# BigBear.ai Holdings, Inc.: Form 10-Q for the period ended Sep 30, 2024

- Company: [BigBear.ai Holdings, Inc.](/companies/bbai.md) (CIK 1836981)
- Form: 10-Q
- Filed: 2024-11-07
- Accepted by EDGAR: Nov 7, 2024, 16:28 ET
- Period: 2024-09-30
- Accession: 0001628280-24-046327
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1836981/000162828024046327/bbai-20240930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1836981/000162828024046327/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-07-01 to 2024-09-30 | $41.5m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2024-01-01 to 2024-09-30 | $114.4m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2024-07-01 to 2024-09-30 | $30.7m | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months, 2024-01-01 to 2024-09-30 | $85.6m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2024-07-01 to 2024-09-30 | $10.8m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2024-01-01 to 2024-09-30 | $28.8m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2024-07-01 to 2024-09-30 | $17.5m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2024-01-01 to 2024-09-30 | $57.8m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2024-07-01 to 2024-09-30 | −$10.5m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2024-01-01 to 2024-09-30 | −$125.3m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2024-07-01 to 2024-09-30 | $21.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2024-01-01 to 2024-09-30 | $22.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-07-01 to 2024-09-30 | −$12.2m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2024-01-01 to 2024-09-30 | −$149.1m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-07-01 to 2024-09-30 | −$0.05 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2024-01-01 to 2024-09-30 | −$0.65 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-07-01 to 2024-09-30 | −$0.05 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2024-01-01 to 2024-09-30 | −$0.65 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-07-01 to 2024-09-30 | 249,951,542 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2024-01-01 to 2024-09-30 | 227,900,950 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2024-01-01 to 2024-09-30 | −$23.3m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2024-01-01 to 2024-09-30 | $304.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2024-09-30 | $65.6m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-09-30 | $104.2m | us-gaap:AssetsCurrent |
| Total assets | at 2024-09-30 | $354.1m | us-gaap:Assets |
| Current liabilities | at 2024-09-30 | $50.6m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-09-30 | $255.7m | us-gaap:Liabilities |
| Long-term debt | at 2024-09-30 | $195.7m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2024-09-30 | $0 | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2024-09-30 | $98.4m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 57,366 characters.

### 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”, “BigBear.ai Holdings”,* or the “*Company”) management believes is relevant to an assessment and understanding of BigBear.ai’s 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 Quarterly Report on Form 10-Q. Certain information contained in this management discussion and analysis includes forward-looking statements within the meaning of the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. All statements contained in this Quarterly Report other than statements of historical fact, including statements regarding our future operating results and financial position, our business strategy and plans and our objectives for future operations, are forward-looking statements. These forward-looking statements include, but are not limited to, statements regarding BigBear’s industry, future events, and other statements that are not historical facts. These forward-looking statements are based on current expectations and beliefs concerning future developments and their potential effects on us and should not be relied upon as representing BigBear’s assessments as of any date subsequent to the date of this Quarterly Report on Form 10-Q. There can be no assurance that future developments affecting us will be those that we have anticipated. These forward-looking statements are subject to a number of risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors. Please see “Cautionary Note Regarding Forward-Looking Statements,” and “Risk Factors” in our Annual Report on Form 10-K and this Quarterly Report on Form 10-Q. Unless the context otherwise requires, all references in this section to the “Company,” “BigBear,” “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 consolidated financial statements and the accompanying notes of BigBear.ai included elsewhere in this Quarterly Report on Form 10-Q. We intend for this discussion to provide the reader with information to assist in understanding BigBear.ai’s consolidated financial statements and the accompanying notes, the changes in those financial statements and the accompanying notes from period to period, along with the primary factors that accounted for those changes. All amounts presented below are in thousands of U.S. dollars unless stated otherwise.

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

- **Business Overview:** This section provides a general description of BigBear.ai’s business, our priorities and the trends affecting our industry in order to provide context for management’s discussion and analysis of our financial condition and results of operations.
- **Recent Developments:** This section provides recent developments that we believe are necessary to understand our financial condition and results of operations.
- **Results of Operations:** This section provides a discussion of our results of operations for the three and the nine months ended September 30, 2024 and September 30, 2023.
- **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 2—Summary of Significant Accounting Policies to the accompanying consolidated financial statements included in this Quarterly Report on Form 10-Q.

