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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 September 30, 2023
OR
| | | | | |
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 November 6, 2023, there were 142,987,503 shares of the registrant’s class A common stock, at $0.0001 par value, outstanding.
TABLE OF CONTENTS
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 grow our imagery and software analytical services revenue;
• 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 Blacksky Spectra platform;
• our plans and expectations for our next generation satellites (“Gen-3”);
• the impact of local, regional, national and international economic conditions and events; 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.
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.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BLACKSKY TECHNOLOGY INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands, except par value)
| | | | | | | | | | | |
| September 30, | | December 31, |
| 2023 | | 2022 |
Assets | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 32,138 | | | $ | 34,181 | |
Restricted cash | 1,835 | | 2,835 |
Short-term investments | 17,543 | | 37,982 |
Accounts receivable, net of allowance of $19 and $0, respectively | 2,714 | | 3,112 |
Amounts receivable from equity method investees | 1,146 | | — |
Prepaid expenses and other current assets | 5,375 | | 4,713 |
Contract assets | 9,944 | | 5,706 |
Total current assets | 70,695 | | 88,529 |
Property and equipment - net | 74,555 | | 71,584 |
Operating lease right of use assets - net | 1,760 | | 3,586 |
Goodwill | 9,393 | | 9,393 |
Investment in equity method investees | 6,197 | | 5,285 |
Intangible assets - net | 1,497 | | 1,918 |
Satellite procurement work in process | 45,409 | | 50,954 |
Other assets | 3,288 | | | 2,841 | |
Total assets | $ | 212,794 | | | $ | 234,090 | |
Liabilities and stockholders’ equity | | | |
Current liabilities: | | | |
Accounts payable and accrued liabilities | $ | 10,520 | | | $ | 14,368 | |
Amounts payable to equity method investees | — | | 3,728 |
Contract liabilities - current | 6,621 | | 6,783 |
Other current liabilities | 1,527 | | 2,048 |
Total current liabilities | 18,668 | | 26,927 |
| | | |
Long-term contract liabilities | 96 | | 109 |
Operating lease liabilities | 3,320 | | 3,132 |
Derivative liabilities | 15,383 | | 5,113 |
Long-term debt - net of current portion | 79,474 | | 76,219 |
Other liabilities | 3,718 | | 716 |
Total liabilities | 120,659 | | 112,216 |
Commitments and contingencies (Note 17) | | | |
Stockholders’ equity: | | | |
Class A common stock, $0.0001 par value-authorized, 300,000 shares; issued, 142,946 and 121,938 shares; outstanding, 140,543 shares and 119,508 shares as of September 30, 2023 and December 31, 2022, respectively. | 14 | | 12 |
Additional paid-in capital | 687,303 | | 666,973 |
Accumulated deficit | (595,182) | | (545,111) |
Total stockholders’ equity | 92,135 | | 121,874 |
Total liabilities and stockholders’ equity | $ | 212,794 | | | $ | 234,090 | |
See notes to unaudited condensed consolidated financial statements
BLACKSKY TECHNOLOGY INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(unaudited)
(in thousands, except per share amounts)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Revenue | | | | | | | |
Imagery & software analytical services | $ | 15,264 | | | $ | 13,707 | | | $ | 46,352 | | | $ | 31,249 | |
Professional & engineering services | 5,996 | | | 3,228 | | | 12,632 | | | 14,684 | |
Total revenue | 21,260 | | | 16,935 | | | 58,984 | | | 45,933 | |
Costs and expenses | | | | | | | |
Imagery & software analytical service costs, excluding depreciation and amortization | 3,479 | | | 3,513 | | | 10,634 | | | 10,537 | |
Professional & engineering service costs, excluding depreciation and amortization | 3,288 | | | 4,274 | | | 11,137 | | | 17,991 | |
Selling, general and administrative | 17,572 | | | 18,758 | | | 55,289 | | | 59,041 | |
Research and development | 133 | | | 197 | | | 525 | | | 449 | |
Depreciation and amortization | 11,304 | | | 9,598 | | | 32,735 | | | 26,166 | |
| | | | | | | |
| | | | | | | |
Operating loss | (14,516) | | | (19,405) | | | (51,336) | | | (68,251) | |
| | | | | | | |
Gain on derivatives | 17,012 | | | 7,135 | | | 7,445 | | | 10,629 | |
Income (loss) on equity method investment | 328 | | | (776) | | | 913 | | | 694 | |
Interest income | 519 | | | 486 | | | 1,602 | | | 664 | |
Interest expense | (2,532) | | | (1,226) | | | (6,627) | | | (3,756) | |
Other income (expense), net | 2 | | | (14) | | | (1,808) | | | (54) | |
Income (loss) before income taxes | 813 | | | (13,800) | | | (49,811) | | | (60,074) | |
Income tax expense | (138) | | | — | | | (260) | | | — | |
Income (loss) from continuing operations | 675 | | | (13,800) | | | (50,071) | | | (60,074) | |
Discontinued operations: | | | | | | | |
Gain from discontinued operations | — | | | 707 | | | — | | | 707 | |
Income tax (expense) benefit | — | | | — | | | — | | | — | |
Gain from discontinued operations, net of income taxes | — | | | 707 | | | — | | | 707 | |
