Blacksky Technology Inc Class A Aktie

Ladies and gentlemen, thank you for joining us, and welcome to the BlackSky Technology First Quarter 2026 Earnings Call. [Operator Instructions]

I will now hand the conference over to Aly Bonilla, Vice President of Investor Relations. Aly, please go ahead.

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 first quarter financial results and updated outlook for 2026.

Following our prepared remarks, we will open the line for your questions. A replay of this conference call will be available later today. 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 we'll make forward-looking statements during today's conference call, including statements about our plans, objectives and future outlook. Actual results may differ materially as these statements are based on our current expectations as of today and are subject to risks and uncertainties, including those stated in our Form 10-K. BlackSky assumes no obligation to update forward-looking statements, except as may be required by applicable law.

In addition, during today's call, we will refer to certain non-GAAP financial measures, including adjusted EBITDA and cash operating expenses. Definitions and reconciliations between our GAAP and non-GAAP results are included in our earnings press release and presentation, which are posted on our Investor Relations website.

At this point, I'll turn the call over to Brian O'Toole. Brian?

Thanks, Aly, and good morning, everyone. Thank you for joining us on today's call. Beginning with Slide 3. I'm happy to report that we are off to a strong start to 2026.

With up to $160 million in contract awards, we are rapidly growing backlog, accelerating revenues and on track to deliver strong earnings growth driven by demand for our Gen-3 solutions. This quarter, we achieved a clear inflection point in our business as Gen-3 capabilities are now fully operational and delivering mission-critical intelligence to customers worldwide.

Demand for our Gen-3 capabilities has never been stronger. And as a result, we are growing our pipeline and transitioning new and existing customers from early pilot programs into long-term 7 and 8-figure subscription contracts.

Based on the strong year-to-date sales performance, in-year revenue visibility and accelerated pipeline growth, we are increasing our revenue and adjusted EBITDA forecast and full year guidance. As we move through the year, we expect this momentum to continue, driving increased revenues, margin expansion and improved profitability.

Now let's move on to key highlights across the 3 major elements of our business. Moving on to Slide 4 and our space-based intelligence and AI services.

Gen-3 continues to exceed expectations, delivering exceptional 35-centimeter imaging performance at a time when real-time space-based intelligence has never been more important. With 4 Gen-3 satellites in operation, we are now unlocking significant revenue growth from new and existing customers.

We won over $60 million in new contract awards from major international and U.S. government customers that will contribute to in-year revenue performance, improve margins and drive out-year backlog growth. At the same time, we continue to onboard new customers and expand existing accounts as interest for Gen-3 on-demand and assured subscription services grows.

During the quarter, we secured the next wave of new Gen-3 customers and expect these accounts to grow over time as part of our land and expand strategy. It is important to note that subscription-based contracts drive predictable revenue and strong visibility into future growth as these are highly sticky accounts with almost no churn.

The major wins so far this year have us on track to grow this element of our business in 2026 by over 50%, achieving a projected annual run rate of over $100 million. This highly profitable subscription revenue is on track to deliver gross margins of around 80%, which is accelerating improving adjusted EBITDA margins.

The operating leverage, capital efficiency, unit economics of our constellation and the scale of our business model is translating directly to bottom line performance.

Looking forward, we expect to continue strong growth internationally and are starting to see momentum from the U.S. government as funding from the fiscal year '26 budget is moving through the system, which is further improving our visibility this year.

Turning to Slide 5. Customers around the world are rapidly integrating our advanced 35-centimeter imaging and real-time AI analytics into their operations at a time when conflict and geopolitical tensions around the world are driving an increasing need for assured, responsive and low-latency space-based intelligence, which is essential for critical national security missions.

To give you a sense of how we are supporting typical customer operations today, users are casting hundreds of images over the course of a few days within a specific area of operations.

Our dynamic tasking services and Spectra support a rapid and responsive cadence as operators are reacting to changing conditions on the ground. Once collections are casted by the user, we are achieving imagery delivery time lines consistently less than 40 minutes, including processing for AI-enabled analytics.

Over the course of several days of an operation, our AI analytics detected and classified over 5 million objects as part of customer workflows, providing vital real-time intelligence. Our automated Spectra platform is compressing time lines dramatically, enabling end users to make informed decisions while providing maximum tasking and operational flexibility to respond to developing situations. This combination of high-resolution imagery, AI-powered automated analytics and rapid delivery time lines is driving customer adoption and service expansion.

Moving on to Slide 6. Our AI capabilities are operational today and are delivering critical intelligence. Our proprietary AI capabilities are purpose-built for real-time geospatial intelligence and have been validated by major defense and intelligence organizations as a trusted solution.

What differentiates BlackSky is that we have moved AI into real-world deployment where our capabilities are embedded directly into customer workflows and are driving daily decision-making.

Our Spectra platform is continuously processing high revisit Gen-2 and very high-resolution Gen-3 imagery, applying automated detection and classification and delivering actionable insights in minutes.

This allows customers to move from data collection to decision advantage faster than ever before, which is vital in today's dynamic geopolitical environments. At scale, we are processing millions of AI-enabled detections, monitoring large areas of interest simultaneously and enabling persistent automated surveillance across critical global assets.

This is not just improving efficiency but fundamentally changing how intelligence is generated, reducing reliance on manual analysis while increasing speed, accuracy and mission impact.

Turning to Slide 7 and an update on our Gen-3 constellation. In March, we successfully launched our fourth Gen-3 satellite, which delivered first light imagery within hours of launch and was commissioned into operations in less than a week.

By reducing the commissioning time line to just days, we're providing customers with rapid access to new capacity while maximizing the operational lifespan and return on investment of our constellation. This ability to quickly and reliably move from launch to mission operations is a distinct advantage for our customers.

With 4 Gen-3 satellites in operation, we achieved a major operational milestone with daily revisit rates for very high-resolution 35-centimeter imaging services across key regions of interest worldwide.

When combined with our Gen-2 constellation, we have added very high-resolution imaging to our dynamic hourly monitoring services. This is providing customers with assured and flexible collection operations. We are continuing to expand the Gen-3 constellation with our next Gen-3 satellite ready to be shipped and remain on track to meet our objectives of at least 8 Gen-3s on orbit this year.

Now let's move on to Mission Solutions on Slide 8. Our sales pipeline continues to grow due to the on-orbit success of Gen-3 and our ability to deliver industry-leading 35-centimeter imaging performance at compelling economics and attractive delivery schedules.

Having proven on-orbit performance is an important criteria for customers that are making important acquisition decisions now that will impact their road maps and long-term investment strategies for their sovereign programs.

We're seeing increasing interest from international customers and acquiring more expansive end-to-end solutions that not only include satellites and ground infrastructure, but now include enhanced secure operations and AI-enabled analytic capabilities. The combination of best-in-class Gen-3 satellites and industry-leading software and AI capabilities operating in a proven real-time architecture has us well positioned to address this growing market opportunity.

Turning to Slide 9 and our advanced technology programs. While we are making great progress scaling our core space-based intelligence and Mission Solutions business, we are also advancing our lead in space through the rapid evolution of the Gen-3 platform, the development of AROS, our new wide area collection system and the advancement of new leap-ahead payload technologies that can change the future of earth and space domain observation.

We were pleased to announce this quarter a major new contract worth up to $99 million with the U.S. Air Force Research Lab for the development of an advanced large aperture optical payload. This is an advanced technology that we have been developing for the past several years and is now at a point where the approach has been assessed and validated by industry-leading government experts.

As a result, we were awarded a multiyear sole-source contract to move ahead with the development and demonstration of the critical payload technologies. This program represents significant customer-funded investment that not only reinforces our technology strategy, but offsets internal R&D and is in strong alignment with U.S. government priorities to advance innovative commercial space-based capabilities.

Moving to Slide 10. As we advance our technologies through customer-funded R&D, we are transitioning these innovations into our space portfolio. At the core of this portfolio is our Gen-3 platform.

As we iterate and enhance this architecture, we are incorporating next-generation capabilities such as on-orbit processing and optical intersatellite links or OISL, which will enable low-latency space-based communications that is critical to reducing delivery time lines and increasing resiliency.

Looking ahead, we are advancing AROS, our next-generation wide area search and mapping system. This new constellation, when combined with real-time AI processing, will overcome the limitation of traditional mapping systems through transformative always-on intelligence and information services.

This is an expanded market opportunity that will address a wide range of applications, including broad area monitoring and change detection, maritime surveillance and the delivery of 3D digital twins in support of rapidly growing opportunity for AI-enabled autonomous systems.

As we move forward into the details of the AROS design, we see strong interest from a number of key customers and partners for this capability. We will have additional details to share on our progress as we move forward throughout the year.

In summary, we are excited with the strong start to the year and the progress we are seeing across all aspects of our business as the need for space-based intelligence has never been more important. The progress we've made so far this year reflects a major inflection point for the business and is a clear indication of the traction we are gaining in the market.

With that, I'll now turn it over to Henry to go through the financial results. Henry?

Thank you, Brian, and good morning, everyone. I'm pleased with the strong start to the year. With the recent wins and our market momentum, we're excited for 2026.

Now let's begin with Slide 12. Our first quarter revenue was $20.8 million. With Gen-3 coming into commercial operations, we started to see a return to growth in our space-based intelligence and AI services revenue, which was up 14% over the prior quarter. When comparing this quarter's total revenue to Q1 of 2025, keep in mind, Q1 of 2025 benefited from a $9 million revenue milestone for our Mission Solutions program.

With strong year-to-date sales, we are expecting to further increase space-based intelligence and AI services revenue by over 50% this year, achieving a $100 million annual run rate. With the momentum we are seeing for Gen-3 services, we are increasing our revenue guidance for the year from our previous range of $120 million to $145 million to an updated range of $130 million to $150 million, representing an overall growth rate of over 30% at the midpoint as compared to 2025.

Turning to Slide 13. You can see that our cash operating expenses, which excludes stock-based compensation, depreciation and amortization expenses remained flat as compared to our prior first year quarter operating expenses.

On Slide 14, our first quarter adjusted EBITDA was a loss of $5.1 million, in line with our internal expectations. Given our growing revenue streams, which we believe will translate into strong adjusted EBITDA performance, we are increasing our guidance for adjusted EBITDA for the year from a previous range of $6 million to $18 million to an updated range of $12 million to $24 million, yielding a 13% adjusted EBITDA margin at the midpoint.

Let's move on to our cash and liquidity position, as shown on Slide 15. With cash CapEx for the quarter of $15.8 million, we ended the quarter with $117.5 million in cash, restricted cash and short-term investments and total liquidity of over $195 million.

This liquidity gives us substantial flexibility to fund strategic growth initiatives, continued Gen-3 investments and provide for the operational infrastructure investments needed to support our rapidly growing customer base. Even though we are increasing our revenue and adjusted EBITDA guidance, we are not increasing our capital expenditure targets, demonstrating the leverage we are achieving in our capital deployed to develop our Gen-3 constellation.

In summary, I'm pleased with the strong year-to-date sales momentum, which is continuing to grow our backlog, strengthen our financial position and further validate the operating leverage in our business model.

I mentioned earlier and as shown on Slide 16, we are raising revenue guidance to be between $130 million and $150 million, adjusted EBITDA guidance to be between $12 million and $24 million and reaffirming our capital expenditure guidance of $50 million and $60 million.

With that, back to you, Brian.

Thanks, Henry. In closing, we have clearly reached an inflection point in our business with the success of Gen-3, which is now delivering mission-critical intelligence to major customers around the world.

We are proud to be a trusted mission partner and support the day-to-day operations of important national security missions, both now and in the future. The proven operational performance of our real-time space-based intelligence services is leading to strong sales performance and rapid customer adoption, which in turn is accelerating revenue and margin growth.

We are pleased with the momentum in the business and that our year-to-date sales are ahead of plan, which is driving the raise of our full year guidance.

This concludes our remarks for the call and we'll now take your questions.

[Operator Instructions] Your first question comes from the line of Jeff Van Rhee with Craig-Hallum.

Congrats, numbers look good. So just a couple of questions. Brian, as it relates to the pipeline, can you talk to -- you've talked about these pilots coming in and then obviously, customers are getting a sense of Gen-3 and converting.

Can you put a little finer point on the quantity of pilots coming in the top of the funnel? Give us a sense of the magnitude of the pipeline, how many have converted, how many are there? How many you've added in this last quarter? Any quantification about funnel and particularly pilots?

Yes. You may have seen this week, we had a release on securing our next wave of customers. This was in the scale of a couple of dozen. And we're seeing that momentum really pick up. So they all start with 6-figure type pilots and you're seeing, as a result, that moving into 7 and 8-figure subscription contracts.

They're all in different points in the pipeline. So it's difficult to kind of quantify timing and all of that. But we're just seeing strong momentum and the pipeline is looking good.

Is there -- if I could follow up on that, is there anything you could share with respect to what I'd call the mega deals? Obviously, you've got a lot of sovereign momentum out there. A number of players in the space are talking about 9-figure deals working through their pipe. Can you give us any sense of the frequency in which you're seeing those and seeing those work through your pipeline?

Yes. I think we announced the $30 million 1-year subscription contract. That started with a 6-figure pilot about 6 months ago. And we are seeing a lot of that type of activity, particularly as customers now have had an opportunity to evaluate Gen-3 performance tied to the operational flexibility, the timeliness and the quality of the imagery and how that can integrate into their operations.

And so these are major customers and we're seeing a pretty strong pipeline of those worldwide. It's hard to, again, quantify the timing of some of these deals. But you can see we also announced another large deal as well. So a lot of momentum with these larger contracts.

Yes. Real nice traction on the signings. Just 2 other quick ones, if I could. Spectra and analytics, what are you seeing in terms of new customer attach rates on the analytics side? What do you anticipate based on pipeline?

Well, Jeff, that's why our pipeline and the conversion rate is going so well. It's not just the attachment rate. It's the fact that all of these things are integrated into the service.

So it's highly flexible access to dynamic monitoring and tasking with the AI integrated as part of the service and then the short delivery time lines, which are really critical to what -- as you can imagine, the things are happening around the world today.

So it's the combination of those 3 things that has us differentiated in the market and what customers are responding to. And as I mentioned in our remarks, our AI is operational and it is embedded in our customer workflows. And so it's not just a tech demo or some offline processing capability. It's happening in real time and it's delivering real information intelligence.