### Business Overview

Our mission is to help deliver clarity for the world’s most complex decisions. BigBear.ai is a leading provider of Edge AI-powered decision intelligence solutions for national security, supply chain management and digital identity. Customers and partners rely on BigBear.ai’s predictive analytics capabilities in highly complex, distributed, mission-based operating environments. We are a technology-led solutions organization, providing both software and services to our customers.

### Recent Developments

### Pangiam Acquisition

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

### RDO Warrant Exercise

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

### Private Placement Warrant Exercise

On March 4, 2024, the Company entered into a warrant exercise agreement with an existing accredited investor (the “*PIPE Investor”*) to exercise in full the outstanding PIPE warrants to purchase up to an aggregate of 13,888,889 shares of the Company’s common stock for gross proceeds of approximately $33.2 million. In consideration for the immediate and full exercise of the PIPE warrants, the PIPE Investor received a new unregistered common stock purchase warrant to purchase up to an aggregate of 9,000,000 shares of the Company’s common stock (the “*2024 PIPE warrant”*) in a private placement. The 2024 PIPE warrant will become exercisable commencing at any time on or after September 5, 2024 (the “*Exercise Date”*), expiring after five years, with an exercise price per share equal to $4.75.

### U.S. Budget Environment

The majority of our revenue is derived from federal government contracts. U.S. government spending levels, particularly defense spending, and timely funding thereof can affect our financial performance over the short and long term. We expect our key contracts will continue to be supported and funded under the continuing resolution. However, during periods covered by continuing resolutions, we may experience delays in new contract awards, and those delays may adversely affect our results of operations.

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

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

In the coming months, Congress will need to approve or revise the President’s FY 2025 budget proposal through enactment of appropriations bills and other policy legislation, which would then require final approval from the President in order for the FY 2025 budget process to conclude. A Continuing Resolution (CR) passed the House and Senate on September 25, 2024 and was signed by the President on September 26, 2024. The bill funds U.S. Government operations through December 20, 2024. After the November 2024 election, Congress will return to the task of funding the U.S. Government for the balance of the FY 2025. Significant differences that must be resolved include the different allocations as noted above and policy matters that arose during consideration of the CR and the underlying bills.

We anticipate the federal budget will continue to be subject to debate and compromise shaped by, among other things, heightened political tensions and the 2024 elections, the global security environment, inflationary pressures, and macroeconomic conditions. The result may be shifting funding priorities, which could have material impacts on defense spending broadly and on our federal government contracts, which may affect the Company’s projected revenue and results of operation.

### Geopolitical Environment

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

### Components of Results of Operations

### Revenues

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

### Cost of Revenues

Cost of revenues primarily include 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.

### Research and Development

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

### Restructuring Charges

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

### Transaction Expenses

Transaction expenses incurred in 2024 consist of diligence, legal and other related expenses associated with the Pangiam Acquisition, which was completed on February 29, 2024.

### Goodwill Impairment

Goodwill impairment consists of non-cash charges to goodwill.

### Net (Decrease) Increase in Fair Value of Derivatives

Net (decrease) increase in fair value of derivatives consists of fair value remeasurements of the Company’s warrants.

### Interest Expense

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

### Other Income

Other income consists primarily of interest income earned on money market accounts.

### Income Tax Expense (Benefit)

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

### Results of Operations

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

|  | Three Months Ended September 30, 2024 | 2023 | Nine Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| Revenues | $41,505 | $33,988 | $114,409 | $114,601 |
| Cost of revenues | 30,739 | 25,579 | 85,594 | 87,016 |
| **Gross margin** | **10,766** | **8,409** | **28,815** | **27,585** |
| Operating expenses: |  |  |  |  |
| Selling, general and administrative | 17,485 | 15,533 | 57,797 | 52,825 |
| Research and development | 3,820 | (349) | 8,529 | 3,004 |
| Restructuring charges | — | — | 1,317 | 780 |
| Transaction expenses | — | 1,437 | 1,450 | 1,437 |
| Goodwill impairment | — | — | 85,000 | — |
| **Operating loss** | **(10,539)** | **(8,212)** | **(125,278)** | **(30,461)** |
| Net (decrease) increase in fair value of derivatives | (1,278) | (15,659) | 14,832 | (1,971) |
| Interest expense | 3,541 | 3,540 | 10,647 | 10,656 |
| Other income | (647) | (87) | (1,719) | (87) |
| **(Loss) income before taxes** | **(12,155)** | **3,994** | **(149,038)** | **(39,059)** |
| Income tax expense (benefit) | 21 | (5) | 22 | 51 |
| **Net (loss) income** | **$(12,176)** | **$3,999** | **$(149,060)** | **$(39,110)** |

### Comparison of the Three Months Ended September 30, 2024 and 2023

### Revenues

|  | Three Months Ended September 30, 2024 | 2023 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: |
| Revenues | $41,505 | $33,988 | $7,517 | 22.1% |

Revenues increased by $7.5 million during the three months ended September 30, 2024 as compared to the three months ended September 30, 2023 primarily as a result of increases due to the Pangiam Acquisition, offset by decreased volumes in certain Air

Force programs.

