BigBear.ai Holdings, Inc.

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—Restatement of Previously Issued Financial Statements

Description of Restatement Adjustments

In connection with the preparation of the Company’s consolidated financial statements as of and for the period ended December 31, 2024, management identified a material error in the previously reported financial statements related to its convertible notes issued in December 2021 and due in December 2026 (“2026 Notes”). The conversion option embedded within the 2026 Notes was incorrectly deemed to be eligible for a scope exception from the bifurcation requirements of ASC 815-15 and therefore requires bifurcation as a derivative (“2026 Notes Conversion Option”). The 2026 Notes include certain adjustments to the conversion rate that violate the “fixed-for-fixed” criteria described in Accounting Standards Codification (“ASC”) 815-40. As a result, the consolidated financial statements have been restated to reflect the issuance of the 2026 Notes Conversion Option at fair value as of December 7, 2021 and the subsequent remeasurement to fair value at each reporting date. Changes in the fair value of the 2026 Notes Conversion Option are recorded in the consolidated statements of operations. Bifurcation of the 2026 Notes Conversion Option from its host results in a discount to the 2026 Notes par value. The amortization of the discount to the par of the 2026 Notes is recorded in the consolidated statements of operations as non-cash interest expense using the effective interest rate method.

The following tables reflect the impact of the restatement to the specific line items presented in the Company’s previously reported consolidated financial statements as of December 31, 2023 and for the years ended December 31, 2023 and December 31, 2022. The accompanying applicable notes to consolidated financial statements have been updated to reflect the effects of the restatement.

The impact of the restatement to the consolidated statements of stockholders’ equity (deficit) includes an increase of $37.3 million in accumulated deficit as of December 31, 2023 and a $47.6 million increase to the accumulated deficit as of January 1, 2023.

The amounts in the “As previously reported” columns are amounts derived from the Company's previously filed consolidated financial statements. The amounts in the “Restatement adjustments” columns present the impact of the following adjustments:

•The amortization of the discount on the 2026 Notes.

•The change in the fair value of the 2026 Notes Conversion Option derivative.

•The impact to income tax provision as a result of the restatement adjustments above.

The amounts in the “As restated” columns are the updated amounts including the impacts from the restatement.

Description of restatement adjustments in the consolidated balance sheets:

i. The increase in derivative liabilities relates to the adjustments to record the change in the fair value of the 2026 Notes Conversion Option.

ii. The $38.1 million decrease in long-term debt, net relates to the adjustments to reflect the debt issuance discount resulting from the bifurcation of the 2026 Notes Conversion Option derivative as of December 7, 2021. The initial discount of $59.1 million has been reduced by cumulative amortization of the debt issuance discount of $20.9 million.

iii. The increase in deferred tax liabilities is related to the impact to income tax provision as a result of the adjustments above.

iv. The increase in accumulated deficit is related to a decrease in net loss due to the adjustments mentioned above for the year ended December 31, 2023 and an increase of $47.6 million in the beginning balance of the accumulated deficit as of January 1, 2023.

Description of restatement adjustments in the consolidated statements of operations:

i. The increases in interest expense for the years ended December 31, 2023 and December 31, 2022, respectively, relate to the amortization of the debt issuance discount on the 2026 Notes resulting from the bifurcation of the 2026 Notes Conversion Option derivative as of December 7, 2021.

ii. The decreases in net increase (decrease) in fair value of derivatives for the years ending December 31, 2023 and December 31, 2022, respectively, relate to the fair value remeasurement of the 2026 Notes Conversion Option.

iii. The change in income tax expense (benefit) for the years ended December 31, 2023 and December 31, 2022, respectively, are related to impact to the income tax provision as a result of the adjustments above.

Description of restatement adjustments in the consolidated statements of cash flows:

i. The increases in amortization of debt issuance discount for the years ended December 31, 2023 and December 31, 2022, respectively, relate to the amortization of the debt issuance discount on the 2026 Notes resulting from the bifurcation of the 2026 Notes Conversion Option derivative as of December 7, 2021.

ii. The change in deferred income tax (benefit) expense for the years ended December 31, 2023 and December 31, 2022, respectively, are related to impact to the income tax provision as a result of the adjustments above.

iii. The decreases in net increase (decrease) in fair value of derivatives for the years ending December 31, 2023 and December 31, 2022, respectively, relate to the fair value remeasurement of the 2026 Notes Conversion Option.

Note 3—Summary of Significant Accounting Policies

Basis of Presentation

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and all intercompany balances and transactions have been eliminated in consolidation. 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.

Use of Estimates

The preparation of theconsolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of theconsolidated financial statements and the reported amounts of revenues and expenses during the reporting periods.

Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of theconsolidated financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, actual results could differ materially from those estimates. Accounting policies subject to estimates include valuation of goodwill, intangible assets, impairments, fair value remeasurements, capitalized software development costs, revenue recognition, income taxes, business combinations and equity-based compensation.

Business Combinations

The Company utilizes the acquisition method of accounting under ASC 805, for all transactions and events in which it obtains control over one or more other businesses (even if less than 100% ownership is acquired), to recognize the fair value of all assets and liabilities assumed and to establish the acquisition date fair value as of the measurement date.

While the Company uses its best estimates and assumptions as part of the purchase price allocation process to accurately value assets acquired and liabilities assumed as of the acquisition date, the estimates and assumptions are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, the Company records adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. For changes in the valuation of intangible assets between the preliminary and final purchase price allocation, the related amortization is adjusted in the period it occurs. Subsequent to the measurement period, any adjustment to assets acquired or liabilities assumed is included in operating results in the period in which the adjustment is determined. Transaction expenses that are incurred in connection with a business combination, other than costs associated with the issuance of debt or equity securities, are expensed as incurred.

Revenue Recognition

The Company’s revenues from contracts with customers are from offerings including artificial intelligence and machine learning, data science, advanced analytics, offensive and defensive cyber, data management, cloud solutions, digital engineering, and systems integration, primarily with the U.S. Government and its agencies. The Company also serves manufacturing, third party logistics, retailers, healthcare, and life sciences organizations.

The Company organizes its solutions into four markets:

i. Supply Chain & Logistics Solutions: Data Conflation at Scale (providing a full view of operations, enabling real-time tracking of inventory, and facilitating predictive analytics to optimize functions like routes and delivery times), Discrete Event Simulation (Course of Action Analysis & Digital Twins), and Next-Gen Decision Support (e.g. Macroeconomic & Geopolitical Forecasting)

ii. Cybersecurity Solutions: AI-powered / machine-accelerated binary analysis, Cyber-Physical systems vulnerability testing & evaluation, Vulnerability assessment as a Service, and Specialized services for the Department of Defense and Intelligence Community iii. Autonomous Systems Solutions: AI/machine learning (“ML”) decision intelligence solutions (conflate millions of data points to provide situational awareness, predictive forecasts, and anomaly detection), AI Orchestration as a Service, and specialized consulting services

iv. Digital Identity Services: security solutions specializing in customized digital identity, biometrics, AI/ML, and advanced analytics software and solutions for global trade, travel and digital identity industries. Airlines, airports and US government agencies are among the Company’s customers relying on Vision AI, analytics capabilities, and expertise to streamline operations, secure facilities and verify identity.

Each of the Company’s solutions can be sold individually or combined and sold together. Regardless of whether a customer is procuring only one of the Company’s solutions or a combination of solutions, the Company’s contracts generally include a significant service of integrating the solutions with the Company’s customer’s existing solutions and information systems. After the Company implements the solutions, the Company may also enter into contracts with the customers to further refine or customize these solutions to either enhance the functionality or adjust for changes in the customer’s requirements. These post-implementation service contracts are generally performed on a time-and-materials basis.

The Company accounts for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. The Company performs under various types of contracts, which generally include firm-fixed-price (“FFP”), time-and-materials (“T&M”), and cost-reimbursable contracts. The Company also generates revenues from the sale of software licenses, primarily term licenses in the customers’ environments, with ongoing maintenance and support services (“M&S”).

Under fixed-price contracts, the Company agrees to perform the specified work for a pre-determined price. To the extent the Company’s actual costs vary from the estimates upon which the price was negotiated, the Company will generate more or less profit or could incur a loss. Under T&M contracts, the Company agrees to perform the specified work for a pre-determined rate per hour, as well as the reimbursement of other direct billable costs which are presented on a gross basis. Cost-reimbursable contracts provide for the payment of allowable costs incurred during performance of the contract plus a fee up to a ceiling based on the amount that has been funded. The majority of our cost-reimbursable contracts are cost-plus-fixed-fee, which provide a fixed fee that is negotiated at the inception of the contract and does not vary with actual costs.

