Planet Labs PBC Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
June 8, 2023

There are 12 speakers on the call.

Operator

Good afternoon. Thank you for attending today's Planet Labs PBC First Quarter of Fiscal 2024 Earnings Call. My name is Anna, and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. I would now like to pass the conference over to our host, Christian Uwalbe, Vice President of Investor Relations.

Operator

You may go ahead.

Speaker 1

Thanks, operator, and hello, everyone. Welcome to Planet's Q1 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.

Speaker 1

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, 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.

Speaker 1

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 its financial and operational decision 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 several years.

Speaker 1

Further, the terms of these contracts can vary, and many of these contracts can be terminated by Planet for our customer prior to their maturity. As a result, we may not realize the total revenue expected for each such contract. 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.

Speaker 2

Thanks, Chris, and hello, everyone. Thanks for joining the call today. Our Q1 financial results were solid. We generated $52,700,000 in revenue, representing a 31% year over year growth, in line with our guidance. Non GAAP gross margins expanded to 56%, up from 45% in the prior year and 11 percentage point increase, showing the ability for 1 to many data business model to drive significant margin expansion as revenue scales.

Speaker 2

We ended the Q1 with over 900 unique Customers spanning across government and commercial markets. While our Q1 results were in line with our expectations, we faced some recent headwinds in April May, which inform our guidance for the year and I'll address this in a moment. Before that, I do want to underscore our sustained confidence in the market opportunity. In Q1, we saw the largest quarter for pipeline generation in the company's history. We saw rapid advancements in AI that are unlocking new possibilities with our data set.

Speaker 2

And we saw our products that are enabling our customers to address some of their most pressing security and sustainability challenges. That is all to say, we continue to see strong demand for our solutions. Let me now address our update to guidance for this year. The primary driver Sales bookings came in lighter than we expected. In recent weeks, we observed a combination of factors coming together, including extended sales cycles as well as some of our larger deal opportunities closing with smaller values than anticipated.

Speaker 2

We believe these recent changes reflect hesitation from customers as they enter a year with heightened budget uncertainty, as well as government procurement cycles taking longer than we expected. Because of our data subscription business model, lighter bookings in the beginning of the year have a more significant impact on the full year revenue forecast than bookings in later quarters. Furthermore, because we believe this customer behavior may continue, we are revising our guidance, presuming these trends go on for the remainder of the fiscal year. To maintain our path to profitability at this lower assumed revenue growth rate, we are adjusting our expense plan. We have significantly throttled back our headcount expansion plans, which generate savings in the current year, but more importantly, we We estimate these changes will reduce our annual run rate expenses by more than $35,000,000 going into next fiscal year.

Speaker 2

We believe this adjustment to our expense plan supports our standing objective to be adjusted EBITDA profitable no later than Q4 of next year. In scaling back our spend, we're prioritizing investments that support revenue for our core business and our path to profitability. We're focusing our resources on our highest ROI customers and opportunities as well as looking at additional ways to optimize expenses. We are fortunate to have high gross margins and the operational levers in the business that enable us to do this. I'd like to emphasize that through this, we continue to believe we've sufficient capital on our balance sheet to capture the market opportunity, drive strong growth and achieve cash flow breakeven without needing to raise further capital.

Speaker 2

As I stated earlier, our conviction in the opportunity for our business over the long term remains strong. Let me expand on some of the recent deals and other signals that give us confidence. Firstly, on demand. As mentioned, we generated a record amount of qualified pipeline opportunities in Q1. It was more than double the quarterly average of the prior year.

Speaker 2

For some additional color, let me mention that we added 5 new 8 figure potential customer opportunities to the pipeline for FY 2024 during this Q1. We've never seen anything like the scale of these large opportunities. Generating qualified pipeline lays the foundation for future growth year on year. Now it's up to us to convert that pipeline into bookings and revenue. Secondly, on AI, the recent advances in AI and the potential that generative AI and large language models Have to unlock value in our data is a further catalyst to our existing tailwinds.

Speaker 2

On our last call, we shared how our partner Synthetic ran AI models on our data archive to track the Chinese high altitude balloon to its origin point. Synthetics analytics when combined with the PlanetScope archive function almost like a time machine for the earth, allowing users to scalably search data back through time going back 6 years. We've added a video to our Investor Relations website under the Videos tab that shows Synthetix model running on Planet Data and extracting insights. Their solution automates the analysis of large unstructured datasets like ours, so that even a non technical user can detect objects in minutes Or train and deploy AI models radically faster than even traditional AI approaches. It's hard to overstate the power of this.

Speaker 2

Being able to search the world for objects on demand has huge value for defense and intelligence customers, civil governance and for sustainability applications too. It's been inspiring to watch the reaction of customers and prospects when they see the value that the combined capabilities of these models and our proprietary data unlock. Similarly, we also signed a partnership with South Korea based AI company SI Analytics. SI Analytics plans to use Planet Data for a North Korea ballistic missile operations search project with a goal of enhancing global risk Management and mitigating tensions in Asia and beyond. If you joined us in our user conference in April, you would have seen our demonstration of Queerba, California, which you can find online.

Speaker 2

There's a proof of concept project from our ongoing collaboration with Microsoft. The Quivocal California demo While only video is available in your browser today, it's a glimpse of what's possible when you combine our proprietary data with industry leading AI capabilities. It's another milestone in our journey towards building a clearable earth, a vision I outlined 5 years ago at TED 2018. These AI centered partnerships are just the beginning. We see AI as a catalyst to help unlock the full potential of our deep data archive, which has the depth and consistency that others in the industry can't match enabled by a unique earth scanning constellation.

