Thank you for joining the BigBear.ai First Quarter 2022 Conference Call. This call is being recorded. At this time, all participants are in a listen-only mode. And a question-and-answer session will follow the presentation. [Operator Instructions] I will now like to turn the call over to Josh Kinley of BigBear.ai. Please go ahead, Mr. Kinley.

Good afternoon, everyone, and welcome to BigBear.ai's 2022 first quarter earnings conference call, I’m Josh Kinley, Chief Financial Officer and I'm here with our CEO, Dr. Reggie Brothers and other members of the BigBear.ai leadership team who will participate in the Q&A session afterwards. During the call today, we may make certain forward-looking statements. Listeners are cautioned not to put undue reliance on the forward-looking statements and BigBear.ai specifically disclaims any obligation to update the forward-looking statements that may be discussed during the call. Many factors could cause actual events to differ materially from the forward-looking statements made on the call. These statements are based on current expectations and assumptions and as a result, are subject to risks and uncertainties. For more information about these risks and uncertainties, please refer to the forward-looking statements section of the earnings press release issued today and our SEC filings. We will also discuss some non-GAAP financial measures during the call today. These non-GAAP measures should not be considered a replacement for GAAP measures and should be read together with the GAAP results, you can find the GAAP to non-GAAP reconciliations within our earnings release. With that said, I will turn the call over to Dr. Reggie Brothers.

Thank you, Josh, and thank you all for joining our first quarter 2022 earnings call. As I described in our last call, our mission in BigBear.ai is to guide our customers to realize their best possible future by delivering transformative technologies and expert actionable advice. Our AI powered analytics software and cyber engineering solutions are cornerstones within the defense intelligence agencies of our federal government. We are now bringing these advanced capabilities to the commercial market. For the first quarter of 2022, the BigBear.ai took several important steps in our journey from a steady and profitable services first company to high growth, high margin technology first company. We made good progress in our land and expand strategy in federal market, while establishing a strong foothold in the commercial side of our business through a strategic and accretive acquisition. We also continued to position the company for rapid scale, regarding outstanding talent to the team, and like any operational efficiencies through automation and reorganization. But these developments are on track to achieve expected revenue for 2022 in the range of 175 million to 205 million and end the year with positive adjusted EBITDA as stated during our last call. I'd now like to share some details on our progress. On the federal side, we're pleased to see the appropriations bill signed into law on March 15. Those of you unfamiliar with the federal contracting process, it takes some time for budget authority to flow down to individual agencies, and then to distinct projects. So this event happened too late in the quarter to positively affect Q1 revenue. However, we anticipate the new bill, coupled with the conclusion of the continuing resolution will generate momentum for BigBear.ai throughout the rest of the year and into 2023. We added 11 new contracts in…

Thanks, Reggie. In the first quarter, we continued to execute on our growth strategy and are in a strong financial position to capture opportunities that will ramp up throughout the year. Revenue for the quarter was $36.4 million, compared to 35.6 million in the first quarter of 2021. This revenue was in line with our projections due to the federal government operating under a continuing resolution for almost the entire quarter and does not change our year-end projections. About $19.1 million of revenue was from our analytics segment, compared to 17 million in the prior year period. The 2.1 million increase is largely attributable to our growing commercial analytics business, as Reggie mentioned, saw more revenue in Q1 of 2022 than the entirety of 2021. Approximately 17.3 million of our revenue came from our Cyber & Engineering or C&E business, compared to 18.6 million in the prior year period. The minor drop in revenue reflects the impact of the continuing resolution on certain programs that we are unable to execute funding, while the government was operating under a temporary budget. We still expect all of the projected revenue to come in during 2022 and it does not change our year-end projections. Overall, we were pleased with the quarterly revenue given we were operating under the continuing resolution. This is actually a direct benefit of our large contracted backlog that allowed us to continue delivering our products and services while the government was finalizing the 2022 budget. Now that the appropriations bill has been signed into law, we expect contracting activity to pick up at the end of the second quarter as funds flow down to individual government agencies, thus allowing them to award new contracts and allocate spending to individual programs and projects. As Reggie mentioned previously, the government has…

Hi, thank you. This is Param Singh on Ittai Kidron. So just a few questions here. Firstly, you talked about 11 contract wins on the federal side. Can you help me reconcile that with the backlog decline you've been seeing? Why would that happen, if you got some wins? Why is it not recognized?

