Earnings Call Transcript - SPIR Q1 2022

Operator, Operator

Greetings and Welcome to Spire Global First Quarter 2022 Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Ben Hackman, Head of Investor Relations. Please go ahead, sir.

Benjamin Hackman, Head of Investor Relations

Thank you. Hello everyone. And thanks for joining us on our first quarter 2022 earnings conference call. Our results Press Release and SEC filings can be found on our IR website. A replay of today's call will also be made available. With me on the call today is Peter Platzer, CEO; and Tom Krywe, 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, which can be found in our earnings press release. Some of our comments today may contain Forward-Looking Statements that are subject to risks, uncertainties, and assumptions. In particular, our expectations around the integration of our acquisition results of operations and financial conditions are uncertain and subject to change. Should any of these fail to materialize or should our assumptions prove to be incorrect, actual company results could differ materially from those 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.

Peter Platzer, CEO

Thank you, Ben. Spire posted first quarter results that beat our Q1 guidance on both the top and bottom lines. As market volatility, inflationary pressures, and supply chain constraints continue to make headlines, Spire is bringing insights to help our customers drive stability and operational efficiencies during these dynamic times. Tracking high-value assets and locations and geolocating targets have demonstrated the power of space-based data and insights. Customers recognize the value of Spire data, and we have seen them expand across our data products and up the value chain. We look for continued growth as more use cases for Spire's data become apparent. Now we will get into the details in a bit, but as a result of our Q1 performance, we are raising the low end of our full-year guidance range of ARR, as our pipeline of new business opportunities continues to grow. We now see full-year ARR in the range of $101 million to $105 million. On the bottom line, we are continuing our relentless pursuit of profitability and our goal of being cash flow positive in 22 to 28 months. Spire's first quarter results reflect the strong talent and immense effort put forth by everyone at the company. We are privileged to have a world-class team of professionals that redefine what is possible every day, with an air of humble, calm, and collected confidence. We are continuing to push the limits of technology and enable solutions that benefit humanity. Our team of about 400 global employees stands proud as we watch our Lima Satellites being propelled into orbit, from which they serve our customers with mission-critical information day in and day out. What was once thought impossible now seems like an everyday occurrence at Spire. Without the dedication, professionalism, and creativity of our engineers, sales leaders, teammates building and operating our satellites, data analysts, customer success professionals, and all those that keep our business running reliably and smoothly, we would not be here today. And for that, I want to say a heartfelt thank you. During Q1, our team successfully launched six satellites with two different launch providers. The general launch included our 150th satellite, which possessed a hundred times the processing power of our first-generation spacecraft, a great reflection of Spire's rapid innovation capability. These satellites support a diverse array of customer use cases, including the Austrian Space Forum study of the space debris environment in low Earth orbit and Aurora Tech's identification and monitoring of wildfire risk areas along with early hotspot detection. The team showcased our values of speed, reliability, and collaboration as we worked to change launch providers shortly before a scheduled launch to ensure mission success for our customers despite some problems that a particular launch provider had. Being launch provider agnostic, we were able to go from initial call to onsite satellite integration in just 21 days. As launch provider options continue to expand, Spire stands ready to seek the best value in reliability, schedule, and cost to support our customers' needs. While Spire has just recently become a public company, we have been building, launching, and operating satellites for nearly a decade. We have always been vertically integrated, building our own satellites in our state-of-the-art manufacturing and testing facility. Spire has the fourth largest satellite constellation overall and the largest multipurpose constellation on orbit. We have spent years building out our large global ground station network and obtaining licenses from numerous jurisdictions. We excel in data that is only available from space, as 95% of humanity lives on only about 3% of the world's footprint. There are large areas of the planet where data collection via terrestrial means is impractical or simply impossible. Our hundred-plus satellite constellation allows us to track ships and airplanes as they traverse the oceans and poles. And we have the ability to collect weather data anywhere, be that Mount Everest or the middle of the Amazon, the Saharan Desert, or the Arctic long before that weather hits near your home. Our Geolocate RF signals in access-denied areas to support national and global security. Spire's proprietary radio frequency technology was built on the premise of being software-defined, which means we can upgrade it while operating in space. Our fully deployed constellation continues to be enhanced through software updates as well as deployment of refreshed hardware capabilities that are continuing to improve at the rate of about 10x every five years, faster than