Speaker 2

AI models themselves hold little or no value without data to run on, but Planet Data and AI is an incredibly powerful combination. In short, Planet sits on a treasure trove of real time and archive data that is an incredible asset for this AI revolution. Thirdly, I'd like to share some additional business highlights that represent the pressing issues that our solutions are helping customers address. In the last month, we closed 2 multi year deals with international customers centered around defense and intelligence applications, 1 in 8 figures To a partner, 1 in the 7 figures. Overall, in a world of heightened global tensions, the need for greater security and transparency is clear.

Speaker 2

Recent global events are driving elevated interest in our capabilities amongst the defense and intelligence community. Turning to commercial clients. We extended our strategic partnership with AXA Climate, which I previewed on our prior call. AXA is a leading provider of consultancy services helping clients adapt to climate change And biodiversity loss. The partnership aims to offer continued satellite data driven insights for the development of parametric insurance products.

Speaker 2

In Q1, we also closed a 7 figure multi year renewal and expansion with Syngenta, which will enable their use of PlanetScope to globally set the foundation for growth, new applications and R and D in precision agriculture. Syngenta's existing work with Planet over the last several years has included using SkySat for monitoring corn and soy as well as plot verification. Turning to climate and sustainability, we have a few partnerships to mention here. The United Arab Emirates is hosting this year's climate conference COP28. With this context, we recently signed a partnership with the UAE Space Agency to build a regional satellite data driven loss and damage atlas for climate change resilience.

Speaker 2

The initiative aims to provide our data to countries facing high degrees of climate risk so that they can better respond, make informed policy decisions and enable financial programs for climate adaptation and mitigation. We are also seeing that sustainability regulation in various geographies Is a significant catalyst for wide scale adoption by civil government. Let me mention a few examples. Europe's Common Agriculture Policy or CAP Drives the need for governments in Europe to monitor for compliance. Together with our partner NIO, we closed a new deal with the Dutch paying agency.

Speaker 2

We're delivering Planet Fusion as part of the area monitoring system provided to the Netherlands by NEEO as part of their efforts in turn to increase automation of their monitoring. Relatedly, Planet won a multiyear 7 figure open tender award from the Welsh government to support the design and implementation of the rural investment schemes and the sustainable farming scheme. Similar to CAH coming down the pipe, we expect the newly adopted and Far reaching EU regulation on deforestation free products to be a driver. It forces companies bringing any of 7 commodities into the into the EU to prove that they did not cause deforestation all starting next year. In our view, satellite data is the scalable solution for monitoring to ensure compliance.

Speaker 2

Turning to South America, we recently signed a 7 figure multiyear Contract with Bolivia's Institute For National Agrarian Reform or INRA is our largest deal in a Spanish speaking country. INRA is using PlanetScrip and SkySat to map the country and monitor for good stewardship of public lands and title enforcement. They're also using our archive to gain insight into previous land use. Planet Data has proven more cost effective than the alternative of flying airplanes to capture imagery for INRA. Finally, on the sustainability thread, the Environmental Resources Management or EIM, a global sustainability consultancy also became a Planet Partner.

Speaker 2

Brings deep subject matter expertise to clients across industries contributing to more than 20,000 sustainability related projects each year. The partnership is designed to expand their imagery use cases, applications and reporting capabilities, having enabled decision makers to address their operational and sustainability goals. These recent wins are indicative of a diversity of customers we can serve and critical needs that our data address. Now to give a brief update on the M and A front. This last week, we launched PlanGrid Variables live on Planet subscription API enabled through the VandaSat acquisition.

Speaker 2

These products have opened new opportunities for us in markets like insurance. We've also been pleased with our recent acquisition of Salus Sciences. The integration is going well and they have been successfully executing the plan. At our Planet Explorer conference, we announced that we would add new plans to your variables building on team's work and they've already delivered on multiple sales opportunities for Planet. Meanwhile in Q1, we announced our intention to acquire the business to synergize and I'm pleased to say that it's still on track to close this quarter.

Speaker 2

We view the synergized acquisition as a key part of our strategy to bring the power of Earth observation to the mainstream and to position us to support regulatory programs such as the EU's common agricultural policy that I mentioned earlier. To summarize, we delivered solid Q1 results and had our strongest pipeline generation quarter in the company's history. Bookings came in lighter than we expected with some sales taking longer than expected and others landing at smaller values than anticipated. We're responding by adjusting our spending plans, prioritizing our investments on customers and opportunities where we see the highest ROI. And as a result, We are maintaining our profitability objective for next year.

Speaker 2

Our conviction in the significant scale of the opportunity for our business remains strong. And with that, I'll turn over to Ashley.

Speaker 3

Thank you, Will, and thanks everyone for joining us today. As Will mentioned, our revenue for the first Quarter of fiscal 'twenty four ending April 30 came in at $52,700,000 which represents 31% year over year growth. As of the end of Q1, recurring ACV or annual contract value was 93% of our book of business. Over 90% of our book of business consists of annual or multiyear contracts. Our average contract length continues to be approximately 2 years weighted on an ACV basis.

