BigBear.ai Holdings, Inc. (BBAI)

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis provides information that BigBear.ai Holdings, Inc. (“BigBear.ai”, “BigBear.ai Holdings”, or the “Company”) management believes is relevant to an assessment and understanding of BigBear.ai’s audited consolidated results of operations and financial condition. The following discussion and analysis should be read in conjunction with BigBear.ai’s consolidated financial statements and notes to those statements included elsewhere in this Annual Report on Form 10-K. Certain information contained in this management discussion and analysis includes forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors. Please see “Cautionary Note Regarding Forward-Looking Statements,” and “Risk Factors” in our Annual Report on Form 10-K. Unless the context otherwise requires, all references in this section to the “Company,” “BigBear.ai,” “we,” “us,” or “our” refer to BigBear.ai Holdings, Inc.

The following discussion and analysis of financial condition and results of operations of BigBear.ai is provided to supplement the audited consolidated financial statements and the accompanying notes of BigBear.ai included elsewhere in this Annual Report on Form 10-K. We intend for this discussion to provide the reader with information to assist in understanding BigBear.ai’s consolidated financial statements and the accompanying notes, the changes in those financial statements and the accompanying notes from period to period, along with the primary factors that accounted for those changes. All amounts presented below are in thousands of U.S. dollars unless stated otherwise.

Restatements of Previously Issued Consolidated Financial Statements

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 discussion and analysis of financial condition and results of operations of BigBear.ai is organized as follows:

•Business Overview: This section provides a general description of BigBear.ai’s business, our priorities and the trends affecting our industry in order to provide context for management’s discussion and analysis of our financial condition and results of operations.

•Recent Developments: This section provides recent developments that we believe are necessary to understand our financial condition and results of operations.

•Results of Operations: This section provides a discussion of our results of operations for the year ended December 31, 2024, December 31, 2023 and December 31, 2022.

•Liquidity and Capital Resources: This section provides an analysis of our ability to generate cash and to meet existing or reasonably likely future cash requirements.

•Critical Accounting Policies and Estimates: This section discusses the accounting policies and estimates that we consider important to our financial condition and results of operations and that require significant judgment and estimates on the part of management in their application. In addition, our significant accounting policies, including critical accounting policies, are summarized in Note 3—Summary of Significant Accounting Policies to the accompanying consolidated financial statements included in this Annual Report on Form 10-K.

Business Overview

Our 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

69

Table of Contents

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.

Recent Developments

2029 Convertible Notes

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 new senior secured convertible notes due 2029 (the “2029 Convertible Notes”, together with the 2026 Convertible Notes, the “Convertible Notes”). The Company exchanged 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. 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, subject to other adjustments if certain liquidity requirements are not met. 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.

Pangiam Acquisition

On February 29, 2024, the Company completed the acquisition of Pangiam Intermediate Holdings, LLC (“Pangiam” or the “Pangiam Acquisition”), a leader in vision AI for the global trade, travel and digital identity industries. The combination of BigBear.ai and Pangiam creates one of the industry’s most comprehensive vision and edge AI portfolios, combining facial recognition, image-based anomaly detection and advanced biometrics with BigBear.ai’s computer vision and predictive analytics capabilities, positioning the Company as a foundational leader in how artificial intelligence is operationalized at the edge.

RDO Warrant Exercise

On February 27, 2024, the Company entered into a warrant exercise agreement with an existing accredited investor (the “RDO Investor”) to exercise in full the outstanding Registered Direct Offering to purchase up to an aggregate of 8,886,255 shares of the Company’s common stock for gross proceeds of approximately $20.6 million (the “RDO warrants”). In consideration for the immediate and full exercise of the RDO warrants, the RDO Investor received a new unregistered common stock purchase warrant to purchase up to an aggregate of 5,800,000 shares of the Company’s common stock (the “2024 RDO warrant”) in a private placement. The 2024 RDO warrants became exercisable commencing on August 28, 2024, expiring after five years, with an exercise price per share equal to $3.78. These warrants were fully exercised during the first quarter of 2025.

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.

Private Placement Warrant Exercise

On March 4, 2024, the Company entered into a 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 approximately $33.2 million. In consideration for the immediate and full exercise of the PIPE warrants, 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 became exercisable commencing on September 5, 2024 (the “Exercise Date”), expiring after five years, with an exercise price per share equal to $4.75. These warrants were fully exercised during the first quarter of 2025.

U.S. Budget Environment

The majority of our revenue is derived from federal government contracts. U.S. government spending levels, particularly defense

70

Table of Contents

spending, and timely funding thereof can affect our financial performance over the short and long term.

On March 22, 2024, the President signed the second Fiscal Year (“FY”) 2024 Consolidated Appropriations package into law, which includes Department of Defense (“DoD”) funding. This legislation reflects the Fiscal Responsibility Act (“FRA”) spending limit of $886 billion for National Defense, of which $842 billion was for the DoD base budget.

The President’s FY 2025 budget request was submitted to Congress on March 11, 2024, initiating the FY 2025 defense authorization and appropriations legislative process. The request included $895 billion for National Defense, of which $850 billion is for the DoD base budget, in keeping with the limit established by the FRA. While compression on overall requirements driven by the FRA limit is evident, the Office of the Secretary of Defense has stated the FY 2025 budget proposal meets their objectives of keeping National Defense Strategy priorities on track.

The House and Senate continue the legislative process on the FY 2025 budget. The National Defense Authorization Act for Fiscal Year 2025, signed by the President on December 24, 2024, is consistent with the FY 2025 President’s Budget Request (PBR) and Congressionally mandated budget caps established by the FRA with a topline of $849.8 billion. The House Appropriations Committee also marked its bill at this same level. The Senate Appropriations Committee, however, did not adhere to the FRA spending caps and marked budgets above the PBR, providing between a $21 billion and $25 billion increase over the PBR level.

Congress still needs to approve or revise the President’s FY 2025 budget proposal through enactment of appropriations bills and other policy legislation, which would then require final approval from the President in order for the FY 2025 budget process to conclude. A second Continuing Resolution (CR) for FY 2025 passed the House and Senate on December 20, 2024, and was signed by the President on December 21, 2024. The bill funds U.S. Government operations through March 14, 2025. In addition to the Continuing Resolution, the President also signed the Disaster Relief Supplemental Appropriations Act on December 21, 2024, which includes more than $100 billion in supplemental funding. Of note, the final version of the bill did not address the debt ceiling, which is set to expire mid-January 2025 and is expected to cause challenges at the start of the 119th Congressional negotiations. Once the debt ceiling is reached, Treasury may have to use extraordinary measures to prevent default. Treasury’s available cash and any extraordinary measures taken should delay the risk of default for at least several months after the end of the first quarter of 2025. In the upcoming months, the new Congress will return to the task of funding the U.S. Government for the balance of FY 2025. Significant differences that must be resolved include the different allocations as noted above and policy matters that arose during consideration of the CR and the underlying bills.

We anticipate the federal budget will continue to be subject to debate and compromise shaped by, among other things, the new Administration and Congress, the global security environment, inflationary pressures, and macroeconomic conditions. The result may be shifting funding priorities, which could have material impacts on defense spending broadly and our programs.

Geopolitical Environment

We operate in a complex and evolving security environment and our business is affected by geopolitical issues. Conflicts in Ukraine, the Middle East. and Africa and heightened tension in the Pacific region have elevated global geopolitical tensions and security concerns. For our government customers, their focus on addressing immediate needs in these regions has slowed the pipeline and pace of contract awards, pushing revenue into subsequent periods. We continue to expect the geopolitical climate to drive adoption of our offerings over the long term, as it has heightened the need for advanced AI tools that provide enhanced intelligence and full spectrum cyber operations – areas where we have unmatched capabilities. While these conflicts are still evolving and the eventual outcome remains highly uncertain, we do not believe that these events will have a material impact on our business and results of operations. However, if these conflicts worsen, leading to greater disruptions and uncertainty within the technology industry or global economy, our business and results of operations could be negatively impacted.

