together with the First Merger, the “Mergers”).

As consideration for the Mergers and the related transactions contemplated by the Merger Agreement, BigBear issued a total of 61,838,072 shares of the Company’s common stock to Seller based on the 20-day volume-weighted average price for common stock ending on the trading day immediately prior to the date of the Merger Agreement of $1.3439, representing an enterprise value of $70 million (which was subject to customary adjustments for indebtedness, cash, working capital and transaction expenses) (the “Purchase Price”), less $3.5 million that was held back from the Purchase Price at the time of the closing of the Mergers to cover any post-closing downward adjustments to the Purchase Price (“Holdback Amount”). BigBear may issue an additional up to $7 million of shares of Common Stock (based on the 20 day volume-weighted average price for the common stock ending on the trading day immediately prior to the settlement date) upon the final determination of any post-closing adjustments to the Purchase Price.

8

BIGBEAR.AI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of U.S. dollars unless stated otherwise)
The following table summarizes the fair value of the consideration transferred and the estimated fair values of the major classes of assets acquired and liabilities assumed as of the acquisition date.
February 29, 2024
Holdback amount
3,500 
Equity issued207,776 
Purchase consideration$211,276 
Assets:
Cash$13,935 
Accounts receivable5,848 
Prepaid expenses and other current assets143 
Property and equipment635 
Right of use Assets5,754 
Intangible assets39,100 
Other non-current assets1,772 
Total assets acquired$67,187 
Liabilities:
Accounts payable1,137 
Accrued expenses2,454 
Other current liabilities69 
Deferred revenue1,148 
Current portion of long-term lease liability
1,080 
Long-term lease liability
6,109 
Total liabilities acquired$11,997 
Fair value of net identifiable assets acquired55,190 
Goodwill$156,086 

The Holdback amount is calculated for any potential differences between the estimated and final amount of cash balance, working capital and seller transaction costs and is presented as “other current liabilities” by BigBear.ai. The Holdback Amount will be settled in Company shares and the number of shares will be calculated based on the volume weighted average price for the BigBear.ai Holdings, Inc. shares over the 20 trading days ending on the Merger closing date.

The following table summarizes the intangible assets acquired by class:
February 29, 2024
Technology$19,600 
Trade names
2,400 
Customer relationships17,100 
Total intangible assets$39,100 

The acquired technology and customer relationship intangible assets have a weighted-average estimated useful lives of 7 years and 20 years, respectively.

The fair value of the acquired technology and trade name was determined using the relief from royalty (“RFR”) method. The fair value of the acquired customer relationships was determined using the excess earnings method.

The acquisition was accounted for as a business combination, whereby the excess of the purchase consideration over the fair value of identifiable net assets was allocated to goodwill. The goodwill reflects the potential synergies and expansion of the Company’s
9

BIGBEAR.AI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of U.S. dollars unless stated otherwise)
offerings across product lines and markets complementary to its existing products and markets. For tax purposes, the goodwill related to the acquisition is deductible.

The results of operations of Pangiam for the period from February 29, 2024 to March 31, 2024 have been included in the results of operations for the three months ended March 31, 2024. The post-acquisition net revenues and net loss included in the results of operations for the three months ended March 31, 2024 were $3,439 and $1,127, respectively.

Pro Forma Financial Data (Unaudited)

The following table presents the pro forma consolidated results of operations of BigBear.ai for the three months ended March 31, 2024 and the year ended December 31, 2023 as though the acquisition of Pangiam had been completed as of January 1, 2023.
Three months ended March 31, 2024
Year ended December 31, 2023
Net revenue
$39,432 $195,813 
Net loss(130,071)(84,789)

The amounts included in the pro forma information are based on the historical results and do not necessarily represent what would have occurred if the business combination had taken place as of January 1, 2023, nor do they represent the results that may occur in the future. Accordingly, the pro forma financial information should not be relied upon as being indicative of the results that would have been realized had the acquisition occurred as of the date indicated or that may be achieved in the future.

The Company incurred $1,103 of transaction expenses attributable to the acquisition of Pangiam during the three months ended March 31, 2024, which have been recorded in the pro forma results for the twelve months ended December 31, 2023. The Company incurred $85,000 of goodwill impairment as outlined in Note F during the three months ended March 31, 2024, which has been recorded in the pro forma results for the three months ended March 31, 2024.

Note EFair Value of Financial Instruments

Cash and cash equivalents, accounts receivable, prepaid expenses and other current assets, accounts payable, short-term debt, including the current portion of long-term debt, accrued liabilities and other current liabilities are reflected on the consolidated balance sheets at amounts that approximate fair value because of the short-term nature of these financial assets and liabilities.

IPO warrants, 2023 and 2024 private placement warrants (“PIPE warrants”), and 2023 and 2024 registered direct offering warrants (“RDO warrants”) are valued using a modified Black-Scholes option pricing model (“OPM”), which is considered to be a Level 3 fair value measurement. See Note O—Warrants for information on the Level 3 inputs used to value the IPO warrants, PIPE warrants and RDO warrants.

10

BIGBEAR.AI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of U.S. dollars unless stated otherwise)
The table below presents the financial assets and liabilities measured at fair value :
March 31, 2024
Balance Sheet Caption
Level 1
Level 2Level 3Total
Recurring fair value measurements:
2023 PIPE warrantsDerivative liabilities$ $ $ $ 
2023 RDO warrantsDerivative liabilities    
IPO warrantsDerivative liabilities  66 66 
2024 PIPE warrantsDerivative liabilities  15,030 15,030 
2024 RDO warrantsDerivative liabilities  9,860 9,860 
Total recurring fair value measurement
24,956 24,956 
Nonrecurring fair value measurement:
Goodwill(1)
Goodwill  119,769 119,769 
December 31, 2023
Balance Sheet CaptionLevel 1Level 2Level 3Total
2023 PIPE warrantsDerivative liabilities$ $ $22,778 $22,778 
2023 RDO warrantsDerivative liabilities  15,018 15,018 
IPO warrantsDerivative liabilities  66 66 
2024 PIPE warrantsDerivative liabilities    
2024 RDO warrantsDerivative liabilities    
(1) As of March 31, 2024, in accordance with Subtopic 350-20, goodwill with a carrying amount of $204.8 million was written down to its implied fair value of $119.8 million, resulting in an impairment charge of $85.0 million, which was included in earnings for the period.