Yes. Got it. That's helpful. And then just lastly on Gen-3. I know maybe sometime last year, you were thinking 8 Gen-3s early-ish in the year. It looks like you're now thinking that later this year, if I caught your comment in the script.

Just curious to what extent that influences your ability to book customers, influences your ability to sign incremental revenue if you're capacity constrained in any way, assuming it doesn't present any gating factors. I was just kind of trying to figure out how I should think about that capacity and its potential influence on your ability to sign new business.

Yes. Jeff, as I said, we're on track to get 8 up this year. The real inflection point, as I'll say, in customer adoption was the performance of Gen-3. I've always said, once we have a few up there and get to a daily service, it provides customers a very good experience.

So that's now happened. And the growth and what you're seeing in that line of business is not limited by our capacity and we're in good shape this year with what we have and we'll just continue to grow the constellation.

Your next question comes from the line of Timothy Horan with Oppenheimer.

[Technical Difficulty] compared to what you've done historically and how do you think that's going to ramp? And are there any kind of new areas or new customers that are surprising you or new use cases? Any color would be helpful.

Yes. I mean, the customer sales and adoption cycle is not surprising. We've had very good visibility in our pipeline and there has been lot of interest by a lot of major customers in our Gen-3 capabilities.

So now that we're getting over the hump on that and they're getting firsthand experience with it, we're just seeing a natural growth in that business. As we mentioned in our remarks, we announced several large contracts, but we now are expecting the space-based intelligence and AI services, which is our primary subscription business to grow over 50% this year. This is our high-margin business.

So you're also seeing how that is translating directly into improving EBITDA margins and performance, particularly because that part of our business has -- is delivering about 80%-type gross margin. So no surprises in the sales pipeline.

If anything, current events are accelerating opportunities as the demand for this type of capability has never been stronger. And we're in a good position where we're now just converting the pipeline into new contracts.

And can you talk about the sovereign satellite capability? Are you seeing more interest there?

Yes. As I mentioned, we are seeing demand increase. There is major investments happening worldwide in space programs by governments around the world. We're seeing both opportunities for large constellations and opportunities related to countries that are just getting started.

We have seen a pick-up in interest around Gen-3 because it's proven on-orbit performance at this 35-centimeter capability is a really important factor as they're looking at other options in the market and our ability to manufacture Gen-3 at scale and also deliver that under a very competitive time lines is an attractive offering.

So we have a lot in the pipeline. We're pursuing a number of opportunities and moving them through and we expect this to be picking up as we go out through the year and into next year.

Lastly, Henry, can you give us a sense of the revenue -- quarterly revenue or maybe exit run rate at the end of the year? How should things pace? Is it linear? Is it hockey stick? Any color there would be helpful.

Sure, Tim. We'll be filing the Q this afternoon in there. You'll see how we've got our backlog -- our backlog -- full backlog is about $351 million as of March 31st, but that does not include the -- some of the large contracts that we signed in early April.

So that would be total backlog, including those about $380 million. Of that $380 million, we would expect about $90 million to be already booked for 2026. There will be some step functions in there and we've got a lot more pipelines coming in as well.

So we do expect the second half of the year to be a much stronger than the first half. And as we go, we'll hit that -- we do expect to get to that $100 million run rate by the end of the year.

Your next question comes from the line of Edison Yu with Deutsche Bank.

This is [ Laura ] on for Edison. So firstly, I want to ask about how the Middle East conflicts impacting your growth? Has that led to like large increase in usage year-to-date? And how you see that trend continue?

I would say, if anything, we've already -- we already had a very strong sales pipeline for Gen-3 capability and you're seeing that we're converting that into long-term subscription contracts.

I think if anything, the conflict in the Middle East is amplifying for other customers the need to lock in long-term contracts for capacity in the event these types of crisis events occur. And that's been traditionally how the market operates is because we serve the national community -- national security community.

The business is not driven by singular events. It's driven by day-to-day needs for a range of national security missions. So we don't see ebbs and flows around these events. But if anything, they amplify the importance of entering into these long-term contracts.

But also, I will say the capabilities that we have are -- do shine in these type of events when you're really trying to -- you can see the importance of really rapid and flexible intelligence that these operations need to monitor what's going on.

Okay. Got it. Appreciate it. Also want to follow up on this -- your AI efforts. So how should we think about the AI road map over the next 12 to 24 months? And what are the priorities there? And would you try to bring in some AI partners on either the model side or some cloud platform, et cetera?

Yes. I think the first major point is our AI is a proprietary capability. It was purpose-built for real-time space-based intelligence. So it's -- it was really designed to operate in customer workflows at scale and at speed.

So we will continue to expand over time the -- our ability to not only detect and classify important objects and things of that nature, but then how we start to see patterns and changes that are important to customers.

That's really the bottom line. AI is really just an enabler, but it's really all about providing that actionable intelligence to decision-makers at rapid time line. So we do incorporate a lot of third-party technology. But at the core, it's our proprietary capabilities around this mission set that has us leading in the market.

Your next question comes from the line of Austin Moeller with Canaccord Genuity.

So just my first question here, is there a critical mass of Gen-3s that need to be launched in order to get access to more contract dollars from either EOCL or Luno?

Or is it just a matter of the '26 budget being in place and task orders going out now from the program executive offices?

Yes. I would say our growth in that line of business is not dependent on a rate of launching satellites. We've got a core amount of capacity on orbit. And you have to remember, when combined with Gen-2, we have over 15 satellites up there that are providing dynamic hourly monitoring capability.

So now that Gen-3 is proven, we're just seeing a ramp in those contracts. More satellites means more capacity. And improve frequency and the very high-resolution capability. But we don't have anything right now that will be triggered by more satellites. We'll just continue to grow.

Okay. And can you comment on how Spectra's AI object classification capabilities compare with some of your peers that have expertise in mapping and geo data analytics?

I would just say that, as I said in my remarks, we are delivering this operationally today. They've been validated by major defense and intelligence customers.

So they trust the results that we're delivering and we're constantly improving and refining the training of those algorithms. The models are operational real-time. So that's a major differentiator.

It's not an offline process. But all I can say is you've seen our performance on Luno in the past in winning contracts because of the performance of our AI. And now you're seeing it working operationally. And I think that should give you a sense of why that capability is winning in the market right now.

Your next question comes from the line of Greg Burns with Sidoti.

Just a follow-up on the last question around EOCL. Does the updated guidance still contemplate revenue levels at the current level where they exited last year? Or are you expecting that to build back up to where they were prior to when they were haircut last year?

Yes. I think the assumption we have now is they remain at the current levels, the levels we exited last year. There are multiple funding lines that were in the fiscal year '26 budget for commercial imagery that are in the process of being allocated to specific programs and contracts and we're actively following the process.

We'll see better visibility throughout the quarter. But for now, we've been conservative, assuming the levels we exited the year at.

It's also important to note that, as we talked about, we're seeing the increase now on that business line. And these large contracts we're winning have significantly diversified our customer base.

And international is now a much larger percentage of our revenues. So we've minimized the impacts of some of the annual budget effects of the U.S. government.

Your next question comes from the line of Sheila Kahyaoglu with Jefferies.

This is Billy on for Sheila. Just continuing on the international side, there's a lot of momentum there. And how do you think about the pipeline and untapped opportunity going forward? And how do we think about progression of current customers expanding versus new customers?

Yes. I think we're seeing growth from a couple of dimensions. We are expanding the revenues with customers we've had for a long time as they start transitioning in scaling the use of Gen-3.

So we're seeing that. And then in parallel, we're adding new customers and I talked about that earlier. And then we're continuing to grow the pipeline to continue bringing a wave of those new customers into service.

So the other thing I'll mention is the quality of Gen-3 is demanding a higher premium than Gen-2 because of the 35-centimeter capability. So the dollars per sold capacity are increasing.

You're seeing an expansion of existing contracts. We're seeing new customers coming online and then the translation of those new customers in small initial pilots transitioning to 7 and 8-figure type subscription. So there's multiple growth vectors as we bring new and existing customers into higher levels of service.

Great. And then just like following up on that. In terms of international mix, like it's higher now. How do we think about that going forward? And how do we think about domestic versus international contributing to the 50% plus growth for the rest of the year?

Yes. As I mentioned earlier, we're -- we've assumed the U.S. government EOCL kind of maintains its current level. The majority of the growth is coming internationally.

Although we did announce a new subscription contract this quarter from another U.S. government agency that's leveraging the capacity of our Gen-2 constellation, so we are seeing new opportunities emerging with the U.S. government as well. So -- but the revenue mix will be growing significantly internationally as compared to the U.S. government.

Your next question comes from the line of Chris Quilty with Quilty Space.

I wanted to follow up on something that was already discussed. Just regarding the typical customer journey, is that accelerating, slowing down, staying the same? Are there any reasons that you're seeing a change in how quickly they're converting?

Yes. We're seeing an acceleration. As I mentioned, I think getting Gen-3 operational at a daily service level and putting that in the hands of customers to experience that firsthand is driving an increase in the pipeline and it's increasing the rate at which things are moving through the pipeline.

So -- and it's all -- it's really -- it's fundamentally based on the level of service that's available to these customers when combining 35-centimeter imaging with low-latency, flexible tasking operations with integrated analytics.

That's a first-of-its-kind capability in the market that's giving customers operational intelligence faster than ever and a lot of flexibility in how to leverage that capability across a lot of different mission sets. So it's not just about the pixels. It's about the level of service and how that's being integrated and used in a dynamic environment.

Got you. So for Henry, I mean, you did $16.5 million in the space-based intel and AI in the first quarter, which is the average of what you did all last year. So obviously, to ramp to $100 million, you're going to see a significant quarterly step-up.

Is that due simply to the contracts you have in backlog and those just falling in? Or is there a higher level of book and ship type business that you expect this year?

We've got a couple of things that are going to help that step up. You recall, we just announced that roughly $30 million 1-year subscription contract. If you take that and divide that by 4, you've got a pretty big step-up on that one contract alone.

That contract we signed in early April. So that should be kicking in here in the second quarter. So then when you take a look at our total backlog, we will -- we've got a lot of that already booked and we've got some additional renewals coming on board as well in the near term. So we feel pretty comfortable on it. We're going to get a step-up here in the second quarter, but bigger step-ups as we go into the third and fourth.

Got you. And remind me, the backlog in terms of the breakdown, I think you said $90 million to ship this year and which business segment that falls across?

We don't break it down between the different business segments and business elements. But for the most part, a lot of that is Gen-3 subscription, most of it is Gen-3 subscription.

Got you. Brian, also a follow-up on the EOCL. Back when that was awarded like 3 years ago, I was always under the impression that the uptake in the revenue because it didn't have a material impact at the time, but that the upside to the contract was based on Gen-3 capability being added into the contract. Is that not correct? Are they simply paying on the number of satellites and volume and not on resolution improvement?

Chris, if you remember, when it was originally awarded 10-year contract heavily back-end-loaded around Gen-3 services that grew over time. So the initial service levels were primarily around Gen-2 capacity.

And that was really the subscription that we've been operating under the last couple of years. Gen-3 is -- they are looking at integrating Gen-3 into that subscription this year. There's a lot of interest in that.

And as I said, we're watching how this -- the funding from the fiscal year '26 budget is going to flow through. But we are at a point with Gen-3 that's an attractive offering to the U.S. government and we'll have better visibility in that, I think, by the time we get through the second quarter. But there's a lot of interest in Gen-3 and the contract is primarily back-end-loaded for that capability.

Okay. Great. And Brian, you mentioned earlier the latency of the content delivery and goals to improve it. Can you talk about like what would be your sort of mid to long-term goals for where you think latency should get? And does that drive higher revenue as you drive the latency down? Or is that just becoming the table stakes of being in this business?

I think there's 2 ways to think about it. I think low latency is a requirement these days. You -- we're responding to dynamic events on the ground. And Chris, as you know, we've built a -- this is a purpose-built capability around responsive tactical operations.

So to us, it is a required part of the service and it's what customers are asking for. We -- in addition to the basic commercial service, we've also -- have the ability to directly downlink into customers' environments and that brings that down into minutes as well.

And so what you'll see from us continuing is just a constant improvement in that latency, not only in the imagery tasking and delivery time lines, but as we're processing more and more AI, we're doing that in real-time. So imagine we're interrogating this imagery and looking for objects and activities across a lot of things in parallel. So -- but we see it as really a core part of our offering and it's what customers are really looking for.

Got it. And maybe if I can, a final question. I know you don't do backlog breakdown, but I'm going to ask you a question on pipeline breakdown. Can you just give us a general sense when you talk about your business pipeline, either where you're currently seeing the largest area of pipeline or alternatively, where you're seeing the greatest growth in pipeline opportunity?

I think proportionately, we're seeing growth in all 3 aspects of our business. We're seeing growth in the pipeline around our space-based intelligence and AI services as you're seeing that translate into new contract wins.

I already talked about the Mission Solutions pipeline as the demand for sovereign is increasing and we're seeing an acceleration of those types of programs. And we're also seeing a lot of interest in the advanced technology programs.

As you know, Chris, as you know as well as anybody, space is a long game. And so customers are understanding that it's not only about what you have now, but where this is going to be in the future in the next 3 to 5 years.

So we're seeing a step-up in that part of it as well. And we see that as a key part of our strategy is leveraging those investments and then translating that into the innovation and a leadership position in our space portfolio. So we're seeing growth across all 3 aspects of the sales pipeline.

Your next question comes from the line of Scott Buck with Titan Partners.

I think most of my questions have been answered, but just one. Brian, as demand for sovereign increases, are you seeing more [Technical Difficulty].

I'm sorry, Scott, can you repeat that?

Yes, yes, sure. As demand for sovereign increases, are you seeing more competition for these opportunities?

I think, yes, there are a lot of -- there are -- there is increasing competition, but they're from a number of companies that have really not demonstrated proven operational performance.

And as I mentioned in my remarks, having a capability like Gen-3 that is delivering the quality of 35-centimeter imaging at the level of performance that we're seeing -- and then having that on orbit and proven and operational at the economics of that spacecraft is a really compelling proposition for customers.

As you know, these types of customers aren't going to risk their long-term road maps on unproven space capability. And so we feel like we have a very good advantage there. Gen-3 worked right out of the box and it has been exceeding expectations and that is giving customers a lot of confidence in our ability to support their long-term programs.

