Earnings Call Transcript - SPIR Q1 2024

Operator, Operator

Greetings, and welcome to the Spire Global First Quarter 2024 Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. It is now my pleasure to introduce your host, Ben Hackman, Head of Investor Relations. Thank you, sir. You may begin.

Benjamin Hackman, Head of Investor Relations

Thank you. Hello, everyone, and thank you for joining us for our first quarter 2024 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 on the call today 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. 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.

Peter Platzer, CEO

Thank you, Ben. Good afternoon, everyone, and welcome to today's call. I want to start off by extending my deepest gratitude to our exceptional team dedicated to improving life on Earth with data from space. Their unwavering commitment and boundless innovations are propelling us forward, delivering industry-wide firsts on a regular basis. We have grown at a compound annual growth rate of over 100% since achieving $1 million of revenue in 2017. At the end of last year, we delivered our first quarter of positive adjusted EBITDA ahead of plan. And today, we are at the doorstep of full profitability, starting with continued positive adjusted EBITDA in Q2 and positive free cash flow thereafter. We aim to set the standard in our industry by being a high-margin, profitable, high-growth space company, something that so far has not been demonstrated. We are inspired by leading SaaS companies that grew profitably by more than 20% for 20 years, increasing the market cap over 150x. And we believe Spire's market and growth opportunity are at least as large, driven by our commitment to improving life on Earth with data from space and supported by massive generational trends, including climate impact, security threats, and the power of AI and machine learning for the digital economy of the future. Our team at Spire is shaping the future of our industry, and I could not be more excited about that journey ahead. For over a decade, Spire's trajectory has been shaped by two enduring exponential global megatrends: global security challenges and the escalating impacts of climate change. The ongoing conflict in Ukraine, the expanding geopolitical landscape in the Middle East, and the persistent tensions in the South China Sea underscore the ever-evolving complexities of our world. Meanwhile, climate change-induced weather volatility continues to surprise the world. Just recently, Dubai experienced a deluge, receiving more rain in a 24-hour period than it typically does in an entire year. This led to widespread flooding and disruptions, including at one of the world's busiest airports. Furthermore, scientific records reveal that this past March was the warmest in 175 years of climate data. With elevated sea surface temperatures, experts are bracing for an extremely active Atlantic hurricane season projected to spawn up to 23 named storms. These stark realities highlight the enduring relevance and criticality of Spire's mission. Our impact will not be measured on a quarterly basis, but over the decades to come. In the first quarter, our revenue fell short of expectations, but our commitment to achieving profitability never wavered. We successfully reached the midpoint of our adjusted EBITDA guidance and we remain on track for positive free cash flow this summer. As we've done in the past, we optimized the business for profitability and maintained our steadfast drive towards sustained profitable growth. We have established a strong business foundation, coupled with a highly efficient operationally leveraged business model. As we continue to scale, we anticipate achieving strong profitability, allowing us to prudently reinvest in the business. Looking ahead to the second quarter and beyond, we expect further pivotal moments in our journey, driven by high customer demand and improving bottom line metrics. As Spire delivers innovative solutions that address the most formidable challenges in global security and climate change, we are also integrating cutting-edge advancements in artificial intelligence and machine learning. The speed of change associated with these technologies is astounding. We are at the beginning of a new industrial revolution with the emergence of artificial intelligence, similar to the industrial revolution that took place with the emergence of computers and the Internet. AI and machine learning are quickly reshaping the boundaries of what can be achieved, propelling us to new horizons of possibility. Spire recognized the potential for these technologies to drive demand for our proprietary data. They facilitate a paradigm shift where power now lies with those possessing unique data rather than those with access to massive supercomputers. Our wealth of data, which can only be collected from space, affords us the opportunity to deliver to customers capabilities that exceed previous standards in accuracy, applicability, and value. In the weather industry, we are seeing AI and