Planet Labs PBC (NYSE:PL) Q3 2024 Earnings Call Transcript

Planet Labs PBC (NYSE:PL) Q3 2024 Earnings Call Transcript December 7, 2023

Planet Labs PBC beats earnings expectations. Reported EPS is $-0.13, expectations were $-0.15.

Operator: Hello, everyone. Thank you for attending today’s Planet Labs PBC Third Quarter of Fiscal 2024 Earnings Call. My name is Sierra and I’ll be your moderator today. All lines will be muted during the presentation portion of the call, with an opportunity for questions-and-answers at the end. [Operator Instructions] I would now like to pass the conference over to our host, Chris Genualdi, VP of Investor Relations with Planet Labs PBC, please proceed.

Chris Genualdi: Thanks, operator, and hello, everyone. Welcome to Planet’s third quarter of 2024 earnings call. Before we begin today’s call, we’d like to remind everyone that we may make forward-looking statements related to future events or our financial outlook. We also reference qualified pipeline which represents potential sales leads that have not yet executed contracts. Any forward-looking statements are based on management’s current outlook, plans, estimates, expectations, and projections. The inclusion of such forward-looking information should not be regarded as a representation by Planet, that future plans, estimates, or expectations will be achieved. Such forward-looking statements are subject to various risks and uncertainties, and assumptions as detailed in our SEC filings, which can be found at www.sec.gov.

Our actual results or performance may differ materially from those indicated by such forward-looking statements and we undertake no responsibility to update such forward-looking statements to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. During the call, we will also discuss non-GAAP financial measures. We use these non-GAAP financial measures for financial and operational decision-making and as a means to evaluate period-to-period comparisons. We believe that these measures provide useful information about operating results, enhance the overall understanding of past financial performance and future prospects, and allow for greater transparency with respect to key metrics used by management in financial and operational decision-making.

For more information on the non-GAAP financial measures, please see the reconciliation tables provided in our press release issued earlier this afternoon. Further, throughout this call, we provide a number of key performance indicators used by management and often used by competitors in our industry. These and other key performance indicators are discussed in more detail in our press release. Before we jump in, I’d like to encourage everyone to reference the slides we have posted on our Investor Relations website, which are intended to accompany our prepared remarks. Finally, for each of the customer contracts referenced during this call, please note that the revenue figures we cite will generally be recognized over the term of the contract, which can last multiple years.

Further, the terms of these contracts can vary and we may not realize all expected revenue. At this time, I’d now like to turn the call over to Will Marshall, Planet’s CEO, Chairperson and Co-Founder. Over to you, Will.

Will Marshall: Thanks, Chris, and hello, everyone. Thanks for joining the call today. For the third quarter of fiscal year 2024, we generated a record $55.4 million in revenue, representing 11% year-on-year growth. Non-GAAP gross margins was 51.5% which is above the midpoint of our expected range. Our adjusted EBITDA loss for the quarter was $12 million, $1 million better than our guidance range driven by cost discipline and reflecting our commitment to reaching adjusted EBITDA profitability by Q4 of next year. Growth in the third quarter was driven by strength in the Civil Government and Defense and Intelligence markets, both of which saw revenue increase more than 20% year-over-year, partially offset by continued macro headwinds in the commercial sector.

We’ve continued to add large seven and eight-figure government opportunities across several government and defense and intelligence markets to our qualified sales pipeline and while they take longer to close, large government contracts can provide a reliable foundation of long-term revenue streams with significant potential for expansion. As our business mix shifts towards government opportunities, our average sales cycles overall have naturally extended. This is just the nature of government procurement processes. In response, we have recently refocused our go-to-market strategy around those large opportunities and made additional improvements to support sales execution. Let’s quickly revisit the go-to-market improvements that we’re implementing, which align with what we outlined in our prior earnings call and Investor Day.

