Spire Global Inc

Previous wording

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and related notes thereto included in this Quarterly Report on Form 10-Q and the audited consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Form 10-K”). This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated by these forward-looking statements as a result of many factors. Factors that could cause or contribute to such differences include those identified below and those discussed in the section titled “Risk Factors” in the 2023 Form 10-K. Our historical results are not necessarily indicative of the results that may be expected for any period in the future.

Current wording

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and related notes thereto included in this Quarterly Report on Form 10-Q and the audited consolidated financial statements included in the Annual Report on Form 10-K/A for the year ended December 31, 2023 (the “2023 Form 10-K/A”). This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated by these forward-looking statements as a result of many factors. Factors that could cause or contribute to such differences include those identified below and those discussed in the section titled “Risk Factors” in the 2023 Form 10-K/A and in this Quarterly Report on Form 10-Q. Our historical results are not necessarily indicative of the results that may be expected for any period in the future.

Previous wording

Spire is a global provider of space-based data, analytics and space services, offering unique datasets and powerful insights about Earth so that organizations can make decisions with confidence in a rapidly changing world. Spire builds, owns, and operates a fully deployed satellite constellation. We believe it is one of the world’s largest “listening” constellations, observing the Earth in real time using radio frequency technology.

Current wording

Spire is a global provider of space-based data, analytics and space services, offering unique datasets and powerful insights about Earth so that organizations can make decisions with confidence in a rapidly changing world. Spire builds, owns, and operates a fully deployed satellite constellation. We believe our constellation is one of the world’s largest “listening” constellations, observing the Earth in real time using radio frequency technology.

Previous wording

Weather: Precise space-based data used for highly accurate weather forecasting.

Current wording

Weather and Climate: Precise space-based data used for highly accurate weather forecasting.

Previous wording

As our fourth solution, we are also pioneering an innovative business model through our Space Services solution. We leverage our fully deployed infrastructure and large-scale operations to enable our customers to obtain customized data through our API. Our customers can begin receiving data in less than a year after engaging with us and receive data by entering into a subscription agreement. Our Space Services offering provides our customers with fast, scalable and reliable access to space.

Current wording

As our fourth solution, we are also pioneering an innovative business model through our Space Services solution. We leverage our fully deployed infrastructure and large-scale operations to enable our customers to obtain customized data through our API. Our Space Services offering provides our customers with fast, scalable, and reliable access to space.

Previous wording

Over the past two years, we have been impacted by the macroeconomic environment, such as fluctuations in foreign currencies, increasing interest rates and geopolitical conflicts like the Russian invasion of Ukraine, Israel's war with Hamas and the increased tensions between China and the U.S.

Current wording

Over the past two years, we have been impacted by the macroeconomic environment, such as fluctuations in foreign currencies, increasing interest rates, and geopolitical conflicts like the Russian invasion of Ukraine, Israel's war with Hamas, and the increased tensions between China and the United States.

Previous wording

The U.S. dollar exhibited a modest decrease in strength against the local functional currencies of our foreign subsidiaries for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023. This had a marginal positive impact on our revenue, as about one-third of our sales are conducted in foreign currencies. Conversely, it had a marginal unfavorable impact on our expenses, given that a majority of our workforce resides in countries other than the United States.

Current wording

The U.S. Dollar exhibited a modest decrease in strength against the local functional currencies of our foreign subsidiaries for the three months ended June 30, 2024, as compared to the three months ended June 30, 2023. The U.S. Dollar's modest decrease had a marginal positive impact on our revenue, as approximately one-third of our sales are conducted in foreign currencies. Conversely, the decrease in the value of the U.S. Dollar had a marginal unfavorable impact on our expenses, given that a majority of our workforce resides in countries other than the United States.

Previous wording

The macroeconomic environment has caused existing or potential customers to re-evaluate their decision to purchase our offerings, at times resulting in additional customer discounts, extended payment terms, longer sales cycles, and a few contract cancellations. Particularly, the U.S. Congress' delay in approving appropriations bills negatively impacted the timeliness of some of our U.S. federal government orders and revenues expected in the first quarter of 2024.

Current wording

The macroeconomic environment has caused existing or potential customers to re-evaluate their decision to purchase our offerings, at times resulting in additional customer discounts, extended payment terms, and longer sales cycles. Particularly, government agency delays in accepting requests for proposal negatively impacted the timeliness of some of our U.S. federal government orders and revenues expected in the second quarter of 2024.

Previous wording

Increasing interest rates in the three months ended March 31, 2024 compared to the three months ended March 31, 2023 resulted in higher interest expenses, as our credit facility is based on a floating interest rate. The Russian invasion of Ukraine and the continued conflict created additional global sanctions, which at times caused scheduling shifts or launch cancellations by third-party satellite launch providers and negatively impacted the availability of launch windows and our constellation replenishment efforts.

