BigBear.ai Holdings, Inc.

Previous wording

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 Quarterly Report on Form 10-Q. Certain information contained in this management discussion and analysis includes forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors. Please see “Cautionary Note Regarding Forward-Looking Statements,” and “Risk Factors” in our Quarterly Report on Form 10-Q 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.

Current wording

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 unaudited 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 that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors. Please see “Cautionary Note Regarding Forward-Looking Statements,” and “Risk Factors” in our Quarterly Report on Form 10-Q 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.

Previous wording

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 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.

Current wording

The following discussion and analysis of financial condition and results of operations of BigBear.ai is provided to supplement the unaudited 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.

Previous wording

•Results of Operations: This section provides a discussion of our results of operations for the three months ended March 31, 2025 and March 31, 2024.

Current wording

•Results of Operations: This section provides a discussion of our results of operations for three and the six months ended June 30, 2025 and June 30, 2024.

Previous wording

We anticipate the federal budget, debt ceiling, regulatory environment, and potential tax reform will continue to be subject to debate and compromise shaped by, among other things, the new Administration and Congress, heightened political tensions, the global security environment, inflationary pressures, and macroeconomic conditions. The result may be shifting funding priorities, which could have material impacts on defense spending broadly and our programs. Additionally, the administration continues to take steps to evaluate government-wide and defense-specific staffing and procurement, which includes assessing mission priorities, procurement methods, program performance, and other factors and then potentially taking action based on those assessments. Those actions remain uncertain and could result in impacts to both our current and future business prospects and financial performance.

Current wording

We anticipate the federal budget, debt ceiling, regulatory environment, and potential tax reform will continue to be subject to debate and compromise shaped by, among other things, the current Administration and Congress, heightened political tensions, the global security environment, inflationary pressures, and macroeconomic conditions. The result may be shifting funding priorities, which could have material impacts on defense spending broadly and our programs. Additionally, the administration continues to take steps to evaluate government-wide and defense-specific staffing and procurement, which includes assessing mission priorities, procurement methods, program performance, and other factors and then potentially taking action based on those assessments. Those actions remain uncertain and could result in impacts to both our current and future business prospects and financial performance.

Previous wording

Additionally, the President of the United States has issued multiple Executive Orders, including two that are intended to (i) simplify and accelerate the procurement process through a review and restructuring of the Federal Acquisition Regulation (FAR), and its supplements and (ii) modernize defense acquisitions by promoting commercial solutions, innovative acquisition authorities, and other existing streamlined processes. Among the actions directed by the President is a review of major defense acquisition programs that are behind schedule or over budget, including identifying any programs for potential cancellation. While the impact of these reforms on our business is uncertain, they could potentially lead to changes in the way we interact with the U.S. Government. We will continue to monitor and assess their effects on our business and financial results. Should the U.S. Government review one or more major defense programs in which we provide solutions or services, and this review leads to a full or partial cancellation of one of these programs, this could have an adverse effect on our business, financial condition, results of operations and cash flows.

Current wording

While the impact of these reforms on our business is uncertain, they could potentially lead to changes in the way we interact with the U.S. Government. We will continue to monitor and assess their effects on our business and financial results. Should the U.S. Government review one or more major defense programs in which we provide solutions or services, and this review leads to a full or partial cancellation of one of these programs, this could have an adverse effect on our business, financial condition, results of operations and cash flows.

Previous wording

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

Current wording

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

Previous wording

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

Current wording

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

Previous wording

The change in other income during the three months ended March 31, 2025 as compared to the three months ended March 31, 2024 is primarily driven by interest income earned on money market accounts, partially offset by losses on foreign currency transactions.

Current wording

The change in other income during the three months ended June 30, 2025 as compared to the three months ended June 30, 2024 is primarily driven by interest income earned on money market accounts.

Previous wording

SG&A expenses as a percentage of total revenues for the three months ended March 31, 2025 increased to 65% as compared to 51% for the three months ended March 31, 2024. The year-over-year increases include Pangiam’s headcount and operating expenses not fully included in the first quarter of 2024 (the Pangiam acquisition was completed on February 29, 2024) as well as the carrying cost of excess resource capacity due to delays in government funding on certain programs during the three months ended March 31, 2025.

