bksy-20230331

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

___________________________________

FORM 10-Q

___________________________________

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023


o			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-39113

___________________________________

BLACKSKY TECHNOLOGY INC.

___________________________________

(Exact name of registrant as specified in its charter)


Delaware			47-1949578
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)
13241 Woodland Park Road Suite 300 Herndon, Virginia			20171
(Address of Principal Executive Offices)			(Zip Code)

(571) 267-1571

Registrant’s telephone number, including area code

___________________________________

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A common stock, par value $0.0001 per share	BKSY	The New York Stock Exchange
Warrants, each whole warrant exercisable for one share of Class A common stock at an exercise price of $11.50	BKSY.W	The New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer	o	Accelerated filer	o
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).Yes o No ý

As of May 8, 2023, there were 139,333,003 shares of the registrant’s class A common stock, at $0.0001 par value, outstanding.

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		Page
	Part I. Financial Information
Item 1.	Financial Statements	5
	Condensed Consolidated Balance Sheets	5
	Condensed Consolidated Statements of Operations and Comprehensive Loss	6
	Condensed Consolidated Statements of Changes in Stockholders’ Equity	7
	Condensed Consolidated Statements of Cash Flows	8
	Notes to Condensed Consolidated Financial Statements	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	40
Item 4.	Controls and Procedures	40
	Part II. Other Information
Item 1.	Legal Proceedings	41
Item 1A.	Risk Factors	41
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41


Item 5.	Other Information	41
Item 6.	Exhibits	43
	Signatures	44

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SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains, and our officers and representatives may from time to time make, forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which statements involve substantial risks and uncertainties. All statements contained in this Quarterly Report on Form 10-Q other than statements of historical fact, including statements regarding our future results of operations and financial position, our business strategy and plans, and our objectives for future operations, are forward-looking statements. The words “believe,” “may,” “will,” “potentially,” “estimate,” “continue,” “anticipate,” “plan,” “intend,” “could,” “would,” “expect” and similar expressions that convey uncertainty of future events or outcomes are intended to identify forward-looking statements. Forward-looking statements included in this Quarterly Report on Form 10-Q include, but are not limited to, statements regarding:

• our ability to retain or recruit key employees;

• our ability to grow distribution channels and partner ecosystems;

• our anticipated capital expenditures, liquidity, and our estimates regarding our capital requirements;

• our ability to integrate proprietary and third-party sensor data;

• our ability to add new satellites to our commercial operations;

• our ability to invest in our software, research and development capabilities;

• our ability to grow a third-party developer community;

• our ability to expand our services and offerings to customers both domestically and internationally;

• our ability to continue delivering data in a cost-effective manner;

• our ability to maintain and protect our brand;

• our ability to expand within our current customer base;

• our ability to compete with legacy satellite imaging providers and other emergent geospatial intelligence providers;

• our ability to maintain intellectual property protection for our products or avoid or defend claims of infringement;

• our ability to comply with laws and regulations applicable to our business;

• our expectations about market trends and needs;

• our estimates of market growth, future revenue, expenses, including stock-based compensation expense, cash flows, capital requirements and additional financing;

• our expectations regarding our ability to progress toward becoming operating cash flow positive;

• our ability to manage the timing of capital expenditures to allow for additional flexibility to optimize our long-term liquidity requirements;

• our ability to optimize our cash spend to meet short and long-term operational needs;

• the volatility of the trading price of our common stock;

• the performance of our Spectra AI platform;

• our plans and expectations for our next generation satellites (“Gen-3”);

• the impact of local, regional, national and international economic conditions and events;

• the effect of COVID-19 on the foregoing; and

• other factors including but not limited to those detailed under the section entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022 and filed by us with the Securities and Exchange Commission (the “SEC”) on March 23, 2023.

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We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for us to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and trends discussed in this Quarterly Report on Form 10-Q may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, performance, or events and circumstances reflected in the forward-looking statements will be achieved or occur. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements, whether written or oral, except as required by law.

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

BLACKSKY TECHNOLOGY INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

(in thousands, except par value)


	March 31,		December 31,
	2023		2022
Assets
Current assets:
Cash and cash equivalents	$	56,964	$	34,181
Restricted cash	2,835		2,835
Short-term investments	11,792		37,982
Accounts receivable, net of allowance of $0 and $0, respectively	9,059		3,112
Prepaid expenses and other current assets	4,295		4,713
Contract assets	6,442		5,706
Total current assets	91,387		88,529
Property and equipment - net	87,377		71,584
Operating lease right of use assets - net	3,343		3,586
Goodwill	9,393		9,393
Investment in equity method investees	5,814		5,285
Intangible assets - net	1,778		1,918
Satellite procurement work in process	39,581		50,954
Other assets	2,576		2,841
Total assets	$	241,249	$	234,090
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable and accrued liabilities	$	10,571	$	14,368
Amounts payable to equity method investees	2,377		3,728
Contract liabilities - current	3,873		6,783
Other current liabilities	4,033		2,048
Total current liabilities	20,854		26,927
Liability for estimated contract losses	641		714
Long-term contract liabilities	68		109
Operating lease liabilities	3,082		3,132
Derivative liabilities	21,298		5,113
Long-term debt - net of current portion	76,332		76,219
Other liabilities	69		2
Total liabilities	122,344		112,216
Commitments and contingencies (Note 15)
Stockholders’ equity:
Class A common stock, $0.0001 par value-authorized, 300,000 shares; issued, 139,257 and 121,938 shares; outstanding, 136,839 shares and 119,508 shares as of March 31, 2023 and December 31, 2022, respectively.	14		12
Additional paid-in capital	681,317		666,973
Accumulated deficit	(562,426)		(545,111)
Total stockholders’ equity	118,905		121,874
Total liabilities and stockholders’ equity	$	241,249	$	234,090

See notes to unaudited condensed consolidated financial statements

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BLACKSKY TECHNOLOGY INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(unaudited)

(in thousands, except per share amounts)


	Three Months Ended March 31,
		2023		2022
Revenue
Imagery & software analytical services		$	15,760	$	7,370
Professional & engineering services		2,637		6,526
Total revenue		18,397		13,896
Costs and expenses
Imagery & software analytical service costs, excluding depreciation and amortization		3,699		3,578
Professional & engineering service costs, excluding depreciation and amortization		2,779		7,377
Selling, general and administrative		18,949		22,540
Research and development		216		146
Depreciation and amortization		9,655		7,391


Operating loss		(16,901)		(27,136)

Gain on derivatives		1,531		8,140
Income on equity method investment		529		257
Interest income		435		—
Interest expense		(1,853)		(1,255)
Other (expense) income, net		(943)		2
Loss before income taxes		(17,202)		(19,992)
Income tax expense		(113)		—





Net loss		(17,315)		(19,992)
Other comprehensive income		—		—
Total comprehensive loss		$	(17,315)	$	(19,992)

Basic and diluted loss per share of common stock:


Net loss per share of common stock		$	(0.14)	$	(0.17)

See notes to unaudited condensed consolidated financial statements

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BLACKSKY TECHNOLOGY INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(unaudited)

(in thousands)


			Three months ended March 31, 2023
	Common Stock	Additional Paid-In		Accumulated		Total Stockholders'
			Shares	Amount		Capital		Deficit		Equity
Balance as of January 1, 2023			119,508	$	12	$	666,973	$	(545,111)	$	121,874
Stock-based compensation			—	—		3,214		—		3,214
Issuance of common stock upon exercise of stock options			129	—		3		—		3
Issuance of common stock upon vesting of restricted stock awards			11	—		—		—		—
Issuance of common stock upon vesting of restricted stock units			787	—		—		—		—
Issuance of common stock			16,404	2		11,127		—		11,129
Net loss			—	—		—		(17,315)		(17,315)





Balance as of March 31, 2023			136,839	$	14	$	681,317	$	(562,426)	$	118,905


	Three Months Ended March 31, 2022
	Common Stock			Additional Paid-In		Accumulated	Total Stockholders'
	Shares	Amount		Capital			Deficit		Equity
Balance as of January 1, 2022	114,452	$	11	$	650,518		$	(470,909)	$	179,620
Stock-based compensation	—	—		10,862			—		10,862
Issuance of common stock upon exercise of stock options	404	—		17			—		17
Issuance of common stock upon vesting of restricted stock awards	129	—		—			—		—
Issuance of common stock upon vesting of restricted stock units	4,816	1		—			—		1
Withholding of restricted stock to satisfy tax withholding obligations upon the vesting of the related restricted stock	(1,874)	—		(3,616)			—		(3,616)
Net loss	—	—		—			(19,992)		(19,992)
Balance as of March 31, 2022	117,927	$	12	$	657,781		$	(490,901)	$	166,892