Current wording

Increasing interest rates for the three months ended June 30, 2024, compared to the three months ended June 30, 2023, resulted in higher interest expenses, as our credit facility is based on a floating interest rate. The Russian invasion of Ukraine and the continued conflict created additional global sanctions, which caused scheduling shifts or launch cancellations by third-party satellite launch providers and negatively impacted the availability of launch windows for our constellation replenishment efforts.

Previous wording

We believe that our current and future performance depends on many factors, including, but not limited to, those described below. While these areas present significant opportunity, they also present risks that we must manage to achieve successful results. For additional information about these risks, see the section titled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Form 10-K”). If we are unable to address these risks, our business and results of operations could be adversely affected.

Current wording

We believe that our current and future performance depends on many factors, including, but not limited to, those described below. While these areas present significant opportunity, they also present risks that we must manage to achieve successful results. For additional information about these risks, see the section titled “Risk Factors” in the 2023 Form 10-K/A and in this Quarterly Report on Form 10-Q . If we are unable to address these risks, our business and results of operations could be adversely affected.

Previous wording

We track our progress landing new customers by measuring the number of ARR Solution Customers (as defined below) we have from one fiscal period to the next. The number of ARR Solution Customers decreased to 708 as of March 31, 2024. We track our increases and decreases in our customer contract values by measuring our ARR Net Retention Rate (as defined below). Our ARR Net Retention Rate was 102% for the three months ended March 31, 2024 and 108% for the three months ended March 31, 2023.

Current wording

We track our progress landing new customers by measuring the number of ARR Solution Customers (as defined below) we have from one fiscal period to the next. The number of ARR Solution Customers decreased to 702 as of June 30, 2024, from 813 as of June 30, 2023. We track our increases and decreases in our customer contract values by measuring our ARR Net Retention Rate (as defined below). Our ARR Net Retention Rate was 85% and 93% for the three and six months ended June 30, 2024, respectively, and 112% and 110% for the three and six months ended June 30, 2023, respectively.

Previous wording

As our solutions have grown, we continue to focus on further penetration of our initial industries including maritime, aviation, logistics, and government (civil and defense/intelligence) among others. We believe our technology and solutions give us the ability to also expand into additional industries, including energy, financial services, agriculture, transportation, and insurance, and into additional geographies, including Latin America, Africa and the Middle East. Our revenue growth is dependent upon our ability to continue to expand into new industries and geographies. The costs associated with these expansions may adversely affect our results of operations.

Current wording

As our solutions have grown, we continue to focus on further penetration of our initial industries including maritime, aviation, logistics, and government (civil and defense/intelligence). We believe our technology and solutions give us the ability to expand into additional industries, including energy, financial services, agriculture, transportation, and insurance, and also into additional geographies, including Latin America, Africa and the Middle East. Our revenue growth is dependent upon our ability to continue to expand into new industries and geographies. The costs associated with these expansions may adversely affect our results of operations.

Previous wording

A stronger solar cycle has the potential to impact some of our satellites, accelerating their deorbiting and shortening their useful lives. The solar cycle is the cycle that the Sun’s magnetic field goes through approximately every 11 years. In 2019, NOAA, NASA, and the International Space Environment Services panel forecasted that Solar Cycle 25 (December 2019 to approximately 2030) would be relatively weak after a relatively weak Solar Cycle 24 (December 2008 to December 2019). Subsequently, NOAA noted that Solar Cycle 24 was the weakest cycle in 100 years with sunspots reaching a maximum of 116 – below the average of 179. In October of 2023, NOAA updated their projection for the strength and duration of Solar Cycle 25, stating that the cycle is expected to be more intense than Cycle 24, and predicting that the peak of the cycle would be earlier, by the end of 2024. A stronger solar cycle may accelerate the deorbiting of our satellites sooner than expected or planned. Our ability to minimize the solar cycle impact, our ability to replenish our existing constellation in a timely manner and the costs associated with these actions may adversely affect our results of operations.

Current wording

A stronger solar cycle has the potential to impact some of our satellites, accelerating their deorbiting and shortening their useful lives. The solar cycle is the cycle that the Sun’s magnetic field goes through approximately every 11 years. In 2019, the National Oceanic and Atmospheric Administration (“NOAA”), NASA, and the International Space Environment Services panel forecasted that Solar Cycle 25 (December 2019 to approximately 2030) would be relatively weak after a relatively weak Solar Cycle 24 (December 2008 to December 2019). Subsequently, NOAA noted that Solar Cycle 24 was the weakest cycle in 100 years with sunspots reaching a maximum of 116 – below the average of 179. In October of 2023, NOAA updated their projection for the strength and duration of Solar Cycle 25, stating that the cycle is expected to be more intense than Cycle 24, and predicting that the peak of the cycle would be earlier, by the end of 2024. A stronger solar cycle has accelerated the deorbiting of our satellites sooner than expected or planned. Our ability to minimize the solar cycle impact, our ability to replenish our existing constellation in a timely manner and the costs associated with these actions may adversely affect our results of operations.

