What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-03-20 compared with 2023-03-23 · 184 added, 234 removed, 260 unchanged (62% of the section changed)

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and its consolidated subsidiaries, following the closing of the Merger.

General Overview

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 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.

References in this report to Company actions, assets/liabilities, or contracts may be references to actions taken, assets/liabilities held, or contracts entered into by one or more Company current subsidiaries;

however, the Company has distinguished between the actions taken by Legacy BlackSky or Osprey for certain time based, historical transactions.

The Company’s results of operations and statements of assets and liabilities may not be comparable between periods as a result of the Merger.

Company Overview

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

We own and operate one of the industry's leading high-performance low earth orbit 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 constellation is able to image certain locations approximately every 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.

The constellation is optimized for agility and capacity and delivers high revisit imaging and analytic products without a dependency on an individual satellite.

This approach enables us to strategically deploy capacity to meet customer needs and tailor the capability over time to meet market demand.

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.

We believe that our focus on critical strategic and economic infrastructure and the AI-enabled tasking of our constellation differentiates us from many of our competitors, who are primarily dedicated to mapping the entirety of the Earth on a routine basis.

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”), 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.

Our BlackSky Spectra 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 connected devices, internet-enabled narrative sources, and a variety of geotemporal data feeds.

BlackSky Spectra 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 BlackSky Spectra's data and analytics through easy-to-use web services or through platform application programming interfaces.

Our next generation satellites (“Gen-3”), expected to launch in 2024, are designed to improve 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.

We also believe the combination of our high-revisit, small satellite constellation, our BlackSky Spectra platform, and low constellation cost is transforming the market for real-time, space-based imagery 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 BlackSky Spectra 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 BlackSky Spectra platform—are mutually reinforcing:

as we capture 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.

Our business has a natural and powerful “flywheel” effect:

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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 generate revenue by selling On-Demand and Assured product and service offerings that support a broad range of applications including national security, supply chain intelligence, crisis management, critical infrastructure monitoring, economic intelligence, and others.

These offerings are comprised of a predefined, standard set of imagery and software analytics products accessible via our basic subscription plan through our BlackSky Spectra software platform, plus professional and engineering services provided to customers on a project-by-project basis.

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.

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

We currently derive revenue from variable and fixed pricing plans that allow our customers to choose what matters most to them—platform licensing-levels, priority for imagery tasking, and whether to apply analytics or monitoring capabilities overtop the imaging service.

Merger with Osprey Technology Acquisition Corp

Upon the consummation of the Merger, a number of parties purchased an aggregate of 18.0 million shares of our Class A common stock (the “PIPE Shares”), for a purchase price of $10.00 per share, or an aggregate purchase price of $180.0 million, pursuant to a separate subscription agreement.

78,993,201 shares of Osprey common stock were issued for all of the issued and outstanding equity interests of Legacy BlackSky, inclusive of shares of Osprey’s common stock issued in exchange for both Legacy BlackSky’s issued and outstanding preferred stock and issued and outstanding convertible notes, (inclusive of interest accrued thereon), as if each had converted into Legacy BlackSky common stock immediately prior to the Merger.

The Merger was accounted for as a Reverse Recapitalization in accordance with GAAP.

Under this method of accounting, Osprey is treated as the acquired company for financial reporting purposes, and Legacy BlackSky is treated as the accounting acquiror.

In accordance with this accounting, the Merger is treated as the equivalent of Legacy BlackSky issuing stock for Osprey’s net assets, accompanied by a recapitalization.

Osprey’s net assets are stated at historical cost, with no goodwill or other intangible assets recorded, and the Legacy BlackSky operations will be those of BlackSky.

Legacy BlackSky was considered the acquirer based on the facts and circumstances, including the following factors evaluated at the time of the Merger:

• Legacy BlackSky’s former stockholders held a majority ownership interest in BlackSky;

• Legacy BlackSky’s senior management team comprise senior management of BlackSky;

• Legacy BlackSky was able to designate all but one director to BlackSky’s initial board;

• Legacy BlackSky was the larger of the companies based on historical operating activity and employee base;

• Legacy BlackSky’s operations comprise the ongoing operations of BlackSky.

