BigBear.ai, Inc.

Thank you for joining the Big Bear AI fourth quarter and full year 2021 conference call. This call is being recorded and at this time all participants are in a listen only mode and a question and answer session will follow the presentation. If anyone should require operator assistance during the conference please press star zero on your telephone keypad. I will now turn the call over to Josh Kinley of Big Bear AI. Please go ahead Mr. Kinley.

Good afternoon, everyone, and welcome to Big Bear AI's 2021 fourth quarter and full year earnings conference call. Our first earnings call as a public company. I'm Josh Skinley, 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 Big Bear AI specifically disclaims any obligation to update the forward-looking statements that may be discussed during this call. Many factors can 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 statement section of the earnings press release issued today and our SEC filings. We also discussed 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 in the call today. This is our first quarterly report as a public company. after our listing in December. That's an important milestone for Big Bear AI. We're 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 going both our analytics and cyber engineering business areas. this resulting 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 a year in 2020. It's worth noting that this backlog represents three times our total 2021 revenue. The growing backlog was driven by our ability to maintain all existing work and to win several new opportunities last year among federal and commercial customers. We believe this robust backlog 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. For one thing, until two days ago, the government was relying on continuing resolutions for funding, which slowed down the award process. Second, the continuing impact of COVID and the Omicron wave in the fourth quarter also caused delays in contractor awards and an extended ramp-up for projects. This ultimately contributed to our revised outlook for 2022, which we will discuss shortly. BBRI had a strong year despite these external headwinds and deepened the long-term relationships with our government customers. These relationships are critical to our continued growth as they serve as solid foundation for our future innovation. We also entered into relationships with several new customers that we believe allow us to capture significant new commercial opportunities. And we continue to invest to build our team and scale that business as we transitioned to a public company. Importantly, the momentum we're building is fueling our transformation from an established and steady services and solutions first company to more scalable, high-growth technology force company. And if this is our first earnings call, I'd like to spend a few minutes to provide some more color on this transformation and how it's guiding our growth strategy and building our competitive position. Our mission at Big Bear is to guide our customers to realize their best possible future by delivering transformative technologies and expert, actionable advice. Our AI-powered analytics software helps people make the right decisions at the right times even with flawed data and limited visibility under the forces that can affect outcomes. We believe the opportunity that lies ahead in this field is abundant. Big VR AI serves two problems that organizations in all sectors face today. First, organizations are drowning in complex, often incomplete, dirty data that is difficult to integrate and to interpret. Second, the use of artificial intelligence and machine learning technology to inform decision-making is powerful, but deployments are still very limited to silos within the enterprise. This is because AI tools to date have been designed for highly technical users, not business users. Large companies tackle these problems by hiring a droll of data scientists, software developers, and system integrators, but this is expensive, time-consuming, not scalable, and not feasible for mid-market and smaller companies. At Big Bear AI, we're taking a different approach. We're making operational AI for business people, delivered in a visual, easily consumable way. Our tools simplify real-world complexity to cut through the noise, fill in gaps in data, and enhance the decision-making process with goal-oriented, actionable advice. Importantly, our products will work out of the box to address vertical use cases with a rapid, no-code configuration capability. Therefore, we provide value very quickly. The customer also has the flexibility to start out with certain pieces of a modular offering and easily add more components once they see the value we bring. This already happens with most of our customers. They often start with a subset of our offerings, see the power and the value of our solutions, and expand the relationship to incorporate our other offerings. This land and expand strategy creates revenue from existing projects and is another growth driver beyond signing new customers. It's important to understand that we have historically had high win rates and a 100% recompete win rate. This gives us confidence in our ability to build revenue and maintain momentum as we continue to scale. In 2021, we booked several significant new contract awards. I'll talk about a few of these. In July, we announced a notice of intent from the Air Force Research Laboratory to award a two-year contract As part of this engagement, we created a composable planning prototype for Project Aurora. In October, we were awarded a five-year tactical cruiser contract with the U.S. Cyber Command to develop and deliver real-time data analytics. Also in October, we were awarded a one-year contract by Defense Intelligence Agency to develop a forced element tracking and identity platform that uses machine-assisted repository services. In November, we announced that we were awarded one of two Global Force Information Management Phase 1 prototype contracts by the United States Army. And