Greetings, and welcome to Spire Global's Second Quarter 2023 Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Ben Hackman, Head of IR. Please go ahead.

Thank you. Hello, everyone, and thank you for joining us for our second quarter 2023 earnings conference call. Our earnings press release and SEC filings can be found on our IR website at ir.spire.com. A replay of today's call will also be made available. With me on the call today is Peter Platzer, CEO; and Tom Crewe, CFO. As a reminder, our commentary today will include non-GAAP items. Reconciliations between our GAAP and non-GAAP results as well as our guidance can be found in our earnings press release. Some of our comments today may contain forward-looking statements that are subject to risks, uncertainties and assumptions. In particular, our expectations around our results of operations and financial conditions are uncertain and subject to change. Should any of these expectations fail to materialize or should our assumptions prove to be incorrect, actual company results could differ materially from these forward-looking statements. A description of these risks, uncertainties and assumptions and other factors that could affect our financial results is included in our SEC filings. With that, let me hand the call over to Peter.

The second quarter was another quarter of strong growth and progress towards profitability. In addition to Spire adding another quarter to our unbroken record of quarterly revenue growth since becoming public, we exceeded expectations by delivering more revenue and stronger margins than anticipated. Alongside our strong results, we continue to see broad-based demand for our solutions. We signed another 32 solution customers achieving nearly $113 million in ARR and yet again increased our rolling 12 months organic net retention rate to 117%. Based on first half results that exceeded our guidance and market expectations, we are thrilled to improve our margin guidance for the full year and share these important anticipated milestones. We expect to generate positive cash flow from operations during the fourth quarter of this year. The adjusted EBITDA positive in the first or second quarter of next year 2024, delivered positive operating margins in the second quarter of 2024 and be free cash flow positive in the second or third quarter of 2024. I could not be more proud or excited about Spire's prospects for profitability and sustainable growth. The macro environment has become more stable over the past quarter. The U.S. Federal Reserve is no longer forecasting of recessions and markets are showing strength. With businesses adjusting to our interest rates and a more stable outlook, we are seeing a renewed focus from customers looking to drive cost out of their business. We have not seen a further degradation in time to contract. And in some instances, we have actually seen some of the fastest time to contract since becoming public. The flip side to these improved macro conditions is a still very tight capital market that is putting a conservative overlay to the business environment in terms of customers making investments for their growth. Businesses…

Thanks, Peter. We had another strong quarter of execution from the top line down to margins with revenue, non-GAAP operating loss, adjusted EBITDA, non-GAAP loss per share and ARR solution customers all coming in above the high end of our guidance. Our results also provided another successful quarter, methodically progressing on our trajectory towards profitability. Q2 revenue increased 37% year-over-year to $26.5 million, once again hitting a quarterly record and exceeding the high end of our guidance by $1.5 million. Gross margins expanded to 64% on a GAAP basis and 68% on a non-GAAP basis, representing a 13 percentage point improvement over Q2 2022 on a GAAP basis and an 11 percentage point improvement on a non-GAAP basis. ARR at quarter end was $112.8 million, up 32% year-over-year, with adding $8 million of sequential growth quarter-over-quarter. This included a nice mix of adding new logos while expanding with our existing customers. We finished the quarter above guidance with 813 ARR solution customers, a net add of 32 customers quarter-over-quarter. Our Q2 ARR net retention rate was 112%, up from 108% last quarter and in the same quarter a year ago. The rolling 12-month organic ARR net retention rate was 117%, up from last quarter's rolling 12-month organic ARR net retention rate of 116%. Now I'll be discussing non-GAAP financial measures unless otherwise stated. We have provided a reconciliation of GAAP to non-GAAP financials in our earnings release that should be reviewed in conjunction with this earnings call. Driven by exceeding our Q2 revenue expectations, our leveraged business model across 4 solutions and our high asset utilization, our Q2 operating loss came in at $6.1 million, which is $2.7 million better than the top end of our guidance. This is an improvement of $4 million year-over-year and an improvement of over…

[Operator Instructions] Our first question today is from Austin Moeller of Canaccord Genuity.

My first question here, Peter. Last quarter, we discussed how some contracts and expansions of contracts from customers had been delayed. Is the takeaway from the strong results and the higher number of AR solution customers this quarter that some of these delayed contracts got closed out in.

