Satellogic (SATL) Q1 2026 Earnings Transcript

Image source: The Motley Fool.

DATE

Tuesday, May 12, 2026, at 8 a.m. ET

CALL PARTICIPANTS

• Chief Executive Officer — Emiliano Kargieman
• Chief Financial Officer — Richard Dunn
• Strategic Adviser — Vice Admiral Frank D. Whitworth III (U.S. Navy, retired)

Need a quote from a Motley Fool analyst? Email pr@fool.com

TAKEAWAYS

• Revenue -- $6.1 million, an 80% year-over-year increase, driven primarily by a $1.6 million rise in imagery ordered from new and existing data and analytics customers.
• Non-GAAP adjusted EBITDA loss -- $4.2 million, an improvement of 32% compared to the same period in the prior year.
• Net Cash from Operating Activities -- $0.2 million positive, marking the first positive net cash from operations in the company’s history, supported by advanced customer collections.
• Cash Balance -- $121.9 million at quarter end, up from $94.4 million, reflecting proceeds from a $35 million registered direct offering at $4.73 per share in January, offset by $5.6 million in capital expenditures for Merlin constellation development.
• Operating Loss -- $6.4 million, a 33% improvement from the prior year period.
• Noncash Fair Value Change -- $113 million non-operational, noncash charge below the operating line due to remeasurement of convertible notes, warrants, and earn-out liabilities triggered by the rising Class A share price.
• Net Loss -- $118.3 million, strongly affected by the above-described one-time noncash charge, per Dunn: "It has no bearing on the cash generation of the business."
• Segment Revenue -- Data and analytics (incl. Constellation as a Service) at $4.6 million, up $3 million versus prior year; Space Systems at $1.5 million.
• Geographical Revenue -- Asia Pacific generated $3 million (over eight times prior year), Europe contributed $1.1 million, Americas $2 million, and South America $0.1 million.
• Cost Structure -- Total costs and expenses declined 3% to $12.5 million; cost of revenues of $1.5 million (up 17%), engineering expense $3.1 million (up 24%), and SG&A roughly flat at $6.5 million, with increases offset by an $0.8 million decline in legal/professional fees.
• Depreciation Expense -- $1.4 million, a reduction of 48% reflecting fewer satellites with depreciable useful lives, though fully depreciated assets remain in use for image capture.
• Backlog/Performance Obligations -- $64.8 million total; $29.2 million expected within one year, $7.9 million in one to two years, $7.5 million in two to three years, and $20.2 million beyond three years.
• Convertible Notes -- Following early April’s partial conversion, principal reduced to $24 million, with five million shares issued as part of the process.
• Sovereign Contracts -- $18 million agreement with CEiiA (Portugal) for two satellites, $12 million agreement (April 30) with a defense customer for delivery of a NewSat satellite, and sale of NuSAT34 to Australia for submeter Earth observation capability.
• Aleph Observer Launch -- Product introduced in February; early commercial pilots signed and operational use reported across multiple customers monitoring dozens to hundreds of sites each.
• Merlin Constellation Development -- Fully funded with a $30 million, five-year customer contract; first launch set for October 2026, targeting daily one-meter global coverage and planetary-scale persistent intelligence, with rollout expected to conclude in H1 2027.
• Satellite Launches -- NewSat 53 and 54 launched on March 30, expanding in-orbit capacity.
• Recurring Revenue Shift -- Company notes a transition from project-based to recurring platform revenue as Aleph Observer gains adoption.
• Pipeline and Market Demand -- Space Systems pipeline sits "the pipeline we're seeing is growing very strong in Asia, Asia Pacific, in the Middle East, in Europe. Those are the areas where we're seeing most of the progress. Currently, our Space Systems pipeline sits just under $1 billion on opportunities that we're pursuing, and this is mostly obviously sovereign customers."
• Leadership Additions -- Vice Admiral Frank D. Whitworth III joined as strategic adviser; sales organization expanded with senior defense and intelligence talent.
• Technology/Unit Economics -- Patent-protected camera design captures approximately ten times more imagery per satellite at an all-in satellite cost of $1.3 million, described as "a fraction of the industry standard."

SUMMARY

Satellogic (NASDAQ:SATL) management cited the quarter as an inflection point, marked by historic top-line expansion and the company’s first positive net operating cash contribution. Substantial sovereign, defense, and government engagements—including rapid, in-orbit satellite sales—underline a strategy prioritizing commercial momentum, recurring revenue, and international diversification. The Merlin constellation’s funding and execution timeline were repeatedly affirmed, with clear customer contracts in place and no immediate capital needs signaled.

• The recurring revenue transition is accelerating as customers begin adopting platform-based monitoring rather than episodic image purchases, signaling a shift in industry procurement behavior.
• Satellogic’s vertical integration and cost position support its capacity to rapidly deliver satellites or responsive services without disrupting core data and analytics operations.
• Senior leadership appointments, particularly the addition of Vice Admiral Frank D. Whitworth III, reflect an explicit deepening in U.S. and allied defense ecosystem integration.
• Multi-region customer growth, with a pronounced expansion in Asia Pacific, is driven by strategic government demand for sovereign control over Earth observation capabilities.
• Large, episodic Space Systems transactions are expected to continue driving revenue variability, but management anticipates more linear scaling for analytics and subscription revenues as Aleph Observer matures.
• Sell-side questions on cash-flow sustainability received clarifications that future quarters may show some timing-related volatility as the business continues investing for scale.

