BigBear.ai Holdings Inc.
03/02/2026 | Press release | Distributed by Public on 03/02/2026 15:34
Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)
Management's Discussion and Analysis of Financial Condition and Results of Operations
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis provides information that BigBear.ai Holdings, Inc. ("BigBear.ai", "BigBear.ai Holdings", or the"Company") management believes is relevant to an assessment and understanding of BigBear.ai's audited consolidated results of operations and financial condition. The following discussion and analysis should be read in conjunction with BigBear.ai'sconsolidated financial statements and notes to those statements included elsewhere in this Annual Report on Form 10-K. Certain information contained in this management discussion and analysis includes forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors. Please see "Cautionary Note Regarding Forward-Looking Statements," and "Risk Factors" in our Annual Report on Form 10-K.Unless the context otherwise requires, all references in this section to the "Company," "BigBear.ai," "we," "us," or "our" refer to BigBear.ai Holdings, Inc.
The following discussion and analysis of financial condition and results of operations of BigBear.ai is provided to supplement the audited consolidated financial statements and the accompanying notes of BigBear.ai included elsewhere in this Annual Report on Form 10-K.We intend for this discussion to provide the reader with information to assist in understanding BigBear.ai's consolidated financial statements and the accompanying notes, the changes in those financial statements and the accompanying notes from period to period, along with the primary factors that accounted for those changes. All amounts presented below are in thousands of U.S. dollars unless stated otherwise.
The discussion and analysis of financial condition and results of operations of BigBear.ai is organized as follows:
•Business Overview: This section provides a general description of BigBear.ai's business, our priorities and the trends affecting our industry in order to provide context for management's discussion and analysis of our financial condition and results of operations.
•Recent Developments:This section provides recent developments that we believe are necessary to understand our financial condition and results of operations.
•Results of Operations:This section provides a discussion of our results of operations for the year ended December 31, 2025, December 31, 2024 and December 31, 2023.
•Liquidity and Capital Resources: This section provides an analysis of our ability to generate cash and to meet existing or reasonably likely future cash requirements.
•Critical Accounting Policies and Estimates: This section discusses the accounting policies and estimates that we consider important to our financial condition and results of operations and that require significant judgment and estimates on the part of management in their application. In addition, our significant accounting policies, including critical accounting policies, are summarized in Note 2-Summary of Significant Accounting Policies to the accompanying consolidated financial statements included in this Annual Report on Form 10-K.
Business Overview
Our mission is to help deliver clarity for the world's most complex decisions. BigBear.ai is a leading provider of Edge AI-powered decision intelligence solutions for national security, supply chain management and digital identity. Customers and partners rely on BigBear.ai's predictive analytics capabilities in highly complex, distributed, mission-based operating environments. We are a technology-led solutions organization, providing both software and services to our customers.
Recent Developments
Ask Sage Acquisition
On December 31, 2025, the Company completed the acquisition of Ask Sage, Inc. ("Ask Sage" or the "Ask Sage Acquisition"), a secure, multi-modal generative AI platform designed for government and enterprise use. Of the total purchase consideration of $271.6 million, $267.6 million was paid in cash at or around the time of closing and $4.0 million was held back to cover any post-closing downward adjustments to the purchase price.
ATM Program
The Company completed the "May 2024 Sales Agreement," the "June 2025 Sales Agreement" and the "August 2025 Sales Agreement" during the year ended December 31, 2025 for total gross proceeds of $637 millionand 142 million shares issued.
2029 Convertible Notes
On December 19, 2024, the Company entered into privately negotiated exchange agreements (the "Exchange Transaction") with a limited number of holders of the Company's 2026 Convertible Notes, to exchange the 2026 Convertible Notes for new senior secured convertible notes due 2029 (the "2029 Convertible Notes", together with the 2026 Convertible Notes, the "Convertible Notes"). The Company exchanged approximately $182.3 millionprincipal amount of the 2026 Convertible Notes for $182.3 million in aggregate principal amount of the Company's 2029 Convertible Notes. The 2029 Convertible Notes bear interest at a rate of (i) 6.0% per annum, if interest is paid in cash and (ii) 7.0% per annum, if the Company elects, subject to certain conditions, to pay interest in kind with shares of its common stock, subject to other adjustments if certain liquidity requirements are not met. The conversion rate is 281.4491 shares of common stock per $1,000 principal amount of 2029 Convertible Notes, which represents an initial conversion price of $3.55 per share of the Company's common stock.
During the three months ended March 31, 2025, $57.7 million of the 2029 Convertible Notes were voluntarily converted by noteholders following the Exchange Transaction. These conversions have resulted in the issuance of approximately 16.7 million shares of common stock in exchange for the retirement of the respective notes.
On January 2, 2026, the Company announced that all 2029 Convertible Notes outstanding as of January 16, 2026 (the "Redemption Date"), would be redeemed for cash at a price equal to the principal amount of such notes plus accrued and unpaid interest, as provided by the terms of the Exchange Agreement. All of the 2029 Convertible Notes, with a par value of $124.6 million,were voluntarily converted by noteholders prior to the Redemption Date. These conversions resulted in the issuance of approximately 38.1 million shares of common stock in exchange for the retirement of the respective notes.
RDO Warrant Exercise
On February 27, 2024, the Company entered into a warrant exercise agreement with an existing accredited investor (the "RDO Investor") to exercise in full the outstanding Registered Direct Offering to purchase up to an aggregate of 8,886,255 shares of the Company's common stock for gross proceeds of approximately $20.6 million (the "RDO warrants"). In consideration for the immediate and full exercise of the RDO warrants, the RDO Investor received a new unregistered common stock purchase warrant to purchase up to an aggregate of 5,800,000 shares of the Company's common stock (the "2024 RDO warrant") in a private placement. The 2024 RDO warrants became exercisable six months after issuance and had a five-year term, with an exercise price per share equal to $3.78. These warrants were fully exercised during the first quarter of 2025.
On February 5, 2025, the Company entered into a warrant exercise agreement with an existing accredited investor to exercise in full an outstanding Common Stock Purchase Warrant, the 2024 RDO warrant, to purchase up to an aggregate of 5,800,000 shares of the Company's common stock. The gross proceeds to the Company from the exercise were $21.9 million, prior to deducting estimated offering expenses.
In consideration for the immediate and full exercise of the existing warrant for cash, the investor received a new unregistered Common Stock Purchase Warrant to purchase up to an aggregate of 3,770,000 shares of the Company's common stock (the "2025 RDO Warrant") in a private placement.
The 2025 RDO Warrant became exercisable commencing on August 6, 2025 (the "Exercise Date") with an expiration date five years after the Exercise Date with an exercise price per share equal to $9.00.
Private Placement Warrant Exercise
On March 4, 2024, the Company entered into a warrant exercise agreement with an existing accredited investor (the "PIPE Investor") to exercise in full the outstanding PIPE warrants to purchase up to an aggregate of 13,888,889 shares of the Company's common stock for gross proceeds of approximately $33.2 million. In consideration for the immediate and full exercise of the PIPE warrants, the PIPE Investor received a new unregistered common stock purchase warrant to purchase up to an aggregate of 9,000,000 shares of the Company's common stock (the "2024 PIPE warrant") in a private placement. The 2024 PIPE warrant
became exercisable six months after issuance and had a five-year term, with an exercise price per share equal to $4.75. These warrants were fully exercised during the first quarter of 2025. The gross proceeds to the Company from the exercise were $42.8 million, prior to deducting estimated offering expenses.
Global Economic and Geopolitical Environment
The majority of our revenue is derived from federal government contracts. Funding for U.S. Government programs is subject to a variety of factors that can affect our business, including the administration's budget requests and procurement priorities and policies, annual congressional budget authorization and appropriation processes, and other U.S. Government domestic and international priorities. U.S. Government spending levels, particularly defense spending, and timely funding thereof can affect our financial performance over the short and long term.
On September 30, 2025, the continuing resolution ("CR") allowing U.S. government departments and agencies to operate through the end of the government fiscal year expired and the U.S. government shut down. As a result of the U.S. government shutdown, our business and results of operations were insignificantly impacted by the disruptions to federal government offices, workers and operations, including funding of certain programs, stop work orders, delay in contract awards, new program starts, payments for work performed, and other actions. On November 12, 2025, Congress passed a funding extension through January 30, 2026 for nine of the twelve bills and a full-year appropriations for three bills. On February 3, 2026, the President signed into law a bill to end the partial government shutdown that began on January 31. The bill provides full-year appropriations for several programs, including the Pentagon and State departments. The impact of the January shutdown did not have a meaningful impact on our results.
We anticipate the federal budget, debt ceiling, regulatory environment, and potential tax reform will continue to be subject to debate and compromise shaped by, among other things, the current Administration and Congress, heightened political tensions, the global security environment, inflationary pressures, and macroeconomic conditions. The result may be shifting funding priorities, which could have material impacts on defense spending broadly and our programs. Additionally, the administration continues to take steps to evaluate government-wide and defense-specific staffing and procurement, which includes assessing mission priorities, procurement methods, program performance, and other factors and then potentially taking action based on those assessments. Those actions remain uncertain and could result in impacts to both our current and future business prospects and financial performance.