Speaker 3

Net dollar retention rate, which we measure relative to the book of business at the beginning of each year, was 98% and net dollar retention rate with Winvax was 99%. It's important to understand that at this point in the year, our net dollar retention rate is reflective of only 3 months. If you look at our prior 2 years of net dollar retention rate as detailed in our quarterly earnings investor presentation, our net dollar retention rate starts each fiscal year at 100% and then builds through the course of the year towards our final full year results. The slight decrease in NDRR For Q1 relative to the beginning of the year is primarily due to delays in renewing certain government contracts. For the full year, we're targeting an approximate 120 percent net dollar retention rate consistent with the targets that we have shared for the business in the past.

Speaker 3

Turning to gross margin, we expanded our non GAAP gross margin to 56% for the Q1 of fiscal 2024 compared to 45% in the prior year. This 11 point expansion of gross margins is driven by the growth of revenue, the efficiency of our Agile Aerospace approach and our one to many data subscription business model. As a reminder, We include the depreciation and amortization of CapEx in our cost of goods sold, mirroring the practices of publicly traded SaaS businesses. Adjusted EBITDA loss was $19,100,000 for the quarter. Capital expenditures, including capitalized software development, were $7,100,000 for the quarter or approximately 13% of revenue.

Speaker 3

This is lower than we anticipated due to the timing of receiving materials. Turning to the balance sheet. We ended the quarter with $376,000,000 of cash, cash equivalents and short term investments, which we continue to believe provides us with sufficient capital to invest behind our growth accelerating initiatives without needing to raise additional capital. We also continue to have no debt outstanding. At the end of Q1, our remaining performance obligations or RPOs where approximately $138,000,000 of which approximately 80% apply to the next 12 months and 99% to the next 2 years.

Speaker 3

As we've shared on prior calls, RPOs can fluctuate quarter to quarter as multiyear contracts come up for renewal. Also, please keep in mind that our reported RPOs exclude the value associated with the EOCL contract as well as other contracts The lighter than expected bookings in the past couple of months that Will mentioned earlier have led us to update our outlook for the full year. We are lowering our assumptions for new and expansion business in fiscal 2024 and modeling longer sales cycles and smaller average deal sizes, consistent with what we've recently observed. I'll note that we signed 2 contracts in the last 2 months that were 7 or 8 figures in size, but that are not expected to drive significant incremental revenue until Q3 or Q4 this year because of the expected timing of data consumption and the associated revenue recognition. So some of the challenge around our updated revenue forecast is timing.

Speaker 3

We see a similar challenge as we look forward to Q2 as some of our customers with contracts that are up for renewal in Q2 and Q3 are slowing data consumption to stay within their annual contract allowance. We believe the adjustments we have made to our forecast in response to all of these factors address the headwinds we saw and position us appropriately for the remainder of the year. With the changes we have made as of the end of Q1, approximately 80% of our revenue forecast for the year is already committed, and that's before factoring in additional renewals, new business or revenue from the acquisition of Synergize. Will already outlined how we're adjusting our expense plans and prioritizing our spend in light of our updated revenue outlook. We expect these adjustments to generate savings in the current year, but more importantly, we expect it to reduce our planned operating expense run rate at year end by over $35,000,000 to support our targeted path to profitability.

Speaker 3

I'd like to underscore our commitment to the objective of As we've said before, we have multiple levers to align our spend to growth rates, both on the CapEx and OpEx side of our business. We expect we can make these adjustments while continuing to maintain our competitive lead in the market. Turning to guidance. For the Q2 of fiscal 2024, we expect revenue of $53,000,000 to $55,000,000 which represents growth of approximately 11% year over year at the midpoint. Please note that the year over year growth rate is adversely impacted by the revenue upside of approximately $5,500,000 that we delivered in the Q2 of fiscal 2023, which was driven by elevated usage with a In addition, the year over year growth rate comparison is impacted by the conclusion of a large legacy contract in Q1, which we referenced on our last earnings call.

Speaker 3

We expect non GAAP gross margin for Q2 of 48% to 49%. The sequential decline in gross margin reflects earlier than initially estimated, which was caused by an unusual increase in solar activity that we and other LEO satellite operators have experienced in recent months. Our approach to earth observation provides us with significant redundancy to our operations, such that we continue to have capacity to onboard new customers and are not concerned with our ability to serve existing customers with the SkySat fleet. Our adjusted EBITDA loss for the Q2 is expected to be between negative And negative $17,000,000 We are planning for capital expenditures of approximately $10,000,000 to $14,000,000 For the full fiscal year ending January 31, 2024, we expect revenue to be between $225,000,000 235,000,000 or growth of 18% to 23% year over year, which includes approximately $7,000,000 of revenue We expect from the Cynergize acquisition based on an assumed closure in mid Q2. Our non GAAP Gross margin is expected to be between 52% 54%, which is lower than prior guidance both because of the lower revenue guidance and the approximately $5,000,000 of additional depreciation expense.

Speaker 3

Adjusted EBITDA loss is expected to We expect CapEx to be approximately $45,000,000 to $55,000,000 or approximately 20% to 23% of revenue. As shared on our prior call, CapEx for this year is driven primarily by investments in our Pelican program, which is on schedule to be ready in advance of the end of life of our SkySat fleet. Overall, we're pleased with how the program has been progressing and look forward to our 1st tech demo currently scheduled for launch later this year. Finally, before we turn to Q and A, I'd like to highlight that we're proud to have published our inaugural ESG report. It is meant to outline our company mission and lay the groundwork for Planet's sustainability program, while highlighting some of the ways we are making progress toward a more sustainable and equitable world.