in December, we were awarded first place by NAVWAR in their AI Prize Challenge, supporting the Navy's initiative to advance the capabilities of their tactical networks. This challenge tested the ability of more than 10 notable industry companies to derive meaningful, actionable information from exceptionally dirty and error-prone data, That's an area where Big Bear AI's technology differentiates itself, and we came out on top. In addition, we announced multiple landmark partnerships on the commercial side, including a software agreement with Virgin Orbit that generates annual recurring revenue, a software agreement with Tron Orbiter, and a memorandum of understanding in Redwire Space. Our strategic partnership with Palantir, which we announced in November, supports our growth strategy in both the federal and commercial markets. we see significant opportunity to plug our solutions into their scaffolding and go to market with an end-to-end platform, expanding the addressable market for the both of us. Our technology has been proven on high-stake matters for the federal government, and we have a strong sense of loyal government customers, but the opportunity for Big Bear AI is much broader than that. In fact, the AI in our market is projected to grow at a CAGR of approximately 40% over the next five years, and reach about $310 billion by 2026. We are scaling our offerings for both the government and commercial sectors quickly to capitalize on this rapidly growing demand. Our go-to-market strategy for commercial offerings will be vertically focused, leveraging similar use cases from our existing customer solutions. For example, our location intelligence and site selection capabilities can be applied to commercial space and maritime industries. We also see opportunities in the manufacturing and logistics variables. We are well positioned to execute our federal and commercial staff growth strategy in 2022, and we expect commercial revenue growth to ramp meaningfully towards the back half of the year and into 2023. One of our key objectives last year was building on an experienced and talented team to support our growth strategy and emergence as a public company. This will continue to be a focus in 2022. Toward that end, we recently appointed experienced leaders to the roles of Chief Operating Officer, Chief Marketing Officer, and Chief Human Resources Officer. We have new leadership in both our federal and commercial business segments. We bolstered our execution capability with several senior leaders out of the class of product, engineering, sales, and marketing. We believe our team is well-equipped to grow our business through the federal government, and accelerate our penetration into state and local governments, as well as commercial markets. We also continue to carefully evaluate inorganic growth through strategic targeted mergers and acquisitions. We continue to evaluate several potential targets for the ability to accelerate our growth strategy, and we will strategically employ M&A when it makes the most sense for our longer-term objectives. We expect M&A will contribute to our revenue this year and in the coming years. Now turning to Outlook. We now expect four-year 2022 revenue of between $175 million and $205 million. As I mentioned earlier, this revised Outlook reflects conditions in the government contract award environment in which we have no control. Our agency partners were operating under continuing resolutions until two days ago, creating longer sales cycles. In fact, internal analysis shows that the government contractual process in areas relevant to our business is taking significantly longer than it did pre-COVID. When reviewing solicitations specific to Big Bear AI's market, we found the time between a solicitation being released to industry and the actual contract award of the contract more than doubled to more than 600 days between 2019 and 2021. Things slowed considerably in 2020, and while there were signs that things were going to return to normal in 2021, at the end of the government fiscal year and the 2021 calendar year, Contracting activity was suppressed by the new COVID variant and the fact that the appropriations bills had not been enacted. I want to emphasize that these factors are impacting the timing of contracting work, not the need for our technology or the willingness for the federal government to invest in crucial AI and ML solutions. In fact, the geopolitical climate today is increasing demand for technical solutions, operations support, and expert guidance among our federal customers. we remain well positioned to continue to capture the government's growing demand for advanced AI solutions. So, while these factors have resulted in delays in awards and an extended ramp up of projects, this does not mean a loss of revenue or cancellation of projects. However, it was important to revise our guidance to reflect a more conservative estimate for award timelines. On the positive side, The Consolidated Appropriations Act of 2022 was signed on March 15th. The $728.5 billion budget for defense, a 5% increase of $32.5 billion over current spending. The Department of Defense has acknowledged the need to accelerate the deployment of AI. This success is based on AI strategies developed by the Office of the Secretary of Defense and each of the services. This intent is conformed to the new defense budget. which shows significant increase in funding for AI and includes 200 million in funding specifically for the increased adoption of AI. And during the past couple of weeks, through the current geopolitical crisis in Ukraine, we've received increased outreach for our capabilities to even more quickly operationalize AI for critical national security applications. We're very happy with the progress we made in 2021. The Big Bear AI team is energized and backed by a strong team and a solid infrastructure. Despite the delays, we are confident in our business and the opportunities ahead on both the federal and communication and commercial markets. With that, I'll turn the call over to Josh.