Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated financial statements included in the Proxy Statement/Prospectus/Registration Statement filed with the Securities and Exchange Commission on July 22, 2021. This discussion contains forward-looking statements that involve risks and uncertainties. Factors that could cause or contribute to such differences include those identified below and those discussed in the section titled “Risk Factors” and other sections of this Quarterly Report on Form 10-Q/A. Our historical results are not necessarily indicative of the results that may be expected for any period in the future.
The following MD&A information has been adjusted to reflect the restatement of our unaudited condensed consolidated financial statements as described in the “Explanatory Note” at the beginning of this Form 10-Q/A and in Note 2, “ Summary of Significant Accounting Policies ”, in the Notes to the Condensed Consolidated Financial Statements of this Form 10-Q/A.
Overview
We are a global provider of space-based data and analytics that offers unique datasets and powerful insights about Earth from the ultimate vantage point—space—so organizations can make decisions with confidence, accuracy, and speed. We use a growing multi-purpose satellite constellation to source hard to acquire, valuable data and enrich it with predictive solutions. We then provide this data as a subscription to organizations around the world so they can improve business operations, decrease their environmental footprint, deploy resources for growth and competitive advantage, and mitigate risk. We give commercial and government organizations the competitive advantage they seek to innovate and solve some of the world’s toughest problems with insights from space.
We collect this space-based data through our proprietary constellation of 120 LEMUR (Low Earth Multi-Use Receiver) nanosatellites to deliver proprietary data, insights and predictive analytics to customers as a subscription. In September 2021, our fully deployed satellite constellation covered the earth over 200 times per day on average and our global ground station network performed over 2,100 contacts each day on average, reliably and resiliently collecting data with low latency. Our cloud-based data infrastructure processed over six terabytes of data each day on average in September 2021, in creating our proprietary data analytics solutions. We deliver these solutions through an API infrastructure that delivers approximately two terabytes of data each day to our customers. The global data we collect includes data that can only be captured from space with no terrestrial alternatives. We collect this data once and are able to sell it an unlimited number of times across a broad and growing set of industries, including aviation and maritime, with global coverage and near real-time data that can be easily integrated into customer business operations. Our four main solutions comprise: Maritime, Aviation, Weather, and Space Services.
Our platform applies our value-add insights and predictive analytics to this proprietary data to create commercially valuable datasets. We offer three data solutions to our customers, which vary in complexity and price and can be delivered in near real-time via our API that can be easily integrated into our customers’ business operations:
•
Maritime : Precise space-based data used for highly accurate ship monitoring, ship safety and route optimization.
•
Aviation : Precise space-based data used for highly accurate aircraft monitoring, aircraft safety and route optimization.
•
Weather : Precise space-based data used for highly accurate weather forecasting.
For each data solution, we have the capability to offer customers a variety of features and additional value. The three forms of data we monetize are:
•
Clean data : Clean and structured data directly off our proprietary nanosatellites;
•
Smart data : Clean data fused with third-party datasets and proprietary analysis to enhance value and provide insights; and
•
Predictive solutions : Big data, AI, and ML algorithms applied to fused data sets to create predictive analytics and insights.
These value-add data features allow customers to solve various use cases and provides a path to expand throughout the customer’s relationship.
As our fourth solution, we are also pioneering an innovative business model through our Space Services solution. We provide multiple deliverables to a customer, most commonly when a contract covers multiple phases of the Space Services solution (e.g. development, manufacturing, launch and satellite operations). Our customers can begin receiving data in less than a year after engaging with us through this business model and then receive updated data by entering into a separate subscription agreement if they choose.
Our four main solutions are offered to customers across numerous industries and we not only have the opportunity to upsell within each one, but we also have the opportunity to cross-sell to customers amongst the four solutions.
We provide our solutions to global customers through a subscription model or project-based deliverables. We currently sell directly to end customers and utilize reseller partners to a limited degree.
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Highlights from the Three Months Ended September 30, 2021
•
On August 16, 2021, we completed the Merger with NavSight Holdings and received cash proceeds of $236.6 million.
•
Our revenue was $9.6 million during the three months ended September 30, 2021, an increase of 33% from the three months ended September 30, 2020.
•
We entered into a definitive agreement with exactEarth Ltd., a leading provider of global maritime vessel data for ship tracking and maritime situational awareness solutions (“exactEarth”). For more information on this transaction, see Note 1 to our unaudited condensed consolidated financial statements as of September 30, 2021, and for the three and nine months ended September 30, 2021 included in this Quarterly Report on Form 10-Q/A.
•
ARR increased $8.7 million or 24% from the six months ended June 30, 2021.
•
Signed a number of significant new contracts for our Weather solution, including with EUMETSAT (European Organization for the Exploitation of Meteorological Satellites) and NOAA (National Oceanic and Atmospheric Administration). This data improves our customers’ weather prediction products that serve almost a billion people in countries that represent nearly half of the world’s GDP.
Highlights from the Nine Months Ended September 30, 2021
•
Our revenue was $28.4 million during the nine months ended September 30, 2021, an increase of 34% from the nine months ended September 30, 2020.
•
ARR as of September 30, 2021 of $45.2 million, an increase of 51% from September 30, 2020. For the definition of ARR, see the section titled “— Key Business Metrics .”
•
We had 206 ARR Customers under contract as of September 30, 2021, a 63% increase from the number of ARR Customers under contract as of September 30, 2020. For the definition of ARR Customers, see the section titled “— Key Business Metrics .”
•
We had 225 ARR Solution Customers under contract as of September 30, 2021, a 69% increase from the number of ARR Solution Customers under contract as of September 30, 2020. For the definition of ARR Solution Customers, see the section titled “— Key Business Metrics .”
COVID-19 Impact
In March 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic, which continues to spread throughout the United States and the world and has resulted in authorities implementing numerous measures to contain the virus, including travel bans and restrictions, quarantines, shelter-in-place orders, and business limitations and shutdowns. While we are unable to accurately predict the full impact that the COVID-19 pandemic will have on our operating results, financial condition, liquidity and cash flows due to numerous uncertainties, including the duration and severity of the pandemic or any resurgences of the pandemic locally or globally, our compliance with these measures has impacted our day-to-day operations and could continue to disrupt our business and operations, as well as that of certain of our customers whose industries are more severely impacted by these measures, for an indefinite period of time. Through the nine months ended September 30, 2021, we have experienced adverse changes in customer buying behavior that began in March 2020 as a result of the impact of the COVID-19 pandemic, including decreased customer engagement, delayed sales cycles, and deterioration in near-term demand. In 2021, the Delta variant of COVID-19 has become the dominant strain in numerous countries around the world, including the United States, and is believed to be more contagious than other previously identified COVID-19 strains. Despite these headwinds, we experienced an increase in revenue for the nine months ended September 30, 2021, as compared to the nine months ended September 30, 2020. As a result of the impact of the COVID-19 pandemic, we experienced delays and re-work due to third party satellite launch providers schedule shifts, delays and increased expenses in our hiring process, some attrition from adjusting company policies due to the COVID-19 pandemic and additional time and expenses supporting customer contracts.
To support the health and well-being of our employees, customers, partners and communities, many of our employees continue to work remotely. As of October 31, 2021, our employees are permitted to come into the office on a limited basis in accordance with all applicable local, State and Federal guidelines and regulations. Our offices will only remain open to the extent local, state and federal authorities permit us to do so and our own criteria and conditions to ensure employee health and safety are satisfied, including social distancing and enhanced cleaning protocols. While we have developed plans for our employees to begin safely returning to their respective offices, we cannot predict when or how we will be able to completely lift the work from home requirements or other COVID-19 related restrictions for geographic areas that continue to be significantly impacted by the pandemic or certain other actions taken as part of our business continuity plans, including travel restrictions. We may also have to reinstate work from home requirements in response to further changes in local regulations in connection with developments in the COVID-19 pandemic. While the adjustments to our operations may result in inefficiencies, delays and additional costs in our solution development, sales, marketing, and customer support efforts, as of the date of this filing, we do not believe our work from home protocol has materially adversely impacted our internal controls, financial reporting systems or our operations.
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In response to the ongoing COVID-19 pandemic, we initially implemented plans to manage our costs. In fiscal year 2020, for part of the year, we temporarily limited the addition of new employees and third-party contracted services, curtailed most travel expenses except where critical to the business, and acted to limit discretionary spending. As we obtained further visibility on the impact of the COVID-19 pandemic on our business, we lifted some of these limitations to support our growth. Although we continue to monitor the situation and may adjust our current policies as more information and public health guidance become available, the ongoing effects of the COVID-19 pandemic and/or the precautionary measures that we, our customers and governmental authorities have adopted have resulted in, and could continue to result in, customers not purchasing or renewing our solutions or services, delays or lengthening of our sales cycles, and reductions in average transaction sizes, and could negatively affect our customer success and sales and marketing efforts, or create operational or other challenges, any of which could harm our business and operating results. Because our solutions have future obligations and a portion of that revenue is recognized over time, the effect of the pandemic may not be fully reflected in our operating results until future periods. Our competitors could experience similar or different impacts as a result of the COVID-19 pandemic, which could result in changes to our competitive landscape. While we have developed and continue to develop plans to help mitigate the negative impact of the pandemic on our business, these efforts may not be effective, and any protracted economic downturn could significantly affect our business and operating results. We will continue to evaluate the nature and extent of the impact of the COVID-19 pandemic to our business. For additional information regarding the possible impact of the COVID-19 pandemic on our business, see the section titled “ Risk Factors .”