Speaker 3

It includes our 2nd year reporting carbon emissions data and our first SaaS B disclosure. This marks just the beginning of our ESG reporting journey and we are excited to share our progress with all of you as we continue to grow and scale our operations and impact. You can find our ESG report on our website at planet.com/esg. Operator, that concludes our comments. We can now take questions.

Speaker 3

Certainly.

Operator

We kindly ask participants to limit themselves to 2 questions today due to the volume of attendees in queue. We will pause here briefly as questions are registered. The first question is from the line of Ryan Kountze with Needham and Company. You may proceed.

Speaker 4

Thanks for the question. I'm trying to correlate kind of the Some of the change in mix in Q1 with the downtick in the outlook for rest of the year, it looked like North America was a little soft and commercial was Quite soft in your fiscal Q1. Is it fair to kind of extrapolate that that's a source of weakness for the balance of the year?

Operator

Well, I

Speaker 2

would say, I mean, a lot of it is timing and some of it is the legacy contract. There clearly are some challenges in the economic environment for the commercial customers, but it's we're definitely seeing increased budget scrutiny and Longer sales cycles on the government side as well, so it's not just that. Would you add anything, Ashley?

Speaker 3

No, I think that's right. If you're talking about year over year Comparisons, it's important to remember we referenced the one larger contract that completed in Q1 and that was a North America contract. So that's certainly going to be one of the factors.

Speaker 4

Got it. Helpful. And on the change in gross margin outlook, I didn't quite catch everything you said there about the SkySat decline. Was there an accelerated depreciation or something that's impacting gross margin beyond just volume there On the outlook?

Speaker 3

Yes. You got it exactly right. So there are 2 satellites where we're now estimating a shorter useful life. So the impact to COGS on this year is roughly $5,000,000 and that's a relatively recent development. So it Just started at the very tail end of Q1, but most of the impact is hitting Q2 through about Q1 next year.

Speaker 2

And if I may Just to add a little bit of context here, what's going on is that the sun has a really abnormal amount of activity and what that does is it heats up the top of the atmosphere of the earth, Adding more drag. So basically all LEO satellite operators are facing this challenge, and this accelerated The end of life of these 2 satellites.

Speaker 4

That's really helpful. I'll pass the question queue. Thanks.

Operator

Great. Thank you. Thank you, Mr. Kuntz. The next question is from Trevor Walsh with JMP.

Operator

You may proceed.

Speaker 5

Great. Thanks for taking my questions. Appreciate it. Will, maybe just to ping off your comments on that From that last question, would that abnormal sun activity just potentially affect competitors a little bit And more in earnest since they might have a smaller fleet and so they have less to kind of be able to depend on kind of as a backfill, if you will, or do you not see that

Speaker 2

Yes. Well, absolutely. So the most important thing about our fleet is the Significant redundancy we have on our system, and that's both on the high resolution fleet, the SkySat and the Dove fleet That does the daily scan. Yes, we obviously the other thing to bear in mind is our agile aerospace approach just enables us to Flex to the demand much more swiftly. I mean, because we build and design and build all of these things in house, we can just flexibly Launch more when we need more and that also helps with this.

Speaker 2

But I mean the most core factor is the redundancy in the fleet.

Speaker 5

Great, terrific. And then maybe just to follow-up around the consumption piece either jump off for you or for Ashley. Do you get the sense as customers are maybe tailing back or curtailing their consumption rates a little bit to match the contracts, Is that really a function of just what's happening with the macro and kind of budgetary concerns? Or would there also just need just larger rightsizing of their Kind of consumption just based on they've had a year or 2 to understand what their needs are and they're just now right side in the contract regardless of Or is it really just attributable to them not wanting to kind of get ahead of their skis as far as, kind of just given the uncertainty in the more market environment. Does that make sense?

Speaker 3

It does make sense. I'd say the good news is as we think as we look forward to on the renewals front actually And we continue to see strong line of sight to strong renewal rate this year. And I said we're still targeting north of 120 percent NDRR. So it's not that We're seeing contracts renewing necessarily at smaller amounts. The issue is, as I mentioned last year, we saw a pretty significant uptick In the pace of consumption, starting in Q2, we attributed that to we had rolled out a number of software improvements that frankly just made it easier to access the data.

Speaker 3

And we had cautioned at that time that we didn't know whether customers would renew early or increase the size of their contracts Because if they continued at that pace, they would use up their contract allowance early. And what we're seeing now is as we're getting to those Q2, Q3 renewal dates, we're actually seeing customers slow down because frankly they just can't get the budget ahead of when it's set at the renewal date. So that's a little bit of what we're seeing that's impacting some of the Q2 compares in particular.

Speaker 5

Great. Thanks for taking the questions.

Speaker 3

Great. Thank you.

Operator

Thank you, Mr. Walsh. The next question is from the line of Jason Gursky with Citigroup. You may proceed.

Speaker 6

Hey, good afternoon everybody. Can you just provide a little bit more color on what's going on with the government contracts? You suggested that Things are not moving along as fast as you would like either on new deals or renewals. Where are you seeing that behavior? Is it here in the United States, outside of the United States?

Speaker 6

Just a little bit more color on what's going on with the government markets would be helpful.

