# BigBear.ai Holdings, Inc. (BBAI) FY 2022 MD&A

Verbatim Item 7 Management's Discussion and Analysis from BigBear.ai Holdings, Inc.'s 10-K for fiscal year 2022.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1836981/000162828023010166/bbai-20221231.htm
Accession: 0001628280-23-010166
Filing date: 2023-03-31
Report date: 2022-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Published MD&A gate trimmed front/tail over-capture.
Confidence: high

Company profile: /company/BBAI/
All MD&A years: /company/BBAI/mda/
Previous year: /company/BBAI/mda/fy2021/ (FY 2021)
Next year: /company/BBAI/mda/fy2023/ (FY 2023)

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 this 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.

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 current period, pro forma information and historical results of operations.

•the year ended December 31, 2022 (the “Successor 2022 Period”)

•the year ended December 31, 2021 (the “Successor 2021 Period”)

•the period from May 22, 2020 through December 31, 2020 (the “Successor 2020 Period”)

•the period from January 1, 2020 through October 22, 2020 (the “Predecessor 2020 Period”)

•the year ended December 31, 2020 after giving effect to each acquisition as if each had been completed as of January 1, 2020 (the “Successor 2020 Pro Forma Period”).

•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 our clients as they face their most complex decisions. BigBear.ai’s artificial intelligence (“AI”)-powered decision intelligence solutions are leveraged across our Cyber & Engineering and Analytics business segments and in three primary markets—global supply chains & logistics, autonomous systems and cybersecurity. Our Cyber & Engineering segment provides high-end technology and management consulting services to our customers, focusing on cloud engineering and enterprise IT, cybersecurity, computer network operations and wireless, systems engineering, as well as strategy and program planning. Our Analytics segment provides high-end technology and consulting services to our customers, focusing

64

Table of Contents

on big data computing and analytical solutions, including predictive and prescriptive analytics solutions. BigBear.ai’s customers, including federal defense and intelligence agencies, manufacturers, third party logistics providers, retailers, healthcare, and life sciences organizations, rely on BigBear.ai’s solutions to empower leaders to decide on the best possible course of action by creating order from complex data, identifying blind spots, and building predictive outcomes. We are a technology-led solutions organization, providing both software and services to our customers.

Merger Agreement and Public Company Costs

Affiliates of AE Industrial Partners Fund II, LP (“AE”), a private equity firm specializing in aerospace, defense, space and government services, power generation, and specialty industrial markets, formed a series of acquisition vehicles on May 22, 2020, which included Lake Parent, LLC (“Lake Parent”), BigBear.ai Holdings, LLC (“BigBear.ai Holdings” or “Successor”, formerly known as Lake Intermediate, LLC), BigBear.ai Intermediate Holdings, LLC (“BigBear.ai Intermediate,” formerly known as Lake Finance, LLC) and BigBear.ai, LLC (“BigBear.ai”, formerly known as Lake Acquisition, LLC), with Lake Parent being the top holding company. BigBear.ai and BigBear.ai Intermediate are wholly owned subsidiaries of BigBear.ai.

On June 19, 2020, BigBear.ai acquired 100% of the equity of NuWave Solutions, LLC (“NuWave”). NuWave is a leading provider of data management, advanced analytics, artificial intelligence, machine learning, and cloud solutions that deliver anticipatory intelligence and advanced decision support solutions and technologies to the Federal Government. NuWave provides innovative, customized solutions through development, selection, and integration of leading technologies. NuWave has expertise in advanced technologies across the analytics and data management lifecycle and applies its expertise and teamwork to give customers the ability to solve complex problems, communicate, and manage information.

Separately, AE also formed a series of acquisition vehicles on October 8, 2020, which included BBAI Ultimate Holdings, LLC (“BBAI Ultimate Holdings” or “Parent”, formerly known as PCISM Ultimate Holdings, LLC), PCISM Holdings, LLC, PCISM Intermediate Holdings, LLC and PCISM Intermediate II Holdings, LLC. On October 23, 2020 BBAI Ultimate Holdings acquired PCI Strategic Management, LLC (“PCI” or “Predecessor”). PCI is a technology-focused company that provides cybersecurity and computer network operations, cloud engineering and IT infrastructure, data analytics, and system engineering solutions and related services. PCI is a trusted advisor to the U.S. intelligence community, Department of Defense (the “DoD”), and Federal Government, developing leading-edge mission solutions using emerging technologies and proven practices to solve the most complex cybersecurity, cloud, and enterprise IT challenges of its customers.

On December 2, 2020, NuWave entered into an agreement with Open Solutions Group, LLC (“Open Solutions”) to acquire 100% of its equity. Open Solutions specializes in big data computing and analytics, cloud computing, artificial intelligence, machine learning, geospatial information systems, data mining and systems engineering to customers in the U.S. defense and intelligence communities. Open Solutions combines comprehensive technology solutions with its BigBear.ai Platform to create entirely private, secure, and unique cloud environments that have helped organizations enable big data computing, machine learning and improved decision-making while better managing risk. Open Solutions specializes in helping customers make sense of their data by delivering the most advanced customized data analytics solutions.

On December 21, 2020, BigBear.ai acquired the Government Services division of ProModel Government Solutions Inc. (“ProModel”). ProModel is an agile provider of mission critical predictive and prescriptive analytics software solutions for decision support to the DoD and U.S. Government. For more than 25 years, ProModel has built innovative and adaptable custom model-based software solutions to visualize complex and disparate data, synchronize operational needs, mitigate risk and optimize resources to support strategic and tactical decisions for the DoD and other federal government agencies.

On December 21, 2020, NuWave acquired 100% of the equity of PCI in a series of transactions which resulted in BigBear.ai Holdings being a wholly owned subsidiary of BBAI Ultimate Holdings. This transaction left Lake Parent with no assets or operations, and it was dissolved.

Recent Developments

Acquisition Activity

On April 7, 2022, the Company’s subsidiary BigBear.ai, LLC acquired ProModel Corporation (“ProModel Corporation”), a leader in simulation-based predictive and prescriptive analytic software for process improvement enabling organizations to make better decisions, for approximately $16.1 million, subject to certain adjustments. This acquisition complements the Company’s previous acquisition of ProModel’s Government Services business, ProModel Government Solutions Inc. (“ProModel Government Solutions”), which closed on December 21, 2020. The acquisition of ProModel Corporation was funded through a

65

Table of Contents

combination of cash on hand and the issuance of 649,976 shares of the Company’s common stock. ProModel Corporation is aligned under the Company’s Analytics business segment. Refer to Note D—Business Combinations of the Notes to consolidated financial statements included in this Annual Report on Form 10-K for more information. For risks related to the transaction, see Item 1A — Risk Factors —Risks Related to Our Business and Industry — We may acquire or invest in companies and technologies, which may divert our management’s attention, and result in additional dilution to our stockholders. We may be unable to integrate acquired businesses and technologies successfully or achieve the expected benefits of such acquisitions or investments — included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

COVID-19 Operational Posture and Current Impact

The COVID-19 pandemic continued to cause business impacts during 2022, primarily driven by the emergence of the Omicron variant in late 2021 with a resulting increase in COVID cases in early 2022. Our performance was affected during 2022 by supply chain disruptions and delays, as well as labor challenges associated with employee absences, travel restrictions, site access, quarantine restrictions, remote work, and adjusted work schedules. We are actively engaging with our customers and are continuing to take measures to protect the health and safety of our employees.

