What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-03-23 compared with 2022-03-31 · 216 added, 262 removed, 278 unchanged (63% of the section changed)

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As discussed in the section titled “Special Note Regarding Forward Looking Statements,” the following discussion and analysis contains forward looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements.

Factors that could cause or contribute to these

differences include, but are not limited to, those discussed in the section titled “Risk Factors” under Part I, Item IA in this Annual Report on Form 10-K.

Factors that could cause or contribute to these differences include, but are not limited to, those discussed in the section titled “Risk Factors” under Part I, Item IA in this Annual Report on Form 10-K.

Unless the context otherwise requires, references in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” to “BlackSky”, “the Company”, “we”, “us” and “our” refer to the business and operations of Legacy BlackSky and its consolidated subsidiaries prior to the Merger and to BlackSky Technology Inc.

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On September 9, 2021, Osprey consummated the Merger with Legacy BlackSky.

Immediately following the Merger, Osprey changed its name to “BlackSky Technology Inc.” Legacy BlackSky survived the Merger and is now a wholly owned subsidiary of BlackSky.

As a special purpose acquisition corporation, Osprey had no pre-Merger operations other than to identify and consummate a merger.

Immediately following the Merger, Osprey changed its name to “BlackSky Technology Inc.” Legacy BlackSky survived the Merger and is now a wholly owned subsidiary of BlackSky Technology Inc.

As a special purpose acquisition company, Osprey had no pre-Merger operations other than to identify and consummate a merger.

Therefore, BlackSky’s operations post-Merger are attributable to those of Legacy BlackSky and its subsidiaries, and references to “BlackSky” or the “Company” should be read to include BlackSky’s wholly owned subsidiaries.

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Company Overview

We won and operate one of the industry's leading high-performance low earth orbit (“LEO”) small satellite constellations.

Our constellation is optimized to cost-efficiently capture imagery at high frequencies where and when our customers need it.

The orbital configuration of our constellation is designed to collect data on the most critical and strategic locations on Earth where we believe approximately 90% of the global GDP occurs.

With twelve satellites on orbit currently, our constellation is able to image certain locations every hour, from dawn to dusk, providing our customers with insights and situational awareness throughout the day.

We own and operate one of the industry's leading high-performance low earth orbit (“LEO”) small satellite constellations.

Our constellation is optimized to cost-efficiently capture imagery at high revisit rates where and when our customers need it.

The orbital configuration of our constellation is designed to collect data on the most critical and strategic locations in the world.

With fourteen satellites in orbit as of December 31, 2022, our constellation is able to image certain locations every 60 to 90 minutes, from dawn to dusk, providing our customers with insights and situational awareness throughout the day.

Our satellites are designed with agile pointing capabilities that enable our customers to task our constellation on demand to collect specific locations of interest.

Our tasking methodology employs proprietary artificial intelligence (“AI”)-enabled software to efficient collect the most important areas of interest to our customers.

We believe that our focus on critical strategies and economic infrastructure and the AI-enabled tasking of our constellation differentiates us from our competitors, who are dedicated primarily to mapping the entirety of the Earth every day and who, therefore, require hundreds of satellites to support their mission.

Our focused approach enables us to deliver highly targeted and valuable intelligence with a smaller constellation that has the added benefit of greater operating and capital efficiencies.

Our Spectra AI software platform processes millions of observations a day from our proprietary satellite constellation and from multiple external data sources including imaging, radar and radio frequency satellites, environmental sensors, asset tracking sensors, Internet-of-Things (“IoT”) connected devices, internet-enabled narrative sources, and a variety of geotemporal data feeds.

Spectra AI employs advanced, proprietary AI and machine learning (“ML”) techniques to process, analyze, and transform these data feeds into alerts, information, and insights.

Our tasking methodology employs proprietary artificial intelligence (“AI”)-enabled software to efficiently collect images of the most important strategic and economic assets and areas of interest to our customers.

We believe that our focus on critical strategies and economic infrastructure and the AI-enabled tasking of our constellation differentiates us from our competitors, who are dedicated primarily to mapping the entirety of the Earth on a routine basis and who, therefore, require up to hundreds of satellites or incrementally more expensive satellites to support their mission.

Our differentiated approach to space enables us to deliver highly targeted and valuable intelligence with a smaller constellation fleet that has the added benefit of greater operating and capital efficiencies.

Our Spectra AI software platform can, among other things, process millions of observations a day from our proprietary satellite constellation and from multiple external data sources including imaging, radar and radio frequency satellites, environmental sensors, asset tracking sensors, Internet-of-Things (“IoT”) connected devices, internet-enabled narrative sources, and a variety of geotemporal data feeds.

Spectra AI employs advanced, proprietary AI and machine learning (“ML”) techniques to process, analyze, and transform these data feeds into alerts, information, and insights that our customers receive, all fully automated.

Customers can access Spectra AI's data and analytics through easy-to-use web services or through platform application programming interfaces.

Our next generation satellites (“Gen-3”) are designed to improve our imaging resolution even further and include short wave infrared imaging technology for a broad set of imaging conditions, including nighttime, low-light, and all-weather.

We believe these advancements will expand the relevance and certainty of our analytics to continue to ensure our relevance to our customers.

We believe the combination of our high-revisit, small satellite constellation, our Spectra AI platform, and low constellation cost is disrupting the market for geospatial imagery and space-based data and analytics.

Our operating strategy is to continue to enhance the capabilities of our satellite constellation, to increase the number of third-party data sources processed by Spectra AI, and to expand our analytics offerings in order to increase the value we deliver to our customers.

Our two operating assets—our satellite constellation and our Spectra

AI software platform—are mutually reinforcing:

as we capture ever more information about the world’s most important economic and strategic locations, our proprietary database expands and increases its utility;

Our next generation satellites (“Gen-3”), expected to launch in 2024, are designed to improve our imaging resolution even further and include short wave infrared imaging technology for a broad set of imaging conditions, including nighttime and low-light.

We believe these advancements will expand the relevance and certainty of our analytics to continue to ensure our importance to our customers.

We also believe the combination of our high-revisit, small satellite constellation, our Spectra AI platform, and low constellation cost is transforming the market for geospatial imagery and space-based data and analytics.

Our operating strategy is to continue to enhance the capabilities of our satellite constellation, to increase the number of third-party data sources processed by our Spectra AI platform, and to expand our analytics offerings in order to increase the value we deliver to our customers.

Our two strategic assets—our satellite constellation and our Spectra AI platform—are mutually reinforcing:

as we capture ever more information about the world’s most important strategic and economic assets and locations, our proprietary database expands and increases its utility;

enabling us to better detect, understand, and predict changes that matter most to our customers.

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and international defense and intelligence customers and markets.

We believe there are significant opportunities to expand our imagery and software analytical services, as well as our engineering and systems integration offerings, to customers both domestically and internationally.

In addition, our products and services can benefit customers in a variety of commercial markets including, but not limited to, energy and utilities, insurance, commodities, mining, manufacturing, logistics, agriculture, environmental monitoring, disaster and risk management, engineering and construction, and consumer behavior.

We offer a variety of pricing and utilization options for our imagery and software analytical service offerings, including usage-based pricing, subscriptions and transactional licenses.

These options provide customers flexible options to utilize our imagery and software analytical services in a manner that best suits their business needs.

We offer a range of pricing tiers that enables the customer to manage collection priorities, where during critical events they can pay a premium to prioritize their monitoring and collection requirements.

We believe there are significant opportunities to expand our imagery and software analytical services, as well as our professional and engineering service offerings, to a broad set of customers both domestically and internationally.

In addition, our services and products can benefit customers in a variety of commercial markets including, but not limited to, energy and utilities, insurance, commodities, mining, manufacturing, logistics, supply chain management, agriculture, environmental monitoring, disaster and risk management, engineering and construction, retail and consumer behavior.

We offer a variety of pricing and utilization options for our imagery and software analytical service offerings, with the majority of our agreements structured as subscription contracts, followed by usage-based pricing and transactional licenses.

These options provide customers flexibility to utilize our imagery and software analytical services in a manner that best suits their business needs.

We offer a range of pricing tiers that enables the customer to manage collection priorities, when during critical events they can pay a premium to prioritize their monitoring and collection requirements.

At other times, customers can select lower priority collections to allow for more economical utilization.

