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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2024
OR
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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)
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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:
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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:
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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 250,585,897 shares of our common stock, $0.0001 par value per share, outstanding as of November 1, 2024.
BIGBEAR.AI HOLDINGS, INC.
Quarterly Report on Form 10-Q
September 30, 2024
TABLE OF CONTENTS
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Item 1. Financial Statements (Unaudited) | | |
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PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
BIGBEAR.AI HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited; in thousands, except share and per share data)
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| September 30, 2024 | | December 31, 2023 |
Assets | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 65,584 | | | $ | 32,557 | |
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Accounts receivable, less allowance for credit losses of $127 as of September 30, 2024 and $230 as of December 31, 2023 | 32,464 | | | 21,949 | |
Contract assets | 1,914 | | | 4,822 | |
Prepaid expenses and other current assets | 4,222 | | | 4,449 | |
Total current assets | 104,184 | | | 63,777 | |
Non-current assets: | | | |
Property and equipment, net | 1,519 | | | 997 | |
Goodwill | 118,621 | | | 48,683 | |
Intangible assets, net | 119,257 | | | 82,040 | |
Right-of-use assets | 9,430 | | | 4,041 | |
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Other non-current assets | 1,072 | | | 372 | |
Total assets | $ | 354,083 | | | $ | 199,910 | |
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Liabilities and stockholders’ deficit | | | |
Current liabilities: | | | |
Accounts payable | $ | 4,249 | | | $ | 11,038 | |
Short-term debt, including current portion of long-term debt | — | | | 1,229 | |
Accrued liabilities | 26,356 | | | 16,233 | |
Contract liabilities | 2,082 | | | 879 | |
Current portion of long-term lease liability | 1,075 | | | 779 | |
Derivative liabilities | 15,796 | | | 37,862 | |
Other current liabilities | 1,027 | | | 602 | |
Total current liabilities | 50,585 | | | 68,622 | |
Non-current liabilities: | | | |
Long-term debt, net | 195,738 | | | 194,273 | |
Long-term lease liability | 9,327 | | | 4,313 | |
Deferred tax liabilities | — | | | 37 | |
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Total liabilities | 255,650 | | | 267,245 | |
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Commitments and contingencies (Note 13) | | | |
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Stockholders’ equity (deficit): | | | |
Common stock, par value $0.0001; 500,000,000 shares authorized and 250,060,927 shares issued and outstanding at September 30, 2024 and 157,287,522 shares issued and outstanding at December 31, 2023 | 25 | | | 17 | |
Additional paid-in capital | 618,256 | | | 303,428 | |
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Treasury stock, at cost 9,952,803 shares at September 30, 2024 and December 31, 2023 | (57,350) | | | (57,350) | |
Accumulated deficit | (462,490) | | | (313,430) | |
Accumulated other comprehensive loss | (8) | | | — | |
Total stockholders’ equity (deficit) | 98,433 | | | (67,335) | |
Total liabilities and stockholders’ equity (deficit) | $ | 354,083 | | | $ | 199,910 | |
The accompanying notes to the consolidated financial statements are an integral part of these statements.
