SPIRE GLOBAL, INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the Condensed Consolidated Financial Statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the audited Consolidated Financial Statements included in the Annual Report on Form 10-K for the year endedDecember 31, 2021 . This discussion contains forward-looking statements that involve risks and uncertainties. Factors that could cause or contribute to such differences include those identified below and those discussed in the section titled "Risk Factors" and other sections of this Quarterly Report on Form 10-Q. Our historical results are not necessarily indicative of the results that may be expected for any period in the future.
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. InMarch 2022 , our satellite constellation covered the earth over 200 times per day on average, and our global ground station network performed over 2,300 contacts each day on average, reliably and resiliently collecting data with low latency. Our cloud-based data infrastructure processed five terabytes of data each day on average inMarch 2022 in creating our proprietary data analytics solutions. We provide customers these solutions through an API infrastructure that delivers approximately one terabyte of data each day to our customers, as ofMarch 31, 2022 . The global data we collect includes data that can only be captured from space with no terrestrial alternatives. We collect these data once and can then sell them an unlimited number of times across a broad and growing set of industries, including weather, aviation and maritime, with global coverage as well as real-time and near real-time data that can be easily integrated into our customers' operations. 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. We have the
opportunity not only to upsell within each solution but also 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.
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Highlights from the Three Months Ended
•
Our revenue was
•
Annual Recurring Revenue ("ARR") increased by
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We signed a significant upsell deal with theNational Oceanic and Atmospheric Administration ("NOAA") to increase the number of radio occultation (RO) signals provided by over 80% to 5,500 per day. This serves as a testament to our proven ability to reliably deliver valuable, operational RO data, profiling atmospheric temperatures and related quantities for weather models.
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We signed a new deal withNorthStar Earth & Space Inc. to a build a scalable constellation focused on space-situational awareness and debris monitoring. The first award within the contract is for three satellites, with pre-agreed options forNorthStar to scale the constellation to dozens of satellites as their business operational needs grow.
COVID-19 Impact
InMarch 2020 , theWorld Health Organization declared the outbreak of COVID-19 a pandemic, which continues to spread throughoutthe United States and the world and has resulted in authorities implementing numerous measures to contain the virus, including travel bans and restrictions, quarantines, shelter-in-place orders and business limitations and shutdowns. While we are unable to accurately predict the full impact that the COVID-19 pandemic will have on our results of operations, financial condition, liquidity and cash flows due to numerous uncertainties, including the duration and severity of the pandemic or any resurgences of the pandemic locally or globally, our compliance with these measures has impacted our day-to-day operations and could continue to disrupt our business and operations, as well as that of certain of our customers whose industries are more severely impacted by these measures, for an indefinite period of time. ThroughMarch 2022 , we have continued to see adverse changes in customer buying behavior that began inMarch 2020 as a result of the impact of the COVID-19 pandemic, including decreased customer engagement, delayed sales cycles and deterioration in near-term demand. As a result of the impact of the COVID-19 pandemic, we experienced delays and re-work due to third-party satellite launch providers' schedule shifts, delays and increased expenses in our hiring process, some attrition from adjusting company policies due to the COVID-19 pandemic and additional time and expenses supporting customer contracts. Despite these headwinds, we continued to experience an increase in revenue for the three months endedMarch 31, 2022 as compared to the three months endedMarch 31, 2021 . 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 ofMarch 31, 2022 , our employees are permitted to come into the office in accordance with all applicable local, State and Federal guidelines and regulations. Our offices will only remain open to the extent local, state and federal authorities permit us to do so and our own criteria and conditions to ensure employee health and safety are satisfied, including social distancing and enhanced cleaning protocols. While we have developed plans for our employees to begin safely returning to their respective offices, we cannot predict when or how we will be able to completely lift the work-from-home requirements or other COVID-19-related restrictions for geographic areas that continue to be significantly impacted by the pandemic or certain other actions taken as part of our business continuity plans, including travel restrictions. We may also have to reinstate work-from-home requirements in response to further changes in local regulations in connection with developments in the COVID-19 pandemic. While the adjustments to our operations may result in inefficiencies, delays and additional costs in our solution development, sales, marketing, and customer support efforts, as of the date of this filing, we do not believe our work-from-home protocol has materially adversely impacted our internal controls, financial reporting systems or our operations. In response to the ongoing COVID-19 pandemic, we initially implemented plans to manage our costs. For part of fiscal year 2020, we temporarily limited the addition of new employees and third-party contracted services, curtailed most travel expenses except where critical to the business and limited 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. We continue to monitor the situation and may adjust our current policies as more information and public health guidance become available. Even so, 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. These ongoing effects of the COVID-19 pandemic and/or the precautionary measures could also negatively affect our customer success and sales and marketing efforts, or create operational or other challenges, any of which could harm our business and results of operations. 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 results of operations 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 results of operations. 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 depends 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.
