Earnings Call Transcript - BBAI Q4 2021

Operator, Operator

Thank you for being part of the BigBear.ai Fourth Quarter and Full Year 2021 Conference Call. I will now hand the call over to Josh Kinley of BigBear.ai. Please proceed, Mr. Kinley.

Josh Kinley, Chief Financial Officer

Good afternoon, everyone, and welcome to BigBear.ai's 2021 fourth quarter and full year earnings conference call, our first earnings call as a public company. I'm Josh Kinley, 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 BigBear.ai specifically disclaims any obligation to update the forward-looking statements that may be discussed during this 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 of 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 to non-GAAP reconciliations within our earnings release. With that said, I will turn the call over to Dr. Reggie Brothers.

Reggie Brothers, Chief Executive Officer

Thanks, Josh, and good afternoon, everyone. Thank you for joining us on our call today. This is our first quarterly report as a public company, after our listing in December. It's an important milestone for BigBear.ai. We are 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 growing both our analytics and cyber engineering business areas. This resulted 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 year-end 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 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. Two, in fact, until today the government was relying on continuing resolutions for funding which slowed down their work process. Second, the continuing impact of COVID and the Omicron wave in the fourth quarter also caused delays in contract awards and an extended ramp-up for projects. This ultimately contributed to our revised outlook for 2022, which we will discuss shortly. BigBear.ai had a strong year despite these external headwinds. We deepened long-term relationships with our government customers. These relationships are critical to our continued growth as they serve as a solid foundation for our future innovation. We also entered into relationships with several new customers that we believe will allow us to capture significant new commercial opportunities, and we continue to invest to build our team and scale our business areas and transition to a public company. Importantly, the momentum we're building is fueling our transformation from an established and steady servicing solutions first company to a more scalable technology first company. And as this is our first earnings call, I'd like to spend a few minutes to provide some more color on this transformation and regarding our growth strategy and building our competitive position. Our mission at BigBear is to guide our customers to realize the 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 time, even with the flow of data and limited visibility into the forces that can affect outcomes. We believe the opportunity that lies ahead in this field is abundant. BigBear.ai addresses two problems that organizations in all sectors face today. First, organizations struggle with complex, incomplete, and dirty data that is difficult to integrate and interpret. Second, the use of artificial intelligence and machine learning technology to perform decision-making is part of the equation, but deployments are still very limited to silos within the enterprise. This is because AI tools have been designed for highly technical users, not business users. Large companies tackle these problems by hiring a draw of data scientists, software developers, and system integrators. But this is expensive, time-consuming, not scalable, and not feasible for mid-market and small companies. At BigBear.ai, we're taking a different approach; we're making operational AI accessible to business people, delivering it in a visual, easily consumable way to simplify real-world complexity, fill gaps in data, and enhance the decision-making process with goal-oriented actionable advice. Importantly, our products look out of the box to address vertical use cases with rapid no-code configuration capability. Therefore, we provide value very quickly, and 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 has already happened with most of our customers. They often start with a subset of our offerings, and through the power and value of our solutions, they expand their 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 with 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 three-year contract. As part of this engagement, we will create a composable plan and prototype. In October, we were awarded a five-year TACTICALCRUISER 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 the Defense Intelligence Agency to develop a force element tracking and identity platform using 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. In December, we were awarded first place by the Navy in their AI price challenge supporting the Navy's initiatives to advance the capabilities of their tactical networks. This challenge tested the ability of more than ten notable industry companies to drive meaningful, actionable information from exceptionally dirty data, 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 Terran Orbital, and a memorandum of understanding with 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 a significant opportunity to plug our solutions into their scaffolding and go to market with an end-to-end platform, expanding the addressable market for both of us. Our technology is improving on high-stakes matters with the federal government, and we have a strong set of loyal government customers, but the opportunity for BigBear.ai is much broader than that. In fact, the AI 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 verticals. We are well-positioned to execute our federal and commercial 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 an experienced and talented team to support our growth strategy and emerge as a public company. This will continue to be a focus in 2022. To 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 for both our federal and commercial business segments. We bolstered our execution capability with several senior leaders added across product, engineering, sales, and marketing. We believe our team is well-equipped to grow our business with the federal government and accelerate our penetration into state and local governments, as well as commercial markets. We will 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 ramp M&A that 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 our outlook. We now expect full-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 are operating under continuing resolutions until two days ago, creating longer sales cycles. In fact, internal analysis shows that the government contractual process in areas relative to our business is taking significantly longer than it did pre-COVID. While the number of solicitations specific to BigBear.ai's market has increased, we found the time between a solicitation being released to industry and the actual contract award has more than doubled to over 600 days between 2019 and 2021. Things grew considerably in 2020, and while there were signs that things would 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 these factors are impacting the timing of contract awards, 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, operation 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 in 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 15. The $728.5 billion budget for defense represents a 5% increase of $32.5 billion over current spending. The public defense has acknowledged the need to accelerate the deployment of AI. This success is based on an AI strategy developed by the office of the Secretary of Defense and each of the services. This intent is confirmed in the defense budget; they're showing a significant increase in funding for AI, including $200 million specifically for the increased adoption of AI. Until the past couple of weeks through the current geopolitical crisis in Ukraine, we received increased inquiries for our capabilities to even more quickly operationalize AI for critical National Security Applications. We're very happy with the progress we've made in 2021. The BigBear.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 in both federal and commercial markets. With that, I'll turn the call over to Josh.