### Cost of Revenues

|  | Three Months Ended September 30, 2024 | 2023 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: |
| Cost of revenues | $30,739 | $25,579 | $5,160 | 20.2% |
| Cost of revenues as a percentage of revenues | 74% | 75% |  |  |

Cost of revenues as a percentage of total revenues decreased to 74% for the three months ended September 30, 2024 as compared to 75% for the three months ended September 30, 2023. The decrease in cost of revenue as a percentage of total revenue was partially driven by a higher mix of higher margin solutions work in the three months ended September 30, 2024 as compared to the three months ended September 30, 2023.

### SG&A

|  | Three Months Ended September 30, 2024 | 2023 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: |
| SG&A | $17,485 | $15,533 | $1,952 | 12.6% |
| SG&A as a percentage of revenues | 42% | 46% |  |  |

SG&A expenses as a percentage of total revenues for the three months ended September 30, 2024 decreased to 42% as compared to 46% for the three months ended September 30, 2023, which was primarily driven by higher revenue.

SG&A expenses increased in total dollars for the three months ended September 30, 2024 as compared to September 30, 2023 due to an increase in headcount, non-recurring strategic initiatives of $1.4 million and non-recurring integration costs of $0.7 million

### Research and Development

|  | Three Months Ended September 30, 2024 | 2023 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: |
| Research and development | $3,820 | $(349) | $4,169 | (1194.6)% |

Research and development expenses increased by $4.2 million during the three months ended September 30, 2024 as compared to the three months ended September 30, 2023. The increase was driven by increased headcount, the timing of certain research and development projects, as well as research and development expenses related to Pangiam.There were also certain software development projects that reached technological feasibility resulting in capitalization of R&D expenses incurred in the three months ending September 30, 2023 which did not recur during the three months ending September 30, 2024.

### Restructuring Charges

|  | Three Months Ended September 30, 2024 | 2023 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: |
| Restructuring charges | $— | $— | $— | —% |

There were no restructuring charges for the three months ended September 30, 2024 or the three months ended September 30, 2023.

### Transaction Expenses

|  | Three Months Ended September 30, 2024 | 2023 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: |
| Transaction expenses | $— | $1,437 | $(1,437) | (100.0)% |

Transaction expenses for the three months ended September 30, 2023 consist of diligence, legal and other related expenses associated with the Pangiam Acquisition.

### Net (Decrease) Increase in Fair Value of Derivatives

|  | Three Months Ended September 30, 2024 | 2023 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: |
| Net (decrease) increase in fair value of derivatives | $(1,278) | $(15,659) | $14,381 | (91.8)% |

The net decrease in fair value of derivatives of $1.3 million for the three months ended September 30, 2024 consists of fair value remeasurements of IPO warrants, PIPE warrants, and RDO warrants. The 2023 PIPE warrants and the 2023 RDO warrants were fully settled as of September 30, 2024.

### Interest Expense

|  | Three Months Ended September 30, 2024 | 2023 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: |
| Interest expense | $3,541 | $3,540 | $1 | —% |

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

### Other Income

|  | Three Months Ended September 30, 2024 | 2023 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: |
| Other income | $(647) | $(87) | $(560) | 643.7% |

The change in other income during the three months ended September 30, 2024 as compared to the three months ended September 30, 2023 is primarily driven by interest income earned on money market accounts.

### Income Tax Expense (Benefit)

|  | Three Months Ended September 30, 2024 | 2023 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: |
| Income tax expense (benefit) | $21 | $(5) | $26 | (520.0)% |
| Effective tax rate | (0.2)% | 0.1% |  |  |

The effective tax rate for the three months ended September 30, 2024 and the three months ended September 30, 2023 are consistent. The effective tax rate for the three months ended September 30, 2024 and September 30, 2023 differs from the U.S. federal income tax rate of 21.0% primarily due to state and local income taxes, permanent differences between book and taxable income, certain discrete items, and the change in valuation allowance.

