Hello, and welcome to the Spire Global Fourth Quarter and Full Year 2023 Conference Call and Webcast. A question-and-answer session will follow the formal presentation. It's now my pleasure to turn the call over to Ben Hackman, Head of Investor Relations. Please go ahead, Ben.

Thank you. Hello, everyone, and thank you for joining us for our Fourth Quarter 2023 Earnings Conference Call. Our earnings press release and SEC filings can be found on our IR website at ir.spire.com. A replay of today's call will also be made available. With me today on the call is: Peter Platzer, CEO; and Leo Basola, CFO. As a reminder, our commentary today will include non-GAAP items. Reconciliations between our GAAP and non-GAAP results as well as our guidance can be found in our earnings press release and in our investor presentation, both of which can be found on our IR website at ir.spire.com. Some of our comments today contain forward-looking statements that are subject to risks, uncertainties and assumptions. In particular, our expectations around our results of operations and financial conditions are uncertain and subject to change. Should any of these expectations fail to materialize or should our assumptions prove to be incorrect, actual company results could differ materially from these forward-looking statements. A description of these risks, uncertainties and assumptions, and other factors that could affect our financial results is included in our SEC filings. With that, let me hand the call over to Peter.

Thank you, Ben. Good afternoon, everyone. I am thrilled to welcome you to today's call. As we embark on this discussion, I want to extend my deepest gratitude to our dedicated team. Their resilience and innovation propelled us from pre-profitability to a landmark year. In 2023, we achieved not only positive operating cash flow, but also positive adjusted EBITDA that surpassed our expectations for Q4. Our journey last year was nothing short of remarkable. We rallied together as a team with grit and determination to be a reliably collaborative partner for our customers. We captured the surging demand for our radio frequency geolocation data, vital for addressing global security threats, and we forged strong partnerships to build powerful solutions for the future. This translated into significant achievements for Spire. We secured multiple million-dollar contracts, reinforcing our market value and trust with our customers. We celebrated the signing of three pivotal significant Space services deals, involving 18 satellites showcasing our expanding capabilities. Our launch of 23 satellites across multiple missions marked a record for the operational versatility and applicability of our solutions. The introduction of our deep vision platform and high-resolution weather model revolutionized how our customers can understand and prepare for imminent weather patterns. The deployment of our satellite mission operations platform signified a leap forward for the industry in efficiency, reliability, and management of Space assets. The signing of a strategic partnership and investment in AI/ML-powered solutions set the foundation for cutting-edge advancements in maritime domain awareness. These milestones contributed to our 10th consecutive quarter of record revenue and a substantial 32% annual revenue growth rate. We met and exceeded our objective of generating positive operating cash flow and we achieved positive adjusted EBITDA earlier than anticipated. These milestones also align with two global megatrends that shape our world today, and have been at the core of Spire's long-term business plan since its inception almost 12 years ago: climate change and global security. From the intensifying weather events to geopolitical tensions, these trends underscore the critical nature of our work at Spire. From floods to droughts to wildfires and devastating storms, the extent of the daily headlines reminds us of the weather volatility that is becoming ever more common. Warmer temperatures are leading to record heat waves throughout the globe and the rapid intensification of storms, while wildfires are contributing to poor air quality in cities thousands of miles away. The U.S. set a new record for the number of billion-dollar weather disasters in 2023, with 28 in total, six more than the previous record, which was set only three years earlier. Already in 2024, shocking images have emerged of a lake forming in Death Valley, one of the hottest places on earth, and houses balancing on the edge of a cliff after a record amount of rainfall caused land to collapse into the ocean. Meanwhile, the world is watching a number of upcoming elections and the events surrounding those elections; speculation abounds on what may result from those outcomes. There has been ongoing conflict in Europe, the Middle East, and strained tensions in Asia. Shipping has been interrupted in the Red Sea. Funding of certain geopolitical activities and sanctions against other activities has resulted in a highly dynamic environment—an environment in which truth and transparency have never been more important, an environment that remains supportive and, some might say, in need of Spire's solutions. Spire has continued to make investments in our products to capture demand stemming from these trends. Last fall, we announced the new weather platform Deep Vision, along with a high-resolution weather model. Forecasts from the Spire high-resolution weather model achieved world-class accuracy, and allow our users to make decisions concerning the weather faster than ever. Through the incorporation of Spire's weather data into government weather forecasts, individuals across the world now have better, more valuable weather predictions. The rapid emergence of AI and machine learning capabilities in weather prediction is swiftly moving the power from those with access to massive supercomputers to those with access to massive super data, in particular, from Space. Spire is at the very forefront of capitalizing on this shift, and I could not be more excited about the new products, services, and partnerships that the Spire team is rolling out to help communities, corporations, and countries tackle the challenges of climate and weather to their safety, business models, and security. Our technological advancements and strategic alliances, like the partnership with Signal Ocean, are a testament to our leadership. Spire will contribute its unique proprietary dataset relevant for precise monitoring of the maritime domain, while Signal Ocean will bring its best-in-class expertise in AI, machine learning, and in particular natural language processing to create new, innovative solutions. Together, we are enhancing maritime digitalization and global security. Moreover, we have continued to see demand for our differentiated, highly valuable solutions. A couple of weeks ago, we announced a multimillion-dollar