Thank you for the question. The 11 contract wins were initial funding that came through for some new projects in the quarter. So on a net-net basis, it did add some initial funding. But given that those the government customers were still operating under a continuing resolution, those 11 contracts, there weren't any large awards in there. Those are essentially pending awards in Q2 and Q3, in all likelihood.

Thank you. And then, on the commercial side, you mentioned, your revenue in the quarter was higher than the entire past year. So is it in the 1 million to 2 million range? Is it above 2 million? Any clarity there would be really helpful.

I think the best way to think about that is, you kind of see our year-end projections. And we're projecting 10% of the revenue coming from commercial sources. We're not, at this time reporting specifically on commercial revenues for the quarter. But you can definitely think of as we build up to that mark, which year-end projections of, let's say, roughly 200 million, that leaves you with $20 million of projected revenue. We're going to see that ramping up throughout the year. So I think it's fair to say that somewhere in the range of 15% to 20% might have come in Q1 and that's going to ramp up throughout the year to that overall 10% of our projected commercial revenue. Hopefully that helps.

Yes, definitely. Thank you very much for that. Maybe talking about ProModel then, how much of commercial revenue this ProModel add what the margins like? And do you expect to keep ProModel as a separate product or integrated into your three observe, orient, dominate product?

So, I will discuss the revenue very quickly, and then I'll ask Brian to weigh in on the technical integration. So we're not disclosing their revenue to-date, we expect to be able to considerably capitalize on the opportunities they have and the existing customer sets. At this point, it's not a substantial amount or a substantial add to our projected commercial revenue. The most important thing is the pipeline opportunities for us moving forward on the technical integration side.

This is Brian Frutchey, the CTO. I appreciate the question. On the technical integration side, the discrete event simulation capabilities the ProModel offers will continue to exist as standalone tools and capabilities. But we are going to repackage that capability again, the discrete event simulation that they provide and merge that with our orient and dominate product. So that integration will be happening and likely won't be completed until the first part of '23. But that is in the cards for us.

Thank you. And then maybe one last one. How many commercial sales adds are you getting from this acquisition? And do you expect to add more commercial sales people through the year? And what number can we expect given your trajectory in commercial?

Sure. Thanks for the question. This is Jeff Dyer. We inherited six sellers, both direct and indirect from ProModel and we do expect that we will add on a ramp basis throughout the years, we continue to grow that pipeline, and further to Brian's point, integrate our product offerings to leverage the best of both companies technologies together.

Thank you so much. I'll get back in line.

Our next question is from Mike Latimore with Northland Capital Markets. Please proceed.

Thanks. Yes. Congratulations on the results here. In terms of just I guess, just following up on the last question, if you'd include the six adds here, as well as the organic adds planned, how many new sales people or how fast will you grow the sales and marketing group this year relative to 2021 in total for commercial.

Hey, Mike. This is Jeff. Thanks for the question. We anticipated this in our guidance for the year. And so while it wasn't done, we knew that we would be hopefully executing this acquisition. So it was contemplated in our original plan. A lot of focus right now on accelerating the demand plan, as I have planned to add sales headcount in each quarter as we ramped through the year and into 2023. I need to test that over the next quarter with obviously the demand cycle and lead generation, as it relates to the conversion ratios that we see now and what we anticipate we can do moving forward. But it certainly strengthens the ability for me to fund the sales offers the right way. But we need to still ingest and learn a few things as we get closer to our new friends and family members that we inherited with the ProModel acquisition.