As of September 30, 2024, the Company has determined that it is not more-likely-than-not that substantially all of its deferred tax assets will be realized in the future, and continues to have a full valuation allowance established against its deferred tax assets.

### Comparison of the Nine Months Ended September 30, 2024 and 2023

### Revenues

|  | Nine Months Ended September 30, 2024 | 2023 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: |
| Revenues | $114,409 | $114,601 | $(192) | (0.2)% |

Revenues decreased by $0.2 million during the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023. The change in revenues were primarily driven by increases due to the Pangiam Acquisition, offset by decreased volume from the Air Force EPASS program which wound down in the second quarter of 2023.

### Cost of Revenues

|  | Nine Months Ended September 30, 2024 | 2023 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: |
| Cost of revenues | $85,594 | $87,016 | $(1,422) | (1.6)% |
| Cost of revenues as a percentage of revenues | 75% | 76% |  |  |

Cost of revenues as a percentage of total revenues was 75% for the nine months ended September 30, 2024 as compared to 76% for the nine months ended September 30, 2023. The decrease in cost of revenues as a percentage of total revenues was driven by higher margins from the inclusion of Pangiam’s results.

### SG&A

|  | Nine Months Ended September 30, 2024 | 2023 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: |
| SG&A | $57,797 | $52,825 | $4,972 | 9.4% |
| SG&A as a percentage of revenues | 51% | 46% |  |  |

SG&A expenses as a percentage of total revenues for the nine months ended September 30, 2024 increased to 51% as compared to 46% for the nine months ended September 30, 2023. The increase in SG&A expenses as a percentage of total revenues was primarily driven by an increase in non-recurring strategic initiatives of $2.5 million, non-recurring integration costs of $1.6 million, and non-recurring litigation costs of $1.1 million incurred during the the nine months ended September 30, 2024.

### Research and Development

|  | Nine Months Ended September 30, 2024 | 2023 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: |
| Research and development | $8,529 | $3,004 | $5,525 | 183.9% |

Research and development expenses increased by $5.5 million during the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023. The increase in research and development expenses was driven by increased headcount, the timing of certain research and development projects, as well as the inclusion of Pangiam’s results.

### Restructuring Charges

|  | Nine Months Ended September 30, 2024 | 2023 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: |
| Restructuring charges | $1,317 | $780 | $537 | 68.8% |

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

### Transaction Expenses

|  | Nine Months Ended September 30, 2024 | 2023 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: |
| Transaction expenses | $1,450 | $1,437 | $13 | 0.9% |

Transaction expenses for the nine months ended September 30, 2024 consist of diligence, legal and other related expenses associated with the Pangiam Acquisition.

### Goodwill Impairment

|  | Nine Months Ended September 30, 2024 | 2023 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: |
| Goodwill impairment | $85,000 | $— | $85,000 | 100.0% |

During the nine months ended September 30, 2024, the Company recognized a non-cash goodwill impairment charge of $85.0 million primarily driven by a decrease in share price during the quarter compared to the share price of the equity issued as consideration for the Pangiam Acquisition.

### Net (Decrease) Increase in Fair Value of Derivatives

|  | Nine Months Ended September 30, 2024 | 2023 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: |
| Net (decrease) increase in fair value of derivatives | $14,832 | $(1,971) | $16,803 | (852.5)% |

The net increase in fair value of derivatives of $14.8 million for the nine months ended September 30, 2024 includes fair value remeasurements of the IPO warrants, PIPE warrants, and RDO warrants. The 2023 PIPE warrants and the 2023 RDO warrants were fully settled as of September 30, 2024.

### Interest Expense

|  | Nine Months Ended September 30, 2024 | 2023 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: |
| Interest expense | $10,647 | $10,656 | $(9) | (0.1)% |

Interest expense during the nine months ended September 30, 2024 and the nine months ended September 30, 2023 consists primarily of interest expense, commitment fees, and debt issuance cost amortization under our Convertible Notes and Bank of America Senior Revolver. See the *Liquidity and Capital Resources* section below for more information.

### Other Income

|  | Nine Months Ended September 30, 2024 | 2023 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: |
| Other income | $(1,719) | $(87) | $(1,632) | 1875.9% |

The change in other income during the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023 is primarily driven by interest income earned on money market accounts.