Additionally, the President of the United States has issued multiple Executive Orders, including two that are intended to (i) simplify and accelerate the procurement process through a review and restructuring of the Federal Acquisition Regulation (FAR), and its supplements and (ii) modernize defense acquisitions by promoting commercial solutions, innovative acquisition authorities, and other existing streamlined processes. Among the actions directed by the President is a review of major defense acquisition programs that are behind schedule or over budget, including identifying any programs for potential cancellation.
While the impact of these reforms on our business is uncertain, they could potentially lead to changes in the way we interact with the U.S. Government. We will continue to monitor and assess their effects on our business and financial results. Should the U.S. Government review one or more major defense programs in which we provide solutions or services, and this review leads to a full or partial cancellation of one of these programs, this could have an adverse effect on our business, financial condition, results of operations and cash flows.
We continue to expect the global economic and geopolitical environment 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 believe we have unmatched capabilities. While these challenges are still evolving and the eventual outcome remains highly uncertain, we do not believe that these events will have a material impact on our business and results of operations. However, if these challenges worsen, leading to greater disruptions and uncertainty within the technology industry or global economy, our business and results of operations could be negatively impacted.
Components of Results of Operations
Revenues
We generate revenue by providing our customers with Edge AI-powered decision intelligence solutionsand services for data ingestion, data enrichment, data processing, artificial intelligence, machine learning, predictive analytics and predictive visualization. We have a diverse base of customers, including government defense, government intelligence, as well as various commercial enterprises. We generate revenue from providing both software and services to our customers.
Cost of revenues
Cost of revenues primarily includes salaries, stock-based compensation expense, and benefits for personnel involved in performing the services described above, as well as allocated overhead and other direct costs.
Selling, general and administrative ("SG&A")
SG&A expenses include salaries, equity-based compensation expense, and benefits for personnel involved in our executive, finance, accounting, legal, human resources, and administrative functions, as well as third-party professional services and fees, and allocated overhead.
Research and development
Research and development expenses primarily consist of salaries, equity-based compensation expense, and benefits for personnel involved in research and development activities as well as allocated overhead. Certain research and development expenses relate to software developed for sale, lease, or will otherwise be marketed. Costs incurred subsequent to the establishment of technological feasibility and prior to the general availability of the software, are capitalized when they are expected to become significant. All other research and development expenses are expensed in the period incurred.
Restructuring charges
Restructuring charges consist of employee separation costs related to strategic cost saving initiatives to better align our organization and cost structure and improve the affordability of our products and services as well as employee separation costs associated with strategic changes in certain key leadership roles.
Transaction expenses
Transaction expenses consist of diligence, legal and other related expenses associated with the 2025 Ask Sage and 2024 Pangiam acquisitions, as well as costs associated with evaluating other acquisition opportunities.
Impairment of long-lived assets
Impairment of long-lived assets consists of non-cash impairment of intangible assets.
Goodwill impairment
Goodwill impairment consists of non-cash impairments of goodwill.
Net increase in fair value of derivatives
Net increase in fair value of derivativesconsists of fair value remeasurements of the 2029 Convertible Notes Conversion Option, 2026 Convertible Notes Conversion Option, PIPE warrants, RDO warrants, and IPO private warrants.
Interest expense
Interest expense consists primarily of interest expense, commitment fees, debt issuance discount amortization, and debt issuance cost amortization under our debt agreements.
Interest income
Interest income consists primarily of interest income earned on our money market accounts and investments in debt securities.
Other expense (income), net
Other expense (income), netconsists primarily of realized gains and losses on the sale of available for sale investments, foreign exchange gains and losses, and other non-operating expenses.
Income tax benefit
Income tax benefit consists of income taxes related to federal and state jurisdictions in which we conduct business.
Results of Operations
The table below presents our consolidated statements of operations and comprehensive loss for the following periods:
| Years Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
|
Revenues
|
$ | 127,672 | $ | 158,236 | $ | 155,164 | |||||||||||
|
Cost of revenues
|
99,194 | 113,016 | 114,563 | ||||||||||||||
|
Gross margin
|
28,478 | 45,220 | 40,601 | ||||||||||||||
|
Operating expenses:
|
|||||||||||||||||
|
Selling, general and administrative
|
95,132 | 80,040 | 71,057 | ||||||||||||||
|
Research and development
|
16,752 | 10,863 | 5,035 | ||||||||||||||
| Restructuring charges | 4,370 | 1,287 | 822 | ||||||||||||||
|
Transaction expenses
|
2,082 | 1,450 | 2,721 | ||||||||||||||
| Impairment of long-lived assets | 53,403 | - | - | ||||||||||||||
| Goodwill impairment | 70,636 | 85,000 | - | ||||||||||||||
| Operating loss | (213,897) | (133,420) | (39,034) | ||||||||||||||
|
Interest expense
|
18,116 | 25,647 | 24,877 | ||||||||||||||
| Interest income | (13,253) | (2,293) | (392) | ||||||||||||||
| Net increase in fair value of derivatives | 92,794 | 107,658 | 7,361 | ||||||||||||||
| Loss on extinguishment of debt | 2,577 | 31,272 | - | ||||||||||||||
| Other expense (income), net | 1,505 | 99 | (1) | ||||||||||||||
| Loss before taxes | (315,636) | (295,803) | (70,879) | ||||||||||||||
| Income tax benefit | (21,722) | (256) | (222) | ||||||||||||||
| Net loss | $ | (293,914) | $ | (295,547) | $ | (70,657) | |||||||||||
Comparison of the Years Ended December 31, 2025, 2024, and 2023
Revenues
| Years Ended December 31, | Year-Over-Year Change | Year-Over-Year Change | |||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2023 |
2025 vs 2024
|
2024 vs 2023
|
|||||||||||||||||||||||||||||||||||||
|
Revenues
|
$ | 127,672 | $ | 158,236 | $ | 155,164 | $ | (30,564) | (19.3) | % | $ | 3,072 | 2.0 | % | |||||||||||||||||||||||||||
Revenues decreased by $30.6 million during the year ended December 31, 2025 as compared to the year ended December 31, 2024 primarily due to lower volume on the Army programs and significant one time contracts during the year ended December 31, 2024, that did not recur during the year ended December 31, 2025.
Revenues increased by $3.1 million during the year ended December 31, 2024 as compared to the year ended December 31, 2023. The change in revenues were primarily driven by increases due to the acquisition of Pangiam, offset by decreased volume from the Air Force EPASS program which wound down in the second quarter of 2023.
Cost of revenues
| Years Ended December 31, | Year-Over-Year Change | Year-Over-Year Change | |||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2023 | 2025 vs 2024 | 2024 vs 2023 | |||||||||||||||||||||||||||||||||||||
|
Cost of revenues
|
$ | 99,194 | $ | 113,016 | $ | 114,563 | $ | (13,822) | (12.2) | % | $ | (1,547) | (1.4) | % | |||||||||||||||||||||||||||
| Cost of revenues as a percentage of revenues | 78 | % | 71 | % | 74 | % | |||||||||||||||||||||||||||||||||||
Cost of revenues as a percentage of total revenues was 78% and 71% for the year ended December 31, 2025 and 2024, respectively. The increase in cost of revenue as a percentage of total revenue was partially driven by a higher mix of higher
margin solutions work in the year ended December 31, 2024 as compared to the year ended December 31, 2025. The decrease in total dollars of cost of revenues was primarily due to lower volume on Army programs and significant one time contracts during the year ended December 31, 2024 which did not recur during the year ended December 31, 2025.
Cost of revenues as a percentage of total revenues was 71% for the year ended December 31, 2024 as compared to 74% for the year ended December 31, 2023. The decrease in cost of revenues as a percentage of total revenues was driven by higher margins from the inclusion of Pangiam's results.
SG&A
| Years Ended December 31, | Year-Over-Year Change | Year-Over-Year Change | |||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2023 | 2025 vs 2024 | 2024 vs 2023 | |||||||||||||||||||||||||||||||||||||
| SG&A | $ | 95,132 | $ | 80,040 | $ | 71,057 | $ | 15,092 | 18.9 | % | $ | 8,983 | 12.6 | % | |||||||||||||||||||||||||||
| SG&A as a percentage of revenues | 75 | % | 51 | % | 46 | % | |||||||||||||||||||||||||||||||||||
SG&A expenses as a percentage of total revenues for the year ended December 31, 2025 increased to 75% as compared to 51% for the year ended December 31, 2024. The year-over-year increases include Pangiam's headcount and operating expenses not fully included in the first quarter of 2024 (the Pangiam acquisition was completed on February 29, 2024), significant investments in sales and marketing during the year ended December 31, 2025.
SG&A expenses as a percentage of total revenues for the year ended December 31, 2024 increased to 51% as compared to 46% for the year ended December 31, 2023. The increase in SG&A expenses as a percentage of total revenues was primarily driven by an increase in non-recurring strategic initiatives of $3.4 million, non-recurring integration costs of $1.8 million, and non-recurring litigation costs of $1.1 million incurred during the year ended December 31, 2024.
Research and development
| Years Ended December 31, | Year-Over-Year Change | Year-Over-Year Change | |||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2023 | 2025 vs 2024 | 2024 vs 2023 | |||||||||||||||||||||||||||||||||||||
|
Research and development
|
$ | 16,752 | $ | 10,863 | $ | 5,035 | $ | 5,889 | 54.2 | % | $ | 5,828 | 115.7 | % | |||||||||||||||||||||||||||
Research and development expenses increased by $5.9 million during the year ended December 31, 2025 as compared to the year ended December 31, 2024. The increase in research and development expenses was driven by fewer projects qualifying for software capitalization compared to the year ended December 31, 2024.
