Good morning, ladies and gentlemen, and welcome to BlackSky Technology's Fourth Quarter 2022 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Please note, this conference call is being recorded. I would now like to turn the call over to Aly Bonilla, BlackSky's Vice President of Investor Relations. Please go ahead, Aly.

Good morning, and thank you for joining us. Today, I'm joined by our Chief Executive Officer, Brian O'Toole, and our Chief Financial Officer, Henry Dubois. On today's call, Brian will provide some highlights on the quarter and accomplishments over the last year and give a strategic update on the business. Henry will then review the company's fourth quarter and full year financial results and provide an 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 12:50 p.m. Easter Time today through March 21. 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.blacksky.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 sales cycles, customer demand, and our ability to estimate expense, 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. BlackSky assumes no obligation to update forward-looking statements, except as may be required under applicable security laws. In addition, during today's call, we will refer to certain non-GAAP financial measures, including adjusted EBITDA, adjusted imagery and software analytical services cost of sales and adjusted selling, general and administrative expenses. A reconciliation of these non-GAAP financial measures to their most comparable GAAP measures are included in today's earnings press release and 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'Toole. Brian?

Thanks, Aly, and good morning, everyone. Thank you for joining us on today's call. Let's begin with Slide 4. 2022 was a foundational year that established BlackSky as a premier provider of real-time global intelligence. I'm pleased with the progress we've made across all aspects of our business and I'm particularly proud that we are now a preferred and trusted long-term partner of some of the most important customers in the world. BlackSky's platform is the first-of-its-kind capability in the market, and is providing these customers with new and critical real-time intelligence that they never had before. Our world needs real-time intelligence now more than ever, and we continue to see strong demand for our high-frequency imagery, monitoring and advanced analytics. Now let me highlight some of the accomplishments we've achieved in 2022 as well as some recent developments that we've announced today that will contribute to the strong momentum we have going into 2023. First, BlackSky has changed how space is used to deliver actionable intelligence. Last year, we achieved a baseline satellite constellation that now provides reliable, hourly monitoring of the most important strategic location, economic assets and events in the world. Through our Spectra AI software, we have transformed the customer experience by providing on-demand access to new users and through the delivery of real-time geospatial information at unprecedented speeds, frequencies and economics. We are enabling users to gain new insights and see changes as they are happening on the ground and access that information through mobile devices, or directly in the software applications they use every day, such as Palantir or ESRI. Second, BlackSky's high-frequency imagery and analytics services were validated and are now relied upon by major U.S. and international government agencies for their mission-critical operations. Due to the quality, speed and reliability of our…

Thank you, Brian, and good morning, everyone. I'm pleased that our fourth quarter financial results were strong, ending the year on a high note as momentum for our imagery and analytics continued. Now, let's discuss our fourth quarter results, beginning with Slide 13. We continue to see strong demand in Q4 for our imagery and analytics, which drove revenue to $19.4 million, another quarterly record for the company. The 69% year-over-year improvement in Q4 was primarily driven by increased demand from new and existing U.S. and international government customers. Imagery and analytics revenue grew to $16.2 million, a 196% increase over the prior-year period, primarily driven by greater volumes of imagery delivered to new and existing customers. Professional and engineering services revenue contributed $3.3 million in the fourth quarter of 2022, consistent with the third quarter of '22. Keep in mind, revenue from these types of projects can vary from quarter-to-quarter depending on the project's estimated cost and percentage of completion. So, you'll likely see some variability over time. As an example, a few of our existing projects are in fact coming to an end, but the development work for the new international Ministry of Defense customer will be realized in the professional and engineering services line in advance of when their subscription contract begins. I'd like to point out as we stated in our press release, we reclassified professional service revenues and costs out of the imagery and analytics category and combined it with our engineering services as the project types, durations and cost structures are more aligned with engineering services. This is only a change in the geography on the income statement and changes neither the top-line nor bottom-line numbers. We have included a recasting of prior quarters in the appendix of our presentation for ease of comparison.…

