bbai-20220930

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


x			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022


o			TRANSITION 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)


Delaware						85-4164597
(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 class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, $0.0001 par value

BBAI

New York Stock Exchange

Redeemable warrants, each full warrant exercisable for one share of common stock at an exercise price of $11.50 per share

BBAI.WS

New 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	o
Non-accelerated filer	x	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 126,275,250 shares of our common stock, $0.0001 par value per share, outstanding as of November 4, 2022.

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BIGBEAR.AI HOLDINGS, INC.

Quarterly Report on Form 10-Q

September 30, 2022

TABLE OF CONTENTS


Item						Page
PART I—FINANCIAL INFORMATION						3
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021						3
Consolidated Statements of Operations for the Three And Nine Months Ended September 30, 2022 and 2021						4
Consolidated Statements of Stockholders’ (Deficit) Equity for the Three and Nine Months Ended September 30, 2022 and 2021						5
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2022 and 2021						6
Notes to Consolidated Financial Statements (Unaudited)						7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations						29
Item 3. Quantitative and Qualitative Disclosures About Market Risk						44
Item 4. Controls and Procedures						45

PART II—OTHER INFORMATION						45
Item 1. Legal Proceedings						45
Item 1A . Risk Factors						45
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.						45



Item 6. Exhibits						46

SIGNATURES						47

Table of Contents

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

BIGBEAR.AI HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

(unaudited; in thousands, except share and per share data)



	September 30, 2022		December 31, 2021
Assets
Current assets:
Cash and cash equivalents	$	21,955	$	68,900
Restricted cash	—		101,021
Accounts receivable, less allowance for doubtful accounts of $98 as of September 30, 2022 and $43 as of December 31, 2021	31,652		28,605
Contract assets	1,323		628
Prepaid expenses and other current assets	5,084		7,028
Total current assets	60,014		206,182
Non-current assets:
Property and equipment, net	1,528		1,078
Goodwill	67,125		91,636
Intangible assets, net	87,551		83,646

Other non-current assets	692		780
Total assets	$	216,910	$	383,322

Liabilities and equity
Current liabilities:
Accounts payable	$	7,426	$	5,475
Short-term debt, including current portion of long-term debt	769		4,233
Accrued liabilities	17,494		10,735
Contract liabilities	4,758		4,207
Derivative liabilities	—		44,827
Other current liabilities	2,290		541
Total current liabilities	32,737		70,018
Non-current liabilities:
Long-term debt, net of current portion	191,830		190,364
Deferred tax liabilities	406		248
Other non-current liabilities	36		324
Total liabilities	225,009		260,954

Commitments and contingencies (Note L)

Stockholders’ (deficit) equity:
Common stock, par value $0.0001; 500,000,000 shares authorized and 126,273,215 shares issued and outstanding at September 30, 2022 and 135,566,227 at December 31, 2021	14		14
Additional paid-in capital	272,406		253,744

Treasury stock, at cost 9,952,803 shares at September 30, 2022 and — shares at December 31, 2021	(57,350)		—
Accumulated deficit	(223,169)		(131,390)
Total stockholders’ (deficit) equity	(8,099)		122,368
Total liabilities and stockholders’ (deficit) equity	$	216,910	$	383,322

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

BIGBEAR.AI HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited; in thousands, except share and per share data)



	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Revenues	$	40,651	$	40,219	$	114,654	$	112,100
Cost of revenues	28,900		29,421		83,446		81,859
Gross margin	11,751		10,798		31,208		30,241
Operating expenses:
Selling, general and administrative	20,233		12,038		69,205		32,557
Research and development	1,785		1,363		7,194		4,158
Restructuring charges	1,562		—		1,562		—
Transaction expenses	566		—		2,151		—
Goodwill impairment	—		—		35,252		—
Operating loss	(12,395)		(2,603)		(84,156)		(6,474)
Interest expense	3,557		1,870		10,666		5,579
Net decrease in fair value of derivatives	(102)		—		(1,564)		—