Net income (loss) | 675 | | | (13,093) | | | (50,071) | | | (59,367) | |
Other comprehensive income | — | | | — | | | — | | | — | |
Total comprehensive income (loss) | $ | 675 | | | $ | (13,093) | | | $ | (50,071) | | | $ | (59,367) | |
| | | | | | | |
Basic and diluted income (loss) per share of common stock: | | | | | | | |
Income (loss) from continuing operations | $ | 0.00 | | | $ | (0.12) | | | $ | (0.38) | | | $ | (0.51) | |
Gain from discontinued operations, net of income taxes | — | | | 0.01 | | | — | | | 0.01 | |
Net income (loss) per share of common stock | $ | 0.00 | | | $ | (0.11) | | | $ | (0.38) | | | $ | (0.50) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
See notes to unaudited condensed consolidated financial statements
BLACKSKY TECHNOLOGY INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(unaudited)
(in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | Nine Months Ended September 30, 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, net of equity issuance costs | | | | | | | | | | | | | | 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 | | | |
Stock-based compensation | | | | | | | | | | | | | | — | | — | | 2,488 | | | | | | — | | 2,488 | | | |
Issuance of common stock upon exercise of stock options | | | | | | | | | | | | | | 95 | | — | | 2 | | | | | | — | | 2 | | | |
Issuance of common stock upon vesting of restricted stock awards | | | | | | | | | | | | | | 8 | | — | | — | | | | | | — | | — | | |
Issuance of common stock upon vesting of restricted stock units | | | | | | | | | | | | | | 668 | | — | | — | | | | | | — | | — | | |
Issuance of common stock, net of equity issuance costs | | | | | | | | | | | | | | 1,039 | | — | | 995 | | | | | | — | | 995 | | |
Withholding of stock units to satisfy tax withholding obligations upon the vesting of restricted stock units and exercise of stock options | | | | | | | | | | | | | | (240) | | — | | (414) | | | | | | — | | (414) | | |
Net loss | | | | | | | | | | | | | | — | | — | | — | | | | | | (33,431) | | (33,431) | | | |
Balance as of June 30, 2023 | | | | | | | | | | | | | | 138,409 | | | 14 | | | 684,388 | | | | | | | (595,857) | | | 88,545 | | | |
Stock-based compensation | | | | | | | | | | | | | | — | | — | | 2,562 | | | | | | — | | 2,562 | | |
Issuance of common stock upon exercise of stock options | | | | | | | | | | | | | | 98 | | — | | 4 | | | | | | — | | 4 | | |
Issuance of common stock upon vesting of restricted stock awards | | | | | | | | | | | | | | 8 | | — | | — | | | | | | — | | — | | |
Issuance of common stock upon vesting of restricted stock units | | | | | | | | | | | | | | 1,664 | | — | | — | | | | | | — | | — | | |
Issuance of common stock, net of equity issuance costs | | | | | | | | | | | | | | 804 | | — | | 908 | | | | | | — | | 908 | | |
Withholding of stock units to satisfy tax withholding obligations upon the vesting of restricted stock units and exercise of stock options | | | | | | | | | | | | | | (440) | | — | | (559) | | | | | | — | | (559) | | |
Net income | | | | | | | | | | | | | | — | | | — | | | — | | | | | | | 675 | | | 675 | | | |
Balance as of September 30, 2023 | | | | | | | | | | | | | | 140,543 | | | $ | 14 | | | $ | 687,303 | | | | | | | $ | (595,182) | | | $ | 92,135 | | | |
See notes to unaudited condensed consolidated financial statements
BLACKSKY TECHNOLOGY INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(unaudited)
(in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 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 | | | |
Stock-based compensation | | — | | — | | 3,365 | | | | | | — | | 3,365 | | | |
Issuance of common stock upon exercise of stock options | | 180 | | — | | 8 | | | | | | — | | 8 | | | |
Issuance of common stock upon vesting of restricted stock awards | | 27 | | — | | — | | | | | | — | | — | | | |
Issuance of common stock upon vesting of restricted stock units | | 520 | | — | | — | | | | | | — | | — | | | |
Withholding of restricted stock units to satisfy tax withholding obligations upon the vesting of restricted stock units | | (201) | | — | | (444) | | | | | | — | | (444) | | | |
Net loss | | — | | — | | — | | | | | | (26,282) | | (26,282) | | | |
Balance as of June 30, 2022 | | 118,453 | | | $ | 12 | | | $ | 660,710 | | | | | | | $ | (517,183) | | | $ | 143,539 | | | |
Stock-based compensation | | — | | — | | 3,423 | | | | | | — | | 3,423 | | |
Issuance of common stock upon exercise of stock options | | 54 | | — | | 12 | | | | | | — | | 12 | | |
Issuance of common stock upon vesting of restricted stock awards | | 22 | | — | | — | | | | | | — | | — | | |
Issuance of common stock upon vesting of restricted stock units | | 633 | | — | | — | | | | | | — | | — | | |
Withholding of restricted stock units to satisfy tax withholding obligations upon the vesting of restricted stock units | | (241) | | — | | (491) | | | | | | — | | (491) | | |
Repurchase and retirement of common stock | | (15) | | — | | — | | | | | | (30) | | (30) | | |
Net loss | | — | | — | | — | | | | | | (13,093) | | (13,093) | | |
Balance as of September 30, 2022 | | 118,906 | | | $ | 12 | | | $ | 663,654 | | | | | | | $ | (530,306) | | | $ | 133,360 | | | |