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Additionally, we repaid approximately $21.4 million in debt and accrued interest and $6.1 million in other close-related expenses.

On September 13, 2021, we raised an additional $8.0

million through a direct sale of Class A common stock to Palantir Technologies at $10.00 per share.

On September 13, 2021, we raised an additional $8.0 million through a direct sale of Class A common stock to Palantir Technologies at $10.00 per share.

Net cash proceeds from the Merger, the PIPE Shares, and the Palantir financing, less transaction costs, debt repayments, accrued interest and other closing payments, totaled approximately $223.6 million.

As a public company, we are required to comply with Securities and Exchange Commission regulations and New York Stock Exchange listing requirements.

These compliance obligations require us to hire additional personnel and implement processes and procedures.

We expect to incur incremental annual expenses as a public company for, among other things, increased directors’ and officers’ liability insurance;

director fees;

and additional internal and external accounting, legal, and administrative resources.

As a public company, we are required to comply with Securities and Exchange Commission rules and regulations and New York Stock Exchange listing requirements.

Components of Operating Results

Our revenue is generated by selling imagery and software analytics services through our Spectra AI platform and by providing engineering and systems integration services to strategic customers on project by project basis.

Our revenue is generated by selling imagery and software analytics services through our Spectra AI platform and by providing professional and engineering services to strategic customers on a project basis.

• Imagery and Software Analytical Services Revenue

We offer our customers high-revisit, on-demand high resolution electro optic satellite imaging services.

Through our Spectra AI platform, customers can directly task our proprietary small satellite constellation to collect collect and deliver imagery over specific locations, sites, and regions that are critical to their operations.

We offer customers several service level options that include basic plans for on-demand tasking or multi-year assured access programs, where customers can secure priority access and imaging capacity over a region of interest on a take or pay basis.

We offer our customers high-revisit, on-demand high resolution electro optical satellite imaging services.

Through our Spectra AI platform, customers can directly task our proprietary satellite constellation to collect and deliver imagery over specific locations, sites, and regions that are critical to their operations.

◦ Data, Software, and Analytics:

Our analytics services are also offered on a subscription basis and provide customers with access to our site monitoring, event monitoring and global data services.

We leverage our proprietary AI and ML algorithms to analyze data coming from both our proprietary sensor network and space based and terrestrial third-party sources in real-time to provide data, insights, and analytics for our customers.

We leverage our proprietary AI and ML algorithms to analyze data coming from both our proprietary sensor network and third-party space sources in real-time to provide data, insights, and analytics for our customers.

We provide services related to object, change and anomaly detection, site monitoring, and enhanced analytics through which we can detect key pattern of life changes in critical locations.

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and other sites that contain critical commodities and supply chain inventory.

We continue to enhance and integrate our offerings by performing capability development for customers while retaining the intellectual property rights.

We provide technology enabled professional service solutions to support customer-specific software development requests, integration, testing, and training in order to embed our imagery and software analytical services into the customers organizational processes.

We also provide software systems engineering development to support the efforts of certain customers to manage mass quantities of data.

We expect continued imagery and software analytical services revenue growth in the year ending December 31, 2022, as compared to the prior year as a result of growth in satellite capacity and sales orders.

• Engineering and Systems Integration Revenue— We develop and deliver advanced launch vehicle, satellite and payload systems for specific strategic customers that desire to leverage our capabilities in mission systems engineering and operations, ground station operations, software, analytics and systems development.

We expect continued imagery and software analytical services revenue growth in the year ending December 31, 2023, as compared to the prior year, as a result of increases in our sales orders driven by stronger customer demand.

• Professional and Engineering Services Revenue— We develop and deliver advanced launch vehicle, satellite and payload systems for specific strategic customers that desire to leverage our capabilities in mission systems engineering and operations, ground station operations, software, analytics and systems development.

These systems are sold to government customers under fixed price contracts and are often bundled with our imagery services offerings.

We expect engineering and systems integration revenue growth as we continue to provide customers with unique engineering solutions and deliver critical design reviews.

Cost and Expenses

Our operating expenses are incurred from the following categories:

In certain cases, we retain rights to intellectual property for developed technology of certain systems, and this paid effort offsets some of our product development effort.

We also provide technology enabled professional service solutions to support customer-specific feature request and to support the integration, testing, and training of our imagery and software analytical services into the customers organizational processes and workflows.

We also provide software systems engineering development services to support the integration of high volume and mass quantities of data in their operating platforms.

We expect continued meaningful contribution from our professional and engineering services revenue.

Costs and Expenses

Our costs and expenses are incurred from the following categories:

• Imagery and software analytical services costs primarily include internal aerospace and geospatial software development labor, third-party data and imagery, internal labor to support the ground stations and space operations, and cloud computing and hosting services.

Costs are expensed as incurred except for incremental costs to obtain a contract, which are capitalized and amortized to selling, general and administrative expenses on a systematic basis consistent with the transfer of goods and services.

Expense related to stock-based payments is classified in the consolidated statements of operations and comprehensive loss based upon employees’ cash compensation.

We recognize stock-based compensation expense for those employees whose work supports the imagery and software analytical service costs we provide to customers, under imagery and software analytical service costs, excluding depreciation and amortization.

For those employees who provide engineering and systems support to customers, the share-based compensation expense is classified under engineering and systems integration costs.

For the remaining employees who generally support our business, the stock-based compensation expense is recognized under selling, general and administrative expense in the consolidated statements of operations and comprehensive loss.

• Engineering and systems integration costs primarily include the cost of internal labor for design, integration, and engineering in support of long-term development contracts for launch vehicle, satellite, and payload systems.

We also incur subcontract direct materials and external labor costs to build and test specific components, such as the communications system, payload demands, and sensor integration.

Costs are expensed as incurred except for incremental costs to obtain a contract, primarily sales commissions, which are capitalized and amortized to selling, general, and administrative expenses on a systematic basis consistent with the transfer of goods and services.

Expense related to stock-based payments is classified in the consolidated statements of operations and comprehensive loss based upon the classification of each employees’ cash compensation.

stock-based compensation expense for those employees whose work supports the imagery and software analytical service costs we provide to customers, under imagery and software analytical service costs, excluding depreciation and amortization.

• Professional and engineering service costs primarily include the cost of internal labor for design and engineering in support of long-term development contracts for launch vehicle, satellite, and payload systems as well as subcontract direct materials and external labor costs to build and test specific components, such as the communications system, payload demands, and sensor integration.

In addition, we also recognize internal labor costs and external subcontract labor costs for our customer-centric software service solutions.

We recognize stock-based compensation expense for those employees who provide professional and engineering services support to customers, under professional and engineering service costs, excluding depreciation and amortization.

Operating Expenses

• Selling, general, and administrative expense consists of salaries and benefit costs, development costs, professional fees, and other expenses which includes other personnel-related costs, stock-based compensation expenses, and occupancy costs.

Our operating expenses are incurred from the following categories:

Our development costs include internal labor costs to develop critical real-time software and geospatial analytic solutions and solution enhancements, including mapping, analysis, site target monitoring, and news feeds.

• Research and development expense consists primarily of employees’ salaries, taxes, and benefits costs incurred for data science modeling and algorithm development related to our Spectra AI platform, and to the design, development, and testing of our Gen-3 satellites.

• Research and development expense consists of employees’ salaries, taxes, and benefits costs incurred for data science modeling and algorithm development related to our Spectra AI platform, and for the strategic development efforts to support our long-term strategy.

In addition, we employ and classify third-party vendors who fulfill our strategic projects as research and development expense.

We intend to continue to invest appropriate resources in research and development efforts, as we believe that investment is critical to maintaining our competitive position.

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Results of Operations for the Years Ended December 31, 2022 and 2021

Effective January 1, 2022, the Company reorganized its captions on the consolidated statements of operations and comprehensive loss to better align the Company’s broad portfolio.

As a result, for the year ended December 31, 2021, the amounts presented to reflect the impact of the reorganization have been recasted.

This resulted in a $9.7 million reclassification between imagery & software analytical services revenue and professional & engineering services revenue and an $8.5 million reclassification between imagery & software analytical service costs, excluding depreciation and amortization and professional & engineering service costs, excluding depreciation and amortization in the Company's consolidated statements of operations and comprehensive loss.

Period to period

comparisons are not necessarily indicative of future results.

