Spire Global, Inc.

Greetings. Welcome to the SPIRE Global Second Quarter 2022 call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note, this conference is being recorded. I will now turn the conference over to your host, Ben Hackman, head of IR. You may begin.

Thank you. Hello everyone, and thanks for joining us for our second quarter 2022 earnings conference call. Our results 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 Tom Crywee, 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. Some of our comments today may 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 fail to materialize or should our assumptions prove to be incorrect, actual company results could differ materially from these forward-looking statements. A description of these risks, uncertainties, and assumptions, and other factors that could affect our financial results is included in our SEC filings. With that, let me hand the call over to Peter.

Thank you, Ben. And thank you, everyone, joining us on the call today. SPIRE continued to drive the business forward in Q2. we again delivered results that were better than expected for revenue and for margin guidance. Complementing our relentless drive for profitability, we also successfully closed a $120 million credit facility, further strengthening our balance sheet and allowing us to confidently execute on our four growth pillars as we continue on our path towards being free cash flow positive in 19 to 25 months. While the macro environment has continued to deteriorate meaningfully throughout Q2, with mentionings of inflation, recession, and war on a seemingly daily basis, Spire's business prospects and opportunity set continue to be strong. The difficult environment requires businesses to make tough decisions with regards to balancing growth and profitability, and we remain at the very core of our customers' business plans. One can see this in the continued improvement of our already high retention rates we delivered yet again in Q2. Our customers look to SPIRE for data, insights, and solutions to run a more efficient and reliable business and manage the volatility of the current economic environment. Throughout Q2, we saw healthy interest in our data and solutions adding 65 new ARR solution customers beating our expectations. With a fully global trade and weather, SPIRE provides a unique perspective that is only available from space. However, we are not immune from the global macro environment. For example, We now expect several million dollars of negative foreign exchange impact to our 2022 revenue, given that Spire sells its solutions to customers in roughly 60 countries, and exchange rates have been highly dynamic. The macro environment has also lengthened the time from initial conversation to contract signature for a handful of our larger pipeline deals. And given the ever-changing market conditions that businesses are contending with, we are also seeing some of our customers needing to go through additional approval cycles, while others are taking longer to obtain the necessary funding. While the pipeline remains extremely robust and growing, we're carefully watching our cycle time to close. Turning now to our business, Spire's fully deployed constellation provides global coverage passing over the Earth 100 times a day and collecting hundreds of millions of data points. Much like the Internet in its early days, we continue to see new and diverse use cases for the data we collect. Whether it be topical conversations like tracking the first grain vessel departing from Odessa or seeing the changing traffic patterns around Taiwan last week, SPIRE listens to the heartbeat of global activity. we are encouraged to see global conversations gain increasing traction on topics such as climate change, for example, evidenced by the U.S. Climate Bill announced last week. Thanks to our deployed scale of operations and investments in innovation made to date, we are confident that we are exceptionally well positioned to help government and commercial customers alike solve problems that are becoming front of mind. I'd like to take a moment to talk about some of these wins we secured in the quarter. Our maritime team was awarded a contract from a Fortune 100 company to provide data that allows them to better meet the needs of their customers. Analyzing this data from SPIRE allows their customers to cut costs and improve efficiency by providing insights, for example, to perform predictive maintenance. FIRE's ability to provide rich insights on multiple different attributes of a vessel, including vessel type, capacity, and size, along with life data, including the vessel's position, current voyage status, reported destination, and ETA, was key in winning this competitive account. Customers continue to appreciate the value of our weather offerings and have consistently awarded us follow-on contracts. During the quarter, we received a follow-on contract of $6 million from NASA for Earth observation data. This data was provided under the commercial SmallSat data acquisition program, and SPIRE has been providing data since 2018. The CSDA program offers Earth observation data that is critical to the efforts of U.S. government agencies and researchers solving some of humanity's biggest challenges like climate change. Recent heat waves in Europe and diametrically opposed weather events of concurrent drought and flooding in the United States clearly indicate the immediate risks posed by extreme weather. The U.S. Congress is poised to enact the largest bill to date, releasing billions in funding to help fight this threat. The success of the CSDA program and SPIRE's role in it is a great example of how partnerships between the private and public sector can accelerate our path to building a better, more sustainable future. SPIRE is extremely well positioned to take advantage of opportunities to partner with the U.S. government and others around the world to tackle the risk posed by climate change. Also during the quarter, SPIRE was awarded a TCOM subcontract for weather forecasts at aerostat sites. The multi-million dollar subcontract is SPIRE's largest numerical weather prediction deal to date. SPIRE's weather forecasts will play a crucial role in efficient and effective operations of these large-scale tethered weather balloons. Space-based data is the differentiator between potentially damaging downtime and operational success, especially in remote areas of the world. SPIRE's unique ability to assimilate large amounts of weather data into SPIRE's proprietary numerical weather model was crucial for TECOM in placing their trust in us. Turning to space services, SPIRE recently won a highly competitive contract for a greenhouse gas monitoring service from space. This contract has the potential to grow to over $100 million of revenue for Spire, showcasing the scalability of our solution. The customer will leverage Spire's robust, reliable, and scalable infrastructure to receive their data through a simple API on a global basis. The data is used to spot and contain greenhouse gas leaks, as well as provide insights for