See notes to unaudited condensed consolidated financial statements
BLACKSKY TECHNOLOGY INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2023 | | 2022 |
Cash flows from operating activities: | | | |
Net loss | $ | (50,071) | | | $ | (59,367) | |
Gain from discontinued operations, net of income taxes | — | | | 707 | |
Loss from continuing operations | (50,071) | | | (60,074) | |
Adjustments to reconcile net loss to net cash used in operating activities: | | | |
Depreciation and amortization expense | 32,735 | | | 26,166 | |
Operating lease right of use assets amortization | 753 | | | 1,197 | |
| | | |
Bad debt expense | 39 | | | 13 | |
Stock-based compensation expense | 7,725 | | | 16,389 | |
Amortization of debt discount and issuance costs | 249 | | | 1,549 | |
Income on equity method investment | (913) | | | (694) | |
Loss on disposal of property and equipment | 127 | | | — | |
Gain on derivatives | (7,445) | | | (10,629) | |
| | | |
Interest income | (551) | | | (373) | |
Other, net | — | | | 106 | |
Changes in operating assets and liabilities: | | | |
Accounts receivable | 359 | | | (2,485) | |
Contract assets - current and long-term | (5,271) | | | (4,237) | |
Prepaid expenses and other current assets | (13) | | | 657 | |
Other assets | 1,144 | | | (1,335) | |
Accounts payable and accrued liabilities | 834 | | | 692 | |
Other current liabilities | (640) | | | (1,727) | |
Contract liabilities - current and long-term | (175) | | | (2,774) | |
| | | |
Other liabilities | 5,316 | | | (1,872) | |
Net cash used in operating activities | (15,798) | | | (39,431) | |
Cash flows from investing activities: | | | |
Purchase of property and equipment | (12,296) | | | (8,905) | |
Satellite procurement work in process | (23,603) | | | (25,421) | |
Purchases of short-term investments | (29,167) | | | (50,343) | |
Proceeds from maturities of short-term investments | 50,110 | | | — | |
Proceeds from sale of property and equipment | 22 | | | — | |
Distributions from equity method investment | — | | | 546 | |
| | | |
| | | |
Net cash used in investing activities | (14,934) | | | (84,123) | |
Cash flows from financing activities: | | | |
Proceeds from equity issuances, net of equity issuance costs | 30,868 | | | — | |
| | | |
Proceeds from options exercised | 9 | | | 37 | |
Payments of transaction costs for debt modification | (1,311) | | | — | |
| | | |
Payments of transaction costs related to derivative liabilities | (905) | | | — | |
Withholding tax payments on vesting of restricted stock units | (972) | | | (4,551) | |
Net cash provided by (used in) financing activities | 27,689 | | | (4,514) | |
Net decrease in cash, cash equivalents, and restricted cash | (3,043) | | | (128,068) | |
Cash, cash equivalents, and restricted cash – beginning of year | 37,016 | | | 168,104 | |
Cash, cash equivalents, and restricted cash – end of period | $ | 33,973 | | | $ | 40,036 | |
See notes to unaudited condensed consolidated financial statements
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:
| | | | | | | | | | | |
| September 30, |
| 2023 | | 2022 |
| |
Cash and cash equivalents | $ | 32,138 | | | $ | 37,201 | |
Restricted cash | 1,835 | | | 2,835 | |
Total cash, cash equivalents, and restricted cash | $ | 33,973 | | | $ | 40,036 | |
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2023 | | 2022 |
| (in thousands) |
Supplemental disclosures of cash flow information: | | | |
Cash paid for interest | $ | — | | | $ | 5 | |
Cash paid for income taxes | 182 | | | — | |
Supplemental disclosures of non-cash financing and investing information: | | | |
Property and equipment additions (credits received) accrued but not yet paid, net | $ | (226) | | | $ | 4,329 | |
Capitalized stock-based compensation | 539 | | | 1,261 | |
Capitalized interest for property and equipment placed into service | 220 | | | 220 | |
Accretion of short-term investments' discounts and premiums | 531 | | | 357 | |
| | | |
Repurchase and retirement of common stock | — | | | 30 | |
Equity issuance costs accrued but not paid | 90 | | | — | |
| | | |
| | | |
| | | |
Debt modification costs accrued but not paid | 6 | | | — | |
Satellite procurement costs included in settlement with LeoStella | 36 | | | — | |
Credits from LeoStella applied to satellite procurement costs | 122 | | | — | |
| | | |
Contingent liability for working capital adjustment and use taxes to M&Y Space Co. Ltd | — | | | 707 | |
Increase of debt principal for paid-in-kind interest | 3,490 | | | — | |
See notes to unaudited condensed consolidated financial statements
BLACKSKY TECHNOLOGY INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 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 (“LEO”) small satellite constellations. The constellation is optimized to cost-efficiently capture imagery at high revisit rates where and when customers need it. The BlackSky Spectra 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. Blacksky Spectra 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 Blacksky Spectra's data and analytics through easy-to-use web services or through platform application programming interfaces.