So we feel we're really well positioned. There are not -- Gen-3 is a best-in-class capability and we're seeing that in the opportunities that are coming at us.

Your final question comes from the line of Preston Graham with Stonegate.

Preston sitting in for Dave. You touched in the prepared remarks on land and expand. And so I guess for customers and pilot programs for Gen-3, are most using the broader full analytics suite from the beginning? Or do they typically start with imagery and then expand into analytics over time?

Yes, I think the way you have to think about it is they have access to a platform and that platform has a lot of different capability that they can tap into. And so they can task imagery from Gen-2 and Gen-3 satellites.

They can also, as part of that tasking operation, request different types of AI-enabled analytics as part of the natural workflows.

So what we typically see is customers start with the basic operations, which is a dynamic tasking. And then as they integrate that, then they start adding the AI analytics as part of the service.

So I think it's an important comment in that it's a full service offering that we have through the platform. And again, that's not typical in the market. So that's another factor of what's driving the increase in our demand and the customer traction.

Got it. So you wouldn't even say it's not like 35-centimeter, the quality of the imagery is the main driver. It's the platform, it's the whole suite. It's all of it.

It's all of it. 35-centimeter is an important aspect because very high resolution matters. The more resolution you have, the better insights you get from the imagery, but also the level of analytics you can extract with AI goes up as well.

So -- but I'll also say timeliness matters and time diverse collection throughout the day matters as well. So it's a combination of all those things. And keep in mind, just a few years ago, this went from really commercial being mapping capabilities. So now we're in dynamic monitoring with real-time intelligence from space. So it's a major paradigm shift around our purpose-built capability.

Understood. And then maybe just one final one. You've talked about in the past kind of vertical integration gives you better visibility into production and deployment. Are there any kind of current supply chain constraints that could impact Gen-3 production or launch timing or still feeling good about the road map?

As I said, we're on track. We did bring LeoStella into the company over a year ago now to improve our visibility in the supply chain and streamline production operations. That's going very well.

We have ordered long lead supply components so that we can maintain a regular cadence of production of Gen-3. And through that cadence of production, we can use those satellites to expand our commercial constellation or accelerate deliveries on Mission Solutions contracts, which is a competitive advantage in the market.

So the vertical integration we've achieved is paying off and you're going to see that scale as we move throughout the year and into next year.

There are no further questions at this time. This concludes today's call. Thank you all for attending. You may now disconnect.

Ladies and gentlemen, thank you for joining us, and welcome to BlackSky Technology Q4 2025 Earnings Call. [Operator Instructions]

I will now hand the conference over to Aly Bonilla, Vice President of Investor Relations. Aly, please go ahead.

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 financial results and outlook for 2026. Following our prepared remarks, we will open the line for your questions.

A replay of this conference call will be available later today. 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 we'll make forward-looking statements during today's conference call, including statements about our plans, objectives and future outlook. Actual results may differ materially as these statements are based on our current expectations as of today and are subject to risks and uncertainties, including those stated in our Form 10-K. BlackSky assumes no obligation to update forward-looking statements, except as may be required by applicable law.

In addition, during today's call, we will refer to certain non-GAAP financial measures, including adjusted EBITDA and cash operating expenses. Definitions and reconciliations between our GAAP and non-GAAP results are included in our earnings press release and presentation, which are posted on our Investor Relations website.

At this point, I'll turn the call over to Brian O'Toole. Brian?

Thanks, Aly, and good morning, everyone. Thank you for joining us on today's call. Beginning with Slide 3. I'm pleased to report that we delivered a strong finish to 2025 with a near-record performance in Q4. The momentum we are seeing in the business is driven by the successful deployment and demonstration of our Gen-3 satellites last year.

Our Gen-3 satellites are highly differentiated in the market and are a fundamental step forward in our space capabilities, delivering proven on-orbit 35-centimeter imaging performance that is exceeding customer expectations. Now that these initial satellites are fully operational and validated by major customers around the world, we are seeing growing adoption and the ramping of revenues related to this new imaging capacity. Our progress on Gen-3 in 2025 was a significant operational milestone that is now a major catalyst for our future growth.

Turning to Slide 4. In 2025, we successfully launched and commissioned 3 Gen-3 satellites with each deployment demonstrating our ability to rapidly bring new capacity online. Most notably, our last Gen-3 satellite began delivering very high-resolution imagery within 12 hours of launch and entered commercial operations in just 3 weeks, setting a new industry benchmark for satellites of this class of imaging performance and accelerating access for our customers.

Gen-3 satellites are consistently delivering 35-centimeter imaging performance on par with much larger, more expensive and complex satellite systems. Enhanced image clarity dramatically advances our real-time AI-enabled analytics. This level of imaging and analytics performance is driving new customer adoption, converting early access pilots into long-term subscription contracts and unlocking Gen-3 related revenues from existing contracts. We are on track to further expand the constellation throughout 2026 with a pipeline of Gen-3 satellites in production and our next satellite already at the launch site.

Now let's move on to Slide 5 and some of our major highlights from last year. First, as a result of strong global demand and the performance of our advanced Gen-3 satellites, we secured $240 million in contract bookings with the majority comprised of international multiyear contracts. This success contributed to our growing backlog to $345 million, providing strong revenue visibility.

Second, we delivered near-record revenue in Q4 of $35 million, representing a 16% year-over-year increase, which drove annual revenues to $107 million with a significant step-up in revenue contribution from international contracts.

Third, we achieved our second consecutive year of positive adjusted EBITDA. This performance demonstrates disciplined execution, scalability and operating leverage of our business.

And finally, we significantly strengthened our balance sheet and increased our liquidity position to over $225 million. These highlights underscore the momentum in our business and the growing visibility toward free cash flow operations and long-term profitable growth.

Moving to Slide 6. Before we get to some of the operational highlights, I would like to take a moment to talk about how we are aligning the 3 key elements of our business to address a large and expanding market opportunity for space-based intelligence. These elements are not new to our strategy, but rather we are increasing the focus, visibility and capture of these opportunities across 3 primary growth vectors. With spending and demand expected to increase over the next decade, we are seeing growth opportunities in commercial, space-based intelligence and AI services, sovereign mission solutions and advanced technology programs.

Space-based intelligence and AI services is what we referred to in the past as our imagery and analytics business. This is our core high-margin subscription business that leverages our commercial satellite constellation and our Spectra AI platform to deliver real-time imagery, monitoring and AI-enabled insights through subscription contracts. This name change better reflects the depth and breadth of the types of AI-enabled solutions we are bringing to market now and in the future.

For the mission solutions element of our business, we have been winning new contracts for sovereign space-based intelligence solutions over the past several years and, for example, have successfully captured major programs with customers in India, Indonesia and others for Gen-3 related solutions. We are now consolidating these types of programs into mission solutions that include the delivery of satellites, ground system hardware and software as well as the integration of these capabilities into customer environments. We are seeing increased demand for sovereign space-based intelligence solutions as a TAM expansion opportunity and believe that this change will provide better visibility into this aspect of our business going forward.

For the advanced technology programs part of our business, we have had a longstanding strategy to partner with key customers to develop and demonstrate advanced space and AI capabilities through funded R&D programs. Over the course of many years, these contracts have augmented our own internal R&D and capital investments and have been instrumental in driving innovation and advancing leading edge capabilities such as inter-satellite optical crosslinks, next-generation satellites and payloads and advanced multispectral AI and analytics solutions. We expect this trend to continue as customers around the world are seeking new and innovative ways to accelerate next-generation space and AI capabilities. We believe that these 3 elements are well aligned to capture opportunities in a growing and expanding market.

Now let me share some recent highlights from each of these major elements of our business. Let's move on to Slide 7 and some recent highlights under space-based intelligence and AI and AI services. Throughout Q4 and carrying into this year, we are making good progress in closing new customers for early access Gen-3 pilot programs and quickly converting them into longer-term subscription contracts. One example is a new international customer that started with a small pilot and rapidly grew within a couple of months to what is now a 7-figure quarterly run rate to support their time-sensitive mission-critical operations.

For existing customers, we are adding access to Gen-3 services and ramping revenues under those contracts. For example, in Q4, we moved into the next phase of a $100 million multiyear subscription contract we announced last year and have now added assured access to Gen-3 imaging services to support this major international customer. As part of a 7-figure contract we announced last year with the U.S. government, we are ramping up their use of Gen-3 in their operations.

Our leading AI capabilities continued to deliver incremental revenue with the award of additional options under the NGA Luno contract. We also continued to win new orders through the U.S. Space Force Global Data Marketplace. We expect to continue this momentum and unlock additional revenue growth while we expand the Gen-3 constellation throughout the year.

Now let's turn to Slide 8, and mission solutions. We are continuing to see increasing demand for Gen-3 sovereign solutions from governments around the world. Just recently, we announced an 8-figure multiyear contract with a new international customer. This new contract includes the delivery of a Gen-3 satellite, ground station capabilities and satellite operation support. In addition, it also includes assured access to our commercial imagery and analytics services that will be delivered through our space-based intelligence and AI services.

Last year, we highlighted the capture of a new multiyear contract valued at over $30 million to integrate Gen-3 tactical ISR services into the operational environment of a major international customer. In Q4, we successfully delivered against some of the major milestones of that contract, which contributed to our strong Q4 performance.

And finally, we continued our strong execution on some of our other contracts that included major milestone deliveries that drove conversion and burn down of prior unbilled receivables.

Moving to Slide 9 and some updates on our advanced technology programs. In parallel to our primary business, we continue to advance our space and AI capabilities through a number of customer-funded R&D programs. We are making significant progress on a number of key technology initiatives that include optical intersatellite crosslinks for next-generation low-latency space-based communications, the development of AROS, our future advanced large area mapping and change monitoring satellites and advanced AI training, algorithm and model development, including the deployment of real-time AI processing into space and edge environments.

Throughout 2025, we continued to see increased interest from our customers to accelerate these and other future capabilities in support of long-term space-based intelligence imperatives. And as a result, we expect to expand our portfolio of these types of projects throughout 2026.

The highlights in 2025 are a direct result of the successful deployment, demonstration and introduction of Gen-3 performance and capacity into the market. With proven and reliable on-orbit performance, we are seeing strong momentum across all aspects of these 3 key elements of our business and are excited to carry that momentum into 2026.

With that, I'll now turn it over to Henry to go through the financial results. Henry?

Thank you, Brian, and good morning, everyone. I'm pleased with the strong finish to 2025 and the strong momentum we're seeing in the business. We continue to focus on long-term profitable growth and have now delivered 2 consecutive years of positive adjusted EBITDA. We strengthened our balance sheet as we ended the year with over $225 million in liquidity, and we have over $345 million of contracted backlog that is increasing our revenue visibility.

Now let's begin with Slide 11. Total revenue for the fourth quarter of 2025 was $35.2 million, up 16% year-over-year. This growth was primarily driven by a few key factors. First, as Brian mentioned earlier, we won a new mission solutions contract with an international customer. This contract agreement includes the sale of a Gen-3 satellite and other mission solutions services, of which we were able to recognize a significant amount of revenue within the quarter.

Second, we achieved key program milestones against recently awarded Gen-3 contracts for tactical ISR service integration work that also contributed to increased revenues.

And third, a number of our international customers ramped up use of their subscription access to our space-based intelligence and AI services as well as additional orders received from NGA's Luno program and from the U.S. Space Force's Global Data Marketplace. The strong Q4 revenue performance demonstrates our ability to rapidly monetize Gen-3 capabilities.

For the full year, our total revenues increased to $106.6 million. This performance was attributable to the growth in our mission solutions business, the ramp-up of our Gen-3 capabilities and continued expansion of our international customer base. We were able to achieve this growth despite U.S. government budget challenges. In fact, revenues from international customers grew over 50% from the prior year and now represent more than half of our total revenues.

Let's now turn to Slide 12 and talk about cash operating expenses, which excludes stock-based compensation, depreciation and amortization expenses. For the fourth quarter of 2025, cash operating expenses were $17.7 million compared to $16.9 million in the prior year period. For the full year, our cash operating expenses were $74.3 million, up from $64.9 million in 2024. This increase is primarily attributable to our LeoStella acquisition in 2024.

Moving to Slide 13. Our adjusted EBITDA for the fourth quarter of 2025 was $8.8 million, a 20% increase compared to an adjusted EBITDA of $7.4 million in the prior year quarter. The year-over-year increase of $1.4 million was primarily driven by higher revenues, as I outlined a moment ago, and continued responsible cost management. The strong Q4 performance drove full year adjusted EBITDA to $900,000, delivering a second consecutive year of positive adjusted EBITDA. We continue to remain focused on scaling our revenue while maintaining operating discipline, which we believe will drive improving margins as we continue to sell more constellation capacity.

Let's move on to our cash and liquidity position, as shown on Slide 14. We ended the fourth quarter of 2025 with $125.6 million of cash, restricted cash and short-term investments, which is more than double our cash balance of $53.8 million from a year ago. During the quarter, we achieved major milestones across multiple contracts that triggered invoicing of prior unbilled receivables. As a result, we ended the year with $26.6 million of unbilled contract assets, a significant reduction from about $43 million at the end of the third quarter. With the billing from these milestones and the additional contracts we won, our accounts receivable balance ended at $37.6 million, which we expect to collect in the near term.

We also signed a new vendor financing agreement, securing additional Gen-3 launches in 2026, which provides us with a total of $37.4 million in available launch financing. Taking all these items together brings our total liquidity position to over $225 million or an 84% increase over the position we ended with in 2024. With this liquidity position and our continuing strong operating performance, we believe that we have sufficient liquidity to deploy our Gen-3 constellation, grow our business and continue on our path towards positive free cash flow.

Turning to the outlook on Slide 15. We expect full year 2026 revenue to be between $120 million and $145 million, representing a 24% growth over 2025 at the midpoint of this range. This annual growth is driven by strong backlog visibility, which we expect to convert into revenue throughout the year, continued Gen-3 satellite deployments, delivering increased capacity to our customers and a growing pipeline of sales opportunities. Historically, our revenue performance in the second half of the year has always been stronger than in the first half, and we anticipate this year to be the same.

