Closing Bell - Manifest Space: AI Weather Forecasts with Spire CEO Peter Platzer 4/424

Episode Date: April 4, 2024

What if AI could make weather forecasts more accurate? Spire Global has been tracking the accuracy of AI-driven weather prediction models using its own satellite data. Now partnering with Nvidia, CEO Peter Platzer joins Morgan Brennan to discuss the collaboration, the massive market for weather forecasting, and the 12 year old company’s path to profitability.

Let's talk about the weather. What if generative artificial intelligence could make forecasting more accurate? Well, that's what Spire Global is betting on and now collaborating with NVIDIA to do. Spire Global is in the radio frequency sensing business, operating a satellite constellation that collects space-based data that's analyzed and then sold as a service. It offers information on weather intelligence and ship and plane movements. CEO and co-founder Peter Platzer says Spire Global has been tracking the accuracy of AI-driven weather prediction models for a long time, anticipating this new era and jumping at the

opportunity to partner with NVIDIA. It gives us access to exquisite hardware and trained AI models in the background that are starved for data, data that Spire has. That's kind of like we are this access to super data kind of company. And then we can leverage that hardware and run our data through those models and then serve our customers. And by doing so, NVIDIA gets to use our data and make its models better and better. Spire is a small cap stock. It went public via SPAC in 2021.

Shares have rallied over the past 12 months and even spiked when the NVIDIA news came out, opening the opportunity to raise $30 million in a direct offering of common stock. On this episode, Platzer breaks down the partnership, the massive market for weather forecasting, and the 12-year-old company's path to profitability. I'm Morgan Brennan, and this is Manifest Space. Peter Platzer, CEO of Spire and co-founder of Spire, it's so great to have you on the podcast. Thanks for joining me. Morgan, it is a sincere pleasure. Thank you for having me. All right. So I want to start with, you've had a little bit of news lately, but let's start with the fact that you've had some of the AI fairy dust sprinkled upon you by NVIDIA with a new partnership. Walk me through it. So, you know, AI is all about data that can then be extracted with new technologies, AI, neural nets, deep learning, to deliver more accurate, more

valuable and precise insights. And so that whole journey of leveraging AI to drive more value to the customer is something that has been part and parcel of Spire for a number of years. And at the end of the day, what NVIDIA has done is that they have built this amazing machine that is creating what's called a digital twin of Earth. It basically allows you to simulate processes in the atmosphere, in the oceans, on Earth in a digital way, and do that in a supercomputationally and efficient way. And overall, when you take a step back, what AI and machine learning and deep learning and neural networks and generative AI has done, it has shifted the power from those that have access to supercomputers a bit more to those that have access to super data. Because the supercomputer side with a model has been replaced with hyper-efficient GPUs

where you can run something that used to take eight hours and you can now run it in eight seconds. And so for us, that has been always a vision that we knew eventually is going to come. And so when this partnership became possible, we jumped on that, and we are super, super thrilled of leveraging that hardcore technology from NVIDIA with the exceptional data of Spire to drive more precise, more longer-term forecasts and climate and weather predictions for our customers all across the world. I have so many questions. The first, though, how did the partnership come to be?

Like, who started it? You know, we have a very, very inspiring leader, Mike Eiltz, who has been for decades in the commercial weather and climate prediction space. And he is, you know, deeply passionate about helping, you know, humanity and companies and countries and communities adapt to climate change. When Mike and I met a little over a year ago, two years ago, there was immediately this meeting of our minds, almost a meeting of the souls because that was the core of the company getting started. Mike and I both shared this vision that AI, machine learning, and deep learning is going to become more and more relevant. As many exponential trends,

they look very, very flat for a long period of time, and then they suddenly become an overnight success. And so we have been tracking accuracy of AI-driven weather prediction models for a long period of time and have been having contact with the people that have been driving this, Google, Microsoft, NVIDIA, of course.