award from the European Maritime Safety Agency for vessel monitoring, particularly in the polar region, where coverage outside of Spire's space-based data is very limited. During the fourth quarter, at early January, we announced agreements to build and operate a six satellite dedicated IoT constellation for Lacuna Space, a multimillion-dollar award related to weather data from EUMETSAT, and a $9.4 million award from NOAA for eight months of weather data. As geopolitical interests are more frequently turning towards Space, Space Situational Awareness is becoming more important in an increasingly contested environment. We were excited to be deploying the first commercial Space Situational Awareness satellite constellation for NorthStar, through our Space services offering. Our white-glove end-to-end Space services offering allows companies to quickly deploy and rapidly scale a constellation to take advantage of emerging trends, from Space Situational Awareness to wildfire and greenhouse gas monitoring. What starts as a handful of satellites can quickly multiply to a full constellation in a matter of just a few years. As the capability and power of smaller satellites continue to improve tenfold every five years, we are now able to deploy a full constellation in roughly the same time frame in which a single legacy satellite would traditionally have been produced. This is transformational technical capability at work, creating a more prosperous and safe future for all. Looking ahead to 2024 and beyond, our track record speaks for itself. Over the last two years, we've not just met our profitability targets, we more often than not exceeded them, even amid the roller coaster of economic conditions during this period. This speaks volumes about our strategic focus and operational excellence. Our ability to meet or surpass our ambitious annual profitability guidance set each March underscores our unwavering commitment to financial health and shareholder value. In navigating through a period marked by unprecedented challenges from geopolitical tensions to economic uncertainties, including inflation, potential recession, and the rapid shifts in Central Bank policies, our strategy has been unwavering. Our adaptability in the face of such adversity has not only kept us on course, but has also proven the resilience and robustness of our business model. Despite the external pressures, we have not only stayed the course, but have also marked significant milestones towards our goal of sustained profitability. Our anticipation of positive free cash flow by this summer is a commitment we made two years ago, one we are poised to fulfill. This achievement is not just a mere milestone; it is a clear indication of our strategic foresight and the effective execution of our business plan. Our ability to pivot and adapt, all while driving towards profitability, demonstrates the strength and sustainability of our model. Spire's unique subscription business model is the cornerstone of this success. By blending the high barriers to entry and large addressable markets, characteristics of deep-tech with the cost efficiencies and scalability of software companies, we have created a model that not only supports rapid growth, but also ensures profitability. Spire clearly stands out in the industry landscape as our high gross margins and growth rates are not just numbers; they are a reflection of an innovative business model designed for resilience and long-term financial health. Given that all our products are sold as a subscription, we benchmark ourselves against the SaaS metrics of public companies. In 2023, public SaaS companies saw a slowdown in a few of their growth metrics as the industry has pivoted to focus on profitability. Spire has been focused on reaching profitable growth since becoming a public company. As a result of this focus, we have been able to maintain a strong growth rate while dramatically improving each quarter our profitability metrics, reaching our first profitable quarter on an adjusted EBITDA basis in Q4. While revenue growth for public SaaS companies cooled from about 28% to 19% in 2023, Spire excelled with a growth rate of 32%, mitigating the contraction and net retention rate to a mere 15 percentage points, a figure inclusive of a key contract secured at the onset of 2024 and better than public comparables. With eyes trained on 2024, we envision strong top-line growth surpassing 30% and steering towards a 35% midpoint growth guidance. Delving a bit deeper into profitability indicators, the lifetime value of a customer relative to customer acquisition costs shines a spotlight on the profitability of our customer base and whether additional value can be created by investing in more sales and marketing. A benchmark ratio of about 3 times is deemed quite robust in the SaaS domain. Spire, however, currently generates lifetime value of over 12 times our customer acquisition cost, a vivid demonstration of the exceptional and lasting value Spire delivers to its customers. Thanks to Spire's very high gross retention rate, customers may stay with Spire for many years. As such, we are also tracking a more conservative metric which discounts the value of future earnings to a net present value. This more conservative net present lifetime value still covers our customer acquisition cost eight times over. This bolsters our confidence to accelerate Spire's growth by strategically challenging further investment into our sales and marketing efforts, all while preserving a robust bottom line. With our subscription business model, Spire has cracked the code of building a high growth, high margin Space company. As we project our goals further out, we're not content with just maintaining a trajectory; we aim to accelerate, driving top-line growth consistently above 30%, achieving gross margins over 70%, and maintaining positive cash flows. These are more than objectives; they are the hallmark of great subscription companies, and we plan to stand firmly among them. Our achievements to date are just the beginning of this journey, yet they already set us apart in the competitive landscape. We are committed to continuing this trajectory, driving value for our shareholders and redefining the possibilities for our industry. Space has inspired people for millennia, bringing hope for a better future. With a Space economy estimated to reach $1 trillion or more by 2030, as thousands of companies look for ways to leverage Space, Spire is bringing that hope to people and places all around the world. We are mission-driven to improve life on Earth with data and insights that can only be collected from Space. Our commitment to this mission is stronger than ever, and I'm excited for Spire to deliver on this promise in increasingly impactful ways, and thank you for your trust and support on this journey. And with that, I'll turn it over to Leo.