machine learning quickly upend traditional processes. For decades, the industry relied on physics-based numerical weather prediction models, requiring supercomputing power and lengthy processing times to generate forecasts. Just two years ago, weather experts expressed skepticism regarding the efficacy of AI-driven weather models. However, within a year, a prominent global weather agency began establishing an AI weather forecasting team and model. Recent analyses reveal that their AI model surpasses the accuracy of their long-standing physics-based model, and this advancement was achieved in a remarkably short span of time. This aligns with the rapid changes we are seeing in the industry. Instead of running on a supercomputer that costs $80 million to $120 million, these weather models are now run on a single GPU. Instead of requiring hours to process the data, Spire's AI models run a 10-day global forecast in less than one minute. With these seismic changes in the industry, we are now seeing new AI weather models announced every few weeks. Most of these models have been trained on the same set of initial data, which means that having an additional set of unique data is a significant differentiator. That's where Spire comes into this rapidly changing industry. Spire has world-class data assimilation capabilities; beyond aggregating conventional data sources, we capture our own proprietary space-based data. This rich dataset encompasses a spectrum of information from pressure, temperature, humidity, precipitation, soil moisture, ocean winds, and more. This comprehensive dataset allows us to generate data assimilation grids tailored for training and inference of this new class of AI weather models. Furthermore, the computational efficiency of AI models, combined with our deep knowledge and experience in weather prediction, allows us to generate high-confidence forecasts comprised of hundreds of individual forecasts. This enables us to generate forecasts for low-probability, high-impact events, such as rapidly intensifying hurricanes or severe flooding. Previously, the computational demand was too high for these types of forecasts, resulting in the omission of such events from forecast and probability assessments. Additionally, we are actively pursuing the development of our proprietary AI weather models. AI modeling is an area in which we are prudently investing in addition to collaborating with industry leaders. Crafting our own model allows us to meticulously tailor our neural network architecture, effectively extracting information from Spire's proprietary data and ultimately enhancing the accuracy and reliability of our AI weather predictions. As we progress along each step of this journey, we are looking to monetize our data and capabilities. Beyond enriching the input side of our models, our AI and machine-learning capabilities also extend to the post-processing phase, enabling us to introduce innovative solutions to the market. A recent example is the introduction of Spire's advanced soil moisture insights solution. By leveraging exclusive soil moisture measurements obtained by our satellite constellation and integrated sophisticated AI and ML algorithms, we can offer an unparalleled view of soil moisture around the globe. We are seeing early success with our solutions in the marketplace. We recently announced that we secured a multimillion-dollar deal with a financial firm for our 6-day high-resolution weather forecast and to develop an AI-powered model for long-range forecasting. This is just the beginning of a long list of opportunities. Weather impacts almost every aspect of the human experience. We expect interest from government organizations, logistics companies, energy and commodity firms, insurance companies, and companies with infrastructure that can be impacted by adverse weather. It is estimated that weather impacts $30 trillion of GDP, and 10% of that, or $3 trillion, is mitigatable. This is an absolutely massive market and Spire is in a prime position to capture a portion of it. Our distinctive space-based data positions us as a significant contributor to the revolution being driven by AI and machine learning. Our announced award is the first of what is anticipated to be many opportunities as the marketplace rapidly adopts these new capabilities. Since our founding, we have focused on leveraging space to improve life on Earth. As technologies have advanced, so too have the capabilities that Spire can bring to combating climate change and global security. We have the opportunity and fortitude to provide previously unattainable knowledge and insight about Earth from the ultimate vantage point of space to help people make smarter, better, faster decisions about what to do next in a rapidly changing world. As humans look up to the vastness of space for a glimpse of hope or a sign of the future, space stares back, compelling us to act. At Spire, we are progressing every day with the hope and belief of an even brighter future. And with that, I'll turn it over to Leo.

