Q4 2022 BigBear.ai Holdings Inc Earnings Call
Ladies and gentlemen, thank you for your patience, we will begin to call them or whichever.
Again, we thank you for your patients will begin the call momentarily.
[music].
Thank you for joining the big Bear AI fourth quarter and full year 2022 conference call.
This call is being recorded.
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Question and answer session will follow the presentation.
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I will now turn the call over to Shane Karp, Vice President marketing and communications.
Please go ahead Mr. Clark.
Good afternoon, everyone and welcome to Big Bear a is 2022 fourth quarter and full year earnings conference call I'm joined by Mandy laws, Our Chief Executive Officer, and Julie Pepper, our Chief Financial Officer.
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 Barry I, specifically disclaims any obligation to update the forward looking statements that may be discussed during the 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 on 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 and non-GAAP reconciliations within our earnings release now I'd like to turn the call over to Mandy.
Thank you Shane and thank you all for joining today's call.
In the fourth quarter, we achieved our 2022 financial outlook and took significant steps to bolster our fundamentals and set the stage for long term growth.
Less than six months into my role as CEO , we are much healthier.
We've cleaned up our operating structure funded the company in a very tough market and completed a comprehensive technology assessment to baseline our portfolio.
We now have a clearer understanding of our capabilities and.
And how it can be applied to the markets that we service.
I see 2023, as a critical foundational year for us.
We support some of the challenging things that are happening in the world right now.
And strive to deliver clarity for the worlds most complex decisions.
We are in the midst of an an precedented ways of excitement around artificial intelligence.
Key decision makers and leaders across government and industry are recognizing the necessity of apt scale production, great adoption of AI powered decision support.
Big bears capabilities and decades long heritage in this field gives us a competitive advantage in delivering a higher form a reliable scalable decision intelligence solutions.
We're seeing an explosion of interest in what we provide.
And we are continuing to foster our innovation pipeline to adapt and extend our capabilities to serve our markets.
We will continue to focus on delivering solutions in three core markets.
Complex global supply chain and logistics.
Autonomous systems.
Labor.
Yeah.
We anticipate the government investment in AI solutions will continue to grow.
In November 2020 to the U S Department of Defense released its national Defense strategy.
Which stated that the government would continue to invest in AI and aggressively seek to fill technology gaps in its AI specialization.
In December 2020 to the U S National Defense spending Bill was passed a lot of over $800 billion in funding to our national security and recommending boosted spending on AI solutions to protect our nation from increasingly sophisticated cyber threats.
And just last week, President and put forward as 2020 for defense budget proposal, which included a record amount of $145 billion for research and development.
I think Barry I, we are uniquely positioned in view of the unfolding global market dynamics as an opportunity for us to be a catalyst.
There will be millions of models that might play a role in the orchestra of how we'll achieve true augmented decision intelligence and high Stakes environment.
And there will not be a single company that provides all of these models.
An organization needs to step up for production grade AI adoption to happen at scale.
In other words this orchestra will need a conductor.
That is the role that we will play.
We will be the conductor.
We had been a trusted partner to critical government agencies for decades.
Throughout 2022, we deepen these relationships and see examples of this inflection such as the $900 million 10 year Multiple award Air Force <unk> contract vehicle, where we will have the opportunity to compete for task orders.
With the integration of our legacy companies, we have the capabilities to compete in a more substantial contracting space I'd have a seat at the table as an established prime contractor for innovative government and defense work.
We are showcasing our strengths and complex global supply chain and logistics through our global force information management or Jason Phase two work well.
Where our solutions are empowering senior leaders and combatant commanders to man.
Train ready and resource the army more effectively by transitioning 14 legacy systems into a single solution.
To provide real time holistic data for 160000 users.
This phase two work is significant and that it builds on our successful G from prototype efforts during phase one.
And accelerated what was supposed to be a 2 million dollar award for a second prototype anyway, $14 8 million dollar award to deliver a minimum viable product.
Additionally, the phase II, where it accelerates the program timeline, while naming big there as the sole prime contractor to deliver this critical capability and puts us in a strong position to receive the phase III production Award.