Speaker 2

Yes, happy to do that. So yes, first We have seen the softness on the commercial side before. This is a little bit new data points on the government piece As is, by the way, the elongation on the commercial side. But on the government piece, I think that we've seen some of these Procurement cycle is taking longer than we had expected. These are complex government processes.

Speaker 2

But And to your sort of where does it divide up, I would say we've seen it both in small deals and larger deals and I don't know of any Geographic focus, so not aware of any distinction there. Does that answer your question?

Speaker 6

Yes, I think so. So you're not seeing it concentrated either inside or outside the United States, it's everywhere?

Speaker 2

No, no. And just to shed a tiny bit more light on that, just 1 of the 8 figure deals that we had mentioned in our remarks slipped, but now it's signed. And the revenue increase really ticks up is expected to tick up later in the year like Q3, and that was later than we had planned. So This is just been so it's timing basically.

Speaker 3

Yes. And we saw this impacting a couple of deals. It's not specific to the U. S. Where the deal was Kind of expected to land right at the end of the quarter, kind of slipped into early Q2, Got awarded the business, but that process of getting the ink on the paper is just taking a little longer.

Speaker 3

Seeing just some of the Government bureaucracy ticking up and unclear whether this is just a point in time or whether there's something else going on where Given the economic environment, governments also are getting more scrutiny around getting these procurements over the goal line. So we're looking at it and trying to understand it. Right now, we're making the assumption that Deals are going to be slower so that we factor that into our revenue assumptions, but it's kind of early days.

Speaker 5

Do you

Speaker 2

have the second question?

Speaker 7

Look, I

Speaker 6

know you've added a lot of Yes, I do. I know you've added a lot of headcount and CSM headcount, so sales headcount, CSM headcount. I'm just kind of curious how accurate you all have been in the past in forecasting out this kind of activity. And given the growth that you've all seen, whether the accuracy is not as robust as it has been in the past. Just trying to get an understanding of whether this is truly a market thing or if this is A result of potentially some growing pains as you all are bringing in onboarding a lot of new people and you're all trying to figure out the right process to be able to get The visibility that you need to appropriately manage the business?

Speaker 3

I mean, I think that's a fair question. We had a lot of Going on in Q1, we had our Explorer conference, which was phenomenal. We had our sales kickoff. We had 2 really phenomenal international conference at Munich All of that led to, as Will referenced, really strong pipeline, one of, I think, our best ever as a company And significantly above our historical averages. So all of that is pointing to a lot of great activity going on.

Speaker 3

And I think to your question is, is Some of this now is a lot for the team to be processing. We have a lot of new people that we were onboarding. And so is some of that factoring into The delays in getting the deals closed. I think in general, the important thing is, 1, Just great signals from the market, so having the pipeline. 2, we remain very confident in our team's ability to close it.

Speaker 3

But to your point, we want to make sure that we're factoring in whether it's a macroeconomic environment or to your point, new people and forecasting. We want to make sure that we're factoring in just some data points we saw coming out of Q1 and to how we're thinking about the rest of the year, so that We don't run into this kind of situation in future quarters.

Speaker 1

Okay, great. Thank you.

Operator

Thank you, Mr. Gursky. Our next question is from Mike Latimore with Northland. You may proceed.

Speaker 7

Great. Yes, thanks very much. Just on the OpEx changes you're Planning this year, can you just give a little more detail there? Is it across the board? And then I guess in the midst of that, what is the thought on just sales headcount growth this year?

Speaker 2

Well, maybe I can talk to the former and Ashley can talk a little bit about that. Overall, we're prioritizing to high ROI business areas, as we sort of mentioned in our remarks. On the go to market side, what that really means is that It's been a streamlining and focusing high ROI business areas in terms of geographies, vertical markets, higher ROI products, Moving some of the long tail smaller deals to our partners and to our platform, hence the Synergize acquisition. On the product side, I don't know if you saw our Planet Xplore conference and what we announced there, but we really talked about focusing we're focusing on the key products that we spoke about there, The plan to variables, pelican, AI. And in other areas, we made a number of bets on the smaller side, some of which have clear Near term ROI, others a bit further off and we'll be focusing more on the former and less on the latter given the situation there.

Speaker 2

Ashley, do you want to take the second

Speaker 3

Yes. So I think what's important is Again, a lot of positive signals in terms of the market and the demand. And so as we'll reference, there are areas where we will continue to invest And obviously having the feet on the street in those places where we have the pipeline and need to make sure we have the teams to go close it. And similarly behind those products where we are feeling a lot of pull for the market still and want to make sure that we're putting appropriate wood behind those arrows. But part of this also is just making sure that we're being very focused in how we make these investments.

Speaker 3

We've done a lot of investing over the last 18 months. And now is the time to make sure that we're being efficient and focused on the path to profitability.

Speaker 8

Got it. And then just on

Speaker 7

the pipeline, it sounds like that was very strong in the quarter and you referenced I think 5, 8 figure deals. Are there any commonalities among those deals in terms of new logos or expansions or Commercial versus government and then how did the sort of 7 figure pipeline do in the quarter? What was the last bit?

Speaker 3

That was the 7 figure. How was that in the quarter?

Speaker 2

Yes. Well, firstly, we I mean, We've never seen pipeline generation quite like this last quarter, and we really scrutinized and only had to put qualified deals into our pipe. And to have those 5 8 figure deals is just again, we've noticed anything like it. Most of that is in the government space, but there is a healthy mix between civil government and defense and intelligence. So it's quite a variety of applications.

