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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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x |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2022
OR
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o |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
For the transition period from ______ to ______
Commission file number 001-40031
BigBear.ai Holdings, Inc.
(Exact name of registrant as specified in its charter)
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Delaware |
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85-4164597 |
(State or other jurisdiction of incorporation or
organization) |
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(I.R.S. Employer Identification No.) |
6811 Benjamin Franklin Drive, Suite 200, Columbia, MD
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21046 |
(Address of Principal Executive Offices) |
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(Zip Code) |
(410) 312-0885
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Registrant's telephone number, including area code |
Securities registered pursuant to Section 12(b) of the
Act:
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Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
Common stock, $0.0001 par value |
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BBAI |
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New York Stock Exchange |
Redeemable warrants, each full warrant exercisable for one share of
common stock at an exercise price of $11.50 per share |
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BBAI.WS |
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New York Stock Exchange |
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports); and (2) has been subject to such filing requirements
for the past 90 days. Yes
x
No
o
Indicate by check mark whether the registrant has submitted
electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the
registrant was required to submit such files). Yes
x
No
o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, a
smaller reporting company, or an emerging growth company. See the
definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company” and “emerging growth company” in Rule
12b-2 of the Exchange Act:
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Large accelerated filer |
o
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Accelerated filer |
o
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Non-accelerated filer |
x
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Smaller reporting company |
o
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Emerging growth company |
x
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If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange
Act.
o
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Act). Yes
o
No
x
There were 126,265,764 shares of our common stock, $0.0001 par
value per share, outstanding as of August 5,
2022.
BIGBEAR.AI HOLDINGS, INC.
Quarterly Report on Form 10-Q
June 30, 2022
TABLE OF CONTENTS
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
BIGBEAR.AI HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited;
in thousands, except share and per share data)
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June 30,
2022 |
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December 31,
2021 |
Assets
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Current assets:
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Cash and cash equivalents
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$ |
29,829 |
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$ |
68,900 |
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Restricted cash |
— |
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101,021 |
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Accounts receivable, less allowance for doubtful accounts of $87 as
of June 30, 2022 and $43 as of December 31,
2021
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28,546 |
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28,605 |
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Contract assets
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1,252 |
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628 |
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Prepaid expenses and other current assets
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8,097 |
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7,028 |
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Total current assets
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67,724 |
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206,182 |
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Non-current assets:
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Property and equipment, net
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1,433 |
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1,078 |
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Goodwill
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67,164 |
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91,636 |
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Intangible assets, net
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89,456 |
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83,646 |
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Other non-current assets
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727 |
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780 |
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Total assets
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$ |
226,504 |
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$ |
383,322 |
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Liabilities and equity
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Current liabilities:
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Accounts payable
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$ |
6,354 |
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$ |
5,475 |
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Short-term debt, including current portion of long-term
debt
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1,921 |
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4,233 |
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Accrued liabilities
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15,978 |
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10,735 |
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Contract liabilities
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3,714 |
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4,207 |
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Derivative liabilities |
— |
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44,827 |
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Other current liabilities
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881 |
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541 |
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Total current liabilities
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28,848 |
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70,018 |
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Non-current liabilities:
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Long-term debt, net
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191,341 |
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190,364 |
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Deferred tax liabilities
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390 |
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248 |
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Other non-current liabilities
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136 |
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324 |
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Total liabilities
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220,715 |
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260,954 |
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Commitments and contingencies (Note K)
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Stockholders’ equity:
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Common stock, par value $0.0001; 500,000,000 shares authorized and
126,263,451 shares issued at June 30, 2022 and 135,566,227 at
December 31, 2021
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14 |
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14 |
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Additional paid-in capital |
270,184 |
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253,744 |
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Treasury stock, at cost 9,952,803 shares at June 30, 2022 and
— shares at December 31, 2021
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(57,350) |
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— |
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Accumulated deficit
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(207,059) |
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(131,390) |
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Total stockholders’ equity
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5,789 |
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122,368 |
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Total liabilities and stockholders’ equity
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$ |
226,504 |
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$ |
383,322 |
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The accompanying notes to the consolidated financial statements are
an integral part of these statements.
BIGBEAR.AI HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited;
in thousands, except share and per share data)
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Three Months Ended June 30, |
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Six Months Ended June 30, |
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2022 |
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2021 |
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2022 |
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2021 |
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Revenues
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$ |
37,613 |
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$ |
36,311 |
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$ |
74,003 |
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$ |
71,881 |
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Cost of revenues
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28,023 |
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27,148 |
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54,546 |
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52,438 |
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Gross margin
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9,590 |
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9,163 |
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19,457 |
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19,443 |
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Operating expenses:
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|
|
Selling, general and administrative
|
26,952 |
|
|
10,405 |
|
|
48,972 |
|
|
20,519 |
|
|
|
|
|
|
Research and development
|
2,535 |
|
|
1,867 |
|
|
5,409 |
|
|
2,795 |
|
|
|
|
|
|
Transaction expenses
|
186 |
|
|
— |
|
|
1,585 |
|
|
— |
|
|
|
|
|
|
Goodwill impairment |
35,252 |
|
|
— |
|
|
35,252 |
|
|
— |
|
|
|
|
|
|
Operating loss
|
(55,335) |
|
|
(3,109) |
|
|
(71,761) |
|
|
(3,871) |
|
|
|
|
|
|
Interest expense
|
3,554 |
|
|
1,849 |
|
|
7,109 |
|
|
3,709 |
|
|
|
|
|
|
Net decrease in fair value of derivatives
|
(199) |
|
|
— |
|
|
(1,462) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (income) expense |
(26) |
|
|
— |
|
|
4 |
|
|
(1) |
|
|
|
|
|
|
Loss before taxes
|
(58,664) |
|
|
(4,958) |
|
|
(77,412) |
|
|
(7,579) |
|
|
|
|
|
|
Income tax benefit
|
(1,820) |
|
|
(1,783) |
|
|
(1,743) |
|
|
(1,967) |
|
|
|
|
|
|
Net loss
|
$ |
(56,844) |
|
|
$ |
(3,175) |
|
|
$ |
(75,669) |
|
|
$ |
(5,612) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net loss per share
|
$ |
(0.45) |
|
|
$ |
(0.03) |
|
|
$ |
(0.59) |
|
|
$ |
(0.05) |
|
|
|
|
|
|
Diluted net loss per share
|
$ |
(0.45) |
|
|
$ |
(0.03) |
|
|
$ |
(0.59) |
|
|
$ |
(0.05) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
126,223,903 |
|
|
105,000,000 |
|
|
129,037,598 |
|
|
105,000,000 |
|
|
|
|
|
|
Diluted
|
126,223,903 |
|
|
105,000,000 |
|
|
129,037,598 |
|
|
105,000,000 |
|
|
|
|
|
|
The accompanying notes to the consolidated financial statements are
an integral part of these statements.
BIGBEAR.AI HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(unaudited;
in thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2022 |
|
Common Stock |
|
Additional |
|
Treasury |
|
Accumulated |
|
Total stockholders’ |
|
Shares |
|
Amount |
|
paid in capital |
|
stock |
|
deficit |
|
equity |
As of March 31, 2022 |
125,603,424 |
|
|
$ |
14 |
|
|
$ |
257,602 |
|
|
$ |
(57,350) |
|
|
$ |
(150,215) |
|
|
$ |
50,051 |
|
Net loss |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(56,844) |
|
|
(56,844) |
|
Equity-based compensation expense |
— |
|
|
— |
|
|
5,080 |
|
|
— |
|
|
— |
|
|
5,080 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock as consideration for the acquisition of
ProModel Corporation |
649,976 |
|
|
— |
|
|
7,501 |
|
|
— |
|
|
— |
|
|
7,501 |
|
Exercise of warrants |
51 |
|
|
— |
|
|
1 |
|
|
— |
|
|
— |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2022 |
126,253,451 |
|
|
$ |
14 |
|
|
$ |
270,184 |
|
|
$ |
(57,350) |
|
|
$ |
(207,059) |
|
|
$ |
5,789 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2021 |
|
Common Stock |
|
Additional |
|
Treasury |
|
Accumulated |
|
Total stockholders’ |
|
Shares |
|
Amount |
|
paid in capital |
|
stock |
|
deficit |
|
equity |
As of March 31, 2021 |
105,000,000 |
|
|
$ |
11 |
|
|
$ |
108,249 |
|
|
$ |
— |
|
|
$ |
(10,275) |
|
|
$ |
97,985 |
|
Net loss |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(3,175) |
|
|
(3,175) |
|
Equity-based compensation expense |
— |
|
|
— |
|
|
31 |
|
|
— |
|
|
— |
|
|
31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2021 |
105,000,000 |
|
|
$ |
11 |
|
|
$ |
108,280 |
|
|
$ |
— |
|
|
$ |
(13,450) |
|
|
$ |
94,841 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2022 |
|
Common Stock |
|
Additional |
|
Treasury |
|
Accumulated |
|
Total stockholders’ |
|
Shares |
|
Amount |
|
paid in capital |
|
stock |
|
deficit |
|
equity |
As of December 31, 2021 |
135,556,227 |
|
|
$ |
14 |
|
|
$ |
253,744 |
|
|
$ |
— |
|
|
$ |
(131,390) |
|
|
$ |
122,368 |
|
Net loss |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(75,669) |
|
|
(75,669) |
|
Equity-based compensation expense |
— |
|
|
— |
|
|
8,938 |
|
|
— |
|
|
— |
|
|
8,938 |
|
Repurchase of shares as a result of Forward Share Purchase
Agreements |
(9,952,803) |
|
|
— |
|
|
— |
|
|
(57,350) |
|
|
— |
|
|
(57,350) |
|
Issuance of common stock as consideration for the acquisition of
ProModel Corporation |
649,976 |
|
|
— |
|
|
7,501 |
|
|
— |
|
|
— |
|
|
7,501 |
|
Exercise of warrants |
51 |
|
|
— |
|
|
1 |
|
|
— |
|
|
— |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2022 |
126,253,451 |
|
|
$ |
14 |
|
|
$ |
270,184 |
|
|
$ |
(57,350) |
|
|
$ |
(207,059) |
|
|
$ |
5,789 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2021 |
|
Common Stock |
|
Additional |
|
Treasury |
|
Accumulated |
|
Total stockholders’ |
|
Shares |
|
Amount |
|
paid in capital |
|
stock |
|
deficit |
|
equity |
As of December 31, 2020(1)
|
105,000,000 |
|
|
$ |
11 |
|
|
$ |
108,224 |
|
|
$ |
— |
|
|
$ |
(7,838) |
|
|
$ |
100,397 |
|
Net loss |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(5,612) |
|
|
(5,612) |
|
Equity-based compensation expense |
— |
|
|
— |
|
|
56 |
|
|
— |
|
|
— |
|
|
56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2021 |
105,000,000 |
|
|
$ |
11 |
|
|
$ |
108,280 |
|
|
$ |
— |
|
|
$ |
(13,450) |
|
|
$ |
94,841 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
The units of the Company prior to the Merger (as defined in Note
A—Description of the Business) have been retroactively restated to
reflect the exchange ratio established in the Merger (computed as
105,000,000 shares of Common Stock to 100 Company
units).