We are continuing to demonstrate our expertise in autonomous systems through our participation in the digital horizon event series.
Which supports the Navy's efforts to integrate AI technologies and unmanned surface vessels.
We look forward to showcasing our threat intelligence and situational awareness capabilities that IMAX twenty-three.
The largest maritime exercise in the middle East.
Our experience and lessons learned through these events sets us up to be a premier partner with the department of defense as they tackle their broader dads situ strategy.
Multibillion dollar effort to use AI ml and predictive analytics to better status.
Sense and act at the speed of relevance.
We are also providing cyber solutions across sectors.
Our space craft partnership with Red wire is delivering a suite of space Cyber security solution, the minor X and the development of an advanced satellite communication program sponsored by DARPA.
Our specialized reverse engineering capabilities provide critical insights to our customers as they look to manage the increasingly complex.
And threat heavy environment of cyber security.
We are continuing to build our pipeline and a complex manufacturing shipping and shipbuilding industry.
And we are making significant progress.
Our process simulation and modeling solutions help companies, managing massive and complex physical and information environment.
Delivering clarity on facility equipment and personnel system forecasting requirements and stimulate in real world situations.
Another focus area for us in the back half of 2022 was the implementation of the cost savings initiatives. We discussed on our last two calls and began implementing in the third quarter.
The fourth quarter was our first full quarter to benefit from our restructuring and we are pleased to have delivered on our revenue and adjusted EBIT target. Despite a continued challenging macro environment.
We continued our cost reduction actions in Q4, and Q1 'twenty three taking additional steps to reduce our overhead spend and improve our financial position.
Additionally, in the first quarter of 2023, we closed a private placement for $25 million in a very challenging market bolstering our balance sheet and providing us with sufficient liquidity to execute on our strategy in 2023.
We are in a solid position.
And we'll continue to keep an open eye towards opportunities to grow our portfolio inorganically in the coming quarters as well.
With that I will turn the call to Julie for a detailed review of our financials.
Thank you Mandy now, let's turn to our fourth quarter and full year results.
Revenue for the quarter was $40 4 million compared to $33 5 million in the fourth quarter of 2021.
Which was 21% narrow body aircrafts, primarily driven by our analytics segment.
$23 1 million in the quarter, an increase of $6 5 million.
For 39% compared to the same period in 2021.
This growth was driven by key program wins in 2022 including the Phase Two award for the Global Force information management or <unk> program with the U S Army that Mandy walked through earlier.
Revenue in our C&I segment was $17 2 million in the quarter compared to $16 8 million in Q4, 2021.
For full year revenue, we achieved our guidance target with revenue of 155 million, representing 6% year over year growth versus 2021.
The gross margin was 29% in the quarter.
An increase from 11% in Q4, 2021 driven by the growth in our analytics segment.
Turning to the segment adjusted gross margin, we're continuing to see growth in our higher margin analytics segment, which includes our commercial business out.
Outpace our C N E segment.
We anticipate that this trend will contribute to increasing segment adjusted margins going forward.
The segment adjusted gross margin was 35% in.
In Q4, 2022 compared to 31% in Q4 2021.
Segment adjusted gross margin in analytics with 47% in Q4 2022 compared to 34% for Q4, 2021 driven by prior investments that were successful in winning and executing higher margin follow on awards.
Segment adjusted margin for C. NIE was 20% compared to 28% in Q4 2021, primarily driven by a one time year to date fringe rate true up adjustment that was recorded in fourth quarter of 2021, resulting in a higher than typical segment adjusted gross margin in that period.
Now turning to backlog.
Backlog was 222 million at year end, which is down 23% or 66 million compared to the third quarter.
This was largely driven by contract converting into your Q4 revenue of $40 million.
As well as a couple of contracts with expired period of performance in the quarter.
But those time and material contracts the customer did not spend to their contractual limits. So our backlog was reduced for any remaining funds when the period of performance was completed.
In most cases, we simply rolled into the next option year on the contract and we continue to work with these customers to extend these contracts at the end of their auction years to recapture these fun.
