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We will be posting an article shortly with an update on Maxar Technologies (MAXR) following its recent challenges - one of its key satellites failed on orbit in January 2019 and this has hit earnings and the stock price hard.
This gave us the opportunity to contrast the single-point-of-failure business model operated in various forms by incumbent space sector vendors with the constellation business model operated by many New Space vendors.
Below we talk exclusively to Peter Platzer, the CEO of Spire Global, Inc. Spire is a leader in remote sensing, and it has a pureplay New Space business model.
We hope you enjoy the interview.
Cestrian Capital Research, Inc (CCRI): Can you tell us what Spire Global does, and doesn’t, do. What are your products and services?
PP: Spire is a space-based data analytics company. We own and operate one of the world’s largest and most modern earth observing satellite constellations, collecting data about every ship and every plane as well as the weather everywhere on the globe. We then take that data and create proprietary analytics solutions using everything from sophisticated physics-based models to modern machine learning / deep learning techniques for our customers. This provides us with a platform to launch new services based on unique space-based data for a fraction of the cost and time it takes traditionally (think $millions and months instead of $billions and decades).
CCRI: What is the problem Spire solves and for whom? Why do your customers choose you, and what did they do before you came along?
PP: Today our customers come from three areas - maritime, aviation, and every industry impacted by the weather. All three segments have one thing in common - the need for data to help them reduce cost and improve efficiencies from a large constellation of satellites. It can’t be captured any other way.
As a result, until now, our customers have been starved of that data as large constellations have been too expensive historically to build, launch, and operate. Spire operates currently over 70 satellites, launching more every 7 weeks. We are able to do so because our cost of each satellite is low – less than 0.1% of a traditional monolithic satellite – and our cost to launch is low – about 1/100th of traditional launch costs, because we use low-cost launch providers and we share payload space with other customers of theirs. In the old world, you launch one big satellite on one big rocket and that expense is what meant our customers couldn’t afford the data they needed prior to the introduction of the Spire constellation.
Especially with regards to weather, the lack of data has been compounded by the continually increasing impact of climate change. Spire’s products are helping companies deal with the effects of climate change in a predictive manner. For example, Spire runs a global weather prediction model with superior skill to help mining companies with operations spread all over the globe to know when they need to close a mine due to inclement weather and when they keep it running.
At just over 150 people, the company is able to generate sustained, high triple-digit growth in revenues due to the leverage in having a global infrastructure in place that generates unique data and an exceptional global team of data scientists creating proprietary analytics solutions based on those unique data sets.
CCRI: Who do you compete with and what are your competitive advantages?
PP:Our competitive advantage stems from our proprietary technology.
It all starts with our highly cost effective, high quality satellites, rapidly produced, delivering proprietary, hard to get data. We design every single element and deliver at least one satellite every single week. We use electronic components from the high-volume industries of consumer electronics, drones, and robotics. This approach gives us unprecedented cost and scope advantages. Today, we produce about 10x as many satellites per year than the next largest manufacturer. And as we control the design, we made them almost fully software defined, allowing us to rapidly iterate their capabilities right there in space, at Silicon Valley speed. No other satellite is that versatile and reprogrammable, not even those from NASA!
We then developed extensive predictive data analytics that we apply to the data - where ships will be in the future, which route to take for airplanes, when to shut down a mine, what the weather will be anywhere in the world next week, etc. It’s all about telling our customers what will happen next before it does.
Closing the circle, is our ability to receive customer feedback and rapidly iterate our software and product at every step of the value chain - from the production of the raw data in space to the processing analytics on the ground and the delivery of the solution in the cloud to our customers.
Taking this up a level, we have a platform that allows us to bring new business into “orbit” - meaning revenue - much faster than traditionally possible. We even have a specific product - Space as a Service - where we offer to deliver 20 satellites into orbit for global coverage in 12 month time and for $12m USD. So we have an incredibly low marginal cost to launch a new business onto our platform, both for ourselves where we have new applications in the pipeline relevant for agriculture, for drones, for real-estate and infrastructure, and others. But also for others, enabling the creation of new services leveraging new data from space as easily as Amazon AWS is making it to launch new services using the internet.
We do have competitors in certain sub-segments of our offering. For example, raw data for maritime is also provided by OrbComm, Inc (ORBC), albeit Spire’s offering delivers higher data quality and quantity due to our much larger satellite constellation size (OrbComm:12, Spire: 72) and our more modern technology architecture. Lastly, Spire offers advanced predictive analytics and a smart API, software offerings missing from OrbComm.