Speaker 2

And what we're seeing drive this, as we hinted out a little bit on the call, prepared remarks, that the sustainability regulations that are I think big deals and then there's also AI, which is really an accelerant and a catalyst. So we're seeing this pretty strong momentum of these 7 and 8 figure deals, And you heard some of the wins that I spoke about. So yes, but summary off the charts pipeline generation, which is why It's a little bit mixed signals when we're talking about the reducing the revenue growth rate.

Speaker 8

Got it. Okay. Thanks.

Operator

Great. Thank you. Thank you, Mr. Latimore. Our next question is from Jeff Van Van Rhee with Craig Hallum, you may proceed.

Speaker 9

Great. Thanks for taking my questions. A couple. First, just Walk me through the sales, I guess, just the sales and usage environment and how it evolved, Particularly when this weakness started to really manifest itself, just a little more precision on when and what you saw.

Speaker 3

Yes. I'd say, in general, we always expect back end loading on a quarter for closing deals. We have the pipeline coming in. We had A lot of commit that we expected to convert. As we reach the Final weeks of the quarter and things pushed into early Q2, it still felt like we were on track.

Speaker 3

As Will referenced, we had a Really nice 8 figure deal closed in May. We had a couple of other wins that came over the goal line right in the final weeks or early in May. So The signal remained relatively strong, but there were, as I mentioned, one where we got the award, Still working to get the ink on the paper. We'll reference the 8 figure deal where because of budget On the part of the customer, they actually won't uptick their usage until much later in the year, which from our revenue recognition perspective, even though we've got this Multi year committed dollar amount when we actually start to record that revenue is going to be later than what we anticipated. And so those were some of the factors that caused us to have to refund the numbers as we were closing out the quarter.

Speaker 3

And then as we just looked at some of the metric averages coming out of the quarter, Historically, we've talked about sales cycles accelerating and average deal sizes improving and things of that nature. And this is really the Q1 where as we ran those numbers, we saw the trend going the opposite direction. And so we could treat that As a blip where we can make assumptions that such a trend, we have a very strong commitment to getting this company to profitability. And to ensure that we do that, we have to assume that these factors are going to continue so that we right size our expenses for that circumstance. But generally speaking, there's still a lot of really positive signals that we're seeing from the market and a lot of great activity going on with our sales team.

Speaker 3

We know we have to close the business, but we want to make sure that as we think about what's going to close when, we take more conservative assumptions so that we can size the expenses accordingly.

Speaker 2

Maybe the only thing I would just add to that is that keep in mind that this is just Very recent data and really only data point of 1 in a sense. So and we're creating new markets here, But we are paying close attention to it and understanding it more over time. But yes, as Actually, as I was just saying, we've got the demand and the pipeline here. It's up to us to convert it.

Speaker 9

Okay. And then my last question, just to read it back to you, it sounds like you're saying you didn't see any differences Really with respect to Civil D and I Commercial, whether it was new business booked in the quarter usage Pipeline, it sounds like you're kind of calling those all out as being on prior trends and not varying in any meaningful ways?

Speaker 3

No, I think I said something different,

Speaker 7

or

Speaker 3

at least how I heard you read it back sounded different to me. So one, we saw When we look back on the quarter that average deal sizes were down, whereas historically we've seen them trend up. We saw sales cycle

Speaker 9

Sorry, Ashley. No, I'm sorry. I definitely didn't phrase it well. I was just I guess the question was civil, D and I and commercial, Specifically, the weakness, obviously, you're taking everything down going forward. Are you taking down equally in terms of the outlook in each of those, civil, D and I, commercial, Usage and new business across the board.

Speaker 9

Yes, I didn't phrase it well.

Speaker 3

Got it. Yes. Okay, good. Yes. I'd say generally across the board.

Speaker 3

And in particular, like I said, some of the larger contracts where they were on that accelerated pace of usage Over the last few quarters, we've been engaging with those customers around the renewal, and that is There's a lot of that, for example, in government where they just frankly don't have the budget lined up until the quarter of the renewal. And so those are some of the things that are factoring that we're factoring in. And I don't think it's specific to any one sector. I think the surprise to us was historically we've seen the government Actually being strong in spite of the macro headwinds, whereas we saw a lot of caution already on the commercial side. And so this impact of budget cycles for government This is a relatively new phenomenon.

Speaker 3

Again, I don't anticipate any challenges with the renewals. It's just because they've been on such a high usage rate, The timing of getting that renewal versus getting that new revenue in is working against us.

Speaker 2

And again, this is one data point. So It's not a trend yet. We need to wait and see and to really understand it. Still analyzing. Yes.

Speaker 5

Okay. All right. Got it. Okay. Thank you.

Speaker 3

Great. Thanks.

Operator

Thank you, Mr. Vanary. Our next question is from the line of Kristine Liwag with Morgan Stanley. You may proceed.

Speaker 10

Hey, good afternoon, guys. Maybe bridging the slower booking in the quarter that you mentioned and the smaller revenue conversion, Can you bridge that versus a doubling of qualified pipeline? I mean, how similar or different are the customer profiles It's driving the near term headwind versus the longer term tailwind.

Speaker 2

Yes. I mean just to your general point, There's some mixed signals here. We did have an incredibly strong pipeline generation quarter and we saw some slowness in bookings, especially in recent weeks. Sales elongating and so on. I don't think there's a distinction in the mix between the And the pipeline and the revenue we're booking, so I don't think there's much distinction there.

