BlackSky Technology Inc. — Q1 2023 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 software platform. The company had 16 satellites in commercial operation as of March 31, 2023. The filing covers the unaudited three months ended March 31, 2023, compared with the same period in 2022.
Revenue is primarily generated from U.S. and international government customers. The company also owns 50% of LeoStella, a small-satellite design and manufacturing joint venture.
Financial Performance and Key Metrics
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Total revenue | $18.4 million | $13.9 million | Up 32.4% |
| Imagery and software analytical services | $15.8 million | $7.4 million | Up 113.8% |
| Professional and engineering services | $2.6 million | $6.5 million | Down 59.6% |
| Operating loss | $16.9 million | $27.1 million | Improved by $10.2 million |
| Net loss | $17.3 million | $20.0 million | Improved by $2.7 million |
| Adjusted EBITDA | $(4.1) million | $(9.5) million | Improved by $5.4 million |
| Loss per share | $(0.14) | $(0.17) | Improved |
| Net cash used in operating activities | $(16.6) million | $(12.7) million | Use increased by $3.9 million |
Gross profit before depreciation and amortization was approximately $11.9 million, or 64.8% of revenue, compared with approximately $2.9 million, or 21.1%, in Q1 2022. The improvement primarily reflected the greater mix of imagery and software revenue and lower professional and engineering costs. Operating margin was approximately negative 91.9%, compared with negative 195.3% in the prior-year quarter; net margin was approximately negative 94.1%, compared with negative 143.9%.
Selling, general and administrative expense declined 15.9% to $18.9 million, primarily because stock-based compensation decreased by $6.6 million. Depreciation and amortization increased 30.6% to $9.7 million as a result of additional satellites and capitalized software and equipment. Interest expense increased to $1.9 million from $1.3 million.
Balance Sheet, Cash Flow, Debt, and Liquidity
- Cash and cash equivalents were $57.0 million at March 31, 2023, compared with $34.2 million at December 31, 2022.
- Restricted cash was $2.8 million, and short-term investments were $11.8 million, resulting in reported short-term liquidity of $71.6 million. The company expected $1.0 million of restricted cash to become available by June 30, 2023.
- Current assets were $91.4 million versus current liabilities of $20.9 million.
- Total debt, reported as long-term debt net of current portion, was $76.3 million. The estimated fair value of outstanding long-term debt was $68.3 million.
- Operating cash outflow was $16.6 million. Investing activities provided $10.5 million, primarily because $38.1 million of short-term investments matured, partially offset by $11.8 million of purchases, $12.9 million of satellite procurement spending, and $2.9 million of property and equipment purchases.
- Financing activities provided $28.9 million, including $29.4 million of gross proceeds from a March 2023 private placement.
- Cash, cash equivalents, and restricted cash increased by $22.8 million during the quarter to $59.8 million.
Management stated that existing cash and expected operating cash generation should be sufficient for working capital and capital expenditures for the foreseeable future, but noted that additional equity or debt financing may be required. The company has incurred losses and negative operating cash flow since inception and had an accumulated deficit of $562.4 million at March 31, 2023.
Material Changes Versus the Prior Comparable Period
- Imagery revenue increased sharply, driven by higher imagery and analytics orders from existing customers and new domestic and international subscription contracts.
- Professional and engineering revenue declined because two engineering contracts reached a lower quarterly percentage of completion as the programs matured.
- Total cost of revenue declined 40.9%, primarily because professional and engineering service costs fell 62.3%.
- Operating loss and Adjusted EBITDA improved, but the company remained substantially unprofitable and operating cash flow remained negative.
- Stock-based compensation declined to $3.0 million from $10.2 million, primarily due to significant restricted stock unit vesting in 2022.
- The company completed a private placement on March 8, 2023, issuing approximately 16.4 million shares and warrants to purchase approximately 16.4 million additional shares. Gross proceeds were $29.4 million before fees and expenses.
- Derivative liabilities increased to $21.3 million from $5.1 million at year-end, largely because of the new March 2023 warrants. The quarter included a $1.5 million gain on derivatives, compared with an $8.1 million gain in Q1 2022.
- Backlog was $243.7 million at March 31, 2023, including expected recognition of $50.5 million in the remainder of 2023, $26.4 million in 2024, and $166.8 million thereafter.
Guidance, Outlook, Commentary, and Risks
Management expected continued growth in imagery and software analytical services revenue during 2023, supported by stronger customer demand, and expected a meaningful contribution from professional and engineering services. Management also expected expenses to exceed revenue in the near term while investing in sales, marketing, products, satellites, Gen-3 development, and the Spectra AI platform. The company expects Gen-3 satellites to launch in 2024.
Management is seeking to progress toward positive operating cash flow and stated that the timing of satellite design, construction, and launch expenditures can be managed to provide liquidity flexibility. However, future capital needs depend on growth, product development, sales and marketing investment, technology infrastructure, customer adoption, and capital-market conditions.
- Customer concentration is significant: U.S. federal government and agencies generated $13.7 million, or approximately 74%, of Q1 2023 revenue. Customers representing at least 10% of revenue accounted for $13.6 million.
- Accounts receivable increased to $9.1 million from $3.1 million, including $8.7 million due from U.S. federal government customers. Management attributed higher operating cash use partly to delayed receipts while restructuring banking relationships.
- Long-term fixed-price engineering contracts require estimates of costs to complete. The company recognized $0.4 million of unfavorable cumulative revenue adjustments in Q1 2023 on two contracts and retained exposure to further estimate changes.
- The company depends on satellite launches, satellite performance, third-party data, software development, and the ability to integrate data sources effectively.
- The March 2023 warrants and other derivative instruments are remeasured through earnings, creating potentially significant non-cash volatility.
- The company disclosed no material pending legal proceedings and was in compliance with existing non-financial debt covenants at March 31, 2023.
On May 9, 2023, after quarter-end, the company amended its secured loan facility to extend maturity from October 31, 2024 to October 31, 2026, capitalize the May 1, 2023 cash interest payment, increase the interest rate from 9% to 12%, permit specified payment-in-kind interest, and add financial covenants. These terms increase future interest and leverage-related risk.
Most Important Facts for Investors to Verify
- Whether imagery and software revenue growth is recurring and sustainable, rather than driven by a limited number of contracts or timing effects.
- The conversion of the $243.7 million backlog into revenue and cash, including the funded versus unfunded composition and customer concentration.
- Operating cash-burn trends, delayed receivable collections, and the adequacy of the stated $71.6 million short-term liquidity.
- The effect of the amended loan terms, higher interest rate, payment-in-kind interest, new financial covenants, and the October 2026 maturity.
- Future satellite procurement, launch spending, Gen-3 development costs, and the timing of expected 2024 launches.
- Potential dilution from approximately 16.4 million March 2023 warrants and other outstanding warrants, options, restricted stock units, and derivative-linked instruments.
- Whether contract-cost estimates, unfavorable adjustments, and professional-services revenue timing could materially affect future results.