The accompanying notes to the consolidated financial statements are
an integral part of these statements.
BIGBEAR.AI HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited;
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
|
Six Months Ended June 30, |
|
|
|
|
|
|
2022 |
|
2021 |
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net loss |
$ |
(75,669) |
|
|
$ |
(5,612) |
|
|
|
|
|
|
Adjustments to reconcile net loss to net cash (used in) provided by
operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense
|
3,726 |
|
|
3,673 |
|
|
|
|
|
|
Amortization of debt issuance costs
|
1,047 |
|
|
286 |
|
|
|
|
|
|
Equity-based compensation expense
|
8,938 |
|
|
56 |
|
|
|
|
|
|
Goodwill impairment |
35,252 |
|
|
— |
|
|
|
|
|
|
Provision for doubtful accounts
|
44 |
|
|
— |
|
|
|
|
|
|
Deferred income tax expense (benefit)
|
(1,594) |
|
|
(1,996) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in fair value of derivatives
|
(1,462) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
Decrease (increase) in accounts receivable
|
758 |
|
|
(1,580) |
|
|
|
|
|
|
(Increase) decrease in contract assets
|
(226) |
|
|
1,557 |
|
|
|
|
|
|
Decrease (increase) in prepaid expenses and other
assets
|
535 |
|
|
(4,299) |
|
|
|
|
|
|
Increase in accounts payable
|
874 |
|
|
2,251 |
|
|
|
|
|
|
(Decrease) increase in accrued liabilities
|
(2,509) |
|
|
5,227 |
|
|
|
|
|
|
(Decrease) increase in contract liabilities
|
(2,048) |
|
|
494 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in other liabilities
|
338 |
|
|
275 |
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
(31,996) |
|
|
332 |
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Acquisition of businesses, net of cash acquired
|
(4,376) |
|
|
(224) |
|
|
|
|
|
|
Purchases of property and equipment
|
(508) |
|
|
(282) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
(4,884) |
|
|
(506) |
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of shares as a result of forward share purchase
agreements |
(100,896) |
|
|
— |
|
|
|
|
|
|
Repayment of short-term borrowings
|
(2,312) |
|
|
— |
|
|
|
|
|
|
Payments for taxes related to net share settlement of equity
awards |
(4) |
|
|
— |
|
|
|
|
|
|
Repayment of term loan |
— |
|
|
(550) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
(103,212) |
|
|
(550) |
|
|
|
|
|
|
Net decrease in cash and cash equivalents and restricted
cash
|
(140,092) |
|
|
(724) |
|
|
|
|
|
|
Cash and cash equivalents and restricted cash at the beginning of
period
|
169,921 |
|
|
9,704 |
|
|
|
|
|
|
Cash and cash equivalents and restricted cash at the end of the
period
|
$ |
29,829 |
|
|
$ |
8,980 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental schedule of non-cash investing and financing
activities: |
|
|
|
|
|
|
|
|
Issuance of common stock as consideration for the acquisition of
ProModel Corporation |
$ |
7,501 |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of cash and cash equivalents and restricted
cash: |
June 30, 2022 |
|
December 31, 2021 |
|
|
|
|
|
Cash and cash equivalents |
$ |
29,829 |
|
|
$ |
68,900 |
|
|
|
|
|
|
Restricted cash |
— |
|
|
101,021 |
|
|
|
|
|
|
Cash and cash equivalents and restricted cash at end of the
period |
$ |
29,829 |
|
|
$ |
169,921 |
|
|
|
|
|
|
The accompanying notes to the consolidated financial statements are
an integral part of these statements.
BIGBEAR.AI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; in thousands of U.S. dollars unless stated
otherwise)
Note A—Description
of the Business
BigBear.ai Holdings, Inc. (“BigBear.ai”,
“BigBear.ai Holdings”,
or the
“Company”)
is a leader in the use of Artificial Intelligence
(“AI”)
and Machine Learning (“ML”)
for decision support. Our products and services are widely used by
government agencies in the United States to support many of the
nation’s most critical defense and intelligence capabilities. We
also support several commercial customers by integrating our
solutions to turn data into actionable information for operational
decision making. Unless otherwise indicated, references to “we”,
“us” and “our” refer collectively to BigBear.ai Holdings, Inc. and
its consolidated subsidiaries. We operate in two reportable
segments: Cyber & Engineering and Analytics.
On December 7, 2021, the previously announced merger
(“Merger”)
with GigCapital4, Inc. (“GigCapital4”)
was consummated pursuant to the business combination agreement
(the
“Agreement”)
dated June 4, 2021, as amended in July 2021 and December 2021, by
and between GigCapital4 Merger Sub Corporation (the
“Merger Sub”),
a wholly owned subsidiary of GigCapital4, BigBear.ai Holdings, and
Parent. Immediately prior to the stockholder vote for the Merger,
GigCapital4 executed a series of Forward Share Purchase Agreements
(“FPAs”)
with certain investors (the
“Investors”).
Included within the FPAs was a provision that each of the Investors
would not redeem their shares and instead would hold the shares for
a period of up to three months following the consummation of the
Merger, at which time they would have the right to sell the shares
to the Company for $10.15 per share.
During the
three months ended March 31, 2022,
the Company repurchased all 9,952,803 shares of its common stock at
the Investors’ request (refer to Note L—Written Put Option for
detail).
Upon the closing of the Merger, GigCapital4 was renamed to
BigBear.ai, Holdings Inc., the U.S. Securities and Exchange
Commission (“SEC”)
registrant. As a result of the Merger, the Company received
aggregate gross proceeds of $101,958 from GigCapital4’s trust
account and PIPE Proceeds, and issued $200,000 of unsecured
convertible notes that were convertible into 17,391,304 shares of
the Company’s common stock at the initial Conversion Price of
$11.50, subject to adjustment (refer to Note H—Debt for detail).
Proceeds from the Merger were partially used to fund the $114,393
repayment of the Antares Loan and Merger transaction costs and
other costs paid through the funds flow of $9,802, consisting of
marketing, legal and other professional fees.
The Merger is accounted for as a reverse recapitalization in which
GigCapital4 is treated as the acquired company. For accounting
purposes, the Merger is treated as the equivalent of BigBear.ai
Holdings issuing equity for the net assets of GigCapital4 followed
by a recapitalization. A reverse recapitalization does not result
in a new basis of accounting, and the consolidated financial
statements of the combined entity (BigBear.ai) represent the
continuation of the consolidated financial statements of BigBear.ai
Holdings in many respects.
Immediately prior to the closing of the Merger, but following the
consummation of GigCapital4’s domestication to a Delaware
corporation, the authorized capital stock of GigCapital4 consisted
of 501,000,000 shares, including (i) 500,000,000 shares of common
stock and (ii) 1,000,000 shares of preferred stock. 135,566,227
shares of common stock and no shares of the preferred stock were
outstanding as of December 31, 2021. At the effective time of the
Merger, 100 units of BigBear.ai Holdings were cancelled and
automatically deemed for all purposes to represent the Parent’s
right to receive, in the aggregate, $75 million in cash and shares
in GigCapital4, and Parent exchanged its 100 units of BigBear.ai
Holdings for 105,000,000 shares of BigBear.ai’s common stock. In
addition, 8,000,000 shares of PIPE financing were issued and
1,495,320 shares were issued to certain advisors. AE Industrial
Partners, LP (“AE”)
became the majority stockholder of the Company, via its ownership
of PCISM Ultimate Holdings, LLC (subsequently renamed to BBAI
Ultimate Holdings, LLC,
“Parent”),
following the close of the Merger (83.5%).
Note B—Summary
of Significant Accounting Policies
Basis of Presentation
We prepared these consolidated financial statements in accordance
with U.S. generally accepted accounting principles
(“GAAP”)
for interim financial information, the instructions to Form 10-Q
and Article 10 of SEC Regulation S-X. Accordingly, they do not
include all information and notes required by GAAP for complete
financial statements. Amounts presented within the consolidated
financial statements and accompanying notes are presented in
thousands of U.S. dollars unless stated otherwise, except for
percentages, units, shares, per unit, and per share
amounts.
In the opinion of management, these consolidated financial
statements reflect all adjustments that are of a normal recurring
nature necessary for a fair presentation of our results of
operations, financial condition, and cash flows for the interim
periods presented.
BIGBEAR.AI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; in thousands of U.S. dollars unless stated
otherwise)
The preparation of these consolidated financial statements requires
us to make estimates and assumptions that affect the amounts
reported in the consolidated financial statements and accompanying
notes. We base these estimates on historical experience and on
various other assumptions that we believe are reasonable under the
circumstances, the results of which form the basis for making
judgments about the carrying amounts of assets and liabilities that
are not readily apparent from other sources. Our actual results may
differ materially from these estimates. Significant estimates
inherent in the preparation of our consolidated financial
statements include, but are not limited to, accounting for revenue
and cost recognition; evaluation of goodwill; intangible assets;
and other assets for impairment; income taxes; equity-based
compensation; fair value measurements; and contingencies. We
eliminate intercompany balances and transactions in
consolidation.
