Thank you for joining the BigBear.ai Fourth Quarter and Full Year 2021 Conference Call. [Operator Instructions] I will now turn the call over to Josh Kinley of BigBear.ai. Please go ahead, Mr. Kinley.

Good afternoon, everyone, and welcome to BigBear.ai's 2021 fourth quarter and full year earnings conference call, our first earnings call as a public company. I'm Josh Kinley, Chief Financial Officer and I'm here with our CEO, Dr. Reggie Brothers. 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 to non-GAAP reconciliations within our earnings release. With that said, I will turn the call over to Dr. Reggie Brothers.

Thanks, Josh, and good afternoon, everyone. Thank you for joining us on our call today. This is our first quarterly report as a public company, after our listing in December. It's an important milestone for BigBear.ai. We are transforming across the business and I'm grateful for the hard work of our entire team over the last year to make this possible. Now turning to the results. Over the course of the year, we built strong momentum, expanding customer engagements, booking additional public sector contract awards, and growing both our analytics and cyber engineering business areas. This resulted in 2021 revenue of $145.6 million. We ended the year with total backlog of $465 million, an increase of 14% or $57 million over year-end 2020. It's worth noting that this backlog represents 3 times our total 2021 revenue. The growing backlog was driven by our ability to maintain all existing work and win several new opportunities last year among federal and commercial customers. We believe this robust background gives us considerable visibility into future year revenue and longer-term revenue growth. While we're very happy with our large backlog, it did decrease marginally between Q3 and Q4 largely due to a slowdown in government contracting activity at the end of the year. Two in fact, until today the government was relying on continuing resolutions for funding which slowed down their work process. Second, the continuing impact of COVID and the Omicron wave in the fourth quarter also caused delays in contract awards and an extended ramp-up for projects. This ultimately contributed to our revised outlook for 2022, which we will discuss shortly. BigBear.ai had a strong year despite these external headwinds. We deepened the long-term relationships with our government customers. These relationships are critical to our continued growth as they serve as a…

Thanks, Reggie. I want to start by echoing just how excited we are about the progress we've made and the momentum we're building. We're entering 2022 in a strong financial position with significant upside. Revenue for 2021 was $145.6 million with approximately $33.5 million in the fourth quarter. Our revenue was driven by continued execution of projects and our considerable backlog, but as Reggie mentioned some revenue has been pushed into future periods because of delays in government contract awards, COVID-related workplace restrictions, and the continuing resolution that prohibited government agencies from awarding new contracts until the federal budget was fully approved and appropriated. As projected our revenues beginning to skew more heavily towards our higher-margin Analytics business, with about $75 million coming from analytics and roughly $71 million coming from Cyber and Engineering. We're happy to share that our strong backlog provides clear revenue visibility with our existing customer engagements, while we wait for the pending new awards. And this revenue base will continue providing the foundation for our future growth. While revenue was impacted by the factors we just discussed, we saw gross margins that were in line with our projections. For the full year of 2021, our segment adjusted gross margin in analytics was 45% even with heavy upfront investments on a few large long-term opportunities that we're pursuing. In Cyber Engineering our full year segment adjusted gross margin was 23%. Despite the contract delays, we still achieved our gross margin projections and we expect the margins to expand in future periods. Operating expenses were $113 million for the year and $76 million for the fourth quarter. This is a dramatic increase over prior year OpEx, but it's worth noting that a considerable amount of this is transaction-related, including $56 million related to stock-based compensation expense primarily…

Thank you, Josh. I'd like to close this call by reiterating my excitement for the future of BigBear.ai and my gratitude for our fantastic and growing team. There is massive demand for our solutions around the consolidated problems associated with complex data and a limited deployment of AI/ML and the opportunity to empower leaders and decision-makers to make the right decisions at the right time, every time. We take this challenge head-on, we're eager to innovate and develop new solutions to guide our customers to realize the best possible futures and we're in an excellent position to execute our federal and commercial SaaS strategies in 2022. Thank you all for joining us today. I'll now turn it over to our operator to begin our question-and-answer session, where Josh and I will be joined by Brian Frutchey, Chief Technology Officer; Sam Gordy, Chief Operating Officer and President of Federal; and Jeff Dyer, President of Commercial.

[Operator Instructions] Our first question comes from Mike Latimore with Northland Capital Markets. Please state your question.