Current wording

SG&A expenses as a percentage of total revenues for the six months ended June 30, 2025 increased to 66% as compared to 55% for the six months ended June 30, 2024. The year-over-year increases include Pangiam’s headcount and operating expenses not fully included in the first quarter of 2024 (the Pangiam acquisition was completed on February 29, 2024) as well as the carrying cost of excess resource capacity due to delays in government funding on certain programs during the six months ended June 30, 2025.

Previous wording

Research and development expenses increased by $3.0 million during the three months ended March 31, 2025 as compared to the three months ended March 31, 2024. 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.

Current wording

Research and development expenses increased by $3.9 million during the six months ended June 30, 2025 as compared to the six months ended June 30, 2024. 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.

Previous wording

Restructuring charges increased by $0.8 million during the three months ended March 31, 2025 as compared to the three months ended March 31, 2024. 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 as well as employee separation costs associated with strategic changes in certain key leadership roles.

Current wording

Restructuring charges increased by $2.3 million during the six months ended June 30, 2025 as compared to the six months ended June 30, 2024. 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 as well as employee separation costs associated with strategic changes in certain key leadership roles.

Previous wording

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

Current wording

During the six months ended June 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 first quarter of 2024 compared to the share price of the equity issued as consideration for the acquisition of Pangiam.

Previous wording

The net increase in fair value of derivatives of $33.3 million for the three months ended March 31, 2025 includes fair value remeasurements of the 2029 Notes Conversion Option, IPO private warrants, 2024 PIPE warrants, 2024 RDO warrants and 2025 RDO warrants. The 2024 PIPE warrants and the 2024 RDO warrant were exercised and fully settled during the three months ended March 31, 2025. In connection with the exercise of the 2024 RDO warrants, the Company issued 3.77 million RDO warrants. The 2023 PIPE warrants and the 2023 RDO warrant were exercised and fully settled during the three months ended March 31, 2024.

Current wording

The net increase (decrease) in fair value of derivatives of $169.1 million for the six months ended June 30, 2025 includes fair value remeasurements of the 2029 Notes Conversion Option, IPO private warrants, 2026 Notes Conversion Option, and the 2025 RDO warrants. The 2024 PIPE warrants and the 2024 RDO warrant were exercised and fully settled during the six months ended June 30, 2025. In connection with the exercise of the 2024 RDO warrants, the Company issued 3.77 million RDO warrants. The 2023 PIPE warrants and the 2023 RDO warrant were exercised and fully settled during the six months ended June 30, 2024. The net increase (decrease) in fair value of derivatives for the six months ended June 30, 2024 includes the fair value remeasurements of the IPO private warrants, the 2024 PIPE and 2024 RDO warrants.

Previous wording

Interest expense during the three months ended March 31, 2025 and 2024 consists primarily of interest expense, debt issuance discount amortization, and debt issuance cost amortization under our Convertible Notes. See the Liquidity and Capital Resources section below for more information. The change in interest expense during the three months ended March 31, 2025 as compared to the three months ended March 31, 2024 is primarily due to a lower average principal balance on the 2029 Convertible Notes due to conversion activity during the the three months ended March 31, 2025.

Current wording

Interest expense during the six months ended June 30, 2025 and 2024 consists primarily of interest expense, debt issuance discount amortization, and debt issuance cost amortization under our Convertible Notes. See the Liquidity and Capital Resources section below for more information. The change in interest expense during the six months ended June 30, 2025 as compared to the six months ended June 30, 2024 is primarily due to a lower average principal balance on the 2029 Convertible Notes due to conversion activity during the six months ended June 30, 2025.

Previous wording

The effective tax rate for the three months ended March 31, 2025 and the three months ended March 31, 2024 are consistent. The effective tax rate for the three months ended March 31, 2025 differs from the U.S. federal income tax rate of 21.0% primarily due to state and local income taxes, permanent differences between book and taxable income, certain discrete items and the change in valuation allowance.The expense for the three months ended March 31, 2025 primarily relates to income derived from our United Kingdom entity.