Previous wording

We continue investing in growing our business and capitalizing on our market opportunities while balancing the uncertainties from the macroeconomic environment and geopolitical factors. We intend to continue to add headcount to our global sales and marketing teams to acquire new customers and to increase sales to existing customers. We also intend to continue to add headcount as needed to our research and development teams and otherwise invest to improve and innovate our nanosatellite, ground station and data analytics technologies. For the three months ended March 31, 2024, our spending on research and development increased by $0.2 million, or 3%, from the three months ended March 31, 2023. Our total headcount across all functions increased from 418 employees as of March 31, 2023, to 430 employees as of March 31, 2024. The costs of these investments may adversely affect our results of operations, but we believe that these investments will contribute to our long-term growth.

Current wording

We continue investing in growing our business and capitalizing on our market opportunities while balancing the uncertainties from the macroeconomic environment and geopolitical factors. We intend to continue to add headcount to our global sales and marketing teams to acquire new customers and to increase sales to existing customers. We also intend to continue to add headcount as needed to our research and development teams and otherwise invest to improve and innovate our nanosatellite, ground station and data analytics technologies. Our spending on research and development decreased by $0.1 million, or 2%, for the three months ended June 30, 2024, from the three months ended June 30, 2023. Our total headcount across all functions increased to 431 employees as of June 30, 2024, from 411 employees as of June 30, 2023. The costs of these investments may adversely affect our results of operations, but we believe that these investments will contribute to our long-term growth.

Previous wording

We report in U.S. dollars, and the functional currency of our foreign operating subsidiaries is the local currency, including the Euro, the British Pound, the Singapore Dollar and the Canadian Dollar. The U.S. dollar exhibited a modest decrease in strength against the local functional currencies of our foreign subsidiaries for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023. This had a marginal positive impact on our revenue, as about one-third of our sales are conducted in foreign currencies. Conversely, it had a marginal unfavorable impact on our expenses, given that a majority of our workforce resides in countries other than the United States. Approximately 31% of our revenues were generated in non-U.S. dollar-denominated currencies. The financial statements of these subsidiaries are translated into U.S. dollars using exchange rates in effect at each balance sheet date for assets and liabilities and average exchange rates during the period for revenues and expenses. To the extent we experience significant currency fluctuations, our results of operations may be impacted.

Current wording

We report in U.S. Dollars, and the functional currency of our foreign operating subsidiaries is the local currency, including the Euro, the British Pound Sterling, the Singapore Dollar and the Canadian Dollar. The U.S. Dollar exhibited a modest decrease in strength against the local functional currencies of our foreign subsidiaries for the three months ended June 30, 2024, as compared to the three months ended June 30, 2023. The U.S. Dollar's modest decrease had a marginal positive impact on our revenue, as about one-third of our sales are conducted in foreign currencies. Conversely, the decrease in the value of the U.S. Dollar had a marginal unfavorable impact on our expenses, given that a majority of our workforce resides in countries other than the United States. Approximately 33% of our revenues were generated in currencies other than the U.S. Dollar. The financial statements of these subsidiaries are translated into U.S. Dollars using exchange rates in effect at each balance sheet date for assets and liabilities and average exchange rates during the period for revenues and expenses. To the extent we experience significant currency fluctuations, our results of operations may be impacted.

Previous wording

We define ARR as our expected annualized revenue from customers that are under contracts with us at the end of the reporting period with a binding and renewable agreement for our subscription solutions or customers that are under a binding multi-year contract that can range from components of our Space Services solution to a project-based customer solution. Customers with project-based contracts are considered recurring when there is a multi-year binding agreement that has a renewable component in the contract. Customers are also considered recurring when they have multiple contracts over multiple years. Customer contracts for data trials and one-time transactions are excluded from the calculation of ARR.

Current wording

We define ARR as our expected annualized revenue from customers that are under contracts with us at the end of the reporting period with a binding and renewable agreement for our subscription solutions or customers that are under a binding multi-year contract that can range from components of our Space Services solution to a project-based customer solution. Customers with Space Services Contracts are considered recurring when there is a multi-year binding agreement that has a renewable component in the contract. Customers are also considered recurring when they have multiple contracts over multiple years. Customer contracts for data trials and one-time transactions are excluded from the calculation of ARR.