We expect full year 2026 adjusted EBITDA to be between $6 million and $18 million, reflecting our continued progress towards sustained profitability while maintaining investments in a number of growth initiatives. Capital expenditures for the full year 2026 are projected to be between $50 million and $60 million and are primarily focused on building out our Gen-3 constellation and advancing our next-generation satellite and AI technologies.

In summary, we're pleased with our fourth quarter and full year financial performance, the momentum we're seeing across the business and our expanding international customer portfolio.

With that, I'll now turn it back over to Brian for some closing remarks. Brian?

Thanks, Henry. We're pleased with the strong finish to 2025 and the momentum we're carrying into 2026. Building on the success, proven on-orbit performance and customer validation of Gen-3, we are off to a strong start to the year. The growing market opportunity for space-based intelligence is accelerating, and BlackSky is well positioned to meet this demand through an industry-leading space, ground and AI technology stack that we are successfully leveraging across multiple lines of business to capitalize on a number of growth vectors.

We enter 2026 with a strong balance sheet, a growing backlog of high-visibility revenue for our space-based intelligence and AI services and mission solutions and a clear and strong execution strategy for growth.

This concludes our remarks for the call, and we'll now take your questions.

[Operator Instructions] Your first question comes from the line of Edison Yu with Deutsche Bank.

First, I want to ask about the new 8-figure sovereign deal. I guess it's falling under mission solutions now. Can you give us a little bit more detail both in terms of the customer, the pacing of how that revenue gets recognized and more generally, the pipeline of similar opportunities going forward about deals like this or structures like this?

Sure. Thanks for the question. Yes, as we outlined in our remarks, this is a -- we'll call an initial contract for a Gen-3 satellite that includes some ground capability and software as well as multiyear support services. It is bundled with a commercial contract for subscription-based access to our commercial constellation and AI services. So that means that these types of contracts support both of those elements of our business. This is -- in this case, we were able to, as Henry mentioned, recognize a good portion of revenue of that in the fourth quarter as we're able to make immediate deliveries.

The strength of this is that we were able to pull a satellite off the production line and accelerate the customers' schedule. So we will move forward on their schedule to launch the satellite as quickly as we can either later this year or early next year. So we are seeing a general trend where a number of these types of customers will start with a few satellites with ambitions to expand much further beyond that and grow those over time.

Just a follow-up. Do you have a sense of how many of these type of programs or deals are in your pipeline? Is this something that could be multiple countries, dozens of countries? How does one think about that?

Yes. I think we're building a very strong pipeline. We're seeing this type of trend across a number of regions in the world and with a number of customers in each region. So I think, Edison, the way we think about this as a TAM expansion opportunity, maybe to put this in some numbers about maybe less than 5 years ago, they were under 12 or 15 countries that had sovereign space capability. Now there's over 60. And so -- and many of them are in the early phases of building out their capabilities.

So this is a large and expanding market, and there's a number of customers that are coming into this with very little initial capability that we're able to help accelerate their long-term plans.

Got you. If I could just sneak one more in. Would you expect to announce another similar type of deal this year?

As I said, we have a very strong pipeline. We have a number of deals moving through the pipeline. Timing of international deals has always been challenging to predict exactly. And just also keep in mind, these tend to be lumpy. So these deals will come in and then you'll see these spikes in revenue as we recognize revenue depending on the nature of the contract.

Your next question comes from the line of Jeff Van Rhee with Craig-Hallum Capital Group.

Maybe to start with you, Henry, in terms of the guide. If I look at the low end of the guide, what has to happen here to hit that in terms of new bookings versus already having that in backlog?

We've got strong -- Jeff, thanks for the question. This is Henry. We've got strong visibility. We do have a backlog, as we've said, maybe about $345 million. We've got nearly $75 million of that coming through in 2026.

We also have renewals that are not yet in there. So that's kind of our standard modus operandi. So we've got strong visibility to get into that -- into the low end and actually all the way into the full range there.

Yes. Is the -- just to be clear, is the low end assuming -- I mean, can you give a ballpark of how -- what kind of new bookings you need to make that? Or is it already in the bag?

Well, as I said, we've got a fair bit of renewals in there. So we feel pretty comfortable that obviously we wouldn't put a low end out that we wouldn't feel that we could hit.

Okay. Got it. And then, Henry, you mentioned on the guide in terms of linearity, you assume it's back-end loaded. Can you just expand a little bit? You had this large 8-figure customer. It sounds like a lot, maybe most of that revenue fell in Q4. So how much of that does not recur in Q1? Just trying to get a sense of the stepdown and then how to build the ramp through the year.

Well, I guess the way I would look at it, if you look at us historically over the last number of years, we've usually been in kind of like the 45% -- 40%, 45%, less than 50% in the first half of the year and 55% to as much as 60% in the second half of the year. That's kind of the way I would be looking at it.

Got it. Okay. And then just last. On the Gen-3s, obviously, I think compared to your initial hopes, expectations, the time line of getting those in the sky has been slower than expected. Just curious, as you're looking back on kind of what's playing out there, is there anything that needs to change? Are you satisfied with the timelines it looks like in terms of how those are going to roll? And where do you think you're going to end 2026 in terms of the number of Gen-3s up?

Yes, Jeff, the way that we're looking at it right now is we've got these first 3 up and they're meeting and exceeding expectations, performing exceptionally well. And that performance has driven the revenue ramp that we're experiencing in the fourth quarter and taking into this year. We have the next one already at the launch site.

Our goal will have -- will be to have 8 to 9 Gen-3s on orbit by the end of this year. The -- we're in very good shape. As we mentioned, we had -- we found an issue in testing on the prior satellite. But we -- this is very typical with your first few satellites.

I'll remind you with our Gen-2 constellation, we started with a similar cadence, and then we quickly got to the point where at one point, we launched 6 satellites within 20 days. So we are on track and the satellites are performing well and our production operations are ramping.

Yes. Congrats. I mean that first flight performance is pretty exceptional and the imagery just looks outstanding. So best of luck.

Your next question comes from the line of Timothy Horan with Oppenheimer.

Any updated thoughts on -- is there an inflection point for where you get some scale when you hit like 6, 7, 8 satellites or maybe more general availability and you see a little bit more operating leverage? Just thoughts on what the critical number is there.

Tim, I guess we don't think of it that way. I think the way we are seeing it is the 3 we have up there have been sufficient to put in front of customers so they can validate the performance and how they integrate this capability into their operations. And our sales cycle reflects that along with unlocking revenues from existing contracts.

So the thing that maybe keep in mind is the number of satellites is not indicative of revenue. There's some companies with hundreds of satellites that have a certain revenue profile and others that have 6 to 8 that have a completely different revenue profile. So we view it more as customer adoption rate and unlocking performance, and we scale that capacity commensurate with the level of service that we need to deliver, whether it's imaging, performance and quality, revisit or low-latency delivery with AI-enabled intelligence. So it's a customer ramping and capacity ramping trend that we're working toward.

Got it. It does sound like you are a little bit capacity constrained on the manufacturing line, but I think you're implying that that's going to accelerate your ability to accelerate your manufacture of these satellites. Is that pretty accurate?

Yes, I wouldn't call it capacity constrained. I would call it being very measured with the first several satellites to ensure that the ones that are going up there are meeting our quality standards. And we are in parallel, optimizing supply chain and our production processes to hit an operating cadence out of production.

So as I said, this is typical, and we are feeling very good about where we are.

Got it. And then lastly, just any thoughts on U.S. spend at this point from the government? What are you kind of expecting this year? Are you seeing improvements there?

Yes. I think let me just say we're happy that Congress approved the '26 budget, which includes funding for EOCL and other commercial imagery and analytics initiatives, both at NGA and Space Force. So for EOCL, we've taken a conservative approach in our forecast this year, and we expect that will take some time into Q2 across all of these programs before we get better visibility in how this funding is going to be appropriated to specific programs and contracts. But we're seeing increased interest across the government and expanding use of commercial imagery and analytics.

Your next question comes from the line of Jaeson Schmidt with Lake Street.

Just following up on the new 8-figure contract. Just curious how long you were in discussions with that customer before inking that contract? And I guess, relatedly, what you're seeing from sort of a sales cycle timeline when it comes to some of these Gen-3 contracts?

I think the way we think about it, Jaeson, it's -- these are 12- to 18-month type sales cycles. And in this particular case, this was at the faster end of that. So I think we're seeing a very consistent trend around that length of sales cycle.

Okay. That's helpful. And then just as a follow-up, not looking for specifics, but just curious at a high level, if the pricing of the Gen-3 capacity is in line with your prior expectations?

It's exactly in line with our expectations and what we have modeled in our business plan. The thing that you need to keep in mind is we have increased the pricing commensurate with the -- from Gen-2 to Gen-3 with the improved 35-centimeter capability.

Also keep in mind that these Gen-3 satellites are producing imagery at a level of performance of much larger and more expensive satellites that, in some cases, can be 10 times more expensive. So these types of -- these compelling economics are really enabling us to provide our customers with exceptional value at competitive prices while delivering strong margin performance to the business.

Your next question comes from the line of Chris Quilty with Quilty Space.

Looking out to '26, and thank you, by the way, for providing the new segment reporting that's definitely helpful, can you give us a sense of what sort of a breakdown you expect revenue-wise between the segments? I'm thinking it's probably like a 70-30-ish on the imagery and analytics.

And the second part of the question for Henry, can you just talk to us about the accounting methodology for the sale of satellites to customers, both during the production process? Is there a percentage completion? Or is it done more at final sale?

Yes. Chris, thanks for the question. Let me take the first question before I hand it over to Henry. Yes, I think the mix is really consistent with where we've been in the past. This is just providing some visibility across those 3 elements. We expect that the space-based intelligence and AI services to contribute somewhere in that 60% to 70% of our revenues, which is -- that's our higher-margin subscription element of our business.

The mission solutions, think of that being in this kind of 25% range at this point, but we expect that to grow. We expect them all to grow. That may grow a little bit more disproportionately as those are larger deals. And then finally, the technology development programs, as I said, we've had a long history of those. And we expect to kind of sustain that and grow it, I think roughly 15% or so of our total revenue.

So no really -- not much change in the blend, but just providing better visibility.

Chris...

Henry?

Yes. Looking at kind of the mission solutions line, given the fact that these satellites do have some customization associated for each individual client because of the way they need to operate them a little bit, we are able to look at from kind of an ETC basis or kind of a percent complete as you're calling it. So that we do expect to be able to get some revenue recognition as we march through. And that's what we were able to do with this 8-figure contract in the fourth quarter.

Great. And when you look at the international sales model, I mean, we've certainly seen kind of 2 different models, one where transfer of the satellite to the customer, another where you operate the satellite as a bespoke element of that customer's customer ownership, you're operating it and you monetize in different regions. Do you prefer either of those margins? What direction do you see that trend line going? And are there significant modeling considerations we should think about depending upon which model you use?

Yes, Chris, I'm not sure we would say we prefer one model versus the other. I think what we're doing now is being responsive to how our customers want to structure these contracts. As I mentioned before, in the mission solutions, it's essentially giving them sovereign capability and control that may include operational support, leveraging our commercial infrastructure. But -- and then bundling that with our commercial services that are giving them higher-performing revisit and real-time AI-enabled intelligence that augment that.

So there's a number of different business models, whether it's a constellation as a service or a turnkey system. We've developed a strategy where we're flexible to meet the customer where they are and be on that journey for them in the long haul of how they want to expand this over time.

Great. And Henry, are you going to give a quarterly breakdown of the new segment reporting in the K?

For historically, yes, we will. Historically, there will be.

Your next question comes from the line of Austin Moeller with Canaccord Genuity.

So just my first question, can you comment on the NRO having 200 of its own satellites in orbit now? Do you know what modality they are? Are they like EO, infrared, SAR? And would you consider that to be complementary or competitive to Gen-3?

Well, I think the U.S. government and other major governments have always had their own sovereign capability for critical national security needs. That's been the case for a long time. I think what's important to understand in the U.S. government is that there's several unique missions that U.S. government has moved to commercial capabilities. And that -- those set of requirements have long been allocated to what is now EOCL, but prior to that, [ EnhancedView ] and the predecessor contracts. So I think the way we look at it is we're not competing with those systems. We're augmenting them.

We can move much quicker in the innovation cycles. We can provide a resilient augmentation capability. And then also, which is extremely important is everything we do is on classified, which is shareable with our allies. So it's not a competition. It's an augmentation and it's serving very specific missions that have been allocated to the commercial industry.

Okay. And are you able to comment on what the size of the commercial imagery budget was in 2026 now that the budget was passed? I know it's usually classified, but I don't know if that's been divulged yet.

It's still -- it's a classified budget line.

Your next question comes from the line of Scott Buck with H.C. Wainwright & Co.

Brian, I'm curious, you guys talked about the significant international demand. Can we get a little more granular there? Is that Asia? Is that Europe? Or what can you tell us about where that's coming from?

And then second, what do you think was left on the table in the U.S. in terms of revenue from the shutdown during the end of '25?

Yes. I think -- Scott, I think we're seeing on the mission solutions side internationally, pretty much demand almost in every major region across the world, Europe, Middle East, Asia Pacific, Southeast Asia, et cetera.

So like I said, the number of countries that are putting significant dollars into building sovereign space capability, both for national security and economic development purposes is growing very rapidly. And so we do have a pretty strong pipeline worldwide.

I think on the -- what was left on the table question, we talked about the impact of some of those government budget changes that we addressed in August. I don't know, Henry, if you want to maybe comment on that again, but I think we've shared those numbers.

Yes. We have shared, Scott -- I mean, back in some of our prior earnings calls, we did talk about how with the budget cuts and the impact that we had, that was in the neighborhood of about $2 million per month starting in August, so about a $10 million hit for the year. So that's what we stated.

Great. I appreciate that. And then as we move closer to '27, could you give us a little more color on how the rollout of AROS would work? And maybe some color on what the opportunity -- the revenue opportunity looks like versus the imagery business?

Yes. The AROS satellite is a TAM expansion opportunity for us. Our Gen-3 capability is high-frequency dynamic monitoring of strategic sites of interest. AROS is being designed as a large area mapping -- digital mapping capability for large area change monitoring.

Think of the large imagery demands and collection required for things like Google Maps and other digital platforms, including in support of next-generation AI capabilities, the development of digital twins. And so AROS is being designed specifically for those set of requirements. And the Gen-3 and the AROS satellites will work cooperatively to deliver a high-value service to our customers that need both of those capabilities.

