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IS THERE TOO MUCH SPACE BETWEEN THE BUSINESS AND THE STOCK OF SPIRE GLOBAL (SPIR – NYSE)
What if I told you I had a company with a SaaS-like business, Annual Recurring Revenue (ARR) and had grown at a 109% CAGR over the past 6 years. Last year this company grew revenue organically at 46% and the guide was for 32% growth this year.
Then what if I told you that this company had a market cap of $100 million and an enterprise value of $150 million versus forecast ARR of $132 million this year.
You’d probably say that seems way too cheap.
That could well be the case. But there is a catch. This is not your typical software-esque SaaS business – at least not in the traditional sense.
The company I am talking about is Spire Global (SPIR – NASDAQ).
Spire is a provider of global maritime, aviation and weather data and analytics. They compile that data through a network of satellites that they own and operate.
Spire owns a fleet of 100+ nano-satellites, the fourth largest constellation out there. They have 30+ ground stations and 70+ antenna stations that are used to receive data.
Spire builds and operates all their own equipment. They manage the data through the public cloud. The only thing they don’t do is launch the satellites themselves (they contract that out).
Management has executed very well, generating huge revenue increases and smaller and smaller losses. This is a GREAT company—so why is there so much space between its fundamentals and its valuation?
QUICK FACTS
Trading Symbols: SPIR
Share Price Today: $0.65
Shares Outstanding: 158 million
Market Capitalization: $103 million
Net Debt: $47 million
Enterprise Value: $150 million
POSITIVES
– Satellite data subscription business growing at 30%+.
– Proprietary nano-satellite constellation would be difficult to replicate.
– Can provide maritime, aviation and weather data in real-time.
NEGATIVES
– Stock is trading at less than a buck on NYSE and will likely require stock consolidation.
– Burning cash.
– May have to raise equity.
– Reliant on Government contracts.
THIS IS A SPACE SPAC
AND SPACS ARE REVILED
Pretty much the worst thing you can be right now is a failed SPAC. In fact, the only thing worse I can think of is a failed space SPAC.
Investors are haunted by the excess of 2021. So many crummy space-related SPACs went public over that period, and they are all suffering now.
Spire Global is no exception.
Spire was a $10 SPAC in mid-2021. But no more.
Source: Stockcharts.com
Spire has seen its stock price fall and fall….and fall.
But sometimes the stock can be at odds with the business. That has been the case with Spire. As the stock price falls, Spire’s space-based subscriptions keep growing.
Source: Spire Global Q1 2023 Investor Presentation
To be fair, the performance of the business has lagged what was projected at the time of the SPAC. But honestly, I think those original projections are best described as with most SPAC deck projections at the time – insanity.
Source: Spire March 2021 Investor Presentation
At the time Spire was projecting 100%+ growth rates as far as you could see—and hey, the growth trajectory today is strong even though it pales in comparison to these projections.
But I want to see profitable growth—which could be coming but we’re not there yet.
Spire’s adjusted EBITDA loss doubled in 2021, after a year of big spending once they listed. But since then, Spire has been making progress. Their EBITDA loss has declined 5 of the last 6 quarters.
Source: Spire Global 10-Q Filings
LOOK, TALK, LISTEN
THE SPIRE SATELLITE NETWORK
There are three different technologies and three different use cases for transporting and capturing data in space.
There are looking satellites, which deal with image data, talking satellites, which transmit communications, and listening satellites, with is where Spire operates.
Source: Spire Global Q1 Presentation
Spire’s constellation of satellites listens and records natural and man-made RF signals coming from earth. The fleet allows Spire to monitor virtually the entire earth all the time.
These are small software-defined satellites – called nanosatellites, about the size of a bottle of wine. Spire’s constellation of 100+ satellites is called LEMUR – which stands for Low Earth Multi-Use Receivers.
Source: eoportal.org
Data from the satellites are downloaded using Spire’s ground stations and receiving antennas. From there the data is cleaned and processed with more analytics. It can be sold to customers via API or tailored into dashboard-like tools for viewing and analysis.
Source: Spire Global 2021 Baird Newly Public Companies Conference
Spire’s revenue model is the data subscription. They sell these subscriptions primarily into three verticals.
Source: Spire Emerging Growth Conference Presentation
CEO Peter Platzer described these verticals at the Emerging Growth Conference in July:
We collect all of the maritime data, everything which is happening on the ocean, tracking about 500,000 or more ships every single day. We track all of the world’s planes. And we track all of the world’s weather.
We create that data, and we create analytics out of it, and we sell it as a subscription. If you take all of that together, Spire serves 175, roughly, major use cases, as someone identified, for 150,000 to 200,000 potential customers.
Perusing their website, I see products delivering vessel data, port data, marine and port weather data, general global weather data, flight tracking data, airport tracking data, fuel burn tracking, carbon emission tracking, cargo load tracking, sea surface temperatures, soil temperatures, sea ice tracking, air temperature measurements across the ionosphere, wind and storm measurement and tracking, surface water level measurement and a bunch of space monitoring datapoints.