Components of Results of Operations

Revenues

We generate revenue by providing our customers with Edge AI-powered decision intelligence solutions and services for data ingestion, data enrichment, data processing, artificial intelligence, machine learning, predictive analytics and predictive visualization. We have a diverse base of customers, including government defense, government intelligence, as well as various commercial enterprises. We generate revenue from providing both software and services to our customers.

Cost of Revenues

71

Table of Contents

Cost of revenues primarily includes salaries, stock-based compensation expense, and benefits for personnel involved in performing the services described above as well as allocated overhead and other direct costs.

Selling, General and Administrative (“SG&A”)

SG&A expenses include salaries, equity-based compensation expense, and benefits for personnel involved in our executive, finance, accounting, legal, human resources, and administrative functions, as well as third-party professional services and fees, and allocated overhead.

Research and Development

Research and development expenses primarily consist of salaries, equity-based compensation expense, and benefits for personnel involved in research and development activities as well as allocated overhead. Certain research and development expenses relate to software developed for sale, lease, or will otherwise be marketed. Costs incurred subsequent to the establishment of technological feasibility and prior to the general availability of the software, are capitalized when they are expected to become significant. All other research and development expenses are expensed in the period incurred.

Restructuring Charges

Restructuring charges consist of employee separation costs and impairment of lease right-of-use assets related to strategic cost saving initiatives to better align our organization and cost structure and improve the affordability of our products and services.

Transaction Expenses

Transaction expenses incurred in 2024 and 2023 consist of diligence, legal and other related expenses associated with the Pangiam Acquisition, which was completed on February 29, 2024. Transaction costs incurred in 2022 are primarily related to our acquisition of ProModel Corporation, which was completed on April 7, 2022, as well as costs associated with evaluating other acquisition opportunities.

Goodwill Impairment

Goodwill impairment consists of non-cash impairments of goodwill.

Net Increase (Decrease) in Fair Value of Derivatives

Net increase (decrease) in fair value of derivatives consists of fair value remeasurements of the 2029 Convertible Notes Conversion Option, 2026 Convertible Notes Conversion Option, PIPE warrants, RDO warrants, IPO private warrants, and the Written put option.

Interest Expense

Interest expense consists primarily of interest expense, commitment fees, debt issuance discount amortization, and debt issuance cost amortization under our debt agreements.

Income Tax Benefit

Income tax benefit consists of income taxes related to federal and state jurisdictions in which we conduct business.

72

Table of Contents

Results of Operations

The table below presents our consolidated statements of operations for the following periods:

Comparison of the Year Ended December 31, 2024, 2023 and 2022

Revenues

Revenues increased by $3.1 million during the year ended December 31, 2024 as compared to the year ended December 31, 2023. The change in revenues were primarily driven by increases due to the acquisition of Pangiam, offset by decreased volume from the Air Force EPASS program which wound down in the second quarter of 2023.

Revenues increased by $0.2 million during the year ended December 31, 2023 as compared to the year ended December 31, 2022 primarily as a result of increased revenue on certain Army programs as a result of new contract awards and higher volume. These increases were offset by the wind-down of certain Air Force programs in the second quarter of 2023 as well as lower volume from Virgin Orbit as a result of Virgin Orbit’s bankruptcy announcement in the second quarter of 2023.

Cost of Revenues

Cost of revenues as a percentage of total revenues was 71% for the year ended December 31, 2024 as compared to 74% for the year ended December 31, 2023. The decrease in cost of revenues as a percentage of total revenues was driven by higher margins from the inclusion of Pangiam’s results.

Cost of revenues as a percentage of total revenues increased to 74% for the year ended December 31, 2023 as compared to 77% for the year ended December 31, 2022. The year ended December 31, 2023 does not include activity from Virgin Orbit after the

73

Table of Contents

first quarter of 2023 as a result of Virgin Orbit’s bankruptcy announcement in the second quarter of 2023 which was a primary driver of the decrease in gross margin during the year as compared to the year ended December 31, 2022.

SG&A

SG&A expenses as a percentage of total revenues for the year ended December 31, 2024 increased to 51% as compared to 46% for the year ended December 31, 2023. The increase in SG&A expenses as a percentage of total revenues was primarily driven by an increase in non-recurring strategic initiatives of $3.4 million, non-recurring integration costs of $1.8 million, and non-recurring litigation costs of $1.1 million incurred during the year ended December 31, 2024.

SG&A expenses as a percentage of total revenues for the year ended December 31, 2023 decreased to 46% as compared to 55% for the year ended December 31, 2022, which was primarily driven by a reduction in personnel costs resulting from the Company’s restructuring actions, as well as reduction in non-recurring integration costs of $7.3 million, capital market advisory fees of $0.7 million, and commercial start-up costs of $6.5 million incurred during the year ended December 31, 2022 that were not repeated in the comparable period. These decreases were partially offset by $3.0 million of professional fees related to non-recurring strategic initiatives, $2.3 million of non-recurring litigation expenses, and bad debt reserves of $1,425 million related to the settlement of Virgin Orbit’s Chapter 11 bankruptcy proceedings.

Research and Development

Research and development expenses increased by $5.8 million during the year ended December 31, 2024 as compared to the year ended December 31, 2023. The increase in research and development expenses was driven by increased headcount, the timing of certain research and development projects, as well as the inclusion of Pangiam’s results.

Research and development expenses decreased by $3.4 million during the year ended December 31, 2023 as compared to the year ended December 31, 2022. The decrease in research and development expenses was driven by certain software development projects that have reached the technological feasibility stage and for which related costs were capitalized during the year ended December 31, 2023.

Restructuring Charges

Restructuring charges consist of employee separation costs related to strategic cost saving initiatives to better align our organization and cost structure and improve the affordability of our products and services.

Restructuring charges for the year ended December 31, 2022 includes the impairment of lease right-of-use assets associated with these strategic cost saving initiatives.

Transaction Expenses

Transaction expenses for the years ended December 31, 2024 and December 31, 2023 consist of diligence, legal and other related expenses associated with the Pangiam Acquisition.

74

Table of Contents

Transaction expenses the year ended December 31, 2022 are related to our acquisition of ProModel Corporation as well as costs associated with evaluating other acquisition opportunities.

Goodwill Impairment

During the year ended December 31, 2024, the Company recognized a non-cash goodwill impairment charge of $85.0 million primarily driven by a decrease in share price during the quarter compared to the share price of the equity issued as consideration for the acquisition of Pangiam.

Net Increase (Decrease) in Fair Value of Derivatives

The net increase in fair value of derivatives of $107.7 million for the year ended December 31, 2024 includes fair value remeasurements of the 2026 Notes Conversion Option, 2029 Notes Conversion Option, IPO private warrants, PIPE warrants, and RDO warrants. The 2023 PIPE warrants and the 2023 RDO warrant were fully settled as of December 31, 2024.

The net increase in fair value of derivatives of $7.4 million for the year ended December 31, 2023 consists of fair value remeasurements of IPO private warrants, 2026 Notes Conversion Option, PIPE warrants, and RDO warrants. The net decrease in fair value of derivatives of $21.4 million for the year ended December 31, 2022 consists of fair value remeasurements of the Written put option, 2026 Notes Conversion Option, and the IPO private warrants. The Written put option was fully settled as of March 31, 2022.

