Results
Hawkeye 360 Inc.
06/22/2026 | Press release | Distributed by Public on 06/22/2026 06:32
Quarterly Report for Quarter Ending March 31, 2026 (Form 10-Q)
Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of the financial condition and results of operations of HawkEye 360, Inc. (the "Company," "HawkEye 360," "we," "us," and "our") should be read together with our unaudited condensed consolidated financial statements as of, and for, the periods presented, in each case together with related notes thereto, included elsewhere in this Quarterly Report on Form 10-Q. The discussion and analysis should also be read together with the section entitled "Risk Factors." The following discussion contains forward-looking statements that reflect future plans, estimates, beliefs and expected performance. The forward-looking statements are dependent upon events, risks and uncertainties that may be outside of our control. Our actual results may differ materially from those contained in or implied by any forward-looking statements. Factors that might cause future results to differ materially from those contained in or implied by any forward-looking statements include, but are not limited to, those discussed in Item 1A. "Risk Factors" and the "Cautionary Note Regarding Forward-Looking Statements" sections of this Quarterly Report on Form 10-Q.
Overview
HawkEye 360 provides secure end-to-end signals solutions which are tightly integrated into the fabric of national security architectures. As a trusted signals intelligence partner to the U.S. Government and its allies, we are the first commercial space-enabled defense technology company to disrupt electronic warfare at scale. We deliver shareable, battlefield-proven RF intelligence that supports Warfighters during varied cycles of geopolitical volatility. We operate across the entire value chain from design and build to data collection, to processing and analysis, delivering capabilities and insights to customers throughout our global allied defense landscape.
We are disrupting the defense technology industry through our transformational strategy focused on new on-orbit capabilities, signal processing enhancements, and optimization of our AI/ML analytics algorithms using our expansive RF emitter database. Our algorithms are designed, improved, and validated on over one billion data points from our proprietary signals archive, uniquely collected by our sensor network. With over 30 satellites on orbit and additional clusters in development, we maintain a robust global operational footprint and are committed to expanding our reach, improving our revisit rate and latency, and accelerating product delivery to our customers. We operate across classified and unclassified data, leveraging relationships with the Department of War (the "DoW") and the U.S. intelligence community and the international equivalents of our allies around the globe.
Our product is a commercial, shareable data solution which addresses the need for U.S. and allied governments to access actionable intelligence directly. We developed a fully integrated RF data platform encompassing collection, end-to-end signal processing, signals library, and proprietary analytics. As a result, we believe we are indispensable to national security architectures across the value chain. Our dual-domain capability also allows us to scale into broader commercial applications. The combination of these business characteristics supports our scalable, cost-effective financial model. We actively augment and fill intelligence gaps for our customers while building out their national SIGINT capabilities through training, analytics, dedicated hardware development, and customized intelligence platforms. Examples of our solutions include customized SIGINT solutions, maritime intelligence, military radar monitoring, GNSS jamming and spoofing detection, communications mapping, tactical ISR support, and core signal processing algorithms used in national government SIGINT systems.
Our products serve the world's most demanding customers, addressing their highest-priority defense needs with precision and agility.
We have invested significant resources to build a highly capable end-to-end operating model. This includes designing and building payloads and satellites, as well as owning and operating satellite constellations and processing and analyzing data through our proprietary collection mechanisms. Our model enables us to serve customers across the value chain and meet their specific needs. This vertical integration allows us to run our system at scale and capture network effects, such as rapidly tailoring algorithms based on new signal knowledge, iteratively modifying satellite payloads to better detect new emitters, or leveraging the scale of collected data to identify new signals and further improve our products. Our nimble business model allows us to move quickly, building out capacity ahead of customer demand. As a result of our fixed cost investment to date, our operating model is highly capital-efficient.
We report our financial and operating results as a single segment based on the consolidated information used by the chief operating decision-maker to allocate resources and to evaluate financial performance. We do not manage our business
or allocate our resources based on the products or services we offer to our customers. Rather, we focus on delivering quality products and services that meet the needs of each customer.
We have consistently grown and scaled our business rapidly to date. Our ability to generate measurable impact for our customers across mission critical applications has enabled our business to achieve significant and durable revenue growth. While generating growth at scale, we continue to benefit from our strong operating leverage in our business. For the three months ended March 31, 2025 to the three months ended March 31, 2026, our revenue grew from $23.0 million to $49.8 million. For the three months ended March 31, 2026 and 2025, our net loss was $9.0 million and $1.6 million, respectively, while our Adjusted EBITDA showed a gain of $7.4 million in March 2026 compared to a gain of $3.8 million in March 2025. As we scale our business, our existing fixed costs and capital investments support greater revenue generation.
We have several initiatives that we believe will allow us to generate additional revenue on our existing fixed investment. Firstly, low-latency payloads and new Block 3 satellite technology should improve our capital efficiency by leveraging new cost-effective collection mechanisms. We are also expanding our signal processing sources and capabilities, resulting in higher revenue production per each passing. Finally, we are beginning to re-sell subscription data, creating a new revenue source with high incremental margins. These investments are supported by strategic investments in R&D, engineering talent, satellite infrastructure, and future capacity.
We are focused on continuing to grow our revenue quality by focusing on initiatives to enhance RF capabilities for significant customer expansion, improving our latency and tactical applications, and growing our RF utilization across domains. These initiatives further support our future growth opportunities.
Our Business Model
We provide tailored solutions to address our customers' needs and seamlessly integrate with their existing workflows to become a critical intelligence partner. We provide our customers with both tailored analytics and insights as well as data licensing opportunities. Our unclassified, shareable data, and analytics products business models create a range of use cases for end customers, enhancing interoperability and mission effectiveness.
The following areas are key aspects of our business related to our financial model.
Product and Service Delivery
To date, the majority of our data and insights delivery has occurred through customer-tasked signal collection and analytics. Our customer relationships begin with discrete tasks, and evolve to include additional products, greater frequency, and increased volume of data over time. Each data tasking contract offers a network of revenue opportunities to include re-purposing of data collected for multiple customers and performing prescribed analytics and gathered insights for different customers on a singular set of data. The majority of our revenue is derived from customers who pre-book tasking capacity. This provides significant visibility into our forward revenue, expanding the duration of our long-term customer contracts.
As we become integrated with government and allied customers, our sales cycle shortens. Our tasking model allows us to scale revenue efficiently with existing customers at low fixed costs, creating a highly profitable business model, as new data and insights are sold. We have begun to evolve this model to include subscriptions to highly relevant data in congested areas of interest (for example, data relating to vessels operating in the South China Sea). These subscriptions are HawkEye 360-tasked collections that are sold as a feed to multiple subscribed customers.
