Good morning, ladies and gentlemen, and welcome to BlackSky Technology's Second Quarter 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be 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 give a strategic update on the business. Henry will then review the company's second quarter financial results and outlook for 2024. 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 p.m. Eastern Time today through August 22. 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 certain statements made during today's conference call regarding our future plans, objectives and expected performance, including our financial guidance for 2024, are forward-looking statements. Actual results may differ materially, as these statements are based on our current expectations as of today and are subject to risks and uncertainties, including those stated in our Form 10-K. We encourage you to review our press release, Form 10-K and other 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 by applicable law. 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 cash operating expenses. A 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'Toole. Brian?

Thanks, Aly, and good morning, everyone. Thank you for joining us on today's call. Let's begin with slide 3. I'm pleased to report that BlackSky delivered another strong quarter, as we continued to demonstrate revenue growth, the strong operating leverage of our business and positive adjusted EBITDA operations. Our performance in Q2 was primarily driven by the ongoing demand we're seeing for our differentiated space-based intelligence solutions from new and existing government customers around the world. Let me share some of the quarter's key highlights. First, we delivered strong year-over-year revenue growth in Q2 of 29%. Demand for our imagery and analytics services continues to grow as customers incorporate high-frequency, low-latency BlackSky data into their daily workflows. Second, we were awarded $40 million in new awards and extensions in the quarter supporting US and international government agencies, demonstrating strong customer demand for BlackSky's capabilities. Third, we delivered another quarter of positive adjusted EBITDA, driven by our strong revenue growth and operating leverage. This was our third consecutive quarter of positive adjusted EBITDA. And fourth, our next-generation very high resolution Gen-3 satellites are in the final stages of assembly, integration and test. Our team is actively preparing for launch and commissioning operations and are excited that our first 35-centimeter resolution satellite remains on track for a planned launch in late Q4. I will talk more about our Gen-3 constellation and our progress in ramping satellite production at LeoStella in a few minutes. These highlights demonstrate how we're executing well on our business plan and meeting the growing global demand for space-based intelligence. We continue to deliver strong operating leverage through our high-margin imagery and analytics services, while we remain focused on responsible cost management. Our ability to deliver strong quarterly performance has us on the right path toward long-term profitable growth.…

Thank you, Brian and good morning, everyone. I'm pleased with the execution we've made across many aspects of our business and with our second quarter financial results. Beginning with slide 10, total revenue for the second quarter of 2024 was $24.9 million, an increase of $5.6 million or 29% over the prior year quarter. Imagery and analytics revenue grew to $17.5 million, an increase of $2.2 million or 14% over the prior year period. The year-over-year increase was primarily driven by incremental customer orders for BlackSky's imagery services. Professional & Engineering Services revenue grew to $7.4 million in the second quarter of 2024 compared to $4 million in the prior year quarter. The 87% year-over-year increase was primarily driven by the step-up in the execution of multiple major international contracts we won last year. Keep in mind, revenues recognized from these types of contracts which are largely milestone-based may have quarter-over-quarter revenue variability depending on a project's estimated cost and percentage of completion. Turning to cost of sales. We continue to demonstrate strong operating leverage in our imagery and analytics business as shown on slide 11. For the first half of 2024, imagery and analytics cost of sales excluding stock-based compensation, depreciation and amortization expenses was $6.8 million compared to $7 million for the same period last year. The $200,000 year-over-year decrease was primarily driven by cost savings in our satellite and software operations. With imagery and analytics revenues for the first half of 2024, increasing nearly 14% and the respective cost of sales decreasing 3% over the prior year period, we continue to demonstrate how incremental high-margin revenues flow directly to the bottom-line which is a key driver to our long-term profitable growth. Let's move to slide 12 and talk about cash operating expenses which excludes stock-based compensation and…

Thank you, Henry. In closing, we're pleased with the strong second quarter performance and the momentum we are carrying into the second half of the year. We're continuing to see growing demand for BlackSky's differentiated space-based intelligence solutions. Our Gen-3 constellation remains on track to deliver the transformative solutions our customers are demanding. Using the power of our very high resolution imagery, combined with high-frequency monitoring, and automated AI analytics, we built and continue to grow a strong customer base with some of the most important organizations in the world and are getting ready to unlock our next phase of growth as we begin to introduce Gen-3 capabilities later this year. 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] Your first question comes from the line of Greg Burns with Sidoti & Co. Please go ahead.