Thank you, Henry. Now, I would like to spend a few minutes on one of our most important objectives for 2023, which is to achieve positive adjusted EBITDA in Q4 of this year. As a new space company, we recognize that it's important to achieve cash flow positive operations and profitable growth. We don't believe that growth at any cost is a viable strategy for sustainable long-term success in this industry. As such, we have a focused plan to achieve certain financial and business objectives that put us on this path, which are shown on Slide 20, and include the following: First, continuing to deliver strong revenue growth with a focus on recurring revenues from our high-margin imagery and analytics services. Second, improving margin performance by capitalizing on the operating leverage of our space and software platforms and achieving SaaS type margins and operating performance. Third, a focus on prudent cost management. We are planning for only a marginal increase in overhead expenses this year with incremental growth targeted towards sales and marketing to drive further revenue growth. And finally, aggressive cash management by aligning the timing of CapEx investments with market-driven need for capacity and pursuing other initiatives to obtain cash flow favorable terms on recurring multiyear subscription contracts. We believe our accomplishments in 2022 have set the stage for us to achieve these business milestones and put us on a path for long-term sustainable profitable growth. In closing, I want to thank our employees for their hard work, dedication and tenacity that has gotten us here. We've established BlackSky as a premier provider of real-time geospatial intelligence and a trusted partner to some of the most important customers in the world. Building on the successes of 2022, we have strong momentum across all aspects of our business and look forward to executing another strong year in 2023. This concludes our remarks for the call and we'll now take your questions.

We will now begin the question-and-answer session. [Operator Instructions] Our first question has come from the line of Josh Sullivan with The Benchmark Company. Please proceed with your questions.

Hey, good morning.

Good morning, Josh.

As far as the Gen-3 satellite, how is the timeline for deployment evolved? Has it been more customer demand, technology or resource allocation driven?

You mean, how was the timeline for deployment or development?

Deployment. I mean, did you say 2024 for the launch?

Yes. As I mentioned, we have sufficient capacity on orbit with our current constellation to support our growth for the next couple of years. Those Gen-3 satellites, we'll begin deploying them as replenishment -- replacement satellites for the current constellation and aligning that with market demand. So -- but in parallel, we're seeing -- we're building a strong backlog of interest in those -- in that capability in the out years through things like EOCL and our recently announced Ministry of Defense contract.

Yes. And I guess on that point, the $150 million win this morning, you talked about the long-term product strategy was attractive. Can you just outline some of those long-term capabilities that they were attracted to?

Yes, Josh, the main thing is we've built a differentiated capability in the market with high-frequency monitoring with integrated AI and analytics. And our roadmap over time will continue to improve the frequency and the latency and the breadth of AI-enabled intelligence that we deliver and this is what attracted the customer and ultimately led to us winning that contract.

Got it. And then just one last one. As far as the sales force expansion, you talked a bit about controlling costs and having an eye on profitability. Do you feel you have the scale on the sales force at this point?

Yes, we made significant progress last year. We're continuing to invest in sales and marketing this year. We're also -- some of the achievements in integrating with third-party platforms through our software APIs such as ESRI and Palantir give us a sales force multiplier. And as we just really realized some of those integrations mid to late last year, we'll start seeing traction -- expect to start seeing traction on that this year.

Great. Thank you for the time.

Thanks, Josh.

Thank you. Our next question has come from the line of Jaeson Schmidt with Lake Street. Please proceed with your questions.

Hey, guys. Thanks for taking my questions. Just curious, I know you mentioned in your prepared remarks sort of the non-cyclicality of this industry, but just given the macro, have you seen engagements with customers or get pushed to the right or have timelines remain relatively intact?

The timelines we're seeing are remaining intact. In fact, as I mentioned in our remarks, the demand, particularly in the defense and intelligence sector, is growing very significantly. We're seeing a lot of these organizations committing more dollars sooner, particularly around space-based capabilities. And then, on the commercial side, we're also seeing some pretty significant interest, particularly in commodities and supply chain intelligence. So, we're not seeing a slowdown in demand.

Okay. And then, just as a follow-up. How should we think about gross margin trending this year?

Henry, you want to take down?

Sure. Thanks, Brian. On gross margin, as you see, when we take a look at the slide we have that shows the incremental gross margin, as we've always talked, when you kind of normalize for just kind of the period costs associated with delivering revenues, every incremental dollar yields a very high gross margin. So, when you take a look, we had about $47 million or so of imagery and analytics revenue this past year against somewhere in the neighborhood of about $13 million or so of our actual operating costs in period for the year. So, you're generating that kind of that 92% incremental gross margin. You had about a 70.1% -- or 71% in total gross margin for the imagery and analytics. But as you add more dollars, you're almost getting about kind of around that 90% incremental. So, as we grow that business, that's what's going to help drive us towards the EBITDA positive in the fourth quarter as we're forecasting.