Other expense (income)	8		—		12		(1)
Loss before taxes	(15,858)		(4,473)		(93,270)		(12,052)
Income tax expense (benefit)	252		(1,327)		(1,491)		(3,294)
Net loss	$	(16,110)	$	(3,146)	$	(91,779)	$	(8,758)

Basic net loss per share	$	(0.13)	$	(0.03)	$	(0.72)	$	(0.08)
Diluted net loss per share	$	(0.13)	$	(0.03)	$	(0.72)	$	(0.08)

Weighted-average shares outstanding:
Basic	126,270,282		105,000,000		128,103,625		105,000,000
Diluted	126,270,282		105,000,000		128,103,625		105,000,000

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

BIGBEAR.AI HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT) EQUITY

(unaudited; in thousands, except share data)














	Three Months Ended September 30, 2022
	Common Stock			Additional		Treasury		Accumulated		Total stockholders’
	Shares	Amount		paid in capital		stock		deficit		(deficit) equity
As of June 30, 2022	126,263,451	$	14	$	270,184	$	(57,350)	$	(207,059)	$	5,789
Net loss	—	—		—		—		(16,110)		(16,110)
Equity-based compensation expense	—	—		2,222		—		—		2,222



Issuance of shares for vested RSUs	9,764	—		—		—		—		—
As of September 30, 2022	126,273,215	$	14	$	272,406	$	(57,350)	$	(223,169)	$	(8,099)

	Three Months Ended September 30, 2021
	Common Stock			Additional		Treasury		Accumulated		Total stockholders’
	Shares	Amount		paid in capital		stock		deficit		equity
As of June 30, 2021	105,000,000	$	11	$	108,280	$	—	$	(13,450)	$	94,841
Net loss	—	—		—		—		(3,146)		(3,146)
Equity-based compensation expense	—	—		30		—		—		30




As of September 30, 2021	105,000,000	$	11	$	108,310	$	—	$	(16,596)	$	91,725

	Nine Months Ended September 30, 2022
	Common Stock			Additional		Treasury		Accumulated		Total stockholders’
	Shares	Amount		paid in capital		stock		deficit		(deficit) equity
As of December 31, 2021	135,566,227	$	14	$	253,744	$	—	$	(131,390)	$	122,368
Net loss	—	—		—		—		(91,779)		(91,779)
Equity-based compensation expense	—	—		11,160		—		—		11,160
Repurchase of shares as a result of Forward Share Purchase Agreements	(9,952,803)	—		—		(57,350)		—		(57,350)
Issuance of common stock as consideration for the acquisition of ProModel Corporation	649,976	—		7,501		—		—		7,501
Exercise of warrants	51	—		1		—		—		1
Issuance of shares for vested RSUs	9,764	—		—		—		—		—
As of September 30, 2022	126,273,215	$	14	$	272,406	$	(57,350)	$	(223,169)	$	(8,099)

	Nine Months Ended September 30, 2021
	Common Stock			Additional		Treasury		Accumulated		Total stockholders’
	Shares	Amount		paid in capital		stock		deficit		equity
As of December 31, 2020(1)	105,000,000	$	11	$	108,224	$	—	$	(7,838)	$	100,397
Net loss	—	—		—		—		(8,758)		(8,758)
Equity-based compensation expense	—	—		86		—		—		86




As of September 30, 2021	105,000,000	$	11	$	108,310	$	—	$	(16,596)	$	91,725

(1) The units of the Company prior to the Merger (as defined in Note A—Description of the Business) have been retroactively restated to reflect the exchange ratio established in the Merger (computed as 105,000,000 shares of Common Stock to 100 Company units).