See notes to unaudited condensed consolidated financial statements

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BLACKSKY TECHNOLOGY INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)


	Three Months Ended March 31,
	2023		2022
Cash flows from operating activities:
Net loss	$	(17,315)	$	(19,992)



Depreciation and amortization expense	9,655		7,391
Operating lease right of use assets amortization	446		389

Bad debt expense	—		6
Stock-based compensation expense	3,012		10,240


Amortization of debt discount and issuance costs	113		502
Gain on equity method investment	(529)		(257)
Gain on disposal of property and equipment	(22)		—
Gain on derivatives	(1,531)		(8,140)

Interest income	(156)		—

Changes in operating assets and liabilities:
Accounts receivable	(5,947)		(2,868)
Contract assets - current and long-term	(591)		(1,187)
Prepaid expenses and other current assets	462		1,220
Other assets	(8)		(5)
Accounts payable and accrued liabilities	(2,966)		1,533
Other current liabilities	1,732		(585)
Contract liabilities - current and long-term	(2,951)		694
Liability for estimated contract losses	(73)		(2,428)
Other liabilities	67		811
Net cash used in operating activities	(16,602)		(12,676)
Cash flows from investing activities:
Purchase of property and equipment	(2,874)		(1,926)
Satellite procurement work in process	(12,926)		(11,499)
Purchase of short-term investments	(11,792)		—
Proceeds from maturities of short-term investments	38,110		—




Net cash provided by (used in) investing activities	10,518		(13,425)
Cash flows from financing activities:
Proceeds from private placement, net of equity issuance costs	29,432		—

Proceeds from options exercised	3		17



Payments for deferred offering costs	(552)		—
Payments of transaction costs related to derivative liabilities	(16)		—
Withholding tax payments on vesting of restricted stock units	—		(3,616)
Net cash provided by (used in) financing activities	28,867		(3,599)
Net increase (decrease) in cash, cash equivalents, and restricted cash	22,783		(29,700)
Cash, cash equivalents, and restricted cash – beginning of year	37,016		168,104
Cash, cash equivalents, and restricted cash – end of period	$	59,799	$	138,404

See notes to unaudited condensed consolidated financial statements

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The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the unaudited condensed consolidated balance sheets that sum to the total of the same such amounts shown in the unaudited condensed consolidated statements of cash flows:


	March 31,
	2023		2022

Cash and cash equivalents	$	56,964	$	135,886
Restricted cash	2,835		2,518
Total cash, cash equivalents, and restricted cash	$	59,799	$	138,404


	Three Months Ended March 31,
	2023		2022
	(in thousands)
Supplemental disclosures of cash flow information:
Cash paid for interest	$	—	$	—
Cash paid for income taxes	—		—
Supplemental disclosures of non-cash financing and investing information:
Property and equipment additions accrued but not paid	$	4,130	$	6,721
Capitalized stock-based compensation	202		622
Capitalized interest for property and equipment placed into service	220		—
Accretion of short-term investments' discounts and premiums	156		—

Equity issuance costs accrued but not paid	588		—
Deferred offering costs accrued but not paid	31		—

Transaction costs related to derivative liabilities accrued but not paid	888		—
Satellite procurement costs included in settlement with LeoStella	36		—
Proceeds from sale of property and equipment accrued but not received	24		—

See notes to unaudited condensed consolidated financial statements

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BLACKSKY TECHNOLOGY INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2023

1. Organization and Business

BlackSky Technology Inc. (“BlackSky” or the “Company”), headquartered in Herndon, Virginia, is a leading provider of real-time geospatial intelligence. The Company owns and operates one of the industry's leading high-performance low earth orbit small satellite constellations. The constellation is optimized to cost-efficiently capture imagery at high revisit rates where and when customers need it. BlackSky’s 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 artificial intelligence ("AI") and machine learning (“ML”) techniques to process, analyze, and transform these data feeds into alerts, information, and insights. Customers can access Spectra AI’s data and analytics through easy-to-use web services or through platform application programming interfaces.

As of March 31, 2023, BlackSky had 16 satellites in commercial operation. BlackSky has two primary operating subsidiaries, BlackSky Global LLC and BlackSky Geospatial Solutions, Inc. The Company also owns fifty percent of LeoStella LLC (“LeoStella”), its joint venture with Thales Alenia Space US Investment LLC (“Thales”). LeoStella is a vertically-integrated small satellite design and manufacturer based in Tukwila, Washington, from which the Company procures satellites to operate its business. The Company accounts for LeoStella and X-Bow Launch Systems Inc. (“X-Bow”), a space technology company specializing in additive manufacturing of solid rocket motors of which BlackSky owns less than 20%, as equity method investments (see Note 6).

On March 8, 2023, the Company completed the closing of a private placement whereby the Company issued 16.4 million shares of the Company’s Class A common stock as well as warrants to purchase up to an additional 16.4 million shares of Class A 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 $29.4 million before deducting the placement agent fees and other offering expenses payable by the Company. See Note 8 for information regarding the issuance of the private placement warrants.

2. Basis of Presentation and Summary of Significant Accounting Policies

Basis of Preparation

The Company has prepared its unaudited condensed consolidated financial statements in accordance with Generally Accepted Accounting Principles in the United States of America (“GAAP”) and the instructions to Form 10-Q and Article 8 of Regulation S-X of the Securities and Exchange Commission (the "SEC"). The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. In addition, the unaudited condensed consolidated financial statements include the Company’s proportionate share of the earnings or losses of its equity method investments and a corresponding increase or decrease to its investment, with recorded losses limited to the carrying value of the Company’s investment. All intercompany transactions and balances have been eliminated upon consolidation.

Effective January 1, 2022, the Company reorganized its captions on the unaudited condensed consolidated statements of operations and comprehensive loss to better align the Company’s broad portfolio. As a result, for the three months ended March 31, 2022, the amounts presented to reflect the impact of the reorganization have been recasted. This resulted in a $2.4 million reclassification between imagery & software analytical services revenue and professional & engineering services revenue and a $2.3 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 unaudited condensed consolidated statements of operations and comprehensive loss.

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As previously disclosed in the Company's Form 10-K for the year ended December 31, 2022, effective January 1, 2022, the Company adopted Accounting Standards Codification ("ASC") Topic 842, Leases, using the modified retrospective method, with the cumulative effect of initially applying these updates recognized at the date of initial application. The adoption of this standard is reflected in the amounts and disclosures set forth in this Form 10-Q. In accordance with the adoption on a modified retrospective basis, comparative periods prior to the effective date were adjusted, resulting in a $4 thousand change to selling, general and administrative for the three months ended March 31, 2022.

The Company made one disclosure related to 2022 that was previously undisclosed. The disclosure relates to payments made to Thales Alenia Space in Note 13 – Related Party Transactions. The Company believes the disclosure is immaterial to the 2022 consolidated financial statements.

The Company’s unaudited condensed consolidated financial statements have been prepared on a historical cost basis, except for certain financial assets and liabilities, including derivative financial instruments, which are stated at fair value. Unless otherwise indicated, amounts presented in the Notes pertain to the Company’s continuing operations.

Use of Estimates

The preparation of the unaudited condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingencies at the reporting date, and the reported amounts of revenue and expenses during the reporting period. These estimates are based on management’s best knowledge of current events and actions the Company may undertake in the future. Actual results could materially differ from these estimates. Significant estimates made by the Company include, but are not limited to, revenue and associated cost recognition, the collectability of accounts receivable, the recoverability and useful lives of property and equipment, the valuation of equity warrants and warrant liabilities, fair value estimates, the recoverability of goodwill and intangible assets, the provision for income taxes, and stock-based compensation.

Investments

The Company invests in short-term investments, which generally consist of A-1, or higher, rated corporate debt and governmental securities. The investments are classified as held-to-maturity and have a stated maturity date of one year or less from the balance sheet date. Any investments with original maturities less than three months are considered cash equivalents.