Speaker 2

But again, Ashley mentioned this. We did spend a lot of our energies in Q1 on generating pipeline. It is true that we spent a lot on that. And Obviously, not satisfied with the bookings result, and it's our job to now spend the rest of the year converting that

Speaker 3

Yes. And to your question about sectors, I think the mixed signals actually span all the sectors. We saw Some really strong pipeline and strong interest from customers across commercial sectors like insurance In agriculture, we referenced some of these in the call, in the energy space. So there is a lot of really good activity going on there. I do think that there is heightened budget scrutiny.

Speaker 3

And when you're talking about a market making activity, you're not necessarily just replacing another budget. You're actually As a commercial customer, you're having to make budget for something that's new. And so that makes for longer sales cycles, especially in this environment. But the good news is what we see is a lot of strong activity on that front pointing to pipeline and demand. On the government side, as Will referenced, there's so many things going on right now that are tailwinds for our business from peace and security, We're obviously on the D and I side, but also a lot of the regulatory activity going on, on the sustainability side of the business.

Speaker 10

Great. Thank you. And then following up on the contracts where the dollar amount is smaller than you anticipated, Can you share any insight if the customer's budget for that category of spend for your product is the same, meaning that they could be Acquiring similar or complementary capabilities with your competitors? Or is it that they're really completely cutting this category of spend resulting in a smaller bookings?

Speaker 2

I'll just comment on the competitive piece. I mean, we're not seeing us lose any deals to competitors basically. It's not these are much more macroeconomic budget related issues and or government complexity of deals Than it is, anything to do with competition, mainly because our solution is completely unique, especially the data with Dan, which drives above these deals. Ashley, anything to add?

Speaker 3

Yes. I'd actually say it's quite the opposite from what you described in terms of it's Not necessarily that they're downsizing because there's not demand for the broader data amounts, but rather they're pacing the consumption so that they can get The budget dollars in for the larger deals. So I can think of a number of examples off the top of my head where the customer has used the budget that they had available To get the contracts started and to get going with our data, while they line up budget to have a larger consumption later in the year.

Speaker 2

But sometimes it takes Time to line up the budget.

Speaker 3

Yes, that takes time, but it's I think that's indicative of the fact that they're actually trying to figure out how to get more budget dollars allocated our way versus It's scaling it back.

Speaker 10

Great. Thank you. If I could squeeze one more in. I mean in AI, You guys mentioned that you have a few different partners that you're working with. In the future, how do you think about sharing economics?

Speaker 10

And How would that work? I mean, you have the data, but if they've got the processing power, how do you make sure that you're going to keep Your portion profitable and you're going to protect

Speaker 3

the data that you have?

Speaker 2

It's a great question. I mean, firstly, we're just so excited about what's going on in the field of AI here right now. I mean, The power of being able to search the planet is incredible, and that's what's happening with the combination of our data and these new AI tools enhances and speeds up the ability to extract out value for everyone. And We've seen a few kinds of use case areas like in defense and intelligence searching for spy balloons or in disaster response and civil applications like During building damage assessment, it's a wide variety of areas of this. But to your specific question about it, I just point out and something I mentioned a number of times, AI without data is not useful.

Speaker 2

You have to train it on data. So firstly, Planet has a massive stack of data. It's a treasure trove for these AI models. And secondly, we have the ongoing daily scan, which is how companies can or governments can continue to monitor things. And that's all because of this Unique daily scan, 2,400 images on our archive and then this daily scan.

Speaker 2

That is what's opening up all these new applications and it's that That is driving this interest in AI on top of satellite data. And that is that that's completely unique and proprietary to Planet. So it puts us in an unusual position and a very powerful one of where a lot of these top AI companies are coming to us because they know The AI without the data sets is really not nearly valuable, but once they combine it with a data set like ours, that puts us in a power Position to do these sort of licensing terms. And so far, the terms have been pretty favorable to us because of that recognition, I'd say.

Speaker 10

Great. Thank you very much.

Speaker 2

That makes sense. Hey, Navarath.

Speaker 10

Yes. Thanks.

Operator

Thank you. Our next question is from Edison Yu with Deutsche Bank. You may proceed.

Speaker 8

Hey, thanks for taking the questions. First, just one follow-up. I think you mentioned that you're going to maintain the EBITDA target. Can you just go over kind of how you plan to kind of offset the lower growth?

Speaker 3

Yes. As I mentioned, we've been looking at the expense growth plans and headcount growth plans that we had for the year and obviously scaling this back and making sure that they're focused on the highest ROI areas. So there are a number of areas as we've Reference multiple times where we're seeing strong demand signals, so we don't want to back away from investments behind that. But one, we can make sure that we're very focused on efficiency internally of our operations and to make sure that we're being very strategic and selective as to where We're making any incremental investments. So by doing these assessments, we've already scaled back Expense growth on the year, such that our exit run rate is north of $35,000,000 less than where we had expected to be.

Speaker 8

Understood. And I just want to ask quickly about Cynergize. I know you mentioned that it's a pretty kind of nominally low, but wondering if you can give any Insights to how fast that's growing, obviously we saw the conference, a lot of customers use it, maybe the growth trajectory and opportunity that that brings forward.