other key decisions on the fight against climate change. This is a great example of what we can do with space services, helping amazing companies who are doing important work scale and expand their impact quickly, building a more sustainable and prosperous future for all. We have continued to see strong customer adoption of our space services model. We previously announced a deal with Northstar focused on space situational awareness and space debris that could grow to more than $200 million of revenue to SPIRE, along with an eight-figure deal with Sierra Nevada Corporation for a service to the U.S. government in signal intelligence and signal geolocation. Just to give you a rough sense of the scope of our space services business, over the past several quarters, space services as an average accounted for roughly 25% of our business. Turning now to technology updates, where we continue to make prudent investments in our technology to add value to existing customers and aid in the acquisition of new customers. These investments span both our hardware and software capabilities and allow us to widen our already substantial competitive mode and pave the way for future business opportunities. The weather market continues to be one of our larger long-term opportunities, with an estimated near-term market size of $22 billion. Listening to our customer needs, we invested in the capability to deliver optimized forecasts 15 days out, expanding our previous offering of the more industry-typical seven-day forecast. Investing in this technology allows us to solve additional use cases for an even broader set of customers. Utilizing machine learning, we continuously work to optimize our forecasts by leveraging the vast data vault that we have accumulated to train our models to deliver better and more valuable forecasts. We recently announced a partnership with RoundSpace to deploy hyperspectral microwave sounders to augment our already substantial weather data collection. These microwave sounders will enable us to deliver a higher level of measurement accuracy for both moisture and temperature, which are essential in numerical weather prediction. This data will join our existing data from radio occultation, reflectometry, and polarimetric RO fed into our proprietary data assimilation system This data drives our in-house global numerical weather prediction model, which runs on our high-performance compute cluster of up to 10,000 cores. This affords SPIRE a unique, sustainable, competitive advantage in providing our customers with highly valuable, accurate weather prediction solutions. We also have continued to invest in our signal geolocation and intelligence capabilities. We recently deployed additional satellites and equipped them with an RF chain capable of capturing and geolocating SATCOM in the L-Band. Presence of these signals in certain locations and under certain circumstances is indicative of activities that are of critical importance to some of our government customers. Further enhancing our signal geolocation and coordinated Earth observation offering, SPIRE also developed the ability to fly our satellites autonomously in formation using differential drag. Our autonomous software uses the Earth's atmosphere to control the distance between satellites, causing them to fly in a coordinated formation without the need for additional hardware or costly propulsion. The system can be enabled on any SPIRE satellite through a remote software upgrade, highlighting the power of SPIRE's focus on software-upgradable space systems. The global signal and intelligence market is estimated to be over $13 billion currently, with a sizable and rapidly growing contribution from space-based geolocation and spectrum monitoring capabilities. Bringing these capabilities online expands our offering for new and existing customers, providing insights to governments to help make the world a safer place. Our regulatory and licensing strategy is helping SPIRE to propel the business forward by capturing high-value, mode-extending licenses. For several years, SPIRE has been working with U.S. government stakeholders to secure U.S. licensing support for SPIA's inter-satellite link technology. In Q2, we successfully completed pre-coordination efforts with NASA, NOAA, and the U.S. Air Force. The FCC is now processing SPIA's inter-satellite link authorization request, and we anticipate that the license will be issued shortly. Furthermore, we recently completed coordination of more than 20 S-band and X-band ground stations. This effort, another multi-year process, represents an approximately 30% expansion of Spire's ground station network. The ability to implement inter-satellite links on our U.S. assets and the coordination of our ground station network are a great example of how Spire's regulatory strategy is designed to help the company maintain its first-mover advantage in an increasingly competitive area. Last, but certainly not least, we bolstered our people team this quarter with leaders who bring decades of experience to their roles and will help us innovate and implement best practices in people operations, talent acquisition, and total rewards as we drive recruitment of top talent and elevate the employee experience. Every day, my colleagues at Spire are pushing the envelope of what is possible. Our people are the driving force of our organization, continually propelling us forward and are critical to our long-term success. This is yet another way Spire is investing to stay ahead of the curve and recognizes the importance of people for our ability to take full advantage of the massive long-term opportunity in front of Spire. As we continue to prudently invest in geographic locations where people can congregate, collaborate and innovate together, we are excited about opening a Melbourne office, which is expected to open in Q3. We have long been committed to the Australian market and the opportunities in the wider APEC region. A dedicated, diversified, growing team and a physical location in the region will allow us more direct access to customer opportunities and top talent from the region. The achievements in the second quarter highlight our continued execution across all four of our growth pillars. We remained focused on investing in sales, marketing, and product, expanding into new geographies and use cases, expanding the capabilities of our data and our analytics, and executing strategic acquisitions to strengthen our market position. Notwithstanding the current headlines, I have never seen the long-term future for SPIRE as bright as I do today. Awareness and interest in SPIRE solutions continue to rise, fueled by the global trends of fighting climate change, increasing global security demands, and ensuring sustainable and peaceful use of space. With an addressable market of nearly $100 billion over the next several years and countless opportunities beyond that, we are well positioned to help build a better future thanks to our substantial scale, competitive advantage, and market leadership in our core verticals. And with that, I'll turn it over to Tom.

