Planet Labs PBC Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
September 7, 2023

There are 10 speakers on the call.

Operator

Afternoon. Thank you for attending today's Planet Labs PBC Second Quarter of Fiscal 2024 Earnings Conference Call. My name is Alexis, 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 Chris Ginaldi, VP of Investor Relations.

Operator

You may proceed.

Speaker 1

Thanks, operator, and hello, everyone. Welcome to Planet's Q2 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, 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.

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 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 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 The terms of these contracts can vary. 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.

Speaker 1

Over to you, Will. Thanks, Chris, and hello, everyone.

Speaker 2

Thanks for joining the call today. For the Q2 of fiscal year 2024, we generated a record $53,800,000 in revenue, representing 11% year over year growth, in line with our expectations. Non GAAP gross margin came in at 52%, above the high end of our expected range. Our adjusted EBITDA loss for the quarter was $14,500,000 also better than expected, reflecting company wide focus on operational efficiency. We ended the Q2 with 944 unique customers spanning across Defense, Civil Government and Commercial Markets.

Speaker 2

Today, we'll cover a number of items, including recent organizational changes, M and A, Sales wins and product developments. So let's dive in. Starting with organizational changes. In Q2, we undertook significant efforts To focus and optimize resources in support of sustainable long term growth and profitability. Firstly, on August 1, we announced A headcount reduction that led to an approximately 10% reduction in force.

Speaker 2

This was a difficult decision, but one that ultimately better positions Planet for the opportunity ahead of us. Our business has scaled rapidly over the last 18 months. And while we see the market for our solutions continuing to expand, An increased breadth of projects and people resulted in increased cost and complexity. We expect this action will support greater focus, Agility and operational efficiency across our organization. On product engineering priorities, we are pacing the build out of our next generation satellite fleets optimize our resources and support our 1 year payback targets for the satellites.

Speaker 2

I'll cover recent milestones achieved in our Pelican and TalendSure program shortly. And one area we're investing more behind is AI. We are seeing promising signs of commercial opportunity in AI, which I'll cover in a moment. We're also actively strengthening our go to market strategy. This itself has 3 components: 1, Aligning our teams and investments behind our core opportunities, Defense and Intelligence, Civil Government and Agriculture Solutions, our direct Sales team is focused on serving high value large customer opportunities within these markets.

Speaker 2

This includes selling our daily PlanetScope scan with AI enabled analytics to defense and intelligence customers, selling our area monitoring for regulatory enforcement to civil government customers and selling agriculture That utilize our planetary variables. We plan to serve customers in other industries, primarily through our growing network of partners around the globe. 2, we will shift towards supporting smaller opportunities via our platform enabled by the Cynergizer acquisition, which we'll discuss momentarily. These changes will allow our commercial teams to focus on high ROI, large opportunities in our pipeline. 3, we're taking steps to streamline and simplify our sales processes.

Speaker 2

We expect these actions will increase sales efficiency and shorten Customer time to value. Ultimately, these organizational changes and programmatic focus have sharpened our efforts on key priorities and reinforced our path to profitability. To finish up the organizational updates, in early August, we closed the acquisition of Synergize, which will be a foundational element and accelerant of our Earthdata platform. We see Cynergize as an enabler to broad geospatial adoption and enhanced ease of use for customers, Both speeding and widening customer adoption. We're making our data easier to work with by enabling customers to analyze data and create applications directly on our Today, our customers and partners typically build their own custom workloads to download, analyze and integrate our imagery.

Speaker 2

With Cynergis, they will be more easily able to do this in our cloud platform, leveraging the geospatial power tools that Cynergis has created. This will speed time to value for our customers in addition to more deeply integrating our platform into critical customer operations. Leveraging Sentinel Hub Synergizer's self serve platform, which already serves thousands of users, we will shift towards supporting small deals through a lower touch channel. We're excited about the step function expansion of our platform that this acquisition can enable and the incredible talent joining Planet. We'll go into more detail and provide a demo of Cynergizer's capabilities at our Investor Day in October.

Speaker 2

Let's turn to recent sales highlights. Starting with the defense and intelligence market, we recently closed an expansion with the U. S. Space Force. This 12 month extension will enable Support of Coalition Partners' military training exercises around the globe, utilizing responsive commercial space capabilities.