The following table provides the components of results of operations for the years ended December 31, 2022 and 2021:

Period to period comparisons are not necessarily indicative of future results.

Years Ended December 31, $ %

2022 2021 Change Change

Revenue (dollars in thousands)

(dollars in thousands)

Imagery & software analytical services $ 47,415 $ 15,365 $ 32,050 208.6 %

Engineering & systems integration 9,039 2,398 6,641 276.9 %

Professional & engineering services 17,935 18,720 (785) (4.2) %

Total revenue 65,350 34,085 31,265 91.7 %

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Imagery & software analytical service costs, excluding depreciation and amortization 14,462 13,013 1,449 11.1 %

Engineering & systems integration costs, excluding depreciation and amortization 13,241 10,535 2,706 25.7 %

Professional & engineering service costs, excluding depreciation and amortization 21,365 21,735 (370) (1.7) %

Selling, general and administrative 79,672 86,655 (6,983) (8.1) %

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Depreciation and amortization 35,661 14,306 21,355 149.3 %

Satellite impairment loss 18,407 — 18,407 100.0 %

Satellite impairment loss — 18,407 (18,407) NM

Operating loss (86,549) (120,143) 33,594 28.0 %

Gain on debt extinguishment — 4,059 (4,059) NM

Gain (loss) on derivatives 23,885 (558) 24,443 NM

Income (loss) on equity method investment 1,027 (953) 1,980 207.8 %

Gain on derivatives 11,812 23,885 (12,073) (50.5) %

Income on equity method investment 2,087 1,027 1,060 103.2 %

Interest income 1,116 — 1,116 NM

Interest expense (5,426) (5,165) (261) (5.1) %

Other (expense) income, net (147,656) 103 (147,759) NM

Other income (expense), net 2,081 (147,656) 149,737 101.4 %

Loss before income taxes (74,879) (243,993) 169,114 69.3 %

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Discontinued operations:

(Loss) gain from discontinued operations (including (loss) gain from disposal of Spaceflight of ($1,650) and $30,672 for the years ended December 31, 2021 and 2020, respectively) (1,650) 28,185 (29,835) (105.9) %

Gain (loss) from discontinued operations, net of income taxes 707 (1,650) 2,357 142.8 %

Income tax (expense) benefit — — — — %

(Loss) gain from discontinued operations, net of tax (1,650) 28,185 (29,835) (105.9) %

Net loss $ (245,643) $ (19,535) $ (226,108) NM

Gain (loss) from discontinued operations, net of income taxes 707 (1,650) 2,357 142.8 %

Net loss $ (74,172) $ (245,643) $ 171,471 69.8 %

• NM – Fluctuation in terms of percentage change is not meaningful.

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% of total revenue 72.6 % 45.1 %

Engineering & systems integration revenue $ 9,039 $ 2,398 $ 6,641 276.9 %

Professional & engineering services revenue 17,935 18,720 (785) (4.2) %

% of total revenue 27.4 % 54.9 %

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Imagery and Software Analytical Services Revenue

Imagery and software analytical services revenue increased for the year ended December 31, 2021, as compared to the same period in 2020, primarily driven by increased imagery orders from both new and existing customers.

In the year ended December 31, 2021, we were awarded a multi-million dollar short-term firm-fixed price contract to provide on-demand satellite imagery for multiple customers within the government, which significantly contributed to the increased revenue in 2021 over the comparable period.

Revenue growth from greater demand for imagery was made possible by the expansion of our constellation from launching seven satellites, which increased imagery capacity in 2021, and the growing capabilities of our constellation.

Data, monitoring, and analytics revenue also increased primarily from fulfillment of another new firm fixed price contract for commodity monitoring by a commercial customer.

Engineering and Systems Integration Revenue

Engineering and systems integration revenue significantly increased for the year ended December 31, 2021, as compared to the same period in 2020, primarily due to an increase in percentage completion of two contracts, driven by achievement of critical design milestones and delivery of major components of the contract requirements.

Imagery and software analytical services revenue significantly increased for the year ended December 31, 2022, as compared to the same period in 2021, driven by increased imagery and analytics orders from existing customers and several firm-fixed price subscription contracts with new domestic and international customers.

In May 2022, we were awarded a subscription contract to deliver advanced high frequency imagery services with an initial contract value of $85.8 million, over a five-year base period, with future year options that, if exercised in full, would increase the contract value to over $1.0 billion and increase the contract term up to ten years.

This contract is expected to have a material impact to future revenue.

In addition, we were awarded a multi-million dollar contract to provide on-demand satellite imagery and analytics for an international government, which significantly contributed to the increased revenue in the year ended December 31, 2022 compared to the same period in 2021.

In addition, analytics revenue also increased primarily from the fulfillment of recently awarded firm-fixed price delivery orders for economic activity monitoring.

Expansion of our constellation after placing seven satellites into orbit in 2021 and the growing capabilities of our constellation also contributed to meeting increased customer demand for imagery and analytics orders.

Professional and Engineering Services Revenue

Professional and engineering services revenue decreased slightly for the year ended December 31, 2022, as compared to the same period in 2021, primarily due to fewer active contracts in 2022, partially offset by increases in the percentage completion of two engineering services contracts, driven by achievement of critical design milestones and delivery of major components of the contract requirements.

Costs and Expenses

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Imagery & software analytical service costs, excluding depreciation and amortization $ 14,462 $ 13,013 $ 1,449 11.1 %

Engineering & systems integration costs, excluding depreciation and amortization 13,241 10,535 2,706 25.7 %

Professional & engineering service costs, excluding depreciation and amortization 21,365 21,735 (370) (1.7) %

Total costs $ 35,827 $ 34,748 $ 1,079 3.1 %

Imagery and Software Analytical Service Costs

Imagery and software analytical service costs increased for the year ended December 31, 2021, as compared to the same period in 2020, primarily driven by third-party service costs such as, increased hosting costs, to meet rising demand and maintaining the growth of our satellite and ground stations networks, third-party subcontractor costs and enhanced analytic content.

Labor costs also increased due to additional headcount to support an increased customer base.

Additionally, we recorded $4.1 million of stock-based compensation expense during the year ended

December 31, 2021 related to vesting of restricted stock units ("RSUs") triggered by the successful execution of the Merger.

Engineering and Systems Integration Costs

Engineering and systems integration costs increased for the year ended December 31, 2021, as compared to the same period in 2020, primarily attributable to non-recurring engineering design costs and material procurement costs incurred for customer contracts associated with the Gen-3 satellites.

The increase was partially offset by a lower recognition of the forward loss in 2021 as compared to the prior period for those customer contracts of $(3.5) million.

Imagery and software analytical service costs increased for the year ended December 31, 2022, as compared to the same period in 2021, primarily due to increased data sourced from different sensors such as synthetic aperture radar, third-party service costs such as increased hosting costs due to increased data volumes and maintaining the growth of our satellite and ground stations networks, and third-party subcontractor costs to meet specific needs of new customer programs partially offset by lower stock-based compensation expense.

We recorded $0.6 million of stock-based compensation expense during the year ended December 31, 2022 as compared to $1.8 million for the year ended December 31, 2021 primarily related to vesting of restricted stock units (“RSUs”) triggered by the completion of the Merger.

Professional and Engineering Service Costs

Professional and engineering service costs decreased slightly for the year ended December 31, 2022 as compared to the same period in 2021, primarily due to fewer active contracts in 2022, partially offset by an increase of $1.3 million in the estimate to complete on two contracts in 2022 as compared to the prior year.

The estimation of total estimated costs to complete on long-term projects are subject to many variables and requires judgment and we may have future changes in estimates, which may have an impact on professional and engineering service costs and associated revenues.

Selling, General, and Administrative

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(dollars in thousands)

Stock-based compensation expense $ 38,449 $ 1,982 $ 36,467 NM

Stock-based compensation expense $ 18,131 $ 38,450 $ (20,319) (52.8) %

Salaries and benefit costs 36,517 27,323 9,194 33.6 %

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Professional fees 5,082 6,061 (979) (16.2) %

SaaS subscriptions, recruiting and other administrative expenses 5,316 1,544 3,773 244.4 %

Information technology, recruiting, and other administrative expenses 6,290 5,823 467 8.0 %

Selling and marketing 5,553 3,817 1,736 45.5 %

Rent expense 2,821 1,958 863 44.1 %

Insurance 1,804 151 1,653 NM

Insurance 4,452 1,804 2,648 146.8 %

Selling, general and administrative $ 79,672 $ 86,655 $ (6,983) (8.1) %

• NM - Fluctuation in terms of percentage change is not meaningful.