For T&M contracts and cost-reimbursable contracts, the Company has a right to consideration from the customer in an amount that corresponds directly with the value of the Company’s performance and recognizes revenue in the amount to which the Company has a right to invoice (the “right to invoice” practical expedient).

Sales of the Company’s software licenses, primarily term licenses, grant customers the right to use functional intellectual property, either on their internal hardware infrastructure or on their own cloud instance, over the contractual term and are also sold together with stand-ready M&S services. The M&S services include critical updates, training, support, and maintenance services required to operate the software. The Company has concluded that the software licenses and M&S services are each distinct performance obligations, and as such, revenue is recognized for the sale of software licenses upon delivery. For M&S, revenue is recognized over the contract term on a ratable basis.

The Company assesses each contract at its inception to determine whether it should be combined with other contracts. When making this determination, the Company considers factors such as whether two or more contracts were negotiated and executed at or near the same time or were negotiated with an overall profit objective. If combined, the Company treats the combined contracts as one single contract for revenue recognition purposes.

The Company generally uses internally developed and third-party applications, which the Company integrates, when implementing solutions to meet specific customer requirements. The Company evaluates the solutions or services promised in each contract at inception to determine whether the contract should be accounted for as having one or more performance obligations. Each of the Company’s solutions is capable of being distinct as the customer can benefit from each individual solution on its own or with other resources that are readily available. When customer contracts include a significant service of integrating the solutions to provide a set of integrated or highly interrelated tasks, the Company accounts for these arrangements as a single performance obligation. While the contracts provide customers access to the Company’s solutions, the contracts generally do not contain separate licensing provisions for independent use of the underlying internally developed software. Additionally, these components are highly interdependent and highly interrelated into the solutions delivered to the Company’s customers. Therefore, these components are not capable of being distinct and are not separately identifiable from the other promises in the contract. In cases where customer contracts have an explicit licensing provision to the underlying software, such software is generally accounted for as a separate performance obligation.

The Company determines the transaction price for each contract based on the consideration the Company expects to receive for the solutions or services being provided under the contract. For contracts where a portion of the price may vary, the Company estimates variable consideration at the most likely amount, which is included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur. The Company analyzes the risk of a significant revenue reversal and if necessary, constrains the amount of variable consideration recognized in order to mitigate this risk.

At the inception of a contract, the Company estimates the transaction price based on its current rights and does not contemplate future modifications (including unexercised options) or follow-on contracts until they become legally enforceable. Contracts are often subsequently modified to include changes in specifications, requirements or price, which may create new or change existing enforceable rights and obligations. Depending on the nature of the modification, the Company considers whether to account for the modification as an adjustment to the existing contract or as a separate contract. The Company’s contracts with the U.S. Government often contain options to renew existing contracts for an additional period of time (generally a year at a time) under the same terms and conditions as the original contract, and generally do not provide the customer any material rights under the contract. Therefore, such modifications are accounted for as if they were part of the existing contract and may result in a cumulative adjustment to revenue recognized. The Company accounts for renewal options as separate contracts when they include distinct goods or services at standalone selling prices.

For contracts with multiple performance obligations, the Company allocates the transaction price to each performance obligation based on the estimated standalone selling price of the solution or service underlying each performance obligation. The standalone selling price represents the amount for which the Company would sell the solution or service to a customer on a standalone basis (i.e., not bundled with any other solutions or services). The Company’s contracts with the U.S. government are subject to the Federal Acquisition Regulation (“FAR”) and priced on estimated or actual costs of providing the goods or services. The FAR provides guidance on types of costs that are allowable in establishing prices for goods and services provided to the U.S. government and its agencies. Each contract is competitively priced and bid separately. Pricing for non-U.S. government agencies and commercial customers is based on specific negotiations with each customer. In circumstances where the standalone selling price is not directly observable, the Company estimates the standalone selling price using the expected cost-plus margin approach.

The Company recognizes revenue as performance obligations are satisfied and the customer obtains control of the solutions and services. In determining when performance obligations are satisfied, the Company considers factors such as contract terms, payment terms and whether there is an alternative future use of the solution or service. Substantially all of the Company’s revenue is recognized over time as the Company performs under the contract because control of the work in process transfers continuously to the customer. For most contracts with the U.S. Government, this continuous transfer of control of the work in process to the customer is supported by clauses in the contract that give the customer ownership of work in process and allow the customer to unilaterally terminate the contract for convenience and pay the Company for costs incurred plus a reasonable profit. For most non-U.S. Government contracts, continuous transfer of control to the customer is supported because the Company delivers solutions that do not have an alternative use to the Company and if the Company’s customer were to terminate the contract for reasons other than the Company’s non-performance, the Company would have the right to recover damages which would include, among other potential damages, the right to payment for the work performed to date plus a reasonable profit.

For performance obligations to deliver solutions with continuous transfer of control to the customer, revenue is recognized based on the extent of progress towards completion of the performance obligation, generally using the percentage-of-completion cost-to-cost measure of progress for the Company’s contracts because it best depicts the transfer of control to the customer as the Company incurs costs on the contracts. Under the percentage-of-completion cost-to-cost measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs to complete the performance obligation(s). For T&M contracts, revenue is recognized over time based on costs incurred or the right to invoice method (in situations where the value transferred matches the Company’s billing rights) as the customer receives and consumes the benefits.

For arrangements with the U.S. Government, the Company generally does not begin work on contracts until funding is appropriated by the customer. Billing timetables and payment terms on the Company’s contracts vary based on a number of factors, including the contract type. Cost-reimbursable and T&M contracts are generally billed on a monthly basis. FFP contracts are generally billed based on milestones, which are the achievement of specific events as defined in the contract. Amounts billed and due from customers are classified as receivables on the combined balance sheets. On some contracts, the Company may be entitled to receive an advance payment, which is not considered a significant financing component because it is used to facilitate inventory demands at the onset of a contract and to safeguard the Company from the failure of the other party to abide by some or all of their obligations under the contract.

In some cases where a portion of payment retained by the customer is not considered a significant financing component; the Company expects, at contract inception, that the lag period between the transfer of a promised good or service to a customer and when the customer pays for that good or service will not constitute a significant financing component.

Sale of Products

Revenue from sale of products to customers purchased from third parties is recognized at a point in time when control has transferred to the customer. Control is transferred to the customer upon customer acceptance or receipt of the product. At this point in time, the Company has a present right to payment, and the customer has legal title and physical possession of the product as well as the risks and rewards of ownership.

Contract Balances

Contract balances result from the timing of revenue recognized, billings and cash collections, and the generation of contract assets and liabilities.

Contract assets represent revenue recognized in excess of amounts invoiced to the customer and the right to payment is not subject to the passage of time. Contract liabilities consist of billings in excess of revenues and customer advances. Billings in excess of revenues represents milestone billing contracts where the billings of the contract exceed recognized revenues.

Cash and Cash Equivalents

Cash and cash equivalents are comprised of cash on hand, cash balances with banks and similar institutions and all highly liquid investments with an original maturity of three months or less when purchased.

Restricted Cash

The Company’s restricted cash consisted of cash deposited into escrow accounts reflecting the full obligation to certain investors related to the FPAs. The Company settled its obligations under the FPAs during the year ended December 31, 2022.

Accounts Receivable

Accounts receivable includes amounts billed and currently due from customers, and amounts billable where the right to consideration is unconditional and amounts unbilled. The Company generally records a receivable when revenue is recognized as the timing of revenue recognition may differ from the timing of payment from customers. Payment terms and conditions vary by contract, although terms generally include a requirement of payment within 30 to 60 days. The Company's accounts receivables do not bear interest, and they are recorded at the invoiced amount less an estimated allowance for expected credit losses. In addition to estimating an allowance based on specific identification of certain receivables that have a higher probability of not being paid, the Company also records an estimate for expected credit losses for the remaining receivables in the aggregate using a loss-rate method that considers historical bad debts, age of customer receivable balances, and current customer receivable balances. Additionally, the Company considers future reasonable and supportable forecasts of economic conditions to adjust historical loss rate percentages as necessary. Balances are written-off when determined to be uncollectible. The provision for expected credit losses is recorded in selling, general, and administrative expenses in the consolidated statements of operations.

Amounts unbilled included within accounts receivable as of December 31, 2024 and December 31, 2023 were $15.4 million and $9.1 million, respectively.

