BlackSky Technology Inc. Q1 2023 Earnings Call
Good morning, ladies and gentlemen, and welcome to Black Sky Technologies first quarter 2023 earnings Conference call.
All lines have been placed on mute to prevent any background noise.
The Speakers' remarks, there'll be a question and answer session passed me a question you May press Star one.
So that's all your question you May press Star two.
Please note that this conference call is being recorded.
I'd now like to turn the call over to Alibaba here Black Skies, Vice President of Investor Relations.
Go ahead Ed.
Good morning, and thank you for joining us today I'm joined by our Chief Executive Officer, Brian No tool and our Chief Financial Officer, Henry Dubois on today's call, Brian will provide some highlights on the quarter and give an update on the business.
Henry will then review the company's first quarter financial results and outlook for 2023.
Following our prepared remarks, we will open the line for your questions.
A replay of this conference call will be available from approximately 12 30 PM Eastern time today through May 24th information to access the replay can be found in today's press release. Additionally, a webcast of this earnings call will be available in the Investor Relations section of our website at Www dot.
Black Sky Dot com.
In conjunction with today's call we have posted a quarterly earnings presentation on the Investor Relations website that you may use to follow along with our prepared remarks.
Before we begin let me remind you that today's conference call includes forward looking statements, including financial guidance for 2023 and that actual results may differ from the expectations reflected in these statements due to factors such as long and unpredictable sales cycles customer demand and our ability to estimate <unk>.
Horses for fixed price contracts expenses, and other operational and liquidity needs.
We encourage you to review our press release and most recent SEC filings for a full discussion of the risks and uncertainties that pertain to these statements and that may affect future results or the market price of our stock Black Sky assumes no obligation to update forward looking statements, except as may be required under applicable.
Securities laws and.
In addition, during today's call, we will refer to certain non-GAAP financial measures, including adjusted EBITDA and adjusted imagery and software analytical services cost of sales.
Reconciliation of these non-GAAP financial measures to their most comparable GAAP measures are included in today's accompanying presentation, which can be viewed and downloaded from our investor Relations website.
At this point I'll turn the call over to Brian O tool Brian .
Thanks Ali and good morning, everyone. Thank you for joining us on today's call.
Let's begin with slide four.
I am pleased with the strong performance that we delivered in 2022.
And how that momentum has carried over into 2023.
We are making great progress across all aspects of our business.
As demand for our high frequency imagery and analytics remains strong and we continue to secure more new customers and expand the services that we're delivering to existing customers.
We continue to demonstrate strong operating leverage as revenue growth from our high margin imagery and analytics continues to deliver improving operating margins.
Just putting us on a clear trajectory towards sustainable long term profitable growth.
I'm happy to report that Q1 was another strong quarter.
That included the following key highlights.
First.
We continued to deliver strong year over year revenue growth.
Our imagery and analytics revenue, which represents our core service business.
Increased 114% over the prior year.
As revenues ramped up from a number of new contracts signed throughout last year.
Second we delivered a 97% incremental contribution margin as a result of increased revenues from our high margin imagery and analytics business.
With our company's low fixed cost structure.
Continuing to produce strong operating leverage with our existing assets.
Which is enabling our business to scale and deliver improving EBITDA performance.
Third we won over a dozen new contracts and renewal agreements supporting international and U S government agencies.
These contracts are in addition to the $150 million contract.
When we announced in March <unk>.
Further demonstrating the strong global demand for black Sky high frequency imagery and advanced analytics.
Fourth we successfully deployed two new Gen two satellites into orbit, providing black sky with additional imaging capacity and redundancy.
This was a major milestone as we have now completed the deployment of our first generation constellation.
And finally.
Today, we announced an amendment to our existing debt facility, which extends the maturity of the note until 2026 and reduces cash interest payments for the next two years.
This amendment combined with the $29 million pipe transaction, we announced in March strengthens our balance sheet and provides us with additional capital to <unk>.
Fuel our growth.
Henry will go into more details on this transaction later.