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).
In November 2023, the Company sold its equity method investment in X-Bow and expects to recognize a gain on the disposal of the investment of $9.5 million.
The Company's equity issuances in the nine months ended September 30, 2023 included a private placement and an at-the-market (“ATM”) offering. In March 2023, the Company completed a private placement of 16.4 million of the Company’s Class A common stock and an equal number of corresponding warrants, for a purchase price of $1.79 per share and associated warrant. The Company received $29.4 million in gross proceeds from the private placement. The Company also sold 1.8 million common shares in its ATM offering, at an average purchase price per share of $1.59, resulting in gross proceeds of $2.9 million. The transaction costs for these equity issuances consisted of legal fees, accounting fees, placement agent fees, and other third-party costs directly related to the equity issuances. During the nine months ended September 30, 2023, $1.6 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.
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 (“Intelsat”) and Seahawk SPV Investment LLC (“Seahawk”), dated October 31, 2019 and previously amended on September 9, 2021. The Amendment amended the secured loan facility to, among other things, extend the maturity date of the loan, roll the cash interest payment due on May 1, 2023 into the outstanding principal to be paid on the maturity date, and increase the interest rate. See Note 9 for more information regarding the Amendment.
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 in the unaudited condensed consolidated statements of operations and comprehensive income (loss) to better align the Company’s broad portfolio. As a result, for the nine months ended September 30, 2022, the amounts presented to reflect the impact of the reorganization have been recasted. This resulted in a $6.9 million reclassification between imagery & software analytical services revenue and professional & engineering services revenue and a $6.0 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 income (loss).
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 $53 thousand change to selling, general and administrative for the nine months ended September 30, 2022 in the unaudited condensed consolidated statements of operations and comprehensive income (loss).
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, the incremental borrowing rate to measure the operating lease right of use assets, 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 September 30, 2023 and December 31, 2022, the Company’s short-term investments had a carrying value of $17.5 million and $38.0 million, respectively, which represents amortized cost, and an aggregate fair value of $17.5 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 September 30, 2023 and December 31, 2022 were $0 and $0.1 million, respectively; there were not any gross unrecognized holding gains as of September 30, 2023 or December 31, 2022.
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.
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 may result in 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 September 30, 2023.
Imagery & Software Analytical Services Revenue
Imagery
Imagery services include imagery delivered from the Company’s satellites in orbit via the BlackSky Spectra software 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 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 performs various professional and engineering services, including providing technology enabled professional service solutions to support customer-specific software development requests, integration, testing, and training, as well as developing and delivering advanced 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.
For firm fixed price professional and engineering service contracts, the Company recognizes revenue over time using the cost-to-cost method to measure progress to complete the performance obligation, ("Estimate at Completion" or "EAC"). A performance obligation's EAC includes all direct costs such as labor and fringe, materials, subcontract costs and overhead. We recognize changes in estimated contract sales or costs and the resulting changes in contract profit on a cumulative basis. If it is determined that a loss is expected to result in an individual performance obligation, the entire amount of the estimable future loss is charged against income in the period the loss is identified. The following table presents the effect of aggregate net EAC adjustments on our professional and engineering services contracts:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2023(1) | | 2022(2) | | 2023(1) | | 2022(2) |
| | (in thousands) |
Revenue | | $ | 1,002 | | | $ | (273) | | | $ | (498) | | | $ | (1,979) | |
(1) For the three and nine months ended September 30, 2023, we had favorable EAC adjustments of $1.0 million and $1.1 million, respectively, for a new individual professional services contract.
(2) For the three and nine months ended September 30, 2022, the amounts represent the effect of aggregate net EAC adjustments on two professional and engineering service contracts
During the three and nine months ended September 30, 2023 and 2022, there was no revenue recognized from performance obligations satisfied in previous periods.
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.
