Good morning, ladies and gentlemen, and welcome to BlackSky Technology's Third Quarter 2022 Earnings Conference Call. [Operator Instructions]. I would now like to turn the conference over to Aly Bonilla, BlackSky's Vice President of Investor Relations. Please go ahead, Aly.

Good morning, and thank you for joining us. Today, I'm joined by our Chief Executive Officer, Brian O’Toole; and our Chief Financial Officer, Henry Dubois. On today's call, Brian will provide some highlights on the quarter and give a strategic update on the business. Henry will then review the company's third quarter financial results and outlook for 2022. Following our prepared remarks, we will open the line for your questions. A replay of this conference call will be available from approximately 12:30 p.m. Eastern Time today through November 22. Information to access the replay can be found in today's press release. Additionally, a webcast of this earnings call will be available in the Investor Relations section of our website at www.blacksky.com. In conjunction with today's call, we have posted a quarterly earnings presentation on the Investor Relations website that you may use to follow along with our prepared remarks. Before we begin, let me remind you that today's conference call includes forward-looking statements, including financial performance and guidance for the full year 2022, and that actual results may differ from the expectations reflected in these statements due to factors such as long sales cycles, customer demand and our ability to estimate expense, operational and liquidity needs. We encourage you to review our press release and most recent SEC filings for a full discussion of the risks and uncertainties that pertain to these statements and that may affect future results or the market price of our stock. BlackSky assumes no obligation to update forward-looking statements, except as may be required under applicable securities laws. In addition, during today's call, we will refer to certain non-GAAP financial measures, including adjusted EBITDA, non-GAAP imagery and software analytical services cost of sales and adjusted operating expenses. A reconciliation of these non-GAAP financial measures to…

Thank you, Brian, and good morning, everyone. I'm pleased with our strong third quarter results and the traction we are gaining. Robust customer demand for our imagery and analytics solutions delivered another record revenue performance, as shown on Slide 12. Revenues reached $16.9 million in the third quarter of 2022 or a 113% increase over the prior year period and our largest year-over-year growth rate to date. Consistent and growing demand for BlackSky's products and services has led to 8 consecutive quarters of revenue growth. In fact, revenues for the first 9 months of 2022 have already surpassed revenue for all of last year. Our revenue mix for imagery and software analytics services rose to 89% of total revenues demonstrate the continued value customers place in our high-frequency imagery and Spectra AI software platform capabilities. Imagery and software analytical services revenue grew to $15 million, a 130% increase over the prior year period, primarily driven by the greater volume of imagery delivered to new and existing customers. As you may recall, the recent EOCL contract win began on June 15. So Q3 was the first quarter whereby we recognized a full quarter's worth of subscription revenues from this contract. Keep in mind, we've been generating revenues with the NRO through our previous 3-year study contract that ended this June and was replaced by our new EOCL contract. Thus, the revenues from this new contract are not entirely incremental to what we recognized in the past from this customer, but do represent a significant increase from the earlier study contract. Engineering and systems integration revenue contributed $1.9 million in the third quarter of 2022, an increase of $500,000 from the same quarter last year. Keep in mind, revenues from these types of projects can vary from quarter-to-quarter depending on the project's…

[Operator Instructions]. Our first question today is coming from Joshua Sullivan from The Benchmark Company.

Congratulations on the results and momentum. Brian O’Toole: Joshua, thanks for joining.

As far as the EOCL contract, can you give us some color on early adoption, maybe areas where the customers are using the vehicle more aggressively than you first anticipated? Brian O’Toole: Yes, Joshua, we're -- as I mentioned in our remarks, we're executing exceptionally well on the program. We fully have ramped our operations and are meeting all of the requirements for imaging capacity that we need to deliver under this contract. So we're seeing strong integration and strong operations and the customer is showing extremely strong demand for what we're delivering across the globe.

Got it. Got it. And then as far as international interest, what would the sales cycles look like at this point? Just given the options on the market, are international customers still in discovery mode or they allocating funding and moving forward? Brian O’Toole: Our sales cycles are typically 12 to 18 months, but we started several years ago with customers around the world. We have expanded significantly our global -- our international sales teams last year. And so we have customers, some at early pilot phases. But as we just announced, others that are fully using our services like the $10 million 1-year subscription contract we just announced with a Ministry of Defense in Asia. So strong demand globally building traction and these are converting into long-term contracts, giving us good revenue visibility.