INDUSTRY GLOSSARY

• Aleph Observer: Satellogic’s persistent monitoring subscription platform providing daily, high-frequency geospatial intelligence with integrated analytics.
• Merlin Constellation: AI-first, defense-focused satellite fleet built to deliver planetary-scale, daily one-meter resolution Earth imagery and near real-time analytics.
• Space Systems: Business segment selling turnkey satellites or in-orbit delivery to third parties, notably sovereign customers.
• Pushbroom Camera: Satellite imaging system enabling wide-area capture of high-resolution imagery through continuous, stabilized scanning.
• RPO (Remaining Performance Obligations): Contracted future revenue yet to be recognized, typically from multi-year satellite or data service agreements.
• NGA (National Geospatial Intelligence Agency): U.S. government agency responsible for geospatial intelligence supporting national security.

Full Conference Call Transcript

Emiliano Kargieman: Thank you, operator, and good morning, everyone. Welcome to Satellogic's First Quarter 2026 Earnings Conference Call. Joining me on today's call are Rick Dunn, our Chief Financial Officer; and a special guest Vice Admiral Frank Whitworth III, U.S. Navy retired, who recently joined Satellogic as a strategic adviser. We're pleased to have him with us today. I'll begin with a brief company overview and the key themes of the quarter before introducing by Vice Admiral Whitworth, who will share his remarks on his role and our Defends and intelligence engagement.

Rick will then walk you through our Q1 2026 financial results in detail before I cover our commercial update and recent wins, walk through our 2026 product road map, including our Aleph Observer platform and Merlin constellation and close with key takeaways before we open the line for questions. With that, let's begin. The first quarter of 2026 marked a clear inflection point for Satellogic. We grew revenue 80%, improved our adjusted EBITDA loss by 32%, generated positive net cash from operating activities for the first time in our history and exited the quarter with $121.9 million in cash.

Just as importantly, the commercial momentum we built exiting 2025 is broadening across sovereign defense, recurrent intelligent subscriptions and U.S. government engagement. Based on our current cost base, backlog, growing recurring revenue and current pipeline, we believe 2026 can be a year of substantial progress towards sustained profitability, and we expect Merlin to be an important driver of free cash flow as it enters service. This was one of the strongest starts to a year in our company's history, and our most ambitious product road map to date is now executing on schedule. There are 5 things I want investors to take away from the quarter.

First, on our unique sovereign and defense solutions, our non-ITAR design, vertical integration and free trade on manufacturing in Montevideo allow us to deliver disruptively priced sovereign capabilities to align governments around the world with rapid technology transfer and in-country assembly integration and test. In the quarter, we deepened our U.S. defense engagement through the expansion of our partnership with IDT Corporation and the U.S. Office of Naval Research for Phases 2 and 3 of the Slingshot program, advancing in-orbit demonstration of our rapid testing and high-resolution capabilities in support of U.S. Navy mission requirements.

And just last week, we announced a $12 million agreement with a sovereign defense customer to deliver the commission in-orbit NewSat from our Aleph-1 constellation, the second sovereign in-orbit transaction in 2 quarters. And I'll come back to why that matters. Second, we have significant customer traction. We continue to diversify our customer base internationally with Asia Pacific revenue growing more than eightfold year-over-year to $3 million in Q1 2026. The growth was led by significant contributions from customers in Australia and Malaysia and reflects the global demand we're seeing for sovereign and high-frequency monitoring capabilities. Third, we have unmatched capacity and scale. As of March 30, we continue to operate one of the largest high-resolution constellations in the world.

Our capacity advantage is significant based not only on the number of satellites, but also on our patent-protected camera design that enables us to capture approximately 10x more imagery per satellite than our peers at an all-in cost per satellite of approximately $1.3 million, a fraction of the industry standard. That cost and capacity advantage is what allows us to realize the unit economics to deliver persistent daily monitoring at scale. The capacity of our constellation has enabled us to sell in-orbit satellites to Space Systems customers without impacting our ability to meet existing demand and expected future growth in our data and analytics business. Fourth, revenue growth with operating leverage in action.

Revenue grew 80% year-over-year to $6.1 million, while our adjusted EBITDA loss improved 32% to $4.2 million. And for the first time in our history, we generated positive net cash from operating activities in the quarter. The recurring revenue shift we are beginning to see is being driven in part by Aleph Observer, our persistent monitoring product launched in February. That is the operating leverage of our vertically integrated model becoming visible. combined with $121.9 million of cash on hand, it materially strengthens our path to sustained profitability. And fifth, a strengthened leadership team. Our Board and management team bring deep public company finance, defense and policy experience.

Over the last 2 quarters, we have built up our sales leadership with the incorporation of Jeff Kerridge and a seasoned team of sales executives. Today, I'm pleased to introduce a new addition who we believe will be meaningfully -- meaningful to accelerate our trajectory in defense and intelligence. In late March, we welcomed Vice Admiral Frank D. Whitworth III U.S. Navy retired as a strategic adviser. Vice Admiral Whitworth most recently served as the 8th Director of the National Geospatial Intelligence Agency, the NG, where he led the delivery of geospatial intelligence supporting U.S. national security operations worldwide.

His decades of experience operationalizing geospatial intelligence at the highest levels of the U.S. defense and intelligence communities position him uniquely to advise our team as we deepen our engagement with that customer base. It's an honor to have him with us today. Vice Admiral, the floor is yours. Thank you, Emiliano, and good morning, everyone. It's a privilege to be with you today. Let me start with a few words on why I joined Satellogic. Most recently, I had the honor of serving as the eighth Director of the National Geospatial Intelligence Agency, or NGA for short, from June 2022 until my retirement just last December.