Interest Expense

Interest expense during the years ended December 31, 2024, December 31, 2023, and December 31, 2022 consists primarily of interest expense, commitment fees, debt issuance discount amortization, and debt issuance cost amortization under our Convertible Notes and Bank of America Senior Revolver. See the Liquidity and Capital Resources section below for more information.

Other (Income) Expense

The change in other income during the year ended December 31, 2024 as compared to the year ended December 31, 2023 is primarily driven by interest income earned on money market accounts.

Income Tax Benefit

The effective tax rate for the year ended December 31, 2024 and the year ended December 31, 2023 are consistent. The effective

75

Table of Contents

tax rate for the year ended December 31, 2024 differs from the U.S. federal income tax rate of 21.0% primarily due to state and local income taxes, permanent differences between book and taxable income, certain discrete items and the change in valuation allowance.

The decrease in the effective tax rate for the year ended December 31, 2024 from the year ended December 31, 2023 was primarily due to significant pre-tax loss, non-deductible goodwill impairment and derivative losses, largely offset by an increase in valuation allowance.

The decrease in the effective tax rate for the year ended December 31, 2023 from the year ended December 31, 2022 was primarily due to the realization of deferred tax assets as a result of deferred tax liabilities arising from the acquisition of ProModel Corporation in 2022. The effective tax rate for the year ended December 31, 2023 differs from the U.S. federal income tax rate of 21.0% primarily due to state and local income taxes and the change in valuation allowance.

As of December 31, 2024, the Company has determined that it is not more-likely-than-not that substantially all of its deferred tax assets will be realized in the future and continues to have a full valuation allowance established against its deferred tax assets.

Refer to Note 14—Income Taxes of the Notes to consolidated financial statements included in this Annual Report on Form 10-K for more information.

Supplemental Non-GAAP Information

The Company uses Adjusted EBITDA to evaluate its operating performance, generate future operating plans, and make strategic decisions, including those relating to operating expenses and the allocation of internal resources. Adjusted EBITDA is a financial measure not calculated in accordance with GAAP. Adjusted EBITDA is defined as net income (loss) adjusted for interest expense (income), net, income tax (benefit) expense, depreciation and amortization, equity-based compensation and associated employer payroll taxes, net increase in fair value of derivatives, restructuring charges, non-recurring strategic initiatives, non-recurring litigation, transaction expenses, goodwill impairment, non-recurring integration costs, capital market advisory fees, commercial start-up costs, and loss on extinguishment of debt. Non-GAAP financial performance measures are used to supplement the financial information presented on a GAAP basis. This non-GAAP financial measure should not be considered in isolation or as a substitute for the relevant GAAP measures and should be read in conjunction with information presented on a GAAP basis. Because not all companies use identical calculations, our presentation of non-GAAP measures may not be comparable to other similarly titled measures of other companies.

76

Table of Contents

Adjusted EBITDA - Non-GAAP

The following table presents a reconciliation of Adjusted EBITDA to net loss, computed in accordance with GAAP:

77

Table of Contents

Free Cash Flow

Free cash flow is defined as net cash used in operating activities less capital expenditures. Management believes free cash flow is useful to investors, analysts and others because it provides a meaningful measure of the Company’s ability to generate cash and meet its debt obligations.

The table below presents a reconciliation of free cash flow to net cash used in operating activities, computed in accordance with GAAP:

Key Performance Indicators

Backlog

We view growth in backlog as a key measure of our business growth. Backlog represents the estimated dollar value of contracts that we have been awarded for which work has not yet been performed, and in certain cases, our estimate of known opportunities for future contract awards on customer programs that we are currently supporting.

The majority of our historical revenues are derived from contracts with the Federal Government and its various agencies. In accordance with the general procurement practices of the Federal Government, most contracts are not fully funded at the time of contract award. As work under the contract progresses, our customers may add incremental funding up to the initial contract award amount. We generally do not deliver goods and services to our customers in excess of the appropriated contract funding.

At the time of award, certain contracts may include options for our customers to procure additional goods and services under the contract. Options do not create enforceable rights and obligations until exercised by our customers and thus we only recognize revenues related to options as each option is exercised. Contracts with such provisions may or may not specify the exact scope, nor corresponding price, associated with options; however, these contracts will generally identify the expected period of performance for each option. In cases where we have negotiated the estimated scope and price of an option in the contract with our customer, we use that information to measure our backlog and we refer to this as Priced Unexercised Options. If a contract does not specify the scope, level-of-effort, or price related to options to procure additional goods and services, we estimate the backlog associated with those options based on our discussions with our customer, our current level of support on the customer’s program, and the period of performance for each option that was negotiated in the contract. We refer to this as Unpriced Unexercised Options.

We define backlog in these categories to provide the reader with additional context as to the nature of our backlog and so that the reader can understand the varying degrees of risk, uncertainty, and where applicable, management’s estimates and judgements used in determining backlog at the end of a period. The categories of backlog are further defined below.

•Funded Backlog. Funded backlog represents the remaining contract value of goods and services to be delivered under existing contracts for which funding is appropriated or otherwise authorized less revenues previously recognized on these contracts.

•Unfunded backlog. Unfunded backlog represents the remaining contract value, or portion thereof, of goods and services to be delivered under existing contracts for which funding has not been appropriated or otherwise authorized.

•Priced Unexercised Options. Priced unexercised contract options represent the remaining contract value of goods and services to be delivered under existing contracts if our customer elects to exercise all of the options available in the contract. For priced unexercised options, we measure backlog based on the corresponding contract values assigned to the options as negotiated in our contract with our customer.

•Unpriced Unexercised Options. Unpriced unexercised contract options represent the remaining contract value of goods and services to be delivered under existing contracts if our customer elects to exercise all of the options available in the contract. For unpriced unexercised options, we estimate backlog generally under the assumption that our current level of

78

Table of Contents

support on the contract will persist for each option period.

The following table summarizes certain backlog information:

Liquidity and Capital Resources

Our primary sources of liquidity are cash flows provided by our operations. Our primary short-term cash requirements are to fund payroll obligations, working capital, operating lease obligations, interest payments and short-term debt, including current maturities of long-term debt. Working capital requirements can vary significantly from period to period, particularly as a result of the timing of receipts and disbursements related to long-term contracts. Based on our projected cash flow and liquidity needs, we believe that our cash from operating activities generated from continuing operations during the year will be adequate for the next 12 months to meet our anticipated uses of cash flow.

Our medium-term to long-term cash requirements are to service and repay debt and to invest in facilities, equipment, technologies, and research and development for growth initiatives.

Our ability to fund our medium-term to long-term cash needs will depend, in part, on our ability to generate cash in the future, which depends on our future financial results. Our future results are subject to general economic, financial, competitive, legislative and regulatory factors that may be outside of our control. Our future access to, and the availability of credit on acceptable terms and conditions, is impacted by many factors, including capital market liquidity and overall economic conditions.

On May 10, 2024, we entered into a Controlled Equity Offering sales agreement with Cantor Fitzgerald & Co., as sales agent (the “sales agent”), pursuant to which we may, from time to time, sell shares of our common stock, having an aggregate offering price of up to $150.0 million through the sales agent under an “at-the-market” equity offering program. Any offer and sale of shares of our common stock under the Sales Agreement will be made pursuant to our shelf registration statement on Form S-3 (No. 333-271230), which was declared effective by the SEC on April 21, 2023, and the related prospectus supplement dated May 10, 2024 and accompanying prospectus that form a part of the registration statement.

While we intend to reduce debt over time using cash provided by operations, we may also attempt to meet long-term debt obligations, if necessary, by obtaining capital from a variety of additional sources or by refinancing existing obligations. These sources include public or private capital markets, bank financings, proceeds from dispositions or other third-party sources.