The results of operations for the interim periods presented are not
necessarily indicative of results to be expected for the full year
or future periods. These consolidated financial statements should
be read in conjunction with the audited consolidated financial
statements and notes thereto included in our Annual Report on Form
10-K for the year ended December 31, 2021.
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.
Recently Adopted Accounting Pronouncements
In October 2021, the FASB issued ASU No. 2021-08,
Business Combinations
(“ASC
805”),
Accounting for Contract Assets and Contract Liabilities from
Contracts with Customers
(“ASU
2021-08”).
Upon the issuance of ASU No. 2014-09,
Revenue from Contracts with Customers
(“ASC
606”),
which provides a single comprehensive accounting model on revenue
recognition for contracts with customers, stakeholders indicated
that there are differing views on whether the concept of a
performance obligation introduced by ASC 606 should be used to
determine whether a contract liability is recognized in a business
combination from revenue contracts. Before the adoption date of ASC
606, a liability for deferred revenue was generally recognized in
an acquirer’s financial statements if it represented a legal
obligation. The amendments in ASU 2021-08 address how to determine
whether a contract liability is recognized by the acquirer in a
business combination. Additionally, stakeholders raised questions
about how to apply ASC 805 to contracts with a customer acquired in
a business. Under current practice, the timing of payment for a
revenue contract may subsequently affect the amount of
post-acquisition revenue recognized by the acquirer. For example,
if two revenue contracts with identical performance obligations are
acquired but one contract is paid upfront before the acquisition
and the other contract is paid over the contract term after the
acquisition, the amount of revenue recognized by the acquirer after
the business combination likely would differ between the two
acquired contracts. The amendments in ASU 2021-08 resolve this
inconsistency by providing specific guidance on how to recognize
and measure acquired contract assets and contract liabilities from
revenue contracts in a business combination. The new guidance will
be effective for the years beginning after December 15, 2022. The
Company prospectively adopted ASU 2021-08 as of January 1,
2022.
Note C—Business
Combinations
ProModel Acquisition
On April 7, 2022, the Company’s subsidiary BigBear.ai, LLC acquired
100% of the equity interest in ProModel Corporation (“ProModel
Corporation”),
a leader in simulation-based predictive and prescriptive analytic
software for process improvement enabling organizations to make
better decisions, for approximately $16.0 million, subject to
certain adjustments. This acquisition complements the Company’s
previous acquisition of ProModel’s Government Services business,
ProModel Government
BIGBEAR.AI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; in thousands of U.S. dollars unless stated
otherwise)
Solutions Inc. (“ProModel
Government Solutions”),
which closed on December 21, 2020. The acquisition was funded
through a combination of cash on hand and the issuance of 649,976
shares of the Company’s common stock. ProModel Corporation is
aligned under the Company’s Analytics business
segment.
The purchase agreement with the sellers of ProModel Corporation
also stipulates that certain funds would be held in escrow
(“Indemnity
Escrow Deposit”,
“Distribution
Withholding Deposit”,
and “Adjustment
Escrow Deposit”),
for the benefit of the seller. Pursuant to and subject to the terms
and conditions of the Escrow Agreement, the Adjustment Escrow
Amount of $200, the Distribution Withholding Escrow Amount of $100,
and the Indemnity Escrow Amount of $100 shall be held in escrow
until released in accordance with the purchase agreement and the
Escrow Agreement.
The following table summarizes the preliminary fair value of the
consideration transferred and the preliminary estimated fair values
of the major classes of assets acquired and liabilities assumed as
of the acquisition date.
|
|
|
|
|
|
|
April 7, 2022 |
Cash paid |
$ |
8,470 |
|
Equity issued |
7,501 |
|
Purchase consideration |
$ |
15,971 |
|
Assets: |
|
Cash |
$ |
4,094 |
|
Accounts receivable |
743 |
|
Prepaid expenses and other current assets |
1,600 |
|
Contract assets |
398 |
|
|
|
Property and equipment |
83 |
|
Other non-current assets |
21 |
|
Intangible assets |
9,300 |
|
Total assets acquired |
$ |
16,239 |
|
Liabilities: |
|
Accounts payable |
5 |
|
Accrued liabilities |
7,752 |
|
Contract liabilities |
1,555 |
|
Deferred tax liabilities |
1,736 |
|
Total liabilities acquired |
$ |
11,048 |
|
Fair value of net identifiable assets acquired |
5,191 |
|
Goodwill |
$ |
10,780 |
|
The following table summarizes the intangible assets acquired by
class:
|
|
|
|
|
|
|
April 7, 2022 |
Technology |
$ |
3,500 |
|
Customer relationships |
5,800 |
|
Total intangible assets |
$ |
9,300 |
|
The acquired technology and customer relationship intangible assets
have a weighted-average estimated useful lives of 7 years and 20
years, respectively.
The amounts above represent the current preliminary fair value
estimates as the measurement period is still open as of
June 30, 2022. The Company is finalizing the valuation
analysis.
The fair value of the acquired technology was determined using the
relief from royalty (“RFR”) method. The fair value of the acquired
customer relationships was determined using the excess earnings
method.
The acquisition was accounted for as a business combination,
whereby the excess of the purchase consideration over the fair
value of identifiable net assets was allocated to goodwill. The
goodwill reflects the potential synergies and expansion of the
Company’s
BIGBEAR.AI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; in thousands of U.S. dollars unless stated
otherwise)
offerings across product lines and markets complementary to its
existing products and markets. For tax purposes, the goodwill
related to the acquisition is deductible.
Pro Forma Financial Data (Unaudited)
The following table presents the pro forma consolidated results of
operations of BigBear.ai for the three and six-month periods ended
June 30, 2022 and June 30, 2021 as though the acquisition
of ProModel Corporation
had been completed as of January 1, 2021.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
|
|
2022 |
|
2021 |
|
2022 |
|
2021 |
|
|
|
|
Net revenue
|
$ |
37,613 |
|
|
$ |
37,819 |
|
|
$ |
75,248 |
|
|
$ |
74,783 |
|
|
|
|
|
Net loss |
(56,844) |
|
|
(1,479) |
|
|
(78,145) |
|
|
(4,950) |
|
|
|
|
|
Transaction expenses |
186 |
|
|
— |
|
|
1,585 |
|
|
— |
|
|
|
|
|
The amounts included in the pro forma information are based on the
historical results and do not necessarily represent what would have
occurred if all the business combinations had taken place as
of
January 1, 2021, nor
do they represent the results that may occur in the future.
Accordingly, the pro forma financial information should not be
relied upon as being indicative of the results that would have been
realized had the acquisition occurred as of the date indicated or
that may be achieved in the future.
The Company incurred $186 and $1,585 of transaction expenses
attributable to the acquisition of ProModel
Corporation
during the three and six months ended June 30, 2022.
Note D—Fair
Value of Financial Instruments
Cash and cash equivalents, accounts receivable, contract assets,
prepaid expenses and other current assets, accounts payable,
short-term debt, including the current portion of long-term debt,
accrued expenses, contract liabilities, and other current
liabilities are reflected on the consolidated balance sheets at
amounts that approximate fair value because of the short-term
nature of these financial assets and liabilities.
Private warrants and written put options are valued using a
modified Black-Scholes option pricing model (“OPM”),
which is considered to be a Level 3 fair value measurement. See
Note N—Warrants for information on the Level 3 inputs used to value
the private warrants and Note L—Written Put Option for information
on the Level 3 inputs used to value the written put
options.
The table below presents the financial liabilities measured at fair
value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2022 |
|
Balance Sheet Caption |
Level 1
|
|
Level 2 |
|
Level 3 |
|
Total |
Private warrants |
Other non-current liabilities |
$ |
— |
|
|
$ |
— |
|
|
$ |
138 |
|
|
$ |
138 |
|
Written put options |
Derivative liabilities |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2021 |
|
Balance Sheet Caption |
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
Private warrants |
Other non-current liabilities |
$ |
— |
|
|
$ |
— |
|
|
$ |
319 |
|
|
$ |
319 |
|
Written put options |
Derivative liabilities |
— |
|
|
— |
|
|
44,827 |
|
|
44,827 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BIGBEAR.AI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; in thousands of U.S. dollars unless stated
otherwise)
The changes in the fair value of the Level 3 liabilities are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 3 |
|
Private warrants |
|
Written put options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2021 |
$ |
319 |
|
|
$ |
44,827 |
|
|
|
|
|
Changes in fair value |
(138) |
|
|
(1,281) |
|
Settlements |
(43) |
|
|
(43,546) |
|
June 30, 2022 |
$ |
138 |
|
|
$ |
— |
|
Note E—Goodwill
During the second quarter 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 a shift in the Federal
Government’s focus to address immediate needs in Ukraine, causing a
slowdown in the pace of contract awards. This resulted in lower
revenues than anticipated during the current period and causing
future revenue projections to be revised. As a result, the Company
determined that a quantitative goodwill impairment assessment
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 are: (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 is given to
prices paid in recent transactions that have 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
reporting unit exceeded its fair value and accordingly the Company
recorded a non-tax-deductible goodwill impairment charge of
$35,252,
which was included within the consolidated statement of operations
for the three and
six months ended June 30, 2022.
As of June 30, 2022, the estimated fair value of the Analytics
reporting unit exceeded its carrying value by 8.3%. An increase in
the WACC of approximately 1% or a reduction in the forecasted
revenues of approximately 3% would result in an impairment of the
goodwill within the Analytics reporting unit using the Income
Approach.