Recent Developments
On September 13, 2021, we entered into a definitive agreement with exactEarth and Spire Global Canada Acquisition Corp., an indirect wholly owned subsidiary of Spire Global, Inc. in the providence of British Columbia, Canada, pursuant to which we will acquire exactEarth for an estimated purchase price of approximately $161.2 million, consisting of (i) $103.4 million in cash on hand, and (ii) $57.8 million of shares of our Class A common stock (or approximately 5,234,857 shares), in each case upon the terms and subject to the conditions of the definitive agreement (the "Proposed Acquisition"). The Proposed Acquisition is subject to customary closing conditions, including the receipt of certain regulatory approvals; the approval of the Ontario Superior Court of Justice (Commercial List); the approval by not less than two-thirds of the votes cast at a special meeting of exactEarth shareholders, which will take place on November 18, 2021; no material adverse effect having occurred in respect of either us or exactEarth; and dissent rights not having been exercised with respect to more than 10% of exactEarth’s outstanding common shares. The Proposed Acquisition is expected to close in the fourth quarter of 2021 or the first quarter of 2022. On October 15, 2021, we amended the definitive agreement to update the Plan of Arrangement to cause consideration that is unclaimed after two years to continue to be administered by the depositary, instead of being returned for further administration by us.
Key Factors Affecting Our Performance
We believe that our current and future performance are dependent on many factors, including, but not limited to, those described below. While these areas present significant opportunity, they also present risks that we must manage to achieve successful results. For additional information about these risks, see the section titled “ Risk Factors. ” If we are unable to address these risks, our business and operating results could be adversely affected.
Expansion of and Further Penetration of Our Customer Base
We employ a “land and expand” business model that focuses on efficiently acquiring new customers (“land”) and then growing our relationships with these customers over time (“expand”). We have the capability to offer customers additional data sets and a variety of enhanced features that potentially grow the value of the services our customers contract with us. Our future revenue growth and our path to profitability are dependent upon our ability to continue to land new customers and then expand adoption of our solutions within their organizations.
We track our progress landing new customers by measuring the number of ARR Solution Customers we have from one fiscal period to the next. For instance, we increased our number of ARR Solution Customers to 225 as of September 30, 2021, from 133 as of September 30, 2020. We track our progress in expanding our customer relationships by measuring our ARR Net Retention Rate. For the definition of ARR Net Retention Rate, see the section titled “— Key Business Metrics. ” Our ARR Net Retention Rate was 111% for the three months ended September 30, 2021 compared to 159% for the three months ended September 30, 2020. Our ARR Net Retention Rate was 113% for the nine months ended September 30, 2021 compared to 158% for the nine months ended September 30, 2020.
Expansion into New Industries and Geographies
As our solutions have grown, we continue to focus on further penetration of our initial industries including maritime, aviation, logistics and government (civil and defense/intelligence) among others. We believe our technology and solutions give us the ability to also expand into additional industries, including energy, financial services, agriculture, transportation, and insurance, and geographies, including Latin America, Africa, and the Middle East. Our revenue growth is dependent upon our ability to continue to expand into new industries and geographies. The costs associated with these expansions may adversely affect our operating results.
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Investment in Growth
We continue investing in growing our business and capitalizing on our market opportunity while balancing the uncertainties from the COVID-19 pandemic. We intend to continue to add headcount to our global sales and marketing teams to acquire new customers and to increase sales to existing customers and we intend to continue to add headcount to our research and development teams and otherwise invest to improve and innovate our nanosatellite, ground station and data analytics technologies. For the nine months ended September 30, 2021, our spending in research and development increased by $7.3 million, or 50% from the nine months ended September 30, 2020. For the nine months ended September 30, 2021, our sales and marketing expense increased by $7.3 million, or 103% from the nine months ended September 30, 2020. Our total headcount across all functions has increased from 228 employees as of September 30, 2020, to 331 employees as of September 30, 2021. We believe that these investments will contribute to our long-term growth. The costs of these investments may adversely affect our operating results.
Acquisitions
Our business strategy may continue to include, like our recent announcement on September 13, 2021, where we entered into a definitive agreement to acquire exactEarth Ltd., acquiring other complementary solutions, technologies, or businesses that we believe will allow us to reduce the time or costs required to develop new technologies, incorporate enhanced functionality into and complement our existing solution offerings, augment our engineering workforce, and enhance our technological capabilities.
Impact of Foreign Exchange Rates
We report in U.S. dollars, and the functional currency of our foreign operating subsidiaries is the local currency, including the Euro, the British Pound, and the Singapore Dollar. Many of these currencies have strengthened significantly against the U.S. dollar since the three and nine months periods ended September 30, 2020. For the three months ended September 30, 2021, and the nine months ended September 30, 2021, approximately 37% and 46% of our revenues were generated in non-U.S. dollar-denominated currencies respectively. This compares to the three months ended September 30, 2021, and the nine months ended September 30, 2021, where approximately 40% and 47% of our revenues were generated in non-U.S. dollar-denominated currencies respectively. The financial statements of these subsidiaries are translated into U.S. dollars using exchange rates in effect at each balance sheet date for assets and liabilities and average exchange rates during the period for revenues and expenses. To the extent we experience significant currency fluctuations, our results of operations may be impacted.
Key Business Metrics
We review the following key business metrics to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans, and make strategic decisions:
•
ARR
•
ARR Customers
•
ARR Solution Customers
•
ARR Net Retention Rate
Annual Recurring Revenue
We define ARR as our expected annualized revenue from customers that are under contract with us at the end of the reporting period with a binding and renewable agreement for our subscription solutions, or a customer that has a binding multi-year contract that can range from components of our Space Services solution to a bespoke customer solution. These customers are considered recurring when they have signed a multi-year binding agreement that has a renewable component in the contract or a customer that has multiple contracts that we continue to have under contract over multiple years.
Our ARR growth in the periods presented has been driven by both landing new ARR Customers along with increasing the amount of business with our existing customers. This is reflected in the increase in the total number of ARR Customers as well as ARR Net Retention Rates that have been over 100% for the periods presented. Due in part to the timing of some of our project-based contracts, including when engagements start and stop, our ARR has fluctuated from period to period in the past, and we expect our ARR to fluctuate from period to period in the future. ARR is a leading indicator and accordingly will tend to outpace the revenue impact as we recognize the contract value over time.
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The following table summarizes our ARR for each fiscal period end indicated.
(in thousands)
September 30,
2021
September 30,
2020
% Change
ARR
$
45,241
$
29,975
51
%
Number of ARR Customers and ARR Solution Customers
We define an ARR Customer as an entity that has a contract with us, that is either a binding and renewable agreement for our subscription solutions, or a binding multi-year contract as of the measurement date independent of the number of solutions the entity has under contract. All entities that have customer contracts for data trials are excluded from the calculation of ARR Customers. A single organization with separate subsidiaries, segments, or divisions may represent multiple customers, as we treat each entity that is invoiced separately as an individual customer. In cases where customers subscribe to our platform through our reseller partners, each end customer that meets the above definition is counted separately as an ARR Customer.
We define an ARR Solution Customer similarly to an ARR Customer, but we count every solution the customer has with us separately. As a result, the count of ARR Solution Customers exceeds the count of ARR Customers in each year as some customers contract with us for multiple solutions. Our multiple solutions customers are those customers that are under contract for at least two of our solutions: Maritime, Aviation, Weather, and Space Services.
Our ARR Customer and ARR Solution Customer growth in the periods presented have been driven by landing new ARR Customers across our four solutions (Maritime, Aviation, Weather and Space Services) and expanding our geographical footprint, along with having a low number of customers who have chosen not to renew their contracts with us. We believe that our ability to expand our customer base is a key indicator of our market penetration, the growth of our business, and our future potential business opportunities.
The following table summarizes the number of our ARR Customers and ARR Solution Customers for each fiscal period end indicated:
September 30,
2021
September 30,
2020
% Change
ARR Customers
206
126
63
%
ARR Solution Customers
225
133
69
%
ARR Net Retention Rate
We calculate our ARR Net Retention Rate for a particular fiscal period end by dividing (i) our ARR from those ARR Customers that were also customers as of the last day of the prior fiscal period end by (ii) the ARR from all customers as of the last day of the prior fiscal period. This calculation measures the overall impact from increases in customer contract value (upsells), the decreases in customer contract value (downsells), and the decreases in customer value resulting from customers that have chosen not to renew their contracts with us.