Thanks, Peter. The second quarter saw another strong quarter of results. Q2 revenue increased 113% year-over-year to $19.4 million, which topped the high end of our guidance of $19.2 million and was driven by increased adoption of our solutions by existing customers and recent new customer additions. ARR at the quarter end was $85.3 million, up 133% year-over-year, ARR was impacted by the recent macroeconomic environment, which resulted in some of our greater than seven-digit deals taking longer to close. We ended the quarter with 692 ARR solution customers, a 243% increase year-over-year. This exceeded our expectations by 27 ARR solution customers over the high end of our guidance. Our organic Q2 ARR net retention rate was 108%, up from 106% in the first quarter of 2022. We continue to execute on our land and expand strategy as we added just over 90 net new ARR solution customers during the first two quarters of fiscal year 2022. The addition of these new customers will then provide the future opportunity to expand just like we've seen in our recent quarter over quarter improved ARR net retention rates by offering our customers various levels of value for coverage, latency, data sets, analytics, and the number of solutions. Next, I'll be discussing non-GAAP financial measures unless otherwise stated. We have provided a reconciliation of GAAP to non-GAAP financials in our earnings release that should be reviewed in conjunction with this earnings call. We improved our operating margin to negative 52% from negative 124% a year ago and negative 71% last quarter, showcasing our operational leverage and focus on driving profitability. Our Q2 operating loss was $1.9 million better than our guidance, which was a loss of $10.1 million. The outperformance in the quarter was a result of strong revenue flowing through to margin and lower headcount related spend. 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 second quarter was negative $7.3 million, which was $1.6 million better than our guidance. We ended the quarter with cash, cash equivalents, restricted cash, and short-term marketable securities of $93.5 million. In addition, we have approximately $20 million in an escrow account that we will be able to access once we reach $96 million of ARR, which we expect to achieve before the end of the fiscal year 2022. The $120 million credit facility we obtained from Blue Torch Capital during the quarter highlights the strength of our business and bolsters our healthy balance sheet. Proceeds from the new credit facility were utilized to extinguish our existing facility, and the remaining balance will be used to drive our four growth pillars, providing the strategic flexibility to run the business. Now turning to our outlook for the third quarter and full year 2022. For the third quarter, we expect year-over-year revenue growth of 109% at the midpoint, with a range between $19.5 million and $20.5 million. The sequential increase in our Q3 2022 revenue reflects the incremental ARR added during the first half of fiscal year 2022 while also taking into account exchange rate headwinds. We expect Q3 year-over-year ending ARR growth of 101% at the midpoint. with a range between 90.3 million and 91.3 million. AOR Solution customers for Q3 is expected to range between 710 and 720. We expect non-GAAP operating margin to be at negative 57% at the midpoint of both the revenue and non-GAAP operating loss, compared to 142% in the year-ago quarter. Non-GAAP operating loss for Q3 is expected to range between $11.8 million and $10.8 million. Our non-GAAP operating loss guidance reflects increased hiring to support our rapid growth and investments in our growth pillars. Adjusted EBITDA for the third quarter is expected to range from negative $8.7 million to negative $7.7 million, and we expect our non-GAAP loss per share for Q3 to range from negative 11 cents to negative 10 cents which assumes a basic weighted average share count of approximately 139.9 million shares. For the full fiscal year, we expect year-over-year revenue growth at 88% at the midpoint, with a total revenue range between 80 million and 83 million. Revenue guidance reflects continued headwinds from both exchange rates and further impact from the macro environment, with exchange rates being the primary contributor to our guidance range. We expect year-ending ARR to range between $101 million to $105 million and our ARR solution customers to range between $735 and $745. We expect non-GAAP operating loss for the full fiscal year to range between $46.5 million to $43.5 million or a negative 55% operating margin at the midpoint of both the revenue and the non-GAAP operating loss. This compares to negative 105% from the full fiscal year 2021. The guidance continues to reflect our ongoing focus on investments in our growth pillars and ability to drive operating leverage and improve margins in the pursuit of profitability. We expect adjusted EBITDA for the full year to range from negative 33 million to negative 30 million. Non-GAAP loss per share for the full fiscal year is expected to range from between negative 42 cents to negative 40 cents and assumes a basic weighted average share count of approximately 139.8 million shares. We continue our progression towards being cash flow positive in 19 to 25 months, reiterating our previous projections. In closing, this quarter we saw continued success in our land and expand strategy, by adding new ARR solution customers and increasing our revenue growth from our existing customers. We also continued the relentless drive towards the path to profitability and took the opportunity to improve the balance sheet and our cash position with the new credit facility. Thanks for joining us today. And with that, I'd like to open the call up for questions.

