BlackSky Technology Inc. — 2022 Q3 Form 10-Q Summary
Business context and reporting period
BlackSky provides real-time geospatial intelligence through a low-earth-orbit satellite constellation and its Spectra AI platform, which integrates proprietary and third-party sensor data. The company also provides engineering and systems integration services, primarily to government customers. The filing covers the three and nine months ended September 30, 2022, with comparisons to the same periods in 2021. BlackSky had 14 satellites in commercial operation at quarter-end.
Comparability with 2021 is affected by the September 2021 merger with Osprey Technology Acquisition Corp.; post-merger results reflect Legacy BlackSky’s operations.
Key financial metrics
| Metric | Three months ended Sept. 30, 2022 | Three months ended Sept. 30, 2021 | Nine months ended Sept. 30, 2022 | Nine months ended Sept. 30, 2021 |
|---|---|---|---|---|
| Total revenue | $16.9 million | $7.9 million | $45.9 million | $22.6 million |
| Imagery and software analytical services | $15.0 million | $6.5 million | $38.1 million | $17.6 million |
| Engineering and systems integration | $1.9 million | $1.4 million | $7.8 million | $5.0 million |
| Operating loss | $(19.4) million | $(49.0) million | $(68.2) million | $(88.2) million |
| Net loss | $(13.0) million | $(46.9) million | $(59.3) million | $(251.0) million |
| Adjusted EBITDA | $(6.5) million | $(16.3) million | $(24.8) million | $(30.1) million |
| Net cash used in operating activities | Not separately provided | Not separately provided | $(39.4) million | $(38.7) million |
| Free cash flow | Not separately provided | Not separately provided | $(73.8) million | $(88.2) million |
Derived margins were approximately 54.0% for the quarter and 37.9% for the nine-month period based on revenue less imagery, software, engineering and systems integration costs, excluding depreciation and amortization. Operating margins were approximately (114.3)% and (148.5)%, respectively; net margins were approximately (77.0)% and (129.1)%.
- Cash and cash equivalents were $37.2 million at September 30, 2022, compared with $165.6 million at December 31, 2021.
- Short-term investments were $50.7 million at September 30, 2022; total short-term liquidity, including restricted cash, was $90.7 million.
- Total cash, cash equivalents and restricted cash declined by $128.1 million during the first nine months to $40.0 million.
- Total assets were $244.3 million and stockholders’ equity was $133.4 million at September 30, 2022. Accumulated deficit was $530.3 million.
- Long-term debt, net of issuance costs, was $73.0 million. The debt is secured, primarily related-party debt, and matures October 31, 2024. Interest rates increase from 4% to 9% beginning November 1, 2022, and to 10% beginning November 1, 2023.
- BlackSky reported compliance with all non-financial debt covenants and has no covenants tied to financial metrics.
Material changes versus the prior comparable period
- Third-quarter revenue increased 113.4%, while nine-month revenue increased 103.3%, driven primarily by imagery and analytics demand, new subscription contracts, increased satellite capacity and international government orders.
- Imagery and software analytical services revenue increased 129.6% in the quarter and 116.0% year to date. Imagery revenue rose to $10.8 million in the quarter from $2.8 million in the prior-year quarter.
- Operating loss narrowed by $29.6 million in the quarter and $20.1 million year to date, despite significantly higher depreciation and amortization from a larger satellite fleet.
- Net loss improved substantially because 2021 included $147.4 million of Bridge Note issuance and related debt costs, as well as an $18.4 million satellite impairment loss. These items did not recur in 2022.
- Third-quarter selling, general and administrative expense declined 54.0%, primarily because merger-related stock-based compensation recognized in 2021 did not recur. Nine-month SG&A was broadly stable.
- Cash used in operations was broadly unchanged year over year, while investing outflows increased to $84.1 million, including $50.3 million invested in short-term securities, $25.4 million for satellite procurement work in process and $8.9 million for property and equipment.
- Free cash flow improved to negative $73.8 million from negative $88.2 million, but remained materially negative.
Guidance, outlook, risks and unusual items
- Management expected imagery and software analytical services revenue and engineering and systems integration revenue to grow in 2022, supported by higher satellite capacity, customer demand and contract milestones. The filing does not provide formal quantitative revenue or earnings guidance.
- A May 2022 subscription contract had an initial value of $85.8 million over five years. If all future options are exercised, the contract value could exceed $1.0 billion over up to ten years. The filing states that this contract is expected to materially affect future revenue.
- Backlog was $108.4 million at September 30, 2022, with expected revenue recognition of $19.9 million in the fourth quarter of 2022, $57.4 million in 2023 and $31.2 million thereafter.
- Gen-3 satellites were expected to become operational in late 2023 and are intended to improve resolution and sensing capability, including nighttime, low-light and adverse-weather imaging.
- Management expected continued operating losses and capital expenditures for satellite procurement, launches, Gen-3 development, the Spectra AI platform and infrastructure, while progressing toward positive operating cash flow. Management stated that available liquidity and expected operating cash generation should fund foreseeable needs, but acknowledged that additional financing may be required and may not be available on acceptable terms.
- Engineering contract estimates resulted in unfavorable cumulative revenue adjustments of $0.3 million in the quarter and $2.0 million year to date. The company also recorded forward losses on certain projects, including $0.6 million in the quarter and $4.2 million year to date in engineering and systems integration costs.
- Derivative liabilities generated a $7.1 million quarterly gain and a $10.6 million year-to-date gain, primarily from changes in the company’s share price. These non-cash fair-value changes can materially affect reported earnings.
- A $0.7 million gain from discontinued operations related to a settlement framework for indemnification claims associated with the prior sale of Spaceflight. The contemplated settlement included a $1.0 million payment and a $0.1 million holdback.
- Key risks include continued negative cash flow, dependence on government customers, customer and contract concentration, satellite launch and operating risks, contract-cost estimation risk, reliance on third-party data and launch providers, competition, employee retention, regulatory and geopolitical exposure, and the potential need for additional capital.
Important facts investors should verify
- Whether revenue growth and the $108.4 million backlog convert into cash at the expected pace, particularly the $85.8 million subscription contract.
- The timing and cost of Gen-3 satellite development, launches and deployment, and whether capital spending can be reduced if liquidity tightens.
- Cash burn, short-term investment liquidity and the company’s ability to fund operations before reaching positive operating cash flow.
- The October 2024 debt maturity, rising interest rates and the company’s ability to refinance or repay secured related-party debt.
- Potential additional losses or revenue adjustments on fixed-price engineering contracts.
- The effect of derivative liability revaluations and stock-based compensation on reported earnings and shareholder dilution.
- Customer concentration and dependence on U.S. federal and international government contracts, which represented most reported revenue.