We received approximately $283.0 million in gross proceeds upon consummation of the Merger, comprised of approximately $103.0 million in cash held in trust by Osprey and the proceeds of a $180.0 million sale of PIPE Shares.

Transaction expenses paid on closing totaled approximately $39.9 million and we paid post-closing transaction expenses of $6.3 million.

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.

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 rules and regulations and New York Stock Exchange listing requirements.

Variable and fixed price plans allow our customers to choose what matters most to them—platform licensing-levels, priority for imagery tasking, and whether to apply analytics or monitoring capabilities overtop the imaging service.

Components of Operating Results

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.

Our revenue is generated by selling imagery and software analytics services through our Blacksky Spectra 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 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.

Through our BlackSky Spectra software 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.

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 at a premium over a region of interest on a take or pay basis.

◦ 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.

Our analytics services are also offered on a subscription or consumption 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 third-party space sources in real-time to provide data, insights, and analytics for our customers.

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

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.

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 expect continued imagery and software analytical services revenue growth as a result of increases in our sales orders driven by stronger customer demand.

• Professional and Engineering Services Revenue— We develop and deliver advanced satellites 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 sold with imagery

service subscriptions.

We generally retain rights to intellectual property for developed technology of certain systems.

We also provide technology enabled professional service solutions, that are highly-interrelated, to support customer-specific feature request and to support the integration, testing, and training of our imagery and software analytical services into the customer's 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.

We expect continued meaningful contribution from our professional and engineering services revenue, which we expect will be primarily from contracts with existing U.S.

and international defense and intelligence customers with whom we have contracted to perform development work prior to the implementation of their subscription service contracts.

Costs and Expenses

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• 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, 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.

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

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.

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.

• Professional and engineering service costs primarily include the cost of internal labor for design and engineering in support of long-term development contracts for satellites 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.

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• 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 for those employees who generally support our business and operations, and occupancy costs.

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 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.

Our development costs include internal labor costs to design and plan 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 of employees’ salaries, taxes, and benefits costs incurred for data science modeling and algorithm development related to our Blacksky Spectra software 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.

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Results of Operations for the Years Ended December 31, 2023 and 2022

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, 2023 and 2022:

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Depreciation and amortization 43,431 35,661 7,770 21.8 %

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

Operating loss (55,980) (86,549) 30,569 35.3 %

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

Gain on derivatives 7,679 11,812 (4,133) (35.0) %

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

Interest income 1,116 — 1,116 NM

Income on equity method investments 4,165 2,087 2,078 99.6 %

Interest income 2,063 1,116 947 84.9 %

Interest expense (9,306) (5,426) (3,880) (71.5) %

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

Other (expense) income, net (1,807) 2,081 (3,888) (186.8) %

Loss before income taxes (53,186) (74,879) 21,693 29.0 %

Income tax (expense) benefit — — — — %

Income tax expense (673) — (673) (100.0) %

Loss from continuing operations (53,859) (74,879) 21,020 28.1 %

Discontinued operations:

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

Gain from discontinued operations — 707 (707) (100.0) %

Income tax (expense) benefit — — — — %

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

Gain from discontinued operations, net of income taxes — 707 (707) (100.0) %

Net loss $ (53,859) $ (74,172) $ 20,313 27.4 %

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

Years Ended December 31, $ %

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Imagery and Software Analytical Services Revenue

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.

Imagery and software analytical services revenue increased for the year ended December 31, 2023 as compared to the same period in 2022, driven by increased imagery and analytics orders from existing customers and several firm-fixed price subscription contracts with new domestic and international customers.

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.

Professional and engineering services revenue increased for the year ended December 31, 2023 as compared to the year ended December 31, 2022 primarily due to several new contracts with international governments.