At this time, we will be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Our first question is from Eric Rasmussen with Stifel. Please proceed with your question.

Yeah, thanks. And congrats on the results and execution in this tough environment. Maybe just going to guidance and your outlook for the year, you did maintain the ARR and held your net loss at $45 million, even as you lowered revenue, I think, roughly by $6 million at the midpoint. You cited FX, but then you also talked about longer sales cycles and customers having issues, some customers having a longer time to get funding. If you sort of look at that $6 million, where does that fall within sort of the FX and those other areas?

Yeah, thanks, Eric. I would say the FX was the driving force there, was the primary reason for us having to lower that guidance. We did talk about some of the deals pushing out a little bit, but we are really excited about the Q3 and Q4 sales pipeline that we have in front of us, the deals that we've closed already in Q3, such as the NOAA deal of 1.7 that we announced a couple of weeks ago. And that's reflected in our guidance and why we are maintaining our ARR

at 101 105 for the end of the year right and um maybe what so seems with the fx uh yeah having a fair amount of exposure there um i think you've cited 60 different uh countries do you have any hedging strategies to sort of maybe mitigate uh this risk

Yeah, we are, I mean, trying to focus on more customers doing U.S. dollar deals. We actually did lower our percentage of revenue coming from, you know, the currencies other than the U.S. So that is one big driver, trying to get more contracts in U.S. dollars. Beyond that, we haven't looked into any specific hedging aspects other than really focusing on getting more contracts in USD to start with.

