BigBear.ai Holdings, Inc. (BBAI) Earnings Call Transcript & Summary

Thank you for joining the BigBear.ai Fourth Quarter and Full Year 2022 Conference Call. This call is being recorded. [Operator Instructions] I will now turn the call over to Shane Karp, Vice President, Marketing and Communications. Please go ahead, Mr. Karp.

Good afternoon, everyone, and welcome to BigBear.ai's 2022 Fourth Quarter and Full Year Earnings Conference Call. I'm joined by Mandy Long, our Chief Executive Officer; and Julie Peffer, 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 BigBear.ai 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. As discussed in previous calls, we have continued to take material steps forward in reducing our recurring operating expenses and improving our liquidity position. Less than 6 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 clear understanding of our capabilities and how they can be applied to the markets that we service. Is 2023 as a critical foundational year for us as we support some of the challenging things that are happening in the world right now and strive to deliver clarity for the world's most complex decisions.  We are in the midst of an unprecedented wave of excitement around artificial intelligence. Key decision-makers and leaders across government and industry are recognizing the necessity of at scale, production-grade adoption of AI-powered decision support. BigBear's capabilities and decades-long heritage in this field gives us a competitive advantage in delivering a higher form of reliable, scalable, decision intelligent 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 3 core markets: complex global supply chains and logistics, autonomous systems and cyber.  We anticipate the government investment in AI solutions will continue to grow. In November 2022, 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 2022, the U.S. national defense spending bill was passed, allotting 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 Biden put forward his 2024 defense budget proposal, which included a record amount of $145 billion for research and development.  At BigBear.ai, we are uniquely positioned and view 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 in high-stake environments. 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 have been a trusted partner to critical government agencies for decades. Throughout 2022, we deepened these relationships and see examples of this in selection such as the $900 million 10-year multiple-award Air Force IDIQ 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 and have a seat at the table as an established prime contractor for innovative government and defense work.  We are showcasing our strengths in complex global supply chains and logistics through our Global Force Information Management, or GFIM Phase 2 work where our solutions are empowering senior leaders and combatant commanders to man, equip, train, ready and resource, the Army more effectively by transitioning 14 legacy systems into a single solution to provide real-time, holistic data for 160,000 users. This Phase 2 work is significant in that it builds on our successful GFIM prototype efforts during Phase 1 and accelerated what was supposed to be a $2 million award for a second prototype and to a $14.8 million award to deliver a minimum viable product. Additionally, the Phase 2 award accelerates the program timeline while naming BigBear as the sole prime contractor to deliver this critical capability and puts us in a strong position to receive the Phase 3 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 in unmanned surface vessels. We look forward to showcasing our threat intelligence and situational awareness capabilities at IMX 23, 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 JADC2 strategy, a multibillion-dollar effort to use AI, ML and predictive analytics to better sense, make sense and act as a speed of relevance.  We are also providing cyber solutions across sectors. Our spacecraft partnership with Redwire is delivering a suite of space cybersecurity solutions to minor in 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 cybersecurity. We are continuing to build our pipeline in the complex manufacturing, shipping and shipbuilding industries, and we are making significant progress. Our process simulation and modeling solutions help companies manage massive and complex physical and information environments, delivering clarity on facility, equipment and personnel systems, forecasting requirements and simulating 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 2 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 EBITDA targets despite a continued challenging macro environment. We continued our cost reduction actions in Q4 and Q1 '23, 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% year-over-year growth, primarily driven by our Analytics segment at $23.1 million in the quarter, an increase of $6.5 million or 39% compared to the same period in 2021. -- this growth was driven by key program wins in 2022, including the Phase 2 award for the Global Force Information Management, or GFIM program with the U.S. Army that Mandy walked through earlier. Revenue in our C&E 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 segment adjusted gross margins. We are continuing to see growth in our higher-margin analytics segment, which includes our commercial business, outpaced our C&E segment. We anticipate that this trend will contribute to increasing segment adjusted margins going forward. The segment adjusted gross margin was 35% in Q4 2022 compared to 31% in Q4 2021. Segment adjusted gross margin in Analytics was 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&E 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 contracts converting into Q4 revenue of $40 million as well as a couple of contracts with expired period of performance in the quarter. For 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 roll 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 funds.  In addition, backlog was impacted by 1 government contract where we switched to a subcontractor role. This change in the contract vehicle type does not impact the revenue associated with this work, but impacts when we received 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 awards and also updated estimates 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 included 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 plans. Excluding the impact of stock-based compensation and nonrecurring integration expenses in both periods, Q4 expense still reflects 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 and 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, 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 $60.5 million of stock-based compensation expense related to the merger transaction. The net loss in the fourth quarter of 2022 was impacted by a non cash 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 in 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 rates.  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 forecasted compared to the $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 review of 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 was our biannual interest payment. The remaining operational cash burn of $3 million was significantly less than 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. All of the actions we took to right size our operational cost structure in the second half of 2022 and 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 2023, which excludes nonrecurring and nonoperational items, including interest payments, transaction fees, tax payments for stock vesting and severance costs associated with our 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 IT controls. While 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 are addressing the issues, including enhancing segregation of duties, implementing additional IT general controls 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 revenue 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, which, given their size and timing of awards could have a significant impact on our FY '23 revenue. Additionally, as Mandy said in her opening remarks, it's clear that the rates for AI dominance will continue into 2023. As we execute our strategy this year, we will undoubtedly have to make certain investments that we believe will be catalyst in accelerating our success as an industry leader in AI. Looking ahead, we remain disciplined on managing cost and focus on areas to drive operational efficiency. Following a cost reduction initiative, 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, driven by increasing demand for our offerings in federal markets and our ramp-up in commercial go-to-market efforts as well as a 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 it to Q&A.