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--------------------------------------------------------------------------------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 (as defined below) we have from one fiscal period to the
next. For instance, we have increased our number of ARR Solution Customers from
169 as of March 31, 2021 to 627 as of March 31, 2022 . We track our progress in
expanding our customer relationships by measuring our ARR Net Retention Rate (as
defined below). Our organic ARR Net Retention Rate was 106% for the three months
ended March 31, 2022 and 129% for the three months ended March 31, 2021 .
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, includingLatin America ,Africa and theMiddle East . Our revenue growth is dependent upon our ability to continue to expand into new industries and geographies. The costs associated with these expansions may adversely affect our results of operations. 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. We also intend to continue to add headcount to our research and development teams and otherwise invest to improve and innovate our nanosatellite, ground station and data analytics technologies. For the three months endedMarch 31, 2022 , our spending on research and development increased by$1.8 million , or 25%, from the three months endedMarch 31, 2021 , which included$0.3 million from the Acquisition. For the three months endedMarch 31, 2022 , our sales and marketing expenses increased by$3.0 million , or 75%, from the three months endedMarch 31, 2021 , which included$1.6 million from the Acquisition. Our total headcount across all functions has increased from 283 employees as ofMarch 31, 2021 , to 381 employees as ofMarch 31, 2022 , which increase includes 34 exactEarth employees. The costs of these investments may adversely affect our results of operations, but we believe that these investments will contribute to our long-term growth.
Acquisitions
Our business strategy may include acquiring other complementary solutions, technologies, or businesses, such as the Acquisition, that we believe will allow us to reduce the time or costs required to develop new technologies, incorporate enhanced functionality into and complement our existing solution offerings, augment our engineering workforce and enhance our technological capabilities.
Impact of Foreign Exchange Rates
We report inU.S. dollars, and the functional currency of our foreign operating subsidiaries is the local currency, including the Euro, the British Pound, the Singapore Dollar and the Canadian Dollar. TheU.S. dollar has strengthened against many of these currencies since the three months endedMarch 31, 2021 . In the three months endedMarch 31, 2022 , approximately 42% of our revenues were generated in non-U.S. dollar-denominated currencies. This compares to the three months endedMarch 31, 2021 , where approximately 37% of our revenues were generated in non-U.S. dollar-denominated currencies. The financial statements of these subsidiaries are translated intoU.S. dollars using exchange rates in effect at each balance sheet date for assets and liabilities and average exchange rates during the period for revenues and expenses. To the extent we experience significant currency fluctuations, our results of operations may be impacted Key Business Metrics
We review the following key business metrics to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans, and make strategic decisions:
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ARR
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ARR Customers
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ARR Solution Customers
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ARR Net Retention Rate
Annual Recurring Revenue
We define ARR as our expected annualized revenue from customers that are under
contracts with us at the end of the reporting period with a binding and
renewable agreement for our subscription solutions or customers that are under a
binding multi-year contract that can range from components of our Space Services
solution to a project-based customer solution. Customers with project-based
contracts are considered recurring when there is a multi-year binding agreement
that has a renewable component in the contract. Customers are also considered
recurring when they have multiple contracts over multiple years. Customer
contracts for data trials and one-time transactions are excluded from the
calculation of ARR.
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Our ARR growth in the periods presented has been driven by the Acquisition,
landing new ARR Customers (as defined below) 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 organic 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 as of each period end indicated:
As of March 31,
2022 to 2021 %
(dollars in thousands) 2022 2021 Change
ARR $ 81,638 $ 34,916 134 %
Number of ARR Customers and ARR Solution Customers
We define an ARR Customer as an entity that has a contract with us or through one of 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 the Acquisition, 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 customerswho have chosen not to renew their contracts with us. We believe that our ability to expand our customer base is a key indicator of our market penetration, the growth of our business and our future potential business opportunities.
The following table summarizes the number of our ARR Customers and ARR Solution Customers as of each period end indicated:
As of March 31,
2022 to 2021 %
2022 2021 Change
ARR Customers 604 157 285 %
ARR Solution Customers 627 169 271 %
ARR Net Retention Rate
We calculate our ARR Net Retention Rate for a particular fiscal period end by
dividing (i) our ARR from those ARR Customers that were also customers as of the
last day of the prior fiscal period end by (ii) the ARR from all customers as of
the last day of the prior fiscal period. This calculation measures the overall
impact from increases in customer contract value (upsells), the decreases in
customer contract value (downsells) and the decreases in customer value
resulting from customers that have chosen not to renew their contracts with us.
The following table summarizes our ARR Net Retention Rate for each period indicated (excludes exactEarth):
As of March 31,
2022 to 2021 %
2022 2021 Change
ARR Net Retention Rate 106 % 129 % (18 )%
Our ARR Net Retention Rate can be impacted from period to period by large
increases or decreases in customer contract value and large decreases in
contract value from customers that have chosen not to renew their contracts with
us. An ARR Net Retention Rate greater than 100% is an indication that we are
growing the value of the solutions our customers are purchasing from us from a
fiscal period end versus the prior fiscal period end. An ARR Net Retention Rate
less than 100% is an indication that we are reducing the value of the solutions
our customers are purchasing from us from a fiscal period end versus the prior
fiscal period end. For the three months ended March 31, 2022 , our ARR Net
Retention Rate decreased 18% from the three months ended March 31, 2021 . This
reduction was driven by the growth in our ARR renewable base, a higher
concentration of new customer ARR versus upsell, and delays in a few Space
Services deals causing the contract value to spread over a longer period.