Leo Basola, CFO

Thank you, Peter. During my section, I will be discussing 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. GAAP revenue for our first quarter was $25.7 million, representing a 6% year-over-year growth. This was below our expectations. There were three main drivers for our revenue performance. First, the data production from our Lemur constellation was impacted by increased solar cycle activity. Some early deorbiting coupled with a delay in the implementation of countermeasures resulted in lower-than-anticipated sales from the delivery of clean data to some customers. Second, the continuing resolution in the U.S. federal government was not resolved until very late in Q1 2024, resulting in delays of new and follow-on orders from government agencies. This was particularly evident in radiofrequency geolocation. The short-cycle high-volume nature of this business impacted both orders and revenues in the quarter. Finally, a third-party propulsion unit integrated into a set of space services assets underperformed against its stated design capabilities, resulting in a longer-than-anticipated lapse between launch and full operation and consequent revenue production for that mission. Nonetheless, and consistent with our commitment to our number one near-term priority of achieving profitability, we kept our costs under tight control and landed at the midpoint of our first quarter non-GAAP operating loss and adjusted EBITDA guidance. For the first quarter, non-GAAP operating loss was a negative $7 million, aligned with our expectations. This reflects a 28% improvement year-over-year. Adjusted EBITDA for the first quarter was negative $1.1 million, also aligned with our expectations and reflects an 84% improvement over the prior year. The first quarter marks another quarter of strong execution since early 2022 in meeting or beating our non-GAAP operating loss and adjusted EBITDA guidance. Over the last two years, we have been navigating through a period marked by challenges from geopolitical tensions to economic uncertainties. However, our strategy has been unwavering, delivering a sustainable stream of positive adjusted EBITDA and free cash flow from 2024 onwards. Although growth is paramount to value generation, I believe that a self-sustaining profitable company that also grows is regarded much more positively in the markets from both an equity investor and debt provider perspective. Generating our own cash flow opens up additional opportunities for Spire given the significant long-term growth opportunities within our addressable markets. Turning quickly to a few additional metrics, reported ARR at quarter-end was over $120 million, reflecting a 15% year-over-year growth. Spire's ARR net retention rate exceeded 100% at 102%. Our remaining performance obligations remained robust at approximately $196 million. We expect a little over 40% of this revenue to be recognized in the next 12 months. Now moving to the balance sheet and specifically our cash position, we ended our quarter with cash, cash equivalents, and short-term marketable securities of approximately $64 million. During the first quarter, we raised gross proceeds of $40 million at an average price of $13.44 per share and have used $10 million to prepay a portion of our outstanding debt and reduce our financial costs. We expect positive adjusted EBITDA in Q2 2024 and remain on track for positive free cash flow this summer. We believe these accomplishments put us in an even stronger position to refinance our existing loan to lower our cost of funding. We have continued to make progress on this front, having spent time with numerous financial institutions to understand the current market landscape better. Given market conditions prevalent as of today, we're targeting to have the refinance completed by the end of 2024. Now turning to our outlook for the second quarter and the full year. We expect a strong rebound in revenue in the second quarter to a record amount in the range of $29 million to $33 million. Given the operationally leveraged nature of our business, we expect the strong revenue growth to largely flow through to the bottom line. We anticipate Q2 non-GAAP operating loss or income to range between negative $3 million and positive $1 million, with a midpoint of negative $1 million. The midpoint represents a $5 million improvement year-over-year and would also represent Spire's best-ever non-GAAP operating loss performance. We expect adjusted EBITDA to once again turn positive and be in the range of positive $2 million to positive $5 million. We expect adjusted EBITDA to remain positive from Q2 2024 onwards. For non-GAAP loss per share, we expect a range from negative $0.31 to negative $0.15 for the second quarter, which assumes a basic weighted average share count of approximately 24.7 million shares. I would like to turn now to the full year outlook. Some of the events that impacted revenue in the first quarter also impact our full year revenue expectations. We expect full-year revenue to range from $122 million to $132 million. This represents 20% year-over-year growth at the midpoint of our guidance. In line with our focus on profitability, we expect to maintain tight cost controls. We anticipate non-GAAP operating loss between negative $11 million and negative $1 million, which at the midpoint represents a nearly $20 million improvement year-over-year. We expect adjusted EBITDA to range from positive $7 million to positive $15 million, which at the midpoint represents a $22 million improvement year-over-year. For the full year, we expect our non-GAAP loss per share to range from negative $1.11 to negative $0.70, which assumes a basic weighted average share count of approximately 24.2 million shares. Before we jump into Q&A, if you allow me, I would like to share my perspective on our company's strength and future. I joined Spire in pursuit of a personal dream to align myself with a company that matters, a company that would allow me to look back and proudly tell my grandchildren that the work I did contributed to resolving the most challenging problems we face on Earth, those uncertainty issues related to climate change and the ever-increasing geopolitical tensions that are escalating daily. Spire has demonstrated since its inception, a strong capability to offer valuable solutions for those challenges through superior and original innovation. In only a decade, Spire moved from manufacturing a nano satellite to managing a fully deployed constellation of satellites, a skill that we're now offering as a service to our customers. We improved the quality and increased the types of data we capture from space, starting with AIS, ADS-B, and radio occultation for maritime, aviation, and weather applications. Now we're widening our frontiers, pushing the boundaries of our capabilities with new assets, detecting GPS jamming and spoofing, capturing greenhouse gas emissions data, and space awareness images and data for wildfire tracking and prevention. While the journey has and will have challenges along the way, it's the unwavering and relentless commitment of my colleagues at Spire that makes all the difference. This is just the beginning, and I see a significant step change ahead of us as we turn free cash flow positive in the summer and then deliver sustainable profitability. Just imagine what this team will be able to achieve when that happens. And now I would like to open the call for questions.