Our available liquidity as of December 31, 2024 and December 31, 2023, consisted primarily of available cash and cash equivalents. The following table details our available liquidity:

(1) Represents the total amount available under the credit facility, which is subject to borrowing base adjustments that limit the total amount available under the credit facilities to 90% of Eligible Prime Government Receivables and Eligible Subcontractor Government Receivables, plus 85% of Eligible Commercial Receivables. These credit facilities were terminated on December 19, 2024.

79

Table of Contents

The following table summarizes borrowings under our debt obligations as of the dates indicated:

(1) Represents the total amount available under the credit facility, which is subject to borrowing base adjustments that limit the total amount available under the credit facilities to 90% of Eligible Prime Government Receivables and Eligible Subcontractor Government Receivables, plus 85% of Eligible Commercial Receivables. These credit facilities were terminated on December 19, 2024.

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 convertible into 17,391,304 shares of the Company’s common stock at an initial Conversion Price of $11.50. The Conversion Price is subject to adjustments, including but not limited to, the Conversion Rate Reset described below and in Note 12—Debt of the Notes to consolidated financial statements included in this Annual Report on Form 10-K. The 2026 Convertible Notes mature on December 15, 2026.

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 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”). Subsequent to the Conversion Rate Reset, the 2026 Convertible Notes are convertible into 18,844,600 shares, not including any interest payments that are settled with the issuance of shares.

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 existing 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 such the exchanged 2026 Convertible Notes. 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 we elect, subject to certain conditions, to pay interest in kind with shares of our common stock. To the extent that the certain liquidity conditions of us and our 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 we elect, subject to certain conditions, to pay interest in kind with shares of our common stock (it being understood that such increased rate shall apply solely for such six-month period applicable to such interest payment date). The initial 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. 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 2029 Convertible Notes were issued pursuant to, and are governed by, an 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.

80

Table of Contents

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.

The 2026 Convertible Notes and the 2029 Convertible Notes require the Company to meet certain financial and other covenants. The 2029 Convertible Notes added a covenant that require the Company to maintain liquidity of at least $15 million measured as an average of the last five business days of any month. As of December 31, 2024, the Company was in compliance with all covenants related to the Convertible Notes.

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

BigBear.ai entered into a senior Bank of America Credit Agreement on December 7, 2021, subsequently amended on November 8, 2022, providing BigBear.ai 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 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 would reduce the amount available under the revolving credit facility. BigBear.ai 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.

The Bank of America Credit Agreement required BigBear.ai 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, which among other things, waived the requirement that the Company demonstrate compliance with the minimum Fixed Charge Coverage ratio provided for in the Credit Agreement for the quarter ended June 30, 2022.

The Company was not in compliance with the Fixed Charge Coverage ratio requirement as of September 30, 2022, and as a result was unable to draw on the facility. On November 8, 2022, the Company entered into a Second Amendment to the Bank of America Credit Agreement (the “Second Amendment”), which modifies key terms of the Senior Revolver. As a result of the Second Amendment, funds available under the Senior Revolver 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 least $1 over the two preceding quarters to maintain its ability to borrow under the Senior Revolver (though the inability to satisfy such condition does not result in a default under the Senior Revolver). Failure to meet this Adjusted EBITDA requirement was not a default but limited the Company’s ability to make borrowings under the Senior Revolver until such time that the Company was able to meet the Adjusted EBITDA thresholds as defined in the Second Amendment.

In connection with the Exchange Transaction entered into 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.

81

Table of Contents

Refer to Note 12—Debt of the Notes to consolidated financial statements included in this Annual Report on Form 10-K for more information.

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 had an interest rate of 6.99% per annum and a maturity date of September 8, 2024. The 2024 D&O Financing Loan was fully repaid at maturity.

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 has 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.

RDO Warrant Exercise

On February 27, 2024, the Company entered into a warrant exercise agreement with an existing accredited 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 total gross proceeds of approximately $20.6 million, prior to deducting estimated offering expenses.

PIPE Warrant Exercise

On March 4, 2024, the Company entered into a warrant exercise agreement with an existing accredited 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 total gross proceeds of approximately $33.2 million, prior to deducting estimated offering expenses.

Cash Flows

The table below summarizes certain information from our consolidated statements of cash flows for the following periods:

Operating activities

For the year ended December 31, 2024, net cash used in operating activities was $38.1 million. Net loss before deducting depreciation, amortization and other non-cash items was $24.6 million and was further impacted by an unfavorable change in net working capital of $13.6 million which contributed to operating cash outflows during this period. The unfavorable change in net working capital was largely driven by an increase in accounts receivable of $11.8 million, a decrease in accounts payable of $4.0 million and a decrease in other liabilities of $1.4 million. These were partially offset by a decrease in contract assets of $3.9 million, a decrease in prepaid expenses and other assets of $2.1 million, an increase in accrued liabilities of $2.9 million, and an increase in contract liabilities of $0.5 million.

For the year ended December 31, 2023, net cash used in operating activities was $18.3 million. Net loss before deducting depreciation, amortization and other non-cash items was $21.9 million and offset by a favorable change in net working capital of $3.6 million which contributed to operating cash flows during this period. The favorable change in net working capital was largely driven by a decrease in accounts receivable of $6.4 million, a decrease in prepaid expenses and other assets of $5.9

82

Table of Contents

million, and in increase in accrued liabilities of $2.6 million. These were partially offset by an increase in contract assets of $3.5 million, a decrease in accounts payable of $4.4 million, a decrease in contract liabilities of $1.1 million, and a decrease in other liabilities of $2.3 million.

For the year ended December 31, 2022, net cash used in operating activities was $48.9 million. Net loss before deducting depreciation, amortization and other non-cash items was $49.4 million and was offset by a favorable change in net working capital of $0.5 million which contributed to operating cash flows during this period. The favorable change in net working capital was largely driven by increases in accounts payable of $9.9 million and other liabilities of $2.2 million. These increases were partially offset by an increase in accounts receivable of $0.8 million, an increase in prepaid expenses and other assets of $1.7 million, a decrease in accrued liabilities of $5.1 million and a decrease in contract liabilities of $3.7 million.

Investing activities

For the year ended December 31, 2024, net cash provided by investing activities was $2.8 million, primarily consisting of cash acquired from the Pangiam acquisition of $13.9 million, partially offset by capitalized software development costs of $10.6 million.

For the year ended December 31, 2023, net cash used in investing activities was $3.8 million, primarily consisting of capitalized software development costs.

For the year ended December 31, 2022, net cash used in investing activities was $5.2 million, consisting of the net cash used to acquire ProModel Corporation of $4.5 million and purchase of property and equipment of $0.8 million.

Financing activities

For the year ended December 31, 2024, net cash provided by financing activities was $52.5 million, primarily consisting of the net proceeds from the issuance of shares pursuant to the exercise of the PIPE warrants and RDO warrants of $53.8 million, partially offset by the payment of taxes related to net share settlement of equity awards $2.4 million and the net repayment of $0.4 million related to the 2023 D&O Financing Loan.

For the year ended December 31, 2023, net cash provided by financing activities was $42.1 million, primarily consisting of net proceeds from the issuance of the Private Placement and Registered Direct Offering shares of $50.0 million, offset by the payment of transaction costs associated with the Private Placement and Registered Direct Offering of $5.7 million, proceeds from the issuance of common stock upon ESPP purchase of $1.2 million, the payment of taxes related to net share settlement of equity awards of $2.6 million, and net repayment of $0.8 million related to the 2023 D&O Financing Loan.

For the year ended December 31, 2022, net cash used in financing activities was $103.1 million, primarily consisting of the purchase of Company shares as a result of settlement of the FPAs of $100.9 million, and the net short-term borrowings of $2.1 million related to the 2022 D&O Financing Loan.