Yes. Okay, great. And then just thinking about the revenue flow throughout the year, obviously, the third quarter is the fiscal year end for the Fed, should we think about third quarter being the peak revenue quarter for the year? Or is the growth or do just have a little sequential growth each quarter to hit your numbers?

Yes. Thanks for the question, Mike. And good to hear from you. This is Josh. That's a good way to think about it. We actually expect things to continue ramping up even through Q4. We do have some insight into some later calendar year awards that are going to be out up there. So I wouldn't necessarily think of Q3 is the peak, I think it'll continue to climb even through Q4. Part of that is because some of the government or federal awards that we expect in Q4, but also between the ramp up of the commercial revenue, which isn't necessarily bound by the government, budgeting and contracting cycle. So I think of it as a steady ramp. As we see the commercial revenue making up a bigger and bigger portion of our overall revenue. I think that that's something we'll continue to see in future years as well, that steady ramp up through the year and less dependence on the federal contracting cycle, if you will.

Right. Okay. And then just last on commercial. Can you talk a little bit about just the -- maybe the main customers that are driving this 20 million, or the use cases that are driving the 20 million this this year? And also, you get sort of a win rate number, like what percentage of time are you kind of winning these deals?

Sure, thanks for the question. Again, this is Jeff Dyer. On the last part of your question, with respect to win rate, I need to learn a bit more on that not just to best understand the win rate against the legacy pattern that we inherited with the acquisition, but to really understand that with the sales offensive that will put in place moving forward. But Reggie gave an example of a story in healthcare whereby the Children's Hospital Colorado, which is one of many of the children's hospitals that use ProModel today for optimizing hospital efficiency and their direct requests to incorporate AI and ML models to best understand how to care for the children that can only be impacted at a children's hospital different than a different medical facility. We think that there's huge opportunity these are seven and eight figure annualized ROIs type of impact studies through the hospitals that we've been able to talk to learn from. These are large six figure sales. Anytime you sell to a hospital as an example, a six-figure type of offering even though there is value, there's a cycle that takes time. We need to best understand how we can leverage partners to accelerate certain buy cycles, but also get our own motions in place to accelerate what we think is a really exciting growth opportunity for us in the back half of the year certainly. In the next year, there is an incumbent pipeline around manufacturers, shipbuilders, hospitals, we're excited to help execute at a higher rate of conversion in the second half of the year, but certainly need to test some of our theories and establish those patterns for ourselves as we head into 2023.

Yes. And I guess just last on the federal side. I know you've been doing some investments in anticipation of winning contract awards. I guess, can you just give an update on that dynamic? And are you getting more encouraged that these kind of initial investments are going to lead to contracts this year?

Yes, absolutely. This is Sam Gordy over on the federal side. So the contracts you're talking about are OTAs, right, other transactional authority contracts within the U.S. government, which, require that they do invest on a prototype side of the house. But the advantage is, it allows the government to very quickly move from prototype to production, without having to go through a further round of competition. And so it's a great vehicle for the government. It's a great vehicle for us. We have two major efforts underway today. One is [AIMs, the ATEC] [ph] modernization management system. And then the other is [G10 MOE] [ph] with the Army G-3 and PEO. Both of those are in the prototyping stage right now. From our perspective, we're extremely happy with the progress we're through phase one and in both cases, moving into phase two. You're probably aware we've talked about on the [G10 MOE] [ph] side that we're now teaming with Palantir in putting together a joint project and that's receiving a lot of attention. And we're certainly looking forward to the progress and encouraged with what we're doing there.

Okay. Thanks. Good luck.

Thank you. This concludes the question-and-answer session. I would like to turn the call back to Dr. Reggie Brothers for any closing remarks.

Thank you for joining us on this first quarter 2022 earnings call. And we look forward to talking with you the next time reporting on our progress. Thank you very much.

This concludes today's conference. Thank you very much for your participation. You may now disconnect.