Blacksky Technology Inc. annual report, FY2022

BlackSky Technology Inc. — FY2022 Form 10-K Summary

Business context and reporting period

BlackSky provides real-time geospatial intelligence through a low-Earth-orbit satellite constellation and its Spectra AI software platform, which integrates proprietary and third-party sensor data. Revenue is generated from imagery, data, software and analytics, and professional and engineering services. This Form 10-K covers the fiscal year ended December 31, 2022; it is an annual filing rather than a standalone fourth-quarter filing. The 2021 comparison reflects Legacy BlackSky operations under reverse-recapitalization accounting, with certain revenue and cost captions recast for comparability.

• Fourteen satellites were in commercial operation at year-end 2022.
• The company had 259 employees, with 58% in engineering or operations.
• U.S. federal government and agency revenue represented $53.2 million, or approximately 81% of total revenue.
• Two customers represented 42% of 2022 revenue in aggregate, compared with three customers representing 45% in 2021.

Financial performance and key metrics

Metric	2022	2021	Change
Total revenue	$65.4 million	$34.1 million	+91.7%
Imagery and software analytical services	$47.4 million	$15.4 million	+208.6%
Professional and engineering services	$17.9 million	$18.7 million	-4.2%
Total costs, excluding depreciation and amortization	$35.8 million	$34.7 million	+3.1%
Operating loss	$(86.5) million	$(120.1) million	Improved by $33.6 million
Net loss	$(74.2) million	$(245.6) million	Improved by $171.5 million
Adjusted EBITDA	$(29.5) million	$(44.4) million	Improved by $15.0 million
Net cash used in operating activities	$(44.5) million	$(53.9) million	Improved by $9.4 million
Free cash flow	$(88.5) million	$(117.8) million	Improved by $29.3 million

Approximate calculated margins were 45.2% gross margin before depreciation and amortization, a negative 132.4% operating margin, and a negative 113.5% net margin. These margins remain heavily affected by depreciation of satellites, operating expenses, stock-based compensation, and the company’s continuing losses.

• Depreciation and amortization increased to $35.7 million from $14.3 million, primarily because of satellites placed into service in late 2021 and the first half of 2022.
• Selling, general and administrative expense declined 8.1% to $79.7 million, primarily because 2021 included substantial accelerated vesting-related stock-based compensation. Salaries, selling and marketing, insurance and rent increased.
• Stock-based compensation declined to $20.0 million from $42.6 million.
• There was no satellite impairment loss in 2022; 2021 included an $18.4 million impairment from the loss of two satellites in a launch failure.
• Non-operating results included an $11.8 million gain on derivatives, $2.1 million of equity-method investment income, $1.1 million of interest income and $2.1 million of other income, including a $2.0 million earn-out payment.

Balance sheet, debt and liquidity

• Cash and cash equivalents were $34.2 million, restricted cash was $2.8 million and short-term investments were $38.0 million, for reported short-term liquidity of approximately $75.0 million at December 31, 2022.
• Current assets were $88.5 million versus current liabilities of $26.9 million.
• Debt principal was $77.1 million, with a net carrying value of $76.2 million. The debt is owed to related parties, secured by substantially all company assets, bears fixed rates of 9% through October 2023 and 10% thereafter, and matures October 31, 2024.
• The company reported compliance with its debt covenants and no financial maintenance covenants, but the facility contains customary non-financial covenants and events of default.
• Accumulated deficit was $545.1 million. The company has incurred losses and negative operating cash flow since inception.
• Investing cash outflows were $81.6 million, including $32.4 million for satellite procurement work in process, $11.7 million for property and equipment, and $37.3 million net invested in short-term investments.

Material changes versus the prior comparable period

• Revenue growth was driven by increased imagery and analytics orders, new domestic and international subscription contracts, and the expanded satellite constellation.
• Imagery and software analytical services increased from 45.1% to 72.6% of total revenue, while professional and engineering services declined from 54.9% to 27.4%.
• Operating and net losses narrowed substantially, although the company remained unprofitable and cash-flow negative.
• Cash, cash equivalents and restricted cash declined by $131.1 million, from $168.1 million to $37.0 million. The company shifted $38.0 million into short-term investments, which partly explains the difference between reported cash and total liquidity.
• Debt increased on a net carrying-value basis from $71.4 million to $76.2 million, principally because of accrued and capitalized interest.
• Backlog was $259.4 million at year-end, excluding unexercised options. The company expects to recognize $63.0 million in 2023, $28.5 million in 2024 and $167.9 million thereafter.
• Professional and engineering services included a $2.3 million unfavorable cumulative revenue adjustment from increased estimated costs on two contracts.

Guidance, outlook, commentary and risks

• Management expected continued growth in imagery and software analytical services revenue in 2023, supported by stronger customer demand, and expected a continuing meaningful contribution from professional and engineering services.
• A May 2022 NRO contract had an initial value of $85.8 million over a five-year base period, with options that could increase total value to more than $1.0 billion over up to ten years. The filing states that options are not included in backlog.
• Management planned to launch two replacement satellites in the first half of 2023 and anticipated launching the first Gen-3 satellites in 2024. Gen-3 satellites are designed to provide 35-to-50-centimeter resolution and short-wave infrared capabilities, including improved low-light and nighttime imaging.
• The company expected expenses to exceed revenue in the near term while investing in sales, marketing, Gen-3 satellites and Spectra AI, but expected the gap to decline as it progresses toward positive operating cash flow. No specific timetable or quantitative operating cash-flow target was provided.
• On March 8, 2023, the company issued 16.4 million shares and warrants for gross proceeds of approximately $29.5 million before offering expenses. The warrants are exercisable at $2.20 per share from September 2023 through September 2028, creating potential dilution.
• Key risks include continuing losses and negative cash flow, substantial capital requirements, the October 2024 debt maturity, customer concentration, reliance on U.S. government funding and contracts, satellite launch and operating failures, dependence on LeoStella as the primary satellite manufacturer, supply-chain constraints, cybersecurity threats, regulatory and export-control requirements, and intense competition.
• Government contracts may be terminated for convenience, reduced or delayed, and backlog may not convert into revenue on the expected schedule.
• The company disclosed no material pending legal proceedings and stated that management assessed disclosure controls and internal control over financial reporting as effective as of December 31, 2022. The auditor issued an unqualified opinion on the financial statements.

Important facts for investors to verify

• Whether the NRO contract options and other backlog convert into funded revenue, and the timing of the reported $259.4 million backlog.
• The company’s ability to fund operations, Gen-3 development, satellite launches and the $77.1 million debt maturity in October 2024 without additional financing.
• Actual progress toward positive operating cash flow and whether revenue growth can outpace depreciation, customer acquisition and satellite-related costs.
• Satellite launch, commissioning, useful-life and performance risks, including replacement needs for aging satellites.
• Customer concentration, renewal rates and the effect of U.S. government budget changes or contract terminations.
• The dilution and liquidity effects of the March 2023 equity and warrant financing, outstanding public and private warrants, options and restricted stock units.
• Potential changes in fair value of derivative liabilities, contract cost estimates, indirect tax obligations and other contingent liabilities.