On its face, Spire's Q1 earnings report released on Wednesday night was a bit of a mess -- or rather, it would have been if this satellite company was an incumbent and not a start-up. Spire grew its Q1 revenue 86% year-over-year to $18.1 million, and accelerated its "annual recurring revenue" number by 134%. At its present pace, Spire is on track to generate nearly $82 million in sales annually. But because Spire's sales growth is speeding up, not slowing down, management believes it will be generating revenue at a rate in excess of $100 million ($101 million to $105 million) by the end of this year.
To be clear, revenue for all of 2022 won't be that high -- only $85 million to $90 million, in management's estimation. But because Spire is accelerating its rate of revenue growth with each passing quarter, its ARR will pass $100 million even before its trailing revenue reaches $90 million.
What about profits?
What about profits indeed! The sad truth is that Spire is still a ways away from earning a profit, as the Q1 report makes clear. Spire reported $18.2 million in GAAP losses in Q1. Annualized, this suggests losses for the full year could approach $73 million. (Non-GAAP, Spire says it won't lose more than $47.5 million this year, but I don't put a lot of faith in non-GAAP numbers.)
Still, revenue is growing strongly as Spire continues to sign up new customers, and the bigger revenue gets, the more it'll offset those losses -- and put Spire on a path to profit. Analysts polled by S&P Global Market Intelligence see Spire passing $134 million in revenue next year. To be honest, at the rate revenue is growing, I think the company might even do better than that -- maybe not enough to close a $73 million profits gap in 2023, but maybe close to it. (For what it's worth, Wall Street doesn't see Spire turning profitable until 2024.)
Caveats and provisos
But here's the real worry: According to data from S&P Global Market Intelligence, after burning $19.2 million in negative free cash flow Q1, Spire Global now has less than $92 million in cash left on its balance sheet. Unless the burn rate slows substantially, Spire could start to run critically short of cash by Q3 2023 -- before the company reaches profitability.
And that's the conundrum. At a valuation of just 2x current-year sales today, Spire stock looks cheap. But "cheap stock" isn't a good thing if Spire is forced to sell shares to raise cash before it reaches profitability in 2023. Right now, the best thing that could happen to Spire's business would be for the company's stock to get a lot more expensive.