As of March 31, 2023 and December 31, 2022, the Company’s short-term investments had a carrying value of $11.8 million and $38.0 million, respectively, which represents amortized cost, and an aggregate fair value of $11.8 million and $37.9 million, respectively, which represents a Level 1 measurement based off of the fair value hierarchy. The gross unrecognized holding losses as of March 31, 2023 and December 31, 2022 were $0 and $0.1 million, respectively; the gross unrecognized holding gains as of March 31, 2023 and December 31, 2022 were $4 thousand and $0, respectively.

Fair Value of Financial Instruments

The Company accounts for certain assets and liabilities at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

The process for analyzing the fair value measurement of certain financial instruments on a recurring, or non-recurring, basis includes significant judgment and estimates of inputs including, but not limited to, share price, volatility, discount for lack of marketability, application of an appropriate discount rate, and probability of liquidating events. The Company utilizes the market valuation methodology and specific option pricing methodology, such as the Monte Carlo simulation, method to value the more complex financial instruments and the Black-Scholes option-pricing model to value standard common stock warrants and common stock options.

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The framework for measuring fair value specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company's assumptions. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement).

The three levels of the fair value hierarchy are as follows:

Level 1 Inputs. Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.

Level 2 Inputs. Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.

Level 3 Inputs. Inputs are unobservable inputs which reflect the Company’s own assumptions on what assumptions market participants would use in pricing the asset or liability based on the best available information.

Revenue Recognition

The Company generates revenue from the sale of imagery and software analytical services and professional and engineering services. Imagery and software analytical services revenue includes imagery, data, software, and analytics. This revenue is recognized from services rendered under non-cancellable subscription order agreements or variable not-to-exceed purchase orders. 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.

The Company generates revenue primarily through contracts with government agencies. Some of the fixed price contracts include multiple promises, which are generally separated as distinct performance obligations. The Company allocates the transaction price to each performance obligation based on the relative standalone selling prices using observable sales transactions where applicable.

In accordance with Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASC 606”), the Company uses the five-step model of identifying the contract with a customer, identifying the performance obligations contained in a contract, determining transaction price, allocating transaction price, and determining when performance obligations are satisfied, which can require the application of significant judgment, as further discussed below.

Revenue is measured at the fair value of consideration received or receivable and net of discounts. The Company applies a policy election to exclude transaction taxes collected from customer sales when the tax is both imposed on and concurrent with a specific revenue-producing transaction. The Company estimates any variable consideration, and whether the transaction price is constrained, upon execution of each contract. The Company did not have any active contracts with significant variable consideration as of March 31, 2023.

Imagery & Software Analytical Services Revenue

Imagery

Imagery services include imagery delivered from the Company’s satellites in orbit via our Spectra AI platform and in limited cases directly uploaded to certain customers. 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

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at a premium over a region of interest on a take or pay basis. Imagery revenue is recognized ratably over the subscription period or at the point in time the customer receives access to the imagery.

Data, Software, and Analytics

The Company leverages proprietary AI and ML algorithms to analyze data coming from both the Company’s proprietary sensor network and third-party space and terrestrial sources to provide hard-to-get data, insights, and analytics for customers. The Company continues to integrate and enhance its offerings by performing contract development, while retaining the intellectual property rights. The Company also offers services related to object, change and anomaly detection, site monitoring, and enhanced analytics, through which the Company can detect key pattern of life changes in critical locations such as ports, airports, and construction sites; retail activity; commodities stockpiles; and other sites that contain critical commodities and supply chain inventory.

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. 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 basis, or at the point in time the customer receives access to an analytic product.

Professional and Engineering Services Revenue

The Company provides technology enabled professional service solutions to support customer-specific software development requests, integration, testing, and training. The Company uses system engineers to support customer efforts to manage mass quantities of data. For firm fixed price professional service contracts, the Company recognizes revenue using total estimated costs to complete the performance obligation, ("Estimate at Completion" or "EAC"). A performance obligation’s EAC includes all direct costs such as labor, materials, subcontract costs and overhead. In addition, an EAC of a performance obligation includes future losses estimated to be incurred on contracts, as and when known. For contracts structured as cost-plus-fixed-fee or on a time and materials basis, the Company generally recognizes revenue based on the right-to-invoice when practically expedient, as the Company is contractually able to invoice the customer based on the control transferred to the customer in an amount that corresponds directly with the value to the customer of the entity’s performance completed to date.

The Company also develops and delivers advanced launch vehicle, satellite and payload systems for a limited number of customers that leverage the Company’s capabilities in mission systems engineering and operations, ground station operations, and software and systems development. These systems are sold to government customers under fixed price contracts. The Company generally recognizes revenue over time using the cost-to-cost method to measure progress, pursuant to which the extent of progress towards completion is measured based on the ratio of costs incurred to date to the EAC. The estimation of total estimated costs at completion is subject to many variables and requires judgment. The Company recognizes 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 profitability for a performance obligation indicates a probable anticipated loss, the Company recognizes the total loss for the performance obligation in the period it is identified. Changes in estimates related to contracts accounted for using the cost-to-cost measure of progress are recognized in the period in which such changes are made for the inception-to-date effect of the changes. For the three months ended March 31, 2023 and 2022, the Company recognized $0.4 million and $1.2 million, respectively, of unfavorable cumulative adjustments to revenue directly from estimated cost increases on two professional and engineering services contracts (see Note 5). All, or a portion, of this cumulative adjustment will be recognized in future revenue as the percentage of completion increases over time. During the three months ended March 31, 2023, there was no revenue recognized from performance obligations satisfied in previous periods.

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Imagery and Software Analytical Service and Professional and Engineering Service Costs

Imagery and software analytical service costs primarily include internal labor to support the ground station network and space operations, third-party data and imagery, and cloud computing and hosting services. The Company recognizes 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 these services to support customer-based programs, the stock-based compensation expense is classified under imagery and software analytical services costs.

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.

Sponsor Shares

On September 9, 2021, BlackSky's predecessor company, Osprey Technology Acquisition Corp. (“Osprey”), completed its merger (the "Merger") with Osprey Technology Merger Sub, Inc., a wholly owned subsidiary of Osprey, and BlackSky Holdings, Inc. (“Legacy BlackSky”). Osprey pre-Merger class B common shares were exchanged for shares of the Company’s class A common stock (the "Sponsor Shares") upon completion of the Merger. The Company accounted for the Sponsor Shares in accordance with the guidance contained in ASC 815-40, under which the Sponsor Shares did not meet the criteria for equity treatment and were recorded as derivative liabilities in the Company’s unaudited condensed consolidated balance sheets as of March 31, 2023. The Sponsor Shares are adjusted to fair value at each reporting period and the change in fair value is recognized in gain on derivatives in the Company’s unaudited condensed consolidated statements of operations and comprehensive loss.

Warrant Liability

In October 2019, Osprey, BlackSky's predecessor company and special purpose acquisition company, issued 15.8 million public warrants and 8.3 million private placement warrants in connection with its public offering. In March 2023, the Company issued 16.4 million private placement warrants in connection with a private placement of shares of Class A common stock and accompanying warrants (see Note 8 and Note 10). The Company accounts for its warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in ASC 480, “Distinguishing Liabilities from Equity” (“ASC 480”) and ASC 815, “Derivatives and Hedging” (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments that would require classification as a liability under ASC 480, as well as whether the warrants qualify for equity classification or require liability classification after consideration of the guidance and criteria outlined in ASC 815, including whether the warrants are indexed to the Company’s own common shares and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions that impact classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance.

For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all of the criteria for equity classification, the warrants are required to be recorded at their initial fair value on the date of issuance. The Company accounted for the warrants issued in

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October 2019 and March 2023 in accordance with the guidance contained in ASC 815-40-55-2, as liabilities at their fair value.

As of March 31, 2023, the Company’s unaudited condensed consolidated balance sheets included liability classified warrants, reported as derivative liabilities. The fair value of the public warrants was estimated as of March 31, 2023 using the public warrants’ quoted market price. The October 2019 and March 2023 private placement warrants were valued using a Black-Scholes option pricing model for initial and subsequent measurements. The liabilities associated with the public warrants and the private placement warrants are subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in gain on derivatives in the Company’s unaudited condensed consolidated statements of operations and comprehensive loss.