So I guess, just Reggie you mentioned the March 15 passage of that bill. I guess how do you see things playing out from here in terms of addition to opportunities or is there an opportunity to pipeline to move a little faster. Just how does that play out and in some of the timelines on that?

Yes. Thanks, Mike. So I think, obviously it's good news that the appropriations bill was passed, right. I think there is still a challenge -- and is one reason with the uncertainty because there are still things - the government still backed up, right. So we have to wait as things get through the queue. But the good news is that they can still move on new starts and that's exciting for us. Because like I said, there are new opportunities not just because of the new appropriations really pushing on our artificial intelligence which they do, but also because of the unfortunate events in Ukraine, which is focusing people more defense and particularly more on how to use data and decision-making tools and analysis AI/ML specifically in order to make better decisions to get ahead of our the adversaries. So I think that -- I think that the good news is that we should see the unblocking so to speak, these awards, right. And I also think we'll see some other opportunities to make an impact in some critical areas that we're seeing develop.

Given that geopolitical climate and seeming urgency around that dynamic, would that move some of your opportunities forward a little bit here potentially?

It's not clear exactly that moving forward, Mike, simply because there is the queue that the contracting personnel and the government has. It's not clearly moving forward.

Okay. And then in terms of the commercial, you gave some commercial guidance $20 million or so. Can you just mention the vertical or use cases that are most prominent in that commercial guidance?

Let me turnover over to Jeff, as we said he is our new President of Commercial. And then let him to talk about that.

Thanks, Reggie. And hello Mike, thanks for the question. There's so much innovation that's happened on our federal side that one of the priorities for me in our commercial charter has been trying to determine where to start and created some focus for our commercial go-to-market strategy. There were lots of options presented, but it was very clear in understanding the predictive AI/ML capabilities that we have in our federal clientele that we were best suited to start focusing on manufacturing, be it supply chain, factory optimization and or distribution logistics. So our 12 to 18 months priority is going to be centered very much around manufacturing and there's other opportunities beyond that. But we'd like to get a foundation set some repeatable patterns that we know we can predict and control as we evolve the company in the product and the verticals that we could pursue.

Great. Thank you, that's helpful. And I guess just in terms of --

And this is Sam Gordy. Sorry, on the federal side, I just wanted to jump on Jeff's comment there from a federal perspective and just emphasize that, any vertical we're pursuing on the commercial side of the market has a like client on the federal side and we'll certainly look to bring that across into that market as well.

Okay. Got it. And then just thinking about the progression of revenue this year, I assume we should think about it in line with traditional kind of government patterns or it's pretty heavily weighted towards the second half?

Josh, you want to take that?

Yes. Mike, this is Josh. Yes, on that, I would tend to agree with that. Certainly, we've had to go through half of the government fiscal year with a lot of our customers honestly waiting for the ability to work the contracts that have been out there in the queue. So we would expect the back half of the government fiscal year 2023. But as Reggie pointed out, the bill being passed, it's not an instantaneous fix. There's a number of, I'll say procedural actions that have to happen as the authorization kind of rolls downhill to the various customers. But we would expect to see that accelerating over the coming months for sure.

Our next question comes from Ittai Kidron with Oppenheimer. Please state your question.

Just Josh, I want to make sure I get my bearings right here on the numbers with regards to the comment that you made at 79% of your '22 estimate is in backlog. Should the government deals that have been pushed out because of COVID and the bill and the delay in the bill to come in. How far above the annual guide will you be if those opportunities materialize?

Yes, thanks for the question, Ittai. So that's a good question. As we were looking at things, referring to about 79% that is what we are absolutely comfortable with today. With that said, we have -- as the continuing resolution was passed and a lot of our government customers started projecting new award dates, the bandwidth issues they are having on their side has prompted them to issue a lot of new guidance on when they expect things to be awarded. And so we've seen certainly things that were projected for 2021 move into 2022, and that is good for that budget or our projections scenario in '22. But we've also seen things in '22 push out to '23. With that said, there is certainly upside potential beyond the range that we submitted, but our focus was taking a look at what we've seen over the last, I'll say nine to 12 months and the government's performance, and we thought the most realistic projection was to put that range out there and give ourselves some upside ability to achieve beyond that. So, I'm not sure if I have a specific number for you, there is the possibility out there. But we gave the range that was most realistic based on what we've seen previously.