The following table summarizes our ARR Net Retention Rate for each fiscal period end indicated:
Three Months Ended
Nine Months Ended
September 30,
2021
September 30,
2020
%
Change
September 30,
2021
September 30,
2020
%
Change
ARR Net Retention Rate
111
%
159
%
(48
)%
113
%
158
%
(45
)%
Our ARR Net Retention Rate can be impacted from period to period by large increases or decreases in customer contract value and large decreases in contract value from customers that have chosen not to renew their contracts with us. An ARR Net Retention Rate greater than 100% is an indication that we are growing the value of the solutions our customers are purchasing from us from a fiscal period end versus the prior fiscal period end. An ARR Net Retention Rate less than 100% is an indication that we are reducing the value of the solutions our customers are purchasing from us from a fiscal period end versus the prior fiscal period end. For the three months ended September 30, 2021, and the nine months ended September 30, 2021, our ARR net retention rate was down 48% and 45% respectively. These reductions were driven by the growth in our ARR renewable base, a higher concentration of new customer ARR versus upsell, and delays in a few space services deals causing the contract value to spread over a longer period.
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Components of Results of Operations
Revenue
We derive revenue from providing data, insights, and access to our cloud-based technology platform sold on a subscription basis. Some of our customer arrangements include the delivery of specific performance obligations and subsequent customer acceptance of project-based deliverables, which may impact the timing of revenue recognition. Subscription periods for our solutions generally range from one to two years and are typically non-cancelable, with customers having the right to terminate their agreements only if we materially breach our obligations under the agreement. Our subscription fees are typically billed either monthly or quarterly in advance.
Cost of Revenue
Cost of revenue consists primarily of personnel costs, depreciation, hosted infrastructure and high-power computing costs, and third-party royalty costs associated with delivering our data and services to our customers. Personnel costs are primarily related to the cost of our employees supporting and managing our constellation operations including satellite operations, ground station control and launch management. Costs associated with the manufacture and launch of our satellites, including personnel costs, are capitalized and depreciated upon placement in service, typically over a three-year expected useful life. As satellites reach their expected end of useful life, they are generally replaced with replenishment satellites to maintain our constellation at optimal performance. Costs associated with the acquisition and development of new ground stations, including the bill of materials and labor to install the ground station, are capitalized and depreciated upon placement in service typically over a four-year expected useful life. We anticipate on-going capital spending to repair and replenish ground stations as they reach their end of useful life to try to keep our ground station network at optimal performance. Our proprietary ground station network is primarily located in third-party locations where we incur lease and other operational charges. Cost of revenue also includes royalties associated with third-party data sets that we integrate into our data solutions.
Operating Expenses
Research and Development . Research and development expenses consist primarily of employee-related expenses, third-party consulting fees, and computing costs. Our research and development efforts are focused on improving our satellite technology, developing new data sets, developing new algorithms and enhancing our smart and predictive analytics, and enhancing the ease of use and utility of our space-based data solutions.
Sales and Marketing . Sales and marketing expenses consist primarily of employee-related expenses, sales commissions, marketing and advertising costs, costs incurred in the development of customer relationships, brand development costs and travel-related expenses. Commission costs on new customer contract bookings are considered costs of obtaining customer contracts. Commission costs for multi-year deals are considered contract acquisition costs and are deferred and then amortized over the period of the contract, excluding the last 12 months which are expensed at the beginning of that final period. Commission costs on contracts completed with a term of twelve months or less are expensed in the period incurred.
General and Administrative . General and administrative expenses consist of employee-related expenses for personnel in our executive, finance and accounting, facilities, legal, human resources, global supply chain, and management information systems functions, as well as other administrative employees. In addition, general and administrative expenses include fees related to third-party legal counsel, fees related to third-party investor relations, fees related to accounting, tax and audit costs, office facilities costs, software subscription costs, and other corporate costs.
Loss on Satellite Deorbit and Launch Failure . Loss on Satellite Deorbit and Launch Failure consists of the write-off of the remaining capitalized costs associated with the manufacture and launch of our satellites prior to the end of the satellite’s useful life. We contract with third-party companies to launch, carry, and deploy our LEMUR satellites into space. A loss could result from a third-party launch or deployer failure, a technical failure of the satellite, or the deorbit of a satellite before the end of the satellite’s useful life. A technical failure could include a satellite that is not able to communicate with our network of ground stations or fulfill its intended technical mission for a duration greater than one month. The loss amount is presented net of any insurance claims received. We did not incur any of these expenses in the nine months ended September 30, 2021. We incurred $0.7 million in expenses in the nine months ended September 30, 2020.
Other Income (Expense)
Interest Income . Interest Income includes interest earned on our cash balances.
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Interest Expense . Interest Expense includes interest costs associated with our promissory and convertible notes, and amortization of deferred financing and debt issuance costs and could include expense associated with changes in the fair value of the embedded debt derivative.
Change in Fair Value of Warrant Liabilities. Includes mark-to-market adjustments to reflect changes in fair value of warrant liabilities.
Other Income (Expense), Net . Other Income (Expense), Net consists primarily of tax credits, grant income, the impact of foreign exchange gains and losses, benefit from loan forgiveness, loss on debt extinguishment, earnout consideration mark-to-market adjustments and sales and local taxes. We use the local currency as our functional currency for Luxembourg, United Kingdom, and Singapore.
Income Tax Provision
Provision for income taxes consists of federal and certain state income taxes in the United States and income taxes in certain foreign jurisdictions. We do not provide for income taxes on undistributed earnings of our foreign subsidiaries since we intend to invest these earnings outside of the United States permanently. We account for income taxes using the asset and liability method, whereby deferred tax assets and liabilities are recognized based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted rates and laws that will be in effect when the differences are expected to reverse.
Results of Operations
Three Months Ended September 30, 2021, Compared to Three Months Ended September 30, 2020, and Nine Months ended September 30, 2021, Compared to Nine Months Ended September 30, 2020.
The following tables set forth selected consolidated statement of operations data and such data as a percentage of total revenues for each of the periods indicated:
Three Months Ended
Nine Months Ended
(in thousands)
September 30,
2021
September 30,
2020
September 30,
2021
September 30,
2020
(Restated)
(Restated)
Revenue
$
9,561
$
7,184
$
28,390
$
21,221
Cost of revenue (1)
5,338
2,426
12,393
7,821
Gross profit
4,223
4,758
15,997
13,400
Operating expenses (1) :
Research and development
7,804
5,231
21,913
14,585
Sales and marketing
5,574
2,294
14,369
7,082
General and administrative
8,217
3,110
23,507
8,854
Loss on satellite deorbit and launch failure
—
666
—
666
Total operating expenses
21,595
11,301
59,789
31,187
Loss from operations
(17,372
)
(6,543
)
(43,792
)
(17,787
)
Other income (expense):
Interest income
4
—
6
45
Interest expense
(2,392
)
(1,522
)
(8,267
)
(4,479
)
Change in fair value of contingent earnout liability
(22,142
)
—
(22,142
)
—
Change in fair value of warrant liabilities
(13,353
)
—
(23,529
)
—
Other income (expense), net
(584
)
636
(3,975
)
181
Total other income (expense), net
(38,467
)
(886
)
(57,907
)
(4,253
)
Loss before income taxes
(55,839
)
(7,429
)
(101,699
)
(22,040
)
Income tax provision
269
195
969
300
Net loss
$
(56,108
)
$
(7,624
)
$
(102,668
)
$
(22,340
)
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(1)
Includes stock-based compensation as follows:
Three Months Ended
Nine Months Ended
(in thousands)
September 30,
2021
September 30,
2020
September 30,
2021
September 30,
2020
Cost of revenue
$
31
$
9
$
75
$
26
Research and development
590
225
1,843
668
Sales and marketing
550
74
1,278
219
General and administrative
928
223
3,404
538
Total stock-based compensation
$
2,099
$
531
$
6,600
$
1,452
Revenue
Three Months Ended
Nine Months Ended
(in thousands)
September 30,
2021
September 30,
2020
%
Change
September 30,
2021
September 30,
2020
%
Change
Revenue
$
9,561
$
7,184
33
%
$
28,390
$
21,221
34
%
Three Months Ended September 30, 2021, Compared to Three Months Ended September 30, 2020
Total revenue increased $2.4 million, or 33%, driven primarily by the growth in the number of ARR Customers combined with our ARR Net Retention Rate greater than 100%. Our ARR Customers increased 63%, from 126 as of September 30, 2020, to 206 as of September 30, 2021. Our ARR Net Retention Rate was 111% for the three months ended September 30, 2021, which contributed to an increase in revenue from our existing customer base.