Morning. I was just hoping to get a little bit more color on the imagery and software growth that you saw this quarter. It was down a little bit sequentially. So, I just wanted to get a better understanding of maybe how much of that revenue is take-or-pay versus more variable consumption-based? Like why would it decline sequentially? And then how should we think about like maybe the cadence of growth over the balance of the remainder of the year? thank you.

Yes, thanks Greg for your question. I think if you look back historically you've seen a step-up in imagery and analytics revenues, typically, in the second half of the year. That's primarily been driven by the timing of budget cycles and renewals. And so that's why you're still seeing the strong year-over-year growth, but some of the flatter performance in the first couple of quarters. I will note that another key aspect of this is as we continue to add more customers, they tend to start out with smaller pilot projects and grow over time. So, that's historically how we've performed and as you can see year-over-year, we're continuing to grow that line and that's what's driving our high-margin business and driving the EBITDA performance right to the bottom-line.

And then with the GDMP vehicle that you mentioned, is that incremental? I always thought that your contracts with the NRO were kind of umbrella for the government and for government agencies to procure through that. Is this separate and incremental? Or a part of that an extension of that? How does that work?

It is separate and incremental. One thing to note is the EOCL contract is for imagery. The marketplace can be for a broad set of services which include analytics and other services. So it's a new sales channel for us. We're excited that this marketplace is providing a fast and flexible platform to streamline delivery of capability to a whole new set of customers. So as I mentioned in my remarks, this is in the early days of this type of marketplace. So we're excited in the potential where that can go.

All right. And then when we're thinking about the launch cadence for the Gen-3s, is it going to be one satellite that's launched? Or is there going to be multiple satellites launched at one time? And can you just remind us about the cadence to getting the satellite tested and operational? Like what's the time frame between launch and maybe it starting to generate revenue?

Yeah. The first few satellites will go up on separate launches. Typically, for a new satellite like this the commissioning time is about 60 days. As we get through that then we'll move into a steady cadence of launches from there. As a reminder, if you look at our performance in deploying our Gen-2 constellation after we got the first couple up there and operational, we were doing multiple satellites per launch and we reduced the commissioning time down to under 24 hours to bring those satellites into operation. So we're anticipating the same type of cadence and commissioning performance with Gen-3s.

Thank you.

Your next question comes from the line of Edison Yu with Deutsche Bank. Please go ahead.

Hey. Good morning. Thanks for taking our questions. First of all, I just wanted to follow up on the third gen. Do you have any sense of how much of the backlog is tied to any sort of capabilities on Gen-3? I think the backlog is $200-plus million at least as of the last quarter.

Edison, thanks for your question. Yeah, a significant amount of that backlog is tied to Gen-3. Also as a reminder, our EOCL contract which is a $1 billion 10-year contract is heavily backloaded on Gen-3 services as well. But also, we continue to close subscription deals and have actually just renewed another year under EOCL of our Gen-2 capability. So we're excited about what Gen-3 will unlock, but we're also on a nice trajectory and continuing our growth through Gen-2.

Understood. Any updates on when you think the NGA to Luno A could get awarded?

We're carefully watching that, Edison. Of course, as you know we feel we're well positioned for that given our performance under the predecessor contract EIM. So we're anxiously waiting, but I don't have a specific timeline from the government of when we can anticipate those awards. We expect it will be some time later this year.

Got it. And just one on financials. I know you mentioned something like $28 million in the contract assets. Can you just remind us how we should kind of model the cash flow trajectory perhaps for the rest of the year? Or anything to keep in mind on working capital?

Sure, Edison. Happy to. I mean that $28 million is contracted assets or unbilled receivables. That's tied to milestones as we achieve our Gen-3 program. And we've got those in our current assets. We expect to be collecting that over the next 12 months. And it does provide some significant liquidity to us as well.

Anything else on the working capital to take note of? Dynamics?

Everything else is pretty steady state. I mean we've got a fair bit of cash and the contract assets gives us a fair bit of liquidity. So we feel pretty good at the moment.

Yes. Thank you.

Your next question comes from the line of Max Michaelis with Lake Street. Please go ahead.

