NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022
1. Organization and Business
On September 9, 2021, Osprey Technology Acquisition Corp. (“Osprey”) consummated the previously announced merger (the “Merger”) with BlackSky Holdings, Inc. (f/k/a Spaceflight Industries, Inc.), a Delaware corporation (“Legacy BlackSky”), pursuant to the agreement and plan of merger, dated February 17, 2021, by and among Osprey, Osprey Technology Merger Sub, Inc., a direct, wholly owned subsidiary of Osprey, and Legacy BlackSky. Immediately following the Merger, Osprey changed its name to BlackSky Technology Inc. (“BlackSky” or the “Company”). Legacy BlackSky survived the Merger and is now a wholly owned subsidiary of BlackSky. As a special purpose acquisition corporation, Osprey had no pre-Merger operations other than to identify and consummate a merger. Therefore, BlackSky’s operations post-Merger are attributable to those of Legacy BlackSky and its subsidiaries, and references to “BlackSky” or the “Company” should be read to include BlackSky’s wholly owned subsidiaries. References in this report to Company actions, assets/liabilities, or contracts may be references to actions taken, assets/liabilities held, or contracts entered into by one or more current Company subsidiaries; however, the Company has distinguished between actions taken by Legacy BlackSky or Osprey for certain time based, historical transactions.
BlackSky, headquartered in Herndon, Virginia, is a leading provider of real-time geospatial intelligence. The Company owns and operates one of the industry's leading high-performance low earth orbit small satellite constellations. Our constellation is optimized to cost-efficiently capture imagery at high revisit rates where and when our customers need it. BlackSky’s Spectra AI software platform processes millions of observations a day from our proprietary satellite constellation and from multiple external data sources including imaging, radar and radio frequency satellites, environmental sensors, asset tracking sensors, Internet of Things (“IoT”) connected devices, internet-enabled narrative sources, and a variety of geotemporal data feeds. Spectra AI employs advanced, proprietary artificial intelligence ("AI") and machine learning (“ML”) techniques to process, analyze, and transform these data feeds into alerts, information, and insights. Customers can access Spectra AI’s data and analytics through easy-to-use web services or through platform application programming interfaces.
As of March 31, 2022, BlackSky had 12 satellites in commercial operation. BlackSky has two primary operating subsidiaries, BlackSky Global LLC and BlackSky Geospatial Solutions, Inc. The Company also owns fifty percent of LeoStella LLC (“LeoStella”), its joint venture with Thales Alenia Space US Investment LLC (“Thales”). LeoStella is a vertically-integrated small satellite design and manufacturer based in Tukwila, Washington, from which the Company procures satellites to operate its business. The Company accounts for LeoStella and X-Bow Launch Systems Inc. (“X-Bow”), a space technology company specializing in additive manufacturing of solid rocket motors of which BlackSky owns approximately 15.1%, as equity method investments (Note 6).
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-K 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.
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. The Company also incurred debt, which was also stated at fair value and subsequently converted to equity in the Merger. Unless otherwise indicated, amounts presented in the Notes pertain to the Company’s continuing operations. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s annual consolidated financial statements and notes included in the Company’s Form 10-K filed with the SEC on March 31, 2022. In management’s opinion, all adjustments of a normal recurring nature that are necessary for a fair statement of the accompanying unaudited condensed consolidated financial statements have been included.
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 relate to revenue and associated cost recognition, the collectability of accounts receivable, the recoverability and useful lives of property and equipment, the valuation of equity warrants and warrant liabilities, fair value estimates, the recoverability of goodwill and intangible assets, the provision for income taxes, and stock-based compensation.
Property and Equipment - net
The Company capitalizes internal and external costs incurred to develop and implement internal-use software, which consist primarily of costs related to design, coding, and testing. Internal costs include salaries and allocations of fringe and stock-based compensation. When the software is ready for its intended use, capitalization ceases and such costs are amortized on a straight-line basis over the estimated life to either depreciation or cost of sales depending on the nature of the software. Costs incurred prior to and after the application development stage are charged to expense. The Company regularly reviews its capitalized software projects for impairment.
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 engineering and systems integration. Imagery and software analytical services revenue includes imagery, data, software, and analytics, including professional services. This revenue is recognized from services rendered under cost-plus-fixed-fee contracts, firm fixed price contracts, or on a time and materials basis. Engineering and systems integration revenue is from fixed price long-term construction contracts.
The Company generates revenue primarily through contracts with government agencies. Most of the fixed price contracts include multiple promises, which are generally separated as distinct performance obligations. The Company allocates the transaction price to each performance obligation based on the relative standalone selling prices using observable sales transactions where applicable.
In accordance with Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASC 606”), the Company uses the five-step model of identifying the performance obligations contained in a contract, determining transaction price, allocating transaction price, and determining when performance obligations are satisfied can require the application of significant judgment, as further discussed below.
Revenue is measured at the fair value of consideration received or receivable and net of discounts. The Company applies a policy election to exclude transaction taxes collected from customer sales when the tax is both imposed on and concurrent with a specific revenue-producing transaction. The Company estimates any variable consideration, and whether the transaction price is constrained, upon execution of each contract. The Company did not have any active contracts with significant variable consideration as of March 31, 2022.
Imagery & Software Analytical Services Revenue
Imagery
Imagery services include imagery delivered from the Company’s satellites in orbit via its Spectra AI platform and in limited cases directly uploaded to certain customers. Customers can directly task our proprietary satellite constellation to collect and deliver imagery over specific locations, sites and regions that are critical to their operations. We offer customers several service level options that include basic plans for on-demand tasking or multi-year assured access programs, where customers can secure priority access and imaging capacity at a premium over a region of interest on a take or pay basis. Imagery performance obligations are recognized as revenue at the point-in-time when the Company delivers images to the Spectra AI platform or, in limited circumstances, ratably over the subscription period when the customer has a right to access the Spectra AI platform for unlimited archive images within delineated geographic areas. In certain firm fixed price contracts that contain imagery where it is probable the Company will receive the full contract amount or the customer prepays for future services that may not be completely satisfied, the Company’s accounting policy for unexercised performance obligations is to recognize the estimated unused amount as revenue over time in proportion to the historical pattern of rights exercised by the customer. As a result, we recognized $0.7 million and $0.0 million of estimated unused amount as revenue in the three months ended March 31, 2022 and 2021, respectively. The unrecognized amount is recorded within contract liabilities on the Company’s unaudited condensed consolidated balance sheets.
Data, Software, and Analytics
The Company leverages proprietary artificial intelligence ("AI") and machine learning ("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 provides technology enabled professional service solutions to support customer-specific software development requests, integration, testing, and training. The Company uses system engineers to support customer efforts to manage mass quantities of data. The Company also offers professional service solutions 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 information.