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 satellites and payload systems, as well as subcontract direct materials and external labor costs to build and test specific components, such as the communications system, payload demands, and sensor integration. In addition, we also recognize internal labor costs and external subcontract labor costs for our customer-centric software service solutions. 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 September 30, 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 income (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 10 and Note 12). 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 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 September 30, 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 September 30, 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 income (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 income (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 granted options in the nine months ended September 30, 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 through 2023, 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 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, commissions, and other third-party costs related directly to equity issuances and debt restructuring. Transaction costs incurred for equity issuances are 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 the Company's allocation, are either expensed in the unaudited condensed consolidated statements of operations and comprehensive income (loss) or 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.
The Company also incurred lender fees and other incremental third-party costs associated with its debt Amendment, as described in Note 9 below. Lender fees were capitalized and included in long-term debt - net of current portion in the unaudited condensed consolidated balance sheets. Third-party costs associated with the debt modification were expensed in the unaudited condensed consolidated statements of operations and comprehensive income (loss).
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) professional services; and (iv) engineering services. This disaggregation allows the Company to evaluate market trends in certain imagery and software analytical services and professional and engineering services.
The following table disaggregates revenue by type for the three and nine months ended September 30, 2023 and 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2023 | | 2022 | | 2023 | | 2022 |
| | (in thousands) |
Imagery | | $ | 13,507 | | | $ | 10,769 | | | $ | 39,197 | | | $ | 21,212 | |
Data, software, and analytics | | 1,757 | | | 2,938 | | | 7,155 | | | 10,037 | |
Professional services | | 5,565 | | | 1,284 | | | 11,900 | | | 6,864 | |
Engineering services | | 431 | | | 1,944 | | | 732 | | | 7,820 | |
Total revenue | | $ | 21,260 | | | $ | 16,935 | | | $ | 58,984 | | | $ | 45,933 | |
The approximate revenue based on geographic location of customers is as follows for the three and nine months ended September 30, 2023 and 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2023 | | 2022 | | 2023 | | 2022 |
| | (in thousands) |
North America | | $ | 14,433 | | | $ | 15,161 | | | $ | 42,944 | | | $ | 38,740 | |
Middle East | | 2,738 | | | 969 | | | 5,633 | | | 2,345 | |
Asia Pacific | | 3,827 | | | 40 | | | 9,629 | | | 3,618 | |
Other | | 262 | | | 765 | | | 778 | | | 1,230 | |
Total revenue | | $ | 21,260 | | | $ | 16,935 | | | $ | 58,984 | | | $ | 45,933 | |
Revenue from categories of customers for the three and nine months ended September 30, 2023 and 2022 is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2023 | | 2022 | | 2023 | | 2022 |
| | (in thousands) |
U.S. federal government and agencies | | $ | 14,041 | | | $ | 14,858 | | | $ | 41,780 | | | $ | 38,083 | |
International governments | | 6,846 | | | 1,822 | | | 16,100 | | | 7,309 | |
Commercial and other | | 373 | | | 255 | | | 1,104 | | | 541 | |
Total revenue | | $ | 21,260 | | | $ | 16,935 | | | $ | 58,984 | | | $ | 45,933 | |
As of September 30, 2023 and December 31, 2022, accounts receivable consisted of the following:
| | | | | | | | | | | |
| September 30, | | December 31, |
| 2023 | | 2022 |
| (in thousands) |
U.S. federal government and agencies | $ | 1,996 | | | $ | 2,540 | |
International governments | 369 | | | 261 | |
Commercial and other | 368 | | | 311 | |
Allowance for doubtful accounts | (19) | | | — | |
Total accounts receivable | $ | 2,714 | | | $ | 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 Company's backlog excludes unexercised contract options. As of September 30, 2023, the Company had $252.4 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 $24.4 million, $52.6 million, and $175.4 million in the three months ending 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:
| | | | | | | | | | | |
| September 30, | | December 31, |
| 2023 | | 2022 |
| (in thousands) |
Contract assets - current: | | | |
Unbilled revenue | $ | 9,944 | | | $ | 5,706 | |
| | | |
Total contract assets - current | $ | 9,944 | | | $ | 5,706 | |
| | | |
Contract assets - long-term: | | | |
Unbilled revenue - long-term | $ | 2,411 | | | $ | 1,287 | |
Contract assets - long-term | 590 | | | 681 | |
Total contract assets - long-term(1) | $ | 3,001 | | | $ | 1,968 | |
| | | |
Contract liabilities - current: | | | |
Deferred revenue - current | $ | 6,621 | | | $ | 6,783 | |
| | | |
Total contract liabilities - current | $ | 6,621 | | | $ | 6,783 | |
| | | |
Contract liabilities - long-term: | | | |
| | | |
Other contract liabilities - long-term | $ | 96 | | | $ | 109 | |
Total contract liabilities - long-term | $ | 96 | | | $ | 109 | |
(1) Total contract assets - long term is included in other assets in the 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 incremental to the contract and to fulfill contract obligations. Other contract assets and other contract liabilities primarily relate to contract commissions on customer contracts.
