BlackSky Technology Inc. — Q3 2023 Form 10-Q Summary
Business Context and Reporting Period
BlackSky provides real-time geospatial intelligence through a low-earth-orbit small-satellite constellation and its BlackSky Spectra software platform, which uses proprietary and third-party data, artificial intelligence, and machine learning. The company also provides professional and engineering services and owns 50% of satellite manufacturer LeoStella.
This unaudited quarterly report covers the three and nine months ended September 30, 2023, compared with the corresponding periods in 2022. The filing was signed November 8, 2023.
Financial Performance and Key Metrics
| Metric | Q3 2023 | Q3 2022 | 9M 2023 | 9M 2022 |
|---|---|---|---|---|
| Total revenue | $21.3 million | $16.9 million | $59.0 million | $45.9 million |
| Revenue growth | 25.5% | — | 28.4% | — |
| Imagery and software analytical services | $15.3 million | $13.7 million | $46.4 million | $31.2 million |
| Professional and engineering services | $6.0 million | $3.2 million | $12.6 million | $14.7 million |
| Operating loss | $(14.5) million | $(19.4) million | $(51.3) million | $(68.3) million |
| Net income (loss) | $0.7 million | $(13.1) million | $(50.1) million | $(59.4) million |
| Adjusted EBITDA | $(0.4) million | $(6.6) million | $(10.3) million | $(24.9) million |
| Net cash used in operating activities | — | — | $(15.8) million | $(39.4) million |
Excluding depreciation and amortization, reported gross profit was approximately $14.5 million in Q3 and $37.2 million for the first nine months, representing calculated margins of approximately 68.2% and 63.1%, respectively. Operating margins were approximately negative 68.3% and negative 87.0%; net margins were approximately 3.2% and negative 84.9%.
Q3 net income included a $17.0 million non-cash gain on derivative liabilities, primarily reflecting changes in the fair value of warrants and sponsor shares. The nine-month derivative gain was $7.4 million. Interest expense increased to $2.5 million in Q3 and $6.6 million for the nine months.
At September 30, 2023, cash and cash equivalents were $32.1 million, restricted cash was $1.8 million, and short-term investments were $17.5 million, for total disclosed short-term liquidity of $51.5 million. Current assets were $70.7 million versus current liabilities of $18.7 million. Long-term debt, net of issuance costs, was $79.5 million, with a stated maturity of October 31, 2026.
Capital expenditures and satellite procurement work-in-process cash outflows totaled approximately $35.9 million during the first nine months, comprising $12.3 million for property and equipment and $23.6 million for satellite procurement work in process. Backlog was $252.4 million at September 30, 2023, including expected recognition of $24.4 million in Q4 2023, $52.6 million in fiscal 2024, and $175.4 million thereafter.
Material Changes Versus the Prior Comparable Period
- Q3 revenue increased 25.5%, driven by higher imagery and analytics orders and new professional-services contracts. Nine-month revenue increased 28.4%.
- Imagery and software analytical services revenue increased 48.3% for the nine months, while professional and engineering services revenue declined 14.0% because of lower percentage-of-completion revenue on two engineering contracts.
- Q3 operating loss improved by $4.9 million, and the nine-month operating loss improved by $16.9 million, primarily from revenue growth, lower professional and engineering service costs, and lower SG&A.
- SG&A declined 6.4% for the nine months, largely because stock-based compensation fell $7.7 million. Salaries and benefits increased due to sales-team expansion and investment in AI capabilities.
- Cash used in operations improved by $23.6 million year over year. Net investing cash use declined by $69.2 million, principally because investment maturities exceeded purchases during 2023.
- The company raised $30.9 million net from equity issuances, including a March private placement and ATM sales. It issued 16.4 million shares and an equal number of warrants in the private placement and sold 1.8 million shares through the ATM program.
- In May 2023, the secured loan facility was amended: maturity was extended from October 2024 to October 2026, the interest rate increased from 9% to 12%, and a portion of interest may be paid in kind.
Guidance, Outlook, Risks, and Unusual Items
- Management expects continued growth in imagery and software analytical services revenue during 2023 and beyond, supported by customer demand, existing and new domestic and international defense and intelligence customers, and expanded subscription services.
- Gen-3 satellites are expected to launch in 2024 and are designed to provide higher resolution and short-wave infrared imaging capabilities. The filing does not provide a clear quantified revenue or earnings forecast.
- Management expects expenses to exceed revenue in the near term but expects the gap to narrow as the company progresses toward positive operating cash flow. It expects continued spending on satellites, launches, Gen-3, software, infrastructure, sales, and marketing.
- The debt agreement requires minimum cash and cash equivalents of $10.0 million and future trailing-four-quarter Adjusted EBITDA thresholds of $5.0 million beginning with the period ending December 31, 2024, and $10.0 million beginning December 31, 2025. The company was in compliance as of September 30, 2023.
- The company has incurred losses and negative operating cash flow since inception, had an accumulated deficit of $595.2 million, and stated that it has no line of credit or immediate access to additional funds. It may seek additional equity or debt financing.
- Key risks include dependence on government customers, customer and contract concentration, satellite launch and procurement execution, reliance on LeoStella and other partners, competition, technology and cybersecurity risks, contract-estimate changes, liquidity needs, debt covenants, dilution, and volatility in warrant-related liabilities.
- Professional and engineering contracts remain subject to changes in estimates to complete. The company recorded favorable cumulative estimate-at-completion adjustments of approximately $1.1 million for a new contract during the first nine months, while other contract estimates can negatively affect future revenue and margins.
- After quarter-end, the company sold its X-Bow equity-method investment and expected a gain of approximately $9.5 million. It also entered into launch financing arrangements involving a $3.0 million upfront payment and up to $27.0 million of repayment obligations bearing 12.6% interest; the minimum commitment disclosed as of November 8 was $8.4 million.
Investor Verification Priorities
- Verify the sustainability of imagery and software analytical revenue growth and whether it converts into positive operating cash flow.
- Separate recurring operating performance from the $17.0 million Q3 non-cash derivative gain and other fair-value adjustments.
- Monitor cash consumption, satellite and launch spending, the $10.0 million minimum-cash covenant, and the company’s ability to obtain future financing.
- Assess the effect of the 12% debt rate, paid-in-kind interest, warrant liabilities, and potential equity dilution.
- Track Gen-3 satellite launch timing, launch-financing obligations, and the company’s ability to deliver its $252.4 million backlog.
- Review customer concentration, government-contract funding, international revenue exposure, and future estimate-at-completion adjustments on engineering contracts.