Earnings Call Transcript - BKSY Q4 2025

Operator, Operator

Ladies and gentlemen, thank you for being here, and welcome to the BlackSky Technology Q4 2025 Earnings Call. I will now turn the call over to Aly Bonilla, Vice President of Investor Relations. Aly, please proceed.

Aly Bonilla, Vice President of Investor Relations

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?

Brian O’Toole, CEO

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 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 inter-satellite 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?

Henry Dubois, CFO

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 O’Toole, CEO

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, Operator

Your first question comes from Edison Yu with Deutsche Bank.

Edison Yu, Analyst

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?

Brian O’Toole, CEO

Sure. Thanks for the question. Yes, this is 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. This means that these types of contracts support both aspects of our business. In this case, we recognized a significant portion of revenue in the fourth quarter due to immediate deliveries. The advantage here is that we could pull a satellite off the production line and accelerate the customer's schedule. We will proceed according to their timeline to launch the satellite as quickly as possible, either later this year or early next year. We are observing a trend where many of these customers start with a few satellites but aim to significantly expand over time.

Edison Yu, Analyst

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?

Brian O’Toole, CEO

Yes, I believe we are developing a very strong pipeline. We are observing this trend in various regions of the world and with multiple customers in each region. We view this as an opportunity for total addressable market expansion. To provide some perspective, less than five years ago, there were only about 12 to 15 countries with sovereign space capabilities. Now that number has increased to over 60. Many of these countries are just beginning to develop their capabilities. This represents a significant and growing market, and we have several customers entering with minimal initial capabilities that we can help advance in their long-term plans.

Edison Yu, Analyst

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

Brian O’Toole, CEO

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.

Operator, Operator

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

Jeff Van Rhee, Analyst

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?

Henry Dubois, CFO

We've got strong visibility. We do have a backlog of about $345 million, with nearly $75 million expected in 2026. Additionally, we have renewals that are not yet included in that total. This is our typical approach, and we have strong visibility to reach the low end and potentially the full range.

Jeff Van Rhee, Analyst

Yes. Just to clarify, is the low end based on what kind of new bookings you need to achieve that? Or is it already secured?

Henry Dubois, CFO

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.

Jeff Van Rhee, Analyst

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.

Henry Dubois, CFO

I would describe our historical performance as typically having around 40% to 45% of our revenue in the first half of the year, which is less than 50%, and then 55% to 60% in the second half. That's how I view it.

Jeff Van Rhee, Analyst

Got it. Okay. And then just last. On the Gen-3s, obviously, I think compared to your initial hopes, expectations, the timeline 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?

Brian O’Toole, CEO

Yes, Jeff, we're currently seeing strong performance from the first three satellites, which are exceeding our expectations. This positive performance has led to increased revenue in the fourth quarter and into this year. The next satellite is already at the launch site, and we aim to have 8 to 9 Gen-3 satellites in orbit by the end of this year. We're in a good position. We did identify an issue during testing on the previous satellite, but this is quite normal for the initial satellites. I want to remind you that during our Gen-2 constellation, we started with a similar launch pace, and eventually reached a point where we launched six satellites in just 20 days. So, we're on schedule, the satellites are performing well, and our production operations are increasing.

Jeff Van Rhee, Analyst

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

Operator, Operator

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

Timothy Horan, Analyst

Any updated thoughts on whether there is a point at which you achieve scale, like with 6, 7, or 8 satellites, or perhaps when there is more general availability and you see increased operating leverage? What do you consider to be the critical number for that?

Brian O’Toole, CEO

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 may keep in mind is the number of satellites is not indicative of revenue. There are 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.

Timothy Horan, Analyst

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 manufacture these satellites. Is that pretty accurate?

Brian O’Toole, CEO

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.

Timothy Horan, Analyst

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?

Brian O’Toole, CEO

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 into 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.

Operator, Operator

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

Jaeson Schmidt, Analyst

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?

Brian O’Toole, CEO

I think the way we view it is that these are typically 12- to 18-month sales cycles. In this case, we experienced a faster cycle, indicating a consistent trend regarding the length of the sales cycle.

Jaeson Schmidt, Analyst

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?

Brian O’Toole, CEO

It's exactly in line with our expectations and what we have modeled in our business plan. Keep in mind that we have increased the pricing alongside the transition from Gen-2 to Gen-3 with the improved 35-centimeter capability. Also, these Gen-3 satellites are producing imagery at a performance level similar to much larger and more costly satellites, some of which can be 10 times more expensive. This compelling economics enable us to offer our customers exceptional value at competitive prices while maintaining strong margin performance for the business.

Operator, Operator

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

Christopher Quilty, Analyst

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?

Brian O’Toole, CEO

Yes, Chris, thank you for the question. I'll address the first part before passing it to Henry. The revenue mix aligns closely with our historical performance, offering insight into the three components. We anticipate that space-based intelligence and AI services will account for approximately 60% to 70% of our revenues, as this is our higher-margin subscription segment. Mission solutions will likely fall around 25% currently, with expectations for growth. We believe this area may see a more pronounced increase due to larger contracts. Lastly, technology development programs have a longstanding presence for us, and we aim to maintain and grow them to roughly 15% of total revenue. Overall, there should be minimal change in the revenue mix, but we're providing clearer visibility.