Josh Kinley, Chief Financial Officer

Thanks, Reggie. I want to start by echoing just how excited we are about the progress we've made and the momentum we're building. We're entering 2022 in a strong financial position with significant upside. Revenue for 2021 was $145.6 million, with approximately $33.5 million in the fourth quarter. Our revenue was driven by the continued execution of projects and our considerable backlog, but as Reggie mentioned, some revenue has been pushed into future periods because of delays in government contract awards, COVID-related workplace restrictions, and the continuing resolution that prohibited government agencies from awarding new contracts until the federal budget was fully approved and appropriated. As projected our revenues are beginning to skew more heavily towards our higher-margin Analytics business, with about $75 million coming from analytics and roughly $71 million coming from Cyber and Engineering. We're happy to share that our strong backlog provides clear revenue visibility with our existing customer engagements, while we wait for the pending new awards. And this revenue base will continue providing the foundation for our future growth. While revenue was impacted by the factors we just discussed, we saw gross margins that were in line with our projections. For the full year of 2021, our segment adjusted gross margin in analytics was 45% even with heavy upfront investments on a few large long-term opportunities that we're pursuing. In Cyber Engineering, our full-year segment adjusted gross margin was 23%. Despite the contract delays, we still achieved our gross margin projections and we expect the margins to expand in future periods. Operating expenses were $113 million for the year and $76 million for the fourth quarter. This is a dramatic increase over prior year OpEx, but it's worth noting that a considerable amount of this is transaction-related, including $56 million related to stock-based compensation expense primarily in the fourth quarter. This is largely associated with legacy equity grants that vested upon the completion of the merger. Excluding the stock-based compensation expense and some other transaction-related expenses, including capital markets advisory fees of roughly $3 million and transaction-related bonuses, our OpEx for Q4 was about $16 million; that's a $3 million increase over the third quarter of 2021. The increase was largely due to increased SG&A expenses associated with public company readiness, the hiring of the aforementioned executives, and the building of our product teams. These are all strategic investments that are critical to our future growth, and it was important to make the investments now despite the external delays that pushed revenue into future periods. For the full year, we had a net loss of $123.6 million, primarily driven by total stock-based compensation expense of about $61 million overall for the year, $33 million related to the change in fair value of our forward share purchase agreements and about $12 million related to other one-time transaction-related expenses. Adjusted EBITDA was $4.9 million for the full year 2021, a decrease from $7.2 million in the third quarter; this was also driven by higher expenses and timing delays impacting revenues, gross margins, and operational expenses in aggregate. Turning now to our balance sheet, our total available liquidity is $118.9 million, which consists of cash and cash equivalents of $68.9 million and $50 million of available borrowing on our Bank of America credit facility, which we entered into on December 7, 2021. Proceeds from the credit facility will be used to fund working capital needs, capital expenditures, and other general corporate purposes. As of December 31, 2021, we had not drawn on the line of credit, and we do not anticipate needing to draw on the facility in 2022 based on current operations and cash flows. Now turning to our outlook. As a result of the slower pace of government activity mentioned earlier, we revised our projections for 2022. We now expect full-year revenue to come in between $175 million and $205 million. As Reggie said, the delays in contracting activity do not mean lost revenue; they mean things are pushed out for us, and this revenue range reflects the delay in getting the final 2022 budget in place for the U.S. government and uncertainty around the timing of pending contract awards. This has been impacted and experienced across the industry and is not specific to BigBear.ai. One of the items we're most excited about in our projections is that we expect commercial revenues to approach 10% of total revenue for the year. This is an incredible increase from less than 1% in the prior year and reflects our growing momentum with our commercial customers. Because we are investing to accelerate our commercial go-to-market strategy and SaaS-based offerings, we're not providing an EBITDA projection for 2022. We do expect to remain positive on an adjusted EBITDA basis for the year; we're going to evaluate investment opportunities on a case-by-case basis throughout the year such that we're managing total expenses while committing resources towards objectives that will enable the long-term growth and success of the company. Overall, we're confident in these projections. I want to emphasize that 79% of our anticipated revenue for 2022 is already captured in our backlog. We continue to see strong demand, and with the recent geopolitical events and new spending bills from the government, there could be significant upside potential ahead. In closing, our strong backlog and a substantial market opportunity in the government and commercial sectors gives us great confidence in our prospects, and we're excited to execute on our strategy and capture new opportunities. Now I will turn it back to Reggie for closing thoughts before our Q&A.