In addition backlog was impacted by one government contract, where we switched to a subcontractor role this.
This change in the contract vehicle type does not impact the revenue associated with this work, but impact when we receive funding from the prime.
As a reminder, when comparing our backlog in prior quarters, we made a change in our methodology of measuring backlog to take a more conservative approach that does not include anticipated follow on award.
And also updated estimate as it related to unpriced unexercised backlog.
Now turning to expenses for Q4 operating expenses were $38 2 million or $19 9 million, excluding the noncash goodwill impairment charge.
Q4, operating expenses, including R&D expenses of $1 2 million and SG&A expenses of $15 6 million or $16 8 million in total.
This represents a 43% reduction from R&D and SG&A expenses in Q2 of $29 4 million prior to initiating our cost reduction action plan.
Excluding the impact of stock based compensation and nonrecurring integration expenses in both periods Q4 extent still reflect a 27% decrease in spending compared to Q2.
Driven by a full quarter benefit of cost savings initiatives, we implemented in the back half of the year.
While we believe the actions we took in the third and fourth quarters of 2022 in the first quarter of 2023 have positioned us to operate efficiently going forward. We will continue to be disciplined in our expense management as we grow and we will be focused on implementing scalable processes operating rigor.
And driving overall efficiency across our business.
Looking ahead there.
We are also focused on ways to improve efficiency of contracting processes and timeliness of payments.
Net loss was $29 9 million in the quarter versus $114 8 million in Q4 of last year.
When we had 65 million of stock based compensation expense related to the merger transaction.
The net loss in the fourth quarter of 2022 was impacted by a noncash goodwill impairment charge of $18 3 million in our analytics segment.
We reviewed goodwill for impairment in the fourth quarter and while we saw improved financial results and our analytics segment. This quarter relative to fourth quarter of 2021, we concluded that our goodwill was impaired due to several factors, including current macroeconomic headwinds and previously anticipated growth.
Right.
Yeah.
Adjusted EBITDA was a loss of $2 5 million in Q4 compared to adjusted EBITDA loss of $3 9 million in the third quarter and $7 7 million in the second quarter.
Our total adjusted EBITDA loss for the second half of 2022 was $6 5 million as we had forecasted compared with $10 6 million in the first half of 2022.
With our cost saving actions in the second half of the year, we now have a foundational baseline for future profitable growth.
In reviewing the balance sheet.
At the end of the fourth quarter, we had cash and cash equivalents of approximately $12 $6 million.
Of the $9 million operational cash usage in Q4 6 million with our biannual interest payment.
The remaining operational cash burn of $3 million with significantly less than previous previous quarters. As a result of the cost initiatives, we executed beginning in the third quarter.
In January we took steps to address liquidity with a $25 million private placement, which provides us with sufficient liquidity to execute our 2023 strategy.
Following the actions we took to right size, our operational cost structure in the second half of 2022 in early 2023, we expect to continue the trend toward a much lower cash burn in 2023.
We are focused on achieving positive operational cash flow in the second half of 'twenty, 'twenty, three which excludes nonrecurring and non operational items, including interest payments.
Transaction fees tax payments for stock vesting and severance cost associated with a reduction in force.
And finally I wanted to provide additional context of the material weakness that we described in our earnings release related to our internal control.
Well, we have completed a thorough review of our financial statements and have not identified any material errors in our financial results or our consolidated financial statements.
We have discovered gaps in our internal control processes and it related controls that in aggregate resulted in a material weakness in our internal controls.
We're addressing the issues, including enhancing segregation of duties implementing additional it general control and.
And increased monitoring and oversight activities.
We are implementing a comprehensive remediation plan in coordination with our auditor and expect the remediation work to be completed this year.
Turning to outlook.
We are expecting 2023 revenues to be in the range of $155 million to $170 million.
We are projecting single digit negative adjusted EBITDA in millions for 2023.
We have several significant expected contract awards in our pipeline.
Given their size.
And timing of award could have a significant impact on our FY2023 revenue.