These include; one, focusing on salesforce on our largest opportunities in our core markets. Two, shifting smaller commercial opportunities in other market segments through our partner network and low touch channels, including our newly acquired Sentinel Hub platform. And three, streamlining and simplifying our sales processes. These go-to-market improvements are aimed at supporting faster sales cycles, customer adoption, and expansions over time. Expanding further on our growth plan, in the near time, we see opportunities with several U.S. government entities as one of our primary near-term growth drivers. It’s worth noting that in our view our relationship with the U.S. government has never been stronger and we believe we are well-positioned to significantly expand our work with this important customer in this next fiscal year.

In addition, we are encouraged by the diverse global pipeline of opportunities that we’ve been cultivating particularly with several government customers. We’ve seen solid year-over-year growth in the civil government verticals throughout this year. These opportunities span all of our datasets and include additional services from our Planetary Variables, including our new carbon solutions and incremental capabilities provided by our acquisition of Sinergise. Finally, in spite of the current macroeconomic headwinds, we continue to see the market opportunity in the commercial sector as a significant growth driver over the longer term. Our strategy for the commercial sector is focused around partner-led opportunities and efficient low-touch sales motions.

We see partners as a highly effective way of shortening sales cycles and speeding customer time to value with solutions and services tailored to a specific geographic market or commercial use case. And as mentioned, our Sentinel Hub platform enables smaller customers to purchase data from Planet through a low-touch channel. Taking a step back, our go-to-market strategy is built around our core value proposition, enabling board area management at a global scale not possible before. The ability to understand change taking place in board in areas of our Planet is what differentiates us and fuels adoption of our solutions. As we walk through our recent customer highlights, you’ll hear how this is a common thread between customers across industries.

Let’s turn now to some recent customer highlights, starting with the Civil Government sector. During the quarter, we closed a seven-figure ACV contract with IGAC that Cartographic Agency of Colombia. The agency has a new customer and is using PlanetScope and SkySat data for a range of applications, including geographic studies, professional training, as well as improved land use, planning and risk management across Colombia. We expanded our contract with an Australian-based partner, NGIS, who uses Planet Data to provide critical geospatial services to Australian Civil Governments, supporting resource management and natural disaster response for wildfires and floods. Turning to Defense and Intelligence market, during the quarter, we saw a seven-figure ACV expansion with an Asian Ministry of Defense customer for our high-resolution SkySat tasking capabilities.

It was great to see the customers’ data consumption grow as we had expected. In Latin America, we’ve added a government intelligence agency as a new customer. They’re using our PlanetScope and Skysat data for broad area monitoring. We also closed a new contract with SI Analytics, a South Korean-based AI company, who are using our solutions to do anomaly detection in North Korea. SI Analytics originally started as a Planet partner, is now our customer as well. SI Analytics users PlanetScope to run analytics for defense and intelligence customers. More broadly, we are seeing growing interest from defense and intelligence customers globally for the capabilities unlocked when combining our deep data archive with artificial intelligence. We think of this combination as an incredibly powerful tool to scan, search, and monitor.

We enable them to rapidly find new threats, monitor them on an ongoing basis and act as a powerful time machine for forensics of what happened in the past over large geographic areas of land or sea. Turning to agricultural solutions. We recently renewed and expanded our seven-figure contract with BASF Digital Farming, the European-based multinational chemical producer. They’re using PlanetScope and our Planetary Variable solutions for broad area management to deliver targeted and timely agronomic advice for their customers. We also signed a new contract with the USDA’s Foreign Agriculture Service. FAS links U.S. agriculture to the world to enhance export opportunities and global food security. They plan to use our broad area management solutions to support the production of crop-type maps and area estimates overseas.

Also in the commercial vertical, we recently announced the addition of onX Maps as a new customer. They are using Planet’s base maps to provide outdoor enthusiasts with up-to-date imagery of outdoor recreation landscapes. This is a great example of how Planet’s Data is making its way into the hands of consumers. onX was recognized by Time Magazine for having one of the best inventions of 2023. The recent imagery product which leverages Planet’s Data, one of the outdoors category. Turning to product updates, where we’ve had three key launches. Firstly, on November 11, we successfully launched 36 SuperDoves, and our first Pelican Tech demo into orbit on board a SpaceX Falcon 9 rocket. We established contact with all of the satellites within just a few hours of the launch.