Changes in short-term and long-term contract assets and contract liabilities for the nine months ended September 30, 2023 were as follows:
| | | | | | | | | | | |
| Contract Assets | | Contract Liabilities |
| (in thousands) |
Balance as of January 1, 2023 | $ | 7,674 | | | $ | 6,892 | |
Billings or revenue recognized that was included in the beginning balance | (2,955) | | | (6,117) | |
Changes in contract assets or contract liabilities, net of reclassification to receivables | 8,617 | | | 5,757 | |
Cumulative catch-up adjustment arising from changes in estimates to complete | (92) | | | 49 | |
Cumulative catch-up adjustment arising from contract modifications | (208) | | | 149 | |
Changes in costs to fulfill and amortization of commission costs | (91) | | | — | |
Changes in contract commission costs | — | | | (13) | |
Balance as of September 30, 2023 | $ | 12,945 | | | $ | 6,717 | |
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 and nine months ended September 30, 2023 or 2022.
LeoStella's revenue from related parties was $3.3 million and $3.0 million for the three months ended September 30, 2023 and 2022, respectively, and $17.9 million and $20.2 million for the nine months ended September 30, 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 $2.2 million and $2.6 million as of September 30, 2023 and December 31, 2022, respectively. The difference is the result of the elimination of upstream intra-entity profits from the sale of satellites.
The following table presents summarized financial information for the Company’s investments in LeoStella and X-Bow for the three and nine months ended September 30, 2023 and 2022.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
Summarized statements of operations | | 2023 | | 2022 | | 2023 | | 2022 |
| | (in thousands) |
Revenue | | $ | 9,190 | | | $ | 3,697 | | | $ | 32,936 | | | $ | 34,956 | |
Net loss | | (2,950) | | | (3,784) | | | (6,750) | | | (2,718) | |
7. Discontinued Operations
On June 12, 2020, the Company completed the sale of 100% of its equity interests in Spaceflight to M&Y Space. Under a transition services agreement that ended in March 2022, the Company provided post-closing transition services to Spaceflight, including, but not limited to, the sublease of the Company’s office facility in Seattle, Washington and common area maintenance fees related to the sublease.
Settlement Arrangement for the Sale of Spaceflight
On February 9, 2022, the Company received an indemnification claim notice regarding certain collection and tax payments related to the Share Purchase Agreement dated as of January 31, 2020 among BlackSky Holdings, Inc., Spaceflight, and M&Y Space. On October 21, 2022, the parties agreed to the framework for a global settlement of such indemnification claims, to include a settlement payment by the Company of $1.0 million and a holdback amount of $0.1 million subject to M&Y Space Co.’s ability to collect against certain receivables. As a result, the existing contingent liability was reduced by $0.7 million, which was recorded as a gain from discontinued operations in the nine months ended September 30, 2022.
The following summarizes the components of the gain from discontinued operations, net of income taxes that the Company has reported in the unaudited condensed consolidated statements of operations and comprehensive income (loss).
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2023 | | 2022 | | 2023 | | 2022 |
| | (in thousands) |
Major classes of line items constituting loss from discontinued operations: | | | | | | | | |
Revenue - launch services | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Total operating costs and expenses | | — | | | — | | | — | | | — | |
Operating loss | | — | | | — | | | — | | | — | |
Loss from discontinued operations, before income taxes | | — | | | — | | | — | | | — | |
Gain from discontinued operations | | — | | | 707 | | | — | | | 707 | |
Total gain from discontinued operations, net of income taxes | | — | | | 707 | | | — | | | 707 | |
8. Property and Equipment - net
The following summarizes property and equipment - net as of:
| | | | | | | | | | | |
| September 30, | | December 31, |
| 2023 | | 2022 |
| (in thousands) |
Satellites | $ | 125,124 | | | $ | 116,219 | |
Software | 14,372 | | 8,503 |
Software development in process | 5,827 | | 2,942 |
Computer equipment | 1,665 | | 1,996 |
Office furniture and fixtures | 4,015 | | 674 |
Other equipment | 731 | | 631 |
Site equipment | 2,747 | | 2,558 |
Total | 154,481 | | 133,523 |
Less: accumulated depreciation | (79,926) | | (61,939) |
Property and equipment — net | $ | 74,555 | | | $ | 71,584 | |
9. Debt and Other Financing
The carrying value of the Company’s outstanding debt consisted of the following amounts:
| | | | | | | | | | | |
| September 30, | | December 31, |
| 2023 | | 2022 |
| (in thousands) |
Current portion of long-term debt | $ | — | | | $ | — | |
Non-current portion of long-term debt | 80,622 | | | 77,132 | |
Total long-term debt | 80,622 | | | 77,132 | |
Unamortized debt issuance cost | (1,148) | | | (913) | |
Outstanding balance | $ | 79,474 | | | $ | 76,219 | |
The outstanding debt was solely comprised of loans from related parties with effective interest rates of 11.32% to 11.56% and a maturity date of October 31, 2026.