Research and development expenses increased by $5.8 million during the year ended December 31, 2024 as compared to the year ended December 31, 2023. The increase in research and development expenses was driven by increased headcount, the timing of certain research and development projects, as well as the inclusion of Pangiam's results.
Restructuring charges
| Years Ended December 31, | Year-Over-Year Change | Year-Over-Year Change | |||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2023 | 2025 vs 2024 | 2024 vs 2023 | |||||||||||||||||||||||||||||||||||||
| Restructuring charges | $ | 4,370 | $ | 1,287 | $ | 822 | $ | 3,083 | 239.5 | % | $ | 465 | 56.6 | % | |||||||||||||||||||||||||||
Restructuring charges increased by $3.1 million during the year ended December 31, 2025 as compared to the year ended December 31, 2024. Restructuring charges consist of employee separation costs related to strategic cost saving initiatives to better align our organization and cost structure and improve the affordability of our products and services as well as employee separation costs associated with strategic changes in certain key leadership roles.
Restructuring charges increased by $0.5 million during the year ended December 31, 2024 as compared to the year ended December 31, 2023. Restructuring charges consist of employee separation costs related to strategic cost saving initiatives to better align our organization and cost structure and improve the affordability of our products and services as well as employee separation costs associated with strategic changes in certain key leadership roles
Transaction expenses
| Years Ended December 31, | Year-Over-Year Change | Year-Over-Year Change | |||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2023 | 2025 vs 2024 | 2024 vs 2023 | |||||||||||||||||||||||||||||||||||||
|
Transaction expenses
|
$ | 2,082 | $ | 1,450 | $ | 2,721 | $ | 632 | 43.6 | % | $ | (1,271) | (46.7) | % | |||||||||||||||||||||||||||
Transaction expenses for the year ended December 31, 2025 consist of diligence, legal and other related expenses associated with the Ask Sage Acquisition, as well as costs associated with evaluating other acquisition opportunities.
Transaction expenses for the year ended December 31, 2024 and December 31, 2023 consist of diligence, legal and other related expenses associated with the Pangiam Acquisition.
Impairment of long-lived assets
| Years Ended December 31, | Year-Over-Year Change | Year-Over-Year Change | |||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2023 | 2025 vs 2024 | 2024 vs 2023 | |||||||||||||||||||||||||||||||||||||
| Impairment of long-lived assets | $ | 53,403 | $ | - | $ | - | $ | 53,403 | 100.0 | % | $ | - | - | % | |||||||||||||||||||||||||||
During the year ended December 31, 2025, the Company recognized a non-cash impairment charge of $53.4 million, primarily driven by certain revenue contracts with the U.S. government that resulted in downward revisions of short and long-term forecasts in December 2025.
Goodwill impairment
| Years Ended December 31, | Year-Over-Year Change | Year-Over-Year Change | |||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2023 | 2025 vs 2024 | 2024 vs 2023 | |||||||||||||||||||||||||||||||||||||
| Goodwill impairment | $ | 70,636 | $ | 85,000 | $ | - | $ | (14,364) | (16.9) | % | $ | 85,000 | 100.0 | % | |||||||||||||||||||||||||||
During the year ended December 31, 2025, the Company recognized a non-cash goodwill impairment charge of $70.6 million, driven by a change in forecast during the second quarter of 2025.
During the year ended December 31, 2024, the Company recognized a non-cash goodwill impairment charge of $85.0 million primarily driven by a decrease in share price during the first quarter of 2024 compared to the share price of the equity issued as consideration for the acquisition of Pangiam.
Net increase in fair value of derivatives
| Years Ended December 31, | Year-Over-Year Change | Year-Over-Year Change | |||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2023 | 2025 vs 2024 | 2024 vs 2023 | |||||||||||||||||||||||||||||||||||||
| Net increase in fair value of derivatives | $ | 92,794 | $ | 107,658 | $ | 7,361 | $ | (14,864) | (13.8) | % | $ | 100,297 | 1362.5 | % | |||||||||||||||||||||||||||
The net increase in fair value of derivatives of $92.8 million for the year ended December 31, 2025 includes fair value remeasurements of the 2029 Notes Conversion Option, IPO private warrants, 2026 Notes Conversion Option, and the 2025 RDO warrants. The 2024 PIPE warrants and the 2024 RDO warrant were exercised and fully settled during the year ended December 31, 2025. In connection with the exercise of the 2024 RDO warrants, the Company issued 3,770,000 RDO warrants.
The net increase in fair value of derivatives of $107.7 million for the year ended December 31, 2024 includes fair value remeasurements of the 2026 Notes Conversion Option, 2029 Notes Conversion Option, IPO private warrants, PIPE warrants, and RDO warrants. The 2023 PIPE warrants and the 2023 RDO warrant were fully settled as of December 31, 2024.
Loss on extinguishment of debt
| Years Ended December 31, | Year-Over-Year Change | Year-Over-Year Change | |||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2023 | 2025 vs 2024 | 2024 vs 2023 | |||||||||||||||||||||||||||||||||||||
| Loss on extinguishment of debt | $ | 2,577 | $ | 31,272 | $ | - | $ | (28,695) | (91.8) | % | $ | 31,272 | 100.0 | % | |||||||||||||||||||||||||||
Loss on extinguishment of debt during the year ended December 31, 2025 relates to the write-off of the unamortized debt issuance costs and discount for $57.7 million of the 2029 Convertible Notes that were voluntarily converted by noteholders.
Loss on extinguishment of debt during the year ended December 31, 2024 relates to the exchange of the 2026 Convertible Notes for the 2029 Convertible Notes. The exchange was accounted for as an extinguishment of the 2026 Convertible Notes and the 2029 Convertible Notes were recognized at fair value, which approximated the carrying amount of the principal balances exchanged.
Interest expense
| Years Ended December 31, | Year-Over-Year Change | Year-Over-Year Change | |||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2023 | 2025 vs 2024 | 2024 vs 2023 | |||||||||||||||||||||||||||||||||||||
|
Interest expense
|
$ | 18,116 | $ | 25,647 | $ | 24,877 | $ | (7,531) | (29.4) | % | $ | 770 | 3.1 | % | |||||||||||||||||||||||||||
Interest expense during the year ended December 31, 2025 and 2024 consists primarily of interest expense, debt issuance discount amortization, commitment fees and debt issuance cost amortization under our Convertible Notes. See the Liquidity and Capital Resourcessection below for more information. The change in interest expense during the year ended December 31, 2025 as compared to the year ended December 31, 2024 is primarily due to a lower average principal balance on the 2029 Convertible Notes due to conversion activity during the year ended December 31, 2025.
Interest expense during the year ended December 31, 2023 consists primarily of interest expense, commitment fees, debt issuance discount amortization, and debt issuance cost amortization under our Convertible Notes and Bank of America Senior Revolver.
Interest income
| Years Ended December 31, | Year-Over-Year Change | Year-Over-Year Change | |||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2023 | 2025 vs 2024 | 2024 vs 2023 | |||||||||||||||||||||||||||||||||||||
| Interest income | $ | (13,253) | $ | (2,293) | $ | (392) | $ | (10,960) | 478.0 | % | $ | (1,901) | 484.9 | % | |||||||||||||||||||||||||||
The increase in interest income is primarily related to a higher average cash balance during the year ended December 31, 2025 compared to comparative periods resulting from cash raised through at-the-money equity issuances, and includes interest earned from our investments in debt securities.
Other expense (income), net
| Years Ended December 31, | Year-Over-Year Change | Year-Over-Year Change | |||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2023 | 2025 vs 2024 | 2024 vs 2023 | |||||||||||||||||||||||||||||||||||||
| Other expense (income), net | $ | 1,505 | $ | 99 | $ | (1) | $ | 1,406 | 1420.2 | % | $ | 100 | (10000.0) | % | |||||||||||||||||||||||||||
The change in other expense (income), net during the year ended December 31, 2025 as compared to the year ended December 31, 2024 is primarily driven by realized gains from available for sale investments, offset by foreign exchange losses and management fees on our debt securities portfolio.
Income tax benefit
| Years Ended December 31, | Year-Over-Year Change | Year-Over-Year Change | |||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2023 | 2025 vs 2024 | 2024 vs 2023 | |||||||||||||||||||||||||||||||||||||
| Income tax benefit | $ | (21,722) | $ | (256) | $ | (222) | $ | (21,466) | 8385.2 | % | $ | (34) | 15.3 | % | |||||||||||||||||||||||||||
| Effective tax rate | 6.9 | % | 0.1 | % | 0.3 | % | |||||||||||||||||||||||||||||||||||
The difference in the effective tax rate for the year ended December 31, 2025 compared to the year ended December 31, 2024 is primarily due to the tax benefit from the valuation allowance change as a result of the Ask Sage acquisition. The effective tax rate for the year ended December 31, 2025 differs from the U.S. federal income tax rate of 21.0% primarily due to state and local income taxes, permanent differences between book and taxable income, certain discrete items and the change in valuation allowance. The benefit for the year ended December 31, 2025 primarily relates to state minimum taxes offset by income tax benefit derived from our United Kingdom entity and to the change in valuation allowance as a result of the Ask Sage acquisition.