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--------------------------------------------------------------------------------Components of Results of Operations
Revenue
We derive revenue from providing data, insights and access to our cloud-based technology platform sold on a subscription basis. Some of our customer arrangements include the delivery of specific performance obligations and subsequent customer acceptance of project-based deliverables, which may impact the timing of revenue recognition. Subscription periods for our solutions generally range from one to two years and are typically non-cancelable, with customers having the right to terminate their agreements only if we materially breach our obligations under the agreement. Our subscription fees are typically billed either monthly or quarterly in advance.
Cost of Revenue
Cost of revenue consists primarily of personnel costs, depreciation, hosted infrastructure and high-power computing costs, third-party operating and royalty costs associated with delivering our data and services to our customers and amortization of purchased intangibles associated with the 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, 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 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 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. 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. We did not incur any of these expenses in the three months endedMarch 31, 2022 or the three months endedMarch 31, 2021 .
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,United Kingdom ,Singapore andCanada . 28 --------------------------------------------------------------------------------
Income Tax Provision
Provision for income taxes consists of federal and certain state income taxes inthe United States and income taxes in certain foreign jurisdictions. We do not provide for income taxes on undistributed earnings of our foreign subsidiaries since we intend to invest these earnings outside ofthe United States permanently. We account for income taxes using the asset and liability method, whereby deferred tax assets and liabilities are recognized based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted rates and laws that will be in effect when the differences are expected to reverse.
Results of Operations
Three Months Ended
The following tables set forth selected Condensed Consolidated Statement of
Operations data and such data as a percentage of total revenues for each of the
periods indicated:
Three Months Ended March 31,
(in thousands) 2022 2021
Revenue $ 18,070 $ 9,716
Cost of revenue(1) 9,846 3,328
Gross profit 8,224 6,388
Operating expenses(1):
Research and development 8,657 6,900
Sales and marketing 6,905 3,941
General and administrative 12,684 8,394
Total operating expenses 28,246 19,235
Loss from operations (20,022 ) (12,847 )
Other (expense) income:
Interest income 14 1
Interest expense (3,043 ) (2,550 )
Change in fair value of contingent earnout liability 517 -
Change in fair value of warrant liabilities 5,835 (5,991 )
Other (expense) income, net (1,169 ) 2,076
Total other income (expense), net 2,154 (6,464 ) Loss before income taxes (17,868 ) (19,311 ) Income tax provision 290 387 Net loss$ (18,158 ) $ (19,698 ) (1)
Includes stock-based compensation as follows:
Three Months Ended March 31,
(in thousands) 2022 2021
Cost of revenue $ 77 $ 18
Research and development 711 585
Sales and marketing 616 316
General and administrative 885 1,588
Total stock-based compensation
Revenue
Three Months Ended March 31,
2022 to 2021 %
(in thousands) 2022 2021 Change
Revenue $ 18,070 $ 9,716 86 %
Total revenue increased $8.4 million , or 86%, driven primarily by the growth in
the number of ARR Customers combined with our organic ARR Net Retention Rate
greater than 100%. The Acquisition added $4.6 million of revenue for the three
months ended March 31, 2022 . Our organic ARR Customers increased 55%, from 157
as of March 31, 2021 to 244 as of March 31, 2022 , which contributed to an
increase in revenue from new customers. Our organic ARR Net Retention Rate was
106% for the three months ended March 31, 2022 , which contributed to an increase
in revenue from our existing customer base.
For the three months ended March 31, 2022 , we derived 44% of our revenue from
Europe , Middle East , Africa ("EMEA"), 42% of our revenue from the Americas and
14% of our revenue from Asia Pacific ("APAC"). For the three months ended March
31, 2021 , we derived 39% of our revenue from EMEA, 34% of our revenue from the
Americas and 27% of our revenue from APAC. For the three months ended March 31,
2022 , we derived 67% of our revenue from subscription arrangements, compared to
41% for the three months ended March 31, 2021 . This percentage mix can fluctuate
significantly from period to period driven primarily by the timing of the
non-subscription revenue recognition in our contracts.
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For the three months ended March 31, 2022 , our increase in the number of ARR
Customers was driven by the Acquisition, 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.
Our organic ARR Net Retention Rate greater than 100% was driven by our increased
spending on sales and marketing activities and the development and rollout of
new data solutions.
Over time, we expect the mix of our total revenues in the Americas and APAC to
continue to increase with additional sales and marketing focus in those regions.