The impact of COVID-19 on our operations and financial performance in future periods, including our ability to execute on our customer contracts in the expected timeframe, remains uncertain and will depend on a number of factors, including the impact of potential new COVID-19 variants or subvariants, the effectiveness and adoption of COVID-19 vaccines and therapeutics, and government actions to prevent and manage disease spread. The long-term impacts of COVID-19 on government budgets and other funding priorities that impact demand for our solutions also are difficult to predict, but could negatively affect our future results and performance.

For additional risks to the corporation related to the COVID-19 pandemic, see Item 1A, Risk Factors of this Annual Report on Form 10-K for the year ended December 31, 2022.

Russian Invasion of Ukraine

We are closely monitoring the impact of the Russian invasion of Ukraine and its impact on our business. For our government customers, their focus on addressing immediate needs in Ukraine has slowed the pipeline and pace of contract awards, pushing revenue further to the right. 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 the conflict is still evolving and the outcome remains highly uncertain, we do not believe the Russian invasion will have a material impact on our business and results of operations. However, if the conflict continues or worsens, leading to greater disruptions and uncertainty within the technology industry or global economy, our business and results of operations could be negatively impacted.

Amendments to the Bank of America Credit Agreement

As previously disclosed, as of June 30, 2022, the Company was not in compliance with the Fixed Charge Coverage ratio requirement of the Credit Agreement (the “Bank of America Credit Agreement”), dated as of December 7, 2021, by and among the Company, the other borrowers party thereto, the lenders from time to time party thereto and Bank of America, N.A., as administrative agent and collateral agent. The Company notified Bank of America N.A. of the covenant violation, and, on August 9, 2022, entered into the First Amendment (the “First Amendment”) to the Bank of America Credit Agreement, which, among other things, waived the requirement that the Company demonstrate compliance with the minimum Fixed Charge Coverage ratio provided for in the Credit Agreement for the quarter ended June 30, 2022.

As of September 30, 2022, the Company was not in compliance with the Fixed Charge Coverage ratio requirement of the Bank of America Credit Agreement. On November 8, 2022, the Company entered into a Second Amendment to the Bank of America Credit Agreement (the “Second Amendment”), which modifies key terms of the Senior Revolver. As a result of the Second Amendment, funds available under the Senior Revolver are reduced to $25.0 million from $50.0 million, limited to a borrowing base of 90% of Eligible Prime Government Receivables and Eligible Subcontractor Government Receivables, plus 85% of Eligible Commercial Receivables. Additionally, the Second Amendment increased the Base Rate Margin, BSBY Margin and unused commitment fees by 0.25%. The Senior Revolver no longer is subject to a minimum Fixed Charge Coverage ratio covenant following the Second Amendment. In order for the facility to become available for borrowings (the “initial availability quarter”), the Company must report Adjusted EBITDA of at least one dollar. Commencing on the first fiscal quarter after the initial availability quarter, the Company is required to have aggregated reported Adjusted EBITDA of at least $1 over the two

66

Table of Contents

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).

See the Liquidity and Capital Resources section below and Note K—Debt of the audited consolidated financial statements included in this Annual Report on Form 10-K for additional information regarding these amendments.

Private Placement

On January 19, 2023, the Company consummated the closing of a private placement (the “Private Placement”), issuing 13,888,889 shares of the Company’s common stock and a common stock purchase warrant to purchase up to an additional 13,888,889 shares of Common Stock. The aggregate gross proceeds to the Company from the Private Placement were approximately $25,000.

See the Liquidity and Capital Resources—Subsequent Events section below and Note X—Subsequent Events of the audited consolidated financial statements included in this Annual Report on Form 10-K for additional information regarding the Private Placement.

Components of Results of Operations

Revenues

We generate revenue by providing our customers with highly customizable 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.

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.

We expect that cost of revenues will increase in absolute dollars as our revenues grow and will vary from period-to-period as a percentage of revenues.

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.

We expect that SG&A expenses will increase in absolute dollars as we hire additional personnel and enhance our systems, processes, and controls to support the growth in our business as well as our increased compliance and reporting requirements as a public company.

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. Research and development expenses are expensed in the period incurred.

We expect research and development expenses to increase in future periods as we continue to invest in research and development activities to achieve our operational and commercial goals.

Restructuring Charges

Restructuring charges consist of employee separation costs and impairment of lease right-of-use assets related to strategic cost saving initiatives.

Transaction Expenses

67

Table of Contents

Transaction expenses consist of acquisition costs and other related expenses incurred in acquiring NuWave, PCI, Open Solutions, ProModel, and ProModel Corporation as well as costs associated with evaluating other acquisition opportunities.

We expect to incur acquisition costs and other related expenses periodically in the future as we continue to seek acquisition opportunities to expand our technological capabilities.

Goodwill Impairment

Goodwill impairment consists of a non-cash impairments of the goodwill in the Cyber & Engineering and Analytics reporting units.

Net (Decrease) Increase in Fair Value of Derivatives

Net (decrease) increase in fair value of derivatives consists of fair value remeasurements of private warrants and written put options.

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. See the Liquidity and Capital Resources section Antares Capital Credit Agreement below for more information.

Interest Expense

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

Income Tax (Benefit) Expense

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

Segments

We have two operating segments, Cyber & Engineering and Analytics, which were determined based on the manner in which the chief operating decision maker (“CODM”), who is our Chief Executive Officer, manages our operations for purposes of allocating resources and evaluating performance. Various factors, including our organizational and management reporting structure, customer type, economic characteristics, financial metrics and other factors were considered in determining these operating segments. Our operating segments are described below:

Cyber & Engineering

The Cyber & Engineering segment provides high-end technology and management consulting services to its customers. This segment focuses in the areas of cloud engineering and enterprise IT, cybersecurity, computer network operations and wireless, systems engineering, as well as strategy and program planning. The segment’s primary solutions relate to the development and deployment of customized solutions in the areas of cloud engineering and IT infrastructure, cybersecurity and computer network operations, data analytics and visualization, and system engineering and program planning. The results of PCI are included in the Cyber & Engineering segment results.

Analytics

The Analytics segment provides high-end technology and consulting services to its customers. This segment focuses on the areas of big data computing and analytical solutions, including predictive and prescriptive analytics solutions. The segment’s primary solutions assist customers in aggregating, interpreting, and synthesizing data to enable real-time decision-making capabilities. The results of NuWave, Open Solutions, ProModel, and ProModel Corporation are included in the Analytics segment results.

Results of Operations

68

Table of Contents

Successor 2022 Period, Successor 2021 Period, Successor 2020 Period, Predecessor 2020 Period, and Successor Pro Forma 2020 Period

This section provides a discussion of the results of operations for the following periods:

•The results of operations for the Successor 2022 Period include the results of PCI, NuWave, Open Solutions, ProModel, ProModel Corporation and BigBear.ai from the beginning of the period (January 1, 2022 - December 31, 2022).

•The results of operations for the Successor 2021 Period include the results of PCI, NuWave, Open Solutions, ProModel and BigBear.ai from the beginning of the period (January 1, 2021 - December 31, 2021).

•The results of operations for the Successor 2020 Period include the results of NuWave, PCI, Open Solutions, and ProModel from each of their respective acquisition dates and BigBear.ai from the beginning of the period through December 31, 2020 (May 22, 2020 - December 31, 2020).

•The Successor Pro Forma 2020 Period includes the results of operations for the Successor 2020 Period and reflects the impact of the acquisitions of NuWave, PCI, Open Solutions and ProModel as if they each occurred on January 1, 2020 (January 1, 2020 - December 31, 2020).

•The results of operations for the Predecessor 2020 Period include the results of PCI from January 1, 2020 through October 22, 2020, the date immediately preceding PCI’s acquisition date (January 1, 2021 - October 22, 2021).