The table below presents the changes in the carrying amount of
goodwill by reporting unit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cyber &
Engineering |
|
Analytics |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2021 |
$ |
35,252 |
|
|
$ |
56,384 |
|
|
$ |
91,636 |
|
Goodwill arising from the ProModel Corporation
acquisition |
— |
|
|
10,780 |
|
|
10,780 |
|
Goodwill impairment |
(35,252) |
|
|
— |
|
|
(35,252) |
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2022 |
$ |
— |
|
|
$ |
67,164 |
|
|
$ |
67,164 |
|
Accumulated impairment losses to goodwill were $35,252 as of
June 30, 2022 and are related to the Cyber & Engineering
reporting unit.
BIGBEAR.AI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; in thousands of U.S. dollars unless stated
otherwise)
Note F—Prepaid
expenses and other current assets
The table below presents details on prepaid expenses and other
current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2022 |
|
December 31, 2021 |
Prepaid expenses |
$ |
4,732 |
|
|
$ |
2,217 |
|
Prepaid insurance |
2,099 |
|
|
4,265 |
|
Pre-contract costs(1)
|
1,266 |
|
|
546 |
|
Total prepaid expenses and other current assets |
$ |
8,097 |
|
|
$ |
7,028 |
|
(1)
Costs incurred to fulfill a contract in advance of the contract
being awarded are included in prepaid expenses and other current
assets if we determine that those costs relate directly to a
contract or to an anticipated contract that we can specifically
identify and contract award is probable, the costs generate or
enhance resources that will be used in satisfying performance
obligations, and the costs are recoverable (referred to as
pre-contract costs).
Pre-contract costs that are initially capitalized in prepaid assets
and other current assets are generally recognized as cost of
revenues consistent with the transfer of products or services to
the customer upon the receipt of the anticipated contract. All
other pre-contract costs, including start-up costs, are expensed as
incurred. As of June 30, 2022 and December 31, 2021,
$1,266 and $546 of pre-contract costs were included in prepaid
expenses and other current assets, respectively.
Note G—Accrued
Liabilities
The table below presents details on accrued
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2022 |
|
December 31, 2021 |
Payroll accruals
|
$ |
12,876 |
|
|
$ |
9,011 |
|
Accrued interest
|
597 |
|
|
842 |
|
Other accrued expenses |
2,505 |
|
|
882 |
|
Total accrued liabilities
|
$ |
15,978 |
|
|
$ |
10,735 |
|
Note H—Debt
The table below presents the Company’s debt balances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2022 |
|
December 31, 2021 |
Convertible Notes |
$ |
200,000 |
|
|
$ |
200,000 |
|
Bank of America Senior Revolver |
— |
|
|
— |
|
|
|
|
|
|
|
|
|
D&O Financing Loan |
1,921 |
|
|
4,233 |
|
Total debt |
201,921 |
|
|
204,233 |
|
Less: unamortized issuance costs |
8,659 |
|
|
9,636 |
|
Total debt, net |
193,262 |
|
|
194,597 |
|
Less: current portion |
1,921 |
|
|
4,233 |
|
Long-term debt, net |
$ |
191,341 |
|
|
$ |
190,364 |
|
Bank of America Senior Revolver
On December 7, 2021 (the “Closing
Date”),
the Company entered into the senior credit agreement with Bank of
America, N.A. (the
“Bank of America Credit Agreement”),
providing the Company with a $50.0 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
“Maturity Date”).
The Senior Revolver is secured by a pledge of 100% of the equity of
certain of the Company’s wholly owned subsidiaries and a security
interest in substantially all of the Company’s tangible and
intangible assets. The Senior Revolver 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. The Company may
increase the commitments under the Senior Revolver in an aggregate
amount of up to the greater of $18.8 million or 100%
of
BIGBEAR.AI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; in thousands of U.S. dollars unless stated
otherwise)
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.
Borrowings under the Senior Revolver bear interest, at the
Company’s option, at:
(i)A
Base Rate plus a Base Rate Margin of 2.00%. Base Rate is a
fluctuating rate per annum equal to the higher of (a) the Federal
Funds Rate plus 0.50%, (b) the prime rate of Bank of America, N.A.,
and (c) Bloomberg Short-Term Yield Index (“BSBY”)
Rate plus 1.00%; or
(ii)The
BSBY Rate plus a BSBY Margin of 1.00%.
The Base Rate Margin and BSBY Margin became subject to adjustment
based on the Company’s Secured Net Leverage Ratio after March 31,
2022. The Company is also required to pay unused commitment fees
and letter of credit fees under the Bank of America Credit
Agreement.
The Bank of America Credit Agreement requires the Company to meet
certain financial and other covenants. The Company was not in
compliance with the Fixed Charge Coverage ratio requirement as of
June 30, 2022, and as a result is currently unable to draw on
the facility. The Company notified Bank of America N.A. of the
covenant violation, and on August 9, 2022, entered into the First
Amendment (the
“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. See Note
T—Subsequent Events of the consolidated financial statements
included in this Quarterly Report on Form 10-Q for additional
information regarding the Amendment.
Based on current forecasts, management believes that it is
reasonably likely that the Company may fail to meet the covenant
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.
As of June 30, 2022, the Company had not drawn on the Line of
Credit. Unamortized debt issuance costs of $476 as of June 30,
2022, are recorded on the balance sheet and are presented in other
non-current assets.
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 initially 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. 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. The Convertible Note financing
matures on December 15, 2026.
The Company may, at its election, force conversion of the
Convertible Notes after December 15, 2022 and prior to October 7,
2026 if the trading price of the Company’s common stock exceeds
130% of the conversion price for 20 out of the preceding 30 trading
days and the 30-day average daily trading volume ending on, and
including, the last trading day of the immediately preceding
calendar quarter is greater than or equal to $3.0 million for
the first two years after the initial issuance of the Convertible
Notes and $2.0 million thereafter. Upon such conversion, the
Company will be obligated to pay all regularly scheduled interest
payments, if any, due on the converted Convertible Notes on each
interest payment date occurring after the conversion date for such
conversion to, but excluding, the maturity date (such interest
payments, an “Interest
Make-Whole Payments”).
In the event that a holder of the Convertible Notes elects to
convert the Convertible Notes (a) prior to December 15, 2024, the
Company will be obligated to pay an amount equal to twelve months
of interest or (b) on or after December 15, 2024
BIGBEAR.AI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; in thousands of U.S. dollars unless stated
otherwise)
but prior to December 15, 2025, any accrued and unpaid interest
plus any remaining amounts that would be owed up to, but excluding,
December 15, 2025. The Interest Make-Whole Payments will be payable
in cash or shares of the common stock at the Company’s election, as
set forth in the Indenture.
Following certain corporate events that occur prior to the maturity
date or if the Company exercises its mandatory conversion right in
connection with such corporate events, the conversion rate will be
increased in certain circumstances for a holder who elects, or has
been forced, to convert its Convertible Notes in connection with
such corporate events.
If a Fundamental Change (as defined in the Convertible Note
indenture) occurs prior to the maturity date, holders of the
Convertible Notes will have the right to require the Company to
repurchase all or any portion of their Convertible Notes in
principal amounts of one thousand dollars or an integral multiple
thereof, at a repurchase price equal to the principal amount of the
Convertible Notes to be repurchased, plus accrued and unpaid
interest to, but excluding, the repurchase date.
The Convertible Notes require the Company to meet certain financial
and other covenants. As of June 30, 2022, the Company was in
compliance with all covenants.
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 one
thousand dollars of principal amount of Convertible Notes).
Subsequent to the adjustment, the Convertible Notes are convertible
into 18,844,600 shares, not including any interest payments that
are settled with the issuance of shares.
As of June 30, 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 $8.7 million of unamortized debt issuance
costs.
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. The D&O Financing Loan has an
interest rate of 1.50% per annum and a maturity date of December 8,
2022.
Note I—Leases
The Company is obligated under operating leases for certain real
estate and office equipment assets. Certain leases contained
predetermined fixed escalation of minimum rents at rates ranging
from 2.5% to 5.4% per annum and renewal options that could extend
certain leases to up to an additional five years.
Note J—Income
Taxes
The table below presents the effective income tax rate for the
following periods:
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Three Months Ended June 30, |
|
Six Months Ended June 30, |
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|
2022 |
|
2021 |
|
2022 |
|
2021 |
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Effective tax rate |
3.1 |
% |
|
36.0 |
% |
|
2.3 |
% |
|
26.0 |
% |
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|
|
The Company was taxed as a corporation for federal, state, and
local income tax purposes for the three and six months ended June
30, 2022 and as a limited liability company which elected to be
taxed as a corporation for federal, state, and local income tax
purposes for the three and six months ended June 30, 2021.
The effective tax rate for the three and six months ended June 30,
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, certain discrete items
and the change in valuation allowance primarily resulting from the
ProModel Corporation acquisition. The effective tax rate for the
three and six months ended June 30, 2021 differs from the U.S.
federal income tax rate of 21.0% primarily due to non-deductible
transaction expenses, offset by state and local corporate income
taxes.
BIGBEAR.AI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; in thousands of U.S. dollars unless stated
otherwise)
Note K—Commitments and Contingencies
Contingencies in the Normal Course of Business
Under certain contracts with the U.S. government and certain
governmental entities, contract costs, including indirect costs,
are subject to audit by and adjustment through negotiation with
governmental representatives. Revenue is recorded in amounts
expected to be realized on final settlement of any such
audits.
Legal Proceedings
The Company is subject to litigation, claims, investigations and
audits arising from time to time in the ordinary course of
business. Although legal proceedings are inherently unpredictable,
the Company believes that it has valid defenses with respect to any
matters currently pending against the Company and intends to defend
itself vigorously. The outcome of these matters, individually and
in the aggregate, is not expected to have a material impact on the
Company’s consolidated balance sheets, consolidated statements of
operations, or cash flows
Note L—Written
Put Option
Immediately prior to the stockholder vote for the Merger,
GigCapital4 executed a series of FPAs with Highbridge Tactical
Credit Master Fund. L.P. and Highbridge SPAC Opportunity Fund, L.P.
(the “Highbridge
Investors”),
Tenor Opportunity Master Fund Ltd. (“Tenor”),
and Glazer Capital, LLC and Meteora Capital, LLC (the
“Glazer
Investors”,
together with the Highbridge Investors and Tenor, the
“Investors”).