Current wording

The effective tax rate for the six months ended June 30, 2025 and the six months ended June 30, 2024 are consistent. The effective tax rate for the six months ended June 30, 2025 differs from the U.S. federal income tax rate of 21.0% primarily due to state and local income taxes, permanent differences between book and taxable income, certain discrete items and the change in valuation allowance. The expense for the six months ended June 30, 2025 primarily relates to income derived from our United Kingdom entity.

Previous wording

In April 2023, the Company filed an automatic shelf registration statement on Form S-3 (the “2023 Shelf Registration Statement”) with the SEC registering an indeterminate amount of its common stock, preferred stock, warrants, rights, and units (collectively, “Company securities”). which the SEC declared effective on April 21. 2023. In May 2024, the Company filed a prospectus supplement to the 2023 Shelf Registration Statement which allows the Company to sell, from time to time and at its discretion, Company securities having an aggregate offering price of up to $150 million including shares of common stock that may be sold pursuant to the Company’s controlled equity offering agreement, dated as of May 10, 2024 (the “Controlled Equity Offering Agreement”), with Cantor Fitzgerald & Co.. (“Cantor”), as sales agent, under an “at the market” offering program (the “ATM Program”).

Current wording

In April 2023, the Company filed an automatic shelf registration statement on Form S-3 (the “2023 Shelf Registration Statement”) with the SEC registering an indeterminate amount of its common stock, preferred stock, warrants, rights, and units (collectively, “Company securities”). which the SEC declared effective on April 21, 2023. In May 2024, the Company filed a prospectus supplement to the 2023 Shelf Registration Statement which allows the Company to sell, from time to time and at its discretion, Company securities having an aggregate offering price of up to $150 million including shares of common stock that may be sold pursuant to the Company’s controlled equity offering agreement, dated as of May 10, 2024 (the “Controlled Equity Offering Agreement”), with Cantor Fitzgerald & Co.. (“Cantor”), as sales agent, under an “at the market” offering program (the “May 2024 Sales Agreement”).

Previous wording

During the three months ended March 31, 2025, the Company sold 1,936,000 shares of common stock under the ATM Program for an aggregate offering price of $6.6 million. Total issuance costs related to the ATM Program as of March 31, 2025 were approximately $0.1 million, resulting in aggregate net proceeds of approximately $6.5 million. As of March 31, 2025, approximately $143.4 million in capacity remained available under the 2023 Shelf Registration Statement.

Current wording

During the six months ended June 30, 2025, the Company sold 39,555,415 shares of common stock under the May 2024 Sales Agreement for an aggregate offering price of $150 million. Total issuance costs related to the ATM Program as of June 30, 2025 were approximately $2.6 million, resulting in aggregate net proceeds of approximately $147.4 million.

Previous wording

For the three months ended March 31, 2025, net cash used in operating activities was $6.7 million. Net loss before deducting depreciation, amortization and other non-cash items was $12.0 million and was further impacted by a favorable change in net working capital of $5.4 million which partially offset operating cash outflows during this period. The favorable change in net working capital was largely driven by a decrease in accounts receivable of $4.3 million, an increase in accrued expenses of $4.4 million, an increase in other liabilities of $1.7 million, an increase in contract liabilities of $0.5 million, and a decrease in contract assets of $0.4 million. These were partially offset by a decrease in accounts payable of $4.2 million and an increase in prepaid expenses and other assets of $1.8 million.

Current wording

For the six months ended June 30, 2025, net cash used in operating activities was $10.5 million. Net loss before deducting depreciation, amortization and other non-cash items was $23.9 million and was further impacted by a favorable change in net working capital of $13.4 million which partially offset operating cash outflows during this period. The favorable change in net working capital was largely driven by a decrease in accounts receivable of $10.3 million, an increase in accrued expenses of $4.8 million, an increase in other liabilities of $1.8 million, an increase in contract liabilities of $1.9 million, and a decrease in contract assets of $0.2 million. These were partially offset by a decrease in accounts payable of $5.0 million and an increase in prepaid expenses and other assets of $0.6 million.