Our analytics services are also offered on a consumption or subscription basis and provide customers with access to our site monitoring, event monitoring and global data services. Imagery and software analytical services revenue from data, software, and analytics contracts is recognized from the rendering of services over time on a cost-plus-fixed-fee, firm fixed price, or time and materials basis as well as, at the point-in-time the customer receives access to an analytic product. For firm fixed price contracts, the Company recognizes revenue using total estimated costs to complete the performance obligation, ("Estimate at Completion" or "EAC"). A performance obligation’s EAC includes all direct costs such as labor, materials, subcontract costs, overhead and an allocatable portion of general and administrative costs. In addition, an EAC of a performance obligation includes future losses estimated to be incurred on contracts, as and when known. For contracts structured as cost-plus-fixed-fee or on a time and materials basis, the Company generally recognizes revenue based on the right-to-invoice when practically expedient, as the Company is contractually able to invoice the customer based on the control transferred to the customer in an amount that corresponds directly with the value to the customer of the entity’s performance completed to date.
Engineering and Systems Integration Revenue
The Company develops and delivers advanced launch vehicle, satellite and payload systems for a limited number of customers that leverage the Company’s capabilities in mission systems engineering and operations, ground station operations, and software and systems development. These systems are sold to government customers under fixed price contracts. The Company generally recognizes revenue over time using the cost-to-cost method to measure progress, pursuant to which the extent of progress towards completion is measured based on the ratio of costs incurred to date to the EAC. The estimation of total estimated costs at completion is subject to many variables and requires judgment. The Company recognizes changes in contract estimates on a cumulative catch-up basis in the period in which the changes are identified. Such changes in contract estimates can result in the recognition of revenue in a current period for performance obligations which were satisfied or partially satisfied in a prior period. If at any time, the estimate of profitability for a performance obligation indicates a probable anticipated loss, the Company recognizes the total loss for the performance obligation in the period it is identified. Changes in estimates related to contracts accounted for using the cost-to-cost measure of progress are recognized in the period in which such changes are made for the inception-to-date effect of the changes. For the three months ended March 31, 2022, the Company recognized $1.2 million of unfavorable cumulative adjustments to revenue directly from estimated cost increases on two engineering and systems integration contracts (Note 5). All, or a portion, of this cumulative adjustment will be recognized in future revenue as the percentage of completion increases over time. During the three months ended March 31, 2021, the Company did not recognize any unfavorable cumulative adjustments to revenue reflecting estimated cost increases on the same contracts. During the three months ended March 31, 2022 and 2021, there was no revenue recognized from performance obligations satisfied in previous periods.
Imagery and Software Analytical Service and Engineering and Systems Integration Costs
Imagery and software analytical service costs primarily include internal aerospace and geospatial software development labor, third-party data and imagery, internal labor to support the ground stations and space operations, and cloud computing and hosting services. 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 engineering and systems support to customers, the stock-based compensation expense is classified under engineering and systems integration costs. For the remaining employees who generally support the Company and its business, the stock-based compensation expense is recognized under selling, general and administrative expense in the unaudited condensed consolidated statements of operations and comprehensive loss.
Engineering and systems integration costs primarily include the cost of internal labor for product design, integration and engineering in support of long-term development contracts for launch vehicle, satellite and payload systems. The Company also incurs subcontract direct materials and external labor costs to build and test specific components such as the communications system, payload demands and sensor integration.
Stock-Based Compensation
Restricted Stock Awards and Restricted Stock Units
The estimated fair value of RSAs and RSUs are measured based on the grant date fair value of the Company’s Class A common stock. In order to determine the fair value of its Class A common stock on the date of grant and prior to the Merger, Legacy BlackSky historically performed a valuation analysis using a combination of market and income approaches. Subsequent to the Merger, the Company uses the New York Stock Exchange (“NYSE”) trading price as the fair value of the Class A common stock for valuation purposes. For all awards for which vesting is only subject to a service condition, including those subject to graded vesting, the Company has elected to use the straight-line method to recognize the fair value as compensation cost over the requisite service period.
Certain of the Company’s outstanding RSUs had performance vesting conditions that were triggered upon the consummation of the Merger. Therefore, since the performance conditions attributable to these RSUs had been met, the Company commenced recording the associated compensation expense, inclusive of a catch-up amount for the service period between their grant date and satisfaction of the performance condition, as of the closing of the Merger. The fair value of the RSUs that include a performance condition is recognized as compensation expense over the requisite service period using the accelerated attribution method, which accounts for RSUs with discrete vesting dates as if they were a separate award. Expense related to stock-based payments is classified in the unaudited condensed consolidated statements of operations and comprehensive loss based upon employees’ cash compensation. The Company recognized stock-based compensation expense in imagery and software analytical service costs, excluding depreciation and amortization, and selling, general and administrative expense in the unaudited condensed consolidated statements of operations and comprehensive loss.
Stock Options
The Company uses the Black-Scholes option pricing model to value all options and the straight-line method to recognize the fair value as compensation cost over the requisite service period. The fair value of each option granted was estimated as of the date of grant. The Company did not grant options in the three months ended March 31, 2022. 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 comparable publicly traded companies.
Risk-free Interest Rate. The yield on actively traded non-inflation indexed U.S. Treasury notes was used to extrapolate an average risk-free interest rate based on the expected term of the underlying grants.
Expected Term. For options granted in 2021, since there is not a history of option exercises as a public company, 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.
3. Accounting Standards Updates (“ASU”)
Accounting Standards Recently Adopted
In May 2021, the FASB issued ASU 2021-04, “Earnings per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40)”, which clarifies and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified upon modification or exchange. This ASU is effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. An entity should apply the amendments prospectively to modifications or exchanges occurring on or after the effective date of the amendments. Early adoption is permitted for all entities, including adoption in an interim period. The Company adopted this guidance as of January 1, 2022 and this guidance is not expected to impact the Company unless it modifies or exchanges freestanding financial instruments within the scope of the guidance subsequent to adoption.
Accounting Standards Recently Issued But Not Yet Adopted
In February 2016, the FASB issued ASU 2016-02 “Leases”. The amendments in this update require the recognition of lease assets and lease liabilities on the balance sheet, as well as certain qualitative disclosures regarding leasing arrangements. The guidance requires the use of the modified retrospective method, with the cumulative effect of initially applying these updates recognized at the date of initial application. The guidance was effective for public business entities for annual periods, including interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. For all other entities, the guidance is effective for fiscal years beginning after December 15, 2021, and for interim periods beginning after December 15, 2022, with early adoption permitted. As of March 31, 2022, the Company holds emerging growth company status, as such it is permitted to present the impact of the new guidance in its annual statement as of December 31, 2022 and interim statements thereafter. The Company is currently in the process of evaluating the adoption impact but expects the adoption of the standard to have a material impact to the unaudited condensed consolidated balance sheets, since the Company will be required to report operating leases in the unaudited condensed consolidated balance sheets for the first time. The Company is in the early stages of its adoption efforts and cannot yet reasonably estimate the impact to the consolidated financial statements.