Following the acquisition of ISA, we provide advanced signal processing solutions for critical national systems in support of the US intelligence community. We leverage a deep understanding of signals, signal processing techniques, and mission objectives, combined with a full range of high performance computing techniques to serve as the preeminent developer for the US government in this domain. We also deliver services tied to US government SIGINT systems, including mission management, command and control, and edge processing.
Across all products, revenue is recognized at a point-in-time or over time as data or services are delivered to the customer.
Our Customers
Our customers are a mix of U.S. Government defense, intelligence, diplomatic, and national security agencies, as well as international governments. Our diverse mix of customers and products creates a business model with limited customer concentration and broad applicability across use cases. We generate our revenue from a mix of U.S. Government entities and international allied entities. For the three months ended March 31, 2026, our U.S. customers, which are predominantly U.S. Government entities, accounted for 58% of our revenue, while our customers in UK and Japan accounted for 14 % and 10% respectively, of our revenue, and our other non-U.S. customers, in the aggregate, accounted for 18% of our revenue. No other country made up more than 10% of our consolidated revenues during the three months ended March 31, 2026 and 2025.
We have established relationships with U.S. customers, primarily the U.S. Government through programs of record. U.S. customers contributed to a total of $28.9 million in revenue for the three months ended March 31, 2026 (of which $15 million was recognized through contracts with ISA which was acquired in December 2025) as compared to $14.9 million in revenue for the three months ended March 31, 2025. Certain accounts function broadly to serve multiple customers across the U.S. Government and multiple constituencies within those organizations. These U.S. Government customers, which span both intelligence and warfighting communities, include:
•An agency of the U.S. federal government, with which we will have held several contracts spanning almost eight years upon the end of the contracts' terms.
•The National Geospatial-Intelligence Agency (the "NGA"), with which we maintain a close relationship of more than four years over several contracts. In September 2024, the NGA awarded a contract extension for RF emitter data and submitted a task order for emerging commercial analytics services.
•The U.S. Space Force and its Joint Commercial Operations cell (the "JCO"), with which we will have held several contracts spanning nearly two years upon the end of the contracts' terms. The JCO partners with commercial providers to deliver diverse, timely space domain awareness ("SDA") capabilities.
Our diverse international customer base is supported by customers located in the Asia Pacific region ("APAC"), Europe, Middle East and Africa region ("EMEA"), and the Americas / Other. International customers contributed a total of $20.9 million and $8.1 million in revenue for the three months ended March 31, 2026 and 2025, respectively. These international customers for March 2026 include:
•Customer B in APAC, for which our combined contracts spanning almost three years generated $4.8 million in revenue for the three months ended March 31, 2026.
•Customer E in EMEA, for which our combined contracts over four years generated $5.0 million in revenue for the three months ended March 31, 2026.
U.S. and International Go-to-Market Strategy
We have developed a sophisticated go-to-market strategy that allows us to efficiently and effectively sell to government customers at scale. Our sales motion targets customers with the appropriate budgets, needs, and capabilities to leverage RF data at scale, and we proactively address our customers' needs. Existing engagements allow us to identify new tasking opportunities even before our customers prepare formal requests for proposals. We leverage our technology to become embedded in our customers' workflows. When customers adopt our platform, they often immediately realize the benefits and mission-critical nature of our analytics and insights, leading to a cycle with growth in both contract scope and value over time.
Domestically, our contracts with the U.S. Government are differentiated from traditional procurement channels, moving rapidly from sales engagement to proposal and contract award. We use our flexible, well-funded contract vehicles to identify and generate end market demand and get on contract rapidly. Internationally, we have a robust sales and business development team that works with partners to identify the appropriate procurement agency and mechanism needed to purchase our data on behalf of international end users. We have a proven process for establishing marketing and pre-sale licenses to enable our international business development efforts. We engage with international customers both from the "bottoms up" to capture and address operational working requirements and, at the same time, from the "top down"
to ensure we have the appropriate level of political and senior customer buy-in and support for our engagement, which often involves liaison with associated U.S. Government embassy, White House, and State personnel.
Additionally, we work with local resellers and partners, including under exclusive reseller arrangements, where we are legally obligated to do so or where they provide additional access and local content that can help serve our customer.
"Land and Expand" Sales Motion
We serve data customers through a "land and expand" upsell model. Our typical data customer solution leverages our products as the foundation, and incorporates additional data sources, software, tools, or IT hardware to meet bespoke customer needs. These contracts typically begin with a "test and evaluate" phase which are normally one to three month engagements, where we prove our mission utility to the customer and secure the necessary Technical Assistance Agreements for commercial export from the U.S. Government, when needed for sales to international customers. From there, we move to operational contracts for a subset of products, before expanding to additional products and a greater scope of analytics.
We have steadily expanded consumption of data, processing, and insights over time, reflecting larger consumption per customer. Larger consumption per customer is driven both by an increase in quantity of collections per customer and expanding the deployment of additional products and services with existing customers. We have grown the number of revenue generating collections annually. We price our products based on value delivered to the end consumer and not based on cost. Our customers recognize the value our services provide, and our pricing strategy has evolved over time in line with the enhanced value we deliver to customers. We have invested significantly in R&D to develop hardware and software enhancements, providing further value to customers. We have also demonstrated a track record of increasing term lengths as our engagements with individual customers mature over time.
Bolstered by the legacy ISA team's reputation for domain expertise and execution excellence, we continue to grow through the expansion of on-contract services and the award of new contract opportunities. Our customers routinely award Engineering Change Proposals (ECPs) on our existing contract vehicles to address a continued evolution of customer challenges and mission requirements related to our signal processing solutions. We've also built a robust pipeline of opportunities tied to renewal of enduring programs, next generation architecture, edge processing, and delivery of exquisite payloads.
Customer Relationships
Our platform is mission-critical for our customers, and we have a long history of serving these customers, building highly specialized signals algorithms, software and hardware for strategic and tactical applications. The long-term nature of our customer relationships drives meaningful predictability and visibility into future revenue. Our unclassified and shareable data model enables extended use cases for end customers, enhancing interoperability and mission effectiveness, as well as commercial revenue applications. As a result, we become embedded in our customer workflows and become critical for their ability to consistently achieve respective mission requirements. The data and insights we sell become integral to our customers' workflows. We have retained and grown the vast majority of all key accounts, and much of our business is long-running contracts that are regularly renewed, often without a competitive process.
Backlog
Backlog is a key measure of our business. Our backlog supports predictable revenue expansion through a recurring model, enabling forward revenue visibility. Our backlog was $302.7 million as of December 31, 2025 and $285.0 million as of March 31, 2026.