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

BIGBEAR.AI HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited; in thousands)



	Nine Months Ended September 30,
	2022		2021
Cash flows from operating activities:
Net loss	$	(91,779)	$	(8,758)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization expense	5,764		5,432
Amortization of debt issuance costs	1,570		429
Equity-based compensation expense	11,160		86
Goodwill impairment	35,252		—
Provision for doubtful accounts	55		—
Deferred income tax benefit	(1,450)		(3,341)

Net decrease in fair value of derivatives	(1,564)		—

Changes in assets and liabilities:
(Increase) decrease in accounts receivable	(2,359)		163
Increase in contract assets	(297)		(288)
Decrease (increase) in prepaid expenses and other assets	3,549		(5,829)
Increase in accounts payable	1,946		6,737
(Decrease) increase in accrued liabilities	(993)		4,733
(Decrease) increase in contract liabilities	(1,004)		1,595

Increase in other liabilities	1,760		263
Net cash (used in) provided by operating activities	(38,390)		1,222
Cash flows from investing activities:
Acquisition of businesses, net of cash acquired	(4,465)		(224)
Purchases of property and equipment	(736)		(601)

Net cash used in investing activities	(5,201)		(825)
Cash flows from financing activities:

Repurchase of shares as a result of forward share purchase agreements	(100,896)		—
Repayment of short-term borrowings	(3,464)		—
Payments for taxes related to net share settlement of equity awards	(15)		—
Repayment of term loan	—		(825)
Proceeds from promissory notes	—		1,500








Net cash (used in) provided by financing activities	(104,375)		675
Net (decrease) increase in cash and cash equivalents and restricted cash	(147,966)		1,072
Cash and cash equivalents and restricted cash at the beginning of period	169,921		9,704
Cash and cash equivalents and restricted cash at the end of the period	$	21,955	$	10,776





Supplemental schedule of non-cash investing and financing activities:
Issuance of common stock as consideration for the acquisition of ProModel Corporation	$	7,501	$	—







Reconciliation of cash and cash equivalents and restricted cash:	September 30, 2022		December 31, 2021
Cash and cash equivalents	$	21,955	$	68,900
Restricted cash	—		101,021
Cash and cash equivalents and restricted cash at end of the period	$	21,955	$	169,921

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

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BIGBEAR.AI HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited; in thousands of U.S. dollars unless stated otherwise)

Note A—Description of the Business

BigBear.ai Holdings, Inc. (“BigBear.ai,” “BigBear.ai Holdings,” or the “Company”) is a leader in the use of Artificial Intelligence (“AI”) and Machine Learning (“ML”) for decision support. Our products and services are widely used by government agencies in the United States to support many of the nation’s most critical defense and intelligence capabilities. We also support several commercial customers by integrating our solutions to turn data into actionable information for operational decision making. Unless otherwise indicated, references to “we,” “us,” and “our” refer collectively to BigBear.ai Holdings, Inc. and its consolidated subsidiaries. We operate in two reportable segments: Cyber & Engineering and Analytics.

On December 7, 2021, the previously announced merger (“Merger”) with GigCapital4, Inc. (“GigCapital4”) was consummated pursuant to the business combination agreement (the “Agreement”) dated June 4, 2021, as amended in July 2021 and December 2021, by and between GigCapital4 Merger Sub Corporation (the “Merger Sub”), a wholly owned subsidiary of GigCapital4, BigBear.ai Holdings, and BBAI Ultimate Holdings (“Parent”). Immediately prior to the stockholder vote for the Merger, GigCapital4 executed a series of Forward Share Purchase Agreements (“FPAs”) with certain investors (the “Investors”). Included within the FPAs was a provision that each of the Investors would not redeem their shares and instead would hold the shares for a period of up to three months following the consummation of the Merger, at which time they would have the right to sell the shares to the Company for $10.15 per share. During the three months ended March 31, 2022, the Company repurchased all 9,952,803 shares of its common stock at the Investors’ request (refer to Note M—Written Put Option for detail).

