BlackSky Technology Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2022. The comparison periods are the quarter and six months ended June 30, 2021. Results reflect Legacy BlackSky operations following the September 2021 merger with Osprey Technology Acquisition Corp.; management cautions that periods may not be fully comparable.
Business Context
BlackSky provides real-time geospatial intelligence through a low-earth-orbit satellite constellation and its Spectra AI software platform. The company sells imagery, data, software and analytics, and engineering and systems integration services, primarily to government customers. It had 14 satellites in commercial operation at June 30, 2022 and owns 50% of satellite manufacturer LeoStella.
Key Financial Metrics
| Metric | Three months ended June 30, 2022 | Six months ended June 30, 2022 | Comparable change |
|---|---|---|---|
| Total revenue | $15.1 million | $29.0 million | Up 105.1% and 97.8% |
| Imagery and software analytical services revenue | $13.4 million | $23.1 million | Up 160.8% and 108.0% |
| Engineering and systems integration revenue | $1.8 million | $5.9 million | Down 22.0% quarterly; up 65.8% year to date |
| Direct costs | $9.8 million | $20.7 million | Up 52.7% and 74.0% |
| Approximate gross margin | 35.2% | 28.5% | Not separately reported; calculated from revenue less reported direct costs |
| Operating loss | $21.7 million | $48.8 million | Improved 27.2% quarterly; worsened 24.3% year to date |
| Net loss | $26.3 million | $46.3 million | Improved from $35.6 million and $204.1 million |
| Adjusted EBITDA | $(8.8) million | $(18.3) million | Compared with $(7.6) million and $(13.8) million |
| Free cash flow | Not provided for the quarter | $(53.3) million | Compared with $(32.5) million |
- Loss per share was $0.22 for the quarter and $0.40 for the six-month period, compared with $0.63 and $3.89, respectively.
- Cash and cash equivalents were $64.8 million at June 30, 2022, compared with $165.6 million at December 31, 2021. Short-term investments totaled $43.8 million, producing total cash, restricted cash and short-term investments of $111.2 million.
- Net cash used in operating activities was $27.8 million for the first six months, compared with $21.1 million in the prior-year period.
- Net cash used in investing activities was $69.0 million, including $43.8 million of short-term investment purchases, $20.2 million for satellite procurement work in process and $5.3 million for property and equipment.
- Long-term debt, net of issuance costs, was $72.4 million. The debt is primarily related-party secured debt with maturity on October 31, 2024; interest rates increase from 4% to 9% in November 2022 and to 10% in November 2023. The company was in compliance with its covenants and had no financial-metric covenants.
- Accumulated deficit was $517.2 million, and total stockholders’ equity was $143.5 million at June 30, 2022.
Material Changes Versus the Prior Comparable Period
- Revenue nearly doubled, driven principally by increased imagery, monitoring and analytics orders from existing customers, new subscription contracts, and expanded satellite capacity.
- Imagery and software analytical services represented 88.4% of quarterly revenue, compared with 69.5% in the prior-year quarter.
- Engineering and systems integration revenue declined in the quarter because of a $1.4 million unfavorable cumulative adjustment from higher estimated costs on two contracts. For the six-month period, unfavorable cumulative revenue adjustments totaled $2.2 million.
- Engineering and systems integration costs included substantial forward-loss effects from two contracts. Management stated that excluding these effects, quarterly and year-to-date costs would have been approximately $1.7 million and $5.8 million, respectively.
- Selling, general and administrative expense increased 101.0% in the quarter and 132.7% year to date, substantially reflecting stock-based compensation, headcount growth, public-company insurance and higher selling and marketing costs.
- Depreciation and amortization increased 159.5% in the quarter and 162.9% year to date because six satellites entered service in the second half of 2021 and two entered service in the first half of 2022.
- The prior-year period included an $18.4 million satellite impairment loss and approximately $147.4 million of other expense related primarily to Bridge Note issuance and debt issuance costs. Those charges did not recur in 2022.
- Cash, cash equivalents and restricted cash declined by $100.8 million during the first six months, compared with an increase of $21.3 million in the prior-year period, when the company received $58.6 million of Bridge Note proceeds.
Guidance, Outlook, Risks and Unusual Items
- Management expects imagery and software analytical services revenue to grow in 2022 versus 2021, supported by increased satellite capacity and customer demand. It also expects engineering and systems integration growth from engineering solutions and critical design milestones, but no numerical revenue or earnings guidance was provided.
- Gen-3 satellites are expected to become operational during 2023 and are intended to improve resolution and support nighttime, low-light and adverse-weather imaging.
- Backlog was $108.0 million at June 30, 2022. Management expects to recognize $30.8 million in the six months ending December 31, 2022, $45.6 million in fiscal 2023 and $31.6 million thereafter.
- The company disclosed an $85.8 million initial-value, five-year subscription contract for advanced high-frequency imagery. Future options could increase the contract value to more than $1.0 billion and the term to up to ten years, although these options are not assured.
- Management believes existing cash, short-term investments and cash generated from operations will fund foreseeable working-capital and capital-expenditure needs. However, the company has incurred recurring losses and negative operating cash flow, has no line of credit or immediate funding source, and may require additional debt or equity financing.
- Key risks include satellite development, launch and operating failures; customer concentration and dependence on government contracts; contract cost overruns; competition; technology and cybersecurity risks; employee retention; regulatory compliance; macroeconomic conditions; and potential dilution or volatility from warrants, earn-out shares and equity compensation.
- The company recorded an estimated indirect tax liability of $744,000 at June 30, 2022 and had a $1.7 million commitment for one future launch covering up to two satellites, plus a $3.0 million minimum vendor guarantee under a reseller agreement.
- Derivative liabilities totaled $13.4 million and are remeasured through earnings, creating potential volatility from changes in the company’s stock price.
Important Facts for Investors to Verify
- Whether the reported backlog converts to revenue and cash on the expected schedule, including the $85.8 million subscription contract and its unexercised options.
- Progress, cost estimates and potential additional losses on the two engineering and systems integration contracts.
- Cash burn, satellite and Gen-3 capital requirements, and the company’s ability to fund operations without additional financing.
- Debt maturity and interest-rate step-ups beginning in November 2022, including the availability of refinancing or repayment resources.
- Launch reliability, satellite deployment timing and the expected 2023 operational readiness of Gen-3 satellites.
- Customer concentration, particularly reliance on U.S. federal and international government agencies.
- Future dilution and earnings volatility from stock-based compensation, public and private warrants, and sponsor earn-out shares.