BlackSky Technology Inc. 10-Q Summary
Business context and reporting period
BlackSky filed this unaudited Form 10-Q for the quarter ended March 31, 2022. The company provides real-time geospatial intelligence through a low-earth-orbit satellite constellation and its Spectra AI software platform, supplemented by third-party data sources. It also provides engineering and systems integration services, primarily to government customers. BlackSky had 12 satellites in commercial operation at quarter-end.
The September 2021 merger with Osprey Technology Acquisition Corp. affects period comparability because the pre-merger results reflect Legacy BlackSky, while the post-merger public-company structure includes BlackSky Technology Inc.
Financial performance and key metrics
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Total revenue | $13.9 million | $7.3 million | Up 90.5% |
| Imagery and software analytical services revenue | $9.8 million | $6.0 million | Up 62.9% |
| Engineering and systems integration revenue | $4.1 million | $1.3 million | Up 218.2% |
| Gross profit, approximately | $2.9 million | $1.8 million | Up approximately $1.2 million |
| Gross margin, approximately | 21.2% | 24.5% | Down approximately 330 basis points |
| Operating loss | $(27.1) million | $(9.5) million | Loss increased $17.6 million |
| Net loss | $(20.0) million | $(168.6) million | Improved by $148.6 million |
| Adjusted EBITDA | $(9.5) million | $(6.2) million | Loss increased $3.3 million |
| Loss per share | $(0.17) | $(0.70) | Improved |
The calculated gross profit and gross margin are based on reported revenue less imagery and software analytical service costs and engineering and systems integration costs. Operating expenses included $22.5 million of selling, general and administrative expense, $7.4 million of depreciation and amortization, and $10.2 million of stock-based compensation. Depreciation increased primarily because six satellites entered service during the second half of 2021.
The substantial improvement in net loss primarily reflects the absence of $144.1 million of 2021 expense related to Bridge Notes issuance and associated debt issuance costs, together with an $8.1 million derivative gain in 2022 versus a $14.0 million derivative loss in 2021. Core operating profitability remained negative.
Cash flow, liquidity, debt, and capital resources
- Cash and cash equivalents were $135.9 million at March 31, 2022, compared with $165.6 million at December 31, 2021. Including restricted cash, total cash, cash equivalents, and restricted cash was $138.4 million.
- Operating cash flow was negative $12.7 million, compared with negative $10.6 million in the prior-year quarter.
- Investing cash flow was negative $13.4 million, including $11.5 million for satellite procurement work in process and $1.9 million for property and equipment.
- Free cash flow, as defined by the company, was negative $26.1 million, compared with negative $18.1 million.
- Long-term debt, net of issuance costs, was $71.9 million. The underlying principal balance was $74.1 million, consisting of related-party loans with effective interest rates of 7.41% to 8.00% in the financial statement presentation.
- The primary secured debt facility matures October 31, 2024. Its interest rate is scheduled to increase from 4% to 9% beginning November 1, 2022, and to 10% beginning November 1, 2023. The facility is secured by substantially all company assets and contains customary covenants and events of default.
- Current assets were $151.8 million and current liabilities were $31.6 million. Management stated that available cash and working capital were sufficient for short-term liquidity needs and that merger proceeds were expected to fund foreseeable needs.
Material changes versus the prior comparable period
- Revenue increased 90.5%, driven by higher imagery and monitoring orders, a multi-million-dollar international government imagery contract, increased satellite capacity, renewed commodity-monitoring work, and greater progress on two engineering contracts.
- Direct costs increased 98.9%, outpacing revenue growth, and calculated gross margin declined to approximately 21.2% from 24.5%.
- SG&A increased 165.8%, primarily due to $9.3 million of stock-based compensation, higher headcount and payroll costs, and increased public-company insurance costs.
- Engineering and systems integration costs increased 346.7%, partly because of non-recurring engineering design and material procurement costs associated with Gen-3 satellite contracts.
- The company recorded a $1.2 million unfavorable cumulative revenue adjustment related to estimated cost increases on two engineering and systems integration contracts.
- Stock-based compensation rose to $10.2 million from $0.5 million, largely because restricted stock units vested following the merger.
- Derivative liabilities declined to $8.8 million from $16.9 million at year-end, producing an $8.1 million gain. These liabilities are remeasured based partly on the company’s stock price and other market assumptions.
Guidance, outlook, risks, contingencies, and unusual items
Management expected imagery and software analytical services revenue and engineering and systems integration revenue to grow during 2022. Gen-3 satellites were expected to become operational during 2023 and are designed to improve resolution and support short-wave infrared imaging, including nighttime, low-light, and all-weather applications.
Remaining performance obligations were $24.7 million at March 31, 2022. The company expected to recognize $20.1 million during the nine months ending December 31, 2022, $4.4 million in fiscal 2023, and $0.2 million thereafter, excluding unexercised contract options.
- BlackSky has incurred losses and negative operating cash flow since inception and had an accumulated deficit of $490.9 million. It stated that additional debt or equity financing may be needed for long-term growth, but it has no committed line of credit or immediate access to funds.
- Revenue is concentrated among government customers: U.S. federal government and agency revenue was $11.1 million, or approximately 80% of total revenue, in Q1 2022. One or more customers represented at least 10% of revenue.
- The company relies on satellite launches, satellite manufacturing, third-party data, cloud infrastructure, key personnel, government contracts, and successful development of Spectra AI and Gen-3 satellites.
- As of March 31, 2022, the company had commitments for two launches covering up to four satellites totaling approximately $4.3 million and a remaining satellite purchase commitment of $4.2 million. A subsequent contract modification reduced the latter commitment by $3.6 million.
- The company recorded a $0.7 million liability for potential indirect tax obligations, including interest and penalties, and continued discussions with applicable authorities.
- No material pending legal proceedings were identified by the company, and management concluded that disclosure controls were effective at a reasonable assurance level.
- The company adopted guidance relating to modifications of equity-classified warrants and was evaluating the future impact of lease accounting and expected credit loss standards.
Important facts for investors to verify
- Whether revenue growth converts into improving gross margins and lower operating cash burn.
- The timing, cost, financing, and operational performance of Gen-3 satellites and future launches.
- Customer concentration and the renewal, funding, and timing of major government contracts.
- The company’s ability to fund ongoing operating losses, satellite procurement, launch costs, and technology investment without materially dilutive equity issuance or more expensive debt.
- Debt maturity and the scheduled increase in interest rates beginning in late 2022.
- The effect of stock-based compensation and potential dilution from outstanding options, restricted stock units, public warrants, private placement warrants, and sponsor earn-out shares.
- The estimates underlying fixed-price engineering contracts, including the $1.2 million unfavorable cumulative adjustment and remaining contract-loss liabilities.
- The valuation volatility of derivative liabilities, which can materially affect reported earnings without corresponding cash flows.