Source: Spire Global Website
Turning to specific examples, after the Russian invasion of Ukraine, Spire developed a dashboard giving real-time updates of grain shipments out of the country.
Source: Spire June 29th Press Release
Spire’s cargo shipment tracking dashboard provides up-to-date location data on every ship on Earth, travel durations, port congestion along with atmospheric and ocean conditions.
Source: Spire June 29th Press Release
Spire customer Mantle Labs uses Spire’s soil and weather data to create daily updates on crop and field conditions for farmers across the Globe.
Source: Mantle-labs.com
THE AMAZON OF SPACE SERVICES
In addition, Spire offers “Space Services”, which they describe as an Amazon AWS for space.
This is essentially an API that allows customers to tap into Spire’s infrastructure and access the data that they need without needing to deploy their own satellites. Spire becomes the space satellite version of the public cloud.
Spire describes this “space-as-a-service” business as carrying a huge addressable market – a $39 billion TAM.
A recent example of customers using this service is a deal that Spire made with OroraTech, a space-based thermal intelligence provider.
Spire is launching and operating an 8-satellite constellation focused on global temperature monitoring.
The constellation will be used to monitor forest fires (the initial concept satellite that OroraTech and Spire worked on was called the “Forest Observation & Recognition Experimental Smallsat Thermal Detector”—FOREST-D).
The intent is to provide extremely fast forest fire detection – with data that updates every 30 minutes and within 3 minutes from detection of a wildfire anywhere on Earth.
Spire will be responsible for the entire package: the launch, in-orbit operations, ground and cloud infrastructure, and an easy-to-use service. OroraTech is providing their proprietary sensors and will pay Spire “as-a-service” for accessing the resulting data via API.
CUSTOMER CONCENTRATION –
AND A MYSTERY GOVERNMENT CLIENT
Spire has a large and growing customer base. Their recurring subscription model had 733 customers at year-end, up from 598 customers at YE 2021. That was up to 781 customers at the end of the first quarter.
Within that customer bucket Spire has revenue concentration from Government.
Federal, state, local, and foreign governments accounted for approximately 34% of their revenues in 2022. At the Sidoti conference Platzer said they were about 50/50 today.
Within the government channel, approximately 69% of revenue in 2022 was generated by three government customers. I believe two of those customers are the Department of Defense (DOD), Department of Energy (DOE). The third—I don’t think anybody knows.
THE ENEMY IS THE STOCK
A REVERSE SPLIT IS COMING
Honestly, my biggest concern is the stock price.
Spire is trading at 65c. That is to say – it trades at well under a buck.
Trading under a buck matters when you are on the NYSE, which Spire is.
Stocks on the NYSE must trade at over $1 per share or they will be delisted. In March, Spire received a delisting notice for this reason.
This wasn’t a notice to boot them off the exchange, just to let them know they need to do something about it. As a consequence, at the May AGM Spire shareholders approved a proposal for a reverse stock split.
Now a reverse stock split shouldn’t mean anything. It is less shares at a higher price. The market cap stays the same.
But my experience is that reserve splits are prime targets for manipulation. The number of times I have seen a company complete a reverse split only to see the stock price subsequently go through wild gyrations is too many to count.
I would feel a lot better recommending Spire once this reverse split is out of the way.
GETTING TO BREAK-EVEN
Spire had $71 million of cash and short-term investments at the end of the first quarter.
That is enough cash to last a few quarters at the current burn-rate. But if Spire is going to get along without an equity raise, they need to keep progressing toward break-even.
Below is Spire’s cash flow burn for the last 8 quarters. I am using operating cash flow less CAPEX.
Source: Spire 10-Q Filings
Spire has brought their cash burn down, but they are still in the red.
If Spire does have to raise capital, I worry about what that might mean in this environment. Capital isn’t cheap for non-profitable tech.
Yet they seem to be positioning themselves for a raise. Spire has been on the conference circuit all year. I have counted 8 conferences since March.
Source: Spire Events and Presentations
A company trying this hard to get their story out is often a precursor to an equity raise.
What do you do?
You can certainly make the case that Spire’ stock price is not pricing in the growth trajectory. All it takes is one big contract and I could see the stock doubling in a heartbeat.
But the specter of the reverse split and the potential need to raise capital leaves me uneasy about buying anything other than the smallest of positions.
I am left with a company that I find very interesting, one that I think the market is missing the mark on, but also one where I know a potential equity hole and reverse split could leave me hanging.
If you take a position – keep it small and make it more of a “starter” that you plan to add to as the prospects of the reverse split and equity raise become clearer.
This is a stock that is clearly in the “be patient” category. Spire is stock I would like to own. Just not quite yet.
Editor’s Note: One of my new Whisperer portfolio buys is a small cap stock making a VERY BIG play. It’s a healthy energy drink — and you can now find it on the shelves of three of America’s biggest grocery chains. Could it become one of the newest iconic brands in the U.S.? Keep a lookout in your email inbox for my upcoming research on this play.