Thank you, Julie. I am proud of the BigBear.ai team and the work that we have 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 are going to do, and then we will do it. We know what we are capable of. We aren't afraid to learn fast and work hard, and we see the long game. 2023 will be an important year of growth and stability for BigBear.ai as we deliver clarity for the world's most complex decisions. We're very excited about the year ahead.  Operator, we're ready for questions. Thank you.

[Operator Instructions] Our first question comes from the line Louie DiPalma with William Blair.

There has been a great deal of investor excitement associated with Chat GPT and its impact on AI innovation. Can you provide a quick overview of how your solutions may defer from Chat GPT and your use of Tensor completion as part of your AI solution? And also related to this, will Chat GPT developments translate into contracts for BigBear.ai over the long term? Or how should we, in general, think about the recent excitement for AI solutions?

It is an incredibly fair question. And I think one that many wonder about. So Chat GPT as a whole, right, is -- I think there's been a lot of coverage on derived off of LOMs, right, large language models, which is a capability that's actually existed for a very, very long time and has been applied BigBear uses LOMs, a lot of companies do. But I think that this particular instance is the first time we've seen a degree of 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 BigBear is that we have more than a couple of decades of experience in working in even the early days of machine learning and now as the learning has progressed, we leverage a wide variety of training tools and methodologies to meet customer needs. Sometimes that, to your point, right, may require different types of artificial intelligence, whether it's the work that we do in predictive analytics, whether it's computer vision or in the underlying tools that we use to accomplish those things, we have skill sets that tap into each of them.  But what I would note in terms of -- so you mentioned Tensor, I think the big 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 even 5 years ago, we really couldn't tap into because of the limitations around compute. But at the end of the day, 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 Tensor, right, as an example, it does a pretty spectacular job, and we've been working on that for quite a while around weak-linked correlation, so dirty data sets. And we do use that in some of our solutions that are deployed with the federal government.  As 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 -- and when we look at our pipeline, right, I see a lot of promise, right, associated with where we're headed, and it's really on us to do what we said, right, go execute and then keep sharing it as we go. Does that answer your question, Louie?

Yes. Definitely. And you were just talking about production examples. And last quarter, you discussed how your MedModel and FutureFlow Rx platforms have been gaining some traction with hospital customers. And I'm wondering how has 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 does include the FutureFlow RX solution, we don't break out separately in terms of reporting. But the pediatric care crisis continues, right? There is an unbelievable challenge happening in the world that I spent many years in across hospitals and health systems associated with staffing shortages associated with incredible upticks in particular types of illnesses that we just haven't 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 multisource its Vantage data analytics dashboard program. And in your prepared remarks and over the past year, you've discussed the success that you've had with the GFIM program, which is also with the U.S. Army data analytics office. And I was wondering if this Vantage multi-sourcing represents an opportunity for BigBear given its strong relationship with the U.S. Army and what other potential defense prospects you may have in your pipeline?

Sure. I think probably the best way to answer it, Louie to maybe talk about some of the things we're seeing as it relates to consolidation of federal contracts, right, because that, I think, is absolutely happening. We are seeing multiple contracts consolidated into larger 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 general kind of federal market and how we position ourselves and what we're seeing in terms of opportunity. I think in all 3 of the sort of vectors, right, that we have strengthened, whether it's complex global supply chain and logistics, whether it's autonomous systems, like our work at IMX 23, whether it's cyber, right, particularly with a focus on cybersecurity and risk, right, in reverse engineering. I see our pipeline growing. I guess is the 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 and leadership that is in the seat, 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 interest payments and different tax payments that you mentioned? And also, what is the total company liquidity pro forma for the $25 million raised?