BIGBEAR.AI HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(unaudited; in thousands, except share and per share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, | | | |
| 2024 | | 2023 | | 2024 | | 2023 | | | | | | | |
Revenues | $ | 41,505 | | | $ | 33,988 | | | $ | 114,409 | | | $ | 114,601 | | | | | | | | |
Cost of revenues | 30,739 | | | 25,579 | | | 85,594 | | | 87,016 | | | | | | | | |
Gross margin | 10,766 | | | 8,409 | | | 28,815 | | | 27,585 | | | | | | | | |
Operating expenses: | | | | | | | | | | | | | | |
Selling, general and administrative | 17,485 | | | 15,533 | | | 57,797 | | | 52,825 | | | | | | | | |
Research and development | 3,820 | | | (349) | | | 8,529 | | | 3,004 | | | | | | | | |
Restructuring charges | — | | | — | | | 1,317 | | | 780 | | | | | | | | |
Transaction expenses | — | | | 1,437 | | | 1,450 | | | 1,437 | | | | | | | | |
Goodwill impairment | — | | | — | | | 85,000 | | | — | | | | | | | | |
Operating loss | (10,539) | | | (8,212) | | | (125,278) | | | (30,461) | | | | | | | | |
Interest expense | 3,541 | | | 3,540 | | | 10,647 | | | 10,656 | | | | | | | | |
Net (decrease) increase in fair value of derivatives | (1,278) | | | (15,659) | | | 14,832 | | | (1,971) | | | | | | | | |
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Other income | (647) | | | (87) | | | (1,719) | | | (87) | | | | | | | | |
(Loss) income before taxes | (12,155) | | | 3,994 | | | (149,038) | | | (39,059) | | | | | | | | |
Income tax expense (benefit) | 21 | | | (5) | | | 22 | | | 51 | | | | | | | | |
Net (loss) income | $ | (12,176) | | | $ | 3,999 | | | $ | (149,060) | | | $ | (39,110) | | | | | | | | |
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Basic net (loss) income per share | $ | (0.05) | | | $ | 0.03 | | | $ | (0.65) | | | $ | (0.27) | | | | | | | | |
Diluted net (loss) income per share | $ | (0.05) | | | $ | 0.03 | | | $ | (0.65) | | | $ | (0.27) | | | | | | | | |
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Weighted-average shares outstanding: | | | | | | | | | | | | | | |
Basic | 249,951,542 | | | 155,830,775 | | | 227,900,950 | | | 146,679,444 | | | | | | | | |
Diluted | 249,951,542 | | | 157,894,001 | | | 227,900,950 | | | 146,679,444 | | | | | | | | |
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Other comprehensive loss | | | | | | | | | | | | | | |
Foreign currency translation | $ | (8) | | | $ | — | | | $ | (8) | | | $ | — | | | | | | | | |
Total other comprehensive loss | (8) | | | — | | | (8) | | | — | | | | | | | | |
Total comprehensive (loss) income | $ | (12,184) | | | $ | 3,999 | | | $ | (149,068) | | | $ | (39,110) | | | | | | | | |
The accompanying notes to the consolidated financial statements are an integral part of these statements.
BIGBEAR.AI HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(unaudited; in thousands, except share data)
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| Three Months Ended September 30, 2024 |
| Common stock | | Additional | | Treasury | | Accumulated | | Accumulated other | | Total stockholders’ |
| Shares | | Amount | | paid in capital | | stock | | deficit | | comprehensive loss | | equity |
As of June 30, 2024 | 246,774,184 | | | $ | 25 | | | $ | 610,395 | | | $ | (57,350) | | | $ | (450,314) | | | $ | — | | | $ | 102,756 | |
Net loss | — | | | — | | | — | | | — | | | (12,176) | | | — | | | (12,176) | |
Foreign currency translation | — | | | — | | | — | | | — | | | — | | | (8) | | | (8) | |
Equity-based compensation expense | — | | | — | | | 5,168 | | | — | | | — | | | — | | | 5,168 | |
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Issuance of common shares as consideration for the acquisition of Pangiam | 2,144,073 | | | — | | | 2,987 | | | — | | | — | | | — | | | 2,987 | |
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Issuance of shares for equity-based compensation awards, net | 1,142,670 | | | — | | | (294) | | | — | | | — | | | — | | | (294) | |
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As of September 30, 2024 | 250,060,927 | | | $ | 25 | | | $ | 618,256 | | | $ | (57,350) | | | $ | (462,490) | | | $ | (8) | | | $ | 98,433 | |
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| Three Months Ended September 30, 2023 |
| Common stock | | Additional | | Treasury | | Accumulated | | Accumulated other | | Total stockholders’ |
| Shares | | Amount | | paid in capital | | stock | | deficit | | comprehensive loss | | deficit |
As of June 30, 2023 | 155,452,774 | | | $ | 17 | | | $ | 291,933 | | | $ | (57,350) | | | $ | (296,173) | | | $ | — | | | $ | (61,573) | |
Net income | — | | | — | | | — | | | — | | | 3,999 | | | — | | | 3,999 | |
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Equity-based compensation expense | — | | | — | | | 4,793 | | | — | | | — | | | — | | | 4,793 | |
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Issuance of shares for equity-based compensation awards, net | 601,165 | | | — | | | (39) | | | — | | | — | | | — | | | (39) | |
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Issuance of shares purchased under ESPP | — | | | — | | | 531 | | | — | | | — | | | — | | | 531 | |
As of September 30, 2023 | 156,053,939 | | | $ | 17 | | | $ | 297,218 | | | $ | (57,350) | | | $ | (292,174) | | | $ | — | | | $ | (52,289) | |
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The accompanying notes to the consolidated financial statements are an integral part of these statements.
