BigBear.ai Holdings, Inc. Q4 FY2022 earnings call

Management Statement and Operational Highlights

• Financial Health: Achieved 2022 financial outlook, reduced recurring operating expenses, and improved liquidity. Less than six months into her role as CEO, Mandy Long noted the company is healthier.
• AI Focus: Recognized the growing importance of AI, with BigBear's decades-long heritage providing a competitive advantage in decision intelligence solutions. Government investment in AI is expected to continue growing.
• Core Markets: Focus on complex global supply chains, autonomous systems, and cyber. Highlighted government initiatives like the U.S. DoD's National Defense Strategy and 2024 defense budget.
• GFIM Program: Phase 2 award for the U.S. Army's Global Force Information Management program accelerated to $14.8 million from a $2 million prototype, positioning for Phase 3 production.
• Cost Savings: Implemented cost reduction initiatives, reducing Q4 operating expenses by 43% from Q2. Aimed for positive operational cash flow in the second half of 2023.
• Internal Controls: Addressed a material weakness in internal IT controls, implementing a remediation plan with auditors to be completed in 2023.

Segment Performance

• Analytics Segment: In the fourth quarter, revenue was $23.1 million, a 39% year-over-year increase compared to Q4 2021. Segment adjusted gross margin was 47% in Q4 2022, up from 34% in Q4 2021, driven by successful higher margin follow-on awards.
• C&E Segment: Q4 2022 revenue was $17.2 million, slightly higher than $16.8 million in Q4 2021. Segment adjusted gross margin was 20% in Q4 2022, compared to 28% in Q4 2021 due to a one-time fringe rate true-up in Q4 2021.
• Backlog: Year-end backlog was $222 million, a 23% or $66 million decrease from Q3. This was driven by contracts converting to revenue and expiring contracts, with efforts to recapture funds through contract extensions.

Guidance

• Revenue: 2023 revenue expected to be in the range of $155 million to $170 million.
• Adjusted EBITDA: Projected to be single-digit negative in millions.
• Cash Flow: Anticipated lower cash burn in 2023, targeting positive operational cash flow in the second half of 2023, excluding non-recurring items.

Risks

• Macroeconomic Headwinds: Impact on federal contracting processes and revenue realization due to the challenging macroeconomic environment.
• Contract Timing: Uncertainty in contract timing and funding reprioritization, affecting backlog and revenue recognition.
• Internal Control Remediation: Ongoing work to address material weakness in internal IT controls, with associated execution risks.

Question and Answer

Q: How do BigBear's solutions differ from ChatGPT and use of tensor completion?

A: BigBear uses LLMs and various AI tools with decades of ML experience. Tensor completion is used for specific solutions. AI excitement drives interest, but federal contracting process takes time for contract awards.

Q: Progress of Med model and FutureFlow Rx platforms?

A: Continued interest in pediatric care solutions, with the pipeline reflecting growth due to staffing shortages and patient flow challenges in hospitals.

Q: GFIM phase 3 and margin pressure?

A: Well-positioned for Phase 3 production, with margin anomaly in 2021 due to a one-time fringe rate true-up. Focus on cost structure and growth to improve margins.

Q: Salespeople count, revenue trajectory, margin, etc.?

A: No headcount guidance; revenue is lumpy due to federal contracting timelines. Analytics segment expected to grow faster, with focus on cost management and growth to achieve EBITDA breakeven.