Spire Global Faces Northstar Legal Action (Updated)

It hasn't been an ideal year for Spire Global, a global provider of space-based data, analytics and space services based in San Francisco and which has an office in Cambridge, Ontario after acquiring exactEarth three years ago. While Spire Global looks to be emerging from a potentially serious creditor issue after accounting issues came to light with its’ space as a service offering, the company still faces several headwinds, including a potential Ontario Superior Court of Justice injunction from Montreal-headquartered NorthStar Earth and Space. Spire satellite hardware failures, limited usable data On August 13th, it was revealed by journalist Peter B. de Selding at the Space Intel Report that NorthStar had gone to Ontario’s Superior Court of Justice in order to get an injunction against Spire Global to keep it from shutting down some of its satellites. While neither company has gone public on the situation, and attempts to reach out to both companies by SpaceQ were not answered, de Selding got details, a copy of NorthStar's filing for injunction, and some comments from NorthStar on the situation. SpaceQ also acquired a copy of NorthStar's filing. As discussed in SpaceQ, four NorthStar earth observation satellites were launched in January 2024 by Rocket Lab. As part of Spire Global’s “space-as-a-service” (SaaS) offering, the satellites were to be built and operated by Spire Global, using NorthStar payloads. NorthStar paid Spire about $14.5 million in up-front fees for the service, and Spire retained ownership of the satellites. As NorthStar had been planning on an 11-satellite constellation, the arrangement could have been worth nearly $200 million for Spire. After launch, however, Spire discovered a number of anomalies. Three weeks after launch, de Selding said, Spire told NorthStar that “early images did not meet expectations.” A month after that, one of the satellites was declared lost. Image credit: Ontario Superior Court of Justice. In March, according to NorthStar's filing, Spire told NorthStar that the satellites had issues with their optical systems and the optical payload, and that one of the satellites even had “cracks visible in the optical system.” Spire said that these issues were due to problems with Spire’s satellite testing, and told NorthStar that “75% of the satellites’ orbits result in images from which no usable data can be extracted.” NorthStar does not appear to contest these findings; the conflict is over what to do about the situation. NorthStar wants to continue using the 25% of orbits’ usable data to continue R&D work for its customers. According to the filing, NorthStar wanted the companies to go through a "Recovery Plan" that would include "de-contamination of the required software updates from Spire and changing the way the Satellites would operate to increase the number of images for which usable data could be extracted." As NorthStar believes (according to the filing) that “Spire would be unable to achieve the minimum performance requirements of the two companies’ service-level agreement (SLA)”, however, it is somewhat strongly implied that NorthStar wanted to revisit the amount of compensation that the company would be providing to Spire Global for satellite services. Spire, in return, proposed two options: either NorthStar accepts the satellites as-is despite the performance issues and pays the full amount, or accepts that the satellites are unrecoverable and allows spire to completely decommission them. In that latter case Spire said that it would launch new satellites for NorthStar at some point in the future, replacing the existing three satellites with five new ones, but de Selding said that could be up to 2 years away. NorthStar doesn't accept that option: it would leave the company unable to generate revenue for a significant amount of time. As the deadline for the shutdown was August 21st, NorthStar filed an application for an injunction, to have the court prevent the shutdown. As of now, there's little publicly available information beyond the injunction and the story in Space Intel Report; neither company has made any public statements on the matter, and there's been no news about the satellites being decommissioned. But there may have been consequences to Spire that extend far beyond the conflict between the two companies. That said, this court case will not result in the final resolution of the dispute. NorthStar's filing said that both parties agreed to arbitration under the International Chamber of Commerce (ICC). The injunction is purely about whether the satellites remain operational, and continue delivering data to NorthStar. Spire’s revenue revisions At almost the same time, on August 14th, Spire Global announced in an SEC filing that its quarterly earnings release would be delayed, and that the company would be filing a form with the NYSE reflecting this delay. The reason given was that the company was “reviewing its accounting practices and procedures with respect to revenue recognition related to certain contracts in its ‘Space-as-a-Service; business”— the exact same business that Spire was engaged in with NorthStar. In short, the company was being paid some money early by SaaS contractees before its satellites and payloads actually hit orbit, and there’s an open question about when Spire should add that money to the official revenue numbers in the books. While the money was coming in prior