SPIRE GLOBAL, INC. You should read the following discussion and analysis of our financial condition
and results of operations in conjunction with our audited consolidated financial
statements as of and for the years ended
Overview
We are a global provider of space-based data, analytics and space services, offering unique datasets and powerful insights about Earth from the ultimate vantage point-space-so that organizations can make decisions with confidence, accuracy and speed. We own and operate one of the world's largest multi-purpose satellite constellations in low earth orbit. Our fully deployed constellation consists of over 100 satellites and we believe it is also one of the world's largest "listening" constellations, observing the earth utilizing radio frequency sensors. We enrich this hard-to-acquire, valuable data with analytics and predictive solutions, providing data as a subscription to organizations around the world so that they can improve business operations, decrease their environmental footprint, deploy resources for growth and competitive advantage and mitigate risk.
In
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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:
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Maritime: Precise space-based data used for highly accurate ship monitoring, ship safety and route optimization.
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Aviation: Precise space-based data used for highly accurate aircraft monitoring, aircraft safety and route optimization.
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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 four forms of data we monetize are:
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Clean data: Clean and structured data directly from our proprietary nanosatellites;
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Smart data: Clean data fused with third-party datasets and proprietary analysis to enhance value and provide insights;
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Predictive solutions: Big data, AI, and ML algorithms applied to fused data sets to create predictive analytics and insights; and
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Solutions: Data-driven actionable recommendations to solve specific business problems, utilizing the full spectrum of our data analytics suite.
These value-add data features allow customers to solve various use cases and provide 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 leverage our fully deployed infrastructure and large-scale operations to enable our customers to obtain customized data through our API. Our customers can begin receiving data in less than a year after engaging with us and receive data by entering into a subscription agreement. Our Space Services offering provides our customers with fast, scalable and reliable access to space.
Our 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 among all our solutions.
We provide our solutions to global customers through a subscription model or project-based solutions. We currently sell directly to end customers and utilize reseller partners when beneficial.
Highlights from Fiscal Year 2021
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On
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On
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Full year 2021 revenue was
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As of
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We had 255 organic ARR Solution Customers under contract and added 343 from exactEarth, ending the fourth quarter with 598 ARR Solution Customers, a 288% increase year-over-year. For the definition of ARR Solution Customers, see the section titled "-Key Business Metrics." COVID-19 Impact
In
To support the health and well-being of our employees, customers, partners and
communities, we have allowed many of our employees to work remotely. As of
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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.
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."
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 results of operations 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 year to the next. For instance, we have increased our number of ARR Solution Customers from 154 for fiscal year 2020 to 598 for fiscal year 2021. 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 organic ARR Net Retention Rate was 110% for fiscal year 2021 and 154% for fiscal year 2020.
Expansion into
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
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 fiscal year 2021, our spending on research and
development increased by
Acquisitions
Our business strategy may include, like our
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Impact of Foreign Exchange Rates
We report in
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 project-based customer solution. Project-based contracts or 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. Customer contracts for data trials and one-time transactions are excluded from the calculation of ARR.
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.
The following table summarizes our ARR at each fiscal year end for the periods
indicated.
Fiscal Year
2021 to 2020 %
(dollars in thousands) 2021 2020 Change
ARR $ 70,752 $ 36,179 96 %
ARR increased by
Number of ARR Customers and ARR Solution Customers
We define an ARR Customer as an entity that has a contract with us or through our reseller partners contracts, 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. 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. All entities that have contracts for data trials and one-time transactions are excluded from the calculation of ARR Customers.
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. All entities that have contracts for data trials and one-time transactions are excluded from the calculation of ARR Solution Customers.
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
The following table summarizes the number of our ARR Customers and ARR Solution Customers at each fiscal year end for the periods indicated:
Fiscal Year
2021 to 2020 %
2021 2020 Change
ARR Customers 575 144 299 %
ARR Solution Customers 598 154 288 %
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ARR Customers grew by 431, or 299%. The addition of exactEarth added 343 ARR Customers. Our organic ARR Customer growth was 61%. ARR Solution Customers grew by 444. The addition of exactEarth added 343 ARR Solution Customers. Our organic ARR Solution Customer growth was 66%.