Got it. Okay. It feels like there is not necessarily going to be -- there could be some, but it sounds like no significant jump catch up big kind of it did happened in a period. You feel like a lot of things has just been -- everything just got pushed out by a quarter or two and that's everything basically getting pushed out and we would like we're starting all over again I guess from a scheduling standpoint on some of these deals. Makes sense. And then on the commercial side, for your guidance of having commercial about 10%, so I don't know, call it $18 million to $20 million on the year. If I'd ask you, how much of that is already locked in, what would you say on that? How would I think about how much of that is already in contract for you?

Yes. So we're not breaking out our backlog on that basis. But I'll say a considerable portion of that has already been locked up and we're performing on those contracts today. Just to give you some sense of it, our commercial revenue for Q1 of 2022, we expect to surpass our entire revenue for the prior year. So, we've already ramped up quickly on these efforts,. We expect -- well, we're in good way towards that 2022 projection based on current work that we're performing and we expect more to be thrown into that backlog over the coming months.

Got it. That's great. And then maybe last one from me, Jeff, on the commercial side, help me think about these initial projects that you're having now in commercial, how -- in what way will they be different than follow-up projects on commercial? And I'm trying to think about it more in the context of speed to closing deals, speed to executing the deals. How much of these initial deals you're doing this year are -- you're trying to really create a mold and cookie-cutter approach such that going forward you'll be able to move let's call it at a faster pace as you win deals and execute on them?

It's a great question, thanks for it. We're being very selective in the customer relationships, we're starting with commercial to make sure that they are very complementary and synergistic with our product roadmap cadence and decisions. We picked manufacturing for a reason, there's a lot of maturity in the IP we have on the federal side and we believe package is the right way in a SaaS delivery model to the commercial market space that we can have a very healthy software business that gives value quickly, that allows customers to then come back and engage with us in other meaningful ways for call it land and expand strategy, commercial it's initially very focused on solving manufacturing incentive problems. But we believe that the investments that we're making in our product roadmap are going to allow us to help companies realize value quickly. Again as Reggie said in his comments, without a huge investment or large staff of data scientists, we're trying to provide environments in the commercial sector that give the value of AI/ML capabilities for predictive analytics without the heavy footprint and the labor that allows us to deliver value quickly. But also help them hopefully solve many problems as we grow their relationships and prove to be a valuable partner.

Got it. That makes sense. Well, I guess, then maybe the last one from me. And Josh or Jeff, I guess that's for both of you. As I think about your ramp here, would it be fair to assume that Cyber Engineering in those deals even though it's conceptually aimed to be low part of the mix at least in this year, perhaps next, the Cyber Engineering mix is going to be still high in those transactions as you try to kind of nail down the details on them and customize them and make sure that everything kind of gets worked out before you start running them more broadly?

Most certainly it's Brain -- I'd probably ask Brain to comment on that. I think he can give a better answer around how we leverage that asset.

And Ittai, just so I can clarify the question there. Are you talking with regard to how the Cyber Engineering type revenues is incorporated into those commercial sales?

Yes, I mean, the long-term vision was that the commercial will drive much higher gross margins because of the labor element involved in it is much lower. I'm just wondering and I understand and that makes total sense longer term, I was just wondering whether near term those deals -- the margin on the commercial deals is not any different than your defense deals just because their first deals that you're doing and you just got to be a little bit more involved to make sure everything goes right and you learn from it, such that on follow up deals you can replicate and move much faster and at a better margin?

What you're referring to is the services and component in any old and commercial deals? Is that what you're getting at?

Yes.

Okay. Jeff, you want to talk about that?

Sure. And sorry for that. Thanks for clarifying. We have certainly cyber capabilities, so, I thought your question was focused on that area of technology. To answer your question, now that I understand and thank you. Again, we're being selective as I said on the early customers that we're choosing to work with. There's a number of opportunities and a lot of demand, but we're being very careful because until our roadmap fully plays out in the second half of the year as we disclosed, there is aspects of how we implement and configure and customize to each customer's, unique needs that require more labor than it will in the future. So, we're trying to make sure that the customers that we select to work with early have great alignment with our product roadmap. So even though there is some services component initially that will suppress over time as the product matures and we package it more consumable multi-tenant SaaS modern paradigm.

Very good. Excellent, thanks, guys. Appreciate it.