BIGBEAR.AI HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(unaudited; in thousands, except share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2024 |
| Common stock | | Additional | | Treasury | | Accumulated | | Accumulated other | | Total stockholders’ |
| Shares | | Amount | | paid in capital | | stock | | deficit | | comprehensive loss | | equity |
As of December 31, 2023 | 157,287,522 | | | $ | 17 | | | $ | 303,428 | | | $ | (57,350) | | | $ | (313,430) | | | $ | — | | | $ | (67,335) | |
Net loss | — | | | — | | | — | | | — | | | (149,060) | | | — | | | (149,060) | |
Foreign currency translation | — | | | — | | | — | | | — | | | — | | | (8) | | | (8) | |
Equity-based compensation expense | — | | | — | | | 16,074 | | | — | | | — | | | — | | | 16,074 | |
Exercise of options | 87,324 | | | — | | | 119 | | | — | | | — | | | — | | | 119 | |
Issuance of common shares as consideration for the acquisition of Pangiam | 63,982,145 | | | 6 | | | 210,757 | | | — | | | — | | | — | | | 210,763 | |
Proceeds from exercise of 2023 warrants | 22,775,144 | | | 2 | | | 90,705 | | | — | | | — | | | — | | | 90,707 | |
Issuance of shares for equity-based compensation awards, net | 5,454,373 | | | — | | | (3,434) | | | — | | | — | | | — | | | (3,434) | |
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Issuance of shares for exercised convertible notes | 94 | | | — | | | — | | | — | | | — | | | — | | | — | |
Issuance of shares purchased under ESPP | 474,325 | | | — | | | 607 | | | — | | | — | | | — | | | 607 | |
As of September 30, 2024 | 250,060,927 | | | $ | 25 | | | $ | 618,256 | | | $ | (57,350) | | | $ | (462,490) | | | $ | (8) | | | $ | 98,433 | |
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| Nine Months Ended September 30, 2023 |
| Common stock | | Additional | | Treasury | | Accumulated | | Accumulated other | | Total stockholders’ |
| Shares | | Amount | | paid in capital | | stock | | deficit | | comprehensive loss | | deficit |
As of December 31, 2022 | 127,022,363 | | | $ | 14 | | | $ | 272,528 | | | $ | (57,350) | | | $ | (253,064) | | | $ | — | | | $ | (37,872) | |
Net loss | — | | | — | | | — | | | — | | | (39,110) | | | — | | | (39,110) | |
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Equity-based compensation expense | — | | | — | | | 12,592 | | | — | | | — | | | — | | | 12,592 | |
Issuance of Private Placement shares | 13,888,889 | | | 2 | | | 7,079 | | | — | | | — | | | — | | | 7,081 | |
Issuance of Registered Direct Offering shares | 11,848,341 | | | 1 | | | 6,764 | | | — | | | — | | | — | | | 6,765 | |
Issuance of shares for equity-based compensation awards, net | 2,585,688 | | | — | | | (2,276) | | | — | | | — | | | — | | | (2,276) | |
Issuance of shares for exercised convertible notes | 188 | | | — | | | — | | | — | | | — | | | — | | | — | |
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Issuance of shares purchased under ESPP | 708,470 | | | — | | | 531 | | | — | | | — | | | — | | | 531 | |
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As of September 30, 2023 | 156,053,939 | | | $ | 17 | | | $ | 297,218 | | | $ | (57,350) | | | $ | (292,174) | | | $ | — | | | $ | (52,289) | |
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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)
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| Nine Months Ended September 30, | | | |
| 2024 | | 2023 | | | | | | | |
Cash flows from operating activities: | | | | | | | | | | |
Net loss | $ | (149,060) | | | $ | (39,110) | | | | | | | | |
Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | | | | |
Depreciation and amortization expense | 8,740 | | | 5,936 | | | | | | | | |
Amortization of debt issuance costs | 1,517 | | | 1,512 | | | | | | | | |
Equity-based compensation expense | 16,074 | | | 12,592 | | | | | | | | |
Goodwill impairment | 85,000 | | | — | | | | | | | | |
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Non-cash lease expense | 553 | | | 450 | | | | | | | | |
Provision for doubtful accounts | 220 | | | 1,607 | | | | | | | | |
Deferred income tax (benefit) expense | (37) | | | 53 | | | | | | | | |
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Net increase in fair value of derivatives | 14,832 | | | (1,971) | | | | | | | | |
Loss on sale of property and equipment | — | | | 10 | | | | | | | | |
Changes in assets and liabilities: | | | | | | | | | | |
Increase in accounts receivable | (5,396) | | | (546) | | | | | | | | |
Decrease in contract assets | 3,078 | | | 860 | | | | | | | | |