Critical Accounting Policies and Estimates

Our significant accounting policies are summarized in Note 3 of our audited consolidated financial statements for the year ended December 31, 2024 included in this Annual Report on Form 10-K. For the critical accounting estimates used in preparing our consolidated financial statements, we make assumptions and judgments that can have a significant impact on revenue and expenses in our consolidated statements of operations, as well as, on the value of certain assets and liabilities on our consolidated balance sheets. We base our assumptions, judgments and estimates on historical experience and various other factors that we believe are reasonable under the circumstances. Actual results could differ materially from these estimates under different assumptions or conditions.

In accordance with the Company’s policies, we regularly evaluate estimates, assumptions, and judgments; our estimates, assumptions, and judgments are based on historical experience and on factors we believe are reasonable under the circumstances. The results involve judgments about the carrying values of assets and liabilities not readily apparent from other sources. If our assumptions or conditions change, the actual results the Company reports may differ from these estimates. We believe the following critical accounting policies affect the more significant estimates, assumptions, and judgments we use to prepare our consolidated financial statements.

83

Table of Contents

Emerging Growth Company

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

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

Business Combinations, Goodwill and Intangible Assets

Under the acquisition method of accounting, the Company recognizes tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values at acquisition date. The accounting for business combinations requires us to make significant estimates and assumptions, especially with respect to goodwill and intangible assets.

Goodwill

The Company allocates the fair value of purchase consideration in a business combination to tangible assets acquired, liabilities assumed and intangible assets acquired based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is allocated to goodwill. The allocation of the purchase consideration requires management to make significant estimates and assumptions, especially with respect to intangible assets. These estimates can include, but are not limited to, future expected cash flows from acquired customers and acquired technology from a market participant perspective, useful lives and discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable but which are inherently uncertain and unpredictable, and, as a result, actual results may differ from estimates. During the measurement period, which is up to one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.

We assess goodwill for impairment at least annually, as of October 1, and whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. For the purposes of impairment testing, we have determined that we have two reporting units. Our test of goodwill impairment starts with a qualitative assessment to determine whether it is necessary to perform a quantitative goodwill impairment test. If qualitative factors indicate that the fair value of the reporting unit is more likely than not less than its carrying amount, then a quantitative goodwill impairment test is performed.

The discounted cash flow approach requires management to make certain assumptions based upon information available at the time the valuations are performed. Actual results could differ from these assumptions. We believe the assumptions used are reflective of what a market participant would have used in calculating fair value considering current economic conditions.

Additional risks for goodwill across all reporting units include, but are not limited to:

•our failure to reach our internal forecasts could impact our ability to achieve our forecasted levels of cash flows and reduce the estimated discounted value of our reporting units;

•adverse technological events that could impact our performance;

•volatility in equity and debt markets resulting in higher discount rates; and

•significant adverse changes in the regulatory environment or markets in which we operate.

It is not possible at this time to determine if an impairment charge would result from these factors. We will continue to monitor our goodwill for potential impairment indicators in future periods.

84

Table of Contents

Goodwill Impairment Testing

During the third quarter of fiscal 2024, we reevaluated our long-term forecasts due to changes in our expectations about the timing of forecasted revenues for one of our higher growth products. We concluded that the revision to the Company’s forecasts constituted a triggering event and therefore performed a qualitative impairment analysis as of September 30, 2024. Due to the combination of changes to our forecasts and lack of headroom resulting from our goodwill impairment during the first quarter of fiscal 2024, we could not conclude that it is more likely than not that the fair value exceeded the carrying value of our reporting unit as of September 30, 2024 and therefore performed a quantitative interim impairment test.

Our quantitative goodwill impairment test reflected an allocation of 50% and 50% between the income and market-based approaches, respectively. Significant inputs into the valuation models included the discount rate, EBITDA growth and estimated future cash flows. We used a discount rate of 12.0%, guideline peer group and the historical and forward-looking revenue of the peer group in the goodwill impairment test. It was determined that there was no impairment for the three months ended September 30, 2024. 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.

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.

Intangible assets

Identifiable finite-lived intangible assets, including technology and customer relationships, have been acquired through the Company’s various business combinations. The fair value of the acquired technology and customer relationships has been estimated using various underlying judgments, assumptions, and estimates. Potential changes in the underlying judgments, assumptions, and estimates used in our valuations of acquired intangible assets could result in different estimates of the future fair values. A potential increase in discount rates, a reduction in projected cash flows or a combination of the two could lead to a reduction in estimated fair values, which may result in impairment charges that could materially affect our financial statements in any given year. The approaches used for determining the fair value of finite-lived technology and customer relationships acquired depends on the circumstances; the Company has used the income approach (within the income approach, various methods are available such as multi-period excess earnings, with and without, incremental and relief from royalty methods). Within each income approach method, a tax amortization benefit is included, which represents the tax benefit resulting from the amortization of that intangible asset depending on the tax jurisdiction where the intangible asset is held.

Finite-lived intangible assets are reported at cost, net of accumulated amortization, and are amortized on a straight-line basis over their estimated useful lives. Significant judgment is also required in assigning the respective useful lives of intangible assets. Our assessment of intangible assets that have a finite life is based on a number of factors including the competitive environment, market share, brand history, underlying product life cycles, attrition rate, operating plans, cash flows (i.e., economic life based on the discounted and undiscounted cash flows), future usage of intangible assets and the macroeconomic environment.

We evaluate the recoverability of our intangible assets for possible impairment whenever events or circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of these assets is measured by a comparison of the carrying amounts to the future undiscounted cash flows the intangible assets are expected to generate. If such review indicates that the carrying amount of our intangible assets is not recoverable, the carrying amount of such assets is reduced to fair value.

Revenue Recognition

The recognition and measurement of revenue requires the use of judgments and estimates. Specifically, judgment is used in interpreting complex arrangements with nonstandard terms and conditions and determining when all criteria for revenue recognition have been met. The Company’s revenues are derived from the sale of artificial intelligence, machine learning, and technical consulting solutions and services.

The Company engages in long-term contracts for production and service activities and generally recognizes revenue over time (versus point in time recognition) due to the fact that the Company’s ongoing performance creates an asset with no alternative use to the Company and the Company has an enforceable right to payment for performance completed to date. The Company

85

Table of Contents

considers the nature of these contracts and the types of solutions and services provided when determining the proper accounting for a particular contract. 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 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 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. Significant judgment is required in determining performance obligations, and these decisions could change the amount of revenue and profit recorded in a given period.

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. Our 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 recognized as a cumulative adjustment to revenue. We account 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. In circumstances where the standalone selling price is not directly observable, we estimate 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 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 our contracts because it best depicts the transfer of control to the customer as we incur costs on our 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).

Our cost estimation process is based on the professional knowledge of our professionals and draws on their significant experience and judgment. Accounting for long-term contracts requires significant judgment relative to estimating total contract revenues and costs, in particular, assumptions relative to the amount of time to complete the contract, including the assessment of the nature and complexity of the work to be performed. The Company’s estimates are based upon the professional knowledge and experience of its personnel, who review each long-term contract to assess the contract’s schedule, performance, technical matters and estimated cost at completion. Changes in estimates are applied retrospectively for contracts executed after the date of acquisition and are applied via the Accounting Standards Codification (“ASC”) 805, Business Combinations (“ASC 805”) reset method described above for contracts existing at the date of acquisition. When adjustments in estimated contract costs are identified, such revisions may result in current period adjustments to earnings applicable to performance in prior periods.

86

Table of Contents

Impairment of Long-Lived Assets

The Company evaluates the recoverability of the carrying value of long-lived assets whenever events or circumstances indicate the carrying amount may not be recoverable. If a long-lived asset is tested for recoverability and the undiscounted estimated future cash flows to which the asset relates is less than the carrying amount of the asset, the asset cost is adjusted to fair value and an impairment loss is recognized as the amount by which the carrying amount of a long-lived asset exceeds its fair value. No such impairment charges were recognized during the periods presented.