The changes in the fair value of the Level 3 liabilities are as follows:
2023 PIPE warrants2023 RDO warrantsIPO warrants2024 PIPE warrants2024 RDO warrants
December 31, 2023$22,778 $15,018 $66 $ $ 
Additions   27,990 15,196 
Changes in fair value37,361 15,551  (12,960)(5,336)
Settlements(60,139)(30,569)   
March 31, 2024$ $ $66 $15,030 $9,860 

Note FGoodwill

As of December 31, 2022, the Company had two operating and reportable segments that were organized by sector: Cyber & Engineering and Analytics. During the first quarter of 2023, the Company reevaluated its operating and reportable segments under FASB ASC 280 - Segment Reporting, following an organizational and legal entity restructuring, which allowed the Company to align its operations with how the business will be managed. As a result of such changes, the performance of the Company’s operations are evaluated by the CODM using the consolidated financial results of the Company. As a result of this reevaluation, the Company determined it that it manages its operations as a single operating and reportable segment, which comprises a single reporting unit. The goodwill of the Cyber & Engineering and Analytics reporting units was combined into a single reporting unit during the first quarter of 2023.

The Company assessed if the reorganization was potentially masking a goodwill impairment by performing a quantitative goodwill impairment test of the Company’s reporting units immediately before and after the reorganization. The Company utilized a combination of the discounted cash flow (“DCF”) method of the Income Approach and the Market Approach. Under the Income Approach, the future cash flows of the Company’s reporting units were projected based on estimates of future revenues, gross margins, operating income, excess net working capital, capital expenditures and other factors. The Company utilized estimated revenue growth rates and cash flow projections. The discount rates utilized in the DCF method were based on a weighted-average cost of capital (“WACC”) determined from relevant market comparisons and adjusted for specific reporting unit risks and capital structure. A terminal value estimated growth rate was applied to the final year of the projected period and reflected the Company’s estimate of perpetual growth. The Company then calculated the present value of the respective cash
11

BIGBEAR.AI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of U.S. dollars unless stated otherwise)
flows for each reporting unit to arrive at an estimate of fair value under the Income Approach. The Market Approach is comprised of the Guideline Public Company and the Guideline Transactions Methods. The Guideline Public Company Method focuses on comparing the Company to selected reasonably similar (or guideline) publicly traded companies. Under this method, valuation multiples were: (i) derived from the operating data of selected guideline companies; (ii) evaluated and adjusted based on the strengths and weaknesses of the Company relative to the selected guideline companies; and (iii) applied to the operating data of the Company to arrive at an indication of value. In the Guideline Transactions Method, consideration was given to prices paid in recent transactions that had occurred in the Company’s industry or in related industries. The Company then reconciled the estimated fair value of its reporting units to its total public market capitalization as of the valuation date. The fair value of the Company’s reporting units immediately before and after the reorganization exceeded its carrying values.

The table below presents the changes in the carrying amount of goodwill:
As of December 31, 2023$48,683 
Goodwill arising from the Pangiam acquisition156,086 
Goodwill impairment(85,000)
As of March 31, 2024$119,769 

Accumulated impairment losses to goodwill were $138,544 as of March 31, 2024.

During the first quarter of fiscal 2024, the Company performed a quantitative impairment analysis as a result of a decrease in share price during the quarter compared to the share price of the equity issued as consideration for the purchase of Pangiam as described in Note D. As a result of this testing, we recorded an $85.0 million non-cash goodwill impairment charge during the three months ended March 31, 2024. Our goodwill impairment test reflected an allocation of 50% and 50% between the income and market-based approaches, respectively. Significant inputs into the valuation models included the discount rate, EBITDA Growth and estimated future cash flows. We used a discount rate of 31%, guideline peer group and their historical and forward-looking revenues in the goodwill impairment test. Subsequent to the impairment, there was no excess of reporting unit fair value over carrying value.

Note GIntangible Assets, net

The intangible asset balances and accumulated amortization are as follows:
March 31, 2024
Gross
carrying
amount
Accumulated
amortization
Net
carrying
amount
Weighted
average
useful
life in years
Customer relationships$91,700 $(12,524)$79,176 20
Technology45,800 (12,364)33,436 7
Software for sale5,472  5,472 3
Trade name2,400 (40)2,360 5
Total$145,372 $(24,928)$120,444 
December 31, 2023
Gross
carrying
amount
Accumulated
amortization
Net
carrying
amount
Weighted
average
useful
life in years
Customer relationships$74,600 $(11,432)$63,168 20
Technology26,200 (11,156)15,044 7
Software for sale3,828  3,828 3
Total$104,628 $(22,588)$82,040 

No amortization expense was recognized for the capitalized software development costs during the three months ended March 31, 2024 and March 31, 2023.