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 at each fiscal year end for the periods indicated (excludes exactEarth):
Fiscal Year
2021 to 2020 %
2021 2020 Change
ARR Net Retention Rate 110 % 154 % (29 )%
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 fiscal year 2021, our ARR Net Retention Rate decreased 29% from fiscal year 2020. This decrease was driven by the growth in our ARR renewable base, a higher concentration of new customer ARR versus upsell, and delays in certain Space Services contracts that caused the contract value to spread over a longer period.
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, third-party operating and royalty costs associated with delivering our data and services to our customers, and amortization of purchased intangibles associated with the exactEarth acquisition. 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 ongoing capital spending to repair and replenish ground stations as they reach their end of useful life 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, travel-related expenses and amortization of purchased intangible backlog associated with the exactEarth acquisition. 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 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
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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 fiscal year 2021. We
incurred
Other Income (Expense)
Interest Income. Interest Income includes interest earned on our cash balances.
Interest Expense. Interest Expense includes interest costs associated with our promissory and convertible notes, and amortization of deferred financing costs.
Change in Fair Value of Contingent Earnout Liability. Change in Fair Value of Contingent Earnout Liability includes mark-to-market adjustments to reflect changes in fair value of the contingent earnout liability.
Change in Fair Value of Warrant Liabilities. Change in Fair Value of Warrant Liabilities includes mark-to-market adjustments to reflect changes in fair value of warrant liabilities.
Other (Expense) Income, Net. Other (Expense) Income, Net consists primarily of
tax credits, grant income, the impact of foreign exchange gains and losses,
benefit from loan forgiveness, loss on debt extinguishment, and sales and local
taxes. We use the local currency as our functional currency for Luxembourg,
Income Tax Provision
Provision for income taxes consists of federal and certain state income taxes in
Results of Operations
Fiscal Year 2021 Compared to Fiscal Year 2020
The following tables set forth selected Consolidated Statements of Operations
data and such data as a percentage of total revenues for each of the periods
indicated:
Fiscal Year
(in thousands) 2021 2020
Revenue $ 43,375 $ 28,490
Cost of revenue(1) 18,720 10,285
Gross profit 24,655 18,205
Operating expenses(1):
Research and development 31,615 20,751
Sales and marketing 20,387 10,279
General and administrative 40,479 12,520
Loss on satellite deorbit and launch failure - 666
Total operating expenses 92,481 44,216
Loss from operations (67,826 ) (26,011 )
Other (expense) income:
Interest income 23 54
Interest expense (11,417 ) (6,773 )
Change in fair value of contingent earnout liability 67,026 -
Change in fair value of warrant liabilities (1,600 ) (198 )
Other (expense) income, net (5,021 ) 824
Total other income (expense), net 49,011 (6,093 )
Loss before income taxes (18,815 ) (32,104 )
Income tax provision 497 400
Net loss $ (19,312 ) $ (32,504 )
(1)Includes stock-based compensation as follows:
Fiscal Year
(in thousands) 2021 2020
Cost of revenue $ 432 $ 39
Research and development 2,859 1,000
Sales and marketing 2,307 327
General and administrative 6,036 794
Total stock-based compensation
Revenue
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Fiscal Year
2021 to 2020 %
(in thousands) 2021 2020 Change
Revenue $ 43,375 $ 28,490 52 %
Total revenue increased
For fiscal year 2021, we derived 48% of our revenue from
For fiscal year 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
Cost of Revenue
Fiscal Year
2021 to 2020 %
(in thousands) 2021 2020 Change
Total cost of revenue $ 18,720 $ 10,285 82 %
Gross profit 24,655 18,205 35 %
Gross margin 57 % 64 % (11 )%
Headcount (at period end) 25 19 32 %
Cost of revenue increased
Gross margin for fiscal year 2021 and fiscal year 2020 was 57% and 64%, respectively. The decrease in fiscal year 2021 gross margin compared to fiscal year 2020 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. The exactEarth acquisition negatively impacted gross margin by approximately 2%. Of this reduction, approximately half was driven by purchase accounting adjustments including reduction to exactEarth deferred revenue and amortization of purchased intangibles.
