BlackSky Technology Inc. Q3 FY2024 earnings call

• Won new and follow-on contracts valued at up to $780 million, with strong bookings in Q3.
• Raised over $45 million in growth capital to fund the baseline Gen 3 constellation.
• First very high-resolution Gen 3 satellite completing final pre-ship testing and expected to ship to launch site in next few weeks.
• Delivered fourth consecutive quarter of positive adjusted EBITDA, driven by high-margin imagery and analytics revenue and operating leverage.
• Achieved year-to-date revenue growth of 22%.
• Won 2024 Leading Earth Observation Business Award.
• Awarded Luno A contract valued up to $290 million from NGA, leveraging AI technology and multi-inch Spectra software platform.
• Secured multi-year IDIQ contract with NASA valued at up to $476 million to provide time-diverse, high-revisit satellite imaging data.
• Signed $6 million contract expansion with a long-time international defense sector customer, increasing total annual contract value to nearly $18 million.
• Increasing opportunities through the Global Data Marketplace (GDMP) as a sales distribution channel.
• Awarded contracts with multiple U.S. government customers for integrating optical inter-satellite link terminals (OISL) into Gen 3 satellites.
• Launched new product offering for automated non-Earth imaging services to meet space domain awareness demand, with awarded seven-figure contracts.
• First Gen 3 satellite in final testing phase, expected to ship to launch site and launch window to open 3-4 weeks after shipment.
• Gen 3 production line up and running, with multiple Gen 3 satellites in various stages of production, and acquisition of partner stake in LeoStella to optimize Gen 3 supply chain and production operations.

Year-to-date revenue for 2024 was $71.7 million, an increase of $12.7 million (22%) over the prior year period. Year-to-date imagery and analytics revenue was $52.6 million, an increase of $6.2 million (13%) over the prior year period, accounting for approximately 73.4% of total year-to-date revenue. Year-to-date professional and engineering services revenue was $19.1 million, an increase of $6.5 million (52%) over the prior year period, accounting for approximately 26.6% of total year-to-date revenue. On a year-to-date basis, imagery and analytics cost of sales, excluding stock-based compensation, depreciation, and amortization expenses, remained flat at $10.4 million. Cash operating expenses for year-to-date 2024 were $48 million, a slight improvement from $48.7 million in the prior year period. Year-to-date adjusted EBITDA was $4.3 million compared to an adjusted EBITDA loss of $10.3 million in the prior year period.

• Maintained full-year 2024 guidance: revenue between $102 million to $118 million, adjusted EBITDA between $8 million to $16 million, and capital expenses between $55 million to $65 million.
• Anticipated ramp-up of revenues from new contract awards in Q4, with some timing uncertainty but expecting to stay in line with guidance.
• Expecting Gen 3 launches to begin regular cadence in 2025, unlocking revenues from backlog secured around Gen 3 capability.

• Forward-looking statements are subject to risks and uncertainties, including those stated in Form 10-K, where actual results may differ materially from expectations. Risks pertain to factors that could affect future results or the market price of the stock, such as changes in government spending on space-based intelligence, delays in satellite launches or production, and competition in the space-based intelligence market.

Q: Just curious if you could quantify how much revenue was actually pushed out of Q3 and into Q4?

A: As Henry mentioned, there were some revenues that pushed into the quarter, with lumpiness in the business tied to milestone-driven contracts, and expecting a strong fourth quarter in line with guidance.

Q: Just curious how much of the Q3 bookings activity was related to Gen 3 capacity and what's seen from bookings activity so far in Q4?

A: Most Q3 bookings activity wasn't specifically related to Gen 3; primarily driven by existing capabilities moving into Gen 3, with Luno award driven by software and AI analytics capabilities. Gen 3 contracts secured are driven by software and AI, not solely Gen 3 hardware.

Q: Hi, good morning, guys. Thanks for taking my questions. First, I'm curious of the 26 or just under 27 million of milestone payments expected over the next 12 months, what does the cadence look like? Are those evenly distributed or should we expect a lumpy or significant amount of that coming in a single quarter?

A: Milestone-based contracts are all different, so not evenly distributed; somewhat lumpy, with net reductions seen between Q2 and Q3 of this year, and expecting to collect over the next 12 months while meeting interim milestones on major customer contracts.

Q: With the Gen 3 launches coming up, and I guess being more active in 2025, any change in OpEx or any costs that are directly tied to managing the Gen 3s that are not in 2024 OpEx?

A: Maintaining guidance for 2024 in terms of revenue, adjusted EBITDA, and CapEx; using same ground network and infrastructure for Gen 3, so no significant changes expected in OpEx related to Gen 3 management in 2024.

Q: Just curious if you guys are seeing any change in the sales cycle? Any urgency or people going to move faster or just the broader macro? There's been some hesitation, or not really macro, the geopolitical state of the world?