Our backlog represents the portion of legally binding contracts that are expected to result in future revenue. Backlog may also include change orders for any contracts that have been formally contracted. This includes firm contracts that contain remaining performance obligations, including the cancellable portion of the contract value for contracts that provide the customer with a right to terminate for convenience without incurring a substantive termination penalty. Backlog also can include up to the remaining ceiling on single award IDIQ contracts where no task orders have been issued. Backlog excludes the value of unexercised options to extend contracts, the value of multi-award IDIQ contracts, and the value of any contracts, or a portion thereof, where management deems execution to be unlikely to result in revenue due to customer-specific or other factors. See "-Key Performance Indicators and Non-GAAP Financial Measures" below for more information on backlog.
Trends and Key Factors Affecting Performance
Our results have been affected, and are expected to be affected in the future, by a variety of factors. A discussion of key factors that have had, or may have, an effect on our results is set forth below. For a further discussion of the factors affecting our results of operations, see "Risk Factors."
Macroeconomic Pressures
In recent years, geopolitical instability, including wars and conflicts, as well as impacts from other global events, have resulted in opportunities for companies in the defense technology market. Increasing global tensions have led to surging global defense budgets amidst an urgent need for advanced technology capability to counter near-peer threats. However, certain disruptions to the global economy, including market disruptions, monetary, and fiscal policy uncertainty, supply chain challenges, high interest rates and inflationary pressures have contributed to an inflationary environment that has adversely affected, and may continue to adversely affect, the price and availability of certain products and services necessary for our operations, which in turn may adversely impact our business and operating results. In addition, the global trade environment is uncertain and rapidly evolving as a result of substantial new tariffs, and other restrictive trade policies. Trade disputes, trade restrictions, tariffs, and other geopolitical tensions between the U.S. and other countries, including our U.S. allies, may lead to market disruptions and supply chain interruptions, and exacerbate unfavorable macroeconomic conditions. The potential impact of existing and future tariffs on our business and results of operations will depend on their timing, duration, and magnitude.
Government Environment and Regulations
Our industry is affected by U.S. and international government budget and spending levels, including shutdowns of the U.S federal government due to a lapse in appropriations, changes in demand, changes in policy positions or priorities, the domestic and global political and economic environment, and the evolving nature of the space and defense sector. National security and advancements in space-based technologies and defense capabilities are core focuses of the U.S. Government on a bipartisan basis and closely align with the key messages from the current U.S. presidential administration regarding space. Additionally, international U.S. allies are interested in building independent sovereign capabilities. Government expenditures and policy evolutions favorable to and emphasizing the usage of commercial technologies in the defense procurement process have fueled our growth in recent years and have resulted in our continued ability to secure increasingly valuable contracts as well as the ability to continue financing the growth and development of our business. We expect our total addressable market to reach approximately $34.0 billion by 2030, driven by significant growth in processing and analytics capabilities beyond data collection where we excel. Any changes in budget and spending levels, policies, or priorities, may have an adverse impact on our business and operating results. In addition, U.S. and non-U.S. Government procurement regulations impose various operational requirements on government contractors. Non-compliance with any of these regulations could materially and adversely affect our operating results.
Our Technology
We are successful because of the strength of our software and technology. We leverage five years of battle-tested data to turn raw spectrum into actionable intelligence, which is built on years of contested-environment data collection and a mature processing pipeline. We employ our proprietary AI algorithms to identify, track, analyze, and predict specific emitters, converting data into insights for Warfighters. We have recruited engineers with prior experience in premier government signal processing environments and nearly half of our personnel hold security clearances. In this market, even small algorithmic and data gains drive outsized operational impact, making our intellectual property rare and defensible. We expect to continue to innovate our software and technology, but any difficulties in achieving or effectively continuing to innovate could have a negative effect on our operating results.
Ability to Continue to Expand our Service Offerings
To continue gaining market share and attracting customers in the near term, we are focused on expanding market penetration by delivering improved RF intelligence capabilities to existing and new customers. We intend to transform RF intelligence into a fully automated, globally persistent, real-time capability to better serve the operational mission. By reducing end-to-end latency from hours to minutes - and ultimately to seconds - we intend to enable insights fast enough to support tactical decision-making for missions such as Warfighter support, long-range fires, tactical ISR, and Golden Dome defense systems. In parallel with our continuous improvement of capabilities and latency, we are evolving beyond data delivery with the goal of becoming a global, multi-domain RF intelligence provider. We intend to expand our
operations and offerings significantly, but any difficulties in achieving or effectively managing our growth could have a negative effect on our operating results.
Acquisitions
We consider strategic acquisitions of businesses and other investments to expand our collection and processing capabilities, deepen vertical integration, and accelerate entry into adjacent mission areas, with the goal of expanding our current portfolio and accessing new customers and technologies. Our recent acquisition of ISA, coupled with our acquisition of Aurora in December 2023 (the "Aurora Acquisition") enhances our existing offerings by providing multi-domain, low-latency automated payloads, expanded ground processing, and highly trusted service support for the signals intelligence community. We target companies that not only enhance our technical capabilities but also embed us more deeply into our customers' mission workflows. By integrating strategic acquisitions with our strong internal execution, we aim to build a broader product and service offering with a goal of enhancing our growth and market share. These strategic transactions may be costly, time consuming and challenging to consummate and/or integrate with our existing businesses and may result in fluctuations in our operating results and financial position across periods that may be unrelated to our underlying performance. Any particular acquisition or other investment we make could prove less successful than anticipated and have a negative effect on our business.
Key Performance Indicators and Non-GAAP Financial Measures
We focus on a variety of key performance indicators and non-GAAP financial measures to plan, measure and evaluate our business and financial performance, identify key trends affecting our business, inform our strategic business decisions, and develop operational goals for managing our business.
We believe that these key performance indicators and non-GAAP financial measures provide useful information to investors and others by allowing for transparency with respect to key metrics used by management in our financial and operational decision-making. These metrics may be used by investors in understanding and evaluating our operating results and enhancing the overall understanding of our past performance and future prospects. Our calculation of key performance indicators and non-GAAP financial measures may be different than or otherwise not comparable to similarly named metrics used by other companies.
The following table presents a summary of our key performance indicators and non-GAAP financial measures for the three months ended March 31, 2026 and 2025.
| (in thousands) |
Three months ended March 31, 2026 |
Three months ended March 31, 2025 |
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Key Performance Indicators
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Net income (loss)
|
($8,989) | ($1,591) | |||||||||
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Net cash (used in) provided by operating activities
|
($3,274) | ($7,478) | |||||||||
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Non-GAAP Financial Measures
|
|||||||||||
|
Adjusted EBITDA(1)
|
$7,390 | $3,847 | |||||||||
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Free Cash Flow (1)
|
($7,329) | ($10,672) | |||||||||
_______________
(1)Adjusted EBITDA and Free Cash Flow are non-GAAP financial measures. For definitions of Adjusted EBITDA and Free Cash Flow, as well as reconciliations to their most directly comparable financial measures calculated and presented in accordance with U.S. GAAP, please see "-Non-GAAP Financial Measures" below.
| (in thousands) |
As of March 31, 2026 |
As of December 31, 2025 |
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Key Performance Indicators
|
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Backlog(1)
|
$285,003 | $302,719 | |||||||||
(1)See "Our Business Model-Backlog" above for more information on backlog.