12

BIGBEAR.AI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of U.S. dollars unless stated otherwise)
The table below presents the amortization expense related to intangible assets for the following periods:
Three Months Ended March 31,
20242023
Amortization expense related to intangible assets$2,339 $1,868 

The table below presents the estimated amortization expense on intangible assets for the next five years and thereafter as of March 31, 2024:
Remainder of 2024$11,971 
202516,137 
202615,154 
202713,258 
20287,184 
Thereafter56,740 
Total estimated amortization expense$120,444 

Note HPrepaid expenses and other current assets

The table below presents details on prepaid expenses and other current assets:
March 31,
2024
December 31,
2023
Prepaid insurance$1,040 $1,419 
Prepaid expenses1,840 1,246 
Prepaid taxes1,781 1,784 
Total prepaid expenses and other current assets$4,661 $4,449 

Note IAccrued Liabilities
The table below presents details on accrued liabilities:
March 31
2024
December 31
2023
Payroll accruals
$11,885 $10,118 
Accrued interest
3,559 560 
Legal accruals3,003 1,253 
Other accrued expenses3,069 4,302 
Total accrued liabilities
$21,516 $16,233 

Note JDebt

The table below presents the Company’s debt balances:
March 31
2024
December 31
2023
Convertible Notes$200,000 $200,000 
Bank of America Senior Revolver  
D&O Financing Loan826 1,229 
Total debt200,826 201,229 
Less: unamortized issuance costs5,239 5,727 
Total debt, net195,587 195,502 
Less: current portion826 1,229 
Long-term debt, net$194,761 $194,273 
13

BIGBEAR.AI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of U.S. dollars unless stated otherwise)

Convertible Notes

On December 7, 2021, the Company issued $200.0 million of unsecured convertible notes (the “Convertible Notes”) to certain investors. The Convertible Notes bear interest at a rate of 6.0% per annum, payable semi-annually, and not including any interest payments that are settled with the issuance of shares, were initially convertible into 17,391,304 shares of the Company’s common stock at an initial Conversion Price of $11.50. The Conversion Price is subject to adjustments. On May 29, 2022, pursuant to the Convertible Notes indenture, the conversion rate applicable to the Convertible Notes was adjusted to 94.2230 (previously 86.9565) shares of common stock per $1,000 principal amount of Convertible Notes because the average of the daily volume-weighted average price of the common stock during the preceding 30 trading days was less than $10.00 (the “Conversion Rate Reset”). After giving effect to the Conversion Rate Reset, the Conversion Price is $10.61 and the Convertible Notes are convertible into 18,844,600 shares, not including any interest payments that are settled with the issuance of shares. The Convertible Note financing matures on December 15, 2026.

The Company may, at its election, force conversion of the Convertible Notes after December 15, 2022 and prior to October 7, 2026 if the trading price of the Company’s common stock exceeds 130% of the conversion price for 20 out of the preceding 30 trading days and the 30-day average daily trading volume ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to $3.0 million for the first two years after the initial issuance of the Convertible Notes and $2.0 million thereafter. Upon such conversion, the Company will be obligated to pay all regularly scheduled interest payments, if any, due on the converted Convertible Notes on each interest payment date occurring after the conversion date for such conversion to, but excluding, the maturity date (such interest payments, an “Interest Make-Whole Payments”). In the event that a holder of the Convertible Notes elects to convert the Convertible Notes (a) prior to December 15, 2024, the Company will be obligated to pay an amount equal to twelve months of interest or (b) on or after December 15, 2024 but prior to December 15, 2025, any accrued and unpaid interest plus any remaining amounts that would be owed up to, but excluding, December 15, 2025. The Interest Make-Whole Payments will be payable in cash or shares of the common stock at the Company’s election, as set forth in the Indenture.

Following certain corporate events that occur prior to the maturity date or if the Company exercises its mandatory conversion right in connection with such corporate events, the conversion rate will be increased in certain circumstances for a holder who elects, or has been forced, to convert its Convertible Notes in connection with such corporate events.

If a Fundamental Change (as defined in the Convertible Notes indenture) occurs prior to the maturity date, holders of the Convertible Notes will have the right to require the Company to repurchase all or any portion of their Convertible Notes in principal amounts of one thousand dollars or an integral multiple thereof, at a repurchase price equal to the principal amount of the Convertible Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the repurchase date.

The Convertible Notes require the Company to meet certain financial and other covenants. As of March 31, 2024, the Company was in compliance with all covenants related to the Convertible Notes.

On May 29, 2022, pursuant to the conversion rate adjustment provisions in the Convertible Notes indenture, the Conversion Price was adjusted to $10.61 (or 94.2230 shares of common stock per one thousand dollars of principal amount of Convertible Notes). Subsequent to the adjustment, the Convertible Notes are convertible into 18,844,600 shares, not including any interest payments that are settled with the issuance of shares.

During the three months ended March 31, 2024, Convertible Notes with a principal of $2,000 were exercised for 94 shares of the Company’s common stock. As of March 31, 2024, the Company has an outstanding balance of $200.0 million related to the Convertible Notes, which is recorded on the balance sheet net of approximately $5.2 million of unamortized debt issuance costs. As of March 31, 2024, the fair value of the Convertible Notes is $144,652, which is considered to be a Level 3 fair value measurement.

Bank of America Senior Revolver

The Company is party to a senior credit agreement with Bank of America, N.A. (the “Bank of America Credit Agreement”), entered into on December 7, 2021 (the “Closing Date”), subsequently amended on November 8, 2022, providing the Company with a $25.0 million senior secured revolving credit facility (the “Senior Revolver”). Proceeds from the Senior Revolver will be
14

BIGBEAR.AI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of U.S. dollars unless stated otherwise)
used to fund working capital needs, capital expenditures and other general corporate purposes. The Senior Revolver matures on December 7, 2025 (the “Maturity Date”).

The Senior Revolver is secured by a pledge of 100% of the equity of certain of the Company’s wholly owned subsidiaries and a security interest in substantially all of the Company’s tangible and intangible assets. The Senior Revolver includes borrowing capacity available for letters of credit and for borrowings on same-day notice, referred to as the “swing loans.” Any issuance of letters of credit or making of a swing loan will reduce the amount available under the revolving credit facility. The Company may increase the commitments under the Senior Revolver in an aggregate amount of up to the greater of $25.0 million or 100% of consolidated adjusted EBITDA plus any additional amounts so long as certain conditions, including compliance with the applicable financial covenants for such period, in each case on a pro forma basis, are satisfied.