Selling, general, and administrative expense increased during the year ended December 31, 2021, as compared to the same period in 2020, primarily driven by several factors.

First, stock-based compensation expense increased approximately $36.5 million from the prior year related to vesting of RSUs, of which $28.6 million was triggered by the successful execution of the Merger.

Second, we incurred incremental non-recurring expenses associated with becoming a public company including higher accounting, audit fees and consulting fees, legal services and other public company-related costs of $3.1 million and one-time transaction-related expenses, included in salaries and benefits costs above, of $2.4 million.

Third, headcount increased across the organization over the prior year as we invested in sales, product development, engineering, and accounting hiring and establishing the optimal structure to position the business for future success.

Selling, general, and administrative expenses decreased during the year ended December 31, 2022 as compared to the same period in 2021.

Stock-based compensation expense decreased approximately $20.3 million related to the cumulative vesting of RSUs triggered by the successful execution of the Merger in the third quarter of 2021.

Salaries and payroll-related benefits increased due to headcount growth in sales, software engineers, and administrative functions.

In addition, our public company insurance costs increased during the year ended December 31, 2022 as a result of increased time as a public company caused by the Merger in the third quarter of 2021 and selling and marketing increased due to more advertising, commissions, and trade show expenses.

The following is our forecast for total RSU expense as of December 31, 2022, which, in addition to the amounts recognized in selling, general, and administrative expenses, includes the portion that will be capitalized or classified in imagery and software analytical service costs and professional and engineering service costs:

(in thousands)

For the years ending December 31,

Research and Development

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Research and development $ 739 $ 112 $ 627 559.8 %

Research and development expense decreased approximately $0.1 million, or 56.1% during the year ended December 31, 2021 compared to the year ended December 31, 2020.

The decrease was driven by one of our projects reaching technological feasibility in 2021.

Research and development expense increased for the year ended December 31, 2022 as compared to the same period in 2021.

The increase was driven by contracting third-party vendors who fulfill our strategic projects as research and development expense.

Depreciation and Amortization

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(dollars in thousands)

Depreciation $ 12,948 $ 8,452 $ 4,496 53.2 %

Depreciation of satellites $ 33,053 $ 12,493 $ 20,560 164.6 %

Depreciation of all other property and equipment 2,047 455 1,592 349.9 %

Amortization 561 1,358 (797) (58.7) %

Depreciation and amortization $ 35,661 $ 14,306 $ 21,355 149.3 %

Depreciation expense increased for the year ended December 31, 2021, as compared to the same period in 2020 primarily driven by two satellites placed in service in the second half of 2020 and seven satellites placed in service during the year ended December 31, 2021.

Depreciation expense from satellites increased for the year ended December 31, 2022 as compared to 2021.

The increase was driven by six satellites placed in service in the last quarter of 2021 and two satellites placed in service in the first half of 2022.

Depreciation expense from all other property and equipment increased for the year ended December 31, 2022 as compared to 2021, primarily driven by capitalization of software in 2022 and additional computer equipment that was placed into service.

Amortization expense decreased for the year ended December 31, 2022 as compared to 2021 primarily as a result of in-process research and development from a prior acquisition being fully amortized in 2021.

Satellite Impairment Loss

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Gain on debt extinguishment $ — $ 4,059 $ (4,059) NM

Gain (loss) on derivatives 23,885 (558) 24,443 NM

Income (loss) on equity method investment 1,027 (953) 1,980 207.8 %

Gain on derivatives 11,812 23,885 (12,073) (50.5) %

Income on equity method investment 2,087 1,027 1,060 103.2 %

Interest income 1,116 — 1,116 NM

Interest expense (5,426) (5,165) (261) (5.1) %

Other (expense) income, net (147,656) 103 (147,759) NM

Other income (expense), net 2,081 (147,656) 149,737 101.4 %

• NM – Fluctuation in terms of percentage change is not meaningful.

Gain on debt extinguishment

The significant increase in gain on debt extinguishment for the year ended December 31, 2021, as compared to the year ended December 31, 2020 is due to the settlement of a related party loan in exchange for our Class A common stock.

Gain (loss) on derivatives

Fluctuations in our derivatives measured at fair value, which include liability classified warrants and pre-merger sponsor shares, are significantly driven by our common stock price, generated a gain during the year ended December 31, 2021 as compared to the fluctuation of fair value related to warrants to purchase Legacy BlackSky series B and C redeemable convertible preferred stock in 2020.

Income (loss) on equity method investment

Gain on derivatives

Fluctuations in our equity warrants and other equity instruments that we classify as derivative liabilities and measure at fair value are significantly driven by our common stock price;

these instruments generated a gain during the year ended December 31, 2022.

During the year ended December 31, 2021, we recorded a gain on derivative liabilities primarily due to the change in our common stock price following the Merger.

Income on equity method investment

The fluctuations in earnings from our equity method investment is directly related to the operating performance of our joint venture LeoStella.

Interest income

Interest income increased during the year ended December 31, 2022 as a result of our short-term investments purchased in 2022.

Interest expense

Interest expense was consistent year over year.

O ther (expense) income, net

Other expenses significantly increased during the year ended December 31, 2021, as compared to the same period in 2020, primarily due to an initial loss of $99.7 million upon issuances of the Bridge Notes executed in the first half of 2021 as the fair value of these notes and the accompanying common shares and Class A common stock warrants that were granted to certain investors was in excess of the proceeds received.

We also incurred $47.7 million in debt issuance costs related to the Bridge Notes and the modification of existing debt arrangements.

Other income (expense), net

For the year ended December 31, 2022, other income (expense), net primarily included $2.0 million of proceeds from an earnout payment from Spaceflight, Inc.

For the year ended December 31, 2021, we incurred an initial loss of $99.7 million upon issuances of the Bridge Notes and Bridge Notes Rights Offering executed in the first half of 2021 as the fair value of these notes and the accompanying Legacy BlackSky common shares and Class A common stock warrants that were granted to certain investors was in excess of the proceeds received.

We also incurred $47.7 million in debt issuance costs in 2021 related to the Bridge Notes and the modification of existing debt arrangements.

We expensed the debt issuance costs because the Bridge Notes were carried in the consolidated balance sheets at fair value.

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We do not expect similar charges in future periods.

(Loss) gain from discontinued operations, net of tax

Gain (loss) from discontinued operations, net of income taxes

Years Ended December 31, $ %

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(dollars in thousands)

Discontinued operations:

Loss from discontinued operations, before income taxes $ — $ (2,487) $ 2,487 (100.0) %

(Loss) gain on disposal of discontinued operations (1,650) 30,672 (32,322) (105.4) %

Total (loss) gain from discontinued operations, net of income taxes $ (1,650) $ 28,185 $ (29,835) (105.9) %

Gain (loss) from discontinued operations, net of income taxes $ 707 $ (1,650) $ 2,357 142.8 %

On June 12, 2020, we completed the sale of 100% of our interests in Spaceflight to M&Y Space for a final purchase price of $31.6 million.

During the year ended December 31, 2020, Spaceflight’s normal operations resulted in a loss from discontinued operations prior to the completion of the sale.

During the year ended December 31, 2021, we recorded a liability for a potential working capital adjustment primarily related to target accounts receivable amount in accordance with the sale.

During the year ended December 31, 2022, the Company received an indemnification claim notice regarding certain collection and tax payments related to the Share Purchase Agreement among BlackSky Holdings, Inc., Spaceflight, Inc., and M&Y Space Co., Ltd.

The parties agreed to the framework for a global settlement of such indemnification claims, to include a settlement payment by the Company of $1.0 million and a holdback amount of $0.1 million subject to M&Y Space Co.’s ability to collect against certain receivables.

As a result, we reduced our existing contingent liability by $707 thousand.

Non-GAAP Financial Measures

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Adjusted EBITDA

Adjusted EBITDA is defined as net income or loss attributable to us before interest expense, income tax expense or benefit, depreciation and amortization, as well as significant non-cash and/or non-recurring expenses as our management believes these items are not useful in evaluating our core operating performance.