Speaker 2

Through our work together, they have been leveraging SkySat images, SkySat video and AI based vessel detection to support the U. S. Department of Defense's Commercial satellite capabilities. We also recently received a new 7 figure ACV award from a U. S.

Speaker 2

Government agency for high resolution SkySat tasking solutions. This award was won through one of our Planet partners. We're proud of the work we do to support multiple agencies across the U. S. Government.

Speaker 2

Additionally, we recently won a 7 figure ACV contract to provide our data to our Ministry of Foreign Affairs in Asia. There's a new customer for us and the contract was won through one of our partners in the region. Within the civil government sector, we are seeing increased Demand driven by disaster prevention, emergency response as well as land management and permitting. For example, we recently expanded our contracts with multiple contract with the Northwest Territories Centre for Geomatics and a 6 figure ACV expansion with Quebec's Ministry of Natural Resources and Forests. Our data and solutions are being used to support critical disaster response efforts during the wildfire season, to monitor the impacts of climate change on ecosystems and to support land rights across Canada.

Speaker 2

Similarly, here in California, our data is being used by authorities to identify areas at risk And to inform prevention efforts. During Q2, we signed a new deal to provide PlanetScope monitoring, base maps, archive access, SkySat tasking and synergize platform access to support wildfire fuel reduction programs. As the frequency and scale of wildfires increase, Causing tens of 1,000,000,000 of dollars in worldwide damages annually and broader natural disasters causing 100 of 1,000,000,000 of dollars in damages, Our solutions help government customers around the globe prevent and respond to these disasters. In the case of wildfire, this can save significant costs through prevention and reducing severity as well as help save lives. In Europe, we were recently awarded a new 7 figure ACV multiyear contract The UK government will use our data to support its environmental land management scheme, allowing for countrywide detection of a wide range of biophysical parameters.

Speaker 2

It's worth noting that the Rural Payments Agency is an early example of a customer accessing our Fusion data via Cynergizer's platform. In the commercial market, we continue to add great customers across the agricultural solutions, energy and insurance sectors. Now I want to spend a moment on how AI, especially new generative AI and large language models are enabling Planet's business traction. Planet has a deep proprietary archive of Earth data that grows by terabytes every day, a treasure trove for generative AI models to extract We've seen significant interest in this recently. And I'm pleased to report that last quarter, we signed our first deal in this area, a 6 The latest example of this was in response to the recent wildfire in Maui.

Speaker 2

In continued collaboration with Microsoft, together we created an AI based building damage assessment. Within 24 hours of being notified of the fire, This was delivered to the Red Cross who used it to quickly rearrange work in the field to respond to the most urgent priorities first, Better supporting first responders on the ground. Damage assessment information is vital as it is used to make Operational decisions such as where to focus response efforts. It can also be the first step in validating addresses for residents that may qualify for financial assistance, for instance. As you'll recall, we've recently partnered with Microsoft to support a building damage assessment solution in response to the war in Ukraine and the earthquake in Turkey and Syria.

Speaker 2

Together, we've shortened the time it takes to deploy the building damage assessment in each event from months to days to hours. Whether human conflict or natural disaster, access to timely, reliable data is critical to supporting quick and effective humanitarian responses and in some cases, avoidance and prevention. This important work has already led to interest in our solutions from other countries and organizations. In all, we see AI as a powerful force that can unlock the potential of our deep data archive and accelerate the adoption of our solutions. Before I turn it over to Ashley, I'd like to highlight a few recent product developments.

Speaker 2

We're continuing to make great progress on our next generation missions, Pelican and Tanja. I'm excited to announce that our first Pelican tech demo, TD-one, is now fully built and being ready for launch later this year. While this first Pelican is truly an R and D satellite, whose primary mission is to test the satellite platform and operational systems that are common between Pelican and Tanja. It's a critical milestone in our program and I'm incredibly proud of our team's progress developing the unprecedented capabilities this new fleet promises. Further, Tanager's imaging spectrometer developed and built by NASA JPL is nearing readiness for integration onto our Tananger 1 satellite, which we expect to have ready for launch next year.