For the three months ended September 30, 2021, we derived 50% of our revenue from the Americas, 37% of our revenue from Europe, Middle East, Africa (“EMEA”), and 13% of our revenue from Asia Pacific (“APAC”). For the three months ended September 30, 2020, we derived 39% of our revenue from the Americas, 41% from EMEA, and 20% of our revenue from APAC. For the three months ended September 30, 2021, we derived 51% of our revenue from subscription arrangements. For the three months ended September 30, 2020, we derived 33% of our revenue from subscription arrangements. This percentage mix can fluctuate significantly from period to period driven primarily by the timing of the recognition of project-based deliverables in our contracts, as well as the timing of historical data buys by customers.
For the three months ended September 30, 2021, our increase in the number of ARR Customers and our ARR Net Retention Rate greater than 100% was driven by our increased spending on sales and marketing activities and the geographical expansion of our sales efforts into new countries and/or regions.
Nine Months ended September 30, 2021, Compared to Nine Months Ended September 30, 2020
Total revenue increased $7.2 million, or 34%, driven primarily by the growth in the number of ARR Customers combined with our ARR Net Retention Rate greater than 100%. Our ARR Customers increased 63%, from 126 as of September 30, 2020, to 206 as of September 30, 2021. This growth in new ARR Customers drove $5.9 million or 59% of the fiscal year 2020 revenue growth. Our ARR Net Retention Rate was 113% for the nine months ended September 30, 2021, which contributed to an increase in revenue from our existing customer base. For the nine months ended September 30, 2021, we derived 47% of our revenue from EMEA, 37% of our revenue from the Americas and 16% of our revenue from APAC.
For the nine months ended September 30, 2020, we derived 48% of our revenue from EMEA, 38% of our revenue from the Americas, and 14% of our revenue from APAC. For the nine months ended September 30, 2021, we derived 46% of our revenue from subscription arrangements. For the nine months ended September 30, 2019, we derived 27% of our revenue from subscription arrangements. This percentage mix can fluctuate significantly from period to period driven primarily by the timing of the recognition of project-based deliverables in our contracts, as well as the timing of historical data buys.
For the nine months ended September 30, 2021, our increase in the number of ARR Customers and our ARR Net Retention Rate greater than 100% was driven by our increased spending on sales and marketing activities, the geographical expansion of our sales efforts into new countries and/or regions and the development and rollout of new data solutions.
Over time, we expect the mix of our total revenues in the Americas and APAC to increase with additional sales and marketing focus in those regions.
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Cost of Revenue
Three Months Ended
Nine Months Ended
(in thousands)
September 30,
2021
September 30,
2020
%
Change
September 30,
2021
September 30,
2020
%
Change
Total cost of revenue
$
5,338
$
2,426
120
%
$
12,393
$
7,821
58
%
Gross profit
$
4,223
$
4,758
(11
)%
$
15,997
$
13,400
19
%
Gross margin
44
%
66
%
(22
)%
56
%
63
%
(7
)%
Headcount (at period end)
22
20
2
22
20
2
Three Months Ended September 30, 2021, Compared to Three Months Ended September 30, 2020
Cost of revenue increased $2.9 million, or 120%, primarily driven by an increase in depreciation expense of $1.0 million, an increase in computing costs of $0.8 million, $0.7 million of space services hardware expenses, and royalties expense growth of $0.4 million. The increase in depreciation was a result of multiple satellites ending their useful life in the three months ending September 30, 2020, while adding 22 new satellites in the subsequent twelve months ending September 30, 2021. The increase in computing costs were driven by higher expenses to support customer growth and some of our weather solutions transitioning from research and development to production. The increase in space services hardware expenses was in support of a strategic customer commitment. The increase in third party royalty costs was driven by an increase in sales activity, resulting in higher payments to third-party data set providers as they augment our data solutions. The net headcount increase had an immaterial impact on change in personnel expense.
Gross margin for the three months ended September 30, 2021, and three months ended September 30, 2020, was 44% and 66%, respectively. The decrease in the three months ended September 30, 2021 gross margin compared to the prior period was driven primarily by higher depreciation, computing expenses, royalties, and strategic customer expenses as described above. This metric can fluctuate significantly from period to period driven primarily by the timing of the revenue as well as the timing of our technology investments to support future revenue. We expect this metric to improve as we continue to scale revenue relative to investment.
Nine Months ended September 30, 2021, Compared to Nine Months Ended September 30, 2020
Cost of revenue increased $4.6 million, or 58%, primarily due to an increase in depreciation expense of $1.8 million, an increase in computing costs of $1.3 million, $0.7 million of space services hardware expenses and an increase in third party royalty costs of $0.6 million. Depreciation expense increased from the prior period driven by continued additions to our constellation. The increase in computing costs were driven by higher expenses to support customer growth and some of our weather solutions transitioning from research and development to production. The increase in space services hardware expenses was in support of a strategic customer commitment. The increase in third party royalty costs was driven by an increase in sales activity, resulting in higher payments to third-party data set providers as they augment our data solutions. The net headcount increase had an immaterial impact on change in personnel expense.
Gross margin for the nine months ended September 30, 2021, and nine months ended September 30, 2020, was 56% and 63%, respectively. The decrease in the nine months ended September 30, 2021 gross margin compared to the prior period was driven primarily by higher depreciation, computing expenses, royalties, and strategic customer expenses as described above. This metric can fluctuate significantly from period to period driven primarily by the timing of the revenue as well as the timing of our technology investments to support future revenue. We expect this metric to improve as we continue to scale revenue relative to investment.
While we expect cost of revenue, including depreciation expenses, royalties, and high-powered computing costs, to increase in absolute dollars as our revenue grows, we expect our cost of revenue as a percentage of revenue to decrease over time as we benefit from the efficiencies of our business model that drive improved operating leverage.
Operating Expenses
Operating expenses consist of our research and development, our sales and marketing, and our general and administrative expenses. As we continue to invest in our growth, including through hiring additional personnel, we expect our operating expenses to increase in absolute dollars as revenue grows in the near term; however, we expect our operating expenses as a percentage of revenue to decrease over time
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Research and Development
Three Months Ended
Nine Months Ended
(in thousands)
September 30,
2021
September 30,
2020
%
Change
September 30,
2021
September 30,
2020
%
Change
Research and development
$
7,804
$
5,231
49
%
$
21,913
$
14,585
50
%
Percentage of total revenue
82
%
73
%
77
%
69
%
Headcount (at period end)
172
125
38
%
172
125
38
%
Three Months Ended September 30, 2021, Compared to Three Months Ended September 30, 2020
Research and development expenses increased $2.6 million, or 49%, due to an increase in personnel costs of $1.9 million, an increase in third-party services of $0.4 million, and an increase in computing costs of $0.3 million. The increase in personnel costs was driven by growth in headcount during the period. The increase in third-party services was driven by external technical resources required to support new development processes and capabilities. The increase in computing costs were driven by additional testing, modeling, and storage requirements used to develop our new solutions.
Nine Months ended September 30, 2021, Compared to Nine Months Ended September 30, 2020
Research and development expenses increased $7.3 million, or 50%, due to an increase in personnel costs of $5.4 million, an increase in computing costs of $1.1 million, and an increase in third-party services of $0.8 million. The increase in personnel costs was driven by growth in headcount during the period. The increase in computing costs were driven by additional testing, modeling, and storage requirements used to develop our new solutions. The increase in third-party services was driven by external technical resources required to support new development processes and capabilities.
While we expect research and development expenses to increase in absolute dollars in future periods primarily due to higher headcount as we continue to invest in the development of our solutions offerings and new technologies, we expect research and development expenses to decrease as a percentage of revenue in future periods as our revenue growth exceeds our growth in research and development spend.
Sales and Marketing
Three Months Ended
Nine Months Ended
(in thousands)
September 30,
2021
September 30,
2020
%
Change
September 30,
2021
September 30,
2020
%
Change
Sales and marketing
$
5,574
$
2,294
143
%
$
14,369
$
7,082
103
%
Percentage of total revenue
58
%
32
%
51
%
33
%
Headcount (at period end)
80
44
82
%
80
44
82
%
Three Months Ended September 30, 2021, Compared to Three Months Ended September 30, 2020
Sales and marketing expenses increased $3.3 million, or 143%, due to an increase in personnel costs of $2.7 million, an increase in marketing and professional services costs of $0.4 million, and other miscellaneous operating expenses of $0.2 million. The increase in personnel costs was driven by growth in our headcount involved in selling activities. The increase in marketing and professional services costs was driven by growth in our expenditures for demand generation, brand awareness and public relations.
Nine Months ended September 30, 2021, Compared to Nine Months Ended September 30, 2020
Sales and marketing expenses increased $7.3 million, or 103%, due to an increase in personnel costs of $5.5 million, an increase in marketing and professional services costs of $1.7 million, and other miscellaneous operating expenses of $0.1 million. The increase in personnel costs was driven by growth in our headcount involved in selling activities. The increase in marketing and professional services costs was driven by growth in our expenditures for demand generation, brand awareness and public relations.