Previous wording

Our ARR growth in the three months ended March 31, 2024 was driven by increasing the amount of ARR business with our existing customers. Due in part to the timing of some of our project-based contracts, including when engagements start and stop, our ARR has fluctuated from period to period in the past, and we expect our ARR to continue to fluctuate from period to period in the future. ARR is a leading indicator and accordingly will tend to outpace the impact on our revenue as we recognize the contract value of various agreements over time.

Current wording

The decrease in our ARR for the three months ended June 30, 2024, was primarily driven by the reduced value of NOAA's eight-month, $4.7 million satellite weather data (“RO”) award, as compared to the value of the corresponding award in the three months ended June 30, 2023. Our ARR has fluctuated from period to period in the past due in part to the timing of some of our Space Services Contracts, including when engagements start and stop. We expect our ARR to continue to fluctuate from period to period in the future. ARR is a leading indicator and accordingly, will tend to outpace the impact on our revenue as we recognize the contract value of various agreements over time.

Previous wording

We define an ARR Solution Customer similarly to an ARR Customer, but we count every solution the customer has with us separately. As a result, the count of ARR Solution Customers exceeds the count of ARR Customers at each period end, as some customers contract with us for multiple solutions. Our multiple solutions customers are those that are under contract for at least two of our solutions: Maritime, Aviation, Weather, and Space Services. All entities that have contracts for data trials and one-time transactions are excluded from the calculation of ARR Solution Customers.

Current wording

We define an ARR Solution Customer similarly to an ARR Customer, but we count every solution the customer has with us separately. As a result, the count of ARR Solution Customers exceeds the count of ARR Customers at each period end, as some customers contract with us for multiple solutions. Our multiple solutions customers are those that are under contract for at least two of our solutions: Maritime, Aviation, Weather and Climate, and Space Services. All entities that have contracts for data trials and one-time transactions are excluded from the calculation of ARR Solution Customers.

Previous wording

The decrease in each of our ARR Customers and ARR Solution Customers at the dates presented was driven by our move to de-emphasize sales to customers with very low ARR or revenue. We expect this strategy to increase our ARR and revenue per customer, increase our ARR in total, and reduce our customer count as we drive towards the most efficient use of our resources.

Current wording

The decrease in each of our ARR Customers and ARR Solution Customers at the dates presented was driven by our move to de-emphasize sales to customers with very low ARR or revenue. We expect this strategy to ultimately increase our ARR and revenue per customer, increase our ARR in total, and reduce our customer count as we drive towards the most efficient use of our resources.

Previous wording

The following table summarizes our ARR Net Retention Rate for the three months ended March 31, 2024 and 2023:

Current wording

The following table summarizes our ARR Net Retention Rate for the three and six months ended June 30, 2024 and 2023:

Previous wording

Our ARR Net Retention Rate can be impacted from period to period by large increases or decreases in customer contract value and large decreases in contract value from customers that have not renewed their contracts with us. An ARR Net Retention Rate greater than 100% is an indication that we are growing the value of the solutions our customers are purchasing from us at a fiscal period end versus the prior fiscal period end. An ARR Net Retention Rate less than 100% is an indication that the value of the solutions our customers are purchasing from us declined at a fiscal period end versus the prior fiscal period end. For the three months ended March 31, 2024, our ARR Net Retention Rate decreased 6% from the three months ended March 31, 2023. This decrease was driven primarily by the reduced value of NOAA's RO weather award in the three months ended March 31, 2024 as compared to the value of the corresponding award in the three months ended March 31, 2023.

Current wording

Our ARR Net Retention Rate can be impacted from period to period by large increases or decreases in customer contract value and large decreases in contract value from customers that have not renewed their contracts with us. An ARR Net Retention Rate greater than 100% is an indication that we are growing the value of the solutions our customers are purchasing from us at a fiscal period end versus the prior fiscal period end. An ARR Net Retention Rate less than 100% is an indication that the value of the solutions our customers are purchasing from us declined at a fiscal period end versus the prior fiscal period end. Our ARR Net Retention Rate decreased by 27% and 17% for the three and six months ended June 30, 2024, respectively, from the applicable prior year periods. This decrease was driven primarily by the reduced value of NOAA's RO weather award in the three and six months ended June 30, 2024, as compared to the value of the corresponding award in the three and six months ended June 30, 2023.

Previous wording

We derive revenue from providing data, insights and access to our cloud-based technology platform sold on a subscription basis. Some of our customer arrangements include the delivery of specific performance obligations and subsequent customer acceptance of project-based deliverables, which may impact the timing of revenue recognition. Subscription periods for our solutions generally range from one to two years and are typically non-cancelable, with customers having the right to terminate their agreements only if we materially breach our obligations under the agreement. Our subscription fees are typically billed either monthly or quarterly in advance.