Speaker 2

The spectrometer is the instrument that will allow us to detect, pinpoint and quantify point source emissions in methane And carbon dioxide, which we've discussed before, has huge potential to support the global sustainability transition. Continuing that vein, We recently shared our concrete plans for the upcoming release of our forest carbon planetary variable. This groundbreaking dataset Aims to provide insights into forest change and carbon capture at nearly the individual tree level, serving voluntary carbon markets, Current offerings in this market are often based on data that is years out of date or significantly lacking in accuracy. Our forest carbon product has the potential to match the accuracy of physical or airborne measurements at a fraction of the cost covering the entirety of the earth land mass. We plan to launch a global 30 meter resolution product this year and a global 3 meter resolution product updated on Quarterly basis in 2024, I want to underscore the significance here.

Speaker 2

With this capability, we hope to underpin global carbon markets, accelerating our ability to tackle In summary, this quarter marked 1 of sharpening focus, increased operational efficiency and improving execution. While the economic climate has been challenging for many companies, including Planet, we also have clear opportunities for changes within our business To support faster growth and a significant and growing pipeline of opportunities to pursue, we expect the changes we're making will make Planet a stronger, more agile and more We continue to feel the pull from customers for our insights that our business enables. Our focus is on improving execution across the board through prioritization and simplification. I'll now turn over to Ashley for Review of the financials and our outlook. Over to you, Ashley.

Speaker 3

All right. Thank you, Will, and thanks, everyone, for joining today. As Will mentioned, our revenue for the Q2 of fiscal 2024 ending July 31 came in at a record $53,800,000 which represents 11% year over year growth. Our revenue for Q2 does not include any revenue from the Cynergize acquisition, which closed in August, a little later than we had originally anticipated. On our prior call, we highlighted the record amount of qualified pipeline opportunities generated in Q1, which was more than double the quarterly average of the prior year.

Speaker 3

We remain pleased with the pace of qualified pipeline generation during the Q2, reflecting the growing demand we continue to see for our solutions. In particular, civil government pipeline growth has been especially robust, driven by applications such as disaster prevention and emergency response, fueled unfortunately by the climate crisis that continues to unfold around the planet. In addition to agricultural and land use management and permitting, as Will mentioned earlier, we are also seeing emerging opportunities in civil for water monitoring and management applications, which are planetary variable solutions addressed directly. We were pleased to see a number of the 7 figure deals in our pipeline close in Q2 across multiple vertical markets, and the teams continue to make As of the end of Q2, recurring ACV or annual contract value was 92% of our book of business. Over 90% of our book of business consists of annual or multiyear contracts and 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 fiscal year was 102% And net dollar retention rate with win backs was 103%. The improvement in NDRR for Q2 relative to the prior quarter is driven by customer expansions, particularly in the government sector. It's important to understand that at this point in the year, Our net dollar retention rate is reflective of only 6 months. If you look at our prior 2 years as detailed in our quarterly earnings investor presentation, Our net dollar retention rate starts on day 1 of each fiscal year at 100%, then develops through the course of the year toward our final full year results. For the full year, we are now targeting an approximate 115% net dollar retention rate, which is lower than we previously expected, driven by the anticipated delay of 1 of our 8 figure ACV expansion opportunities with a large government customer.

Speaker 3

Turning to gross margin. Our non GAAP gross margin for the Q2 of fiscal 2024 was 52%, unchanged from the prior year despite the accelerated The rest of our satellite fleet is operating well in spite of the continued heightened solar activity, thanks to the skill, expertise and agility of our world class mission operations Adjusted EBITDA loss was $14,500,000 for the quarter, which is better than we previously expected, reflecting our focus on driving operational efficiency across the business. As Will mentioned, we recently announced that we have restructured our teams to align resources behind our high priority growth opportunities and to reinforce our path to profitability. We expect to incur a non restructuring charge of approximately $7,000,000 to $8,000,000 the majority of which will hit in Q3. The estimated reduction in our annual operating run rate entering fiscal 2025 is more than $35,000,000 versus the exit run rate we expected when we started this year.