These accomplishments along with growing market demand worldwide.
Enforces our confidence in achieving our full year financial goals, including a key objective of delivering positive EBITDA in the fourth quarter.
I would now like to share some operational highlights from the quarter.
Turning to slide five.
We continue to experience strong and growing demand in the international market.
As evidenced by a growing sales pipeline, the signing of new customers and the expansion of existing customers during the quarter we.
We successfully closed over a dozen contracts many of which support international government agencies.
Some of these contract wins are multi year multimillion dollar awards.
Such as the $150 million contract, we announced in March.
For a multi year subscription to imagery and analytics services from our next generation constellation.
We are now seeing customers looking for long term subscription based contracts.
Cured assured priority access to our current and future constellation.
Particularly in supply constrained high demand regions.
Government agencies around the world are increasing their investments in space based capabilities to meet their country's near and long term intelligence and surveillance needs.
In response to a wide range of growing geopolitical economic and security concerns.
This trend is driving strong demand for black Sky's products and services worldwide.
To capitalize on this opportunity we are continuing to invest in the expansion of our international sales team.
I am happy to report that our recent investments in building our global sales network are now paying dividends.
As we are successfully converting our strong pipeline of sales opportunities into meaningful long term contracts.
These contract wins demonstrate how black sky is increasingly relied upon by.
By some of the most important customers in the world to support their current and future critical mission needs were.
We are proud to be providing these government agencies with a first of its kind intelligence capability delivered through a best in class customer experience.
Moving on to slide six.
In addition to the momentum we are gaining internationally.
We also won new and follow on contracts with a number of U S defense and intelligence agencies.
In Q1, we continue to expand the advanced monitoring services that we're providing.
To the NGA under the economic indicator monitoring program.
During the quarter, the NGA awarded Black Sky additional task orders to.
To provide dynamic monitoring and analysis of new strategic locations and critical regions of interest around the world.
Since this five year contract began in late 2021.
We have provided the NGA with advanced AI enabled monitoring solutions through multiple task orders that we won through a competitive bid process.
We are pleased that our industry, leading AI algorithms are delivering high confidence detection and classification performance that NGA and their end users can rely on.
We believe our AI capabilities are a key competitive differentiator.
Especially when combined with our real time space capabilities.
As a result of the success of this program and the recent award of New task orders.
We look forward to continuing to support the NGA.
As we compete for new additional contract task orders throughout 2023.
It's important to note that the subscription monitoring services that we.
We are delivering under this program are provided as a commercial service.
And therefore, it can be offered to other customers around the world with almost no incremental cost.
This is just another example that demonstrates the operating leverage of our platform and scalable AI infrastructure.
We also continued to expand our relationship with several department of defense customers, including the U S Air Force in the U S space Force for.
Who are seeking to apply our real time capabilities toward meeting next generation tactical mission requirements. During the quarter, we won a multi year contract renewal with App works.
A component of the Air Force Research Laboratory <unk>.
<unk> is looking to leverage <unk> existing space and ground architecture.
On the development of future space capabilities that leverage commercial technologies.
This program is an example of how we use government funded R&D to advance our technology.
And build strong relationships with long term strategic customers.
Also in the quarter, we're pleased to announce that we were awarded a multiyear contract by the NRO to explore commercial hyper spectral imaging capabilities.
During the initial stage of this contract we will evaluate the extension of our constellation to include hyper spectral imaging and the application of these sensors to meet advanced real time mission intelligence needs.
These next generation capabilities are a natural extension of black skies, agile space architecture and.
And with this contract further expands our long term relationship with the NRO.
Turning to slide seven.
We also continue to make progress with new commercial customers that are looking to space based imagery and analytics solutions.
<unk> advanced our real time business intelligence capabilities.
As an example during the quarter, we signed a new subscription contract with a large multinational commercial customer.
For the dynamic monitoring and tracking of high value assets.
We've been working with this customer over the last several months under a pilot program.
Were they tested and evaluated the performance of our monitoring services.