Moore's law. These updates allow for the continued expansion of the size, power, capacity, data processing, and data volume available to our customers. We capture data once and sell it many times, creating operational leverage and driving margin expansion. Our subscription-based model for our data and analytics solutions creates a low-friction pathway to capture incremental value as we offer and provide enhanced services to our customers. Every day, we collect hundreds of millions of new data points and process terabytes of data. Day or night, rain or shine, Spire satellites collect data covering all of earth about every 15 minutes or about a hundred times every day. This massive data haul augments our large data vault of unique proprietary data from space that we have been building for almost a decade and recently augmented further through the acquisition of Exact Earth. With these valuable data sets, our teams utilize both machine learning and AI to create products that solve customer problems. We offer different levels of data and analytics depending on our customer's needs, from clean data to smart data, to predictive analytics and full-fledged solutions. We help our customers answer what is happening, what will happen, and what should I do? There are four core strategies that we continue to execute against to drive our business growth. These four growth pillars are: Number one, invest in sales, marketing, and product. Number two, expand into new geographies and use cases. Number three, expand the capabilities of our data and our analytics. And number four, execute strategic acquisitions to strengthen our market position. Regarding the first of our growth pillars, investing in sales, marketing, and product, Spire was designed from the very beginning to be a global company with world-class facilities and offices in the U.S., UK, Singapore, Luxembourg, and Canada. The dedicated professionals at Spire are literally working around the clock for our customers. This global footprint allows us to attract the best talent from a global pool. So as we continue to build out our sales and marketing team, we look for individuals that have experience listening to customers to solve their specific problems. For example, we are targeting individuals with domain experience related to certain industry verticals like maritime, financial services, supply chain, aviation, or renewable energy. Likewise, we look for individuals with specific geographic experience who know how to best navigate the nuances of selling in a specific cultural and economic context. We also attract individuals from the global pool of professionals with deep experience in enterprise subscription services. At Spire, we offer our teammates the opportunity to work with space, data, and analytics solutions that make a true difference in the world, enabling our customers to grow their business more sustainably, faster, and more profitably. Our sales and marketing hires this quarter have enabled us to expand our geographic reach and begin focusing on sales in Central America and the Middle East. Not only does this fit with our first pillar of investment in sales and marketing, but it also touches on our second pillar of expanding into new geographies. Beyond expanding into new geographies, we have also focused on expanding our use cases. To share just a few examples of new use cases, earlier this year, we announced a deal with NorthStar. This is a new space-as-a-service relationship to deliver and operate a constellation of satellites focused on space situational awareness and debris monitoring. The initial award spending four years is for three satellites with pre-agreed options to expand both the time and value of the contract as NorthStar scales to a full constellation of dozens of satellites. With this advanced constellation, NorthStar will be able to monitor space from space, delivering timely and precise orbit determination, collision avoidance navigation services, and proximity warnings to the global satellite community. Additionally, we have an ongoing partnership with Slingshot Aerospace in which we will provide GPS telemetry data that will help with identifying and mitigating ground-based radio frequency and GPS interferences. This is one of the increasing number of examples where Spire is supporting the United States Department of Defense. Approximately $21 trillion of global trade is expected to occur this year, and the ports through which it passes have different restrictions due to COVID. As some areas are opening up, others are closing down. As the world economy continues to deal with supply chain challenges, we are providing data and insights to intelligence companies to help them optimize their solutions for the cargo industry. Weather data provided to Zeus Agrotech in Brazil allows them to better process agro-climatological and water data and, in turn, help its customers make better decisions with respect to their agricultural activities. Our ability to provide hyper-local weather data enables our race car customers to be more competitive in Formula 1. These are just a few of the variety of ways in which our data is used every day to provide truth, transparency, and insights on a truly global basis. We thank our over 600 customers for putting their trust in us to deliver results that enhance their business and missions. We look forward to working with many more from our estimated 200,000 customer total addressable market. All our investments to date - technology, people, licenses, and data - mean that we are in a position to scale the company and grow from $1 million of annual recurring revenue in 2016 to approximately $100 million of ARR in 2022 in just six years. We are looking forward to our continued momentum along this growth path. And with that, I will turn it over to Tom.