The FPAs provide that each of the Investors would not redeem their
shares and instead would hold the shares for a period of up to
three months following the consummation of the Merger, at which
time they would have the right to sell the shares to the Company
for $10.15 per share (the “Written
Put Option”).
The Investors had the right to sell shares on the open market
before the end of the three-month period provided that the share
price was at least $10.00 per share. If the Investors sold any
shares in the open market within the first month of the three-month
period and at a price greater than $10.05 per share, the Company
would pay the Investors $0.05 per share sold.
The following table indicates the aggregate number of shares of
common stock subject to the FPAs by each Investor:
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|
|
|
|
December 6, 2021 |
Highbridge Investors |
2,453,195 |
Tenor |
2,499,608 |
Glazer Investors |
5,000,000 |
Total shares |
9,952,803 |
During the
three months ended March 31, 2022,
the Company settled the derivative liability associated with the
Written Put Option by repurchasing all 9,952,803 shares of its
common stock at the Investors’ request. Certain of the Investors
requested for their shares to be repurchased prior to the end of
the three-month period at a reduced price per share. As a result,
5,000,000 shares were repurchased at $10.125 per share during the
first quarter of 2022. Of the $101,021 previously presented as
restricted cash on the Company’s consolidated balance sheets on
December 31, 2021, $100,896 was released from the escrow account to
settle the obligation to Investors and the remaining $125 was
reclassified to cash and cash equivalents.
The table below presents the value of the Written Put Option under
the Black-Scholes OPM using the following assumptions as of the
following date:
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|
December 31, 2021
|
Value of the written put options |
|
|
|
|
$ |
4.50 |
Exercise price
|
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|
|
|
$ |
10.15 |
Common stock price
|
|
|
|
|
$ |
5.66 |
Expected option term (in years)
|
|
|
|
|
0.18 |
Expected volatility
|
|
|
|
|
66.00% |
Risk-free rate of return
|
|
|
|
|
0.06% |
Expected annual dividend yield
|
|
|
|
|
—% |
BIGBEAR.AI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; in thousands of U.S. dollars unless stated
otherwise)
As of December 31, 2021, the Written Put Option had a fair value of
$44,827 and was presented on the consolidated balance sheets as a
derivative liability. During the three months ended March 31, 2022,
the derivative liability was remeasured to its intrinsic value at
each date that the underlying shares were repurchased. The
resulting gain of $1,281 was presented in net decrease in fair
value of derivatives on the consolidated statements of operations
for the six months ended June 30, 2022. The intrinsic value of the
Written Put Option upon settlement was $43,546 and was recognized
directly in equity.
Note M—Stockholders’
Equity
Common stock
The table below presents the details of the Company’s authorized
common stock as of the following periods:
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|
June 30, 2022 |
|
December 31, 2021 |
Common stock: |
|
|
|
Authorized shares of common stock |
500,000,000 |
|
500,000,000 |
Common stock par value per share |
$ |
0.0001 |
|
|
$ |
0.0001 |
|
Common stock outstanding at the period end |
126,263,451 |
|
|
135,566,227 |
|
Treasury Stock
During the six months ended June 30, 2022, the Company repurchased
9,952,803 shares at a cost of $57,350 to settle the Company’s
obligations under the FPAs. These shares are measured at cost and
presented as treasury stock on the consolidated balance sheets and
consolidated statements of stockholders’ equity.
Dividend Rights
Subject to applicable law and the rights, if any, of the holders of
any outstanding series of the Company’s preferred stock or any
class or series of stock having a preference over or the right to
participate with the Company’s common stock with respect to the
payment of dividends, dividends may be declared and paid ratably on
the Company’s common stock out of the assets of the Corporation
that are legally available for this purpose at such times and in
such amounts as the Company’s Board in its discretion shall
determine.
Voting Rights
Each outstanding share of the Company’s common stock is entitled to
one vote on all matters submitted to a vote of stockholders.
Holders of shares of common stock do not have cumulative voting
rights.
Conversion or Redemption Rights
The Company’s common stock is neither convertible nor
redeemable.
Liquidation Rights
Upon the Company’s liquidation, the holders of the Company’s common
stock are entitled to receive prorata the Company’s assets that are
legally available for distribution, after payment of all debts and
other liabilities and subject to the prior rights of any holders of
the Company’s preferred stock then outstanding.
BIGBEAR.AI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; in thousands of U.S. dollars unless stated
otherwise)
Preferred stock
The table below presents the details of the Company’s authorized
preferred stock as of the following periods:
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June 30, 2022 |
|
December 31, 2021 |
Preferred stock: |
|
|
|
Authorized shares of preferred stock |
1,000,000 |
|
1,000,000 |
Preferred stock par value per share |
$ |
0.0001 |
|
|
$ |
0.0001 |
|
Preferred stock outstanding at the period end |
— |
|
— |
The Company’s Board may, without further action by the Company’s
stockholders, from time to time, direct the issuance of shares of
preferred stock in series and may, at the time of issuance,
determine the designations, powers, preferences, privileges and
relative participating, optional or special rights as well as the
qualifications, limitations or restrictions thereof, including
dividend rights, conversion rights, voting rights, terms of
redemption and liquidation preferences, any or all of which may be
greater than the rights of the Company’s common stock. Satisfaction
of any dividend preferences of outstanding shares of the Company’s
preferred stock would reduce the amount of funds available for the
payment of dividends on shares of the Company’s common stock. Upon
the affirmative vote of a majority of the total number of directors
then in office, the Company’s Board may issue shares of the
Company’s preferred stock with voting and conversion rights which
could adversely affect the holders of shares of the Company’s
common stock.
Note N—Warrants
Public Warrants
Each public warrant entitles the registered holder to purchase one
share of common stock at a price of $11.50 per share, subject to
adjustment. Pursuant to the warrant agreement, a warrant holder may
exercise its warrants only for a whole number of shares of common
stock. This means only a whole warrant may be exercised at a given
time by a warrant holder. The warrants will expire on December 7,
2026, at 5:00 p.m., New York City time, or earlier upon redemption
or liquidation.
The Company may call the public warrants for redemption as follows:
(1) in whole and not in part; (2) at a price of $0.01 per warrant;
(3) upon a minimum of 30 days’ prior written notice of redemption;
(4) if there is an effective registration statement covering the
shares of common stock issuable upon exercise of the warrants and a
current prospectus available throughout the 30-day notice period;
and (5) only if the last reported closing price of the common stock
equals or exceeds $18.00 per share for any 20 trading days within a
30-trading day period ending on the third trading day prior to the
date on which the Company sends the notice of redemption to the
warrant holders.
If the Company calls the public warrants for redemption, management
will have the option to require all holders that wish to exercise
the Company public warrants to do so on a “cashless
basis.”
The exercise price and number of shares of common stock issuable
upon exercise of the warrants may be adjusted in certain
circumstances including stock dividends, stock splits,
extraordinary dividends, consolidation, combination, reverse stock
split or reclassification of shares of the Company’s common stock
or other similar event. In no event will the Company be required to
net cash settle the warrant shares.
As of June 30, 2022 and December 31, 2021, there were
12,005,879 and 11,959,939 public warrants issued and outstanding,
respectively.
Private Warrants
The terms and provisions of the public warrants above also apply to
the private warrants. If the private warrants are held by holders
other than GigAcquisitions4, LLC (“Sponsor”),
Oppenheimer & Co. Inc. and Nomura Securities International,
Inc. (together,
the
“Underwriters”),
or any respective permitted transferees, the private warrants will
be redeemable by the Company and exercisable by the holders on the
same basis as the public warrants. The Sponsor, the Underwriters,
and any respective permitted transferees have the option to
exercise the private warrants on a cashless basis.
BIGBEAR.AI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; in thousands of U.S. dollars unless stated
otherwise)
The table below presents the value of the private warrants under
the Black-Scholes OPM using the following assumptions as of the
following dates:
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|
June 30, 2022 |
|
December 31, 2021 |
Fair value of each private warrant |
|
|
|
|
$ |
0.43 |
|
$ |
0.87 |
Exercise price |
|
|
|
|
$ |
11.50 |
|
$ |
11.50 |
Common stock price |
|
|
|
|
$ |
3.68 |
|
$ |
5.66 |
Expected option term (in years) |
|
|
|
|
4.40 |
|
4.94 |
Expected volatility |
|
|
|
|
46.50% |
|
39.50% |
Risk-free rate of return |
|
|
|
|
3.00% |
|
1.25% |
Expected annual dividend yield |
|
|
|
|
—% |
|
—% |
As of June 30, 2022, the private warrants have a fair value of
$138 and are presented on the
consolidated balance sheets within other non-current
liabilities.
The gain of $199 and $181 recognized as a result of the change in
fair value for the three and six months ended June 30, 2022,
respectively, are presented in net decrease in fair value of
derivatives on the consolidated statements of
operations.
As of June 30, 2022 and December 31, 2021, there were
319,893 and 366,533 private warrants issued and outstanding,
respectively.
Note O—Equity-Based
Compensation
Class A Units granted to Board of Directors
Prior to the Merger, certain members of the Board of Directors of
the Company had elected to receive compensation for their services
as a board member in stock, Class A units of the Parent. The number
of units granted by the Parent were determined by dividing the
compensation payable for the quarter by the fair value of the Class
A units at the end of each respective quarter. No Class A units
were granted to the Board of Directors during the three and six
months ended June 30, 2022. The total value of the Class A units
granted to such Board of Directors for the three and six months
ended June 30, 2021 was $31 and $56, respectively, and is reflected
in the selling, general and administrative expenses within the
consolidated statements of operations.
Class B Unit Incentive Plan
In February 2021, the Company’s Parent adopted a compensatory
benefit plan (the
“Class B Unit Incentive Plan”)
to provide incentives to directors, managers, officers, employees,
consultants, advisors, and/or other service providers of the
Company’s Parent or its Subsidiaries in the form of the Parent’s
Class B Units (“Incentive
Units”).
Incentive Units have a participation threshold of $1.00 and are
divided into three tranches (“Tranche
I,” “Tranche II,” and “Tranche III”).