After the successful pilot we're pleased to report that we have transitioned into a six figure annual subscription contract.
Like the EAM contract with NGA.
This is a prime example of how through our API enabled software platform.
Cable to quickly configure our core platform services to deliver subscription based monitoring services.
That provide new information insights and alerts.
<unk> a wide range of real time business intelligence problems.
Moving to slide eight.
The need for high frequency imaging and analytics is expanding everyday as international U S and commercial organizations continue to place a high value on.
On receiving real time Geospatial intelligence.
In response to emerging global events.
As an example last week, we released the first and only known public image.
According to a third party intelligence analyst of an alleged air ship on a runway at availed military base and correlate China.
Capturing this image was only made possible by the unique attributes of our constellation.
That has been specifically designed to provide reliable dynamic early monitoring of the world's most important and strategic locations.
In contrast.
Most commercial imaging satellites that are in orbit today are in SUNS synchronous polar orbits.
That are purposely constrained to take images at the same fixed time of day, such as at 10 30 in the morning.
These satellites for design and optimize to primarily support static mapping applications.
Rather than deliver dynamic real time monitoring solutions.
Because of these constraints. These satellites are limited in their ability to see events that occurred during the rest of the day.
And therefore are unable to capture an event such as an appearance of the airship.
Which was captured by black Sky at nine a M local time.
Our continuous monitoring combined with our first of its kind spectrum AI <unk>.
Software analytics platform.
As a new and unique capability in the market that now enables customers to see and understand events.
That they could not have seen before now.
This dynamic row monitoring is what sets <unk> apart in our industry.
And why governments worldwide are tapping into our unique capabilities to see anomalies.
Capture rare events and gain unprecedented insights about emerging events in areas that are critical to their national interest.
Another example.
<unk> as shown on slide nine where our on demand image recaptured the destruction that took place at the <unk> Airport in Sudan.
Following the recent military fighting taking place there.
Powered by our spectrum <unk> AI software platform, which combines our high resolution imagery with AI enabled analytics.
Well to identify not only the number of aircraft station at the airport, but how many had been damaged or destroyed.
The high resolution imagery in the critical intelligence enabled by our software is what governments and Allied partners around the world are using in their day to day mission operations to respond to key global events such as this.
Turning to slide 10, and an update on our constellation.
We successfully deployed two new satellites into orbit on March 24th.
With an 18 hours of launched these gen. Two satellites entered into revenue generating operations.
This is an industry, leading ability to rapidly deploy space infrastructure and deliver immediate value to our customers.
These two new satellites provide us with additional capacity for taking high resolution imagery around the world.
And provide redundancy to our constellation.
With a baseline constellation fully complete and delivering hourly dynamic monitoring solutions to customers.
Our focus can now fully turned to building our next generation of advanced satellites.
Which remain on track to begin deployment next year.
As a reminder, we already have contracts in hand for Gen three capacity and capability.
And are excited to bring these capabilities to market to meet the strong customer demand we are already experiencing.
In summary, we're pleased with the progress we made in the first quarter and the strong momentum we are building in the market.
I'll now turn it over to Henry to go through the quarterly financial results in more detail Henri.
Thank you, Brian and good morning, everyone I am pleased that our first quarter financial results continued the strong momentum we experienced last year.
Beginning with slide 12 total revenue for the first quarter of 2023 was $18 4 million, an increase of $4 5 million or 32% over the prior year quarter.
Imagery and analytics revenue grew to $15 $8 million or 114% increase over the prior year period, primarily driven by greater volumes of imagery delivered to new and existing U S and international government customers.
The largest contributor to the year over year increase in imagery caused from the daily delivery of high volume imagery under the <unk> contract with the NRO.
We've experienced significant growth in customer demand for our imagery and analytics over the past year and as a result. This line of business contributed 86% of total revenues in Q1, this year compared to about 50% in Q1 last year.
Professional engineering services revenue was $2 6 million in the first quarter of 2023 compared to $6 5 billion.