While we expect sales and marketing expenses to continue to grow in absolute dollars in the future, primarily due to increased employee-related expenses as we grow our headcount, to support our sales and marketing efforts and our continued expansion of our sales capacity across our solutions and into new geographical locations, we expect sales and marketing expenses as a percentage of revenue to decrease in future periods as our revenue growth exceeds our growth in sales and marketing spend.
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General and Administrative
Three Months Ended
Nine Months Ended
(in thousands)
September 30,
2021
September 30,
2020
% Change
September 30,
2021
September 30,
2020
% Change
General and administrative
$
8,217
$
3,110
164
%
$
23,507
$
8,854
165
%
Percentage of total revenue
86
%
43
%
83
%
42
%
Headcount (at period end)
57
39
46
%
57
39
46
%
Three Months Ended September 30, 2021 Compared to Three Months Ended September 30, 2020
General and administrative expenses increased $5.1 million, or 164%, due to an increase in professional and consulting fees of $2.6 million, an increase in personnel costs of $1.1 million, an increase in business insurance of $0.8 million, an increase in facilities expenses of $0.5 million, and other miscellaneous operating expenses of $0.1 million. The increase in professional and consulting fees was primarily driven by accounting, legal and other consulting services associated with the Merger and company readiness for going public. The increase in personnel costs was driven by stock-based compensation expense associated with a performance-based equity incentive program as well as overall headcount growth from the previous period. The increase in business insurance was driven by incremental exposure associated with being a public company. The increase in facilities expenses was driven by an increase in office rent driven by expansion into new office space to accommodate our headcount growth.
Nine Months ended September 30, 2021 Compared to Nine Months Ended September 30, 2020
General and administrative expenses increased $14.7 million, or 165%, due to an increase in professional and consulting fees of $8.0 million, an increase in personnel costs of $5.0 million, an increase in business insurance of $0.9 million, an increase in facilities expenses of $0.6 million, and other miscellaneous operating expenses of $0.2 million. The increase in professional and consulting fees was primarily driven by accounting, legal and other consulting services associated with the Merger and company readiness for going public. The increase in personnel costs was driven by stock-based compensation expense associated with a performance-based equity incentive program as well as overall headcount growth from the previous period. The increase in business insurance was driven by incremental exposure associated with being a public company. The increase in facilities expenses was driven by an increase in office rent driven by expansion into new office space to accommodate our headcount growth.
While we expect our general and administrative expenses to continue to grow in absolute dollars in future periods as our employee-related expenses increase to support our revenue growth and we have increased expenses from being a public company, we expect our general and administrative expenses as a percentage of revenue to decrease as revenue growth exceeds our growth in general and administration spend.
Loss on Satellite Deorbit and Launch Failure
Three Months Ended
Nine Months Ended
(in thousands)
September 30,
2021
September 30,
2020
% Change
September 30,
2021
September 30,
2020
% Change
Loss on satellite deorbit and launch failure
—
$
666
*
—
$
666
*
Percentage of total revenue
—
9
%
—
3
%
*Not meaningful
Three Months Ended September 30, 2021 Compared to Three Months Ended September 30, 2020
In the three months ended September 30, 2021, we experienced no expense in this category.
In the three months ended September 30, 2020, we experienced the loss of two satellites due to a third-party deployment issue associated with a single launch.
Nine Months ended September 30, 2021 Compared to Nine Months Ended September 30, 2020
In the nine months ended September 30, 2021, we experienced no expense in this category.
In the nine months ended September 30, 2020, we experienced the loss of two satellites due to a third-party deployment issue associated with a single launch.
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Due to the nature of these events, we cannot predict the magnitude or frequency of future satellite deorbit and launch failure losses. While we sometimes purchase launch insurance when financially practical, the proceeds from these policies will typically only cover a portion of our loss in the event of an unplanned satellite deorbit or launch failure.
Other Income (Expense)
Three Months Ended
Nine Months Ended
(in thousands)
September 30,
2021
September 30,
2020
%
Change
September 30,
2021
September 30,
2020
%
Change
Interest income
$
4
—
*
$
6
$
45
(87
)%
Interest expense
(2,392
)
(1,522
)
57
%
(8,267
)
(4,479
)
85
%
Change in fair value of contingent earnout liability
(22,142
)
—
*
(22,142
)
—
*
Change in fair value of warrant liabilities
(13,353
)
—
*
(23,529
)
—
*
Other income (expense), net
(584
)
636
(192
%)
(3,975
)
181
(2,296
)%
*Not meaningful
Three Months Ended September 30, 2021 Compared to Three Months Ended September 30, 2020
Interest income was immaterial.
Interest expense increased $0.9 million, or 57%, primarily as a result of higher interest costs associated with our FP loan facility, including amortization of debt issuance costs, combined with continued accrued interest on our convertible notes prior to the completion of the Merger.
Change in fair value of contingent earnout liability increased by $22.1 million, which reflects a loss driven by higher stock price and our mark-to-market process. There is no corresponding prior year gain or loss as the contingent earnout liability did not exist in the prior year period. In connection with the Merger, eligible Spire equity holders are entitled to receive additional shares of our common stock upon our achievement of certain Earnout Triggering Events which are treated as liabilities and required to be marked to market each reporting period. Changes in valuation reflect the mark-to-market adjustment to reflect the fair market valuation of the underlying stock price and are recorded against the Contingent earnout liability account with the offsetting gain or loss recorded in Change in fair value of contingent earnout liability. Additional information can also be found in Notes 2 and 8 to our unaudited condensed consolidated financial statements as of September 30, 2021, and for the three and nine months ended September 30, 2021.
Change in fair value of warrant liabilities increased by $13.4 million, driven by the mark-to-market adjustment to reflect the fair market valuation of warrants, including the warrants held by EIB and Old NavSight warrant holders prior to the completion of the Merger. Additional information can also be found in Note 8 to our unaudited condensed consolidated financial statements as of September 30, 2021, and for the three and nine months ended September 30, 2021.
Other income (expense), net changed by $1.2 million from other income, net of $0.6 million in the three months ended September 30, 2021 to other expense, net of $0.6 million in the three months ended September 30, 2022, driven primarily by increases in realized and unrealized foreign exchange expense.
Nine Months ended September 30, 2021, Compared to Nine Months Ended September 30, 2020
The change in interest income was immaterial.
Interest expense increased $3.8 million, or 85%, primarily as a result of incurring higher interest charges associated with our EIB, Eastward and FP loan facilities, as well as higher accrued interest charges on our convertible notes through the completion of the Merger.
Change in fair value of contingent earnout liability increased by $22.1 million, which reflects a loss driven by higher stock price and our mark-to-market process. There is no corresponding prior year gain or loss as the contingent earnout liability did not exist in the prior year period. In connection with the Merger, eligible Spire equity holders are entitled to receive additional shares of our common stock upon our achievement of certain Earnout Triggering Events which are treated as liabilities and required to be marked to market each reporting period. Changes in valuation reflect the mark-to-market adjustment to reflect the fair market valuation of the underlying stock price and are recorded against the Contingent earnout liability account with the offsetting gain or loss recorded in Change in fair value of contingent earnout liability. Additional information can also be found in Notes 2 and 8 to our unaudited condensed consolidated financial statements as of September 30, 2021, and for the three and nine months ended September 30, 2021.
Other income (expense), net changed by $4.2 million, from other income, net of $0.2 million in the nine months ended September 30, 2021 to other expense, net of $4.0 million in the nine months ended September 30, 2022. This was primarily driven by $5.0 million in debt extinguishment expenses resulting from paying off the EIB Loan and the Eastward Loan Facilities, an increase in realized and unrealized foreign exchange expense of $1.1 million, offset by a $1.7 million gain on extinguishment of debt resulting from the U.S. government’s forgiveness of our PPP loan, and an increase in tax credits of $0.3 million.
We continue to experience foreign currency fluctuations as we re-measure foreign currency denominated transactions and balances into the functional currency of the entities in which they are recorded. Our results of operations are subject to fluctuations due to changes in the Euro, British Pound, and Singapore Dollar. We may continue to experience favorable or adverse foreign currency exchange impacts due to volatility in these currencies relative to their respective functional currencies.
Income Taxes
Three Months Ended
Nine Months Ended
(in thousands)
September 30,
2021
September 30,
2020
%
Change
September 30,
2021
September 30,
2020
%
Change
Income tax provision
$
269
$
195
38
%
$
969
$
300
223
%
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Table of Contents
Three Months Ended September 30, 2021 Compared to Three Months Ended September 30, 2020
Income tax decreased $0.1 million or 38%, primarily driven by lower income tax in our U.K. subsidiary.
Nine Months ended September 30, 2021 Compared to Nine Months Ended September 30, 2020
Income tax increased $0.7 million, or 223%, primarily driven by higher income tax in our U.K. subsidiary.