As of the Closing Date, borrowings under the Senior Revolver bear interest, at the Company’s option, at:
(i)A Base Rate plus a Base Rate Margin of 2.00%. Base Rate is a fluctuating rate per annum equal to the higher of (a) the Federal Funds Rate plus 0.50%, (b) the prime rate of Bank of America, N.A., and (c) Bloomberg Short-Term Yield Index (“BSBY”) Rate plus 1.00%; or
(ii)The BSBY Rate plus a BSBY Margin of 1.00%.

The Base Rate Margin and BSBY Margin became subject to adjustment based on the Company’s Secured Net Leverage Ratio after March 31, 2022. The Company is also required to pay unused commitment fees and letter of credit fees under the Bank of America Credit Agreement. The Second Amendment (defined below) increased the Base Rate Margin, BSBY Margin and unused commitment fees by 0.25%.

The Bank of America Credit Agreement requires the Company to meet certain financial and other covenants. The Company was not in compliance with the Fixed Charge Coverage ratio requirement as of June 30, 2022, and as a result was unable to draw on the facility. The Company notified Bank of America N.A. of the covenant violation, and on August 9, 2022, entered into the First Amendment (the “First Amendment”) to the Bank of America Credit Agreement, which, among other things, waived the requirement that the Company demonstrate compliance with the minimum Fixed Charge Coverage ratio provided for in the Credit Agreement for the quarter ended June 30, 2022.

The Company was not in compliance with the Fixed Charge Coverage ratio requirement as of September 30, 2022, and as a result was unable to draw on the facility. On November 8, 2022, the Company entered into a Second Amendment to the Bank of America Credit Agreement (the “Second Amendment”), which modifies key terms of the Senior Revolver. As a result of the Second Amendment, funds available under the Senior Revolver are reduced to $25.0 million from $50.0 million, limited to a borrowing base of 90% of Eligible Prime Government Receivables and Eligible Subcontractor Government Receivables, plus 85% of Eligible Commercial Receivables. Additionally, the Second Amendment increased the Base Rate Margin, BSBY Margin and unused commitment fees by 0.25%. Following entry into the Second Amendment, the Senior Revolver no longer is subject to a minimum Fixed Charge Coverage ratio covenant, but is still subject to the Secured Net Leverage ratio covenant. In order for the facility to become available for borrowings (the “initial availability quarter”), the Company must report Adjusted EBITDA of at least one dollar. Commencing on the first fiscal quarter after the initial availability quarter, the Company is required to have aggregated reported Adjusted EBITDA of at least one dollar over the two preceding quarters to maintain its ability to borrow under the Senior Revolver (though the inability to satisfy such condition does not result in a default under the Senior Revolver). Failure to meet this Adjusted EBITDA requirement is not a default but limits the Company’s ability to make borrowings under the Senior Revolver until such time that the Company is able meet the Adjusted EBITDA threshold as defined in the Second Amendment.

As of March 31, 2024, the Company did not meet the Secured Net Leverage ratio covenant. As a result, the Company is unable to draw on the Senior Revolver as of March 31, 2024. Management performed a cash flow analysis to identify the Company’s projected approximate cash flow and liquidity needs for the next 12 months. Based on the Company’s projected cash flow and liquidity needs, the Company believes that its current cash balance of $81,412 as of March 31, 2024 as well as cash from operating activities generated from continuing operations during the year will be adequate for the next 12 months to meet its anticipated uses of cash flow, including payroll obligations, working capital, operating lease obligations, capital expenditures and debt service costs.

As of March 31, 2024, the Company had not drawn on the Senior Revolver. Unamortized debt issuance costs of $116 as of March 31, 2024, are recorded on the consolidated balance sheets and are presented in other non-current assets. The Bank of
15

BIGBEAR.AI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of U.S. dollars unless stated otherwise)
America Credit Agreement requires the Company to deliver monthly borrowing base certificates. The Company did not deliver such monthly borrowing base certificates for the months ending December 31, 2022, January 31, 2023, February 28, 2023, and March 31, 2023. Bank of America N.A. notified the Company of the reporting violation, and on April 21, 2023, Bank of America N.A. and the Company entered into the Third Amendment (the “Third Amendment”) to the Bank of America Credit Agreement, which, among other things, waived the requirement that the Company deliver the monthly borrowing base certificate for the months ending December 31, 2022, January 31, 2023, February 28, 2023, and March 31, 2023, and removed the reporting requirement to deliver a monthly borrowing base certificate going forward until the Company meets the Adjusted EBITDA requirements set forth above and is permitted to draw on the Senior Revolver.

D&O Financing Loan

On December 20, 2023, the Company entered into a $1,229 loan (the “2024 D&O Financing Loan”) with US Premium Finance to finance the Company’s directors and officers insurance premium through September 2024. The D&O Financing Loan had an interest rate of 6.99% per annum and a maturity date of September 8, 2024.

On December 8, 2022, the Company entered into a $2,059 loan (the “2023 D&O Financing Loan”) with AFCO Credit Corporation to finance the Company’s directors and officers insurance premium through December 2023. The 2023 D&O Financing Loan required an upfront payment of $1,109 and had an interest rate of 5.75% per annum and a maturity date of December 8, 2023. The 2023 D&O Financing Loan was fully repaid at maturity.
Note KLeases

The Company is obligated under operating leases for certain real estate and office equipment assets. The Company’s finance leases are not material. Certain leases contained predetermined fixed escalation of minimum rents at rates ranging from 2.5% to 5.4% per annum and remaining lease terms of up to ten years, some of which include renewal options that could extend certain leases to up to an additional five years.