And then also, it's a commercial expansion opportunity, particularly in area of digital mapping and other -- civil and other civil type markets that require that type of mapping. So it's a purpose-built satellite for a new market opportunity.

Your next question comes from the line of Sheila Kahyaoglu with Jefferies.

This is [ Billy ] on for Sheila. Just on the cash operating expenses, you've held them relatively flat while growing revenue, which is great. What are some of the drivers of the cost management? And as Gen-3 continues to scale, how are you thinking about OpEx and operating leverage?

Yes. I think I'll start. I can hand it over to Henry. We have, from day 1, been building a platform that gives us significant operating leverage. As we get the business over the fixed price cost of running that and maintaining it, that's where you see significant margin performance that goes to the bottom line for every incremental amount of capacity that we sell. So you can see that in our EBITDA margin performance over the last couple of years as we've been monetizing that capacity off of a fixed operating -- generally fixed operating base.

I don't know, Henry, if you want to add anything.

I think you covered it there, Brian. I mean, we're disciplined in kind of cost management. We do make investments in sales, marketing and other R&D type stuff so that we are always making sure that we're growing, but we're also quite disciplined to make sure that we provide the leverage so that as we grow our top line, it will drop to the bottom.

Great. Helpful. And then just one more on free cash flow for 2026. What do you see as the major moving pieces as you progress towards positive free cash flow? And for 2026, like what are the working capital needs? And for the $55 million in CapEx, how do you think about the mix between Gen-3 investments and AI technologies?

Well, we don't break CapEx down between those 2 in our guidance. But as you can look historically, I mean, we typically have in the neighborhood of about $12 million to $15 million of kind of general corporate development CapEx, AI CapEx, et cetera. But the big thing there is as we're guiding, we're growing the adjusted EBITDA, which is a surrogate for operating cash flow, and we believe that we'll be able to hit the target ranges that we're putting out there.

Your next question comes from the line of Greg Burns with Sidoti.

Just a follow-up on the EOCL funding. And I know it's -- the budget is classified, so maybe you don't have an exact number. But do you have any sense of whether or not the cuts -- the proposed cuts were enacted or if funding was restored to historic levels?

Yes, as I mentioned earlier, it is classified, but what we are seeing is there's multiple budget lines. There has been a couple that have been added, and we're sorting through how that is going to play out in actual implementation. So we're seeing some positive trends out of that, but we have to see how this shakes out over the next quarter.

Okay. And I guess, is any part of your guidance range, does that include that -- the level of revenue from EOCL stepping back up? Or is that not anywhere in your guidance and that is potential kind of upside?

I'll just say we've taken a very conservative -- yes, we've taken a very conservative approach to our forecast this year relative to EOCL, and we'll see where this lands by later in the second quarter.

Your next question comes from the line of Greg Pendy with Clear Street.

Just one real quick one. Under the old reporting, your Ks and Qs would break down imagery versus data software and analytics. And I think at the beginning of the call, you mentioned sort of that flywheel effect of getting the better imagery feeding into the AI capabilities. Thus far, the data, software and analytics growth has been pretty stagnant. So can you kind of give us a little bit of color on how the improved imagery kind of feeds into that area and how it would play out in 2026 with the better imagery?

I think just first off, last year, because of the government budget issues that had an impact on the growth of that line. But now that is being offset by the strong demand we're seeing in the international markets, particularly around Gen-3 and then the expansion of the improved AI capability that Gen-3 brings as well. And then the pricing increase. So we have a very good visibility on how that line is going to be growing going forward.

Your next question comes from the line of Dave Storms with Stonegate.

I wanted to circle back to cash management. Henry, I believe in your prepared remarks, you mentioned that we should see an accounts receivable burn throughout the year. Just curious if you could give us any more color there, maybe some of the puts and takes on working capital management and if we should expect that AR balance maybe get back down to 2024 levels or not?

Yes. I mean when you take a look at the press release and the balance sheet there, our accounts receivable is about that $37.5 million mark. A lot of that, as you might imagine, when we signed a contract late in the year, and there's a fair bit of revenue, we built for it, but you haven't lapsed that through that typical 30- to 45-day receipt cycle. So we expect to kind of be able to bring that stuff back down.

With mission solutions, we may get some lumpiness on that. But we've never had a problem with collecting receivables.

Understood. Very helpful. And if I could just ask one clarifying question. I think you mentioned earlier in the call that sales cycle is typically 12 to 18 months, and I think that was specific to those 8-figure contracts. Are you seeing a similar sales cycle for, call it, the 45 additional sovereign nations that have kind of come online in the last 5 years? Or do they tend to have a little bit of a longer sales cycle?

I think they're all a little different, Dave. It's hard to -- especially when you have customers that are doing this for the first time and implementing new acquisition programs. So my range in sales cycle is really a general number. We'll see some go faster. We'll see some take longer.

There are no further questions at this time. This concludes today's call. Thank you for attending. You may now disconnect.

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 financial results and outlook for 2025. 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 13th. 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 certain statements made during today's conference call regarding our future plans, objectives, and expected performance, including our financial guidance for 2025, are forward-looking statements. Actual results may differ materially as these statements are based on our current expectations as of today and are subject to risks and uncertainties, including those stated in our Form 10-K. We encourage you to review our press release, Form 10-K, and other 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 by applicable law.

In addition, during today's call, we will refer to certain non-GAAP financial measures, including adjusted EBITDA and cash operating expenses. The reconciliation of these non-GAAP financial measures to their most comparable GAAP measures are included in today's accompanying presentation, which can be viewed and downloaded from our Investor Relations website.

At this point, I'll turn the call over to Brian O'Toole. Brian?

Thanks, Aly, and good morning, everyone. Thank you for joining us on today's call. Beginning with Slide 3, I'm pleased with the strong momentum in the business as the success of Gen-3 is delivering best-in-class imagery and analytics and driving significant demand toward unlocking our next phase of growth. We are gaining customer traction, growing our pipeline, and building backlog for both our imagery and analytics services and for Gen-3 powered sovereign solutions.

Customers around the world are recognizing Gen-3's superior performance, especially at a time when they are seeking to accelerate their sovereign space based intelligence capabilities. BlackSky is well positioned to capitalize on this market opportunity by leveraging a full technology stack that includes real-time software, advanced AI, Gen-3 satellites, and vertically integrated satellite production capabilities.

While the quarter reflected anticipated impacts related to U.S. government budget uncertainty, we closed significant new contract awards and expect to remain on track to hit our full-year financial objectives. Strong international demand is outpacing the near-term U.S. government business, and as such, we are anticipating a strong Q4 and expect to take that momentum into 2026.

Now let me share some recent highlights as shown on Slide 4. First, we were awarded more than $60 million in new contracts, primarily with international customers, as we continue to diversify our customer base and revenue mix. In addition, these contract wins are predominantly for the delivery of Gen-3 services, demonstrating the traction we are seeing for this capability around the world. We expect this momentum to continue as we move forward on the deployment of the Gen-3 constellation over the coming months.

Second, we are pleased to have been awarded a contract valued at over $30 million to integrate Gen-3 high-cadence tactical ISR services into a strategic international defense customer secure environment. This contract demonstrates how BlackSky is accelerating sovereign space-based intelligence capabilities by leveraging proven commercial space technology to address their mission-critical requirements.

Third, traction for our Gen-3 imagery continues to build as we expand the number of customers participating in our early access program, including a new seven-figure contract to commence delivery of Gen-3 imagery services to the U.S. government. We are starting to see contributions from Gen-3 imagery revenues and expect this trend to continue as we bring more Gen-3 capacity online.

Fourth, we're seeing our AI and analytics solutions continue to gain traction across our customer base, including with NGA Luno, the global data marketplace, and with major international government programs. Fifth, our Gen-3 constellation continues to expand. Our latest satellite is at the launch site, and we're excited to get the satellite launched as we move forward in our plans to have a baseline Gen-3 commercial constellation fully operational next year.

And finally, our cash balance increased more than 50% from last year following the successful raise we completed in July, bringing our total liquidity to over $200 million. Our stronger balance sheet and cash position puts us on a clear path toward free cash flow operations. These highlights underscore how our space, software, and AI capabilities are well positioned to provide customers with mission-critical intelligence that they rely on every day for their national security needs. I would now like to share some more details on the operational highlights from the quarter.

Turning to Slide 5, as I highlighted a moment ago, we're seeing international demand for sovereign solutions continue to accelerate and, in the near term, is outpacing our U.S. government business. In fact, revenues from international customers now represent about half of our total revenues, driven by new contracts and expanded service agreements with a number of ministries of defense and organizations around the world. And we expect this trend to continue. We should also note that over 90% of our backlog is related to international contracts for Gen-3 capabilities.

Countries around the world are accelerating their investments in space-based intelligence solutions in support of national security and economic development imperatives. This is driving a major shift and expansion of the market, which is being reflected in growing space-based defense budgets and sovereign investment funds.

BlackSky is well positioned to capitalize on these market dynamics, as our vertically integrated technology enables us to accelerate an organization's space-based intelligence capabilities, leveraging proven and mature software, AI and satellite technologies. We are winning new contracts and building an expanded sales pipeline, as demand for our Gen-3 powered sovereign solutions continues to gain traction worldwide.

Moving to Slide 6, we recently won a multi-year contract valued at over $30 million with a strategic international defense customer to integrate our Gen-3 high-cadence tactical ISR services into their secure operational environment. This expanded solution will enable BlackSky tasking and AI-enabled analytics services to operate seamlessly within the customer's workflows, delivering a new level of fully secure and autonomous operations.

The tactical ISR services being delivered under this program feature high-frequency Gen-3 tasking combined with real-time AI enabled detection, identification and classification of tactical objects delivered through a low-latency architecture. This win marks a step forward in the operational deployment of our Gen-3 capabilities in support of delivering secure, real-time tactical ISR solutions for 24/7 time-dominant missions.

Turning to Slide 7, we continue to win contracts and task orders on programs such as the Global Data Marketplace and NGA Luno program. In Q3, we received a seven-figure delivery order under the NGA Luno program, bringing our total orders won this year under this contract to about $30 million. This follow-on award leverages our proprietary computer vision algorithms and AI capability to automatically detect and identify areas of change caused by human activity. Our proven AI software is very effective in identifying anomalies, detecting infrastructure changes, and delivering alerts within minutes, giving defense analysts a crucial first to know advantage.

Moving to Slide 8. We're seeing significant demand and growing traction for our Gen-3 imaging services as additional customers have signed up for early access agreements in Q3, including a new 7 figure contract with the U.S. government. The positive customer feedback we've received from early adopters confirms that Gen-3's very high-resolution imagery, combined with our AI-driven analytics, is delivering high-value intelligence at compelling performance for the class of this satellite. And we expect this momentum to continue as we build out the constellation.

Turning to Slide 9. We're pleased that our next Gen-3 satellite has arrived at the launch site, and we anticipate its deployment in the coming weeks. Gen-3 satellites continue to move through our production line, and we will continue a cadence of launches to build out our constellation in 2026. The Gen-3 satellites on orbit are performing well and generating revenue.

Moving to Slide 10. We believe the long-term opportunities with the U.S. government remain strong as many agencies are seeking to leverage mature commercial space technologies to advance national capabilities, especially missions that require proven technology to support proliferated low-Earth satellite constellations.

We continue to make important progress across our U.S. government portfolio, including advanced R&D for capabilities like the integration of optical intersatellite crosslinks into our current and next-generation capabilities. Although we are experiencing near-term impacts of the fiscal year 2026 budget on the EOCL program, we are seeing congressional support to restore funding to the program. We expect to have better visibility once the final budget is approved.

As the U.S. government expands its investments in space, we see opportunities for companies like BlackSky, who have proven agile space capabilities and tech stacks that can rapidly deploy technology to support cost-effective government programs. In particular, there are programs such as Golden Dome, where aggressive deployment schedules and non-traditional acquisition models favor proven commercial space capabilities. We have a strong track record of supporting these types of customers and feel we are well-positioned as these future opportunities unfold.

Turning to Slide 11, we continue to make progress on our AROS initiative. Recall that AROS is a new satellite designed to provide wide area mapping, monitoring, and change detection to address an anticipated gap in these capabilities in the 2028 time frame. We continue to work through the design phase and engage potential customers and partners on the development of this constellation. We will have more to report as we progress on this program through 2026.

With that, I will now turn it over to Henry to go through the financial results. Henry?

Thank you, Brian, and good morning, everyone. Starting with Slide 13, total revenue for the first nine months of 2025 was $71.4 million, consistent with the prior year period. While we were expecting imagery and analytics revenue growth in the third quarter of 2025, our revenue was negatively impacted in August and September by approximately $4 million due to reductions made in the EOCL contract. Our professional and engineering services revenue for the first 9 months of 2025 grew to $20.8 million, a 9% increase over the same period in the prior year.

Let's now turn to Slide 14 and talk about cash operating expenses, which excludes stock-based compensation, depreciation, and amortization expenses. For the first 9 months of 2025, cash operating expenses were $56.6 million compared to $48 million in the prior year period. The year-over-year increase in cash operating expenses was driven by about $9 million of overhead expenses in 2025 from the integration of LeoStella.

These costs would have been previously capitalized into our satellite assets and not included as operating expenses. Therefore, excluding the LeoStella overhead expenses, year-to-date 2025 cash operating expenses would have been in line with the prior year period, demonstrating the discipline we have in managing our costs while still making investments in our business.

Moving to Slide 15. Our adjusted EBITDA for the first 9 months of 2025 was a loss of $7.9 million compared to an adjusted EBITDA of $4.3 million in the prior year period. The year-over-year decrease was primarily attributable to EOCL and LeoStella, as I've mentioned earlier. Excluding these two impacts, we would have reported a positive adjusted EBITDA of approximately $5 million for the first nine months of 2025. We remain committed to achieving adjusted EBITDA growth and margin expansion.

Let's move on to our cash and liquidity position, as shown on Slide 16. We ended the third quarter of 2025 with $147.6 million of cash, restricted cash, and short-term investments, which is more than double our cash balance from a year ago. This amount includes $65.9 million in net cash proceeds from a convertible node offering and $10.8 million from the exercise of warrants, both completed in July.

