Greetings and welcome to the Spire Global Third 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 thank you for joining us for our third 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 our 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. I know there are a lot of things going on. Spire continued to gain momentum in Q3 and the results truly speak for themselves. We had record revenue generation, achieved almost $100 million of ARR, and met our objectives for non-GAAP operating margin and EBITDA margin. These proof points showcase our continued trajectory towards positive free cash flow. Being on the cusp of achieving $100 million of ARR just five years since we had our first million of ARR puts us among the fastest growing subscription businesses to reach such a level and speaks to the exceptional value that our data and solutions bring to our customers. Driven by rising demand and a growing recognition of the value of space-based data to help with climate change and global security, Spire is poised to execute within these expanding markets and continue along our growth trajectory. There was no shortage of attention grabbing weather and global security events during the third quarter. Florida saw one of the strongest hurricanes ever to hit it state, the same hurricane that wreaked havoc and knocked out Cuba's power grid a few days before. Pakistan saw record rainfall and subsequent flooding, whereas third of the country was underwater. While Pakistan was flooding, major rivers in Europe and the United States were at such low levels that commercial barge traffic was impeded, adding to the supply chain challenges the world is facing. King crab and snow crab harvests in Alaskan waters were canceled due to declining trout populations most likely, from stressors of warmer water. That drinking water supply in parts of the United States is threatened as salt water from the Gulf of Mexico is overwhelming the low flow of water from the…

Thanks Peter. The third quarter was another quarter of strong execution with results that were at or above our projections. Q3 revenue increased 114% year-over-year to $20.4 million, hitting the top end of our guidance. ARR at quarter end was $98.1 million, up 117% year-over-year. The strong growth in ARR was driven by further expansion with existing customers like NOAA, but also adding 25 net new ARR solution customers during the third quarter. We ended the quarter with 717 ARR solution customers, a 219% increase year-over-year and above the midpoint of our guidance. Our organic Q3 ARR net retention rate was 135%, up from 108% in the second quarter of 2022 and the rolling 12-month organic ARR net retention rate was 115%, up from 108% from the second quarter of 2022. We continue to execute on our land-and-expand strategy with having added nearly 120 net new ARR solution customers so far in fiscal year 2022. As we've seen with our net retention rates increasing each quarter for the last three quarters in a row, these additions combined with our continued increasing ARR net retention rate represent a substantial future revenue opportunity. Next, I'll be discussing non-GAAP financial measures unless otherwise stated. We provided a reconciliation of GAAP to non-GAAP financials in our earnings release that should be reviewed in conjunction with this earnings call. Spire has methodically progressed on a strong trajectory towards profitability and achieving free cash flow positive. We've improved our operating margin 86 points to negative 56% from negative 142% a year ago, and our Q3 operating loss improved $2.2 million from a year ago to $11.4 million. Total adjusted EBITDA for the third quarter was negative $8.3 million from negative $11.5 million a year ago. We ended the quarter with cash, cash equivalents, restricted cash, and…

At this time, we'll be conducting a question-and-answer session. [Operator Instructions] And our first question comes from the line of Ric Prentiss with Raymond James. Please, we'll see what your question is. Good

Hi, good evening, everybody.

Yes.

Good.

Hey, a couple questions. One, I just want to make sure we're on the same timeline. On the positive free cash flow path, which we're all very closely watching and you're managing well. With month 16 be considered February of 2024 and month 22, August of 2024. Just trying to think through what they do -- we started counting to make sure we're watching everything correctly?

Yeah, Ric, it's March of 2024 would be the 16-month starting point and then the six months thereafter. Thanks.

Okay. Yes. Cool. So the end the first quarter and the end of third quarter 2024 kind of is the timeframe, which has been worried then I think?

Correct. Pulling that date forward for you.

Exactly. When should we think of adjusted EBITDA path to positive? How much sooner than that? And if you could add to that question then, how are you managing through inflation costs, higher interest costs, FX rates that you call out a little bit as being a headwind? How should we think about adjusted EBITDA turning positive? And how are you managing through all these tough macro environments?

Yeah. So the time line for 2023 financials that we'll put out. We'll do that next quarter. So we'll give the full depth and breadth like we normally do next quarter. But you can assume that we'll get to some of those items slightly before we'll get to the free cash flow positive. But we will be giving out guidance for 2023 next quarter and all those details. And then as far as like the macro environment, we do see that people do come to us. And we've seen that through COVID. We're seeing that now. People do come to us, and we just solve use cases for them that during tough times, they need to get solved, right? It could be lowering fuel could be lowering their insurance costs or whatever that might be, our solutions and use cases that we solve, they can turn to us during those tough times, which we've seen. I think the one area that we've called out before as being any -- like there could be risks in certain areas, is just around very large deals, some of those deals are taking a little bit longer to close at times because the customer might be having hard times getting funding or their cycle to get approvals might be a little bit longer.

Okay. But as far as you're able to produce on the path to free cash flow positive, you're feeling probably some pressures on inflation costs yourselves FX rate pressure, interest rate pressure, but you're still targeting that same kind of time frame to turn positive?

