With Its Kpler Deal on the Rocks, Can Spire Stock Survive?

Debt is dangerous. Getting out of debt can be tricky. And when you try and fail to get out of debt, things can get messy in a hurry. For a case study in all of the above, consider the unfortunate case of space company Spire Global (NYSE: SPIR).

With $131 million in debt on its balance sheet, but only $64 million in its bank account, and having just finished burning through $54 million in cash in 2023, Spire management decided late last year it was tired of being in debt and struck upon a way to extricate itself from debt entirely.

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Step 1: Get out of debt

Privately held commodity data and analytics platform Kpler was offering to buy Spire's maritime ship-tracking subsidiary for $241 million, cash.

If Spire agreed, this would shrink its revenue stream by about 40%, leaving it with annual revenue of about $65 million post sale. At the same time, selling the maritime business would permit Spire to completely pay off its debt and leave it with enough extra cash to fund its business for at least the next three years, debt-free.

On balance, Spire decided this was a good deal, and so it agreed to make the sale and get out of debt.

Step 2: Problem solved... or not?

So far, so good. But here's where things get complicated. Just three months after agreeing to buy Spire's maritime business, Kpler apparently got cold feet. In February, Spire filed an 8-K notice with the Securities and Exchange Commission (SEC) advising that Kpler has inexplicably "failed to consummate the closing" and seemed to be trying to back out of the deal.

Spire sued Kpler to force it to proceed with its purchase but warned investors "there is no assurance" its lawsuit will succeed. And if it did not succeed, and Kpler did not come up with the cash Spire was counting on, Spire warned that its lender might require Spire to pay off its loan at once... with money that Spire doesn't have.

Step 3: Crickets

Since dropping that bombshell (which blew up its stock price), it's been basically radio silence from Spire on the subject of the sale and the lawsuit -- until now. Spire reported its third-quarter 2024 earnings on March 3, and it told us a lot. For example, Spire reported that:

• Q3 sales surged 29% year over year to $28.6 million.
• The company booked $40 million in new contracts in the quarter, giving it a wonderful book-to-bill ratio of 1.4, implying further strong sales growth in the future.
• Spire cut its generally accepted accounting principles (GAAP) loss in half to just $12.5 million.
• But it generated positive free cash flow of $5.1 million and turned cash-flow-positive (but not yet free-cash-flow- positive) for the year to date as well.

Spire also forecast that by the end of fiscal 2024, it expects to have roughly $109 million in revenue (up 12% year over year) and total net losses of approximately $106 million ($4.43 per share). Management didn't say whether free cash flow (FCF) will be positive for the full year, and analysts polled by S&P Global Market Intelligence suspect it will not, forecasting cash burn of about $30 million for the full year.

The most important thing Spire told us, though, concerned the Kpler deal.

Strangely, management left this entirely out of its earnings release, which seems a curious omission since it concerns the fate of nearly half the company's business! Still, management did eventually get around to the subject, discussing it in its post-earnings conference call with analysts.

Image source: Getty Images.

The situation as it stands today

And the news here is amazingly, fantastically good -- which is kind of surprising because so far, investors haven't reacted to it at all. One day after earnings, Spire's stock gained just $0.10.

Ten days after earnings, the stock is actually down 16%!

So what did Spire tell us in that conference call? Well, it seems that once faced with a lawsuit, Kpler had another change of heart and has now confirmed to the judge in the suit that it "expect[s] to have this [deal] closed before the early to mid-part of April." For its part, Spire now also "fully expect[s] the transaction to close in the next 6 to 8 weeks," [and] to be a debt-free company with a healthy balance sheet once that happens.

What's crazy about this, of course, is that the last time this sale would go through, Spire stock cost twice what it does today -- $19.85 per share. The only reason the stock price got cut in half in the first place was when the market anticipated the proposed deal would fall through. Now that the deal seems to be back on the table, it strongly suggests that Spire stock should cost twice what it currently does -- the market just doesn't seem to have digested this yet.

Long story short, there's a very good chance Spire stock could double once investors figure out what's going on here. If you want to own a piece of Spire, I'd encourage you to buy it before that happens.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.