On the aviation side, there is competition from Aireon. This is a joint venture between Iridium (IRDM) and a number of state aviation agencies. It has good global coverage – albeit at a higher price point. However technical constraints limit how low they can track aircraft – 10,000 feet is their floor – and here again Spire provides critical additional analytics, such as what turbulence patterns lie ahead over the next 24 hours. This offering is also a great example of the low marginal cost for Spire to launch additional services - while Aireon needs $200m as a downpayment for their service, Spire Global’s marginal cost for adding an similar equivalent capability to its fleet is a tiny fraction.
On the weather data side, there is also only one other company, GeoOptics. During the first NOAA weather data trial, only Spire was able to deliver data (GeoOptics was not), but we believe that since then they managed to launch at least a couple of satellites that capture data. On top of the raw data, Spire also offers the ability to deliver downstream products, so called L2 and L3 data, something which is unique. This data also flows into our own weather prediction product, something that as far as we know is globally unique.
CCRI: Who do you partner with (eg. launch providers)
PP: Spire is almost fully vertically integrated. We design over 95% of the components of our satellites, and 100% are manufactured, integrated, and tested in-house where we have all high-tech facilities in one location.
We also control the full data and analytics solution delivery to our customers, so all of our data analytics technology is also proprietary. The only part of the value chain we don’t handle ourselves, is launch; we do not own a rocket-company. So we partner with every single launch services company out there - Spire has completed over 20 launch campaigns in the last 3 years with 7 different launch providers.
Longer term we see potential opportunities much broader, by partnering or combining smaller businesses onto the platform of Spire. While there are many business problems that can be solved with data from space, not all of them warrant the deployment of a large constellation of satellites, a vast ground station network, and a cutting edge High Performance Compute platform. For example, we once sketched out a business case for tracking all of earth’s endangered species on land, air, and water and making it available for science and education. It’s about a $100m business annually but requires about 100 payloads on orbit and a substantial data-analytics infrastructure. All of that is already available at Spire Global, meaning we can deploy a capability like this in a profitable way.
Spire has identified numerous opportunities in the $100m - $1bn range now that the platform and processes are so well developed and deployed but follows a very stringent approach of focus, based on available funds and management resources, on the most promising near term opportunities, iterating towards additional markets in a very deliberate fashion.
CCRI: What was your motivation to start the business?
PP: Some data can only be gathered from space, and we saw a path to gather that data orders of magnitude cheaper than it was possible historically. The biggest generational challenge we face as a people is climate change and how it impacts the weather. And weather impacts at least a third of the global economy (probably more), causing annual losses due to inaccurate weather predictions of at least $2.5tn. This number undoubtedly will increase due to climate change. Spire’s audacious goal is to double global GDP growth by making weather prediction as accurate as Swiss train schedules.
CCRI: What’s the core DNA of the company, the special sauce that has led to your success?
PP: Three elements. An ability to see an exponential trend before everyone else. In Peter Thiel’s words from “Zero to One”, I knew something to be true that the rest of the world disagreed with; the capability path for nanosatellites. Second, the ability to execute on said path, building exceptional technology. And thirdly, a global mindset and culture that allowed us to attract amazing, talented people from all around the world to join us in this challenge.
CCRI: How have you funded the business?
PP: We started off with a small seed round of angel investors, including Lemnos Labs and since then have been funded through traditional institutional investors like RRE Capital and Bessemer Ventures.
CCRI: What are your goals for the company?
PP: At the highest level, our goal is to enable the doubling of global GDP growth by enabling humanity to better adapt to climate change.
Our solutions enable our customers a far more rapid reaction to climate change - and the dramatic increase in ferocity and frequency of extreme weather events that accompanies it - by reducing the impact those events have on people’s lives, company's businesses, and government’s operations.
We do this by being at the forefront of the disruptive innovation in space through operating large, reliable, and resilient constellations of nanosatellites, and using our hard-core science and machine learning-driven analytics on earth.
CCRI: Thanks for talking to us – and good luck!
You can learn more about Spire at https://www.spire.com/en.
Stay tuned to our "Investing in the New Space Race" service here on SeekingAlpha for more industry insight.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Additional disclosure: This article was written by Cestrian Capital Research, Inc. The interview responses were provided by the interview respondent and edited by Cestrian Capital Research, Inc.