I’m pleased to report that the on-orbit testing we’re conducting with the Pelican Tech Demo is going well, providing valuable insights and learnings about this new spacecraft design. This marks our 33rd successful launch and our 569th satellite successfully launched and deployed. I’d like to note that while we often take these accomplishments for granted, what our team does here is nothing short of remarkable. Planet’s ability to rapidly build satellites affordably and at scale is truly exceptional. I’d like to thank all of the team at Planet for their hard work and dedication in making this latest launch a success. Secondly, as already mentioned, we launched Planet Data and Services on the Sentinel Hub platform with transparent pricing and packaging, enabling low-touch or self-service sales for small deals and giving partners what they need to more flexibly and rapidly build solutions on top of our data.

Finally, last month, we launched our new Forest Carbon product. Our 10-year data archive of Global Forest Carbon is accurate, affordable, and scalable, helping to solve longstanding challenges associated with measuring Forest Carbon Stocks. We’ve launched this Forest Carbon Solution with open and affordable pricing to support faster customer adoption and early market capture. We’re pleased with the early demand building for this new product and we were very excited to win our first customer, BeZero Carbon. BeZero is a carbon ratings agency and they have adopted this groundbreaking solution to help their clients make more informed carbon credit investments. We’re seeing strong interest in the carbon — in project developers’, carbon marketplaces, standard-setting bodies, and others across the carbon value chain.

In summary, during Q3, we saw a solid growth in our civil government and defense and intelligence markets. We focused on efficiency in our go-to-market execution as outlined in our Investor Day. We also had a great product quarter, launching 37 satellites, bringing our new Forest Carbon product to market, and enabling low-touch access the Planet Data by Sentinel Hub. The pace of innovation and development of Planet is truly incredible and we’re doing all this while maintaining disciplined spending to support our path to adjusted EBITDA profitability. Overall, our conviction in a significant opportunity for our solutions remains firm. The ability to understand change taking place in broad areas of our Planet is what differentiates us and fuels adoption of our solutions.

We continue to see the market for our solutions as enormous driven by the tailwinds of security, sustainability, and digitalization worldwide. I’ll now turn to Ashley for review of our financials and our outlook. Over to you, Ashley.

Ashley Fieglein Johnson: Thanks, Will, and thanks everyone for joining today. As Will mentioned, our revenue for the third quarter of fiscal ’24 ending October 31 came in at a record $55.4 million, which represents 11% year-over-year growth. This was driven by strength in the civil government and defense and intelligence markets, both of which grew more than 20% year-over-year, partially offset by the continued headwinds we’ve seen in the commercial market. From a geographic perspective, we continued to see a strong diversification of our customer base. EMEA revenue growth was especially strong in Q3, up almost 70% year-over-year, while revenue in both Asia Pacific and Latin America grew more than 20% year-over-year. North American revenue decreased by 11% on a year-over-year basis, primarily impacted by the discontinuation of the legacy contract we’ve discussed previously.

As Will mentioned, we see multiple significant growth opportunities with various U.S. government entities in the near term and we continue to build out our partner ecosystem to address the longer-term opportunity we see in the commercial markets. As of the end of Q3, our end-of-period customer count was 976. This count does not include customers who are exclusively self-serve users on our Sentinel Hub platform, which we acquired with the Sinergise business. Recurring ACV or annual contract value was 94% of our book of business and over 90% of our ACV book of business consists of annual or multi-year contracts. Our average contract length continues to be approximately two years weighted on an ACV basis. Year-to-date, net dollar retention rate was 104% and net dollar retention rate with win backs was 105%, both up slightly from the prior quarter.

Increases in net retention rate are typically driven by the timing of large expansion contracts with existing customers. And as we mentioned on the last call, we’ve seen longer sales cycles with some of our larger expansion opportunities. These opportunities remain active and our go-to-market changes are focused on capturing this business and improving our sales cycles. Just as a reminder, as detailed in our quarterly earnings investor presentation, our net dollar retention rate starts on day one of each fiscal year at 100%, then develops through the course of the year towards our final full year results. Turning to gross margin. Our non-GAAP gross margin for the third quarter of fiscal ’24 was 51.5%. Similar to the prior quarter, non-GAAP gross margin during Q3 was impacted by the accelerated depreciation of two SkySat satellites.