Additionally, as Mandy said in her opening remarks, it's clear that the rates for AI dominance will continue in to 2023 as we execute our strategy. This year, we will undoubtedly have to make certain investments that we believe will be catalyst and accelerating our success as an industry leader in AI.
Looking ahead, we remain disciplined on managing cost and focused on areas to drive operational efficiency.
Following our cost reduction initiatives, we anticipate substantially lower cash burn, particularly in the second half of 2023 as we saw in the fourth quarter of 2022.
After improving our near term liquidity position, we will make targeted investments to efficiently drive sustainable growth, we are well positioned to deliver increasing gross margins and steady revenue growth.
By increasing demand for our offerings and federal market and a ramp up in commercial go to market efforts as well as the continued shift in our business mix in favor of higher margin analytics segment.
I'll turn it over to Mandy for final remarks, before we turn to Q&A.
Thank you Julie.
I am proud of the big beer AI team and the work that we've done to deliver on our commitments and begin to capitalize on the evolving market opportunities we discussed.
That is the pattern that you will always see here.
We will say, what we're going to do and then we will do it.
We know what we're capable of.
We aren't afraid to learn fast and work hard and.
And we see the long game.
2023 will be an important year of growth and stability for big Barry I as we deliver clarity for the worlds most complex decisions.
We're very excited about the year ahead.
Operator, we're ready for questions. Thank you.
Thank you and at this time, we will be conducting a question and answer session.
If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.
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One moment, please pull for questions.
Yeah.
And our first question comes from the line of Louis Dipalma with William Blair. Please proceed with your question.
Mandy <unk>.
And Julie good evening.
Yeah.
Hi, Hi, there.
There has been a great deal of investor excitement associated with chat G. P T and its impact on AI innovation can you provide a quick overview of how your solution man.
Differ from chat G P T and your use hence our completion of as part of your AI solution and and also related to this well chat GPT development.
Translate into contracts for big bear that <unk> over the long term or how should we in general think.
Think about on the recent excitement.
For AI solutions. Thanks.
Thank you Laurie it is an incredibly fair question and I think you know what.
And that money wonder about it.
So chat G. P T. As a whole right is I think there's been a lot of coverage on is derived off of him Hello Adams Rite large language models, which is a capability that's actually existed for a very very long time and has been applied big bear uses all items a lot of companies do but I think that this particular instance is the first time we've seen it.
Agree or democratization and consumer facing access to the capabilities that exist within training on such a large spectrum of data now.
In terms of kind of how that pulls forward for us I think what's important to note about big bear is that we have kept.
More than a couple of decades of experience in working in even the early days of machine learning and now you know as deep learning has progressed, we we leverage a wide variety of training tools and methodologies to meet customer need you know sometimes that are to your point right may require.
Different types of artificial intelligence, you know, whether it's the work that we do and predictive analytics, whether its computer vision for it on the underlying tools that we use to accomplish those things we have skill sets that happens each of them.
But what I would note in terms of so you mentioned tensor right I think.
The biggest thing that I always sort of say about AI in general is that it is a tool. It is a spectacular tool and it can be applied in a way that you know even five years ago, we really couldnt tap into because of the limitations around compute.
But.
At the end of the day as a as a technology provider and as a solution provider. Our job is to use the right tools to solve the customer problem and we're going to lean into.
Things like cancer right as a as an example, it does a pretty spectacular job and we've been working on that for quite a while around weak link correlation so dirty datasets.
And we do use that in some of our solutions that are deployed with the federal government.
We look forward into 2023 as well as beyond.
Unquestionably, we are seeing an unbelievable amount of interest in the application of artificial intelligence in both the federal sector as well as the commercial sector.
What's putting us apart in those conversations and what gets US excited about the future is that we're not new to the table.
We've been doing this for a very long time, and we have a lot of production examples of the types of tools that I just talked about and so I would expect you know and when we look at our pipeline right of I see a lot of promise right associated with where we're headed and it's really on us to do.
What we said go execute and then keep sharing it as we go.
Does that answer your question Laurie.
Yeah that definitely thanks, Mandy and you were you were just talking about production. Examples then last quarter you.
Can you discuss how your med model and future flow Rx.