Non-GAAP Financial Measures
In addition to the financial information prepared in accordance with U.S. generally accepted accounting principles ("GAAP"), we provide non-GAAP financial measures. We define Adjusted EBITDA as net income (loss) before interest, taxes, depreciation, and amortization, further adjusted to remove the impact of stock-based compensation, acquisition-related costs, costs related to the IPO, settlements, and change in fair value of warrant liabilities. We define Free Cash Flow as net cash provided by (used in) operating activities less purchases of satellites, property, and equipment.
We use Adjusted EBITDA and Free Cash Flow in conjunction with other GAAP measures to evaluate the effectiveness of our business strategies, make strategic decisions, and communicate with our board of directors and investors concerning our financial performance. We use these non-GAAP financial measures to assess our financial performance because they allow us to compare our operating performance on a consistent basis across periods by removing the effects of our capital structure (such as varying levels of interest expense and income), asset base (such as depreciation and capital expenditures) and other items (such as non-recurring or non-cash costs) that impact the comparability of financial results from period to period.
We believe that the presentation of these non-GAAP financial measures will provide useful information to investors and analysts in assessing our financial performance and results of operations across reporting periods by excluding items we do not believe are indicative of our core operating performance. Net income (loss) is the U.S. GAAP measure most directly comparable to Adjusted EBITDA. Net cash provided by (used in) operating activities is the U.S. GAAP measure most directly comparable to Free Cash Flow. Our non-GAAP financial measures should not be considered as an alternative to the most directly comparable U.S. GAAP financial measure. You are encouraged to evaluate each of these adjustments and the reasons management considers them appropriate for supplemental analysis.
In evaluating Adjusted EBITDA and Free Cash Flow, you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in such presentation. Our presentation of these non-GAAP financial measures should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. There can be no assurance that we will not modify the presentation of Adjusted EBITDA and Free Cash Flow in the future, and any such modification may be material. Adjusted EBITDA and Free Cash Flow have important limitations as analytical tools, and you should not consider these non-GAAP financial measures in isolation or as a substitute for analysis of our operating results as reported under U.S. GAAP. Adjusted EBITDA and Free Cash Flow may be defined differently by other companies in our industry and may not be comparable to similarly titled measures of other companies, thereby diminishing their utility.
Adjusted EBITDA
The following table presents a reconciliation of Net Income (loss), the most directly comparable financial measure presented in accordance with U.S. GAAP, to Adjusted EBITDA:
|
Three months ended March 31, 2026 |
Three months ended March 31, 2025 |
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(in thousands)
|
|||||||||||
|
Net income (loss)
|
$ | (8,989) | $ | (1,591) | |||||||
|
Adjusted for:
|
|||||||||||
|
Interest income
|
(800) | (906) | |||||||||
|
Interest expense
|
1,332 | 18 | |||||||||
|
Benefit for income taxes
|
(20) | - | |||||||||
|
Depreciation and amortization
|
7,713 | 5,000 | |||||||||
|
Stock-based compensation
|
2,333 | 830 | |||||||||
|
Acquisition costs(1)
|
775 | - | |||||||||
|
One-time costs related to IPO(2)
|
2,073 | - | |||||||||
|
Settlements, net of related legal expenses(3)
|
50 | 75 | |||||||||
|
Change in fair value of contingent and deferred consideration
|
630 | - | |||||||||
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Change in fair value of warrant liabilities
|
2,293 | 421 | |||||||||
|
Adjusted EBITDA
|
$ | 7,390 | $ | 3,847 | |||||||
_______________
(1)Represents costs for legal, advisory fees and other costs incurred in connection with the December 2025 ISA Acquisition. Refer to Note 3 of the accompanying notes to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information.
(2)Represents costs incurred related to the IPO that do not meet the direct and incremental criteria per SEC Staff Accounting Bulletin Topic 5.A to be netted against the gross proceeds of the offering and that are not expected to recur in the future.
(3)Represents costs for legal fees and settlement related to litigation initiated by us against a third party, which are not part of our ordinary legal expenses and not reflective of our core operating performance
Free Cash Flow
Free Cash Flow is a non-GAAP financial measure. We believe that Free Cash Flow is a meaningful indicator of liquidity that provides information to management and investors about the amount of cash generated from or used in operations that, after purchases of property, and equipment, can be used for strategic initiatives, including continuous investment in our business and strengthening our balance sheet.
Free Cash Flow has limitations as a liquidity measure, and you should not consider it in isolation or as a substitute for analysis of our cash flows as reported under U.S. GAAP. Free Cash Flow may be affected in the near to medium term by the timing of capital investments, fluctuations in our growth and the effect of such fluctuations on working capital, and changes in our cash conversion cycle.
The following table presents a reconciliation of net cash (used in) provided by operating activities, the most directly comparable financial measure presented in accordance with U.S. GAAP, to Free Cash Flow:
|
(in thousands)
|
Three months ended March 31, 2026 |
Three months ended March 31, 2025 |
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Net cash used in operating activities
|
$ | (3,274) | $ | (7,478) | |||||||
|
Purchases of satellites, property, and equipment
|
(4,055) | (3,194) | |||||||||
|
Free Cash Flow
|
$ | (7,329) | $ | (10,672) | |||||||
Components of Results of Operations
Revenue
We generate revenue primarily from fixed price contract arrangements for RF signal mapping products that are used to analyze and track radio waves, and from signal processing technologies and services. For the three months ended March 31, 2026, fixed price contract arrangements accounted for over 77% of our revenue, and our revenue mix has remained unchanged since such period. We also sell archived data to our customers upon request as well as data on a subscription basis, which is tailored to meet the customer's needs (i.e., providing data daily, weekly, monthly, upon request, etc.). Additionally, we have reseller arrangements with our distribution partners. Revenue under resell arrangements is generally recognized net of any reseller discounts, as the reseller is considered our customer, when the products are delivered to the reseller, provided all other revenue recognition criteria are met. The agreements can be single year or multiyear and often contain minimum commitments by year. For agreements that call for upfront payments of the minimum commitments, revenue is deferred until a sale of our product occurs.
We address our customers' needs through the delivery of data and analytics that provide intelligence across the following applications: Maritime Intelligence, Military Radar Monitoring, GNSS Jamming Detection, Communications Mapping, and Spectrum Exploitation through the collection and delivery of data. The data delivered may be unprocessed or processed depending on the client's needs. For arrangements where the performance obligation is the collection and delivery of data, revenue is recognized at a point-in-time as data is delivered to the customer.