And then just one just last one on the Gen-3 satellites, where are the risk points? Any new gen technology comes with different needs? What do you see as the gating factors to successful on-time deployment? Brian O’Toole: Well, Joshua, we've been in development on these satellites now for a couple of years, and we're now entering into full rate of production. The strength of our strategy here is it builds off the success of our Gen-2 architecture and our production and manufacturing and supply chain capabilities. We've also been prudent in securing long lead item parts from the supply chain. And all of that is coming together and on track. So we'll begin launching those satellites second half of next year.

Your next question today is from Scott Deuschle from Credit Suisse.

Brian, how much of the -- how much growth is on that $10 million international contract? I think you said it was a 5x increase in usage. Just curious if the value increase was kind of in line with the usage increase? Brian O’Toole: Yes, you can assume the value increase was in line with the -- was proportional to the increase in revenues.

Okay. Got it. And then, Henry, the working capital, it's been a bit of a headwind over the past several quarters and obviously, that's typical for a growing business. But just curious, do you expect any kind of unwind here in Q4? Or should we look for that to continue to build as the business grows?

Thank you, Scott. I mean, as you take a look at our working capital, one thing that you really want to think through is the fact that our EOCL contract, we received those payments on a very routine basis. So we aren't building our accounts receivable very high at all. So I think over time, we will start moving more towards a steady state. But I know we had some headwinds, Scott, as we came into this year.

Okay. Got it. And then the last one, just you kind of alluded to this earlier, Henry, talking about growing revenue and keeping a tight rein on expenses. But I guess just any kind of rough sense for how you're budgeting SG&A as you go into next year? Just kind of like high teens number we've been seeing in the past few quarters. Is that sustainable here even as you continue to grow the business? Or do you see a little bit of pressure there as you build out the international sales?

Well, we're not providing guidance at the moment as we are going through our annual budgeting process. However, I think as you kind of -- as we've alluded to in our conversations and even just in this presentation, a lot of our operating expenses tend to be fixed. So I would be expecting them to be fairly consistent as we go forward. I wouldn't expect any significant growth on that line.

[Operator Instructions]. Our next question is coming from Edison Yu from Deutsche Bank.

Congrats on the quarter. Just 2 questions on my end. First, can you give us a sense on the cadence for the Gen-3 deployment maybe over a couple of years, how they could look like? And then secondly, I know you're not giving guidance on 2023, but how are you feeling about the visibility, that book of business? Any sort of color there would be helpful. Brian O’Toole: Yes. Edison, as I mentioned, we'll start launching and deploying Gen-3 satellites in the second half of next year. Those satellites will launch at a cadence to initially begin to maintain the current constellation where Gen-3 satellites will replenish aging Gen-2 satellites. And then that constellation will grow over time to align with demand that we're seeing from the EOCL contract and other opportunities internationally. With respect to the visibility, obviously, we've been building strong contracted backlog. And as we outlined, we've been focused on closing multiyear contract vehicles, which enable us to have strong visibility into expansion of current contracts, building off of that contract base and the backlog that we're experiencing from a lot of different customers. So feeling really strong about our visibility going into next year.

The next question today is coming from Colin Canfield from Barclays.

Can you just maybe discuss international customer appetite and how you guys are thinking about kind of the market opportunity or what I would call countries that can afford their own constellations versus countries that can't? And maybe just talk about the mix of interest given the sort of national security environment that we're contemplating. The mix being between acquiring commercial services versus building and operating their own constellations? Brian O’Toole: Yes. Colin, well, what we're seeing internationally is demand is definitely outpacing supply. And when you look at our capabilities, which we're bringing a differentiated offering of this unique dusk-to-dawn, high-frequency capability, that is really driving the growth we're seeing. We're also through compelling economics of our offering and ease of access, we see the TAM expanding. A few years ago, it was just larger governments that could afford this. Now we're seeing Tier 1 and Tier 2 and Tier 3 type governments acquiring these services. So that's a trend that we're excited about. And then finally, on your -- I'll call it what we're seeing in terms of demand for commercial services versus sovereign systems. We're seeing a growing demand for both. And we anticipate that these markets are going to continue to buy and expanding commercial services with analytics. But also move toward what I'll call, hybrid architectures where sovereign systems will begin being tightly integrated with commercial capabilities.