We expect cost of revenue, including depreciation and amortization expenses, third-party operating costs and royalties, and high-powered computing costs, to increase in absolute dollars as our business grows. Additionally, we expect the purchase accounting adjustments associated with the exactEarth acquisition, namely higher amortization expenses and lower deferred revenue, to grow in relative terms as we absorb the impact on a full year basis. These items will likely have a negative impact on gross margin for at least the near term.
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; however, we expect our operating expenses as a percentage of revenue to decrease over time.
Research and Development
Fiscal Year
2021 to 2020 %
(in thousands) 2021 2020 Change
Research and development $ 31,615 $ 20,751 52 %Percentage of total revenue 73 % 73 % Headcount (at end of period) 181 130
39 %
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Research and development expenses increased
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
Fiscal Year
2021 to 2020 %
(in thousands) 2021 2020 Change
Sales and marketing $ 20,387 $ 10,279 98 %
Percentage of total revenue 47 % 36 %
Headcount (at end of period) 89 55 62 %
Sales and marketing expenses increased
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, 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.
General and Administrative
Fiscal Year
2021 to 2020 %
(in thousands) 2021 2020 Change
General and administrative $ 40,479 $ 12,520 223 %Percentage of total revenues 93 % 44 % Headcount (at end of period) 75
47 60 %
General and administrative expenses increased
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 administrative spend.
Loss on Satellite Deorbit and Launch Failure
Fiscal Year
2021 to 2020 %
(in thousands) 2021 2020 Change
Loss on satellite deorbit and launch failure $ - $ 666 (100 )%
Percentage of total revenues - % 2 %
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In fiscal year 2021, we incurred no expense in this category compared to fiscal year 2020, where we experienced the loss of two satellites due to a third-party deployment issue associated with a single launch.
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)
Fiscal Year
2021 to 2020 %
(in thousands) 2021 2020 Change
Interest income $ 23 $ 54 (57 )%
Interest expense $ (11,417 ) $ (6,773 ) 69 %
Change in fair value of contingent earnout
liability $ 67,026 $ - -
Change in fair value of warrant liabilities $ (1,600 ) $ (198 ) 708 %
Other (expense) income, net $ (5,021 ) $ 824 (709 )%
Interest income was immaterial.
Interest expense increased
Change in fair value of contingent earnout liability was
Change in fair value of warrant liabilities increased by
Other (expense) income, net increased
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, Singapore Dollar and Canadian 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
Fiscal Year
2021 to 2020 %
(in thousands) 2021 2020 Change
Income taxes $ 497 $ 400 24 %
Income tax increased
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 results of operations, 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.
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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.
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Other (expense) income, net. We exclude other (expense) income, net because it includes one-time and other items that do not reflect the underlying operational results of our business.
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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 results of operations and those of other companies.
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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.
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Amortization of purchased intangibles. Spire incurs amortization expense for purchased intangible assets in connection with acquisitions of certain businesses and technologies. Amortization of intangible assets is a non-cash expense and is inconsistent in amount and frequency because it is significantly affected by the timing, size of acquisitions and the inherent subjective nature of purchase price allocations. Because these costs have already been incurred and cannot be recovered, and are non-cash expenses, Spire excludes these expenses for its internal management reporting processes. Spire's management also finds it useful to exclude these charges when assessing the appropriate level of various operating expenses and resource allocations when budgeting, planning and forecasting future periods. Investors should note that the use of intangible assets contributed to Spire's revenues earned during the periods presented and will contribute to Spire's future period revenues as well.