Services provided to the customer may also include professional services, which include on-site data analytics support, studies, trainings services, and other general support services. Professional services revenue including on-site data analytics support and studies are recognized over time
Revenues from our recent acquisition of ISA are derived primarily from long-term contracts with U.S. government agencies and prime contractors to provide engineering services, systems integration and mission support. Contracts are
executed under Federal Acquisition Regulation ("FAR") and include cost-plus-award-fee, cost-plus-fixed-fee, firm fixed-price, time-and-materials and cost-reimbursement arrangements.
Direct cost of sales, excluding depreciation and amortization
Cost of sales primarily includes employee-related costs for personnel involved in the execution of customer contracts, such as salaries, benefits, bonuses, and stock-based compensation. To a lesser extent, cost of sales includes travel and accommodation costs, certain storage and computing expenses, and costs from professional services, including costs paid to subcontractors, solution partners and certain third-party fees which directly relate to revenue generating contracts.
Indirect cost of sales, excluding depreciation and amortization
Indirect cost of sales includes expenses such as indirect travel, allocated indirect fringe costs and other expenses and departmental costs that are related to the fulfillment of contract performance obligations but are not directly attributable to a single revenue-related contract. For certain governmental contracts that are governed by Cost Accounting Standards ("CAS") requirements, these costs are considered expenses which are allowable and included in our total estimated contract costs.
Selling, general and administrative expenses
Selling, general and administrative expenses primarily consist of employee-related costs including salaries, stock-based compensation, and benefits for legal, finance, information technology, sales, and human resources staff which are otherwise not allocated to indirect cost of sales for our CAS contracts. Expenses also consist of consultant expenses, sales commissions, costs associated with professional services, marketing events, and office occupancy-related costs.
We expect selling, general and administrative expenses to increase in the future as we incur additional costs associated with operating as a public company, including increased expenses related to legal, audit, accounting, regulatory, and tax-related services associated with maintaining compliance with exchange listing and SEC requirements, director and officer insurance costs, investor and public relations costs, and other administrative and professional services.
Research and development expenses
Research and development costs consist of hardware and software research and development including designing, developing, and testing new satellite and sensor technology and data science modeling and algorithm development related to our platform. Our research and development expenses consist of employees' salaries, taxes and benefits, consultant expenses, certain software and storage expenses, and materials and supplies which are otherwise not allocated to indirect cost of sales for our CAS contracts.
Depreciation and amortization
Depreciation and amortization costs include the depreciation of satellites, machinery, and equipment, as well as the amortization of finite-lived licenses and patents, trade names, and government contracts and developed technology.
Interest income
Interest income primarily relates to interest earned on cash and cash equivalents.
Interest expense
Interest expense consists of charges on the senior term loan entered into under the Third Amended and Restated Loan and Security Agreement and the mezzanine term loan entered into under the Mezzanine Loan and Security Agreement (together, the "2025 Loans") and the amortization of debt issuance costs incurred to obtain financing under our Loan and Security Agreements (as defined below), as well as the allocation of proceeds to warrants issued to the lender. Debt issuance costs are amortized over the term of the individual agreements using the effective interest method. We also recognize debt issuance costs under the Loan and Security Agreements. These costs are recorded as a reduction of our principal loan balances and are amortized over the lives of the Loan and Security Agreements, respectively, using the straight-line method.
Other income, net
Other non-operating income, net primarily includes adjustments to fair value associated with the contingent consideration, bank warrants and at-the-money warrants, and ISA deferred consideration as described in Note 17 - Fair Value Measurements.
Income tax benefit (expense)
Income tax benefit (expense) consists of federal and certain state income taxes in the United States and income taxes in certain foreign jurisdictions. We account for income taxes using the asset and liability method, whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in laws and rates on the date of enactment.
The benefit for income taxes was $20 thousand (0.2%) and $0 thousand (0.0%) for the three months ended March 31, 2026 and 2025, respectively. The Company's effective tax rate for the three months ended March 31, 2026 differed from the U.S. statutory rate of 21% primarily due to changes in valuation allowance. The Company's effective tax rate for the three months ended March 31, 2025 differed from the U.S. statutory rate of 21% primarily due to changes in valuation allowance.
Results of Operations
The following table sets forth a summary of our consolidated results of operations for the three months ended March 31, 2026 and 2025.
| (in thousands) |
Three months ended March 31, 2026 |
Three months ended March 31, 2025 |
$ Change | % Change | |||||||||||||||||||
|
Revenue
|
$ | 44,941 | $ | 17,885 | 27,056 | 151 | % | ||||||||||||||||
|
Revenue from related parties
|
4,857 | 5,117 | (260) | (5) | % | ||||||||||||||||||
|
Total Revenue
|
49,798 | 23,002 | 26,796 | 116 | % | ||||||||||||||||||
|
Operating expenses
|
|||||||||||||||||||||||
|
Direct cost of sales, excluding depreciation and amortization
|
16,080 | 4,871 | 11,209 | 230 | % | ||||||||||||||||||
|
Indirect cost of sales and other expenses, excluding depreciation and amortization
|
4,340 | 348 | 3,992 | 1,147 | % | ||||||||||||||||||
|
Selling, general and administrative
|
18,111 | 7,935 | 10,176 | 128 | % | ||||||||||||||||||
|
Research and development
|
9,171 | 6,906 | 2,265 | 33 | % | ||||||||||||||||||
|
Depreciation and amortization
|
7,713 | 5,000 | 2,713 | 54 | % | ||||||||||||||||||
|
Total operating expenses
|
55,415 | 25,060 | 30,355 | 121 | % | ||||||||||||||||||
|
Loss from operations
|
(5,617) | (2,058) | (3,559) | 173 | % | ||||||||||||||||||
|
Other income (expense):
|
|||||||||||||||||||||||
|
Interest income
|
800 | 906 | (106) | (12) | % | ||||||||||||||||||
|
Interest expense
|
(1,332) | (18) | (1,314) | 7,300 | % | ||||||||||||||||||
|
Loss from changes in fair value of financial liabilities
|
(2,923) | - | (2,923) | 100 | % | ||||||||||||||||||
|
Other income (expense), net
|
63 | (421) | 484 | (115 | %) | ||||||||||||||||||
|
Total other (expense) income, net
|
(3,392) | 467 | (3,859) | (826 | %) | ||||||||||||||||||
|
Loss before benefit for income taxes
|
(9,009) | (1,591) | (7,418) | 466 | % | ||||||||||||||||||
|
Benefit for income taxes
|
20 | - | 20 | 100 | % | ||||||||||||||||||
|
Net loss
|
(8,989) | $ | (1,591) | (7,398) | 465 | % | |||||||||||||||||
Revenue
Total revenue increased by $26.8 million, or 116%, to $49.8 million during the three months ended March 31, 2026 from $23.0 million during the three months ended March 31, 2025, primarily driven by the factors discussed below.