Thank you, Peter. I hope listeners are as excited as I am about Spire. For any CPA, that would be a tough act to follow, but let me keep the energy high. Our results clearly support that level of excitement. The fourth quarter was yet another quarter of strong execution. At $27.7 million of revenue, we met our expectations for the fourth quarter, an even more significant achievement considering that the launch of our NorthStar constellation moved from December 2023 to January 2024, and delayed some revenue recognition. Our Q4 results yet again saw a trend of continued record revenue for the 10 quarters we have been a public company. Our full year revenues of $105.7 million fell within our guidance range and at 32% growth, met our expectations for annual revenue, year-over-year growth of over 30%. Reported ARR at quarter end was $106.8 million. This excludes a $9.4 million, eight-month contract for Radio Occultation or RO weather data. This award was received January 4, 2024, only 96 hours after close, due to an administrative systems issue on our customer side. As a result of this contract not being formally awarded by December 31, we prepaid $2 million of principal on our Blue Torch debt to remain in compliance with the ARR covenant through the end of 2023. Including this RO contract awarded in early 2024, which represents $14.1 million ARR, we are currently at over $120 million in ARR, a level above the highest ARR required by our debt covenants. With this achievement, we will no longer be providing guidance on this metric but will continue to report our ARR results in our quarterly and annual financials. Consistent with the maturing of the company, our covenants will shift to adjusted EBITDA. We will provide guidance on adjusted EBITDA as we have done thus far. We will also start to provide insights on other SaaS metrics with the intention of giving additional transparency around our superior business model. Another metric that we feel provides insight into our future revenues is our remaining performance obligation. As of the end of the fourth quarter, we had almost $200 million of remaining performance obligations that have not yet been recognized as revenue. 40% of that revenue is scheduled to materialize in the next 12 months. This creates a good line of sight regarding a meaningful amount of contractually committed future revenues. For the full year 2023, gross margins expanded to 60% on a GAAP basis and 64% on a non-GAAP basis. This reflects a 10 percentage point improvement over 2022 on a GAAP basis and a 9 percentage point improvement on a non-GAAP basis. As we look forward to the end of 2024, we expect further improvement in our full-year gross margins compared to 2023. Next, I'll discuss non-GAAP financial measures unless otherwise stated. We have provided a reconciliation of GAAP to non-GAAP financials in our earnings release and investor presentation, both of which are available on our Investor Relations website and should be reviewed in conjunction with this earnings call. The Q4 operating loss was better than the high-end of our guidance range at negative $3.6 million. This reflects a 65% year-over-year improvement and a 43% improvement sequentially quarter-over-quarter. Operating margin was negative 13% for the quarter and represents a 33 percentage point operating margin improvement year-over-year. The overperformance can be attributed to diligent management on discretionary spending and a tight control of headcount, which resulted in lower compensation and benefit payouts. Adjusted EBITDA turned positive for the fourth quarter, a result that was not expected until the first half of 2024. At positive $2.1 million or 8% of revenue, adjusted EBITDA was over $1 million above the high end of our range. For the full year, adjusted EBITDA was negative $11 million, a 66% improvement from full year 2022 results. This full-year result reflects the operational leverage we're able to generate from our deployed assets. Let's now move on to the balance sheet and specifically our cash position. We ended the quarter with cash, cash equivalents, and short-term marketable securities of almost $41 million, which was in line with our expectations. We successfully generated positive cash flow from operations as committed. With a $9.2 million sequential improvement, we achieved positive cash flow from operations of $4.1 million. Turning to free cash flow. We saw an 86% sequential improvement to negative $2.2 million in the fourth quarter. This includes a $4.5 million prepayment of debt. We feel confident in our journey to deliver positive free cash flow in the summer of 2024. Now we usually receive this question from investors regarding what we will do with the cash we expect to generate as we become free cash flow positive? As you know, there are mainly three uses of cash: debt repayment; share repurchases; and investments in growth. I would like to expand a bit on the last one