Previous wording

For the three months ended March 31, 2024, net cash used in operating activities was $14.4 million. Net loss before deducting depreciation, amortization and other non-cash items was $7.8 million and was further impacted by an unfavorable change in net working capital of $6.5 million which reduced operating cash flows during this period. The unfavorable change in net working capital was largely driven by an increase in accounts receivable of $9.0 million and a decrease in accounts payable of $6.0 million. These were partially offset by an increase in accrued liabilities of $2.6 million, a decrease in contract assets of $2.4 million, an increase in contract liabilities of $1.8 million, a decrease in prepaid expenses and other assets of $1.0 million, and an increase in other liabilities of $0.6 million.

Current wording

For the six months ended June 30, 2024, net cash used in operating activities was $21.4 million. Net loss before deducting depreciation, amortization and other non-cash items was $18.0 million and was further impacted by an unfavorable change in net working capital of $3.4 million which reduced operating cash flows during this period. The unfavorable change in net working capital was largely driven by an increase in accounts receivable of $6.2 million and a decrease in accounts payable of $5.0 million. These were partially offset by an increase in accrued liabilities of $1.7 million, a decrease in contract assets of $3.8 million, an increase in contract liabilities of $1.5 million, a decrease in prepaid expenses and other assets of $1.2 million, and an increase in other liabilities of $0.3 million.

Previous wording

For the three months ended March 31, 2025, net cash used in investing activities was $1.6 million, primarily consisting of capitalized software development costs of $1.5 million.

Current wording

For the six months ended June 30, 2025, net cash used in investing activities was $2.8 million, primarily consisting of capitalized software development costs of $2.7 million.

Previous wording

For the three months ended March 31, 2024, net cash provided by investing activities was $12.3 million, primarily consisting of cash acquired from the Pangiam acquisition of $13.9 million, partially offset by capitalized software development costs of $1.6 million.

Current wording

For the six months ended June 30, 2024, net cash provided by investing activities was $10.5 million, primarily consisting of cash acquired from the Pangiam acquisition of $13.9 million, partially offset by capitalized software development costs of $3.2 million.

Previous wording

For the three months ended March 31, 2025, net cash provided by financing activities was $65.9 million, primarily consisting of the net proceeds from the exercise of the 2024 PIPE warrants and 2024 RDO warrants of $64.7 million and proceeds of $6.6 million from the issuance of common stock under our ATM Program. These cash inflows were partially offset by payment of debt issuance costs to third parties in connection with the Exchange Transaction of $4.3 million and payment of taxes related to net share settlement of equity awards of $1.3 million.

Current wording

For the six months ended June 30, 2025, net cash provided by financing activities was $354.8 million, primarily consisting of the net proceeds from the exercise of the 2024 PIPE warrants and 2024 RDO warrants of $64.7 million and proceeds of $294.8 million from the issuance of common stock under our ATM Program. These cash inflows were partially offset by payment of debt issuance costs to third parties in connection with the Exchange Transaction of $4.7 million, payment of transaction costs in connection with the ATM of $5.3 million, and payment of taxes related to net share settlement of equity awards of $1.7 million.

Previous wording

For the three months ended March 31, 2024, net cash provided by financing activities was $51.0 million, primarily consisting of the net proceeds from the issuance of the Private Placement and Registered Direct Offering shares of $53.8 million, partially offset by the payment of taxes related to net share settlement of equity awards of $2.5 million and the net repayment of $0.4 million related to the 2023 D&O Financing Loan.

Current wording

For the six months ended June 30, 2024, net cash provided by financing activities was $50.6 million, primarily consisting of the net proceeds from the issuance of the Private Placement and Registered Direct Offering shares of $53.8 million, partially offset by the payment of taxes related to net share settlement of equity awards of $3.1 million and the net repayment of $0.8 million related to the 2023 D&O Financing Loan.