As described above and as illustrated in the table below, the periods presented are not directly comparable.

[[GREPCENT_TABLE]]
[["","Successor 2022 Period","Successor2021 Period","Successor2020 Period","Successor Pro Forma2020 Period","Predecessor2020 Period"],["PCI","January 1, 2022 \u2013 December 31, 2022","January 1, 2021 \u2013 December 31, 2021","October 23, 2020 - December 31, 2020","January 1, 2020 - December 31, 2020","January 1, 2020 \u2013 October 22, 2020"],["Open Solutions","December 2, 2020 -December 31, 2020","Not Applicable"],["ProModel","December 21, 2020 -December 31, 2020"],["NuWave","June 19, 2020 \u2013 December 31, 2020"],["BigBear.ai","May 22, 2020 \u2013 December 31, 2020"]]
[[/GREPCENT_TABLE]]

69

Table of Contents

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

[[GREPCENT_TABLE]]
[["","","","","","Successor","","","Predecessor","","","","","Successor"],["","","","","","2022 Period","","2021 Period","","2020 Period","","","2020 Period","","","","","Pro Forma 2020"],["Revenues","","","","","$","155,011","","","$","145,578","","","$","31,552","","","","$","59,765","","","","","","$","138,992"],["Cost of revenues","","","","","112,018","","","111,510","","","22,877","","","","46,755","","","","","","96,133"],["Gross margin","","","","","42,993","","","34,068","","","8,675","","","","13,010","","","","","","42,859"],["Operating expenses:"],["Selling, general and administrative","","","","","84,775","","","106,507","","","7,909","","","","7,632","","","","","","30,235"],["Research and development","","","","","8,393","","","6,033","","","530","","","","85","","","","","","615"],["Restructuring charges","","","","","4,203","","","\u2014","","","\u2014","","","","\u2014","","","","","","\u2014"],["Transaction expenses","","","","","2,605","","","\u2014","","","10,091","","","","\u2014","","","","","","10,091"],["Goodwill impairment","","","","","53,544","","","\u2014","","","\u2014","","","","\u2014","","","","","","\u2014"],["Operating (loss) income","","","","","(110,527)","","","(78,472)","","","(9,855)","","","","5,293","","","","","","1,918"],["Net decrease in fair value of derivatives","","","","","(1,591)","","","33,353","","","\u2014","","","","\u2014","","","","","","\u2014"],["Loss on extinguishment of debt","","","","","\u2014","","","2,881","","","\u2014","","","","\u2014","","","","","","\u2014"],["Interest expense","","","","","14,436","","","7,762","","","616","","","","1","","","","","","8,396"],["Other expense","","","","","19","","","\u2014","","","\u2014","","","","\u2014","","","","","","\u2014"],["(Loss) income before taxes","","","","","(123,391)","","","(122,468)","","","(10,471)","","","","5,292","","","","","","(6,478)"],["Income tax (benefit) expense","","","","","(1,717)","","","1,084","","","(2,633)","","","","3","","","","","","(1,795)"],["Net (loss) income","","","","","$","(121,674)","","","$","(123,552)","","","$","(7,838)","","","","$","5,289","","","","","","$","(4,683)"]]
[[/GREPCENT_TABLE]]

The following table summarizes our Successor 2020 Pro Forma Period statements of operations:

[[GREPCENT_TABLE]]
[["","Lake Intermediate (Historical)","","NuWave","","PCI","","Open Solutions","","ProModel","","Acquisition Accounting Adjustments"],["","","January 1, 2020 \u2013 June 18, 2020 (Historical)","","January 1, 2020 - October 22, 2020 (Historical)","","January 1 2020 \u2013 December 1, 2020 (Historical)","","January 1, 2020 \u2013 December 20, 2020 (Historical)","","","","Successor Pro Forma 2020"],["Revenues","$","31,552","","","$","10,809","","","$","59,765","","","$","22,693","","","$","15,782","","","(1,609)","","(a)","","$","138,992"],["Cost of revenues","22,877","","","5,436","","","46,755","","","13,183","","","9,491","","","(1,609)","","(a)","","96,133"],["Gross Margin","8,675","","","5,373","","","13,010","","","9,510","","","6,291","","","\u2014","","","","42,859"],["Operating expenses:"],["Selling, general and administrative","7,909","","","3,266","","","7,632","","","4,192","","","1,555","","","5,681","","(b)","","30,235"],["Research and development","530","","","\u2014","","","85","","","\u2014","","","\u2014","","","\u2014","","","","615"],["Transaction expenses","10,091","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","","10,091"],["Operating income (loss)","(9,855)","","","2,107","","","5,293","","","5,318","","","4,736","","","(5,681)","","","","1,918"],["Interest expense","616","","","\u2014","","","1","","","(3)","","","\u2014","","","7,782","","(c)","","8,396"],["(Loss) income before taxes","(10,471)","","","2,107","","","5,292","","","5,321","","","4,736","","","(13,463)","","","","(6,478)"],["Income tax (benefit) expense","(2,633)","","","(6)","","","3","","","61","","","1,169","","","(389)","","(d)","","(1,795)"],["Net (loss) income","$","(7,838)","","","$","2,113","","","$","5,289","","","$","5,260","","","$","3,567","","","$","(13,074)","","","","$","(4,683)"]]
[[/GREPCENT_TABLE]]

Acquisition Accounting Adjustments:

a.Adjustment to eliminate $1,609 of pre-acquisition intercompany revenues and cost of revenues between NuWave and ProModel.

b.Adjustment to include pre-acquisition amortization of the acquired intangible assets of $735 for NuWave, $922 for PCI, $2,331 for Open Solutions, and $1,693 for ProModel.

c.Adjustment to (1) include the interest expense of $861 to finance the NuWave Acquisition, $1,873 to finance the PCI Acquisition, $2,131 to finance the Open Solutions Acquisition, and $2,918 to finance the ProModel Acquisition as if each acquisition had taken place on January 1, 2020, based on the effective interest rate of the credit facility used to finance the acquisitions, and (2) eliminate $1 of pre-acquisition interest expense, including amortization of deferred financing fees, related to the outstanding debt balances for PCI, which were settled by the sellers of PCI with proceeds from the sale.

d.Adjustment for income taxes of $113 expense for NuWave, $522 expense for PCI, $119 expense for Open Solutions and $(1,143) benefit for ProModel, applying a statutory tax rate of 21% as if the acquisitions had taken place on January 1, 2020.

70

Table of Contents

Revenues

[[GREPCENT_TABLE]]
[["","","","","","","","","","Successor","","","Predecessor","","","","Successor"],["","","","","","","","","","2022 Period","","2021 Period","","","","","2020 Period","","","2020 Period","","","","Pro Forma 2020"],["Revenues"],["Cyber & Engineering","","","","","","","","","$","71,114","","","$","74,879","","","","","","$","15,584","","","","$","59,765","","","","","$","75,349"],["Analytics","","","","","","","","","83,897","","","70,699","","","","","","15,968","","","","\u2014","","","","","63,643"],["Total Revenues","","","","","","","","","$","155,011","","","$","145,578","","","","","","$","31,552","","","","$","59,765","","","","","$","138,992"]]
[[/GREPCENT_TABLE]]

Cyber & Engineering revenues decreased by $3,765 during the Successor 2022 Period as compared to the Successor 2021 Period primarily as a result of the timing of deliveries under certain procurement programs. Revenues increased $59,295 in the Successor 2021 Period relative to the Successor 2020 Period as the Successor 2021 Period includes the results of PCI for the entire 2021 fiscal year whereas the Successor 2020 Period includes the results of PCI from October 23, 2020 through December 31, 2020. Revenues increased $15,114 in the Successor 2021 Period relative to the Predecessor 2020 Period as a result of increased volume and new contract awards. Revenues decreased approximately $470 relative to the Successor 2020 Pro Forma Period. This decrease is primarily attributable to lower volume.

