Spire (US:SPIR)2022-11-09 16:00PART I. FINANCIAL INFORMATION This section provides the unaudited condensed consolidated financial statements, management's analysis, market risk disclosures, and internal control assessments Unaudited Condensed Consolidated Financial Statements The unaudited financial statements for September 30, 2022, show increased revenue, continued net losses, decreased assets, and increased liabilities, with operations funded by financing activities Condensed Consolidated Balance Sheets The balance sheets show a decrease in cash and total assets, while total liabilities, particularly long-term debt, increased from December 2021 to September 2022 | Account | Sep 30, 2022 (in thousands) | Dec 31, 2021 (in thousands) | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $59,443 | $109,256 | | Total current assets | $109,456 | $131,574 | | Goodwill | $49,537 | $53,627 | | Total assets | $266,615 | $290,194 | | Liabilities & Stockholders' Equity | | | | Total current liabilities | $32,796 | $24,920 | | Long-term debt | $97,070 | $51,124 | | Warrant liability | $4,046 | $11,482 | | Total liabilities | $144,275 | $99,987 | | Total stockholders' equity | $122,340 | $190,207 | Condensed Consolidated Statements of Operations The statements of operations indicate significant revenue growth and gross profit improvement, alongside continued operating and net losses for both the three and nine months ended September 30, 2022 | Metric (in thousands) | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $20,418 | $9,561 | $57,883 | $28,390 | | Gross Profit | $10,220 | $4,223 | $28,266 | $15,997 | | Loss from operations | $(16,356) | $(17,372) | $(52,783) | $(43,792) | | Net loss | $(21,811) | $(56,108) | $(71,868) | $(102,668) | | Basic and diluted net loss per share | $(0.16) | $(0.83) | $(0.51) | $(2.75) | Condensed Consolidated Statements of Cash Flows The cash flow statements show continued negative cash flow from operating and investing activities, offset by significant cash provided by financing activities, resulting in a net decrease in cash for the nine months ended September 30, 2022 | Cash Flow Activity (in thousands) | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | $(42,708) | $(40,008) | | Net cash used in investing activities | $(38,342) | $(9,449) | | Net cash provided by financing activities | $25,369 | $291,367 | | Net (decrease) increase in cash | $(49,855) | $242,981 | | Cash at end of period | $59,790 | $258,967 | Notes to Unaudited Condensed Consolidated Financial Statements The notes provide details on the company's business, its history of operating losses and negative cash flows, remaining performance obligations, and a new $120 million term loan facility - The company is a global provider of space-based data and analytics with four main solutions: Maritime, Aviation, Weather, and Space Services, operating a proprietary constellation of nanosatellites29 - The company has a history of operating losses and negative cash flows, with a net loss of $71.9 million and cash used in operations of $42.7 million for the nine months ended September 30, 2022, though management believes current cash and borrowings are sufficient for at least one year38 Remaining Performance Obligations | Metric | Amount (as of Sep 30, 2022) | | :--- | :--- | | Remaining Performance Obligations | $148,166 thousand | | Expected recognition (next 12 months) | 37% | | Expected recognition (thereafter) | 63% | - In June 2022, the company entered into a new financing agreement with Blue Torch for a term loan facility of up to $120 million, maturing in June 2026, with proceeds used to repay the existing $70 million facility with FP Credit Partners68 Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion highlights a significant increase in Q3 2022 revenue and ARR driven by acquisition and organic growth, alongside continued net losses and increased operating expenses, supported by a new $120 million term loan facility Key Business Metrics Key business metrics show substantial growth in Annual Recurring Revenue (ARR) and ARR customers, alongside a strong organic ARR Net Retention Rate, indicating successful customer expansion Annual Recurring Revenue and Customers | Metric | As of Sep 30, 2022 | As of Sep 30, 2021 | % Change | | :--- | :--- | :--- | :--- | | Annual Recurring Revenue (ARR) | $98.1 million | $45.2 million | 117% | | ARR Customers | 690 | 206 | 235% | | ARR Solution Customers | 717 | 225 | 219% | - The organic ARR Net Retention Rate was 135% for the three months ended September 30, 2022, up from 111% for the same period in 2021, indicating success in the "land and expand" strategy with existing customers154 Results of Operations Results of operations detail a significant increase in revenue and gross profit, with an improved gross margin, alongside rising operating expenses and a substantial loss on debt extinguishment Consolidated Statements of Operations Summary | Metric (in thousands) | Q3 2022 | Q3 2021 | % Change | | :--- | :--- | :--- | :--- | | Revenue | $20,418 | $9,561 | 114% | | Cost of Revenue | $10,198 | $5,338 | 91% | | Gross Profit | $10,220 | $4,223 | 142% | | Gross Margin | 50% | 44% | +6% | | R&D Expense | $8,879 | $7,804 | 14% | | Sales & Marketing Expense | $7,794 | $5,574 | 40% | | General & Administrative Expense | $9,903 | $8,217 | 21% | - The Q3 2022 revenue increase of $10.9 million was driven by $4.7 million from the exactEarth acquisition and the remainder from organic growth in new and existing customers169 - The acquisition of exactEarth negatively impacted gross margin by approximately 12% in Q3 2022, with about two-thirds of this impact driven by purchase accounting adjustments like reduced deferred revenue and increased amortization177 - The company recognized a $22.5 million loss on extinguishment of debt during the nine months ended September 30, 2022, related to the payoff of the FP Term Loan facility82206 Liquidity and Capital Resources The company's liquidity is supported by cash, marketable securities, and a new $120 million term loan facility, which management believes is sufficient for the next 12 months, despite continued negative operating and investing cash flows - As of September 30, 2022, the company held $59.4 million in cash and cash equivalents and $22.4 million in marketable securities, which management believes is sufficient to meet working capital needs for at least the next 12 months219222 - In June 2022, the company entered into a new $120 million term loan facility with Blue Torch, maturing in 2026, with a portion of the proceeds used to repay the previous $70 million facility with FP Credit Partners223 Cash Flow Activities | Cash Flow Activity (in thousands) | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | $(42,708) | $(40,008) | | Net cash used in investing activities | $(38,342) | $(9,449) | | Net cash provided by financing activities | $25,369 | $291,367 | Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from foreign currency fluctuations, unhedged exposure to floating interest rates on its credit facility, and potential impacts from inflation on expenditures - A hypothetical 10% change in the U.S. dollar exchange rate would have impacted the pre-tax loss for the nine months ended September 30, 2022, by approximately $2.9 million273 - The company is exposed to interest rate risk through its Blue Torch Credit Facility, which has a floating rate based on SOFR, where a hypothetical 100 basis point (1%) increase in the interest rate would impact annual results of operations by approximately $1.2 million275 Controls and Procedures Management concluded that disclosure controls and procedures were ineffective due to identified material weaknesses in the control environment, risk assessment, segregation of duties, complex transactions, and IT general controls, with remediation efforts underway - The Principal Executive Officer and Principal Financial Officer concluded that disclosure controls and procedures were not effective as of September 30, 2022279 - Material weaknesses were identified in several areas, including an ineffective Control Environment lacking sufficient accounting professionals, an inadequate Risk Assessment process, insufficient Segregation of Duties, ineffective controls over Complex Transactions (warrants, business combinations, contingent earnout liability), and deficiencies in IT General Controls (user access, program change management, program development testing)280282 - The company is undertaking remediation efforts, including hiring a chief accounting officer and other personnel, engaging third parties to assist with risk assessment and segregation of duties analysis, and implementing improved controls over complex transactions and IT systems284285286 PART II. OTHER INFORMATION This section covers legal proceedings, significant risk factors, and other required disclosures, including details on equity sales, defaults, mine safety, and exhibits Legal Proceedings The company is not currently involved in any legal proceedings expected to have a material adverse effect on its business or financial condition - As of the filing date, the company is not a party to any legal proceedings that would have a material adverse effect on its business293 Risk Factors The company faces significant risks including a history of losses, operational complexities, reliance on key customers and third parties, intense competition, regulatory challenges, cybersecurity threats, and identified material weaknesses in internal controls - Key risks highlighted by the company include a history of net losses and uncertainty of future profitability, significant operational risks related to complex satellite technology and potential failures, reliance on a limited number of government customers, intense competition and rapid technological changes, dependence on third parties for data and components, cybersecurity and data privacy risks, complex regulatory requirements, identified material weaknesses in internal control over financial reporting, and substantial indebtedness under its credit facility296299 Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities during the period - None512 Defaults Upon Senior Securities Not applicable - Not applicable513 Mine Safety Disclosures Not applicable - Not applicable514 Other Information There is no other information to report - None515 Exhibits This section lists the exhibits filed with the Quarterly Report on Form 10-Q, including the company's Certificate of Incorporation, Bylaws, an Equity Distribution Agreement, and certifications from the Principal Executive Officer and Principal Financial Officer