Spire Global, Inc.

Good day, ladies and gentlemen, and welcome to the Spire Global third quarter 2023 conference call. Our host for today's call is Ben Hackman, head of investor relations. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. I would now like to turn the call over to your host. Mr. Hackman, the floor is yours.

Thank you. Hello, everyone, and thank you for joining us for our third 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 on the call today is Peter Platzer, CEO, and Leo Basala, 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 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 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. Thank you, Ben.

The third quarter was yet another quarter of strong revenue growth and steady progress towards profitability. SPIRE added a ninth quarter to our consecutive uninterrupted record of revenue growth since becoming public. Additionally, we exceeded expectations by delivering more revenue than anticipated while continuing to drive operational leverage and increase non-GAAP gross margins to nearly 70%. We are holding firm on our now near-term timeline to profitability as becoming operating cash flow positive Adjusted EBITDA positives and free cash flow positives remain some of the most important near-term objectives for Aspire. Leo will talk more about this in his section, but I am very excited about producing our own cash, and that means we can start looking into activities like paying down debt, buying back shares, or investing for even more growth. Additionally, in the coming weeks, we're looking forward to a significant launch that will allow us to provide new data and insights to continue our sustainable growth. The Transporter 9 mission will carry 11 LEMUR satellites aloft, largely for four of our space services customers, and enable an expected recurring multi-year revenue stream. Customers continue to turn to SPIRE for our comprehensive space services solution making it easier for them to implement and benefit a space strategy. The demand for Aspire solutions continues to be grounded in two large-scale secular trends, climate change and global security challenges. Geopolitical events like the recent armed conflict have once again highlighted the importance of information and transparency in difficult times. And the rapid intensification of Hurricane Otis reminds us of the scale and speed at which climate change is occurring. BIO's global constellation is providing insights that inform decision makers and increase the safety for people across the world. Our solutions continue to be highly sought after in these dynamic times. The market for weather data continues to be large, and funding directed at addressing climate change continues to grow rapidly. The weather forecasting services market is a multi-billion dollar market that is projected to grow approximately 50% over the next five years. The U.S. Department of Homeland Security announced a climate resilience funding initiative worth $3 billion, aiming to fund projects that help communities prepare for extreme weather events. And after spending billions of dollars in recent years rebuilding infrastructure impacted by extreme weather events like floods and hurricanes, the U.S. Department of Defense is seeking proposals for commercial products with unique data sources, production-grade models for extreme weather forecasting, and the necessary tooling to ingest, fuse, and leverage pre-existing sources and models. These are all areas where SPIRE has a significant capability and offering. We are excited to help the DoD in its desire to enable U.S. government stakeholders to conduct risk analysis and near-term planning by considering future environmental factors. Additionally, the United States FY23 budget includes nearly $45 billion to address the climate crisis. SPIRE is well positioned to support these critical initiatives, given our passionate work for more than a decade to develop capabilities that help countries, communities, and corporations successfully tackle the impact of climate change on our lives and businesses. As businesses and organizations continue to be ever more aware of the risk and cost associated with severe weather, they are increasingly eager to find solutions to reduce that risk and cost. Some of this demand is for new technologies and capabilities that can deliver new insights, like our recent award of a 12-month $4.6 million contract to develop a microwave sounder on behalf of NOAA. According to NOAA, microwave sounders provide the highest impact data to input into weather forecast models due to their ability to capture temperature and water vapor. These models inform daily forecasts and help plan for extreme weather. We have seen additional demand signals that stem from our land and expand strategy. Wildfires are top of mind given the immense size of Canadian wildfires this summer and the recent resurgence of wildfires in California. In June, we announced an agreement with Aurora Tech to build, launch, and operate their sensor and an orbit AI machine learning platform on a further eight SPIRE satellites dedicated to fighting wildfires. We were able to expand our relationship with Aurora Tech after they successfully operated a precursor sensor in orbit on a SPIRE satellite. This demonstration exceeded expectations and is now serving as an active fire monitoring instrument for customers across the globe. Once the eight satellites are operational, it will represent the first and largest constellation of satellites dedicated to tracking and monitoring wildfires. Additionally, we see customers buying new types of data for the first time. SPIRE received a nearly $3 million 12-month contract