Decrease in prepaid expenses and other assets | 1,540 | | | 6,181 | | | | | | | | |
Decrease in accounts payable | (8,224) | | | (6,346) | | | | | | | | |
Increase in accrued liabilities | 7,610 | | | 2,035 | | | | | | | | |
Increase in contract liabilities | 486 | | | 298 | | | | | | | | |
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Decrease in other liabilities | (246) | | | (1,794) | | | | | | | | |
Net cash used in operating activities | (23,313) | | | (18,233) | | | | | | | | |
Cash flows from investing activities: | | | | | | | | | | |
Acquisition of business, net of cash acquired | 13,935 | | | — | | | | | | | | |
Purchases of property and equipment | (304) | | | (2) | | | | | | | | |
Capitalized software development costs | (7,396) | | | (2,744) | | | | | | | | |
Net cash provided by (used in) investing activities | 6,235 | | | (2,746) | | | | | | | | |
Cash flows from financing activities: | | | | | | | | | | |
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Proceeds from issuance of shares for exercised RDO and PIPE warrants | 53,809 | | | — | | | | | | | | |
Proceeds from issuance of Private Placement and Registered Direct Offering shares | — | | | 50,000 | | | | | | | | |
Payment of Private Placement and Registered Direct Offering transaction costs | — | | | (5,724) | | | | | | | | |
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Repayment of short-term borrowings | (1,229) | | | (2,059) | | | | | | | | |
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Issuance of common stock upon ESPP purchase | 607 | | | 531 | | | | | | | | |
Proceeds from exercise of options | 119 | | | — | | | | | | | | |
Payments of tax withholding from the issuance of common stock | (3,143) | | | (2,217) | | | | | | | | |
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Net cash provided by financing activities | 50,163 | | | 40,531 | | | | | | | | |
Effect of foreign currency rate changes on cash and cash equivalents | (58) | | | — | | | | | | | | |
Net increase in cash and cash equivalents | 33,027 | | | 19,552 | | | | | | | | |
Cash and cash equivalents at the beginning of period | 32,557 | | | 12,632 | | | | | | | | |
Cash and cash equivalents at the end of the period | $ | 65,584 | | | $ | 32,184 | | | | | | | | |
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Supplemental schedule of non-cash investing and financing activities: | | | | | | | | | | |
Issuance of common stock as consideration for Pangiam acquisition | $ | 210,757 | | | $ | — | | | | | | | | |
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The accompanying notes to the consolidated financial statements are an integral part of these statements.
BIGBEAR.AI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, in thousands of U.S. dollars unless stated otherwise)
Note 1—Description of the Business
BigBear.ai Holdings, Inc.’s (“BigBear.ai”, “BigBear.ai Holdings”, “BigBear” 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 2—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. 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
BIGBEAR.AI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, 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.
In November 2023, the FASB ASU No. 2023-07, Segment Reporting: Improvements to Reportable Segment Disclosures (“ASU 2023-07”). This ASU amends FASB Topic 280 to permit the disclosure of multiple measures of a segment's profit or loss, and requires an entity with a single reportable segment to apply FASB Topic 280 in its entirety. In addition, this ASU requires the following new segment disclosures:
•Significant segment expenses by reportable segment if regularly provided to the Chief Operating Decision Maker ("CODM") and included within the reported measure of segment profit or loss;
•Other segment items, which represents the difference between reported segment revenues less the significant segment expenses less reported segment profit or loss; and
•Title and position of the CODM.
Disclosures required under this new ASU and the existing segment profit or loss and assets disclosures currently required annually by FASB Topic 280 are to be disclosed in interim periods. The annual disclosure requirements are effective for the Company's fiscal year ending December 31, 2024, and the interim period disclosure requirements are effective beginning January 1, 2025. Early adoption is permitted. This new rule will result in additional disclosures for segment reporting, and does not have an impact on the Company's financial condition, results of operations, or cash flows.