Analytics revenues increased by $13,198 during the Successor 2022 Period as compared to the Successor 2021 Period, primarily driven by new contracts awarded in 2022, resulting in higher volume. Analytics revenues increased $54,731 from the Successor 2020 Period due to the full year of activity for NuWave, Open Solutions, and ProModel. Analytics revenues increased $7,056 from the Successor 2020 Pro Forma Period. This increase was primarily attributable to new contract awards.

Cost of Revenues

[[GREPCENT_TABLE]]
[["","Successor","","","Predecessor","","","","","Successor"],["","2022 Period","","2021 Period","","","","","","2020 Period","","","2020 Period","","","","","Pro Forma 2020"],["Cost of revenues"],["Cyber & Engineering","$","58,177","","","$","59,658","","","","","","","$","12,273","","","","$","46,755","","","","","","$","59,028"],["Analytics","53,841","","","51,852","","","","","","","10,604","","","","\u2014","","","","","","37,105"],["Total cost of revenues","$","112,018","","","$","111,510","","","","","","","$","22,877","","","","$","46,755","","","","","","$","96,133"],["Cost of revenues as a percentage of revenues"],["Cyber & Engineering","82","%","","80","%","","","","","","79","%","","","78","%","","","","","78","%"],["Analytics","64","%","","73","%","","","","","","66","%","","","\u2014","%","","","","","58","%"]]
[[/GREPCENT_TABLE]]

Cyber & Engineering cost of revenues as a percentage of Cyber & Engineering revenues increased to 82% for the Successor 2022 Period as compared to 80% for the Successor 2021 Period due to increased use of subcontractors during the Successor 2022 Period as compared to the same period in 2021. The increase in cost of revenues as a percentage of revenue in the Successor 2021 Period relative to the Predecessor 2020 Period and Successor 2020 Pro Forma Period was primarily driven by increased subcontractor costs.

Analytics cost of revenues as a percentage of Analytics revenues decreased to 64% for the Successor 2022 Period as compared to 73% for the Successor 2021 Period due to lower margins on certain prototype contracts that were performed during 2021 that were not repeated in 2022. Analytics cost of revenues as a percentage of revenues for the Successor 2021 Period increased relative to the Successor 2020 Period and Successor 2020 Pro Forma Period due to increased subcontractor costs.

SG&A

[[GREPCENT_TABLE]]
[["","Successor","","","Predecessor","","","Successor"],["","2022 Period","","2021 Period","","","","","2020 Period","","","2020 Period","","","","","Pro Forma 2020"],["SG&A","$","84,775","","","$","106,507","","","","","","$","7,909","","","","$","7,632","","","","","","$","30,235"],["SG&A as a percentage of revenues","55","%","","73","%","","","","","25","%","","","13","%","","","","","22","%"]]
[[/GREPCENT_TABLE]]

SG&A expenses as a percentage of total revenues for the Successor 2022 Period decreased to 55% as compared to 73% for the

71

Table of Contents

Successor 2021 Period, which was primarily driven by a $46,367 reduction of equity-based compensation cost and $6,176 reduction in capital market advisory fees, offset by additional investment in commercial start-up costs of $3,472, $5,472 of 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.

The increase in selling, general and administrative expenses as a percentage of revenues for the Successor 2021 Period relative to the Successor 2020 Period, Predecessor 2020 Period, and Successor 2020 Pro Forma Period was primarily driven by $53,463 of equity-based compensation cost recognized under the Class B Unit Incentive Plan. See the Equity-Based Compensation section Class B Unit Incentive Plan below for more information. The increase in SG&A as a percentage of revenues was also driven by increased payroll, information technology and employee recruiting expenses to increase personnel in advance of planned growth in our business as well as our increased compliance and reporting requirements as a public company. Since January of 2021, we have hired approximately 70 employees across various corporate functions, including hires to support our transition to a public company, and within the business development team to focus on our commercial growth strategy. Additionally, the increase for the Successor 2021 Period includes $6,917 related to capital market advisory fees related to advisors assisting with preparation for the Business Combination and various integration projects and $1,783 of non-recurring integration costs to streamline business functions across the Company and realize synergies from our acquisitions.

Research and Development

[[GREPCENT_TABLE]]
[["","Successor","","","Predecessor","","","Successor"],["","2022 Period","","2021 Period","","","","","2020 Period","","","2020 Period","","","","","Pro Forma 2020"],["Research and development","$","8,393","","","$","6,033","","","","","","$","530","","","","$","85","","","","","","$","615"]]
[[/GREPCENT_TABLE]]

The increase in research and development expenses was 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

[[GREPCENT_TABLE]]
[["","Successor","","","Predecessor","","","Successor"],["","2022 Period","","2021 Period","","","","","2020 Period","","","2020 Period","","","","","Pro Forma 2020"],["Restructuring charges","$","4,203","","","$","\u2014","","","","","","$","\u2014","","","","$","\u2014","","","","","","$","\u2014"]]
[[/GREPCENT_TABLE]]

Restructuring charges for Successor 2022 Period 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

[[GREPCENT_TABLE]]
[["","Successor","","","Predecessor","","","Successor"],["","2022 Period","","2021 Period","","","","","2020 Period","","","2020 Period","","","","","Pro Forma 2020"],["Transaction expenses","$","2,605","","","$","\u2014","","","","","","$","10,091","","","","$","\u2014","","","","","","$","10,091"]]
[[/GREPCENT_TABLE]]

Transaction expenses for Successor 2022 Period consist of acquisition costs and other related expenses incurred in acquiring ProModel Corporation. Transaction expenses in the Successor 2020 Period and the Successor 2020 Pro Forma Period relate to the diligence and integration costs associated with the purchases of NuWave, PCI, Open Solutions, and ProModel as well as costs associated with evaluating other acquisition opportunities.

Goodwill Impairment

[[GREPCENT_TABLE]]
[["","Successor","","","Predecessor","","","","","Successor"],["","2022 Period","","2021 Period","","","","","2020 Period","","","2020 Period","","","","","Pro Forma 2020"],["Goodwill impairment","$","53,544","","","$","\u2014","","","","","","$","\u2014","","","","$","\u2014","","","","","","$","\u2014"]]
[[/GREPCENT_TABLE]]

Goodwill impairment for Successor 2022 Period consists a $35,252 and $18,292 non-cash impairment of the goodwill in the Cyber & Engineering and Analytics reporting units, respectively.

72

Table of Contents

Net (Decrease) Increase in Fair Value of Derivatives

[[GREPCENT_TABLE]]
[["","Successor","","","Predecessor","","","","","Successor"],["","2022 Period","","2021 Period","","2020 Period","","","2020 Period","","","","","Pro Forma 2020"],["Net (decrease) increase in fair value of derivatives","$","(1,591)","","","$","33,353","","","$","\u2014","","","","$","\u2014","","","","","","$","\u2014"]]
[[/GREPCENT_TABLE]]

The net decrease in fair value of derivatives of $1,591 for Successor 2022 Period and increase of $33,353 for the Successor 2021 Period consists of fair value remeasurements of written put options and private warrants. The written put option balance was $— as of December 31, 2022.