In addition to the cash, we also have $43.4 million in unbilled contract assets, of which $36 million is anticipated to be billed and received over the next 12 months. Together with a $13.5 million of available launch financing, this brings our total liquidity position to over $200 million. This position reflects an increase of $85 million or a 71% growth over the position we had in the third quarter of 2024 and provides BlackSky with sufficient cash to deploy our Gen-3 constellation, invest in strengthening our in-house AI capabilities, continue the design and development of our AROS program, and put this on a path to positive free cash flow.

Turning to Slide 17, we are maintaining our guidance for full-year 2025 revenue, adjusted EBITDA and capital expenditures. We are maintaining the current range as we are actively working to close on a number of large sales opportunities that we expect will impact the fourth quarter. In summary, we are pleased with the momentum in our business, a growing sales pipeline, our strong cash and liquidity position. We look forward to a strong fourth quarter, high visibility growth in 2026 and continuing our path to free cash flow.

With that, I will now turn it back over to Brian for some closing remarks. Brian?

Thanks, Henry. In closing, we are pleased with the strong momentum in our business, and the growing demand for our space-based intelligence solutions. As we look ahead, we expect a strong finish to 2025, and significant high visibility growth in 2026. This visibility is anchored by a strong backlog of international contracts and a growing pipeline for our imagery and analytics services and sovereign solutions.

Customers around the world are recognizing Gen-3's superior performance, especially at a time when they are seeking to accelerate their sovereign space-based intelligence capabilities. The opportunities ahead are significant and we remain confident in our ability to capitalize on the growing global market for our space-based intelligence solutions.

This concludes our remarks for the call, and we'll now take your questions.[ id="-1" name="Operator" /> [Operator Instructions] And your first question comes from the line of Edison Yu of Deutsche Bank.

First, I wanted to check on the Gen-3 deployment cadence. Is that still progressing on the same kind of deployment number as you were previously looking for?

Yes. As we mentioned, the next satellite is at the launch site, and we expect that to be deployed here in the coming weeks. We did find a faulty component in that satellite during final testing, so we experienced some delays, but it was non-systemic to the rest of the constellation, and so we fixed that, and we're moving forward. Obviously, there's some delays, but we're continuing on the plan that we outlined earlier.

Understood. And I know you mentioned in the deck that next year will be fully operational. Can you just remind us, what does that mean? Exactly how many satellites does it have to be fully operational?

As I mentioned before, our goal is to have at least 12 up by the end of next year.

Understood. And then just, if I could sneak one in on the financials, the range for 4Q is quite wide. So, if we want to kind of take that as a jumping-off point, what are sort of the main factors in getting to the low end or the high end? Is the government shutdown hurting that? Just trying to get an understanding of what kind of the delta is text?

Yes. I think, Edison, I think maybe first off, as you've seen in the past couple years, we've had -- tend to have really strong Q4 performance, and that's the case again this year. We are expecting a step up from contracts that we have in place and others that we expect to close shortly. The wide range really is just accounting for the timing of these deals. So, we're seeing a lot of momentum. We've got, as Henry outlined, a number of large deals that are in play right now, and the range reflects really just where we are in the timing of those.

[ id="-1" name="Operator" /> Your next question is from the line of Jeff Van Rhee of Craig-Hallum.

This is Daniel Hibshman on for Jeff. Just maybe if you could talk through us a little bit on the early access agreements, just kind of where those are at, how those are progressing, those early access agreements for Gen-3, and then a little bit more about the steps you see need to take place to get those to a more significant revenue line, just if that's all about the size of the fleet you're deploying or about the customer's internal processes or about them getting budget in place, just how those will progress and the steps to get there.

Yes, the early access program is progressing really well. The way that is playing out is we have customers that are coming online with six-figure type early access agreements to basically test and evaluate Gen-3 performance in their operations. What we're seeing is a couple things. One is we're adding more of those types of agreements as we are still early in the deployment of Gen-3, but we're also seeing an acceleration of some of those transitioning to longer-term, much larger contracts.

And then finally, just as a reminder, as I indicated in our backlog, there's already pretty significant Gen-3 services in our backlog as we continue to deploy the constellation. So, all in all, we're very pleased at the momentum we have with bringing on new customers, their evaluation and our visibility into transitioning those customers into long-term subscription revenue.

And then to be clear on the $4 million of impact from EOCL for August and September, is that significant enough that, just to be clear, is that a total pause on the program right now, or is that just a significant reduction?

It's not a pause, and I'm not sure I would deem it a significant reduction at this point. The government made some adjustments to our contract to reflect the potential baseline budget that was submitted by the administration for fiscal year '26. But keep in mind the budget is not final and we have seen marks from multiple committees to restore funding to the EOCL line in the budget. But we won't really know until the budget is finalized. These reductions that we're experiencing, were set to carry into Q2 of next year, which would align with timing of a CR and a final fiscal year '26 budget.

Okay. That's helpful. And then maybe just on satellite sales slash dedicated capacity, however you think about it, but those deals that you got with Indonesia and India in terms of dedicated Gen-3 capacity, if you could talk to us a little, I mean, those are large kinds of opportunities. Talk to us a little bit about the pipeline for those kinds of opportunities and how go to market is progressing or evolving in that area?

Yes, I would say, as I mentioned in my remarks, the demand for those types of solutions is growing very rapidly. We have a significantly growing pipeline for those types of arrangements. I think what we're also seeing is building on the success of Gen-3. The interest is increasing as we're demonstrating significant performance for this class of satellite, both in terms of image quality and economics.

So we see as we continue to deploy Gen-3 and also demonstrate Gen-3's performance with our AI capabilities that these types of opportunities will continue to expand and will begin to continue to capture more contracts that were similar to what we announced in India and Indonesia.

[ id="-1" name="Operator" /> Your next question comes from the line of Timothy Horan of Oppenheimer.

Can you just give us the number, how many satellites did you actually have in operation at the end of the quarter? And what are you expecting here by the end of the year? And if you can give us a rough guess on the first quarter, it would be helpful.

Right now, we have 2 Gen-3s and 11 Gen-2s. So we've got 13 satellites on orbit. As I mentioned, we have another satellite at the launch pad and another one coming out of production later this year. So the Gen-2s that we have up on orbit are continuing to perform well. They'll carry well into next year, not longer. And the early Gen-3s that we have are performing well as well. So we'll just continue a regular cadence of Gen-3 launches going into '26.

So you think about two per quarter is still a relatively good guide?

That's a reasonable assumption. Keep in mind we have to deal with timing of launches and those types of things, which are normal course.

And the Gen-2s, how much longer, what's the cadence of them coming down?

As I mentioned, those were deployed in sequence. And so we expect at least half of the satellites up there will still be in service by the end of next year.

Okay. Got it. And then professional engineering services were very strong in the fourth quarter last year. So, should we assume a kind of a similar rebound this year? And I guess somewhat related to that, too, like Indonesia and India contracts, when do they start kicking in and where does that revenue kind of show up in the line item space?

You can expect a similar type of trend that you saw last year in Q4 with respect to Indonesia and the India contracts. We're recognizing revenue as those programs progress. So that's kind of a smooth ramping of revenue from those programs.

Got it. Very helpful. And so what do you assume for the government budget? Fourth quarter guide and going into next year and your guide for the fourth quarter?

Yes, as I mentioned or responded in the prior question, we -- the EOCL program in particular has been set at the levels that it are at now through Q2 of next year and that's what we expect in our planning for Q4 and into the early half of next year.

Very helpful. And just last, I know you kind of mentioned on it. And so on that point on EOCL, so there could be upside if the budget is approved to the trends, I mean, would you expect if the budget is approved, there could be a step up there?

There could be. As I mentioned, we're seeing positive uh activity out of Congress in the marks to this budget to restore the funding. We think that could be a positive upside next year, but we'll have to wait and see what actually comes out in the budget.

And I think you said international is half the revenues. Can you say what that was a year ago?

I think a year ago it was 60% to 75% -- U.S. government was 60% to 75%.

So 60-40?

60-40, yes.

Got it. Got it. And then lastly, I know you kind of touched on it also. how is the pipeline looking now? I guess, qualitatively, maybe just not quantitatively. Are you talking to a large increase of new customers? And are these customers willing to spend much -- well, can you charge them much more per image than you had kind of historically?

Yes. The quality of the pipeline is excellent, types of customers that we're engaged with and then the scope of services that range from long-term Gen 3 subscription services to these types of sovereign programs that we're successfully executing on in places like India and Indonesia. So I'll say both quantitatively and qualitatively, we're very pleased with where the pipeline is and how it's growing.

[ id="-1" name="Operator" /> The next question is from the line of Austin Moeller of Canaccord Genuity.

Just my first question here. Does the shutdown affect the timing of government customers being able to use the early access program for Gen-3?

Not affected at all as we mentioned, we closed a 7 figure contract recently for the government to begin accessing Gen-3. So that's moving ahead.

Okay. And you've already done this with some customers, but how do you think about the TAM opportunity for building and operating exclusive remote sensing satellites for them as a service versus building the satellites for your own fleet and then providing customers with access to a Spectra subscription?

I think we're seeing pretty strong demand for both. There's really a couple different models. One is where customers want to the satellites, but we fly them for them using our Spectra platform and ground network. And that is a form of a sovereign capability. And then there's another variant where it's fully owned and operated and run within a customer's environment.

And then you have a hybrid approach where customers are buying satellites from us through one of those first 2 models, but also bundling and subscription access to our Gen-3 commercial constellation. So we're finding that what customers are finding attractive is they get the benefit of a sovereign capability very quickly, that we can pull satellites and deploy software that already exists.

And then they get the benefit of our commercial constellation, which is providing very high-frequency monitoring capability. Our -- we see the bundling of this as being a pretty exciting opportunity for us.

[ id="-1" name="Operator" /> And your next question is from the line of Greg Burns of Sidoti.

Can you just talk about maybe some of the non-government opportunities? I know you announced an expansion of a contract for non-earth imaging. How much of an opportunity are incremental services like that for you, and how should we think about maybe some of the commercial opportunities for the business to find growth outside of the government marketplace?

Yes, I think we're continuing to see traction on our non-Earth imaging capability. We just renewed a 7 figure contract, subscription contract for that. I think relative to commercial, we'll look to see that starting to expand later next year as we get our baseline constellation deployed and are able to service those types of customers with a high frequency Gen-3 capability. But for now, we're staying highly focused on this opportunity in the U.S. and international government sector.

Okay. And then just, in terms of the guidance, I know you maintain the ranges, but should we be thinking about you coming in towards the low end of those ranges? I mean are the top end still feasible? Or is it -- how should we think about that just because it implies a pretty significant step-up in the fourth quarter?

It does. And as I said this is pretty consistent in the way that we. performed in the fourth quarter over the past couple years. We are expecting a major step up in contracts that we already have in place. You've seen some of the announcements and then we are working a number of fairly large contracts right now that we expect to close shortly. The wide range really is accounting for the timing of these deals. So that's why we're maintaining that range at this point.

Okay. And are the step-ups tied to the Gen-3 satellites? You need to launch, like, is that -- the trigger like the Gen-3 up in orbit?

No, I don't believe any of the deals that we have in play right now are relying on us to launch satellites in the coming months.

[ id="-1" name="Operator" /> [Operator Instructions] And your next question is from the line of Dave Storms of Stonegate.

Just want to start by asking if you could give us a little more detail on the sales that you're expecting in the 4Q that will get to the guidance. Is that expected to continue to be primarily international? Is there any Gen-3 versus Gen-2 components? Any more detail on that would be great.

Yes, I think primarily, these are international deals. We are seeing -- we have a number of opportunities in the U.S. government that are in -- that are active right now, but that's been slowed due to the shutdown. But the range that we're talking about is primarily tied to international contracts.

Perfect. And just thinking about those international contracts, should we expect -- if your backlog right now is about 90-10 international versus domestic, historically, revenues have been 40-60 international versus domestic. Where do you think that normalizes out on a revenue level? Do you think it shakes out to more 50-50 in the near future? Or do you think international continues to grow proportionately?

Well, now we're about 50-50 coming out of the third quarter. From what we can see in our backlog and the pipeline, we're expecting the international to continue its growth in that trend, and '26 will likely outpace the contribution from the U.S. government.

Understood. Appreciate that. And then just one more, if I could. Thinking about the software side of Gen 3, what are you seeing in terms of attracting and retaining AI talent as you continue to put these satellites up in the air?

Yes. We've been very successful in attracting AI talent. Dave, as you know, we've been investing in our AI capabilities, infrastructure, training and model development and deployment in real-time environments now for 10 years. And we built a proprietary capability that's a competitive advantage. And you can see that playing out as we're winning -- we're successfully winning contracts based on that capability at a point when we see others just outsourcing their AI to third-party platforms.

So we feel that when you combine this proprietary AI, which is very high performance in real time with the satellite constellation, it's a really significant differentiator in the market, and we're bundling those things together, and we're getting very positive response from customers for that capability.

[ id="-1" name="Operator" /> And your next question is from the line of Caleb Henry of Quilty Space.

First one is, can you talk about how the average contract value for Gen-3 compares to Gen-2? And are you seeing -- I assume because of the international mix, new customers? Or are we talking about existing customers upgrading more so?

Yes, I think what we're experiencing is we're seeing open the contracts for winning and the deals that are in our pipeline is a pretty market step up in the overall contract values, both in terms of the size of the contracts and the duration. They're all turning to be much larger and multi-year type arrangement.

So -- and we're -- I think, again, Gen 2 was an exceptional capability to demonstrate the performance of a high-frequency constellation. Now when you bring in very high resolution with the type of AI with a satellite of this performance and economics, the attractiveness of that is being reflected in the pipeline and the structure of these deals.

Can you talk about how revenue recognition compares for international customers versus U.S. government? Is that something that's roughly at the same speed? Or is that faster or slower with different compliance requirements?

I don't think there's a difference between U.S. and international. It's just dependent on the structure of the contract. Imagery tends to be very stable as a subscription. And then we've always had these other projects under our professional engineering and services line that tend to be milestone driven. But I don't know, Henry, do you want to comment on that?

Yes. I mean whether it's an international contract or U.S. government, it's imagery and analytics revenues tend to be subscription-based so kind of smooth and easy to predict. The professional engineering services, as Brian said, they tend to be more milestone and lumpier. And those tend to be more internationally focused.

