BlackSky Technology Inc. — 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 Spectra AI software platform. Revenue is primarily generated from imagery and software analytical services and from professional and engineering services, with government customers representing the majority of revenue.
The filing covers the quarter and six months ended June 30, 2023, compared with the corresponding 2022 periods. The financial statements are unaudited and presented in accordance with U.S. GAAP.
Key financial metrics
| Metric | Three months ended June 30, 2023 | Year-over-year change | Six months ended June 30, 2023 | Year-over-year change |
|---|---|---|---|---|
| Total revenue | $19.3 million | Up 28.0% | $37.7 million | Up 30.1% |
| Imagery and software analytical revenue | $15.3 million | Up 50.7% | $31.1 million | Up 77.2% |
| Professional and engineering revenue | $4.0 million | Down 18.9% | $6.6 million | Down 42.1% |
| Operating loss | $19.9 million | Improved by $1.8 million | $36.8 million | Improved by $12.0 million |
| Net loss | $33.4 million | Worsened by $7.1 million | $50.7 million | Worsened by $4.5 million |
| Adjusted EBITDA | $(5.8) million | Improved from $(8.8) million | $(9.9) million | Improved from $(18.3) million |
| Net loss per share | $(0.24) | $(0.22) prior year | $(0.39) | $(0.40) prior year |
Six-month operating margin was approximately negative 97.6% and net margin was approximately negative 134.5%. The filing does not present a conventional gross margin because the company reports separate service cost categories rather than a single gross profit subtotal.
Cash and cash equivalents were $41.1 million at June 30, 2023, compared with $34.2 million at December 31, 2022. Including restricted cash of $1.8 million and short-term investments of $16.6 million, reported short-term liquidity was $59.5 million. Net cash used in operating activities was $15.6 million for the first six months, compared with $27.8 million in the prior-year period.
Capital spending included $8.4 million for property and equipment and $19.9 million for satellite procurement work in process. Long-term debt was $79.4 million net of issuance costs, compared with $76.2 million at year-end 2022. The debt had effective interest rates of approximately 11.32% to 11.56% and a maturity date of October 31, 2026 after the May 2023 amendment.
Backlog was $262.5 million at June 30, 2023. Management expects to recognize $40.1 million in the second half of 2023, $43.9 million in fiscal 2024, and $178.5 million thereafter.
Material changes versus the prior comparable period
- Imagery revenue increased substantially, driven by increased imagery and analytics orders from existing customers and new fixed-price subscription contracts.
- Professional and engineering revenue declined because of lower percentage-of-completion progress on two engineering contracts as those programs matured.
- Operating loss improved despite higher depreciation and amortization, which rose 29.4% for the six-month period due primarily to more satellites in service and additional software and equipment placed in service.
- Net loss increased because derivative liabilities generated a $9.6 million loss in the first six months of 2023, compared with a $3.5 million gain in the prior-year period. These are primarily non-cash fair-value adjustments.
- Selling, general and administrative expense decreased 6.4% for the six-month period, mainly because stock-based compensation declined $7.1 million, partly offset by higher salaries, benefits, information technology and development costs.
- Equity financing generated approximately $30.1 million of net cash proceeds. This included a March private placement of 16.4 million shares and warrants and a June ATM sale of approximately 1.0 million shares at an average price of $1.82.
Guidance, outlook, risks and unusual items
Management expects continued imagery and software analytical services revenue growth in 2023 and beyond, supported by customer demand, new subscription contracts and expansion with domestic and international defense and intelligence customers. Management also expects a meaningful contribution from professional and engineering services. Gen-3 satellites are expected to launch in 2024 and are intended to improve imaging resolution and add short-wave infrared capabilities.
Management states that cash, cash equivalents and expected operating cash generation should fund working capital and capital expenditures for the foreseeable future, but acknowledges continuing operating losses, negative operating cash flow, satellite and launch expenditures, and potential future financing needs. The company has no line of credit or immediate access to funds, although it has an ATM authorization for up to $75.0 million of additional common stock.
The May 2023 debt amendment extended maturity to 2026, rolled a cash interest payment into principal, increased the interest rate to 12%, and added financial covenants. The company was compliant at June 30, 2023 and must maintain at least $10.0 million of cash and cash equivalents. Adjusted EBITDA covenants begin for periods ending December 31, 2024, requiring at least $5.0 million on a trailing-four-quarter basis, increasing to $10.0 million beginning with the period ending December 31, 2025.
- Key risks include continued losses and cash burn, dependence on additional financing, satellite procurement and launch execution, customer and government concentration, contract-estimate changes, competition, regulatory compliance, cybersecurity and intellectual property protection.
- One or more customers represented $14.6 million of second-quarter revenue and $28.2 million of first-half revenue; related accounts receivable were $5.8 million at June 30, 2023.
- Professional and engineering contracts included unfavorable estimate-at-completion adjustments of $1.5 million for the first six months, with management noting that further changes could affect revenue, costs and profitability.
- Derivative liabilities totaled $32.4 million on the balance sheet, including public and private warrants and sponsor shares, and remain subject to fair-value remeasurement.
- The filing reports no material pending legal proceedings and no subsequent events requiring adjustment through August 9, 2023.
Most important facts for investors to verify
- Whether imagery and analytics growth continues to offset the decline and volatility in professional and engineering revenue.
- The pace of operating cash-flow improvement and whether the company can reach the future Adjusted EBITDA covenant thresholds.
- Remaining liquidity after satellite procurement, launch spending, debt service and other capital requirements.
- The terms, interest burden and principal accretion under the amended secured debt facility.
- The potential dilution and earnings volatility associated with outstanding warrants, ATM issuance capacity and other equity awards.
- Execution and launch timing for Gen-3 satellites and the resulting impact on capacity, revenue and capital spending.
- Customer concentration, government-contract funding and the collectability of international government receivables.