BigBear.ai Holdings, Inc. Q2 FY2022 earnings call

• Government Contracts: Delays in contract awards due to Ukraine war and slow economy; removed certain lower margin procurement activities from 2022 forecast. Backlog reporting changed by removing anticipated follow-on awards and reassessing unpriced unexercised backlog due to geopolitical factors.
• ProModel Acquisition: Q2 acquisition enriched portfolio with advanced modeling/simulation products, entering manufacturing and healthcare markets; FutureFlow Rx in healthcare showing growth with new deals.
• Prototype Projects: Perform well in cyber solutions, awarded first place in US Cyber Command prototyping event; prototype work has upfront costs but potential for multi-year contracts with better margins.

For the second quarter, revenue was $37.6 million. The Analytics segment contributed $19 million (18% increase year-over-year), making up approximately 50.5% of total revenue. The Cyber & Engineering (C&E) business contributed $18.6 million, down from $20.3 million in the prior year, accounting for about 49.5% of total revenue. Backlog ended at $325 million, with firm backlog increasing by ~70% since December 2020. Gross margin was 25% GAAP; Analytics segment adjusted gross margin was 39% (down from 46% prior year), C&E segment adjusted gross margin was 24% (up from 22% prior year).

• 2022 revenue expected to be $150 million to $170 million.
• Commercial revenue to comprise ~10% of second half total revenue.
• Adjusted EBITDA expected to be single digit negative millions in second half due to cost reduction plan.
• Expect increased government award and contract activity in back half of 2022.

• Delays in contract awards due to geopolitical and economic factors.
• Lumpiness of lower margin procurement activities affecting projections and margins.
• Ukraine war diverting funds from already funded programs, causing near-term headwinds.

Q: What is the addressable opportunity for additional wins for other health care systems in the United States?

A: ProModel has FutureFlow Rx with success, over 6,000 hospitals in US; early success in integration with ProModel and excited about potential in healthcare operations.

Q: What is the long-term margin potential for BigBear as prototype contracts shift to production?

A: Prototypes are strategic investments; follow-on contracts expected in 2023 with higher margins (50%-60%).

Q: Do you feel that the Ukraine war should be a long-term positive for BigBear in terms of your pipeline opportunities?

A: Near-term headwinds, but long-term positive due to need for advanced intelligence, predictive capabilities in geopolitical climate changes.

Q: Under the new backlog calculation, how much of the second half revenue that covers?

A: Most of the second half revenues is already in backlog, with some growth signals but majority already accounted for.

Q: What's the kind of the right run rate according the SG&A number going forward, especially in the light of your cost reduction plan? And do you have a reasonably expected reward time line for those delayed rewards?

A: SG&A expected to decrease in Q3/Q4; some delayed rewards expected by end of coming quarter or beyond.