Hey, thanks for taking my questions. When we look at the full year guidance [indiscernible] quarters of the way through the year. So if we're still sticking with that $102 million to $118 million guidance what's really driving the difference between the low end and the high end here? I mean is this a few deals that we're waiting on? Or is this one large chunky deal? I was wondering if you could give some more color on that.

Thanks for the question, Max. As we stated in our remarks we're maintaining full year guidance. We typically have had stronger back halves of the year that's tied to renewals and expansions of existing contracts. Obviously, we have a pretty robust pipeline of opportunities we're working on. And so we look at those opportunities on a weighted basis and that's how we arrive at really the range and the midpoint.

Is there more new business coming online?

Yes, you could -- there's a blend of new business and renewals that are actively being worked.

Okay. And then I guess if we look at that $40 million in new contracts or new awards signed in the quarter, I mean, can you help me out with like the mix between new customers versus extensions?

As I mentioned in my remarks the two primary ones were tied to our EOCL renewal and a renewal from one of our long-term existing international customers, but we also had a number of new customers enter into six-figure level subscription services. So it was a blend.

All right. Thanks. That's it for me.

Thank you, Max.

Your next question comes from the line of Scott Buck with H.C. Wainwright. Please go ahead.

Hi. Good morning guys. Thanks for taking my questions. I'm curious on the Professional & Engineering Services gross margin. You've seen a nice uptick there in the last few quarters. Is that just representative of the mix of assignments you're currently working on? Or have you guys done something internally to create some additional efficiency there?

Hey, Scott, this is Henry. That's a function of the work that we're doing with a couple of our large customers. As I mentioned in our script, we had a step-up in some of the activity. So, various aspects of these programs kind of allow us to have higher margins as we produce. So it's kind of a revenue mix. And we expect those margins to kind of stay in this sort of category. Although, as you know that variability -- there could be some variability on Professional & Engineering Services based on milestones.

Sure. That's helpful, Henry. Thank you. And then it sounds like Gen-3 launch activity becomes a bit more meaningful in 2025. I'm curious if you can give us any early color on CapEx expectations for 2025 versus 2024?

Scott we're not guiding to 2025 CapEx yet. We'll do that later.

That's fair guys. And then lastly, I just want to ask about now that it seems like we have our horses for the election whether or not you guys are doing any handicapping or any potential outcome could be more positive or less positive.

I think I'll just say generally kind of independent of the election outcome there's strong support both in the U.S. government and we're seeing it internationally as well to increase investments in defense and space; space being a strategic area of investment going forward. So we continue to see strong support in Congress for the commercial industry. Last quarter we reported the Space Force coming out with a commercial strategy that we're excited to pursue. And so I think independent of the outcome we're seeing strong support and good visibility going forward.

And your next question comes from the line of Dave Storms with Stonegate. Please go ahead.

Good morning. Thank you for taking my questions. My first one is just -- if you could help us understand what the current environment is like for acquiring and retaining AI talent? Brian O’Toole: That's a good question. As you know we've been developing AI capabilities for years now in our Spectra platform and then winning significant contracts there primarily due to our AI technology and our AI talent. We actually have had pretty good performance in recruiting and retaining AI talent. I think that's primarily driven by the fact that when you combine what we're doing in space with high-frequency monitoring, with a proprietary constellation, with the Spectra platform and how you can translate that into actionable intelligence that is -- it's exciting and meaningful work. And so we've been very fortunate in retaining the talent we have and the mission around what we're doing with our capabilities to support a more safer and secure world is also an attractive aspect of what we do. So we have not had any real challenges there.

Understood. Thank you. And then we understand that CapEx guidance is up this year due to the significant Gen-3 investments. Following the completion of those investments, do you believe that CapEx will return to a more normalized level? Or should we anticipate that it will be higher than the historical rate due to increased maintenance CapEx for the Gen-3 satellites?

Dave, this is Henry. Thanks for that question. I mean when we take a look at our CapEx we are guiding to that $55 million to $65 million of cash CapEx this year as we are preparing to get launches going. We have discussed how when we get into a steady state, our CapEx could be in the neighborhood of the replenishment rate of a 16-satellite constellation which when you do the math using about $13 million or so per satellite times 16 satellites and divide that by about a 5-year life you're looking at probably on a steady state in that $40 million to $50 million range for the satellite constellation, and then a little bit for our AI capability. So you're probably in that -- without giving guidance you can do the math on that one.