In June 2016, the FASB issued 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. A new methodology must be adopted to reflect expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates, which would include losses on trade accounts receivable. This ASU requires modified retrospective application. The guidance is effective for public business entities that are not smaller reporting companies for fiscal years beginning after December 15, 2019, including interim periods therein. For all other entities, the guidance is effective for fiscal years beginning after December 15, 2022, including interim periods therein. The Company is currently in the planning stage and, as a emerging growth status company, will adopt the guidance on January 1, 2023. The Company has not yet determined the potential impact, if any, that this guidance will have on its consolidated financial statements.
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): “Simplifying the Accounting for Income Taxes”. The amendments in this update are intended to simplify various aspects related to accounting for income taxes. This ASU removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This ASU can be applied on a retrospective, modified retrospective or prospective basis. The guidance is effective for all public business entities for fiscal years beginning after December 15, 2020, including interim periods therein. For all other entities, the guidance is effective for fiscal years beginning after December 15, 2021, and for interim periods beginning after December 15, 2022. Early adoption is also permitted. As of March 31, 2022, the Company holds emerging growth company status, as such it is permitted to present the impact of the new guidance in its annual statement as of December 31, 2022 and interim statements thereafter. The Company is currently in the process of evaluating the adoption impact and has not yet determined the potential impact, if any, that this guidance will have on its consolidated financial statements.
4. Revenue
Disaggregation of Revenue
The Company earns revenue through the sale of imagery and software analytical services and engineering and systems integration. The Company’s management primarily disaggregates revenue as follows: (i) imagery; (ii) data, software and analytics; and (iii) engineering and integration. This disaggregation allows the Company to evaluate market trends in certain imagery and software analytical services and engineering and systems integration services. These offerings currently have both recurring and non-recurring price attributes, particularly the engineering and systems integration offerings.
The following table disaggregates revenue by type of imagery and software analytical services and engineering and integration for the three months ended March 31, 2022 and 2021:
| | | | | | | | | | | | | | |
| | Three Months Ended March 31, |
| | 2022 | | 2021 |
| | (in thousands) |
| Imagery | | $ | 3,610 | | | $ | 1,464 | |
| Data, software and analytics | | 6,162 | | | 4,534 | |
| Engineering & integration | | 4,124 | | | 1,296 | |
| Total revenue | | $ | 13,896 | | | $ | 7,294 | |
The approximate revenue based on geographic location of customers is as follows for the three months ended March 31, 2022 and 2021:
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2022 | | 2021 |
| (in thousands) |
| US | $ | 11,147 | | | $ | 6,123 | |
| Middle East | 594 | | | 686 | |
| Asia | 1,994 | | | 458 | |
| Other | 161 | | | 27 | |
| Total revenue | $ | 13,896 | | | $ | 7,294 | |
Revenue from significant customers for the three months ended March 31, 2022 and 2021 is as follows:
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2022 | | 2021 |
| (in thousands) |
| U.S. federal government and agencies | $ | 11,063 | | | $ | 6,119 | |
| International government | 2,745 | | | 1,175 | |
| Commercial and other | 88 | | | — | |
| Total revenue | $ | 13,896 | | | $ | 7,294 | |
As of March 31, 2022 and December 31, 2021, accounts receivable consisted of the following:
| | | | | | | | | | | |
| March 31, | | December 31, |
| 2022 | | 2021 |
| (in thousands) |
| U.S. federal government and agencies | $ | 2,091 | | | $ | 2,576 | |
| International government | 3,258 | | | 76 | |
| Commercial and other | 150 | | | 16 | |
| Allowance for doubtful accounts | (8) | | | (39) | |
| Total accounts receivable | $ | 5,491 | | | $ | 2,629 | |
Remaining Performance Obligations
As of March 31, 2022, the Company had $24.7 million of remaining performance obligations, which represents the transaction price of executed contracts less inception to date revenue recognized. Remaining performance obligations exclude unexercised contract options. The Company expects to recognize revenue relating to remaining funded contractual performance obligations, of which a portion is recorded in deferred revenue in the unaudited condensed consolidated balance sheets, of $20.1 million, $4.4 million, and $0.2 million in the nine months ending December 31, 2022, fiscal year 2023, and thereafter, respectively.
5. Contract Assets and Liabilities
The components of contract assets and contract liabilities consisted of the following:
| | | | | | | | | | | |
| March 31, | | December 31, |
| 2022 | | 2021 |
| (in thousands) |
| Contract assets - current | | | |
| Unbilled revenue | $ | 2,436 | | | $ | 788 | |
| Contract assets | 429 | | | 890 | |
| Total contract assets - current | $ | 2,865 | | | $ | 1,678 | |
| | | |
| Contract liabilities - current | | | |
| Deferred revenue - short-term | $ | 9,286 | | | $ | 11,082 | |
| Other contract liabilities | 242 | | | 184 | |
| Total contract liabilities - current | $ | 9,528 | | | $ | 11,266 | |
| | | |
| Contract liabilities - long-term | $ | — | | | $ | — | |
| Deferred revenue - long-term | 3,000 | | | 568 | |
| Total contract liabilities - long-term | $ | 3,000 | | | $ | 568 | |
Deferred revenue and other contract liabilities are reported as contract liabilities in the accompanying unaudited condensed consolidated balance sheets. Contract liabilities include payments received and billings made in advance of the satisfaction of performance obligations under the contract and are realized when the associated revenue is recognized under the contract. Contract assets include (i) unbilled revenue, which is the amount of revenue recognized in excess of the amount billed to customers, where the rights to payment are not just subject to the passage of time; and (ii) costs incurred to fulfill contract obligations. Other contract assets and other contract liabilities primarily relate to contract commissions on customer contracts.
Changes in short-term and long-term contract assets and contract liabilities reported as of January 1, 2022 were as follows:
| | | | | | | | | | | |
| Contract Assets | | Contract Liabilities |
| (in thousands) |
| Balance on January 1, 2022 | $ | 1,678 | | | $ | 11,834 | |
| Billings or revenue recognized that was included in the beginning balance | 589 | | | (7,735) | |
| Cash received in advance and not recognized as revenue | — | | | 6,746 | |
| Changes in contract assets, net of reclassification to receivables | 1,058 | | | — | |
| Cumulative catch-up adjustment arising from changes in estimates to complete | — | | | 1,335 | |
| Cumulative catch-up adjustment arising from contract modification | — | | | 290 | |
| Changes in costs to fulfill and amortization of commission costs | (460) | | | — | |
| Changes in contract commission costs | — | | | 58 | |
| Balance on March 31, 2022 | $ | 2,865 | | | $ | 12,528 | |
6. Equity Method Investments
LeoStella
The Company accounts for its investment in LeoStella as an equity method investment. The Company did not make any additional capital investments in LeoStella during the three months ended March 31, 2022 or
2021. During the three months ended March 31, 2022 and 2021, respectively, the Company remitted $9.7 million and $7.4 million of payments to LeoStella for satellite manufacturing and satellite software development.