And Ittai, I can actually give you a little bit more insight there on how those gross margins are maturing. As we had communicated in the past, we expect the revenue coming from these commercial sources to certainly have a higher gross margin than the government engagements and we're seeing that already. While we're early in these engagements And we're doing the engineering, the upfront engineering and integration that Jeff was speaking to, we're already seeing gross margins at 60% plus level. Obviously, as they become repeatable, deployable solutions across multiple customers, we'll see that move forward. But we're kind of in line with the projections that we communicated previously, which is starting now at 60% and over the coming years we would expect it to be able to achieve considerably higher gross margins.

[Operator Instructions] Our next question comes from Louie DiPalma with William Blair. Please go ahead.

Last fall you announced a partnership with Palantir. Can you discuss the co-op attrition dynamics that you have with Palantir as it seems that you are pursuing many of the same Department of Defense, Data Analytics prospects, and specifically the Global Force Information Management program. So can you discuss, I guess your future partnership opportunities in both the commercial and defense markets? Thanks.

Thanks for the questions. Good question. First, can you take some of this, and I'd hand over to Sam to talk more about these things. But you were talking to some of the general terms of how on Palantir?

Absolutely. My pleasure. Louie, thanks for the question. So I think you've heard me speak about our partnership with Palantir in the past as a good synergistic relationship where Palantir provides us a best-of-breed data and processing fabric, so that we can focus on our specialized AI algorithms that generate the business insights for our customers. That hearing is one that our current customer base in the government has already begun to appreciate, given that they have experience with both of our capabilities, both of our platforms. And I believe that we will soon have some positive news to share towards that -- towards some joint projects in that space. So I think the partnership has already come into fruition both with our BigBear team being able to package our capabilities to plug into the Palantir platform to leverage their installed base, and we are starting to find joint opportunities that we're capturing in tandem as we go to markets in some of our early joint customer accounts.

Great. And can -- would it be fair to assume that most of the $20 million in commercial revenue that you are forecasting for 2022. Would it be fair to assume that most of that revenue is from the space industry and your partnerships that you announced with Virgin Orbit, Terran Orbital and Redwire?

Jeff, do you want to speak to this?

Those are certainly great agreements. We're excited to be helping those customer relationships and it does clearly represent a nice revenue uplift as we build our foundation on the commercial side of the business. But there is many other opportunities that we're pursuing organically and inorganically. And we believe it will help us materialize in the guidance that we've set.

Great. And for Josh, can you discuss your long-term plan to scale your gross and EBITDA margin? And how your gross margin should potentially trend higher as your data analytics revenue increases as a percentage of the revenue mix?

Yes, absolutely. So let me start out with the gross margin. As I had pointed out the revenue had already started to skew more towards the analytics' with the majority coming from analytics' segment in 2021. We expect that to continue certainly is that commercial revenue which we're projecting being 10% of the total revenue in the year. Of course, that has higher gross margins. So as we see more of the analytics work both on the government and the commercial side, we will see the gross margins expand there. On the EBITDA side, we had to go through 2021, obviously, I broke out some of those OpEx investments and expenses we had to make in 2021, those were all investments that I'd say we look at them in two buckets, there is the must do's and we'd like to do's, the must-do investment, I mean our strategy which is to deploy this commercial capability we had to invest in building out that SaaS based commercial technology that we can deploy out there. And so that was a must-do investment that we had to pursue. Certainly, the go-to-market or the public company readiness and all the expenses that come along with that, those are things that we could not defer and we had to make those investments upfront. But a considerable amount of those investments are already made. We don't feel like we have substantial increase in OpEx moving forward. I mentioned the like to do's, we could have pursued a number of different markets in the commercial space. But we're focusing our development teams on what we think are the highest award opportunities and as Jeff pointed out, we think that manufacturing and supply chain vertical is really where we can see the earliest gains. So, by focusing our development team and our investments there, those investments are largely on board already. So, as the revenue ramps up, I think you'll see that EBITDA expansion that we're projecting moving forward. So, it makes sense, Louie?

Thank you. There are no further questions at this time. I will turn the floor back to Dr. Reggie Brothers for closing remarks.

Well, look, I just wanted to thank everyone for joining our call. I appreciate the questions and we look forward to reporting our progress on our Q1 2022 call later this spring. Thanks, again.

Thank you. This concludes today's conference. All parties may disconnect. Have a great evening.