These items include, but are not limited to, realized loss on conversion of Bridge Notes, stock-based compensation expense, unrealized (gain)/loss on certain warrants/shares classified as derivatives, satellite impairment loss, (gain) loss on debt extinguishment, (gain)/loss from discontinued operations, net of tax, loss/(gain) on equity method investment, transaction-related legal settlements, transaction costs associated with derivative liabilities, Spaceflight Inc.

employee retention bonuses and Spaceflight Inc.

related shared services.

Spaceflight Inc.

was a division of ours divested in June 2020 and certain transition-related expenses and income was incurred during 2021 in conjunction with the transition of this divestiture.

Adjusted EBITDA is defined as net income or loss attributable to us before interest income, interest expense, income tax expense or benefit, depreciation and amortization, as well as significant non-cash and/or non-recurring expenses as our management believes these items are not useful in evaluating our core operating performance.

These items include, but are not limited to, realized loss on conversion of Bridge Notes, stock-based compensation expense, unrealized (gain) loss on certain warrants/shares classified as derivative liabilities, satellite impairment loss, proceeds from an earnout payment, gain on debt extinguishment, (gain) loss from discontinued operations, net of income taxes, severance, income on equity method investment, transaction-related legal settlements, and transaction costs associated with equity instruments accounted for as derivative liabilities.

We have presented Adjusted EBITDA because it is a key measure used by our management and board of directors to understand and evaluate our operating performance, generate future operating plans and make strategic decisions regarding the allocation of capital.

In particular, we believe that the exclusion of certain items in calculating Adjusted EBITDA can produce a useful measure for period-to-period comparisons of

our business.

In particular, we believe that the exclusion of certain items in calculating Adjusted EBITDA can produce a useful measure for period-to-period comparisons of our business.

Accordingly, we believe that Adjusted EBITDA provides useful information in understanding and evaluating our operating results.

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Because of these limitations, Adjusted EBITDA should not be considered in isolation, nor should this measure be viewed as a substitute for the most directly comparable GAAP measure, which is net loss.

We compensate for the limitations of non-GAAP measures by relying primarily on our GAAP results.

We compensate for the limitations of non-GAAP measures by relying primarily on our

GAAP results.

You should review the reconciliation of our net loss to Adjusted EBITDA below and not rely on any single financial measure to evaluate our performance.

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Years Ended December 31,

(dollars in thousands)

(in thousands)

Net loss $ (74,172) $ (245,643)

Interest income (1,116) —

Interest expense 5,426 5,165

Depreciation and amortization 35,661 14,306

Loss on issuance of Bridge Notes, including debt issuance costs expensed for debt carried at fair value — 147,387

Stock-based compensation expense 20,025 42,571

(Gain) loss on derivatives (23,885) 558

Gain on derivatives (11,812) (23,885)

Satellite impairment loss — 18,407

Depreciation and amortization 14,306 9,803

Interest expense 5,165 5,201

(Gain) on debt extinguishment (4,059) (284)

Loss (gain) from discontinued operations, before income taxes 1,650 (28,185)

(Gain) loss on equity method investment (1,027) 953

Legal liability - net 399 —

Proceeds from earn-out payment (2,000) —

(Gain) loss from discontinued operations, net of income taxes (707) 1,650

Severance 1,196 —

Income on equity method investment (2,087) (1,027)

Forgiveness of non-trade receivables 106 —

Contingent legal liability — 399

Transaction costs associated with derivative liabilities — 291

Spaceflight, Inc.

employee retention bonuses — 983

Spaceflight, Inc.

related shared services — (678)

Income tax (expense) benefit — —

Gain on debt extinguishment — (4,059)

Adjusted EBITDA $ (29,480) $ (44,438)

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The table below reconciles our net cash used in operating activities to free cash flow for the years ended December 31, 2022 and 2021:

Year Ended December 31, 2021

(dollars in thousands)

BlackSky Spaceflight Inc.

Cash flows used in operating activities - continuing operations $ (53,872) $ — $ (53,872)

Cash flows used in operating activities - discontinued operations — — —

Years Ended December 31,

(in thousands)

Net cash used in operating activities $ (44,456) $ (53,872)

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Net cash used in investing activities $ (81,579) $ (63,614)

Net cash provided by financing activities $ 275,017 $ — $ 275,017

Year Ended December 31, 2020

(dollars in thousands)

BlackSky Spaceflight Inc.

Cash flows used in operating activities - continuing operations $ (15,300) $ — $ (15,300)

Cash flows used in operating activities - discontinued operations — (16,374) (16,374)

Net cash (used in) operating activities (15,300) (16,374) (31,674)

Purchase of property and equipment (281) (491) (772)

Satellite procurement work in process (18,096) — (18,096)

Free cash flow $ (33,677) $ (16,865) $ (50,542)

Net cash (used in) provided by investing activities $ (18,377) $ 8,607 $ (9,770)

Net cash provided by financing activities $ 3,444 $ — $ 3,444

Net cash (used in) provided by financing activities (5,053) 275,017

Liquidity and Capital Resources

Our cash and cash equivalents excluding restricted cash totaled $165.6 million and $5.1 million as of December 31, 2021 and 2020, respectively.

As of December 31, 2022, our existing sources of liquidity included cash and cash equivalents and short-term investments.

Our cash and cash equivalents excluding restricted cash totaled $34.2 million and $165.6 million as of December 31, 2022 and December 31, 2021, respectively, and our short-term investments totaled $38.0 million and $0 as of December 31, 2022 and December 31, 2021, respectively.

We have incurred losses and generated negative cash flows from operations since our inception in September 2014.

As of December 31, 2022, we had an accumulated deficit of $545.1 million.

The increase in our cash and cash equivalents resulted from net cash proceeds from the Merger, the sale of the PIPE Shares and other financings of $223.6 million.

We expect the proceeds received will be sufficient to meet our

working capital and capital expenditure needs for the foreseeable future.

Our short-term liquidity as of December 31, 2022 was comprised of the following:

(in thousands)

Cash and cash equivalents $ 34,181

Restricted cash (1)

Short-term investments (2)

(1) We expect that $1.0 million of restricted cash will transfer to cash and cash equivalents by June 30, 2023.

(2) Short-term investments are included in cash flows from investing activities in the consolidated statements of cash flows.

We expect cash and cash equivalents and cash generated from operating activities to be sufficient to meet our working capital and capital expenditure needs for the foreseeable future.

Our future long-term capital requirements will depend on many factors including our growth rate, the timing and extent of spending to support solution development efforts, the expansion of sales and marketing activities, the ongoing investments in technology infrastructure, the introduction of new and enhanced solutions, and the continuing market acceptance of our solutions.

On March 8, 2023, the Company completed the closing of a private placement where the Company issued 16,403,677 shares of the Company’s Class A common stock (the “Shares”) and warrants to purchase up to an additional 16,403,677 shares of Common Stock.

The purchase price of each Share and associated warrant was $1.79.

The aggregate gross proceeds to the Company from the private placement were approximately $29.5 million, before deducting the placement agent fees and other offering expenses payable by the Company.

The Company intends to use the net proceeds from the private placement for general corporate purposes, including working capital.

On March 10, 2023, Silicon Valley Bank (“SVB”) was closed by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation (“FDIC”) as receiver.

On March 13, 2023, the FDIC announced that it had transferred all insured and uninsured deposits and substantially all assets of SVB to a newly created, full-service FDIC-operated “bridge bank” called Silicon Valley Bank, N.A., where

depositors would have full access to their money beginning immediately.

We believe that the impact to our operations, vendors and customers is immaterial to our liquidity.

From time to time, we may seek additional equity or debt financing to fund capital expenditures, strategic initiatives or investments and our ongoing operations.

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Funding Requirements

We expect our expenses to increase as we increase investments in sales, marketing and product to increase our market share.

In addition, we expect to incur increased costs in support of public company operations.

We will also continue to incur capital expenditures as we procure and launch satellites to increase capture capacity, as well as investing in our Gen-3 satellites that will significantly enhance our imagery capabilities in the future.

While our expenses may continue to exceed our revenues in the near term due to investments we are making in sales, marketing and products to increase our market share, we expect this difference to decline as we progress to becoming operating cash flow positive.