Upon the closing of the Merger, GigCapital4 was renamed to BigBear.ai, Holdings Inc., the U.S. Securities and Exchange Commission (“SEC”) registrant. As a result of the Merger, the Company received aggregate gross proceeds of $101,958 from GigCapital4’s trust account and PIPE Proceeds, and issued $200,000 of unsecured convertible notes that were convertible into 17,391,304 shares of the Company’s common stock at the initial Conversion Price of $11.50, subject to adjustment (refer to Note I—Debt for detail). Proceeds from the Merger were partially used to fund the $114,393 repayment of the Antares Loan and Merger transaction costs and other costs paid through the funds flow of $9,802, consisting of marketing, legal and other professional fees.

The Merger is accounted for as a reverse recapitalization in which GigCapital4 is treated as the acquired company. For accounting purposes, the Merger is treated as the equivalent of BigBear.ai Holdings issuing equity for the net assets of GigCapital4 followed by a recapitalization. A reverse recapitalization does not result in a new basis of accounting, and the consolidated financial statements of the combined entity (BigBear.ai) represent the continuation of the consolidated financial statements of BigBear.ai Holdings in many respects.

Immediately prior to the closing of the Merger, but following the consummation of GigCapital4’s domestication to a Delaware corporation, the authorized capital stock of GigCapital4 consisted of 501,000,000 shares, including (i) 500,000,000 shares of common stock and (ii) 1,000,000 shares of preferred stock. 135,566,227 shares of common stock and no shares of the preferred stock were outstanding as of December 31, 2021. At the effective time of the Merger, 100 units of BigBear.ai Holdings were cancelled and automatically deemed for all purposes to represent the Parent’s right to receive, in the aggregate, $75 million in cash and shares in GigCapital4, and Parent exchanged its 100 units of BigBear.ai Holdings for 105,000,000 shares of BigBear.ai’s common stock. In addition, 8,000,000 shares of PIPE financing were issued and 1,495,320 shares were issued to certain advisors. AE Industrial Partners, LP (“AE”) became the majority stockholder of the Company, via its ownership of PCISM Ultimate Holdings, LLC (subsequently renamed to BBAI Ultimate Holdings, LLC), following the close of the Merger (83.5%).

Note B—Summary 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.

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BIGBEAR.AI HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited; in thousands of U.S. dollars unless stated otherwise)

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, 2021.

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.

Recently Adopted Accounting Pronouncements

In October 2021, the Financial Accounting Standards Board (the “FASB”) issued ASU No. 2021-08, Business Combinations (“ASC 805”), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”). Upon the issuance of ASU No. 2014-09, Revenue from Contracts with Customers (“ASC 606”), which provides a single comprehensive accounting model on revenue recognition for contracts with customers, stakeholders indicated that there are differing views on whether the concept of a performance obligation introduced by ASC 606 should be used to determine whether a contract liability is recognized in a business combination from revenue contracts. Before the adoption date of ASC 606, a liability for deferred revenue was generally recognized in an acquirer’s financial statements if it represented a legal obligation. The amendments in ASU 2021-08 address how to determine whether a contract liability is recognized by the acquirer in a business combination. Additionally, stakeholders raised questions about how to apply ASC 805 to contracts with a customer acquired in a business. Under current practice, the timing of payment for a revenue contract may subsequently affect the amount of post-acquisition revenue recognized by the acquirer. For example, if two revenue contracts with identical performance obligations are acquired but one contract is paid upfront before the acquisition and the other contract is paid over the contract term after the acquisition, the amount of revenue recognized by the acquirer after the business combination likely would differ between the two acquired contracts. The amendments in ASU 2021-08 resolve this inconsistency by providing specific guidance on how to recognize and measure acquired contract assets and contract liabilities from revenue contracts in a business combination. The new guidance will be effective for the years beginning after December 15, 2022. The Company prospectively adopted ASU 2021-08 as of January 1, 2022.