Revenue from related parties totaled $4.9 million (10% of revenue) for the three month ended March 31, 2026 versus $5.1 million (22% of revenue) for the three month ended March 31, 2025. The decrease in percentage of revenue is driven by the increase in overall revenue from non-related parties.
The following table sets forth a summary of our consolidated revenue by type for the periods indicated, and the changes between comparative periods.
|
For the three months Ended March 31, |
|||||||||||||||||||||||
| ($ in thousands) | 2026 | 2025 | $ Change |
% Change
|
|||||||||||||||||||
|
U.S
|
$ | 28,934 | $ | 14,876 | $ | 14,058 | 95 | % | |||||||||||||||
|
International
|
20,864 | 8,126 | 12,738 | 157 | % | ||||||||||||||||||
|
Total revenue
|
$ | 49,798 | $ | 23,002 | 26,796 | 116 | % | ||||||||||||||||
U.S revenue
U.S revenue increased by $14.1 million for the three months ended March 31, 2026, or 95%, to $28.9 million for the three months ended March 31, 2026 from $14.9 million for the three months ended March 31, 2025. The increase was driven by $15.0 million from the ISA acquisition, partially offset by a $0.9 million decrease in government and other revenue due to reduced sales of RF data.
International revenue
International revenue increased by $12.7 million, or 157%, to $20.9 million for the three months ended March 31, 2026 from $8.1 million for the three months ended March 31, 2025, primarily due to stronger sales of radio frequency data, with contributions from both existing and new customers.
Direct cost of sales, excluding depreciation and amortization
Direct cost of sales increased $11.2 million, or 230% to $16.1 million for the three months ended March 31, 2026 from $4.9 million for the three months ended March 31, 2025. The increase in direct cost of sales was driven primarily by the acquisition of ISA, which accounted for $10.0 million of the year over year increase. Direct cost of sales increased as a percentage of revenue from 21% for the three months ended March 31, 2025 to 32% for the three months ended March 31, 2026, primarily driven by increased headcount, largely attributable to the acquisition of ISA.
Indirect cost of sales and other expenses, excluding depreciation and amortization
Indirect cost of sales increased $4.0 million, or 1,147% to $4.3 million for the three months ended March 31, 2026 from $0.3 million for the three months ended March 31, 2025. The increase in indirect cost of sales was driven primarily by costs related to the ISA business acquired in late 2025, which accounted for $3.9 million of the year over year increase.
Selling, general and administrative expenses
Selling, general, and administrative ("SG&A") expenses increased by $10.2 million, or 128% rising from $7.9 million for the three months ended March 31, 2025 to $18.1 million for the three months ended March 31, 2026. This growth was primarily attributable to higher compensation and professional services costs. Notable contributors included a $1.1 million increase in legal fees, $0.3 million increase in incentive compensation and bonuses, and $0.2 million increase in commission expense. Additionally, general and administrative labor costs rose by $1.5 million and consultant and temporary labor costs increased by $2.6 million. Recruiting agency fees, stock-based compensation and accounting and audit fees each grew by $0.6 million, $0.7 million and $0.6 million, respectively.
Research and development expenses
Research and development expenses increased by $2.3 million, or 33% to $9.2 million for the three months ended March 31, 2026 from $6.9 million for the three months ended March 31, 2025. The increase was primarily driven by higher employee compensation-related costs of $0.5 million, $0.3 million increase in incentive compensation and bonuses and a $0.7 million increase in indirect engineering labor. The remaining net increase of $0.8 million was spread across various R&D categories.
Depreciation and amortization
Depreciation and amortization expenses increased by $2.7 million, representing a 54% increase, from $5.0 million for the three months ended March 31, 2025 to $7.7 million for the three months ended March 31, 2026. The increase was mainly due to $1.9 million in ISA depreciation and amortization of acquisition-related intangible assets, in addition to a $0.6 million rise in depreciation expense associated with satellite assets.
Interest income
Interest income remained relatively constant for the three months ended March 31, 2026, at $0.8 million for the three months ended March 31, 2026 compared to $0.9 million for the three months ended March 31, 2025.
Interest expense
Interest expenses increased by $1.3 million, representing a 7,300% increase, from $18 thousand for the three months ended March 31, 2025 to $1.3 million for the three months ended March 31, 2026. The increase was mainly due to interest expense on the 2025 Loans.
Loss from changes in fair value of financial liabilities
Loss from changes in fair value of financial liabilities increased by $2.9 million for the three months ended March 31, 2026, or 100% from $0 for the three months ended March 31, 2025. The increase was primarily driven by change in fair value of warrant liabilities of $2.3 million and change in fair value of contingent and deferred consideration of $0.6 million.
Other income (expense), net
Other income (expense), net increased $0.5 million for the three months ended March 31, 2026, or 594% to a gain of $63 thousand for the three months ended March 31, 2026 from a loss of $(0.4) million for the three months ended March 31, 2025. The increase was primarily driven by other income from ISA.
Liquidity and Capital Resources
We measure liquidity in terms of our ability to fund the cash requirements of our business operations, including working capital needs, capital expenditures, contractual obligations, debt service, acquisitions and other commitments with cash flows from operations and other sources of funding. We have historically financed our operations primarily through cash from operating activities, cash on hand, the issuance of convertible preferred stock and amounts available under our Loan and Security Agreement (as defined below). Our primary uses of cash are operating expenses, including capital expenditure, personnel salaries and benefits, acquisitions and servicing debt obligations.
Our primary source of liquidity as of March 31, 2026, is our existing cash and cash equivalents of $106.1 million.
We believe that our existing cash and cash equivalents, together with our cash from operations, will be adequate to meet our liquidity requirements for at least twelve months following the date of this Quarterly Report on Form 10-Q. Our future capital requirements will depend on several factors, including our financial performance, which is subject to many economic, commercial, regulatory, financial, and other factors that are beyond our control.
We will also incur significant expenses as a public company that we have not incurred as a private company, including costs associated with public company reporting requirements of the Exchange Act, as well as the corporate governance standards of the Sarbanes-Oxley Act. In the future, we could be required, or may elect, to seek additional funding through the sale of equity securities or debt financing arrangements; however, additional funds may not be available on terms acceptable to us, if at all. Any inability to raise capital could adversely affect our ability to achieve our business objectives.
On May 8, 2026, the Company closed its IPO and received aggregate gross proceeds of approximately $478.4 million before deducting underwriting discounts and commissions and offering expenses. Our net proceeds were reduced by these IPO-related payments and expenses. In connection with the IPO, the Company used $7.5 million of the net proceeds to fund the deferred payment payable in connection with its December 2025 acquisition of ISA and used $49.7 million to repay all outstanding borrowings and associated fees under the Loan and Security Agreement. The repayment of this debt reduced the Company's leverage and future debt service obligations and enhanced liquidity available for working capital and other general corporate purposes.