Operator, Operator

Thank you. We will now be conducting a question-and-answer session. Our first question comes from the line of Austin Moeller with Canaccord Genuity.

Austin Moeller, Analyst

Just my first question here. If you have to accelerate Lemur depreciation, do you expect CapEx to materially change this year or next year to maintain the constellation?

Leo Basola, CFO

Thanks for the question. And no, really not. I mean, we basically have a fully deployed constellation, and it's basically a replenishment of our planning. As I've mentioned last call, the solar cycle is clearly impacting some of our assets, the orbiting timing. A lot of those assets were fully depreciated, and we anticipated that eventually they would also deorbit. Some of the assets that we're seeing, the orbit, we will replace and replenish. And no, we still believe that it's between $5 million and $7 million what we will need for our own needs from a data generation standpoint. Most of our CapEx, I would say, a ratio of 80% to 20% is really space services, and 20% is our own constellation needs.

Austin Moeller, Analyst

Could you provide details about the propulsion system failure concerning the space services customer? Additionally, what measures are in place to prevent this from occurring again? Did you also have an insurance policy for that specific customer satellite?

Peter Platzer, CEO

So, as you know, better than many, the supply chain in the smaller satellite space is still not the most robust one. We had gone through a very stringent selection process, looking at over a dozen vendors, whittling them down, seeing factories, and talking with people before we selected one. Unfortunately, the deployed and delivered units once in space came up short with sub-nominal performance from the fact sheet. That has been run to the ground, and we have taken the corrective measures so that it's not going to happen again in the future with this vendor. Therefore, we do not expect there to be repeat issues with that. And you had a last question that I forgot to ask. And what was the last item of your question?

Austin Moeller, Analyst

I just asked if you had an insurance policy on that customer satellite?

Peter Platzer, CEO

So we do not have insurance policies for on-orbit spacecraft. The insurance market so far is available for most launch vehicles, especially the ones that we are currently using. Once these types of spacecraft are deployed on orbit, there is not yet an insurance market available for it. I do expect that in the future, as it becomes more normal to deploy spacecraft, that the insurance market will embrace that as a revenue opportunity. But at this point in time, there is not an insurance market available, unfortunately.

Operator, Operator

Our next question comes from the line of Jeff Meuler with Baird.

Jeffrey Meuler, Analyst

So I think you said that some of the Q1 events impact the full year revenue expectations, but the magnitude of the full year revenue guidance reduction is quite a bit more material. Can you just kind of bridge what from Q1 kind of carries on to a greater order of magnitude and any other factors that go into the full year guidance? And then just maybe talk about demand more broadly and if there's any change in demand drivers?

Leo Basola, CFO

Jeff, first of all, let me tell you that our secular demand drivers have not changed, right? So the issues that we see with climate change and the global security challenges have, if anything, intensified; they haven't really decreased in any meaningful way. When you think of the drivers that I mentioned in my commentary, for example, the continuing resolution, right? This was resolved late in March. A lot of the orders we expected and anticipated from the agencies did not happen in Q1, and some of those orders are trickling through slowly in Q2. While the impact is not going to be only a Q1 item, everything shifts to the right when you think about when we're expecting these orders to come through from some of the government agencies, particularly here in the U.S. When you think about the solar cycle issues we have, we have countermeasures timely now in the latter part of Q1 and Q2, while the latency issues we've had because of the deorbiting of a few of our assets created not necessarily a volume issue with the data provision, but mostly a latency and quality issue. That solar cycle will not finish until the end of the year; I believe NASA and NOAA basically picked this midway through 2024, so things will improve in that regard after 2024. We can see that these things will continue to become a problem that we cannot necessarily overcome fully and timely during the year. Our replenishment strategy puts us in a good path to recover some of the latency issues we’ve had with data provision, and this is why we have rightsized our growth expectation to show it at 20% at the midpoint.