Reggie Brothers, Chief Executive Officer

Thank you, Josh. I'd like to close this call by reiterating my excitement for the future of BigBear.ai and my gratitude for our fantastic and growing team. There is massive demand for our solutions around the consolidated problems associated with complex data and a limited deployment of AI/ML and the opportunity to empower leaders and decision-makers to make the right decisions at the right time, every time. We take this challenge head-on; we're eager to innovate and develop new solutions to guide our customers to realize the best possible futures, and we're in an excellent position to execute our federal and commercial SaaS strategies in 2022. Thank you all for joining us today. I'll now turn it over to our operator to begin our question-and-answer session, where Josh and I will be joined by Brian Frutchey, Chief Technology Officer; Sam Gordy, Chief Operating Officer and President of Federal; and Jeff Dyer, President of Commercial.

Operator, Operator

Our first question comes from Mike Latimore with Northland Capital Markets. Please state your question.

Mike Latimore, Analyst

So I guess, just Reggie you mentioned the March 15 passage of that bill. I guess how do you see things playing out from here in terms of addition to opportunities or is there an opportunity to pipeline to move a little faster? Just how does that play out and in some of the timelines on that?

Reggie Brothers, Chief Executive Officer

Yes. Thanks, Mike. So I think, obviously, it's good news that the appropriations bill was passed, right. I think there is still a challenge and is one reason with the uncertainty because there are still things - the government still backed up. Right? So we have to wait as things get through the queue. But the good news is that they can still move on new starts and that's exciting for us. Because like I said, there are new opportunities not just because of the new appropriations really pushing on our artificial intelligence, but also because of the unfortunate events in Ukraine, which is focusing people more on defense and particularly more on how to use data and decision-making tools and analysis AI/ML specifically in order to make better decisions to get ahead of our adversaries. So I think the good news is that we should see the unblocking, so to speak, these awards, right. And I also think we'll see some other opportunities to make an impact in some critical areas that we're seeing develop.

Mike Latimore, Analyst

Given that geopolitical climate and seeming urgency around that dynamic, would that move some of your opportunities forward a little bit here potentially?

Reggie Brothers, Chief Executive Officer

It's not clear exactly that moving forward, Mike, simply because there is the queue that the contracting personnel and the government has. It's not clearly moving forward.

Mike Latimore, Analyst

Okay. And then in terms of the commercial, you gave some commercial guidance of $20 million or so. Can you just mention the verticals or use cases that are most prominent in that commercial guidance?