We expect to continue to incur capital expenditures as we procure and launch satellites to increase image collection capacity, as well as investing in our Gen-3 satellites and our Spectra AI platform to significantly expand our product capabilities in the future.

Short-term liquidity requirements

As of December 31, 2021, our current assets were approximately $178.7 million, consisting primarily of cash and cash equivalents, restricted cash, trade receivables, prepaid expenses and other current assets, and contract assets.

As of December 31, 2022, our current assets were approximately $88.5 million, consisting primarily of cash and cash equivalents, restricted cash, short-term investments, trade receivables, prepaid expenses and other current assets, and contract assets.

As of December 31, 2022, our current liabilities were approximately $26.9 million, consisting primarily of accounts payable and accrued liabilities, contract liabilities, and other non-recurring current liabilities.

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We anticipate that our most significant long-term liquidity and capital needs will relate to continued funding of operations, satellite development capital expenditures, launch capital expenditures, and ongoing investments in our Spectra AI platform and internal infrastructure that will enable us to scale the business efficiently and securely.

We believe the cash available to us from the consummation of the Merger, including the sale of the PIPE Shares, will be sufficient to cover forecasted capital needs and operating expenditures for the foreseeable future.

If adequate funds are not available to accomplish our anticipated long-term growth, we believe we will be able to fund future cash needs through a combination debt financing or equity raises.

If we raise funds by issuing debt securities, these debt securities would have rights, preferences, and privileges senior to those of holders of our common stock.

The availability and the terms under which we can borrow additional capital could be disadvantageous, and the terms of debt securities or borrowings could impose significant restrictions on our operations.

Macroeconomic conditions and credit markets could also impact the availability and cost of potential future debt financing.

We can manage the timing for a large part of our capital expenditures, including the design, build, and launch of our new satellites currently under development, to provide us with additional flexibility to optimize our long-term liquidity requirements.

Macroeconomic conditions and credit markets could also impact the availability and, or, the cost of potential future debt or equity financing.

Cash Flow Analysis

For the Years Ended December 31, 2021 and 2020

The following table provides a summary of cash flow data for the years ended December 31, 2022 and 2021:

Years Ended December 31, $

(dollars in thousands)

Cash flows (used in) operating activities - continuing operations $ (53,872) $ (15,300)

Cash flows (used in) operating activities - discontinued operations — (16,374)

2022 2021 Change

(in thousands)

Net cash used in operating activities $ (44,456) $ (53,872) $ 9,416

Cash flows (used in) investing activities - continuing operations (63,614) (18,377)

Cash flows provided by investing activities - discontinued operations — 8,607

Net cash used in investing activities (1)

Cash flows provided by financing activities - continuing operations 275,017 3,444

Cash flows used in financing activities - discontinued operations — —

Net cash provided by financing activities 275,017 3,444

Net increase (decrease) in cash, cash equivalents, and restricted cash 157,531 (38,000)

(81,579) (63,614) (17,965)

Net cash (used in) provided by financing activities (5,053) 275,017 (280,070)

Net (decrease) increase in cash, cash equivalents, and restricted cash (131,088) 157,531 (288,619)

Cash, cash equivalents, and restricted cash – beginning of year 168,104 10,573 157,531

Cash reclassified to assets held for sale at beginning of period — 11,383

Cash reclassified to assets held for sale at the end of period — —

Cash, cash equivalents, and restricted cash – end of year 168,104 10,573

Cash, cash equivalents, and restricted cash – end of period (2)

$ 37,016 $ 168,104 $ (131,088)

(1) Includes purchase of $50.3 million of short-term investments not categorized as cash

(2) $38.0 million of short-term investments are not classified as cash, cash equivalents, or restricted cash.

Our short-term liquidity at December 31, 2022 was $75.0 million

Operating activities

For the year ended December 31, 2022, net cash used in operating activities was approximately $44.5 million.

The significant contributor to the increase in cash used during the year was the operating loss increase, adjusted for depreciation, amortization and stock-based compensation expenses in the year ended December 31, 2021 as compared to the year ended December 31, 2020.

The operating loss increase in the year ended December 31, 2021 was primarily due to increased salaries and payroll-related benefits for headcount growth in sales, marketing, executive and administrative functions and professional fees incurred for public company readiness efforts, partially offset by the increase in imagery sales and corresponding gross margin.

Net cash from operating activities was unfavorably impacted by payments of $6.8 million for working capital liabilities related to the sale of Spaceflight and business insurance outflows of $4.8 million.

The contributor to the decrease in cash used during the year ended December 31, 2022 was the decrease in the operating loss, adjusted for depreciation, amortization, stock-based compensation expense, and other non-cash items in the year ended December 31, 2022 as compared to the year ended December 31, 2021.

The operating loss decrease in the year ended December 31, 2022 was primarily due to increased imagery and analytics revenue.

This was partially offset by an increase in our unbilled contract assets.

Investing activities

We continue to have significant cash outflows for satellite procurement and launch related services.

In the year ended December 31, 2021, net cash used in investing activities increased approximately $45.2 million related to cash paid for the procurement of satellites and other launch-related costs, including launching seven satellites in 2021.

C ash paid for the procurement of satellites and other launch-related costs decreased in the year ended December 31, 2022 as compared to 2021.

Satellite capital expenditures decreased year o ver year by optimizing cash spend to meet our short and long-term operational needs.

In addition, we purchased $50.3 million of short-term investments in corporate debt and governmental securities, which was partially offset by $13.0 million of proceeds from the investments.

We also continue to incur labor costs for internally developed capitalized software as we add innovative new services and tools to our Spectra AI platform.

Financing activities

The most significant impact in the change in cash inflows from financing activities in the year ended December 31, 2021 as compared to the year ended December 31, 2020 was related to the Merger proceeds, PIPE shares, and Palantir financing received net of transaction costs, $244.9 million, and $58.6 million loan proceeds from the Bridge Notes offset by $6.2 million of debt issuance costs.

This was partially offset by debt repayments of $22.2 million in the year ended December 31, 2021, which did not occur in the year ended December 31, 2020.

The most significant impact in the change in cash flows from financing activities in the year ended December 31, 2022 as compared to the year ended December 31, 2021 was related to the $244.9 million proceeds from the Merger, or recapitalization transaction, net of equity issuance costs, and the $58.6 million loan proceeds from the Bridge Notes, both of which occurred in the prior year.

Contractual Obligations and Commitments

As of December 31, 2021, we have a debt facility from related parties with outstanding an outstanding principal amount of $74.1 million and $0.5 million of accrued interest, which matures in October 2024.

As of December 31, 2022, we have a debt facility from related parties with an outstanding principal amount of $77.1 million and $1.2 million of accrued interest, which matures in October 2024.

Please see Note 22 for further information on this facility.

We have operational lease commitments for the next several years related to office and remote ground station leases of $5.6 million.

We have operational commitments for the next several years related to office leases and remote ground station service arrangements of $6.3 million and $1.5 million, respectively.

Please see Note 24 for further information.

In addition, we entered into various operational commitments for the next several years totaling $10.0 million as of December 31, 2021.

We have commitments for multi-launch and integration services with launch services providers.

As of December 31, 2021, we have commitments for two launches to include up to four satellites at estimated launch dates totaling an amount of $6.9 million with options for additional launches.

The terms of the arrangements also allow for us to re-manifest the satellites if there are delays in excess of 365 days or other inexcusable delays occur with the provider.

We have commitments for launch and integration services with a launch services provider.

As of December 31, 2022, we have a commitment for one launch to include up to two satellites totaling an amount of $1.7 million with options for additional launches.

The terms of the arrangement also allow for us to re-manifest the satellites if there are delays in excess of 365 days or other inexcusable delays occur with the provider.

If re-manifest efforts fail, we can request a refund of all recoverable costs after 487 days from original launch date.

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Payment terms are 15 days from invoice date.

As of December 31, 2021, we have a remaining commitment of $8.4 million on our satellite purchase contract with LeoStella.

In addition, we entered into a non-refundable commitment to acquire additional satellite components from LeoStella for $2.2 million.

The delivery schedule for the components are not specified and are subject to certain engineering milestones.

Payment terms are 15 days from invoice date.

In addition, we entered into various other operational commitments for the next several years totaling $9.8 million as of December 31, 2022.

Critical Accounting Policies and Estimates

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Specifically, judgment is used in interpreting complex arrangements with nonstandard terms and conditions and determining when all criteria for revenue recognition have been met.