Henry Dubois, CFO

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.

Christopher Quilty, Analyst

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?

Brian O’Toole, CEO

Yes, Chris, I wouldn't say we have a preference for one model over another. What we are doing is responding to how our customers wish to structure these contracts. As I mentioned earlier, in the mission solutions, we are essentially providing them with sovereign capabilities and control, which may include operational support and leveraging our commercial infrastructure. Additionally, we are bundling this with our commercial services to provide higher-performing revisit and real-time AI-enabled intelligence. There are various business models, whether it's a constellation as a service or a turnkey system. We have developed a strategy that allows us to be flexible and meet our customers where they are, supporting their journey as they expand over time.

Henry Dubois, CFO

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

Operator, Operator

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

Austin Moeller, Analyst

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?

Brian O’Toole, CEO

The U.S. government and other major governments have always maintained their own capabilities for critical national security needs, and this has been true for a long time. It's essential to recognize that the U.S. government has shifted several unique missions to commercial capabilities. These requirements have historically been assigned to EOCL, and previously, to EnhancedView and earlier contracts. We view our role not as competing with those systems, but rather as augmenting them. Our ability to innovate quickly allows us to provide a resilient augmentation capability. Importantly, all of our work is classified and shareable with our allies. Thus, it's not about competition; it's about complementing the specific missions designated for the commercial sector.

Austin Moeller, Analyst

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.

Brian O’Toole, CEO

It's still a classified budget line.

Operator, Operator

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

Scott Buck, Analyst

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?

Brian O’Toole, CEO

Yes, we're observing strong demand for mission solutions internationally, nearly in every major region including Europe, the Middle East, Asia Pacific, and Southeast Asia. The number of countries investing heavily in developing their own space capabilities for both national security and economic growth is increasing rapidly. Consequently, we have a solid pipeline globally. Regarding the question about what was left on the table, we previously discussed the effects of recent government budget changes that we addressed in August. Henry, would you like to elaborate on that again? I believe we have already shared those figures.

Henry Dubois, CFO

Yes. We previously discussed that the budget cuts and their impact resulted in a reduction of about $2 million per month starting in August, which totals approximately $10 million for the year. That's the information we've provided.

Scott Buck, Analyst

Great. I appreciate that. As we approach 2027, could you provide more details on how the rollout of AROS will function? Additionally, could you share insights on the revenue opportunity compared to the imagery business?

Brian O’Toole, CEO

The AROS satellite represents an opportunity for us to expand our total addressable market. Our Gen-3 capability focuses on high-frequency dynamic monitoring of strategic sites of interest. AROS is being designed to provide extensive digital mapping for large area change monitoring. This addresses the significant imagery demands and collection needed for platforms like Google Maps and supports next-generation AI developments and the creation of digital twins. AROS is specifically tailored to meet these requirements. The Gen-3 and AROS satellites will collaborate to offer valuable services to our customers who need both capabilities. Additionally, this presents a chance for commercial growth, especially in digital mapping and other civil markets that require this type of mapping. Thus, it is a satellite built for a new market opportunity.

Operator, Operator

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

William Healey, Analyst

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?

Brian O’Toole, CEO

Yes. I think I'll start and then hand it over to Henry. From the very beginning, we have been developing a platform that provides us with substantial operating leverage. As we advance the business beyond the fixed costs of running and maintaining it, we begin to see notable margin performance that positively impacts the bottom line for each additional unit of capacity that we sell. This is reflected in our EBITDA margin performance over the past few years as we've been monetizing that capacity from a mostly fixed operating base. Henry, would you like to add anything?

Henry Dubois, CFO

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.

William Healey, Analyst

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?

Brian O’Toole, CEO

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.

Operator, Operator

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

Gregory Burns, Analyst

I would like to follow up on the EOCL funding. I understand the budget is classified, so you might not have an exact figure. However, do you have any insight into whether the proposed cuts were implemented or if the funding has returned to historical levels?

Brian O’Toole, CEO

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.

Gregory Burns, Analyst

Okay. Is any part of your guidance range based on the level of revenue from EOCL returning to previous levels, or is that not included in your guidance and considered potential upside?

Brian O’Toole, CEO

We've adopted a very cautious approach to our forecast this year in comparison to EOCL, and we'll assess the situation as we progress through the second quarter.

Operator, Operator

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

Gregory Pendy, Analyst

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?

Brian O’Toole, CEO

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.

Operator, Operator

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

David Storms, Analyst

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?

Henry Dubois, CFO

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.

David Storms, Analyst

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?

Brian O’Toole, CEO

I think they're all a little different, Dave. It's hard to say, especially with customers who are doing this for the first time and implementing new acquisition programs. So my range for the sales cycle is really a general estimate. We'll see some go faster, and we'll see some take longer.

Operator, Operator

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