Your next question comes from the line of Josh Sullivan with The Benchmark Company. Please go ahead.

[indiscernible] how does pricing work? Does the customer set the price or value? Or do you as BlackSky? Just interested to hear how the mechanics of the market work? Brian O’Toole: Yes. Good morning, Josh. Thanks for the question. It's a pretty exciting opportunity. Basically it's a platform through which customers can put out requests for proposals, for certain capabilities and commercial companies can submit bids to provide that capability. So it's competitive but it's also a streamlined acquisition model that allows customers to quickly get data and analytics services through this type of vehicle. So it's a really nice platform for the government because it is competitive, but it's also streamlined. So it's a win-win for the government and commercial.

And what's your sense of how large of a sales channel it could be? Or what do you think the total value of the market could potentially be over time? Brian O’Toole: I can't -- it's starting out with some initial budget. It's early days. I will say that what we've been seeing is an interest in growing the budget for that but also a strong partnership with the government to continue to refine the model and the types of services that can be acquired through this type of marketplace. So it's early days, but we're excited about where it is and where it's going and the fact that we've been able to secure a number of these types of contracts.

Great. Thanks for the time.

Your next question comes from the line of Jeff Van Rhee with Craig-Hallum Capital Group. Please go ahead.

Hey, thanks for taking my question. This is Daniel Hibshman on for Jeff. Just in terms of the pipeline, if maybe you could give us a little better color on just what you're seeing come down. The presentation mentioned a few quote sizable multiyear sales opportunities. I assume that's referencing EOCL, the $150 million Asian ally and $50 million Indonesia contract. But just anything else you can call out in terms of the things that are coming down the line whether in terms of what kinds of imagery, or what kinds of object detections? Just what the biggest opportunities in the pipeline are and where we should be focused. Brian O’Toole: Yeah. Daniel thanks for the question. I think just to reiterate EOCL Indonesia those types of other larger international those are all contracts we have. So as far as -- those are in our contracted backlog and those revenues will unlock over time. The other things we're seeing in the market are continued demand for our high-frequency monitoring with integrated AI capability through an assured access subscription. We're seeing strong interest in our Gen-3 technology as evidenced by the contract we announced earlier this year in Indonesia. And then, of course, when we bring 35-centimeter imagery into our high-frequency monitoring capability that will be a transformative service for customers that for the first time can bring very high resolution with high frequency combined with the AI delivered in a single service platform. So all of those things are -- we're seeing strong demand both in the US and abroad for those capabilities. And we expect as we bring Gen-3 into the market that demand will continue to grow.

Thanks for that. And then just one broader I don't know if you want to call this a macro question, but how is revenue generally connected or correlated with conflict in terms of are your customers highly flexible in terms of their task orders and volumes where depending on what's going on globally they're going to flex what they're buying? Or do they typically have pretty set amounts contracted annually? Brian O’Toole: It's a good question. I think the misnomer out there is that a lot of the industry and the revenue is driven by crisis events and that's just not the case. We're dealing with organizations that plan years in ahead for access to capacity to meet their day-to-day mission requirements that they have now and what they're forecasting in the future. We support them by providing flexible mechanisms to where they task and when to be responsive to whatever they're dealing with in their day-to-day operations. So we provide them with that assured access flexibility. But as you know, we typically offer those capabilities through long-term multiyear subscription contracts because they want that capacity and they want to ensure that it's going to be there for years.

Makes sense. And then just one last one for me for Henry. Just maybe one other way of looking at that contract asset balance where would you see that being a year from now? I understand that expecting to collect the current balance over the coming year, but I assume also new signings and renewals would be adding to that balance. Just do you envision that balance being roughly where it's at significantly higher, significantly lower? Just any color there would be helpful.

Sure. What I would point -- the way I would take a look at that one is a lot of these are tied to milestones as we complete our Gen-3 -- start getting our Gen-3 satellites up and work towards completing that program and some of the work that we've talked about on the international projects that we need to complete prior to being tied into their work streams. So over time that number should be coming back down. If you look at it where we've been historically, it would be a good way to look at that. And so I think -- I don't think it will stay up at that $28 million but we're not providing guidance on next year's numbers yet.