because this is where we will most likely allocate most of the cash flow we generate going forward. As Peter mentioned in his opening remarks, we benchmark Spire against SaaS businesses, and we have some of the strongest SaaS metrics in the industry. Not only have we grown revenues at over 30% year-over-year, our LTV to CAC is over 12 times undiscounted and over 8 times discounted. We plan on providing additional SaaS metrics in the future, and what you should take away from this is that Spire provides superior value to our customers with our proprietary data assets and solutions, and that given our high ARR net retention rates of over 102% for 2023; strong gross retention rates; and efficient direct sales approach, we believe the company valuation can benefit significantly over the long run from reinvestment in growth areas, particularly sales, product, and marketing. Going back to the second use of cash, debt repayment. The existing loan terms resulted in Spire paying roughly $16.7 million of net interest payment or about $0.85 a share in 2023. We continue to foster a good relationship with our current lenders. As we discussed last quarter, we believe our credit profile and rating is better than what we're currently paying for. As a comparison, in the quarters prior to taking out our current loan, Spire was burning over $16 million of operating cash flow each quarter. Last quarter, Spire generated over $4 million of positive operating cash flow, and we expect to continue generating positive operating cash flow going forward. Additionally, we achieved positive adjusted EBITDA in Q4, and we added $10 million to our balance sheet in February through a strategic investment that valued our share at $12 per share or roughly a 50% premium on our market price at the time of the announcement. These achievements set us up for continued dialogue with more traditional lenders to explore opportunities for interest rates more in line with our current credit risk profile. It remains our objective to refinance our current loan in the second half of 2024 or very early 2025 at the latest. Now turning to our outlook for the first quarter and full year of 2024. We believe 2024 will be a marquee year for Spire, one where we sustained positive adjusted EBITDA for the year and start seeing positive free cash flow in the summer. Quarterly results can still fluctuate given the quarterly timing of various metrics, but we're confident in our annual commitment, supported by our strong track record. As a reminder, we met or exceeded all six of our bottom line guidance metrics for 2022 and 2023 that were set in March of each respective year. For the first quarter, we expect revenue to range between $27 million and $29 million before stepping up in the second, third and fourth quarter as new Space Service assets begin to deliver data. For the full year, we expect a revenue range from $138 million to $148 million. The 2024 midpoint reflects yet another high double-digit growth year at 35% year-over-year growth. Given the operational leverage we are continuing to see across our business, we anticipate full-year 2024 non-GAAP operating earnings to range from negative $5.5 million to positive $2.5 million, which is a $24.3 million improvement year-over-year at the midpoint. For the first quarter, we expect non-GAAP operating loss to range between negative $8 million and negative $6 million and then turn positive after the second quarter, driven by higher revenues as Space Service assets begin to deliver data. Adjusted EBITDA for the full year is expected to range from positive $13 million to positive $19 million, which represents an improvement of $27 million year-over-year, at the midpoint. For the first quarter, we're expecting a range from negative $2 million to 0, and then for adjusted EBITDA to remain positive starting in Q2 of 2024. We expect our non-GAAP loss per share for the first quarter to range from negative $0.36 to negative $0.27, which assumes a basic weighted average share count of approximately 22 million shares. For the full year, we expect our non-GAAP loss per share to range from negative $0.24 to positive $0.11, which assumes a basic weighted average share count of approximately 22.5 million shares. Turning to our replenishment CapEx needs for 2024. We expect to spend between $5 million and $7 million to replenish our constellation that supports our Data and Analytics business. This is in line with our replenishment CapEx in 2022 and 2023 data that we're now providing in our 10-K as we're continuing to provide additional transparency around our business. Spire has a strong track record of delivering on our commitments. At Spire, we call it being reliable, which is at the core of our values, alongside being fast and relentless. That's the kind of theme we have at Spire, and that's what motivates me every day. Thanks for joining us today. Now I would like to open up the call for questions.