Thomas Krywe, CFO

Thanks, Peter. The first quarter was another outstanding quarter of execution that carried forward our momentum from the end of last year. Q1 revenue increased 86% year-over-year to $18.1 million, which topped the high end of our guidance of $17.5 million and was driven by increased adoption of our solutions by existing customers and recent new customer additions. ARR at quarter end was $81.6 million, up 134% year-over-year, which also exceeded the top end of our guidance and was driven by key wins in weather and space services. This resulted in adding $10.9 million of sequential quarter-over-quarter growth, a 15% increase. We ended the quarter on the upper end of our guidance range with 627 ARR solution customers, a 271% increase year-over-year. Our organic Q1 ARR net retention rate and 12-month net retention rate were both 106%. We continue to see overall growth from our existing customers as they expand across and up the value stack from clean data to smart data to predictive analytics. We also see the dollar amount that existing customers are spending with us by buying multiple solutions increasing as they leverage our solution diversity and our ability to solve numerous use cases. Next, I will be discussing non-GAAP financial measures unless otherwise stated. We provided a reconciliation of GAAP to non-GAAP financials in our earnings release that should be reviewed in conjunction with the earnings call. Our operating loss for the first quarter was $12.8 million or negative 71% operating margin, which was $2 million better than our Q1 guidance range. This compares to negative 86% last quarter and negative 84% in the year-ago quarter. The outperformance in the quarter was the result of strong revenue flowing through to margin and a lower headcount-related spending. While we continue to make investments in our future growth, we remain focused on driving efficiencies in the business to reach profitability. Total adjusted EBITDA for the first quarter was negative $9.7 million, which was $1.8 million better than our guidance. We ended the quarter with cash, cash equivalents, and restricted cash of $91.6 million. As we discussed before, this balance provides us with sufficient cash to run the business and support our four growth pillars as we pursue profitability. Nonetheless, we continue to evaluate options presented to us to expand or replace our credit facility. This will add incremental cash and provide us enhanced flexibility to efficiently and strategically run the business. Now turning to our outlook for the second quarter and full year 2022. For the second quarter, we expect total revenue to range between $18.2 million and $19.2 million, representing a year-over-year growth of 105% at the midpoint. The sequential increase in our Q2 2022 revenue reflects the incremental ARR added during Q1 and takes into account exchange rate headwinds. We expect Q2 ending ARR to range between $88 million and $89 million, which represents a year-over-year growth of 142% at the midpoint. ARR solution customers for Q2 is expected to range between 655 and 665. We expect non-GAAP operating loss for Q2 to range between $13 million to $12 million. Our non-GAAP operating loss guidance reflects increased hiring to support our rapid growth and investments in our growth pillars. Adjusted EBITDA for Q2 is expected to range from negative $9.9 million to negative $8.9 million. We expect our non-GAAP loss per share for Q2 to range from negative $0.12 to negative $0.11, which assumes a basic weighted average share count of approximately 139.8 million shares. For the full fiscal year, we expect total revenue to range between $85 million and $90 million, representing a 102% year-over-year growth at the midpoint. Despite potential headwinds from exchange rates, we are maintaining our guidance range. We are raising the low end of our ARR range by $1 million, and now expect year-ending ARR to range between $101 million and $105 million. ARR solution customers is expected to range between 720 and 740. We expect non-GAAP operating loss for the full fiscal year to range between $47.5 million to $42.5 million, representing an $800,000 improvement from our previous guidance due to our strong results in Q1 and efficiencies within the business. The guidance continues to reflect our ongoing focus on investments in our growth pillars and striving to drive operating leverage and improve margins in our pursuit of profitability. We expect adjusted EBITDA for the full year to range from negative $34 million to negative $29 million. Non-GAAP loss per share for the full fiscal year is expected to range from between negative $0.43 to negative $0.39 and assumes a basic weighted average share count of approximately 140 million shares. We continue our progression towards being cash flow positive now in 22 to 28 months, reiterating our previous projections. In closing, we are very pleased with the Q1 execution across all areas of the business, along with a strong growth trajectory that we see for the remainder of the year. Thanks for joining us today, and with that, I would like to open the call up for questions.