Speaker 3

Will already covered some of the changes we've made to our go to market strategy to increase sales efficiency and time to value for our customers. On the product and R and D side, we focused our teams and resources behind our core initiatives, including the Pelican program, our Earth data platform and unleashing the potential of our data with AI. As part of the efficiencies we're achieving within our space systems teams, We have reassessed the cost to deliver on some of our funded R and D programs, which resulted in a one time increase in contra R and D expense recognized, reducing our R and D costs in the quarter by approximately $2,000,000 All of the changes we made across the business We are sharpening our focus in getting more efficient as a company, which we believe supports growth in our core markets and healthy bottom line expansion going forward. Capital expenditures, including capitalized software development, were $16,600,000 for the quarter or approximately 31% of revenue, above the guidance range we provided, primarily due to the timing of materials purchased related to the Pelican program. Turning to the balance sheet, we ended the quarter with $368,000,000 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 we still have no debt outstanding.

Speaker 3

At the end of Q2, our remaining performance obligations, or RPOs, were approximately $154,200,000 of which approximately 74% apply to the next 12 months and 96% to the next 2 years. The $16,200,000 increase quarter over quarter is primarily driven by recently signed large contracts with government customers. As we shared on prior calls, As we turn to guidance, I'd like to first provide color on our revenue forecast, especially as we are adjusting our forecast down from our expectations at the end of Q1. During Q2, we saw delays with some of our large government opportunities, which our expected revenue for the remainder of the fiscal year. While these opportunities remain active and advancing to account for elongated sales cycles, The low end of our range assumes that larger unsigned business contributes minimal revenue during this year.

Speaker 3

We have also adjusted the revenue contribution from Synergize to account for the timing and integration of the business. The high end of our range assumes that our later stage pipeline opportunities sign as forecast and contribute revenue during the second half of the year. We believe this approach to our forecast appropriately captures the revenue impact of delays with some of our larger opportunities. As mentioned, these opportunities are advancing and we are confident in our position to win them. For the Q3 of fiscal 2024, we're expecting revenue of $54,000,000 to $56,000,000 which represents growth of We expect non GAAP gross margin for Q3 of 50% to 52%.

Speaker 3

We expect our adjusted EBITDA loss for the 3rd quarter to be between negative $15,000,000 and negative $13,000,000 We are planning for capital expenditures of approximately $12,000,000 to $14,000,000 For the full fiscal year ending January 31, 2024, we expect revenue to be between $216,000,000 $223,000,000 or growth of 13% to 17% year over year. We expect our non GAAP gross margin to be between 52% 54%. We expect adjusted EBITDA loss to be between negative $63,000,000 and negative $55,000,000 We expect our CapEx to be approximately $48,000,000 to $52,000,000 or approximately 22% to 23% of revenue. Before we turn to Q and A, I'd like to remind everyone that we are hosting an Investor Day on October 10, 2023 in San Francisco as well as virtually. Please visit our Investor Relations website or reach out to our Investor Relations team if you would like to receive more details.

Speaker 3

We hope you're able to join us. In summary, it's been a challenging year in terms of the pacing of new business, which remains in contrast with the strong demand signals we continue to get from the market in the form of robust pipeline generation and high gross retention and expansion opportunities with our customers. We continue to make significant progress across our business and the recent initiatives to refocus our operations, reinforce our path to profitability and strong cash position. We're confident in the market opportunity ahead of us our team's ability to execute on our mission. Operator, that concludes our comments.

Speaker 3

We can now take questions.

Operator

We will now begin the question and answer session. The first question comes from the line of Michael Latimore with Northland. You may proceed.

Speaker 4

Thanks very much. Yes, so on the you mentioned the government vertical maybe seeing a little Delay there, is that more international or U. S? Can you give some color on that? And if the U.

Speaker 4

S. Government gets back into kind of Continuing resolution pattern, how do you think about that, I guess, affecting the business?

Speaker 2

I think it is both. But just one point on that. Just typically, government deals do take a little bit longer and that because we've got so much of our pipeline on the government side, both civil government, which actually is a big fraction of As well as Defense and Intelligence, it does take a little bit longer to close because the nature of those deals and those complex processes. Ashley, anything to add on that?

Speaker 3

Yes.

Speaker 2

About the international versus domestic?

Speaker 3

I think we're seeing it on both per Will's point. The budget challenges in GC certainly don't help companies that are selling to the U. S. Government, but we still continue to win business there. And by example, we recently So business is continuing and will continue to do so in spite of a continuing resolution.

Speaker 3

But nonetheless, We do see sales cycles elongating generally speaking in the government sector.