Okay. That's helpful. Thanks a lot, guys.

Thank you. Our next question has come from the line of Scott Deuschle with Credit Suisse. Please proceed with your questions.

Hey, good morning. Brian, you said that, I think, 65% of your '23 revenue is from contracted backlog. Just wanted to check on the confidence interval in getting the other 35% and the line of sight you have to them?

Yes, we've got a -- as I mentioned, we're seeing really strong and growing demand worldwide. So, we've got the $65 million in contracted and we've got very strong visibility in the 2023 revenue forecast. It includes a very strong pipeline a follow-on and new opportunities. Some of the -- a good portion of the gap between the $65 million and our forecast is also follow-on contracts from existing customers. So, we are very confident in our forecast this year.

Got it, great. And then, you mentioned there's a development phase on this $150 million contract you won. If you could just talk a little bit what that entails and how long the development period will last before it moves into the subscription period?

Yes, it will commence, as we said, in the second quarter. And there'll be over a period of a couple of years activities to develop and integrate certain capabilities with the customer. And so, that will continue, and then there will be a commencement of the subscription service that starts in a few years.

Are you basically building a bespoke constellation for them?

No, this is 100% aligned with our commercial strategy. So, it's...

Why can't they just use the app or the SaaS model? Like, why does it take two years? I thought that the SaaS model [indiscernible].

Yes, this customer is already getting capacity from our existing constellation. And the subscription increases significantly with our Gen-3 capability combined with the level of AI intelligence that we're going to be delivering under the contract as we're expanding the AI analytics of our platform over the coming years. So, this is a long-term strategy for this customer that's aligned with our commercial platform and the timing of our investments in both space and software.

Okay, great. And then, the last question for Henry. Maybe just kind of wanted to get your sense for how you approach guidance in general, now that you've been public for, I guess, over a year now? It just seems like there's oftentimes three kinds of guidance you get from companies. One -- in one case, it can be an aspirational plan, for some other companies, it can be an operational plan, and for other companies, it's more of a promise, not an actual promise, but it's something that they hope shareholders can heavily rely on. I guess, I'd just be curious as you think about guidance this year and going forward as a public company CFO, kind of which of those do you think you align toward?

Well, thanks. I mean, that's a good question. The way we look at kind of providing guidance is we obviously pull together our budget and get work that with our Board to get it approved prior to the end of the prior year. And as we look at that, that one may be more the -- I'm not going to call that one aspiration, but that was a little bit stretch. What we want to provide to the Street are the things that we feel very confident that we will hit. As you know, when we went through this year, this past year, we provided guidance of one set of numbers and then we -- in August, we were be able to kind of look at kind of how things are performing and provide an update. And we will continue to always update our guidance as appropriate. So, we want to look at as this is something that we feel that we can make solid plans against. Obviously, they're not promises per se, they're what we're expecting to do. But unfortunately, there are no guarantees in life, but we're working to make sure that we're giving everyone the best information that we get.

Okay, great. Thank you, guys.

Thank you. Our next question has come from the line of Edison Yu with Deutsche Bank. Please proceed with your question.

Hey, good morning, guys, and thanks for taking our questions. First on the cap raise, how are you thinking about the cash needs going forward? I know you mentioned the ATM is still there. Do we feel confident about after private placement that this is enough for you? Or do you think there's still a bit left that we need to put on balance sheet?

Edison, this is Henry. Thanks for the question. The way we look at it is we're very pleased with the PIPE raise that we just completed. We've got gross proceeds of about $29.5 million from both long-term investors and institutional investors, all U.S. based. We felt that kind of topping up the tanks a little bit made some sense, because we have the opportunity to. We do have the ATM out there. We have not tapped it at this point, and don't foresee tapping that in the near future. But what we're looking at is we'll always look at our cap table and our capital structure and make sure that we're appropriately positioned.

Understood. Higher level question on the industry. Obviously, there's been quite a few things going on. You have Maxar going private. I think Airbus lost a few very important satellites on the Vega launch. You have updated view on how you see kind of the competitive landscape now. Is it tighter than you would have thought, which is driving some incremental pricing/demand? Just curious on the latest thoughts there.