This was partially offset by a lower percentage of completion achieved in two engineering services contracts as a result of an increase in the program's maturity year-over-year.

For the impacts of changes in estimates on our contracts, see "Note 2—Basis of Presentation and Summary of Significant Accounting Policies" of the notes to the consolidated financial statements contained within this Annual Report on Form 10-K.

Costs and Expenses

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Imagery and Software Analytical Service Costs

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.

Imagery & software analytical service costs, excluding depreciation and amortization decreased slightly for the year ended December 31, 2023 as compared to the same period in 2022.

The majority of these costs are fixed and may not materially increase with revenue growth.

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.

Professional & engineering service costs, excluding depreciation and amortization, decreased for the year ended December 31, 2023 as compared to the same period in 2022, primarily due to fewer costs incurred on two engineering services contracts, driven by an increase in the programs' maturity year-over-year.

This was partially offset by satellite procurement work under a firm-fixed price contract.

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

Selling, General, and Administrative

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(dollars in thousands)

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

Salaries and benefit costs $ 40,720 $ 36,517 $ 4,203 11.5 %

Development costs 826 1,419 (593) (41.8) %

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

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

Stock-based compensation expense 10,118 18,131 (8,013) (44.2) %

Information technology and other administrative expenses 8,938 6,290 2,648 42.1 %

Selling and marketing 3,789 5,553 (1,764) (31.8) %

Rent expense 2,821 1,958 863 44.1 %

Professional fees 3,498 5,082 (1,584) (31.2) %

Insurance 2,755 4,452 (1,697) (38.1) %

Rent expense 1,762 2,821 (1,059) (37.5) %

Development costs 1,037 826 211 25.5 %

Selling, general and administrative $ 72,617 $ 79,672 $ (7,055) (8.9) %

Selling, general, and administrative expenses decreased during the year ended December 31, 2023 as compared to the same period in 2022.

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.

Stock-based compensation expense decreased $8.0 million related to the 2022 cumulative vesting of restricted stock units ("RSUs") triggered by the successful execution of the Merger in 2021.

Salaries and payroll-related benefits increased due to expansion of our sales team and investments in AI capabilities.

The following is our forecast for total RSU expense as of December 31, 2023, 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:

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Research and development $ 643 $ 739 $ (96) (13.0) %

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.

Research and development expense decreased slightly for the year ended December 31, 2023 as compared to the same period in 2022.

Depreciation and Amortization

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Depreciation and amortization $ 43,431 $ 35,661 $ 7,770 21.8 %

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

We recorded a satellite impairment loss for the year ended December 31, 2021 resulting from the loss of two of our satellites, which occurred on May 15, 2021 when a rocket carrying those satellites suffered a failure during flight.

This resulted in an impairment loss of $18.4 million, the full carrying value of the satellites, recorded to earnings during the year ended December 31, 2021.

The $18.4 million loss included satellite procurement, launch, shipping, launch support, and other associated costs.

There were no satellite impairment losses in the year ended December 31, 2022.

Depreciation expense from satellites increased for the year ended December 31, 2023 as compared to the same period in 2022, driven by an increase in the number of satellites in service.

Depreciation expense from all other property and equipment increased for the year ended December 31, 2023 as compared to the same period in 2022, primarily driven by capitalization of software and the buildout of new office space.

Amortization expense remained flat for the year ended December 31, 2023 as compared to the same period in 2022.

Non-Operating Expenses

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(dollars in thousands)

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

Gain on derivatives $ 7,679 $ 11,812 $ (4,133) (35.0) %

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

Interest income 1,116 — 1,116 NM

Income on equity method investments 4,165 2,087 2,078 99.6 %

Interest income 2,063 1,116 947 84.9 %

Interest expense (9,306) (5,426) (3,880) (71.5) %

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

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

Other (expense) income, net (1,807) 2,081 (3,888) (186.8) %

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

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

Fluctuations to these instruments are inversely related to changes in our common stock price, the volatility of the markets, and the duration of the equity warrants.