X-Bow
In 2017, the Company entered into a stock subscription and technology transfer agreement with X-Bow, whereby the Company assigned and transferred certain intellectual property rights owned by the Company to X-Bow in exchange for 13.5 million shares of X-Bow, a strategic investment in a space technology company specializing in additive manufacturing of solid rocket motors. As of March 31, 2022, the Company's interest in X-Bow was 15.1%.
The following tables present summarized financial information for the Company’s equity method investments as of March 31, 2022 and December 31, 2021 and for the three months ended March 31, 2022 and 2021.
| | | | | | | | | | | | | | |
| | March 31, | | December 31, |
| Summarized balance sheets | | 2022 | | 2021 |
| | (in thousands) |
| Current assets | | $ | 54,125 | | | $ | 60,652 | |
| Non-current assets | | 6,857 | | | 5,798 | |
| Total assets | | $ | 60,982 | | | $ | 66,450 | |
| | | | |
| Current liabilities | | $ | 34,053 | | | $ | 39,612 | |
| Non-current liabilities | | 591 | | | 706 | |
| Total liabilities | | $ | 34,644 | | | $ | 40,318 | |
| | | | | | | | | | | | | | |
| | Three Months Ended March 31, |
| Summarized statements of operations | | 2022 | | 2021 |
| | (in thousands) |
| Revenue | | $ | 16,733 | | | $ | 6,384 | |
| Gross margin | | 2,485 | | | 1,420 | |
| Net income | | 101 | | | 668 | |
Current assets of the Company’s equity method investees primarily consisted of inventories of $8.9 million and $17.0 million as of March 31, 2022 and December 31, 2021, respectively. Total liabilities of the Company’s equity method investees primarily consisted of customer advances from related parties of $30.6 million and $35.2 million as of March 31, 2022 and December 31, 2021, respectively.
The revenue related to equity method investments attributable to related parties was $8.1 million and $6.4 million for the three months ended March 31, 2022 and 2021, respectively. The Company has differences between the carrying value of its equity method investments and the underlying equity in the net assets of the investees of $2.6 million as of March 31, 2022 and $2.9 million as of December 31, 2021. The difference is the result of the elimination of upstream intra-entity profits from the sale of satellites.
7. Property and Equipment - net
The following summarizes property and equipment - net as of:
| | | | | | | | | | | |
| March 31, | | December 31, |
| 2022 | | 2021 |
| (in thousands) |
| Satellites | $ | 93,709 | | | $ | 93,709 | |
| Software | 1,921 | | — |
| Software development in process | 1,681 | | — |
| Computer equipment | 1,415 | | 1,372 |
| Office furniture and fixtures | 708 | | 744 |
| Other equipment | 681 | | 682 |
| Site equipment | 1,550 | | 1,393 |
| Ground station equipment | 111 | | 111 |
| Total | 101,776 | | 98,011 |
| Less: accumulated depreciation | (34,674) | | (27,460) |
| Property and equipment — net | $ | 67,102 | | | $ | 70,551 | |
Depreciation of property and equipment from continuing operations during the three months ended March 31, 2022 and 2021 was $7.3 million and $2.4 million, respectively. During the three months ended March 31, 2022 and 2021, the Company disposed of $36 thousand and $0.7 million, respectively, of property and equipment, which consisted of site equipment, furniture and ground station equipment for a loss of $0 and $24 thousand, respectively.
8. Debt and Other Financing
The carrying value of the Company’s outstanding debt consisted of the following amounts:
| | | | | | | | | | | |
| March 31, | | December 31, |
| 2022 | | 2021 |
| (in thousands) |
| Current portion of long-term debt | $ | — | | | $ | — | |
| Non-current portion of long-term debt | 74,126 | | | 74,126 | |
| Total long-term debt | 74,126 | | | 74,126 | |
| Unamortized debt issuance cost | (2,217) | | | (2,718) | |
| Outstanding balance | $ | 71,909 | | | $ | 71,408 | |
The outstanding debt was solely comprised of loans from related parties with effective interest rates of 7.41% to 8.00%.
Bridge Notes and Related Transactions
On February 2, 2021, Legacy BlackSky amended its omnibus agreement dated June 27, 2018 (the “2021 Omnibus Amendment”). As a result of the amendment, Legacy BlackSky was permitted to enter into additional indebtedness by issuing new subordinated, unsecured convertible promissory notes, the Bridge Notes, between February 2, 2021 and June 30, 2021, for up to an aggregate principal amount of $60 million.
During the period from February 2, 2021 through February 3, 2021, Legacy BlackSky completed the closing of its initial tranche of the Bridge Notes from existing stockholders. The aggregate principal amount of the Bridge Notes issued in the initial tranche was $18.1 million. All investors participating in the initial tranche also received incentive equity equal to seven shares of class A common stock of Legacy BlackSky for each dollar invested. Certain investors participating in the initial tranche additionally received warrants exercisable for shares of Legacy BlackSky class A common stock in amounts ranging from 0.14% of Legacy BlackSky’s fully-diluted share capital for each dollar invested divided by $1.0 million to 3.5% of Legacy BlackSky’s fully-
diluted share capital (Note 9). On February 18, 2021, the Company completed the closing of a second tranche of the Bridge Notes, raising an aggregate principal amount of $40.0 million from an existing stockholder and from new investors. Participants in the second tranche did not receive shares of Legacy BlackSky class A common stock or warrants to purchase Legacy BlackSky class A common stock.
Upon the closing of the two previously mentioned tranches, $1.9 million of Bridge Notes remained available to be offered to certain shareholders under terms similar to the initial tranche pursuant to a rights offering (“Rights Offering”). The Company subsequently completed the Rights Offering in June 2021 with a total of $0.5 million additional investment, resulting in final aggregate proceeds of $58.6 million in principal investments pursuant to the Bridge Notes. As the terms of the Rights Offering were substantially identical to those offered in the initial tranche of the Bridge Notes, participants received seven shares of the Legacy BlackSky's class A common stock for each dollar invested, as well as warrants.