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Other Acquisition Accounting Amortization. Spire incurs amortization expense for purchased data rights in connection with the acquisition of exactEarth and certain technologies. Amortization of this asset is a non-cash expense that can be significantly affected by the inherent subjective nature of the assigned value and useful life. Because this cost has already been incurred and cannot be recovered, and is a non-cash expense, Spire excludes this expense for its internal management reporting processes. Spire's management also finds it useful to exclude this charge when assessing the appropriate level of various operating expenses and resource allocations when budgeting, planning and forecasting future periods.
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Mergers and acquisition related expenses. Spire excludes these expenses as these are associated with transaction costs that are generally one time in nature and not reflective of the underlying operational results of its business.
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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.
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Other unusual one-time costs. We exclude these as they are unusual items that do not reflect the ongoing operational results of our business.
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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, change in value of contingent earnout liability, other (expense) income, net, stock-based compensation, other acquisition accounting amortization, 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.
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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.
The following table outlines the reconciliation from net loss to Adjusted EBITDA for the periods indicated:
Fiscal Year
(in thousands) 2021 2020
Net loss $ (19,312 ) $ (32,504 )
Depreciation & amortization 8,509 5,546
Net interest 11,394 6,719
Taxes 497 400
EBITDA 1,088 (19,839 )
Loss on satellite deorbit and launch failure - 666
Change in fair value of contingent earnout liability (67,026 ) -
Change in fair value of warrant liabilities 1,600 -
Other income (expense), net 5,021 (626 )
Stock-based compensation 11,634 2,160
Mergers and acquisition related expenses 9,718 -
Other unusual one-time costs 387 -
Other acquisition accounting amortization 60 -
Adjusted EBITDA $ (37,518 ) $ (17,639 )
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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:
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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;
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Adjusted EBITDA does not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our debt;
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Adjusted EBITDA do not reflect income tax payments that may represent a reduction in cash available to us; and
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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
During fiscal year 2021, we issued additional convertible notes with a
cumulative principal amount of
We expect that our principal sources of liquidity will be the proceeds received from the Merger, 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. 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
In connection with the Merger, we raised
For more details on the Merger, including all equity conversions, please see Note 3 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
FP Credit Agreement
On
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The FP Lenders were also entitled to a commitment fee of
Interest on the FP Term Loan is payable quarterly in arrears. The total
outstanding principal amount of the FP Term Loan will be due and payable at
maturity on
The FP Credit Agreement contains customary affirmative and negative covenants,
including covenants that limit our and our subsidiaries' ability to, among other
things, incur additional indebtedness, grant liens, make investments, pay
dividends or other distributions on our capital stock, dispose of assets,
consummate mergers or acquisitions and enter into transactions with affiliates,
subject in each case to customary exceptions and qualifications. Prior to the
consummation of a Qualifying IPO (as defined in the FP Credit Agreement), which
includes the Merger, we were required to maintain, as of the last day of each
fiscal quarter, minimum unrestricted cash of at least
The FP Credit Agreement includes 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 judgment defaults, subject to grace periods in certain instances. Upon the occurrence and during the continuance of an event of default, the FP Lenders may 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 FP Credit Agreement. Under certain circumstances, a default interest rate will apply on all obligations during the existence of an event of default under the FP Credit Agreement at a per annum rate equal to 2% above the otherwise applicable interest rate.
During fiscal year 2021, we recognized within Other (expense) income, net on the
Consolidated Statement of Operations,
Eastward Loan Facility
In
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
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
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
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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
Acquisition of exactEarth
In
For additional detail regarding the terms associated with the exactEarth acquisition, see Note 4 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
Government Loan
As part of our acquisition of exactEarth in
For additional detail regarding the terms associated with our financing arrangements, see Notes 8 and 9 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
Convertible Notes
From
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:
Fiscal Year
(in thousands) 2021 2020
Net cash used in operating activities
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.