from NOAA for ocean surface wind speed data. SPIRE will provide NOAA with global navigation satellite system reflectometry observation data in near real time. The initiative directly addresses the agency's critical need for more precise global sea surface wind measurements essential for applications like hurricane tracking, marine weather forecasts, ocean current analysis, and climate studies. FIRE also successfully competed to be part of a $476 million NASA-IDA-Q contract together with six other companies. Under this contract, We will provide NASA with our comprehensive catalog of Earth observation data that can improve global weather forecasting accuracy and be used for climate research. SPIRE has one of the highest temporal resolution data offerings due to our large satellite constellation, as well as one of the most diverse data catalogs arising from the flexibility of our RF sensors in capturing a wide range of Earth intelligence and essential climate variable data. Gaining access to this contract vehicle is important for winning new task orders under the contract. To date, over 90 countries have committed to net zero CO2 emission targets, recognizing that increased CO2 content in the atmosphere is a powerful contributor to global warming. Recent studies have estimated the aviation and maritime industries are each responsible for approximately 2 to 3% of global CO2 emissions. Beyond the impact to climate change, McKinsey & Company estimates the shipping industry, which uses over 200 million metric tons of fuel annually, can decrease fuel consumption by 1% to optimize vessel execution and performance management mechanisms. utilizing automatic identification system radio signals, or ARS for short, and weather data for route mapping. At often close to $1,000 per metric ton of fuel and creating over three tons of CO2 for each ton of fuel burned, these savings can make a massive difference. And in some cases, customers utilizing SPIUS data have seen even larger savings which can translate into tens or hundreds of millions of euros saved per year and reductions in the thousands or millions of tons of equivalent CO2 emissions. We are seeing continued demand from the large and growing segment of companies that leverage data to help the world economy reduce its carbon footprint. This portion of the ecosystem is wide and varied, and contains around 4,000 potential customers from vessel owners to shipping lines to ship management companies. Customers like Man Energy Solutions are looking to reduce the impact of emissions and optimize marine equipment by integrating SPIRE ERS and weather data into its digital monitoring and advisory solutions to provide improved performance, maintenance scheduling, and decarbonization insights. Similarly, STOAIR monitors and analyzes aviation emissions, including CO2, non-CO2, and aircraft lifecycle effects. By integrating SPIRE data into its products, STOAIR is able to provide precise and up-to-date analysis of flight routes, enabling the company and its customers to analyze and ultimately reduce aviation emissions. SPIRE's mission since its founding has been to make a positive impact on climate change. We are immensely proud of the work we have done for our customers to date and the continued progress we expect to make in the years and decades ahead. Turning now from top-line growth to bottom-line improvement, we are consistently looking at ways to fine-tune our business model, which already has high operational leverage. One such metric we utilize to measure our progress is ARR and revenue per customer. There is a certain amount of indirect costs that must be expended to acquire and service a customer. In many cases, there is not a meaningful amount of difference required between servicing a smaller revenue contract and a six-digit revenue contract. Having a large number of customers with smaller contracts will require more resources in customer service, billing, collections, and legal contracting than the same amount of revenue generated from a smaller number of six-digit or higher contract customers. With this mindset, Spire is actively focusing now on cross-selling and up-selling solutions to customers that recognize the value of the data and insight Spire can provide. while de-emphasizing sales to customers with very low ARR or revenue. We expect this strategy to increase our ARR and revenue per customer, increase our ARR in total, and reduce our customer count as we drive towards the most efficient use of our resources. This is one of many initiatives we are embarking on as we seek to extract more value out of our existing infrastructure and in turn increase the positive impact we have in the world by helping larger customers adapt and improve their service offerings and business model. As we approach the end of the year, I could not be prouder of the accomplishments the SPIRE team has achieved in a year marked by a challenging business environment. We have been relentless and moved faster to capture opportunities. We were unbounded when obstacles arose that required us to adjust our business and plans. We have remained reliable in delivering business results, in particular with regards to our path to profitability, all while helping our customers tackle truly global challenges and opportunities. I could not be more excited about Spire's prospects for positive operating cash flow positive adjusted EBITDA, and positive free cash flow in the near future, the impactful ways we intend to deploy the cash we expect to generate, and our continued sustainable growth over the long term as we remain focused on our mission of improving life on Earth with data and insights that can only be collected from space.