And so Mike has been driving those relationships, forging those relationships, and that eventually then resulted in this opportunity and the signed partnership between NVIDIA and Spire to bring more accurate, more precise, more valuable, more long-term weather and climate predictions to companies, communities, and countries all across the world. So does this mean that you are a supplier to NVIDIA then through this? Are you a customer

of NVIDIA? Does this represent a new service or a new revenue stream for you? How to think about the business model? So from a business model perspective, it gives us access to exquisite hardware and trained AI models in the background that are starved for data, data that Spire has. That's kind of like we are this access to super data kind of company. And then we can leverage that hardware and run our data through those models and then serve our customers. And by doing so, NVIDIA gets to use our data and make its models better and better. And that also means then better models for other customers of theirs. So it really is a true partnership where there at this point in time is no immediate economic flow

between NVIDIA to Spire or vice versa, but it allows us access to their infrastructure to serve our customers better with more valuable products and new use cases and then access to our data to improve their modeling, their machinery, which then enhances the value that they can bring to their customers. It's a true partnerships. Very cool. So when you talk about, I'm just to take a step back here. When we talk about your customers, who are your customers? So we have customers in four main segments. We have customers in the maritime segment, in the aviation segment, in all industries that are weather impacted, and then in the space services segment. This in particular, at this point in time, is very much geared towards our customers in the

weather segment. Now, when you think about who is impacted by the weather, you learn that about a third of shipping, to global trade, to power production, to power demand, to other things which are maybe less obvious, like manufacturing or road safety or the self-driving car, all industries or construction being impacted by the weather. And we have, we had a third party analyze it for us and to verify our own assessments, about 150, 175 major use cases across some order of 150, 200,000 customers or customer types across the world. And a strong segment, of course, is in the weather, because it is such a large portion of the economy. So it's airports, airlines, shipping companies, charter companies, trading companies, you know, hedge funds.

You have people that make wine. You have people that, you know, are responsible for shipping a product from A to B. You have farmers. All of those that are impacted by the weather are customers of our products. Got it. Does this mean, and I say this is, you know, I think back to when I was a rookie TV reporter and I was always the person getting sent down into the bad, bad weather and the hurricanes and to cover those types of stories, is this going to make actual weather forecasting better? And if so, how much better? So the history of weather prediction is that we had about an improvement of one day more accurate weather forecast every decade.

But it started to flatten out over like the last five, seven years. And what this means is that we can steep up that curve and get better and better weather forecasting for further days out. One day forecasting, especially in the United States, is actually already quite accurate. But you mentioned hurricane forecasting, five, seven days forecasting, 10, 15 days forecasting, that's where we start to have actually quite some difficulties. And what this will allow us to do is make those predictions that are a little bit longer as accurate as the forecasts that are very, very short term. And when you think about it, evacuating a city, I mean, I don't know if you were in New York when Sandy hit, but it was certainly a pretty dramatic time, of course. The more time you have, be that as an operator of a power grid, of a farm, of a city, to prepare

for something that is coming, and the more precise it is, the more valuable the information becomes. I remember once being stuck in New York City because supposedly there's going to be, you know, 10 inches of snow coming and all the airports were shut down, schools were closed, nothing was happening. And then we had all but 0.1 inches of snow because all the snow happened in Boston. And the weather forecaster said, sorry guys, we were a few hundred miles off. That's still pretty good for weather prediction.

As a user, of course, you say, no, it's not good. The people in Boston were completely, you know, difficult with their travel plans. And New York was difficult because there was no snow. This is what this is going to solve. Got it. So you talked about the fact that you have four kind of main buckets of customers, maritime, aviation, those impacted by weather and climate, and then space services. is i guess if we if we were to walk through each of those business lines i guess just give me some of the context around how your constellation is being used for those end markets and what

what the market opportunity the growth opportunity actually looks like so in maritime it's all about you know where's the ship where's the cargo where is it going to be where is the competitor going to be so anything from trading oil to offering chartering of tonnage to the safety of cruise ships to the most fuel efficient route for the 17 trillion dollars of global trade. All of that requires the maritime data from SPIRE. And the uniqueness about our business model is that we only are focused on data which is exclusively available from space. Due to the geography of the Earth being round, when a ship leaves the harbor, about 50 miles out, it kind of goes under the horizon because of the curvature of the earth.