On May 9, 2023, BlackSky and its subsidiaries entered into an Amendment to its Amended and Restated Loan and Security Agreement with Intelsat and Seahawk, 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. This facility is secured by substantially all of the Company’s assets, is guaranteed by the Company’s subsidiaries, and contains customary covenants and events of default. The Amendment was accounted for as a debt modification and related transaction costs of $1.3 million were recorded during the nine months ended September 30, 2023.
Fair Value of Debt
The estimated fair value of the Company’s outstanding long-term debt was $78.7 million and $73.2 million as of September 30, 2023 and December 31, 2022, respectively, which is different than the historical costs of such 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.
Compliance with Debt Covenants
As part of the Amendment, the Company is required to maintain a minimum cash and cash equivalents balance of not less than $10.0 million, measured quarterly as of the last day of each fiscal quarter. In addition, the Company is required to maintain Adjusted EBITDA, measured quarterly as of the last day of each fiscal quarter, of not less than:
•$5.0 million for the trailing four quarter period ending as of December 31, 2024 through September 30, 2025 and
•$10.0 million for the trailing four quarter period ending as of December 31, 2025 and as of the end of each fiscal quarter thereafter.
The section entitled "Non-GAAP Financial Measures" has additional information on the Company's definition of Adjusted EBITDA. As of September 30, 2023, all debt instruments contain customary covenants and events of default. The Company was in compliance with all covenants as of September 30, 2023.
10. 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 12), 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 uses 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 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 income (expense), net in the unaudited condensed consolidated statements of operations and comprehensive income (loss) for the nine months ended September 30, 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, the Company's 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 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 income (loss) (see Note 16). The Company's derivative liabilities were made up of only equity warrants and the Sponsor Shares as of September 30, 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 September 30, 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Number of Shares | | Exercise Price | | Redemption Price | | Expiration Date | | Classification | | Gain in Value for the Nine Months Ended September 30, | | Fair Value as of September 30, 2023 |
| (in thousands) | | | | | | | | | | (in thousands) |
Public Warrants | 15,813 | | | $ | 11.50 | | | $ | 18.00 | | | 9/9/2026 | | Liability | | $ | 848 | | | $ | 1,249 | |
Private Placement Warrants - Issued October 2019 | 4,163 | | | 11.50 | | | 18.00 | | | 9/9/2026 | | Liability | | 208 | | | 666 | |
Private Placement Warrants - Issued October 2019 | 4,163 | | | 20.00 | | | 18.00 | | | 9/9/2026 | | Liability | | 83 | | | 375 | |
Private Placement Warrants - Issued March 2023 | 16,404 | | | 2.20 | | | N/A | | 9/8/2028 | | Liability | | 6,069 | | | 11,647 | |
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.
11. Other Income (Expense)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2023 | | 2022 | | 2023 | | 2022 |
| | (in thousands) |
Transaction costs associated with debt and equity financings | | $ | — | | | $ | — | | | $ | (1,738) | | | $ | — | |
| | | | | | | | |
| | | | | | | | |
Other | | 2 | | | (14) | | | (70) | | | (54) | |
| | $ | 2 | | | $ | (14) | | | $ | (1,808) | | | $ | (54) | |
12. Stockholders’ Equity
In March 2023, the Company completed a private placement of 16.4 million shares of the Company’s Class A common stock and an equal number of corresponding warrants, for a purchase price of $1.79 per share and associated warrant. The Company received $29.4 million in gross proceeds from the private placement. The Company sold 1.8 million common shares in its ATM offering during the nine months ended September 30, 2023, at an average purchase price per share of $1.59, resulting in gross proceeds of $2.9 million. The transaction costs for these equity issuances consisted of legal fees, accounting fees, placement agent fees, and other third-party costs related directly to the equity issuances. During the nine months ended September 30, 2023, $1.6 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.