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 3—Restructuring Charges
During the three months ended March 31, 2024, the Company refined its organizational structure resulting in employee separation costs of $1.3 million, net of tax benefits. The Company had completed this organizational restructuring as of March 31, 2024. There were no unpaid employee separation costs related to this organizational restructuring as of September 30, 2024.
During the three months ended March 31, 2023, the Company refined its organizational structure resulting in employee separation costs of $0.8 million, net of tax benefits. The Company had completed this organizational restructuring as of March 31, 2023. There were no unpaid employee separation costs related to this organizational restructuring as of December 31, 2023.
Note 4—Business 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.ai, 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
BIGBEAR.AI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, in thousands of U.S. dollars unless stated otherwise)
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.ai 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 (the “Holdback Amount”). On July 2, 2024 (the “Finalization Date”), BigBear.ai issued 2,144,073 shares of common stock at $1.3905 per share (as determined according to the volume weighted average price over the 20 trading days ending immediately prior to the Finalization Date (as defined in the Purchase Agreement)) as settlement of the final determination of the post-close adjusted Purchase Price.
The following table summarizes the preliminary 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, as reported at March 31, 2024 | | Measurement period adjustments | | February 29, 2024, as reported at September 30, 2024 |
Holdback amount | $ | 3,500 | | | $ | (513) | | | $ | 2,987 | |
Equity issued | 207,776 | | | (6) | | | 207,770 | |
Purchase consideration | $ | 211,276 | | | $ | (519) | | | $ | 210,757 | |
Assets: | | | | | |
Cash | $ | 13,935 | | | $ | — | | | $ | 13,935 | |
Accounts receivable | 5,848 | | | 91 | | | 5,939 | |
Prepaid expenses and other current assets | 143 | | | 150 | | | 293 | |
Property and equipment | 635 | | | — | | | 635 | |
Right-of-use assets | 5,754 | | | 188 | | | 5,942 | |
Intangible assets | 39,100 | | | (1,035) | | | 38,065 | |
Other non-current assets | 1,772 | | | — | | | 1,772 | |
Total assets acquired | $ | 67,187 | | | $ | (606) | | | $ | 66,581 | |
Liabilities: | | | | | |
Accounts payable | 1,137 | | | — | | | 1,137 | |
Accrued expenses | 2,454 | | | 36 | | | 2,490 | |
Other current liabilities | 69 | | | (24) | | | 45 | |
Deferred revenue | 1,148 | | | — | | | 1,148 | |
Current portion of long-term lease liability | 1,080 | | | (874) | | | 206 | |
Long-term lease liability | 6,109 | | | (373) | | | 5,736 | |
Total liabilities acquired | $ | 11,997 | | | $ | (1,235) | | | $ | 10,762 | |
Fair value of net identifiable assets acquired | 55,190 | | | 629 | | | 55,819 | |
Goodwill | $ | 156,086 | | | $ | (1,148) | | | $ | 154,938 | |
On July 2, 2024, the Company issued 2,144,073 shares of common stock at $1.3905 per share as settlement of the final determination of the post-close adjusted Purchase Price.
BIGBEAR.AI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, in thousands of U.S. dollars unless stated otherwise)
The following table summarizes the intangible assets acquired by class:
| | | | | |
| February 29, 2024 |
Technology | $ | 14,835 | |
Trade names | 1,560 | |
Customer relationships | 21,670 | |
Total intangible assets | $ | 38,065 | |
The acquired technology, trade names, and customer relationship intangible assets have a weighted-average estimated useful lives of 7 years, 5 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 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 September 30, 2024 have been included in the results of operations for the nine months ended September 30, 2024. The post-acquisition net revenues and net loss included in the results of operations for the nine months ended September 30, 2024 were $25.1 million and $86.4 million, respectively.
Pro Forma Financial Data (Unaudited)
The following table presents the pro forma consolidated results of operations of BigBear.ai for the nine months ended September 30, 2024 and the year ended December 31, 2023 as though the acquisition of Pangiam had been completed as of January 1, 2023.
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| | | | | Nine Months Ended September 30, 2024 | | Year ended December 31, 2023 | | | | | | | | |
Net revenue | | | | | $ | 80,937 | | | $ | 195,813 | | | | | | | | | |
Net loss | | | | | (140,376) | | | (84,789) | | | | | | | | | |
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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 $1.5 million of transaction expenses attributable to the acquisition of Pangiam during the nine months ended September 30, 2024, which have been recorded in the pro forma results for the twelve months ended December 31, 2023. The Company incurred $85.0 million of goodwill impairment as outlined in Note 6—Goodwill during the nine months ended September 30, 2024, which has been recorded in the pro forma results for the nine months ended September 30, 2024.