Reggie Brothers, Chief Executive Officer

Let me turn over to Jeff, as we said he is our new President of Commercial. And then let him talk about that.

Jeff Dyer, President of Commercial

Thanks, Reggie. And hello Mike, thanks for the question. There's so much innovation that's happened on our federal side that one of the priorities for me in our commercial charter has been trying to determine where to start and create some focus for our commercial go-to-market strategy. There were lots of options presented, but it was very clear in understanding the predictive AI/ML capabilities that we have in our federal clientele that we were best suited to start focusing on manufacturing, be it supply chain, factory optimization, and or distribution logistics. So our 12 to 18 months priority is going to be centered very much around manufacturing, and there are other opportunities beyond that, but we'd like to set a foundation with some repeatable patterns that we know we can predict and control as we evolve the company in the product and the verticals that we could pursue.

Mike Latimore, Analyst

Great, thank you, that’s helpful. In terms of our focus on manufacturing, we’re prioritizing this area for the next 12 to 18 months, concentrating on supply chain, factory optimization, and distribution logistics. While there are other opportunities we see, we want to establish a strong foundation with predictable and manageable patterns as we develop the company and explore potential product and verticals.

Sam Gordy, Chief Operating Officer and President of Federal

And this is Sam Gordy. Sorry, on the federal side, I just wanted to jump on Jeff's comment there from a federal perspective and just emphasize that any vertical we're pursuing on the commercial side of the market has a like client on the federal side, and we'll certainly look to bring that across into that market as well.

Mike Latimore, Analyst

Okay. Got it. And then just thinking about the progression of revenue this year, I assume we should think about it in line with traditional government patterns or it's pretty heavily weighted towards the second half?

Reggie Brothers, Chief Executive Officer

Josh, you want to take that?

Josh Kinley, Chief Financial Officer

Yes. Mike, this is Josh. Yes, on that, I would tend to agree with that. Certainly, we've had to go through half of the government fiscal year with a lot of our customers honestly waiting for the ability to work the contracts that have been out there in the queue. So we would expect the back half of the government fiscal year 2022 to be strong. But as Reggie pointed out, the bill being passed, it's not an instantaneous fix. There are a number of, I'll say procedural actions that have to happen as the authorization kind of rolls downhill to the various customers. But we would expect to see that accelerating over the coming months for sure.

Operator, Operator

Our next question comes from Ittai Kidron with Oppenheimer. Please state your question.

Ittai Kidron, Analyst

Just Josh, I want to make sure I get my bearings right here on the numbers with regards to the comment that you made at 79% of your '22 estimate is in backlog. Should the government deals that have been pushed out because of COVID and the bill and the delay in the bill come in, how far above the annual guide will you be if those opportunities materialize?

Josh Kinley, Chief Financial Officer

Thank you for the question, Ittai. That's a great question. Currently, we are comfortable with the figure of 79%. As the continuing resolution was passed, many of our government clients began updating their expected award dates, which has led to new guidance on when they anticipate awards. We have observed that some awards originally expected for 2021 have shifted to 2022, positively impacting our budget and projections for that year. However, we have also seen some items from 2022 pushed out to 2023. While there is potential for upside beyond our submitted range, our primary focus was to assess trends from the past nine to twelve months and evaluate government performance. Based on that, we felt that the range we provided was the most realistic, with some room for exceeding it. I don’t have a specific number for you, but there is potential available. We presented the range that reflects our most realistic expectations based on past observations.

Ittai Kidron, Analyst

Got it. It seems like there may not be a significant jump or catch-up that occurred within this period. It feels as though many things have simply been delayed by a quarter or two, essentially starting over from a scheduling standpoint for several of these deals. That makes sense. Regarding your guidance for commercial, aiming for around 10%, which is approximately $18 million to $20 million for the year, how much of that is already secured in contracts? How should I think about the amount that is already committed for you?