Property and Equipment

Property and equipment are the long-lived, physical assets of the Company acquired for use in the Company’s normal business operations and not intended for resale by the Company. These assets are recorded at cost. Renewals and betterments that increase the useful lives of the assets are capitalized. Repair and maintenance expenditures that increase the efficiency of the assets are expensed as incurred. Assets under capital leases are recorded at the present value of the minimum lease payments required during the lease period. Depreciation is based on the estimated useful lives of the assets using the straight-line method and is included in selling, general and administrative or cost of revenues based upon the asset. Expected useful lives are reviewed at least annually.

Estimated useful lives are as follows:

As assets are retired or sold, the related cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the results of operations.

The Company regularly evaluates its property and equipment for impairment when events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable, in accordance with ASC 360, Property, Plant, and Equipment. If the Company determines that the carrying amount of an asset or asset group is not recoverable based upon the undiscounted expected future cash flows of the asset or asset group, the Company records an impairment loss equal to the excess of carrying amount over the estimated fair value of the asset or asset group.

Finite-lived Intangible Assets

Finite-lived intangible assets result from the Company’s various business combinations and consist of identifiable finite-lived intangible assets, including customer relationships, technology, software for sale and trade names. These finite-lived intangible assets are reported at cost, net of accumulated amortization, and are either amortized on a straight-line basis over their estimated useful lives or over the period the economic benefits of the intangible asset are consumed.

The Company regularly evaluates its intangible assets other than goodwill for impairment when events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable, in accordance with ASC 350, Intangibles–Goodwill and Other. If the Company determines that the carrying amount of an asset or asset group is not recoverable based upon the undiscounted expected future cash flows of the asset or asset group, the Company records an impairment loss equal to the excess of carrying amount over the estimated fair value of the asset or asset group.

Leases

The Company determines whether an arrangement is a lease at inception. An arrangement is or contains a lease if it conveys the right to control the use of an asset for a period of time in exchange for consideration. The Company has operating leases for office space, automobiles, and other equipment that expire at various dates through 2030. These lease terms may include optional renewals, terminations or purchases, which are considered in the Company’s assessments when such options are reasonably certain to be exercised.

The Company measures right-of-use assets and related lease liabilities based on the present value of remaining lease payments. Lease contracts may include fixed payments for non-lease components, such as common area maintenance, which are included in the measurement of lease liabilities for certain asset classes based on the Company’s election to combine lease and non-lease components. The Company does not recognize short-term leases, those lease contracts with durations of twelve months or less, on theconsolidated balance sheets.

As applicable borrowing rates are not typically implied within the lease arrangements, the Company discounts lease payments based on its estimated incremental borrowing rate at lease commencement, or modification, which is based on the Company’s estimated credit rating and the lease term at commencement.

Derivatives

Financial instruments subject to the guidance of ASC 815, Derivatives and Hedging(“ASC 815”) that do not meet the criteria for equity treatment are classified as assets or liabilities measured at fair value. The Company remeasures derivative asset or liability to fair value at each reporting period with changes in fair value recognized in the consolidated statements of operations.

Fair Value of Financial Instruments

The Company measures certain financial assets and liabilities at fair value. ASC 820, Fair Value Measurement and Disclosures(“ASC 820”), specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. These two types of inputs have created the following fair-value hierarchy:

Level 1—Quoted prices for identical instruments in active markets;

Level 2—Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets; and

Level 3—Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

These inputs are based on Company’s own assumptions about current market conditions and require significant management judgement or estimation. Financial instruments consist of cash equivalents, accounts receivable, accounts payable, accrued liabilities, private warrants, written put options, and debt. Cash equivalents are stated at fair value on a recurring basis. Accounts receivable, accounts payable and accrued liabilities are stated at their carrying value, which approximates fair value due to the short time to the expected receipt of payment date. Private warrants and written put options are marked to fair value on a periodic basis.

Income Taxes

The Company estimates its current tax expense together with assessing temporary differences resulting from differing treatment of items not currently deductible for tax purposes. These differences result in deferred tax assets and liabilities on the Company’s consolidated balance sheets, which are estimated based upon the difference between the financial statement and tax bases of assets and liabilities using the enacted tax rates that will be in effect when these differences reverse. In general, deferred tax assets represent future tax benefits to be received when certain expenses previously recognized in the Company’sconsolidated statements of operations become deductible expenses under applicable income tax laws or loss or credit carry forwards are utilized. Accordingly, the realization of the Company’s deferred tax assets are dependent on future taxable income against which these deductions, losses, and credits can be utilized.

The Company evaluates the realizability of its deferred tax assets and recognizes a valuation allowance when it is more likely than not that a future benefit on such deferred tax assets will not be realized. Changes in the valuation allowance, when recorded, would be included in the Company’sconsolidated statements of operations. Management’s judgment is required in determining the Company’s valuation allowance recorded against its net deferred tax assets.

The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon settlement. The Company recognizes interest and penalties related to uncertain tax positions in its provision (benefit) for income taxes. As of December 31, 2024 and December 31, 2023, the Company accrued $0.8 million and $0.8 million for uncertain tax positions, respectively.

Concentration of Credit Risk

Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and cash equivalents, restricted cash, certificates of deposit, and accounts receivable. The Company places its cash and cash equivalents with financial institutions of high credit quality. At times, such amounts may exceed federally insured limits. Cash and cash equivalents including cash on deposit or invested with financial and lending institutions was$50.1 million and$32.6 million, as of December 31, 2024 and December 31, 2023, respectively.

The Company provides credit to customers in the normal course of business. The carrying amount of current accounts receivable is stated at cost, less an estimated allowance for expected credit losses. The Company performs ongoing credit evaluations of its customers’ financial condition and limits the amount of credit extended when deemed necessary. The Company maintains an allowance for expected credit losses to provide for the estimated amount of accounts receivable that will not be fully collected. The estimate is calculated using a loss-rate method that considers historical bad debts, age of customer receivable balances, and current customer receivable balances. Additionally, the Company considers future reasonable and supportable forecasts of economic conditions to adjust historical loss rate percentages as necessary. Balances are written-off when determined to be uncollectible.

Segment Information

Operating segments are defined as components of an entity for which separate financial information is available and that is regularly reviewed by the Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources and in assessing performance.

As of December 31, 2022, the Company hadtwo operating and reportable segments that were organized by sector: Cyber & Engineering and Analytics. During the first quarter of 2023, the Company reevaluated its operating and reportable segments under Financial Accounting Standards Board (“FASB”)ASC 280 - Segment Reporting, following an organizational and legal entity restructuring, which allowed the Company to align its operations with how the business will be managed. As a result of such changes, the performance of the Company’s operations are evaluated by the CODM using the consolidated financial results of the Company. As a result of this reevaluation, effective for the first quarter of fiscal year 2023, the Company determined that it manages its operations as a single operating and reportable segment.

The single reportable segment is consistent with information used by the CODM to assess performance, make operating decisions, and allocate resources. The Company evaluates the operating performance of itsone segment based upon information included in management reports.

Goodwill

Goodwill is the amount by which the purchase price exceeded the fair value of the net identifiable assets acquired and liabilities assumed in a business combination on the date of acquisition. Goodwill is assessed for impairment at least annually as of October 1, on a reporting unit basis, or when events and circumstances occur indicating that the recorded goodwill may be impaired. The Company assesses impairment first on a qualitative basis to determine if a quantitative assessment is necessary. In circumstances where the qualitative analysis indicates that it is more likely than not that the fair value of a reporting unit does not exceed its carrying value, the Company performs a quantitative impairment test by which the goodwill impairment loss is measured as the amount by which a reporting unit’s carrying amount exceeds its fair value, not to exceed the carrying amount of goodwill. All indefinite-lived assets are reviewed for impairment annually, and as necessary if indicators of impairment are present.

Internal-Use Software

Costs incurred in developing internal-use software are either capitalized or expensed, depending on both the nature of the costs and the phase of development in which they are incurred. Costs incurred for implementation activities during the preliminary and post-implementation phases of a project are expensed as incurred, while costs incurred during the application development phase are generally capitalized. Costs incurred to upgrade or enhance existing software are capitalized if the changes result in additional functionality, but these costs are expensed if the software’s functionality is not improved. No costs were capitalized during the year ended December 31, 2024 and December 31, 2023.

Capitalized Software Development Costs

Software development costs for software to be sold, leased, or otherwise marketed are expensed as incurred until the establishment of technological feasibility, at which time those costs are capitalized until the product is available for general release to customers and amortized over the estimated life the product. Software development costs of $10.2 million and $3.3 million were capitalized during the year ended December 31, 2024 and December 31, 2023, respectively.