The decrease in the effective tax rate for the year ended December 31, 2024 from the year ended December 31, 2023 was primarily due to significant pre-tax loss, non-deductible goodwill impairment and derivative losses, largely offset by an increase in valuation allowance.
As of December 31, 2025, the Company has determined that it is not more-likely-than-not that substantially all of its deferred tax assets will be realized in the future and continues to have a full valuation allowance established against its deferred tax assets.
Refer to Note 14-Income Taxes of the Notes to consolidated financial statements included in this Annual Report on Form 10-K for more information.
Supplemental Non-GAAP Information
The Company uses Adjusted EBITDA to evaluate its operating performance, generate future operating plans, and make strategic decisions, including those relating to operating expenses and the allocation of internal resources. Adjusted EBITDA is a financial measure not calculated in accordance with GAAP. Adjusted EBITDA is defined as net loss adjusted for interest expense, interest income,income tax benefit, depreciation and amortization, equity-based compensation and associated employer payroll taxes, net increase in fair value of derivatives, restructuring charges, non-recurring strategic initiatives, non-recurring litigation, transaction expenses, non-recurring integration costs, goodwill impairment, and loss on extinguishment of debt. Non-GAAP financial performance measures are used to supplement the financial information presented on a GAAP basis. This non-GAAP financial measure should not be considered in isolation or as a substitute for the relevant GAAP measures and should be read in conjunction with information presented on a GAAP basis. Because not all companies use identical calculations, our presentation of non-GAAP measures may not be comparable to other similarly titled measures of other companies.
Adjusted EBITDA - Non-GAAP
The following table presents a reconciliation of Adjusted EBITDA to net loss, computed in accordance with GAAP:
| Years Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Net loss | $ | (293,914) | $ | (295,547) | $ | (70,657) | |||||||||||
| Interest expense | 18,116 | 25,647 | 24,877 | ||||||||||||||
| Interest income | (13,253) | (2,293) | (392) | ||||||||||||||
| Income tax benefit | (21,722) | (256) | (222) | ||||||||||||||
| Depreciation and amortization | 15,281 | 11,872 | 7,901 | ||||||||||||||
| EBITDA | (295,492) | (260,577) | (38,493) | ||||||||||||||
| Adjustments: | |||||||||||||||||
| Equity-based compensation | 23,330 | 21,127 | 18,671 | ||||||||||||||
|
Employer payroll taxes related to equity-based compensation(1)
|
2,011 | 985 | 440 | ||||||||||||||
|
Net increase in fair value of derivatives(2)
|
92,794 | 107,658 | 7,361 | ||||||||||||||
|
Restructuring charges(3)
|
4,370 | 1,287 | 822 | ||||||||||||||
|
Non-recurring strategic initiatives(4)
|
9,075 | 6,459 | 3,025 | ||||||||||||||
|
Non-recurring litigation(5)
|
30 | 1,142 | 2,250 | ||||||||||||||
|
Transaction expenses(6)
|
2,082 | 1,450 | 2,721 | ||||||||||||||
|
Non-recurring integration costs(7)
|
44 | 1,800 | - | ||||||||||||||
|
Goodwill impairment(8)
|
70,636 | 85,000 | - | ||||||||||||||
|
Impairment of long-lived assets(9)
|
53,403 | - | - | ||||||||||||||
|
Loss on extinguishment of debt(10)
|
2,577 | 31,272 | - | ||||||||||||||
| Adjusted EBITDA | $ | (35,140) | $ | (2,397) | $ | (3,203) | |||||||||||
| (1) | Includes employer payroll taxes due upon the vesting of equity awards granted to employees. | ||||
|
(2)
|
The change in fair value of derivatives during the year ended December 31, 2025 relates to the remeasurement of the 2025 warrants, IPO warrants and the 2026 and 2029 Notes Conversion Options derivative liabilities. The change during the year ended December 31, 2025, relates to the $14.0 million loss recorded upon the exercise of the 2024 RDO and 2024 PIPE Warrants (the "2024 Warrants") and issuance of the warrants in 2025 (the "2025 Warrants") in connection with the warrant exercise agreements entered into on February 5, 2025. During the year ended December 31, 2025, there was loss related to a mark-to-market adjustment of $59.9M for the debt to equity conversions during the period. There was a gain related to the fair market value adjustment on the 2025 warrants and the private warrants of $2.3 million. Additionally, there was a loss of $20.8 million fair market value adjustments of the 2026 and 2029 Notes Conversion Option, during the year ended December 31, 2025.
|
||||
|
(2)
|
The increase in fair value of derivatives during the year ended December 31, 2024, relates to the $42.3 million loss recorded upon the exercise of the 2023 RDO and 2023 PIPE Warrants (the "2023 Warrants") and issuance of the warrants in 2024 (the "2024 Warrants") in connection with the warrant exercise agreements entered into on February 27, 2024 and March 4, 2024. The additional loss relates to $11.4 million fair market value adjustment of the 2026 Notes Conversion Option, 2024 Warrants, and IPO Private Warrants during the year ended December 31, 2024. This loss is net of a $10.6 million gain related to the issuance of the 2024 Warrants and was further offset by a reduction of $11.4 million upon remeasurement of the 2024 Warrants and IPO Private Warrants' fair value during the year ended December 31, 2024. Additionally, for the year-ended December 31, 2024, there was a $54.4 million loss related to the fair market valuation of the derivative liabilities in connection with the 2029 Convertible Notes.
|
||||
|
The increase in fair value of derivatives during the year ended December 31, 2023 primarily relates to changes in the fair value of PIPE warrant and RDO warrants issued during the first and second quarters of 2023.
|
|||||
|
(3)
|
Employee separation costs associated with strategic reviews of the Company's capacity and future projections to better align the organization and cost structure and improve the affordability of its products and services.
|
||||
|
(4)
|
Non-recurring professional fees incurred in connection with discrete, non-recurring strategic initiatives, including business transformation and strategy realignment consulting services which management does not consider part of the Company's ongoing operating expenses.
|
||||
|
(5)
|
Non-recurring litigation consists primarily of legal settlements and related fees for specific proceedings that we have determined arise outside of the ordinary course of business based on the following considerations which we assess regularly: (1) the frequency of similar cases that have been brought to date, or are expected to be brought within two years; (2) the complexity of the case; (3) the nature of the remedy(ies) sought, including the size of any monetary damages sought; (4) offensive versus defensive posture of us; (5) the counterparty involved; and (6) our overall litigation strategy. | ||||
|
(6)
|
Transaction expenses during the year ended December 31, 2024 consist primarily of diligence, legal and other related expenses incurred associated with the Pangiam acquisition. Transaction expenses during the year ended December 31, 2025 consist primarily of diligence, legal and other related expenses incurred associated with the Ask Sage acquisition, as well as expenses incurred to explore other acquisition options.
|
||||
|
(7)
|
Non-recurring internal integration costs related to the Pangiam and Ask Sage acquisitions, respectively.
|
||||
|
(8)
|
During the year ended December 31, 2024, the Company recognized a non-cash goodwill impairment charge primarily driven by a decrease in share price during the quarter compared to the share price of the equity issued as consideration for the purchase of Pangiam. During the year ended December 31, 2025, the company recognized a non-cash goodwill impairment charge primarily driven by a change in forecast during the second quarter of 2025.
|
||||
|
(9)
|
During December 2025, the Company recognized a non-cash impairment of its intangible assets, primarily driven by certain revenue contracts with the U.S. government that resulted in downward revisions of short and long-term forecasts.
|
||||
|
(10)
|
Loss on extinguishment of debt is related to voluntary conversions of the 2029 Notes to common stock and the related extinguishment of unamortized debt discount and debt costs. | ||||
Free Cash Flow
Free cash flow is definedas net cash used in operating activities less capital expenditures. Management believes free cash flow is useful to investors, analysts and others because it provides a meaningful measure of the Company's ability to generate cash and meet its debt obligations.
The table below presents a reconciliation of free cash flow to net cash used in operating activities, computed in accordance with GAAP:
| Years Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Net cash used in operating activities | $ | (41,951) | $ | (38,119) | $ | (18,307) | |||||||||||
|
Capital expenditures, net
|
(4,366) | (11,114) | (3,830) | ||||||||||||||
|
Free cash flow
|
$ | (46,317) | $ | (49,233) | $ | (22,137) | |||||||||||
Key Performance Indicators
Backlog
We view growth in backlog as a key measure of our business growth. Backlog represents the estimated dollar value of contracts that we have been awarded for which work has not yet been performed, and in certain cases, our estimate of known opportunities for future contract awards on customer programs that we are currently supporting.
The majority of our historical revenues are derived from contracts with the federal government and its various agencies. In accordance with the general procurement practices of the federal government, most contracts are not fully funded at the time of contract award. As work under the contract progresses, our customers may add incremental funding up to the initial contract award amount. We generally do not deliver goods and services to our customers in excess of the appropriated contract funding.
Our contracts with some customers, including the federal government, generally include termination for convenience provisions
pursuant to which the customer can unilaterally elect to terminate the contract. In the event of termination, we may generally recover only our incurred or committed costs and settlement expenses and profit on work completed prior to the termination. As a result, contracts comprising our backlog may not result in actual revenue in any particular period or at all, and the actual revenue may differ from backlog estimates, particularly if customers, including the federal government, exercise their rights to terminate contracts with us pursuant to the termination for convenience provisions.