Operator, Operator

Thank you. At this time, we will be conducting a question-and-answer session. Your first question comes from the line of Stefanos Crist with CJS Securities. Please proceed with your question.

Stefanos Crist, Analyst

Hi, thanks for taking my questions. On the six new satellites you launched, did all of those have the inter-satellite link technology, and can you maybe update us on what percentage of the fleet is currently equipped?

Peter Platzer, CEO

They did not all have the inter-satellite links, and I actually don't have the exact number off the top of my head on how many of them did have it. They are our most modern and upgraded technologies and they served a pretty wide variety of use cases for customers. We had the debris monitoring in orbit from the Austrian Space Forum, as well as use cases for Spire replenishment data. So it was a diverse set of satellites. But I don't know off the top of my head how many had inter-satellite links, but we would be happy to get back to you with the exact number.

Stefanos Crist, Analyst

Perfect. Thanks so much.

Operator, Operator

Your next question comes from the line of Erik Rasmussen with Stifel. Please proceed with your question.

Erik Rasmussen, Analyst

Yes, thanks and congratulations on the results and execution in the first quarter. Maybe just my question on the better-than-expected non-GAAP operating loss; how much of the $2 million outperformance came from scale or stronger revenue versus the headcount spending? Additionally, on the inflationary concerns, what sort of headwinds are you expecting this year, and can you quantify that?

Peter Platzer, CEO

Yes, that is a great question. I mean, the coverage on the revenue and how well we did: we were $600,000 better than the guidance on the top end of our range on the revenue. That flowed right down to the margin side. So we got that gain from out of the $2 million that we exceeded on the non-GAAP operating loss. The rest came from efficiencies that we had in the business and some headcount-related expenses being less than expected. So we did well on both fronts; the top-line and the bottom-line exceeded our guidance. As far as the rates and our current credit facility has interest rates that are fixed, so we are solid on that front. And then as we look to expand or increase our credit facility, we will look at interest rates, watch the market, look at statistics over time, and build that all into our analysis to make the proper decisions.

Erik Rasmussen, Analyst

Great. Thank you.

Operator, Operator

Your next question comes from the line of Ric Prentiss with Raymond James. Please proceed with your question.

Ric Prentiss, Analyst

Thanks! Good afternoon, everybody. A couple of questions on my side. One is easy, Tom - you mentioned obviously some potential FX headwinds out there, some within the second quarter, but also potential for the year. What is your kind of baseline assumption for FX rates from here that is baked into the guidance?

Thomas Krywe, CFO

Yes, I will take the first one. Thanks. On the headwinds and the interest rates, we did build that into our guidance. So, we actually are maintaining our revenue guidance for the full year. And that is also assuming that built into that projections in our guidance. So despite having that and because we do have a large amount of business outside the United States, we are maintaining our guidance for the revenue and then actually tightened our range for ARR dollars. So, we moved up the low end of the range to $101 million to $105 million. So we are really confident in our ARR, as you can see from our results.

Peter Platzer, CEO

And Ric, to your other question, it certainly is a very dynamic situation on the global scale. What we have found is that the services we offer our customers are very core to them. I mean, we have seen this during the COVID period and we have seen this now; customers really rely on us to run their business and as such, we have continued to see very high net retention rates, above 100%. When you look at the challenges that we see on a global scale, one of them is understanding the global supply chain where Spire has one of the most unique and insightful views that one can have through our ability to track all trade on the oceans and all trade in the air by tracking all the aircraft and ocean vessels. I think that represents a potential tailwind for us. The other reason for concern on a global scale, as you read in media, is the geopolitical situation. We've seen how commercial space companies can bring truth and transparency to such a geopolitical situation. We have experienced a fair amount of momentum from that area as well.