Great. Thanks for taking the questions.

Our next question is from Rick Prentice with Raymond James. Please proceed with your question.

Good afternoon and evening, everyone. Good evening. I want to follow up on Eric's question there a little bit. On the ARR guidance, is that saying that even with FX hits, Do you expect to achieve 101 to 105 in ARR, or is ARR really not reflective of kind of the FX pressure?

No, the ARR is reflective because we are adjusting the sales pipeline to deal with, obviously, the ever-changing rates. So, yeah, it does include that impact, and we are maintaining that. And, again, it just comes down to the confidence we have with the pipeline and what activity we have in front of us for the rest of the year, such as how well we've been expanding with our existing customer base. You can see that the net retention rates are on the climb two quarters in a row and the deals that we've been closing and announcing over the press releases recently.

Okay. And when you think of the relentless pursuit of free cash flow, positive free cash flow, Help us understand the different levers there as far as revenue growth, cost control, but also wanting to invest in the four silos and CapEx. CapEx did make a little high to us in the quarter, but just help us understand what levers you're pulling to get to that positive in the next, call it, two years.

I mean, we're looking at all of them, and we're focused on all of them. Clearly, we are driving the top-line growth with how many customers we've been adding quarter over quarter. We had over 90 customers we added since the beginning of the year, so very focused on that. On the landing customers, we're obviously focusing on expanding with them with offering multiple sets of data sets across the stack, up the value chain stack, and we've seen that with the net retention rates on the climb. You know, on the cost front, as we mentioned in the past, the leverage cost structure obviously plays huge dividends where we're leveraging the Constellation and the ground stations to cost some of it all four solutions, some of it over the three solutions. So, you know, those are levers we're looking at. You mentioned the CapEx. We do expect that the CapEx to decline in the Q3 and Q4 range to get in the more of the $4 million to $5 million range. We just had an anomaly of timing issue this quarter for CapEx. So we're looking at all those levers and finding any way that we can do that to drive that down. And you can see that in the stats, right? Our gross margins improved 5 percentage points quarter over quarter, both gap and non-gap. The non-gap operating loss not only improved on a margin standpoint, but also on a dollar standpoint, quarter over quarter and year over year. So all those are great indicators on that path to profitability.

And if I maybe add something to that, Rick, you've seen us now repeatedly talk about the power of our software-defined space infrastructure. You know, adding capabilities by software upgrades that allow us to solve for additional use cases with the existing assets, monetizing even stronger what we have deployed is yet another lever of the type of technology that we have built and that we are executing against.

Makes sense. One more on the financial side. You were able to maintain the adjusted EBITDA guidance midpoint, tightening the range a little bit. Are there FX benefits that are helping you on the adjusted EBITDA line kind of make up for the revenue shortfalls, trying to think of where all the different employees are based for the cost side?

Yeah, we did, of course, get benefits because we do have international employees, just like we do a lot of the sales international also. So we did get some benefit from that. But there was a lot of leverage and efficiencies that we pulled through, some things that we'll be able to announce and hopefully the next earnings and things like that on improvements we're making on the cost front.

Last one for me is more strategic. A lot of interesting news in space over this earnings season, kind of a race to merge of some of the talking satellites. Also, the FCC came out in kind of a rare 4-0 ruling, Democrats and Republicans together, saying it's time for the FCC in the United States to kind of update their view on the space race. Peter, can you give us some kind of thoughts about why we're seeing consolidation happening now in some different areas of space and what you would like to see the FCC address as they look at space more closely.