Josh Kinley, Chief Financial Officer

We're not sharing specifics about our backlog, but a significant portion is already secured, and we're actively working on those contracts. To give you an idea, we expect our commercial revenue for the first quarter of 2022 to exceed our total revenue from the previous year. We've quickly ramped up these initiatives and are on track to meet our 2022 projections based on the current work we're doing, with the expectation of more contributions to our backlog in the upcoming months.

Ittai Kidron, Analyst

Got it. That's great. Jeff, regarding the commercial side, can you help me understand how the initial projects differ from the follow-up projects? I'm particularly interested in how this relates to the speed of closing and executing deals. To what extent are you aiming to establish a template with these initial deals this year so that you can move at a faster pace in winning and executing future deals?

Jeff Dyer, President of Commercial

It's a great question; thanks for it. We're being very selective in the customer relationships we are starting with commercially to ensure that they are very complementary and synergistic with our product roadmap cadence and decisions. We picked manufacturing for a reason; there's a lot of maturity in the IP we have on the federal side, and we believe packaging is the right way in a SaaS delivery model to the commercial market space that we can have a very healthy software business that gives value quickly and allows customers to then come back and engage with us in other meaningful ways for call it land and expand strategy. Initially, commercial is very focused on solving manufacturing incentive problems. But we believe that the investments that we're making in our product roadmap are going to allow us to help companies realize value quickly. Again, as Reggie said in his comments, without a huge investment or large staff of data scientists, we're trying to provide environments in the commercial sector that give the value of AI/ML capabilities for predictive analytics without the heavy footprint and the labor that allows us to deliver value quickly. But also help them, hopefully, solve many problems as we grow their relationships and prove to be a valuable partner.

Ittai Kidron, Analyst

Got it. That makes sense. Well, I guess then maybe the last one from me. And Josh or Jeff, I guess that's for both of you. As I think about your ramp here, would it be fair to assume that Cyber Engineering in those deals even though it's conceptually aimed to be low part of the mix at least in this year, perhaps next, the Cyber Engineering mix is going to be still high in those transactions as you try to kind of nail down the details on them and customize them and make sure that everything kind of gets worked out before you start running them more broadly?

Jeff Dyer, President of Commercial

Most certainly it's Brian. I'd probably ask Brian to comment on that. I think he can give a better answer around how we leverage that asset.

Brian Frutchey, Chief Technology Officer

And Ittai, just to clarify the question there. Are you talking with regard to how the Cyber Engineering type revenues is incorporated into those commercial sales?

Ittai Kidron, Analyst

Yes, the long-term vision is that the commercial segment will lead to significantly higher gross margins due to the reduced labor involved. However, in the near term, I am curious whether the margins on the initial commercial deals are comparable to those from your defense contracts. This is likely because these are your first commercial transactions, requiring more involvement to ensure everything runs smoothly and to learn from the process, enabling quicker and more profitable future deals.

Brian Frutchey, Chief Technology Officer

What you're referring to is the services and component in any old and commercial deals? Is that what you're getting at?

Jeff Dyer, President of Commercial

Okay. Thanks for clarifying. We have certainly cyber capabilities, so, I thought your question was focused on that area of technology. To answer your question, now that I understand and thank you. Again, we're being selective as I said on the early customers that we're choosing to work with. There's a number of opportunities and a lot of demand, but we're being very careful because until our roadmap fully plays out in the second half of the year as we disclosed, there are aspects of how we implement and configure and customize to each customer's unique needs that require more labor than it will in the future. So, we're trying to make sure that the customers that we select to work with early have great alignment with our product roadmap. So even though there is some service component initially that will suppress over time as the product matures and we package it more consumable multi-tenant SaaS modern paradigm.

Ittai Kidron, Analyst

Very good. Excellent, thanks, guys. Appreciate it.

Brian Frutchey, Chief Technology Officer

And Ittai, I can actually give you a little bit more insight there on how those gross margins are maturing. As we had communicated in the past, we expect the revenue coming from these commercial sources to certainly have a higher gross margin than the government engagements, and we're seeing that already. While we're early in these engagements and we're doing the engineering, the upfront engineering and integration that Jeff was speaking to, we're already seeing gross margins at 60% plus level. Obviously, as they become repeatable, deployable solutions across multiple customers, we'll see that move forward. But we're kind of in line with the projections that we communicated previously, which is starting now at 60% and over the coming years, we would expect it to achieve considerably higher gross margins.