Cost of Revenue
Three Months Ended March 31,
2022 to 2021 %
(in thousands) 2022 2021 Change
Total cost of revenue $ 9,846 $ 3,328 196 %
Gross profit 8,224 6,388 29 %
Gross margin 46 % 66 % (20 )%
Headcount (at period end) 38 20 90 %
Cost of revenue increased $6.5 million , or 196%. $4.3 million of this growth was
due to the Acquisition operating costs, retention and stock acceleration
expenses. Organic increases were primarily driven by an increase in third-party
royalty costs of $0.6 million , an increase in depreciation expense of $0.5
million , an increase in computing costs of $0.5 million , $0.4 million higher
personnel expenses and $0.2 million increase in Space Services hardware
expenses. The increase in third-party royalty costs was driven by an increase in
sales activity, resulting in higher payments to third-party data set providers
as they augment our data solutions. Depreciation expense increased from the
prior period driven by continued additions to our constellation and Space
Services solutions. The increase in computing costs were driven by higher
expenses to support customer growth and some of our weather solutions
transitioning from research and development to production. The increase in
personnel expenses was driven by headcount growth. The increase in Space
Services third-party hardware expenses was in support of a strategic customer
commitment.
Gross margin for the three months ended March 31, 2022 and 2021 was 46% and 66%,
respectively. The decrease in the three months ended March 31, 2022 compared to
the three months ended March 31, 2021 was driven primarily by higher royalties,
depreciation, computing expenses, personnel expenses, 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 Acquisition negatively
impacted gross margin by approximately 13%. 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. We expect the purchase
accounting adjustments associated with the Acquisition, namely higher
amortization expenses and lower deferred revenue, to continue to 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 in the near
term; however, we expect our operating expenses as a percentage of revenue to
decrease over time.
Research and Development
Three Months Ended March 31,
2022 to 2021 %
(in thousands) 2022 2021 Change
Research and development $ 8,657 $ 6,900 25 %
Percentage of total revenue 48 % 71 %
Headcount (at end of period) 190 145 31 %
Research and development expenses increased $1.8 million , or 25%. $0.3 million
of this growth was due to the Acquisition operating costs and retention
expenses. Organic increases were primarily driven by an increase in personnel
costs of $1.4 million and an increase in third-party services of $0.1 million .
The increase in personnel costs was driven by growth in headcount during the
period. The increase in third-party services was driven by external technical
resources required to support new development processes and capabilities.
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; however, 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.
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Sales and Marketing
Three Months Ended March 31,
2022 to 2021 %
(in thousands) 2022 2021 Change
Sales and marketing $ 6,905 $ 3,941 75 %
Percentage of total revenue 38 % 41 %
Headcount (at end of period) 75 68 10 %
Sales and marketing expenses increased $3.0 million , or 75%. $1.6 million of
this growth was due to the Acquisition operating costs and retention expenses.
Organic increases were primarily driven by an increase in personnel costs of
$1.4 million . The increase in personnel costs was due to growth in our headcount
involved in selling activities.
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; however, 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
Three Months Ended March 31,
2022 to 2021 %
(in thousands) 2022 2021 Change
General and administrative $ 12,684 $ 8,394 51 %
Percentage of total revenues 70 % 86 %
Headcount (at end of period) 78 50 56 %
General and administrative expenses increased$4.3 million , or 51%.$2.1 million of this growth was due to the Acquisition operating costs and retention and severance expenses. Organic increases were primarily driven by an increase in business insurance of$1.7 million , an increase in personnel costs of$0.5 million , an increase in facilities expenses of$0.3 million and an increase in software expenses of$0.1 million , offset by lower professional services expenses of$0.5 million primarily associated with the Merger activities in the first quarter of fiscal year 2021. The increase in business insurance was driven by incremental exposure associated with being a public company. The increase in personnel costs was driven by overall headcount growth offset by lower stock-based incentive program expenses. The increase in facilities expenses was driven by office and manufacturing expansion. The increase in software expenses was driven by headcount growth and scaling of operations. 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; however, 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. Other Income (Expense) Three Months Ended March 31, 2022 to 2021 % (in thousands) 2022 2021 Change Interest income $ 14 $ 1 - Interest expense$ (3,043 ) $ (2,550 ) 19 % Change in fair value of contingent earnout liability $ 517 $ - -
Change in fair value of warrant liabilities
(5,991 ) 197 % Other (expense) income, net$ (1,169 ) $ 2,076 156 %
Interest income was immaterial.