The Bridge Notes, in all three tranches, bore interest at a rate of 10% and had a maturity date of April 30, 2025. There were no covenants in the Bridge Notes that were tied to financial metrics. The Company made an irrevocable election to carry the Bridge Notes at fair value.
In connection with the Merger, all of the Company’s issued and outstanding Bridge Notes were converted into Legacy BlackSky class A common stock at a conversion price of 80% of the deemed value of a single Legacy BlackSky class A common share and, immediately thereafter, those Legacy BlackSky class A common shares were exchanged for Osprey class A common shares based the class A common stock exchange ratio. As of December 31, 2021, the Company had no convertible Bridge Notes outstanding.
In connection with the 2021 Omnibus Amendment, the investors guaranteeing the Silicon Valley Bank (“SVB”) line of credit further reaffirmed their guarantees and received a one-time issuance of seven shares of Legacy BlackSky class A common stock for every dollar guaranteed. Additionally, Legacy BlackSky agreed to pay a fee to each of its senior secured lenders (“Consent Fees”). The Consent Fees were payable in either cash or shares of Legacy BlackSky’s class A common stock at the choice of the lender. The Consent Fees were considered variable share-settled liabilities and were recorded at fair value (Note 15). All of the Consent Fees were settled for cash at the closing of the Merger.
The following table summarizes the additional shares of Legacy BlackSky class A common stock and warrants to purchase Legacy BlackSky class A common stock issued as a result of the Bridge Notes.
| | | | | | | | | | | |
| Legacy BlackSky Class A Common Stock(1) | | Legacy BlackSky Class A Common Stock Warrants(1) |
| (in thousands) |
| Issued to SVB guarantors | 8,485 | | | — | |
| Issued in connection with the initial tranche of Bridge Notes | 11,544 | | | 3,873 | |
| Issued as incentive shares and as incentive warrants, in connection with the Rights Offering | 314 | | | 51 | |
| Total | 20,343 | | | 3,924 | |
1.Issuance of class A common stock and class A common stock warrants has been retroactively restated to give effect to the reverse recapitalization.
In connection with the Merger, all issued and outstanding Legacy BlackSky Bridge Notes and class A common stock warrants granted in accordance with the Bridge Notes were automatically exercised into Legacy BlackSky class A common stock and those shares were exchanged for the Company's common shares at the exchange rate applicable to the Company’s common stock.
Loans from Related Parties
After the Merger, the Company’s primary debt (and its sole secured debt) consists of its amended and restated loan and security agreement dated October 31, 2019, as amended or modified from time to time, with
Intelsat Jackson Holdings SA (“Intelsat”) and Seahawk SPV Investment LLC (“Seahawk”). Interest accrues on the amounts outstanding under this facility at a fixed rate of 4% until October 31, 2022, 9% from November 1, 2022 to October 31, 2023, and 10% from November 1, 2023 to the maturity date of October 31, 2024. During the 4% interest period, the amount of accrued interest is added, on a pro-rata basis, to the outstanding principal amount of each lender’s advances on October 31, 2020, October 31, 2021, and October 31, 2022. Thereafter, interest is payable in cash semi-annually in arrears commencing on May 1, 2023. 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. There are no covenants tied to financial metrics.
Fair Value of Debt
The estimated fair value of all of the Company’s outstanding long-term debt was $71.4 million and $76.1 million as of March 31, 2022, and December 31, 2021, 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 of March 31, 2022, all debt instruments contain customary covenants and events of default. There are no covenants tied to financial metrics and the Company was in compliance with all non-financial covenants as of March 31, 2022.
9. Warrants
Subsequent Accounting for Warrant Liabilities
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 on the unaudited condensed consolidated balance sheets. Any change in fair value between the respective reporting dates is recognized as an unrealized gain or loss in the accompanying unaudited condensed consolidated statements of operations and comprehensive loss (Note 15).
The following table is a summary of the number of shares of the Company’s Class A common stock issuable upon exercise of warrants at March 31, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Number of Shares
(in thousands) | | Exercise Price | | Redemption Price | | Expiration Date | | Classification | | Gain (loss) in value for the three months ended March 31, 2022 (in thousands) | | Fair Value at March 31, 2022 (in thousands) |
| Public Warrants | 15,813 | | | $ | 11.50 | | | $ | 18.00 | | | 9/9/2026 | | Liability | | $ | 4,269 | | | $ | 4,428 | |
| Private Placement Warrants | 4,163 | | | $ | 11.50 | | | $ | 18.00 | | | 9/9/2026 | | Liability | | 1,166 | | | 1,332 | |
| Private Placement Warrants | 4,163 | | | $ | 20.00 | | | $ | 18.00 | | | 9/9/2026 | | Liability | | 250 | | | 749 | |
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.
10. Other (Expense) Income
| | | | | | | | | | | |
| Three months ended March 31, |
| 2022 | | 2021 |
| (in thousands) |
| Loss on issuance of Bridge Notes tranche one | $ | — | | | $ | (84,291) | |
| Loss on issuance of Bridge Notes tranche two | — | | | (12,185) | |
| | | |
| Debt issuance costs expensed for debt carried at fair value | — | | | (47,623) | |
| | | |
| Other | 2 | | | 8 | |
| $ | 2 | | | $ | (144,091) | |
In February 2021, Legacy BlackSky issued Bridge Notes in two tranches (Note 8). The first tranche of the Bridge Notes were issued at par to several existing investors at a principal amount of $18.1 million and a fair value of $24.2 million. Additionally, certain investors in the first tranche of Bridge Notes received 11.5 million shares of Legacy BlackSky class A common stock with a fair value of $59.8 million and warrants to purchase 3.9 million shares of Legacy BlackSky class A common stock with a fair value of $18.4 million. The transaction involved investments primarily by the existing Legacy BlackSky investors at that time. Legacy BlackSky, which had an external valuation performed on the Bridge Notes, Legacy BlackSky class A common stock, and Legacy BlackSky warrants, determined that the fair value of the financial instruments issued exceeded the cash proceeds received. Since no unstated rights and/or privileges were identified with the first tranche of the Bridge Notes, Legacy BlackSky recorded a loss on issuance of $84.3 million.
The second tranche of the Bridge Notes were issued at par to several new investors and an existing investor at a principal amount of $40.0 million and a fair value of $52.2 million, resulting in a loss on issuance of $12.2 million.
Legacy BlackSky incurred and expensed $47.6 million in debt issuance cost related to the Bridge Notes issued in February 2021 and the modification of existing debt arrangements at that time. These debt issuance costs consisted of 8.5 million shares of Legacy BlackSky class A common stock valued at $43.9 million that were issued to certain guarantors in conjunction with modification of Legacy BlackSky’s SVB line of credit and $3.7 million paid to third-parties in cash.