Stock-Based Compensation

Restricted Stock Awards and Restricted Stock Units

The Company has granted restricted stock awards ("RSAs") and grants restricted stock units ("RSUs") to certain 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. In order to determine the fair value of its Class A common stock on the date of grant and prior to the Merger, Legacy BlackSky historically performed a valuation analysis using a combination of market and income approaches. Subsequent to the Merger, the Company uses the New York Stock Exchange (“NYSE”) trading price as the fair value of the Class A common stock for valuation purposes. For all awards for which vesting is only subject to a service condition, including those subject to graded vesting, the Company has elected to use the straight-line method to recognize the fair value as compensation cost over the requisite service period.

Certain of the Company’s outstanding RSUs had performance vesting conditions that were triggered upon the consummation of the Merger. Therefore, since the performance conditions attributable to these RSUs had been met, the Company commenced recording the associated compensation expense, inclusive of a catch-up amount for the service period between their grant date and satisfaction of the performance condition, as of the closing of the Merger. The fair value of the RSUs that include a performance condition is recognized as compensation expense over the requisite service period using the accelerated attribution method, which accounts for RSUs with discrete vesting dates as if they were a separate award. Expense related to stock-based payments is classified in the unaudited condensed consolidated statements of operations and comprehensive loss based upon the classification of each employees’ cash compensation.

Stock Options

The Company uses the Black-Scholes option pricing model to value all options and the straight-line method to recognize the fair value as compensation cost over the requisite service period. The fair value of each option granted was estimated as of the date of grant. The Company did not grant options in the three months ended March 31, 2023. The Company uses the following inputs when applying the Black-Scholes option pricing model:

Expected Dividend Yield. The Black-Scholes valuation model requires an expected dividend yield as an input. The dividend yield is based on historical experience and expected future changes. The Company currently has no plans to pay dividends on its Class A common stock.

Expected Volatility. The Company does not have enough historical share price history; therefore, the expected volatility 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 was not a history of option exercises as a public company, the Company 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

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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. The Company will review its estimate in the future and adjust it, if necessary, due to changes in the Company’s historical exercises.

The most significant assumption used to determine the fair value of the Legacy BlackSky equity-based awards was the estimated fair value of the Class A common stock on the grant date. In order to determine the fair value of its Class A common stock on the date of grant and prior to the Merger, Legacy BlackSky historically performed a valuation analysis using a combination of market and income approaches. Subsequent to the Merger, the Company uses the NYSE trading price as the fair value of the Class A common stock for valuation purposes.

Legacy BlackSky historically adjusted the exercise price of certain outstanding stock options. For each award with an adjusted exercise price, Legacy BlackSky calculated the incremental fair value, which was the excess of the fair value of the modified award over the fair value of the original award immediately before the modification. The incremental fair value was recognized as stock-based compensation expense immediately to the extent that the modified stock option already had vested, and for stock options that were not yet vested, the incremental fair value has been recognized as stock-based compensation expense over the remaining vesting period.

Transaction Costs

Transaction costs consist of legal fees, accounting fees, placement agent fees, and other third-party costs related directly to the March 2023 private placement. Upon the closing of the March 2023 private placement, transaction costs that had been incurred were allocated to the components of the transaction based on their relative fair market value, including common equity and equity warrants classified as derivatives and, as such, based on our allocation, were either expensed in the unaudited condensed consolidated statements of operations or comprehensive loss and recorded as a reduction to additional paid-in capital in the unaudited condensed consolidated statements of changes in stockholders’ equity and unaudited condensed consolidated balance sheets.

3. Accounting Standards Updates (“ASU”)

Accounting Standards Recently Adopted

Effective January 1, 2023, the Company adopted ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. The amendments in this update are primarily for entities holding financial assets and net investment leases measured under an incurred loss impairment methodology. The new methodology reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates, which includes losses on trade accounts receivable. This ASU was applied on a modified retrospective basis. There were no material impacts to the consolidated financial statements upon adoption.

4. Revenue

Disaggregation of Revenue

The Company earns revenue through the sale of imagery and software analytical services and professional and engineering services. The Company’s management primarily disaggregates revenue as follows: (i) imagery; (ii) data, software and analytics; (iii) engineering services; and (iv) professional services. This disaggregation allows the Company to evaluate market trends in certain imagery and software analytical services and professional and engineering services. These offerings currently have both recurring and non-recurring price attributes, particularly the professional and engineering services offerings.

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The following table disaggregates revenue by type for the three months ended March 31, 2023 and 2022:


	Three months ended March 31,
		2023		2022
		(in thousands)
Imagery		$	12,912	$	3,610
Data, software and analytics		2,848		3,760
Engineering services		9		4,124
Professional services		2,628		2,402
Total revenue		$	18,397	$	13,896

The approximate revenue based on geographic location of customers is as follows for the three months ended March 31, 2023 and 2022:


	Three months ended March 31,
		2023		2022
		(in thousands)
North America		$	14,019	$	11,147
Middle East		1,525		594
Asia		2,625		1,994
Other		228		161
Total revenue		$	18,397	$	13,896

Revenue from significant customers for the three months ended March 31, 2023 and 2022 is as follows:


	Three months ended March 31,
		2023		2022
		(in thousands)
U.S. federal government and agencies		$	13,670	$	11,063
International governments		4,383		2,745
Commercial and other		344		88
Total revenue		$	18,397	$	13,896

As of March 31, 2023 and December 31, 2022, accounts receivable consisted of the following:


	March 31,		December 31,
	2023		2022
	(in thousands)
U.S. federal government and agencies	$	8,692	$	2,540
International government	187		261
Commercial and other	180		311

Total accounts receivable	$	9,059	$	3,112

Backlog

Backlog represents the future sales the Company expects to recognize on firm orders it receives and is equivalent to the Company’s remaining performance obligations at the end of each period. It comprises both funded backlog (firm orders for which funding is authorized and appropriated) and unfunded backlog. The

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Company's backlog excludes unexercised contract options. As of March 31, 2023, the Company had $243.7 million of backlog, which represents the transaction price of executed contracts less inception to date revenue recognized. The Company expects to recognize revenue relating to its backlog, of which a portion is recorded in deferred revenue in the unaudited condensed consolidated balance sheets, of $50.5 million, $26.4 million, and $166.8 million in the nine months ended December 31, 2023, fiscal year 2024, and thereafter, respectively.

5. Contract Assets and Liabilities

The components of contract assets and contract liabilities consisted of the following:


	March 31,		December 31,
	2023		2022
	(in thousands)
Contract assets - current:
Unbilled revenue	$	6,442	$	5,706

Total contract assets - current	$	6,442	$	5,706

Contract assets - long-term:
Unbilled revenue - long-term	$	920	$	1,287
Contract assets - long-term	903		681
Total contract assets - long-term(1)	$	1,823	$	1,968

Contract liabilities - current:
Deferred revenue - short-term	$	3,873	$	6,783

Total contract liabilities - current	$	3,873	$	6,783

Contract liabilities - long-term:

Other contract liabilities - long-term	$	68	$	109
Total contract liabilities - long-term	$	68	$	109

(1) Total contract assets - long term is included in other assets in the unaudited condensed consolidated balance sheets.

Deferred revenue and other contract liabilities are reported as contract liabilities in the accompanying unaudited condensed consolidated balance sheets. Contract liabilities include payments received and billings made in advance of the satisfaction of performance obligations under the contract and are realized when the associated revenue is recognized under the contract. Contract assets include (i) unbilled revenue, which is the amount of revenue recognized in excess of the amount billed to customers, where the rights to payment are not just subject to the passage of time; and (ii) costs incurred to fulfill contract obligations. Other contract assets and other contract liabilities primarily relate to contract commissions on customer contracts.

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Changes in short-term and long-term contract assets and contract liabilities for the three months ended March 31, 2023 were as follows:


	Contract Assets		Contract Liabilities
	(in thousands)
Balance on January 1, 2023	$	7,674	$	6,892
Billings or revenue recognized that was included in the beginning balance	(892)		(3,707)
Changes in contract assets or contract liabilities, net of reclassification to receivables	1,261		354
Cumulative catch-up adjustment arising from changes in estimates to complete	—		444
Cumulative catch-up adjustment arising from contract modification	—		(1)
Changes in costs to fulfill and amortization of commission costs	222		—
Changes in contract commission costs	—		(41)
Balance on March 31, 2023	$	8,265	$	3,941

6. Equity Method Investments

LeoStella

The Company accounts for its investment in LeoStella as an equity method investment. The Company did not make any additional capital investments in LeoStella during the three months ended March 31, 2023 or 2022.