Net cash used in operating activities in fiscal year 2021 was
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Net cash used in operating activities in fiscal year 2020 was
Cash Flows from Investing Activities
The cash flows from investing activities primarily relate to cash used for business acquisitions, the procurement, development, and deployment of capital assets, including satellites, ground stations, machinery and equipment, furniture, computer equipment and software, and leasehold improvements.
Net cash used in investing activities in fiscal year 2021 was
Net cash used in investing activities in fiscal year 2020 was
Cash Flows from Financing Activities
The cash flows from financing activities relate primarily to the Merger, debt, warrants and convertible note financings.
Net cash provided by financing activities in fiscal year 2021 was
Net cash provided by financing activities in fiscal year 2020 was
For additional information regarding the terms of our credit facilities and notes, see Notes 8 and 9 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
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.
Revenue Recognition
Our contracts with customers may include promises to transfer multiple solutions and services to a customer. A performance obligation is a promise in a contract with a customer to transfer solutions or services that are capable of being distinct, whereby the customer can benefit from the solution or service either on its own or with other available resources, and are distinct in the context of the contract, whereby the transfer of the solution or service is separately identifiable from other promises in the contract. Determining whether solutions and services are distinct performance obligations that should be accounted for separately or combined as a single performance obligation involves significant judgement that requires us to assess the nature of the promise and value delivered to the customer. Certain of our contracts contain multiple project-based solutions and services promised to a customer over various phases (e.g., scoping, development, manufacturing, testing, launch, and/or satellite operations), which we assess at contract inception to determine which of the solutions and services promised in a contract are distinct in order to identify individual performance obligations.
For contracts with more than one performance obligation, the transaction price is allocated among the performance obligations using the relative standalone selling price ("SSP") of each obligation. Judgment is required to determine the SSP for each distinct performance obligation. SSP is generally estimated using cost plus a reasonable margin based on value added to the customer.
For certain project-based performance obligations, we recognize a portion of our revenue over time using the output method, specifically contract milestones, which we have determined to be the most direct and reasonable measure of progress as they reflect the results achieved and value transferred to the customer.
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Business Combinations and Valuation of
We allocate the purchase price of acquired companies to tangible and intangible
assets acquired and liabilities assumed based upon their estimated fair values
at the acquisition date. The purchase price allocation process requires
management to make significant estimates and assumptions with respect to the
valuation of intangible assets. Examples of critical estimates and assumptions
in valuing certain of the intangible assets we have acquired or may acquire in
the future include but are not limited to future revenue growth, margins,
customer retention rates, technology life, royalty rates, expected use of
acquired assets, and discount rates. These factors are also considered in
determining the useful life of the acquired intangible assets. These estimates
are based in part on historical experience, market conditions and information
obtained from management of the acquired companies and are inherently uncertain.
Contingent Earnout Liability
In connection with the Reverse Recapitalization and pursuant to the Merger Agreement, eligible Spire equity holders are entitled to receive additional shares of our Common Stock upon the achievement of certain Earnout Triggering Events. In accordance with ASC 815-40, the earnout shares are not indexed to the Common Stock and therefore are accounted for as a liability and an offset to Additional paid-in capital on the Consolidated Balance Sheets at the reverse recapitalization date and subsequently remeasured at each reporting date with changes in fair value recorded as a component of Other income (expense), net in the Consolidated Statements of Operations.
The contingent earnout liability is categorized as a Level 3 fair value
measurement using the
Warrant Liability
We generally classify warrants for the purchase of shares of our common stock as liabilities on our Consolidated Balance Sheets unless the warrants meet certain specific criteria that require the warrants to be classified within stockholders' deficit. Those warrants accounted for as liabilities are freestanding financial instruments that may require us to transfer assets upon exercise. The warrant liability is initially recorded at fair value upon the date of issuance of each warrant and is subsequently remeasured to fair value at each reporting date. The fair value of the Public Warrants is based on quoted market prices and is classified as a Level 1 financial instrument. The fair value of the Private Warrants is estimated using the Black-Scholes model with inputs that include the Company's stock price in an actively traded market, making this fair value classified as a Level 2 financial instrument. The other significant assumptions used in the model are the exercise price, expected term, volatility, interest rate, and dividend yield.