I think that’s a good way to approach it, Austin. I mean we certainly have seen the business environment to kind of like maintain and, in some areas, actually improve. Interest rates are still high, but they have stabilized and businesses seem to feel more confident about plantability. They feel more, okay, I understand how this is going to look like, and they’re increasingly looking for, okay, how can I take now cost out of my system with having a greater sense of how the world is going to look like. And so indeed, we have seen a very, very good conversion in the quarter that has continued that momentum into the current quarter. So we continue to see that this greater predictability of a challenging but noble environment translates into more predictable sales cycles and conversations with customers.

Excellent. And are the majority of the customers you're seeing right now for RF Sign currently coming from NATO Europe? I know you can't say who they are.

No. We have actually a very, very good mix between like 5 eyes and non-FIS customers and feel that we are still just scratching the surface there. Spire has assets which are purely an exclusively United States assets. So U.S. license, U.S. technology, downloading data over the U.S., but we also have assets which are non-U.S. that facilitate that process outside of the U.S., for example, in Europe, as you have mentioned.

Excellent. Very exciting congrats on the quarter.

The next question is from Erik Rasmussen of Stifel.

Congrats on the strong results and margin improvement.

Appreciate it.

Yes. And then maybe sticking with margins. You obviously continue to see nice progression there and if you just reported 64% on a GAAP basis. But as we think about your more recent target, I think you gave last quarter a goal of GAAP gross margins of 70%. What do you see you hitting this target?

Yes. Eric, we had mentioned that it was in the coming years. We didn’t give like a specific date, but we said that was coming in the near term. I think, though, as you can see from the results, getting the 64 and 68 million on a non-GAAP basis, we’re moving up that path quite fast. The non-GAAP was obviously early getting to that 70% mark. I think the most amazing thing that we had in the quarter was the 11 percentage point improvement that we saw both on a GAAP and a non-GAAP basis over the last 2 quarters. So that’s just been done in the first half of this year. So really happy with that progression and that leveraged infrastructure we have, the leverage headcount we have, all that’s coming to fruition because it’s not just the revenue growth. I mean, that's obviously going to be super helpful, but it’s also that cost maintaining and spreading that over our 4 solutions, and that’s driving our gross margins up on a fast pace. So yes, those numbers are getting closer and closer by the quarter.

Great. And then maybe just -- you had a number of contract signings and pretty meaningful. It seems like the pace of those awards is picking up and also the magnitude and level of engagement seems to be increasing. But what's driving this relative strength? And how do you see the split maybe between your native services and space services business as it relates to sort of the opportunities the team is tracking?

So what is driving it is a little bit of what I mentioned earlier, Eric, is that the world feels a little bit more attuned to a challenging but predictable environment. And that is – it is driving those decisions. I think the other thing you’re seeing is that customers are becoming selective with who they work with because they know that it has to work, be that data, be that analytics, be that space services, their business relies on that, right? You don’t get to 117% retention rate with your customers, if you’re not reliable. And what we see is an environment where those that consistently and reliably deliver for their customers are winning more and more of the business from those customers, but are also attracting other companies in terms of like, “Oh, everyone needs to have a space strategy, if you were to believe McKinsey what they have said, who do I work with? Well, if I’m in the maritime aviation whether or space services, Spire is the place that I probably should be calling first. And it’s that confidence in that, that brand that starts to drive some of those ever larger wins that you rightfully have called out.

Yes. And Eric, just to put some numbers around some of the -- that expansion, both landing and expanding with the customers. I mean we're able to get 80 net new customers in the first half of this year. So we're seeing that progression and being able to land a new logos across all 4 of our solutions. I think Peter mentioned earlier about the aviation business is really starting to kick into gear now that we're coming out of COVID years, and that was obviously not our highest growing business during those years, and now we're starting to see that. So that's 1/4 of our solution really starting to kick into gear. And then on the expansion side, there's also just amount of time has gone by with a lot of customers. And we've listed some of these in the press releases, but these expansions with -- if it's in space services, where they might start out with 1 or 2 or 3 satellites and now they're doing full constellations with us. A lot of that was built into our contracts when we signed it with them, and now they're coming to fruition like people like Aurora tech and other folks that we listed or we just announced today expanding with NASA, taking that contract from $6 million to $6.5 million for another annual year with them. So they're just seeing that we can solve more and more use cases with them and then expanding with them. So not only landing those new ones, but then also expanding with the existing...

Great. And then maybe on the CFO transition. Do you have any updates you could share on how the process is going and what we could sort of expect to see?