LeoStella's revenue from related parties was $13.0 million and $4.9 million for the three months ended March 31, 2023 and 2022, respectively. The Company had differences between the carrying value of its equity method investments and the underlying equity in the net assets of the investees of $2.5 million and $2.6 million as of March 31, 2023 and 2022, respectively. The difference is the result of the elimination of upstream intra-entity profits from the sale of satellites.

The following tables present summarized financial information for the Company’s investments in LeoStella and X-Bow for the three months ended March 31, 2023 and 2022.


	Three Months Ended March 31,
Summarized statements of operations		2023		2022
		(in thousands)
Revenue		$	15,180	$	16,733
Net (loss) income		(2,403)		101

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7. Property and Equipment - net

The following summarizes property and equipment - net as of:


	March 31,		December 31,
	2023		2022
	(in thousands)
Satellites	$	138,598	$	116,219
Software	10,161		8,503
Software development in process	3,793		2,942
Computer equipment	2,043		1,996
Office furniture and fixtures	475		674
Other equipment	631		631
Site equipment	2,680		2,558

Total	158,381		133,523
Less: accumulated depreciation	(71,004)		(61,939)
Property and equipment — net	$	87,377	$	71,584

8. Equity Warrants Classified as Derivative Liabilities

Warrant Issuances

In March 2023, the Company completed the closing of a private placement whereby the Company issued warrants to purchase up to 16.4 million shares of Class A common stock.

The purchase price of each share and associated warrant was $1.79. Including the issuance of Company’s Class A common stock (see Note 10), the aggregate gross proceeds to the Company from the private placement were $29.4 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.

The warrants have an exercise price of $2.20 per share of Class A common stock, and are exercisable beginning on September 8, 2023 until September 8, 2028. The March 2023 private placement warrants provide that a holder of warrants will not have the right to exercise any portion of its warrants if such holder, together with its affiliates, would beneficially own in excess of 4.99% of the number of shares of common stock outstanding immediately after giving effect to such exercise; provided, however, that each holder may increase or decrease the beneficial ownership limitation by giving notice to the Company; but not to any percentage in excess of 9.99%.

The Company incurred transaction costs which consisted of legal fees, accounting fees, placement agent fees, and other third-party costs directly related to the March 2023 private placement. The transaction costs of $0.9 million related to the 2023 private placement warrants were included in other (expense) income, net in the unaudited condensed consolidated statements of operations and comprehensive loss for the three months ended March 31, 2023.

The Company also has approximately 24.1 million additional outstanding warrants, including 15.8 million public warrants and 8.3 million private placement warrants, issued by Osprey, our predecessor company, in 2019 in connection with its initial public offering as a special purpose acquisition company. The 2019 warrants are each exercisable for one share of the Company's Class A common stock.

Warrant Valuation

Equity warrants that are classified as derivative liabilities must be measured at fair value upon issuance and re-valued at the end of each reporting period through expiration and are included in derivative liabilities in the

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Company's unaudited condensed consolidated balance sheets. Any change in fair value between the respective reporting dates is recognized as an unrealized gain or loss in the accompanying unaudited condensed consolidated statements of operations and comprehensive loss (see Note 14). The Company's derivative liabilities were made up of only equity warrants and the Sponsor Shares as of March 31, 2023 and December 31, 2022.

The following table is a summary of the number of shares of the Company’s Class A common stock issuable upon exercise of warrants at March 31, 2023:


	Number of Shares	Exercise Price		Redemption Price		Expiration Date	Classification	(Gain) loss in value for the three months ended March 31, 2023		Fair Value at March 31, 2023
	(in thousands)							(in thousands)
Public Warrants	15,813	$	11.50	$	18.00	9/9/2026	Liability	$	(797)	$	2,894
Private Placement Warrants - Issued October 2019	4,163	11.50		18.00		9/9/2026	Liability	(84)		958
Private Placement Warrants - Issued October 2019	4,163	20.00		18.00		9/9/2026	Liability	(83)		541
Private Placement Warrants - Issued March 2023	16,404	2.20		N/A		9/8/2028	Liability	2,625		15,091

In addition, the Company has 1.8 million Class A common stock warrants outstanding which have an exercise price of $0.11 and expiration dates from June 27, 2028 to October 31, 2029. These warrants are equity classified and are included in additional paid-in capital in the Company’s unaudited condensed consolidated balance sheets.

9. Other (Expense) Income


	Three months ended March 31,
		2023		2022
		(in thousands)
Transaction costs associated with derivative liabilities		$	(905)	$	—

Other		(38)		2
		$	(943)	$	2

10. Stockholders’ Equity

On March 8, 2023, the Company completed the closing of a private placement whereby the Company issued 16,403,677 shares of the Company’s Class A common stock as well as warrants to purchase up to an additional 16,403,677 shares of Class A common stock (see Note 8). The purchase price of each share and associated warrant was $1.79. The aggregate gross proceeds to the Company from the private placement were $29.4 million before deducting the placement agent fees and other offering expenses payable by the Company.

The Company incurred transaction costs, which consisted of legal fees, accounting fees, placement agent fees, and other third-party costs related directly to the March 2023 private placement. Upon the closing of the March 2023 private placement, $0.6 million of transaction costs that had been incurred were recorded as a reduction to additional paid-in capital in the unaudited condensed consolidated statements of changes in stockholders’ equity and unaudited condensed consolidated balance sheets, and as a reduction to the proceeds from the transaction in the unaudited condensed consolidated statements of cash flows.

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11. Net Loss Per Share of Class A Common Stock

The following table includes the calculation of basic and diluted net (loss) income per share:


	Three Months Ended March 31,
		2023		2022
		(in thousands except per share information)


Net loss available to common stockholders		$	(17,315)	$	(19,992)



Basic and diluted net loss per share		$	(0.14)	$	(0.17)

Shares used in the computation of basic and diluted net loss per share		124,144		115,479

The potentially dilutive securities listed below were not included in the calculation of diluted weighted average common shares outstanding, as their effect would have been anti-dilutive during the three months ended March 31, 2023 and 2022.


	Three Months Ended March 31,
		2023	2022
		(in thousands)
Restricted Class A common stock		46	207
Class A common stock warrants		1,770	1,770
Stock options		8,163	4,607
Restricted stock units		7,050	7,106
Public Warrants (exercisable for Class A common stock) treated as liability		15,813	15,813
Private Placement Warrants (exercisable for Class A common stock) treated as liability		24,729	8,325
Sponsor Shares		2,372	2,372

12. Stock-Based Compensation

The stock-based compensation expense attributable to continuing operations is included in the unaudited condensed consolidated statements of operations and comprehensive loss as indicated in the table below. Effective January 1, 2022, the Company reorganized its captions on the unaudited condensed consolidated statements of operations and comprehensive loss to better align the Company’s broad portfolio. As a result, for the three months ended March 31, 2022, the amounts presented to reflect the impact of the reorganization have been recasted.


	Three Months Ended March 31,
		2023		2022
		(in thousands)
Imagery & software analytical service costs, excluding depreciation and amortization		$	93	$	256
Professional & engineering service costs, excluding depreciation and amortization		182		665
Selling, general and administrative		2,737		9,319
Total stock-based compensation expense		$	3,012	$	10,240

The Company recorded stock-based compensation related to capitalized internal labor for software development activities of $0.2 million and $0.6 million during the three months ended March 31, 2023 and

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2022, respectively. These amounts are included in property, plant, and equipment - net in the unaudited condensed consolidated balance sheets.

13. Related Party Transactions

A summary of the Company’s related party transactions during the three months ended March 31, 2023 is presented below:

Amount Due to Related Party as of

March 31,

December 31,

2023

2022

Name

Nature of Relationship

Description of the Transactions

(in thousands)

Seahawk

Debt Issuer and subsidiary of Thales Alenia Space

In 2019, the Company raised and converted $18.4 million from prior debt into new, outstanding debt and issued 13.5 million warrants to purchase Legacy BlackSky common stock.

20,787

Intelsat

Debt Issuer

In 2019, the Company entered into a term loan facility for $50.0 million and issued 20.2 million warrants to purchase Legacy BlackSky common stock.