Current wording

Subscription periods for our solutions generally range from one to two years and are typically non-cancelable, with customers having the right to terminate their agreements only if we materially breach our obligations under the agreement. Our subscription fees are typically billed either monthly or quarterly in advance.

Previous wording

Cost of revenue consists primarily of personnel costs, depreciation, hosted infrastructure and high-power computing costs, third-party operating and royalty costs associated with delivering our data and services to our customers and amortization of purchased intangibles associated with our acquisition of exactEarth in November 2021 (the “Acquisition”). Personnel costs are primarily related to the cost of our employees supporting and managing our constellation operations including satellite operations, ground station control and launch management. Costs associated with the manufacture and launch of our satellites, including personnel costs, are capitalized and depreciated upon placement in service, typically over a four-year expected useful life. As satellites reach the end of their expected useful life, they are generally replaced with replenishment satellites to maintain our constellation at optimal performance. Costs associated with the acquisition and development of new ground stations, including the bill of materials and labor to install the ground station, are capitalized and depreciated upon placement in service typically over a four-year to ten-year expected useful life. We anticipate ongoing capital spending to repair and replenish ground stations as they reach the end of their expected useful life to keep our ground station network at optimal performance. Our proprietary ground station network is primarily located in third-party locations where we incur lease and other operational charges. Cost of revenue also includes royalties associated with third-party data sets that we integrate into our data solutions.

Current wording

Cost of revenue consists primarily of personnel costs, depreciation, hosted infrastructure costs, high-power computing costs, third-party operating and royalty costs associated with delivering our data and services, to our customers and costs associated with contracts in our customer-funded or co-funded research and development arrangements (the “R&D Services Contracts”). In addition, cost of revenue includes the amortization of purchased intangibles associated with our acquisition of exactEarth in November 2021 (the “Acquisition”). Personnel costs are primarily related to the cost of our employees supporting and managing our constellation operations including satellite operations, ground station control and launch management. Personnel costs also include the cost of our employees supporting and managing projects for our research and development services. Costs associated with the manufacture and launch of our satellites, including personnel costs, are capitalized and depreciated upon placement in service, typically over a four-year expected useful life. As satellites reach the end of their expected useful life, they are generally replaced with replenishment satellites to maintain our constellation at optimal performance. Costs associated with the acquisition and development of new ground stations, including the bill of materials and labor to install the ground station, are capitalized and depreciated upon placement in service typically over a four-year to ten-year expected useful life. We anticipate ongoing capital spending to repair and replenish ground stations as they reach the end of their expected useful life to keep our ground station network at optimal performance. Our proprietary ground station network is primarily located in third-party locations where we incur lease and other operational charges. Cost of revenue also includes royalties associated with third-party data sets that we integrate into our data solutions.

Previous wording

Sales and Marketing. Sales and marketing expenses consist primarily of employee-related expenses, sales commissions, marketing and advertising costs, costs incurred in the development of customer relationships, brand development costs, travel-related expenses and amortization of purchased intangible backlog associated with the Acquisition. Commission costs on new customer contract bookings are considered costs of obtaining customer contracts. Commission costs for multi-year deals are considered contract acquisition costs and are deferred and then amortized over the period of the contract excluding the last twelve months, which are expensed at the beginning of the final twelve-month period. Commission costs on contracts completed with a term of twelve months or less are expensed in the period incurred.

Current wording

Sales and Marketing. Sales and marketing expenses consist primarily of employee-related expenses, sales commissions, marketing and advertising costs, costs incurred in the development of customer relationships, brand development costs, travel-related expenses, allowance for current expected credit losses, and amortization of purchased intangible backlog associated with the Acquisition. Commission costs on new customer contract bookings are considered costs of obtaining customer contracts. Commission costs for multi-year deals are considered contract acquisition costs and are deferred and then amortized over the period of the contract. Commission costs on contracts completed with a term of twelve months or less are expensed in the period incurred.

Previous wording

General and Administrative. General and administrative expenses consist of employee-related expenses for personnel in our executive, finance and accounting, facilities, legal, human resources, global supply chain, and management information systems functions, as well as other administrative employees. In addition, general and administrative expenses include fees related to third-party legal counsel, corporate insurance, fees related to accounting, tax and audit costs, office facilities costs, software subscription costs and other corporate costs.

Current wording

General and Administrative. General and administrative expenses consist of employee-related expenses for personnel in our executive, finance and accounting, facilities, legal, human resources, and management information systems functions, as well as other administrative employees. In addition, general and administrative expenses include fees related to third-party legal counsel, corporate insurance, fees related to accounting, tax and audit costs, office facilities costs, software subscription costs, and other corporate costs.