Tranche I Incentive Units are subject to performance-based,
service-based, and market-based conditions. The grant date fair
value for the Incentive Units was $5.19 per unit.
The assumptions used in determining the fair value of the Incentive
Units at the grant date are as follows:
|
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|
|
|
|
February 16, 2021 |
Volatility |
57.0% |
Risk-free interest rate |
0.1% |
Expected time to exit (in years) |
1.6 |
On July 29, 2021, the Company’s Parent amended the Class B Unit
Incentive Plan so that the Tranche I and the Tranche III Incentive
Units immediately became fully vested, subject to continued
employment or provision of services, upon the closing of the
transaction stipulated in the Agreement and Plan of Merger
(the
“Merger Agreement”)
dated June 4, 2021. The Company’s Parent also amended the Class B
Unit Incentive Plan so that the Tranche II Incentive Units will
vest on any liquidation event, as defined in the Class B Unit
Incentive Plan, rather than only upon the occurrence of an Exit
Sale, subject to the market-based condition stipulated in the Class
B Unit Incentive Plan prior to its amendment.
BIGBEAR.AI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; in thousands of U.S. dollars unless stated
otherwise)
Equity-based compensation for awards with performance conditions is
based on the probable outcome of the related performance condition.
The performance conditions required to vest per the amended
Incentive Plan remain improbable until they occur due to the
unpredictability of the events required to meet the vesting
conditions.
As such events are not considered probable until they occur,
recognition of equity-based compensation for the Incentive Units is
deferred until the vesting conditions are met. Once the event
occurs, unrecognized compensation cost associated with the
performance-vesting Incentive Units (based on their modification
date fair value) will be recognized based on the portion of the
requisite service period that has been rendered.
The modification date fair value of the Incentive Units was $9.06
per unit. The assumptions used in determining the fair value of the
Incentive Units at the modification date are as
follows:
|
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|
|
|
|
|
July 29, 2021 |
Volatility |
46.0% |
Risk-free interest rate |
0.2% |
Expected time to exit (in years) |
1.2 |
The volatility used in the determination of the fair value of the
Incentive Units was based on analysis of the historical volatility
of guideline public companies and factors specific to the
Company.
On December 7, 2021, the previously announced 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 30 months from the modification date, which
resulted in approximately 17.0% of the compensation expense for
Tranche II being recognized during the year ended December 31,
2021. The remaining compensation expense for the Tranche II
Incentive Units will be recognized over the remaining service
period of approximately 25 months. During the six months ended June
30, 2022, the Company’s Parent modified the vesting conditions for
two 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 $1,468 and $1,687 during the three and
six months ended June 30, 2022, respectively. The total
compensation expense recognized by the Company for Tranche II
Incentive Units, including the effects of modifications, was as
follows:
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|
|
|
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
2022 |
2021 |
|
2022 |
2021 |
Equity-based compensation expense in selling, general and
administrative |
$ |
2,921 |
|
$ |
— |
|
|
$ |
5,274 |
|
$ |
— |
|
Equity-based compensation expense in cost of revenues |
290 |
|
— |
|
|
643 |
|
— |
|
Total compensation expense |
$ |
3,211 |
|
$ |
— |
|
|
$ |
5,917 |
|
$ |
— |
|
The table below presents the activity in Tranche II of the Class B
Units:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested and outstanding as of December 31, 2021 |
3,760,000 |
|
Granted |
— |
|
Vested |
(1,040,000) |
|
Forfeited |
(250,000) |
|
Unvested and outstanding as of June 30, 2022 |
2,470,000 |
|
As of June 30, 2022, there was approximately $15,368 of
unrecognized compensation costs related to Tranche II Incentive
Units, which is expected to be recognized over the remaining
weighted average period of 1.58 years.
BIGBEAR.AI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; in thousands of U.S. dollars unless stated
otherwise)
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 six months ended June 30, 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 $6.60. 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 Option 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 table below presents the fair value of the Stock Options as
estimated on the grant date using the Black-Scholes OPM using the
following assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options grant date |
June 13, 2022 |
|
|
|
March 30, 2022 |
|
|
Number of Stock Options granted |
101,215 |
|
|
|
424,017 |
|
|
Price of common stock on the grant date |
$ |
4.94 |
|
|
|
$ |
8.24 |
|
|
Expected option term (in years) |
10.00 |
|
|
|
6.26 |
|
|
Expected volatility |
57.0% |
|
|
|
54.0% |
|
|
Risk-free rate of return |
3.5% |
|
|
|
2.4% |
|
|
Expected annual dividend yield |
—% |
|
|
|
—% |
|
|
|
|
|
|
|
|
|
|
Fair value of the Stock Options on the grant date |
$ |
2.85 |
|
|
|
$ |
4.67 |
|
|
The table below presents the activity in the Stock
Options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options Outstanding |
|
Weighted-Average Exercise Price Per Share |
|
Weighted-Average Remaining Contractual Life (in years) |
|
Aggregate Intrinsic Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested and outstanding as of December 31, 2021 |
482,000 |
|
|
$ |
9.99 |
|
|
10.0 |
|
$ |
— |
|
Granted |
525,234 |
|
|
6.60 |
|
|
|
|
|
Vested |
— |
|
|
— |
|
|
|
|
|
Forfeited |
(49,665) |
|
|
9.14 |
|
|
|
|
|
Unvested and outstanding as of June 30, 2022 |
957,569 |
|
|
$ |
8.18 |
|
|
9.6 |
|
$ |
— |
|
|
|
|
|
|
|
|
|
Stock Options vested and exercisable as of June 30,
2022 |
— |
|
|
$ |
— |
|
|
0.0 |
|
$ |
— |
|
The Stock Options had no intrinsic value as of June 30, 2022.
The Company recognizes equity-based compensation expense for the
Options equal to the fair value of the awards on a straight-line
basis over the service based vesting period. As of
June 30, 2022,
there was approximately $3,786 of unrecognized compensation costs
related to the Options, which is expected to be recognized over the
remaining weighted average period of 3.50 years.
Restricted Stock Units
During the six months ended June 30, 2022, 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
2,951,377 RSUs to employees during the six months ended June 30,
2022. 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,
BIGBEAR.AI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; in thousands of U.S. dollars unless stated
otherwise)
three and four. RSUs granted to nonemployee directors vest 100% on
the one year anniversary of the grant date. Vesting of RSUs is
accelerated in the event of death, disability, or a change in
control, subject to certain conditions
The table below presents the activity in the RSUs:
|
|
|
|
|
|
|
|
|
|
|
|
|
RSUs
Outstanding |
|
Weighted-Average Grant Date Fair Value Per Share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested and outstanding as of December 31, 2021 |
403,300 |
|
|
$ |
10.03 |
|
Granted |
2,951,377 |
|
|
5.46 |
|
Vested |
(3,591) |
|
|
5.20 |
|
Forfeited |
(315,625) |
|
|
5.49 |
|
Unvested and outstanding as of June 30, 2022 |
3,035,461 |
|
|
$ |
6.07 |
|
As of
June 30, 2022,
there was approximately $16,018 of unrecognized compensation costs
related to the RSUs, which is expected to be recognized over the
remaining weighted average period of 3.31 years.
Performance Stock Units
On December 7, 2021, pursuant to the Plan, the Company’s Board of
Directors communicated the key terms and committed to grant
Performance Stock Units (“PSUs”)
to an employee. The grant date of this award is December 7, 2021.
The percentage of vesting is based on achieving certain performance
criteria during each of the
four fiscal years ended December 31, 2022 through December
31, 2025, provided that the employee remains in continuous service
on each vesting date. Vesting will not occur unless a minimum
performance criteria threshold is achieved. There is a maximum of
37,500 PSUs available to vest during each of the
four performance periods. The Company did not grant any PSUs
during the six months ended June 30, 2022.
The table below presents the activity in the PSUs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PSUs
Outstanding |
|
Weighted-Average Grant Date Fair Value Per Share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested and outstanding as of December 31, 2021 |
150,000 |
|
$ |
10.03 |
|
Granted |
— |
|
|
— |
|
Vested |
— |
|
|
— |
|
Forfeited |
— |
|
|
— |
|
|
|
|
|
Unvested and outstanding as of June 30, 2022 |
150,000 |
|
$ |
10.03 |
|
The Company recognized $82 and $185 of equity-based compensation
expense for the PSUs during the three and six months ended June 30,
2022, respectively. As of
June 30, 2022,
there was approximately $166 of unrecognized compensation costs
related to the PSUs, which is expected to be recognized over the
remaining weighted average period of 0.47 years.
Employee Share Purchase Plan (“ESPP”)
Concurrently with the adoption of the Plan, the Company’s Board of
Directors adopted the 2021 Employee Stock Purchase Plan (the
“ESPP”),
which authorizes the grant of rights to purchase common stock of
the Company to employees, officers, and directors (if they are
otherwise employees) of the Company. As of January 1, 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
June 30, 2022,
no shares had been sold under the ESPP. As of June 30, 2022,
the Company has withheld employee contributions of $421, 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 table below
presents the assumptions used to estimate the grant date fair value
of the purchase rights under the ESPP:
BIGBEAR.AI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; in thousands of U.S. dollars unless stated
otherwise)
|
|
|
|
|
|
ESPP grant date |
May 1, 2022 |
Price of common stock on the grant date |
$ |
10.01 |
Expected term (in years) |
0.60 |
Expected volatility |
56.0% |
Risk-free rate of return |
1.5% |
Expected annual dividend yield |
—% |
|
|
Fair value of the award on the grant date |
$ |
3.22 |
As of
June 30, 2022,
there was approximately $381 of unrecognized compensation costs
related to the ESPP, which is expected to be recognized over the
remaining weighted average period of 0.42 years.