Frank Whitworth: In that role, I was responsible for the delivery of geospatial intelligence support of U.S. national security operations worldwide. One of the priorities during my tenure was the maturation of NGA Maven, the Department of Water's primary initiative for operationalizing artificial intelligence and machine learning. We transitioned that program from an experimental framework into an operational capability that meaningfully increased the speed and scale of intelligence analysis integrated with mission command across the department. That experience reflected my view of where geospatial intelligence needs to go. What attracts me to Satellogic is that this company is purpose-built to address the same imperative.

The combination of scale, frequency and resolution that the Satellogic constellation is designed to deliver, coupled with low latency analytics and near real-time tipping and queuing and alerts, this is precisely what we need to enable the shift from periodic observation to continuous awareness. In my role as strategic adviser and always adherent to my ethics restrictions against communicating with NGA in the Navy, I have been and will continue to be working with the team across 3 areas: strategic engagement with global defense and intelligence customers, the development of the company's product and technology road map, including the Merlin constellation and Emiliano will discuss shortly, and the integration of high-frequency earth observation into modern intelligence architectures.

I am impressed by what this team has built. The U.S. defense and intelligence communities are actively rethinking how they source persistent geospatial intelligence. And Satellogic's combination of sovereign grade capability with commercial economics is uniquely matched to that demand. I look forward to helping the team serve that mission and to translate that demand into long-term programs of record. With that, I'll turn it over to Rick to walk you through the financial results. Rick?

Richard Dunn: Thank you, Admiral, and good morning, everyone. Our first quarter results reflect the commercial momentum and financial discipline we built exiting 2025, and they mark several important inflection points in our business. The headlines are revenue up 80%, adjusted EBITDA loss improved 32%, the first quarter of positive net cash from operating activities in our history and $121.9 million of cash on the balance sheet, our strongest position to date. Let me walk you through each. Revenue. Total revenue for the quarter was $6.1 million, up 80% year-over-year from $3.4 million in Q1 2025. The increase was driven primarily by a $1.6 million increase in imagery ordered by new and existing data and analytics customers.

By business line, our data and analytics line of business, which includes our Constellation as a Service offering, generated $4.6 million of revenue, up $3 million in the prior year compared to the prior year period. Space Systems contributed $1.5 million of revenue. Geographically, the quarter reflected a meaningful diversification of our customer mix. Asia Pacific generated $3 million in revenue, up more than eightfold from $0.4 million in the prior period, with Australia and Malaysia as the primary contributors. Europe contributed $1.1 million, up from $0.5 million. Americas contributed $2 million, primarily reflecting timing rather than any change in customer demand.

Our U.S. pipeline continues to be very strong, and we look forward to executing on that pipeline in the remainder of the year. South America contributed $0.1 million. Taken together, this geographic diversification is an important indicator of the increasingly global demand for our services and of the durability of our international customer base. Total costs and expenses for the quarter declined 3% year-over-year to $12.5 million. Within that, cost of revenues, which is exclusive of depreciation, was $1.5 million, up 17% on higher ground station costs at scale with our growing operations. Engineering expense was $3.1 million, up 24%, reflecting investment in software, professional services and stock-based comp tied to the broader employee population.

SG&A expense was approximately flat at $6.5 million with an increase in salaries and benefits associated with workforce expansion in anticipation of 2026 growth, offset by a $0.8 million decrease in legal and professional fees that were elevated in Q1 of last year due to our U.S. domestication. Depreciation expense decreased 48% to $1.4 million, reflecting a reduction in the number of satellites with remaining depreciable useful lives, although we continue to utilize these fully depreciated assets so long as they're capable of capturing commercially viable imagery. The result is an operating loss of $6.4 million for the quarter, an improvement of $3.2 million or 33% compared to the prior period.

Below the operating line, we recorded a $113 million change in fair value of financial instruments. I want to be unambiguous about what this is. It is a noncash, nonoperational charge, and it reflects the increase in our Class A common stock during the quarter, driven by the standard remeasurement of our secured convertible notes, warrants and earn-out liabilities. A higher share price drives a larger accounting charge against earnings and net income. It has no bearing on the cash generation of the business. Net loss for the quarter, including this $113 million noncash expense was $118.3 million.

This is not indicative of underlying operating performance, and we report adjusted EBITDA to give investors a clearer view of the operating business. Adjusted EBITDA and operating cash flow. On a non-GAAP basis, adjusted EBITDA loss for the quarter was $4.2 million, an improvement of $2 million or 32% compared to the prior period. This is a function of both top line growth and continued expense discipline, and it underscores the operating leverage inherent in our vertically integrated model as revenue scales. Just as importantly, we generated positive net cash from operating activities of $0.2 million in the quarter, an improvement of $4.9 million from the $4.7 million of cash used in operating activities in Q1 2025.

This is the first time in Satellogic's public history that we have generated positive operating cash flow in a quarter, and it is a tangible early indicator of the financial trajectory I'll come back to in a moment. Balance sheet. We ended the quarter with $121.9 million in cash and cash equivalents, up from $94.4 million at the end of the year 2025. The increase reflects the $35 million registered direct offering we completed at $4.73 per share in late January, partially offset by capital expenditures of $5.6 million to support the construction of our Merlin constellation. Backlog and remaining performance obligations.

Our noncancelable remaining performance obligations stood at $64.8 million as of March 31, with $29.2 million expected to be recognized within 1 year, $7.9 million in years 1 to 2, $7.5 million in years 2 to 3 and $20.2 million thereafter. Capital structure update. Subsequent to quarter end in early April, the holder of our secured convertible notes initiated a partial conversion of approximately $6 million of principal into 5 million shares of common stock, reducing outstanding principal to $24 million and further simplifying our capital structure. Our liquidity position is strong, extends our operating runway, derisks our Merlin development time line and provides the flexibility to invest in the growth initiatives Emiliano will discuss in a moment.