Using a discounted cash flow method involves significant judgment and requires the Company to make significant estimates and assumptions, including long-term projections of cash flows, market conditions and appropriate discount rates. Judgments are based on historical experience, current market trends, consultations with external valuation specialists and other information. If facts and circumstances change, the use of different estimates and assumptions could result in a materially different outcome. The Company generally develops these forecasts based on recent sales data, projections based on existing backlog, acquisitions, and estimated future growth of the market in which it operates.

Capitalization of Software Costs

Software development costs incurred in the development of software to be sold, leased, or otherwise marketed, incurred subsequent to the establishment of technological feasibility and prior to the general availability of the software, are capitalized when they are expected to become significant. Such costs are amortized over the estimated useful life of the applicable software once it is made generally available to our customers.

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.

Income Taxes

Significant judgments are required in order to determine the realizability of tax assets. In assessing the need for a valuation allowance, we evaluate all significant available positive and negative evidence, including historical operating results, estimates of future sources of taxable income, carry-forward periods available, the existence of prudent and feasible tax planning strategies and other relevant factors. The Company recognizes a tax benefit only if it is more likely than not 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.

Derivatives

Derivatives are accounted for in accordance with the guidance of ASC 815, Derivatives and Hedging (“ASC 815”), under which the 2029 Notes Conversion Option, the 2026 Notes Conversion Option, IPO private warrants, Private Placement (“PIPE”) warrants, warrants issued under the registered direct offering (“RDO warrants”), and the Written Put Option, do not meet the criteria for equity treatment and are classified as liabilities measured at fair value. Public warrants meet the criteria for equity classification. The Company remeasures these derivatives at fair value at each reporting period with changes in fair value recognized in the consolidated statements of operations.

Equity-based Compensation

Pursuant to ASC 718, Compensation – Stock Compensation, equity-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.

Class B Unit Incentive Plan

In February 2021, the Company’s Parent, BBAI Ultimate Holdings, LLC (“Parent”), adopted a written compensatory benefit plan (the “Class B Unit Incentive Plan”) to provide incentives to present and future directors, managers, officers, employees,

87

Table of Contents

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.

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 will immediately become fully vested, subject to continued employment or provision of services, upon the closing of the transaction stipulated in the GigCapital4, Inc. (“GigCapital4”) Business Combination Agreement. 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.

On December 7, 2021, the Gig Business Combination between Parent and GigCapital4 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 thirty 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.

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.

Stock options generally vest over four years with 25% vesting on the one year anniversary of the grant date and then 6.25% per each quarter thereafter during years two, three and four. 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 10th anniversary of the grant date. 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.

Restricted Stock Units

Pursuant to the Plan, the Company may award Restricted Stock Units (“RSUs”) to eligible employees. RSUs generally vest over four years with 25% vesting on the one year anniversary of the grant date and then 6.25% per each quarter thereafter during years two, three and four. 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 RSUs will be immediately forfeited and cancelled if the Grantee ceases employment or service to the Company.

Performance Stock Units

Pursuant to the Plan, the Company’s Board of Directors communicated the key terms and committed to grant Performance Stock Units (“PSUs”) to a certain employees. The Company grants PSUs to certain employees with performance measures specific to the role of that employee (“Discretionary PSUs”). The Company also grants PSUs to employees under the Company’s Short-term Incentive Plan (“STIP PSUs”), which contain performance measures based on a combination of Company’s financial performance as well as the individual’s personal performance. The number of Discretionary PSUs and STIP PSUs that will vest is based on the achievement of the performance criteria during each respective annual measurement period, provided that the employees remain

88

Table of Contents

in continuous service on each vesting date. Vesting will not occur unless a minimum performance criteria threshold is achieved.

Employee Share Purchase Plan (“ESPP”)

Concurrently with the adoption of the Plan, the Company’s Board of Directors adopted the 2021 Employee Stock Purchase Plan (the “ESPP”), which authorizes the grant of rights to purchase common stock of the Company to employees, officers, and directors (if they are otherwise employees) of the Company. As of January 1, 2025, 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. 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.

Recent Accounting Pronouncements

See Note 3—Summary of Significant Accounting Policies of the consolidated financial statements included in this Annual Report on Form 10-K for a discussion of recently issued accounting pronouncements.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis provides information that BigBear.ai Holdings, Inc. (“BigBear.ai”, “BigBear.ai Holdings”, or the “Company”) management believes is relevant to an assessment and understanding of BigBear.ai’s audited consolidated results of operations and financial condition. The following discussion and analysis should be read in conjunction with BigBear.ai’s consolidated financial statements and notes to those statements included elsewhere in this Annual Report on Form 10-K. Certain information contained in this management discussion and analysis includes forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors. Please see “Cautionary Note Regarding Forward-Looking Statements,” and “Risk Factors” in our Annual Report on Form 10-K. Unless the context otherwise requires, all references in this section to the “Company,” “BigBear.ai,” “we,” “us,” or “our” refer to BigBear.ai Holdings, Inc.

The following discussion and analysis of financial condition and results of operations of BigBear.ai is provided to supplement the audited consolidated financial statements and the accompanying notes of BigBear.ai included elsewhere in this Annual Report on Form 10-K. We intend for this discussion to provide the reader with information to assist in understanding BigBear.ai’s audited consolidated financial statements and the accompanying notes, the changes in those financial statements and the accompanying notes from period to period, along with the primary factors that accounted for those changes. All amounts presented below are in thousands of U.S. dollars unless stated otherwise.

The discussion and analysis of financial condition and results of operations of BigBear.ai is organized as follows:

•Business Overview: This section provides a general description of BigBear.ai’s business, our priorities and the trends affecting our industry in order to provide context for management’s discussion and analysis of our financial condition and results of operations.

•Recent Developments: This section provides recent developments that we believe are necessary to understand our financial condition and results of operations.

•Results of Operations: This section provides a discussion of our results of operations for the years ended December 31, 2023, December 31, 2022, and December 31, 2021.

•Liquidity and Capital Resources: This section provides an analysis of our ability to generate cash and to meet existing or reasonably likely future cash requirements.

•Critical Accounting Policies and Estimates: This section discusses the accounting policies and estimates that we consider important to our financial condition and results of operations and that require significant judgment and estimates on the part of management in their application. In addition, our significant accounting policies, including critical accounting policies, are summarized in Note B—Summary of Significant Accounting Policies to the accompanying consolidated financial statements included in this Annual Report on Form 10-K.

Business Overview

Our 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.

Recent Developments

Pangiam Acquisition

On February 29, 2024, the Company completed the acquisition of Pangiam Intermediate Holdings, LLC (“Pangiam” or the “Pangiam Acquisition”), a leader in vision AI for the global trade, travel, and digital identity industries. The combination of BigBear.ai and Pangiam creates one of the industry’s most comprehensive vision and edge AI portfolios, combining facial

67

Table of Contents

recognition, image-based anomaly detection and advanced biometrics with BigBear.ai’s computer vision and predictive analytics capabilities, positioning the Company as a foundational leader in how artificial intelligence is operationalized at the edge.

Private Placement Warrant Exercise

On March 4, 2024, the Company entered into a warrant exercise agreement with an existing accredited investor (the “PIPE Investor”) to exercise in full the outstanding Private Placement (the “PIPE warrants”) to purchase up to an aggregate of 13,888,889 shares of the Company’s common stock for gross proceeds of approximately $33.2 million. In consideration for the immediate and full exercise of the PIPE warrants, 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 “Second New Warrant”) in a private placement. The Second New Warrant will become exercisable commencing at any time on or after September 5, 2024 (the “Exercise Date”), expiring after five years, with an exercise price per share equal to $4.75.