At the time of award, certain contracts may include options for our customers to procure additional goods and services under the contract. Options do not create enforceable rights and obligations until exercised by our customers and thus we only recognize revenues related to options as each option is exercised. Contracts with such provisions may or may not specify the exact scope, nor corresponding price, associated with options; however, these contracts will generally identify the expected period of performance for each option. In cases where we have negotiated the estimated scope and price of an option in the contract with our customer, we use that information to measure our backlog and we refer to this as Priced Unexercised Options. If a contract does not specify the scope, level-of-effort, or price related to options to procure additional goods and services, we estimate the backlog associated with those options based on our discussions with our customer, our current level of support on the customer's program, and the period of performance for each option that was negotiated in the contract. We refer to this as Unpriced Unexercised Options.
We define backlog in these categories to provide the reader with additional context as to the nature of our backlog and so that the reader can understand the varying degrees of risk, uncertainty, and where applicable, management's estimates and judgments used in determining backlog at the end of a period. The categories of backlog are further defined below.
•Funded Backlog.Funded backlog represents the remaining contract value of goods and services to be delivered under existing contracts for which funding is appropriated or otherwise authorized less revenues previously recognized on these contracts.
•Unfunded backlog.Unfunded backlog represents the remaining contract value, or portion thereof, of goods and services to be delivered under existing contracts for which funding has not been appropriated or otherwise authorized.
•Priced Unexercised Options. Priced unexercised contract options represent the remaining contract value of goods and services to be delivered under existing contracts if our customer elects to exercise all of the options available in the contract. For priced unexercised options, we measure backlog based on the corresponding contract values assigned to the options as negotiated in our contract with our customer.
•Unpriced Unexercised Options. Unpriced unexercised contract options represent the remaining contract value of goods and services to be delivered under existing contracts if our customer elects to exercise all of the options available in the contract. For unpriced unexercised options, we estimate backlog generally under the assumption that our current level of support on the contract will persist for each option period.
The following table summarizes certain backlog information (in thousands):
|
December 31, 2025 |
December 31, 2024 |
||||||||||
| Funded | $ | 54,859 | $ | 46,552 | |||||||
| Unfunded | 57,509 | 72,474 | |||||||||
| Priced, unexercised options | 130,564 | 283,258 | |||||||||
| Unpriced, unexercised options | 5,128 | 16,021 | |||||||||
| Total backlog | $ | 248,060 | $ | 418,305 | |||||||
Liquidity and Capital Resources
Sources of Liquidity
Our primary sources of liquidity are cash flows provided by our operations and maturities of available-for-sale investments. We have also generated liquidity through our ATM programs, private placements of our common stock, and warrants. Our primary short-term cash requirements are to fund payroll obligations, working capital, operating lease obligations, interest payments and short-term debt, including current maturities of long-term debt. Working capital requirements can vary significantly from period to period, particularly as a result of the timing of receipts and disbursements related to long-term contracts. Based on our projected cash flow and liquidity needs, we believe that our cash from operating activities generated from continuing operations
during the year will be adequate for the next 12 months to meet our anticipated uses of cash flow.
Our medium-term to long-term cash requirements are to service and repay debt and to invest in facilities, equipment, technologies, and research and development for growth initiatives.
Our ability to fund our medium-term to long-term cash needs will depend, in part, on our ability to generate cash in the future, which depends on our future financial results. Our future results are subject to general economic, financial, competitive, legislative and regulatory factors that may be outside of our control. Our future access to, and the availability of credit on acceptable terms and conditions, is impacted by many factors, including capital market liquidity and overall economic conditions.
While we intend to reduce debt over time using cash provided by operations, we may also attempt to meet long-term debt obligations, if necessary, by obtaining capital from a variety of additional sources or by refinancing existing obligations. These sources include public or private capital markets, bank financings, proceeds from dispositions or other third-party sources.
ATM Program
In April 2023, the Company filed an automatic shelf registration statement on Form S-3 (the "2023 Shelf Registration Statement") with the SEC registering an indeterminate amount of its common stock, preferred stock, warrants, rights, and units (collectively, "Company securities"). which the SEC declared effective on April 21, 2023. In May 2024, the Company filed a prospectus supplement to the 2023 Shelf Registration Statement which allows the Company to sell, from time to time and at its discretion, Company securities having an aggregate offering price of up to $150 million including shares of common stock that may be sold pursuant to the Company's controlled equity offering agreement, dated as of May 10, 2024 (the "Controlled Equity Offering Agreement"), with Cantor Fitzgerald & Co. ("Cantor"), as sales agent, under an "at the market" offering program (the "May 2024 Sales Agreement").
Pursuant to the Controlled Equity Offering Agreement, the Company may offer and sell common stock having an aggregate offering price of up to $150 million from time to time to or through Cantor, subject to the Company's compliance with applicable laws and the applicable requirements of the Controlled Equity Offering Agreement. The Controlled Equity Offering Agreement stipulates that the Company will pay Cantor a commission equal to up to 3.0% of the gross offering proceeds of any shares of common stock sold to or through Cantor pursuant to the Controlled Equity Offering Agreement. The Company intends to use the net proceeds from sales of common stock issued under the ATM Program for general corporate and working capital purposes. The timing of any sales and the number of shares sold will depend on a variety of factors to be determined and considered by the Company. The Company is not obligated to sell any shares under the Controlled Equity Offering Agreement.
In June 2025, the Company filed a prospectus supplement to the 2023 Shelf Registration Statement which allows the Company to sell, from time to time and at its discretion, Company securities having an aggregate offering price of up to $150 million including shares of common stock that may be sold pursuant to the Company's Controlled Equity Offering Agreement (the "June 2025 Sales Agreement").
In August 2025, the Company filed a prospectus supplement to the 2023 Shelf Registration Statement which allows the Company to sell, from time to time and at its discretion, Company securities with a maximum of shares sold totaling 65 million, including shares of common stock that may be sold pursuant to the Company's Controlled Equity Offering Agreement (the "August 2025 Sales Agreement").
During the year ended December 31, 2025, the Company sold 39,555,415shares of common stock under the May 2024 Sales Agreement for an aggregate offering price of $150 million. Total issuance costs related to the ATM Program as of December 31, 2025were approximately $2.6 million, resulting in aggregate net proceeds of approximately $147.4 million.
During the year ended December 31, 2025, the Company sold 37,697,898shares of common stock under the June 2025 Sales Agreement for an aggregate offering price of $150 million. Total issuance costs related to the ATM Program as of December 31, 2025were approximately $2.6 million, resulting in aggregate net proceeds of approximately $147.4 million.
During the year ended December 31, 2025, the Company sold 65,000,000shares of common stock under the August 2025 Sales Agreement for an aggregate offering price of$337 million. Total issuance costs related to the ATM Program as of December 31, 2025were approximately $3.0 million, resulting in aggregate net proceeds of approximately $334.0 million.
As of December 31, 2025, there is no remaining capacity under the 2023 Shelf Registration Statement.
Available for Sale ("AFS") Investments
Net proceeds from the ATM Program not utilized to fund ongoing operating cash flows are invested in U.S. Treasury notes and corporate bonds. These debt securities are classified as available for sale and recorded at fair value, with unrealized gains and losses excluded from earnings and reported in other comprehensive (loss) income. In order to ensure ongoing cash availability to fund operating expenditures and growth initiatives, maturities of individual AFS investments occur monthly and are reinvested if those funds are not required to supplement operating liquidity requirements. AFS investments do not have maturities that exceed 24 months from acquisition. The Company's investment policy requires that AFS investments not explicitly or implicitly guaranteed by the U.S. Government be issued by institutions highly rated by major rating agencies and have a long history of no credit losses. The investment policy also limits the concentration of AFS investments within a given sector and/or with any individual issuer. AFS investments are not callable prior to contractual maturity.
As these debt securities are available for sale, they are included in the measure of total available liquidity in the table below at fair value. Proceeds from coupon payments or the maturity of AFS investments will increase the Company's total available liquidity to the extent the funds are not reinvested in additional AFS investments.
Our available liquidity as of December 31, 2025 and December 31, 2024, consisted primarily of available cash and cash equivalents. The following table details our available liquidity:
|
December 31, 2025 |
December 31, 2024 |
||||||||||
| Available cash and cash equivalents | $ | 87,126 | $ | 50,141 | |||||||
|
Available for sale investments
|
374,410 | - | |||||||||
|
Total available liquidity
|
$ | 461,536 | $ | 50,141 | |||||||
The following table summarizes borrowings under our debt obligations as of the dates indicated:
|
December 31, 2025 |
December 31, 2024 | ||||||||||
| 2026 Convertible Notes | $ | 17,668 | $ | 17,668 | |||||||
| 2029 Convertible Notes | 124,605 | 182,332 | |||||||||
| D&O Financing Loan | - | 818 | |||||||||
| Total debt | 142,273 | 200,818 | |||||||||
| Less: unamortized debt issuance discount and costs | 35,229 | 64,596 | |||||||||
| Total debt, net | 107,044 | 136,222 | |||||||||
| Less: current portion | 16,560 | 818 | |||||||||
| Long-term debt, net | $ | 90,484 | $ | 135,404 | |||||||
Convertible Notes
On December 7, 2021, the Company issued $200.0 million of unsecured convertible notes (the "2026 Convertible Notes") to certain investors. The 2026 Convertible Notes bear interest at a rate of 6.0% per annum, payable semi-annually, and not including any interest payments that are settled with the issuance of shares, were convertible into 17,391,304 shares of the Company's common stock at an initial Conversion Price of $11.50. The Conversion Price is subject to adjustments, including but not limited to, the Conversion Rate Reset described below and in Note 12-Debt of the Notes to consolidated financial statements included in this Annual Report on Form 10-K. The 2026 Convertible Notes mature on December 15, 2026.