Well, specifically to your first question, Louie. So we feel like we have done a really good job of getting the pipe in has 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 in -- starting in Q3, again in Q4 and Q1, we do expect the cash burn to be significantly lower. Now you're already aware of our interest payments that do happen in second quarter and fourth quarter. And so you kind of already know where those are placed. I would tell you that our target -- we are targeting to be operationally cash flow positive in the second half of the year.  Again, 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 everything that would be normal operating expenses that you would see in the business as well as inflow of customer payments. 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 costs 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 going to flow into Q2. And 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, where we are -- that we have plenty of liquidity to support our growth strategy and deliver on the promises we've made.

And our next question comes from the line of Param Singh with Oppenheimer.

This is Param Singh on for Ittai Kidron from Oppenheimer. So first of all, I just want to get a better sense of your overall revenue guide. Obviously, you've had some really good successes, great multiple contracts that you've talked about [indiscernible] today, and of course, IDIQ when -- now what to kind of harsh that against your guide for $165 to $170 million. I mean, it doesn't seem you're embedding much growth in there. Maybe you could help me understand why is that not growing at a much faster pace? Or is there incremental conservatism baked into your guidance?

So Second, so I can -- I'll make a couple of comments, and then I'll hand it to Julie to add some color. I think 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 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 to reinforce what Julie shared as well as what I shared earlier, right, we -- I think for many companies, right, ourselves included January opened up a lot of conversations that I think we are seeing accelerate, right? And I'll continue to be optimistic about how those conversations will progress. But as you also know, the federal contracting process could be a long one. And while we are pushing and being extremely responsive in adapting and expanding our solutions to meet those needs. Our guidance reflects what I think is a very kind of appropriate and measured approach for 2023. Julie, anything to add on your side?

Yes. I would say, yes, maybe said most of everything that I would have said. The only thing I would add is that 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 and funding from various different contracts that we had in terms of timing of how those were going to be funded or specifically some of the funding that was reprioritized to be associated with the more 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, and I think maybe said this, but just to reemphasize, it's important to understand that in the government world, even with this really tightened and excitement around AI and the capabilities, there's typically 3 major stages that we have to go through in order to get these contracts awarded. And there's a prototype phase, which is small and typically breakeven. There's an MVP 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 curve. And so I think that's why our guidance is where it is. We want to make sure that we're measured about how we're communicating and what we're committing to and how fast we can get there.

That's really helpful. Maybe if I could on the GFIM part. Obviously, you did much better on Phase 2. Phase 3, 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 tear much higher than you had previously anticipated. Is there now a higher outlook for Phase 3 as well?

So it's a fair question, and I'll kind of do the same as the last, which is I think initial -- as Julie walked through in terms of thinking about phases, right, as we move from where we are in Phase 2 and compete for Phase 3, which we continue to believe we're very well positioned for because of our execution and delivery in the Phase 2 process. Ultimately, the shift to production in, I think, all example cases that we could look at 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, where, I think, ultimately it's up to the customer to make that determination and to make the award as appropriate. But I mean, Julie, definitely weigh in because we are certainly spending a lot of time talking about it.

Yes, for sure. Yes. I mean everything is going very well on the program. It was announced back in September of last year for Phase 2. We're still working toward the next phase. And again, I think the game is 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 land in a production mode. And so I think everything is going exactly as we hoped and maybe even better than we hoped. And I can't -- I think right now that we just don't want to overcommit to how quickly they're going to move into production, although we do believe it is pond as part of the 2024 budget.

that's really helpful. Maybe we could talk a little bit more about the cybersecurity opportunity. I don't think that's been discussed as much. So I want to really understand what you're doing there and what are the new avenues of revenue that could potentially help big there in the upcoming years?

Sure. So I can talk a little bit about that. So we have a -- 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 spacecraft solution. So not only being able to do due to nuts holistic reverse engineering work and vulnerability analysis on componentry, but also to be able to do simulation, right, and modeling associated with potential whether it be offensive or defensive security postures and monitor that.  Now on an ongoing basis, some of the things that we're seeing as well is that, as we all know, right, cybersecurity continues to be one of the great challenges for a wide variety of industries as we go through the Fourth Industrial Revolution. A lot of these systems and festive hardware were 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 as kind of almost vulnerability assessments as a service.  There is a large platform manufacturer that we've worked with on that, and we're seeing additional chances. But the area where, I guess, I want 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 in a lot of other companies, all the way through the process of being able to actually work with physical hardware, new extraction analysis. So I hope that's helpful, but that is where we have some superpowers.

