Thank you for joining the BigBear.ai Fourth Quarter and Full Year 2022 Conference Call. This call is being recorded. [Operator Instructions] I will now turn the call over to Shane Karp, Vice-President Marketing and Communications. Please go ahead, Mr. Karp.

Good afternoon, everyone, and welcome to BigBear.ai's 2022 Fourth Quarter and Full Year Earnings Conference Call. I’m joined by Mandy Long, our Chief Executive Officer; and Julie Peffer, our Chief Financial Officer. 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 this 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 financial measures should not be considered a replacement for and should be read together with GAAP results. You can find the GAAP and non-GAAP reconciliations within our earnings release. Now I'd like to turn the call over to Mandy.

Thank you, Shane, and thank you all for joining today's call. In the fourth quarter, we achieved our 2022 financial outlook and took significant steps to bolster our fundamentals and set the stage for long-term growth. As discussed in previous calls, we have continued to take material steps forward in reducing our recurring operating expenses and improving our liquidity position. Less than six months into my role as CEO, we are much healthier. We've cleaned up our operating structure fund in the company in a very tough market and completed a comprehensive technology assessment to baseline our portfolio. We now have a clearer understanding of our capabilities, and how they can be applied to the markets that we serve. I see 2023 as a critical foundational year for us, as we support some of the challenging things that are happening in the world right now, and strive to deliver clarity for the world's most complex decisions. We were in the midst of an unprecedented wave of excitement around artificial intelligence. Key decision makers and leaders across governments and industry are recognizing the necessity of at scale production great adoption of AI-powered decision support. BigBear’s capabilities and decades-long heritage in this field gives us a competitive advantage in delivering a higher form, a reliable, scalable decision intelligence solution. We're seeing an explosion of interest in what we provide, and we are continuing to foster our innovation pipeline to adapt and extend our capabilities to serve our markets. We will continue to focus on delivering solutions in three core markets: complex global supply chains and logistics, autonomous systems, and cyber. We anticipate the government investment in AI solutions will continue to grow. In November 2022, the U.S. Department of Defense released its National Defense Strategy, which stated that the government would continue…

Thank you Mandy. Now let's turn to our fourth quarter and full year results. Revenue for the quarter was $40.4 million compared to $33.5 million in fourth quarter of 2021, which was 21% year-over-year growth, primarily driven by our analytics segment at $23.1 million in the quarter, an increase of $6.5 million, or 39%, compared to the same period in 2021. This growth was driven by key program wins in 2022, including the phase 2 award for the global force information management or GPM program with the U.S. Army that Mandy walked through earlier. Revenue in our C&E segment was $17.2 million in the quarter, compared to $16.8 million in Q4 2021. For full year revenue, we achieved our guidance target with revenue of $155 million representing 6% year-over-year growth versus 2021. The gross margin was 29% in the quarter, an increase from 11% in Q4 2021, driven by the growth in our analytics segment. Turning to segment adjusted gross margins, we are continuing to see growth in our higher margin analytics segment, which includes our commercial business outpace our C&E segments. We anticipate that this trend will contribute to increasing segment adjusted margins going forward. The segment adjusted gross margin was 35% in Q4 2022, compared to 31% in Q4 2021. Segment adjusted gross margin in Analytics was 47% in Q4 2022, compared to 34% for Q4 2021, driven by prior investments that were successful in winning and executing higher margin follow on awards. Segment adjusted margin for C&E was 20% compared to 28% in Q4 2021, primarily driven by a onetime year-to-date fringe rate true up adjustment that was recorded in fourth quarter of 2021, resulting in a higher than typical segment adjusted gross margin in that period. Now turning to backlog. Backlog was $222 million at year…

Thank you, Julie. I am proud of the BigBear.ai team and the work that we have done to deliver on our commitments and begin to capitalize on the evolving market opportunities we discussed. That is the pattern that you will always see here. We will say what we are going to do, and then we will do it. We know what we are capable of. We aren't afraid to learn fast and work hard and we see the long game. 2023 will be an important year of growth and stability for BigBear.ai as we deliver clarity for the world's most complex decisions. We're very excited about the year ahead. Operator, we're ready for questions. Thank you.

Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions] And our first question comes from the line of Louie DiPalma with William Blair. Please proceed with your question.

Mandy and Julie. Good evening.

Hi, Louie.