Got it. And then you mentioned the kind of national security vetting of Gen-3 architecture as well as kind of the customer interest. Can you just maybe update us on the tech geo intelligence program with the army and how you guys are thinking about the trade-off between selling services and products into the domestic national security customer? Brian O’Toole: Yes. Colin, as I outlined in my remarks, the U.S. government and other international governments are shifting a significant amount of dollars into what we'll call tactical ISR space. And so we positioned the company with a number of early contracts, including the tech geo contract. So when we launch Gen-3 next year, we'll be working with that customer in their studies and analysis of that capability to support their long-term architecture. From a market perspective, we see that whole shift in dollars and the move toward small satellites for space-based defense as a -- is quite a big opportunity in the out years.

Got it. And then if you can just maybe within the kind of that contract that you're considering, can you maybe discuss what Leo Stella is capacitized to from a kind of production standpoint? And how you guys are thinking about incremental capital investment there? Brian O’Toole: Yes. Leo Stella has an annual production capacity of 40 satellites per year. So they've got plenty of capacity to produce our satellites as well as satellites for other. That business is capitalized and we're -- obviously, that the CapEx elements of our plan are what's funding the satellite production that we see at Leo Stella.

Your next question today is coming from Austin Moeller from Canaccord.

So how are you differentiating your AI software and geo analytics from companies like Maxar that have clearly picked their sort of corner of the market where they're aggressively moving into 3D geospatial and mapping products? Brian O’Toole: Well, Austin, as you know, we've been -- our differentiation is in real time. And as you know, what's critical these days is the delivery of timely actionable intelligence. And so our system can collect and produce AI-enabled analytics in real time and deliver that to customers. We're seeing that come to life in the EIM contract with NGA where we've won a majority of those task orders. As we said, we've won $14 million out of the $30 million of that contract over 5 years. Under that contract, we're not delivering imagery. It's information and analytics, monitoring locations all over the world. And this real-time delivery, we feel is where we're differentiated, really driven by the world we need to get information on demand to understand what's changing and meet their critical intelligence needs.

Okay. That's very helpful. The $91 million in cash, do you anticipate that, that will be sufficient to get the company through BlackSky's Gen-3 development and launch?

Austin, this is Henry. Thank you for the question. I mean, in terms of liquidity, yes, we have $91 million of cash on the balance sheet. And as you can see, we are executing to plan quite well. I think when you couple that with the strong incremental margins we're experiencing and we anticipate on our revenue streams, we do have sufficient cash to get ourselves through the foreseeable future.

Your next question today is coming from Caleb Henry from Quilty Analytics.

A question about the Gen-3 satellites. You mentioned that they're going to be 35- to 50-centimeter imagery. Is that native or is that after processing? Brian O’Toole: That's native. So that's the resolution that we get off of the camera and the processing that we do to generate the imagery, but it's -- you can consider it native. It's not employing a type of super resolution processing as others do.

Okay. And that means that you have the potential to go sharper than 35 centimeters with processing later? Brian O’Toole: There's always opportunity to improve with processing. Yes.

Okay. The Gen-3 satellites, you mentioned a lot of the similarities they're going to have with Gen-2 kind of for redundancy and reliability. But what are some of the changes that you're doing to make sure that they -- or to enable them to reach those resolutions? Are you lowering the orbit or giving them bigger cameras? Can you give a sense of what you're doing there? Brian O’Toole: Yes. The primary difference is a larger payload. So we have larger optics, which are enabling us to improve our resolution.

Okay. And then just last question. We're seeing, I think, an increasing number of load sensing companies plan to cross-link their constellations into the space development agencies, national defense based architecture. Is that something that BlackSky has planned for Gen-3? Brian O’Toole: Yes. We've built a very flexible vehicle, which enables us to plug and play different types of capabilities such as cross -- optical cross-links and other means of communication.

We reached the end of our question-and-answer session. I'd like to turn the floor back over to Aly for any further or closing comments.

I want to thank everyone for joining us on the call. We will be participating in several investor conferences over the coming weeks, and we look forward to speaking to you at one of these or sometime soon. Have a great day.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.