Equity-based Compensation Expense
The table below present the total equity-based compensation expense
recognized for Class A and B Units, Stock Options, RSUs, PSUs and
ESPP in selling, general and administrative expense, cost of
revenues, and research and development for the following
periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
2022 |
|
2021 |
|
2022 |
|
2021 |
Equity-based compensation expense in selling, general and
administrative |
$ |
3,928 |
|
|
$ |
31 |
|
|
$ |
6,999 |
|
|
$ |
56 |
|
Equity-based compensation expense in cost of revenues |
1,009 |
|
|
— |
|
|
1,709 |
|
|
— |
|
|
|
|
|
|
|
|
|
Equity-based compensation expense in research and
development |
143 |
|
|
— |
|
|
230 |
|
|
— |
|
Total equity-based compensation expense |
$ |
5,080 |
|
|
$ |
31 |
|
|
$ |
8,938 |
|
|
$ |
56 |
|
Note P—Net
Loss
Per Share
The numerators and denominators of the basic and diluted net
loss per share are computed
as follows (in thousands, except per share, unit and per unit
data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
Basic and diluted net loss per share |
2022 |
|
2021 |
|
2022 |
|
2021 |
Numerator:
|
|
|
|
|
|
|
|
Net loss
|
$ |
(56,844) |
|
|
$ |
(3,175) |
|
|
$ |
(75,669) |
|
|
$ |
(5,612) |
|
Denominator:
|
|
|
|
|
|
|
|
Weighted average shares outstanding—basic and diluted
|
126,223,903 |
|
|
105,000,000 |
|
|
129,037,598 |
|
|
105,000,000 |
|
Basic and diluted net loss per Share
|
$ |
(0.45) |
|
|
$ |
(0.03) |
|
|
$ |
(0.59) |
|
|
$ |
(0.05) |
|
As of
June 30, 2022,
there were outstanding Stock Options to purchase 957,569 shares of
common stock at a weighted-average exercise price of $8.18,
outstanding private warrants and public warrants to convert to
319,893 shares and 12,005,879 shares, respectively, of common stock
at a price of $11.50 per share, convertible notes to convert to
18,844,600 shares of common stock at a conversion price of $10.61,
ESPP contributions for the option to acquire 477,280 shares of
common stock, and outstanding restricted stock units and
performance stock units representing the right to receive 3,035,461
shares and 150,000 shares of common stock, respectively. Because of
the net loss incurred during the three and six months ended June
30, 2022, the impacts of dilutive instruments would have been
anti-dilutive for the period presented and have been excluded from
loss per share calculations. There were no potentially dilutive
instruments for the three and six months ended June 30,
2021.
BIGBEAR.AI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; in thousands of U.S. dollars unless stated
otherwise)
Note Q—Revenues
All revenues were generated within the United States of
America.
The table below presents total revenues by contract type for the
following periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
|
|
|
|
|
|
|
2022 |
|
2021 |
|
2022 |
|
2021 |
|
|
|
|
|
|
|
Time and materials |
$ |
26,659 |
|
|
$ |
28,118 |
|
|
$ |
50,657 |
|
|
$ |
56,961 |
|
|
|
|
|
|
|
|
Firm fixed price
|
6,855 |
|
|
8,193 |
|
|
14,952 |
|
|
14,920 |
|
|
|
|
|
|
|
|
Cost-plus
|
4,099 |
|
|
— |
|
|
8,394 |
|
|
— |
|
|
|
|
|
|
|
|
Total revenues
|
$ |
37,613 |
|
|
$ |
36,311 |
|
|
$ |
74,003 |
|
|
$ |
71,881 |
|
|
|
|
|
|
|
|
The majority of the Company’s revenue is recognized over time.
Revenue derived from contracts that recognize revenue at a point in
time was insignificant for all periods presented.
Concentration of Risk
Revenue earned from customers contributing in excess of 10% of
total revenues are presented in the tables below for the following
periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2022 |
|
Cyber &
Engineering |
|
Analytics |
|
Total |
|
Percent of total
revenues |
Customer A
|
$ |
7,326 |
|
|
$ |
— |
|
|
$ |
7,326 |
|
|
19 |
% |
Customer B
|
4,405 |
|
|
— |
|
|
4,405 |
|
|
12 |
% |
Customer C(1)
|
— |
|
|
7,577 |
|
|
7,577 |
|
|
20 |
% |
|
|
|
|
|
|
|
|
All others
|
6,887 |
|
|
11,418 |
|
|
18,305 |
|
|
49 |
% |
Total revenues
|
$ |
18,618 |
|
|
$ |
18,995 |
|
|
$ |
37,613 |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2021 |
|
Cyber &
Engineering |
|
Analytics |
|
Total |
|
Percent of total
revenues |
Customer A
|
$ |
8,167 |
|
|
$ |
— |
|
|
$ |
8,167 |
|
|
23 |
% |
Customer B
|
3,664 |
|
|
— |
|
|
3,664 |
|
|
10 |
% |
Customer C(1)
|
— |
|
|
— |
|
|
— |
|
|
— |
% |
|
|
|
|
|
|
|
|
All others
|
8,420 |
|
|
16,060 |
|
|
24,480 |
|
|
67 |
% |
Total revenues
|
$ |
20,251 |
|
|
$ |
16,060 |
|
|
$ |
36,311 |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2022 |
|
Cyber &
Engineering |
|
Analytics |
|
Total |
|
Percent of total
revenues |
Customer A
|
$ |
14,590 |
|
|
$ |
— |
|
|
$ |
14,590 |
|
|
20 |
% |
Customer B
|
8,902 |
|
|
— |
|
|
8,902 |
|
|
12 |
% |
Customer C(1)
|
— |
|
|
12,928 |
|
|
12,928 |
|
|
17 |
% |
|
|
|
|
|
|
|
|
All others
|
12,459 |
|
|
25,124 |
|
|
37,583 |
|
|
51 |
% |
Total revenues
|
$ |
35,951 |
|
|
$ |
38,052 |
|
|
$ |
74,003 |
|
|
100 |
% |
BIGBEAR.AI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; in thousands of U.S. dollars unless stated
otherwise)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2021 |
|
Cyber &
Engineering |
|
Analytics |
|
Total |
|
Percent of total
revenues |
Customer A
|
$ |
16,509 |
|
|
$ |
— |
|
|
$ |
16,509 |
|
|
23 |
% |
Customer B
|
7,419 |
|
|
— |
|
|
7,419 |
|
|
10 |
% |
Customer C(1)
|
— |
|
|
— |
|
|
— |
|
|
— |
% |
|
|
|
|
|
|
|
|
All others
|
14,882 |
|
|
33,071 |
|
|
47,953 |
|
|
67 |
% |
Total revenues
|
$ |
38,810 |
|
|
$ |
33,071 |
|
|
$ |
71,881 |
|
|
100 |
% |
(1)
Customers that contributed in excess of 10% of consolidated
revenues in any period presented have been included in all periods
presented for comparability.
Contract Balances
The table below presents the contract assets and contract
liabilities included on the consolidated balance sheets for the
following periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2022 |
|
December 31,
2021 |
Contract assets |
$ |
1,252 |
|
|
$ |
628 |
|
Contract liabilities
|
$ |
3,714 |
|
|
$ |
4,207 |
|
The change in contract assets between December 31, 2021 and
June 30, 2022 was primarily driven
by services rendered for Analytics customers that are yet to be
invoiced. The change in contract liability balances between
December 31, 2021 and June 30, 2022 was primarily driven
by services performed for an Analytics customer that had a large
contract liability balance at December 31, 2021. Revenue
recognized in the six months ended June 30, 2022 that was included
in the
contract liability balance as of December 31, 2021 was
$4,207.
When the Company’s estimate of total costs to be incurred to
satisfy a performance obligation exceeds the expected revenue, the
Company recognizes the loss immediately. When the Company
determines that a change in estimate has an impact on the
associated profit of a performance obligation, the Company records
the cumulative positive or negative adjustment
in the consolidated statements of operations.
Changes in estimates and assumptions related to the status of
certain long-term contracts may have a material effect on the
Company’s operating results.
The following table summarizes the impact of the net estimates at
completion (“EAC”)
adjustments on the Company’s operating results:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
2022 |
|
2021 |
|
2022 |
|
2021 |
Net EAC Adjustments, before income taxes |
$ |
(654) |
|
|
$ |
758 |
|
|
$ |
(634) |
|
|
$ |
982 |
|
Net EAC Adjustments, net of income taxes |
$ |
(517) |
|
|
$ |
599 |
|
|
$ |
(501) |
|
|
$ |
776 |
|
Net EAC Adjustments, net of income taxes, per diluted
share |
$ |
— |
|
|
$ |
0.01 |
|
|
$ |
— |
|
|
$ |
0.01 |
|
Remaining Performance Obligations
The Company includes in its computation of remaining performance
obligations customer orders for which it has accepted signed sales
orders and generally includes the funded and unfunded components of
contracts that have been awarded. As of June 30, 2022, the
aggregate amount of the transaction price allocated to remaining
performance obligations was $130 million. The Company expects to
recognize approximately 97% of its remaining performance
obligations as revenue within the next 12 months and the balance
thereafter.
Note R—Reportable
Segment Information
The Company has determined that it operates in
two
operating and reportable segments, Cyber & Engineering and
Analytics, as the Chief Operating Decision Maker
(“CODM”)
reviews financial information presented for both segments on a
disaggregated basis for purposes of making operating decisions,
allocating resources, and evaluating financial
performance.
BIGBEAR.AI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; in thousands of U.S. dollars unless stated
otherwise)
Adjusted gross margin is the primary measure of segment
profitability used by the CODM to assess performance and to
allocate resources to the segments. Research and development costs
incurred that generate marketable intellectual property
(“IP”)
and equity-based compensation are added back to the gross margin to
derive the adjusted gross margin. Certain customer contracts that
generate lower gross margin (revenue less direct costs including
fringe and overheard costs) than the thresholds set by management
are accepted as the work performed for these customer contracts
also simultaneously generates reusable code and other IP that is
used in the execution of future customer contracts that may
potentially generate higher gross margin, or enhances the
marketability of the products due to additional functionality or
features.