And then it becomes invisible from land. And as you know, you know, 72% of the earth is ocean. And so a ship in the old days was literally gone for like 80% of its journey. That transparency is now brought about from space. And so that's kind of like in the weather segment. It's a $2 trillion global economy, and we have a multi tens of billions of dollars opportunity for our products and services, which is the raw data. Then we do some analytics. Then we do predictions, now in particular with AI and machine learning. And then we do decision-making tools. Very similar in the aviation industry, where you have a similar kind of like situation,

we're all familiar with the tragic story of MH370, where once a plane is over the horizon, it's actually not visible, so to speak, anymore. It's a bit of a larger industry, you know, $4 trillion, so it has a bit more opportunity. Then there's the weather industry we just talked about, $30 trillion of global GDP impacted, you know, some people say that up to $3 trillion of economic losses because of the inaccuracy of weather prediction. And that's not just extreme weather. But that is, for example, you know, you thought it is going to be one degree Celsius. Sorry, I'm European, so I think it's Celsius. So that's just above freezing. But then it actually was minus one degree, just below freezing, and all your crops are dead. Massive, massive impact, even though the difference is just like a few

degrees temperature. So the impact of inaccurate weather forecasting is absolutely massive. And then there's space services, which is basically, think of it as like Amazon AWS, just for space. So we rent our infrastructure, our IP, for other people to use their payloads and their ideas from space to improve life on Earth. So, for example, we have wildfire detection customers or greenhouse gas, IoT. So there's a whole range of people that are using our products. As I said, that third party assessed it as being about $100 billion addressable market opportunity for us.

We are now at 100 million. So we have a long way to go. We're just scratching the surface as, yes, we sell to harbors. Like, for example, the harbor of Rotterdam that is using our data to decrease their carbon footprint, make everything more efficient, have a greater throughput. But there are about 10,000 harbors across the world. Same thing with um with airports so every single type of use case type of customer is generally on a global scale um not just you know a few hundred but it's genuinely a few thousand and sometimes even a few ten thousands

that can use the very same use case the the very same data, the very same product for their kind of particular business situation. I mean, we've had a number of executives on Manifest Space who are focused on earth observation. I mean, you're focused on a slightly different technology here, radio occultation. Am I saying that correctly? Occultation? You're saying it absolutely correctly.

You're 100% correct, Morgan. All right. Walk me through what's so special about this technology. And given the fact that it is specialized, whether this is your bread and butter, this is the area you're going to stay focused on, or whether you expand to some other types of observation capabilities. So the answer is yes to all of the above. So let me just walk you through it and your listeners and viewers. There are three main types of satellites that are very distinct and non-competitive with each other. One of them is, as you pointed out, Earth observation, generally through cameras, where you take a

reflection of the sunlight on the surface of earth as it goes towards the heavens. So works great during the day and in good weather conditions, and is particularly useful over land. And there is, of course, a massive universe of use cases, as I'm sure you have explored with those CEOs. And then there is distinct and separate from that, you have the, you know, we call them talking satellites. These are basically transporting data from one spot on earth via space to another spot on earth. And there you have anything from an SES to a styling to a corpus and one web and AST. Those are all those, you know, we call them talking or data transportation services.

And then you have listening satellites, again, distinct and separate and non-competitive, where you use radio waves to observe what is happening on or around planet Earth. And that means it works day and night. It's not sun dependent. And it works in all weather conditions. It actually gives you information about the weather. And Spire is in that listening category. And we collect data. We observe the earth. We track human and nature activity using radio waves or radio frequencies. We are the largest company in that segment. We're the only one which has a fully deployed constellation. And radio occultation is one of those measurements

where we use microwaves to track the temperature of the atmosphere every few hundred feet with, as scientists have called this, the Earth's most precise thermometer. But that's just one measurement that we do. You know, as you saw in the maritime segment, we use radio waves to track ships. Or in the aviation segment, we use radio waves to track aircraft. But we also use radio waves to measure the soil moisture, for example. We use radio waves to measure hurricane wind speeds. We use radio waves to measure rain content. So there is a large number of types of data that we collect.