Loss on Extinguishment of Debt

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

Interest Expense

[[GREPCENT_TABLE]]
[["","Successor","","","Predecessor","","","","","Successor"],["","2022 Period","","2021 Period","","","","","2020 Period","","","2020 Period","","","","","Pro Forma 2020"],["Interest expense","$","14,436","","","$","7,762","","","","","","$","616","","","","$","1","","","","","","$","8,396"]]
[[/GREPCENT_TABLE]]

Interest expense increased by $6,674 during the Successor 2022 Period as compared to the Successor 2021 Period. 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 in connection with the Business Combination. The interest expense in the Successor 2021 period was primarily incurred in connection with the Antares Capital Credit Facility, which was entered into in December 2020. See the Liquidity and Capital Resources section below for more information.

Income Tax (Benefit) Expense

[[GREPCENT_TABLE]]
[["","Successor","","","","","","","","Predecessor","","","","","Successor"],["","2022 Period","","2021 Period","","","","","2020 Period","","","2020 Period","","","","","Pro Forma 2020"],["Income tax (benefit) expense","$","(1,717)","","","$","1,084","","","","","","$","(2,633)","","","","$","3","","","","","","$","(1,795)"],["Effective tax rate","1.4","%","","(0.9)","%","","","","","25.1","%","","","0.1","%","","","","","\u2014","%"]]
[[/GREPCENT_TABLE]]

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, 2022, 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.

On August 16, 2022, the U.S. government enacted the Inflation Reduction Act. The Inflation Reduction Act introduces a new 15% corporate minimum tax, based on adjusted financial statement income of certain large corporations. Applicable corporations would be allowed to claim a credit for the minimum tax paid against regular tax in future years. The minimum tax impacts applied starting in 2023. The Inflation Reduction Act also includes an excise tax that would impose a 1% surcharge on stock repurchases. This excise tax is effective January 1, 2023.

The Company does not believe the Inflation Reduction Act will have a significant effect on its consolidated financial statements.

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

73

Table of Contents

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, net (decrease) increase in fair value of derivatives, restructuring charges, capital market advisory fees, non-recurring integration costs, commercial start-up costs, transaction expenses, and goodwill impairment. 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.

Adjusted EBITDA - Non-GAAP

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

[[GREPCENT_TABLE]]
[["","","","","","Successor","","","Predecessor","","","","Successor"],["","","","","","2022 Period","","2021 Period","","2020 Period","","","2020 Period","","","","Pro Forma 2020"],["Net (loss) income","","","","","$","(121,674)","","","$","(123,552)","","","$","(7,838)","","","","$","5,289","","","","","$","(4,683)"],["Interest expense","","","","","14,436","","","7,762","","","616","","","","1","","","","","8,396"],["Income tax (benefit) expense","","","","","(1,717)","","","1,084","","","(2,633)","","","","3","","","","","(1,795)"],["Depreciation and amortization","","","","","7,758","","","7,262","","","1,028","","","","52","","","","","6,990"],["EBITDA","","","","","(101,197)","","","(107,444)","","","(8,827)","","","","5,345","","","","","8,908"],["Adjustments:"],["Equity-based compensation","","","","","10,865","","","60,615","","","\u2014","","","","80","","","","","1,097"],["Net (decrease) increase in fair value of derivatives(1)","","","","","(1,591)","","","33,353","","","\u2014","","","","\u2014","","","","","\u2014"],["Restructuring charges(2)","","","","","4,203","","","\u2014","","","\u2014","","","","\u2014","","","","","\u2014"],["Loss on extinguishment of debt(3)","","","","","\u2014","","","2,881","","","\u2014","","","","\u2014","","","","","\u2014"],["Transaction bonuses(4)","","","","","\u2014","","","1,089","","","\u2014","","","","\u2014","","","","","\u2014"],["Capital market advisory fees(5)","","","","","741","","","6,917","","","\u2014","","","","\u2014","","","","","\u2014"],["Termination of legacy benefits(6)","","","","","\u2014","","","1,639","","","\u2014","","","","\u2014","","","","","\u2014"],["Management fees(7)","","","","","\u2014","","","1,001","","","414","","","","\u2014","","","","","414"],["Non-recurring integration costs(8)","","","","","7,255","","","1,783","","","\u2014","","","","\u2014","","","","","\u2014"],["Commercial start-up costs(9)","","","","","6,490","","","3,018","","","\u2014","","","","\u2014","","","","","\u2014"],["Transaction expenses(10)","","","","","2,605","","","\u2014","","","10,091","","","","\u2014","","","","","10,091"],["Goodwill impairment(11)","","","","","53,544","","","\u2014","","","\u2014","","","","\u2014","","","","","\u2014"],["Adjusted EBITDA","","","","","$","(17,085)","","","$","4,852","","","$","1,678","","","","$","5,425","","","","","$","20,510"]]
[[/GREPCENT_TABLE]]

74

Table of Contents

[[GREPCENT_TABLE]]
[["(1)","The (decrease) increase in fair value of derivatives primarily relates to the changes in the fair value of certain Forward Share Purchase Agreements (FPAs) that were entered into prior to the closing of the Business Combination and were fully settled during the first quarter of 2022, as well as changes in the fair value of private warrants."],["(2)","In the third and fourth quarters of 2022, the Company incurred employee separation costs associated with a strategic review of the Company\u2019s capacity and future projections to better align the organization and cost structure and improve the affordability of its products and services. In addition, restructuring charges include an impairment of the right-of-use assets associated with certain underutilized real estate leases that we vacated during the fourth quarter."],["(3)","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 in December 2021."],["(4)","Bonuses paid to certain employees related to the closing of the Business Combination."],["(5)","The Company incurred capital market and advisory fees related to advisors assisting with the Business Combination."],["(6)","In the third quarter of 2021, the Company elected to terminate certain legacy employee incentive benefits with final payments made in the fourth quarter of 2021."],["(7)","Management and other related consulting fees paid to AE Partners. These fees ceased subsequent to the Business Combination."],["(8)","Non-recurring internal integration costs related to the Business Combination."],["(9)","Commercial start-up costs includes certain non-recurring expenses associated with tailoring the Company\u2019s software products for commercial customers and use cases."],["(10)","The Company incurred transaction expenses related to the acquisition of ProModel Corporation, which closed on April 7, 2022. For the Successor 2020 Period and the Successor Pro Forma 2020 Period, the Company incurred transaction expenses related to the purchase of NuWave, PCI, Open Solutions and ProModel in 2020. Costs include both diligence and integration costs after each company was acquired."],["(11)","During the second and fourth quarters of 2022, the Company recognized non-cash goodwill impairment charges related to its Cyber & Engineering and Analytics business segments, respectively."]]
[[/GREPCENT_TABLE]]

Free Cash Flow

Free cash flow is defined as net cash (used in) provided by 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) provided by operating activities, computed in accordance with GAAP:

[[GREPCENT_TABLE]]
[["","Successor","","","Predecessor"],["","2022 Period","","2021 Period","","2020 Period","","","2020 Period"],["Net cash (used in) provided by operating activities","$","(48,918)","","","$","(19,782)","","","$","(7,416)","","","","$","8,614"],["Capital expenditures, net","(769)","","","(639)","","","(155)","","","","(121)"],["Free cash flow","$","(49,687)","","","$","(20,421)","","","$","(7,571)","","","","$","8,493"],["Free cash flow from acquired businesses","","","","","19,770"],["Operating cash flow from acquired businesses","","","","","20,000"],["Capital expenditures of acquired businesses","","","","","(230)"],["Pro Forma free cash flow (i)","","","","","$","12,199"]]
[[/GREPCENT_TABLE]]

(i)The Successor 2020 Pro Forma Period free cash flow represents free cash flow for the year ended December 31, 2020, adjusted for estimated free cash flow for NuWave, PCI, Open Solutions, and ProModel as if each of those transactions occurred at the beginning of the period. Adjustments to reflect the estimated free cash flows from acquired businesses includes certain transaction costs (and the associated tax impacts) not already included in the net loss, where applicable. The Successor 2020 Pro Forma Period free cash flow was not prepared in accordance with GAAP or the pro forma rules of Regulation S-X promulgated by the SEC and should not be considered as an alternative to net cash provided by (used in) operating activities determined in accordance with GAAP. We believe that the inclusion of Successor 2020 Pro Forma Period free cash flow is appropriate to provide additional information to investors because securities analysts and other investors may use this non-GAAP financial measure to assess our operating performance across periods on a consistent basis. The Successor 2020 Pro Forma Period free cash flow has limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP.