On May 19, 2026, the Company entered into a new senior secured revolving credit agreement (the "2026 Credit Agreement") with Bank of America, N.A. The 2026 Credit Agreement provides for a revolving credit facility in an aggregate principal amount of $125.0 million (the "Revolving Credit Facility"), maturing on May 19, 2031. Borrowings under the Revolving Credit Facility bear interest at a variable rate equal to, at the Company's option, either (i) Term SOFR plus an applicable margin of 2.25% to 3.00% per annum, or (ii) an alternative base rate plus an applicable margin of 1.25% to 2.00% per annum, in each case based on our Total Net Leverage Ratio. A commitment fee ranging from 0.250% to 0.500% per annum applies to unused commitments under the Revolving Credit Facility. The Revolving Credit Facility is guaranteed by each of our existing and future material domestic subsidiaries and is secured by first-priority liens on substantially all of our and the guarantors' personal property assets and certain equity interests, subject to customary exceptions. The Credit Agreement contains customary affirmative and negative covenants and requires us to maintain compliance with the following financial covenants, each tested quarterly on a trailing four fiscal quarter basis: (i) a maximum Total Net Leverage Ratio as defined by the 2026 Credit Agreement, commencing at 3.50:1.00, and (ii) a minimum Interest Coverage Ratio as defined by the 2026 Credit Agreement of 3.00:1.00. As of the date of this filing, we have no borrowings outstanding under the Revolving Credit Facility. We intend to use available borrowings for working capital, capital expenditures, strategic investments, and other general corporate purposes.
Debt
Prior Loan and Security Agreement
As of March 31, 2026, the Company had outstanding debt of $46.6 million. The Company's outstanding debt consists of borrowings under its Third Amended and Restated Loan and Security Agreement and Mezzanine Loan and Security Agreement issued in connection with the acquisition of ISA. The Company's borrowings are secured by substantially all of the Company's assets and are subject to customary covenants and reporting requirements.
The Company pays interest on the 2025 Term Loan on the first of each month with the first payment on January 1, 2026. The Company pays interest on the 2025 Mezzanine Loan on the first of each month with the first payment made on January 1, 2026.
In connection with the issuance of the 2025 Mezzanine Loan, the Company executed new warrant agreements to issue certain new warrants (the "2025 Bank Warrants") to the lenders of the Mezzanine Loan.
The Loan Agreements contain a number of customary representations, warranties, and covenants that, among other things, limit the ability of the Company and its subsidiaries to (subject to certain qualifications and exceptions): create liens and encumbrances; incur additional indebtedness; merge, dissolve, liquidate, or consolidate; make acquisitions, investments, advances, or loans; dispose of or transfer assets; pay dividends or make other payments in respect of its capital stock; amend certain material documents; redeem or repurchase certain debt; make payments on subordinated debt; and engage in certain transactions with affiliates. The Loan Agreements also contains customary events of default, including, but not limited to: nonpayment of principal, interest, fees, or other amounts; material inaccuracy of a representation or warranty; failure to perform or observe covenants; cross-defaults with certain other indebtedness; bankruptcy and insolvency events; material monetary judgment defaults; and the occurrence of a material adverse change. Upon the occurrence of an event of default (subject, in certain cases, to notice and grace periods), the obligations under the Loan Agreements may be accelerated.
Amortization of debt discounts and issuance costs on the 2025 Loans was $0.2 million and $14 thousand for the 2025 Mezzanine Loan and 2025 Term Loan, respectively, for the three months ended March 31, 2026 and is included in interest expense in the accompanying consolidated statements of operations. These costs are capitalized and amortized using effective interest method over the expected life of the 2025 Loans. The effective interest rates are 7.18% and 12.34% for 2025 Senior Term Loan and 2025 Mezzanine Loan, respectively.
The Company incurred total interest expense on the 2025 Loans of $1.4 million for the three months ended March 31, 2026, which consisted of $0.3 million for 2025 Term Loan and $1.1 million for 2025 Mezzanine Loan. The total interest expense for the three months ended March 31, 2025 was nil.
Subsequent to March 31, 2026, in connection with the IPO, the Company used $49.7 million of the net proceeds to repay all outstanding borrowings and associated fees under the Loan and Security Agreement
We also maintain performance bonds in the form of letters of credit for international customers, reported as restricted cash. As of December 31, 2024, we had three standby letters of credit from the Bank outstanding, and the total standby letter of credit reported as restricted cash was $4.6 million.
Convertible Preferred Stock and Warrants
On December 18, 2025, the Company entered into an agreement to issue 53,012 shares of Series E Preferred Stock to certain investors at $18.86 per share (the "Series E Per Share Price"). The Company received approximately $1.0 million for these shares on January 14, 2026 and subsequently issued the related shares. On January 9, 2026, we issued and sold an aggregate of 756,754 shares of Series E Preferred Stock to certain investors at the Series E Per Share Price for aggregate gross proceeds of $14.3 million. Additionally, in a closing on February 3, 2026, we issued and sold an aggregate of 5,301 shares of Series E Preferred Stock to certain investors at the Series E Per Share Price for aggregate gross proceeds of $0.1 million, in a closing on February 6, 2026, we issued and sold an aggregate of 74,217 shares of Series E Preferred Stock to certain investors at the Series E Per Share Price for aggregate gross proceeds of $1.4 million, and in a closing on February 23, 2026, we issued and sold an aggregate of 106,025 shares of Series E Preferred Stock to certain investors at the Series E Per Share Price for aggregate gross proceeds of $2.0 million.
There were 6,521 Series D-1 Warrants exercised during the period ended March 31, 2026.
Prior to the May 8, 2026 closing of the IPO, all of the Series D-1 Merger Warrants were exercised and all of the Series C Warrants, Series D Warrants and Series D-1 Warrants other than the Series D-1 Merger Warrants, to the extent vested, were automatically net exercised for an aggregate of 3,928,050 shares of our common stock, based on the IPO price of $26.00 per share.
Cash Flows
The following table summarizes our cash flows and cash and cash equivalents for the three months ended March 31, 2026 and 2025.
| (in thousands) |
Three months ended March 31, 2026 |
Three months ended March 31, 2025 |
|||||||||
|
Net cash used in operating activities
|
$ | (3,274) | $ | (7,478) | |||||||
|
Net cash (used in) provided by investing activities
|
(4,055) | 11,537 | |||||||||
|
Net cash provided by financing activities
|
20,751 | 25 | |||||||||
|
Net increase in cash, cash equivalents and restricted cash
|
13,422 | 4,084 | |||||||||
|
Cash, cash equivalents and restricted cash, beginning of period
|
97,273 | 71,766 | |||||||||
|
Cash, cash equivalents and restricted cash, end of period
|
110,695 | 75,850 | |||||||||
Cash Used in Operating Activities
Net cash used in operating activities improved by $4.2 million, or 56% to a net cash use of $3.3 million in the current period compared to a net cash use of $7.5 million in the prior period.