The following table presents supplemental information related to leases:
March 31,
2024
March 31,
2023
Weighted average remaining lease term5.205.22
Weighted average discount rate10.64 %10.50 %

The table below presents the rent expense under all leases for the following periods:
Three Months Ended March 31,
20242023
Rent expense
$417 $377 

Rent expense for the three months ended March 31, 2024 includes $4 of short-term lease costs and $26 of variable lease costs. Rent expense for the three months ended March 31, 2023 includes $63 of short-term lease costs and $22 of variable lease costs.

As of March 31, 2024 and March 31, 2023, the Company has subleased two and three of its real estate leases and recognized $23 and $39 of sublease income on the consolidated statements of operations during the three months ended March 31, 2024 and March 31, 2023, respectively.

The following table presents supplemental cash flow and non-cash information related to leases:
Three Months Ended March 31,
20242023
Cash paid for amounts included in the measurement of lease liabilities - operating cash flows from leases$578 $325 
Right-of-use assets obtained in exchange for lease obligations - non-cash activity$ $ 

16

BIGBEAR.AI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of U.S. dollars unless stated otherwise)
As of March 31, 2024, the future annual minimum lease payments for operating leases are as follows:
Remainder of 2024$1,790 
20252,359 
20262,278 
20271,697 
20281,671 
Thereafter9,076 
Total future minimum lease payments$18,871 
Less: amounts related to imputed interest
(6,723)
Present value of future minimum lease payments12,148 
Less: current portion of long-term lease liability
848 
Long-term lease liability$11,300 

Note LIncome Taxes
The table below presents the effective income tax rate for the following periods:
Three Months Ended March 31,
20242023
Effective tax rate %(0.2)%

The Company was taxed as a corporation for federal, state and local income tax purposes for the three month periods ended March 31, 2024 and three months ended March 31, 2023. The effective tax rate for the three months ended March 31, 2024 and three months ended March 31, 2023 differ from the U.S. federal income tax rate of 21.0% primarily due to foreign and state and local income taxes, permanent differences between book and taxable income, certain discrete items and the change in valuation allowance.
Note M—Commitments and Contingencies

Contingencies in the Normal Course of Business

Under certain contracts with the U.S. government and certain governmental entities, contract costs, including indirect costs, are subject to audit by and adjustment through negotiation with governmental representatives. Revenue is recorded in amounts expected to be realized on final settlement of any such audits.

Legal Proceedings

The Company is subject to litigation, claims, investigations and audits arising from time to time in the ordinary course of business. Although legal proceedings are inherently unpredictable, the Company intends to defend itself vigorously with respect to any matters currently pending against it. The outcome of these matters, individually and in the aggregate, is not expected to have a material impact on the Company’s consolidated balance sheets, consolidated statements of operations, or cash flows. As of March 31, 2024, the Company has accrued $1,631 related to various ongoing legal disputes. The $1,631 balance as of March 31, 2024, reflects management’s best estimate as of that date and is net of any anticipated amounts recoverable through insurance.

Note NStockholders’ Equity

Common Stock

The table below presents the details of the Company’s authorized common stock as of the following periods:
March 31,
2024
December 31,
2023
Common stock:
17

BIGBEAR.AI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of U.S. dollars unless stated otherwise)
March 31,
2024
December 31,
2023
Authorized shares of common stock500,000,000500,000,000
Common stock par value per share$0.0001 $0.0001 
Common stock outstanding at the period end246,061,379 157,287,522 

Treasury Stock

These shares are measured at cost and presented as treasury stock on the consolidated balance sheets and consolidated statements of stockholders’ deficit.

Dividend Rights

Subject to applicable law and the rights, if any, of the holders of any outstanding series of the Company’s preferred stock or any class or series of stock having a preference over or the right to participate with the Company’s common stock with respect to the payment of dividends, dividends may be declared and paid ratably on the Company’s common stock out of the assets of the Corporation that are legally available for this purpose at such times and in such amounts as the Company’s Board in its discretion shall determine.

Voting Rights

Each outstanding share of the Company’s common stock is entitled to one vote on all matters submitted to a vote of stockholders. Holders of shares of common stock do not have cumulative voting rights.

Conversion or Redemption Rights

The Company’s common stock is neither convertible nor redeemable.

Liquidation Rights

Upon the Company’s liquidation, the holders of the Company’s common stock are entitled to receive pro rata the Company’s assets that are legally available for distribution, after payment of all debts and other liabilities and subject to the prior rights of any holders of the Company’s preferred stock then outstanding.

Preferred Stock

The table below presents the details of the Company’s authorized preferred stock as of the following periods:
March 31,
2024
December 31,
2023
Preferred stock:
Authorized shares of preferred stock1,000,0001,000,000
Preferred stock par value per share$0.0001 $0.0001 
Preferred stock outstanding at the period end

The Company’s Board may, without further action by the Company’s stockholders, from time to time, direct the issuance of shares of preferred stock in series and may, at the time of issuance, determine the designations, powers, preferences, privileges and relative participating, optional or special rights as well as the qualifications, limitations or restrictions thereof, including dividend rights, conversion rights, voting rights, terms of redemption and liquidation preferences, any or all of which may be greater than the rights of the Company’s common stock. Satisfaction of any dividend preferences of outstanding shares of the Company’s preferred stock would reduce the amount of funds available for the payment of dividends on shares of the Company’s common stock. Upon the affirmative vote of a majority of the total number of directors then in office, the Company’s Board may issue shares of the Company’s preferred stock with voting and conversion rights which could adversely affect the holders of shares of the Company’s common stock.

18

BIGBEAR.AI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of U.S. dollars unless stated otherwise)
Note OWarrants

2023 Registered Direct Offering Warrants

On June 13, 2023, the Company consummated the closing of a registered direct offering pursuant to an Underwriting Agreement with Cowen and Company, LLC, as representative of the underwriters, for the sale and purchase of an aggregate of 11,848,341 shares of common stock at par value (“Common Stock”) and accompanying common warrants (“RDO warrants”). Each share of Common Stock is accompanied by a common warrant to purchase three-quarters of a share of Common Stock at an exercise price of $2.32 per share. The RDO warrants were initially exercisable for up to 8,886,255 shares of Common Stock and became exercisable six months after issuance and had a five-year term.