Stock-Based Compensation
We have an equity incentive plan under which we grant stock-based awards to employees and non-employees. We account for stock-based awards in accordance with ASC 718, which requires the measurement and recognition of compensation expense, based on estimated fair values, for all stock-based awards made to employees and non-employees for stock options.
We recognize the cost of stock-based awards granted to our employees and non-employees based on the estimated grant-date fair value of the awards. For Restricted Stock Units ("RSU") with service-based vesting conditions, the fair value is calculated based upon the Company's closing stock price on the date of grant using the intrinsic value method. We determine the fair value of stock options using the Black-Scholes option pricing model, which is impacted by the following assumptions:
•
Common Stock Valuation-Prior to our Closing Date of the Merger, determining the fair value of the shares of common stock underlying our stock-based awards, which were not publicly traded, involved significant judgment and had historically been determined with the help of an independent third-party valuation firm. For awards granted subsequent to the Closing Date, the fair value of our common stock is based on the closing price of our common stock, as reported on the NYSE, on the date of grant.
•
Expected Term-We use the weighted average period that the stock options are expected to remain outstanding based on historical experience.
•
Expected Volatility-As our stock was not publicly traded prior to the Closing, the volatility is based on a benchmark analysis of reported data for a peer group of companies.
•
Expected Dividend Yield-The dividend rate used is zero as we have never paid any cash dividends on our common stock and does not anticipate doing so in the foreseeable future.
•
Risk-Free Interest Rate-The interest rates used are based on the implied yield
available on
Common Stock Valuation
Historically, for all periods prior to the Merger, since there has been no
public market of our common stock, the fair value of the shares of common stock
underlying our share-based awards was estimated on each grant date by our board
of directors. To determine the fair value of our common stock underlying option
grants, our board of directors considered, among other things, input from
management, valuations of our common stock prepared by unrelated third-party
valuation firms in accordance with the guidance provided by the
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Privately-Held-Company Equity Securities Issued as Compensation, and our board of directors' assessment of additional objective and subjective factors that it believed were relevant, and factors that may have changed from the date of the most recent valuation through the date of the grant. These factors include, but are not limited to:
•
our results of operations and financial position, including the present value of expected future cash flows and the value of tangible and intangible assets;
•
risks and opportunities relevant to our business;
•
the status of platform development activities;
•
our business conditions and projections;
•
the market value of companies engaged in a substantially similar business;
•
the lack of marketability of our common stock as a private company;
•
the prices at which we sold shares of our convertible preferred stock to outside investors in arms-length transactions;
•
the rights, preferences, and privileges of our convertible preferred stock relative to those of our common stock;
•
the likelihood of achieving a liquidity event for our securityholders, such as an initial public offering or a sale of the company, given prevailing market conditions;
•
the hiring of key personnel and the experience of management; and
•
trends and developments in our industry, including the impact of the COVID-19 pandemic.
For valuations performed prior to
For valuations performed from
Following the Closing, we have used the market closing price of our Class A common stock as reported on the NYSE.
Accounting Pronouncements Recently Adopted and Not Yet Adopted
See Note 2 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for recently adopted accounting pronouncements and new accounting pronouncements not yet adopted as of the date of this Annual Report on Form 10-K.
Emerging Growth Company Status
We are an "emerging growth company," as defined in the 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.
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
Internal Control Over Financial Reporting
In connection with the preparation of our consolidated financial statements for fiscal year 2021 and fiscal year 2020, we identified material weaknesses in our internal control over financial reporting. For additional information, see the sections titled "Risk Factors" and "Controls and Procedures."
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