Yes. So you can expect to hear something quite specific from us very soon. Tom has been giving us a lot of time. He's also going to stay on for a transition period as a consultant to the company. So we feel extremely good about the whole handover. And the process has been going very well. And I'm quite excited about something that I will be able to share pretty soon with you.

Great. I’ll jump back in the queue. Congrats again.

The next question is from Ric Prentiss of Raymond James.

First, since this is probably the last call for Tom, I wanted to say I enjoyed working with you. It's been a pleasure. So best wishes.

Thank you very much.

You mentioned on the ARR that there's a timing issue, on ARR finished up, and that's the reason for the quarter-to-quarter downtick in the ARRs. But you also, I think, mentioned that you had some confidence about winning it back. Can you give us a little more color on kind of what's involved in that contract? And why you think you can win it back? And are they using anybody else right now?

Yes. So I mean, as you see, we’ve delivered very, very strong revenue, 37% year-over-year growth. We exceeded all the margins. We kept the revenue guidance for the year constant. But you saw that we improved the margin guidance. So that gives you a good of sense of how confident we are about the revenue side. Indeed, ARR has like this mathematical drop. It’s an RO contract with Noah. We have multiple contracts with Nora, they decided to give in their last award only to one company and not to 2 companies. They gave them a 6 months, so a reasonably short-term contracts. So very, very near term, we have the opportunity to add to that, again, with our $59 million IDIQ contract. In the meantime, Noah has reached out to us for other data types that we have with regard to weather. So that gives us great confidence on that. But even more importantly, it’s like the traction that we have seen as we have reallocated assets that are for R into RF geolocation. And those contracts are multimillion-dollar contracts often for very, very short delivery times, and we have seen several of those coming repeatedly also from the same customer. So that reallocation has helped us a lot and giving us great confidence in the growth. The momentum that we talked about a little bit on this call already that we have seen in the second quarter has carried into the third quarter. So overall, we feel very confident about the guidance that we have given. I think we’ve done – Tom has done a very good job historically and give very accurate guidance. And so we have every intention of continuing on that trend.

Very good. And the stock split is coming up in the next 30 days. Has the decision been made as far as what magnitude or reverse split will be?

So we have spoken with numerous advisers, investors and parties. And there’s certainly, I would say, like a common sense consensus emerging from that. You need to balance the amount of shares that will trade on a number of shares per day with the stock price that you achieve, keeping in mind that above a stock price of $3, $4, $5, you open yourself up to a lot more of the investor community that can invest in stocks that are a little bit higher in that $3, $4, $5, $6 range. So taking all of that into consideration, we feel pretty good, and we have received very positive feedback. The sense that I have is there’s a lot of people waiting for us to do this because it allows them to actually be part of this pie story.

Exactly. And when will that decision be made and announced, do you know?

Yes, we were just waiting for the earnings stock activity just to settle down, and then we're -- we'll make action.

Makes sense. Okay. And the final one for me. Tom, you mentioned some of the per share numbers out there. And the share count is going up more significantly than what we had in our model. Is there anything going on specifically as far as the share count?

Yes. We had set up the ATM a year ago, and we hadn't used it up until actually June. In June, there were some unique days where there was high volume and high trade activity. We did take advantage of that to help boost the balance sheet a bit and get a little bit of that ATM money through. Obviously, that was why we put the team in place. We haven't used it since the month of June because we just felt we didn't have a need to do it thereafter. But if there's other days like that, where there's some opportunistic days to take advantage of using the ATM to improve the balance sheet and give us more business flexibility with investments, then we'll take advantage of that. So that was the reason for the share count increase.

Okay. And that’s also – since it was June, it doesn’t reflect much within 2Q, but it affects more side.

Because we're a weighted average share count, it really shows up kind of in the Q3 time frame and not so much because we did it the last month of the quarter.

Right. Okay. Appreciate it. Alone again, Tom, best wishes.

[Operator Instructions] Our next question is from Jeff Meuler of Baird.

Yes, Peter. Thanks for all the use case and AI examples. But just on the financials, like -- I know this has been asked, but it does look like a really big step-up sequentially from Q3 to Q4 to hit the full year ARR guidance. And you've announced a bunch of really large contracts. Are a lot of these large contracts not hitting until Q4, and that's a big part of the answer? Or is it more based upon confidence in pipeline of large opportunities that are at an advanced stage, but which you've not yet announced?