In the prior year quarter, primarily due to a couple of R&D programs that are nearing completion. This year, whereas these programs were in full swing back in Q1 last year.
Also.
Keep in mind.
Revenues recognized from these types of projects are largely milestone based which means they can introduce quarter to quarter variability.
This is in contrast to our imagery and analytics services, which is typically subscription based revenue.
As a reminder, these professional and engineering service projects provide us with government funded R&D.
And enable us to build long term relationships with strategic customers.
These programs are oftentimes precursors to securing long term subscription contracts for imagery and analytics services with these customers.
Moving on to slide 13, our imagery and analytics business continued to demonstrate strong operating leverage.
Excluding stock based compensation depreciation and amortization expenses imagery and analytics cost of sales was $3 6 million in the first quarter of 2023 compared to $3 $3 million in the prior year quarter.
Year over year, the small increase in cost of sales coupled with an $8 $4 million increase in revenue equates to a very high incremental contribution margin of 97%.
This performance once again demonstrates the strong margin leverage delivered by our imagery and analytics business on incremental revenues.
Turning to slide 14 for.
For the first quarter of 2023, we reported an adjusted EBITDA loss of $4 1 million, a 57% improvement over the $9 5 million loss in the prior year period.
The year over year improvement was primarily driven by greater volumes of our high margin imagery and analytics revenue, while operating on a predominantly static cost base as just discussed.
We're pleased with the progress we've made in adjusted EBITDA and are on track with our goal of achieving positive EBITDA later this year.
Regarding our balance sheet. We ended the first quarter of 2023 was $71 $6 million of cash restricted cash and short term investments.
Our capital expenditures in the first quarter of 2023 increased to $15 8 million <unk>.
Primarily due to final payments for the launch of two additional satellites in March as well as expected milestone payments for our Gen. III satellite production as certain milestones reached easily.
These expenses are in line with our full year expectations.
Overall, we believe our current cash position is in line with our expectations and remains strong.
On another note. This morning, we're pleased to announce an amendment to our existing debt facility.
The new terms extend our debt maturity until October 2026, and also reduces the level of cash interest payments as 80% of the interest can be accrued and paid with the principle when it comes due in 2026.
This amendment helped to improve our outgoing cash flow over the next two years.
Now, let's move on to our 2023 outlook as shown on slide 15.
As mentioned earlier, we are continuing to win new contracts and expand existing agreements with U S International and commercial customers.
With this traction and momentum we maintain our full year revenue guidance of between $90 million to $96 million.
Coupled with the operating leverage we are experiencing and expect to continue we remain on track to achieve positive adjusted EBITDA in Q4 of 2023.
Finally, we anticipate our capital expenditures in 2023 to be between 40% and $45 million as we have stated.
In summary, we are pleased with our financial performance in the first quarter and the continued momentum we are seeing across our business.
We look forward to continued progress throughout the year.
With that I'll now turn it back over to Brian for some closing remarks.
Thank you Henry.
We're pleased to report another strong quarter, driven by significant demand for our high frequency imagery and analytics from customers around the world.
We are continuing to build significant multiyear backlog by winning new customers and expanding the contracts we have with existing customers.
We have built a foundation that puts us on a clear path.
To deliver another strong year of revenue growth.
While providing a clear line of sight towards sustainable long term profitability.
Our team is laser focused on executing against our growth plan that includes the following key imperatives.
First continuing to drive long term high visibility revenue growth.
By winning new multiyear subscription contracts with a base of major government and industrial customers around the world.
Second expanding our sales pipeline and customer base through an aggressive go to market strategy as we continue to expand our sales force and global partner network.
Third continuing to deliver strong operating margins through the sale of high margin imagery and analytic services, while controlling expenses through prudent cost and capital management.
And finally.
Continuing to invest in our next generation space and AI capabilities that.
That extend our competitive advantage.
The strong market demand for our Gen three capabilities and capitalize on a large and rapidly growing market opportunity for.
For space based intelligence solutions.
