Greetings and welcome to the Spire Global Second Quarter 2022 Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to our host Ben Hackman, Head of IR. You may begin.

Thank you. Hello everyone and thanks for joining us for our second quarter 2022 earnings conference call. Our results, press release, and SEC filings can be found on our IR website at ir.spire.com. A replay of today's call will also be made available. With me on the call today is Peter Platzer, CEO and Tom Krywe, CFO. As a reminder, our commentary today will include non-GAAP items. Reconciliations between our GAAP and non-GAAP results, as well as our guidance can be found in our earnings press release. Some of our comments today may contain forward-looking statements that are subject to risks, uncertainties, and assumptions. In particular, our expectations around integration of our acquisition, results of operations and financial conditions are uncertain and subject to change. Should any of these fail to materialize or should our assumptions prove to be incorrect, actual company results could differ materially from these forward-looking statements. A description of these risks, uncertainties, and assumptions, and other factors that could affect our financial results is included in our SEC filings. With that, let me hand the call over to Peter.

Thank you, Ben. And thank you for joining us on the call today. Spire continued to drive the business forward in Q2. We again delivered results that were better than expected for revenue and for margin guidance. Complementing our relentless drive for profitability, we also successfully closed $120 million credit facility, further strengthening our balance sheet and allowing us to confidently execute on our four growth pillars as we continue on our path towards being free cash flow positive in 19 to 25 months. While the macro environment has continued to deteriorate meaningfully throughout Q2 with mentions of inflation, recession, and war on a seemingly daily basis, Spire's business prospects and opportunity set continue to be strong. The difficult environment requires businesses to make tough decisions with regards to balancing growth and profitability and we remain at the very core of our customers business plans. One can see this in the continued improvement of our already high retention rates we delivered yet again in Q2. Our customers look to Spire for data, insights, and solutions to run a more efficient and reliable business and manage the volatility of the current economic environment. Throughout Q2, we saw healthy interest in our data and solutions, adding 65 net new ARR solution customers, beating our expectations. With a fully deployed large constellation of satellites, monitoring the global flow of assets around the clock, effectively listening to the movement of global trade and weather, Spire provides a unique perspective that is only available from space. However, we are not immune from the global macro environment. For example, we now expect several million dollars of negative foreign exchange impact to our 2022 revenue, given that Spire sells its solutions to customers in roughly 60 countries, and exchange rates have been highly dynamic. The macro environment…

Thanks Peter. The second quarter saw another strong quarter of results. Q2 revenue increased 113% year-over-year to $19.4 million, which topped the high end of our guidance of $19.2 million and was driven by increased adoption of our solutions by existing customers and recent new customer additions. ARR at the quarter end was $85.3 million, up 133% year-over-year. ARR was impacted by the recent macroeconomic environment, which resulted in some of our greater than seven-digit deals taking longer to close. We ended the quarter with 692 ARR solution customers, a 243% increase year-over-year. This exceeded our expectations by 27 ARR solution customers over the high end of our guidance. Our organic Q2 ARR net retention rate was 108%, up from 106% in the first quarter of 2022. We continue to execute on our land and expand strategy as we added just over 90 net new ARR solution customers during the first two quarters of fiscal year 2022. The addition of these new customers will then provide the future opportunity to expand just like we've seen in our recent quarter-over-quarter improve ARR net retention rates by offering our customers various levels of value for coverage, latency, datasets, analytics, and the number of solutions. Next, I'll be discussing non-GAAP financial measures unless otherwise stated. We have provided a reconciliation of GAAP to non-GAAP financials in our earnings release that should be reviewed in conjunction with this earnings call. We improved our operating margin to negative 52% from negative 124% a year ago and negative 71% last quarter, showcasing our operational leverage and focus on driving profitability. Our Q2 operating loss was $1.9 million better than our guidance, which was a loss of $10.1 million. The outperformance in the quarter was a result of strong revenue flowing through the margin and lower headcount-related…

At this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question is from Erik Rasmussen with Stifel. Please proceed with your question.

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

Yes, thanks Eric. I would say the FX was the driving force, there was the primary reason for us having to lower that guidance. We did talk about some of the deals, pushing out a little bit. But we are really excited about the Q3 and Q4 sales pipeline that we have in front of us, the deals that we've closed already in Q3, such as the Nova deal of $1.7 mu that we announced a couple of weeks ago. And that is the -- that's reflected in our guidance and why we are maintaining our ARR at $101 million to $105 million for the end of the year.