Previous wording

Loss on Decommissioned Satellites. Loss on decommissioned satellites consists of the write-off of the remaining capitalized costs associated with the manufacture and launch of our satellites prior to the end of the satellite’s useful life. We contract with third-party companies to launch, carry and deploy our satellites into space. A loss could result from a third-party launch or deployer failure, a technical failure of the satellite, or the deorbit or decommissioning of a satellite before the end of the satellite’s useful life. A technical failure could include a satellite that is not able to communicate with our network of ground stations or fulfill its intended technical mission for a duration greater than one month. The loss amount is presented net of any insurance proceeds received. Due to the nature of these events, we cannot predict the magnitude or frequency of future satellite deorbit and launch failure losses. While we sometimes purchase launch insurance when financially practical, the proceeds from these policies will typically only cover a portion of our loss in the event of an unplanned satellite deorbit or launch failure. We incurred a $0.2 million loss on decommissioned satellites for the three months ended March 31, 2024 and no loss on decommissioned satellites for the three months ended March 31, 2023.

Current wording

Loss on Decommissioned Satellites. Loss on decommissioned satellites consists of the write-off of the remaining capitalized costs associated with the manufacture and launch of our satellites prior to the end of the satellite’s useful life. We contract with third-party companies to launch, carry, and deploy our satellites into space. A loss could result from a third-party launch or deployer failure, a technical failure of the satellite, or the deorbit or decommissioning of a satellite before the end of the satellite’s useful life. A technical failure could include a satellite that is not able to communicate with our network of ground stations or fulfill its intended technical mission for a duration greater than one month. The loss amount is presented net of any insurance proceeds received. Due to the nature of these events, we cannot predict the magnitude or frequency of future satellite deorbit and launch failure losses. We sometimes purchase launch insurance when financially practical; however, the proceeds from these insurance policies will typically only cover a portion of our launch loss. We incurred a $0.5 million and $0.7 million loss on decommissioned satellites for the three and six months ended June 30, 2024, respectively, and a $0.5 million loss on decommissioned satellites for each of the three and six months ended June 30, 2023.

Previous wording

Interest Expense. Interest expense includes interest costs associated with our debt and amortization of deferred financing costs.

Current wording

Interest Expense. Interest expense primarily includes interest costs associated with our debt and amortization of deferred financing costs.

Previous wording

Foreign Exchange Gain/Loss. Foreign exchange gain/loss consists of the net effect of realized and unrealized foreign currency gains and losses resulting from changes in the underlying currency rates relative to the U.S. dollar as we re-measure foreign currency denominated transactions and balances into the functional currency of the entities in which they are recorded. We use the local currency as our functional currency for transactions and balances in Luxembourg, the United Kingdom, Singapore and Canada.

Current wording

Foreign Exchange Gain/Loss. Foreign exchange gain/loss consists of the net effect of realized and unrealized foreign currency gains and losses resulting from changes in the currency exchange rates for transactions denominated in non-functional currency relative to each subsidiary’s functional currency. We use the local currency as our functional currency for our subsidiaries in Luxembourg, the United Kingdom, Singapore, Australia, Germany, and Canada.

Previous wording

Other Expense, Net. Other expense, net consists primarily of tax credits, grant income, share of equity investment loss, sales and local taxes, and write-off of certain prepaid assets and legal settlements.

Current wording

Other Expense, Net. Other expense, net consists primarily of tax credits, grant income, share of equity investment loss, and write-off of certain prepaid assets.

Previous wording

Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023

Current wording

Three and Six Months Ended June 30, 2024, Compared to Three and Six Months Ended June 30, 2023

Previous wording

Total revenue increased $1.5 million, or 6%, driven primarily by increasing the amount of ARR business with our existing customers combined with growth in revenue recognized for milestone-based projects, partially offset by a decrease in our RO-based revenue primarily from the reduced value of NOAA's RO weather award in the three months ended March 31, 2024 as compared to the value of the corresponding award in the three months ended March 31, 2023. Our ARR Customers decreased 11%, from 755 as of March 31, 2023 to 672 as of March 31, 2024. This was aligned with our stated move to de-emphasize sales to customers with very low ARR or revenue. Our ARR Net Retention Rate was 102% for the three months ended March 31, 2024 compared to 108% for the three months ended March 31, 2023, driven primarily by the reduced value of NOAA’s RO weather award.

Current wording

Total revenue decreased $2.7 million, or 9%, for the three months ended June 30, 2024, primarily due to a decrease in our Weather and Climate data subscription contracts from the reduced value of NOAA's RO weather award and a slight decline in Space Services Contracts revenue. Our ARR Customers decreased 16% to 663 as of June 30, 2024, from 785 as of June 30, 2023. The decrease in ARR Customers was aligned with our stated move to de-emphasize sales to customers with very low ARR or revenue and instead focus on high ARR or revenue customers. Our ARR Net Retention Rate was 85% and 112% for the three months ended June 30, 2024 and 2023, respectively. The decrease in ARR Net Retention Rate was driven primarily by the reduced value of NOAA’s RO weather award during the three months ended June 30, 2024 as compared to the prior year period.