And then how are you thinking about leverage? And what do you have in terms of a midterm target there?

Tyler, I mean, we just raised the convertible notes, and we're quite comfortable with the liquidity that we have on the books at the moment. So I think we're in a pretty good position at the moment.

[ id="-1" name="Operator" /> And at this time, there are no further questions. This does conclude BlackSky's third quarter 2025 earnings conference call. Thank you for joining the call today.

Good morning, ladies and gentlemen, and welcome to BlackSky Technology Second Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note that this conference call is being recorded.

I would now like to turn the call over to Ali Bonilla, BlackSky's Vice President of Investor Relations. Please go ahead, Ali.

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 financial results and outlook for 2025. 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 August 21st. 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 certain statements made during today's conference call regarding our future plans, objectives and expected performance, including our financial guidance for 2025, are forward-looking statements. Actual results may differ materially as these statements are based on our current expectations as of today and are subject to risks and uncertainties, including those stated in our Form 10-K. We encourage you to review our press release,

Form 10-K and other 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 by applicable law.

In addition, during today's call, we will refer to certain non-GAAP financial measures, including adjusted EBITDA and adjusted imagery and software analytical service cost of sales. A reconciliation of these non-GAAP financial measures to their most comparable GAAP measures are included in today's accompanying presentation, which can be viewed and downloaded from our Investor Relations website.

At this point, I'll turn the call over to Brian O'Toole. Brian?

Thanks, Ali, and good morning, everyone. Thank you for joining us on today's call.

Beginning with Slide 3. I'm pleased with our strong execution across many aspects of our business during the quarter. Building on the accomplishments that we have achieved so far this year, we have never been in a better position technically, operationally and financially to capitalize on the growing global market opportunity for our real-time space-based intelligence solutions.

Our new Gen-3 satellites are delivering exceptional performance and when combined with our industry-leading Spectra platform and AI capabilities, we are winning new contracts and expanding our customer base around the world. With the recent closing of our upsized debt refinancing, we strengthened our balance sheet and improved our liquidity, which now puts us in a position to unlock even more future growth opportunities.

This strong financial position is further supported by over $350 million in funded backlog. most of which is from a growing and diverse international customer base for our Gen-3 services. As we continue to deploy our Gen-3 Constellation over the coming months, we expect to continue this momentum as we add new customers and grow our services with existing customers.

We are continuing to innovate across a strong and vertically integrated portfolio of space technologies that include proprietary AI, software and advanced satellite design and manufacturing capabilities. And finally, we are accelerating our investments for the future as evidenced by our recent announcement of a new Arrow Constellation, which is a new growth and market expansion opportunity for BlackSky.

Now let me share some recent highlights as shown on Slide 4. First, as an example of our industry-leading AI and space-based monitoring solutions, we were awarded a multiyear contract with the National Geospatial Intelligence Agency, or NGA, under the Luno A program valued at up to $24 million. We have a long history of supporting NGA and are pleased to have received this delivery order and to continue to assist their global monitoring needs.

Second, we are seeing significant demand and growing traction for Gen-3 services from a diverse international market. And as a result, we signed early access agreements in the quarter with multiple international defense sector customers. We now have customers around the world accessing and using imagery from our first Gen-3 satellites with more customers expected to come online as we commence general availability and full commercial operations of Gen-3 services later this year.

Third, in June, we launched our second Gen-3 satellite, which began delivering very high-resolution imagery within just 12 hours after launch. The speed at which these satellites are collecting imagery and being commissioned into commercial operations is setting a new industry standard. This achievement is a testament to the differentiated performance of BlackSky's vertically integrated space, AI and software technologies.

Fourth, we remain on track to have six Gen-3 satellites on orbit by the end of this year. To that end, we're excited that our next Gen-3 satellite is in the final testing phase and getting ready to ship to the launch pad in the coming weeks. And finally, we successfully raised $185 million in an upsized convertible note offering, which increases our liquidity, strengthens our balance sheet and puts us in a position to unlock additional revenue growth opportunities.

Henry will go into more details on this transaction later. These highlights continue to demonstrate the momentum in our business and how our real-time mission-critical space-based intelligence solutions are gaining traction worldwide. I would now like to share some more details on the operational highlights from the quarter.

Turning to Slide 5. We're pleased to have been awarded a 4-year delivery order for facility operational monitoring under the Luno A program with NGA valued at up to $24 million. This win further validates BlackSky's expertise and capabilities to deliver AI-enabled dynamic monitoring solutions. By employing leading-edge automated object and pattern of life change analytics, we are providing customers with new, timely and relevant insights that are critical to their operations.

Our AI-powered Spectra platform is monitoring strategic military and economic facilities worldwide. enabling customers to detect and anticipate anomalies in activity at ports, airfields, rail yards and other key infrastructure with unmatched speed, scale and efficiency. BlackSky is now monitoring more than 30 million square kilometers of the earth surface and delivering advanced insights to geospatial analysts within minutes.

Securing this Luno A task order continues BlackSky's long track record of success, delivering commercial real-time AI-enabled monitoring capabilities to NGA in support of U.S. national security needs. We are winning contracts like this because of our proprietary AI capabilities, which are becoming a differentiator and a competitive advantage in the market.

Moving to Slide 6. We're seeing international demand for BlackSky services accelerate as Gen-3 has been validated and is coming online. And we remain focused on securing multiyear contracts with major customers around the world. In the second quarter, we won a multimillion-dollar contract with a major new international defense customer. This multiyear contract combines immediate Gen-3 and Gen-2 subscription-based imagery and analytics with ground segment modernization services.

This customer will have guaranteed tasking ability for dynamic monitoring services over specific areas of interest using BlackSky's automated and AI-enabled Spectra platform. In addition, BlackSky will upgrade the customer's existing ground station and mission operations center with direct downlink and uplink communications capabilities for faster, locally controlled intelligence.

This type of infrastructure investment illustrates the customer's commitment to employing BlackSky services for years to come. We also continued our expansion into new markets, securing a new Latin American Defense and Intelligence Agency customer. This agreement includes immediate on-demand subscription-based access to our Gen-3 and Gen-2 monitoring services as well as access to our archive data and the ability to order third-party commercial constellation data through the BlackSky Spectra platform.

This customer will gain rapid visibility into irregular activities that are taking place at certain strategic locations by monitoring vehicle, vessel and aircraft movements as well as important migration changes. We're pleased to support Latin American defense agencies with AI-driven intelligence at the tactical edge to assist their decision-making needs and efforts to combat transnational organized crime.

In Q2, we also signed early access agreements for Gen-3 services with multiple allied defense customers. These customers are now using Gen-3 imagery in their daily intelligence operations. And when combined with Gen-2 imagery, are improving the speed of analysis and opening a new expansive set of mission solutions.

These initial contracts are designed to scale in size and volume as capacity for Gen-3 services increases over time as we deploy the baseline constellation over the coming months. This strong international growth and demand is coming at a time when we are seeing near-term uncertainty from the U.S. government's fiscal year 2026 budget, which includes an expansive agenda from the new administration that is working its way through Congress.

It's important to note that about 85% of our funded backlog of over $350 million is from international customers and for Gen-3 services. As you know, we have been investing in international expansion over the past few years, and this is now paying dividends as we have and continue to grow this long-term customer base.

With the strong demand for Gen-3 related services and satellite solutions, we have limited our U.S. exposure to a few large U.S. government contracts and annual appropriations uncertainties. We believe the long-term opportunities with the U.S. government remains strong as BlackSky's capabilities are aligned to the administration's agenda of increased national defense, leadership in space and the use of cost-effective commercial solutions for government programs.

New commercial acquisition strategies in the space force and emerging opportunities for programs like Golden Dome offer long-term opportunities for BlackSky -- which we believe we are well positioned to capitalize on with our portfolio of Gen-3 satellites and manufacturing, AI and real-time software capabilities.

The acceleration and adoption of space-based intelligence solutions has never been more important as the speed of global change is driving the need to real-time and actionable insights across governments and businesses worldwide. Now let's look at some recent examples where customers are using the image quality and analytic insights being delivered by our Gen-3 satellites and the rapid response of our constellation to monitor and respond to global events.

Moving to Slide 7. Let's start with the recent bombing of the Nuclear Research Center in Isfahan, Iran. As you can see in this image, we're able to clearly show the detail and extent of destruction to buildings in this complex following the missile attacks in June. This type of imagery provides critical intelligence assessments and insights into these types of operations.

On the next slide, we captured an image of the UG Naval Base in China, which is reportedly home to China's first aircraft carrier. With our AI-enabled Spectra tasking and analytics platform, our customers are gaining persistent access to high cadence monitoring over areas of strategic importance, allowing them to detect damage patterns, track movements and inform operations in real time. These are just two examples of the thousands of images we deliver to customers every day as they rely upon BlackSky for space-based intelligence to support their mission-critical national security needs.

Moving to Slide 9. We successfully launched and commissioned our second Gen-3 satellite this past quarter. The satellite began collecting its first images within 12 hours after launch, setting a new standard for achieving first flight and entering into operations. With the second Gen-3 satellite performing as well as the first, we remain on track to meet our goal of having six Gen-3 satellites by the end of this year and having eight in Q1 of 2026. Our third Gen-3 satellite is now in the final testing phase, and we expect to ship the satellite to the launch site in the coming weeks.

As I mentioned earlier, several customers have already signed agreements to receive early access to our Gen-3 imagery and analytics services and are now eagerly awaiting to receive broader access when we begin general commercial availability in Q4. In fact, due to the exceptional performance of these satellites, some customers requested and started using this imagery ahead of schedule in support of their operations. As a reminder, many of our existing major contracts are structured to incrementally expand as additional Gen-3 capacity comes online.

Turning to Slide 10. In addition to moving ahead with the Gen-3 Constellation, we are also investing in the future, leveraging our recent acquisition of LeoStella to further vertically integrate satellite production into our operations and accelerate new and advanced small satellite solutions.

During the quarter, we announced Arrows, a wide area mapping and global change monitoring constellation, which is being designed to address an emerging market opportunity for a wide range of government and commercial digital mapping applications. This new constellation provides an opportunity to significantly expand our total addressable market for the delivery of high-performance and cost-effective digital mapping services worldwide.

Arrows will deliver large area multispectral imagery at scale, supporting applications like digital mapping, maritime awareness, environmental and agriculture monitoring and 3D digital twin databases. The Arrow satellites will be different from Gen-3 satellites in that Gen-3 is more like a point-and-shoot camera for high-frequency collection of strategic locations like airports, maritime ports and border crossings, whereas Arrows collects wide swaths of images for mapping applications like Google and Apple Maps.

We made a decision in Q2 to accelerate Arrows to meet a supply gap that we expect will impact the market starting around 2027 as legacy satellites that provide these services today are now beyond their expected life and are projected to age out of service in that time frame. This anticipated decrease in wide area mapping capacity is a concern for many customers as it will likely lead to lower collection rates, higher prices and unreliable service.

As a result, we are accelerating the Arrow initiative with plans to start launching these satellites as early as 2027. It's important to note that we anticipated this market opportunity and began to invest in elements of the Arrow system over two years ago, and this was a key factor in our acquisition of LeoStella.

Arrows will also leverage a significant amount of core capabilities in Gen-3, which with the recent success clearly demonstrates the performance and maturity of this technology and our ability to rapidly deploy high-performance satellites at disruptive speeds and economics.

The Arrows constellation is an exciting new opportunity for BlackSky, and we look forward to combining our high-frequency site monitoring capabilities from our Gen-3 Constellation with the wide area mapping capabilities from Arrows to unlock an entirely new class of scalable AI and space-based intelligence solutions.

With that, I'll now turn it over to Henry to go through the financial results. Henry?

Thank you, Brian, and good morning, everyone.

Starting with Slide 12. Total revenue for the first half of 2025 was $51.7 million, an increase of $2.6 million or 5.2% over the same period in the prior year. As we discussed on our first quarter earnings call, we had a large contract award in the first quarter that pulled revenue forward from the second quarter. And as such, we feel it is more appropriate to discuss the full first half performance rather than just the second quarter in many instances.

The main driver of the revenue growth was from higher professional and engineering services as timing of these contracts can vary from period to period. Revenues from our high-margin Imagery and Analytics business increased in the second quarter, driven by greater imagery orders and subscription growth for these services.

Keep in mind, we are only providing initial Gen-3 imagery at this time to a small number of customers through early access agreements. However, we expect for these advanced services to begin ramping up once we start general availability to all customers in the fourth quarter.

Moving to Slide 13. Our adjusted imagery and analytics cost of sales for the first half of 2025 was $7.2 million, up only $400,000 compared to the same period in the prior year. As a reminder, adjusted imagery and analytics cost of sales excludes stock-based compensation, depreciation and amortization expenses as we believe this measure represents a more accurate picture of our business without having these noncash items obscure the underlying performance.

Turning to Slide 14. Our adjusted EBITDA for the first half of 2025 was a loss of $3.4 million compared to an adjusted EBITDA of $3.5 million in the prior year period. The year-over-year decrease was primarily due to higher SG&A expenses from LeoStella, which includes investments in Arrows. Excluding these expenses, we would have reported a positive adjusted EBITDA of approximately $2.2 million for the first half.

We will continue to invest in Gen-3 capabilities as planned in order to increase our Gen-3 capacity and unlock revenue growth from existing and new customers. We remain focused on judicious investments and cost management to achieve long-term margin improvement and adjusted EBITDA growth on a path toward free cash flow operations and long-term profitable growth.

Turning to Slide 15. As announced in July, we completed a $185 million 8-year convertible note offering. We're happy that interest from investors was exceptionally strong, which led to an oversubscribed book and an increase in the offering size, demonstrating a clear vote of confidence in BlackSky's long-term potential.

We used part of the proceeds from the convertible note to repay and terminate BlackSky's secured note of $103.1 million and our commercial bank line of $10.2 million. The remaining net proceeds of approximately $65.9 million is targeted for general corporate purposes and strategic investments.

This transaction enabled us to pay off higher interest debt and replace it with a note at an 8.25% interest rate, which is payable to noteholders semiannually in February and August with a maturity on August 1, 2033. With this convertible debt and our path towards free cash flow, our balance sheet and liquidity positions are now much stronger and they enable us to unlock future growth opportunities.