That's like a gem. I love talking about this. So I think when you assess the value of merging or consolidation, you need to start with what are the cost and the revenue synergies for the combined entity that you get like this fabled one plus one is three. So it makes a lot of sense when people have products that are not very differentiated from each other and looking for the same customer. Obviously, you're going to get a lot of cost synergies, and you're going to get stronger market leadership position. And that has been, I think, a pretty successful consolidation or roll-up strategy for and I think Spire has done a little bit of that ourselves. So I look for a consolidation where that is true, where you have this clear and obvious cost and revenue synergies. I think some of the talk that I have seen, and I'm curious to have a longer conversation with you offline, is more like sticking things together that don't actually have necessarily a big impact Customer overlap or revenue overlap or cost overlap. And I think that does not necessarily make that much sense. I think the third type of consolidation, either organically or inorganically, that sometimes makes sense is vertical integration. You know, when you think of probably the strongest story there, SpaceX, They started with the launch segment and then are getting into the data service segment, leveraging their launch capability as being fully vertically integrated and keeping all the margins from the launch business inside their overall data business. So that's how I would think about the consolidation across the industry. I think some of the talk, quite frankly, is quite a bit overblown But I think that where you have highly overlapping technologies that are not very differentiated with regards to what they offer to the customer and is going after the same customer, that's probably where it makes the most sense. Did that answer your question? Yeah, that helps.

From the FCC?

On the FCC side, I think the FCC is in a powerful position to strengthen the global competitiveness of the U.S. space environment. Sorry. And I have seen regulators in other countries kill an existing or diminish, destroy a a burgeoning space economy by taking missteps on the regulatory side. And I think the FCC has been a very, very strong and reliable partner for Aspire. You know, you heard us talk about expanding our assets that we have with the FCC in terms of spectrum. And I think the FCC is in a really strong position to strengthen the U.S. global competitive landscape. by bringing on board regulation that enhances the competitiveness rather than diminishes the competitiveness. That is based upon the new technology that exists today and will drive the capabilities that can be delivered from space for everything from Earth observation to national security over the next decades, rather than backward looking and looking at, you know, what has been in place in the 50s and 60s during the Cold War when everyone was launching bus-sized devices for the next 25 years. So really looking at the new technology and the rapid innovation that is happening can give a country a massive competitive advantage in driving innovation inside the country, building space giants, rather than driving it out of the country, as I have seen some other countries do by the regulators making a bit missteps. So I'm really looking forward to the FCC leaning into their powerful role in strengthening U.S. competitiveness and driving commercial capabilities and innovation. to deliver to both the commercial market but also the local government and DOD market capabilities that are becoming more and more relevant as space is becoming a contested environment.

Great. That helps a lot. Thanks for your thoughts.

Our next question is from Jeff Muller with Baird. Please proceed with your question.

Yeah, thank you. I know this is about the third question you've gotten on the topic, but I'll try to ask it in a pointed way. The 2022 ARR guidance, it implies, I guess, at least 12 million of sequential growth going off of the Q3 guidance. That would historically be a really nice quarter for you. I hear you that the pipeline supports it, but anything else you can say seasonal factors, just other supporting evidence to give us confidence in that Q3 to Q4 ramp to reconcile with the elongation of the pipeline conversion process, even if the pipeline could remain good. Thank you.

So let me try this time around and see if I can add something that Tom hasn't said already. I think we highlighted some of our gross deals on the space services side, which have the capacity and capability to grow from the current size into the tens and hundreds of millions of dollars by moving from providing data to our customers from one or two payloads on orbit to 20 or 30 payloads on orbit. That is a huge leverage in our system that we have. Similarly, I mentioned beforehand the software upgradeable nature, which allows us to roll out capabilities across our constellation very rapidly and then provide capabilities to customers from a large number of locations, so to speak, on orbit. Again, providing that scale that really, truly no one else can do but Spire. I don't know if that adds additional flavor. Tom, maybe you can add something as well.

Yeah, I think, as I mentioned earlier, the It just is where the large influx of, you know, the end of the calendar year tends to be, you know, bulky quarters. Everybody's cramming to get things done before the end of the year. And we see that in the pipe. We see that in the number of opportunities that are available in the quarter, which is significantly higher than other quarters. And plus, I think we had in the early part of the year, some new teams get formed on the sales side and the momentum that they're building and building that pipe is we'll start to really kick in now in the third and fourth quarter.