On May 29, 2022, pursuant to the conversion rate adjustment provisions in the 2026 Convertible Notes indenture, the Conversion Price was adjusted to $10.61 (or 94.2230 shares of common stock per $1,000 principal amount of 2026 Convertible Notes) because the average of the daily volume-weighted average price of the common stock during the preceding 30 trading days was less than $10.00 (the "Conversion Rate Reset"). Subsequent to the Conversion Rate Reset, the 2026 Convertible Notes are convertible into 18,844,600 shares, not including any interest payments that are settled with the issuance of shares.
On December 19, 2024, the Company entered into privately negotiated exchange agreements (each, an "Exchange Agreement") with a limited number of holders of the Company's existing 2026 Convertible Notes, to exchange the existing convertible notes for new senior secured convertible notes due 2029 (the "2029Convertible Notes", together with the 2026 Convertible Notes, the "Convertible Notes"). The Company exchanged (the "Exchange Transaction") approximately $182.3 millionprincipal amount of the 2026 Convertible Notes for $182.3 millionin aggregate principal amount of the Company's 2029 Convertible Notes and
approximately $0.4 million in cash, with such cash payment representing the accrued and unpaid interest on such then existing Convertible Notes. The 2029 Convertible Notes bear interest at a rate of (i) 6.0% per annum, if interest is paid in cash and (ii) 7.0% per annum, if we elect, subject to certain conditions, to pay interest in kind with shares of our common stock. To the extent that the certain liquidity conditions of us and our subsidiaries is not satisfied as of the last business day of any calendar month, then with respect to the period applicable to the interest payment date immediately following the month in which such liquidity condition is not satisfied, the interest rate will be (i) 9.00% per annum, if interest is paid in cash and (ii) 10.00% per annum, if we elect, subject to certain conditions, to pay interest in kind with shares of our common stock (it being understood that such increased rate shall apply solely for such six-month period applicable to such interest payment date). The initial conversion rate is 281.4491 shares of common stock per $1,000 principal amount of 2029 Convertible Notes, which represents an initial conversion price of $3.55 per share of the Company's common stock. The conversion rate and the conversion price are subject to adjustments. The exchange was accounted for as an extinguishment of the 2026 Convertible Notes and the 2029 Convertible Notes were recognized at fair value, which approximated the carrying amount of the principal balances exchanged. The Company recognized a loss on extinguishment of $31.3 million on the consolidated statements of operations and comprehensive loss related to the unamortized debt issuance costs of the exchanged 2026 Convertible Notes during the year ended December 31, 2024.
The 2029 Convertible Notes were issued pursuant to, and are governed by, an indenture, dated as of December 27, 2024. The 2029 Convertible Notes will be fully and unconditionally guaranteed, on a senior, secured basis, by the Company and certain of its existing and future direct and indirect subsidiaries, subject to certain exceptions (the "Guarantors"), and will initially be secured on a first-priority basis by substantially all assets of the Company and such Guarantors, subject to certain exceptions.
Upon completion of the Exchange Transaction, the aggregate principal amount of the 2026 Convertible Notes outstanding was $17.7 million. The Company did not receive any cash proceeds from the issuance of the 2029 Convertible Notes pursuant to the Exchange Transactions.
The 2026 Convertible Notes and the 2029 Convertible Notes require the Company to meet certain financial and other covenants. The 2029 Convertible Notes added a covenant that requires the Company to maintain liquidity of at least $15 million measured as of the last business day of any month. As of December 31, 2025, the Company was in compliance with all covenants related to the Convertible Notes.
The following table presents the carrying amounts and fair values associated with the Convertible Notes as of December 31, 2025. The fair value of the Convertible Notes is considered to be a Level 3 fair value measurement.
|
Outstanding balance
|
Unamortized issuance costs
|
Net principal balance
|
Fair value
|
||||||||||||||||||||
| 2026 Convertible Notes | $ | 17,668 | $ | (1,108) | $ | 16,560 | $ | 16,879 | |||||||||||||||
|
2029 Convertible Notes
|
124,605 | (34,121) | 90,484 | 106,086 | |||||||||||||||||||
| Total | $ | 142,273 | $ | (35,229) | $ | 107,044 | $ | 122,965 | |||||||||||||||
D&O Financing Loan
On December 13, 2024, the Company entered into a $1.1 million loan (the "2025 D&O Financing Loan") with AFCO Credit Corporation to finance the Company's directors and officers insurance premium through September 2025. The D&O Financing Loan had an interest rate of 5.99% per annum and matured on September 8, 2025.
Cash Flows
The table below summarizes certain information from our consolidated statements of cash flows for the following periods:
| Years Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Net cash used in operating activities | $ | (41,951) | $ | (38,119) | $ | (18,307) | |||||||||||
| Net cash (used in) provided by investing activities | (606,682) | 2,821 | (3,830) | ||||||||||||||
| Net cash provided by financing activities | 691,313 | 52,458 | 42,062 | ||||||||||||||
|
Effect of foreign currency rate changes on cash and cash equivalents
|
(174) | 424 | - | ||||||||||||||
| Net increase in cash, cash equivalents, and restricted cash | 42,506 | 17,584 | 19,925 | ||||||||||||||
| Cash, cash equivalents, and restricted cash at the beginning of the period | 50,141 | 32,557 | 12,632 | ||||||||||||||
| Cash, cash equivalents, and restricted cash at the end of the period | $ | 92,647 | $ | 50,141 | $ | 32,557 | |||||||||||
Operating activities
For the year ended December 31, 2025, net cash used in operating activities was $42.0 million. Net loss before deducting depreciation, amortization and other non-cash items was $46.9 million and was further impacted by a favorable change in net working capital of $5.0 million. The favorable change in net working capital was largely driven by a decrease in accounts receivable of $17.2 million, a decrease in contract assets of $0.7 million, and an increase in other liabilities of $2.8 million.. These were partially offset by an increase in prepaid expenses and other assets of $10.4 million, a decrease in accounts payable of $5.7 million, and a decrease in accrued expenses of $0.3 million.
For the year ended December 31, 2024, net cash used in operating activities was $38.1 million. Net loss before deducting depreciation, amortization and other non-cash items was $24.6 million and was further impacted by an unfavorable change in net working capital of $13.6 million which contributed to operating cash outflows during this period. The unfavorable change in net working capital was largely driven by an increase in accounts receivable of $11.8 million, a decrease in accounts payable of $4.0 million and a decrease in other liabilities of $1.4 million. These were partially offset by a decrease in contract assets of $3.9 million, a decrease in prepaid expenses and other assets of $2.1 million, an increase in accrued liabilities of $2.9 million, and an increase in contract liabilities of $0.5 million.
For the year ended December 31, 2023, net cash used in operating activities was $18.3 million. Net loss before deducting depreciation, amortization and other non-cash items was $21.9 million and offset by a favorable change in net working capital of $3.6 million which contributed to operating cash flows during this period. The favorable change in net working capital was largely driven by a decrease in accounts receivable of $6.4 million, a decrease in prepaid expenses and other assets of $5.9 million, and in increase in accrued liabilities of $2.6 million. These were partially offset by an increase in contract assets of $3.5 million, a decrease in accounts payable of $4.4 million, a decrease in contract liabilities of $1.1 million, and a decrease in other liabilities of $2.3 million.
Investing activities
For the year ended December 31, 2025, net cash used in investing activities was $606.7 million, primarily consisting of purchases of investments in debt securities (net of proceeds from sales and maturities) of $373.3 million, cash paid (net of cash acquired) for the acquisition of Ask Sage of $229.0 million, and capitalized software development costs of $3.8 million.
For the year ended December 31, 2024, net cash provided by investing activities was $2.8 million, primarily consisting of cash acquired from the Pangiam acquisition of $13.9 million, partially offset by capitalized software development costs of $10.6 million.
For the year ended December 31, 2023, net cash used in investing activities was $3.8 million, primarily consisting of capitalized software development costs.
Financing activities
For the year ended December 31, 2025, net cash provided by financing activities was $691.3 million, primarily consisting of the net proceeds from the exercise of the 2024 PIPE warrants and 2024 RDO warrants of $64.1 million and net proceeds of $628.8 million from the issuance of common stock under our ATM Program. These cash inflows were partially offset by payment of debt issuance costs to third parties in connection with the Exchange Transaction of $4.7 million and payment of taxes related to net share settlement of equity awards of $2.1 million.
For the year ended December 31, 2024, net cash provided by financing activities was $52.5 million, primarily consisting of the net proceeds from the issuance of shares pursuant to the exercise of the PIPE warrants and RDO warrants of $53.8 million, partially offset by the payment of taxes related to net share settlement of equity awards $2.4 million and the net repayment of $0.4 million related to the 2023 D&O Financing Loan.
For the year ended December 31, 2023, net cash provided by financing activities was $42.1 million, primarily consisting of net proceeds from the issuance of the Private Placement and Registered Direct Offering shares of $50.0 million, offset by the payment of transaction costs associated with the Private Placement and Registered Direct Offering of $5.7 million, proceeds from the issuance of common stock upon ESPP purchase of $1.2 million, the payment of taxes related to net share settlement of equity awards of $2.6 million, and net repayment of $0.8 million related to the 2023 D&O Financing Loan.