Note C—Restructuring Charges

The restructuring charges resulted from a strategic review of the Company’s capacity and future projections, with the purpose being to better align our organization and cost structure and improve the affordability of our products and services. During the three and nine months ended September 30, 2022, we recorded employee separation costs of $1.6 million, net of tax benefits. A liability reflecting unpaid employee separation costs of $603 is presented on the consolidated balance sheets within other current liabilities.

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BIGBEAR.AI HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited; in thousands of U.S. dollars unless stated otherwise)

Note D—Business Combinations

ProModel Acquisition

On April 7, 2022, the Company’s subsidiary BigBear.ai, LLC acquired 100% of the equity interest in ProModel Corporation (“ProModel Corporation”), a leader in simulation-based predictive and prescriptive analytic software for process improvement enabling organizations to make better decisions, for approximately $16.1 million, subject to certain adjustments. This acquisition complements the Company’s previous acquisition of ProModel’s Government Services business, ProModel Government Solutions Inc. (“ProModel Government Solutions”), which closed on December 21, 2020. The acquisition was funded through a combination of cash on hand and the issuance of 649,976 shares of the Company’s common stock. ProModel Corporation is aligned under the Company’s Analytics business segment.

The purchase agreement with the sellers of ProModel Corporation also stipulates that certain funds would be held in escrow (“Indemnity Escrow Deposit,” “Distribution Withholding Deposit,” and “Adjustment Escrow Deposit”), for the benefit of the seller. Pursuant to and subject to the terms and conditions of the Escrow Agreement, the Adjustment Escrow Amount of $200, the Distribution Withholding Escrow Amount of $100, and the Indemnity Escrow Amount of $100 shall be held in escrow until released in accordance with the purchase agreement and the Escrow Agreement.

The following table summarizes the preliminary fair value of the consideration transferred and the preliminary estimated fair values of the major classes of assets acquired and liabilities assumed as of the acquisition date.


	April 7, 2022
Cash paid	$	8,559
Equity issued	7,501
Purchase consideration	$	16,060
Assets:
Cash	$	4,094
Accounts receivable	743
Prepaid expenses and other current assets	1,600
Contract assets	398

Property and equipment	83
Other non-current assets	21
Intangible assets	9,300
Total assets acquired	$	16,239
Liabilities:
Accounts payable	5
Accrued liabilities	7,752
Contract liabilities	1,555
Deferred tax liabilities	1,608
Total liabilities acquired	$	10,920
Fair value of net identifiable assets acquired	5,319
Goodwill	$	10,741

The following table summarizes the intangible assets acquired by class:


	April 7, 2022
Technology	$	3,500
Customer relationships	5,800
Total intangible assets	$	9,300

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

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BIGBEAR.AI HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited; in thousands of U.S. dollars unless stated otherwise)

The amounts above represent the current preliminary fair value estimates as the measurement period is still open as of September 30, 2022. The Company is finalizing the valuation analysis.

The fair value of the acquired technology 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 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 following table presents the revenue and earnings of ProModel Corporation included within the consolidated statements of operations during the three and nine months ended September 30, 2022.


	Three Months Ended September 30, 2022		Nine Months Ended September 30, 2022
Net revenue	$	1,619	$	3,115
Net loss	(1,830)		(2,722)

Pro Forma Financial Data (Unaudited)

The following table presents the pro forma consolidated results of operations of BigBear.ai for the three and nine-month periods ended September 30, 2022 and September 30, 2021 as though the acquisition of ProModel Corporation had been completed as of January 1, 2021.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Net revenue	$	40,651	$	41,737	$	115,899	$	116,520
Net loss	(16,110)		(4,246)		(92,856)		(9,197)
Transaction expenses	—		—		1,585		—

The amounts included in the pro forma information are based on the historical results and do not necessarily represent what would have occurred if all the business combinations had taken place as of January 1, 2021, 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 $0 and $1,585 of transaction expenses attributable to the acquisition of ProModel Corporation during the three and nine months ended September 30, 2022, respectively.