Interest expense increased
Change in fair value of contingent earnout liability was$0.5 million , driven by the mark-to-market adjustment to reflect the fair market valuation of the underlying stock price. In connection with the Merger, eligible Spire equity holders are entitled to receive additional shares of our common stock upon our achievement of certain Earnout Triggering Events, which are treated as liabilities and required to be marked to market each reporting period. Changes in valuation are recorded against the Contingent earnout liability account with the offsetting gain or loss recorded in Other Income (expense). For additional information, see Notes 2 and 8 to our unaudited Condensed Consolidated Financial Statements as ofMarch 31, 2022 and for the three months endedMarch 31, 2022 included elsewhere in this Quarterly Report on Form 10-Q and Note 3 to our Audited Consolidated Financial Statements as ofDecember 31, 2021 and on the Annual Report on Form 10-K for the year endedDecember 31, 2021 . Change in fair value of warrant liabilities increased by$11.8 million , driven by the mark-to-market adjustment to reflect the fair market valuation of our public and private warrants. For additional information, see Notes 2 and 8 to our unaudited Condensed Consolidated Financial Statements as ofMarch 31, 2022 and for the three months endedMarch 31, 2022 included elsewhere in this Quarterly Report on Form 10-Q. 31 -------------------------------------------------------------------------------- Other (expense) income, net expense increased$3.2 million , or 156%.$0.5 million of this increase was driven by the Acquisition, primarily driven by foreign exchange expense and share in loss in the Myriota investment. Organic increases were primarily driven by a reduction in grant income of$1.5 million , an increase in realized and unrealized foreign exchange expense of$1.1 million and miscellaneous other expenses of$0.1 million . The reduction in grant income was the result of$1.7 million in loan forgiveness under the Paycheck Protection Program ("PPP") established as part of the Coronavirus Aid, Relief, and Economics Security ("CARES") realized in the three months endedMarch 31, 2021 . 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 Three Months Ended March 31, 2022 to 2021 % (in thousands) 2022 2021 Change Income taxes $ 290 $ 387 (25 )%
Income tax decreased
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 it 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.
•
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.
•
Other (expense) income, net: We exclude other (expense) income, net because it includes one-time items and other items that do not reflect the underlying operational results of our business.
•
Stock-based compensation: We exclude stock-based compensation expenses primarily
because they are non-cash expenses that we exclude from our internal management
reporting processes. We also find it useful to exclude these expenses when we
assess the appropriate level of various operating expenses and resource
allocations when budgeting, planning, and forecasting future periods. Moreover,
because of varying available valuation methodologies, subjective assumptions,
and the variety of award types that companies can use under FASB ASC Topic 718,
Stock Compensation ("ASC 718"), we believe excluding stock-based compensation
expenses allows investors to make meaningful comparisons between our recurring
core business results of operations and those of other companies.
•
Change in fair value of warrant liabilities and contingent earnout liabilities: We exclude this as it does not reflect the underlying cash flows or operational results of the business.
•
Amortization of purchased intangibles: We incur 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, cannot be recovered, and are non-cash expenses, we exclude these expenses for our internal management reporting processes. Our 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 our revenues earned during the periods presented and we expect will contribute to Spire's future period revenues as well.
•
Other Acquisition Accounting Amortization: We incur 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, we exclude this expense for our internal management reporting processes. Our 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.
•
Mergers and acquisition related expenses: We exclude these expenses as they are
transaction costs and expenses associated with the transaction that are
generally one time in nature and not reflective of the underlying operational
results of our business. Examples of these types of expenses include legal,
accounting, regulatory, other consulting services, severance, and other employee
costs.
32
--------------------------------------------------------------------------------•
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.
•
Other unusual one-time costs: We exclude these as they are unusual items that do not reflect the ongoing operational results of our business.
•
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
results of operations and trends, an enhanced overall understanding of our
financial performance and prospects for the future. While Adjusted EBITDA is not
a recognized measure under GAAP, management uses this financial measure to
evaluate and forecast business performance. Adjusted EBITDA is not intended to
be a measure of liquidity or cash flows from operations or a measure comparable
to net income as it does not take into account certain requirements, such as
capital expenditures and related depreciation, principal and interest payments,
and tax payments. Adjusted EBITDA is not a presentation made in accordance with
GAAP, and our use of the term Adjusted EBITDA may vary from the use of similarly
titled measures by others in our industry due to the potential inconsistencies
in the method of calculation and differences due to items subject to
interpretation.
The presentation of non-GAAP financial information should not be considered in
isolation or as a substitute for, or superior to, the financial information
prepared and presented in accordance with GAAP. Investors should read this
discussion and analysis of our financial condition and results of operations
together with the Consolidated Financial Statements and the related notes
thereto also included within.
The following table outlines the reconciliation from net loss to Adjusted EBITDA
for the periods indicated:
Three Months Ended March 31,
(in thousands) 2022 2021
Net loss $ (18,158 ) $ (19,698 )
Depreciation & amortization 4,834 1,711
Net interest 3,029 2,549
Taxes 290 387
EBITDA (10,005 ) (15,051 )
Change in fair value of contingent earnout liability (517 ) -
Change in fair value of warrant liabilities (5,835 ) 5,991
Other (expense) income, net 1,169 (2,076 )
Stock-based compensation 2,289 2,507
Mergers and acquisition related expenses 3,014 2,267
Other unusual one-time costs - 387 Other acquisition accounting amortization 183 - Adjusted EBITDA$ (9,702 ) $ (5,975 )
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 described below.
•
Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future and Adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements.
•
Adjusted EBITDA does not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our debt.
•
Adjusted EBITDA does not reflect income tax payments that may represent a reduction in cash available to us.
•
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.