Let's move on to our cash and liquidity position, as shown on Slide 16. We ended the second quarter of 2025 with $94.9 million of cash, restricted cash and short-term investments, which is more than double our cash balance from a year ago. This amount includes $35.8 million in net proceeds from issuing 3.1 million shares of common stock in the quarter under our ATM program. Following the end of the quarter, as we just discussed, we successfully completed a $185 million upsized convertible note offering.

In addition, in July, we had one warrant holder exercise a portion of their holdings, yielding us $10.8 million of new cash. Our ending cash position, together with the net proceeds from the convertible note and warrants, coupled with our other sources of liquidity, namely our unbilled receivables of $42.5 million and available launch financing of $13.5 million brings our adjusted June 30 liquidity position to nearly $230 million. This is a significant increase of $130 million of liquidity from the second quarter of 2024.

Moving to Slide 17. As we previously disclosed in an 8-K filing on July 17, we adjusted our guidance for the full year 2025 to be between $105 million and $130 million in revenue and between breakeven to $10 million in adjusted EBITDA. Given our cost structure and as we grow our revenues in the second half, we anticipate with our operating leverage to get back to positive adjusted EBITDA in the second half of the year, enabling us to achieve this guidance range.

Finally, we maintained our full year 2025 guidance for capital expenditures of $60 million to $70 million. The changes made were driven by near-term volatility from the U.S. government budget process and timing related to some international contracts. There is also the likelihood of a U.S. continuing resolution, which historically has slowed the awards of new and expansion government contracts.

As a result, any near-term U.S. government reductions have now been factored into our guidance and also reflects the decision we made in Q2 to accelerate our investment in the design of the new Arrow initiative in order to prepare for the anticipated supply gap coming to the market in a few years. Despite this near-term volatility, we remain confident in our long-term prospects.

In summary, we're pleased with the successful convertible note financing, which provides us with additional financial flexibility to continue investing in our business to pursue long-term opportunities.

With that, I'll now turn it back over to Brian for some closing remarks. Brian?

Thanks, Henry. In closing, we are pleased with the progress this quarter as we continue to execute across all aspects of our business. Our accomplishments so far this year have us well positioned to capitalize on the growing global market opportunity for our real-time space-based intelligence solutions and have us on a path toward long-term profitable growth.

Our new Gen-3 satellites are delivering exceptional performance and when combined with our industry-leading Spectra platform and AI capabilities, we are winning new contracts and expanding our customer base around the world. A strong backlog from these long-term and diverse international customers provides strong out-year revenue visibility and opportunities of expansion as Gen-3 services come online later this year.

As we continue to deploy our Gen-3 Constellation over the coming months, we expect to continue this momentum as we add new customers and grow our services with existing customers. With a strong balance sheet and improved liquidity, we are now in a position to unlock even more future growth opportunities. We are continuing our investments and innovation across a strong and vertically integrated portfolio of space technologies, which has us well positioned to capitalize on rapidly emerging market opportunities.

And finally, we are accelerating our investments for the future as evidenced by the recent announcement of a new Arrow Constellation, which is a new growth and market expansion opportunity for us. In summary, we are well positioned and have set the stage to meet the rapidly growing global demand for space-based intelligence solutions for years to come.

This concludes our remarks for the call, and we'll now take your questions.

[Operator Instructions] Our first question comes from Tim Horan with Oppenheim.

Can you give us a sense of when you turn on the third-generation satellites for general availability, what that kind of looks like in terms of what's it mean for the revenue trends and volume trends? Like how important is that versus what you're doing right now with limited availability?

Yes, Tim, thanks for the question. The way to think about it as we get to commercial availability in Q4, we'll begin to incrementally start ramping revenues, both from existing contracts that we already have in backlog and then new agreements that we're signing over the course of the summer.

And so, you'll see -- starting to see that incremental revenue over time as we deploy the constellation. I should also note that the contracts we're winning also include a combination of Gen-2 and Gen-3 services. So, it's the integrated constellation that is continuing to see strong demand and is part of the overall revenue growth trend.

And just on the U.S. government spending. So, apologize, but get into a little bit more detail on what you're seeing right now? Are you starting to see new orders out of them, new purchase orders? Or what will be the catalyst to kind of cause that to turn back on?

Well, I think we're seeing the effects of the current budget process and an anticipated continuing resolution. So we've looked at a number of -- have good visibility into a number of our contracts and opportunities and have looked at a number of those scenarios, and we factored that into our guidance.

Great. And can you talk about the pipeline for new contracts at a high level? Yes, can you maybe just talk about any new awards or amounts in the quarter if you were to add it all up? I know you kind of gave those details last quarter would be helpful.

Yes, I can comment on the general trends we're seeing. I think with the success of Gen-3 and the validation of the quality of the imagery and the performance of the satellites. We're now seeing a step-up in interest and demand is reflected in some of the early access agreements that we're signing, and we're also seeing a growing pipeline of out-year opportunities coming from that, not only from the imagery and analytics elements of that, but also for satellite solutions similar to programs that we announced previously in places like India and Indonesia.

Very helpful. And I guess, lastly, do you have a sense of how your image quality delivery analytics compares to the competition? And I guess, thinking the pricing or other alternatives that your customers have, how much of the competitive advantage is this now?

Yes, I'll say at 35 centimeters, it's comparable to other systems that are about 5x the cost. And so when you look at the performance and the economics and then when you combine that with our Spectra and AI capabilities, it's a highly differentiated offering relative to frequency, access to strategic locations in terms of monitoring and then the delivery of actionable intelligence at low latency. So we're highly differentiated not only in the satellites but across our entire platform.

Our next question comes from Jaeson Schmidt with Lake Street Capital Markets.

Looking at that backlog number you gave, Brian, not looking for specifics, but at a high level, can you give us a sense of how much of that relates to Gen-3 capacity?

I would say -- Jason, thanks for the question. I think there's a significant portion of that backlog is related to Gen-3 imagery and analytics and related satellite solutions and some of those larger contracts that we announced prior.

Got you. And then looking at the outlook or updated outlook for this year, the puts and takes, the high end versus the low end of that outlook, is it really based on a few programs? Or is it sort of just broad-based on thawing in the U.S. government space? How should we think about that?

Considers both. I think, as I said, we factored in -- we got good visibility into a number of U.S. government scenarios. But also keep in mind, we typically have a strong second half of the year. And then some of these large deals that come in, the timing is sometimes difficult to exactly nail down. So, we've always had this kind of -- maintained a wider range as we've gotten into the second half.

Our next question comes from Jeffrey Van Rhee with Craig-Hallum Capital Group.

This is Daniel Hibshman on for Jeffrey Van Rhee. Maybe just one opening for Brian. On the early access programs for Gen-3, maybe you could explain to us a little bit better what those look like. We've had multiple of those announced.

How does an early access program compare or differ from a full-scale contract? And then is early access essentially just a small operational contract? Or is there a fundamental difference in how the imagery is used in early access? And then what are the steps it takes for an early access program to become a sort of standard operational full-scale contract?

Yes. Thanks, Daniel. The way to think about early access is it's typically a smaller contract to just access the imagery. It does not typically come with a full-service level agreement like we would provide under commercial operations. So, it gives customers early access to assess the imagery and the experience of accessing that imagery through our Spectra platform.

Those typically transition into longer multiyear contracts. And also keep in mind, we only have a couple of satellites up right now. And so, as Henry had mentioned, when we get to 4 to 6, that starts to give us meaningful revisiting capacity around a commercial offering. So that ramps up as well.

Okay. That's helpful. And then one other just on Luno for me. Really great opening win, interesting that, that facility is monitoring task order you got much larger than Maxars, and I think that's the largest task order in either Luno A or B yet that you guys won. So, encouraging. As we look forward, is there -- would we -- you expect that, that $24.4 million task order, that's sort of the primary award to expect out of Luno over the 4-year duration of it? Or would you expect to potentially layer in other Luno A awards as well? And then similarly for Luno B, should we be thinking of Luno B as being a sort of similar scale of opportunity? Or how should we think about B relative to A?

Yes, Daniel, you're right. We believe it is the largest task order awarded under the new Luno contract vehicle. The -- what we're seeing is there's a pretty wide range in the scope of these Luno task orders. So, we kind of deal with them as those task orders get put up for bid in the market.

So, we're excited about this one in the sense that it is a multiyear long-term type of task order that provides -- as that -- those options get turned down over the years, provides higher visibility of recurring revenue around our high-margin imagery and analytics services. So, we're really happy to see that award, and we're happy to see the trend that seems to be coming out of the Luno program now.

The next question comes from Austin Moeller with Canaccord.

Just my first question, do you plan to offer Arrow Imagery in Spectra bundled with Gen-3 imagery? Or would it be a premium add-on to a subscription for a customer?

Thanks, Austin. It's actually a good question. There's a clear demand just for this wide area mapping services. So, there'll be offerings related to that. But also, it's really -- it's an important point in that when you look at Gen-3 operating in concert with an Arrow capability, you can start doing broad area monitoring and change capability that tips and queues high-frequency Gen-3 collection.

So that capability being fully integrated by a single company really hasn't been in the market before. So, we see that as an opportunity that customers will take advantage of, particularly as you start to use AI to do exploitation on broad area change and then couple that with doing high-frequency change monitoring and other higher order analytics.

And what commentary have you heard from the congressional appropriators on the funding for the NRO commercial imagery budget?

Right now, it's in the congressional markup process. So that's very dynamic. Congress is in recess right now. So we'll see how this plays out over the coming months, but it's still very much a dynamic situation.

Our next question comes with Greg Burns from Sidoti & Company.

In terms of the Arrow Constellation, what -- how many satellites would make up a full constellation? And what is the cost to build and launch one of those satellites?

Yes. We haven't -- when we get closer to deployment, we will share more of those details. I think one thing you can -- it's safe to say is the types of compelling economics that we're experiencing with Gen-3 would apply to the Arrow System. So, we see that bringing a very competitive imaging capability at significantly more favorable economics that's in the market today.

Okay. And then in terms of your -- the full year revenue guidance, what is the split between imagery and engineering?

About 70-30 meaning analytics sort of.

Okay. And just lastly, I just wanted to follow up on the government -- U.S. government spending outlook, just to better understand the dynamic there. Because I think before this uncertainty, the expectation would be that they would step up spending and Gen-3 was coming online and I'm assuming they would start taking those services.

Is the implication now in the outlook and the guidance that they are not going to be using the Gen-3 satellites, like the funding is not going to be there for that? And is there a potential for them to cut back on Gen-2? I just wanted to understand like what the actual outlook is in terms of their consumption based on what you're seeing now?

Yes, I would say a couple of things. I think Obviously, it's -- this is dynamic, so it's unclear what's actually going to manifest in the actual budget, but we may not know that until early next year. There is significant demand for Gen-3 capability. So we anticipate the government will want access to Gen-3 as well as Gen-2.

Our next question comes from Caleb Henry with Quilty Space.

A couple of questions. One, I note that Arrow is still a little way out, but can you give any sense of the resolution the satellites will have, revisit size and -- or excuse me, revisit rate? And will the satellites be roughly the same size? Or are we talking about a much bigger or smaller spacecraft?

As we -- without getting into specifics, this will be a very high-resolution multispectral satellite. We'll size the constellation based on demand in the market, but targeting a reasonable refresh and revisit rate. As I mentioned, we anticipated this opportunity.

So, we had started investing in some of the technologies for the system a couple of years ago, and that was behind our -- one of the factors behind our acquisition of LeoStella. So, it will be a different payload for sure, but it will also take advantage of some new technologies in the bus and other things that we've been developing.

Okay. And then your presentation this morning references strategic investments as a potential use of proceeds from recent funding raise. Can you talk any about what types of things BlackSky would be interested in as a strategic investment, especially since Arrow is being built internally and you already have LeoStella.

Yes. I'll just talk more broadly. Obviously, we are investing significantly in AI. We are also seeing emerging opportunities for things like Golden Dome that can leverage aspects of our technology stack and space. And as those opportunities become clearer, that may be an impetus to invest more. Arrows is a strategic investment. So, we see that as a new market and growth opportunity out in that 2027 time frame.

So, I still want to emphasize that we remain highly focused on growing our EBITDA margins and getting to free cash flow operations here in the near future. So just because we've secured the cash and liquidity on the balance sheet, it does not mean we're going to be changing significantly our overall operating or investment profile.

Okay. And then my last question was just about the international business. 85% of backlog is much higher. I think last year this time, it was 40%. And so, I know BlackSky has invested a lot in that area. I'm curious if there's anything else you see helping you grow in those markets. And if this is kind of where you expect the levels to -- things to level out or if you see international kind of continuing to grow faster than domestic?

We're seeing it growing faster than domestic for sure. absent what happens with some of these larger programs like Golden Dome and some of the Space Force opportunities. But certainly, we see international growing faster and in some cases accelerating. So that's going to create new opportunities for us in regions across the region -- different regions across the world.

Our next question comes from Robert Lynch with Stonegate Capital Partners.

Just wanted to tie back to that 70-30 revenue split you mentioned earlier. P&E revenue was a bit lumpy this quarter. Any sense of if you'll get that pick up in the back half of the year tied to any specific milestones? Or is this a broader shift towards recurring imagery and analytics driving the mix change?

I think for now, you can assume that appropriate ratio of Imagery and analytics to professional engineering services. There's still some lumpiness in those professional engineering contracts as they're all different and have different milestone-based delivery. So, we do anticipate kind of continuing quarter-to-quarter variability related to that revenue line.

Okay. Great. Just how are you seeing contract terms shift with Gen-3 going up? Is there competition to lock in longer terms? Or what does that landscape look like going forward into the second half here?

Yes. I think we're -- the trend is to lock in longer-term agreements. As you know, in the first half, we signed a significant multiyear agreement. The two contracts that we announced just this past quarter were multiyear agreements.

And so that's generally been the trend and the historic performance of these types of customers once they integrate their -- these types of services into their operations, they tend to want to secure long-term recurring revenue contracts and ensure that they have the capacity they need over the regions of interest. So, we're seeing that trend, and we're seeing that pick up now that Gen-3 is working and operational.

At this time, there are no further questions. This concludes BlackSky's Second Quarter 2025 Earnings Conference Call. Thank you for joining the call today. Thank you.