56,345


							Amount Due to Related Party as of
			Total Payments in the three months ended March 31,				March 31,		December 31,
	Nature of Relationship		2023		2022		2023		2022
Name		Description of the Transactions	(in thousands)
LeoStella	Joint Venture with Thales Alenia Space	The Company owns 50% of LeoStella, its joint venture with Thales. The Company contracts with LeoStella for the design, development and manufacture of satellites to operate its business.	$	5,519	$	9,697	$	2,377	$	3,728
X-Bow	Equity Method Investee	In 2017, the Company received stock in X-Bow. As of March 31, 2023, the Company had a less than 20% investment in X-Bow and had one Board seat. The Company has engaged X-Bow to develop a rocket for the Company.	—		—		—		—

Ursa Space Systems	Strategic Partner	The chairman of the Company’s board of directors, Will Porteous, is also an investor and member of the board of directors of Ursa Space Systems. The Company has a non-cancelable operational commitment with Ursa Space Systems.	83		167		42		—
Thales Alenia Space	Shareholder and Parent of Wholly-owned Subsidiary, Seahawk (Debt Issuer)	Design, development and manufacture of telescopes.	3,464		1,892		—		693

In January 2023, the Company finalized a settlement agreement with LeoStella whereby the Company agreed to pay certain outstanding invoices of $1.4 million and LeoStella agreed to purchase certain satellite testing equipment from the Company for $1.0 million. In February 2023, the Company paid LeoStella $0.4 million, the net amount due under the agreement.

Interest on the term loan facility is accrued and is due semi-annually. No significant interest payments were made in the three months ended March 31, 2023 or 2022. The Company had interest due to related parties of $2.9 million and $1.2 million included in other current liabilities as of March 31, 2023 and December 31, 2022, respectively.

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14. Fair Value of Financial Instruments

The following tables present information about the Company’s liabilities that are measured at fair value on a recurring basis as of March 31, 2023 and December 31, 2022 and indicate the fair value hierarchy level of the valuation techniques and inputs that the Company utilized to determine such fair value:


March 31, 2023	Quoted Prices in Active Markets		Significant Other Observable Input		Significant Other Unobservable Inputs
	(Level 1)		(Level 2)		(Level 3)
	(in thousands)
Liabilities
Public Warrants	$	2,894	$	—	$	—
Private Placement Warrants - Issued October 2019	—		—		1,499
Private Placement Warrants - Issued March 2023	—		—		15,091
Sponsor Shares	—		—		1,814
	$	2,894	$	—	$	18,404


December 31, 2022	Quoted Prices in Active Markets		Significant Other Observable Input		Significant Other Unobservable Inputs
	(Level 1)		(Level 2)		(Level 3)
	(in thousands)
Liabilities
Public Warrants	$	2,097	$	—	$	—
Private Placement Warrants - Issued October 2019	—		—		1,332
Sponsor Shares	—		—		1,684
	$	2,097	$	—	$	3,016

The carrying values of the following financial instruments approximated their fair values as of March 31, 2023 and December 31, 2022 based on their maturities: cash and cash equivalents, restricted cash, accounts receivable, prepaid expenses and other current assets, accounts payable, accrued liabilities, and other current liabilities.

There were no transfers into or out of any of the levels of the fair value hierarchy during the three months ended March 31, 2023 or 2022.

Changes in the fair value of the Level 3 liabilities during the three months ended March 31, 2022 of $3.9 million included the Sponsor Shares and private placement warrants. The following is a summary of changes in the fair value of the Level 3 liabilities during the three months ended March 31, 2023:


	Sponsor Shares		Private Placement Warrants - Issued October 2019		Private Placement Warrants - Issued March 2023
	(in thousands)
Balance, January 1, 2023	$	1,684	$	1,332	$	—
Liability recorded at fair value	—		—		17,716
Loss (gain) from changes in fair value	130		167		(2,625)
Balance, March 31, 2023	$	1,814	$	1,499	$	15,091

Fair Value of Debt

The estimated fair value of the Company’s outstanding long-term debt was $68.3 million and $73.2 million as of March 31, 2023 and December 31, 2022, respectively, which is different than the historical costs of such

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long-term debt as reflected in the Company’s unaudited condensed consolidated balance sheets. The fair value of the long-term debt was estimated using Level 3 inputs, based on interest rates available for debt with terms and maturities similar to the Company’s existing debt arrangements and credit rating.

15. Commitments and Contingencies

Legal Proceedings

From time to time, the Company may become involved in various claims and legal proceedings arising in the ordinary course of business, which, by their nature, are inherently unpredictable. The Company is not currently a party to any material claims or legal proceedings the outcome of which, if determined adversely to the Company, would individually or in the aggregate, have a material adverse effect on the Company's business, financial condition or results of operations. Regardless of outcome, litigation and other legal proceedings can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources and other factors.

Compliance with Debt Covenants

As of March 31, 2023, all debt instruments contain customary covenants and events of default. There are no covenants tied to financial metrics and the Company was in compliance with all non-financial covenants as of March 31, 2023.

16. Concentrations, Risks, and Uncertainties

For the three months ended March 31, 2023 and 2022, revenue from customers representing 10% or more of the consolidated revenue from continuing operations was $13.6 million and $8.0 million, respectively. Accounts receivable related to these customers as of March 31, 2023 and December 31, 2022 was $7.4 million and $0, respectively.

Revenue from the U.S. federal government and agencies was $13.7 million and $11.1 million for the three months ended March 31, 2023 and 2022, respectively. Accounts receivable related to U.S. federal government and agencies was $8.7 million and $2.5 million as of March 31, 2023 and December 31, 2022, respectively.

The Company generally extends credit on account, without collateral. Outstanding accounts receivable balances are evaluated by management, and accounts are reserved when it is determined collection is not probable. As of March 31, 2023 and 2022, the Company evaluated the realizability of the aged accounts receivable, giving consideration to each customer’s financial history and liquidity position, credit rating and the facts and circumstances of collectability on each outstanding account, and did not have a significant reserve for uncollectible account.

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17. Subsequent Events

On May 9, 2023, BlackSky and its subsidiaries entered into the Second Amendment (the “Amendment”) to its 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.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q. 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 of our Annual Report on Form 10-K filed with the SEC on March 23, 2023. 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 BlackSky Technology Inc. and its consolidated subsidiaries and BlackSky Holdings, Inc. ("Legacy BlackSky") and its consolidated subsidiaries prior to the completion of its merger on September 9, 2021 with a wholly owned subsidiary of Osprey Technology Acquisition Corp (the "Merger").

Company Overview

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 sixteen satellites in orbit as of March 31, 2023, 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 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 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. 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. Our business has a natural and powerful “flywheel” effect: the more data we collect and analyze, the more valuable the insights we can deliver to our customers.

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Our current customer base and end market mix are weighted towards U.S. 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 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. 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.

Components of Operating Results

Revenue

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

◦Imagery: 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. 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 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. 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. These critical locations can include strategic locations and infrastructure such as ports, airports, and construction sites; retail activity; commodities stockpiles; 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

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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. The expected increase in revenue will be primarily from commencing contracts with existing U.S. and international defense and intelligence customers for whom we need to perform development work prior to the implementation of their subscription service contracts.

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, 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 unaudited condensed consolidated statements of operations and comprehensive loss based upon the classification of each 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.

•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

Our operating expenses are incurred from the following categories:

•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 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 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.

•Depreciation expense is related to property and equipment which mainly consists of operational satellites. Amortization expense is related to intangible assets which mainly consists of customer relationships.