The debt issuance costs were expensed because the Bridge Notes were being carried on the balance sheet at fair value. The modification of existing debt did not qualify as a troubled debt restructuring, nor did it result in the extinguishment of the debt.
11. Stockholders’ Equity
Class A Common Stock
As of March 31, 2022, the Company was authorized to issue 300.0 million shares of Class A common stock and 100.0 million shares of preferred stock.
Issued and outstanding stock as of March 31, 2022 consisted of 120.5 million and 117.9 million shares of Class A common stock, respectively. The par value of each share of the class A common stock is $0.0001 per share.
The Company had reserved shares of Class A common stock for issuance in connection with the following:
| | | | | | | | | | | |
| March 31, | | December 31, |
| 2022 | | 2021 |
| (in thousands) |
| Common stock warrants (exercisable for class A common stock) treated as equity | 1,770 | | | 1,770 | |
| Stock options outstanding | 4,607 | | | 5,022 | |
| Restricted stock units outstanding | 7,106 | | | 10,959 | |
| 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 | 8,325 | | | 8,325 | |
| Shares available for future grant | 141,873 | | | 140,951 | |
| Total class A common stock reserved | 179,494 | | | 182,840 | |
The Company has approximately 2.4 million Sponsor Earn-Out Shares that are subject to specific lock-up provisions and potential forfeitures depending upon the post-Merger performance of the Company’s Class A common stock, and therefore, are required to be recorded as derivative liabilities at their fair value and adjusted to fair value at each reporting period. As a result, as of March 31, 2022 and December 31, 2021, the Company's unaudited condensed consolidated balance sheets included a derivative liability of $2.3 million and $4.7 million, respectively. The Company recorded $2.5 million in gain (loss) on derivatives in the Company’s unaudited condensed consolidated statements of operations and comprehensive loss for the three months ended March 31, 2022 related to the fair value adjustments of these Sponsor Earn-Out Shares. The Sponsor Earn-Out Shares have the following provisions:
| | | | | | | | |
| | Terms |
| Contractual Life | | Seven years from the closing date of the Merger |
| | |
| Release Provision | | Exactly half of the Sponsor Earn-Out Shares have a release provision ("Release") at such time that the volume weighted average price ("VWAP") is equal to, or greater than, $15.00 per share for ten of any twenty consecutive trading days. The remaining Sponsor Shares Release at such time that the VWAP is equal to, or greater than, $17.50 per share for the of any twenty consecutive trading days. There is an additional provision for acceleration of the Release upon a defined change in control. |
| | |
| Forfeiture Provision | | If, within the seven year period, the Sponsor Earn-Out Shares have not met the Release provisions, the Sponsor Earn-Out Shares will automatically forfeit and be cancelled. |
12. Net Loss Per Share of Class A Common Stock
The following table includes the calculation of basic and diluted net (loss) income per share:
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2022 | | 2021 |
| (in thousands except per share information) |
| Loss from continuing operations | $ | (19,988) | | | $ | (168,556) | |
| (Loss) gain from discontinued operation | — | | | — | |
| Net loss available to common stockholders | $ | (19,988) | | | $ | (168,556) | |
| | | |
| Basic and diluted net loss per share - continuing operations | $ | (0.17) | | | $ | (0.70) | |
| Basic and diluted net (loss) income per share - discontinued operations | — | | | — | |
| Basic and diluted net loss per share | $ | (0.17) | | | $ | (0.70) | |
| | | |
| Shares used in the computation of basic and diluted net loss per share | 115,479 | | | 242,289 | |
The potentially dilutive securities listed below were not included in the calculation of diluted weighted average common shares outstanding, as their effect would have been anti-dilutive during the three months ended March 31, 2022 and 2021. BlackSky’s Form S-1 registration statement filed with the SEC registered approximately 24.1 million shares underlying the Public Warrants and Private Placement Warrants outlined below, which equates to less than 16% of the total fully diluted outstanding common shares of BlackSky. While the Public Warrants and certain of the Private Placement Warrants are now exercisable, the exercise prices (of either $11.50 per share or $20 per share, depending on the class of warrant) both currently exceed the trading price for BlackSky’s common stock. Shares issued to Legacy BlackSky stockholders as part of the Merger consideration remain locked up pursuant to BlackSky’s bylaws.
| | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | | | | | | | | | | | | |
| 2022 | | 2021 | | | | | | | | | | | | | |
| (in thousands) | | | | | | | | | | | | | |
| Restricted class A common stock | 207 | | | 709 | | | | | | | | | | | | | | |
| Restricted stock units | 7,106 | | | 8,899 | | | | | | | | | | | | | | |
| Common Stock warrants | 1,770 | | | 11,216 | | | | | | | | | | | | | | |
| Public Warrants (exercisable for class A common stock) treated as liability | 15,813 | | | — | | | | | | | | | | | | | | |
| Private Placement Warrants (exercisable for class A common stock) treated as liability | 8,325 | | | — | | | | | | | | | | | | | | |
| Sponsor earn-out shares | 2,372 | | | — | | | | | | | | | | | | | | |
| Stock options | 4,607 | | | 2,945 | | | | | | | | | | | | | | |
| 2021 Convertible Bridge Notes as converted into common stock | — | | | 7,429 | | | | | | | | | | | | | | |
| Class A common stock warrants (exercisable for common stock) treated as liability | — | | | 3,875 | | | | | | | | | | | | | | |
| Common stock issuable for consent fees treated as a liability | — | | | 311 | | | | | | | | | | | | | | |
| Series B preferred stock warrants | — | | | 96 | | | | | | | | | | | | | | |
| Series C preferred stock warrants | — | | | 18 | | | | | | | | | | | | | | |
13. Stock-Based Compensation
The Company adopted two equity incentive plans in prior years. Legacy BlackSky issued equity and equity-based awards under its 2014 stock incentive plan (the “2014 Plan”) and 2011 stock incentive plan (the “2011 Plan”, together with the 2014 Plan, collectively the “Plans”), which are now administered by the Company’s board of directors. The Plans are no longer active; however, outstanding awards granted under these Plans will not be affected. Both Plans allowed the board of directors to grant stock options, designated as incentive or nonqualified, and stock awards to employees, officers, directors, and consultants. Stock options were granted with an exercise price per share equal to at least the estimated fair value of the underlying class A common stock on the date of grant. The vesting period was determined through individual award agreements and was generally over a four-year period. Awards generally expired 10 years from the date of grant. As of March 31, 2022, the Company had 41 thousand and 1.8 million options outstanding, respectively, under the 2011 and 2014 Plans.