We evaluate the useful lives of these assets on an annual basis, and we test for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets. For the year ended December 31, 2024 and December 31, 2023, we have recognizedno impairments of capitalized software costs.

Equity-based Compensation

Pursuant to ASC 718, Compensation – Stock Compensation, stock-based awards are measured at fair value on the grant date. For equity classified equity-based awards without performance conditions, the Company recognizes equity-based compensation cost on a straight-line basis over the vesting period of the award. For equity classified equity-based awards with performance conditions, the Company recognizes equity-based compensation cost using the accelerated attribution method over the requisite service period when the Company determines it is probable that the performance condition will be satisfied. The Company recognizes forfeitures of equity-based awards in the period they occur.

Research and Development Costs

Research and development costs are primarily made up of labor charges, subcontractor labor costs, prototype material, and development expenses. Research and development costs are expensed in the period incurred.

Advertising Costs

All advertising, promotional and marketing costs are expensed when incurred and are included in selling, general and administrative expenses within the consolidated statements of operations.

The table below presents advertising costs for the following periods:

Net (Loss) Income per Share

Basic net (loss) income per share is computed by dividing net (loss) income applicable to stockholders by the weighted average number of shares outstanding for the period. Diluted net (loss) income per share assumes conversion of potentially dilutive shares, such as stock options. The Company’s consolidated statements of operations include a presentation of net loss per share for the year ended December 31, 2024, December 31, 2023, and December 31, 2022.

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

Recent Accounting Pronouncements Adopted

In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting: Improvements to Reportable Segment Disclosures (“ASU 2023-07”). This ASU amends ASC 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 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 asset disclosures currently required annually by FASB Topic 280 are to be disclosed in interim periods. The Company adopted ASU 2023-07 as of January 1, 2024, and the interim period disclosure requirements are effective beginning January 1, 2025. The adoption of ASU 2023-07 did not have an impact on the Company'sconsolidated financial statements.

Note 4—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 wereno unpaid employee separation costs related to this organizational restructuring as of December 31, 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 wereno unpaid employee separation costs related to this organizational restructuring as of December 31, 2023.

Upon performing a strategic review of the Company’s capacity and future projections, the Company initiated restructuring actions in the third and fourth quarters of 2022, both of which were completed as of December 31, 2022. The purpose of the restructuring was to better align the organization and cost structure and improve the affordability of products and services. A liability reflecting unpaid employee separation costs of $1.5 million is presented on theconsolidated balance sheets within other current liabilities as of December 31, 2022.

The table below presents the activity in accrued restructuring charges for the year ended December 31, 2024:

Note 5—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 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 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.

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

The following table summarizes the intangible assets acquired by class:

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, as reported at December 31, 2024 to December 31, 2024 have been included in the results of operations for the year ended December 31, 2024. The post-acquisition net revenues and net loss included in the results of operations for the year ended December 31, 2024 were $38.7 million and $82.6 million, respectively.

Pro Forma Financial Data (Unaudited)

The following table presents the pro forma consolidated results of operations of BigBear.ai for the year ended December 31, 2024 and the year ended December 31, 2023 as though the acquisition of Pangiam had been completed as of January 1, 2023.

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 year ended December 31, 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 8—Goodwill during the year ended December 31, 2024, which has been recorded in the pro forma results for the year ended December 31, 2024.

ProModel Corporation 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, 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 thousand the Distribution Withholding Escrow Amount of $100 thousand, and the Indemnity Escrow Amount of $100 thousand shall be held in escrow until released in accordance with the purchase agreement and the Escrow Agreement.

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

The following table summarizes the intangible assets acquired by class:

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

The fair value of the acquired technology 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.

Pro Forma Financial Data (Unaudited)

The results of operations of ProModel Corporation for the period from April 7, 2022 to December 31, 2022 have been included in the results of operations for the year ended December 31, 2022. The post-acquisition net revenues and net losses included in the results of operations for the year ended December 31, 2022 were $4,626 and $5,120, respectively.

The Company incurred $1,585 of transaction expenses attributable to the acquisition of ProModel Corporation during the year ended December 31, 2022.

Note 6—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.

Certain warrants that were issued at BigBear.ai’s initial public offering (“IPO Private 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”). The conversion options of the 2026 Convertible Notes (“2026 Notes Conversion Option”) and 2029 Convertible Notes (“2029 Notes Conversion Option”) are valued using a binomial lattice convertible bond model and discounted cash flow method, considering the traded price of the 2026 Convertible Notes and 2029 Convertible Notes, respectively, and other unobservable input assumptions. The 2026 Notes Conversion Option, 2029 Notes Conversion Option, RDO Warrants,PIPE warrants, and IPO private warrants are considered to be Level 3 fair value measurements. See Note 18—Derivatives for information on the Level 3 inputs used to value the IPO Private Warrants, PIPE Warrants, RDO Warrants, 2026 Notes Conversion Option, and the 2029 Notes Conversion Option.

The table below presents the financial assets and liabilities measured at fair value :

(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 December 31, 2024 relate to subsequent measurement period adjustments.

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

Note 7—Property and Equipment, net

The property and equipment and accumulated depreciation balances are as follows:

The table below presents depreciation expense related to property and equipment for the following periods:

Substantially all property and equipment is located within the United States of America.

Note 8—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 5. 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 their historical and forward-looking revenues in the goodwill impairment test. Subsequent to the impairment, there wasno 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 wasno 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. We continued to evaluate these key assumptions and performed a qualitative analysis through December 31, 2024 and determined there was no impairment for the three months ended December 31, 2024.

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

Accumulated impairment losses to goodwill were$138.5 million as of December 31, 2024.

Note 9—Intangible Assets, net

The intangible asset balances and accumulated amortization are as follows:

Amortization expense of $0.9 million andzero was recognized for the capitalized software development costs during the year ended December 31, 2024 and December 31, 2023, respectively.

The table below presents the amortization expense related to intangible assets for the following periods:

The table below presents the estimated amortization expense on intangible assets for the next five years and thereafter as of December 31, 2024:

Note 10—Prepaid expenses and other current assets

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

Note 11—Accrued Liabilities

The table below presents details on accrued liabilities:

(1) Inclusive of employer portion of taxes related to the vesting of equity awards and accrued subcontractor labor.

Note 12—Debt

The table below presents the Company’s debt balances:

(1)These credit facilities were terminated on December 19, 2024.

2026 Convertible Notes

On December 7, 2021, the Company issued $200.0 million of unsecured convertible notes (the“2026 Convertible Notes”) to certain investors. The 2026 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 indenture governing the 2026 Convertible Notes (the“2026 Convertible Notes Indenture”), the conversion rate applicable to the 2026 Convertible Notes was adjusted to 94.2230 (previously 86.9565) shares of common stock per $1,000 principal amount of 2026 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 2026 Convertible Notes are convertible into 18,844,600 shares, not including any interest payments that are settled with the issuance of shares. The 2026 Convertible Notes mature on December 15, 2026.

The Company may, at its election and subject to certain conditions, force conversion of the 2026 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 firsttwo years after the initial issuance of the 2026 Convertible Notes and $2.0 million thereafter. In connection with such forced conversion, the conversion rate for the 2026 Convertible Notes will be increased but no Interest Make-Whole Payment (as defined below) will be made in connection with such forced conversion. In the event that a holder of the 2026 Convertible Notes elects to convert the 2026 Convertible Notes (a) prior to December 15, 2024, the Company will be obligated to pay an amount equal totwelve 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 (such interest payments, an “Interest Make-Whole Payments”). The Interest Make-Whole Payments will be payable in cash or shares of the common stock, depending on the average of the daily volume-weighted average price per share of the Company’s common stock for a specified period immediately prior to such conversion, as set forth in the 2026 Convertible Notes Indenture.

Following certain corporate events that occur prior to the maturity date or if the Company exercises its mandatory conversion right, the conversion rate will be increased in certain circumstances for a holder who elects, or has been forced, to convert its 2026 Convertible Notes in connection with such corporate events or such mandatory conversion..

If a Fundamental Change (as defined in the 2026 Convertible Notes Indenture) occurs prior to the maturity date, holders of the 2026 Convertible Notes will have the right to require the Company to repurchase all or any portion of their 2026 Convertible Notes in principal amounts ofone thousand dollars or an integral multiple thereof, at a repurchase price equal to the principal amount of the 2026 Convertible Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the repurchase date.