Results of Operations for the Three Months Ended March 31, 2023 and 2022

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recasted. Period to period comparisons are not necessarily indicative of future results. The following table provides the components of results of operations for the three months ended March 31, 2023 and 2022:


	Three Months Ended March 31,			$		%
		2023		2022		Change		Change
		(dollars in thousands)
Revenue
Imagery & software analytical services		$	15,760	$	7,370	$	8,390	113.8	%
Professional & engineering services		2,637		6,526		(3,889)		(59.6)	%
Total revenue		18,397		13,896		4,501		32.4	%
Costs and expenses
Imagery & software analytical service costs, excluding depreciation and amortization		3,699		3,578		121		3.4	%
Professional & engineering service costs, excluding depreciation and amortization		2,779		7,377		(4,598)		(62.3)	%
Selling, general and administrative		18,949		22,540		(3,591)		(15.9)	%
Research and development		216		146		70		47.9	%
Depreciation and amortization		9,655		7,391		2,264		30.6	%



Operating loss		(16,901)		(27,136)		10,235		37.7	%

Gain on derivatives		1,531		8,140		(6,609)		(81.2)	%
Income on equity method investment		529		257		272		105.8	%
Interest income		435		—		435		NM
Interest expense		(1,853)		(1,255)		(598)		(47.6)	%
Other (expense) income, net		(943)		2		(945)		NM
Loss before income taxes		(17,202)		(19,992)		2,790		14.0	%
Income tax expense		(113)		—		(113)		NM





Net loss		$	(17,315)	$	(19,992)	$	2,677	13.4	%

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

Revenue


	Three Months Ended March 31,					$			%
			2023			2022			Change		Change
		(dollars in thousands)
Imagery & software analytical revenue			$	15,760		$	7,370		$	8,390	113.8	%
% of total revenue			85.7		%	53.0		%

Professional & engineering services revenue			2,637			6,526			(3,889)		(59.6)	%
% of total revenue			14.3		%	47.0		%

Total revenue			$	18,397		$	13,896		$	4,501	32.4	%

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Imagery and Software Analytical Services Revenue

Imagery and software analytical services revenue significantly increased for the three months ended March 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 for the three months ended March 31, 2023, as compared to the same period in 2022, primarily due to a lower quarterly percentage of completion achieved in two engineering services contracts as a result of an increase in the program's maturity year-over-year.

Costs and Expenses


	Three Months Ended March 31,			$		%
		2023		2022		Change		Change
		(dollars in thousands)
Imagery & software analytical service costs, excluding depreciation and amortization		$	3,699	$	3,578	$	121	3.4	%
Professional & engineering service costs, excluding depreciation and amortization		2,779		7,377		(4,598)		(62.3)	%
Total costs		$	6,478	$	10,955	$	(4,477)	(40.9)	%

Imagery and Software Analytical Service Costs

Imagery and software analytical service costs increased slightly for the three months ended March 31, 2023, as compared to the same period in 2022, primarily due to increased data volumes and maintaining the growth of our satellite and ground stations networks.

Professional and Engineering Service Costs

Professional and engineering service costs decreased for the three months ended March 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. In addition, we experienced a decrease in unfavorable changes in our estimate to complete on two engineering services contracts in 2023 as compared to the prior year. The estimation of total 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.

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Selling, General, and Administrative


	Three Months Ended March 31,			$		%
		2023		2022		Change		Change
		(dollars in thousands)
Stock-based compensation expense		$	2,737	$	9,319	$	(6,582)	(70.6)	%
Salaries and benefit costs		10,110		7,901		2,209		28.0	%
Development costs		347		172		175		101.7	%
Professional fees		1,100		1,318		(218)		(16.5)	%
Information technology and other administrative expenses		2,215		1,088		1,127		103.6	%
Selling and marketing		827		946		(119)		(12.6)	%
Rent expense		778		558		220		39.4	%
Insurance		835		1,238		(403)		(32.6)	%
Selling, general and administrative		$	18,949	$	22,540	$	(3,591)	(15.9)	%

Selling, general, and administrative expenses decreased during the three months ended March 31, 2023 as compared to the same period in 2022. Stock-based compensation expense decreased approximately $6.6 million related to the vesting of a significant number of restricted stock units ("RSUs") in 2022. Salaries and payroll-related benefits increased due to headcount growth in sales, software engineers, and administrative functions. In addition, our information technology and other administrative expenses increased due to additional costs to support a larger employee base and increased travel as we built out our sales organization and our employees attended industry conferences.

The following is our forecast for total RSU expense as of March 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:


	(in thousands)

For the years ending December 31,
2023	$	6,019
2024	4,162
2025	3,155
2026	1,249
2027	9
	$	14,594

Research and Development


	Three Months Ended March 31,			$		%
		2023		2022		Change		Change
		(dollars in thousands)
Research and development		$	216	$	146	$	70	47.9	%

Research and development expense increased for the three months ended March 31, 2023 as compared to the same period in 2022. The increase was driven by contracting third-party vendors who fulfill our strategic projects as research and development expense.

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Depreciation and Amortization


	Three Months Ended March 31,				$		%
			2023		2022		Change		Change
		(dollars in thousands)
Depreciation of satellites			$	8,474	$	7,103	$	1,371	19.3	%
Depreciation of all other property and equipment			1,041		148		893		603.4	%
Amortization			140		140		—		—	%
Depreciation and amortization			$	9,655	$	7,391	$	2,264	30.6	%

Depreciation expense from satellites increased for the three months ended March 31, 2023 as compared to the same period in 2022, primarily driven by increased satellites in service.

Depreciation expense from all other property and equipment increased for the three months ended March 31, 2023 as compared to the same period in 2022, primarily driven by capitalization of software and additional computer equipment that was placed into service.

Amortization expense remained flat for the three months ended March 31, 2023 as compared to the same period in 2022.

Non-Operating Expenses


	Three Months Ended March 31,		$	%
		2023	2022	Change	Change
		(dollars in thousands)

Gain on derivatives		1,531	8,140	(6,609)	(81.2)	%
Income on equity method investment		529	257	272	105.8	%
Interest income		435	—	435	NM
Interest expense		(1,853)	(1,255)	(598)	(47.6)	%
Other (expense) income, net		(943)	2	(945)	NM

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

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 gains during the three months ended March 31, 2023 and March 31, 2022.

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 three months ended March 31, 2023 as a result of our short-term investments purchased in the second quarter of 2022.

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Interest expense

Interest expense increased during the three months ended March 31, 2023 as a result of a higher effective interest rate on our loans from related parties.

Other (expense) income, net

For the three months ended March 31, 2023, other income (expense), net primarily included $0.9 million of transaction costs associated with new warrants that are accounted for as derivative liabilities.

Non-GAAP Financial Measures

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 collectively 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 stock-based compensation expense, unrealized (gain) loss on certain warrants/shares classified as derivative liabilities, severance, income on equity method investment, investment loss on short-term investments, 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. Accordingly, we believe that Adjusted EBITDA provides useful information in understanding and evaluating our operating results. In addition, we believe that Adjusted EBITDA provides additional information for investors to use in evaluating our ongoing operating results and trends. This non-GAAP measure provides investors with incremental information for the evaluation of our performance after isolation of certain items deemed unrelated to our core business operations.

Adjusted EBITDA is presented as a supplemental measure to our GAAP measures of performance. When evaluating Adjusted EBITDA, you should be aware that we may incur future expenses similar to those excluded when calculating this measure. 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. 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. 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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The table below reconciles our Net loss to Adjusted EBITDA for the three months ended March 31, 2023 and 2022:


	Three Months Ended March 31,
		2023		2022
		(in thousands)
Net loss		$	(17,315)	$	(19,992)
Interest income		(435)		—
Interest expense		1,853		1,255
Income tax expense		113		—
Depreciation and amortization		9,655		7,391
Stock-based compensation expense		3,012		10,240
Gain on derivatives		(1,531)		(8,140)


Income on equity method investment		(529)		(257)

Transaction costs associated with derivative liabilities		905		—
Severance		88		—
Investment loss on short-term investments		55		—
Adjusted EBITDA		$	(4,129)	$	(9,503)

Liquidity and Capital Resources

As of March 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 $57.0 million and $34.2 million as of March 31, 2023 and December 31, 2022, respectively, and our short-term investments totaled $11.8 million and $38.0 million as of March 31, 2023 and December 31, 2022, respectively. We have incurred losses and generated negative cash flows from operations since our inception in September 2014. As of March 31, 2023, we had an accumulated deficit of $562.4 million.

Our short-term liquidity as of March 31, 2023 was comprised of the following:


	(in thousands)
Cash and cash equivalents	$	56,964
Restricted cash(1)	2,835
Short-term investments(2)	11,792
	$	71,591

(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 unaudited condensed 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. 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. 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.

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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.

