Space, as Star Trek posited, is the Final Frontier. And the Earth, as the late Dr. Carl Sagan reminded us in A Pale Blue Dot, “is a very small stage… where we make our stand… a mote of dust, suspended in a sunbeam.” As Humanity makes its stand on this mote of dust, two dynamic forces seem to remain continually in flux: Global Conflict and Global Weather.
Spire Global Inc. (SPIR) owns and operates a fully-deployed satellite constellation that observes the Earth in real time using Radio Frequency Technology. SPIR uses its satellite constellation to provide space-based Data, Analytics and Space Services.
Spire’s Data and Analytics provide cloud-based, AI-enhanced intelligence on Global Weather & Climate Change, Global Security and Ship & Plane Movements, as they relate to global economics, supply chain logistics and travel demand.
Our long-term bull thesis was amplified last night on the news that Spire has partnered with NVDA to advance AI-driven weather forecasting. Through this collaboration, Spire will deliver “differentiated forecast products that are computationally infeasible using traditional NWP models.”
We think SPIR’s Data and Analytics will see an inflection point in demand, leading to quickened acceleration in its business. The NVDA news has also improved our outlook on SPIR in the near-term.
Spire’s Space Services division enables customers to utilize the company’s established infrastructure and satellite expertise to plan, deploy and establish their own satellite constellation in space.
A quick glance at Spire’s revenue growth over the past few years reveals that “Space Situational Awareness” is very much an area of interest for companies and governments alike, as both grapple with an ever-changing world of Geopolitical Risks and the looming specter of Climate Change.
On March 6, SPIR posted a mixed quarter where EPS beat estimates handily and Revenue came in slightly below analyst expectations. Not to be missed, however, is that Operating Cash Flow improved $9.2M to $4.1M, Adj EBITDA was a positive $2.1M (eclipsing the high-end of guidance by $1M), Gross Margins were 64% and Revenue grew 32% YoY.
Also noteworthy is that Q4’s ARR reached $106.8M and this EXCLUDES a contract with RO Weather, secured just days after quarter-end, which comprises an additional $14.4M ARR.
On the call, management confirmed that growth and profitability are only set to rise from here:
These milestones also align with two global megatrends that shape our world today, and have been at the core of Spire's long term business plan since its inception almost 12 years ago; Climate Change and Global Security.
From the intensifying weather events to geopolitical tensions, these trends underscore the critical nature of our work at Spire.
For FY24 and beyond, management gave an upbeat guide including expanding Gross Margins and the promise to be Positive Free Cash flow by summer:
We believe 2024 will be a marquee year for Spire, one where we sustained positive adjusted EBITDA for the year and start seeing positive free cash flow in the summer.
For the full year, we expect a revenue range from $138-$148M. The 2024 midpoint reflects yet another high double-digit growth year at 35% YoY growth.
As we project our goals further out, we're not content with just maintaining a trajectory, we aim to accelerate, driving top line growth consistently above 30%, achieving gross margins over 70%, and maintaining positive cash flows.
We believe SPIR is another Top Tier Inflection on its way to becoming a Rule of 40 Company. As a reminder, the Rule of 40 is when a company’s Revenue Growth Rate and Profit Margin equal or exceed 40. Given that Spire’s space offerings play into a multitude of secular trends and its business model is close to inflecting materially, we think it’s not a question of IF but WHEN Spire achieves this milestone.
Management summed it up very nicely here:
Spire's unique subscription business model is the cornerstone of this success.
By blending the high barriers to entry and large addressable markets, characteristics of deep-tech with the cost efficiencies and scalability of software companies, we have created a model that not only supports rapid growth, but also ensures profitability.
Take a look at the leverage in the Spire model. As Top-Line Revenue grows 35% in ’24, and 27% or more in ’25, the EBITDA Inflection in the coming quarters, along with Cash Flow Positive, will attract a horde of new Institutional Investors. This is a key driver to fueling our long-term thesis on Spire Global.
In the meantime, SPIR is cheap. The company is trading for 2x Forward Sales estimates and growing 30% annually. Relative to other SaaS Companies, it also looks very attractive:
The biggest risk is illiquidity. Spire is a very think stock and has only 22M shares outstanding. We are therefore planning to keep this position on the lighter side.
There is also some quarter-to quarter risk with the company’s numbers given that contract wins and revenue recognition will fluctuate from one quarter to another.
With the NVDA partnership amplifying the strength of Spires offerings, we expect its business to accelerate more quickly in the coming quarters than we did 12 hours ago. We therefore plan to work into the stock today.
In the near term, AI-related names appear to have run out of steam as money moves into Oil/Gasoline- levered commodities. As such, we are leaving room to buy on any dips in the coming days.
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Disclosure: We are long SPIR stock. We may change our positioning at a moment’s notice, without notifying you of any such moves.
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