The table below presents the value of the RDO warrants under the Black-Scholes OPM using the following assumptions as of the following dates:
June 13,
2023
Value of each RDO warrant$1.96
Exercise price$2.32
Common stock price$2.30
Expected option term (years)5.5
Expected volatility118.60%
Risk-free rate of return4.00%
Expected annual dividend yield%

On February 27, 2024, the Company entered into a warrant exercise agreement (the “RDO Warrant Exercise Agreement”) with an existing accredited investor (the “RDO Investor”) to exercise in full the outstanding RDO warrants to purchase up to an aggregate of 8,886,255 shares of the Company’s common stock for gross proceeds of $20.6 million. Upon settlement of the RDO warrants, a loss of $10.1 million was recognized for the three months ended March 31, 2024 and is presented in net increase in fair value of derivatives on the consolidated statements of operations.

2024 RDO Warrant

In consideration for the immediate and full exercise of the RDO warrants, on February 28, 2024, the RDO Investor received a new unregistered common stock purchase warrant to purchase up to an aggregate of 5,800,000 of the Company’s common stock (the “2024 RDO warrant”) in a private placement. The 2024 RDO warrant will become exercisable commencing at any time on or after August 28, 2024 (the “2024 RDO Warrant Exercise Date”), with an expiration date five years after the 2024 RDO Warrant Exercise Date, with an exercise price per share equal to $3.78.

The table below presents the value of the 2024 RDO warrant under the Black-Scholes OPM using the following assumptions as of the following dates:
March 31,
2024
February 28,
2024
Value of each 2024 RDO warrant
$1.70$2.62
Exercise price$3.78$3.78
Common stock price$2.05$3.14
Expected option term (years)5.45.5
Expected volatility126.70%117.60%
Risk-free rate of return4.20%4.20%
Expected annual dividend yield%%

As of March 31, 2024, the 2024 RDO warrant has a fair value of $9.9 million and is presented on the consolidated balance sheets within derivative liabilities. A loss of $5.3 million, which includes transaction costs associated with the issuance of the RDO warrants, was recognized the three months ended March 31, 2024, and is presented in net decrease in fair value of derivatives on the consolidated statements of operations.
19

BIGBEAR.AI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of U.S. dollars unless stated otherwise)

As of March 31, 2024, there were 5,800,000 2024 RDO warrants issued and outstanding.

2023 PIPE Warrants

On January 19, 2023, the Company consummated the closing of a private placement (the “Private Placement”) by and among the Company and Armistice Capital Master Fund Ltd (the “Purchaser”). At the closing of the Private Placement, the Company issued 13,888,889 shares of the Company’s Common Stock at par value and warrants to purchase up to an additional 13,888,889 shares of common stock (the “PIPE warrants”). The PIPE warrants had an exercise price of $2.39 per share and were exercisable as of July 19, 2023. The PIPE warrants were subject to a 4.99% beneficial ownership limitation.

The table below presents the value of the PIPE warrants under the Black-Scholes OPM using the following assumptions as of the following dates:
January 19,
2023
Value of each PIPE warrant$1.22
Exercise price$2.39
Common stock price$1.87
Expected option term (years)5.5
Expected volatility82.10%
Risk-free rate of return3.40%
Expected annual dividend yield%

On March 4, 2024, the Company entered into a warrant exercise agreement (the “PIPE Warrant Exercise Agreement”) with an existing accredited investor (the “PIPE Investor”) to exercise in full the outstanding PIPE warrants to purchase up to an aggregate of 13,888,889 shares of the Company’s common stock for gross proceeds of $33.2 million. Upon settlement of the PIPE warrants, a loss of $32.2 million was recognized as a result of the change in fair value for the three months ended March 31, 2024 and are presented in net increase in fair value of derivatives on the consolidated statements of operations.

2024 PIPE Warrant

In consideration for the immediate and full exercise of the PIPE warrants, on March 5, 2024, the PIPE Investor received a new unregistered common stock purchase warrant to purchase up to an aggregate of 9,000,000 shares of the Company’s common stock (the2024 PIPE warrant”) in a private placement. The 2024 PIPE Warrant will become exercisable commencing at any time on or after September 5, 2024 (the “2024 PIPE Warrant Exercise Date”), with an expiration date five years after the 2024 PIPE Warrant Exercise Date, with an exercise price per share equal to $4.75.

The table below presents the value of the 2024 PIPE warrant under the Black-Scholes OPM using the following assumptions as of the following dates:
March 31,
2024
March 4,
2024
Value of each 2024 PIPE warrant
$1.67$3.11
Exercise price$4.75$4.75
Common stock price$2.05$3.75
Expected option term (years)5.45.5
Expected volatility126.70%117.00%
Risk-free rate of return4.20%4.10%
Expected annual dividend yield%%

As of March 31, 2024, the 2024 PIPE warrant has a fair value of $15.0 million and is presented on the consolidated balance sheets within derivative liabilities. A loss of $13.0 million was recognized as a result of the change in fair value the three months ended March 31, 2024, and is presented in net decrease in fair value of derivatives on the consolidated statements of operations.

20

BIGBEAR.AI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of U.S. dollars unless stated otherwise)
As of March 31, 2024, there were 9,000,000 2024 PIPE warrants issued and outstanding.

IPO Public Warrants

Each IPO public warrant entitles the registered holder to purchase one share of common stock at a price of $11.50 per share, subject to adjustment. Pursuant to the warrant agreement, a warrant holder may exercise its warrants only for a whole number of shares of common stock. This means only a whole warrant may be exercised at a given time by a warrant holder. The warrants will expire on December 7, 2026, at 5:00 p.m., New York City time, or earlier upon redemption or liquidation.