Peter Platzer, CEO

If I add to that, Austin, you asked about the demand picture, nothing has changed; if anything, it has gotten even stronger. And you start to see that coming through in some of our numbers. The ARR per customer has grown almost 30% year-over-year as we continually focus on larger contracts with substantially more growth potential. This is true in every single segment. In every segment, we see contracts showing up that are 10x the size they used to be. Six-figure contracts become seven-figure contracts, and seven-figure contracts become eight-figure contracts. We do see further demand in this kind of regard as well. Just as we leave today, one of our customers delivered this connectivity of Bluetooth to spacecraft. They decided to use Spire for that, quite a magical feat of having a Bluetooth device connect to a spacecraft; their constellation has a target size of 96 spacecraft. There are a number of other similar stories that I expect we will be discussing here in the coming weeks and months. The demand picture has not changed one iota. I believe it is important to consider that as those generation challenges—climate change impact or global security—continue to rise exponentially, it will not be measured in the impact of a month, a quarter, or a few of them. It's going to be measured in years and decades as we have the platform, the business model, and the underlying technology to make a massive impact for years and decades to come.

Jeffrey Meuler, Analyst

And then I respect the ongoing profitability progress and reiterating the free cash flow positive inflection. Just given the magnitude of the revenue adjustment, can you help us understand what you're doing differently in terms of what expenses you're reducing in the model, just given it was my understanding you were already running pretty lean?

Leo Basola, CFO

No, we basically are making decisions around expenses every day. So we are basically slowing down on discretionary spending and prioritizing the things where we see the biggest growth potential, particularly on the marketing and sales opportunities that we have. I don't think we're doing anything that is outrageous concerning expense management; just diligent expense control. You can see our run rate from Q4 to Q1 to Q2, and we’re guiding to a similar run rate without a significant amount of expansion on expenses, but nothing at the moment that should lead you to believe we’re doing anything extraordinary.

Peter Platzer, CEO

No, quite the opposite. Generally, you do have to spend money to grow. If that growth is a little bit shifted out, then you shift out the money you would have spent to grow. There’s nothing particularly magical here; it’s just money that we would have spent for something that is happening now. We're not going to spend later, and you'll see that flowing through in the profitability numbers.

Operator, Operator

Our next question comes from the line of Erik Rasmussen with Stifel.

Erik Rasmussen, Analyst

I guess I'm trying to understand. I mean, we had earnings on March 7, so two full months and a week. At that time, I'm assuming you still knew about the solar activity. The customer resolution seemed like that was something out of your control because I think everyone was in the same camp that it would be resolved a little bit sooner. I can appreciate things getting slower coming out of that, and then you know about the third-party propulsion. I'm just trying to wonder, what else changed or what didn't materialize? Because coming from this, part of what Jeff was trying to ask earlier is that we were at 35% year-over-year growth at the midpoint, and now we've lowered it by 20%. I'm just trying to understand what else would have accelerated that decrease?

Peter Platzer, CEO

Yes. So again, looking at a number that is a few months out from a growth perspective is not what the Spire market demand is showing us. What we are seeing is still the same long-term demand for our products, and if anything, it is increasing. So our long-term growth prospects well above 20% have not changed one iota. And I wish — I'm a physicist, as you know, Erik, but even the best physicists cannot perfectly predict how solar activity is doing things from a week-to-week and month-to-month basis. It’s a highly dynamic process where things can move from you having an asset for another six months to you having an asset for another six weeks. The same thing goes for a continuing resolution perspective. We certainly thought it would be just about done, and then it was not done for the full quarter. The extended early stage after the launch of some of those assets on the propulsion side was also not clear how much the underperformance was actually going to be. You have to figure out how much underperformance you have to determine the delay. They are reasonably dynamic and not straightforward processes. We gave it our best ability to assess at every given point in time. But sometimes, those estimates turn out to be not 100% accurate, and that is, I think, what you're seeing right now.

Erik Rasmussen, Analyst

Then on that, you talked about the long-term growth prospects still not really changing. I mean, I think for last call, can we still see 30% plus growth for revenue in the top line as we sort of come out of these episodic issues that you've had?

Peter Platzer, CEO

We still believe that this is a very, very achievable and sustainable long-term growth rate, where we can be both profitable and produce cash while growing at this rate given the demand drivers. We talked about that many years ago. There are those two massive generational trends supported by three transformative trends. The generational ones are, of course, the impact of weather and climate change and the heightening global security situation that is happening. The supportive trends are the digitalization of the global economy, making data the new oil and more valuable than ever, the heightening power of those that can generate unique and separated data, AI and machine learning further tilting power to those that have data, as it removes much of the advantage from those that simply have access to supercomputers, and increasing investment in space as nations and corporations drive into this market. Every country wants to establish its space capabilities, and every company needs a space strategy. Nothing has changed in those trends, and Spire is exceptionally well-positioned to serve those demands with our own data and then be the picks and shovels for all these ideas that come up.

Leo Basola, CFO

And Erik, we have scratched the surface when it comes to space services and aviation, right? We talked to you about the follow-on orders from our customers that start with a small number of satellites and really want to deploy a constellation. All our customers seem to have that inclination because they truly want global coverage. We have, as I said, scratched the surface with maybe the first three or four customers that have done this with space services, but way more is to come on those shortly. And then on aviation, similarly, you know that we're working on a bunch of new technology that will allow us to provide potentially additional services with the EURIALO project that we mentioned, a secondary air traffic control infrastructure for ESA. There are significant growth drivers and large infrastructure plays there as well.

Erik Rasmussen, Analyst

And maybe just if I can to the margins. Obviously, a step down here; it's understandable with the revenue. But as we think of the longer-term or your more near-term guide, you talked about 70%. Is that still achievable this year? And if we think about the longer-term model, as you gain additional scale and drive further efficiencies, where can margins go and what's the path to get there?

Leo Basola, CFO

So we price effectively most of what we sell above 70%, and we're seeing effectively a short-term impact of the accelerated depreciation of the assets given the lifetime that we're now assigning to the assets due to the solar cycle impact. This is a short-lived impact. We saw it in Q4, Q1; we're guiding the same for Q2. But as you go for the full year and we've taken most of those assets into consideration, things are going to improve radically, which you can see in the P&L. It’s driven by depreciation and amortization at the moment. The replenishment, which we talked about numerous times, we built a constellation of over 100 satellites, and these satellites last for four years. We anticipate that, as we replenish, the capabilities of the satellites will be five to ten times what the early versions can do. So, we’re not going to replenish one-for-one from a satellite standpoint. When you consider that, yes, you should expect my gross profit to continue to improve and remain in the 65% to 70% GAAP gross profit level, which is where we see our business long-term. Again, we do the same with Space Services. Space Services has a significant data provision component after we launch. These cash items are substantial, but also the depreciation accounted for from those assets gets us to roughly that 70% margin for the long run.

Operator, Operator

Our next question comes from the line of Brian Kinstlinger with Alliance Global Partners.

Brian Kinstlinger, Analyst

While you certainly commented that the demand environment hasn't changed, can you speak to the near-term pipeline? Do you see stronger awards in the second half of the year? What's the impact in the second half of the year given the solar activity, and might this lead to some short-term delays?

Leo Basola, CFO

We clearly have a significant pipeline that supports our estimates for growth in the second half. This pipeline comes from both new accounts, and we have our strategy of land and expand, right? So, it's a combination of new accounts and expanding the share of wallet of existing customers. We have good line of sight to follow-on orders from critical space services customers. Some of them will potentially be announced in Q2 and Q3 that are very significant. We have also launched campaigns that support our expansion of data assets during the second half. I would say that as we are able to countermeasure some of those issues, remember that we are the largest cloud producer commercially. What we're facing is not necessarily a volume, but mostly a quality of data that we provide and the latency attached to those services. We have plans to solve some of these issues, and many of the contracts are not lengthy contracts regarding data provision. As they come out for renewal, they reset quantities and pricing.

Peter Platzer, CEO

If you translate a little bit, the global trends into the pipeline, you started to see some of that already. The power of AI is generating far more accurate and valuable forecasts that have recently translated into a multimillion-dollar contract with an industry that has many customers operating under the same constraints and interested in the same kind of data. Each time we put the assets of the first launch of one of those space services customers into orbit, they are keen to deploy them into constellations very soon thereafter. I've mentioned the 96-satellite constellation from Hubble, a Spire customer that now has assets on orbit and in operation. You begin to see how every single time we sign a new customer, and on one side, it translates into larger-scale opportunities for customers of the same type, or with the space services side, that customer grows significantly because they go into a constellation. And that is what we see happening, and that is what is driving the confidence we have in the midterm, long term, and also in the short term for the guidance we've provided.

Brian Kinstlinger, Analyst

That leads me to my follow-up, which takes away from all the questions you asked about some of the challenges right now. In terms of space services, when you have a customer like HANCOM, you aspire to build and operate satellites you announced to that are contracted for. How easy is it for them to use another space services provider for their launch of satellites? You mentioned they have these large constellations they plan long term. What's the competitive advantage for you? Can they use multiple vendors, just maybe taking you through that?

Peter Platzer, CEO

The simple answer is yes, of course. If you're buying, I don't know, BMW as your cars for your company, you could then change that relationship and say, 'I'm going to buy other cars as well.' There are costs for that. When it comes to space, your switching costs become quite significant because the technology isn’t that simple and straightforward. Yes, theoretically, but there is no one in the world that can talk to a customer and say, 'I am building my business on exactly the same technology as the one that you’re using.' If my system doesn't work, yours doesn’t work either. My commitment at Spire to make the technology work is unparalleled. For everyone else, they may just say, 'I’m going to try to fix it,' because they’re not using it. No one puts their technology through the rigor that Spire does. It’s a substantial undertaking. So yes, you could theoretically switch, but it’s a pretty high risk, and no one can prove the same resilience and proven reliability as Spire.

Operator, Operator

The next question comes from the line of Kaila Penry with Quilty Space.

Unknown Analyst, Analyst

A question about the NVIDIA partnership that Spire announced a little bit ago. Can you share any more details about that and let us know if there's any near-term economic benefit associated with that deal?

Peter Platzer, CEO

NVIDIA is in the business of selling GPUs, and the best way to sell GPUs is to make it easy for people to use them for something useful. This means they need access to data and must be provided with ideas to solve problems using those GPUs. For Spire, it means getting access to GPU infrastructure, especially for training models. The trade here is that Spire provides data to NVIDIA for them to train their models as sales material for selling GPUs, and in return, Spire gets access to GPUs to build our models. This enlarges the universe of use cases, creating more customers. It also allows us to build cost-efficient models to sell and make available to our customers, which already translated into potentially multimillion-dollar contracts as something we've recently announced.

Unknown Analyst, Analyst

On the space services division, you talked about Hubble and I’ve seen some other commercial deals announced. Are you seeing any traction from government customers?

Leo Basola, CFO

There are some constellations where we have significant interest from particularly agencies that want to resolve big issues, for example, wildfire tracking. If you live close to Canada, you understand what I'm talking about. Yes, we see significant interest when it comes to space services, along with data and intelligence applications. We're seeing increased interest particularly around wildfire protection assets we have, potentially some greenhouse emissions, and other intelligence applications.

Unknown Analyst, Analyst

And then just a last question. You talked about the propulsion issues. Has Spire given any thoughts or planning to vertically integrate that, seeing how a lot of the other spacecraft systems are something that Spire already has in-house?

Leo Basola, CFO

We have a history of not necessarily vertically integrating, but we do go into manufacturing our own components when we have issues. At some point, we may consider propulsion as well. It’s not an immediate priority. We have other vendors that we’re working with, and we don’t anticipate having these issues again. These issues that we've had are not ones we couldn't fix; it just took a bit longer. That's what I mentioned in my remarks. We will consider in-sourcing some of these critical items when we see capability issues alongside demand or cost challenges.

Peter Platzer, CEO

One hundred percent. As Leo said, we have successfully done this on just about every single component on the spacecraft and we continue to do so. If and when we find reliable suppliers, we enjoy working with them, and I think that experience is mutual. But often, we find issues like the one we just discussed, and then in the short or medium term, it becomes clear that we will have to in-source it because the supply chain is not reliable. Spire has a strong track record in doing that.

Operator, Operator

We have reached the end of our question-and-answer session. And with that, this will conclude today's teleconference.