Hi there. There has been a great deal of investor excitement associated with ChatGPT and its impact on AI innovation. Can you provide a quick overview of how your solutions may differ from ChatGPT and your use of tensor completion as part of your AI solution? And also related to this, will ChatGPT developments translate into contracts for BigBear.ai over the long-term or how should we in general think about the recent excitement for AI solutions? Thanks.

Thank you, Louie It is an incredibly fair question and I think, one that many wonder about. So ChatGPT as a whole right is I think there's been a lot of coverage on is derived off of LLMs, right, large language models, which is a capability that's actually existed for a very, very long time, and has been applied. BigBear uses LLMs, a lot of companies do. But I think that this particular instance is the first time we've seen a degree of democratization and consumer-facing access to the capabilities that exist within training on such a large spectrum of data. Now, in terms of kind of how that pulls forward for us, I think what's important to know about BigBear is that we have more than a couple of decades of experience in working in even the early days of machine learning. And now, as deep learning has progressed, we leverage a wide variety of training tools and methodologies to meet customer needs. And sometimes that, to your point, right, may require different types of artificial intelligence, whether it's the work that we do in predictive analytics, whether it's computer vision, or the underlying tools that we use to accomplish those things, we have skill sets that tap into each of them. But what I would note in terms of the - you mentioned tensor, right? I think the big thing that I always say about AI in general is that it is a tool, it is a spectacular tool. And it can be applied in a way that, even five years ago, we really couldn't tap into because of the limitations around compute. But at the end of the day, as a technology provider, and as a solution provider, our job is to use the right tools to solve the customer problem. And we're going to lean into things like tensor, right, as an example. It does a pretty spectacular job, and we've been working in that for quite a while around weak link correlation. So dirty datasets. And we do use that and some of our solutions that are deployed with the federal government as we look forward into 2023, as well as beyond. Unquestionably, we are seeing an unbelievable amount of interest in the application of artificial intelligence in both the federal sector as well as the commercial sector. What's putting us apart in those conversations, and what gets us excited about the future is that we're not new to the table. We've been doing this for a very long time. And we have a lot of production examples of the types of tools that I just talked about. And so I would expect, and when we look at our pipeline, right, I see a lot of promise, right, associated with where we're headed. And it's really on us to do what we did, right, go execute, and then keep sharing it as we go. Does that answer your question, Louie?

Yes, definitely. Thanks, Mandy. And you were just talking about production examples. And last quarter, you discussed how your Med model and FutureFlow Rx platforms have been gaining some traction with hospital customers. And I'm wondering how has that platform progressed since last quarter in terms of customer adoption? And what does the pipeline look like?

So it's a great question. And I do want to note, right, the commercial side of our business, which does include the FutureFlow Rx solution, we don't break out separately in terms of recording, but the pediatric care crisis continues, right? There is an unbelievable challenge happening in the world that I spent many years in across hospitals and health systems associated with staffing shortages, associated with incredible optics in particular types of illnesses that we just haven't seen, right, in this kind of volume for a very long time. And our tools are incredibly well-situated to be able to help with how to design, right, patient flow solutions and optimization solutions for how to get patients to the right place at the right time and do prioritization. We are continuing to see interest in that and our pipeline is reflective. Does that answer your question?

Yes. And one more on your business prospects. The U.S. Army at an industry conference in January announced that it is looking to multisource its vantage data analytics dashboard program, and in your prepared remarks and over the past year, you've discussed the success that you've had with the GFIM program, which is also with the U.S. Army data analytics office. And I was wondering if this vantage, multi sourcing represents an opportunity for BigBear given its strong relationship with the U.S. Army, and what other potential defense prospects you may have in your pipeline? Thanks.

Sure. I think probably the best way to answer it was to maybe talk about some of the things we're seeing as it relates to consolidation of federal contracts, right, because that I think, is absolutely happening. We are seeing multiple contracts consolidated into larger contract infrastructures, in certain cases, which allows the government to manage properties more efficiently and streamline the work. And we are definitely having this conversations. Now we've seen that in other instances as it relates to kind of the general, federal market, and how we position ourselves and what we're seeing in terms of opportunity. I think, in all three of the vectors, right, that we have strengthened, whether it's complex global supply chain logistics, whether it's autonomous systems like our work at IMX 23, right, whether it's cyber right, particularly with a focus on cybersecurity and risk, right and reverse engineering, I see our pipeline growing. I guess this is the short summary and I think it has, in no small part right to do with the fact that there is a level of geopolitical unrest that is pretty unprecedented right now and leadership that is in the seats and we are doing our best to help.

