BigBear.ai Holdings, Inc. Q2 FY2023 earnings call

• Momentum at BigBear.ai continues with progress in driving change, improving operational rigor, and building momentum in key sectors. - Key win: Selected by US Army to implement Phase 2 of the Army, Test & Evaluation Command, integrated mission management system with a $7.7 million contract. - Received a 6-month extension from US Army for Global Force Information Management system, a $8.5 million contract. - Refreshed branding to align with end markets and solutions. - Submitted comments to NTIA and DoC on AI accountability measures. - Announced new Chief Technology and Strategy Officer, Ted Tanner.

Revenue for the second quarter of 2023 was $38.5 million, up 2% year-over-year compared to $37.6 million in Q2 2022 and up 9% year-to-date. Total gross margin was 23% in the quarter, a 220 basis point decrease from 25% in Q2 2022, driven primarily by the loss in revenue and gross margin from Virgin Orbit. Backlog was $206 million at the end of Q2 2023, up 5% or approximately $9 million compared to Q1 2023. Net loss was $16.9 million in Q2 2023 versus $56.8 million in Q2 2022. Adjusted EBITDA was a loss of $3.2 million in Q2 2023 compared to an adjusted EBITDA loss of $7.7 million in the same period a year ago, representing a 58% year-over-year improvement.

• Reaffirmed 2023 revenue guidance in the range of $155 million to $170 million. - Continues to expect adjusted EBITDA to be single-digit negative adjusted EBITDA in millions for 2023. - Confident in leadership position within AI with stronger balance sheet, better operational execution, and talented team.

• Impact from Virgin Orbit's bankruptcy, including revenue and gross margin loss. - Lumpy nature of revenue due to timing of contract awards, milestones, and contract completions. - Geopolitical climate and market challenges affecting business.

Q: What is your headcount, and are you planning on adding more by the year end?

A: Our headcount numbers are not released. Headcount is coming down due to some contracts heavily weighted toward labor but will grow in specific areas based on key investments.

Q: Are you expecting the large phase of GFIM to get awarded in fourth quarter of this year?

A: As we shared, the GFIM extension puts us in a great position, but the decision lies with the customer. Current expectation is positive regarding the award.

Q: Where might the gross margins trend in second half of the year?

A: Saw headwinds in first half, but anticipate improvement in second half as some lower margin contracts ramp down and higher margin contracts ramp up. Fixed price mix is increasing, indicating better margins ahead.

Q: Can you quantify the impact of the portion of the EPASS subcontract ending?

A: EPASS is a legacy program ramping down gradually over time, with transition occurring in parts, but specific detailed impact isn't released. Quarters are lumpy due to contract ramping down/up.

Q: Is BigBear expected to be awarded the production GFIM contract at the end of this year?

A: The GFIM extension puts us in a good position, but the decision is with the customer; we will continue to deliver value.

Q: Is there potential that AIMMS AIM can be in the same total contract value size as GFIM?

A: There's a pattern of success with transformation work, and size is expected to increase significantly as phases progress, though exact total value isn't indicated yet.

Q: What is the new diluted share count that we should be using?

A: Ending share count is 155,453 and average for the quarter is 145,469.

Q: Is there potential for further cuts into the second half of the year in SG&A?

A: We're in a good position with optimized SG&A, but will continue to look for further automation and optimization, though no huge shifts are anticipated.

Q: How is generative AI impacting your pipeline of award opportunities?

A: Generative AI is creating more opportunities as advanced technologies have crossed possible and practical thresholds, allowing more solutions to be delivered to customers. Partnerships with complementary organizations are also expected to increase.