Our first question is coming from Austin Moeller from Canaccord Genuity. Your line is now live.

Hi. Good afternoon. Great quarter. My first question here, probably for Leo, since free cash flow use was so low in Q4, can you detail what working capital or other CapEx items are leading you to maintain positive free cash flow guidance in Q2 to Q3? Or does summer technically indicate that it's moved to the left a little bit?

Austin, thank you. And listen, the free cash flow for summer is what we said before. Around Q2-Q3 is the timeline where we expect that to be the case. Free cash flow includes CapEx, and our CapEx in total is also subject to the Space Services launches and the Space Services activities. So when you think about our free cash flow becoming positive, it's a combination of the timing of the Space Services activities that we do, the build and the launch, and also our ability to turn on some of those data provision contracts that, as I described, and you can see in our presentation, are extremely positive cash flow generators after they go effectively into service. So we have a bunch of those that launched late in 2024 and early in Q1. As those become operational, they will become a significant contributor to our cash flow position.

Great. And just to follow up, this question might be for Peter, but when do you expect that ESA might award a follow-on contract with the EURIALO constellation, after you finish the first demo satellite?

The timeline is that towards the end of the EURIALO project, which is anticipated to take two to three years, the European Commission has indicated that this is approximately when they would like to initiate a large constellation consisting of several hundred spacecraft to enable a few seconds of latency for civilian aircraft tracking across Europe without relying on the GPS signal in the ADS-B information. I expect that discussions will begin around the midpoint of the EURIALO project or slightly beyond, but I do not anticipate any contracts being awarded until after the EURIALO project concludes.

Great. That’s very helpful. Thanks for the details.

Thank you. Your next question is coming from Rick Prentiss from Raymond James. Your line is now live.

Thanks. Good evening, everybody.

Good evening.

Good evening.

Yeah. Hey. A couple of questions first. Appreciate the calendar year, calendar quarter guidance to say, okay, here's what we're going to do. Revenue in the year. That's much appreciated. The couple of questions I had is, obviously, you've got the new Space assets. Did that hit cost of service depreciation in 4Q? And is that kind of the levels we should expect, or was there something unusual in that going from kind of below $10 million to almost $13 million in the quarter?

One thing to consider is that every year we assess our asset lives, and this year is no exception. In Q4, we received a new study from NOAA and NASA on the solar cycle, which allowed us to reevaluate how much that solar cycle affects the useful life of our satellites. Some of the older satellites will now deorbit a bit sooner than we expected, leading us to adjust the useful lives for several satellites. That's the main reason for our reset.

And then, what are the useful lives...