We primarily generate revenue from the sale of imagery, data, software, and analytics, including professional services, and engineering and systems integration from long-term construction contracts.

We primarily generate revenue from the sale of imagery, data, software, and analytics, as well as, professional and engineering services.

Identifying the performance obligations contained in a contract, determining transaction price, allocating transaction price, and determining when performance obligations are satisfied can require the application of significant judgment, as further discussed below.

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Classification of Revenue

We classify revenue as imagery and software analytical services, and engineering and systems integration in our consolidated statements of operations and comprehensive loss based on the predominant attributes of the performance obligations.

We classify revenue as imagery and software analytical services, and professional and engineering services in our consolidated statements of operations and comprehensive loss based on the predominant attributes of the performance obligations.

Determination of and Allocation of Transaction Price

Each customer purchase order sets forth the transaction price for the products and services purchased under the arrangement.

The Company estimates any variable consideration, and whether the transaction price is constrained, upon execution of each contract.

We may adjust the transaction price over time for any estimated constraints that become probable based on service level provisions within some of our customer purchase orders.

For contracts with multiple performance obligations, we evaluate whether the stated selling prices for the products or services represent their standalone selling prices.

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Determination of when Performance Obligations are Satisfied

Imagery revenue is recognized at the point-in-time the customer receives access to the imagery, or ratably over the subscription period.

In certain firm fixed price contracts that contain imagery where it is probable we will receive the full contract amount or the customer prepays for future services which may expire unused, our accounting policy for unexercised performance obligations is to recognize the estimated breakage amount as revenue over time in proportion to the historical pattern of rights exercised by the customer.

We recognized $1.9 million and $0.0 million of estimated breakage in the years ended December 31, 2021 and 2020, respectively.

The unrecognized amount is recorded within contract liabilities on our consolidated balance sheets.

Software analytical services revenue derived from data, software, and analytics, including professional service solutions, is recognized from the rendering of services over time on a cost-plus-fixed-fee, firm fixed price, or a time and materials basis, as well as, at the point-in-time the customer receives access to an analytic product.

Engineering & systems integration revenue is primarily generated from fixed price long-term engineering and integration construction contracts.

Due to the long-term nature of these contracts, we generally recognize revenue over time using a cost-to-cost measure of progress because it best depicts the transfer of control to the customer as we incur costs on the contracts.

Imagery revenue is recognized ratably over the subscription period or at the point in time the customer receives access to the imagery.

Software analytical services revenue derived from data, software, and analytics is recognized from the rendering of analytical and monitoring services over time on a firm-fixed price, or at the point in time the customer receives access to an analytic product.

Professional and engineering services revenue is generated from both time and materials basis contracts and firm-fixed price service solutions contracts and firm-fixed price long-term engineering and construction contracts.

Due to the long-term nature of our engineering and construction contracts, we generally recognize revenue over time using a cost-to-cost measure of progress because it best depicts the transfer of control to the customer as we incur costs on the contracts.

Under the percentage-of-completion cost-to-cost measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs to complete the performance obligation(s).

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We recognize changes in contract estimates on a cumulative catch-up basis in the period in which the changes are identified.

Such changes in contract estimates can result in the recognition of revenue in a current period for performance obligations which were satisfied or partially satisfied in a prior period.

If at any time, the estimate of contract profitability indicates a probable anticipated loss on the contract, we recognize the total loss as and when known.

Equity Valuations

As there was not a market for Legacy BlackSky equity, valuations of Legacy BlackSky equity instruments required the application of significant estimates, assumptions, and judgments.

These valuations impacted various amounts and accounting conclusions reflected in our consolidated financial statements, inclusive of the recognition of equity-based compensation, debt discounts when debt issuances were accompanied by the issuance of equity (e.g., warrants), and the evaluation of whether beneficial conversion features existed within our convertible financial instruments.

As there was not a market for Legacy BlackSky equity, valuations of Legacy BlackSky equity instruments require the application of significant estimates, assumptions, and judgments.

These valuations impact various amounts and accounting conclusions reflected in our consolidated financial statements, inclusive of the recognition of equity-based compensation, debt discounts when debt issuances were accompanied by the issuance of equity (e.g., warrants), and the evaluation of whether beneficial conversion features existed within our convertible financial instruments.

The following discussion provides additional details regarding the significant estimates, assumptions, and judgments that impacted the determination of the fair values of equity-based compensation awards, warrants, and the preferred stock and common stock that comprised our capital structure prior to the Merger.

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Equity-Based Compensation

Legacy BlackSky issued equity and equity-based awards under our 2014 Plan and the 2011 Plan.

Awards issued as of the year ended December 31, 2020 include stock options and restricted stock awards (“RSAs”).

Subsequent to December 31, 2020, we also issued RSUs.

Awards under these Plans were approved by the board of directors, and awards that have been canceled, forfeited, or expired are available for issuance in connection with BlackSky's 2021 Stock Incentive Plan.

Legacy BlackSky issued equity and equity-based awards under our 2021 Equity Incentive Plan (“2021 Plan”), 2014 stock incentive plan, and 2011 stock incentive plan.

Awards issued include stock options, restricted stock awards (“RSAs”), and RSUs.

Awards under these Plans were approved by the board of directors, and awards that have been canceled, forfeited, or expired are available for issuance in connection with our 2021 Plan.

For purposes of recognizing equity-based compensation related to RSAs, RSUs, and stock options granted to employees, management estimates the grant date fair values of such awards to measure the costs to be recognized for services received.

For awards with time-based vesting conditions, we recognize compensation costs based upon the straight-line amortization of the grant date fair value of the awards over the requisite service period.

When equity-based compensation awards include a performance condition, no compensation is recognized until the performance condition is deemed probable to occur;

When equity-based compensation awards include a performance condition, no compensation is recognized until the

performance condition is deemed probable to occur;

we then recognize compensation costs based on the accelerated attribution method, which accounts for awards with discrete vesting dates as if they were a separate award.

We now estimate the grant date fair value of RSAs and RSUs based upon the trading price of our Class A common stock.

Our historical approach to estimating the fair value of Legacy BlackSky’s Class A common stock is subsequently described in the discussion of “Preferred Stock and Common Stock Valuations.” We estimated the fair value of Legacy BlackSky's stock options using the Black-Scholes option-pricing model, as subsequently described.

Stock Option and Class A Common Stock Warrant Valuations

Legacy BlackSky used the Black-Scholes option-pricing model to value all options and Class A common stock warrants.

We use the Black-Scholes option-pricing model to value all options and Class A common stock warrants.

Estimating the fair value of stock options using the Black-Scholes option-pricing model requires the application of significant assumptions, such as the fair value of our Class A common stock, the estimated term of the options, risk-free interest rates, the expected volatility of the price of our Class A common stock, and an expected dividend yield.

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If any of these assumptions were to change significantly in the future, equity-based compensation related to future awards may differ significantly, as compared with awards previously granted.

We have largely moved towards granting RSAs and RSUs to certain employees, yet we also granted options under the 2021 Plan to certain officers during the year ended December 31, 2021.

We use the following inputs under Black-Scholes as follows:

Fair Value of Class A Common Stock—Refer to the subsequent discussion of “Preferred Stock and Common Stock Valuation” for a detailed discussion of the valuation techniques and assumptions applied to value the Class A common stock prior to the Merger.

Subsequent to the Merger, our Class A common stock has been valued based upon our trading price.

We have largely moved towards granting RSAs and RSUs to the bulk of our employees, for which the grant date fair value is equal to the trading price fair value of the Class A common stock on the date of grant.

For stock options, which are primarily granted to certain management employees, we use the following inputs under Black-Scholes as follows:

Expected Dividend Yield—The Black-Scholes valuation model requires an expected dividend yield as an input.

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We currently have no plans to pay dividends on our Class A common stock and, accordingly, have assumed no dividend yield upon valuation of our stock options.

Expected Volatility—As there was no observable volatility with respect to our Legacy BlackSky Class A common stock, the expected volatility of our Legacy BlackSky and BlackSky Class A common stock was estimated based upon the historical share price volatility of guideline comparable companies.