75

Table of Contents

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.

Many of the customer programs we support relate to key national security and defense interests. At the end of a contract, our customers may elect to modify our existing contract, in order to extend the period under which we provide additional goods and services or may elect to continue to procure additional goods and services from us under a new contract. If our customer notifies us that a program we currently support will be continuing under a new contract, we estimate the backlog associated with that anticipated future contract (“Anticipated Follow-on Awards”) based on the assumption that (i) we are highly likely to be awarded the contract because we are the incumbent, (ii) the program we support is of critical importance to national security and defense, and (iii) that if the contract was awarded to a different party, the transition would be highly disruptive to the achievement of our customer’s objectives. For purposes of estimating backlog related to Anticipated Follow-on Awards, we assume that the goods and services that we will deliver under that future contract will be generally similar in scope and pricing compared to our current contract and that our current level of support on the customer program will persist under the new contract. Potential contract awards with existing customers on completely new programs, or with any new customer that we have not worked with historically, would not be included in Anticipated Follow-on Awards as there is far greater uncertainty as to whether those opportunities will be awarded to us.

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 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 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 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 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 support on the contract will persist for each option period.

76

Table of Contents

The following table summarizes certain backlog information (in thousands):

[[GREPCENT_TABLE]]
[["","December 31, 2022","","December 31, 2021"],["Funded","$","57,234","","","$","78,258"],["Unfunded","18,220","","","68,203"],["Priced, unexercised options","112,119","","","143,969"],["Unpriced, unexercised options","30,900","","","31,680"],["Total backlog","$","218,473","","","$","322,110"]]
[[/GREPCENT_TABLE]]

During the second quarter of the fiscal year ending December 31, 2022, the Company revised its methodology for determining backlog. Under the revised methodology, backlog does not include Anticipated Follow-on Awards, which were historically estimated when a customer notified us a program we currently support would be continuing under a new contract. Additionally, we have reassessed our unpriced, unexercised backlog and while we have this work under contract with not-to-exceed limits, we have updated our estimates on what we believe will actually be funded in the future on these contracts. For comparative purposes we recalculated backlog as of December 31, 2021, giving effect to the revised methodology. Under the revised methodology, the $466 million of backlog previously reported as of December 31, 2021 would be $322 million.

[[GREPCENT_TABLE]]
[["","Previously Reported","","Revised Methodology"],["","December 31, 2021","","December 31, 2021","","Change"],["Funded","$","91,187","","","$","78,258","","","$","(12,929)"],["Unfunded","68,203","","","68,203","","","\u2014"],["Priced, unexercised options","143,969","","","143,969","","","\u2014"],["Unpriced, unexercised options","119,747","","","31,680","","","(88,067)"],["Anticipated follow-on Awards","42,582","","","\u2014","","","(42,582)"],["Total backlog","$","465,688","","","$","322,110","","","$","(143,578)"]]
[[/GREPCENT_TABLE]]

Liquidity and Capital Resources

Our primary sources of liquidity are cash flows provided by our operations and access to existing credit facilities. Our primary short-term cash requirements are to fund payroll obligations, working capital, operating lease obligations, 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.

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 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.

As stated in Note K—Debt of the Notes to consolidated financial statements included in this Annual Report on Form 10-K, the Company was not in compliance with the covenants of the Senior Revolver as of June 30, 2022 and September 30, 2022. Although the Company entered into the First Amendment, which 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, and the Second Amendment, which removed the requirement to comply with the minimum Fixed Charge Coverage ratio, it is currently unable to draw on the Senior Revolver. See Bank of America Senior Revolver section below for more information regarding the First and Second Amendments.

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.

77

Table of Contents

Our available liquidity consists primarily of available cash and cash equivalents. The following table details our available liquidity:

[[GREPCENT_TABLE]]
[["","December 31, 2022","","December 31, 2021"],["Available cash and cash equivalents","$","12,632","","","$","68,900"],["Available borrowings from our existing credit facilities","\u2014","","","50,000"],["Total available liquidity","$","12,632","","","$","118,900"]]
[[/GREPCENT_TABLE]]

The following table summarizes our existing credit facilities:

[[GREPCENT_TABLE]]
[["","December 31, 2022","","December 31, 2021"],["Convertible Notes","$","200,000","","","$","200,000"],["Bank of America Senior Revolver","\u2014","","","\u2014"],["D&O Financing Loan","2,059","","","4,233"],["Total debt","202,059","","","204,233"],["Less: unamortized issuance costs","7,682","","","9,636"],["Total debt, net","194,377","","","194,597"],["Less: current portion","2,059","","","4,233"],["Long-term debt, net","$","192,318","","","$","190,364"]]
[[/GREPCENT_TABLE]]

Convertible Notes

Upon consummation of the Merger, the Company issued $200.0 million of unsecured convertible notes (the “Convertible Notes”) to certain investors. The Convertible Notes bear interest at a rate of 6.0% per annum, payable semi-annually, and not including any interest payments that are settled with the issuance of shares, were 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 K—Debt of the Notes to consolidated financial statements included in this Annual Report on Form 10-K. The Convertible Notes mature on December 15, 2026.

On May 29, 2022, pursuant to the conversion rate adjustment provisions in the Convertible Note indenture, the Conversion Price was adjusted to $10.61 (or 94.2230 shares of common stock per $1,000 principal amount of Convertible Notes) because the average of the daily volume-weighted average price of the common stock during the preceding 30 trading days was less than $10.00 (the “Conversion Rate Reset”). Subsequent to the Conversion Rate Reset, the Convertible Notes are convertible into 18,844,600 shares, not including any interest payments that are settled with the issuance of shares.

The Convertible Notes require the Company to meet certain financial and other covenants. As of December 31, 2022, the Company was in compliance with all covenants.

As of December 31, 2022, the Company has an outstanding balance of $200.0 million related to the Convertible Notes, which is recorded on the balance sheet net of approximately $7.7 million of unamortized debt issuance costs.

Bank of America Senior Revolver

BigBear.ai is a party to a senior Bank of America Credit Agreement, entered into 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 matures on December 7, 2025.

The Senior Revolver includes borrowing capacity available for letters of credit and for borrowings on same-day notice, referred to as the “swing loans.” Any issuance of letters of credit or making of a swing loan will reduce the amount available under the revolving credit facility. BigBear.ai may increase the commitments under the Senior Revolver in an aggregate amount of up to the greater of $25.0 million or 100% of consolidated adjusted EBITDA plus any additional amounts so long as certain conditions, including compliance with the applicable financial covenants for such period, in each case on a pro forma basis, are satisfied.