Farmers have been gaining some traction with hospital customers and I'm wondering how is that.
Platform progressed since last quarter in terms of customer adoption and what does the pipeline look like.
So it's a great question and I do want to note right the sort of commercial side of our business, which doesn't include the future floor Ax solution. We don't break out separately in terms of reporting but the pediatric care crisis continues right. There is a unbelievable challenge happening in the world that I see.
But many years and across hospitals and health systems associated with staffing shortages associated with.
Incredible upticks in particular types of.
So we just havent seen right in this kind of volume for a very long time and.
Our tools are incredibly well situated to be able to help with how to design right patient flow solutions and optimization solutions for how to get patients to the right place at the right time and do prioritization, we are continuing to see interest in that and our pipeline is reflective.
Does that answer your question.
Yes and.
One more on your.
Business prospects.
The U S Army.
At an industry conference in January announced that it is looking to multi source its advantage data analytics dashboard program and in your prepared remarks, and you know over the past year, you've discussed the success that you've had with the G Fem program.
Ram which is also with the U S Army data analytics office and I was wondering.
Disadvantage multi sourcing represents.
An opportunity for a big bear given our strong relationship with the U S Army and other.
Other.
Potential.
Defense prospects you may have in your pipeline.
Sure I think probably the best way to answer it. So maybe talk about some of the things we're seeing as it relates to consolidation of federal contracts right because that I think as you know is absolutely happening yeah. We are seeing multiple contracts consolidated into larger contract contract infrastructures.
In certain cases.
Which allows.
The government to manage processes more efficiently and streamline the work and we are definitely having those conversations now we've seen that in other instances as it relates to.
Kind of the the general have federal market and you know, how we position ourselves and what we're seeing in terms of opportunity.
I think.
In all three of the vectors right that we have strengthen whether it's complex global supply chain logistics, whether it's autonomous systems like our work at IMAX twenty-three right, whether it's cyber right, particularly with a focus on cyber security and risk grading reverse engineering.
I see I see our pipeline growing I guess this is a short summary, and I think it has.
In no small part right to do with the fact that there is a level of geopolitical unrest that is pretty unprecedented right now in the leadership that is in the seats and we are doing our best to help.
Great.
And for Julie following the cost reduction initiatives, what should we expect for like ballpark cash burn for 2023, when taking into account the IND.
Interest payments and different tax payments that you mentioned and also what is the total company liquidity pro forma for the 20.
$25 million raised.
Well specifically to your first question Louie So you know we.
We feel like we have done a really good job of getting that getting the pipe and it's really helped significantly on that liquidity profile, obviously, but when we look at our cash burn with the cost reductions that we've taken out and starting in Q3 again in Q4 and Q1, we do expect the cash burn to be significantly lower and now you're already aware of our <unk>.
Payments that do happen in second quarter, and fourth quarter and so you know you kind of already know where those are places I would tell you that you know our.
Our targeting we are targeting to be operationally cash flow positive in the second half of the year.
You know I didn't get to to be clear on what we mean by operational cash flow positive. We're focused on the ongoing day to day business. So that includes you know everything that would that would be normal operating expenses that you would see in the business as well as inflows a customer payment. It doesn't include as I said, the interest payments, which you know.
Where those are or transaction fees.
Or severance costs and things like that.
We're going to be much more positive we believe in the second half of the year in the first half of the year just to be clear. We I think we noted this in our earnings release, we had some start up cost in fourth quarter and early Q1 in advance of a contract that was awarded in late Q1, and so the timing of those customer payments is probably correct.
Blow into Q2.
So we do think that early in the year cash is going to look a little bit worse than it will be in the back half of the year, but we still think that we're comfortable with our liquidity position and where we are.
But we have plenty of liquidity to support our growth strategy and deliver on the promises we've made.
Great. Thanks, Julien Thanks Mandy.
Was it for me thanks.
Thank you Laurie.
Okay.
And our next question comes from the line of branching with Oppenheimer. Please proceed with your question.
Hi, Thank you Yeah. This is part of them sitting on first of all I care drawn from Oppenheimer. So.
