Spire Global, Inc. (NYSE:SPIR) Q4 2023 Earnings Call Transcript
Spire Global, Inc. (NYSE:SPIR) Q4 2023 Earnings Call Transcript March 6, 2024
Spire Global, Inc. beats earnings expectations. Reported EPS is $-0.58, expectations were $-0.61. Spire Global, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Hello, and welcome to the Spire Global Fourth Quarter and Full Year 2023 Conference Call and Webcast. [Operator Instructions] A question-and-answer session will follow the formal presentation. [Operator Instructions] It's now my pleasure to turn the call over to Ben Hackman, Head of Investor Relations. Please go ahead, Ben.
Ben Hackman: 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.
Peter Platzer: 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 for our customers how they 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.
And 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, extend 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 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, at 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 as Death Valley (ph) no less, one of the hottest places on earth, and houses balancing on the edge of a cliff after record amount of rainfalls have 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 strain 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 DeepVision, 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 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 data set 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 indeed.
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, for example, 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 rollercoaster 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, and 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 trace onto 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 your 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, many years.
As such, we are also tracking a more conservative metric which discounts the value of future money to a net present value. This more conservative net present lifetime value still covers our customer acquisition cost 8 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 Spired people for millennia, bringing hope for a better future. With a Space economy estimated to reach $1 trillion or more by 2030, as thousands and thousands of companies look for and find 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.
Leo Basola: 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 over the highest ARR required by our debt covenants. With this achievement, we will no longer be providing guidance on this metric, but we'll 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 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, 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 in 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 the discretionary spend 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. And 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 $8 million and $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 with faster and relentless. That's the kind of theme we have 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.
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