Guys, let me just geek out a little bit for a second here. As you know, the sun has a cycle of roughly 11 years where its activity increases and then decreases. And when the activity of the sun increases, it expands the Earth's atmosphere a little bit, and that impacts all activities in Space. If you go to higher orbits, you also have certain events, they're called single event upsets and total ionizing dose that are above the Van Allen belts where things get a little more rough. In the lower orbit, you have a certain spacecraft that just orbit a little bit quicker. I think what's very beneficial for Spire is the great resilience of our constellation that is deployed, as well as the constant increase in capabilities. A spacecraft today might do something that three years ago took ten spacecraft. So I would expect that over time, the total number of spacecraft that deliver the data that we deliver today to customers and beyond is going to come down rather than go up, simply because more and more assets that we launch are more and more effective compared to the assets that are currently in orbit. As this tenfold performance improvement every five years principle is so deeply embedded, not just in the industry but particularly in Spire, given the full vertical integration of the company.

And what kind of useful life are you seeing across the different types of your satellites?

So a huge. Sorry, go ahead, Leo.

I think it depends significantly on the timing of when you launch them and the size of the asset, and then whether they do or don't have propulsion and the type of mission that we have. So on average, our own constellation still has a four-year average useful life, which is kind of what we expect. And we said four to five years is usually what we would have expected to see. Some of the larger assets tend to have propulsion, and they tend to last a bit longer. So for Space Services, we have some assets that could be in the air longer than the five-year average, four to five years that we have on our assets.

Okay. And you mentioned that some of your, as you produce free cash flow. Glad to see that's still on track for summer. Positive free cash flow. Invest back in growth with likely sales, products and marketing. If we look at the fourth quarter, the sales and marketing was a little lighter and G&A was a little lighter. Is that what we should expect going forward? Unless you're ready to start investing some of that free cash flow or how should we think about investing in sales and marketing versus what we've seen kind of as the year ended out?

Yes. So I would say that is exactly what you should expect. I mean, there are a couple of things that we certainly would want to invest in. Our offering is heavily skewed towards data provision, and we want to invest a bit more in analytics and predictive analytics. We also will expand our product offerings and launch new products. And you will see a bit more spend in marketing and sales feed-on-the-street activities as we start to generate that free cash flow. We described also the lifetime value to cost of acquiring a customer. And that's effectively where we think the biggest return would be for the shareholders at this point because we have very, very strong returns on those investments on the acquisition side. Yes.

Okay. And then, obviously the replenished CapEx. Appreciate you breaking that out, $5 million to $7 million, somewhere to '22 and '23. But obviously the Space Services can be kind of lumpy and chunky. For the guidance of positive free cash flow by summertime, does that assume that some of those Space Services projects are more latter in the year or is it?

The launch occurs at a specific time and involves significant costs. If you look at how the Space Services deal functions in terms of cash inflows and outflows, you will see that all of the capital expenditure is funded in advance by the customer. There are associated fees that support this, but the cash flow can be uneven. You notice cash coming in during the design and manufacturing phases, with a large outflow occurring when we pay for the launch and prepare for it. Once the launch takes place, the cash inflows become substantial. From a profit and loss perspective, the GAAP profit remains relatively stable as we begin to depreciate our owned assets. However, the cash flow can vary depending on when we effectively launch these assets. Generally, you should anticipate approximately $5 million to $7 million in our own replenishment capital expenditure throughout the year. We replace satellites that last about four to five years, and the new satellites perform significantly better than the older models. Thus, we do not need to replace them on a one-to-one basis. We continuously invest in enhancing our capabilities, including the types of antennas at our ground stations and improving downlink speeds. While cash flow for Space Services may be somewhat uneven, an increase in capital expenditure is a positive sign—it indicates growth, increased revenue, and greater future cash flow.

Okay. Very good. Thanks, everyone.

Thank you. Your next question is coming from Jeff Meuler from Baird. Your line is now live.

Yeah. Thank you. Good afternoon. So it was helpful commentary on the impact from the timing of, I think, the NOAA contract as it relates to ARR. And I get that normalized for that. There's good progression, but I think it would have still been below your guidance normalized for that contract timing. Can you just comment on that dynamic as well as on the ARR solution customer trend? I know, you were deemphasizing smaller customers. It just looks like it stepped down more sequentially than I would have expected?