The gains or losses recognized in the period are non-cash fair value adjustments and generated gains during the years ended December 31, 2023 and 2022.

Income on equity method investments

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

Additionally, during 2023, we recognized a gain of $9.5 million from the sale of our investment in X-Bow.

Interest income

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

Interest income increased during the year ended December 31, 2023 as a result of the short-term investments we began purchasing in the second quarter of 2022 as well as an increase in the effective interest rate received for our investments.

Interest expense

Interest expense was consistent year over year.

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.

Upon consummation of the Merger, the Bridge Notes and associated warrant liabilities were converted to equity and extinguished.

We do not expect similar charges in future periods.

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

Interest expense increased during the year ended December 31, 2023 as a result of a higher effective interest rate on our loan modification with related parties.

Other (expense) income, net

For the year ended December 31, 2023, other (expense) income, net, included $0.9 million of allocated transaction costs associated with new warrants that are accounted for as derivative liabilities and $0.8 million of transaction costs associated with our loan modification during the second quarter of 2023.

Gain from discontinued operations, net of income taxes

Years Ended December 31, $ %

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(dollars in thousands)

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

Gain from discontinued operations, net of income taxes $ — $ 707 $ (707) (100.0) %

On June 12, 2020, we completed the sale of 100% of our interests in Spaceflight, Inc.

to M&Y Space Co., Ltd for a final purchase price of $31.6 million.

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.

As a result, we reduced our existing contingent liability by $0.7 million.

Non-GAAP Financial Measures

In addition to our results determined in accordance with GAAP, management utilizes certain non-GAAP performance measures, Adjusted EBITDA, and free cash flow for purposes of evaluating our ongoing operations and for internal planning and forecasting purposes.

Our management and board of directors believe that these non-GAAP operating measures, when reviewed collectively with our GAAP financial information, provide useful supplemental information to investors in assessing our operating performance.

In addition to our results determined in accordance with GAAP, management utilizes certain non-GAAP performance measures, such as Adjusted EBITDA, for purposes of evaluating our ongoing operations and for internal planning and forecasting purposes.

Our management and board of directors believe that this non-GAAP operating measure, when reviewed with our GAAP financial information, provides useful supplemental information to investors in assessing our operating performance.

Adjusted EBITDA

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.

These items include, but are not limited to stock-based compensation expense, unrealized (gain) loss on certain warrants/shares classified as derivative liabilities, severance, impairment losses, income on equity method investment, investment loss on short-term investments, transaction costs associated with debt and equity financings, forgiveness of non-trade receivables, and gain from discontinued operations, net of income taxes.

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.

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In addition, our presentation of this measure should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.

Furthermore, our computation of Adjusted EBITDA may not be directly comparable to similarly titled measures computed by other companies, as the nature of the adjustments that other companies may include or exclude when calculating Adjusted EBITDA may differ from the adjustments reflected in our measure.

Furthermore, our computation of

Adjusted EBITDA may not be directly comparable to similarly titled measures computed by other companies, as the nature of the adjustments that other companies may include or exclude when calculating Adjusted EBITDA may differ from the adjustments reflected in our measure.

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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Interest expense 9,306 5,426

Income tax expense 673 —

Depreciation and amortization 43,431 35,661

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

Stock-based compensation expense 10,862 20,025

Gain on derivatives (7,679) (11,812)

Satellite impairment loss — 18,407

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 (4,165) (2,087)

Transaction costs associated with debt and equity financings 1,738 —

Severance 590 1,196

Impairment losses 81 —

Investment loss on short-term investments 55 —

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

Gain from discontinued operations, net of income taxes — (707)

Forgiveness of non-trade receivables — 106

Contingent legal liability — 399

Transaction costs associated with derivative liabilities — 291

Gain on debt extinguishment — (4,059)

Adjusted EBITDA $ (1,030) $ (29,480)

Free Cash Flow

We define free cash flow as cash flows used in, or provided by, operating activities—continuing operations plus cash flows used in, or provided by, operating activities—discontinued operations less purchase of property and equipment and satellite procurement work in process.