33
--------------------------------------------------------------------------------Liquidity and Capital Resources
Our principal sources of liquidity to fund our operations are from cash and cash equivalents, which totaled$91.6 million as ofMarch 31, 2022 , mainly from net proceeds from the Merger (as defined below), borrowings available under the FP Term Loan (as defined below) and the issuance of convertible notes. Of this$91.6 million , approximately$10.6 million was held outside ofthe United States . These amounts compare to cash and cash equivalents of$23.0 million as ofMarch 31, 2021 , of which$5.1 million was held outside ofthe United States . These amounts are exclusive of restricted cash which totaled$0.4 million as ofMarch 31, 2022 , and$0.4 million as ofMarch 31, 2021 . Since our inception, we have been in an operating cash flow deficit as we have made significant investments in our technology infrastructure, built out our research and development foundation, grown sales and marketing resources to drive revenue, and scaled general and administrative functions to enable operating effectiveness. During fiscal year 2021, we issued additional convertible notes with a cumulative principal amount of$20.0 million , with maturities of January andFebruary 2025 , respectively, which converted into our Class A common stock at the Closing. InApril 2021 , we entered into the FP Credit Agreement (as defined and further described below), utilizing a portion of those funds to pay-off our existing credit arrangements with EIB and Eastward. InNovember 2021 , we closed our acquisition of exactEarth for the purchase price of$129.0 million , consisting of$109.6 million in cash and$22.3 million of common stock, net of$3.0 million post-combination expense. We expect that our principal source of liquidity is our cash and cash equivalents balance which includes 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
OnAugust 16, 2021 , we announced that we had closed our merger with NavSight (the "Merger"). As a result, we became a wholly owned subsidiary of NavSight, and NavSight changed its name to "Spire Global, Inc. " In connection with the Merger, we raised$264.8 million of proceeds including the contribution of$230.0 million of cash held in NavSight's trust account from its initial public offering, net of redemptions of NavSight public stockholders of$210.2 million , and$245.0 million of cash in connection with thePrivate Investment in Public Equity ("PIPE") Investment. We incurred$38.7 million of merger and acquisitions costs, consisting of banking, legal, and other professional fees, of which$32.1 million was recorded as a reduction to additional paid-in capital, and the remaining$6.6 million was expensed to general and administrative expenses in the Consolidated Statements of Operations. For more details on the Merger, including all equity conversions, please see Note 3 to our Consolidated Financial Statements included in our Annual Report on Form 10-K for the year endedDecember 31, 2021 .
FP Credit Agreement
OnApril 15, 2021 , we entered into a credit agreement withFP Credit Partners, L.P. , as agent for several lenders (the "FP Lenders") (as amended onMay 17, 2021 , the "FP Credit Agreement"), for a$70.0 million term loan facility (the "FP Term Loan"). Upon funding inMay 2021 , the FP Term Loan was used (i) to pay off our existing credit facilities withEastward Fund Management, LLC andEuropean Investment Bank and (ii) to fund working capital and for general corporate purposes. We incurred$12.3 million of debt issuance costs relating to the FP Term Loan. The FP Lenders were also entitled to a commitment fee of$1.75 million that was fully earned and paid upon signing the FP Credit Agreement. The FP Term Loan bears interest at a rate of 9.00% per annum. Prior to the Merger, the FP Term Loan bore interest at a rate of 8.50% per annum. Since the FP Lenders elected to exercise their conversion right in connection with the Merger, and we chose not to prepay the remaining, non-converted outstanding principal amount of the FP Term Loan at the closing of such transaction, our interest rate under the FP Term Loan increased to 9.0% per annum. 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 onApril 15, 2026 . We may prepay the outstanding principal amount of the FP Term Loan at any time, in full but not in part. In addition, since the FP Lenders elected to exercise their conversion right in connection with the Merger, there is no premium or other contractual return in a prepayment. The aggregate amount required to be repaid in a prepayment to the FP Lenders would only be the outstanding principal amount of the FP Term Loan and any accrued and unpaid interest thereon. Our obligations under the FP Credit Agreement are guaranteed by our material subsidiaries, as determined in accordance with the FP Credit Agreement, and secured by substantially all of our assets and the assets of the subsidiary guarantors. The FP Credit Agreement contains customary affirmative and negative covenants, including covenants that limit our ability 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$15.0 million , as determined in accordance with the FP Credit Agreement, provided that this covenant did not apply following any fiscal quarter in which we achieved positive EBITDA so long as we continued to maintain positive EBITDA in subsequent fiscal quarters. Since the Merger occurred, we are no longer required to maintain this financial covenant per the terms of the FP Credit Agreement. 