Note E—Fair Value of Financial Instruments

Cash and cash equivalents, restricted cash, 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.

Private warrants and written put options 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 private warrants and Note M—Written Put Option for information on the Level 3 inputs used to value the written put options.

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BIGBEAR.AI HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited; in thousands of U.S. dollars unless stated otherwise)

The table below presents the financial liabilities measured at fair value on a recurring basis:



		September 30, 2022
	Balance Sheet Caption	Level 1		Level 2		Level 3		Total
Private warrants	Other non-current liabilities	$	—	$	—	$	36	$	36
Written put options	Derivative liabilities	—		—		—		—





		December 31, 2021
	Balance Sheet Caption	Level 1		Level 2		Level 3		Total
Private warrants	Other non-current liabilities	$	—	$	—	$	319	$	319
Written put options	Derivative liabilities	—		—		44,827		44,827

The changes in the fair value of the Level 3 liabilities are as follows:


	Level 3
	Private warrants		Written put options








December 31, 2021	$	319	$	44,827

Changes in fair value	(240)		(1,281)
Settlements	(43)		(43,546)
September 30, 2022	$	36	$	—

Note F—Goodwill

During the second quarter of the fiscal year ending December 31, 2022, the Company identified factors indicating that the fair value of both the Cyber & Engineering and Analytics reporting units may be less than their respective carrying amounts and performed a qualitative goodwill impairment assessment. These factors were related to a shift in the Federal Government’s focus to address immediate needs in Ukraine, causing a slowdown in the pace of contract awards. This resulted in lower revenues than anticipated during the period and caused future revenue projections to be revised. As a result, the Company determined that a quantitative goodwill impairment assessment should be performed.

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 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 carrying value of the Cyber & Engineering reporting unit exceeded its fair value and accordingly the Company recorded a non-tax-deductible goodwill impairment charge of $35,252, which was included within the consolidated statement of operations for the nine months ended September 30, 2022. As of June 30, 2022, the estimated fair value of the Analytics reporting unit exceeded its carrying value by 8.3%. An increase in the WACC of approximately 1% or a reduction in the forecasted revenues of approximately 3% would have resulted in an impairment of the goodwill within the Analytics reporting unit using the Income Approach.

We performed a quarterly assessment to identify potential indicators of impairment for our Analytics reporting unit during the

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BIGBEAR.AI HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited; in thousands of U.S. dollars unless stated otherwise)

three months ended September 30, 2022. Based on our performed assessment, we did not identify any impairment indicators for the Analytics reporting unit during the three months ended September 30, 2022 and determined that it was not more likely than not that the carrying value of the Analytics reporting unit exceeded its fair value.

We perform an annual review of goodwill for impairment during the fourth quarter and whenever events or other changes in circumstances indicate that the carrying value may not be fully recoverable.

The table below presents the changes in the carrying amount of goodwill by reporting unit:


	Cyber & Engineering		Analytics		Total










As of December 31, 2021	$	35,252	$	56,384	$	91,636
Goodwill arising from the ProModel Corporation acquisition	—		10,741		10,741
Goodwill impairment	(35,252)		—		(35,252)


As of September 30, 2022	$	—	$	67,125	$	67,125

Accumulated impairment losses to goodwill were $35,252 as of September 30, 2022 and are related to the Cyber & Engineering reporting unit.

Note G—Prepaid expenses and other current assets

The table below presents details on prepaid expenses and other current assets:


	September 30, 2022		December 31, 2021
Prepaid expenses	$	4,234	$	2,217
Prepaid insurance	850		4,265
Pre-contract costs(1)	—		546
Total prepaid expenses and other current assets	$	5,084	$	7,028

(1) Costs incurred to fulfill a contract in advance of the contract being awarded are included in prepaid expenses and other current assets if we determine that those costs relate directly to a contract or to an anticipated contract that we can specifically identify and contract award is probable, the costs generate or enhance resources that will be used in satisfying performance obligations, and the costs are recoverable (referred to as pre-contract costs).