We have presented free cash flow because it is used by our management and board of directors as an indicator of the amount of cash we generate or use and to evaluate our ability to satisfy current and future obligations and to fund future business opportunities.

Accordingly, we believe that free cash flow provides useful information to investors and others, enhancing the overall understanding of our ability to satisfy our financial obligations and pursue business opportunities, and allowing for greater transparency with respect to a key financial metric used by our management in their financial and operational decision-making.

Free cash flow is not defined by GAAP and should not be considered in isolation of, or as an alternative to, measures prepared in accordance with GAAP.

There are a number of limitations related to the use of free cash flow rather than net cash from (used in) operating activities, which is the most directly comparable GAAP equivalent.

Some of these limitations are:

• free cash flow is not a measure of cash available for discretionary expenditures since we have certain non-discretionary obligations such as debt repayments or capital lease obligations that are not deducted from the measure;

• other companies, including companies in our industry, may calculate free cash flow differently, which reduces its usefulness as a comparative measure.

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

Years Ended December 31,

(in thousands)

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

Purchase of property and equipment (11,677) (1,266)

Satellite procurement work in process (32,385) (62,643)

Free cash flow $ (88,518) $ (117,781)

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

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

Liquidity and Capital Resources

As of December 31, 2023, 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.

Our cash and cash equivalents excluding restricted cash totaled $32.8 million and $34.2 million as of December 31, 2023 and 2022, respectively, and our short-term investments totaled $19.7 million and $38.0 million as of December 31, 2023 and 2022, respectively.

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

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Short-term investments (1)

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

(1) 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.

Our future long-term capital requirements

will depend on many factors including our growth rate, customer demand for capacity, 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.

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

We do not have a line of credit or access to immediate funds and we are not subject to any financial or minimum cash metrics.

We do not have a line of credit or access to immediate funds.

However, an additional source of liquidity is our ability to offer and sell from time to time up to $75.0 million of newly issued shares in open trading windows at market prices through a designated broker dealer pursuant to an at-the-market (“ATM”) offering, of which we have sold $5.0 million through December 31, 2023.

If we decide, or are required, to seek additional financing from outside sources, we may not be able to raise it on terms acceptable to us or at all.

If we are unable to raise additional capital when desired, our business, financial condition and results of operations could be adversely affected.

In November 2023, the Company entered into a commercial agreement with a launch provider with financing terms providing for a $3.0 million initial payment, and for $27.0 million to be repaid quarterly on a pro-rata basis across a three-year period after each successful launch milestone, with payments to accrue interest at 12.6% per annum.

We may prepay at any time until the maturity date without premium or penalty.

Under certain circumstances, a default interest rate will apply on all outstanding and payable obligations during the existence of an event of default under the Loan Agreement at 18.9% per annum above the applicable interest rate.

As of December 31, 2023, the Company has not drawn or accrued any interest on the agreement.

On May 9, 2023, we entered into the Second Amendment (the “Amendment”) to our Amended and Restated Loan and Security Agreement with Intelsat Jackson Holdings SA and Seahawk SPV Investment LLC, dated October 31, 2019 and previously amended on September 9, 2021.

The Amendment amends the secured loan facility to, among other things:

(i) extend the maturity date of the loan from October 31, 2024 to October 31, 2026, (ii) roll the cash interest payment due on May 1, 2023 into the outstanding principal to be paid on the maturity date;

(iii) increase the interest rate on the loan as of the Amendment date from 9% to 12%, of which (x) 9.6% will be paid in kind as principal due on the maturity date, with the remainder paid as cash interest on a semi-annual basis, until May 1, 2025 and (y) after May 1, 2025, up to 4% can be paid in kind as principal due on the maturity date, with the remainder to be paid as cash interest on a semi-annual basis, and (iv) add certain financial covenants.