Note 5—Fair 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.
Warrants that were issued at BigBear.ai’s initial public offering (“IPO warrants”), warrants issued in BigBear.ai’s 2023 and 2024 private placement warrants (“PIPE warrants”), and warrants issued in BigBear.ai’s 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
BIGBEAR.AI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, in thousands of U.S. dollars unless stated otherwise)
a Level 3 fair value measurement. See Note 15—Warrants for information on the Level 3 inputs used to value the IPO warrants, PIPE warrants and RDO warrants.
The table below presents the financial assets and liabilities measured at fair value :
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | September 30, 2024 |
| Balance Sheet Caption | | Level 1 | | Level 2 | | Level 3 | | Total |
Recurring fair value measurements: | | | | | | | | |
2023 PIPE warrants | Derivative liabilities | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
2023 RDO warrants | Derivative liabilities | | — | | | — | | | — | | | — | |
IPO warrants | Derivative liabilities | | — | | | — | | | 24 | | | 24 | |
| | | | | | | | | |
2024 PIPE warrants | Derivative liabilities | | — | | | — | | | 9,450 | | | 9,450 | |
2024 RDO warrants | Derivative liabilities | | — | | | — | | | 6,322 | | | 6,322 | |
Total recurring fair value measurements: | | — | | | — | | | 15,796 | | | 15,796 | |
Nonrecurring fair value measurement: | | | | | | | | |
Goodwill(1) | Goodwill | | — | | | — | | | 118,621 | | | 118,621 | |
| | | | | | | | | |
| | | December 31, 2023 |
| Balance Sheet Caption | | Level 1 | | Level 2 | | Level 3 | | Total |
2023 PIPE warrants | Derivative liabilities | | $ | — | | | $ | — | | | $ | 22,778 | | | $ | 22,778 | |
2023 RDO warrants | Derivative liabilities | | — | | | — | | | 15,018 | | | 15,018 | |
| | | | | | | | | |
IPO warrants | Derivative liabilities | | — | | | — | | | 66 | | | 66 | |
2024 PIPE warrants | Derivative liabilities | | — | | | — | | | — | | | — | |
2024 RDO warrants | Derivative liabilities | | — | | | — | | | — | | | — | |
Total recurring fair value measurements: | | — | | | — | | | 37,862 | | | 37,862 | |
Nonrecurring fair value measurement: | | | | | | | | |
Goodwill | Goodwill | | — | | | — | | | 48,683 | | | 48,683 | |
(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 during the first quarter. Differences between the implied fair value of $119.8 million and the balance as of September 30, 2024 relate to subsequent measurement period adjustments.
The changes in the fair value of the Level 3 liabilities are as follows:
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| | | | |
| 2023 PIPE warrants | | 2023 RDO warrants | | IPO warrants | | | 2024 PIPE warrants | | 2024 RDO warrants |
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December 31, 2023 | $ | 22,778 | | | $ | 15,018 | | | $ | 66 | | | | $ | — | | | $ | — | |
Additions | — | | | — | | | — | | | | 27,990 | | | 15,196 | |
Changes in fair value | 37,361 | | | 15,551 | | | (39) | | | | (18,540) | | | (8,874) | |
Settlements | (60,139) | | | (30,569) | | | (3) | | | | — | | | — | |
September 30, 2024 | $ | — | | | $ | — | | | $ | 24 | | | | $ | 9,450 | | | $ | 6,322 | |
Note 6—Goodwill
First Quarter of Fiscal 2024
During the first quarter of fiscal 2024, we performed a quantitative impairment analysis as a result of a decrease in the Company’s 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 4. 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
BIGBEAR.AI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, in thousands of U.S. dollars unless stated otherwise)
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. 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 30.7%, guideline peer group and the historical and forward-looking revenue of the peer group in the goodwill impairment test. Subsequent to the impairment, there was no excess of reporting unit fair value over carrying value.
Third Quarter of Fiscal 2024
During the third quarter of fiscal 2024, we reevaluated our long-term forecasts due to changes in our expectations about the timing of forecasted revenues for one of our higher growth products. We concluded that the revision to the Company’s forecasts constituted a triggering event and therefore performed a qualitative impairment analysis as of September 30, 2024. Due to the combination of changes to our forecasts and lack of headroom resulting from our goodwill impairment during the first quarter of fiscal 2024, we could not conclude that it is more likely than not that the fair value exceeded the carrying value of our reporting unit as of September 30, 2024 and therefore performed a quantitative interim impairment test.