Yes. It’s definitely the confidence in the pipeline. What we’ve been able to do to date and making those conversions and making those things happen, the expansions that we’ve had with our customers along the way. We still have a lot of activity in the pipeline for the rest of the year in that front. And as we did mention, we have the capability to win back some portion or all of that contract in the fourth quarter also that would help boost the ARR, too. So it’s a mix of all that. But we are very confident with the pipeline and where we’re at. And that’s why we’re keeping that guidance at that point.

And can you get into the guidance range without winning back a portion of the NOA contract before year-end?

Yes. I mean, we could. Yes, there’s very significant deals out there and deals. It just depends on closing time and all that wonderful stuff. But yes, we could. We’re very confident with that.

Got it. And then, Peter, you referenced kind of the unusual weather activity in the first half of the year and insurance companies stopping writing business in certain states. Just help me with like the insurance market opportunity for you? Have you started to make good inroads there? Do you tend to go direct to the insurers? Or do you tend to partner with or sell into some of the other data and analytics solution providers that sell through to the insurance industry? Just talk through the insurance market as an opportunity for you.

So I would say that the insurance market, the reason why we mentioned it is one that is becoming more to the forefront as their business model is now starting to be impacted. And I don’t know how much time you have spent with insurance companies. I apologize if you have covered them in the past, and I’m not aware of it. They are not the fastest changing industries. I’m thinking of some companies from Switzerland and have been around for a couple of hundred years. So what has happened though is that the ever-increasing amount of extreme weather events. And you said the extreme weather rents in the first half of the year, and I think that statement has been true for the last decade. But now after a decade of those surprising extreme weather events, even that industry has to start to adjust their business model. A lot of parametric insurance starts to come into play. The reinsurance industry has to adjust. It’s a quite active provider industry with analytics for the insurance industry, which has arisen. And we certainly are a beneficiary of that change in business model of the change in how they approach whether given the type of data that we have. And in some instance, is the long history that we have for some of our data types.

Okay. And then just last, anything you can say about like from a geographic perspective, it looks like your growth has been quite a bit stronger in the Americas. Just any reason for that? I don't know if it's sales resources driven or opportunity driven?

It’s more opportunity driven, I would say, rather than sales force – and from my perspective, the way I look at it is it just means that the opportunities we have in the other parts of the world have not been unearthed and we have great opportunity to leverage them by paying even more attention to the other parts of the world as well. If you think about it from an overall GDP growth perspective, 80% of the world’s GDP growth is outside of the Western world. And I think we have absolutely just scratched the surface there in providing that large GDP growth, large population area, large land mass area that very often does not have the traditional land-based infrastructure, be that for weather information, be that for flight tracking that the Western world has, which creates even more opportunities for Spire to deliver directly a space-based solution leapfrogging the traditional development of having something installed on land that eventually gets augmented with something from space, which is something you see more in the Western world, but actually leapfrogging that for large portions of the earth, delivering space-based solution directly. Spire’s a large constellation that covers the earth at least 100 times a day and in many instances, 200 times a day. That’s a pretty big coverage area and a bitty high advantage from the low-temp resolution that we have to deliver solutions to these areas.

There are no additional questions at this time. I'd like to turn the call back to Peter Platzer, CEO, for closing remarks.

Thank you. And in closing, I would really like to thank our customers, employees and numerous suppliers for partnering with us in bringing innovative solutions to solve the challenges that people, communities and countries face every day across the globe. As uncertainty and challenges in the world at large increase, we see ever-increasing demand for space-based solutions, as I just talked about, be that supply chain or mobility, communication, remote Internet, whether climate change, global security, agriculture, energy, that list of areas which increasingly use and depend on space just keeps growing. And just like computers and the Internet driven by Moore’s Law became inextricably linked without daily lives and the global economy in the ‘80s, ‘90s and early 2000s, we see the same thing happening today with space. Driven by a similar law of constant performance improvements, tenfold every 5 years for satellite capabilities. And that has been working now for a quarter century and shows no sign of abating anytime soon. The mission-driven and incredibly motivated team that we have here at Spire, we are proud to be part of and indeed, I would argue, shape this transformational wave of change to create a safer, more prosperous and sustainable future on earth by serving our customers everywhere in the world every single day. And I look on with great optimism to the rest of 2023 and onwards into the future as we drive towards profitability and sustainable growth.

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