Expected Volatility—As there was no observable volatility with respect to our Legacy BlackSky Class A common stock and due to the lack of sufficient history of BlackSky Class A common stock, the expected volatility of our Legacy BlackSky and BlackSky Class A common stock was estimated based upon the historical share price volatility of guideline comparable companies.

Risk-free Interest Rate—The yield on actively traded, non-inflation indexed U.S.

Treasury notes was used to extrapolate an average risk-free interest rate based on the expected term of the underlying grants.

Expected Term—For options granted in 2021, since there is not a history of option exercises as a public company, we considered the option vesting terms and contractual period, as well as the demographics of the holders, in estimating the expected term.

Expected Term—For options granted in 2021 and 2022, since there is not a history of option exercises as a public company, we considered the option vesting terms and contractual period, as well as the demographics of the holders, in estimating the expected term.

For options granted prior to 2021, the expected term was the estimated duration to a liquidation event based on a weighted average consideration of the most likely exit prospects for that stage of development.

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We will continue to review our estimate in the future and adjust it, if necessary, due to changes in our historical exercises.

Preferred Stock and Class A Common Stock Valuations

We use valuations of our Class A common stock for various purposes, including, but not limited to, the determination of the exercise price of stock options and inclusion in the Black-Scholes option pricing model.

Prior to the Merger, as a privately held company, the lack of an active public market for Legacy BlackSky’s preferred stock

and Class A common stock required management and the board of directors to exercise reasonable judgment and consider a number of factors in order to make the best estimate of fair value of our equity.

These factors include:

• industry outlook;

• general economic outlook, including economic growth, inflation and unemployment, interest rate environment and global economic trends;

• our operating and financial performance;

• current business conditions and projections;

• our prospects as a going concern;

• the likelihood of achieving a liquidity event for the underlying equity instruments, such as an initial public offering or sale of the company, given prevailing market conditions.

As Legacy BlackSky’s structure pre-Merger consisted of multiple classes of equity, Legacy BlackSky, with the assistance of a third-party valuation specialist, utilized an option pricing model (“OPM”) to determine the fair value of each class of equity.

Under this approach, Legacy BlackSky first estimated its total enterprise value and total equity value using a combination of the income approach, guideline public company method, and guideline transaction method and subsequently use the OPM model to allocate values to each individual equity class by creating a series of call options on our equity value, with exercise prices based on the liquidation preferences, participation rights, and exercise prices of the equity instruments.

Estimating our total enterprise value, total equity value and, ultimately, the share values of our various classes of equity required the application of significant judgment and assumptions.

Factors considered in connection with estimating these values include those previously cited, as well as the following:

• arms-length transactions involving the sale or transfer of our Class A common stock, when applicable;

• the rights, preferences and privileges of Legacy BlackSky’s Series A, B, B-1, and C preferred stock relative to those of its Class A common stock;

• the lack of marketability of our equity.

The fair value ultimately assigned to our Class A common stock may take into account any number or combination of the various factors described above, based upon their applicability at the time of measurement.

Determination of the fair value of our Class A common stock also may have involved the application of multiple valuation methodologies and approaches, with varying weighting applied to each methodology as of the grant date.

Application of these approaches involved the use of estimates, judgment, and assumptions that are highly complex and subjective, such as those regarding our expected future revenue, expenses, and future cash flows;

discount rates;

market multiples;

the selection of comparable companies;

and the probability of possible future events.

Changes in any or all of these estimates and assumptions or the relationships between those assumptions would have impacted our valuations as of each valuation date and may have had a material impact on the valuation of our Class A common stock.

As of December 31, 2020, we estimated that our enterprise fair value was approximately $92.7 million.

This enterprise value consisted primarily of the enterprise value attributable directly to Legacy BlackSky, adjusted to give further effect to the value attributable to Legacy BlackSky’s equity method investments.

The estimated enterprise value of $92.7 million considered the enterprise value implied using a discounted cash flow model and applied the probability-weighted expected return method (“PWERM”) to give effect to different scenarios regarding our financial prospects and ability to continue as a going concern based upon whether we obtained near-term additional financing to support our ongoing operations and growth potential.

In February 2021, we issued equity compensation awards, at which point in time, we engaged our third-party valuation specialist to perform a contemporaneous valuation of our enterprise value and Class A common stock.

In February 2021, we also obtained new Bridge Notes to fund ongoing operations, signed a letter of intent for a merger with a special purpose acquisition company, and subsequently announced that we had entered into a definitive agreement with Osprey for a merger that would result in us becoming a publicly listed company.

Based upon the impact of the new Bridge Notes on our financial condition and the impact that the proposed merger was expected to

have on our future prospects and ability to fund our growth strategy, as described in our discussion of “Long-Term Liquidity Requirements” elsewhere in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations, the valuation that was performed as of February 15, 2021 resulted in a significant increase to our estimated enterprise value.

Upon updating the estimate of our enterprise value as of February 15, 2021, the proposed merger with Osprey was deemed to be an observable indicator of our enterprise value pursuant to the market approach, and an 80% weighting was placed on the likelihood that the proposed merger would occur when applying the PWERM to our valuation approach and assumptions.

Given the substantial weight placed on the implied value of the merger transaction when valuing the enterprise, we concluded that our equity value was approximately $740.0 million as of February 15, 2021.

When we updated the estimate of our enterprise value as of March 31, 2021, the proposed merger with Osprey was again deemed to be an observable indicator of our enterprise value pursuant to the market approach, and a 90% weighting was placed on the likelihood that the proposed merger would occur when applying the PWERM to our valuation approach and assumptions.

Given the substantial weight placed on the implied value of the merger transaction when valuing the enterprise, we concluded that our equity value was approximately $832.5 million as of March 31, 2021.

These enterprise values were used to derive the underlying value of our equity in connection with all equity compensation awards issued in close proximity to the valuation dates and, accordingly, our future equity compensation expense is expected to materially increase.

As a result of the Merger, it will not be necessary to continue to estimate the fair value of our Class A common stock, as our Class A common stock is now traded in the public market.

Private Placement Warrants and Sponsor Earn-Out Shares

We classify the Private Placement Warrants and Sponsor Earn-Out Shares as long-term liabilities in our consolidated balance sheets as of December 31, 2021.

Private Placement Warrants and Sponsor Shares

We have classified the Private Placement Warrants and Sponsor Shares as long-term liabilities in our consolidated balance sheets as of December 31, 2022 and December 31, 2021.

Each liability was initially recorded at fair value on the date of the Merger.

The Private Placement Warrants are recorded at fair value using a Black-Scholes option pricing model and the Sponsor Earn-Out Shares are recorded at fair value using a Monte Carlo simulation model.

These liabilities are re-measured to fair value at each subsequent reporting date and recorded to gain (loss) on derivatives on our consolidated statements of operations and comprehensive loss.

The Private Placement Warrants were recorded at fair value using a Black-Scholes option pricing model and the Sponsor Shares were recorded at fair value using a Monte Carlo simulation model.

These liabilities are re-measured to fair value at each subsequent reporting date and recorded to gain on derivatives on our consolidated statements of operations and comprehensive loss.

We will continue to adjust the liability for changes in fair value until the financial instruments are exercised, redeemed, cancelled or released.

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We have historically been a private company and lacked sufficient company-specific historical and implied volatility information.

Therefore, the expected stock volatility is based on the historical volatility of a publicly traded set of peer companies.

Therefore, the expected stock volatility includes both BlackSky’s Class A common stock and public warrant historical volatility as well as the historical volatility of a publicly traded set of

peer companies.

Changes in these assumptions can materially affect the estimate of the fair value of these instruments and ultimately the change in fair value.

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(b) a significant decline in our expected future cash flows;

(d) unanticipated competition;

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We also determined that no triggering events occurred during the year ended December 31, 2022 that would require a quantitative assessment.

We determined that it is more likely

than not that the fair value of the BlackSky reporting unit sufficiently exceeds its carrying value, including goodwill.

We determined that it is more likely than not that the fair value of the BlackSky reporting unit sufficiently exceeds its carrying value, including goodwill.

Although we have a history of recurring losses from operations, negative cash flows from operations, and a significant accumulated deficit, as of the October 1, 2022 analysis, the fair value was greater than 34% in excess of the carrying value for BlackSky.

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Not applicable.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by this item is set forth beginning on page F-1 on this Annual Report on Form 10-K.

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What changed 10-K

Item 7. Management’s Discussion and Analysis