In closing we're pleased with the progress we've made this quarter and look forward to continuing this momentum as.
As we advance our leadership in real time Geospatial intelligence.
This concludes our remarks for the call and we'll now take your questions.
We will now begin the question and answer session by asking a question you May Press Star one on your Touchtone phone you are using a speakerphone. Please pick up your <unk>.
Ram cycle per vessel will start.
Your question. Please press star one at this time, we will call momentarily to assemble our roster.
Thank you. Our first question is from Griffin ball with B Riley. Please proceed with your question.
Hi, Thanks for taking my question. So after that I was just curious if you could elaborate on the situation with your global seven global eight satellites, Saudi you requested for an SBA with the FCC. So I'm curious if you can if you're able to give us more color on that.
Thanks, Griffin and good morning.
So just.
Just as a reminder, we.
We are coming at this a little differently than the rest of the market we've built an integrated.
Constellation of small satellites that.
Unlike traditional architectures were designed to deliver.
These high revisit imaging and analytics services without a dependency on any given satellite.
This agile approach.
Enables us to deploy capacity, where and when we need it to meet customer service levels and <unk>.
System design with significant reserve and redundant capacity.
And eliminate the impacts of any individual satellite set as we expect will come in and around our service over time.
Especially when they reached the end of their expected service life.
So as we said earlier, we successfully launched two additional satellites in March.
Gives us additional capacity and redundancy and thats consistent with our Sustainment plan.
With respect to the SEC filing, we will occasionally raise or lower altitudes of individuals' satellites.
As part of our normal course of operations, which.
We can extend our mission life or deliver increased performance.
Or supporting our support our maintenance operations.
Okay, great and just to confirm those two satellites were launched in 2020 right. So they're the.
Three to five year lifespan rights of their demand.
Within the three years right.
Yes, they're approaching there.
Anticipated end of life of three years.
Okay, Alright got it thanks for that appreciate it and then so in terms of the Gen. III capacity I know you mentioned you have.
And you mentioned in the past you have contracts in hand and capacity locked down can you just tell us can you provide any more color on how much of that gen. Three capacity is contracted right. Now is it is it all of it or substantial portion or just a nominal amount.
We're just getting we're just getting started on selling that capacity the $150 million contract we announced in March is for Gen three capability.
And.
A number of the customers. We are that we have today that are subscribing to our gen.
Two capacity are looking forward to transitioning into gen. Three as that comes online.
Yes.
Okay, great. Thanks, Thanks, Brian and then just last one for me too.
Given the reaffirmed revenue guidance for the year.
Would we be correct in assuming that most of these new awards, you're winning are more heavily weighted towards revenue generation in 2024 and beyond or are these are these contracts that you expected to win and we're already perhaps incorporated in the 2023 guide.
There is a mix so.
The $150 million award is a multi year contract.
The dozen or so contracts that we announced we closed this quarter will contribute to.
2023 revenues and some of that will contribute to 'twenty four revenues.
Okay, great. Thanks, Brian appreciate the color.
Thank you Griffin.
Thank you. Our next question is from Josh Sullivan with the Benchmark Company. Please proceed with your question.
Hey, good morning.
Good morning, Josh.
As far as Estelle.
What opportunities do you see to potentially help silver line and other sized dynamics or technology inputs for the buses that maybe you could open up new opportunities or what are you seeing out there.
Obviously, there is a growing market for small satellite.
<unk>.
For small satellites.
With <unk>, we have invested in.
Next generation bus technology that we're applying to our gen three.
Future satellites.
And we see that there is an opportunity.
To take that capability to market for different <unk>.
<unk> applications beyond Black Sky.
Okay.
And then just given the proliferation of language models here blacks guys backbone I'd be curious to understand how you view the language models, giving you the originator of the imagery data.
Potentially cede new LMS for for the intelligence community, how do you plan to hold onto the value there.
Josh could you maybe.
Maybe.
So what do you mean by language models, just so unclear.
Yes, just as we see new obviously AI.