This impacted Q3 non-GAAP gross margin by approximately 6 percentage points. This accelerated depreciation expense will continue at a lower level in Q4 and reach completion by the end of this fiscal year. Adjusted EBITDA loss was $12 million for the quarter, better than our guidance and marking another consecutive quarter of narrowing losses driven by cost management and our commitment to reaching adjusted EBITDA profitability by Q4 of next fiscal year. During Q3, we incurred a non-recurring restructuring charge of approximately $7.3 million, offset by a $1.5 million benefit in stock-based compensation, all related to our headcount reduction in August. In addition, we incurred a $2.3 million non-recurring charge in the quarter primarily impacting R&D related to the acquisition of Sinergise.

These expenses are excluded from adjusted EBITDA. Capital expenditures including capitalized software development were $8.6 million for the quarter or approximately 16% of revenue. Turning to the balance sheet. We ended the quarter with $315 million of cash, cash equivalents, and short-term investments, which we continue to believe provides us with sufficient capital to invest behind our core growth accelerating initiatives and achieve cash flow breakeven without needing to raise additional capital and we still have no debt outstanding. At the end of Q3, our remaining performance obligations or RPOs were approximately $153 million, of which approximately 82% applied to the next 12 months and 97% to the next two years. Please keep in mind that RPOs can fluctuate quarter-to-quarter as multi-year contracts come up for renewal.

Also remember that our reported our RPOs exclude the value associated with the EOCL contract as well as other contracts that include a termination for convenience clause which is common in our U.S. federal contracts and occasionally found in other customer contracts as well. For the fourth quarter of fiscal ’24, we’re expecting revenue to be between $56 million and $59 million, which represents growth of approximately 6% to 11% year-over-year. We expect non-GAAP gross margin for Q4 to be between 52% and 56%. We expect our adjusted EBITDA loss for the fourth quarter to be between negative $12 million and negative $9 million. We are planning for capital expenditures of approximately $14 million to $16 million. For the full fiscal year ending January 31, 2024, we expect revenue to be between $218 million and $221 million or growth of 14% to 16% year-over-year.

We expect our non-GAAP gross margin to be between 53% and 54%. We expect adjusted EBITDA loss to be between negative $58 million and negative $55 million and we expect capital expenditures to range between $46 million and $48 million. In summary, we are in a period of transition as we focus our go-to-market resources around the largest opportunities in front of us, which we expect in the near term to be predominantly in the government sectors on a dollar-weighted basis. We are expanding our partner ecosystem to continue to develop opportunities in the commercial markets as the macro tailwinds of digitization and sustainability continue to see new opportunities for our data and analytics each day. We are aligning our investments to drive growth in the near term, while carefully managing expenses and continuously exploring opportunities for greater internal efficiencies that we believe will make it easier to work with Planet as well as at Planet.

As always, I want to thank our Planetiers around the globe for their continued execution and commitment. Operator, that concludes our comments, we can now take questions.

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Q&A Session

Operator: Absolutely. We will now begin the Q&A session. [Operator Instructions] Our first question today comes from Jason Gursky with Citi. Please proceed.

Jason Gursky: Great. Good afternoon, everybody. I just wanted to dive a little bit more into the go-to-market strategy and have you discuss a little bit about this idea of [indiscernible] and going after really, really large contracts. Just kind of curious if there are any — you talked about seven-figure potential contracts out there, but are there any eight or nine-figure contracts that you have the opportunity to go after here and maybe just talk a little bit about where you’re seeing the greatest opportunities from a geographic perspective. Thank you.