13. Net Income (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 September 30, | | Nine Months Ended September 30, |
| | 2023 | | 2022 | | 2023 | | 2022 |
| | (in thousands except per share information) |
Income (loss) from continuing operations | | $ | 675 | | | $ | (13,800) | | | $ | (50,071) | | | $ | (60,074) | |
Income (loss) from discontinued operations | | — | | | 707 | | | — | | | 707 | |
Net income (loss) available to common stockholders | | $ | 675 | | | $ | (13,093) | | | $ | (50,071) | | | $ | (59,367) | |
| | | | | | | | |
Basic and diluted net income (loss) per share - continuing operations | | $ | 0.00 | | | $ | (0.12) | | | $ | (0.38) | | | $ | (0.51) | |
Basic and diluted net income (loss) per share - discontinued operations | | — | | | 0.01 | | | — | | | 0.01 | |
Basic and diluted net income (loss) per share | | $ | 0.00 | | | $ | (0.11) | | | $ | (0.38) | | | $ | (0.50) | |
| | | | | | | | |
Shares used in the computation of basic and diluted net income (loss) per share | | 138,881 | | | 118,582 | | | 133,465 | | | 117,403 | |
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 nine months ended September 30, 2023 and three and nine months ended September 30, 2022.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three and Nine Months Ended September 30, | | | | | | | | | | | | | |
| | | | | 2023 | | 2022 | | | | | | | | | | | | | |
| | | | | (in thousands) | | | | | | | | | | | | | |
Restricted Class A common stock | | | | | 31 | | | 79 | | | | | | | | | | | | | | |
Class A common stock warrants | | | | | 1,770 | | | 1,770 | | | | | | | | | | | | | | |
Stock options | | | | | 9,146 | | | 8,083 | | | | | | | | | | | | | | |
Restricted stock units | | | | | 18,202 | | | 8,268 | | | | | | | | | | | | | | |
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 | | | | | | | | | | | | | | |
14. Stock-Based Compensation
The stock-based compensation expense attributable to continuing operations is included in the unaudited condensed consolidated statements of operations and comprehensive income (loss) as indicated in the table below. Effective January 1, 2022, the Company reorganized its captions in the unaudited condensed consolidated statements of operations and comprehensive income (loss) to better align the Company’s broad
portfolio. As a result, for the three and nine months ended September 30, 2022, the amounts presented to reflect the impact of the reorganization have been recasted.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2023 | | 2022 | | 2023 | | 2022 |
| | (in thousands) |
Imagery & software analytical service costs, excluding depreciation and amortization | | $ | 40 | | | $ | 88 | | | $ | 185 | | | $ | 447 | |
Professional & engineering service costs, excluding depreciation and amortization | | 97 | | | 208 | | | 391 | | | 1,119 | |
Selling, general and administrative | | 2,265 | | | 2,867 | | | 7,149 | | | 14,823 | |
Total stock-based compensation expense | | $ | 2,402 | | | $ | 3,163 | | | $ | 7,725 | | | $ | 16,389 | |
The Company recorded stock-based compensation related to capitalized internal labor for software development activities of $0.2 million and $0.3 million during the three months ended September 30, 2023 and 2022, respectively and $0.5 million and $1.3 million during the nine months ended September 30, 2023 and 2022, respectively. These amounts are included in property, plant, and equipment - net in the unaudited condensed consolidated balance sheets.
15. Related Party Transactions
A summary of the Company’s related party transactions during the nine months ended September 30, 2023 is presented below:
| | | | | | | | | | | | | | | | | | | | |
| | | | Amount Due to Related Party as of |
| | | | September 30, | | 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. | | $ | 21,727 | | | $ | 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. | | 58,895 | | | 56,345 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Amount Due to (Due from) Related Party as of |
| | | Total Payments in the Nine Months Ended September 30, | | September 30, | | 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. | $ | 14,731 | | | $ | 22,067 | | | $ | (1,146) | | | $ | 3,728 | |
X-Bow | Equity Method Investee | In 2017, the Company received stock in X-Bow. As of September 30, 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. | 333 | | | 417 | | | 42 | | | — | |
Thales Alenia Space | Shareholder and Parent of Wholly-owned Subsidiary, Seahawk (Debt Issuer) | Design, development and manufacture of telescopes. | 4,459 | | | 8,170 | | | — | | | 693 | |
On May 9, 2023, BlackSky and its subsidiaries entered into an Amendment to its Amended and Restated Loan and Security Agreement with Intelsat and Seahawk, dated October 31, 2019 and previously amended on September 9, 2021. The Company incurred $0.4 million of offering costs to related parties in relation to the Amendment. See Note 9 for information regarding the Amendment.
Interest on the term loan facility is accrued and is due semi-annually. No significant interest payments were made in the nine months ended September 30, 2023 or 2022. As of September 30, 2023, the Company had interest due to related parties of $4.1 million, of which $0.8 million was included in other current liabilities and $3.3 million was included in other liabilities. As of December 31, 2022, the Company had interest due to related parties of $1.2 million that was included in other current liabilities.
16. 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 September 30, 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:
| | | | | | | | | | | | | | | | | | | | |
September 30, 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 | | $ | 1,249 | | | $ | — | | | $ | — | |
Private Placement Warrants - Issued October 2019 | | — | | | — | | | 1,041 | |
Private Placement Warrants - Issued March 2023 | | — | | | — | | | 11,647 | |
Sponsor Shares | | — | | | — | | | 1,446 | |
| | $ | 1,249 | | | $ | — | | | $ | 14,134 | |
| | | | | | | | | | | | | | | | | | | | | | |
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 September 30, 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 nine months ended September 30, 2023 or 2022.
Changes in the fair value of the Level 3 liabilities during the nine months ended September 30, 2022 of $4.8 million included the Sponsor Shares and the October 2019 private placement warrants. The following is a summary of changes in the fair value of the Level 3 liabilities during the nine months ended September 30, 2023:
| | | | | | | | | | | | | | | | | |
| Sponsor Shares | | Private Placement Warrants - Issued October 2019 | | Private Placement Warrants - Issued March 2023 |
| (in thousands) |
Balance as of January 1, 2023 | $ | 1,684 | | | $ | 1,332 | | | $ | — | |
Liability recorded at fair value | |