BlackSky Technology Inc. — Q1 2024 Form 10-Q Summary
Business Context and Reporting Period
BlackSky provides real-time satellite imagery, analytics and monitoring through its BlackSky Spectra platform and proprietary low-earth-orbit satellite constellation. It also performs professional and engineering services, primarily for government and defense customers. This unaudited Form 10-Q covers the three months ended March 31, 2024, filed May 8, 2024.
Key Financial Metrics
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Total revenue | $24.2 million | $18.4 million | +31.7% |
| Imagery and software analytical revenue | $17.8 million | $15.8 million | +13.2% |
| Professional and engineering revenue | $6.4 million | $2.6 million | +142.8% |
| Gross profit, calculated from reported revenue and direct costs | $17.2 million | $11.9 million | +44.0% |
| Gross margin, calculated | 71.0% | 64.8% | +6.2 percentage points |
| Operating loss | $(13.3) million | $(16.9) million | Improved by $3.6 million |
| Operating margin, calculated | (54.7%) | (91.9%) | Improved |
| Net loss | $(15.8) million | $(17.3) million | Improved by $1.5 million |
| Basic and diluted loss per share | $(0.11) | $(0.14) | Improved |
| Adjusted EBITDA | $1.4 million | $(4.1) million | Improved by $5.5 million |
| Net cash used in operating activities | $(3.8) million | $(16.6) million | Improved by $12.8 million |
At March 31, 2024, cash and cash equivalents were $15.0 million, restricted cash was $0.4 million, and short-term investments were $20.4 million, for reported short-term liquidity of $35.8 million. Total assets were $210.1 million and stockholders’ equity was $81.7 million. The accumulated deficit was $614.8 million.
Debt had a carrying value of $85.0 million, consisting primarily of $84.6 million of related-party loans and $1.5 million of satellite procurement vendor financing, net of $1.1 million of unamortized issuance costs. Reported fair value of long-term debt was $91.0 million. Interest expense rose to $2.6 million from $1.9 million.
Investing cash outflows included $3.3 million for property and equipment, $11.3 million for satellite procurement work in process, and $0.5 million net purchases of short-term investments. Financing cash flow was $0.9 million, including $1.3 million of net ATM equity proceeds.
Material Changes Versus the Prior Comparable Period
- Revenue growth was driven by additional imagery and analytics subscription orders and renewals, plus two significant engineering contracts that began after Q1 2023.
- Professional and engineering revenue increased substantially, rising to 26.4% of total revenue from 14.3%.
- Direct costs increased 8.6%, slower than revenue growth, improving calculated gross margin.
- SG&A declined slightly to $18.8 million, primarily because of lower insurance, rent and administrative costs. Higher salaries, AI investments and stock-based compensation partly offset those savings.
- Research and development expense increased 111.1% to $0.5 million, primarily due to third-party strategic project vendors.
- Depreciation and amortization increased 15.8% to $11.2 million, reflecting satellites placed into service in March 2023 and additional software and office-space capitalization.
- Adjusted EBITDA became positive, although the company remained unprofitable on a GAAP basis.
- Cash used in operations improved significantly, but cash, cash equivalents and restricted cash declined by $18.1 million during the quarter because of investing outflows and limited financing proceeds.
- The company sold 953,153 shares under its ATM program at an average price of $1.43, generating $1.3 million of net proceeds. It had sold $6.4 million under the program through March 31, 2024, with up to $75.0 million authorized.
Guidance, Outlook, Risks and Unusual Items
- Management expects continued year-over-year revenue growth, continued contribution from professional and engineering contracts, and further investment in sales, marketing, Spectra, infrastructure and Gen-3 satellites.
- Gen-3 satellites were expected to launch in 2024 and are designed to provide higher resolution and short-wave infrared imaging for nighttime and low-light conditions.
- Management stated that cash, expected operating cash flow and available financing were expected to fund working capital and capital expenditure needs for the foreseeable future, but acknowledged potential future equity or debt financing needs.
- On April 11, 2024, the company entered into a $20.0 million Stifel revolving credit facility and borrowed $10.0 million at closing. The remaining $10.0 million was scheduled to become available after June 28, 2024. The facility matures June 30, 2026, carries interest at the greater of the prime rate or 6%, and is secured by substantially all company assets, including intellectual property.
- The Stifel facility includes minimum revenue and cash-maintenance covenants, restrictions on additional debt, liens, dividends, investments and capital expenditures, and customary events of default. Management reported compliance with existing covenants as of March 31, 2024.
- The company has had recurring losses and negative operating cash flow since inception and remains dependent on revenue growth, cost control, financing availability and successful satellite deployment.
- Revenue concentration remains substantial: U.S. federal government and agencies represented 61% of Q1 revenue and 85% of accounts receivable at March 31, 2024. International governments represented another 37% of revenue.
- Professional and engineering contracts use cost-to-complete estimates. Changes in labor productivity, schedule, technical risk, scope or other assumptions can materially affect revenue and profitability. Aggregate net estimate-at-completion adjustments reduced Q1 2024 revenue by $0.3 million.
- Derivative liabilities totaled $15.4 million at March 31, 2024. Related fair-value changes produced a $0.3 million loss in Q1 2024 versus a $1.5 million gain in Q1 2023; these effects were non-cash and may be volatile.
- Two putative class actions concerning the 2021 merger were filed in Delaware after quarter-end on May 7 and May 8, 2024. Although BlackSky was not named as a defendant, it expects potential indemnification obligations for certain directors and officers. The company stated that the merits and potential outcomes remained under evaluation.
- Stock-based compensation was $3.4 million in Q1 2024, and forecast remaining RSU expense was $19.6 million through 2028.
Important Facts for Investors to Verify
- Whether revenue growth and positive Adjusted EBITDA continue after the unusually large increase in engineering revenue.
- The timing, cost and financing of Gen-3 satellite launches and related satellite procurement obligations.
- Cash burn, operating cash flow conversion and the adequacy of liquidity after the $10.0 million Stifel borrowing.
- Compliance with the Stifel facility’s minimum revenue and cash covenants, including the requirement to maintain unrestricted cash equal to outstanding obligations.
- Debt maturities, related-party interest accruals and the high effective interest rates on existing and vendor-financed debt.
- Customer concentration, renewal rates and the collectability and conversion of substantial contract assets and unbilled revenue.
- Changes in estimated costs to complete fixed-price contracts and their effect on future revenue and margins.
- Potential indemnification costs and developments in the two post-quarter-end merger-related lawsuits.
- Future dilution from the ATM program, warrants, stock options and restricted stock units.