Looking forward, we are seeing the operating leverage inherent in our vertically integrated model take hold. With our current cost base, growing recurring revenue from Aleph Observer and a strengthening pipeline of multimillion dollar opportunities across defense, sovereign and commercial customers, we expect 2026 to be a meaningful step forward on our path to sustained profitability. With that, I'll turn it back to Emiliano.

Emiliano Kargieman: Thank you, Rick. The first quarter delivered a sustained cadence of commercial, operational and strategic milestones. And the through line is that we look like -- what looked like isolated wins 6 months ago is now basically becoming a repeatable commercial engine. Let me walk you through the highlights in 3 categories. First, on our sovereign defense demand. Demand is real and it is repeatable. In January, we signed an $18 million agreement with CEiiA, the Center of Engineering and Product Development in Portugal for the supply and in-orbit delivery of 2 NSA Mark V 50-centimeter class satellites. Ownership and operational control are expected to transfer to CEiiA in the second and third quarters of this year.

Also, in January, we sold NuSAT34 to Australia, establishing the country's first sovereign submeter earth observation capability. And just last week, on April 30, we announced a $12 million agreement with a sovereign defense customer for the in-orbit delivery of a commissioned new set satellite from our Aleph-1 constellation with full transfer of ownership and operations expected in early 2027. I want to underscore why this transaction matters beyond its dollar value. It is the second sovereign in-orbit transaction we have closed in 2 quarters, and it demonstrates a differentiated value proposition in the market.

The ability to deliver a fully commissioned flight proven satellite to a sovereign customer with speed and cost efficiency that traditional procurement programs simply cannot match. Importantly, we are approaching this model selectively. Our priority is to monetize in-orbit assets where the economics are compelling by continuing to manage constellation capacity to support our data and analytics customers and broader mission requirements. Moreover, we may have the ability to buy back capacity at attractive prices from certain space systems customers. With our $1.3 million all-in new set cost and frequent contracted launch cadence, we believe sales of in-orbit satellites can potentially play a larger role in our Space Systems strategy as we scale the constellation over time.

Second, our commercial engine is broadening and shifting to recurring revenue to recurring subscription revenue. Beyond the eightfold expansion of our Asia Pacific revenue Rick already highlighted, the underlying mix of our commercial business is changing in a way that meaningfully improves revenue quality. In January, we signed a 7-figure monitoring agreement with strategic customer, providing daily revisit and high-resolution coverage over a large portfolio of priority sites, exactly the kind of recurring engagement that compounds over time. We also extended our countrywide monitoring agreement with the government of Albania, continuing the persistent national Earth Intelligence we have been delivering with our NewSat Constellation.

And in February, we launched Aleph Observer, our Persistent geospatial intelligence platform, which is now in market. I'll spend more time talking about it in a moment, but the commercial impact is already visible. We're converting one-off imagery customers into multiyear subscription customers. Together, the shift from project revenue to platform revenue is what underpins the durability of our growth trajectory. Third, strategic and platform milestones supporting the next leg of growth. On the operational side, on March 30, we successfully launched NewSat 53 and NewSat 54 on the SpaceX mission from Vandenberg Space Force Base, expanding our in-orbit capacity and flight heritage.

On the capital side, in January, we closed a $35 million registered direct offering at $4.73 per share, materially strengthening the balance sheet and derisking the Merlin development pipeline. On the U.S. defense engagement side, we expanded our Slingshot partnership with IDT Corporation and the U.S. Office of Naval Research into Phases 2 and 3, and we welcomed Vice Admiral Whitworth as Strategic Adviser. And on the commercial leadership side, we have continued to build out our global sales organization with senior defense and intelligence industry veterans, extending the work that began with the appointment of our SVP of Global Sales last year. The commercial muscle of this company today is materially stronger than it was 12 months ago.

The takeaway is straightforward. The breadth and quality of commercial, operational and strategic activity in the first quarter and in the 4 weeks since speaks to a commercial engine that has matured. We're no longer a constellation looking for customers. We're a vertically integrated platform serving a growing multi-hundred million dollar pipeline of qualified opportunities across defense, intelligence, sovereign and commercial markets with the unit economics to win on price and the capability to deliver immediately. I want to take a moment to ground the conversation in what we believe is an important strategic shift happening in the commercial earth observation today. For 2 decades, the dominant model of commercial earth conservation has been transactional.

Customers tested individual images, visibility was episodic and tasking capacity constrained by a limited number of satellites built at high cost. The result was reactive, event-driven intelligence and an industry that, frankly, struggled to scale. Persistent global intelligence is fundamentally a different category. It is continuous and always on. The foundation is a daily planetary baseline. With our constellation today, it already enables the simultaneous monitoring of thousands of sites and move customers from reactive observation to proactive awareness. With the future launch of our Merlin constellation, the foundation layer becomes ubiquitous, going from thousands to an unlimited number of sites.

With Persistent global Intelligence, the commercial model shifts from per-scene transactions to recurring subscription revenue, and it materially improves the predictability and lifetime value of every customer relationship. The reason we believe Satellogic is uniquely positioned to lead this category transformation is rooted in physics and unit economics. Our patent-protected stabilized Pushbroom camera design reaches approximately 10x more imagery throughput per satellite than our competitors. Combined with a 1.3 million all-in satellite cost and the vertical integration that allows us to scale our constellation at a fast pace, that throughput is what enables persistent monitoring at unit economics that no one else in the industry can match.

