Spire (SPIR) - 2023 Q4 - Annual Report

PART I Business Spire Global provides space-based data, analytics, and services through its nanosatellite constellation, serving diverse industries with Maritime, Aviation, Weather, and Space Solutions Our Data Solution Offerings Spire provides four core data solutions—Maritime, Aviation, Weather, and Space Services—leveraging its proprietary satellite constellation to deliver processed data via API in various forms - Spire's four primary data solutions are Maritime, Aviation, Weather, and Space Services, which leverage its proprietary satellite constellation and ground station network[26][31] - The company monetizes its data in four distinct forms, ranging from raw, clean data to predictive analytics and actionable solutions tailored for specific business problems[32][33] - Maritime solutions utilize AIS data for vessel tracking, supply chain optimization, fuel efficiency, and monitoring illegal activities[35][36] - Aviation solutions use ADS-B data for global aircraft tracking, flight path monitoring, and improving operational efficiencies[36][37] - Weather solutions employ radio occultation (RO) and GNSS-R technology to provide detailed atmospheric data, enhancing forecast accuracy for various industries[38][40] - Space Services offers customers scalable and reliable access to space infrastructure, similar to a cloud-based model like AWS, allowing them to deploy their own software, payloads, or entire solutions in space[39][41] Our Technology Platform Spire's vertically integrated technology platform utilizes a large constellation of LEMUR nanosatellites and a global ground station network for efficient data collection and operations - The company operates a large constellation of LEMUR nanosatellites and a global network of over 30 ground stations, providing end-to-end control over data collection[41][45] - As of December 31, 2023, Spire has deployed over 170 satellites, accumulating more than 600 years of space flight heritage[45] - The platform features a cloud-based automated operations system that allows Spire and its Space Services customers to operate sensors and scale constellation operations efficiently through a web-based API[45] Industry Background The space economy is expanding due to technological advancements, declining launch costs, and increasing demand for space-based data and analytics for climate and security - The industry is characterized by the growth of small satellite constellations, which offer rapid innovation and lower deployment costs compared to legacy satellites[43] - There is a growing demand for data analytics and insights, driven by advancements in big data, AI, and machine learning[44] - Space-based data is increasingly critical for addressing climate change, with more accurate weather prediction helping to protect infrastructure and manage resources[45][46] - Geopolitical conflicts have highlighted the need for global security monitoring, where Spire's radio frequency geolocation capabilities play a vital role in detecting jamming and spoofing[47] Sales and Marketing Spire employs a global direct sales force with a 'land-and-expand' strategy, supported by marketing efforts focused on demand generation and brand building - The company employs a direct sales force and a "land-and-expand" strategy to acquire new customers and grow revenue from existing ones by upselling and cross-selling solutions[52][53] - Marketing efforts are focused on building brand reputation, increasing awareness of Spire's data and services, and generating demand through outbound campaigns like paid search, email, and events[54] Competition Spire competes across its data verticals and Space Services with specialized firms, global companies, and government entities, emphasizing data quality and platform reliability - The company competes with specialized firms in each of its data verticals: Orbcomm in maritime, Aireon in aviation, and PlanetiQ in weather[58] - In the Space Services channel, competitors include companies like AAC Clyde Space, GomSpace A/S, and NanoAvionics LLC[58] - Principal competitive factors include data quality (coverage, accuracy, latency), platform performance, integration capabilities, total cost of ownership, and brand reputation[59][60] Employees and Human Capital Resources As of December 31, 2023, Spire employed 416 individuals globally, focusing on recruitment and retention through competitive compensation and equity incentives - As of December 31, 2023, the company employed 416 people across six countries, with the vast majority being full-time employees[64] - The company's human capital strategy includes attracting and retaining personnel through competitive salaries and stock-based compensation to align employee incentives with stockholder value[63] Government Regulation and Compliance Spire's operations are subject to extensive U.S. and international regulations, including FCC, ITU, export controls, and data privacy laws, requiring strict compliance for continued operations - The business requires licenses from the Federal Communications Commission (FCC) and foreign authorities for its satellite constellations and earth stations, which involve reviews of national security, foreign policy, and radio frequency interference[66][67] - Operations are dependent on radio frequency