Pre-contract costs that are initially capitalized in prepaid assets and other current assets are generally recognized as cost of revenues consistent with the transfer of products or services to the customer upon the receipt of the anticipated contract. All other pre-contract costs, including start-up costs, are expensed as incurred. As of September 30, 2022 and December 31, 2021, $— and $546 of pre-contract costs were included in prepaid expenses and other current assets, respectively.

Note H—Accrued Liabilities

The table below presents details on accrued liabilities:



	September 30, 2022		December 31, 2021
Payroll accruals	$	12,446	$	9,011
Accrued interest	3,567		842
Other accrued expenses	1,481		882
Total accrued liabilities	$	17,494	$	10,735

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BIGBEAR.AI HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited; in thousands of U.S. dollars unless stated otherwise)

Note I—Debt

The table below presents the Company’s debt balances:



	September 30, 2022		December 31, 2021
Convertible Notes	$	200,000	$	200,000
Bank of America Senior Revolver	—		—


D&O Financing Loan	769		4,233
Total debt	200,769		204,233
Less: unamortized issuance costs	8,170		9,636
Total debt, net	192,599		194,597
Less: current portion	769		4,233
Long-term debt, net	$	191,830	$	190,364

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”), providing the Company with a $25.0 million senior secured revolving credit facility as of November 8, 2022 (the “Senior Revolver”). Proceeds from the Senior Revolver will be 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.

As of September 30, 2022, the Company was not in compliance with the Fixed Charge Coverage ratio requirement of the Bank of America Credit Agreement. 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

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BIGBEAR.AI HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited; in thousands of U.S. dollars unless stated otherwise)

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. 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 $1 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 these Adjusted EBITDA requirements is not deemed to be a default but will limit the Company’s ability to make borrowings under the Senior Revolver until such time that the Company is able meet the Adjusted EBITDA thresholds as defined in the Second Amendment.

The Second Amendment removes the requirement that the Company demonstrate compliance with the minimum Fixed Charge Coverage ratio. See Note U—Subsequent Events for additional information regarding the Second Amendment.

Based on current forecasts, management believes that it is reasonably likely that the Company may fail to meet the minimum Adjusted EBITDA requirements of the Bank of America Credit Agreement in future periods and therefore, may be unable to draw on the facility. 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, we believe that our cash from operating activities generated from continuing operations during the year will be adequate for the next 12 months to meet our anticipated uses of cash flow, including payroll obligations, working capital, operating lease obligations, capital expenditures and debt service costs, and it is considered unlikely that the Company would require access to draw funds on the Senior Revolver in the foreseeable future.

As of September 30, 2022, the Company had not drawn on the Senior Revolver. Unamortized debt issuance costs of $441 as of September 30, 2022, are recorded on the balance sheet and are presented in other non-current assets.

Convertible Notes

Upon consummation of the Merger, 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 Note 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.

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BIGBEAR.AI HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited; in thousands of U.S. dollars unless stated otherwise)

If a Fundamental Change (as defined in the Convertible Note 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 September 30, 2022, the Company was in compliance with all covenants.

On May 29, 2022, pursuant to the conversion rate adjustment provisions in the Convertible Note 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.

As of September 30, 2022, 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 $8.2 million of unamortized debt issuance costs.

D&O Financing Loan

On December 8, 2021, the Company entered into a $4,233 loan (the “D&O Financing Loan”) with AFCO Credit Corporation to finance the Company’s directors and officers insurance premium. The D&O Financing Loan has an interest rate of 1.50% per annum and a maturity date of December 8, 2022.