Great. And for Julie, following the cost reduction initiatives, what should we expect for the ballpark cash burn for 2023 when taking into account the interest payments and different tax payments that you mentioned? And also what is the total company liquidity pro forma for the $25 million raise?

Well, specifically to your first question, Louie. So, we, we feel like we have done a really good job of getting the piping has really helped significantly on that liquidity profile, obviously. But when we look at our cash burn with the cost reductions that we've taken out in starting in Q3, again, in Q4 and Q1, we do expect the cash burn to be significantly lower. Now, you're already aware of our interest payments that do happen in second quarter and fourth quarter. And so you kind of already know where those are placed. I would tell you that, our targeting, we are targeting to be operationally cash flow positive in the second half of the year. Again, to be clear on what we mean by operational cash flow positive, we're focused on the on-going day to day business. So that includes, everything that would be normal operating expenses that you would see in the business as well as inflow of customer payments. It doesn't include, as I said, the interest payments, which you know, where those are, or transaction fees for severance costs and things like that. We're going to be much more positive we believe in the second half of the year. In the first half of the year just to be clear, we, I think we noticed this in our earnings release, we had some start-up costs in fourth quarter in early Q1 in advance of a contract that was awarded in late Q1. And so the timing of those customer payments is probably going to flow into Q2. And so we do think that early in the year cash is going to look a little bit worse than it will be in the back half of the year. But we still think that we're comfortable with our liquidity position where we are that we have plenty of liquidity to support our growth strategy and deliver on the promises we've made.

Great. Thanks, Julie and thanks Mandy. That's it for me.

Thank you, Louie.

And our next question comes from the line of Param Singh with Oppenheimer. Please proceed with your question.

Hi, thank you. Yes, this is Param Singh on for Ittai Kidron from Oppenheimer. So first of all, I just wanted to get a better sense of your overall revenue guide. Obviously, you have some really good successes with multiple contracts that you've talked about GFIM today, and, of course, IDIQ. Well not what kind of parse that and against your DACA wants to [Indiscernible] I mean, it doesn't seem you're embedding much growth in there. Maybe you could help me understand why that, not growing at a much faster pace? Or is there incremental conservatism baked into your guidance?

So hello, first of all hi, thanks for joining. Second, so I can, I'll make a couple of comments. And then I'll hand it to Julie to add some color. I think when we, when we looked at kind of the year, we had in 2022, and then we looked forward into 2023. And so what we see the way that we're approaching guidance is really to be balanced. Right. And in really establishing and sharing right, well, we have line of sight to, what we see what we think is reasonable, right, given certainly a continued challenging macroeconomic environment. But to reinforce what Julie shared, as well as what I shared earlier, that we, I think for many companies, right, ourselves included, January opened up a lot of conversations that I think we are seeing accelerate, right. And I'll continue to be optimistic about how those conversations will progress. But as you also know, the federal contracting process can be a long one. And while we are pushing and being extremely responsive, and adapting and extending our solutions to meet those needs, our guidance reflects what I think is a very appropriate and measured approach between 2023. Julie, anything to add on your side?

Yes, I would say yes, maybe say most of everything that I would have said, the only thing I would add is that there's a couple of things that I would add to that was this sense of we're trying to ensure that we don't get ahead of ourselves. We saw some challenges last year, as we experienced on shifting and funding from various different contracts that that we had in terms of timing of how those were going to be funded, or specifically some of the funding that was reprioritized to be associated with the war in Ukraine. And so we want to make sure that what we have in our guidance is what we believe is in front of us and that we can deliver. And the only other thing I was going to just remind you guys and I think maybe said this but just to reemphasize, it's important to understand that in the government world, even with this really heightened excitement around AI and capabilities, there's typically three major stages that we have to go through in order to get these contracts awarded. And there's a prototype phase, which is small. And typically breakeven, there's an MVP stage, which has to prove things out. And then we get into production, that takes a long time. And so even with the excitement around everything that we're seeing, and we're excited about what we're seeing, it's just going to take a while for people to move through that process and through that curve. And so I think that's why our guidance is where it is, we want to make sure that we're measured about how we're communicating and what we're committing to and how fast we can get there.

That's really helpful. Thank you so much for the caller, Mandy and Julie. Maybe if I could, on the GFIM part obviously did much better on phase 2. Phase 3, I mean, what do you expect what's embedded in your guidance in terms of the dollar portion of the contract? Obviously, the revenue piece was much higher than you had previously anticipated? Is there now a higher output for Phase 3 as well.