The Company may call the public warrants for redemption as follows: (1) in whole and not in part; (2) at a price of $0.01 per warrant; (3) upon a minimum of 30 days’ prior written notice of redemption; (4) if there is an effective registration statement covering the shares of common stock issuable upon exercise of the warrants and a current prospectus available throughout the 30-day notice period; and (5) only if the last reported closing price of the common stock equals or exceeds $18.00 per share for any 20 trading days within a 30-trading day period ending on the third trading day prior to the date on which the Company sends the notice of redemption to the warrant holders.

If the Company calls the public warrants for redemption, management will have the option to require all holders that wish to exercise the Company public warrants to do so on a “cashless basis.”

The exercise price and number of shares of common stock issuable upon exercise of the warrants may be adjusted in certain circumstances including stock dividends, stock splits, extraordinary dividends, consolidation, combination, reverse stock split or reclassification of shares of the Company’s common stock or other similar event. In no event will the Company be required to net cash settle the warrant shares.

As of March 31, 2024 and December 31, 2023, there were 12,150,878 public warrants issued and outstanding for both periods.

IPO Private Warrants

The terms and provisions of the public warrants above also apply to the IPO private warrants. If the IPO private warrants are held by holders other than GigAcquisitions4, LLC (“Sponsor”), Oppenheimer & Co. Inc. and Nomura Securities International, Inc. (together, the “Underwriters”), or any respective permitted transferees, the IPO private warrants will be redeemable by the Company and exercisable by the holders on the same basis as the IPO public warrants. The Sponsor, the Underwriters and any respective permitted transferees have the option to exercise the IPO private warrants on a cashless basis.

The table below presents the value of the IPO private warrants under the Black-Scholes OPM using the following assumptions as of the following dates:
March 31,
2024
December 31,
2023
Fair value of each IPO private warrant
$0.38$0.38 
Exercise price$11.50$11.50 
Common stock price$2.05$2.14 
Expected option term (in years)2.72.9
Expected volatility88.70%82.30%
Risk-free rate of return4.40%4.00%
Expected annual dividend yield%%

As of March 31, 2024 and December 31, 2023, the IPO private warrants have a fair value of $66 thousand for both periods and are presented on the consolidated balance sheets within derivative liabilities and other non-current liabilities. The following was recognized as a result of the change in fair value for the three months ended March 31, 2024 and March 31, 2023 and is presented in net increase (decrease) in fair value of derivatives on the consolidated statements of operations:

Three Months Ended March 31,
20242023
(Gain) loss on change in fair value of IPO warrants
$ $43 
21

BIGBEAR.AI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of U.S. dollars unless stated otherwise)

As of March 31, 2024 and December 31, 2023, there were 174,894 IPO private warrants issued and outstanding for both periods.

Note PEquity-Based Compensation

Class B Unit Incentive Plan

In February 2021, the Company’s parent, BBAI Ultimate Holdings, LLC (“Parent”) adopted a compensatory benefit plan (the “Class B Unit Incentive Plan”) to provide incentives to directors, managers, officers, employees, consultants, advisors and/or other service providers of the Company’s Parent or its Subsidiaries in the form of the Parent’s Class B Units (“Incentive Units”). Incentive Units have a participation threshold of $1.00 and are divided into three tranches (“Tranche I,” “Tranche II,” and “Tranche III”). Tranche I Incentive Units are subject to performance-based, service-based and market-based conditions. The grant date fair value for the Incentive Units was $5.19 per unit.

The assumptions used in determining the fair value of the Incentive Units at the grant date are as follows:
February 16,
2021
Volatility57.0%
Risk-free interest rate0.1%
Expected time to exit (in years)1.6

On July 29, 2021, the Company’s Parent amended the Class B Unit Incentive Plan so that the Tranche I and the Tranche III Incentive Units immediately became fully vested, subject to continued employment or provision of services, upon the closing of the transaction stipulated in the Agreement and Plan of Merger (the “Gig Business Combination Agreement”) dated June 4, 2021. The Company’s Parent also amended the Class B Unit Incentive Plan so that the Tranche II Incentive Units will vest on any liquidation event, as defined in the Class B Unit Incentive Plan, rather than only upon the occurrence of an Exit Sale, subject to the market-based condition stipulated in the Class B Unit Incentive Plan prior to its amendment.

Equity-based compensation for awards with performance conditions is based on the probable outcome of the related performance condition. The performance conditions required to vest per the amended Incentive Plan remain improbable until they occur due to the unpredictability of the events required to meet the vesting conditions. As such events are not considered probable until they occur, recognition of equity-based compensation for the Incentive Units is deferred until the vesting conditions are met. Once the event occurs, unrecognized compensation cost associated with the performance-vesting Incentive Units (based on their modification date fair value) will be recognized based on the portion of the requisite service period that has been rendered.

The modification date fair value of the Incentive Units was $9.06 per unit. The assumptions used in determining the fair value of the Incentive Units at the modification date are as follows:
July 29,
2021
Volatility46.0%
Risk-free interest rate0.2%
Expected time to exit (in years)1.2

The volatility used in the determination of the fair value of the Incentive Units was based on analysis of the historical volatility of guideline public companies and factors specific to the Company.

On December 7, 2021, the previously announced Gig Business Combination was consummated. As a result, the Tranche I and Tranche III Incentive Units immediately became fully vested and the performance condition for the Tranche II Incentive Units was met. The fair value determined at the date of the amendment of the Class B Unit Incentive Plan was immediately recognized as compensation expense on the vesting date for Tranches I and III. Compensation expense for the Tranche II Incentive Units is recognized over the derived service period of 30 months from the modification date. The remaining compensation expense for the Tranche II Incentive Units will be recognized over the remaining service period of approximately 25 months from the date of the amendment.