First of all I, just wanted to get a better sense of your overall revenue guide you know obviously you had some really good successes.
Multiple contract that you've talked about Gs and today, you know out of out of course, I'd get too well now what are you kind of parse that and against your guide for one five to one seven email I mean, it doesn't seem you're embedding much growth in there maybe you could help me understand why.
You know, it's not growing at a much faster pace or is that incremental or conservatism baked into your guidance.
Yeah.
So Hello first of all hi, thanks for joining.
The second.
And I'll make a couple of comments and then I'll hand, it to Julie to add some color I think you know when we.
When we looked at kind of the year, we had in 2022 and then we look forward into 2023 and kind of what we see.
The way that we're approaching guidance is really to be balanced right and.
And really establishing and sharing right. What we have line of sight to what we see what we think is reasonable right given.
Certainly a continued challenging macroeconomic environment, but you know to reinforce what Julie shared as well as what I shared earlier we.
I think for many companies right ourselves included January opened up a lot of conversation that.
You know I think we are seeing accelerate right in and I'll continue to.
You're optimistic about how those conversations will progress, but as you also know the federal contracting process can be a long one and while we are pushing and being extremely responsive and adapting and extending our solutions to meet those needs.
Our guidance reflects.
What I think is very appropriate and measured.
Approach for 2023 Giulia anything to add on your side, Yeah, I would say yeah. Maybe you said most of everything that I would've said the only thing I would add is that you know there's a couple of things that I would add to that with the sense of we are trying to ensure that we don't get ahead of ourselves we saw some challenges.
Last year as we experienced some shifting in funding from various different contracts that we had in terms of timing of how those we're gonna be funded or specifically some of the funding that was.
We prioritize to be associated with the board in Ukraine, and so we want to make sure that what we have in our guidance is what we believe is in front of us and that we can deliver and the only other thing I was going to just remind you guys that I think maybe you said this but just to reemphasize.
It's important to understand that in the government world, even though even with its really heightened awareness and excitement around AI and the capabilities. There's typically three major stages that we have to go through in order to get these contracts awarded and Theres, a prototype phase, which is small and and typically breakeven there's a M.
B T stage, which has to prove things out and then we get into production that takes a long time and so even with the excitement around everything that we're seeing and we're excited about what we're seeing it's just going to take a while for people to move.
Through that process and through that correctly. So I think that's why our guidance is where it is we wanted to make sure that we're measured about how we're communicating and what we're committing to and how fast you can get there.
No. That's really helpful. Thank you so much for the color on that easily.
Maybe if I could.
A decent part you know obviously you did much better on phase two phase three I mean, what do you expect or what's embedded in your guide in terms of the dollar portion of the contract. Obviously the revenue was much higher than you had previously anticipated is there a dollar higher also for phase three as well.
So it's a fair question and and all kind of do the same as the last which is I think the initial as Julie walked through in terms of thinking about phases right as we as we move from where we are in phase two and compete for phase III, which we continue to believe we're very well positioned for because of our execution and delivery.
In the phase II process.
Ultimately the shift of production.
And I think all example cases that we could look at it means that it's larger right because you're talking about putting it into the real world doing it at scale.
Now in terms of kind of size and scope Fred I think ultimately it's.
Up to the customer to make that determination.
And to make the award as appropriate, but I mean, Julien definitely weigh in because we we are certainly spending a lot of time talking about it [laughter].
[laughter] Yeah for sure Yeah, I mean, everything is going very well on the program was announced back in September of last year for Phase. Two you know we are still working.
Toward the you know toward.
Toward the next phase and again I think it's still looking to accelerate the deployment of the overall solution and so we're excited about where it's going but as we've said they continue to refine their contracting processes and decide how fast they're going to move down the curve and whether they need some more.
Prove out during the process before they landed up production mode and so I think everything is going exactly as we hoped and and maybe even better than we hoped in and I can't I think right now that we just don't want to overcommit to how quickly theyre going to move into production. Although we do believe it is palm that's part of the 2020 for budget.
Okay. No that's really helpful. Thank you so much.