to launch, the contract could really only be said to be fulfilled once the satellites were in orbit and collecting/transmitting data. That left the question of whether the money should be recognized as “revenue” when it was received, or when the contract was fulfilled and data started being transferred, as those dates were often years apart. Spire originally took the “when it’s received” approach; these changes were decided upon so that it could retroactively change things to the “on data delivery” approach. Spire confirmed the nature of the changes in an August 27th update, where the company said that the revenue reports “need to be revised to remove certain previously recorded pre-space mission activity revenue from the period in which pre-space mission activities were performed under the Contracts, and instead, record that revenue over the period in which data is delivered.” was (or are) working with PricewaterhouseCoopers to resolve the matter. While it’s unclear whether the dispute with NorthStar may have caused this change, at the very least it reflects it. As the saying goes, “space is hard”, and circumstances beyond the control of a company may well affect its ability to fulfill its contractual obligations. In the case of NorthStar, Spire admits that it was terrestrial testing issues that caused the damage that made the satellites unfit for purpose, but Spire wasn’t able to detect the problem until it was time to deliver the data. By that point, it was too late, leading to potential contractual default and a legal battle. Now Spire is in a very difficult situation, which may well have prompted the decision to avoid claiming revenue before it knew the data was good. Spire avoids default with key creditor That said, the situation isn’t as difficult as it could have been. The stock took a heavy hit upon the news, as concerns arose over whether these revised revenue numbers may have put Spire into another dispute, this time with key lenders Blue Torch Capital. As the company’s filing said, it was possible that the changes may leave Spire “[not in] compliance with the maximum debt to EBITDA leverage ratio financial covenant under the Financing Agreement as of June 30, 2024,” meaning that the company’s revenue-to-debt ratio for previous years was now too low after the changes. A serious conflict with Blue Torch could have been disastrous, as Spire would need to find another source of liquidity even as its SaaS business came into question. As of August 29th, however, the issue appears to be resolved. Spire said in another update that it has entered into a “waiver and amendment” of the financial agreement with Blue Torch, which waives the “events of default” arising from the accounting changes and changes the agreement’s financial covenants. While the waiver and amendment does require Spire to pay $10 million towards the balance of the loan, the announcement said that the company had “cash, cash equivalents and short-term marketable securities of approximately $46 million,” which will help cover the payment and keep it in good standing with its key creditor. Another bit of bright news for Spire, mentioned in the August 27th release, is new contracts with the US Air Force, UK Space Agency and NASA. These include a $14 million USD contract with the AIr Force to “develop and deploy a cluster of satellites designed to detect and track moving objects on Earth with the goal of enhancing situational awareness for U.S. defense operations;” a £3.5M GBP grant from the UK Space Agency to “demonstrate hyperspectral microwave sensing technology in orbit;” and a $7.6M 12-month contract renewal with NASA under the Commercial Smallsat Data Acquisition Program. Unclear about satellites’ fate So the creditor issue seems to be resolved, but that still leaves the conflict with Northstar. As mentioned earlier, neither company responded to a request for comment as of time of writing, and neither company has made any public statements on the issue. Questions about the filing at an August 12th interview with NorthStar president Stewart Bain, according to de Selding, only produced responses already contained within the filing. Bain only said that “the court injunction request is likely to be decided this month.” The Ontario’s Superior Court of Justice ruled on September 12 in favour of NorthStar and issued the injunction. Even amid the dispute, NorthStar has started paying Spire what it called “commercially reasonable rates” for the data, so it may well be that Spire and NorthStar will come to an agreement on compensation at a lower rate, and that may be part of an eventual ICC arbitration ruling, or a settlement between the parties. One indicator that NorthStar’s satellites may continue operation, however, is the just-announced agreement between the company and Riverside Resarch. Riverside will be using NorthStar’s “space-based Wide Field of View (WFOV) [Space Situational Awareness] collection, its synthetic simulations, and its patented processing routines” in a collaboration under the Defense Advanced Research Projects Agency (DARPA) Space-WATCH program. As the entire reason for the injunction was due to NorthStar’s concerns about a long interruption in data-collection capabilities, one can infer reasonable confidence on NorthStar’s part that it will be able to continue to gather data from the satellites. Editor's note: Shortly after publication we were informed that NorthStar's request for an injunction was granted.