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 34 -------------------------------------------------------------------------------- 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,$5.0 million as a loss on extinguishment of debt, resulting from paying off the EIB Loan and the Eastward Loan Facilities (as defined below). Eastward Loan Facility InDecember 2020 , we entered into a line of credit agreement with Eastward and certain of our subsidiaries as co-borrowers (the "Eastward Loan Facility"). The agreement provided for a term loan facility in an aggregate principal amount of up to$25.0 million , of which we borrowed$15.0 million . We used the proceeds to prepay existing indebtedness and the remaining proceeds were available to be used for general corporate purposes. In connection with funding the term loan under the FP Credit Agreement, we repaid the outstanding obligations under the Eastward Loan Facility, including a prepayment premium and fees of$0.8 million . The Eastward Loan Facility bore interest at a rate of 11.75% per annum, payable monthly in arrears. We were also required to pay a commitment fee equal to 1.00% of the principal amount of each term loan borrowing. Following an interest only period of 24 months, the principal amount of each term loan was repayable in 24 equal monthly installments based on an amortization period of 36 months. The outstanding principal amount of each term loan, plus a repayment fee equal to 2.00% of the original$15.0 million principal amount of such term loan, was due and payable 48 months after such borrowing. Our obligations under the Eastward Loan Facility were guaranteed by certain of our subsidiaries, as determined in accordance with the loan agreement, and were secured by substantially all of our assets and the assets of the co-borrowers. The loan agreement contained customary affirmative and negative covenants, including covenants that limited our and our subsidiaries' ability to, among other things, dispose of assets, consummate mergers or acquisitions, incur additional indebtedness, grant liens, pay dividends or other distributions on our capital stock, make investments and enter into transactions with affiliates, subject in each case to customary exceptions and qualifications. The Eastward Loan Facility included customary events of default, including, among other things, payment defaults, breaches of covenants or representations and warranties, an investor abandonment default, cross- defaults with certain other indebtedness, bankruptcy and insolvency events and judgment defaults, subject to grace periods in certain instances. Upon the occurrence and during the continuance of an event of default, Eastward had the right to declare all or a portion of the outstanding obligations payable by us to be immediately due and payable and exercise other rights and remedies provided for under the loan agreement. Under certain circumstances, a default interest rate would have applied on all obligations during the existence of an event of default under the loan agreement at a per annum rate equal to 5% above the otherwise applicable interest rate. EIB Loan Facility InAugust 2020 , we entered into a finance contract with EIB andSpire Global Luxembourg S.a.r.l., as borrower. The finance contract provided for a term loan facility (the "EIB Loan Facility") in an aggregate principal amount of up toEUR 20.0 million , available in three tranches, of which we borrowedEUR 12.0 million . The proceeds of the term loans were required to be used for our innovation and expansion activities in Luxembourg and potentially otherEuropean Union ("EU") countries. In connection with funding the term loan under the FP Credit Agreement, we repaid the outstanding obligations under the EIB Loan Facility, including a prepayment premium ofEUR 0.2 million . The total outstanding principal amount of each tranche was due and payable five years after the borrowing date for such tranche. The initial tranche ofEUR 5.0 million did not accrue interest. The second tranche ofEUR 7.0 million accrued interest at a rate equal to EURIBOR plus 5.00% per annum, payable quarterly in arrears. If borrowed, the third tranche ofEUR 8.0 million would have accrued interest at a rate equal to EURIBOR plus 10.0% per annum, payable quarterly in arrears. We were also required to pay a commitment fee equal to 1.00% per annum of the undrawn term loan commitments from the one-year anniversary of the finance contract through the expiration of the commitments inJanuary 2023 . 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 ability 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, onAugust 20, 2020 , we issued to EIB a warrant exercisable for 454,899 shares (Tranche A) of Legacy Spire Common Stock at a price of$0.0001 per share. Upon completion of the Merger, the exercisable share count converted to 775,966. OnOctober 29, 2020 , we issued to EIB an additional warrant exercisable for 454,899 shares (Tranche B) of Legacy Spire Common Stock at a price of$0.0001 per share. Upon completion of the Merger, the exercisable share count converted to 775,966. Each such warrant included a put option, whereby EIB had the right to have us repurchase the warrants by paying EIB an amount equal to the then-current fair market value of the shares of Legacy Spire Common Stock for which the warrants were exercisable. The amount that we were required to pay upon the exercise of the put option was subject to a purchase price cap ofEUR 10.0 million for each warrant. InSeptember 2021 , EIB submitted a notice of cancellation for the 775,966 EIB warrants 35 -------------------------------------------------------------------------------- (Tranche A). InOctober 2021 , EIB submitted a notice of cancellation for the remaining 775,966 EIB warrants (Tranche B). The total settlement value associated with the EIB warrants was$19.9 million and was paid inNovember 2021 . Upon settlement,$12.8 million was released from restricted cash which had been held in guarantee for EIB warrant redemption.
Acquisition of exactEarth
InNovember 2021 , we closed Acquisition for the purchase price of$129.0 million , consisting of$109.6 million in cash and$22.3 million of common stock, net of$3.0 million post-combination expense. The Acquisition accelerates growth of our existing maritime business with additional data solutions, cross-selling opportunities, and expansion of our geographic footprint. exactEarth is now a fully-owned subsidiary ofSpire Global, Inc. and will continue to conduct operations fromCambridge, Ontario, Canada . For additional detail regarding the terms associated with the Acquisition, see Note 4 to our Consolidated Financial Statements included in our Annual Report on Form 10-K for the year endedDecember 31, 2021 .