We believe the market is still early in this transition from episodic to persistent global intelligence, but the customer demand signals are clear. Aleph Observer is a new product that allows customers to subscribe to persistent monitoring of portfolios of strategic sites with reliable revisit cadence, image delivery within hours and analytics layered on top. It allows our customers to go from monitoring a handful to hundreds of sites on a daily basis. And as of February, it is in the market and commercially available. It was built on 3 pillars: one, the scale. Aleph is able to persistently monitor hundreds of sites simultaneously at a frequency and cost structure that no traditional tasking-based service can match. Second, assurance.

Aleph has capacity to scale and a reliable cadence over priority regions, meaning customers can plan around the data and not the other way around. And third, built-in analytics. Aleph delivers images roughly within 3 hours of capture with automated object detection layered in at no additional cost. The analytics enable fast triage and prioritization of intelligence analyst workflows, a requirement at this scale. The example coverage map you see on the slide illustrates the kind of persistent monitoring footprint Aleph Observer enables. In this case, the regional intelligence picture across Iran. Customer adoption to date includes sovereign government users, defense customers and commercial monitoring buyers across multiple regions.

This is what we believe is the future direction of the market, and we believe Satellogic is the company in the industry best positioned to deliver it today. Now if Aleph Observer is a product in market today, Merlin is the infrastructure layer that expands that product from high-value targeted monitoring into planetary scale persistent intelligence. Merlin is our AI-first defense-oriented constellation, purpose-built for daily 1-meter global coverage and real-time intelligence. A few things to highlight. First, Merlin is fully funded. Its development is anchored by a $30 million customer contract from a strategic defense and intelligence customer, which means we're not asking shareholders to underwrite this build-out or customers. Second, Merlin decided for planetary scale.

The constellation when fully deployed, is intended to remove the entire planet daily at 1 meter resolution. The architecture combines 10 spectral bands aligned with Sentinel 2, AI-first onboard processing and intersatellite links to enable real-time alerting. This is a step change in what commercial earth observation can deliver. And third, we're happy to mention Merlin is on track. We have made strong progress against production milestones in Q1, and we remain confident in our October 2026 first launch window, now roughly 5 months away, with the initial constellation rollout expected to be complete in the first half of 2027. I'd like to leave you with 4 takeaways from the quarter. First, our commercial momentum continues to strengthen.

We completed 2 sovereign in Orbit transactions in 2 quarters, including Portugal CEiiA and the $12 million agreement we announced last week with no impact to the needs of existing and expected data and analytics customers. We also expanded Slingshot Phases 2 and 3 with the U.S. Navy. We're seeing growing demand across both our Data and Space Systems businesses with customers increasingly moving from pilot programs to our larger operational deployments and longer-term engagements. Second, the business model is beginning to demonstrate meaningful operating leverage. Revenue grew 80%. Our adjusted EBITDA loss improved 32%. We generated positive net cash from operating activities for the first time in our history, and we exited the quarter with $121.9 million in cash.

We believe these results reflect the benefits of our vertically integrated architecture and increasing scale. Third, Aleph Observer established its Satellogic position in persistent geospatial intelligence. Customers are increasingly moving from buying individual images to subscribing to continuous monitoring and actionable awareness over the strategic areas of interest. We believe this transition represents a major evolution in the earth observation market. Earth observation is evolving from a data business into an intelligence infrastructure business, and Q1 showed meaningful progress in our positioning for that transition. Fourth, the technology road map is fully funded and on schedule. Aleph Observer is live and in market.

Merlin's first launch is on track for October 2026, and the initial constellation rollout is expected to be complete in the first half of '27. Our Q1 launches of NewSat 53 and 54 expanded our in-orbit capacity and slight heritage. We're executing on time, on budget and at scale. Taken together, these highlights signal we're on the right path for our continued growth and constitute the basis for our confidence going forward. I want to take a moment to thank our customers, our partners, our employees and our shareholders for their continued support. And a special thanks to Vice Admiral Whitworth For joining us today. With that, operator, please open the line for questions.

Operator: [Operator Instructions] First question, Michael Latimore with Northland Capital Markets.

Mike Latimore: Congrats on the excellent results here. I guess first, I wanted to touch on Aleph Observer. Can you give us a little more detail there? Maybe how many customers have signed up for that? What are sales cycles like? What kind of incremental revenue do you see when a customer does sign up for...

Emiliano Kargieman: So yes, we're still early commercially in Aleph Observer, right? It was launched in February, but we are very encouraged by the engagement we're seeing. Customers are already using the platform operationally across portfolios and there are areas of interest that range from dozens of sites for some customers to hundreds of monitored sites for others, right, depending on the use case. What is especially important for us is that the conversations we're having are increasingly centered around ongoing monitoring workflows rather than isolated imagery request. And that's kind of the behavioral transition we are looking for.

Our expectation is to sign a number of initial pilots in 2026 for Aleph Observer and as customers factor in this new procurement method for recurring services into their budget, expand and scale into 2027.

Mike Latimore: Yes. Makes sense. Great. And then maybe just a little more color on the pipeline. How many nations, sovereign nations do you see in the pipeline potentially wanting Space Systems deal or the portfolio? And maybe a little breakup between larger Tier 1 countries and smaller ones.

Emiliano Kargieman: Yes. That's a good question. So I don't have the breakup numbers here in front of me. But anecdotally, what I can share is the pipeline we're seeing is growing very strong in Asia, Asia Pacific, in the Middle East, in Europe. Those are the areas where we're seeing most of the progress. Currently, our Space Systems pipeline sits just under $1 billion on opportunities that we're pursuing, and this is mostly obviously sovereign customers.

Operator: Next question, Andre Sheppard from Cantor Fitzgerald.