RDO Warrant Exercise

On February 27, 2024, the Company entered into a warrant exercise agreement with an existing accredited investor (the “RDO Investor”) to exercise in full the outstanding Registered Direct Offering (the “RDO warrants”) to purchase up to an aggregate of 8,886,255 shares of the Company’s common stock for gross proceeds of approximately $20.6 million. In consideration for the immediate and full exercise of the RDO warrants, the RDO Investor received a new unregistered common stock purchase warrant to purchase up to an aggregate of 5,800,000 shares of the Company’s common stock (the “First New Warrant”) in a private placement. The First New Warrant will become exercisable commencing at any time on or after August 28, 2024, expiring after five years, with an exercise price per share equal to $3.78.

Registered Direct Offering

On June 13, 2023, the Company consummated the closing of a registered direct offering (the “Offering”) pursuant to an Underwriting Agreement with Cowen and Company, LLC, as representative of the underwriters, for the sale and purchase of an aggregate of 11,848,341 shares of common stock at par value (“Common Stock”) and accompanying common warrants (“RDO warrants”). Each share of Common Stock was 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. The RDO warrants became exercisable six months after issuance and had a five-year term. The aggregate gross proceeds to the Company were approximately $25 million before deducting underwriting discounts and commissions and offering expenses. The Company intends to use the proceeds from the Offering primarily for general corporate purposes.

Private Placement

On January 19, 2023, the Company consummated the closing of a private placement (the “Private Placement”), pursuant to the terms and conditions of the Securities Purchase Agreement, dated January 16, 2023, by and among the Company and Armistice Capital Master Fund Ltd. At the closing of the Private Placement, the Company issued 13,888,889 shares (the “Private Placement Shares”) of the Company’s common stock at par value and a Common Stock purchase warrant (the “PIPE Warrant”) to purchase up to an additional 13,888,889 shares of Common Stock at an exercise price of $2.39 per share.

The purchase price per share of each Private Placement Share and the associated Warrant was $1.80. The aggregate gross proceeds to the Company from the Private Placement were approximately $25 million before deducting the placement agent fees and other offering expenses payable by the Company. The Company used the net proceeds from the offering for general corporate purposes, including working capital.

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. The Company’s CODM is its Chief Executive Officer.

As of December 31, 2022, the Company had two operating and reportable segments that were organized by sector: Cyber & Engineering and Analytics. During the three months ended March 31, 2023, the Company reevaluated its operating and reportable segments under Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("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

68

Table of Contents

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 its one segment based upon information included in management reports.

U.S. Budget Environment

The majority of our revenue is derived from federal government contracts. U.S. government spending levels, particularly defense spending, and timely funding thereof can affect our financial performance over the short and long term. On January 19, 2024, the President signed a continuing resolution that extends funding of appropriations bills to March 2024. This will provide Congress additional time to enact FY 2024 appropriations bills based on the overarching U.S. Government spending agreement reached by House and Senate leaders on January 7, 2024 which capped National Defense in FY 2024 to $886 billion. Overall, congressional sentiment remains strong for supporting the National Defense Strategy and defense spending. However, the logistical and political challenges, especially in the U.S. House of Representatives, are complex and add funding risk. Under the continuing resolution, funding at amounts consistent with appropriated levels for FY 2023 are available, subject to certain restrictions, but new contract and program starts are not authorized. We expect our key contracts will continue to be supported and funded under the continuing resolution. However, during periods covered by continuing resolutions, we may experience delays in new contract awards, and those delays may adversely affect our results of operations.

We anticipate the federal budget will continue to be subject to debate and compromise shaped by, among other things, heightened political tensions, the global security environment, inflationary pressures, and macroeconomic conditions. The result may be shifting funding priorities, which could have material impacts on defense spending broadly and our federal government contracts.

Geopolitical Environment

We operate in a complex and evolving security environment and our business is affected by geopolitical issues. Conflicts in Ukraine, Israel, and Gaza have significantly elevated global geopolitical tensions and security concerns. For our government customers, their focus on addressing immediate needs in these regions has slowed the pipeline and pace of contract awards, pushing revenue into subsequent periods. We continue to expect the geopolitical climate to drive adoption of our offerings over the long term, as it has heightened the need for advanced AI tools that provide enhanced intelligence and full spectrum cyber operations – areas where we have unmatched capabilities. While these conflicts are still evolving and the eventual outcomes remains highly uncertain, we do not believe that these events will have a material impact on our business and results of operations. However, if these conflicts worsen, leading to greater disruptions and uncertainty within the technology industry or global economy, our business and results of operations could be negatively impacted.

Components of Results of Operations

Revenues

We generate revenue by providing our customers with Edge AI-powered decision intelligence solutions and services for data ingestion, data enrichment, data processing, artificial intelligence, machine learning, predictive analytics and predictive visualization. We have a diverse base of customers, including government defense, government intelligence, as well as various commercial enterprises. We generate revenue from providing both software and services to our customers.

Cost of Revenues

Cost of revenues primarily includes salaries, stock-based compensation expense, and benefits for personnel involved in performing the services described above as well as allocated overhead and other direct costs.

Selling, General and Administrative (“SG&A”)

SG&A expenses include salaries, stock-based compensation expense, and benefits for personnel involved in our executive, finance, accounting, legal, human resources, and administrative functions, as well as third-party professional services and fees, and allocated overhead.

69

Table of Contents

Research and Development

Research and development expenses primarily consist of salaries, stock-based compensation expense, and benefits for personnel involved in research and development activities as well as allocated overhead. Certain research and development expenses relate to software developed for sale, lease, or will otherwise be marketed. Costs incurred subsequent to the establishment of technological feasibility and prior to the general availability of the software, are capitalized when they are expected to become significant. All other research and development expenses are expensed in the period incurred.

Restructuring Charges

Restructuring charges consist of employee separation costs and impairment of lease right-of-use assets related to strategic cost saving initiatives to better align our organization and cost structure and improve the affordability of our products and services.

Transaction Expenses

Transaction expenses incurred in 2023 consist primarily of diligence, legal, and other related expenses incurred associated with the Pangiam Acquisition. Transaction costs incurred in 2022 are primarily related to our acquisition of ProModel Corporation as well as costs associated with evaluating other acquisition opportunities.

We expect to incur additional transaction expenses and integration costs in the future as we work to integrate the acquisition of Pangiam, which was completed on February 29, 2024. Refer to Note W—Subsequent Events of the consolidated financial statements included in this Annual Report on Form 10-K for more information.

Goodwill Impairment

Goodwill impairment consists of non-cash impairments of the goodwill in the previously reported Cyber & Engineering and Analytics reportable segments.

Net Increase (Decrease) in Fair Value of Derivatives

Net increase (decrease) in fair value of derivatives consists of fair value remeasurements of Private Placement warrants, PIPE warrants, RDO warrants, and the Written put option.

Loss on Extinguishment of Debt

Loss on extinguishment of debt consists of the derecognition of the remaining unamortized debt issuance costs related to the Antares Capital Credit Facility upon its settlement.

Interest Expense

Interest expense consists primarily of interest expense, commitment fees, and debt issuance cost amortization under our debt agreements.

Income Tax Expense (Benefit)

Income tax expense (benefit) consists of income taxes related to federal and state jurisdictions in which we conduct business.