Okay. And then, I mean, so some of the talking points come off of that answer, but you gave us, you know, the software upgrades, the sales teams, and Peter's prepared remarks. You talked about the executive team build out. Just help us understand any other marks of, that productivity is driving the better profitability instead of being kind of behind on where you'd want to be on the growth investments and what still is a tight labor market for the skillset that you pursue?

I mean, literally just before this, we were talking about the time it takes to go through the earnings script when we do it the first time and when we do it the second time, and that time goes in half. And that is just true for just about any human activity that you can think of. The first time you do it, it just takes substantially longer. As we have people now with more and more experience that have done this more often, we just get better and more efficient in what we do and how we do it. And being just very, very conscious and having now actual people, because we are at the right size, whose job it is to make us faster and more efficient, allows us to take the benefit of those economies of scale as well as the economies of scope that we have. It just takes us today substantially less time to do something than it took us 12 months ago. And that is from the hardware side all the way down to the contract side. To give you a really stupid example, it used to take probably a week to two weeks to get an NDA signed because there was lawyers involved and we had to send it around and mark up and stuff like that. Now there is a self-service form that anyone inspired can click on a link on the Internet, send it to the customer, it gets signed, and self-serve within 36 hours, and NDA is signed, and we can engage in detailed conversations with the customer. Just to give you one stupid little example there.

And I think... Oh, sorry. Just to add on that, I think with certain business units, you know, we had the acquisition in Q4 of last year. Things are really starting to click into gear. As we get in the back half of this year, we are really, you know, dialing in on the acquisition. And in space services... Early on, a couple years ago, we started with certain sets of customers, and now they're getting to the point where they're getting their API, they're getting the data, and now they're looking then to, as Peter mentioned, the expansion with those contracts going from, say, one satellite to five, six, to eight, to ten satellites. You can see a very significant jump in a contract going from doing one sat to five to six. It's almost a multiplier effect of how large the deal size gets. So we have a lot of that opportunity as we get in the back half of the year.

And then last for me, Tom, if you can just help us with understanding kind of the formulaic calculation. How and when does FX impact ARR? So if the FX headwinds toughen during Q2, was that a headwind to ARR? rebasing the ARR figure in this Q2 ending ARR figure that you're giving us, and FX was also a contributing factor to the Q2 ARR variance-first guidance?

Yeah, I mean, obviously, we We do the best we can with the pipeline and try to reset things within the CRM tool to make things revalued at the new rates, because what the sales team will do is put it in local currency, and then we do our best to try to constantly make those adjustments, and then look at the pipeline adjusted accordingly. So that gets factored in. We usually tend to focus on that at the quarter ends and reset the bar for rolling it forward for the rest of the year. So, yeah, we looked at it at the end of December, at the end of Q1, the end of Q2, and rolling it all forward. Obviously, yeah, the currency dollar got stronger as we went from last quarter's earning to this one, and it had a much further impact.

Are you only adjusting for the pipeline or are you also adjusting the existing subs base to update it to current FX spot rates?

Yeah, I mean, so we're, you know, constantly looking at and adjusting for, like you mentioned, we are looking at both factors. I mean, especially when, obviously, the customer comes up for renewals or there's a reset, of course, the ARR gets reset at the exchange rates. At the current rate, yeah.

Thank you.

Our next question is from Stephanos Christ with CJS Securities. Please proceed with your question.

Hey, thanks for taking my questions. You mentioned the inter-satellite links. Can you just give us a little more color there? Were you able to add any satellites with the ISLs, and maybe is there an expectation for when the fleet will be fully capable?

Yes, so we did add capabilities on the ISL side, both with regards to RF ISL as well as the optical ISL. And we continue to launch those satellites as we do replenishments, as well as for our customers. that want clusters of capabilities of satellites that are inter-satellite linked. And you can expect that, again, as we keep on going forward and replenishing our satellites, that we roll out more and more of those satellites with ISL capabilities serving our customers where it enhances our offering and they are willing to pay for the additional service that we provide.