Andres Sheppard-Slinger: Congrats on all the great progress. Again, I wanted to touch on maybe Merlin. So it looks like we are reaffirming the time line for later this year and operational capacity next year. Rick, just curious if you can maybe give us maybe a high-level view on how we should expect those revenues from Merlin to ramp up, how we should think about those? And maybe what will that do to the cost structure?

Richard Dunn: Thanks, Andres. Yes. No, I think as you guys know, we have a $30 million contract for the Merlin services. And we've collected a decent amount of cash of that upfront, cash from that upfront. But in terms of rev rec, that won't begin really until we get to the point where we're fully operational in the first half of 2027. So that revenue will start getting recognized annually and in chunks as we deliver those services. And as far as the pipeline, we're working on a number of opportunities that would also leverage the Merlin constellation. And those also would not start to get recognized until we're fully operational in 2027.

Andres Sheppard-Slinger: Got it. Okay. That's super helpful. I appreciate it. And maybe just a quick follow-up, a bit of a housekeeping one. So there was a high concentration of revenue from Asia and Asia Pacific this quarter. Just curious if we should see that more as a trend or more as an outlier going forward? Any color there would be helpful.

Richard Dunn: Yes, sure. And just a follow-up on your last question. That $30 million contract is also a 5-year deal. So -- and it mirrors the life of the expected life of the Merlin satellites themselves. With respect to Asia and Asia Pacific this quarter. Yes, I think that, that will continue. It was buoyed by customers in Australia, specifically AGO that we announced publicly, where they purchased an in-orbit satellite earlier this year and then also a customer in Malaysia. But we're seeing demand for our products and services globally increase. And so I think that this isn't a one-off, and I think you'll see continued growth across all geographic regions going forward.

Emiliano Kargieman: No, I was just adding something there to Rick, Andres, this is Emiliano. We see several -- if you want, several structural drivers at work in the defense intelligence procurement. And particularly, there's a driver around modernization of defense and heightened focus on sovereign earth observation capabilities. That's playing out in Asia Pacific, in particular, with many governments in the region looking to reduce dependency on third-party imagery providers. And that's obviously driving part of our pipeline there. So yes, we expect to see continued growth there, as Rick was saying.

Operator: Next question, Jeff Van Rhee with Craig-Hallum...

Jeff Van Rhee: Great. I'll add my congrats, guys. A couple for me. Emiliano, on Aleph Observer, you talked about the ability to monitor unmatched costs, unmatched value overall. Can you just expand a bit more on that, how it stacks up versus the competitive landscape, competitive offerings?

Emiliano Kargieman: Sure. I think the biggest differentiator of Aleph Observer starts, if you want, with the underlying economics and capacity for constellation itself, right? As we mentioned before, our satellites at a fully loaded cost or new satellites at a fully loaded cost around $1.3 million. and with 10x the data collection capacity, those of our peers mean that basically the unit economics per site that we're monitoring and installs are very differentiated. And the other factor is obviously because we're currently operating one of the largest or the largest commercial constellation of high-resolution imaging, the number of sites that we can monitor compared to those of our peers is significantly larger, right?

We don't have any encumbered capacity -- in the areas of the world, the areas of interest of higher demand, and that also helps, right? So that's really, I think, what makes Aleph Observer different from everything else is just the number of sites that you can monitor on a daily basis at a cost that's still affordable. On top of that, we're layering analytics, right, and allowing our customers to use those analytics to triage and to prioritize the time that human analysts spend on the sites. But the reality is a lot of the industry can generate analytics on top of imagery.

The harder problem is really being able to deliver persistent monitoring at scale with a reliable cadence and with economics that support operational use cases. So our focus really has been on building a system that is capable of monitoring large portfolios of sites continuously and affordably. And Aleph Observer, you can think of as a software and workflow layer that is built on top of large operational capability, right? That's really the important part.

Jeff Van Rhee: Yes. Very helpful. And Rick, a couple for you. The sovereign defense customer signed in April $12 million. Can you just talk to how that likely lands in terms of revenue and if there's a follow-on opportunity to that additional -- in addition to that $12 million?

Richard Dunn: Sure. With respect to Space Systems, in general, we will be delivering 3 satellites this year to customers and recognizing revenue associated with those. The sovereign defense customer is one of those. And that particular one should occur -- it may straddle second and third quarter. So it's going to be in that zone. It will be likely June, July. With respect to the other 2 deliveries we have, those are for our Portuguese customer that we announced in January, and we expect to deliver one of those in June time frame and likely the second late in the fourth quarter.

Jeff Van Rhee: And just the second part of the question there, the opportunity to sell additional imagery down the road or additional follow-on data sales?

Richard Dunn: Yes. Sorry, Jeff. I was just remembering that. Yes, absolutely. The sovereign defense customer is a large customer. They -- we expect them -- we expect to have follow-on opportunities with them with respect to both data and analytics sales as well as space system sales. So we're pretty excited about that one.

Jeff Van Rhee: And then maybe on the O&R, on the Slingshot deal, I wanted just to clarify, was that in RPOs? And does it show up in RPOs? And I know it's in, I believe, 3 stages, but just trying to get a sense of the scope of the opportunity from that program. Maybe -- I don't know if that's Emiliano, maybe or Rick, but just walk through kind of what the opportunity is there.

Richard Dunn: Yes, I can start and then Emiliano can add some color. It is in the RPOs. It's not a particularly large contract. I think what's more important is what we're doing with IDT and O&R on that project and how that could translate for other customers going forward. But I'll let Emiliano comment on that.