Non-GAAP Financial Measures
We believe that in addition to our results determined in accordance with GAAP, non-GAAP Adjusted EBITDA is useful in evaluating our business, results of operations, and financial condition. We believe that this non-GAAP financial measure may be helpful to investors because it provides consistency and comparability with past financial performance and facilitates period to period comparisons of operations, as this eliminates the effects of certain variables from period to period for reasons that we do not believe reflect our underlying business performance. In addition to our GAAP measures, we use this non-GAAP financial measure internally for budgeting and resource allocation purposes and in analyzing our financial results.
For the reasons set forth below, we believe that excluding the following items provides information that is helpful in understanding our operating results, evaluating our future prospects, comparing our financial results across accounting periods, and comparing our financial results to our peers, many of which provide similar non-GAAP financial measures:
•
Loss on satellite deorbit and launch failure. We exclude loss on satellite deorbit and launch failure because if there was no loss, the expense would be accounted for as depreciation and would also be excluded as part of our EBITDA calculation.
•
Change in fair value of warrant liabilities and contingent earnout liabilities. Spire excludes this as it does not reflect the underlying cash flows or operational results of the business.
•
Other expense, net. We exclude other expense, net because it includes one-time and other items that do not reflect the underlying operational results of our business.
•
Stock-based compensation. We exclude stock-based compensation expenses primarily because they are non-cash expenses that we exclude from our internal management reporting processes. We also find it useful to exclude these expenses when we assess the appropriate level of various operating expenses and resource allocations when budgeting, planning, and forecasting future periods. Moreover, because of varying available valuation methodologies, subjective assumptions and the variety of award types that companies can use under FASB ASC Topic 718, Stock Compensation (“ASC 718”), we believe excluding stock-based compensation expenses allows investors to make meaningful comparisons between our recurring core business operating results and those of other companies.
•
Mergers and acquisition related expenses. We exclude these expenses as these are associated with merger and acquisitions costs that are generally one time in nature and not reflective of the underlying operational results of our business.
•
Other unusual one-time costs. We exclude these as these are generally non-recurring items that do not reflect the on-going operational results of our business.
EBITDA. We define EBITDA as net income (loss), plus depreciation and amortization expense, plus interest expense, and plus the provision for (or minus benefit from) income taxes.
Adjusted EBITDA. We define Adjusted EBITDA as earnings before interest, taxes, depreciation and amortization, further adjusted for loss on satellite deorbit and launch failure, change in fair value of warrant liabilities, other income (expense), net, stock- based compensation, mergers and acquisition-related costs and expenses, and other unusual one-time costs. We believe Adjusted EBITDA can be useful in providing an understanding of the underlying operating results and trends and an enhanced overall understanding of our financial performance and prospects for the future. While Adjusted EBITDA is not a recognized measure under GAAP, management uses this financial measure to evaluate and forecast business performance. Adjusted EBITDA is not intended to be a measure of liquidity or cash flows from operations or a measure comparable to net income as it does not take into account certain requirements, such as capital expenditures and related depreciation, principal and interest payments, and tax payments. Adjusted EBITDA is not a presentation made in accordance with GAAP, and our use of the term Adjusted EBITDA may vary from the use of similarly titled measures by others in our industry due to the potential inconsistencies in the method of calculation and differences due to items subject to interpretation.
The presentation of non-GAAP financial information should not be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. Investors should read this discussion and analysis of our financial condition and results of operations together with the consolidated financial statements and the related notes thereto also included within.
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Table of Contents
The following table outlines the reconciliation from net loss to Adjusted EBITDA for the periods indicated:
Three Months Ended
Nine Months Ended
(in thousands)
September 30,
2021
September 30,
2020
September 30,
2021
September 30,
2020
Net Loss
$
(56,108
)
$
(7,624
)
$
(102,668
)
$
(22,340
)
Depreciation and amortization
2,075
1,265
5,615
3,861
Net Interest
2,388
1,522
8,261
4,434
Taxes
269
195
969
300
EBITDA
(51,376
)
(4,642
)
(87,823
)
(13,745
)
Loss on satellite deorbit and launch failure
—
666
—
666
Change in fair value of contingent earnout liability
22,142
22,142
Change in fair value of warrant liabilities
13,353
—
23,529
—
Other income (expense), net (1)
584
(636
)
3,975
(181
)
Stock-based compensation (2)
2,099
531
6,600
1,452
Mergers and acquisition related expenses (3)
1,660
—
4,244
—
Other unusual one-time costs (4)
—
—
387
—
Adjusted EBITDA
$
(11,538
)
$
(4,081
)
$
(26,946
)
$
(11,808
)
(1)
Other expense, net consists primarily of tax credits, grant income, the impact of foreign exchange gains and losses, debt extinguishment net expenses, and sales and local taxes.
(2)
Represents non-cash expenses related to our incentive compensation program.
(3)
Includes merger and acquisition-related costs associated with the Merger.
(4)
Includes other IPO market assessment expenses.
Limitations on the Use of Non-GAAP Financial Measures
There are limitations to using non-GAAP financial measures because non-GAAP financial measures are not prepared in accordance with GAAP and may be different from non-GAAP financial measures provided by other companies.
The non-GAAP financial measures are limited in value because they exclude certain items that may have a material impact upon our reported financial results. In addition, they are subject to inherent limitations as they reflect the exercise of judgments by management about which items are adjusted to calculate our non-GAAP financial measures. We compensate for these limitations by analyzing current and future results on a GAAP basis as well as a non-GAAP basis and also by providing GAAP measures in our public disclosures. Some of these limitations are:
•
although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements;
•
Adjusted EBITDA does not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our debt;
•
Adjusted EBITDA do not reflect income tax payments that may represent a reduction in cash available to us; and
•
Adjusted EBITDA does not reflect the loss on satellite deorbit and launch failure and does not reflect the cash capital expenditure requirements for the replacements of lost satellites. While these expenses could occur in a given year, the existence and magnitude of these costs could vary greatly and is unpredictable.
Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. We encourage investors and others to review our financial information in its entirety, not to rely on any single financial measure to evaluate our business, and to view our non-GAAP financial measures in conjunction with the most directly comparable GAAP financial measures.
Liquidity and Capital Resources
Our principal sources of liquidity to fund our operations are from cash and cash equivalents, which totaled $245.8 million as of September 30, 2021, mainly from net proceeds from the Merger (as defined below), borrowings available under the FP Term Loan (as defined below) and the issuance of convertible notes. Of this $245.8 million, approximately $5.7 million was held outside of the United States. These amounts compare to cash and cash equivalents of $15.6 million as of December 31, 2021, of which $5.2 million was held outside of the United States. These amounts are exclusive of restricted cash which totaled $13.2 million as of September 30, 2021, and $0.4 million as of December 31, 2020. The increase in restricted cash of $12.8 million was driven by the EIB warrant
39
Table of Contents
arrangement guaranteeing funds availability in the event of warrant cancellation. In October 2021, EIB chose to exercise that cancellation right. For more information on this transaction, see Note 12 to our unaudited condensed consolidated financial statements as of September 30, 2021, and for the three and nine months ended September 30, 2021 included in this Quarterly Report on Form 10-Q/A.
Since our inception, we have been in an operating cash flow deficit as we have made significant investments in our technology infrastructure, built out our research and development foundation, grown sales and marketing resources to drive revenue, and scaled general and administrative functions to enable operating effectiveness.
During the nine months ended September 30, 2021, we issued additional convertible notes with a cumulative principal amount of $20.0 million, which mature in January and February 2025, respectively. Additionally, we received $1.7 million of forgiveness on our loan from the Small Business Administration Paycheck Protection Program. In April 2021 we entered into the FP Credit Agreement (as defined and further described below), utilizing a portion of those funds to pay-off our existing credit arrangements with EIB and Eastward. For additional detail regarding the terms associated with our financing arrangements, see Notes 6 and 7 to our unaudited condensed consolidated financial statements as of September 30, 2021, and for the three and nine months ended September 30, 2021 included elsewhere in this Quarterly Report on Form 10-Q/A.
We expect that our principal sources of liquidity in 2021 will be the proceeds received from the Merger (as defined below), the additional convertible notes issued and the FP Term Loan (as defined below). We believe this will be sufficient to meet our working capital and capital expenditure needs over at least the next 12 months as well as funding for the proposed acquisition of Exact Earth (see Recent Developments). Our future capital requirements will depend on many factors including our growth rate, the timing and extent of spending to support solution development efforts, the expansion of sales and marketing activities, the ongoing investments in technology infrastructure, the introduction of new and enhanced solutions, and the continuing market acceptance of our solutions. From time to time, we may seek additional equity or debt financing to fund capital expenditures, strategic initiatives or investments and our ongoing operations. In the event that we decide, or are required, to seek additional financing from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital when desired, our business, financial condition, and results of operations could be adversely affected.
NavSight Merger
On August 16, 2021, we announced that we had closed our Merger with NavSight. As a result, we became a wholly owned subsidiary of NavSight, and NavSight changed its name to “Spire Global, Inc.”