That is correct.

Okay. We've heard from some of the other operators, and you touched on this a little bit in your previous answer, that some of the government agencies out there have been slow to make decisions slow to sign contracts with some of the other satellite operators. How are you seeing the government in particular as far as, obviously, NOAA has been pretty successful for you, but how are you seeing the government, in particular, being able to respond to and sign contracts?

I would say that, where there is long-standing relationships, Rick, the speed of signing contracts has not necessarily decreased. So, we certainly see the benefits of being a reliable partner to governments always delivering, always being there, always having a very partnership approach to things. And I think this quarter, in particular, showcased that results with NOAA as one of our longest-standing customers. So I think it depends on the relationships that you have built with government customers. And I think we are, in certain instances, in a fortunate position to have relationships with government customers, NOAA, NASA, ECMWF, Umeda, UKSA, LSA and others for many, many years and I think that is certainly to our benefit, I would say, at this point in time.

Okay. Good. And then on the cash balance, cash and others, you mentioned about $82 million in cash, could fluctuate quarter-to-quarter. There's some marketable securities on the balance sheet as well. How liquid are those? And I think you were right when you mentioned that the $20 million liquidity becomes available on some of your debt as you get to 4Q 2022 in the ARR?

Yeah. So we look to get the money that's sitting the roughly $20 million escrow will be triggered this quarter based on our guidance that we're putting out for ARR. So we're looking really strong there to bolster up the balance sheet this particular quarter or the cash might potentially come in the very part of next year, but it gets triggered this quarter. So that's really looking strong.

And then as far as marketable securities, is that the same item, the marketable securities?

Yeah, it's we do have -- so we're obviously trying to take advantage of the interest rates and those activities, and we put some things in marketable securities. It is a liquid event. I mean, so we can get it out and turn it into cash at a quick turn. But we don't have -- as you see in there, there's not a large amount of money as a percentage of our total.

Great. Well, congrats on getting the ARR up so significantly. Obviously, that's a huge item to see revenue growing, but also be able to tap their money.

Thanks.

Our next question comes from the line of Jeff Meuler with Baird.

Hi. Thank you. Tim Pollock [ph] on for Jeff. I was hoping you could break down the commercial side of your customer base. I guess what's the current mix today of commercial versus government? And what are you seeing there as far as initial contracts and upsell and the NRR improvement there?

Yeah. On the commercial government split for the three quarters were two-thirds commercial, one-third government it's a little bit of a different number than we had last two years, our revenue was about 50-50. With the acquisition of exactEarth, the mix changed a little bit. We do expect, though, based on the pipeline and some of the deals we just signed with NOAA and the like, we do expect it to get a little bit more towards the 50-50 as we go over the next so many quarters. So we do expect that to balance back out towards the 50-50.

And then what are you seeing there just as far as, like I said, upsell. So you've had good success with government contracts and obviously expansions there. So I'm just wondering if you're seeing the same thing on the commercial side.

Yeah, both. It's definitely -- as we get to the split towards 50-50, we're also seeing the same land-and-expand strategies applied across the board. All of our customers are taking advantage of these cases that we can solve, and that we have four solutions, right? So the cross-selling across those, it doesn't just apply to government. It's definitely applying to the commercial side, too.

Okay. And then was the NOAA contract that benefit I guess, the 135% NRR that you had discussed? And I guess, sort of is the 130% sort of, I'll call it, a good expectation going forward?

Yeah. NOAA definitely helped towards that, but so did a lot of other customers, Peter mentioned like Umisat and some of those other ones, we had nice increases from their contract improving over the quarter. We really had minimal amount of churn in the quarter. It was a fantastic quarter for us across the board, not just with the expansion with the customers, but the minimal churn, which again shows that stickiness that we have with our solution. It shows that once customers come with us, they -- we clearly are solving use cases. Otherwise, it will show up, obviously, in the churn over the course of time. So we've seen a really nice mix of both sides of the lack of churn and the thing. As far as where the rates can be, I mean, clearly, we have the capability to do those type of rates. We've had improvements over the last couple of quarters. We've seen those increases. So we always have the capability to be in that range. But it will -- the chance that it can fluctuate, sure, from quarter-to-quarter, we do have different fluctuations from time to time.

Appreciate the color.

Our next question comes from the line of Stefanos Crist with CJS Securities. Please proceed with your question.

Hey. Thanks for taking my questions. Just wanted to follow up on the NOAA contracts. You mentioned three new contracts this year. Can you maybe talk about what products they're currently buying from you and maybe outline other products that you do offer that you think they could pursue in the future?