The tables below present the Company’s operating segment results of
operations for the following periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2022 |
|
Cyber &
Engineering |
|
Analytics |
|
Total |
Revenues |
$ |
18,618 |
|
|
$ |
18,995 |
|
|
$ |
37,613 |
|
Segment adjusted gross margin |
4,561 |
|
|
7,488 |
|
|
12,049 |
|
Segment adjusted gross margin % |
24 |
% |
|
39 |
% |
|
32 |
% |
Research and development costs excluded from segment adjusted gross
margin |
|
|
|
|
(1,450) |
|
Equity-based compensation excluded from segment adjusted gross
margin |
|
|
|
|
(1,009) |
|
Operating expenses: |
|
|
|
|
|
Selling, general and administrative |
|
|
|
|
26,952 |
|
Research and development |
|
|
|
|
2,535 |
|
Transaction expenses |
|
|
|
|
186 |
|
Goodwill impairment |
|
|
|
|
35,252 |
|
Operating loss |
|
|
|
|
(55,335) |
|
Net decrease in fair value of derivatives |
|
|
|
|
(199) |
|
|
|
|
|
|
|
Interest expense |
|
|
|
|
3,554 |
|
Other income |
|
|
|
|
(26) |
|
Loss before taxes |
|
|
|
|
$ |
(58,664) |
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2021 |
|
Cyber &
Engineering |
|
Analytics |
|
Total |
Revenues |
$ |
20,251 |
|
|
$ |
16,060 |
|
|
$ |
36,311 |
|
Segment adjusted gross margin |
4,366 |
|
|
7,426 |
|
|
11,792 |
|
Segment adjusted gross margin % |
22 |
% |
|
46 |
% |
|
32 |
% |
Research and development costs excluded from segment adjusted gross
margin |
|
|
|
|
(2,629) |
|
Equity-based compensation excluded from segment adjusted gross
margin |
|
|
|
|
— |
|
Operating expenses: |
|
|
|
|
|
Selling, general and administrative |
|
|
|
|
10,405 |
|
Research and development |
|
|
|
|
1,867 |
|
Transaction expenses |
|
|
|
|
— |
|
Goodwill impairment |
|
|
|
|
— |
|
Operating loss |
|
|
|
|
(3,109) |
|
Net decrease in fair value of derivatives |
|
|
|
|
— |
|
|
|
|
|
|
|
Interest expense |
|
|
|
|
1,849 |
|
Other income |
|
|
|
|
— |
|
Loss before taxes |
|
|
|
|
$ |
(4,958) |
|
BIGBEAR.AI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; in thousands of U.S. dollars unless stated
otherwise)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2022 |
|
|
|
Cyber &
Engineering |
|
Analytics |
|
Total |
|
|
Revenues
|
$ |
35,951 |
|
|
$ |
38,052 |
|
|
$ |
74,003 |
|
|
|
Segment adjusted gross margin
|
8,306 |
|
|
16,415 |
|
|
24,721 |
|
|
|
Segment adjusted gross margin %
|
23 |
% |
|
43 |
% |
|
33 |
% |
|
|
Research and development costs excluded from segment adjusted gross
margin
|
|
|
|
|
(3,555) |
|
|
|
Equity-based compensation excluded from segment adjusted gross
margin
|
|
|
|
|
(1,709) |
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
|
|
48,972 |
|
|
|
Research and development
|
|
|
|
|
5,409 |
|
|
|
Transaction expenses
|
|
|
|
|
1,585 |
|
|
|
Goodwill impairment |
|
|
|
|
35,252 |
|
|
|
Operating loss
|
|
|
|
|
(71,761) |
|
|
|
Net decrease in fair value of derivatives |
|
|
|
|
(1,462) |
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
7,109 |
|
|
|
Other expense |
|
|
|
|
4 |
|
|
|
Loss before taxes
|
|
|
|
|
$ |
(77,412) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2021 |
|
|
|
Cyber &
Engineering |
|
Analytics |
|
Total |
|
|
Revenues
|
$ |
38,810 |
|
|
$ |
33,071 |
|
|
$ |
71,881 |
|
|
|
Segment adjusted gross margin
|
8,575 |
|
|
15,725 |
|
|
24,300 |
|
|
|
Segment adjusted gross margin %
|
22 |
% |
|
48 |
% |
|
34 |
% |
|
|
Research and development costs excluded from segment adjusted gross
margin
|
|
|
|
|
(4,857) |
|
|
|
Equity-based compensation excluded from segment adjusted gross
margin |
|
|
|
|
— |
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
|
|
20,519 |
|
|
|
Research and development
|
|
|
|
|
2,795 |
|
|
|
Transaction expenses
|
|
|
|
|
— |
|
|
|
Goodwill impairment |
|
|
|
|
— |
|
|
|
Operating loss |
|
|
|
|
(3,871) |
|
|
|
Net decrease in fair value of derivatives |
|
|
|
|
— |
|
|
|
Interest expense
|
|
|
|
|
3,709 |
|
|
|
Other income |
|
|
|
|
(1) |
|
|
|
Loss before taxes |
|
|
|
|
$ |
(7,579) |
|
|
|
The following table presents the assets by segment as of the
following periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2022 |
|
December 31, 2021 |
|
Cyber &
Engineering |
|
Analytics |
|
Corporate |
|
Total |
|
Cyber &
Engineering |
|
Analytics |
|
Corporate |
|
Total |
Total assets
|
$ |
39,091 |
|
|
$ |
178,503 |
|
|
$ |
8,910 |
|
|
$ |
226,504 |
|
|
$ |
74,808 |
|
|
$ |
154,085 |
|
|
$ |
154,429 |
|
|
$ |
383,322 |
|
Note S—Related
Party Transactions
The Company incurred expenses related to consulting services
provided by the affiliates of AE of $— and $265 during the six
months ended June 30, 2022 and June 30, 2021,
respectively.
BIGBEAR.AI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; in thousands of U.S. dollars unless stated
otherwise)
During the three and six months ended June 30, 2022, the
Company
paid or accrued $589 and $1,175, respectively, as compensation
expense for the members of the Board of Directors, including
equity-based compensation related to the RSUs of $325 and $647,
respectively, which is reflected in the selling, general and
administrative expenses within the consolidated statements of
operations. During the three and six months ended
June 30, 2021,
the Company paid or accrued $7 and $57, respectively, as
compensation expense for the Board of Directors, including
aggregate fair value of $6 and $31, respectively, of
Parent’s Class A Units.
Note T—Subsequent
Events
On August 9, 2022, the Company entered into the Amendment to the
Bank of America Credit Agreement, which waived the requirement that
the Company demonstrate compliance with the minimum Fixed Charge
Coverage Ratio (as defined in the Bank of America Credit Agreement)
for the quarter ended June 30, 2022. The Amendment does not provide
the Company access to draw on the Senior Revolver, including the
borrowing capacity available for letters of credit and swing loans
thereunder. However, the Company may regain its access to draw on
the Senior Revolver if it is able to provide the compliance
certificate for the quarter ended September 30, 2022.
Item 2. 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 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
Annual Report on Form 10-K for the year ended December 31,
2021.
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
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.
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 six months ended June 30, 2022 and June 30,
2021.
•Liquidity
and Capital Resources: This
section provides an analysis of our ability to generate cash and to
meet existing or reasonably likely future cash
requirements.
•Critical
Accounting Policies and Estimates:
This section discusses the accounting policies and estimates that
we consider important to our financial condition and results of
operations and that require significant judgment and estimates on
the part of management in their application. In addition, our
significant accounting policies, including critical accounting
policies, are summarized in Note B—Summary of Significant
Accounting Policies to the accompanying consolidated financial
statements included in this Quarterly Report on Form
10-Q.
Business Overview
Our mission is to guide our customers to realize their best
possible future by delivering transformative technologies and
expert, actionable advice. Through this mission, we seek to empower
people to make the right decisions, at the right time, every
time.
We are a leader in the use of Artificial Intelligence (AI) and
Machine Learning (ML) for decision support. We provide our
customers with a competitive advantage in a world driven by data
that is growing exponentially in terms of volume, variety, and
velocity. We believe data – when leveraged effectively – can be a
strategic asset for any organization. Through our mission-critical
analytics solutions and operational expertise, we help our
customers make sense of the world in which they operate, understand
how known and previously unforeseen forces impact their operations,
and determine which decision and course of action will best achieve
their objectives.
Our products and services are widely used by government agencies in
the United States to support many of the nation’s most critical
defense and intelligence capabilities. These customers operate in
environments of unrivaled scale and complexity, where the cost of a
poor decision can be very steep, and the cost of failure
devastating. They demand the most sophisticated and
capable
AI, ML, and predictive analytics solutions available, from a
provider who understands their complex operations and can rapidly
deploy technology at scale with uncompromising
reliability.
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 $16.0 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 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 C—Business Combinations of the
Notes to consolidated financial statements included in this
Quarterly Report on Form 10-Q 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, 2021.
COVID-19 Operational Posture and Current Impact
The COVID-19 pandemic continued to cause business impacts in the
first half of 2022 primarily driven by the emergence of the Omicron
variant in late 2021 with a resulting increase in COVID cases in
early 2022. During the first half of 2022, our performance was
adversely affected 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 by encouraging them to get vaccinated,
including booster shots.
The ultimate 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 future pandemic-related developments, including
the duration of the pandemic, potential subsequent waves of
COVID-19 infection or potential new variants (e.g. Ba.2), the
effectiveness and adoption of COVID-19 vaccines and therapeutics,
supplier impacts and related government actions to prevent and
manage disease spread, including the implementation of any federal,
state, local or foreign vaccine mandates, all of which are
uncertain and cannot be predicted. The long-term impacts of
COVID-19 on government budgets and other funding priorities that
impact demand for our solutions are also 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 our Annual Report on Form
10-K for the year ended December 31, 2021.
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.
First Amendment to the Bank of America Credit
Agreement
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 “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.
See the
Liquidity and Capital Resources
section below and Note T—Subsequent Events of the consolidated
financial statements included in this Quarterly Report on Form 10-Q
for additional information regarding the Amendment.
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&am