I’m not looking to buy more, but I’m also not looking to sell. One thing is clear, though: Spire has a ways to go in terms of transparent investor communication. The image below from Reddit is the most straightforward response I’ve seen and fails to mention NorthStar.

NorthStar

I won’t cover the details in depth (read this article to get up to speed), but as I understand it, Spire lost a satellite and failed to keep contractual service levels. The satellites are producing a semblance of usable data, but they are refusing to deliver it without payment; NorthStar is seeking an injunction to prevent Spire from turning off the flow of what little data is viable.

Bad news all around. It raises questions about how Spire treats customers; it could bring considerable financial repercussions (Spire is on the hook to replace the failed satellites); but the reputational damage is most important.

This is a direct hit to its ability to market and sell the Space Services solution. Space Services is an infrastructure business — it sells reliability. With Spire at fault for the failures and a major customer relationship on the verge of disintegration, it looks to be a losing proposition long-term.

Coming on the heels of Sierra Nevada’s decision to use Muon Space for their second round of satellites (a loss for Spire), the prospects for the Space Services segment seem to have deteriorated meaningfully in the last month.

That said, Spire’s other book of business seems ok (to the best of my knowledge). It has a lot of experience in the space and leadership focused on continuous improvement; there’s still an opportunity for success.

Accounting restatements & covenant violations

Spire hasn’t yet filed its 10-Q due to revenue recognition issues affecting $10-15M of Space Services contracts. As a result of the filing delay (and potential EBITDA impact), the company breached covenants with its lender, Blue Torch.

One can assume (maybe incorrectly) these problems relate to $14.5M of upfront fees paid by NorthStar. This basically eliminates the possibility that it was an intentional effort to mislead investors and juice numbers; I don’t think anyone was budgeting for a system failure.

Blue Torch could theoretically exercise control to get their money back, but that’s unlikely. They’ve worked with Spire on amendments in the past, and they don’t want to sell assets — they want income. Spire defaulted on a technicality — not from missing a payment. A penalty fee, warrants, and/or added protections make more sense to me, but what do I know?

My natural inclination is to apply a positive spin, so I’m beginning to think of this as an unfortunate consequence of an innovative business model. Space Services is a relatively new concept; operational failures are bound to raise some questions about revenue recognition, but no impact is expected to cash flows.

In time, I expect it will be reduced to a footnote in the company’s public filings.

Closing thoughts

While these are incremental negative data points, they do not materially reduce the probability of Spire producing fantastic long-term investment returns.

The company’s core differentiation — three unique, complementary data feeds only possible to collect from space — is intact. The opportunity there remains large.

It’s safe to say Spire is a moderately smaller business than previously reported (even if the revenue in question is deemed technically valid, it would be foolish to account for it; NorthStar isn’t staying with Spire long-term), but this is a game of expectations, and expectations remain low.

Certain periods of elevated uncertainty are bound to push nervous investors out, but I believe the fundamental investment case and potential for outsized returns hasn’t changed much.

Note: I first wrote up Spire as Investment Idea #1.

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Tags: Spire Global, Briefs

It’s not a Glassdoor review you dream of reading about your largest investment, but it’s not all bad.

Exciting things are happening

Planet is operating on the leading edge of a powerful technology curve with important implications for a variety of actors. People are curious — the data they produce is unique — but the data’s value (in terms of people willing to pay for it) is still up for debate.

Staffing up did not drive revenue growth

“The GTM did not align with the market demand.” As evident from the financials and the layoffs, Planet simply hasn’t met expectations. It raised a ton of money, ramped up the sales force, and couldn’t justify an ROI. Not great.

But, the commercial market is still incredibly immature. Government demand is steadily rising and importantly, market expectations have changed drastically. The long, long term potential of the business hasn’t changed much.

Partner-centric GTM is good for business

“The Direct B2B aspect of Planet data is yet to be validated.”

It’s too expensive (time and/or cost-wise) for users to extract value from Planet’s data today. Partners bridge this gap by building applications. You can sell applications more easily than you can sell data.

This was always Planet’s vision: “Planet creates data and tools, partners build applications, and people take action.” They may have veered off course in the post-IPO search for rapid growth, but it appears they are getting back to basics.

Acknowledging the company’s recent struggles and the reality of the geospatial data market, my confidence in the data’s value hasn’t changed much. A reasonable outcome of the shift to partner sales could be slower, more durable growth.

Partners have already built some compelling applications (see RAIC Labs and SynMax for two examples), and this figures to be just the beginning as improvements in satellite data and AI continue. AI is an accelerant to Planet’s business as it makes it easier for partners to build applications.

Management has room to improve

To put it gently. “Advice to Management” is indictable — it’s just a shitty thing to do and no doubt had a material impact on culture.

But, in a crudely capitalistic sense, it was necessary. They hired a bunch of people to stimulate demand, and demand didn’t materialize. Being unprofitable, they had to make a choice — a tough one, but probably the right one — to protect the financial resilience of the business. The business and the organization have to scale together, and Planet isn’t the only company who had to right-size for reality.

A closing thought

Planet is still immature. The technology is more and more de-risked, but the business execution challenges are just beginning. The market is emerging slowly, management is inexperienced, and my talk track is mostly potential. This Glassdoor review shares more of the reality on the ground.

FYI: This is part of a new section, Briefs, which I will aim to publish 1-2x a week. The idea is to explore unique investment findings or ideas in ~500 words or less. It will focus on how I filter more timely information into a long-term investing lens.

Constructive criticism always encouraged. Consider subscribing if you enjoyed it.

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Tags: Planet Labs, Briefs