The stock-based compensation expense attributable to continuing operations was included in the unaudited condensed consolidated statements of operations and comprehensive loss as follows:
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2022 | | 2021 |
| (in thousands) |
| Imagery & software analytical service costs, excluding depreciation and amortization | $ | 801 | | | $ | — | |
| Engineering & systems integration costs, excluding depreciation and amortization | 120 | | | — | |
| Selling, general and administrative | 9,319 | | | 508 | |
| Total stock-based compensation expense | $ | 10,240 | | | $ | 508 | |
For the three months ended March 31, 2021, the Company did not record any stock-based compensation expense for the restricted stock units ("RSU"s) granted during that time for which vesting only commenced upon satisfaction of a performance condition. This performance condition attributable to the RSUs was not deemed probable until occurrence of the Merger as the Merger was not within the control of Legacy BlackSky. Additionally, the Company recorded $0.6 million and $0, respectively, of stock-based compensation related to capitalized internal labor for software development activities during the three months ended March 31, 2022 and 2021. These amounts are included in property, plant, and equipment - net on the unaudited condensed consolidated balance sheets.
Stock Options
Following the Merger, the outstanding stock options issued under the 2014 Plan may be exercised (subject to their original vesting, exercise and other terms and conditions) to purchase a number of shares of class A common stock equal to the number of shares of Legacy BlackSky class A common stock, as adjusted for the common stock exchange ratio, subject to the same terms and conditions as were applicable to such Legacy BlackSky stock option (each an “Assumed Company Stock Option”). The exercise price per share of each Assumed Company Stock Option was equal to the quotient obtained by dividing the exercise price per share applicable to such Legacy BlackSky stock option by the common stock exchange ratio.
The Black-Scholes option pricing model is used to determine the fair value of options granted. The Company utilized assumptions concerning expected term, a risk-free interest rate, and expected volatility to determine such values. The Company did not award any stock options during the three months ended March 31, 2022 or 2021.
A summary of the Company’s stock option activity under the Plans during the three months ended March 31, 2022 is presented below:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended March 31, 2022 |
| Options | | Weighted-Average Exercise Price | | Weighted Average Contractual Term | | Aggregate Intrinsic Value |
| (in thousands) | | | | | | (in thousands) |
| Outstanding - January 1, 2022 | 5,022 | | | $ | 4.4914 | | | | | |
| Granted | — | | | — | | | | | |
| Exercised | (404) | | | 0.0437 | | | | | |
| Forfeited | (11) | | | 0.0121 | | | | | |
| Outstanding - March 31, 2022 | 4,607 | | | 4.8917 | | | 8.61 | | $ | 2,975 | |
| Exercisable - March 31, 2022 | 1,063 | | | 0.4854 | | | 6.79 | | 1,515 |
For options exercised, intrinsic value is calculated as the difference between the estimated fair value on the date of exercise and the exercise price. The total intrinsic value of options exercised during the three months ended March 31, 2022 and 2021 was $1.2 million and $2.7 million, respectively. The total fair value of options vested during the three months ended March 31, 2022 and 2021 was $0.2 million.
As of March 31, 2022, there was $3.8 million of total unrecognized compensation cost, which is expected to be recognized over a weighted-average period of 3.5 years.
Restricted Stock Awards
In the year ended December 31, 2020, the Company granted restricted stock awards ("RSA")s, which vest based upon the individual award agreements and generally vest over a three to four-year period. These shares are deemed issued as of the date of grant, but not outstanding until they vest. The Company intends to settle the RSAs in stock, and the Company has the shares available to do so.
A summary of the Company’s nonvested RSA activity during the three months ended March 31, 2022 is presented below:
| | | | | | | | | | | |
| Three months ended March 31, 2022 |
| Restricted Stock Awards | | Weighted-Average Grant-Date Fair Value |
| (in thousands) | | |
| Nonvested - January 1, 2022 | 335 | | | $ | 0.0121 | |
| Vested | (128) | | | 0.0121 | |
| | | |
| Nonvested - March 31, 2022 | 207 | | | 0.0121 | |
The Company has not granted any RSAs since 2020.
As of March 31, 2022, there was $2 thousand of total unrecognized compensation cost related to nonvested RSAs granted under the Plans, which is expected to be recognized over a weighted-average period of 1.6 years. The total grant date fair value of shares vested during the three months ended March 31, 2022 was $2 thousand.
Restricted Stock Units
The Company granted an aggregate of 1.0 million RSUs to certain employees and service providers during the three months ended March 31, 2022 under the 2021 Plan as follows:
| | | | | | | | | | | | | | | | | | | | |
| Grant Date | | Number of Shares
(in thousands) | | First Tranche | | Second Tranche |
| March 2022 | | 868 | | 25% of such RSUs will vest at the one-year anniversary of the vesting commencement date | | 75% of such units will vest ratably over twelve consecutive quarters, on specified quarterly vesting dates with the first of such quarterly vesting dates occurring at least three months after the vesting of the initial 25% of the RSUs. |
| March 2022 | | 155 | | 50% of total number of RSUs will be scheduled to vest annually on the anniversary of the vesting commencement date | | N/A |
| Total | | 1,023 | | | | | |
A summary of the Company’s nonvested RSU activity during the three months ended March 31, 2022 is presented below:
| | | | | | | | | | | |
| Three months ended March 31, 2022 |
| Restricted Stock Units | | Weighted-Average Grant-Date Fair Value |
| (in thousands) | | |
| Nonvested - January 1, 2022 | 10,959 | | | $ | 6.7675 | |
| Granted | 1,023 | | | 1.8000 | |
| Vested | (4,816) | | | 6.9843 | |
| Canceled | (60) | | | 7.6612 | |
| Nonvested - March 31, 2022 | 7,106 | | | 5.8975 | |
A significant portion of the pre-Merger RSU grants vested in accordance with the vesting schedule of 180 days subsequent to the Merger and 1.9 million of the vested RSUs were used to satisfy payroll tax withholding obligations, which was recorded to additional paid-in capital totaling $3.6 million. Unrecognized compensation costs related to nonvested restricted stock units totaled $24.7 million as of March 31, 2022, which is expected to be recognized over a weighted-average period of 2.3 years.