Yeah. So you're right. And Jeff, thanks for your question. The ARR guidance was around $130 million, and we would have been at $120 million with the NOAA contract. The issue is really, you can see it in the news; some of our orders on the federal side were delayed because we had the continuing resolution giving some of the agencies a bit of pause on when to place those orders. So those are the kind of things that impacted our estimate. You can go line-by-line, and the reconciliation is actually a little bit of push out into Q1 or first half of 2024 on those orders.

Got it. And then...

I would say generally, Austin, that's the nature of ARR; a small change in timing can significantly affect what you report. We have not seen any change in customer demand or interest in our products. In fact, we are doing everything we can to ensure we have enough capacity within the system to meet the demands coming from our customers.

Yeah. That makes sense. And I guess this is just related to that. But as you hit free cash flow positive and start to invest more in sales, product marketing, et cetera, just given that that's through the income statement in period, can you give us any sort of framework around multi-year margin expansion? Like, should we expect margins to be more flattish for a few years or are you just signaling that we should expect a more moderated pace of margin expansion? Just anything you can say to help us better model what you're trying to signal?

Yeah. The trajectory that we continue to operate against and we have talked about and we feel very positive and strong about is about 30% growth on the top line above 70% gross margin on the gross margin side, free cash flow positive. I think that is a very, very good framework to think about how this will continue to shake out and move.

Thank you. Your next question is coming from Erik Rasmussen from Stifel. Your line is now live.

Yeah. Thanks and congrats on the results and the positive operating cash flow.

Thank you.

I wanted to follow up on the gross margin comment. Margins did decrease slightly on an adjusted basis from Q3. If we consider a target of around 70%, is that more realistic for the second half of the year as you start to achieve positive free cash flow? Additionally, will that align with revenue growth as the Space Services segment begins to generate data and you implement revenue recognition from that?

Yeah. I would say that you should expect margins to accrete as our revenue continues to grow, as we have told. I would say that you should model margin expansion like we said, and our expected target is to go to 70% gross profit, and that is what you should use in your models. I cannot tell you more than that, I think. A lot of leverage on our model. So every time we get one of those Space Services deals on, right, and they start generating data, they generate very good margins both on the cash and the gross profit side. Every time we sell a new contract, like you just saw with the maritime contract that we just announced, they come with a significant amount of leverage, right. So there's not incremental investment on our side, on the gross profit side to achieve that revenue, value generation; and effectively that generates expansion.

Great. The revenue guidance for Q1 is essentially flat at the midpoint compared to Q4, which appears to be primarily due to the Space Services. You expect Q2 to show an increase and for that trend to continue throughout the year. Is Q1 considered a low point for the year, and could there be any factors that might cause Q2 to be lighter than previously anticipated as a step up?

Yeah. I think I mentioned one of the things that needs to unlock for us to see that step up is the continuing resolution. So as we do that, some of the agency demand that we have seen since Q4 and hasn't really materialized, will materialize in Q1 and then deliver revenue for Q2, Q3, and forward. I would say that after Q2, you should expect things to remain relatively flat, increasing slightly from Q2 to Q3 to Q4. But there is a material step up between Q1 and Q2 as we deploy some of these Space Services agreements.

That's helpful. Great. And then, it seems like the Space Services business is picking up. Can you just maybe comment on how revenues have trended? What's the split in relation to your data services business? And then how do you see that sort of split progressing throughout 2024?

Yeah. Perfect. We talked about the four main business units that we have: Maritime, Weather, Aviation, and Space Services. I would say that the three big ones, and you can consider to them kind of in a similar range, are Maritime, Weather, and Space Services. The fourth one, Aviation, is emerging. I would say that it's a fraction of the other three. So if you do the math, you can come up with, you can do the simple math on 3-3-10, 3-3-3-10, right? Something like that. But my—you asked how we're going to grow? All of the business units are growing double-digit. Aviation starts from a smaller base, and they're going to grow high double-digit as the EURIALO project and the technology that ensues from that project turns into one or two or three or four commercial agreements when we're able to deploy real-time ADS-B data sets to our customers, right? So there's a significant amount of upside potential on the Aviation solutions.

Great. And then maybe just the last question, can you talk about the transition of the large accounts you mentioned last quarter or two, of the change in strategy? I know, we're still sort of early in that process, but any sort of observations you could share in terms of the momentum or potential upside that you've seen from that change?