Our quantitative 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 12.0%, guideline peer group and the historical and forward-looking revenue of the peer group in the goodwill impairment test. It was determined that there was no impairment for the three months ended September 30, 2024.
Because the fair value of the reporting unit approximated its carrying value, a negative change in the key assumptions used in the interim impairment analysis or an increase in the carrying value may result in a future impairment of goodwill. Any significant adverse changes in future periods to our internal forecasts or external market conditions could reasonably be expected to negatively affect our key assumptions and may result in future goodwill impairment charges which could be material. For example, keeping all other assumptions the same, an additional increase in the discount rate or an increase in the carrying value could result in an impairment of goodwill.
First Quarter of Fiscal 2023
During the first quarter of fiscal 2023, the Company assessed if the reorganization described in Note 3 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. 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 16.0%, guideline peer group and the historical and forward-looking revenue of the peer group in the goodwill impairment test. 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:
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As of December 31, 2023 | | | | | | | $ | 48,683 | |
Goodwill arising from the Pangiam acquisition | | | | | | | 154,938 | |
Goodwill impairment | | | | | | | (85,000) | |
As of September 30, 2024 | | | | | | | $ | 118,621 | |
Accumulated impairment losses to goodwill were $138.5 million as of September 30, 2024.
BIGBEAR.AI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, in thousands of U.S. dollars unless stated otherwise)
Note 7—Intangible Assets, net
The intangible asset balances and accumulated amortization are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| |
| September 30, 2024 |
| Gross carrying amount | | Accumulated amortization | | Impact of foreign currency translation | | Net carrying amount | | Weighted average useful life in years |
Customer relationships | $ | 96,270 | | | $ | (14,862) | | | $ | — | | | $ | 81,408 | | | 20 |
Technology | 41,035 | | | (15,199) | | | — | | | 25,836 | | | 7 |
Software for sale | 11,224 | | | (668) | | | 79 | | | 10,635 | | | 3 |
Trade name | 1,560 | | | (182) | | | — | | | 1,378 | | | 5 |
Total | $ | 150,089 | | | $ | (30,911) | | | $ | 79 | | | $ | 119,257 | | | |
| | | | | | | | | |
| |
| December 31, 2023 |
| Gross carrying amount | | Accumulated amortization | | Impact of foreign currency translation | | Net carrying amount | | Weighted average useful life in years |
Customer relationships | $ | 74,600 | | | $ | (11,432) | | | $ | — | | | $ | 63,168 | | | 20 |
Technology | 26,200 | | | (11,156) | | | — | | | 15,044 | | | 7 |
Software for sale | 3,828 | | | — | | | — | | | 3,828 | | | 3 |
Trade name | — | | | — | | | — | | | — | | | 5 |
Total | $ | 104,628 | | | $ | (22,588) | | | $ | — | | | $ | 82,040 | | | |
Amortization expense of $0.7 million and zero was recognized for the capitalized software development costs during the three and the nine months ended September 30, 2024 and September 30, 2023, respectively.