14. Related Party Transactions
A summary of the Company’s related party transactions during the three months ended March 31, 2022 is presented below:
| | | | | | | | | | | | | | | | | | | | |
| | | | Amount Due to Related Party as of |
| | | | March 31, | | December 31, |
| | | | 2022 | | 2021 |
| Name | Nature of Relationship | Description of the Transactions | | (in thousands) |
| Seahawk | Debt Issuer | 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. | | $ | 19,977 | | | $ | 19,977 | |
| 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. | | 54,149 | | | 54,149 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Amount Due to Related Party as of |
| | | Total Payments in the three months ended March 31, | | March 31, | | December 31, |
| Nature of Relationship | | 2022 | | 2021 | | 2022 | | 2021 |
| Name | Description of the Transactions | (in thousands) |
| LeoStella | Joint Venture | Design, development and manufacture of multiple satellites | $ | 9,697 | | | $ | 7,362 | | | $ | 3,951 | | | $ | 8,381 | |
| X-Bow | Equity Method Investee | In 2017, the Company received stock in X-Bow. As of March 31, 2022, the Company had a 15.1% investment in X-Bow and had one Board seat. As described in Note 7, the Company has engaged X-Bow to develop a rocket for the Company. | — | | | 1,115 | | | | | — | |
| Palantir Technologies | Strategic Partner | Multi-year software subscription agreement for $8.0 million | — | | | — | | | 375 | | | — | |
| 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. | 167 | | | — | | | 42 | | | 83 | |
Interest on the term loan facility is accrued and compounded annually. No significant interest payments were made in the three months ended March 31, 2022 or 2021. The Company had interest due to related parties in the amount of $1.2 million as of March 31, 2022, which has been recorded as accrued interest.
15. Fair Value of Financial Instruments
Recurring basis
The following tables present information about the Company’s liabilities that are measured at fair value on a recurring basis as of March 31, 2022 and December 31, 2021, as well as indicate the fair value hierarchy level of the valuation techniques and inputs that the Company utilized to determine such fair value:
| | | | | | | | | | | | | | | | | | | | |
| March 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 | | $ | 4,428 | | | $ | — | | | $ | — | |
| Private Placement Warrants | | — | | | — | | | 2,081 | |
| Sponsor Shares | | — | | | — | | | 2,277 | |
| | $ | 4,428 | | | $ | — | | | $ | 4,358 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 | | Quoted Prices in Active Markets | | Significant Other Observable Input | | Significant Other Unobservable Inputs | | |
| | (Level 1) | | (Level 2) | | (Level 3) | | |
| | (in thousands) | | |
| Liabilities | | | | | | | | |
| Public Warrants | | $ | 8,697 | | | $ | — | | | $ | — | | | |
| Private Placement Warrants | | — | | | — | | | 3,496 | | | |
| Sponsor Shares | | — | | | — | | | 4,732 | | | |
| | $ | 8,697 | | | $ | — | | | $ | 8,228 | | | |
The carrying values of the following financial instruments approximated their fair values as of March 31, 2022 and December 31, 2021 based on their maturities: cash and cash equivalents, restricted cash, accounts receivable, prepaid expenses and other current assets, accounts payable, accrued liabilities, leases payable and other current liabilities.
There were no transfers into or out of any of the levels of the fair value hierarchy during the three months ended March 31, 2022 or 2021.
The following is a summary of changes in the fair value of the Level 3 liabilities during the three months ended March 31, 2022:
| | | | | | | | | | | |
| Sponsor Shares | | Private Placement Warrants |
| (in thousands) |
| Balance, January 1, 2022 | $ | 4,732 | | | $ | 3,496 | |
| Gain from changes in fair value | (2,455) | | | (1,415) | |
| Balance, March 31, 2022 | $ | 2,277 | | | $ | 2,081 | |
16. Commitments and Contingencies
Legal Proceedings
In the normal course of business, the Company may become involved in various legal proceedings which, by their nature, may be inherently unpredictable and which could have a material effect in the unaudited condensed consolidated financial statements, taken as a whole.
As of March 31, 2022, the Company was not aware of any additional pending, or threatened, governmental actions or legal proceedings to which the Company is, or will be, a party that, if successful, would result in a material impact to its business or financial condition or results of operations.
Other Contingencies
The Company analyzed its unique facts and circumstances related to potential obligations in a certain state jurisdiction, including the delivery nature of its prior year intercompany services, payroll and other benefits-related services, current shared services between the parent and subsidiaries, and changing state laws and interpretations of those laws, and has determined that the Company may have an indirect tax obligation.
The Company has continued correspondence with the applicable authorities in an effort toward identifying a taxpayer-favorable resolution of the potential liabilities. The Company has recognized a liability including interest and penalties based on its best estimate as of March 31, 2022.
The following table summarizes the estimated indirect tax liability activity during the three months ended March 31, 2022:
| | | | | | | | | | | |
| (in thousands) | | |
| Balance, January 1, 2022 | $ | 737 | | | |
| Payments | — | | | |
| Adjustment to Expense | — | | | |
| Balance, March 31, 2022 | $ | 737 | | | |
The Company continues to analyze the additional obligations it may have, if any, and it will adjust the liability accordingly.
Other Commitments
The Company has commitments for multi-launch and integration services with launch services providers. As of March 31, 2022, the Company had a commitment for 2 launches, to include up to 4 satellites at future estimated launch dates for $4.3 million with an option for additional launches. The terms of the arrangement also allows for the Company to remanifest the satellites if significant delays in excess of 365 days or other
inexcusable delays occur with the provider. Subsequent to remanifest efforts four months after the 365 days, the Company can request a refund of all recoverable costs. Payment terms are 15 days from invoice date.
As of March 31, 2022, the Company has a remaining commitment of $4.2 million on its satellite purchase contract with LeoStella. Subsequent to March 31, 2022, the Company executed a contract modification reducing the remaining commitment by $3.6 million. The delivery schedule for the components are not specified and is subject to certain engineering milestones. Payment terms are 15 days from invoice date.
We did not enter into any material commitments during the three months ended March 31, 2022.
17. Concentrations, Risks, and Uncertainties
The Company maintains all cash and cash equivalents with one financial institution. Financial instruments that potentially subject the Company to concentrations of credit risk are primarily accounts receivable and cash deposits.
For the three months ended March 31, 2022 and 2021, revenue from customers representing 10% or more of the consolidated revenue from continuing operations was $8.0 million and $4.3 million, respectively. Accounts receivable related to these customers as of March 31, 2022 and December 31, 2021 was $3.7 million and $1.3 million, respectively. Revenue from the U.S. federal government and agencies was $11.1 million and $6.1 million for the three months ended March 31, 2022 and 2021, respectively. Accounts receivable related to U.S. federal government and agencies was $1.9 million and 2.6 million as of March 31, 2022 and December 31, 2021, respectively.
The Company generally extends credit on account, without collateral. Outstanding accounts receivable balances are evaluated by management, and accounts are reserved when it is determined collection is not probable. As of March 31, 2022 and December 31, 2021, the Company evaluated the realizability of the aged accounts receivable, giving consideration to each customer’s financial history and liquidity position, credit rating and the facts and circumstances of collectability on each outstanding account, and did not have a significant reserve for uncollectible account.
18. Subsequent Events
The Company evaluated subsequent events through May 11, 2022 and determined that there have been no events that have occurred that would require adjustments to our disclosures or the unaudited condensed consolidated financial statements.