Got it. Thanks. And then Just trying to figure this out. So you mentioned longer sales cycles, but then the number of ARR customers beat expectations by quite a bit. Do you think that could have been even better, or are those headwinds more recent just for the second half than just your expectations for the back half of the year?

Yeah, I mean, it would have been slightly better because what we talked about was some of the deals that slipped were more of the seven-digit ones, so then the quantity wasn't necessarily a huge thing there. So we really executed extremely well in some of the deals that had the smaller sizes, and we didn't see the impact there as much as the very large deals that were in the mix.

Got it. Thank you so much.

Our next question is from Colin Canfield with Barclays. Please proceed with your question.

Hey, good evening, guys. Can we talk a little bit about kind of consumer or consumption appetites within your customers? Kind of the trend that we're looking at, it seems like there's a lot of kind of movement towards multi-vendor data sources. And, you know, obviously it helps the customer to kind of have one geospatial analytics tech stack to work through. So maybe you can kind of talk about that. Spire's consumption of its data and the level of multi-vendor solutions that your customers are pursuing.

So there's a lot to unpack there. The number of customers that are looking for overlapping data, let's say a combination of a SAR imagery with a maritime RF tracking solution, is actually very focused on the defense side. So if you look at it, of course, from a number of customers' perspective, it is actually not massive. Of course, when you look at the budgets that those customers have, it is actually potentially quite large. But I think people often overestimate this, oh, I want everything combined and delivered to me, versus what we actually see a lot is customers want data that as easy and as simply and as smoothly to be integratable into their existing dashboards and solutions as possible. So we see a lot of the latter, and we see a little bit of the former. We do see customers that want to double up. Quite honestly, in our field, given the leadership position that we have in the data that we collect, Customers might take a secondary data source, but very often we are their primary, if not their only data source, given the advantages in terms of coverage, latency, refresh rate, accuracy that we provide over anything which might be also available if there is anything also available.

Got it. And just within the context of kind of the sort of joint platform, I appreciate that it's, you know, not a large percentage of revenues now, but over time, you expect kind of a more exquisite customer acquisition, customer acquisition appetite. So within the construct that you just kind of put out there, leadership of data, can you just talk about kind of the maturity of your geospatial analytics platform, and to the extent that you're providing that level of analytics on upsell? Or is it more of the upsell on the quality of the data?

Oh, no, it's absolutely the upsells that are happening are on the, you know, we call it smart data and predictive data elements. So the clean data is kind of like the entrance door. The data that we have cannot be found by any other means than through a large satellite constellation. And very often it can only be found in an adequate coverage and accuracy and revisit rate from SPIRE, but then really where the drive of our net retention rate comes in, is adding value-added packages. I think we talked about our Fortune 100 customer that we signed, and our ability to add the basic data set with predictive solutions like ETA, when will a vessel arrive in a certain location, really made us win that very, very competitive account. So it's absolutely the analytics platform. You know, we also talked about expanding our weather prediction capabilities from the more, you know, plain vanilla seven days to 15 days, which allows additional use cases, in particular in logistics and supply chain. Again, that is the additional capability on the raw data driven by anything from data fusion and big data analytics to to AI and machine learning when you make really smart, predictive tools for customers so that they can make better decisions about their business.

Got it. I appreciate the call.

We have reached the end of the question and answer session, and I'll now turn the call over to CEO Peter Platzer for closing remarks.

As we wrap up, I would like to thank our nearly 700 customers, close to 400 employees and numerous suppliers for partnering with us as we continue our substantial growth trajectory. Without our customers, employees and business partners, we would not be where we are today. On a daily basis, news remind us that the shocks of climate change and geopolitical events shake the often fragile world in which we live. With our data and solutions, we strive to provide transparency and stability to that world. September 16th marks our 10-year anniversary, and what an amazing decade it has been. Yet, I could not be more excited about the prospects for SPIRE over the next 10 years and beyond as we heed Steve Jobs' famous call to make a dent in the universe and work together to create a more sustainable, equitable, and prosperous future right here on planet Earth.

This concludes today's conference and you may disconnect your lines at this time. Thank you for your participation.