The table below presents the amortization expense related to intangible assets for the following periods: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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| Three Months Ended September 30, | | Nine Months Ended September 30, | | | | | |
| 2024 | | 2023 | | 2024 | | 2023 | | | | | | | |
Amortization expense related to intangible assets | $ | 3,190 | | | $ | 1,869 | | | $ | 8,323 | | | $ | 5,606 | | | | | | | | |
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The table below presents the estimated amortization expense on intangible assets for the next five years and thereafter as of September 30, 2024:
| | | | | |
Remainder of 2024 | $ | 3,084 | |
2025 | 15,359 | |
2026 | 15,481 | |
2027 | 13,990 | |
2028 | 7,745 | |
Thereafter | 63,598 | |
Total estimated amortization expense | $ | 119,257 | |
BIGBEAR.AI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, in thousands of U.S. dollars unless stated otherwise)
Note 8—Prepaid expenses and other current assets
The table below presents details on prepaid expenses and other current assets: | | | | | | | | | | | |
| |
| September 30, 2024 | | December 31, 2023 |
Prepaid insurance | $ | 281 | | | $ | 1,419 | |
Prepaid expenses | 2,208 | | | 1,246 | |
Prepaid taxes | 1,733 | | | 1,784 | |
| | | |
Total prepaid expenses and other current assets | $ | 4,222 | | | $ | 4,449 | |
Note 9—Accrued Liabilities
The table below presents details on accrued liabilities:
| | | | | | | | | | | |
| |
| September 30 2024 | | December 31 2023 |
Payroll accruals | $ | 16,320 | | | $ | 10,118 | |
Accrued interest | 3,587 | | | 560 | |
Legal accruals | 3,376 | | | 1,253 | |
Other accrued expenses | 3,073 | | | 4,302 | |
Total accrued liabilities | $ | 26,356 | | | $ | 16,233 | |
Note 10—Debt
The table below presents the Company’s debt balances:
| | | | | | | | | | | |
| |
| September 30 2024 | | December 31 2023 |
Convertible Notes | $ | 200,000 | | | $ | 200,000 | |
Bank of America Senior Revolver | — | | | — | |
| | | |
| | | |
D&O Financing Loan | — | | | 1,229 | |
Total debt | 200,000 | | | 201,229 | |
Less: unamortized issuance costs | 4,262 | | | 5,727 | |
Total debt, net | 195,738 | | | 195,502 | |
Less: current portion | — | | | 1,229 | |
Long-term debt, net | $ | 195,738 | | | $ | 194,273 | |
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”). 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
BIGBEAR.AI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, in thousands of U.S. dollars unless stated otherwise)
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 Convertible Notes 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 September 30, 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 nine months ended September 30, 2024, Convertible Notes with a principal of $1,000 were exercised for 94 shares of the Company’s common stock. As of September 30, 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 $4.3 million of unamortized debt issuance costs. As of September 30, 2024, the fair value of the Convertible Notes is $195.7 million, 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 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%.
BIGBEAR.AI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, in thousands of U.S. dollars unless stated otherwise)
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 Bank of America 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 aggregate 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.
The Bank of America Credit Agreement requires the Company to meet certain financial and other covenants. As of September 30, 2024, the Company was in compliance with the covenant requirements.
As of September 30, 2024, the Company had not drawn on the Senior Revolver. Unamortized debt issuance costs of $0.1 million as of September 30, 2024, are recorded on the consolidated balance sheets and are presented in other non-current assets. The Bank of 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 $1.2 million 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 has 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 $2.1 million 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 $1.1 million 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.
BIGBEAR.AI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, in thousands of U.S. dollars unless stated otherwise)
Note 11—Leases
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:
| | | | | | | | | | | |
| September 30, 2024 | | September 30, 2023 |
Weighted average remaining lease term | 4.89 | | 4.93 |
Weighted average discount rate | 13.48 | % | | 10.61 | % |
The table below summarizes total lease costs for the following periods:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2024 | | 2023 | | 2024 | | 2023 |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Operating lease expense | $ | 674 | | | $ | 288 | | | $ | 1,646 | | | $ | 871 | |
Variable lease expense | 3 | | | 13 | | | 72 | | | 84 | |
Short-term lease expense | 4 | | | 11 | | | 18 | | | 105 | |
Rent expense | $ | 681 | | | $ | 312 | | | $ | 1,736 | | | $ | 1,060 | |
| | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2024 | | 2023 | | 2024 | | 2023 |
Sublease income recognized (1) | $ | 20 | | | $ | 28 | | | $ | 62 | | | $ | 119 | |
(1) As of September 30, 2024 and September 30, 2023, the Company has subleased two and four of its real estate leases.
The following table presents supplemental cash flow and non-cash information related to leases:
| | | | | | | | | | | | | | | |
| | | Nine Months Ended September 30, |
| | | | | 2024 | | 2023 |
Cash paid for amounts included in the measurement of lease liabilities - operating cash flows from leases | | | | | $ | 1,598 | | | $ | 1,071 | |
Right-of-use assets obtained in exchange for lease obligations - non-cash activity | | | | | $ | 5,942 | | | $ | — | |
As of September 30, 2024, the future annual minimum lease payments for operating leases are as follows:
| | | | | |
Remainder of 2024 | $ | 601 | |
2025 | 2,357 | |
2026 | 2,275 | |
2027 | 1,695 | |
2028 | 1,688 | |
Thereafter | 9,065 | |
Total future minimum lease payments | $ | 17,681 | |
Less: amounts related to imputed interest | |