So, Edison, I -- we believe we're still in a supply constrained market and we'll remain so for a while. If you think about it, there's just a few companies like BlackSky and Maxar that are delivering reliable operational performance and are considered trusted suppliers. The Airbus incident was unfortunate. The one thing to keep in mind is that most of the new capacity that is coming online particularly from legacy players is replacing existing capacity that's aging out. And in many cases, those satellites -- the new satellites are being deployed have less capacity than the ones they're replacing. And so, in a sense, BlackSky is one of the only trusted providers that's putting meaningful new capacity into a market at a time when there's growing demand. And as for new entrants, it takes years to prove both performance and scalability, and takes just as long to capture meaningful contracts with these types of government and large enterprise customers. So, we feel like we're well positioned in a growing market that's supply constrained. Our new capacity and unique hourly monitoring capability, combined with strong and reliable operating performance, puts us in a really strong position.

Great. And one follow-up to that. On the $150 million, you mentioned it was a competitive bid. Should we think about the others as sort of the legacy guys or more sort of emerging players?

I think the way to think about it is we won because we have a differentiated capability that's aligned with where the market is going for high-frequency monitoring and real-time analytics. That's how we differentiated in the market. Customers are understanding that and committing to long-term contracts, because of our -- because of that strategy. And as we outlined in our remarks today, we're closing in building a backlog of significant multiyear agreements with these customers. So, I would say it's really the differentiation we've established and the confidence the customers have in the vision and our long-term product strategy.

Thank you, guys.

Thanks, Edison.

Thank you. Our next question has come from the line of Austin Moeller with Canaccord Genuity. Please proceed with your questions.

Hi, good morning, Brian. My first question is just on the $150 million GEOINT contract with the international Ministry of Defense. How on this contract, just given the incorporation of AI capabilities, does this compare from a margin perspective to like EOCL, for example?

Well, I think a couple of things there, Austin. First off, EOCL contract is for imagery only. So -- and as Henry has outlined, the imagery and analytics element of our business is the high-margin element of our business plan. The analytics that we deliver provide additional -- analytics off of the top of our imagery provide additional margin performance. So, that's the power of our business model and the operating leverage we get out of our constellation combined with our software platform. So, in both cases, we're seeing very high-margin revenue, analytics improve that.

Okay. And then, just the private placement you announced this morning, does that provide you with sufficient capital to get through full deployment of the next-generation constellation?

Sure. Let me take that question. As we just were discussing, I mean, the $29.5 million of gross proceeds does strengthen our balance sheet. It gives us sufficient capital to -- for the foreseeable future. We believe that we would be in position where we would be EBITDA positive in the fourth quarter, which would be well before that capital would be running out by any stretch. So, we believe that we're being good -- we are in good shape to get our Gen-3s up.

Okay. And then, just one more if I may. Just back to the GEOINT contract, to what degree did the shortwave infrared instruments on the future constellation play a role in helping to win this contract?

Well, I think, Austin, it was the breadth of requirements that we were able to meet, not just what we're putting in space, but a number of performance attributes, such as frequency and latency and the accuracy of our analytics. So, it's a broad set of requirements that we were able to meet in our bid and that's what contributed and drove our win.

Okay, fantastic. Thanks for the color.

Thanks, Austin.

Thank you. [Operator Instructions] Our next question has come from the line of Griffin Boss with B. Riley Securities. Please proceed with your question.

Hi, good morning. Thank you for taking my questions. So, you spoke about having ample capacity. Is there a utilization percentage you could give us for the current constellation?

That's not a metric that we traditionally publish. But as I mentioned, we deployed most of our constellation within the last 12 to 18 months. So, we've got significant capacity available. The other thing I'll note is we've taken a software-first approach, so we can collect once and so many times. And there's also upside as we offer analytics as an upsell with our collection capability. So, we've got a very strong operating model and capacity we need to hit our growth plans.

Got it. Okay. Thanks, Brian. And are you still expecting the same economics for your Gen-3 satellites that you talked about in the past, which, I think, are between $10 million to $12 million all-in cost per satellite? I know you've spoken before about purchasing long lead items well in advance. So, I just want to -- I wonder if you could give an update on that?

Yes, you can assume the economics that we achieved in the first gen are aligned and that range is consistent with what we're seeing, and we've got a very good handle on the cost of these satellites.