### Income Tax Expense (Benefit)

|  | Nine Months Ended September 30, 2024 | 2023 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: |
| Income tax expense (benefit) | $22 | $51 | $(29) | (56.9)% |
| Effective tax rate | —% | (0.1)% |  |  |

The effective tax rate for the nine months ended September 30, 2024 and the nine months ended September 30, 2023 are consistent. The effective tax rate for the nine months ended September 30, 2024 differs from the U.S. federal income tax rate of 21.0% primarily due to state and local income taxes, permanent differences between book and taxable income, certain discrete items and the change in valuation allowance.

As of September 30, 2024, the Company has determined that it is not more-likely-than-not that substantially all of its deferred tax assets will be realized in the future and continues to have a full valuation allowance established against its deferred tax assets.

Refer to Note 12—Income Taxes to consolidated financial statements included in this Quarterly Report on Form 10-Q for more information.

### Supplemental Non-GAAP Information

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

### Adjusted EBITDA - Non-GAAP

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

|  | Three Months Ended September 30, 2024 | 2023 | Nine Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| Net (loss) income | $(12,176) | $3,999 | $(149,060) | $(39,110) |
| Interest expense | 3,541 | 3,540 | 10,647 | 10,656 |
| Interest income | (635) | (86) | (1,807) | (86) |
| Income tax expense (benefit) | 21 | (5) | 22 | 51 |
| Depreciation and amortization | 3,394 | 1,971 | 8,740 | 5,936 |
| EBITDA | (5,855) | 9,419 | (131,458) | (22,553) |
| Adjustments: |  |  |  |  |
| Equity-based compensation | 5,168 | 4,793 | 16,074 | 12,592 |
| Employer payroll taxes related to equity-based compensation(1) | 29 | 8 | 741 | 365 |
| Net (decrease) increase in fair value of derivatives(2) | (1,278) | (15,659) | 14,832 | (1,971) |
| Restructuring charges(3) | — | — | 1,317 | 780 |
| Non-recurring strategic initiatives(4) | 1,568 | 159 | 4,942 | 2,480 |
| Non-recurring litigation(5) | 574 | — | 1,119 | — |
| Transaction expenses(6) | — | 1,437 | 1,450 | 1,437 |
| Non-recurring integration costs(7) | 742 | — | 1,625 | — |
| Goodwill impairment(8) | — | — | 85,000 | — |
| Adjusted EBITDA | $948 | $157 | $(4,358) | $(6,870) |

(1) Includes employer payroll taxes due upon the vesting of equity awards granted to employees.

(2) The increase in fair value of derivatives during the nine months ended September 30, 2024, relates to the $42.3 million loss recorded upon the exercise of the 2023 RDO and 2023 PIPE Warrants (collectively, the “2023 Warrants”) and issuance of the warrants in 2024 (the “2024 Warrants”) in connection with the warrant exercise agreements entered into on February 27, 2024 and March 4, 2024. This loss is net of a $10.6 million gain related to the issuance of the 2024 Warrants and was further offset by a reduction of $27.4 million upon remeasurement of the 2024 Warrants and IPO Warrants’ fair value during the nine months ended September 30, 2024. The decrease in fair value of derivatives during the three months ended September 30, 2024 relates to remeasurement of the 2024 Warrants and IPO Warrants’ fair value.

(3) During the nine months ended September 30, 2024 and the nine months ended September 30, 2023, the Company incurred employee separation costs associated with a strategic review of the Company’s capacity and future projections to better align the organization and cost structure and improve the affordability of its products and services.

(4) Non-recurring professional fees related to the execution of certain strategic initiatives of the Company.

(5) Non-recurring litigation consists primarily of legal settlements and related fees for specific proceedings that we have determined arise outside of the ordinary course of business based on the following considerations which we assess regularly: (1) the frequency of similar cases that have been brought to date, or are expected to be brought within two years; (2) the complexity of the case; (3) the nature of the remedy(ies) sought, including the size of any monetary damages sought; (4) offensive versus defensive posture of us; (5) the counterparty involved; and (6) our overall litigation strategy.

(6) Transaction expenses consist primarily of diligence, legal and other related expenses incurred associated with the Pangiam Acquisition.

(7) Non-recurring internal integration costs related to the Pangiam Acquisition.

(8) During the nine months ended September 30, 2024, the Company recognized a non-cash goodwill impairment charge primarily driven by a decrease in share price during the quarter compared to the share price of the equity issued as consideration for the purchase of Pangiam.