As part of our new financial covenants, we are required to maintain a minimum cash and cash equivalents balance of not less than $10.0 million, measured quarterly as of the last day of each fiscal quarter.

In addition, we are required to maintain Adjusted EBITDA, measured quarterly as of the last day of each fiscal quarter, of not less than:

• $5.0 million for the trailing four quarter period ending as of December 31, 2024 through September 30, 2025 and

• $10.0 million for the trailing four quarter period ending as of December 31, 2025 and as of the end of each fiscal quarter thereafter.

The Company was in compliance with all covenants as of December 31, 2023 and expects to remain in compliance with all covenants the next 12 months from the issuance of the financial statements.

The Company was not subject to any financial covenants as of December 31, 2022.

Please refer to the section entitled "Non-GAAP Financial Measures" for additional information on our definition of Adjusted EBITDA.

Funding Requirements

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.

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, this difference has declined as we progress to becoming operating cash flow positive.

We expect to continue to incur capital expenditures as we procure and launch Gen-3 satellites, as well as our BlackSky Spectra software platform to significantly expand our product capabilities in the future.

Short-Term Liquidity Requirements

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.

As of December 31, 2023, our current assets were $79.3 million, consisting primarily of cash and cash equivalents, short-term investments, and contract assets.

As of December 31, 2023, our current liabilities were $27.5 million, consisting primarily of accounts payable and accrued liabilities.

Accordingly, we have sufficient cash and working capital to fund our short-term liquidity requirements.

Long-Term Liquidity Requirements

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 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 Blacksky Spectra software platform and internal infrastructure that will enable us to continue to scale the business efficiently and securely.

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.

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The following table provides a summary of cash flow data for the years ended December 31, 2023 and 2022.

Our short-term liquidity at December 31, 2023 was $53.1 million.

Short-term investments of $19.7 million are not classified as cash, cash equivalents, or restricted cash.

Years Ended December 31, $

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(15,211) (81,579) 66,368

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)

Net cash provided by (used in) financing activities 29,050 (5,053) 34,103

Net decrease in cash, cash equivalents, and restricted cash (3,582) (131,088) 127,506

Cash, cash equivalents, and restricted cash – beginning of year 37,016 168,104 (131,088)

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$ 33,434 $ 37,016 $ (3,582)

(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

(1) 2023 includes $43.7 million of capital expenditures partially offset by net proceeds of $19.0 million of short-term investments not categorized as cash, cash equivalents, or restricted cash

Operating activities

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

For the year ended December 31, 2023, net cash used in operating activities was $17.4 million.

The contributor to the significant decrease in cash used during the year ended December 31, 2023 as compared to the year ended December 31, 2022 was the decrease in the operating loss, adjusted for depreciation, amortization, stock-based compensation expense, gain on derivatives, and other non-cash items.

The operating loss decrease in the year ended December 31, 2023 as compared to the year ended December 31, 2022 was primarily due to increased revenue and decreased cost of sales.

Investing activities

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

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.

The decrease in net cash used in investing activities was primarily due to increased proceeds from the redemption and maturity of $59.1 million of our short-term investments in corporate debt and governmental securities in addition to decreased purchases of these same type of investments of $40.1 million during the year ended December 31, 2023, as compared to $13.0 million of proceeds and $50.3 million of purchases during the year

ended December 31, 2022.

Additionally, we received proceeds of $9.5 million from the sale of our investment in X-Bow in 2023.

We continue to have significant cash outflows for satellite procurement and launch related services and incur labor costs for internally developed capitalized software as we add innovative new services and tools to our Blacksky Spectra software platform;

however, the total amount paid for capital expenditures decreased slightly year over year.

Financing activities

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.

The most significant impact in the change in cash flows from financing activities in the year ended December 31, 2023 as compared to the year ended December 31, 2022 is the receipt of $32.7 million in proceeds from our equity issuances, net of equity issuance costs, of which $17.7 million was allocated to the liability-classified warrants in accordance with our accounting policy.