Got it. Great. Okay. And then, sort of along the same lines related to the CapEx guide. Is any of that $40 million to $45 million for the year, is that -- any of that R&D that could potentially be funded by government agencies?

Well, we already have a significant amount of R&D that's funded by the government. You'll see that in our both professional services -- the engineering services -- engineering and integration line in our financials. And that's where we've been very successful in capturing meaningful contracts that offset R&D. And so, that's both been in satellites and a good amount in software and analytics. So, it also enables us to establish long-term close relationships with some of these important customers. So that's been a strategy of ours for many years and it's continuing to pay off.

Great. Really helpful. Thanks for that, Brian. And then last one for me. Can you just help me understand the strategic rationale for your X-Bow investments? I believe you own 13.5 million shares, something like that. Is that an asset that you aim to monetize at some point in the future? Or just any sort of color you can give about how you think about that business would be great.

Yes, that was an investment we made several years ago. We always believe that access to space is an important aspect of our strategy in the market. And so, we were involved in the early days with that company and that's a small element of our balance sheet right now.

Got it. Okay. All right. Well, thanks for all my questions. Appreciate it guys, and have a great day.

Thank you.

Thank you. Our next question has come from the line of Caleb Henry with Quilty Analytics. Please proceed with your questions.

Hi, guys. A couple of questions. First about EOCL, I think you previously forecast revenues of $18 million for 2022 and $36 million for 2023. Are those forecasts still on track?

Yes, I think -- on EOCL, we're -- just as a reminder, right, we just started that contract last July. So, it's been just about nine months. And we're operating really well. We're delivering thousands of images a day. And we ramped up within 30 days of the start of that contract to deliver that volume of imagery and we're meeting all of our performance requirements. So, yes, we were -- as we've said publicly, when we were awarded the contract, we were awarded initial services for two years that reach -- that are up to $36 million. So that's our assumption for this year, correct.

Okay. And then, just a question on launches. You said you have an upcoming Gen-2 launch. Is that the last Gen-2 satellite launch? And are there any other spacecraft launching this year? Or is it nothing until Gen-3 starts in 2024?

Those we expect will be our last two Gen-2s. We have some spares. We're not -- we haven't decided we're going to launch them or not. And then, as I mentioned, we'll begin launching Gen-3s in 2024. And as we progress with that, we'll provide some more details.

Okay. You guys had a nice bump in Q4 margins. Can you comment on where you expect imagery margins to trend in 2023? And kind of is it reasonable to assume like 80% margins this year?

Caleb, this is Henry. And as we've been discussing on margins, it really comes down to the fact that we've got a very fixed -- the nature of the fixed cost structure that we have when we're delivering imagery and analytics, given the fact that those are all pretty much automated processes. So, we've got very small incremental cost. And when you take a look at that slide that I was referencing earlier, we see the $47 million of revenue against the $13 million of costs relative to -- as compared to $15 million of revenue and $11 million of costs last year, you can kind of -- I would be looking at it from perspective of GSE. Our incremental revenue will continue at that -- kind of that high 80%-s, maybe 90%-s, I mean, 92%, this -- for the full year could be extremely high. But we're kind of in that high 80%-s, 90%-ish sort of incremental once we get past that fixed cost. So, overall, when you start blending that together, I believe that we would be able to get kind of overall margins for imagery and analytics into that 75%-plus. I mean, in 2022, we had about 71% -- 70.7% margins on imagery and analytics, when you take out stock comp and depreciation, et cetera.

Okay. And then, just last question. I think international government was contributing 15% to overall revenue. Given some of the new awards that you've gotten in the -- boost in the sales team, what kind of percentage do you expect that to be going forward?

We don't necessarily guide on the kind of by those regions. But you're right, when you take a look at kind of what we did in 2022, our international governments contributed about 17.5% of our overall revenue. You can imagine as we start winning these big international MOD type contracts, et cetera, that, that percentage will go up. But we're not guiding to a specific split here.

Okay, great. Thanks, guys.

Thank you.

Thank you. At this time, there are no further questions. I'll turn it back over to Aly Bonilla, BlackSky's Vice President of Investor Relations. Go ahead, Aly.

Thank you, everybody. I want to thank you for joining the call this morning. We will be talking with you shortly in the future and appearing at certain conferences upcoming. Thank you very much.

Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.