So there were three different products that they are engaged with us. The largest one was, of course, on the radio occultation side, which is a particular type of weather data focused on temperature and pressure. It's a data that has a more than two-decade history in the global metrological community, very well understood. We continue to receive excellent reports from that global community about the efficacy of the data in improving the accuracy of weather forecast. The second data set was around microwave sounding. And if you think about the big data sets that go into global numerical weather prediction, microwave sounding is one of those data sets. There is a very, very clearly expressed desire from the global community to have that type of data at a higher temporal resolution, which is difficult to accomplish with the exquisite, but very few instruments and satellites that traditionally make up the global observing system. And so NOAA is really a highly innovative force here on the global scene, driving the development of that data source from a more proliferated constellation capability. And their RP assumes that, that has to be first demonstrated on an aerial platform. And it was a very welcome positive surprise to them and a huge differentiator for Spire that due to our flexibility, reliability as well as speed, we could say, we'll take it all the way, and we put it in the environment that you actually want to use it in meaning that they get what they're actually looking for, allowing a much, much better pathway for them to have an additional data source there. And then the third data source was around space weather. And that is basically the activity of the Sun that is driving through interactions with the atmosphere or, if you…

That's great color. Thank you.

Our next question comes from the line of Scott Deuschle with Credit Suisse. Please proceed with your question.

Hey, good evening. Thank you for taking my questions. Tom, I think you said in the past that the commercial business should be relatively resilient in a macro downturn since your data helps operationalize those businesses. I guess is your experience so far in today's environment, proving that to be true? Or to ask it another way, are you still seeing good growth from commercial customers?

Yes. We are seeing good growth from commercial. We're obviously seeing it from the government side, too. So yes, we've seen it from both sides. And like I said, during these tough times, a lot of customers do come to us and need when they want to solve some of their tough problems that they have. And our unique data that we can provide that it's coming from space is quite valuable, obviously, and then they can get on as the new additions. And then obviously, we have obviously been doing very well with the expanding with our existing customers.

Okay. And then Tom -- and sorry, I joined a bit late, so I may have missed this. But are the sequential declines in G&A, is that mostly FX? Or is there some cost takeout there as well?

No. There is cost takeout there. We hit our anniversary for our D&O insurance, and we've been doing really well on our guidance and exceeding and meeting expectations. And so we're able to significantly reduce the D&O insurance. So that was one area. Also a year ago, we went public, we had an acquisition. We did a new credit facility throughout the year. So less transactions obviously also create less G&A spend for auditing and filings and legal expenses. So it's actually not as much on FX as it is just reductions and us scaling as a business as we move forward.

Okay. Great. And then the goodwill impairment analysis on exactEarth, will that be done in Q4 here?

We are looking -- we did do a goodwill analysis on that. So that was all reflected both in Q3 and then in Q4 also.

Okay. Great. And sorry, last question for Peter. I think you've talked about $2 million sales quotas for your sales force in the past. Can you just update us on any data points there? Like is the average rep hitting that, I guess, kind of a bigger picture question, but anything you can talk about with sales productivity would be helpful? Thank you.

Well, we just grew ARR to $98 million in the quarter. So I definitely don't have much leverage in telling my salespeople they need to work harder at this point in time, I have to admit. So the productivity per sales head is definitely something that we are quite proud of. And it's definitely in a very, very healthy number. I would say maybe not look for doubling that again, but keeping it at a healthy pace is the right way to think about it, because we are already in a very, very rarified area with the productivity per sales head for subscription businesses.

Okay. Great. Thank you guys.

[Operator Instructions] Our next question comes from the line of Elizabeth Grenfell with Bank of America. Please proceed with your…

Hi. Good evening.

Hi.

What is the driver behind the lowering of the top end of the guidance sort of across the board?

And you're referring to -- we kept the ARR guidance midpoint the same. We just tightened the range.

Right. But the revenue guide is down on the top end, the non-GAAP loss per share is off by $0.01 on the top end. I'm just curious what the driver was behind that.

Yes. We just tightened the range on the revenue. But we did increase the non-GAAP operating loss by $1.3 million. So we felt like that's definitely a good trade-off on improving those margins. And so that was something that we gained through that continual and further leverage of our business and our cost structure. But really the revenue was just tightening on the range.

I think the right way to look at it, Elizabeth, I think, from our perspective, from the third quarter to the fourth quarter is the midpoint, right. And you tightened the ranges and the midpoint stays the same, and that's pretty much what you see everywhere across the board.

Okay. Was there something specific on the top line that was looking weaker than a quarter ago?

No. As I said, you tighten the bottom and you tighten the top. And to keep the top line, the midpoint the same, it's just math that you go from the third quarter to the fourth quarter, you tighten both sides, as I think good companies always do, keeping the midpoint just about exactly the same or exactly the same as you go towards the end of the year.

Okay. Thank you very much.

Of course.

And we have reached the end of the question-and-answer session. I'll now turn the call back over to Peter Platzer for closing remarks.

As we wrap up, I would really like to thank our more than 700 customers, 400 employees and numerous suppliers for partnering with us as we continue on a substantial growth trajectory. Without our customers, employees and business partners, we would simply not be here where we are today. And on a daily basis, the news reminds us that the shocks of climate change and geopolitical events shake the already very fragile world we live in. But with our data and solutions, we strive every single day to provide transparency and stability to that world. And I literally could not be more excited about the prospects for Spire as we work together to create a more sustainable, equitable and prosperous future for all of us right here on planet Earth.

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