Ric Prentiss, Analyst

Great, that helps. Thanks, guys. Operator, before our next analyst question, I would like to ask a question from the Say Technologies platform. Last earnings call, Peter said it is harder to convey Spire services to the public since it is not a physical product like Rocket Lab or Space Mobile. With a new head of Investor Relations, how much progress has been made to bring more public attention to Spire?

Peter Platzer, CEO

So, first of all, I really appreciate the engagement that we have seen on the Say platform. Thank you for your questions. It’s fascinating for us to know what you are concerned about. What we have done is we have deployed a two-pronged approach here: on one side, increasing resources that we bring to bear, and on the other side, increased engagement with the investment community. I hope you have seen that we were able to land a new and highly experienced Director of Investor Relations in Ben Hackman, who has over 20 years of experience in the aerospace and defense industry. But on top of that, he was the number two in the Investor Relations department of Boeing, one of the most celebrated Investor Relations departments in the industry. He also has experience in financial analysis and forecasting, including his role as a CFO. In short, he really understands the industry, the numbers, and the value proposition of Spire. On the engagement side, to give you a few stats, we had three initiations this year already, all of which were by ratings. We presented at six conferences and have three scheduled in the next two months. We participated in five non-deal road shows and had at least 30 investor conversations already. So quite an active calendar; the good news is that I really enjoy those conversations. We look forward to keeping that pace up and indeed increasing the pace of engagement and bringing additional resources to bear.

Operator, Operator

Our next question comes from Jeff Meuler with Baird. Please proceed with your question.

Unidentified Analyst, Analyst

Hi, thank you. It's Stephen on for Jeff. My first question is about the transition from clean data to predictive solutions. What percentage of your customers are currently utilizing some of those higher-level offerings, and how quickly are you seeing adoption by customers after their initial purchase?

Peter Platzer, CEO

Because it is a subscription, we really have this low-friction pathway for customers to increase the types of services they procure from us to help them solve further business problems. That, of course, results in a retention rate that is quite attractive at substantially over 100%. We see an increasing number of customers take advantage of that, and we see that as a growth path for Spire over many years to come to offer additional solutions up that value chain to our customers.

Thomas Krywe, CFO

And we have seen the improvement, obviously in the first quarter with our net retention rate increasing from 104% to 106%. As we said in previous calls, the back half of the year, we really spent on adding new logos and new ARR customers. We are starting to see the benefits of having those now do the expand part of the line, expanding. And as Peter mentioned, we have four solutions so that we can cross-sell; we are in so many industries. We could sell both to the government and commercial sectors, and we're not limited in that way. We have the chance to go sideways and then also up the stack, so there's a really great opportunity for us to keep driving that net retention rate up as we land customers because we give them so many different options and use cases that we can solve.

Unidentified Analyst, Analyst

Great. And then let me just expand on an earlier question. The additional on-orbit services you referenced as part of the January launch, can you help us understand what those additional capabilities are and how many more satellites are necessary for the constellation to leverage those new capabilities?

Peter Platzer, CEO

There are capabilities which we have developed on almost a weekly basis and upload to our satellites through software upgrades. RF Geolocation is a classic example. Other capabilities that are immediately available to customers after launch have been on numerous spacecraft, like computing at the edge, which brings AI and machine learning capabilities on a supercomputer type level to on-orbit data collection and analysis. We've rolled that out both internally for Spire and for our customers. The RF Geolocation, into satellite links provide benefits not just on a full constellation basis but also give customers access to it on small clusters, allowing them to do geolocation using a small cluster based on the RF Geolocation. Our exceptional knowledge of Spire satellites regarding their time on orbit, location, and relative speed on orbit flows into the products we offer to customers. These capabilities are generally available at launch immediately and then increase in value over time.

Unidentified Analyst, Analyst

Great. Thanks.

Operator, Operator

Your next question comes from Elizabeth Grenfell with Bank of America. Please proceed with your question.