Note J—Leases

The Company is obligated under operating leases for certain real estate and office equipment assets. Certain leases contained predetermined fixed escalation of minimum rents at rates ranging from 2.5% to 5.4% per annum and renewal options that could extend certain leases to up to an additional five years.

Note K—Income Taxes

The table below presents the effective income tax rate for the following periods:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021









Effective tax rate	(1.6)	%	29.7	%	1.6	%	27.3	%

The Company was taxed as a corporation for federal, state, and local income tax purposes for the three and nine months ended September 30, 2022 and as a limited liability company which elected to be taxed as a corporation for federal, state, and local income tax purposes for the three and nine months ended September 30, 2021. The effective tax rate for the three and nine months ended September 30, 2022 differs from the U.S. federal income tax rate of 21.0% primarily due to state and local income taxes, permanent differences between book and taxable income, and the change in the valuation allowance primarily resulting from the ProModel Corporation acquisition. The effective tax rate for the three and nine months ended September 30, 2021 differs from the U.S. federal income tax rate of 21.0% primarily due to state and local corporate income taxes, offset by non-deductible transaction expenses.

Note L—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.

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BIGBEAR.AI HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited; in thousands of U.S. dollars unless stated otherwise)

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 believes that it has valid defenses with respect to any matters currently pending against the Company and intends to defend itself vigorously. 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.

Note M—Written Put Option

Immediately prior to the stockholder vote for the Merger, GigCapital4 executed a series of FPAs with Highbridge Tactical Credit Master Fund. L.P. and Highbridge SPAC Opportunity Fund, L.P. (the “Highbridge Investors”), Tenor Opportunity Master Fund Ltd. (“Tenor”), and Glazer Capital, LLC and Meteora Capital, LLC (the “Glazer Investors,” together with the Highbridge Investors and Tenor, the “Investors”). The FPAs provide that each of the Investors would not redeem their shares and instead would hold the shares for a period of up to three months following the consummation of the Merger, at which time they would have the right to sell the shares to the Company for $10.15 per share (the “Written Put Option”). The Investors had the right to sell shares on the open market before the end of the three-month period provided that the share price was at least $10.00 per share. If the Investors sold any shares in the open market within the first month of the three-month period and at a price greater than $10.05 per share, the Company would pay the Investors $0.05 per share sold.

The following table indicates the aggregate number of shares of common stock subject to the FPAs by each Investor:


			December 6, 2021
Highbridge Investors			2,453,195
Tenor			2,499,608
Glazer Investors			5,000,000
Total shares			9,952,803

During the three months ended March 31, 2022, the Company settled the derivative liability associated with the Written Put Option by repurchasing all 9,952,803 shares of its common stock at the Investors’ request. Certain of the Investors requested for their shares to be repurchased prior to the end of the three-month period at a reduced price per share. As a result, 5,000,000 shares were repurchased at $10.125 per share during the first quarter of 2022. Of the $101,021 previously presented as restricted cash on the Company’s consolidated balance sheets on December 31, 2021, $100,896 was released from the escrow account to settle the obligation to Investors and the remaining $125 was reclassified to cash and cash equivalents.

The table below presents the value of the Written Put Option under the Black-Scholes OPM using the following assumptions as of the following date:


	December 31, 2021
Value of the written put options	$	4.50
Exercise price	$	10.15
Common stock price	$	5.66
Expected option term (in years)	0.18
Expected volatility	66.00%
Risk-free rate of return	0.06%
Expected annual dividend yield	—%

As of December 31, 2021, the Written Put Option had a fair value of $44,827 and was presented on the consolidated balance sheets as a derivative liability. During the three months ended March 31, 2022, the derivative liability was remeasured to its intrinsic value at each date that the underlying shares were repurchased. The resulting gain of $1,281 was presented in net decrease in fair value of derivatives on the consolidated statements of operations for the nine months ended September 30, 2022. The intrinsic value of the Written Put Option upon settlement was $43,546 and was recognized direc