Short-Term Liquidity Requirements

As of March 31, 2023, our current assets were approximately $91.4 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 March 31, 2023, our current liabilities were approximately $20.9 million, consisting primarily of accounts payable and accrued liabilities, contract liabilities, and other non-recurring current 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 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

The following table provides a summary of cash flow data for the three months ended March 31, 2023 and 2022:


	Three Months Ended March 31,				$
	2023		2022		Change
	(in thousands)
Net cash used in operating activities	$	(16,602)	$	(12,676)	$	(3,926)
Net cash provided by (used in) investing activities(1)	10,518		(13,425)		23,943
Net cash provided by (used in) financing activities	28,867		(3,599)		32,466
Net increase (decrease) in cash, cash equivalents, and restricted cash	22,783		(29,700)		52,483
Cash, cash equivalents, and restricted cash – beginning of year	37,016		168,104		(131,088)
Cash, cash equivalents, and restricted cash – end of period(2)	$	59,799	$	138,404	$	(78,605)

(1) Includes purchase of $11.8 million of short-term investments not categorized as cash

(2) $11.8 million of short-term investments are not classified as cash, cash equivalents, or restricted cash. Our short-term liquidity at March 31, 2023 was $71.6 million

Operating activities

For the three months ended March 31, 2023, net cash used in operating activities was approximately $16.6 million. The contributor to the increase in cash used during the three months ended March 31, 2023 was the increase in cash used for working capital, which was partially offset by the decrease in the operating loss, adjusted for depreciation, amortization, stock-based compensation expense, and other non-cash items in the three months ended March 31, 2023 as compared to the three months ended March 31, 2022. The increase in cash used for working capital was the result of delayed cash receipts from our largest customers as we restructured our banking

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relationships with new and existing financial institutions. The operating loss decrease in the three months ended March 31, 2023 was primarily due to increased imagery and analytics revenue.

Investing activities

The net cash provided by investing activities was due to the redemption and maturity of $38.1 million of our short-term investments in corporate debt and governmental securities, partially offset by similar purchases of $11.8 million at a new financial institution. We continue to have significant cash outflows for satellite procurement and launch related services. Cash paid for the procurement of satellites and other launch-related costs increased in the three months ended March 31, 2023 as compared to the three months ended March 31, 2022 primarily due to the launch of two additional Gen-2 satellites.

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 flows from financing activities in the three months ended March 31, 2023 as compared to the three months ended March 31, 2022 is receipt of the $29.4 million proceeds from our March 2023 private placement of equity and accompanying warrants, of which $17.7 million was allocated to the private placement warrants. In addition, we incurred $0.6 million in payments for deferred offering costs during the three months ended March 31, 2023.

Critical Accounting Estimates

The preparation of our unaudited condensed 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. Management has based its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

For a description of our significant accounting policies see Note 2—“Basis of Presentation and Summary of Significant Accounting Policies,” of the notes to the unaudited condensed consolidated financial statements. An accounting policy is considered to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the unaudited condensed consolidated financial statements. Management believes the following critical accounting policies reflect the more significant estimates and assumptions used in the preparation of our unaudited condensed consolidated financial statements.

Revenue Recognition

The recognition and measurement of revenue requires the use of judgments and estimates. 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, as well as, professional and engineering services.

Identifying the contract with 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.

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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.

Classification of Revenue

We classify revenue as imagery and software analytical services, and professional and engineering services in our unaudited condensed 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. 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. 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 basis, 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. 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

Equity valuations impact various amounts and accounting conclusions reflected in our unaudited condensed 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

We have equity and equity-based awards available for issuance under our 2021 Equity Incentive Plan ("2021 Plan"), 2014 stock incentive plan, and 2011 stock incentive plan. Awards issued include stock options, restricted

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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; 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 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 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. 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.

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 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 liquidation 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 issued in October 2019 and March 2023 and Sponsor Shares as long-term liabilities in our unaudited condensed consolidated balance sheets as of March 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 unaudited condensed 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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The fair value models require inputs including, but not limited to, the fair value of our Class A common stock, the risk-free interest rate, expected term, expected dividend yield and expected volatility. The fair value of our Class A common stock is the closing stock price on the NYSE as of the measurement date. The risk-free interest rate assumption is determined by using U.S. Treasury rates for the same period as the expected terms of the financial instruments. The dividend yield assumption is based on the dividends expected to be paid over the expected life of the financial instruments. 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. Changes in these assumptions can materially affect the estimate of the fair value of these instruments and ultimately the change in fair value.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Disclosure controls are procedures that are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Exchange Act, such as this Quarterly Report on Form 10-Q, is recorded, processed, summarized, and reported within the time period specified in the SEC’s rules and forms. Disclosure controls are also designed with the objective of reasonably ensuring that such information is accumulated and communicated to our management, including the chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure. Our management evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer (our “Certifying Officers”), the effectiveness of our disclosure controls and procedures as of March 31, 2023, pursuant to Rule 13a-15(b) under the Exchange Act. Based upon that evaluation, our Certifying Officers concluded that, as of March 31, 2023, our disclosure controls and procedures were effective at a reasonable assurance level.

In designing and evaluating the disclosure controls and procedures, management recognized that controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company will be detected.

Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting, (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended March 31, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, we may be involved in claims and proceedings arising in the ordinary course of our business. The outcome of any such claims or proceedings, regardless of the merits, is inherently uncertain.

ITEM 1A. RISK FACTORS

For risk factors relating to our business, please refer to the section entitled “Risk Factors” in our Form 10-K for the year ended December 31, 2022 and filed by us with the SEC on March 23, 2023. Any of those factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations. We may disclose changes to such factors or disclose additional factors from time to time in our future filings with the SEC.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On March 8, 2023 we completed the closing of a private placement pursuant to the terms and conditions of a securities purchase agreement dated March 6, 2023 by and among the Company and certain institutional and accredited investors. At the closing of the 2023 private placement, we issued and sold to the investors 16,403,677 shares of our Class A common stock and 16,403,677 accompanying warrants.

The purchase price of each share and associated warrant was $1.79. The aggregate gross proceeds to us from the 2023 private placement were $29.4 million, before deducting placement agent fees equal to 4.21% of the gross proceeds from the private placement, and other offering expenses payable by us. The warrants have an exercise price of $2.20 per share, and are exercisable beginning on September 8, 2023, through September 8, 2028. We intend to use the net proceeds from the 2023 private placement for general corporate purposes, including working capital.

The issuance of shares and warrants in the 2023 private placement was made in a transaction not involving a public offering pursuant to an exemption from the registration requirements of the Securities Act in reliance upon Section 4(a)(2) of the Securities Act.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

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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.

The foregoing description of the Amendment does not purport to be complete and is qualified in its entirety by the terms and conditions of the Amendment, which is attached hereto as Exhibit 10.3 and is incorporated herein by reference.

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ITEM 6. EXHIBITS

The documents listed below are incorporated by reference or are filed with this report, in each case as indicated therein.

Exhibit No.

Exhibit Description

Form

SEC File No.

Exhibit No.

Filing Date

Filed or Furnished Herewith

4.1

Form of Warrant

8-K

001-39113

4.1

March 9, 2023

10.1†

Form of Securities Purchase Agreement, dated as of March 6, 2023 by and among the Company and the Investors

8-K

001-39113

10.1

March 9, 2023

10.2

Form of Registration Rights Agreement, dated as of March 6, 2023 by and among the Company and the Investors

8-K

001-39113

10.2

March 9, 2023

10.3

Second Amendment to Amended and Restated Loan and Security Agreement, dated as of May 9, 2023 by and among BlackSky Technology Inc. and the subsidiaries named therein, Intelsat Jackson Holdings SA and Seahawk SPV Investment LLC

31.1

Certification of the Company’s Chief Executive Officer, Brian O’Toole, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2

Certification of the Company’s Chief Financial Officer, Henry Dubois, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1*

Certification of the Company’s Chief Executive Officer, Brian O’Toole, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2*

Certification of the Company’s Chief Financial Officer, Henry Dubois, pursuant to Section 906 of the Sarbanes- Oxley Act of 2002

101.INS

Inline XBRL Instance Document

101.SCH

Inline XBRL Taxonomy Extension Schema Document

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

† Schedules, exhibits and similar attachments have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company hereby undertakes to furnish copies of such omitted materials supplementally upon request by the SEC.

* This certification is deemed not filed for purposes of section 18 of the Exchange Act, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act, or the Exchange Act.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


May 10, 2023			BlackSky Technology Inc.

			By: /s/ Brian E. O’Toole
			Brian E. O'Toole
			Chief Executive Officer and Director
			(Principal Executive Officer)

			By: /s/ Henry Dubois
			Henry Dubois
			Chief Financial Officer
			(Principal Financial Officer)

			By: /s/ Tracy Ward
			Tracy Ward
			Vice President and Controller
			(Principal Accounting Officer)