A: Seeing growing demand reflected in contracts and backlog building; cycles for government contracts remain typical for U.S. and international, with good handle on cycles and performing on capturing contracts to capitalize on demand.

Q: Just following up on the operating leverage question there, we look at this quarter's results, and we talked about lumpiness and with revenues moving out or moving to the right. But on the other side, when we think about that regular cadence in '25 on the launch of the Gen 3 and as that picks up, is there any way to just frame what that operating leverage might look like in '25, just as you get maybe past some of this lumpiness?

A: Demonstrating strong operating leverage due to fixed operating platform in ground and software; securing contracts like Luno to ramp nicely, and unlocking revenues from Gen 3 backlog in 2025, with some lumpiness related to professional engineering projects but expecting imagery and analytics revenues to smooth and grow.

Q: And then just on the OISL design that's being integrated into the Gen 3 here, how much of a lift is that design addition? And then is there anything proprietary in the BlackSky front that's being added into that technology?

A: In Gen 3 design, provisions already made for OISL capability; focus on delivering high frequency, low latency intelligence solutions with proprietary software and AI, and OISL implementation related to specific terminals and networks, with key focus on enabling speed and low latency in delivering insights to customers.

Q: Yes, thank you. Good morning, guys. Apologies, I missed most of the initial comments. I was in the queue waiting for an operator here, so some of these might be redundant. Henry, as it relates to the guide, I'm curious, obviously, we've got a very steep ramp here, Q3 to Q4. What are you expecting? How much of that ramp sequential here is going to come from professional services trying to understand this sequential jump Q3 to Q4?

A: Don't guide by individual product or revenue streams, but have about $25 million in backlog, with projects including professional services and imagery and analytics projects in progress.

Q: Is there anything implicit in what you're guiding here for Q4 that is not sustainable in the following quarter of Q1? Trying to understand if I can look at what you're implying as a baseline for Q4 as a starting point for Q1 of the following fiscal?

A: Q4 will reflect planned business growth, with continued growth in imagery and analytics combined with additional projects related to professional and engineering services.

Q: Okay. And then lastly, I guess for me, as you look at the overall bookings value, any ability to provide us more of an ACV-based bookings sense that gives us, yes, a little more clarity on what the annual values are as opposed to the overall contract you're part of and in our multi-year?

A: Not providing ACV-based bookings at this point, but building strong backlog and visibility into ACV-related to subscription contracts, with examples like the $18 million annual commitment from a long-time international customer.

Q: Good morning and thank you for taking my questions. My first one is just around Gen 2 after Gen 3 starts going up. What's kind of the remaining life of your Gen 2 satellites and is there any decommissioning costs that we should be thinking about as Gen 3 starts to go up?

A: Gen 2 constellation operating extremely well, expected to perform well through 2025 and 2026, with no material incremental decommissioning costs related to Gen 2 aging out.

Q: And then I just want to ask one more around the new non-Earth imaging offerings. With these new offerings is there any notable differences between the technology needed or the contracts or margins or anything of that nature?

A: New non-Earth imaging offerings leverage capacity already on orbit and software and AI capabilities, enabling expansion of high margin imagery and analytics revenues off existing capacity, with significant demand seen and expected to continue growing.

Q: Hi. Thank you. Couple of questions, I think most of mine have been answered at this point. But there's a mention in the presentation of the baseline constellation for Gen 3. Has BlackSky finalized what exactly that baseline constellation will be in terms of how many satellites?

A: Baseline constellation today is 12 to 14 satellites, with plan to maintain those levels and dovetail Gen 3 into the constellation to maintain reliable hourly monitoring capability from space.

Q: The presentation also makes mention of a partner stake in LeoStella. I was wondering if you could clarify that a bit more because there are already a joint venture partner that BlackSky is increasing the stake. And if so, how does that change or reshape the relationship with LeoStella?

A: Acquired partner stake in LeoStella to scale and drive efficiencies around Gen 3 delivery, with partnership with Thales remaining strong, and focus on optimizing Gen 3 production operations for better unit economics.

Q: Does that mean that LeoStella is going to be fully focused on the BlackSky constellation going forward, or are you going to continue to try and use that for third party sales that could potentially offset some of the Gen 3 costs?

A: BlackSky is primary customer for LeoStella currently, with focus on scaling Gen 3 and optimizing production operations, aiming for better operating leverage and Gen 3 unit economics through this move.

Q: One is on Luno A. I was wondering if you could talk a bit about how that contract is split between imagery and analytics providers, if there is such a split and if BlackSky is able to participate in both. And then the opportunity that you see in this new NEI SSA market, that's something you expect to continue to grow?

A: On Luno A, there's a mix of companies, with BlackSky in a prime position due to proprietary space capability and AI/software demonstrated under EIM, and also able to serve as a vendor to other providers. For the new NEI SSA market, the new service leveraging existing capacity and software/AI capabilities is seeing significant demand, with awards already won and expected to continue growing as demand increases.