BlackSky Technology (US:BKSY)2022-03-31 10:08Part I Business Overview BlackSky provides real-time geospatial intelligence through its LEO satellite constellation and AI-enabled SaaS platform, serving government and expanding into commercial markets - BlackSky provides real-time geospatial intelligence using its high-performance LEO small satellite constellation and its AI-enabled SaaS platform, Spectra AI, to serve government and commercial organizations16 - The company's satellite constellation consisted of twelve satellites in orbit as of the report date, with plans to add up to four more by the end of 2022, designed to provide high-revisit imagery, up to 15 times per day over critical locations1620 - Revenue is generated from two main streams: Imagery and Software Analytical Services (offered via subscriptions, usage-based pricing) and Engineering and Systems Integration (typically fixed-price government contracts)212324 - The customer base is predominantly U.S. and foreign government agencies, including the NGA and NRO, but the company aims to expand into commercial markets like energy, insurance, and supply chain management2527 - BlackSky is vertically integrated through its 50%-owned joint venture with Thales Alenia Space, LeoStella, which manufactures its satellites and is capable of producing 40 satellites per year28 - The company's growth strategy includes expanding its customer base, increasing penetration in international markets, growing its distribution channels, and enhancing its Spectra AI platform and satellite capabilities, such as the upcoming Gen-3 satellites with 50cm resolution2836 Risk Factors BlackSky faces risks from limited operating history, customer concentration, significant losses, operational failures, regulatory compliance, and intense competition - The company has a limited operating history at its current scale and has incurred significant losses each year since inception, with an accumulated deficit of $470.9 million as of December 31, 202153102 - BlackSky is heavily dependent on a small number of customers, with three customers accounting for 45% of total net revenue in fiscal year 2021, and five customers accounting for 74% in 202067 - Significant operational risks exist related to the successful production, launch, and operation of its satellites, including previous launch failures such as the loss of two satellites in May 2021, resulting in an $18.3 million impairment loss181194 - The business is highly dependent on its joint venture, LeoStella, as the sole manufacturer of its satellites, where any disruption could materially impact BlackSky's ability to expand its constellation200201 - The company's business with government entities is subject to complex regulations (e.g., FAR), potential contract termination for convenience, and changes in government funding and priorities159160161 - BlackSky's operations require licenses from the FCC and NOAA, and failure to maintain these or obtain new authorizations for future satellites could prevent the company from operating its business242246 - Intelsat holds a Right of First Offer to purchase BlackSky Holdings, Inc. (the main operating subsidiary) until October 2026, which could discourage or delay a potential sale of the business279280 Item 1B. Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - None Item 2. Properties BlackSky leases headquarters in Herndon, Virginia, and a primary satellite operations center in Seattle, Washington - The company leases its U.S. administrative headquarters in Herndon, Virginia (approx. 23,728 sq. ft.) with a lease expiring August 31, 2024332 - The primary satellite operations center is located in leased office space in Seattle, Washington (approx. 37,472 sq. ft.) with a lease expiring February 23, 2023333 Item 3. Legal Proceedings The company may be involved in ordinary course legal claims, with details in Note 24 of the financial statements - The company may be involved in claims and proceedings arising in the ordinary course of business, with specific details referred to Note 24 of the financial statements334 Item 4. Mine Safety Disclosures This item is not applicable to the company's business - Not applicable Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities BlackSky's common stock and warrants trade on the NYSE, with no cash dividends paid or planned, as earnings are retained for growth - Class A common stock and warrants are listed on the NYSE under symbols "BKSY" and "BKSY.W"338 - As of March 29, 2022, there were approximately 597 holders of record of the Class A common stock339 - The company has not paid any cash dividends and has no current plans to pay them in the foreseeable future, intending to retain earnings for operations and growth340 Item 6. Selected Financial Data This section is reserved