So it's a fair question. And our kind of do the same as the last which is, initial, as Julie walked through in terms of thinking about phases, right. As we as we move from where we are in phase 2 and compete for phase 3, which we continue to believe we're very well positioned for because of our execution and delivery, in the phase 2 process. Ultimately, the shift to production in, I think all example cases that we can look at means that it's larger, right, because you're talking about putting it into the real world doing it at scale. Now, in terms of price and -- right. I think, ultimately, it's up to the customer to make that determination and to make the award as appropriate. But I mean, Julie, definitely weigh in, because we are certainly spending a lot of time talking about it.

Yes, for sure. Yes. I mean, everything's going very well, on the program. It was announced back in September of last year for phase 2, we're still working toward the, toward the next phase. And again, I think we're still looking to accelerate the deployment of the overall solution. And so we're excited about where it's going. But as we've said, they continue to refine their contracting processes and decide how fast they're going to move down the curve, and whether they need some more, prove out during the process before they can land in a production mode. And so I think everything's going exactly as we hoped, and maybe even better than we hoped. And I can't I think right now that we just don't want to over commit to how quickly they're going to move into production, although we do believe it is calmed as part of the 2024 budget.

Now, that's really helpful. Thank you so much. Maybe we could talk a little bit more about the cybersecurity opportunity. I don't think that's been discussed as much. So when we understand what you're doing, and one of the new avenues of revenue that could potentially affect the upcoming years.

Sure, so I can talk a little bit about that. So we have a, and I think it's important to note first, right, this is actually not a new capability for us, we have a pretty mature and long standing cyber competency. But the area that I was referring to, that I talked about at the beginning of the call, is really in and around part of our business that we're seeing mature pretty quickly, which is that spacecraft solutions, so not only being able to do to not realistic reverse engineering work and vulnerability analysis on componentry. But also to be able to do simulation, right and modeling associated with potential, whether it be offensive or defensive security postures and monitor that. Now on an on-going basis, some of the things that we're seeing as well is that, as we all know, right, cybersecurity continues to be one of the great challenges for a wide variety of industries as we go through the fourth industrial revolution. A lot of these systems and sets of hardware were just not set up with the level of rigor, right, that is going to be needed as the threat landscape continues to mature. And so we're doing more and more work in what I would describe as kind of vulnerability assessments as a service. There is a large platform manufacturer that we've worked with on that and we're seeing additional chances. But the area where I guess I want to kind of focus and educate around is that we have a pretty unique competency and being able to do end to end reverse engineering and full scope, vulnerability work. That is not something I have seen in a lot of other companies all the way through the process of being able to actually work with physical hardware new extraction analysis. So I hope that's helpful. But that is where we have some superpowers.

If you compete with, like traditional defense contractors, or cybersecurity companies would be more often displacement for you in this vertical?

It's a good question. I think, in in the face that we work in, right. So particularly focused, if I focus first on the face press solution, right, that's a pretty distinct solution that we have a partner, red wire around, right that we're doing that work. And as it relates to some of the kind of broader vulnerability work that I mentioned, in the reverse engineering work, I would say we do see a level of competition from both sides. Most of the -- this is pretty kind of special superpower services work to and requires pretty highly talented and skilled individuals who live along the technology pipeline that we're using for it. So we do see some competition in the kind of more traditional contractor world too. Does that answer your question?

Yes, absolutely. That's really helpful. Thank you. Maybe one last. The commercial revenue, I know you haven't broken down, but previously, big issue, some are outlined, the percentage of revenue that would come from commercial, that would increase over time? Is that some sort of guideline or number embedded in your 2023 guide? Now, as you think you can add 10% would be coming from commercial, is that a better number of different understanding trajectory for that piece of the business?

It's a great question. So we, we continue to see the commercial business show promise, right, our pipeline is great, right, we're continuing to see that grow. We have not broken it out specifically. Because we're still kind of below that 10% threshold for us. But I think 2023 is going to be a great year for it.

And then, just on the on the margin front. I'm looking at a number that seems like you're seeing the margins gross margins was lower or maybe you can give me some clarity why that's taking a little bit of pressure here?

Yes, actually, let me take that one for you, Mandy. I would say honestly, any what you saw in Q4 was pretty close to what we've been running slightly below what we've run all year. The anomaly is the year-over-year comparison. And last year, there was a kind of a onetime year-to-date catch up that happened in Q4 that caused the sandy margins to look a little bit out of sync with everything else in the fourth quarter of last year. So when you look at the comparison, it looks odd. But I think what you see in Q4, although right at that 2021 level is what we consistently ran through the C&E segments.