### Free Cash Flow

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

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

|  | Nine Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: |
| Net cash used in operating activities | $(23,313) | $(18,233) |
| Capital expenditures, net | (7,700) | (2,746) |
| **Free cash flow** | **$(31,013)** | **$(20,979)** |

### Key Performance Indicators

#### Backlog

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

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

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

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

- *Funded Backlog.* Funded backlog represents the 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.

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

|  | September 30, 2024 | December 31, 2023 |
| --- | ---: | ---: |
| Funded | $77,422 | $30,112 |
| Unfunded | 52,700 | 49,382 |
| Priced, unexercised options | 288,614 | 63,878 |
| Unpriced, unexercised options | 18,758 | 24,438 |
| **Total backlog** | **$437,494** | **$167,810** |

### Liquidity and Capital Resources

Our primary sources of liquidity are cash flows provided by our operations and access to existing credit facilities, if available. Our primary short-term cash requirements are to fund payroll obligations, working capital, operating lease obligations, interest payments and short-term debt, including current maturities of long-term debt. Working capital requirements can vary significantly from period to period, particularly as a result of the timing of receipts and disbursements related to long-term contracts. As more fully described below under “Bank of America Senior Revolver,” as of September 30, 2024, until such date as we are able to comply with the Adjusted EBITDA requirement under the Senior Revolver, we are unable to draw on the Senior Revolver. However, based on our projected cash flow and liquidity needs, we believe that our cash from operating activities generated from continuing operations during the year will be adequate for the next 12 months to meet our anticipated uses of cash flow.

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

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

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

As described in Note 10—Debt to consolidated financial statements included in this Quarterly Report on Form 10-Q, the Company was in compliance with the covenants of the Senior Revolver as of September 30, 2024 but is currently unable to draw on the Senior Revolver based on the Adjusted EBITDA requirements pursuant to the credit agreement.

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

Our available liquidity as of September 30, 2024 and December 31, 2023, consisted primarily of available cash and cash equivalents, which were as follows:

|  | September 30, 2024 | December 31, 2023 |
| --- | ---: | ---: |
| Available cash and cash equivalents | $65,584 | $32,557 |
| Available borrowings from our existing credit facilities(1) | — | — |
| **Total available liquidity** | **$65,584** | **$32,557** |

(1) Pursuant to the credit agreement, if the Company is compliance with the Secured Net Leverage Ratio covenant and the Adjusted EBITDA requirement as further described in Note 10—Debt, the Company is eligible to borrow up to $25 million, which is subject to borrowing base adjustments that limit the total amount available under the credit facilities to 90% of Eligible Prime Government Receivables and Eligible Subcontractor Government Receivables, plus 85% of Eligible Commercial Receivables.

The following table summarizes borrowings under our existing credit facilities as of the dates indicated:

|  | September 30, 2024 | December 31, 2023 |
| --- | ---: | ---: |
| Convertible Notes | $200,000 | $200,000 |
| Bank of America Senior Revolver | — | — |
| D&O Financing Loan | — | 1,229 |
| Total debt | 200,000 | 201,229 |
| Less: unamortized issuance costs | 4,262 | 5,727 |
| Total debt, net | 195,738 | 195,502 |
| Less: current portion | — | 1,229 |
| **Long-term debt, net** | **$195,738** | **$194,273** |

#### Convertible Notes

On December 7, 2021, the Company issued $200.0 million of unsecured convertible notes (the “*Convertible Notes”*) to certain investors. The Convertible Notes bear interest at a rate of 6.0% per annum, payable semi-annually, and not including any interest payments that are settled with the issuance of shares, were 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 10—Debt of the Notes to consolidated financial statements included in this Quarterly Report on Form 10-Q. The Convertible Notes mature on December 15, 2026.

On May 29, 2022, pursuant to the conversion rate adjustment provisions in the Convertible Notes indenture, the Conversion Price was adjusted to $10.61 (or 94.2230 shares of common stock per $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 September 30, 2024, the Company was in compliance with all covenants related to the Convertible Notes.

As of September 30, 2024, the Company has an outstanding balance of $200.0 million related to the Convertible Notes, which is recorded on the balance sheet net of approximately $4.3 million of unamortized debt issuance costs.

#### 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 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, but is still subject to the Secured Net Leverage ratio covenant. In order for the facility to become available for borrowings (the “*initial availability quarter”*), the Company must report Adjusted EBITDA of at least one dollar. Commencing on the first fiscal quarter after the initial availability quarter, the Company is required to have aggregated reported Adjusted EBITDA of at least $1 over the two preceding quarters to maintain its ability to borrow under the Senior Revolver (though the inability to satisfy such condition does not result in a default under the Senior Revolver). Failure to meet this Adjusted EBITDA requirement is not a default but limits the Company’s ability to make borrowings under the Senior Revolver until such time that the Company is able to meet the Adjusted EBITDA thresholds as defined in the Second Amendment.