70

Table of Contents

Results of Operations

The table below presents our consolidated statements of operations for the following periods:

Comparison of the Year Ended December 31, 2023, 2022 and 2021

Revenues

Revenues increased by $153 during the year ended December 31, 2023 as compared to the year ended December 31, 2022 primarily as a result of increased revenue on certain Army programs as a result of new contract awards and higher volume. These increases were offset by the wind-down of certain Air Force programs at the beginning of the third quarter of 2023 as well as lower volume from Virgin Orbit as a result of Virgin Orbit’s bankruptcy announcement in the second quarter of 2023.

Revenues increased by $9,433 during the year ended December 31, 2022 as compared to the year ended December 31, 2021 primarily driven by new contracts awarded in 2022, resulting in higher volume.

Cost of Revenues

Cost of revenues as a percentage of total revenues increased to 74% for the year ended December 31, 2023 as compared to 72% for the year ended December 31, 2022. The year ended December 31, 2023 does not include activity from Virgin Orbit after the first quarter of 2023 as a result of Virgin Orbit’s bankruptcy announcement in the second quarter of 2023 which was a primary driver of the decrease in gross margin during the year as compared to the year ended December 31, 2022.

Cost of revenues as a percentage of total revenues decreased to 72% for the year ended December 31, 2022 as compared to 77% for the year ended December 31, 2021 due to lower margins on certain prototype contracts that were performed during 2022.

71

Table of Contents

SG&A

SG&A expenses as a percentage of total revenues for the year ended December 31, 2023 decreased to 46% as compared to 55% for the year ended December 31, 2022, which was primarily driven by a reduction in personnel costs resulting from the Company’s restructuring actions, as well as reduction in non-recurring integration costs of $7,255, capital market advisory fees of $741, and commercial start-up costs of $6,490 incurred during the year ended December 31, 2022 that were not repeated in the comparable period. These decreases were partially offset by $3,025 of professional fees related to non-recurring strategic initiatives, $2,250 of non-recurring litigation expenses, and bad debt reserves of $1,425 related to the settlement of Virgin Orbit’s Chapter 11 bankruptcy proceedings.

SG&A expenses as a percentage of total revenues for the year ended December 31, 2022 decreased to 55% as compared to 73% for the year ended December 31, 2021, which was primarily driven by a $46,367 reduction of equity-based compensation cost and $6,176 reduction in capital market advisory fees, partially offset by additional investment in commercial start-up costs of $3,472, $5,472 of increased non-recurring integration costs to streamline business functions across the Company and realize synergies from our acquisitions, and $4,233 related to D&O insurance.

Research and Development

Research and development expenses decreased by $3,358 during the year ended December 31, 2023 as compared to the year ended December 31, 2022. The decrease in research and development expenses was driven by certain software development projects that have reached the technological feasibility stage and for which related costs were capitalized during the year ended December 31, 2023.

Research and development expenses increased by $2,360 during the year ended December 31, 2022 as compared to the year ended December 31, 2021, driven by increased hiring and headcount in our innovations lab as well as investment in various research projects aimed at continuing to develop and refine our solutions, including enhancing features and functionality, adding new modules, and improving the application of the latest AI/ML technologies in the solutions we deliver to our customers.

Restructuring Charges

Restructuring charges consist of employee separation costs related to strategic cost saving initiatives to better align our organization and cost structure and improve the affordability of our products and services. Restructuring charges for the year ended December 31, 2022 includes the impairment of lease right-of-use assets associated with these strategic cost saving initiatives.

Transaction Expenses

Transaction expenses for the year ended December 31, 2023 consist of diligence, legal and other related expenses incurred associated with the Pangiam Acquisition.

Transaction expenses for the year ended December 31, 2022 are related to our acquisition of ProModel Corporation as well as

72

Table of Contents

costs associated with evaluating other acquisition opportunities.

Goodwill Impairment

Goodwill impairment for the year ended December 31, 2022 consists of $35,252 and $18,292 of non-cash impairments of the goodwill in the previously reported Cyber & Engineering and Analytics reportable segments, respectively.

Net Increase (Decrease) in Fair Value of Derivatives

The net increase in fair value of derivatives of $7,424 for the year ended December 31, 2023 consists of fair value remeasurements of private warrants, PIPE warrants, and Registered Direct Offering warrants. The net decrease in fair value of derivatives of $1,591 for the year ended December 31, 2022 consists of fair value remeasurements of the Written put option and private warrants. The Written put option was fully settled as of March 31, 2022.

Loss on Extinguishment of Debt

The loss on extinguishment of debt of $2,881 for the year ended December 31, 2021 consists of the derecognition of the remaining unamortized debt issuance costs related to the settlement of the Antares Capital Credit Facility in December 2021.

Interest Expense

Interest expense during the year ended December 31, 2023 and the year ended December 31, 2022 consists primarily of interest expense, commitment fees and debt issuance cost amortization under our Convertible Notes and Bank of America Senior Revolver. See the Liquidity and Capital Resources section below for more information.

Interest expense increased by $6,674 during the year ended December 31, 2022 as compared to the year ended December 31, 2021. The increase in interest expense was primarily driven by the higher principal balance of debt associated with our Convertible Notes as compared to the principal balance of debt under our Antares Capital Credit Facility, which was fully settled and terminated in December 2021. The interest expense in the year ended December 31, 2021 was primarily incurred in connection with the Antares Capital Credit Facility.

Other (Income) Expense

The change in other (income) expense during the year ended December 31, 2023 as compared to the year ended December 31, 2022 is primarily driven by interest income earned on money market accounts.

Income Tax Expense (Benefit)

73

Table of Contents

The decrease in the effective tax rate for the year ended December 31, 2023 from the year ended December 31, 2022 was primarily due to the realization of deferred tax assets as a result of deferred tax liabilities arising from the acquisition of ProModel Corporation in 2022. The effective tax rate for the year ended December 31, 2023 differs from the U.S. federal income tax rate of 21.0% primarily due to state and local income taxes and the change in valuation allowance.

The increase in the effective tax rate for the year ended December 31, 2022 from the year ended December 31, 2021 was primarily due to the change in the valuation allowance on the Company’s deferred tax balances. The effective tax rate for the year ended December 31, 2022 differs from the U.S. federal income tax rate of 21.0% primarily due to state and local income taxes, permanent differences between book and taxable income, goodwill impairment, and the change in valuation allowance primarily resulting from the ProModel Corporation acquisition.

As of December 31, 2023, the Company has determined that it is not more-likely-than-not that substantially all of its deferred tax assets will be realized in the future, and continues to have a full valuation allowance established against its deferred tax assets.

Refer to Note M—Income Taxes of the Notes to consolidated financial statements included in this Annual Report on Form 10-K for more information.

Supplemental Non-GAAP Information

The Company uses Adjusted EBITDA to evaluate its operating performance, generate future operating plans, and make strategic decisions, including those relating to operating expenses and the allocation of internal resources. Adjusted EBITDA is a financial measure not calculated in accordance with GAAP. Adjusted EBITDA is defined as net income (loss) adjusted for interest expense (income), net, income tax expense (benefit), depreciation and amortization, equity-based compensation and associated employer payroll taxes, net increase (decrease) in fair value of derivatives, restructuring charges, non-recurring strategic initiatives, non-recurring litigation, transaction expenses, goodwill impairment, non-recurring integration costs, capital market advisory fees, commercial start-up costs, loss on extinguishment of debt, transaction bonuses, termination of legacy benefits, and management fees. Non-GAAP financial performance measures are used to supplement the financial information presented on a GAAP basis. This non-GAAP financial measure should not be considered in isolation or as a substitute for the relevant GAAP measures and should be read in conjunction with information presented on a GAAP basis. Because not all companies use identical calculations, our presentation of non-GAAP measures may not be comparable to other similarly titled measures of other companies.

74

Table of Contents

Adjusted EBITDA - Non-GAAP

The following table presents a reconciliation of Adjusted EBITDA to net loss, computed in accordance with GAAP: