BlackSky Technology Inc. Class A

Good morning, ladies and gentlemen, and welcome to BlackSky Technologies' first quarter 2023 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. To ask a question, you may press star 1. To withdraw your question, you may press star 2. Please note that this conference call is being recorded. I would now like to turn the call over to Ali Bonilla, BlackSky's Vice President of Investor Relations. Please go ahead, Ali.

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 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 p.m. 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.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 and unpredictable sales cycles, customer demand, and our ability to estimate resources 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. 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. 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, Ali, and good morning, everyone. Thank you for joining us on today's call. Let's begin with slide four. I'm 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 remain strong and we continue to secure more new customers and expand the services that we are 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, which is 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 continue 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, we're continuing to prove 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, further demonstrating the strong global demand for BlackSky's high-frequency imagery and advanced analytics. Fourth, we successfully deployed two new Gen2 satellites into orbit, providing BlackSky 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 DET facility which extends the maturity of the node 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 fuel our growth. Henry will go into more details on this transaction later. These accomplishments along with growing market demand worldwide, reinforces 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. That is evidenced by a growing sales pipeline, the signing of new customers, and the expansion of existing customers during the quarter. We successfully closed over a dozen contracts, many of which support international government agencies. Some of these contract wins are multi-year, multi-million 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 to secure 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 countries' 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 BlackSky's products and services worldwide. To capitalize on this opportunity, we are continuing to invest in the expansion of our international sales team. I'm happy to report that our recent investments in building a global sales network are now paying dividends as we are successfully converting a strong pipeline of sales opportunities into meaningful long-term contracts. These contract wins demonstrate how BlackSky is increasingly relied upon by some of the most important customers in the world to support their current and future critical mission needs. 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 US defense and intelligence agencies. In Q1, we continue to expand the advanced monitoring services that we are providing to the NGA under the Economic Indicator Monitoring Program. During the quarter, the NGA awarded Black Sky additional task orders to provide dynamic monitoring and analysis of new strategic locations in 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 are delivering under this program are provided as a commercial service and therefore 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 continue to expand our relationship with several Department of Defense customers, including the U.S. Air Force and the U.S. Space Force, 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 AppWorks, a component of the Air Force Research Laboratory. AFWERX is looking to leverage Black Sky's existing space and ground architecture in 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 multi-year contract by the NRO to explore commercial hyperspectral imaging capabilities. During the initial stage of this contract, we will evaluate the extension of our constellation to include hyperspectral imaging in the application of these sensors to meet advanced real-time mission intelligence needs. These next-generation capabilities are an actual extension of BlackSky's agile space architecture, 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 to advance their 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 where they tested and evaluated the performance of our monitoring services. After this successful pilot, we're pleased to report that we have transitioned into a six-figure annual subscription contract. Like the EIM contract with NGA, this is a prime example of how through our API-enabled software platform, we're able to quickly configure our core platform services to deliver subscription-based monitoring services that provide new information, insights, and alerts to solve a wide range of real-time business intelligence problems. Moving to slide eight, the need for high-frequency imaging and analytics is expanding every day as international, U.S., and commercial organizations continue to place a high value 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 airship on a runway at a veiled military base in Kuala China. Capturing this image was only made possible by the unique attributes of our constellation that has been specifically designed to provide reliable dynamic hourly monitoring of the world's most important and strategic locations. In contrast, most commercial imaging satellites that are in orbit today are in sun-synchronous polar orbits that are purposely constrained to take images at the same fixed time of day, such as at 1030 in the morning. These satellites were designed and optimized 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 occur 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 9 a.m. local time. Our continuous monitoring combined with our first of its kind Spectra AI software analytics platform is 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 hourly monitoring is what sets BlackSky 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 interests. Another example is shown on slide nine, where our on-demand imagery captured the destruction that took place at the Khartoum Airport in Sudan following the recent military fighting taking place there. Powered by our Spectra AI software platform, which combines our high-resolution imagery with AI-enabled analytics, we were able to identify not only the number of aircraft stationed at the airport, but how many had been damaged or destroyed. The high-resolution imagery and 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 constellations. We successfully deployed two new satellites into orbit on March 24th. Within 18 hours of launch, these Gen 2 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 our baseline constellation fully complete, and delivering hourly dynamic monitoring solutions to customers, our focus can now fully turn 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 3 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. Henry?