As of September 30, 2024, the Company had not drawn on the Senior Revolver. Unamortized debt issuance costs of $0.1 million were recorded on the balance sheet and are presented in Other non-current assets.

Refer to Note 10—Debt to consolidated financial statements included in this Quarterly Report on Form 10-Q for more information.

#### D&O Financing Loan

On December 20, 2023, the Company entered into a $1.2 million loan (the “*2024 D&O Financing Loan”*) with US Premium Finance to finance the Company’s directors and officers insurance premium through September 2024. The D&O Financing Loan had an interest rate of 6.99% per annum and a maturity date of September 8, 2024.

On December 8, 2022, the Company entered into a $2.1 million loan (the “*2023 D&O Financing Loan”*) with AFCO Credit Corporation to finance the Company’s directors and officers insurance premium through December 2023. The 2023 D&O Financing Loan required an upfront payment of $1.1 million and has an interest rate of 5.75% per annum and a maturity date of December 8, 2023. The 2023 D&O Financing Loan was fully repaid at maturity.

#### RDO Warrant Exercise

On February 27, 2024, the Company entered into a warrant exercise agreement with an existing accredited investor to exercise in full the outstanding RDO warrants to purchase up to an aggregate of 8,886,255 shares of the Company’s common stock for total gross proceeds of approximately $20.6 million, prior to deducting offering expenses.

#### PIPE Warrant Exercise

On March 4, 2024, the Company entered into a warrant exercise agreement with an existing accredited investor to exercise in full the outstanding PIPE warrants to purchase up to an aggregate of 13,888,889 shares of the Company’s common stock for total gross proceeds of approximately $33.2 million, prior to deducting offering expenses.

### Cash Flows

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

|  | Nine Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: |
| Net cash used in operating activities | (23,313) | (18,233) |
| Net cash provided by (used in) investing activities | 6,235 | (2,746) |
| Net cash provided by financing activities | 50,163 | 40,531 |
| Effect of foreign currency rate changes on cash and cash equivalents | (58) | — |
| Net increase in cash and cash equivalents | 33,027 | 19,552 |
| Cash and cash equivalents at the beginning of period | 32,557 | 12,632 |
| **Cash and cash equivalents at the end of the period** | $65,584 | $32,184 |

43

### Operating activities

For the nine months ended September 30, 2024, net cash used in operating activities was $23.3 million. Net loss before deducting depreciation, amortization and other non-cash items was $22.2 million and was further impacted by an unfavorable change in net working capital of $1.2 million which contributed to operating cash flows during this period. The unfavorable change in net working capital was largely driven by an increase in accounts receivable of $5.4 million, a decrease in accounts payable of $8.2 million and a decrease in other liabilities of $0.2 million. These were partially offset by a decrease in contract assets of $3.1 million, a decrease in prepaid expenses and other assets of $1.5 million, an increase in accrued liabilities of $7.6 million, and an increase in contract liabilities of $0.5 million.

For the nine months ended September 30, 2023, net cash used in operating activities was $18.2 million. Net loss before deducting depreciation, amortization and other non-cash items was $18.9 million and was further impacted by an unfavorable change in net working capital of $0.7 million, which contributed to operating cash flows during this period. The unfavorable change in net working capital was largely driven by a decrease in accounts payable of $6.3 million and increases in other liabilities of $1.8 million and accounts receivable of $0.5 million. These were partially offset by a decrease in prepaid expenses and other assets of $6.2 million, a decrease in contract assets of $0.9 million, and an increase in accrued liabilities of $2.0 million.

### Investing activities

For the nine months ended September 30, 2024, net cash provided by investing activities was $6.2 million, primarily consisting of cash acquired from the Pangiam Acquisition of $13.9 million, partially offset by capitalized software development costs of $7.4 million.

For the nine months ended September 30, 2023, net cash used in investing activities was $2.7 million, primarily due to capitalization of software development costs of $2.7 million and the purchase of property and equipment.

### Financing activities

For the nine months ended September 30, 2024, net cash provided by financing activities was $50.2 million, primarily consisting of the net proceeds from the issuance of shares pursuant to the exercise of the PIPE warrants and RDO warrants of $53.8 million, partially offset by the payment of taxes related to net share settlement of equity awards $3.1 million and the net repayment of $1.2 million related to the 2023 D&O Financing Loan.

For the nine months ended September 30, 2023, net cash provided by financing activities was $40.5 million, primarily consisting of the net proceeds from the issuance of the Private Placement and Registered Direct Offering shares of $50.0 million, offset by the payment of transaction costs associated with the Private Placement and Registered Direct Offering of $5.7 million, the payment of taxes related to net share settlement of equity awards $2.2 million, and partial repayment of $2.1 million related to the 2023 D&O Financing Loan.

### Critical Accounting Policies and Estimates

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 addition to those outlined for goodwill below, our critical accounting estimates are disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operation included in our Annual Report on Form 10-K, for the year ended December 31, 2023, as filed with the SEC on March 15, 2024.

### Goodwill

We assess goodwill for impairment at least annually, as of October 1, and whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. For the purposes of impairment testing, we have determined that we have one reporting unit. 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.

#### Goodwill Impairment Testing

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

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

Because the fair value of the reporting unit approximated its carrying value, a negative change in the key assumptions used in the interim impairment analysis or an increase in the carrying value may result in a future impairment of goodwill. Any significant adverse changes in future periods to our internal forecasts or external market conditions could reasonably be expected to negatively affect our key assumptions and may result in future goodwill impairment charges which could be material. For example, keeping all other assumptions the same, an additional increase in the discount rate or an increase in the carrying value could result in an impairment of goodwill.

### Recent Accounting Pronouncements

See Note 2—Summary of Significant Accounting Policies of the consolidated financial statements included in this Quarterly Report on Form 10-Q for a discussion of recently issued accounting pronouncements.

## Market risk

As filed, 2,369 characters.

Our main exposure to market risk relates to changes in the value of our common stock or other instruments that are tied to our common stock, including derivative liabilities and convertible debt. Decreases in the value of our common stock have triggered certain reset provisions in our Convertible Notes that are based on the value of our common stock and volume of shares traded during the reset period. On May 29, 2022, pursuant to the Convertible Note indenture, the conversion rate applicable to the Convertible Notes was adjusted to 94.2230 (previously 86.9565) shares of common stock per $1,000 principal amount of Convertible Notes because the average of the daily volume-weighted average price of the common stock during the preceding 30 trading days was less than $10.00 (the “Conversion Rate Reset”). After giving effect to the Conversion Rate Reset, the conversion price is $10.61 and the Convertible Notes are convertible into 18,844,600 shares, not including any interest payments that are settled with the issuance of shares. In addition, the Convertible Notes indenture contains certain “make-whole” provisions pursuant to which, under certain circumstances, the Company must increase the conversion rate and such increase depends, in part, on the price of our common stock. Refer to —Written Put Option and Note 10—Debt in the notes to our consolidated financial statements in Item 1 on this Quarterly Report on Form 10-Q for further information.

We are also exposed to market risk related to interest rates. Our financial instruments that are subject to interest rate risk principally include fixed-rate long-term debt and revolving credit, if drawn. As of September 30, 2024, the outstanding principal amount of our long-term debt was $200.0 million excluding unamortized discounts and issuance costs of $4.3 million.

Inflation affects the way we operate in our target markets. In general, we believe that, over time, we will be able to increase prices to counteract the majority of the inflationary effects of increasing costs and to generate sufficient cash flows to maintain our productive capability. Additionally, many of our long-term contracts have annual rate escalation clauses.

We have established policies, procedures and internal processes governing our management of market risks and to manage and mitigate our exposure to these risks.

## Controls and procedures

As filed, 1,225 characters.

Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our principal executive officer and principal financial officer have concluded that as of September 30, 2024, our disclosure controls and procedures were effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

There were no changes in our internal control over financial reporting during the three months ended September 30, 2024 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 697 characters.

For a discussion of the material factors that make an investment in the Company risky, please see the risk factors disclosed in “Item 1A, Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2023. These risks and uncertainties have the potential to materially affect our business, results of operations, financial condition, cash flows, projected results and future prospects. These risks are not exclusive and additional risks to which we are subject include the factors mentioned under “Forward-Looking Statements” and the risks described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Quarterly Report on Form 10-Q.

Filed Nov 7, 2024.
Source: SEC EDGAR, the filing index for accession 0001628280-24-046327. Last ingested by Listed: Oct 27, 2026, 16:12 ET. No prices; not investment advice.