In connection with the Merger, we raised $264.8 million of proceeds including the contribution of $230.0 million of cash held in NavSight’s trust account from its initial public offering, net of redemptions of NavSight public stockholders of $210.2 million, and $245.0 million of cash in connection with the PIPE Investment. The Company incurred $38.7 million of merger and acquisitions costs, consisting of banking, legal, and other professional fees, of which $32.1 million was recorded as a reduction to additional paid-in capital, and the remaining $6.6 million was expensed to general and administrative expenses in the Condensed Consolidated Statements of Operations.
For more details on the Merger, including all equity conversions, please see Note 3 to our unaudited condensed consolidated financial statements as of September 30, 2021, and for the three and nine months ended September 30, 2021 included elsewhere in this Quarterly Report on Form 10-Q/A.
FP Credit Agreement
We entered into a credit agreement with FP Credit Partners, L.P., as agent for several lenders (the “FP Lenders”) on April 15, 2021 and as amended on May 17, 2021, for a $70,000 term loan (the “FP Term Loan”). Upon funding in May 2021, the FP Term Loan was used (i) to pay off the European Investment Bank (“EIB”) Loan Facility and the Eastward Loan Facility and (ii) to fund working capital and for general corporate purposes. We incurred $12,277 of debt issuance costs relating to the FP Term Loan. As part of the transaction to extinguish the EIB Loan Facility, the Company has reserved $12,801 in a restricted cash account in the event that EIB elects to redeem their warrants. Prior to the closing of the Merger with NavSight, the FP Term Loan bore interest at a rate of 8.50% per annum, payable quarterly in arrears, and we had the option to elect, upon written notice at least five business days in advance of each quarter end, to add all or a portion of the accrued unpaid interest to the outstanding principal amount of the FP Term Loan. Upon the closing of the Merger with NavSight, this election was no longer available. The FP Lenders had the option to elect to convert a portion of their specified contractual return into Spire common stock immediately preceding the closing of the Merger with NavSight, at a conversion price specified in the credit agreement by submitting a notice to convert on or prior to the funding date in May 2021 (the “Conversion Election”). If the FP Lenders had exercised the Conversion Election, and we did not elect to repay the outstanding principal amount of the FP Term Loan at the closing of the Merger with NavSight, then the interest rate would have increased to 9% per annum. However, the FP Lenders did not make the Conversion Election and so the interest rate would have decreased to 4% per annum upon the closing of the Merger with NavSight under the original terms of the FP Term Loan Agreement.
The FP Term Loan includes covenants that limit our ability to, among other things, make investments, dispose of assets, consummate mergers and acquisitions, incur additional indebtedness, grant liens, enter into transactions with affiliates, pay dividends or other distributions without preapproval by FP Credit Partners. We are required to maintain minimum unrestricted cash of at least $15,000 as of each fiscal quarter end, except for the quarter immediately following the first quarter where we report positive EBITDA, until the closing of a qualifying IPO, which includes the Merger. The Company issued an equity grant of 977,723 shares of its Class A common stock with a value of $8,065 to the FP Lenders upon funding of the FP Term Loan.
On August 5, 2021, the Company and FP Lenders executed an amendment (the “FP Amendment”) to the FP Term Loan to modify certain terms. Among other things, the FP Amendment waived the instance of the noncompliance with provisions for the timely notification of the Company’s election to add accrued unpaid interest as of June 30, 2021 to the outstanding principal. The FP Lenders also waived any default interest that would have applied as a result of the noncompliance.
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The FP Amendment also reinstated the previously expired Conversion Election and served as formal notice of this election by the FP Lenders. As a result, the FP Lenders received 1,490,769 shares of NewSpire Class A Common Stock. In connection with FP’s exercise of the Conversion Election, the interest rate on the FP Term Loan increased to 9% per annum following the closing of the Merger with NavSight.
We determined that this FP Amendment represents an accounting modification of the original FP Term Loan. In connection with the debt modification accounting, no gain or loss was recorded related to the FP Amendment, and the we capitalized the fair value of $14,803 for the 1,490,769 shares of NewSpire Class A Common Stock issued to the FP Lenders to be amortized over the remaining life of the FP Term Loan as part of the effective yield of the FP Term Loan beginning in the third quarter of 2021.
The FP Term Loan, plus the applicable contractual returns as defined in the credit agreement as amended, matures on April 15, 2026 and is collateralized by substantially all assets of the Company. The Company has the option to prepay the loan in advance of its final maturity, which was subject to a prepayment penalty under the original terms of the FP Term Loan Agreement that varied between $17,500 and $49,000 based on the timing and circumstances of the repayment.
During the nine months ended September 30, 2021, we recognized within Other expense, net on the Condensed Consolidated Statement of Operations, $4,954 as a loss on extinguishment of debt, resulting from paying off the EIB Loan and the Eastward Loan Facilities, and $1,699 as a gain from extinguishment of debt resulting from the U.S. government’s forgiveness of the PPP loan.
Eastward Loan Facility
In December 2020, we entered into a line of credit agreement with Eastward and certain of our subsidiaries as co-borrowers (the “Eastward Loan Facility”). The agreement provided for a term loan facility in an aggregate principal amount of up to $25.0 million, of which we borrowed $15.0 million. We used the proceeds to prepay existing indebtedness and the remaining proceeds were available to be used for general corporate purposes. In connection with funding the term loan under the FP Credit Agreement, we repaid the outstanding obligations under the Eastward Loan Facility, including a prepayment premium and fees of $0.8 million.
The Eastward Loan Facility bore interest at a rate of 11.75% per annum, payable monthly in arrears. We were also required to pay a commitment fee equal to 1.00% of the principal amount of each term loan borrowing. Following an interest only period of 24 months, the principal amount of each term loan was repayable in 24 equal monthly installments based on an amortization period of 36 months. The outstanding principal amount of each term loan, plus a repayment fee equal to 2.00% of the original $15.0 million principal amount of such term loan, was due and payable 48 months after such borrowing.
Our obligations under the Eastward Loan Facility were guaranteed by certain of our subsidiaries, as determined in accordance with the loan agreement, and were secured by substantially all of our assets and the assets of the co-borrowers. The loan agreement contained customary affirmative and negative covenants, including covenants that limited our and our subsidiaries’ ability to, among other things, dispose of assets, consummate mergers or acquisitions, incur additional indebtedness, grant liens, pay dividends or other distributions on our capital stock, make investments and enter into transactions with affiliates, subject in each case to customary exceptions and qualifications.
The Eastward Loan Facility included customary events of default, including, among other things, payment defaults, breaches of covenants or representations and warranties, an investor abandonment default, cross- defaults with certain other indebtedness, bankruptcy and insolvency events and judgment defaults, subject to grace periods in certain instances. Upon the occurrence and during the continuance of an event of default, Eastward had the right to declare all or a portion of the outstanding obligations payable by us to be immediately due and payable and exercise other rights and remedies provided for under the loan agreement. Under certain circumstances, a default interest rate would have applied on all obligations during the existence of an event of default under the loan agreement at a per annum rate equal to 5% above the otherwise applicable interest rate.
EIB Loan Facility
In August 2020, we entered into a finance contract with EIB and Spire Global Luxembourg S.a.r.l., as borrower. The finance contract provided for a term loan facility (the “EIB Loan Facility”) in an aggregate principal amount of up to EUR 20.0 million, available in three tranches, of which we borrowed EUR 12.0 million. The proceeds of the term loans were required to be used for our innovation and expansion activities in Luxembourg and potentially other EU countries. In connection with funding the term loan under the FP Credit Agreement, we repaid the outstanding obligations under the EIB Loan Facility, including a prepayment premium of EUR 0.2 million.
The total outstanding principal amount of each tranche was due and payable five years after the borrowing date for such tranche. The initial tranche of EUR 5.0 million did not accrue interest. The second tranche of EUR 7.0 million accrued interest at a rate equal to EURIBOR plus 5.00% per annum, payable quarterly in arrears. If borrowed, the third tranche of EUR 8.0 million would have accrued interest at a rate equal to EURIBOR plus 10.0% per annum, payable quarterly in arrears. We were also required to pay a commitment fee equal to 1.00% per annum of the undrawn term loan commitments from the one-year anniversary of the finance contract through the expiration of the commitments in January 2023.
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Our obligations under the finance contract were guaranteed by our material subsidiaries, as determined in accordance with the finance contract, and were secured by substantially all of our assets and the assets of the borrower. The finance contract contained customary affirmative and negative covenants, including covenants that limited our and our subsidiaries’ ability to, among other things, dispose of assets, consummate mergers or acquisitions, make investments, incur additional indebtedness, grant liens or pay dividends or other distributions on our capital stock, subject in each case to customary exceptions and qualifications.