Critical Accounting Policies and Estimates
Our significant accounting policies are summarized in Note 2of our audited consolidated financial statements for the year ended December 31, 2025 included in this Annual Report on Form 10-K. For the critical accounting estimates used in preparing our consolidated financial statements, we make assumptions and judgments that can have a significant impact on revenue and expenses in our consolidated statements of operations and comprehensive loss, as well as, on the value of certain assets and liabilities on our consolidated balance sheets. We base our assumptions, judgments and estimates on historical experience and various other factors that we believe are reasonable under the circumstances. Actual results could differ materially from these estimates under different assumptions or conditions.
In accordance with the Company's policies, we regularly evaluate estimates, assumptions, and judgments; our estimates, assumptions, and judgments are based on historical experience and on factors we believe are reasonable under the circumstances. The results involve judgments about the carrying values of assets and liabilities not readily apparent from other sources. If our assumptions or conditions change, the actual results the Company reports may differ from these estimates. We believe the following critical accounting policies affect the more significant estimates, assumptions, and judgments we use to prepare our consolidated financial statements.
Business Combinations, Goodwill and Intangible Assets
Under the acquisition method of accounting, the Company recognizes tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values at acquisition date. The accounting for business combinations requires us to make significant estimates and assumptions, especially with respect to goodwill and intangible assets.
Goodwill
The Company allocates the fair value of purchase consideration in a business combination to tangible assets acquired, liabilities assumed and intangible assets acquired based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is allocated to goodwill. The allocation of the purchase consideration requires management to make significant estimates and assumptions, especially with respect to intangible assets. These estimates can include, but are not limited to, future expected cash flows from acquired customers and acquired technology from a market participant perspective, useful lives and discount rates. Management's estimates of fair value are based upon assumptions believed to be reasonable but which are inherently uncertain and unpredictable, and, as a result, actual results may differ from estimates. During the measurement period, which is up to one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.
We assess goodwill for impairment at least annually, as of October 1, and whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. For the purposes of impairment testing, we have determined that we have one reporting unit. Our test of goodwill impairment starts with a qualitative assessment to determine whether it is necessary to perform a quantitative goodwill impairment test. If qualitative factors indicate that the fair value of the reporting unit is more likely than not less than its carrying amount, then a quantitative goodwill impairment test is performed.
The discounted cash flow approach requires management to make certain assumptions based upon information available at the time the valuations are performed. Actual results could differ from these assumptions. We believe the assumptions used are reflective of what a market participant would have used in calculating fair value considering current economic conditions.
Additional risks for goodwill across our reporting unit include, but are not limited to:
•our failure to reach our internal forecasts could impact our ability to achieve our forecasted levels of cash flows and reduce the estimated discounted value of our reporting units;
•adverse technological events that could impact our performance;
•volatility in equity and debt markets resulting in higher discount rates; and
•significant adverse changes in the regulatory environment or markets in which we operate.
It is not possible at this time to determine if an impairment charge would result from these factors. We will continue to monitor our goodwill for potential impairment indicators in future periods.
Goodwill Impairment Testing
During the second quarter of fiscal 2025, we performed a triggering event analysis to determine if it was more likely than not that the fair value of the reporting unit was less than the carrying value. It was determined that there was a triggering event related to the downward revisions of the short and long-term forecasts. As a result of this assessment, we performed a quantitative impairment analysis and the Company recorded a $70.6 million non-cash impairment charge during the three months ended June 30, 2025. Our goodwill impairment test reflected an allocation of 50% and 50% between the income and market-based approaches, respectively. Significant inputs into the valuation models included the discount rate, EBITDA growth and estimated future cash flows. We used a discount rate of 12%, guideline peer group and their historical and forward-looking revenues in the goodwill impairment test. Subsequent to the impairment, there was no excess of reporting unit fair value over carrying value.
We performed our annual goodwill impairment assessment as of the first day of the fourth quarter of 2025 using a qualitative approach to determine if it was more likely than not that the fair value of the reporting unit was less than the carrying value. As part of this evaluation, the Company considered relevant events and circumstances that could affect the estimated fair value of its reporting unit, including macroeconomic conditions, the shut down of the U.S. government, industry and market trends, financial performance, and other entity-specific factors. Based on this qualitative assessment, the Company concluded that it was more likely than not that the fair value of the reporting unit exceeded its carrying amount as of that date. Accordingly, a quantitative impairment test was not performed.
At the beginning of December 2025, a triggering event was identified relative to certain revenue contracts with the U.S. government that resulted in downward revisions of short and long-term forecasts. The facts resulting in the triggering event for the Company's goodwill were also considered a triggering event for the long-lived assets of the Company's single asset group. As a result, we first assessed the Company's long-lived assets for impairment. As a result of the long-lived assets impairment, the carrying amount of the Company's asset group was reduced to it's fair value. As the Company is comprised of a single asset group and reporting unit, there was no excess of reporting unit fair value over carrying value subsequent to the long-lived asset impairment.
Subsequent to the triggering event in December 2025, we consummated our acquisition of Ask Sage, resulting in the recognition of $192.7 million of goodwill to our reporting unit. Due to the proximity of the long-lived asset impairment and the acquisition of Ask Sage, the fair value of the reporting unit approximates its carrying value, and a negative change in the key assumptions used in the interim impairment analysis and the purchase price allocation or an increase in the carrying value may result in a future impairment of goodwill. Any significant adverse changes in future periods to our internal forecasts or external market conditions could reasonably be expected to negatively affect our key assumptions and may result in future goodwill impairment charges which could be material.
Intangible assets
Identifiable finite-lived intangible assets, including technology, customer relationships, licenses and certifications, and trade names have been acquired through the Company's various business combinations. The fair value of the these intangible assets have been estimated using various underlying judgments, assumptions, and estimates. Potential changes in the underlying judgments, assumptions, and estimates used in our valuations of acquired intangible assets could result in different estimates of the future fair values. A potential increase in discount rates, a reduction in projected cash flows or a combination of the two could lead to a reduction in estimated fair values, which may result in impairment charges that could materially affect our financial statements in any given year. The approaches used for determining the fair value of finite-lived intangible assets depends on the circumstances; the Company has used the income approach (within the income approach, various methods are available such as multi-period excess earnings, with and without, incremental and relief from royalty methods). Within each income approach method, a tax amortization benefit is included, which represents the tax benefit resulting from the amortization of that intangible asset depending on the tax jurisdiction where the intangible asset is held.
Finite-lived intangible assets are reported at cost, net of accumulated amortization and impairment, and are amortized on a straight-line basis over their estimated useful lives. Significant judgment is also required in assigning the respective useful lives of intangible assets. Our assessment of intangible assets that have a finite life is based on a number of factors including the competitive environment, market share, brand history, underlying product life cycles, attrition rate, operating plans, cash flows (i.e., economic life based on the discounted and undiscounted cash flows), future usage of intangible assets and the macroeconomic environment.
We evaluate the recoverability of our intangible assets for possible impairment whenever events or circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of these assets is measured by a comparison of the
carrying amounts to the future undiscounted cash flows the intangible assets are expected to generate. If such review indicates that the carrying amount of our intangible assets is not recoverable, the carrying amount of such assets is reduced to fair value. Refer to Impairment of Long-lived Assets, below, for discussion of our impairment during the year ended December 31, 2025.
Revenue Recognition
The recognition and measurement of revenue requires the use of judgments and estimates. Specifically, judgment is used in interpreting complex arrangements with nonstandard terms and conditions and determining when all criteria for revenue recognition have been met. The Company's revenues are derived from the sale of artificial intelligence, machine learning, and technical consulting solutions and services.
The Company engages in long-term contracts for production and service activities and generally recognizes revenue over time (versus point in time recognition) as the as customer simultaneously receives and consumes the benefits provided by the entity's
performance as the entity performs. The Company considers the nature of these contracts and the types of solutions and services provided when determining the proper accounting for a particular contract. The Company performs under various types of contracts, which generally include firm-fixed-price ("FFP"), time-and-materials ("T&M"), and cost-reimbursable contracts.
The Company assesses each contract at its inception to determine whether it should be combined with other contracts. When making this determination, the Company considers factors such as whether two or more contracts were negotiated and executed at or near the same time or were negotiated with an overall profit objective. If combined, the Company treats the combined contracts as one single contract for revenue recognition purposes.
The Company evaluates the solutions or services promised in each contract at inception to determine whether the contract should be accounted for as having one or more performance obligations. Significant judgment is required in determining performance obligations, and these decisions could change the amount of revenue and profit recorded in a given period.
The Company determines the transaction price for each contract based on the consideration the Company expects to receive for the solutions or services being provided under the contract. For contracts where a portion of the price may vary, the Company estimates variable consideration at the most likely amount, which is included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur. The Company analyzes the risk of a significant revenue reversal and if necessary constrains the amount of variable consideration recognized in order to mitigate this risk.