Emiliano Kargieman: Yes. I think why we see this program as being particularly interesting is because it is allowing us to operationalize for the first time, inter-satellite links for tipping and cleaning between different satellites in our fleet. And there is scalability in the program we're doing with O&R that in itself might be interesting. But I think what's more interesting is as these capabilities that we are developing along with the O&R become part of our standard product offering, right? And that's, I think, where the impact of this program is going to be realized.

Jeff Van Rhee: Yes. Helpful. Maybe if I could sneak one last one in. I don't know if I worth just taking questions. This is obviously right in his wheelhouse, but maybe for you, Emiliano. The U.S. government purchasing, and purchasing of commercial data looked like it had a lot of momentum a couple of years ago. Obviously, CEiiA put up some very big numbers and then there was a pause, and it seems a lot of entities within the U.S. government sort of rethought that commercial imagery discussion. And then there's been a discussion for many, many years of buying more commercial. Just curious if the conviction is there, a, that we see a ramp in U.S. commercial buys?

And then b, just to the extent that you're engaged with the right buyers, how you see the sales track in North America, particularly U.S. government going forward?

Emiliano Kargieman: Yes. Happy to take this one. Yes, I mean, what we're seeing is the environment currently in the U.S. procurement is kind of forcing different avenues for procurement and different procurement for a wider set of commercial supply that obviously includes us. We are seeing significant opportunity growth for our own engagement with the U.S. government in general. And yes, definitely one of the areas that we expect to contribute to future growth.

Operator: Next question is Jason Silva with ROTH Capital Partners.

Unknown Analyst: On the data analytics revenue and the transition to more recurring visible revenue from, I guess, per image, where are we in that transition? And what's a realistic expectation of how that mix can shift in the next year or 2, just to understand the pace of that transition.

Richard Dunn: Yes. I think we're early in the transition. As you know, in 2025, we did $18 million of revenue. We've got a tremendous amount of momentum, both on the data and analytics side as well as Space Systems for 2026, and you're starting to see that as we make announcements on contract wins. In terms of the mix, it's a tough one because the Space Systems deals tend to be rather large and episodic. When they hit the period in which they hit, they have an outsized impact typically. And so that Space Systems by definition, is going to be a little bit lumpy.

But I do think that with the Aleph Observer and Merlin then coming online in 2027, our data and analytics revenue will also grow substantially. We've got the largest high-resolution commercially available in the world, a lot of capacity on it and a world-class sales team that's out there selling that data right now. So we expect that will scale up more linearly going forward.

Emiliano Kargieman: If I can add there... Thanks for the question. In particular, if you're talking about kind of the transition that we're seeing towards persistent intelligence and recurring monitoring, as Rich said, we are still very early in the transition. So most of our revenue today is still not recurring in the traditional SaaS sense, if you want. But what we're increasingly seeing is customers that are moving from one-off tasking towards this ongoing monitoring relationship with us. And that's the important shift, right? Like customers are asking us to monitor portfolios of sites continuously over time and rather than purchasing isolated images. So that's what Aleph Observer was designed to do.

That's the exact use case that it was designed to fulfill. And so while in the accounting side, the accounting profile, if you want, is still evolving, the customer behavior is already changing in that direction. I think that's the leading signal that we're excited about.

Unknown Analyst: That's great. That's helpful, Emiliano. And then a second question maybe for Emiliano. For the product -- not the product, but the road map really of the satellite capabilities, increasing AI compute on the satellite. Can you talk about that road map and what that would look like as it flows forward the next few years in terms of increased opportunity or revenue or products, services? Any concept there would be helpful as we think about the road map of the satellite capabilities.

Emiliano Kargieman: Yes. No, for sure. And without speculating too much, I think you see us evolving our road map in a few different directions in parallel, right? On one side, we are evolving the resolution of our high-resolution satellite fleet, right? So we are currently -- our new sets are 50 centimeters of resolution. We're moving towards our next-generation satellites that will be able to do 35-centimeter resolution imagery, right? So higher resolution is one direction. We also are including real-time inter-satellite links and onboard processing with capabilities, not capabilities and processing power to run multi-headed AI pipelines on top of all of the data that our satellites are collecting. -- and that's also part of the road map.

That's another avenue, right? So one is increased resolution. Second one is real-time analytics and real-time alerting and inter-satellite links. And the third one is Merlin. So layering in this broad area monitoring, global daily remaps at 1 year of resolution on top of all of this, right? Those 3 things put together speak of the future where we will be going very closely to what has been our vision since the very early days of the company of having persistent global geospatial intelligence and the ability to basically start asking the planet questions, start asking the earth questions about what's going on and getting daily signals, getting daily intelligence updated in pretty much real time, right?

We're very excited about the way the 3 different growth areas in our technology and in our -- the existing road map that we're executing come together to realize this vision of kind of a searchable planet or if you want a digital twin of the earth that everybody can use to make more informed decisions. I think another part that's very interesting from where we are in terms of our road map is that all of the big capabilities that we are building into our road map are actually being funded by our customers, right? So that's also very exciting for us.

Operator: Next question, Scott Buck with Titan Partners.

Unknown Analyst: Rick, I'm curious, is positive operating cash flow sustainable in Q2 and beyond? Or was the first quarter aided by timing of certain contract collections that may not repeat?

Richard Dunn: Yes. I mean we were marginally positive on operating cash flow. So I think it's going to be a little touch and go for a couple of 2 or 3 quarters as revenue ramps up. What aided our cash flow positivity this quarter was really some advanced collections from customers. I think going forward, we're going to be making investments in terms of scaling the business, and that's going to require some working capital. So we are still at an adjusted EBITDA loss, as you know. And with continued growth and scaling, working capital will bounce around a little bit. We'll be drawing down on that as we make investments in inventory and so forth.