On May 29, 2022, pursuant to the conversion rate adjustment provisions in the 2026 Convertible Notes Indenture, the Conversion Price was adjusted to $10.61 (or 94.2230 shares of common stock perone thousand dollars of principal amount of 2026 Convertible Notes). Subsequent to the adjustment, the 2026 Convertible Notes are convertible into 18,844,600 shares, not including any interest payments that are settled with the issuance of shares.

The 2026 Convertible Notes contain conversion features that meet the definition of a derivative and require separate accounting treatment from the debt host. Refer to Note 18—Derivatives for more information on the 2026 Notes Conversion Option.

On December 19, 2024, the Company entered into privately negotiated exchange agreements (each, an “Exchange Agreement”) with a limited number of holders of the Company’s 2026 Convertible Notes, to exchange the 2026 Convertible Notes for new senior secured convertible notes due 2029 (the “2029 Convertible Notes”, together with the 2026 Convertible Notes, the “Convertible Notes”). The Company exchanged (the “Exchange Transaction”) approximately $182.3 million principal amount of the 2026 Convertible Notes for $182.3 million in aggregate principal amount of the Company’s 2029 Convertible Notes and approximately $0.4 million in cash, with such cash payment representing the accrued and unpaid interest on the 2026 Convertible Notes at the time of the Exchange Transaction. The 2029 Convertible Notes bear interest at a rate of (i)6.0% per annum, if interest is paid in cash and (ii)7.0% per annum, if the Company elects, subject to certain conditions, to pay interest in kind with shares of its common stock. To the extent that the certain liquidity conditions of the Company and its subsidiaries is not satisfied as of the last business day of any calendar month, then with respect to the period applicable to the interest payment date immediately following the month in which such liquidity condition is not satisfied, the interest rate will be (i)9.00% per annum, if interest is paid in cash and (ii)10.00% per annum, if the Company elects, subject to certain conditions, to pay interest in kind with shares of its common stock (it being understood that such increased rate shall apply solely for such six-month period applicable to such interest payment date). Interest is payable semi-annually. The conversion rate is 281.4491 shares of common stock per $1,000 principal amount of 2029 Convertible Notes, which represents an initial conversion price of $3.55 per share of the Company’s common stock. The conversion rate and the conversion price are subject to adjustments. In addition, if certain corporate events that constitute a “Make-Whole Fundamental Change” (as defined in the 2029 Convertible Notes Indenture) occur, then the conversion rate will, in certain circumstances, be increased for a specified period of time.

The exchange was accounted for as an extinguishment of the 2026 Convertible Notes and the 2029 Convertible Notes were recognized at fair value, which approximated the carrying amount of the principal balances exchanged. The Company recognized a loss on extinguishment of $31.3 million on the consolidated statements of operations related to the unamortized debt issuance costs of the exchanged 2026 Convertible Notes. The Company was in compliance with all covenants through the extinguishment of the exchanged 2026 Convertible Notes.

The 2029 Convertible Notes were issued pursuant to, and are governed by, an indenture (the “2029 Convertible Notes Indenture”), dated as of December 27, 2024. The 2029 Convertible Notes will be fully and unconditionally guaranteed, on a senior, secured basis, by the Company and certain of its existing and future direct and indirect subsidiaries, subject to certain exceptions (the “Guarantors”), and will initially be secured on a first-priority basis by substantially all assets of the Company and such Guarantors, subject to certain exceptions.

Upon completion of the Exchange Transaction, the aggregate principal amount of the 2026 Convertible Notes outstanding was $17.7 million. The Company did not receive any cash proceeds from the issuance of the 2029 Convertible Notes pursuant to the Exchange Transactions.

Holders who convert their 2029 Convertible Notes will also be entitled to an interest make-whole payment of up to 7.5% of the aggregate principal amount of notes converted, subject to reduction as further described in the 2029 Convertible Notes Indenture. Interest make-whole payments are payable in cash or shares of common stock, depending on the average of the daily volume-weighted average price per share of the Company’s common stock for a specified period immediately prior to such conversion. Payment of the interest make-whole in shares will be at a price equal to 95% of such average of the daily volume-weighted average price.

The 2029 Convertible Notes will not be redeemable at the Company’s election before December 27, 2025. The 2029 Convertible Notes will be redeemable, in whole but not in part (subject to certain limitations), for cash at the Company’s option at any time, and from time to time, on or after December 27, 2025 and prior to the close of business on November 16, 2029, but only if the last reported sale price per share of the Company’s common stock exceeds 130% of the conversion price for a specified period of time and certain other conditions are satisfied. The redemption price will be equal to the principal amount of the 2029 Convertible Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date.

If a Fundamental Change (as defined in the 2029 Convertible Notes Indenture) occurs, holders of the 2029 Convertible Notes will have the right to require the Company to repurchase their 2029 Convertible Notes for cash in principal amounts of the 2029 Convertible Notes to be repurchased ofone thousand dollars, plus accrued and unpaid interest, if any, to, but excluding, the applicable repurchase date, plus any remaining amounts that would be owed to, but excluding, the maturity date.

The 2026 Convertible Notes Indenture and the 2029 Convertible Notes Indenture require the Company to meet certain financial and other covenants. As of December 31, 2024, the Company was in compliance with all covenants related to the Convertible Notes.

The 2029 Convertible Notes contain conversion features that meet the definition of a derivative and require separate accounting treatment from the debt host. Refer to Note 18—Derivatives for more information on the 2029 Notes Conversion Option.

The following table presents the carrying amounts and fair values associated with the Convertible Notes as of December 31, 2024. The fair value of the Convertible Notes is considered to be a Level 3 fair value measurement.

Bank of America Senior Revolver

The Company entered into a senior credit agreement with Bank of America, N.A. (the“Bank of America Credit Agreement”) 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 was 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 included 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 reduced the amount available under the revolving credit facility. The Company could 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, were 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 was 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 required 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 modified key terms of the Senior Revolver. As a result of the Second Amendment, funds available under the Senior Revolver were 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 was subject to a minimum Fixed Charge Coverage ratio covenant, but was 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 was required to have aggregated reported Adjusted EBITDA of at leastone 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 required the Company to meet certain financial and other covenants.

The Bank of America Credit Agreement required 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 was permitted to draw on the Senior Revolver.

In connection with the Exchange Transaction on December 19, 2024, the Senior Revolver was terminated, effective concurrently with the closing of the Exchange Transaction. There were no outstanding borrowings under the Secured Revolving Credit Facility prior to its termination. The Company was in compliance with all covenants through the termination of the Senior Revolver.

D&O Financing Loan

On December 13, 2024, the Company entered into a $1.1 million loan (the“2025 D&O Financing Loan”) with AFCO Credit Corporation to finance the Company’s directors and officers insurance premium through September 2025. The D&O Financing Loan has an interest rate of 5.99% per annum and a maturity date of September 8, 2025.

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.

Note 13—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 4.6% per annum and remaining lease terms of up toten 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:

The table below summarizes total lease costs for the following periods:

(1)As of December 31, 2024 and December 31, 2023, the Company has subleasedtwo andone of its real estate leases.

The following table presents supplemental cash flow and non-cash information related to leases:

As of December 31, 2024, the future annual minimum lease payments for operating leases are as follows:

Note 14—Income Taxes

The table below presents the components of income tax expense (benefit) for the following periods

The following is the reconciliation of the amounts computed using the federal statutory income tax rate and the amounts computed using the effective income tax rate:

The table below presents the components of net deferred tax assets and deferred liabilities:

As of December 31, 2024, the Company has $219.0 million of U.S. federal net operating losses, all of which can be carried forward indefinitely.

As of December 31, 2024, the Company has $231.4 million of U.S. state net operating losses which will begin to expire in 2031.

A valuation allowance is provided for deferred income tax assets when it is more likely than not that future tax benefits will not be realized. The Company assesses whether a valuation allowance should be established against deferred tax assets based upon consideration of all available evidence, both positive and negative, using a more likely than not standard. This assessment considers, among other matters, the Company’s history of losses, the duration of statutory carryforward periods, the Company’s experience with tax attributes expiring, impacts of enacted changes in tax laws and tax planning strategies, and the taxable income generated through the future reversals of deferred tax liabilities. In making such judgments, significant weight is given to evidence that can be objectively verified. After analyzing all available evidence, the Company determined it was more likely that it would not be able to utilize all of its deferred tax assets, and has therefore established a full valuation allowance. The Company had valuation allowances against net deferred tax assets of $112.0 million and $46.6 million as of December 31, 2024 and December 31, 2023, respectively. During the year ended December 31, 2024, the increase in the valuation allowance was primarily attributable to a net increase in our deferred tax assets resulting from net operating losses and section 174 capitalization.