and contains no information - [Reserved] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Total revenue grew 61.3% to $34.1 million in 2021, but net loss widened to $245.6 million due to merger costs, debt issuance losses, and increased operating expenses Results of Operations Total revenue increased 61.3% to $34.1 million in 2021, but operating loss widened to $120.1 million and net loss to $245.6 million due to higher costs and non-operating expenses Revenue Performance (2021 vs 2020) | Revenue Stream | 2021 (in thousands) | 2020 (in thousands) | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Imagery & software analytical services | $25,046 | $18,737 | $6,309 | 33.7% | | Engineering & systems integration | $9,039 | $2,398 | $6,641 | 276.9% | | Total revenue | $34,085 | $21,135 | $12,950 | 61.3% | Key Profitability Metrics (2021 vs 2020) | Metric | 2021 (in thousands) | 2020 (in thousands) | | :--- | :--- | :--- | | Operating loss | $(120,143) | $(41,395) | | Loss from continuing operations | $(243,993) | $(47,720) | | Net loss | $(245,643) | $(19,535) | - Selling, general and administrative (SG&A) expenses increased by 202.9% to $86.7 million in 2021, primarily due to a $36.5 million increase in stock-based compensation (of which $28.6 million was triggered by the merger), higher public company costs, and increased headcount363373 - A satellite impairment loss of $18.4 million was recorded in 2021 due to a launch failure on May 15, 2021, which resulted in the loss of two satellites377 - Other expenses increased significantly to $147.7 million in 2021, mainly due to a $99.7 million initial loss on the issuance of Bridge Notes and $47.7 million in related debt issuance costs, which were expensed as the notes were carried at fair value384 Non-GAAP Financial Measures Adjusted EBITDA loss widened to $44.4 million and Free Cash Flow was negative $117.8 million in 2021, reflecting increased non-cash and operating expenses Adjusted EBITDA Reconciliation (2021 vs 2020) | Metric (in thousands) | 2021 | 2020 | | :--- | :--- | :--- | | Net loss | $(245,643) | $(19,535) | | Loss on issuance of Bridge Notes | $147,387 | $0 | | Stock-based compensation expense | $42,571 | $1,982 | | Satellite impairment loss | $18,407 | $0 | | Depreciation and amortization | $14,306 | $9,803 | | Adjusted EBITDA | $(44,438) | $(29,202) | Free Cash Flow Calculation (2021 vs 2020) | Metric (in thousands) | 2021 | 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | $(53,872) | $(31,674) | | Purchase of property and equipment | $(1,266) | $(772) | | Satellite procurement work in process | $(62,643) | $(18,096) | | Free cash flow | $(117,781) | $(50,542) | Liquidity and Capital Resources Cash and cash equivalents increased to $165.6 million by year-end 2021, primarily from merger proceeds, with management deeming it sufficient for foreseeable operational and capital needs - Cash and cash equivalents increased to $165.6 million as of Dec 31, 2021, from $5.1 million as of Dec 31, 2020393 - The increase in cash was driven by approximately $223.6 million in net proceeds from the Merger, PIPE Shares, and Palantir financing after transaction costs and debt repayments353393 Cash Flow Summary (2021 vs 2020) | Cash Flow Activity (in thousands) | 2021 | 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | $(53,872) | $(31,674) | | Net cash used in investing activities | $(63,614) | $(9,770) | | Net cash provided by financing activities | $275,017 | $3,444 | - As of December 31, 2021, the company has significant commitments, including $74.1 million in debt maturing in 2024, $6.9 million for two future launches, and $8.4 million remaining on its satellite purchase contract with LeoStella405 Critical Accounting Policies and Estimates Critical accounting policies involve significant judgment in revenue recognition, equity valuations, and impairment assessments, with post-merger liabilities remeasured to fair value - Revenue from long-term engineering and integration contracts is recognized over time using a cost-to-cost measure of progress, which requires significant estimation of total costs to complete the contract410 - Prior to the merger, the fair value of Legacy BlackSky's equity was determined using complex valuation models, with the estimated enterprise value increasing from $92.7 million as of Dec 31, 2020, to approximately $832.5 million as of March 31, 2021, heavily influenced by the valuation implied by the proposed merger416418 - Post-merger, Private Placement Warrants and Sponsor Earn-Out Shares are classified as long-term liabilities and remeasured to fair value each reporting period, with changes in fair value recorded in the statement of operations419 - Goodwill is tested for impairment annually on October 1st, with the 2021 qualitative assessment concluding that it was more likely than not that the fair value of the BlackSky reporting unit exceeded its carrying value420422 Item 7A. Quantitative and Qualitative Disclosures about Market Risk This item is not applicable to the company - Not applicable Item 8. Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for 2021 and 2020, including balance sheets, income statements, equity changes, and cash flows Consolidated Balance Sheet Highlights (As of Dec 31) | Account (in thousands) | 2021 | 2020 | | :--- | :--- | :--- | | Cash and cash equivalents | $165,586 | $5,098 | | Total Assets | $305,763 | $119,915 | | Total Liabilities | $126,143 | $152,728 | | Total stockholders' equity (deficit) | $179,620 | $(32,813) | - The financial statements were audited by Deloitte & Touche LLP, which issued an unqualified opinion475 - Note 4 details the accounting for the reverse recapitalization with Osprey, confirming it was treated as Legacy BlackSky issuing equity for the net assets of Osprey503561 - Note 8 provides details on the discontinued operations of Spaceflight, Inc., which was sold on June 12, 2020, with a loss of $1.7 million related to the disposal recorded in 2021577580 - Note 15 details the company's debt, with the primary facility being a loan from related parties Intelsat and Seahawk totaling $74.1 million as of year-end 2021, maturing in October 2024602611 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company dismissed Marcum LLP and engaged Deloitte & Touche LLP as its auditor post-merger, with no disagreements reported - Effective September 9, 2021, Marcum LLP was dismissed and Deloitte & Touche LLP was engaged as the company's independent registered public accounting firm427 - There were no disagreements with the former auditor, Marcum LLP, on accounting principles, financial statement disclosure, or auditing scope429 Item 9A. Controls and Procedures Management concluded disclosure controls were effective as of December 31, 2021, with prior material weaknesses remediated - Management concluded that disclosure controls and procedures were effective as of December 31, 2021430 - Material weaknesses identified in 2020 for both Legacy BlackSky (over accounting for forward loss contracts) and Osprey (over accounting for warrants) were remediated as of December 31, 2021127436 Item 9B. Other Information The compensation committee adopted an Executive Incentive Compensation Plan for cash awards based on various performance goals - On March 28, 2022, the company's compensation committee adopted an Executive Incentive Compensation Plan to provide cash incentive awards to employees based on performance goals439 - Performance goals under the plan are broad and can include metrics such as sales bookings, cash flow, revenue growth, and other individual or company-wide objectives441 Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - None Part III Item 10. Directors, Executive Officers and Corporate Governance Information for this item is incorporated by reference from the 2022 Annual Meeting of Stockholders proxy statement - Information is incorporated by reference from the definitive proxy statement for the 2022 Annual Meeting of Stockholders448 Item 11. Executive Compensation Information for this item is incorporated by reference from the 2022 Annual Meeting of Stockholders proxy statement - Information is incorporated by reference from the definitive proxy statement for the 2022 Annual Meeting of Stockholders449 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information for this item is incorporated by reference from the 2022 Annual Meeting of Stockholders proxy statement - Information is incorporated by reference from the definitive proxy statement for the 2022 Annual Meeting of Stockholders450 Item 13. Certain Relationships and Related Transactions, and Director Independence Information for this item is incorporated by reference from the 2022 Annual Meeting of Stockholders proxy statement - Information is incorporated by reference from the definitive proxy statement for the 2022 Annual Meeting of Stockholders450 Item 14. Principal Accountant Fees and Services Information on principal accountant fees and services is incorporated by reference from the 2022 Annual Meeting of Stockholders proxy statement - Information is incorporated by reference from the definitive proxy statement for the 2022 Annual Meeting of Stockholders451 Part IV Item 15. Exhibit and Financial Statement Schedules This section provides an index to the consolidated financial statements and a comprehensive list of all exhibits filed with the 10-K report - This section contains the index to the consolidated financial statements and a list of all exhibits filed with the 10-K report454 Item 16. Form 10-K Summary The company reports no Form 10-K summary - None