22

BIGBEAR.AI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of U.S. dollars unless stated otherwise)
The table below presents the activity in Tranche II of the Class B Units:

Unvested as of December 31, 2023
1,155,000 
Granted 
Vested 
Forfeited 
Unvested as of March 31, 2024
1,155,000 
As of March 31, 2024, there was no unrecognized compensation cost related to Tranche II Incentive Units.

Stock Options

On December 7, 2021, the Company adopted the BigBear.ai Holdings, Inc. 2021 Long-Term Incentive Plan (the “Plan”). The purpose of the Plan is to promote the long-term success of the Company and the creation of stockholder value by providing eligible employees, prospective employees, consultants and non-employee directors of the Company the opportunity to receive stock- and cash-based incentive awards.

There were no stock options granted during the three months ended March 31, 2024.
The table below presents the activity in the Stock Options:
Stock Options OutstandingWeighted-Average Exercise Price Per ShareWeighted-Average Remaining Contractual Life (in years)Aggregate Intrinsic Value
Outstanding as of December 31, 2023
5,127,673 $2.14 9.03$2,209 
Granted  
Vested  
Exercised(69,171)1.35 
Forfeited(507,749)2.55 
Expired  
Outstanding as of March 31, 2024
4,550,753 $2.10 8.18$1,733 
Vested and exercisable as of March 31, 2024
1,382,936 $2.35 8.16$593 
The Stock Options had $1,733 intrinsic value as of March 31, 2024. The Company recognizes equity-based compensation expense for the Stock Options equal to the fair value of the awards on a straight-line basis over the service based vesting period. As of March 31, 2024, there was approximately $3,892 of unrecognized compensation costs related to the Stock Options, which is expected to be recognized over the remaining weighted average period of 2.02 years.

Restricted Stock Units

During the three months ended March 31, 2024, pursuant to the Plan, the Company’s Board of Directors communicated the key terms and committed to grant Restricted Stock Units (“RSUs”) to certain employees and certain nonemployee directors and consultants. The Company granted 516,887 RSUs to employees and 0 RSUs to nonemployee directors during the three months ended March 31, 2024. RSUs granted to employees generally vest over four years, with 25% vesting on the one year anniversary of the grant date and then 6.25% per each quarter thereafter during years two, three and four. RSUs granted to nonemployee directors vest 25% each quarter following the grant date or 100% upon the first anniversary of the grant date. Vesting of RSUs is accelerated in the event of death, disability, or a change in control, subject to certain conditions.

23

BIGBEAR.AI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of U.S. dollars unless stated otherwise)
The table below presents the activity in the RSUs:
RSUs
Outstanding
Weighted-Average Grant Date Fair Value Per Share
Unvested as of December 31, 2023
10,052,113 $2.11 
Granted516,887 1.87 
Vested(2,269,961)2.17 
Forfeited(821,421)2.55 
Unvested as of March 31, 2024
7,477,618 $2.03 

As of March 31, 2024, there was approximately $14,952 of unrecognized compensation costs related to the RSUs, which is expected to be recognized over the remaining weighted average period of 2.20 years.

Performance Stock Units

Pursuant to the Plan, the Company’s Board of Directors communicated the key terms and granted Performance Stock Units (“PSUs”) to certain employees. The Company grants PSUs to certain employees as a retention incentive (“2024 Retention PSUs”). During the three months ended March 31, 2024, the Company granted 1,932,946 2024 Retention PSUs. The Company also granted 82,097 PSUs to employees under the Company’s Short-term Incentive Plan (“2023 STIP PSUs”), which contain performance measures based on a combination of Company’s financial performance as well as the individual’s personal performance. The number of 2024 Retention PSUs and 2023 STIP PSUs that will vest is based on the achievement of the performance criteria during each respective annual measurement period, provided that the employees remain in continuous service on each vesting date. Vesting will not occur unless a minimum performance criteria threshold is achieved.

The table below presents the activity in the PSUs:
PSUs
Outstanding
Weighted-Average Grant Date Fair Value Per Share
Unvested as of December 31, 2023
2,585,831$1.70 
Granted2,015,043 3.31 
Vested(2,359,319)1.73 
Forfeited(175,000)1.53 
Unvested as of March 31, 20242,066,555$3.25 

As of March 31, 2024, there was approximately $5,730 of unrecognized compensation costs related to the 2024 Retention PSUs, which is expected to be recognized over the remaining average period of 2.20 years.

As of March 31, 2024, all of the performance conditions of the 2023 STIP PSUs were achieved as of December 31, 2023. Therefore, there were no unrecognized compensation costs related to the 2023 STIP PSUs, which were fully recognized as of December 31, 2023.

Employee Share Purchase Plan (“ESPP”)

Concurrently with the adoption of the Plan, the Company’s Board of Directors adopted the 2021 Employee Stock Purchase Plan (the “ESPP”), which authorizes the grant of rights to purchase common stock of the Company to employees, officers and directors (if they are otherwise employees) of the Company. As of January 1, 2022, the Company reserved an aggregate of 3,974,948 common shares (subject to annual increases on January 1 of each year and ending in 2031) of the Company’s common stock for grants under the ESPP. During the three months ended March 31, 2024, zero shares were sold under the ESPP. As of March 31, 2024, the Company has withheld employee contributions of $495 for future ESPP purchases, which are presented on the consolidated balance sheets within other current liabilities.

24

BIGBEAR.AI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of U.S. dollars unless stated otherwise)
Equity-based compensation expense related to purchase rights issued under the ESPP is based on the Black-Scholes OPM fair value of the estimated number of awards as of the beginning of the offering period. Equity-based compensation expense is recognized using the straight-line method over the offering period. The table below presents the assumptions used to estimate the grant date fair value of the purchase rights under the ESPP:
December 31, 2023