The Bank of America Credit Agreement requires 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

78

Table of Contents

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 are reduced to $25.0 million from $50.0 million, limited to a borrowing base of 90% of Eligible Prime Government Receivables and Eligible Subcontractor Government Receivables, plus 85% of Eligible Commercial Receivables. Additionally, the Second Amendment increased the Base Rate Margin, BSBY Margin and unused commitment fees by 0.25%. Following entry into the Second Amendment, the Senior Revolver no longer is subject to a minimum Fixed Charge Coverage ratio covenant. In order for the facility to become available for borrowings (the “initial availability quarter”), the Company must report Adjusted EBITDA of at least one dollar. Commencing on the first fiscal quarter after the initial availability quarter, the Company is required to have aggregated reported Adjusted EBITDA of at least $1 over the two preceding quarters to maintain its ability to borrow under the Senior Revolver (though the inability to satisfy such condition does not result in a default under the Senior Revolver).

Failure to meet these Adjusted EBITDA requirements is not deemed to be a default but will limit the Company’s ability to make borrowings under the Senior Revolver until such time that the Company is able meet the Adjusted EBITDA thresholds as defined in the Second Amendment. As the initial availability quarter is the first quarter of fiscal year 2023, the Company was unable to draw on the Senior Revolver as of December 31, 2022.

The Second Amendment removes the requirement that the Company demonstrate compliance with the minimum Fixed Charge Coverage ratio.

Based on current forecasts, management believes that it is reasonably likely that the Company may fail to meet the minimum Adjusted EBITDA requirements of the Bank of America Credit Agreement in future periods and therefore, may be unable to draw on the facility. Management performed a cash flow analysis to identify the Company’s projected approximate cash flow and liquidity needs for the next 12 months. Based on the Company’s projected cash flow and liquidity needs, we believe that our cash from operating activities generated from continuing operations during the year will be adequate for the next 12 months to meet our anticipated uses of cash flow, including payroll obligations, working capital, operating lease obligations, capital expenditures and debt service costs, and it is considered unlikely that the Company would require access to draw funds on the Senior Revolver in the foreseeable future. In addition, 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, and issued 13,888,889 shares (the “Shares”) of the Company’s common stock and warrants (the “Warrants”) to purchase up to an additional 13,888,889 shares of Common Stock . The purchase price of each Shares and associated Warrants was $1.80. The aggregate gross proceeds to the Company from the Private Placement were approximately $25,000, before deducting the placement agent fees and other offering expenses payable by the Company. Refer to Note X—Subsequent Events for further information.

As of December 31, 2022, the Company had not drawn on the Senior Revolver. Unamortized debt issuance costs of $198 were recorded on the balance sheet and are presented in Other non-current assets.

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

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

79

Table of Contents

Cash Flows

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

[[GREPCENT_TABLE]]
[["","Successor","","","Predecessor"],["","2022 Period","","2021 Period","","2020 Period","","","2020 Period"],["Net cash (used in) provided by operating activities","(48,918)","","","(19,782)","","","(7,416)","","","","8,614"],["Net cash used in investing activities","(5,234)","","","(863)","","","(184,869)","","","","(121)"],["Net cash (used in) provided by financing activities","(103,137)","","","180,862","","","201,989","","","","(9,773)"],["Net (decrease) increase in cash and cash equivalents and restricted cash","(157,289)","","","160,217","","","9,704","","","","(1,280)"],["Cash and cash equivalents and restricted cash at the beginning of period","169,921","","","9,704","","","\u2014","","","","1,644"],["Cash and cash equivalents and restricted cash at the end of the period","$","12,632","","","$","169,921","","","$","9,704","","","","$","364"]]
[[/GREPCENT_TABLE]]

Operating activities

For the year ended December 31, 2022, net cash used in operating activities was $48,918. Net loss before deducting depreciation, amortization and other non-cash items was $49,423 and was offset by a favorable change in net working capital of $505 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 $9,942 and other liabilities of $2,210. These increases were partially offset by an increase in accounts receivable of $798, an increase in prepaid expenses and other assets of $1,702, a decrease in accrued liabilities of $5,121 and a decrease in contract liabilities of $3,740.

For the year ended December 31, 2021, net cash used in operating activities was $19,782. Net loss before deducting depreciation, amortization and other non-cash items was $17,706 and was further impacted by a favorable change in net working capital of $2,076 during this period. The favorable change in net working capital was largely driven by a decrease in contract assets of $1,947, an increase in accounts payable of $2,744, and an increase in accrued liabilities of $2,845. These increases were partially offset by an increase in accounts receivable of $7,179 and an increase in prepaid expenses and other assets of $6,437.

Investing activities

For the year ended December 31, 2022, net cash used in investing activities was $5,234, consisting of the net cash used to acquire ProModel Corporation of $4,465 and purchase of property and equipment of $769.

For the year ended December 31, 2021, net cash used in investing activities was $863, consisting of the purchase of property and equipment of $645 and the settlement of escrow amounts related to the acquisition of businesses of $224.

Financing activities

For the year ended December 31, 2022, net cash used in financing activities was $103,137, primarily consisting of the purchase of Company shares as a result of settlement of the FPAs of $100,896, and the net short-term borrowings of $2,174 related to the D&O Financing Loan and 2023 D&O Financing Loan.

For the year ended December 31, 2021, net cash provided by financing activities was $180,862, consisting of the partial repayment of the term loan of $180,862.

Subsequent Events

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 a certain accredited investor (the “Purchaser”). At the closing of the Private Placement, the Company issued (i) 13,888,889 shares of common stock (the “Private Placement Shares”); and (ii) a common stock purchase warrant (the “Warrant”) to purchase up to an additional 13,888,889 shares of common stock (the “Warrant Shares”) that are issuable upon its exercise. The Warrant has an exercise price of $2.39 per share of common stock and may be exercisable as of July 19, 2023 until July 19, 2028. The Warrant is subject to a 4.99% beneficial ownership limitation that precludes the Purchaser from exercising any portion of the Warrant to the extent that, following such exercise, the Purchaser’s beneficial ownership of our then outstanding common stock would exceed 4.99%.

80

Table of Contents

The purchase price of each Private Placement Share and associated Warrant was $1.80. The aggregate gross proceeds to the Company from the Private Placement were approximately $25,000, before deducting the placement agent fees and other offering expenses payable by the Company. The Company has used and intends to use the net proceeds from the offering for general corporate purposes, including working capital.

Critical Accounting Policies and Estimates

Our significant accounting policies are summarized in Note B of our audited consolidated financial statements for the year ended December 31, 2022 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.

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.

81

Table of Contents

We assess goodwill for impairment at least annually, as of the 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.

Goodwill Impairment Testing

During the second and fourth quarters of the fiscal year ending December 31, 2022, the Company identified factors indicating that the fair value of both the Cyber & Engineering and Analytics reporting units may be less than their respective carrying amounts and performed a qualitative goodwill impairment assessment. These factors were related to current macroeconomic headwinds, delays in contract awards, and changes to previously anticipated growth rates. This resulted in lower revenues than anticipated during the period and caused future revenue projections to be revised. As a result, the Company determined that a quantitative goodwill impairment assessments should be performed. The Company utilized a combination of the discounted cash flow (“DCF”) method of the Income Approach and the Market Approach. Under the Income Approach, the future cash flows of the Company’s reporting units were projected based on estimates of future revenues, gross margins, operating income, excess net working capital, capital expenditures, and other factors. The Company utilized estimated revenue growth rates and cash flow projections. The discount rates utilized in the DCF method were based on a weighted-average cost of capital (“WACC”) determined from relevant market comparisons and adjusted for specific reporting unit risks and capital structure. A terminal value estimated growth rate was applied to the final year of the projected period and reflected the Company’s estimate of perpetual growth. The Company then calculated the present value of the respective cash flows for each reporting unit to arrive at an estimate of fair value under the Income Approach. The Market Approach is comprised of the Guideline Public Company and the Guideline Transactions Methods. The Guideline Public Company Method focuses on comparing the Company to selected reasonably similar (or guideline) publicly traded companies. Under this method, valuation multiples were: (i) derived from the operating data of selected guideline companies; (ii) evaluated and adjusted based on the strengths and weaknesses of the Company relative to the selected guideline companies; and (iii) applied to the operating data of the Company to arrive at an indication of value. In the Guideline Transactions Method, consideration was given to prices paid in recent transactions that had occurred in the Company’s industry or in related industries. The Company then reconciled the estimated fair value of its reporting units to its total public market capitalization as of the valuation date. The carrying value of the Cyber & Engineering and Analytics reporting units exceeded its fair value and accordingly the Company recorded a non-tax-deductible goodwill impairment charge of $35,252 and $18,292 in the second quarter and fourth quarter of 2022, respectively, which are included within the consolidated statements of operations for the year ended December 31, 2022.