Unrecognized Tax Benefits

As of December 31, 2024 and December 31, 2023, the Company had gross unrecognized tax benefits of $0.8 million and $0.8 million, respectively. The unrecognized tax benefit was recorded as a reduction in our gross deferred tax assets, offset by a corresponding reduction in our valuation allowance. None of the unrecognized tax benefits, if recognized, would affect the effective tax rate because of the valuation allowance. There areno interest and penalties associated with the unrecognized tax benefits. For the year ended December 31, 2024 and prior periods, we were subject to income taxes only in the United States, and all tax years since the Company’s inception are open for examination.

The table below presents the Company’s gross unrecognized tax benefits:

Note 15—Employee Benefit Plans

401(k) Plans

The Company maintains qualified 401(k) plans for its U.S. employees: the BigBear.ai 401(k) Plan and Pangiam Holdings, LLC Retirement Plan.

The table below presents the total contributions to the Company’s 401(k) plan for the following periods:

Note 16—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.

The Company is subject to litigation, claims, investigations and audits arising from time to time in the ordinary course of business. Although legal proceedings are inherently unpredictable, the Company intends to defend itself vigorously with respect to any matters currently pending against it. The outcome of these matters, individually and in the aggregate, is not expected to have a material impact on the Company’s consolidated balance sheets, consolidated statements of operations, or cash flows. As of December 31, 2024, the Company has accrued $0.5 million related to various ongoing legal disputes. The $0.5 million balance as of December 31, 2024, reflects management’s best estimate as of that date and is net of any anticipated amounts recoverable through insurance.

Note 17—Stockholders’ Equity

Common Stock

The table below presents the details of the Company’s authorized common stock as of the following periods:

Treasury Stock

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

Dividend Rights

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

Voting Rights

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

Conversion or Redemption Rights

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

Liquidation Rights

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

Preferred Stock

The table below presents the details of the Company’s authorized preferred stock as of the following periods:

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

Note 18—Derivatives

2029 Notes Conversion Option

On December 19, 2024, the Company entered into privately negotiated Exchange Agreements with a limited number of holders of the Company’s 2026 Convertible Notes, to exchange the 2026 Convertible Notes for 2029 Convertible Notes. The 2029 Convertible Notes contain conversion features that meet the definition of a derivative and require separate accounting treatment from the debt host.

The table below presents the value of the 2029 Notes Conversion Option under the Black-Scholes OPM using the following assumptions as of the following dates:

As of December 31, 2024, the 2029 Notes Conversion Option had a fair value of $115.8 million and is presented on theconsolidated balance sheets within derivative liabilities. Aloss of $54.4 million was recognized during thetwelve months ended December 31, 2024, and is presented in net increase (decrease) in fair value of derivatives on theconsolidated statements of operations.

As of December 31, 2024, the remaining principal of the 2029 Convertible Notes outstanding was$182.3 million.

2023 Registered Direct Offering Warrants

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

The table below presents the value of the RDO warrants under the Black-Scholes OPM using the following assumptions as of the following dates:

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

A loss of $1.9 million, which includes transaction costs associated with the issuance of the 2023 RDO warrants, was recognized for the year ended December 31, 2023, and is presented in net increase (decrease) in fair value of derivatives on the consolidated statements of operations.

2024 RDO Warrants

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

The table below presents the value of the 2024 RDO warrants under the Black-Scholes OPM using the following assumptions as of the following dates:

As of December 31, 2024, the 2024 RDO warrants had a fair value of$21.6 millionand is presented on theconsolidated balance sheets within derivative liabilities. A loss of$6.4 million, which includes transaction costs associated with the issuance of the RDO warrants, was recognized during thetwelve months ended December 31, 2024, and is presented in net increase(decrease) in fair value of derivatives on theconsolidated statements of operations.

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

2023 PIPE Warrants

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

The table below presents the value of the PIPE warrants under the Black-Scholes OPM using the following assumptions as of the following dates:

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

A loss of $11.8 million was recognized as a result of the change in fair value for the year ended December 31, 2023, respectively, and are presented in net increase (decrease) in fair value of derivatives on the consolidated statements of operations.

2024 PIPE Warrant

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

The table below presents the value of the 2024 PIPE warrant under the Black-Scholes OPM using the following assumptions as of the following dates:

As of December 31, 2024, the 2024 PIPE warrant has a fair valueof $32.8 million and is presented on the consolidated balance sheets within derivative liabilities. A loss of $4.8 million was recognized as a result of the change in fair value during thetwelve months ended December 31, 2024, and is presented in netincrease (decrease)in fair value of derivatives on theconsolidated statements of operations.

As of December 31, 2024, there were 9,000,000 2024 PIPE warrants issued and outstanding.

2026 Notes Conversion Option (restated)

On December 7, 2021, the Company issued $200.0 million of unsecured convertible notes (the“2026 Convertible Notes”) to certain investors. The 2026 Convertible Notes contain conversion features that meet the definition of a derivative and require separate accounting treatment from the debt host.

The table below presents the value of the 2026 Notes Conversion Option under the Black-Scholes OPM using the following assumptions as of the following dates:

As of December 31, 2024, the 2026 Notes Conversion Option had a fair value of$0.3 millionand is presented on theconsolidated balance sheets within derivative liabilities. Again of$0.2 million was recognized during thetwelve months ended December 31, 2024, and is presented in net increase (decrease) in fair value of derivatives on theconsolidated statements of operations.

As of December 31, 2024, the remaining principal of the 2026 Convertible Notes outstanding was $17.7 million.

IPO Public Warrants

Each warrant issued in connection with the Company’s initial public offering (the “IPO public warrants”) entitles the registered holder to purchaseone share of common stock at a price of $11.50 per share, subject to adjustment. Pursuant to the warrant agreement, a warrant holder may exercise its warrants only for a whole number of shares of common stock. This means only a whole warrant may be exercised at a given time by a warrant holder. The warrants will expire on December 7, 2026, at 5:00 p.m., New York City time, or earlier upon redemption or liquidation.

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

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

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

The table below presents the Company’s IPO public warrants issued and outstanding as of the following periods:

IPO Private Warrants

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

The table below presents the value of the IPO private warrants under the Black-Scholes OPM using the following assumptions as of the following dates:

As of December 31, 2024 and December 31, 2023, the IPO private warrants have a fair value of $0.3 million and $0.1 million and are presented on the consolidated balance sheets within derivative liabilities and other non-current liabilities, respectively. The following was recognized as a result of the change in fair value for the three and the year ended December 31, 2024 and December 31, 2023 and is presented in net increase (decrease) in fair value of derivatives on the consolidated statements of operations:

The table below presents the Company’s IPO private warrants issued and outstanding as of the following periods:

Written Put Option

Immediately prior to the stockholder vote for the merger between the Company’s Parent, BBAI Ultimate Holdings, LLC (“Parent”), and GigCapital4, Inc. (“GigCapital4”), which was consummated on December 7, 2021 (the “Merger”), GigCapital4 executed a series of Forward Share Purchase Agreements (“FPAs”) with certain investors (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 tothree 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 thethree-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 thethree-month period and at a price greater than $10.05 per share, the Company would pay the Investors $0.05 per share sold.

During the first quarter of 2022, the Company settled the derivative liability associated with the Written Put Option by repurchasing all 9,952,803 shares of its common stock that were subject to the FPAs at the Investors’ request. Certain of the Investors requested for their shares to be repurchased prior to the end of thethree-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$101.0 million previously presented as restricted cash on the Company’s consolidated balance sheets on December 31, 2021,$100.9 million was released from the escrow account to settle the obligation to Investors and the remaining$0.1 million was reclassified to cash and cash equivalents.

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 $1.3 million was presented in net increase (decrease) in fair value of derivatives on theconsolidated statement of operations during the first quarter of 2022. The intrinsic value of the Written Put Option upon settlement was $43.5 million and was recognized directly in equity during the first quarter of 2022.

Note 19—Equity-Based Compensation

Class A Units granted to Board of Directors

Prior to the Gig Business Combination, certain members of the Board of Directors of the Company had elected to receive compensation for their services as a board member in stock, Class A units of the Parent. The number of units granted by the Parent were determined by dividing the compensation payable for the quarter by the fair value of the Class A units at the end of each respective quarter. No Class A units were granted to the Board of Directors during the year ended December 31, 2024 and December 31, 2023, respectively.