Operator, Operator

Our next question comes from Louie DiPalma with William Blair. Please go ahead.

Louie DiPalma, Analyst

Last fall you announced a partnership with Palantir. Can you discuss the co-op attrition dynamics that you have with Palantir as it seems that you are pursuing many of the same Department of Defense, Data Analytics prospects, and specifically the Global Force Information Management program? So can you discuss, I guess, your future partnership opportunities in both the commercial and defense markets? Thanks.

Reggie Brothers, Chief Executive Officer

Thanks for the questions. Good question. First, can you take some of this, and I'd hand over to Sam to talk more about these things. But you were talking to some of the general terms of how on Palantir?

Sam Gordy, Chief Operating Officer and President of Federal

Absolutely. My pleasure. Louie, thanks for the question. So I think you've heard me speak about our partnership with Palantir in the past as a good synergistic relationship where Palantir provides us a best-of-breed data and processing fabric, so that we can focus on our specialized AI algorithms that generate the business insights for our customers. That pairing is one that our current customer base in the government has already begun to appreciate, given that they have experience with both of our capabilities, both of our platforms. And I believe that we will soon have some positive news to share towards some joint projects in that space. So I think the partnership has already come into fruition both with our BigBear team being able to package our capabilities to plug into the Palantir platform to leverage their installed base, and we are starting to find joint opportunities that we're capturing in tandem as we go to markets in some of our early joint customer accounts.

Louie DiPalma, Analyst

Great. Would it be fair to assume that most of the $20 million in commercial revenue you are forecasting for 2022 is from the space industry and your partnerships announced with Virgin Orbit, Terran Orbital, and Redwire?

Reggie Brothers, Chief Executive Officer

Jeff, do you want to speak to this?

Jeff Dyer, President of Commercial

Those are certainly great agreements. We're excited to be helping those customer relationships, and it does clearly represent a nice revenue uplift as we build our foundation on the commercial side of the business. But there are many other opportunities that we're pursuing organically and inorganically. And we believe it will help us materialize in the guidance that we've set.

Josh Kinley, Chief Financial Officer

Yes, absolutely. So let me start out with the gross margin. As I had pointed out, the revenue had already started to skew more towards the analytics, with the majority coming from analytics segment in 2021. We expect that to continue certainly as that commercial revenue which we're projecting being 10% of the total revenue in the year. Of course, that has higher gross margins. So as we see more of the analytics work both on the government and the commercial side, we will see the gross margins expand there. On the EBITDA side, we had to go through 2021; obviously, I broke out some of those OpEx investments and expenses we had to make in 2021. Those were all investments that I'd say we look at them in two buckets, there are the must-do's and the we'd like to do's. The must-do investments mean our strategy, which is to deploy this commercial capability; we had to invest in building out that SaaS-based commercial technology that we can deploy out there. And so that was a must-do investment that we had to pursue. Certainly, the go-to-market or the public company readiness and all the expenses that come along with that, those are things that we could not defer and we had to make those investments upfront. But a considerable amount of those investments are already made. We don't feel like we have substantial increases in OpEx moving forward. I mentioned the like-to-do's; we could have pursued a number of different markets in the commercial space. But we're focusing our development teams on what we think are the highest award opportunities, and as Jeff pointed out, we think that manufacturing and supply chain vertical is really where we can see the earliest gains. So, by focusing our development team and our investments there, those investments are largely on board already. So, as the revenue ramps up, I think you'll see that EBITDA expansion that we're projecting moving forward. So, making sense, Louie?

Operator, Operator

Thank you. There are no further questions at this time. I will turn the floor back to Dr. Reggie Brothers for closing remarks.

Reggie Brothers, Chief Executive Officer

Well, look, I just wanted to thank everyone for joining our call. I appreciate the questions, and we look forward to reporting our progress on our Q1 2022 call later this spring. Thanks, again.

Operator, Operator

Thank you. This concludes today's conference. All parties may disconnect. Have a great evening.