allocations from the International Telecommunication Union (ITU), and any reallocation could adversely affect services[68] - The company is subject to U.S. export control laws (EAR, ITAR) and trade sanctions (OFAC), which may require licenses to export data and technology to certain countries or end-users[69] - Compliance with a complex and evolving global framework for privacy and data protection, such as the EU's GDPR, is required[70] Risk Factors Spire faces significant risks including persistent net losses, reliance on government contracts, satellite operational hazards, intense competition, regulatory complexities, and financial indebtedness - The company has a history of net losses and may not achieve or maintain profitability in the future[23][82] - A substantial portion of revenue comes from a limited number of government customers, making the company vulnerable to contract terminations or non-renewals[23][100] - Satellites are subject to significant operational risks, including technological malfunctions, failures, and damage from space debris, which could harm business operations[23][96] - The company faces intense competition from existing and new competitors, which could lead to pricing pressure and loss of market share[23][121] - The business is subject to complex and evolving government regulations, including licensing for satellites and ground stations and export controls, which could impact operations[24][196] - Material weaknesses have been identified in the company's internal control over financial reporting, which could result in material misstatements of financial statements[24][242] - The company has substantial indebtedness, and restrictions imposed by its debt agreements may limit operational flexibility[24][251] Risks Related to Our Industry and Business Spire's business faces risks from historical net losses, satellite operational failures, reliance on limited government contracts, intense competition, and macroeconomic disruptions - The company has a history of net losses and expects to continue incurring them in the near future, with no guarantee of achieving or maintaining profitability[82] - Satellites operate in a harsh environment and are subject to significant operational risks, including technological malfunctions, collisions with space debris, and a limited lifespan of three to four years, which could be shortened by factors like increased solar activity[96][110] - A substantial portion of revenue is derived from a limited number of government customers. In 2023, government contracts accounted for approximately 42% of revenues, with three government customers making up 63% of that channel's revenue[100] - The company relies on third-party launch providers, and any launch delays or failures can materially impact operations and revenue recognition, as experienced with a delayed launch from Q4 2023 to January 2024[116][159] - Spire faces intense competition from specialized data providers, analytics companies, and government entities, which could lead to pricing pressures and loss of market share[121][122] Risks Related to Intellectual Property, Privacy, Cybersecurity, and Technical Infrastructure Spire faces risks related to intellectual property protection, potential infringement claims, open-source software liabilities, cybersecurity breaches, and reliance on AWS infrastructure - Failure to adequately protect intellectual property rights (patents, trade secrets) could allow competitors to access proprietary technology, harming the company's competitive position[167] - The company faces the risk of third-party claims of intellectual property infringement, which could lead to costly litigation, royalty payments, or the need to redesign services[171][172] - Use of third-party open-source software components carries risks, including potential requirements to release proprietary source code to the public if license terms are breached[175][176] - Actual or perceived security or privacy breaches could interrupt operations, harm the company's brand, result in financial penalties, and lead to a loss of customer confidence[180] - The company heavily relies on Amazon Web Services (AWS) to deliver its platform, and any disruption of AWS services could adversely affect business operations and financial results[192] Risks Related to Legal and Regulatory Matters Spire's operations are subject to complex and evolving U.S. and international regulations, including licensing, spectrum allocation, export controls, and anti-corruption laws, posing compliance risks - The business requires licenses from the FCC and foreign government authorities for satellite operations. Failure to obtain or maintain these authorizations could prevent the operation of existing or future satellites[198][204] - Operations depend on the use of allocated radio frequency spectrum. Any reallocation by the ITU or local authorities could impair the utility and reliability of the company's platform[212][213] - The company is subject to U.S. and international export control laws (EAR, ITAR) and trade sanctions, which could impair its ability to compete in international markets or lead to liability for non-compliance[215] - Compliance with anti-corruption laws like the FCPA and UK Bribery Act is critical, as violations can lead to criminal penalties, significant