The finance contract included customary events of default, including, among other things, payment defaults, breaches of covenants or representations and warranties, cross-defaults with certain other indebtedness, bankruptcy and insolvency events and a material adverse change event of default, subject to grace periods in certain instances. Upon the occurrence and during the continuance of an event of default, EIB had the right to declare all or a portion of the outstanding obligations to be immediately due and payable and exercise other rights and remedies provided for under the finance contract. Under certain circumstances, a default interest rate would have applied on all obligations during the existence of an event of default under the finance contract at a per annum rate equal to 2% above the otherwise applicable interest rate.
Under the terms of the EIB finance contract, on August 20, 2020, we issued to EIB a warrant exercisable for 454,899 shares (Tranche A) of Old Spire Common Stock at a price of $0.0001 per share. Upon completion of the merger the exercisable share count converted to 775,966. On October 29, 2020, we issued to EIB an additional warrant exercisable for 454,899 shares (Tranche B) of Old Spire Common Stock at a price of $0.0001 per share. Upon completion of the merger the exercisable share count converted to 775,966. Each such warrant includes a put option, whereby EIB has the right to have us repurchase the warrants by paying EIB an amount equal to the then-current fair market value of the shares of Old Spire Common Stock for which the warrants are exercisable. The amount that we are required to pay upon the exercise of the put option is subject to a purchase price cap of EUR 10.0 million for each warrant. Our obligations in connection with the put options under the warrants are secured by a lien in favor of EIB on $12.8 million of restricted cash, which amount may be reduced in the event EIB partially exercises the warrants. In September 2021, EIB submitted a notice of cancellation for the 775,966 EIB warrants (Tranche A). The expected settlement amount is EUR 9.7 million In October 2021, EIB submitted a notice of cancellation for the remaining 775,966 EIB warrants (Tranche B). The expected settlement amount is EUR 7.6 million. Tranche A and Tranche B were paid to EIB on November 8, 2021. Upon settlement of the warrants, the restricted cash of $12,801 collateral will be removed. For more information, see Notes 6 and 12 to our unaudited condensed consolidated financial statements as of September 30, 2021, and for the nine months ended September 30, 2021.
Convertible Notes
From July 2019 through October 2020, we issued and sold subordinated convertible promissory notes in the aggregate principal amount of $42.9 million (the “2019 Spire Notes”). In May 2021, we agreed with the holders of the 2019 Spire Notes to extend the maturity date of all convertible promissory notes outstanding at December 31, 2020 from January 29, 2022 to July 31, 2022. From January 2021 through February 2021, we issued and sold subordinated convertible promissory notes in the aggregate principal amount of $20.0 million, which mature four years from the date of issuance (the “2021 Spire Notes”). The 2019 Spire Notes and the 2021 Spire Notes accrued interest at a rate of 8.0% per annum and converted into shares of our common stock in connection with the Closing, so they are no longer outstanding.
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The following table summarizes our net cash used in operating activities, net cash used in investing activities, and net cash provided by financing activities for the periods indicated:
Nine Months Ended
(in thousands)
September 30,
2021
September 30,
2020
Net cash used in operating activities
$
(40,008
)
$
(8,420
)
Net cash used in investing activities
(9,449
)
(8,307
)
Net cash provided by financing activities
291,367
3,165
Cash Flows from Operating Activities
Our largest source of operating cash inflows is cash collections from our customers. Our primary uses of cash from operating activities are for employee-related expenditures, expenses related to our technology infrastructure, expenses related to our computing infrastructure (including compute power, database storage and content delivery costs), building infrastructure costs (including leases for office space), fees for third-party services, and marketing program costs.
Nine Months ended September 30, 2021 Compared to Nine Months Ended September 30, 2020
Net cash used in operating activities in nine months ended September 30, 2021, was $40.0 million. This reflected our net loss of $102.7 million, adjustments for non-cash items of $64.9 million, and a net decrease of $2.2 million driven by changes in operating assets and liabilities. Non-cash items primarily included $23.5 million for change in fair value of warrant liability, $22.1 million for change in fair value of contingent earnout liability, $6.6 million of stock-based compensation expense, $5.6 million of depreciation and amortization expense, $2.1 million of non-cash interest and financing related costs associated with our convertible and promissory notes, $2.6 million of amortized debt issuance expense, and $2.3 million for loss on extinguishment of debt. The net decrease driven by operating assets and liabilities primarily included an increase of $7.4 million in other current assets, an increase of $2.9 million in accounts receivable, and decrease in contract assets of $0.3 million. This was offset by an increase of $2.4 million in contract liabilities, an increase in accrued wages and other accrued expenses of $1.8 million, an increase in accounts payable of $1.1 million, and a net increase in other long-term assets and liabilities of $2.9 million.
Net cash used in operating activities in nine months ended September 30, 2020, was $8.4 million. This reflected our net loss of $22.3 million, adjustments for non-cash items of $9.0 million, and a net increase of $4.9 million driven by changes in operating assets and liabilities. Non-cash items primarily included $3.9 million of depreciation and amortization expense, $3.3 million of non-cash interest and financing related costs associated with our convertible and promissory notes, $1.5 million of stock-based compensation expense, $0.2 million of amortized debt issuance expense and $0.2 million of deferred income tax liabilities. The net increase driven by operating assets and liabilities primarily included an increase of $3.4 million in contract liabilities, an increase in accrued wages and other accrued expenses of $1.6 million, an increase in accounts payable of $1.2 million, and a decrease of $0.5 million in accounts receivable. This was offset by a net decrease in other long-term assets and liabilities of $0.7 million, decrease in contract assets of 0.6 million, and an increase of $0.5 million in other current assets.
Cash Flows from Investing Activities
The cash flows from investing activities primarily relate to cash used for the acquisition, development, and deployment of capital assets, including satellites, ground stations, machinery and equipment and furniture, computer equipment and software, and leasehold improvements.
Nine Months ended September 30, 2021 Compared to Nine Months Ended September 30, 2020
Net cash used in investing activities in nine months ended September 30, 2021, was $9.4 million. This was primarily driven by $7.3 million of investment in our technology infrastructure as well as $2.0 million for leasehold improvements, furniture, computer equipment, and machinery equipment.
Net cash used in investing activities in nine months ended September 30, 2020, was $8.3 million. This was primarily driven by $7.8 million of investment in our technology infrastructure as well as $0.5 million for leasehold improvements, furniture, computer equipment, and machinery equipment.
Cash Flows from Financing Activities
The cash flows from financing activities relate primarily to debt and convertible note financings and the PPP loan.
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Nine Months ended September 30, 2021 Compared to Nine Months Ended September 30, 2020
Net cash provided by financing activities in nine months ended September 30, 2021, was $291.4 million. This was primarily driven by $264.8 million of proceeds from the Merger, $70.0 million of proceeds from the FP loan transaction, $20.0 million of proceeds from the issuance of convertible notes, and $1.1 million of proceeds from the exercise of stock options, offset by payments of $30.6 million for merger and acquisitions costs related to the reverse recapitalization, repayments of $29.6 million to EIB and Eastward Capital, and payments of $4.3 million for debt issuance costs related to the FP loan.
Net cash provided by financing activities in nine months ended September 30, 2020, was $3.2 million. This was driven by $7.6 million of proceeds from long-term debt and $0.3 million of proceeds from issuance of convertible notes payable, offset by $4.5 million payments on long-term debt and 0.2 million for payment of debt issuance costs.
For additional information regarding the terms of our credit facilities and notes, see Notes 6, 7, 8, and 12 to our unaudited condensed consolidated financial statements as of September 30, 2021, and for the three and nine months ended September 30, 2021.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with GAAP. In the preparation of these consolidated financial statements, we are required to make certain estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses and related disclosures. On an ongoing basis, we evaluate our estimates and assumptions. Our actual results may differ from these estimates under different assumptions or conditions.
We believe that of our significant accounting policies, which are described in the notes to the consolidated financial statements, the following accounting policies involve a greater degree of judgment and estimates. Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of operations.
Other than the policies noted in Part I, Item 1, Note 2, “Summary of Significant Accounting Policies,” in the Company’s notes to condensed consolidated financial statements in this Quarterly Report on Form 10-Q/A, there have been no material changes to its critical accounting policies and estimates as compared to those disclosed in its audited consolidated financial statements as of December 31, 2020 and 2019 and for the years ended December 31, 2020 and 2019.
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Accounting Pronouncements Recently Adopted and Not Yet Adopted
See Note 2 to our unaudited condensed consolidated financial statements as of September 30, 2021, and for the three and nine months ended September 30, 2021 included in this Quarterly Report on Form 10-Q/A.
Emerging Growth Company Status
We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that we are (i) no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.
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Smaller Reporting Company Status
Additionally, we are a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. We will remain a smaller reporting company until the last day of the fiscal year in which (i) the market value of our common stock held by non-affiliates exceeds $250 million as of the prior June 30, or (ii) our annual revenues exceeded $100 million during such completed fiscal year and the market value of our common stock held by non-affiliates exceeds $700 million as of the prior June 30.
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