Class B Unit Incentive Plan

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

The assumptions used in determining the fair value of the Incentive Units at the grant date are as follows:

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

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

The modification date fair value of the Incentive Units was $9.06 per unit. The assumptions used in determining the fair value of the Incentive Units at the modification date are as follows:

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

On December 7, 2021, the previously announced Gig Business Combination was consummated. As a result, the Tranche I and Tranche III Incentive Units immediately became fully vested and the performance condition for the Tranche II Incentive Units was met. The fair value determined at the date of the amendment of the Class B Unit Incentive Plan was immediately recognized as compensation expense on the vesting date for Tranches I and III. Compensation expense for the Tranche II Incentive Units is recognized over the derived service period of 30 months from the modification date. The remaining compensation expense for the Tranche II Incentive Units will be recognized over the remaining service period of approximately 25 months from the date of the amendment. During the year ended December 31, 2022, the Company’s Parent modified the vesting conditions forfour former employees. Under the original terms of the grant agreements, Incentive Units are forfeited upon separation. Due to the amended agreement, the Incentive Units held by the former employees are no longer contingent upon service and are considered vested as of the separation dates. The former employees will not receive the awards until the market condition is achieved. The result of the amended agreement is an accounting modification that resulted in 100% of the compensation expense being recognized for the former employees based on the modification date fair value. The incremental compensation cost recognized as a result of the modification was $1.5 million during the year ended December 31, 2022.

The table below presents the activity in Tranche II of the Incentive Units:

As of December 31, 2024, there wasno unrecognized compensation cost related to Tranche II Incentive Units.

Stock Options

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

During the year ended December 31, 2023, pursuant to the Plan, the Company’s Board of Directors granted certain grantees Stock Options to purchase shares of the Company’s common stock at a weighted-average exercise price of $2.01. The Stock Options vest over four years with 25% vesting on the one year anniversary of the grant date and then 6.25% per each quarter thereafter during years two, three and four. Vesting is contingent upon continued employment or service to the Company and is accelerated in the event of death, disability, or a change in control, subject to certain conditions; both the vested and unvested portion of a Grantee’s Stock Options will be immediately forfeited and cancelled if the Grantee ceases employment or service to the Company. The Stock Options expire on the 10 th anniversary of the grant date.

There wereno stock options granted during the year ended December 31, 2024.

The table below presents the fair value of the Stock Options granted during the year-ended December 31, 2023 using the Black-Scholes OPM and the following assumptions:

(1)Expected volatility is based on a combination of implied and historical equity volatility of selected reasonably similar publicly traded companies.

The table below presents the activity of outstanding stock options:

The stock options had $10.1 million intrinsic value as of December 31, 2024. The Company recognizes equity-based compensation expense for the stock options equal to the fair value of the awards on a straight-line basis over the service based vesting period. As of December 31, 2024, there was approximately $2.0 million of unrecognized compensation costs related to the stock options, which is expected to be recognized over the remaining weighted average period of 1.34 years.

Restricted Stock Units

During the year ended December 31, 2024, pursuant to the Plan, the Company’s Board communicated the key terms and committed to grant Restricted Stock Units (“RSUs”) to certain employees and certain nonemployee directors and consultants. The Company granted 10,026,914 RSUs to employees and 614,866 RSUs to nonemployee directors during the year ended December 31, 2024. RSUs granted to employees generally vest over four years, with 25% vesting on the one year anniversary of the grant date and then 6.25% per each quarter thereafter on the two, three and four year anniversary of the grant date. RSUs granted to nonemployee directors vest 25% each quarter following the grant date or 100% upon the first anniversary of the grant date. Vesting of RSUs is accelerated in the event of death, disability, or a change in control, subject to certain conditions.

The table below presents the activity in the RSUs:

As of December 31, 2024, there was approximately $23.3 million of unrecognized compensation costs related to the RSUs, which is expected to be recognized over the remaining weighted average period of 1.46 years.

Performance Stock Units

Pursuant to the Plan, the Company’s Board communicated the key terms and granted Performance Stock Units (“PSUs”) to certain employees. The Company grants PSUs to certain employees with performance measures specific to the role of that employee or as a retention incentive (“Discretionary PSUs”). During the year ended December 31, 2024, the Company granted 1,943,363 Discretionary PSUs. The Company also granted 1,759,783 Short-term Incentive PSUs (“STI PSUs”) to employees, which contain performance measures based on a combination of Company’s financial performance as well as the individual’s personal performance. The number of Discretionary PSUs and STI PSUs that will vest is based on the achievement of the performance criteria during each respective annual measurement period, provided that the employees remain in continuous service on each vesting date. Vesting will not occur unless a minimum performance criteria threshold is achieved.

The table below presents the activity in the PSUs:

As of December 31, 2024, there was approximately $3.3 million of unrecognized compensation costs related to the Discretionary PSUs and STI PSUs, which is expected to be recognized over the remaining average period of 0.64 years.

Employee Share Purchase Plan (“ESPP”)

Concurrently with the adoption of the Plan, the Company’s Board adopted the 2021 Employee Stock Purchase Plan (the “ESPP”), which authorizes the grant of rights to purchase common stock of the Company to employees, officers and directors (if they are otherwise employees) of the Company. As of December 31, 2024, the Company reserved an aggregate of 3,316,677 common shares (subject to annual increases on January 1 of each year and ending in 2031) of the Company’s common stock for grants under the ESPP. During the year ended December 31, 2024,1,078,030 shares were sold under the ESPP. As of December 31, 2024, the Company has withheld employee contributions of $0.2 million for future ESPP purchases, which are presented on theconsolidated balance sheets within other current liabilities.

Equity-based compensation expense related to purchase rights issued under the ESPP is based on the Black-Scholes OPM fair value of the estimated number of awards as of the beginning of the offering period. Equity-based compensation expense is recognized using the straight-line method over the offering period.

The table below presents the assumptions used to estimate the grant date fair value of the purchase rights under the ESPP:

(1)Expected volatility is based on a combination of implied and historical equity volatility of selected reasonably similar publicly traded companies.

As of December 31, 2024, there was approximately $0.2 million of unrecognized compensation costs related to the ESPP, which is expected to be recognized over the remaining weighted average period of 0.16 years.

Equity-based Compensation Expense

The table below presents the total equity-based compensation expense recognized for Incentive Units, stock options, RSUs, PSUs and ESPP in selling, general and administrative expense, cost of revenues and research and development for the following periods:

The table below presents the total equity-based compensation expense recognized for Class A Units, Class B Units, Stock Options, RSUs, PSUs, and ESPP in selling, general and administrative expense, cost of revenues, and research and development for the following periods:

Note 20—Net Loss Per Share

The numerators and denominators of the basic and diluted netloss per share are computed as follows (in thousands, except per share, unit and per unit data):

The following securities were not included in the computation of diluted shares outstanding because the effect would be anti-dilutive:

Note 21—Revenues

Substantially all revenues were generated within the United States of America.

The table below presents total revenues by contract type for the following periods:

The majority of the Company’s revenue is recognized over time. Revenue derived from contracts that recognize revenue at a point in time was insignificant for all periods presented.

The table below summarizes the activity in the allowance for expected credit losses:

Concentration of Risk

Revenue earned from customers contributing in excess of 10% of total revenues are presented in the tables below for the following periods:

(1) Customers that contributed in excess of 10% of consolidated revenues in any period presented have been included in all periods presented for comparability.

Contract Balances

The table below presents the contract assets and contract liabilities included on the consolidated balance sheets for the following periods:

The change in contract assets between December 31, 2023 and December 31, 2024 was primarily driven by invoices being issued for services previously rendered. The change in contract liability balances between December 31, 2023 and December 31, 2024 was primarily driven by upfront payments for services yet to be rendered to customers. Revenue recognized in the year ended December 31, 2024 that was included in thecontract liability balance as of December 31, 2023 was$0.9 million.

When the Company’s estimate of total costs to be incurred to satisfy a performance obligation exceeds the expected revenue, the Company recognizes the loss immediately. When the Company determines that a change in estimate has an impact on the associated profit of a performance obligation, the Company records the cumulative positive or negative adjustmentin the consolidated statements of operations. Changes in estimates and assumptions related to the status of certain long-term contracts may have a material effect on the Company’s operating results.