Would you compete with like traditional defense contractors there or cybersecurity companies would be more of a displacement for you in this vertical?

It's a good question. I think in the space that we work in, right, so particularly focused, if I focus first on the spacecraft solution, right? That's a pretty distinct solution that we have a partnership with Spread wire around, right, that we're doing that work in. As it relates to some of the kind of broader vulnerability work that I mentioned and the reverse engineering work, I would say we do see a level of competition from both sides. Most of the -- this is pretty kind of special superpower services work too. 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, absolutely. That's really helpful. Maybe one last revenue. The commercial revenue, I know you haven't broken down, but previously, BigBear use some are outlined a percentage of revenue that would come from commercial, and that would increase over time. Is there some sort of guideline or a number embedded in your 2023 guide? Do you think you can hit 10% would be coming from commercial? Is it a better number? I just want to understand your trajectory for that piece of the business?

Yes, it's a great question. So we continue to see the commercial business show promise, right? 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 I think 2023 is going to be a great year for it.

And then just on the margin front, looking at the number, it seems like your C&E margins, gross margin was lower year-on-year. Maybe you can give you some clarity why that's taking a little bit of pressure here.

Yes. Actually, let me take that one for you, Mandy. I would say on the C&E, what you saw in Q4 was pretty close to what we've been running slightly below what we've read all year. The anomaly is the year-over-year comparison. And last year, there was a kind of a one-time year-to-date catch-up that happened in Q4 that caused the C&E margins to look a little bit out of sync with everything else in the fourth quarter of last year. So when you look at the comparison, it looks odd, but I think what you see in Q4, although right at that 2021 level is what we consistently run for the C&E segment.

Got it. Okay. That's really helpful. And then at what level of revenue do you say you could probably get an EBITDA breakeven?

Yes, it's a great question. But our guidance is 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 single-digit negative in million EBITDA. 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 costs out and focus on that where we can, but we're not going to -- we're not going to be the wrong. We're going to make sure we have enough investment opportunities. So we can take advantage of this really unique opportunity in our life cycle where we can make those investments necessary. So I think that's where we need to be right now, and that's our guidance for the year.

[Operator Instructions] Our next question comes from the line of [ Vivek Palani ] with Northland Capital.

I'm [ Vivek ] on for Mike Latimore. I have 3 questions with me. The first one is -- yes. My first question is how many salespeople do you have? And do you expect them to grow this year?

That one. Yes. I was going to say, I just -- I want to make sure I heard the question right. Are you asking about how many salespeople we have?

Yes.

We don't specifically give guidance out on headcount and specifically not within one area. But I would say we are really focused on where we think we need to invest both on the -- both on the C&E side as well as on the analytics in terms of opportunities within the best customer sets. And we're looking to do 2 things. One is to pursue opportunities into adjacent customers that we haven't had a position in. 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 that often falls on the program manager side of the house as well. So I think the way we handle that growth is a 2-part answer, but it's not something that we typically give guidance on.

Yes. I think the only other note that I would make in addition to just the comment that everybody sells is that 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 kind of also think about it from an indirect standpoint and channel. We have a growing degree of interest in some established relationships already there. So for us, it's not just about direct sales. I hope that helps.

Yes. And my second question is, should we assume first quarter to be the lowest revenue for the whole of the year, and then it builds from there.

Julie, do you want to go ahead and take that one?

Yes, 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 we don't give that quarterly guidance. We want 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 that came in, in Q1. And so that's going to cause some lumpiness in our cash flow. The bottom line is it's just not something we're comfortable yet. We may get to a point where we get there where we start to get quarterly guidance, but we're just not quite to that level yet.

All right. My last question is about -- I mean, do you see analytics or cyber engineering growing faster this year?

So just to make sure that I understand -- are you talking about comparison between the 2, which will grow more...

Yes.

Yes. So this is something that and Julie can add on that for me, right? We've been talking about this for the past several quarters is our analytics business, which is a higher-margin business for us, an area where we're seeing a lot of growth, right, continues to be a part of our business that we expect to drive, right, a lot of growth for us overall. That being said, right, I would say C&E is projected to have a good year as well. But I guess, Julie, I don't know if you'd add anything on that.

Yes. I would just say I would point to our performance, what you've seen recently, which is we've clearly been focusing on a shift of our revenue mix towards that higher-margin analytics segment technology-led services, right? And so we're pleased to see that in Q4, we had 39% growth in the Analytics segment. And we expect that, that helped 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.

And we have reached the end of the question-and-answer session. And I will now turn the call back over to Mandy Long for closing remarks.

Thank you all so much for joining today. Appreciate the questions and the discussion. As I shared, I continue to be genuinely excited about BigBear.ai, 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. 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.