Unknown Analyst: Great. That's helpful. And then my second one, given the current level of geopolitical turbulence, are you seeing an acceleration of sales cycles or seeing interest from maybe new commercial customers?

Emiliano Kargieman: Yes, I can take that one. Obviously, I think periods of geopolitical instability do tend to increase awareness of the value of persistent intelligence. So we are seeing conversations accelerating across the board. That said, we believe the broader shift we're seeing in the market is structural, not really event-driven. Governments and enterprises alike increasingly want continuous awareness of infrastructure, supply chains, maritime activity, borders, their strategic assets. And this is regardless of any single conflict. So while the geopolitical environment can accelerate the procurement cycles here, we do view the demand transition as much broader and longer term.

Operator: Next question, Chris Quilty with Quilty Analytics.

Unknown Analyst: I had a somewhat technical and business question, I guess, around the sale of the in-orbit NewSat. If I recall, this is the first time I can think of an operational satellite being sold to a customer. I don't count HEO because that's for a different application. Is that -- first of all, is that true? And do you think that is an expandable business model?

Emiliano Kargieman: Yes. Chris, yes, we do see this as an expandable business model. This is -- depending on how you count, this is the first or the second one because the first satellite that we sold to CEiiA in Portugal, I think it was a few days after the satellite was launched. So that could count as an in-orbit transfer. But yes, we do see this as a possibility that might expand in the future as we have this cadence of launch and manufacturing of satellites already contracted, already in place. We're putting satellites in orbit essentially every quarter. We are seeing obviously increased demand on the customer and for adding very rapid capabilities.

And in the past, going from contract signed to satellite delivery within 4 months as we can -- or 6 months as we can normally do with our launch cadence was extremely competitive compared to the years that it takes normally to get a functioning satellite in orbit. Obviously, we see customers willing to engage and willing to pay a premium also for getting capacity delivered quicker. And because we have this capacity in orbit and we can do these transfers without affecting our ability to deliver on our data and services business, right? So yes, I think we can selectively continue to see this model going forward as we continue to grow our constellation, right?

Unknown Analyst: So I mean you have lots of excess capacity now, but as the revenue per satellite grows, the technical part of the question is, is this an SSO orbit or was it inclined? Because obviously, that's going to have a huge difference in the amount of revisit. And would you, maybe for Rick, think about changing the inclinations or launching capacity to inclinations where you think customers might purchase them?

Emiliano Kargieman: Yes, it's a good question. So in this case, it was a satellite in. We have built and launched satellites in many inclination orbits in the past. Including one that we did with Tata in India. And we have the ability to do that. The satellite design supports that and operation -- console of operation supports that. And I agree with you, in the case of customers that want to ramp up their capabilities, in some cases, it makes sense to consider m inclination launches.

Now if you're only operating a small handful of satellites, 1, 2, 3 satellites, I would argue that mill inclination is probably not a great solution technically because you have persistent blackouts and customers are typically looking at building predictable capabilities that they can count on for intelligence, right? And mill inclinations are not particularly well positioned for that if you have a small -- relatively small constellation. But we do have the flexibility, and we do engage with customers if they want that, we see it as complementary to our SSO offering, right?

Unknown Analyst: Got you. And for Rick, how does this get booked? And I guess the other question is, we've seen some transactions like this where the customer obviously has a much smaller need for the satellite than its total coverage and you see capacity sellbacks. Are those sort of arrangements part of this agreement or something you would look to do of reselling unused capacity?

Richard Dunn: Yes. When we -- in terms of how we book space systems deals, it's based upon our performance obligations under each contract. And at the moment, each of those contracts continue to be fairly bespoke deals. Maybe over time, they become more consistent and predictable in terms of the specific performance obligations. But the largest value that we're delivering to the customer is the in-orbit satellite. We're also, in many cases, transferring some knowledge and some light transfer technology as well as providing support from a mission ops perspective. But that's not where the value is for the customer and revenue recognition will follow those specific performance obligations.

In terms of the possibility of buying back capacity, yes, that's absolutely a possibility. We're not doing that. We don't have the right to do that currently with any of our existing deals. But that may likely be a possibility going forward. And it may be something that we look to negotiate as part of our discussions with those customers as we enter the contract.

Unknown Analyst: Got you. And just to clarify, Rick, I mean, this is a sale of an asset. So does it show up as a onetime gain? Or are there elements that are continue to be operational and providing support?

Richard Dunn: Yes. The performance obligation associated with the transfer of the satellite is booked when that transfer occurs. So that's a onetime recognition event per satellite. With respect to services like transfer of knowledge, transfer of tech and mission and ops, that will be recognized over the period of time that we're delivering those services.

Operator: I would like to turn the floor over to Emiliano for closing remarks.

Emiliano Kargieman: Well, thank you, Stacy, and thank you all for joining us. Q1 was a meaningful step on the path we have been describing for the past few years a leaner, better capitalized commercially active Satellogic now demonstrating the operating leverage of our vertically integrated model. With our existing constellation Aleph Observer in the market, Merlin on track for October and the deepening of our defense and intelligence engagement, we are positioned to lead the transformation of commercial earth observation into persistent global intelligence at a planetary scale and to do it on a path to sustained profitability and free cash flow.

If we were unable to address any of your questions today, please reach out to our IR team directly at ir@satellogic.com. Thank you.

Operator: This concludes today's teleconference. You may disconnect your lines at this time, and we thank you for your participation.

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. Parts of this article were created using Large Language Models (LLMs) based on The Motley Fool's insights and investing approach. It has been reviewed by our AI quality control systems. Since LLMs cannot (currently) own stocks, it has no positions in any of the stocks mentioned. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.