Previous wording

For the three months ended March 31, 2024, we derived 55% of our revenue from the Americas, 36% of our revenue from Europe, Middle East, Africa (“EMEA”) and 8% of our revenue from Asia Pacific (“APAC”). For the three months ended March 31, 2023, we derived 53% of our revenue from the Americas, 36% of our revenue from EMEA and 11% of our revenue from APAC. For the three months ended March 31, 2024, we derived 66% of our revenue from subscription arrangements, compared to 78% for the three months ended March 31, 2023. This percentage mix can fluctuate significantly from period to period driven primarily by the timing of the non-subscription revenue recognition in our contracts.

Current wording

We derived 55% of our revenue from the Americas, 37% of our revenue from Europe, Middle East, Africa (“EMEA”), and 8% of our revenue from Asia Pacific (“APAC”) for the three months ended June 30, 2024. We derived 59% of our revenue from the Americas, 30% of our revenue from EMEA, and 11% of our revenue from APAC for the three months ended June 30, 2023. We derived 78% of our revenue from subscription arrangements for the three months ended June 30, 2024, compared to 72% for the three months ended June 30, 2023. The distribution of our revenue can fluctuate significantly from period to period driven primarily by the timing of the non-subscription revenue recognition in our contracts. Revenue from subscription-based contracts was $19.7 million, or 78%, of total revenue, for the three months ended June 30, 2024, and was $20.2 million, or 72%, of total revenue, for the three months ended June 30, 2023. The proportional increase in revenue from subscription arrangements was driven by lower revenue recognized for Space Services Contracts within the period.

Previous wording

Cost of revenue increased $2.2 million, or 21%, primarily driven by an increase in depreciation expense of $2.9 million and partially offset by a decrease in computing costs of $0.3 million, a decrease in personnel costs of $0.3 million and a decrease in other miscellaneous expenses of $0.1 million. The increase in depreciation expense was primarily driven by a reset of the estimated useful lives of our satellites to account for the potential impact of increased solar activity related to the current solar cycle. The decrease in computing costs was driven by cloud platform efficiencies. The decrease in personnel costs was driven by an overall reduction in headcount.

Current wording

Cost of revenue decreased $0.8 million, or 5%, primarily driven by a decrease in equipment expenses of $3.1 million, an increase in professional services fees of $0.4 million, and an increase in other miscellaneous expenses of $0.2 million, partially offset by an increase in depreciation expense of $1.7 million. The decrease in equipment expenses was primarily driven by a reduction in satellite parts spend. The increase in professional service fees was primarily driven by the need for external technical resources to support a strategic customer contract in aviation. The increase in depreciation expense was primarily driven by a reset of the estimated useful lives of our satellites to account for the impact of increased solar activity related to the current solar cycle.

Previous wording

Gross margin for the three months ended March 31, 2024 and 2023 was 51% and 57%, respectively. The decrease was driven primarily by higher depreciation expense as described above. This metric can fluctuate significantly from period to period driven primarily by the timing of the revenue as well as the timing of our technology investments to support future revenue.

Current wording

Gross margin was 43% and 46% for the three months ended June 30, 2024 and 2023, respectively. The decrease in gross margin was driven primarily by higher depreciation expense as described above. Our gross margin can fluctuate significantly from period to period driven primarily by the timing of the revenue as well as the timing of our technology investments to support future growth.

Previous wording

We expect cost of revenue, including depreciation and amortization expenses, third-party operating costs and royalties, and high-powered computing costs, to decrease in absolute dollars during the remainder of the year as accelerated depreciation declines to reflect our constellation replenishment efforts. We anticipate gross margins to increase closer to the 65-70% level as a consequence of our sales increases and reductions in cost of revenue.

Current wording

We expect cost of revenue, including depreciation and amortization expenses, third-party operating costs, and royalties, and high-powered computing costs to decrease in absolute dollars during the remainder of the year as accelerated depreciation declines to reflect our constellation replenishment efforts.

Previous wording

Operating expenses consist of our research and development, our sales and marketing, and our general and administrative expenses, as well as loss on decommissioned satellites in some periods. As we continue to invest in our growth, including through hiring additional personnel, we expect our operating expenses to increase in absolute dollars as revenue grows; however, we expect our operating expenses as a percentage of revenue to decrease over time.

Current wording

Operating expenses consist of our research and development, our sales and marketing, and our general and administrative expenses, as well as loss on decommissioned satellites in some periods. As we continue to invest in our growth, we expect our operating expenses to increase in absolute dollars as revenue grows. However, we expect our operating expenses as a percentage of revenue to decrease over time.