Right. And maybe what's so seems with the FX having a fair amount exposure there. I think you started in 60 different countries, do you have any hedging strategies to sort of maybe mitigate this risk?

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

Great. Thanks for taking questions.

Our next question is from Ric Prentiss with Raymond James. Please proceed with your question.

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

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

Okay. And when you think of the relentless pursuit of free cash flow -- positive, free cash flow, help us understand the different levers as far as revenue growth, cost control, but also willing to invest in the four silos in CapEx. CapEx did [indiscernible] high to us in the quarter, but just help us understand what levers are pulling to get to that positive in the next two years?

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

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

Makes sense. One more on the financial side, you’re able to maintain the adjusted EBITDA guidance midpoint, tightening the range a little bit, are FX benefits that are helping you on the adjusted EBITDA line kind of make up for the revenue shortfalls? Are they were all the different employees or base for the cost side?

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

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

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

Yes. That helps. On the FCC?

On the FCC side, I think, the FCC is in a powerful position to strengthen the global competitiveness of the US space environment. Sorry. And I have seen regulators in other countries kill an existing or diminish, destroy a burgeoning space economy by taking missteps on the regulatory side. And I think the -- I mean, FCC has been a very, very strong and reliable partner for Spire. You've heard us talk about expanding our assets that we have with the FCC in terms of spectrum. And I think the FCC is in a really strong position to strengthen the US global competitive landscape by bringing on Board regulation that enhances the competitiveness rather than diminishes the competitiveness that is based upon the new technology that exists today and will drive the capabilities that can be delivered from space for everything from Earth observation to national security over the next decades, rather than backward looking. And looking at what has been in place in the 1950s and 1960s during the Cold War, when everyone was launching bus sized devices for the next 25 years. So I really looking at the new technology, and the rapid innovation that is happening, can give a country a massive competitive advantage in driving innovation inside the country, building space giants, rather than driving it out of the country, as I've seen some other countries do by the regulators making a bit missteps. So I'm really looking forward to the FCC leaning into their powerful role in strengthening US competitiveness, and driving commercial capabilities and innovation to deliver to both the commercial market, but also the local government and DoD market capabilities that are becoming more and more relevant, as space is becoming a contested environment.

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

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

Yes. Thank you. I know, this is not the third question you've gotten on the topic. But I'll try to ask at a pointed way that Q -- or the 2022 ARR guidance, it implies, I guess, at least 12 million of sequential growth, going off of the Q3 guidance, that would historically be a really nice quarter for you. I hear you that the pipeline supports it. But anything else you can say seasonal factors, just other supporting evidence to give us confidence in Q3 to Q4 ramp to reconcile with the elongation of the pipeline conversion process, even if the pipeline could remain good? Thank you.

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

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

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

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

And I think -- oh, sorry, just to just to add on that, I think with a certain business units, we had the acquisition in Q4 of last year, things are really starting to click into gear as we get in the back half of this year, we are really, dialing in on the on the acquisition. And in space services, early on a couple of years ago, we started with certain sets of customers. And now they're getting to the point where they're getting their API, they're getting the data. And now they're looking into as Peter mentioned, the expansion with those contracts going from say one satellite to five, six to eight to 10 satellites, you can see a very significant jump in a contract going from, doing one set to five to six. It's almost a multiplier effect of how large than the deal size gets. So we have a lot of that opportunity as we get in the back half of the year.

And then last for me, Thomas, can you just help us with understanding kind of formulaic calculation, how do you -- how does how and when there's FX impact ARR so if the FX headwinds toughen during Q2 was that a headwind to rebasing the ARR figure in this Q2 ending ARR figure that you're giving us and FX was also a contributing factor to the Q2 ARR variance for skylum?

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

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

Yes, I mean, so we're constantly looking at an adjusting for like, like you mentioned, we are looking at both factors. I mean, especially when, obviously the customer comes up for renewals or there's a reset. Of course, the ARR gets reset at the exchange rates at the current rate, yes.

Thank you.

Our next question is from Stefanos Crist with CJS Securities. Please proceed with your question.

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

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

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

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

Got it. Thank you so much.

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

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

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

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

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

Got it. Appreciate the caller.

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

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

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