Yeah. I think, Eric, you can see it in our numbers, right? So we have already seen the result of our price actions and our conscious decision to not pursue very small accounts. They tend to be the least accretive and they don't continue to grow. So our strategy of land and expand is a very important factor of our growth equation. The smaller accounts tend to be small forever. So we want accounts that have an opportunity to really buy more of what we can offer, and we want a larger share of wallet, but we also need a larger wallet. So our decision to really deemphasize that and reprice some of the smaller accounts. You can see already in some of the numbers that we have published for our ARR customer solutions that came down significantly, but that's because of our conscious approach to really not invest time in things that don't have the right payback.

Great. That’s helpful. Appreciate it.

Thank you. Your next question is coming from Suji Desilva from ROTH MKM. Your line is now live.

Hi, Peter. Hi, Leo. Congrats on the strong quarter. On the NorthStar win and just the opportunity in National Security. I want to know in terms of targeting the U.S. and global governments, how large is the incremental opportunity from beyond NorthStar? And how soon can that come online? Is it being delayed by some of what's going on in the government? Just curious some thoughts there.

Yeah. So it's cleverly packing two questions into one, so I will try to answer both of them sequentially. NorthStar is really a customer who is overserved with humanity; we are particularly proud of supporting. They are generating more Space Situational Awareness information with their assets than I think anyone else, definitely commercially, has been able to do. That data is of relevance indeed in the commercial sector, but it is also, as you rightfully point out, of great relevance on the defense side. Overall, the conversation that we have on planet Earth is often about wildfire and greenhouse gases. The conversation we have in Space is generally equally intense and heated up about Space Situational Awareness. So I think we're quite excited for the growth of NorthStar's business. The powerful thing of the business, as I think Leo had mentioned in some of his remarks, is that something that starts off at one, two, three, or four spacecraft can then very, very rapidly grow to eight, 16, 32 spacecraft and beyond. So the upsell opportunities to grow with our customers’ business is very rapid, as Spire has the ability to answer the demand from our customers, who are trying to answer the demand from their customers very, very rapidly. Certainly, demand for Space Situational Awareness—who is doing what, where, when, and how—is increasing both on the civil side and the defense side. Overall, the defense side is definitely a market which for better or worse we see tremendous opportunities for Spire to contribute to a more safe, balanced, and transparent world. As the intensity of conflict increases all across the world, the ability to generate activity reports, the ability to geolocate assets that use radio frequency, which is just about any asset on planet Earth, is becoming more and more valuable. It's certainly something where we are excited to be a provider of the transparency in supporting those that are trying to shine a light on those activities and be a contributor to a safer world. We certainly see a lot of future possibilities there for Spire as a company.

Okay. Great. And then my other question is on the maritime market. You've talked in your materials and talked much in materials about it being lagging other logistics and transportation, industries and digitization. I'm curious how the partnership with Signal Ocean and the AI/ML assets they have kind of maybe accelerates maritime into that better? Any color there would be helpful to understand as we go forward.

Yeah. We believe that the maritime industry is just on the cusp of a new era of digitalization as more and more companies recognize the value of the data that can enhance operations, that can enhance what is happening on the oceans, which is driving over 90% of global trade. It is feeding the planet. It is not just the transportation; it’s feeding a commodity market. So it is an incredibly rich economy that some people say is like $4 trillion, but it is driving an even larger portion of the global $100 trillion economy. The digitalization is really at the cusp. And Spire sees itself as wanting to be the premier data provider in this universe, enabling other companies to grow based on that best-in-class dataset. AI and machine learning are technologies that really enhance the value of this data if you have the right AI and machine learning technologies and capabilities yourself. I think that is really where Signal Ocean shines in having some exceptional capabilities there. I believe that this partnership can enable other players to make the most of the combined value of more data that can generate more insights through AI and machine learning. So we're quite excited to continue to be a positive force for change towards this digitalization curve with our partnership with Signal Ocean, but also a lot of other conversations that we have here in parallel for those partnerships to drive the digitalization of the maritime economy as one of the, if not the largest provider of clean, valuable, premier data of what is happening on the oceans every single day, every single minute.

Okay. Thanks, Peter. Appreciate the color. Thanks, guys.

Of course.

Thank you. We reached the end of our question-and-answer session. And that does conclude today's teleconference and webcast. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.