Enabled.
Solutions and using your data.
Does it create those solutions.
And we're seeing a lot of those products proliferate and Martin early stage here, just curious black skies approach too as the intelligence community accessing some of those AI technologies.
How youre going to stay out in front and capture that value.
Yes.
So, yes, we've been employing AI technology across our.
Our platform now for several years.
As an example.
I think where you're going is we've been applying.
AI to natural language processing.
To monitor global.
Activity.
Some news and social media that can automatically.
Tipping Q collections of our satellites.
This is an important capability is.
We are reducing.
Response times.
Around emerging events and recognizing activities that are important to our.
Customers, which is ultimately going to give them a first to know advantage AI is also applied in our imagery interpretation and analysis.
And so.
We've been we've made significant investments in our AI team over the years.
And as I outlined.
In our remarks.
We are winning contracts such as the EAM contract based on.
The performance of our AI algorithms. So this is a key part of our future and we built a strong.
Set of capabilities that.
We believe our.
A key part of our competitive differentiation.
Okay. Thank you for your time.
Our next question is from Caleb Homerun.
Please proceed with your question.
Hey, guys.
Three questions from me first can you give any more color on the gen. Three salaries in terms of their launch status and cadence.
Good morning, Caleb as we as we are.
As we have already commented.
That those gen three satellites remain on track.
We secured long lead item.
Components and.
And those satellites are are now in production and we expect to begin launching those satellites in 2024.
Okay.
Regarding the I guess spending on those in general Capex Black Sky planning on maintaining a yearly spend of around $40 million with gen three or does that change at all.
Caleb This is Henry Dubois speaking I mean, as we look at our Capex.
As you know, we're guiding this year to that $40 million to $45 million.
We're not providing guidance beyond that at the moment, but.
You can kind of work through as we go through sending up our satellites that we will have capex associated with it.
Okay, and then last question, which is related to the <unk> global seven and eight satellites that youre seeking to lower the altitude.
Lowering that altitude, presumably means that they will have a shorter lifespan. So.
So are you anticipating that those will have their full three year lifespan are you sacrificing some of that time to get sharper.
Sharper resolution or some other advantage.
Now as I mentioned earlier those satellites are approaching the end of their three year life and.
Raising are lower than in them for improving performance as part of our normal course of operations.
Okay, well they will they obtain a three year life for now.
We expect we expect on the maintain the their life expectancy.
Okay alright, thank you.
As a reminder, we would like to ask a question. Please press star one on your telephone keypad.
Thank you. Our next question is from Jason Smith with Lake Street Capital Markets. Please proceed with your question.
Hey, guys. Thanks for taking my questions. Just curious if you could update us on the traction in the commercial market.
Despite some of these recent wins are still in the government space, but any additional color on the commercial space that would be helpful.
Yes, good morning, Jason.
Yes, as you know.
<unk> revenues are still.
Small part of our overall.
Overall business right now.
We are starting to see traction with major industrial opportunities.
Particularly in the monitoring of.
Commodities and supply chain.
So as those that type of examples what I, just outlined and were seeing those opportunities.
Other customers and so we're still early days, but we're encouraged by what we're seeing in terms of interest and demand.
Okay. That's helpful and then just the follow up.
When you look at towards the end of this year.
Between our U S versus international is going to remain fairly stable.
Well I think I think generally you are seeing you are seeing good strong revenue diversification. So we.
Revenue International revenues are now almost 25% of our overall revenues which is up.
From last year. So we are seeing strong international demand.
And we expect to see this diversification trend continue.
Okay. Thanks, a lot guys.
Thank you. Thank you.
This line or no further questions I'll turn it back over to Al Gore, Neal <unk>, Vice President Investor Relations.
Yes.
I want to thank everyone for joining us on the call today, we will be participating in several upcoming conferences over the coming weeks. So keep an eye out for those announcements and we look forward to speaking to you again soon have a great day.
Sure.
This concludes today's conference you may disconnect.
Your line is open thank you for your participation.