Will Marshall: Yeah. Great question. We have a number of eight-figure deals. I think we’ve previously mentioned that about eight and we’ve continued to bring in more eight-figure deals and seven-figure deals through the year. What we’re mainly seeing them is, in defense and intelligence but also civil government, we’ve got real opportunities both, and geographically, I would say a lot of it’s in the U.S., but we do have a number of these big deals in the rest of the world as well and so it’s primarily in those two sectors. Does this answer your question?

Jason Gursky: Yeah. Sorry, I am at an airport. I’m going to leave it there. I appreciate you guys taking the question.

Will Marshall: Okay. No worries.

Operator: Our next question comes from Trevor Walsh with JMP Securities. Please proceed.

Trevor Walsh: Hi, team. Thanks for taking my questions and congrats on a solid set of results. Will, I’ll start with you if I can. Congrats on the successful launch of Pelican, it sounds like the initial Demo is helping you guys get some good lessons learned. Just curious if, I know in the last earnings call you reiterated or confirmed that there’s not necessarily a revenue opportunity kind of driving from this Pelican one satellite, but can you maybe help us understand a little bit better as to what the uplift potential within the current accounts might be from the new set of spacecraft just being that they are, in fact, have just higher res, higher revisit, all the kind of technical abilities that are added are better with Pelican and then also the low cost like just kind of how from a topline perspective that might, how are you guys looking at prices increase potentially there around those capabilities?

How will customers kind of feel I guess in terms of what they’re paying currently versus later? Thanks.

Will Marshall: Yeah. Great question. So firstly, we’re very, very happy with the Pelican spacecraft. It’s going really well. All of the commissioning is going well and we’re learning a huge amount, very, very good so far. And it is a Tech Demo, so yes, this is not going to be revenue producing just to confirm what you said. To the capabilities, yeah, so it’s going to be better on multiple axes, high resolution. We talked about 30 centimeters higher revisit rates when we ultimately get our full fleet be higher revisit rates than our present 10 per day going up towards 30 per day. But probably the biggest substantive increase is the fact that as we add satellite-to-satellite communications on these vehicles, it enables us to lower latency.

And to your final point, lower latency is something very differentiated and high value, and so you can definitely charge more. So you can charge more for higher resolution, you can charge more for lower latency, and I think that, the lower latency is almost a 10x improvement on our current system, so that is a big deal getting, the sub-hour latency. Does that answer your question or do you have another one?

Trevor Walsh: Yeah, absolutely. I appreciate the color. And then, if I could just do one follow-up maybe for Ashley, although Will feel free to chime in too. Good work on the new customer count accelerating kind of in the quarter, we — just at least as we look at in our model, it looked like the revenues for average number of customers may have ticked down and just wondering if that’s a result of maybe and a larger number of smaller customers kind of entering the cohort this quarter and if that is the right way to look at it is that kind of a signal of some of your go-to-market improvement efforts around whether it’s the self-serve platform or some of the partner led motion kind of bearing fruit and bringing some smaller group of — smaller customers into the mix this quarter? Thanks.

Ashley Fieglein Johnson: Yeah. Thanks for the questions. I’d have to look a little bit more closely to answer the revenue per customer question more specifically, but I’d say, yes, we do have more customers coming on board through the Sentinel Hub platform, now that the Sinergise acquisition is closed and that is an opportunity for us to really scale up low-touch customer onboarding and also enable partners to create solutions on top of our data more easily through those APIs. So in terms of deal sizes that’s actually consistent. So I would suspect if I were to dig into the details behind the average revenue per customer, what we’re probably seeing is a little bit of the impact from bringing on the Sinergise customers, but I’d have to get back to you to look into that more specifically.

Will Marshall: And if I can just add a tiny thing on the prior question, I forgot to mention, of course, it wasn’t just the Pelican that we launched, we also launched 36 SuperDoves, and although, we take that sort of for granted, because that’s primarily continuing operations of that daily scan fleet. Firstly, that’s our bedrock fleet and gives the daily scan, which is so differentiated, and secondly, yeah, we take for granted being able to rapidly build and launch and operate large numbers of satellites like this, but basically that’s one of the very few companies in the world can do that and really that’s incredibly a strong differentiator that we sort of take for granted sometimes.