fines, and debarment from government contracts[218][221] - The company's ability to use its significant net operating loss carryforwards ($248.7 million federal, $81.7 million state as of Dec 31, 2023) to offset future taxable income may be limited by regulations such as Section 382 of the IRC[226][227] Risks Relating to Financial and Accounting Matters Spire faces financial risks from inadequate insurance, foreign currency fluctuations, goodwill impairment, material weaknesses in internal controls, and substantial indebtedness with restrictive covenants - Current insurance does not protect against all satellite-related losses, such as business interruption or loss of revenues, and may not be available on commercially reasonable terms in the future[232][233] - As of December 31, 2023, the company had $51.2 million in goodwill, which is at risk of impairment if market capitalization declines, potentially negatively affecting operating results[236] - Material weaknesses in internal control over financial reporting have been identified, which could result in material misstatements of financial statements or failure to meet reporting obligations[242] - As of December 31, 2023, the company had $115.5 million in outstanding debt under its Blue Torch Financing Agreement, which contains restrictive covenants that may limit operational flexibility[251][252] Risks Related to Our Common Stock Risks for common stock investors include concentrated voting power from a dual-class structure, anti-takeover provisions, stock price volatility, and reduced disclosure as an emerging growth company - The dual-class common stock structure concentrates approximately 39.1% of the voting power with the Legacy Spire Founders as of December 31, 2023, limiting other stockholders' influence on important transactions[263] - The company's certificate of incorporation and bylaws contain anti-takeover provisions, such as a classified board and blank check preferred stock, which could delay or prevent a change in control[258][259] - The trading price of the company's securities may be volatile and subject to wide fluctuations due to various factors, including financial results, analyst recommendations, and general market conditions[266][267] - As an "emerging growth company" and a "smaller reporting company," Spire is subject to reduced disclosure requirements, which may make its performance difficult to compare with other public companies[274][275] Unresolved Staff Comments The company reports no unresolved comments from the SEC staff - The company has no unresolved comments from the SEC staff[276] Cybersecurity Spire maintains an ISO 27001:2013 certified cybersecurity framework, overseen by the CTO and Board, with no material incidents reported to date - The company's cybersecurity program is overseen by the CTO and the Board of Directors, with daily management handled by the Director of IT and Security[284][286] - Spire holds an ISO 27001:2013 certification for its information security management system (ISMS), which covers its corporate IT environment, satellite command and control, and data pipelines[278] - The company uses a combination of internal assessments, third-party penetration testers, and employee training to identify, mitigate, and respond to cybersecurity risks[279][282] - As of the date of the report, no cybersecurity threat or incident has materially affected the company's business, operations, or financial condition[283] Properties Spire's headquarters are in Vienna, Virginia, with additional leased facilities globally and a network of over 33 ground stations - The corporate headquarters is in Vienna, Virginia, with additional leased facilities in the U.S., Europe, Canada, and Singapore[287] - The company operates a global network of over 33 ground stations to support its satellite constellation[287] Legal Proceedings The company is not currently involved in any legal proceedings expected to materially impact its business or financial condition - The company is not currently involved in any legal proceedings that would materially impact its business[290] Mine Safety Disclosures This item is not applicable to the company - This item is not applicable to the company[291] PART II Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities Spire's Class A common stock trades on the NYSE under 'SPIR'; the company does not anticipate paying cash dividends, retaining earnings for growth - The company's Class A common stock trades on the NYSE under the symbol "SPIR"[294] - Spire has never paid cash dividends and does not plan to in the foreseeable future, as earnings will be retained for business development[297] - As of February 23, 2024, there were 150 holders of record for Class A common stock and four holders of record for Class B common stock[295][296] Management's Discussion and Analysis of Financial Condition and Results of Operations Spire's 2023 revenue grew 32% to $105.7 million, with improved net loss and Adjusted EBITDA, supported by increased ARR despite a lower net retention rate Key Business Metrics Spire monitors performance through ARR, ARR Customers, ARR Solution Customers, and ARR Net Retention Rate, with 2023 showing ARR growth but a retention rate decline Key Business Metrics Summary | Metric | As of Dec 31, 2023 | As of Dec 31, 2022 | % Change | | :--- | :--- | :--- | :--- | | ARR | $106.8 million | $99.4 million | 7% | | ARR Customers | 712 | 709 | 0% | | ARR Solution Customers | 745 | 733 | 2% | ARR Net Retention Rate | Metric | Fiscal Year 2023 | Fiscal Year 2022 | Change | | :--- | :--- | :--- | :--- | | ARR Net Retention Rate | 98% | 117% | (19)% | - The ARR Net Retention Rate for fiscal year 2023 was impacted by the temporary non-renewal of a NOAA radio occultation order in July 2023, which was subsequently awarded again in January 2024[339] Results of Operations Spire's 2023 results show revenue growth to $105.7 million, improved gross profit and margin, and a narrowed net loss of $64.0 million Consolidated Statement of Operations Data (in thousands) | | 2023 | 2022 | | :--- | :--- | :--- | | Revenue | $105,703 | $80,268 | | Cost of revenue | $42,434 | $40,327 | | Gross profit | $63,269 | $39,941 | | Total operating expenses | $107,918 | $109,035 | | Loss from operations | ($44,649) | ($69,094) | | Net loss | ($63,956) | ($89,411) | | Basic and diluted net loss per share | ($3.27) | ($5.11) | - Revenue increased by $25.4 million (32%) in 2023, driven by growth in ARR Customers and revenue from milestone-based projects[353] - Gross margin improved from 50% in 2022 to 60% in 2023, primarily due to leverage from higher revenue[356] - Sales and marketing expenses decreased by 10% to $25.8 million, mainly due to lower amortization of purchased intangibles from the exactEarth acquisition[361] - General and administrative expenses decreased by 5% to $42.5 million, driven by lower business insurance costs and professional services fees[364] Non-GAAP Financial Measures Spire utilizes non-GAAP Adjusted EBITDA, which improved to a loss of $11.0 million in 2023, to assess underlying operational performance by excluding specific non-cash and non-recurring items Reconciliation of Net Loss to Adjusted EBITDA | (in thousands) | 2023 | 2022 | | :--- | :--- | :--- | | Net loss | ($63,956) | ($89,411) | | Depreciation & amortization | $18,228 | $18,341 | | Interest, net | $16,704 | $13,007 | | Taxes | $72 | $322 | | EBITDA | ($28,952) | ($57,741) | | Other adjustments* | $17,950 | $25,098 | | Adjusted EBITDA | ($11,002) | ($32,643) | *Other adjustments include changes in fair value of liabilities, loss on debt extinguishment, stock-based compensation, M&A expenses, and other items - The company defines Adjusted EBITDA as earnings before interest, taxes, depreciation, and amortization, further adjusted for items like stock-based compensation, changes in fair value of warrant and contingent earnout liabilities, and M&A related expenses[383] Liquidity and Capital Resources Spire's liquidity as of December 31, 2023, included $40.9 million in cash and marketable securities, supported by a $115.5 million term loan and a recent $10.0 million private placement Cash and Liquidity Summary | (in thousands) | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $29,144 | $47,196 | | Marketable securities | $11,726 | $23,084 | | Total Liquidity | $40,870 | $70,280 | Summary of Cash Flows | (in thousands) | 2023 | 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | ($23,622) | ($47,820) | | Net cash used in investing activities | ($17,653) | ($41,828) | | Net cash provided by financing activities | $23,907 | $26,373 | - The company has a term loan facility with Blue Torch Finance, with an outstanding principal balance of $115.5 million as of December 31, 2023[404] - In February 2024, the company raised $10.0 million in gross proceeds from a private placement of its Class A common stock[387] Quantitative and Qualitative Disclosures About Market Risk Spire faces market risks from foreign currency fluctuations, interest rate sensitivity on its floating-rate debt, and potential impacts from inflation on operating expenses - The company is exposed to foreign currency risk, as a significant portion of its expenses are denominated in currencies like the Euro, British Pound, and Singapore Dollar. A hypothetical 10% change in the U.S. dollar would impact the pre-tax loss by approximately $3.3 million[444][445] - The Blue Torch Credit Facility carries a floating interest rate tied to SOFR. A hypothetical 100 basis point (1%) increase in the interest rate would have an approximate $1.2 million annual impact on the company's results of operations[447] - The company is exposed to inflation risk, which could increase costs for component parts, labor, and overhead, potentially impairing operating results if these costs cannot be passed on to customers[448] Financial Statements and Supplementary Data This section presents Spire's audited consolidated financial statements for 2023 and 2022, including balance sheets, statements of operations, cash flows, and comprehensive notes Consolidated Balance Sheets The Consolidated Balance Sheets show Spire's financial position, with total assets at $246.8 million and total liabilities at $176.3 million as of December 31, 2023 Consolidated Balance Sheet Data (in thousands) | | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total current assets | $69,336 | $96,776 | | Property and equipment, net | $71,209 | $53,752 | | Goodwill | $51,155 | $49,954 | | Total assets | $246,825 | $256,512 | | Total current liabilities | $41,546 | $33,368 | | Long-term debt | $114,113 | $98,475 | | Total liabilities | $176,287 | $146,389 | | Total stockholders' equity | $70,538 | $110,123 | Consolidated Statements of Operations The Consolidated Statements of Operations detail Spire's 2023 revenue of $105.7 million and a net loss of $64.0 million, showing improvement from 2022 Consolidated Statement of Operations Data (in thousands) | | 2023 | 2022 | | :--- | :--- | :--- | | Revenue | $105,703 | $80,268 | | Gross profit | $63,269 | $39,941 | | Loss from operations | ($44,649) | ($69,094) | | Net loss | ($63,956) | ($89,411) | | Net loss per share | ($3.27) | ($5.11) | Consolidated Statements of Cash Flows The Consolidated Statements of Cash Flows indicate improved net cash used in operating activities, totaling $23.6 million in 2023 Consolidated Statement of Cash Flows Data (in thousands) | | 2023 | 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | ($23,622) | ($47,820) | | Net cash used in investing activities | ($17,653) | ($41,828) | | Net cash provided by financing activities | $23,907 | $26,373 | | Net decrease in cash | ($17,928) | ($62,076) | Notes to Consolidated Financial Statements These notes provide detailed supplementary information on Spire's accounting policies, debt, assets, stock-based compensation, income taxes, and the 2023 reverse stock split - On August 31, 2023, the company effected a 1-for-8 reverse stock split of its common stock. All share and per-share data have been retroactively adjusted[474][475] - The company's revenue is disaggregated by geography, with the Americas accounting for 56%, EMEA for 35%, and Asia Pacific for 9% of total revenue in 2023[565] - As of December 31, 2023, the company had remaining performance obligations of $198.1 million, of which 40% is expected to be recognized as revenue over the next 12 months[569] - The company has a significant long-term commitment under the A&R L3Harris Agreement for S-AIS data, with future fixed payments totaling $32.7 million as of December 31, 2023[608][610] - As of December 31, 2023, the company had federal net operating loss carryforwards of $248.7 million available to reduce future taxable income[626] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants regarding accounting or financial disclosure - There were no disagreements with accountants on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure[636] Controls and Procedures Management concluded that disclosure controls were ineffective as of December 31, 2023, due to material weaknesses in internal control over financial reporting, with remediation ongoing - Management concluded that disclosure controls and procedures were not effective as of December 31, 2023, due to material weaknesses in internal control over financial reporting[638] - Identified material weaknesses include deficiencies in the control environment, risk assessment, segregation of duties, accounting for non-routine transactions, and IT general controls[640] - Remediation efforts are underway, including hiring key finance and accounting professionals, engaging third-party consultants, implementing a formal risk assessment process, and enhancing controls over segregation of duties and IT systems[643][644][645] Other Information No directors or officers adopted or terminated Rule 10b5-1 trading plans during the fourth quarter of 2023 - No directors or officers adopted or terminated Rule 10b5-1 trading plans during the fourth quarter of 2023[656] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - This item is not applicable to the company[657] PART III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2024 Proxy Statement - Information regarding directors, executive officers, and corporate governance is incorporated by reference from the forthcoming 2024 Proxy Statement[659] Executive Compensation Information regarding executive compensation is incorporated by reference from the 2024 Proxy Statement - Information regarding executive compensation is incorporated by reference from the forthcoming 2024 Proxy Statement[660] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership of beneficial owners and management is incorporated by reference from the 2024 Proxy Statement - Information regarding security ownership is incorporated by reference from the forthcoming 2024 Proxy Statement[661] Certain Relationships and Related Transactions, and Director Independence Information on certain relationships, related transactions, and director independence is incorporated by reference from the 2024 Proxy Statement - Information regarding related party transactions and director independence is incorporated by reference from the forthcoming 2024 Proxy Statement[662] Principal Accountant Fees and Services Information regarding principal accountant fees and services is incorporated by reference from the 2024 Proxy Statement - Information regarding principal accountant fees and services is incorporated by reference from the forthcoming 2024 Proxy Statement[663] PART IV Exhibits, Financial Statement Schedules This section lists all exhibits and financial statement schedules filed with the Form 10-K, including consolidated financial statements - This item lists the consolidated financial statements and all exhibits filed with the Form 10-K[666][667] Form 10-K Summary The company has not provided a summary under this optional item - This item is not applicable[672]