Previous wording

Research and development expenses increased $0.2 million, or 3%, primarily driven by an increase in professional services fees of $0.2 million, an increase in software expenses of $0.2 million and an increase in personnel costs of $0.1 million, partially offset by a decrease in bonus expenses of $0.3 million. The increase in professional services fees and software expenses was driven by additional technical resources required to support new development processes and capabilities. The increase in personnel costs was driven by overall growth in headcount.

Current wording

Research and development expenses decreased $1.4 million, or 9%, primarily driven by a decrease in personnel expenses of $2.1 million, partially offset by an increase in professional services fees and software expenses of $0.5 million and an increase in satellite operation expense of $0.2 million. The decrease in personnel costs was driven by increased work related to R&D Services Contracts during the period, which causes a greater proportion of costs to be allocated to cost of revenue. The increase in professional services fees and software expenses was driven by additional technical resources required to support new development processes and capabilities. The increase in satellite operation expense was driven by customer growth.

Previous wording

Sales and marketing expenses decreased $1.7 million, or 25%, primarily driven by a decrease in bad debt expenses of $0.8 million, a decrease in bonus expenses of $0.4 million, a decrease in personnel costs of $0.2 million, a decrease in marketing expenses of $0.2 million and a decrease in other miscellaneous operating expenses of $0.1 million. The decrease in bad debt expenses was driven by cash collections and recovery efforts. The decrease in personnel costs was driven by an overall reduction in headcount. The decrease in marketing expenses was driven by lower advertising and event spend compared to the prior year quarter.

Current wording

Sales and marketing expenses decreased $1.6 million, or 23%, primarily driven by a decrease in bonus and commission expenses of $0.6 million, a decrease in personnel costs of $0.4 million, a decrease in marketing expenses of $0.3 million, a decrease in other miscellaneous operating expenses of $0.2 million, and a decrease in travel and entertainment of $0.1 million. The decrease in personnel costs was driven by an overall reduction in headcount. The decrease in marketing expenses was driven by lower advertising and event spend compared to the prior year quarter. The decrease in travel and entertainment was driven by reduced travel within the period.

Previous wording

General and administrative expenses decreased $2.0 million, or 17%, primarily driven by a decrease in bonus expenses of $0.7 million, a reduction in insurance costs of $0.4 million and a reduction in professional services of $0.4 million. The decrease in bonus expenses was driven by lower bonus accruals for management. The decrease in business insurance costs was driven by an improvement in annual rates particularly on directors and officers insurance. The reduction in professional services was driven by lower legal and accounting service fees versus the prior year period.

Current wording

General and administrative expenses decreased $2.7 million, or 12%, primarily driven by a decrease in bonus expenses of $1.2 million, a decrease in insurance costs of $0.9 million, and a decrease in professional services fees of $0.9 million, partially offset by an increase in other miscellaneous operating expenses of $0.3 million. The decrease in bonus expenses was primarily driven by lower bonus accruals for management. The decrease in business insurance costs was driven by an improvement in annual rates particularly on directors and officers insurance. The reduction in professional service fees was driven by lower legal and accounting service fees versus the prior year period.

Previous wording

Interest expense increased $0.5 million, or 10%, primarily as a result of incurring higher interest and amortized debt issuance costs associated with our Blue Torch Finance LLC (“Blue Torch”) term loan.

Current wording

Interest expense increased by $0.1 million, or 1%, for the three months ended June 30, 2024, primarily due to incurring higher interest from the variable interest rate and amortized debt issuance costs associated with our Blue Torch Finance LLC (“Blue Torch”) term loan.

Previous wording

Change in fair value of contingent earnout liability was an immaterial loss in the three months ended March 31, 2024 compared to a gain of $0.1 million in the three months ended March 31, 2023, a reduction of 159%. The loss in three months ended March 31, 2024 was driven by an increase in the fair value of the liability driven by appreciation of the underlying stock price in the period. The gain in the prior period was primarily driven by the decrease in the fair value of the liability due to the decline in the underlying stock price during the period. For additional information, see Notes 2 and 8 to our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q and Notes 2 and 8 to our consolidated financial statements included in our 2023 Form 10-K.

Current wording

Change in fair value of contingent earnout liability was a loss of $1.2 million for the six months ended June 30, 2024, compared to a gain of $0.2 million for the six months ended June 30, 2023. The loss for the six months ended June 30, 2024, was primarily driven by an increase in the fair value of the liability driven by appreciation of the underlying stock price and a higher volatility rate used in the model for the period. The gain in the prior period was primarily due to the decrease in the fair value of the liability driven by the decline in the underlying stock price during the period. For additional information, see Notes 2 and 8 to our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q and Notes 3 and 9 to our consolidated financial statements included in our 2023 Form 10-K/A.