Our equity issuances in the year ended December 31, 2023 included a private placement of 16.4 million shares at a purchase price of $1.79 per share, which resulted in $29.4 million in gross proceeds, as well as the sale of 3.5 million shares under our ATM offering program, which resulted in $5.0 million in gross proceeds.

In addition, withholding tax payments on the vesting of RSUs decreased from $5.1 million in the year ended December 31, 2022 to $1.4 million in the year ended December 31, 2023.

We also incurred $0.9 million of transaction costs related to derivative liabilities and $1.3 million of payments related to debt modification costs in the year ended December 31, 2023.

Contractual Obligations and Commitments

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.

As of December 31, 2023, we had a debt facility from related parties with an outstanding principal amount of $84.6 million, which matures in October 2026, and interest due to related parties of $1.7 million, of which $0.3 million was included in other current liabilities and $1.4 million was included in other liabilities.

Please see Note 20 for further information on this facility.

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.

We have significant operational commitments with vendors for the development and production of our Gen-3 satellites over the next several years that contain termination for convenience options, subject to applicable termination fees.

For example, we have work orders to manufacture our Gen-3 satellites at LeoStella, our satellite manufacturing joint venture.

Our work orders with LeoStella and other manufacturing partners all contain termination for convenience options that allow us to manage the satellite production process from design through manufacturing.

We also have minimum cash commitments for office leases and remote ground station service arrangements of $13.8 million and $2.2 million, respectively.

In addition, we have approximately $7.3 million of minimum cash commitments for an office space lease that has not yet commenced.

The lease commenced in January 2024 with a lease term of 13 years.

Please see Note 22 for further information.

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.

The launch service provider invoices are based on time-based milestone payments from estimated launch dates.

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

During the year ended December 31, 2023, we entered into a commitment for non-refundable multi-launch and integration services.

We also entered into a commercial agreement with financing terms providing for multiple satellite launches of which $3.0 million is to be paid upfront, and $27.0 million will be drawn down in equal portions per launch and will be repaid quarterly on a pro-rata basis across a three-year period after each successful launch milestone.

Payments will accrue interest at 12.6% per annum.

We may prepay at any time until the maturity date without premium or penalty.

As of December 31, 2023, the minimum commitment associated with the agreement was $8.4 million.

As of December 31, 2023, the Company has not drawn or accrued any interest on the agreement.

In addition to the above, we have entered into various non-refundable operational commitments for the next several years totaling $6.6 million as of December 31, 2023.

Critical Accounting Estimates

The preparation of our consolidated financial statements and related notes requires management to make judgments, estimates, and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses.

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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.

Identifying the contract with the customer, 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.

Identifying the Contract with the Customer

We evidence approval of the contract with the customer with dual signatures or approved purchase orders that detail the rights of each party and define payment terms.

We also consider the probability of collectability in our assessment, specifically the presence of any collectability issues as the significant majority of our customers are domestic or international governments.

Identifying the Performance Obligations in a Contract

We execute contracts for a single promise or multiple promises.

Specifically, our firm fixed price contracts typically include multiple promises which are accounted for as separate performance obligations.

Significant judgment is required in determining performance obligations, and these decisions could change the amount of revenue and profit or loss recorded in each period.

Specifically, our firm fixed price contracts typically include multiple promises which may be accounted for as separate performance obligations if they are capable of being distinct and distinct within the context of the contract.

Significant judgment is required in determining performance obligations, including if some of the customized services are highly-interrelated, and these decisions could change the amount of revenue and profit or loss recorded in each period.

Classification of Revenue

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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.

Each customer contract 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.

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

When it is necessary to allocate the transaction price to multiple performance obligations, management typically uses the expected cost plus a reasonable profit margin to estimate the standalone selling price of each product or service.

We also sell standard products or services with observable standalone revenue transactions.