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

82

Table of Contents

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 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

83

Table of Contents

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.

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.

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.

Warrants

As part of GigCapital4’s Initial Public Offering, public and private warrants were issued, which were assumed by BigBear.ai upon consummation of the Merger. Warrants are accounted for in accordance with the guidance of ASC 815, Derivatives and Hedging (“ASC 815”), under which private warrants 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 measured the private warrant liability at fair

84

Table of Contents

value at the closing of the Merger and then 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.

Equity-Based Compensation

Predecessor

On June 11, 2019, the Predecessor granted 100 Class B Incentive Units to a Member in consideration for the Member’s services to the Predecessor, subject to terms and conditions stated in the profits interest grant agreement. The Class B Incentive Units granted upon full vesting represented 10% interest in the Predecessor. The Class B Incentive Units were non-voting profits interest which were subject to vesting and restrictions. According to the vesting schedule, 10 Units vested on June 11, 2019 and 90 Units would vest on January 1, 2024. The Class B Incentive Units shall have the same voting rights as the Class A Members beginning on January 1, 2024.

The Class B Incentive Units granted only had a service condition, and equity-based compensation for the Class B Incentive Units was recognized on a straight-line basis over the requisite service period. The fair value of the awards for which equity-based compensation cost was recognized was estimated using the Black-Scholes options pricing model, which uses assumptions such as risk-free interest rates, discount rates and volatility rates. The historical volatility used in the determination of the fair value of the Class B Incentive Units was based on analysis of the historical volatility of guideline public companies and factors specific to the Predecessor.

Successor

Class A Units Granted to Board of Directors

Certain members of the Board of Directors of the Company have elected to receive compensation for their services as a board member in stock, Class A Units of BBAI Ultimate Holdings. The number of Units granted or to be granted by BBAI Ultimate Holdings are determined by dividing the compensation payable for the quarter by the fair value of the Class A units at the end of each respective quarter. No Class A units were granted to the Board of Directors during the year ended December 31, 2022.

Class B Unit Incentive Plan

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

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 Merger 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

85

Table of Contents

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 previously announced merger 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. During the year ended December 31, 2022, the Company’s Parent modified the vesting conditions for four former employees. Under the original terms of the grant agreements, Incentive Units are forfeited upon separation. Due to the amended agreement, the Incentive Units held by the former employees are no longer contingent upon service and are considered vested as of the separation dates. The former employees will not receive the awards until the market condition is achieved. The result of the amended agreement is an accounting modification that resulted in 100% of the compensation expense being recognized for the former employees based on the modification date fair value. The incremental compensation cost recognized as a result of the modification was $(1,509) during the year ended December 31, 2022. The total compensation expense recognized by the Company for Tranches I, II, and III Incentive Units, including the effects of the modification, was $4,766 during the year ended December 31, 2022, of which $3,981 was recognized in selling, general and administrative expense and $785 in cost of revenues.

As of December 31, 2022 (Successor), there was $5,034 of unrecognized compensation costs related to Incentive Units, which is expected to be recognized over the remaining weighted average period of 1.08 years.

Stock Options

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

During the year ended December 31, 2022, pursuant to the Plan, the Company’s Board of Directors granted certain grantees Stock Options to purchase shares of the Company’s common stock at a weighted-average exercise price of $2.30. The Stock Options vest over four years with 25% vesting on the one year anniversary of the grant date and then 6.25% per each quarter thereafter during years two, three and four. Vesting is contingent upon continued employment or service to the Company and is accelerated in the event of death, disability, or a change in control, subject to certain conditions; both the vested and unvested portion of a Grantee’s Stock Options will be immediately forfeited and cancelled if the Grantee ceases employment or service to the Company. The Stock Options expire on the 10th anniversary of the grant date. The Stock Options had no intrinsic value as of December 31, 2022. 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. The Company recognized equity-based compensation expense of $838 in selling, general and administrative expense, $83 in cost of revenues, and $15 in research and development, respectively, during the year ended December 31, 2022. As of December 31, 2022, there was $4,305 of unrecognized compensation costs related to the Stock Options, which is expected to be recognized over the remaining weighted average period of 2.94 years.

Restricted Stock Units

Pursuant to the Plan, the Company’s Board of Directors communicated the key terms and committed to grant Restricted Stock Units (“RSUs”) to certain employees and nonemployee directors. The Company granted 8,529,066 RSUs to employees during the year ended December 31, 2022 at a weighted-average fair value of $2.62. RSUs granted to employees generally vest over four years, with 25% vesting on the one year anniversary of the grant date and then 6.25% per each quarter thereafter during years two, three and four. RSUs granted to nonemployee directors vest 100% on the one year anniversary of the grant date. The Company recognizes equity-based compensation expense for RSUs on a straight-line over the requisite service period. The Company recognized equity-based compensation expense of $2,454 in selling, general and administrative expense, $1,904 in cost of revenues, and $263 in research and development, respectively, during the year ended December 31, 2022. As of December 31, 2022, there was approximately $15,847 of unrecognized compensation costs related to the RSUs, which is expected to be recognized over the remaining weighted average period of 2.39 years.

86

Table of Contents

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 percentage of vesting is based on achieving certain performance criteria during each respective measurement period, provided that the employees remain in continuous service on each vesting date. Vesting will not occur unless a minimum performance criteria threshold is achieved. The Company recognized no equity-based compensation expense for the PSUs during the year ended December 31, 2022 as it was not considered probable that the performance conditions would be achieved.

Employee Share Purchase Plan

Concurrently with the adoption of the Plan, the Company’s Board of Directors adopted the 2021 Employee Stock Purchase Plan (the “ESPP”), which authorizes the grant of rights to purchase common stock of the Company to employees, officers, and directors (if they are otherwise employees) of the Company. As of January 1, 2022, the Company reserved an aggregate of 3,212,786 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. As of December 31, 2022, 508,062 shares had been sold under the ESPP and the Company has withheld employee contributions of $156, which are presented on the consolidated balance sheets within other current liabilities. Equity-based compensation expense related to purchase rights issued under the ESPP is based on the Black-Scholes OPM fair value of the estimated number of awards as of the beginning of the offering period. Equity-based compensation expense is recognized using the straight-line method over the offering period. The Company recognized equity-based compensation expense of $86 in selling, general and administrative expense, $400 in cost of revenues, and $56 in research and development, respectively, during the year ended December 31, 2022. As of December 31, 2022, there was $371 of unrecognized compensation costs related to the ESPP, which is expected to be recognized over the remaining weighted average period of 0.41 years.

Recent Accounting Pronouncements

See Note B—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.