The improvement in cash used by operating activities is primarily driven by favorable working capital movements, including changes in in operating assets and liabilities, partially offset by a higher net loss of $9.0 million, compared to $1.6 million in the prior period.
Cash (Used in) Provided by Investing Activities
Net cash used in investing activities was unfavorable by $15.6 million, or 135%, with a net cash use of $4.0 million in the current period as compared to a net cash provided by investing activities of $11.5 million in during the prior period. The variance was primarily driven by absence of proceeds from the redemption of short-term investments of $14.7 million in the prior period. In addition, there was a higher use of cash for the purchase of satellites, property and equipment which totaled $4.1 million in the current period, as compared to $3.2 million in the prior period.
Cash Provided by Financing Activities
Net cash provided by financing activities rose to $20.8 million in the current period as compared to a net use of cash from financing activities of $25 thousand in the prior period. The increase was primarily driven by proceeds from the issuance of preferred stock of $18.0 million in the current period. In addition, proceeds from the exercise of stock options and warrants of $2.8 million further contributed to the increase in the current period. These inflows were partially offset by payments of debt issuance costs of $85.0 thousand in the current period.
Off-Balance Sheet Arrangements
As of March 31, 2026, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.
Critical Accounting Estimates
Our unaudited condensed consolidated financial statements have been prepared in accordance with GAAP. Preparation of the financial statements requires management to make judgments, estimates, and assumptions that impact the reported amount of net sales and expenses, assets and liabilities, and the disclosure of contingent assets and liabilities. We consider an accounting judgment, estimate, or assumption to be critical when the estimate or assumption is complex in nature or requires a high degree of judgment and the use of different judgments, estimates, and assumptions could have a material impact on our consolidated financial statements. We periodically review our estimates and make adjustments when facts and circumstances dictate. To the extent that there are material differences between these estimates and actual results, our financial condition or results of operations will be affected.
Business Combinations
We account for business combinations under the acquisition method of accounting. Under this method, acquired assets, including separately identifiable intangible assets, and any assumed liabilities are recorded at their acquisition date estimated fair value. The excess of purchase price over the fair value amounts assigned to the assets acquired and liabilities assumed is recorded as goodwill. When the consideration transferred by us in a business combination includes assets or liabilities resulting from a contingent consideration arrangement, the contingent consideration is measured at its acquisition date fair value and included as part of the consideration transferred in the business combination with subsequent fair value adjustments recorded in results of operations. These fair value determinations require judgment and involve the use of significant estimates and assumptions, including assumptions with respect to the selection of valuation methodologies, estimates of future cash inflows and outflows, discount rates, and selection of comparable companies. During the measurement period, which may be up to one year from the acquisition date, if the initial accounting for a business combination is incomplete, we may record adjustments to the fair value of assets acquired and liabilities assumed, with a corresponding offset to goodwill. Transaction expenses incurred in connection with a business combination, other than costs associated with the issuance of debt or equity securities, are expensed as incurred. The operating results of acquired businesses are included in our results of operations beginning as of their effective acquisition dates.
Revenue recognition
We generate revenue primarily from contractual arrangements with the U.S. Government, prime contractors, and international customers in the intelligence, defense, maritime awareness, and crisis response sectors. Our sales are derived from a diverse stream of offerings, including mapping products that utilize our proprietary algorithms to analyze and track radio waves, on-demand access to archived data, subscription-based future data services and professional services that leverage our geospatial and intelligence expertise. We also provide engineering services, systems integration and mission support. To a lesser extent, we also partner with resellers, including exclusive resellers, who market our data products to end users, primarily in international locations where we are legally-obligated to work with a local partner.
Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services. To the extent a contract includes multiple promised goods and services, we apply judgment to determine whether promised goods and services are capable of being distinct and distinct in the context of the contract. If these criteria are not met, the promised goods and services are accounted for as a combined performance obligation.
Transaction prices include fixed fees, reimbursable costs and variable consideration such as award fees, which are estimated at inception and updated as performance criteria are assessed. If the contract contains a single performance
obligation, the entire transaction price is allocated to the single performance obligation. For arrangements with multiple performance obligations, which represent promises within an arrangement that are distinct, we allocate revenue to all distinct performance obligations based on their relative stand-alone selling prices ("SSPs"), unless the transaction price is variable and meets the criteria to be allocated entirely to a performance obligation or to a distinct service that forms part of a single performance obligation.
We typically have more than one SSP for individual products and services due to the stratification of those products and services by customers and circumstances. In these instances, we may use information such as the nature of the customer and distribution channel in determining the SSP. When available, we use observable prices to determine SSPs. When observable prices are not available, we typically determine the SSP using an adjusted market assessment approach using information that may include market conditions and other observable inputs.
Management's estimates of total costs to be incurred and variable revenue to be earned are highly subjective and dependent on its past experience and operations. These estimates are inherently subject to a high degree of estimation uncertainty and may fluctuate significantly from period to period.
Stock-based compensation
We are required to estimate the fair value of the common stock underlying our equity awards when performing fair value calculations. Due to the absence of a public trading market, the fair value of our common stock underlying our stock-based awards has historically been determined by our Board, with input from management and contemporaneous independent third-party valuations.
In valuing our common stock, our board of directors has historically determined the fair value of our business using the market approach. The market approach estimates value based on observable market values for similar assets or securities. Sales and offering prices for comparable assets are adjusted to reflect differences between the asset being valued and the comparable assets, such as, location, time and terms of sale, utility, and physical characteristics. The estimated enterprise value is then allocated to our common stock using (i) the option pricing method, with an option term assumption consistent with management's expected time to a liquidity event and a volatility assumption based on the estimated stock price volatility of a peer group of comparable public companies over a similar term and (ii) the probability weighted expected return method with respect to a scenario in which we completed an initial public offering event.
Fair Value of Warrants
We used a market approach to estimate our enterprise value and then allocated the enterprise value to the liability-classified warrants using an option-pricing model. We are required to estimate the fair value of the common stock underlying the warrants when performing fair value calculations.
Recently Issued and Adopted Accounting Standards
Recently issued and adopted accounting pronouncements are described in Note 2 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
Emerging Growth Company Accounting Election
We are an "emerging growth company" under the JOBS Act, which permits us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We have elected to use this extended transition period until we are no longer an emerging growth company or until we affirmatively and irrevocably opt out of the extended transition period. As a result, our financial results may not be comparable to companies that comply with new or revised accounting pronouncements applicable to public companies.
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