When it is necessary to allocate the transaction price to multiple performance obligations, management uses the listed price for imagery and analytics subscriptions and the expected cost plus a reasonable profit margin to estimate the standalone selling price of each product or service, which is mostly professional services.

In these situations, the observable standalone revenue transactions are used to determine the standalone selling price.

Determination of when Performance Obligations are Satisfied

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).

The estimation of total estimated costs at completion is subject to many variables and requires judgment.

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.

Imagery and analytics revenue is recognized ratably over the subscription period based on the promise to continuously provide contractual satellite capacity for tasked imagery or software analytical services at the discretion of the customer.

Professional and engineering services revenue is generated from time and materials basis contracts, 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-complete measure of progress because it best depicts the transfer of control to the customer as we incur costs on the contracts.

Under this 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).

The estimation of total estimated costs at completion is subject to many variables and requires significant judgment.

We recognize changes in the estimation of total costs at completion on a cumulative catch-up basis in the period in which the changes are identified.

Such changes in 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 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.

Equity valuations impact various amounts and accounting conclusions reflected in our consolidated financial statements, inclusive of the recognition of equity-based compensation and warrant valuations.

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 common stock that comprise our capital structure.

The following discussion also explains why these estimates, assumptions, and judgments could be subject to uncertainties and future variability.

Equity-Based Compensation

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.

We have equity and equity-based awards outstanding under our 2021 Equity Incentive Plan ("2021 Plan"), 2014 Equity Incentive Plan ("2014 Plan"), and Amended and Restated 2011 Equity Incentive Plan ("2011 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.

In addition, the Company's eligible employees are able to participate in our 2021 Employee Stock Purchase Plan ("ESPP") pursuant to purchase right offerings that are established under the ESPP.

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

Stock Option and Class A Common Stock Warrant Valuations

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.

Each of these assumptions is subjective, requires significant judgement, and is based upon management’s best estimates.

We use the Black-Scholes option-pricing model to value all options, including options under our ESPP, 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 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.

Each of these assumptions is subjective, requires significant judgment, and is based upon management’s best estimates.

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 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.

We have largely moved towards granting RSUs to the bulk of our employees, for which the grant date fair value is equal to the trading price fair value of our 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:

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The dividend yield is based on historical experience and expected future changes.

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 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.

We historically have not paid, and 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 Legacy BlackSky Class A common stock and due to the lack of sufficient history of BlackSky Class A common stock, the expected volatility of 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 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.

Legacy BlackSky was privately funded and, accordingly, the lack of marketability was factored into the expected term of options granted.

Expected Term—For options granted since 2021, as there is not a significant 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 when we were a private company, the expected term was the estimated duration to a liquidity event based on a weighted average consideration of the most likely exit prospects for that stage of development.

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

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.

We have classified the Private Placement Warrants issued in October 2019 and March 2023 and the Osprey pre-merger Class B common shares that were exchanged for shares of our Class A common stock (the "Sponsor Shares") as long-term liabilities in our consolidated balance sheets as of December 31, 2023 and December 31, 2022.

The Private Placement Warrants issued in October 2019 and the Sponsor Shares were initially recorded at fair value on the date of the merger and the Private Placement Warrants issued in March 2023 were recorded at fair value on the date of issuance.

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.

These liabilities are re-measured to fair value at each subsequent reporting date and recorded to gain on derivatives in 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 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.

Therefore, the expected stock volatility includes both our 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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If the undiscounted cash flows exceed the net book value, the long-lived assets are considered not to be impaired.

If the net book value exceeds the undiscounted cash flows, an impairment charge is measured and recognized based upon the difference between the carrying value of long-lived assets (or asset group) and their fair value.

If the net book value exceeds the undiscounted

cash flows, an impairment charge is measured and recognized based upon the difference between the carrying value of long-lived assets (or asset group) and their fair value.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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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.

The information required by this item is set forth beginning on page 81 on this Annual Report on Form 10-K.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis