Spire Global, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Unaudited results are compared with the corresponding 2021 periods. Spire provides space-based data and analytics across maritime, aviation and weather, as well as space services. exactEarth, acquired in November 2021, contributed to year-over-year growth.
Key financial results
Amounts are in millions of U.S. dollars, except per-share data and percentages.
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $19.4 | $9.1 | $37.5 | $18.8 |
| Gross profit | $9.8 | $5.4 | $18.0 | $11.8 |
| Gross margin | 51% | 59% | 48% | 63% |
| Operating loss | $(16.4) | $(13.6) | $(36.4) | $(26.4) |
| Net loss | $(40.5) | $(26.9) | $(58.6) | $(46.6) |
| Adjusted EBITDA loss (non-GAAP) | $(7.3) | $(9.4) | $(17.0) | $(15.4) |
- Revenue and recurring business: Revenue rose 113% in Q2 and 99% in the first half. exactEarth contributed $4.6 million and $9.2 million, respectively. Subscription revenue represented 67% of Q2 and first-half revenue, compared with 45% and 43% in 2021.
- Profitability and margins: Gross margin fell as acquisition-related costs and purchase accounting effects, computing expenses, royalties, personnel, depreciation and strategic customer costs increased. exactEarth reduced gross margin by approximately 13 percentage points, with about half of that effect attributed to purchase accounting adjustments. Operating expenses also rose, including general and administrative costs related to public-company insurance and acquisition support.
- Unusual items: Q2 and first-half net loss included a $22.5 million loss on extinguishment of debt, largely accelerated unamortized financing costs from refinancing the FP loan. Fair-value changes in warrant liabilities benefited first-half results by $9.7 million; the contingent earnout liability change also affected reported earnings. These items make GAAP net loss less comparable across periods.
Cash, liquidity and debt
- At June 30, cash and cash equivalents were $72.5 million, marketable securities were $20.6 million, and restricted cash was $0.4 million. Cash plus marketable securities totaled approximately $93.1 million, excluding restricted cash.
- For the six months, operating cash use was $32.5 million; investing cash use was $33.1 million, including $12.5 million for property and equipment and $20.6 million for short-term investments. Financing provided $25.6 million. Cash, cash equivalents and restricted cash declined by $36.8 million from year-end.
- Long-term debt had a $96.9 million carrying value, net of issuance costs, at quarter-end; the debt table also reports $4.5 million of other long-term debt. In June, Spire refinanced the FP facility with a senior secured Blue Torch facility of up to $120 million. The company reported drawing the facility at closing, with $19.7 million held in escrow pending specified ARR and leverage metrics. The Blue Torch loan matures in June 2026, has a floating rate (9.34% using Term SOFR at June 30), and is secured by substantially all of the company’s and guarantors’ personal property. Principal is due at maturity; covenants include leverage and minimum-liquidity tests.
- Current assets were $120.4 million and current liabilities $28.5 million. Management stated that available resources were expected to fund operations for at least one year from issuance of the statements, while cautioning that actual cash needs depend on growth, spending and other factors and that additional financing may be needed.
Business trends, outlook and risks
- ARR was $85.3 million at June 30, up 133% year over year. Spire reported 667 ARR customers and 692 ARR solution customers; organic ARR net retention was 108% for Q2. Management cited customer additions, expansion of existing accounts and the exactEarth acquisition as growth drivers.
- Management reported a NASA CSDA contract extension and a multi-million-dollar weather forecasting subcontract, described as its largest numerical weather prediction deal to date. The filing does not provide formal numerical revenue or earnings guidance. Management expects cost of revenue and operating expenses to increase in absolute dollars as the business grows, while anticipating operating expenses as a percentage of revenue to decline over time. It expects acquisition purchase-accounting effects to pressure gross margin at least in the near term.
- Risks include continuing operating losses and negative operating cash flow; the cost and integration of exactEarth; satellite, launch, ground-station and third-party data or cloud-service interruptions; customer concentration and government contract uncertainty; competition and changing customer demand; and foreign-exchange exposure. The company reported foreign-exchange losses of $2.6 million in Q2 and $3.5 million in the first half, and does not currently hedge currency exposure.
- Spire identified material weaknesses in financial reporting controls and concluded disclosure controls were not effective as of June 30. Weaknesses included staffing and control environment, risk assessment, segregation of duties, complex transaction accounting and IT controls. Remediation actions were underway but not yet complete; full remediation could extend beyond year-end 2022.
- Management said pending ordinary-course legal matters were not expected to have a material adverse effect, while noting outcomes cannot be assured. COVID-19-related delayed sales cycles, customer buying behavior and launch or hiring disruptions remained risks.
Important facts for investors to verify
- Whether ARR growth and customer expansion translate into recognized revenue, improved gross margins and lower cash burn; assess the acquisition’s contribution separately from organic growth.
- Blue Torch escrow-release conditions, covenant headroom, floating-rate exposure, refinancing costs and the company’s ability to service and repay secured debt.
- Progress and independent validation of remediation of the disclosed material weaknesses in internal controls.
- Customer and government revenue concentration, renewals, accounts-receivable collection and the timing of contract performance obligations.
- Satellite replacement and launch requirements, third-party data obligations, and the operational and financial impact of any service interruption.