And again, if you take a step back and you think about one of the generational challenges that we all face, that was one of the founding desires and passions and missions of SPIRE, helping humanity adapt to climate change and the impact of climate change. There's basically these three things you can do with that impact of climate change. You got to monitor it and understand it. You got to mitigate it and see like, what can you do about it? And then, you know, you need to try to reverse it. And we collect data that helps in all three of these areas. Got it. So as much as much as you're a space company, you're also a climate tech company is the takeaway. So you did just close on $30 million registered direct offering. I guess, walk me through the financials. Walk me through why now is the time to raise more capital and

how all of this continues to propel you on your path to profitability. So for us, there was a fantastic opportunity. We had a number of investors competing to get in on the SPIRE story. I think they can see the compelling numbers that we shared in our last earnings call. They started to see the momentum in the stock. More and more companies finding fantastic risk-reward ratios in SPIRE. And for us, it means that we can delever the balance sheet, we can lower our cost of capital, we can create more flexibility with our debt provider. All of that means that we're going to have fewer debt payments, which increases our free cash flow,

and that helps us on that path to free cash flow profitability. Got it. And when do you expect to achieve that? So we have come out with guidance for that to happen in the summer of this year. And I think we have come out with that guidance two years ago before there was the war in Ukraine, which means we have put a stake in the ground when the world was a very, very different place than today. And thanks to a phenomenal team that has executed and adapted to the changes in the macroeconomic environment

of war and inflation and recession and logistics and everything else that has happened over this period of time, without ever moving the deadline of free cash for profitability by this summer, we had said that we're going to be positive operating cash flow in Q4 of last year, which we achieved. And we actually achieved a positive adjusted EBITDA a bit earlier than we anticipated, and also delivered that in Q4 of last year. Got it. So I guess in light of all of this, I guess walk me through what's next. Spire really

sort of became an investor story when you went public via SPAC back in 2021. To your point, you have seen and realized this growth. You're on this profitability path as well. I guess what's the next chapter involve? And when you do talk about a constellation that is the largest in space for this type of capability and this type of technology, do you feel right sized or do you continue to grow as you have to replace some of the spacecraft in your fleet? So the first nice story for us is that we have the right size constellation that, yes, you got to maintain it just like you got to maintain your car. But for us, it is now all about monetization of that capability. It is not about, you know, enlarging it or needing to launch a large number of extra

spacecraft. It is really about monetizing that capability. And for us, it is now that we have done kind of like the major milestones that we had set out even before we went public. Now it is, you know, past the profitability to keep on growing profitably, delivering on those massive market opportunities with, you know, we've set these parameters off around 70% gross margins, positive free cash flow, and a growth rate above 30% year over year. And I think we do that for the next, you know, decade or so. I think we got to make a meaningful impact in helping humanity adapt, monitor, and maybe even reverse some of climate

change. I think we're going to make a meaningful contribution on the global security side, which is the other big major trend for us. And I think it's going to be an interesting story for investors to participate in as well. Great. Anything else to keep in mind? I know you've announced some other partnerships and deals, some other customers. Anything else to keep in mind? I know you've announced some other partnerships and deals, some other customers. Anything else you can disclose or hint at that's in the pipeline here in the near term? So I share once or twice a week insights of what's coming, what we're doing on my LinkedIn profile. You stay tuned to that. You will know it before anyone else does. All right. Peter Platzer, CEO of Spire.

Thanks so much for joining me. My pleasure, Morgan. That does it for this episode of Manifest Space. Make sure you never miss a launch by following us wherever you get your podcasts and by watching our coverage on Closing Bell Overtime. I'm Morgan Brennan.