At the inception of a contract, the Company estimates the transaction price based on its current rights and does not contemplate future modifications (including unexercised options) or follow-on contracts until they become legally enforceable. Contracts are often subsequently modified to include changes in specifications, requirements or price, which may create new or change existing enforceable rights and obligations. Depending on the nature of the modification, the Company considers whether to account for the modification as an adjustment to the existing contract or as a separate contract. Our contracts with the U.S. Government often contain options to renew existing contracts for an additional period of time (generally a year at a time) under the same terms and conditions as the original contract, and generally do not provide the customer any material rights under the contract. We account for renewal options as separate contracts when they include distinct goods or services at standalone selling prices.
For contracts with multiple performance obligations, the Company allocates the transaction price to each performance obligation based on the estimated standalone selling price of the solution or service underlying each performance obligation. In circumstances where the standalone selling price is not directly observable, we estimate the standalone selling price using the expected cost-plus margin or residual approach. An increase or decrease to estimated standalone selling prices of 10% would not have a significant impact to revenue recognition.
The Company recognizes revenue as performance obligations are satisfied and the customer obtains control of the solutions and services. In determining when performance obligations are satisfied, the Company considers factors such as contract terms, payment terms and whether there is an alternative future use of the solution or service. Substantially all of the Company's revenue is recognized over time as the Company performs under the contract because control of the work in process transfers continuously to the customer.
For performance obligations to deliver solutions with continuous transfer of control to the customer, revenue is recognized based on the extent of progress towards completion of the performance obligation, generally using the percentage-of-completion cost-to-cost measure of progress for our contracts because it best depicts the transfer of control to the customer as we incur costs on our contracts. Under the percentage-of-completion cost-to-cost measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs to complete the performance obligation(s).
Our cost estimation process is based on the professional knowledge of our professionals and draws on their significant experience and judgment. Accounting for long-term contracts requires significant judgment relative to estimating total contract revenues and costs, in particular, assumptions relative to the amount of time to complete the contract, including the assessment of the nature and complexity of the work to be performed. The Company's estimates are based upon the professional knowledge and experience of its personnel, who review each long-term contract to assess the contract's schedule, performance, technical matters and estimated cost at completion. Changes in estimates are applied retrospectively for contracts executed after the date of acquisition and are applied via the Accounting Standards Codification ("ASC") 805,Business Combinations("ASC 805") reset method described above for contracts existing at the date of acquisition. When adjustments in estimated contract costs are identified, such revisions may result in current period adjustments to earnings applicable to performance in prior periods.
Impairment of Long-Lived Assets
The Company evaluates the recoverability of the carrying value of long-lived assets whenever events or circumstances indicate the carrying amount may not be recoverable. If a long-lived asset is tested for recoverability and the undiscounted estimated future cash flows to which the asset relates is less than the carrying amount of the asset, the asset cost is adjusted to fair value and an impairment loss is recognized as the amount by which the carrying amount of a long-lived asset exceeds its fair value. No such impairment charges were recognized during the periods presented.
Using a discounted cash flow method involves significant judgment and requires the Company to make significant estimates and assumptions, including long-term projections of cash flows, market conditions and appropriate discount rates. Judgments are based on historical experience, current market trends, consultations with external valuation specialists and other information. If facts and circumstances change, the use of different estimates and assumptions could result in a materially different outcome. The Company generally develops these forecasts based on recent sales data, projections based on existing backlog, acquisitions, and estimated future growth of the market in which it operates.
At the beginning of December 2025, the Company identified a triggering event related to its asset group and performed a valuation of certain long-lived intangible assets in accordance with ASC 360, Impairment and Disposal of Long-Lived Assets. We calculated the undiscounted cash flows of the Company's asset group and compared these to its carrying value. As the undiscounted cash flows did not exceed its carrying value, the Company estimated the fair value of the asset group. Our long-lived asset impairment test reflected an allocation of 50% and 50% between the income and market-based approaches, respectively. Significant inputs to the income approach valuation models included the discount rate of 10%, revenue growth, EBITDA growth and estimated future cash flows. Under the market approach, we used historical and forward-looking revenues of a guideline peer group to estimate the fair value of the asset group.
We further estimated the fair value of each long-lived asset within the asset group using the income approach (within the income approach, various methods are available such as multi-period excess earnings and relief from royalty methods). Significant inputs to the valuation of intangible assets included the discount rate, revenue growth and estimated future cash flows.
As a result,the Company recorded $53.4 million of impairment expense related to its intangible assets. The impairment is presented in impairment of long-lived assetsin the consolidated statements of operations and comprehensive loss. Subsequent to the impairment, there was no excess of asset group fair value over carrying value.
Capitalization of Software Costs
Software development costs incurred in the development of software to be sold, leased, or otherwise marketed, incurred subsequent to the establishment of technological feasibility and prior to the general availability of the software, are capitalized when they are expected to become significant. Such costs are amortized over the estimated useful life of the applicable software once it is made generally available to our customers.
We evaluate the useful lives of these assets on an annual basis, and we test for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets.
Income Taxes
Significant judgments are required in order to determine the realizability of tax assets. In assessing the need for a valuation allowance, we evaluate all significant available positive and negative evidence, including historical operating results, estimates of future sources of taxable income, carry-forward periods available, the existence of prudent and feasible tax planning strategies and
other relevant factors. The Company recognizes a tax benefit only if it is more likely than not the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon settlement. The Company recognizes interest and penalties related to uncertain tax positions in its provision (benefit) for income taxes.
Derivatives
Derivatives are accounted for in accordance with the guidance of ASC 815, Derivatives and Hedging ("ASC 815"), under which the 2029 Notes Conversion Option, the 2026 Notes Conversion Option, IPO private warrants, Private Placement ("PIPE") warrants, and warrants issued under the registered direct offering ("RDO warrants") do not meet the criteria for equity treatment and are classified as liabilities measured at fair value. Public warrants meet the criteria for equity classification. The Company remeasures these derivatives at fair value at each reporting period with changes in fair value recognized in the consolidated statements of operations and comprehensive loss.
Equity-based Compensation
Pursuant to ASC 718, Compensation - Stock Compensation, equity-based awards are measured at fair value on the grant date. For equity classified equity-based awards without performance conditions, the Company recognizes equity-based compensation cost on a straight-line basis over the vesting period of the award. For equity classified equity-based awards with performance conditions, the Company recognizes equity-based compensation cost using the accelerated attribution method over the requisite service period when the Company determines it is probable that the performance condition will be satisfied. The Company recognizes forfeitures of equity-based awards in the period they occur.
Stock Options
On December 7, 2021, the Company adopted the BigBear.ai Holdings, Inc. 2021 Long-Term Incentive Plan (the "Plan"). The purpose of the Plan is to promote the long-term success of the Company and the creation of stockholder value by providing eligible employees, prospective employees, consultants, and non-employee directors of the Company the opportunity to receive stock- and cash-based incentive awards.
Stock options generally vest over four years with 25% vesting on the one year anniversary of the grant date and then 6.25% per each quarter thereafter during years two, three and four. Vesting is contingent upon continued employment or service to the Company and is accelerated in the event of death, disability, or a change in control, subject to certain conditions; both the vested and unvested portion of a Grantee's stock options will be immediately forfeited and cancelled if the Grantee ceases employment or service to the Company. The stock options expire on the 10th anniversary of the grant date. The Company recognizes equity-based compensation expense for the stock options equal to the fair value of the awards on a straight-line basis over the service based vesting period.
Performance Stock Units
Pursuant to the Plan, the Company's Board of Directors communicated the key terms and committed to grant Performance Stock Units ("PSUs") to a certain employees. The Company grants PSUs to certain employees with performance measures specific to the role of that employee ("Discretionary PSUs"). The Company also grants PSUs to employees under the Company's Short-term Incentive Plan ("STIP PSUs"), which contain performance measures based on a combination of Company's financial performance as well as the individual's personal performance. The number of Discretionary PSUs and STIP PSUs that will vest is based on the achievement of the performance criteria during each respective annual measurement period, provided that the employees remain in continuous service on each vesting date. Vesting will not occur unless a minimum performance criteria threshold is achieved.
EmployeeShare Purchase Plan ("ESPP")
Concurrently with the adoption of the Plan, the Company's Board of Directors adopted the 2021 Employee Stock Purchase Plan (the "ESPP"), which authorizes the grant of rights to purchase common stock of the Company to employees, officers, and directors (if they are otherwise employees) of the Company. As of January 1, 2025, the Company reserved an aggregate of 5,260,346 common shares (subject to annual increases on January 1 of each year and ending in 2031) of the Company's common stock for grants under the ESPP. Equity-based compensation expense related to purchase rights issued under the ESPP is based on the Black-Scholes OPM fair value of the estimated number of awards as of the beginning of the offering period. Equity-based compensation expense is recognized using the straight-line method over the offering period.
Recent Accounting Pronouncements
As of December 31, 2025, the Company ceased to qualify as an Emerging Growth Company ("EGC"). Under Section 107 of the JOBS Act, an EGC was exempt from complying with new or revised accounting standards provided in Section 7(a)(2)(B) of the Securities Act as long as they qualified as an EGC. An EGC could therefore delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. The JOBS Act provides that a 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 election to opt out is irrevocable. The Company previously elected not to opt out of the extended transition period. However, as of December 31, 2025, the Company has adopted all applicable accounting standards effective for non-EGC filers as required.
See Note 2-Summary of Significant Accounting Policies of the consolidated financial statements included in this Annual Report on Form 10-K for a discussion of recently issued accounting pronouncements.
BigBear.ai Holdings Inc. published this content on March 02, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on March 02, 2026 at 21:34 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]