Maybe you could talk a little bit more about the cyber security opportunity I don't think you know that's been discussed as much. So I'm wondering do you understand what you're doing there and what are the new avenues of revenue that could potentially help at the upcoming years.
Sure. So I can talk a little bit about that so we have a and and I think it's important to note first right. This is actually not a new capability for us we have a pretty mature and long standing cyber competency.
But the area that I was referring to that I talked about at the beginning of the call is really in and around.
Part of our business that we're seeing mature pretty quickly, which is that space craft solution, so not only being able to do that.
Nuts holistic reverse engineering work and vulnerability analysis on componentry, but also to be able to do stimulation right in modeling associated with potential whether it be offensive or defensive security postures and monitor that.
On an ongoing basis some of the things that we're seeing as well is that you know as we all know.
Cyber security continues to be one of the great challenges for a wide variety of industries as we go through the fourth industrial Revolution.
You know a lot of these systems and festive hardware, we're just not set up with the level of rigor right that is going to be needed as the threat landscape continues to mature and so we're doing more and more work in what I would describe it as kind of.
Although some vulnerability assessment says the service there is a a large platform manufacturer that we've worked with them that and we're seeing additional chances, but the area, where I guess I wanted to kind of focus and educate around is that we have a pretty unique.
Competency in being able to do end to end reverse engineering and full scope.
Vulnerability work that is not something I have seen it a lot of other companies.
All the way through the.
The process of being able to actually work with physical hardware do extraction and analysis. So I hope that's helpful. But that is where we have some superpowers.
You compete with like traditional defense contractors, there or cyber security companies would be more of a displacement for you in this vertical.
Oh, it's a good question I think in the space that we work in right. So, particularly focused if I focus first on the space craft solution right. That's a pretty distinct solution that we have a partnership with red wire around rate that we're doing that work and as it relates to some other kind of broader vulnerability work that I'm.
And on the reverse engineering work I would say, we do see a level of competition from both side. Most of the this is pretty kind of.
Special Superpower services work to it requires pretty highly talented and skilled individuals who live along the technology pipeline that we're using for it.
So we do see some competition in the.
Kind of more traditional contractor world too does that answer your question yes.
Yeah, absolutely that's really helpful. Thank you, maybe one library welcome to revenue.
The commercial revenues I know you havent broken down, but previously you know big they're used to somehow alpine.
As a percentage of revenue that would come from commercial.
What time is that some sort of a guideline or number of embedded in your 2020 Guide you know do you think you could hit 10% would be coming from commercial is that a better number I just want to understand that trajectory, but that piece of the business.
Yes, it's a great question. So we are we continue to see the commercial business show promise right now our pipeline is great right. We're continuing to see that grow we have not broken it out specifically.
Because we're still kind of below that 10% threshold for us, but you know I I think 2023 is gonna be a great year for it.
Okay, and then just on the on the margin front.
I'm looking at the numbers it seems like you'll see any margins gross margin was lower maybe you could give me some clarity why that's taking a little bit of pressure here.
Yeah actually let me take that 140, Mandy I would say honestly any what you saw in Q4 was pretty close to what we'd been running slightly below what we've run all year. The anomaly is the year over year comparison last year. There was a kind of a one time year to date catch up that happened in Q4 that caused.
Do you see any margins to look a little bit out of sync with everything else in that in the fourth quarter last year.
So when you look at the comparison it looks odd, but I think what you see in Q4, although but right at that 2021 level as what we consistently run for the C any segments.
Got it okay. That's really helpful. Thank you so much again.
At what level of revenue you think you could probably get to EBITDA breakeven.
[laughter] [laughter].
What about the topic.
Yeah, It's a great question, but I you know our guidance is a you know that we're going to basically our target is between 155 and 170 on revenue and we think that that will be really aligned with our guidance of negative negative single digit negative in millions of EBITDA.
You know, where we're going to do everything we can to continue to focus on our cost structure and be very diligent in how we can take cost out and you know we're focused on that where we can but we're not going to you know we're not going to go wrong, we're going to make sure. We have enough investment opportunity. So we can take advantage of that is really unique opportunity.