Speaker 2

Yes. We see it as being very valuable add on to almost every one of our customer relationships. It is a Front end helps people to ease use of our data, especially on the small long tail of small Clients, as I mentioned, that helps automate a lot of that segment, which has been costly in a sense, but also the big deals as well. I mean, a number of the partnerships we're talking about in Europe driven by the sustainability piece is like sustainable agriculture regulation, Demands countries track how they're doing on these sustainable ag practices and monitoring those and report on those. And they have some great automated tools that sit on top of our data to no one's name on that.

Speaker 2

So it's great. And overall, I'd also just comment that We're still on track to close in Q2 with that, and we feel pretty happy about that. And I'm very happy also with our other two acquisitions. And so we feel confident it's the right move.

Speaker 7

Thank you.

Operator

Thank you, Mr. Yu. Our next question is from the line of Greg Messiauk with Westpark. You may proceed.

Speaker 11

Yes. Thank you for taking my question. I wanted to circle back to the OpEx rightsizing That you've announced. Focusing more specifically on the SG and A line, what areas Do you see most likely to be impacted, if you could just kind of give us some more granularity on that?

Speaker 3

Yes. I think as Will referenced as we're looking at how we're focusing our go to market activities, The larger customers have been an area of higher ROI for us and smaller customers where we can deploy more automation and have a much lighter touch model, is obviously much more cost effective on multiple fronts. So Really, as we're thinking about our support model and leveraging our partner base, that enables us to reduce the amount of people internally that we're putting against supporting the longer tail of customers and really relying on partners as well as automation in our platform to address that side of the business. So that's an example of how we're thinking about really focusing our go to market motion.

Speaker 11

Thank you for that. And my follow-up is relating to your revised gross margin guidance for The year. You mentioned the headwind of the $5,000,000 impact to close to goods sold from the End of life of the 2 satellites. I was wondering, if there's any offsets to that headwind from some tailwinds Associated with presumably a more favorable product mix that's more heavily focused on software Relating to analytics and AI.

Speaker 3

As you may remember, our data subscription model is such that our direct margins on our core products are already quite high, kind of in the mid-90s as it is. So our primary expenses relate to our hosting costs, which are predictable, and then the depreciation of to satellites. So, there's as we use So

Speaker 11

there's not so what you're saying is this I guess what you're saying is there's not much of a tailwind left there given the high margin profile already you're seeing?

Speaker 3

I guess what I'd say is from a gross margin perspective, revenue for us is a tailwind because the direct margins are so high. So And as we increase our share of wallet with customers by selling more analytics, That is a tailwind, because that revenue is also very high gross margin.

Speaker 11

Thank you.

Operator

Thank you, Mr. Mazinath. Our last question will be from the line of Josh Sullivan with The Benchmark Company. You may proceed.

Speaker 7

Good afternoon.

Operator

Hey, Josh.

Speaker 7

Given where macros sales cycles that you guys Seeing capital markets are currently, do you think we see a consolidation cycle in Space AI and EO and Does Planet have an appetite to be that consolidator?

Speaker 2

Well, we've already talked about the fact We think of Planet as a natural consolidator in the space in general. I'd say we're more focused on going up the value stack than the and then on the aerospace side of API. We always be disciplined in thinking about the return on investment on that sort of move. But yes, I mean And data businesses in general, just stepping back and think about us and we think of ourselves more as a data business than a satellite business And as a data business, they tend to be very powerful when they have and they're more rare, but they have Extremely high lock in and high hard to displace when they come about. And so I think it is a natural Situation for consolidation and yes, we think that we're good and in a position of strength to do that in time.

Speaker 8

And then

Speaker 7

just one question on the solar intensity impact of the 2 satellites. Yes. Why wouldn't this have a broader impact on the consolidated And maybe what's the probability we see additional satellites needing accelerated depreciation and has that solar activity decreased at this point to reduce the risk?

Speaker 2

Well, no, it hasn't changed. It's still high and it's still elevated. Were you asking whether it affects other fleets? I think Juan is done.

Speaker 7

Yes. Just understanding if the activity the solar activity is still high, Is there still a risk that we might see other satellites in the console impacted by this dynamic?

Speaker 2

Well, no. Now we've taken it into account the difference that this is Mail made. So we can forecast that. But yes, it is an unusual situation and but Remember that our fleet is highly redundant. And one of the reasons that we are able to survive these sort of situations, we have a lot of redundancy in our fleet.

Speaker 2

And then also we continue to make operational improvements in that. So we're not worried about being able to continue to provide to our customers. And so, yes, we feel good about the ability to continue through this.

Speaker 7

Okay. Thank you for the time.

Speaker 2

No worries.

Operator

Thank you, Mr. Sullivan. That is all the time we have for question and answer session. So I will now turn the call back over to Will Marshall, Co Founder and CEO, for any further remarks.

Speaker 2

Just to summarize, we've said that we delivered pretty solid Q1 results and had our strongest Pipeline generation quarter in the company's history. Bookings did come in a bit lighter than we expected in the last in recent weeks. And so We're responding by changing our spending plans and prioritizing around our investments around key customers and high ROI activities, And as a result, maintain our profitability guideline. And overall, I'd say our conviction remains high and the scale of the opportunity is high, backed by the tailwinds that we've seen in sustainability, digital transformation, peace and security and now as a further catalyst to AI. Thanks all for joining the call.

Operator

That concludes today's call. Thank you for your participation. You may now disconnect your lines.

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Earnings Conference Call
Planet Labs PBC Q1 2024
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