Okay. That’s helpful. Thanks a lot. So I’ll hop.

[Operator Instructions] And your next question comes from the line of Chris Quilty with QuiltySpace. Please go ahead.

Thanks. Just wanted to do a follow-up on the GDMP program. Is there a cap on the size of contracts that customers can contract through that vehicle? And a second question is like is there a graduation path? I mean should we think of this as sort of like a SBRs-type [ph] program that allows small contracts and then eventually, if those customers want to engage in a larger long-term contract, they're going to have to go out and find separate funding for it? And I know it's early days program but what's your...? Brian O’Toole: Yes. It's a good question Chris. I think what we're seeing now you're right it is early days. Right now they're starting out with small kind of five-figure type services that get delivered really quickly; quickly within like weeks and months. They typically start with that base kind of service but they also can attach options to them to extend them over time. And because it is early days, I think the government end users are still working through the potential of this and how they can take advantage of it. But I think the general thing that we're seeing is this is a really efficient – has the potential to be a really efficient marketplace that can drive incremental revenue and drive incremental capture of a whole range of new customers through a streamlined acquisition process.

A question on Gen-3. Obviously, first one going up in the September time frame. Just based upon the CapEx-to-date on the program, is it fair to assume you've got half a dozen to a dozen satellites in some stage of production? And I know you're not providing guidance for next year, but it sounded like after the first satellite you may do single-satellite launches before [indiscernible]. Is that a fair assumption? Brian O’Toole: I think as I said, we'll launch the first couple as single launches. You can assume that we have been investing in the long-lead components for a number of Gen-3 satellites. And as I mentioned in my remarks that production line is ramping up and that will enable us to get into a cadence of launches next year. On the single-launch element of this just as a reminder, we have secured the first four launches with Rocket Lab through a vendor finance deal. So overall, we're on track to get the first units up later this year. We've got the supply chain and the production line up and running. That puts us in a position to get to a regular delivery of satellites and deployment of those in 2025

And how should we think about the revenue contribution from Gen-3 from the perspective that you're going to be tapering in as you launch new satellites more and more capability? Are the contracts that you sign with customers including EOCL structured in such a way that there are incremental step-ups? Or do you have to get to like a certain volume of imagery before there is a step-up in the contract? Brian O’Toole: I think you'll see a little bit of both Chris. I think the way we think about it there'll be a steady ramp in revenues. You're not going to see – and in some cases some contracts will have step-ups. But when you look at it year-over-year you should see steady growth in that line as we bring that capacity online.

And Henry, what should we think in terms of contract advances? You've got large contracts with [indiscernible]. Should we be modeling in some sort of step-up [indiscernible]?

Well, each contract tends to be unique. Some of them have some early prepayments which help with the CapEx programs. Some of them tail off a little bit and we build up a little bit of some contract assets as we work our way through it. But overall, we price those large contracts. We've got a couple in the pipeline and that's the variability on where we think the year-end guidance could be just due to timing.

And with those two specific contracts, I mentioned obviously there's a development phase and I think it evolve maybe even 24 months. You’re behind line. When does that thing start to kick-in in a [indiscernible]?

Well, we don't discuss individual customers. We've never identified who our customers are internationally. So our various international customers will ramp up as we get our Gen-3 capabilities online.

So are both -- is it fair to assume both of those contracts are based on Gen-3 entirely? Or is [indiscernible]?

There is work through across all our product lines.

Final question on the cost savings, is that primarily due to headcount reductions that were done within the past year? Or is that more just operational cost savings within the business? And Part two of that is, as you ramp up Gen-3, which is the new capability, are there any incremental costs? Or is operating those satellites seamless within the nock…?

Yes. Chris, it's Brian. I think first off, we're continuing to hire. So we haven't had to do any major structural headcount reductions in the company. The savings you're seeing are just improving our business operations, back office and other things. So we are actually -- as we achieve those savings we're actually reinvesting some of that OpEx into things like sales and marketing to support our growth. But I think what you're seeing is we're aligning our growth with our revenue and we're managing our expenses extremely well and are highly focused on that.

Great. Thanks, guys.

At this time, there are no further questions. This concludes BlackSky's second quarter 2024 earnings conference call. Thank you for joining the call today.