Government Loan
As part of the Acquisition inNovember 2021 , we assumed a loan agreement with theStrategic Innovation Fund ("SIF") which was recorded at fair value of the debt. As ofMarch 31, 2022 ,$4.5 million was included in Long-term debt, non-current on our Consolidated Balance Sheet. Under this agreement and subsequent amendment, we are eligible to receive funding for certain expenditures incurred fromFebruary 13, 2018 toMay 12, 2023 , up to a maximum of$5.7 million . The loan is repayable in 15 annual payments beginningFebruary 28, 2026 and has a stated interest rate of zero. For additional information, see Note 6 to our unaudited Condensed Consolidated Financial Statements as ofMarch 31, 2022 , and for the three months endedMarch 31, 2022 included in this Quarterly Report on Form 10-Q.
Convertible Notes
FromJuly 2019 throughOctober 2020 , we issued and sold subordinated convertible promissory notes in the aggregate principal amount of$42.9 million (the "2019 Spire Notes"). InMay 2021 , we agreed with the holders of the 2019 Spire Notes to extend the maturity date of all convertible promissory notes outstanding atDecember 31, 2020 fromJanuary 29, 2022 toJuly 31, 2022 . FromJanuary 2021 throughFebruary 2021 , we issued and sold subordinated convertible promissory notes in the aggregate principal amount of$20.0 million , which mature four years from the date of issuance (the "2021 Spire Notes"). The 2019 Spire Notes and the 2021 Spire Notes accrued interest at a rate of 8.0% per annum and converted into shares of our common stock in connection with the closing of the Merger (the "Closing"), so they are no longer outstanding. The following table summarizes our net cash used in operating activities, net cash used in investing activities, and net cash provided by financing activities for the periods indicated: Three Months Ended March 31, (in thousands) 2022 2021 Net cash used in operating activities$ (14,991 ) $ (10,821 ) Net cash used in investing activities$ (4,262 ) $ (1,378 ) Net cash provided by financing activities $ 733$ 20,233
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 the three months endedMarch 31, 2022 was$15.0 million . This reflected our net loss of$18.2 million , adjustments for non-cash items of$2.8 million , and a net increase in our operating assets and liabilities of$0.4 million . Non-cash items primarily included$4.8 million of depreciation and amortization expense,$2.3 million of stock-based compensation,$1.4 million of debt issuance amortization expense and$0.6 million for reduction of operating lease assets, offset by$5.8 million non-cash gain on the contingent earnout liability revaluation and$0.5 million on warrant liability revaluation. The net increase in operating assets and liabilities primarily included a$2.2 million decrease in accounts receivable, a$1.9 million decrease in other current and long-term assets, and a$1.1 million increase in other accrued expenses. This was offset by a$1.5 million increase in contract assets, a$0.3 million decrease in operating lease liabilities, a$1.1 million decrease in accrued wages and benefits, a$1.0 million decrease in contract liabilities, a$0.8 million decrease in accounts payable, and a$0.1 million decrease in other long-term liabilities. Net cash used in operating activities in the three months endedMarch 31, 2021 was$10.8 million . This reflected our net loss of$19.7 million , adjustments for non-cash items of$10.5 million , and a net reduction of$1.6 million driven by changes in operating assets and liabilities. Non-cash items primarily included$6.0 million for the revaluation of warrant liability related to our EIB credit arrangement,$2.5 million of stock-based compensation expense,$1.7 million of depreciation and amortization expense and$2.0 million of non-cash interest and financing related costs associated with our convertible and promissory notes, offset by a$1.7 million credit driven by our PPP loan forgiveness. The net decrease in operating assets and liabilities primarily included an increase in accounts receivable of$3.8 million driven by growth in new and existing customer business, an increase of$0.7 million in accrued wages and benefits and contract liabilities, and an increase of$1.1 million in accounts payable, offset by a reduction in other accrued expenses of$1.7 million . 36 --------------------------------------------------------------------------------
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 the three months ended
Net cash used in investing activities in the three months endedMarch 31, 2021 was$1.4 million . This was primarily driven by$1.2 million of investment in our technology infrastructure and$0.2 million of investment in leasehold improvements and computer equipment.
Cash Flows from Financing Activities
The cash flows from financing activities relate primarily to proceeds from the issuance of convertible notes.
Net cash provided by financing activities in the three months ended
Net cash provided by financing activities in the three months endedMarch 31, 2021 was$20.2 million . This was primarily driven by$20.0 million of proceeds from convertible notes and$0.3 million from stock option exercise proceeds offset by$0.1 million of debt issuance expense.
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.
There have been no material changes to our critical accounting policies and
estimates as compared to those disclosed in Part II, Item 7, Critical Accounting
Policies and Estimates in our Annual Report on Form 10-K for the year ended
Accounting Pronouncements Recently Adopted and Not Yet Adopted
See Note 2 to our unaudited Condensed Consolidated Financial Statements as ofMarch 31, 2022 , and for the three months endedMarch 31, 2022 included in this Quarterly Report on Form 10-Q.
Emerging Growth Company Status
We are an "emerging growth company," as defined in Section 2(a)(19) of the Securities Act, as modified by the Jumpstart our Business Startups Act (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$250 million as of the priorJune 30 , or (ii) our annual revenues exceeded$100 million during such completed fiscal year and the market value of our common stock held by non-affiliates exceeds$700 million as of the priorJune 30 . 37
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