You know in our lifecycle, where we can make those investments that's necessary. So.
You know I think that's where we need to be right now and that that's our guidance for the year.
Got it. Thank you so much guys I'll get back in line.
Thank you. Thank you.
Yeah.
And as a reminder, if anyone has any questions you May press star one on your telephone keypad to join the question and answer queue.
Our next question comes from the line of Vivek <unk> with Northland capital.
Proceed with your question.
Hi, I'm, the Nick on for Mike Latimore.
I have three questions with me over.
The first one is a high.
Hi.
Yeah. My first question is how many salespeople do you have when do you expect them to grow this year.
Kevin do you want to take that one yeah I was going to say I, just I want to make sure I heard the question right are you asking about how many sales people we have.
Yes, we don't we don't specifically give guidance out on head count.
Specifically not within one area.
But I would say you know we are really focused on where we need to invest both on the you know both on the C&I side as well as on the analytics in terms of opportunities within the best customer sets and we're looking to do two things one is to pursue opportunities into adjacent into adjacent customers that you know we haven't had a positioning.
So our business development resources are critically important to that growth opportunity, but we're also looking to continue to grow within customers that we already have and so you know that often falls on the program manager side of the house as well. So I think the way we handle that growth is you know a two part answer but it's not something that we typically.
Give guidance a lot.
Yeah, I think the only other thing that I would make in addition to just the comment that you know everybody sells [laughter] is that are we have a strong partner channel as well and it's a space that we're growing right. So when we think about sales right. I would also encourage you to also think about it from an indirect standpoint in channel.
And we have a growing degree of interest in some established relationships already there so for us it's not just about direct sale.
I hope that helps.
Yes. Thank you and my second question is so.
Should we assume first quarter to be the lowest revenue, but the whole idea and then it builds from there.
Julie do you want to go ahead and take that one.
I can take that I would not make that assumption, but again, we don't give quarterly guidance.
The nature of our business is that sometimes it is lumpy and so when we give guidance for the year. There is a reason why you know we don't give that quarterly guidance. We wanted to make sure that we're offering the best perspective, we have on the year, but it can be lumpy and it can move around I mean, as I mentioned, we had a contract that got delayed at the end of fourth quarter of that.
Same in in Q1, and so that's going to cause some lumpiness in our cash flow.
Bottom line is its just not something were comfortable yet you know, we we may get to a point, where we get there when we start to give quarterly guidance, but we're just not quite to that level yet.
Alright.
My last question is about Oh, I mean, do you see analytics, so sorry, but engineering book growing faster this year.
So just to make sure that I understand are you talking about comparison between the two which will grow more yes, yes, or yes, yeah. So so this was something that and Julia can add on that for me right. We've we've been talking about this for the past several quarters. This right are our analytics business, which has a higher margin.
For us the area, where we're seeing a lot of growth rate continues to be a.
Part of our business that we expect to you know drive right a lot of growth for us overall and that being said right. I would say you know Fannie is projected to have a good year as well, but I am I guess, Julie I don't know if you'd add anything on that.
Yeah, well I would just say you know I would point to our performance what you've seen recently, which as you know we've we've clearly been focusing on a shift of our revenue mix towards that higher margin analytics segment, a technology led services right and so we're pleased to see that you know in Q4, we had 39% growth in that analytics segment.
And we expect that that that helps us drive better profitability in the quarter and in the back half of the year as well and we expect that to continue into 2023. So yes, we do expect the analytics segment to grow faster.
Thanks, a lot guys. Thank you.
You bet. Thank you.
And we have reached the end of the question and answer session and I'll now turn the call back over to Mandy long for closing remarks.
Thank you all so much for joining today and I appreciate the questions and the discussion.
As I shared but I I I continue to be genuinely excited about big Barry I like our potential our future I think we are doing all the right things and have a very clear focus on long term and sustainable growth for the business and we appreciate all of your time and we look forward to speaking with you again.
Next quarter.
And this concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
Yeah.
Yeah.
Right.
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Okay.
Uh huh.
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Hmm.
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