The following table summarizes the impact of the net estimates at completion (“EAC”) adjustments on the Company’s operating results:

Remaining Performance Obligations

The Company includes in its computation of remaining performance obligations customer orders for which it has accepted signed sales orders and generally includes the funded and unfunded components of contracts that have been awarded. As of December 31, 2024, the aggregate amount of the transaction price allocated to remai ning performance obligations was $119.0 million. The Company expects to recognize approximately 98% of its remaining performance obligations as revenue within the next 12 months and the balance thereafter.

Note 22—Segments

The Company has determined that it operates in a single operating and reportable segment, as the Chief Operating Decision Maker (“CODM”) reviews financial information presented on a consolidated basis for purposes of making operating decisions, allocating resources, and evaluating financial performance. The Company’s CODM is its Chief Executive Officer.

Consolidated net loss is the primary measure of segment profitability used by the CODM to assess performance and to allocate resources to the segment. The Company’s significant segment expenses, which reflects segment-level information that is regularly provided to the CODM, consist of adjusted cost of revenues, adjusted selling and marketing, adjusted general and administrative, and adjusted research and development. Other material segment expenses and other segment items are presented to reconcile significant segment expenses to consolidated net income.

The tables below present the Company’s operating segment results of operations for the following periods:

(a) Adjusted cost of revenues consists of cost of revenues adjusted to remove amortization expense and equity-based compensation expense.

(b) Adjusted selling and marketing consists of selling and marking costs adjusted to remove equity-based compensation expense.

(c) Adjusted general and administrative consists of general and administrative costs adjusted to remove depreciation and amortization costs, equity-based compensation expense, employer payroll taxes related to equity-based compensation, non-recurring strategic initiatives costs, non-recurring integration costs, and non-recurring litigation expenses.

(d) Adjusted research and development expenses consists of research and development costs adjusted to remove equity-based compensation expense.

(e) Other segment items included in consolidated net income includes employer payroll taxes related to equity-based compensation, non-recurring strategic initiatives costs, non-recurring integration costs, non-recurring litigation costs, restructuring charges, transaction expenses, income tax expense, and other income and expense.

(f) Adjusted cost of revenues consists of cost of revenues adjusted to remove equity-based compensation expense.

(g) Adjusted general and administrative consists of general and administrative costs adjusted to remove depreciation and amortization costs, equity-based compensation expense, employer payroll taxes related to equity-based compensation, non-recurring strategic initiatives costs, and non-recurring litigation expenses.

(h)Other segment items included in consolidated net income includes employer payroll taxes related to equity-based compensation, non-recurring strategic initiatives costs, non-recurring litigation costs, restructuring charges, transaction expenses, income tax expense, and other income and expense.

(i) Adjusted general and administrative consists of general and administrative costs adjusted to remove depreciation and amortization costs, equity-based compensation expense, non-recurring integration costs, capital market advisory fees, and commercial start-up costs.

(j) Adjusted research and development expenses consists of research and development costs adjusted to remove equity-based compensation expense and commercial start-up costs.

(k) Other segment items included in consolidated net income includes non-recurring integration costs, capital market advisory fees, commercial start-up costs, restructuring charges, transaction expenses, income tax expense, and other income and expense.

Note 23—Related Party Transactions

The table below presents the total amount of compensation expense, including equity-based compensation related to the RSUs, the Company paid or accrued for Board members which is included in selling, general and administrative expenses within the consolidated statements of operations for the following periods:

Note 24—Subsequent Events

Warrants

On February 5, 2025, the Company entered into a warrant exercise agreement with an existing accredited investor to exercise in full an outstanding Common Stock Purchase Warrant to purchase up to an aggregate of 5,800,000 shares of the Company’s common stock. In consideration for the immediate and full exercise of the existing warrant for cash, the investor received a new unregistered Common Stock Purchase Warrant to purchase up to an aggregate of 3,770,000 shares of the Company’s common stock (the “New Warrant”) in a private placement.

The New Warrant will become exercisable commencing any time on or after August 6, 2025 (the “Exercise Date”) with an expiration date five years after the Exercise Date with an exercise price per share equal to $9.00. The gross proceeds to the Company from the exercise were $21.9 million, prior to deducting estimated offering expenses.

During the quarter ended March 31, 2025, an existing accredited investor exercised a Common Stock Purchase Warrant and purchased 9,000,000 shares of the Company’s common stock for gross proceeds of $42.8 million.

As of the date of this filing, approximately $57.7 million of the 2029 Convertible Notes have been voluntarily converted by noteholders following the Exchange Transaction. These conversions have resulted in the issuance of approximately 16.7 million shares of common stock in exchange for the retirement of the respective notes.

Note 25—Restatement of Quarterly Financial Information (Unaudited)

As described in Note 2—Restatement of Previously Issued Financial Statements, for the period ended December 31, 2024, management identified a material error in the previously reported financial statements related to its convertible notes issued in December 2021 and due in December 2026 (“2026 Notes”). The conversion option embedded within the 2026 Notes was incorrectly deemed to be eligible for a scope exception from the bifurcation requirements of ASC 815-15 and therefore requires bifurcation as a derivative (“2026 Notes Conversion Option”). The 2026 Notes include certain adjustments to the conversion rate that violate the “fixed-for-fixed” criteria described in Accounting Standards Codification (“ASC”) 815-40. As a result, the consolidated financial statements have been restated to reflect the issuance of the 2026 Notes Conversion Option at fair value as of December 7, 2021 and the subsequent remeasurement to fair value at each reporting date. The following tables present the effect of the restatement on the Company's previously reported:

•unaudited condensed consolidated balance sheets as of March 31, 2023, June 30, 2023, and September 30, 2023;

•unaudited condensed consolidated balance sheets as of March 31, 2024, June 30, 2024, and September 30, 2024;

•unaudited condensed consolidated statements of operations for the three months ended March 31, 2023, the three months and six months ended June 30, 2023, and the three months and nine months ended September 30, 2023;

•unaudited condensed consolidated statements of operations for the three months ended March 31, 2024, the three months and six months ended June 30, 2024, and the three months and nine months ended September 30, 2024;

•unaudited condensed consolidated statements of cash flows for the three months ended March 31, 2023, the six months ended June 30, 2023, and the nine months ended September 30, 2023; and

•unaudited condensed consolidated statements of cash flows for the three months ended March 31, 2024, the six months ended June 30, 2024, and the nine months ended September 30, 2024.

The values as previously reported were derived from the previously filed Quarterly Reports on Form 10-Q for the periods ended March 31, 2023, June 30, 2023, September 30, 2023, March 31, 2024, June 30, 2024, and September 30, 2024. These restatements do not result in a reclassification between cash flows from operating activities, cash flows from investing activities, or cash flows from financing activities in the unaudited condensed consolidated statements of cash flows for the periods presented. The restatements only impact net loss and accumulated other comprehensive loss in the unaudited condensed consolidated statements of changes in stockholders’ equity in the periods presented.

Description of restatement adjustments in the unaudited condensed consolidated balance sheets:

i. The increase in derivative liabilities relates to the adjustments to record changes in fair value of the 2026 Notes Conversion Option.

ii. The decreases in long-term debt, net relates to the adjustments to reflect the debt issuance discount resulting from the bifurcation of the 2026 Notes Conversion Option derivative as of December 7, 2021. The initial discount of $59.1 million has been reduced by cumulative amortization of the debt issuance discount.

iii. The increase in deferred tax liabilities is related to the impact to income tax provision as a result of adjustments to restate prior annual periods.

iv. The increase in accumulated deficit is related to a decrease in net loss due to the adjustments mentioned above and an increase of $47.6 million in the beginning balance of the accumulated deficit as of January 1, 2023.

Description of restatement adjustments in the unaudited condensed consolidated statements of operations:

i. The increases in interest expense relate to the amortization of the debt issuance discount on the 2026 Notes resulting from the bifurcation of the 2026 Notes Conversion Option derivative as of December 7, 2021.

ii. The decreases in net increase (decrease) in fair value of derivatives relate to the fair value remeasurement of the 2026 Notes Conversion Option.

iii. The increase in loss on extinguishment of debt during the three months ended December 31, 2024 relates to the remaining unamortized debt issuance costs of the exchanged 2026 Notes.

Description of restatement adjustments in the unaudited condensed consolidated statements of cash flows:

i. The increases in amortization of debt issuance costs relate to the amortization of the debt issuance discount on the 2026 Notes resulting from the bifurcation of the 2026 Notes Conversion Option derivative as of December 7, 2021.

ii. The increases (decreases) in net increase (decrease) in fair value of derivatives relate to the fair value remeasurement of the 2026 Notes Conversion Option.