Got it. Okay, that's really helpful. Thank you so much. And then at what level of revenue you think, you could probably get an EBITDA breakeven.

It's a great question. But I mean, our guidance is, that we're going to, basically our target is between 155 and 170 on revenue. And we think that that will be really aligned with our guidance of negative single digit negatives in millions EBITDA. We're going to do everything we can to continue to focus on our cost structure and be very diligent and how we can take costs out and focus on that where we can, but we're not going to, we're not going to do the wrong thing. We're going to make sure we have enough investment opportunities so we can take advantage of this really unique opportunity in our lifecycle where we can make those investments as necessary. So, I think that's where we need to be right now. And that's, that's our guidance for the year.

Got it. Thank you so much, guys. I'll get back in line.

Thank you.

[Operator Instructions] Our next question comes from the line of Vivek Balani [Ph] with Northland Capital. Please proceed with your question.

Hi, I'm Vivek on for Mike Lattimore. I have three questions. The first one is -- hi. Yes, my first question is how many salespeople do you have? And do you expect them to grow this year?

Yes, I was going to say I just I want to make sure I heard the question right. Are you asking him how many salespeople we have?

Yes.

We don't specifically give guidance out on headcount, and specifically not within one area. But I would say we are really focused on where we think we need to invest both on the [Indiscernible] on the standing side as well as on the analytics in terms of opportunities within the best customer sets. And we’re looking to, do two things. One is to pursue opportunities into adjacent into adjacent customers that, we haven't had a position in. So our business development resources are critically important to that growth opportunity. But we're also looking to continue to grow within customers that we already have. And so, that often falls on the program manager side of the house as well. So I think the way we handle that growth is, a two part answer, but it's not something that we typically give guidance on.

Yes, I think the only other note that I would make, in addition to just the comments that everybody sells is that we have a strong partner channel as well. And it's a space that we're growing, right. So when we think about sales, but I would also encourage you to kind of also think about it from an indirect standpoint and channel, we have a growing degree of interest in some established relationships already there. So for us, it's not just about direct sales. I hope that helps.

Yes, thank you. And my second question is, should we assume first quarter to be the lowest revenue for the whole of the year, and then it builds from there?

Julie, do you want to go ahead and take that one.

I can take that. I would not make that assumption. But again, we don't get quarterly guidance. The nature of our business is that sometimes it is lumpy. And so when we give guidance for the year, there is a reason why we don't give that quarterly guidance, we want to make sure that, we're offering the best perspective we have on the year, but it can be lumpy, and it can move around. I mean, as I mentioned, we had contracts that got delayed at the end of fourth quarter that came in in Q1. And so that's going to cause some lumpiness in our cash flow. But bottom line is, it's just not something we're comfortable yet. We may get to a point where we get there where we start to get quarterly guidance, but we're just not quite to that level yet.

All right. My last question is about I mean, do you see analytical cyber engineering growing faster this year?

So just to make sure that I understand. Are you talking about comparison between the two which will grow more? For…

Yes.

So this is something that and Julie you can add on that for me, right? We've been talking about this, for the past several quarters is right. Our analytics business, which is a higher margin business, for us an area where we're seeing a lot of growth, right continues to be a part of our business that we expect to drive, right, a lot of growth for us overall. That being said, right. I would say, C&E is projected to have a good year as well. But I guess, Julie, I don't know if you'd add anything or not?

Yes, I would just say, I would point to our performance, which you've seen recently, which is, we've clearly been focusing on a shift of our revenue mix toward that higher margin analytics segment, technology lead services, right. And so we're pleased to see that in Q4 we had 39% growth in that analytic segment. And we expect that that that helps us drive better profitability in the quarter and in the back half of the year as well. And we expect that to continue into 2023. So yes, we do expect the analytics segment to grow faster.

Thanks a lot, guys. Thank you.

Thank you.

And we have reached the end of the question-and-answer session. I will now turn the call back over to Mandy Long for closing remarks.

Thank you all so much for joining today. Appreciate the questions and the discussion. As I shared that I, I continue to be genuinely excited about BigBear.ai, our potential our future and we are doing all the right things and have a very clear focus on long-term and sustainable growth for the business. We appreciate all of your time, and we look forward to speaking with you again next order.

And this concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.