Speaker 4

Got it. And then the it seems like you're announcing a nice number of 7 figure deals. Do you have the latest stats on the 7 figure deal count now versus a year ago, something like that?

Speaker 2

Yes. Actually, I mean, we do have a Huge pipeline of qualified opportunities. I can share that we've actually got 70 deals that are 7 or 8 figure in our qualified And so we've got a huge opportunity to go after and we saw that continue to expand that pipeline of opportunity In Q2.

Speaker 3

Yes. And just in general, 7 figure deals is in our business have grown year over year So we'll talk about more of those stats at our Analyst Day.

Speaker 4

Yes, very good. Thank you.

Speaker 3

Thank you.

Operator

Thank you for your question. The next question comes from the line of Jason Gursky with Citigroup. You may proceed.

Speaker 5

Good afternoon, everybody. Hi. Actually, a quick one for you. You continue to reiterate the profitability breakeven next fiscal year by the end of the year there. Can you update us on your assumption related to revenue growth that's tied to that statement?

Speaker 3

Well, I'd say we're committed to that regardless of revenue growth for next year. So obviously getting to operating Profitability is an important first step in getting to overall cash profitability. But in terms of thinking about next year's growth, While we're not giving specific guidance at this point, I'd just remind you that this year we did have some pretty significant headwinds coming into the year that we talked about From a growth rate perspective and that included the large legacy contract that was about $12,000,000 last year and contributed very little revenue this year, as well as some of the commercial customer contractions that we talked about just given the general macroeconomic environment that we saw coming into the year. So as we continue to build business this year, we'll be overcoming some of those difficult compares year over year as we think about next year and the potential to really see the growth rate reaccelerate. But as I said, we're not relying on growth rate significant growth rate acceleration in order to get to that commitment to EBITDA breakeven.

Speaker 5

Okay. And then, Will, on Pelican, you described, for lack of a better phrase here, I guess, Unit 1 as A little bit more of an R and D or a prototype, I mean that was the word that you used to talk about some of the similarities. Yes, Jeff. There we go. That's the word.

Speaker 5

So that you can make sure that whatever you've got going on there is going to work with your manager as well. So Is the expectation here that this initial launch won't have any revenue associated with it and then you're just using it as kind of a test bed?

Speaker 2

I think that's correct. Yes, I mean these are tech demos. I mean the way we do, we've described before our agile aerospace approach, which It's one of our core differentiators that enables us to rapidly improve capabilities over time and then respond to Demand from the customers, both in the sense of improving capabilities and ramping up the number of spacecraft we need for demand and Continuity of our spacecraft mission. And yes, always through the history of developing new spacecraft, especially a new spacecraft bus Like the Pelican bath that supports both Pelican and Challenger, those are complicated new spacecraft. So the main thing we're doing on our first mission Is establishing the spacecraft itself, all the aspects of it, the reaction wheels and the solar panels and the radios and the Computers and everything work together, and that's the most important piece is getting data on all of that path.

Speaker 2

And then subsequent ones, we will turn into operational spacecraft.

Speaker 5

Is it going to go up with an electro optical sensor on it? You named everything but the

Speaker 2

Oh, yes. No, it's going up with the payload, but it's just not the prime mission of the spacecraft To drive that so much as to learn and to improve that spacecraft. But again, it will go up with a Pelican bus sorry, payload, The telescope, the high resolution telescope, but it's mainly the bus that will also support the hyperspectral instrument for the TANNER mission that will be Next year, I also mentioned that the hyperspectral instrument is nearing Readiness now. So we're close on that one too.

Speaker 5

Yes. And I guess last one for me.

Speaker 2

That makes sense to you. Yes.

Speaker 5

Yes, it does. Yes, for sure. I appreciate that. And then last one for me. Just turning quickly to the commercial side of things.

Speaker 5

We've got some new regulations going into effect In Europe, to require companies that are bringing or sourcing Materials from other parts of the world to kind of prove out their supply chains and how those impact Deforestation that's going on around the world. I'm just kind of curious as to how you see Planet playing in this and supporting companies That need to demonstrate to the EU regulators that the materials that they're sourcing are not leading to the deforestation of sensitive areas of the world.

Speaker 2

Yes. I mean, well, look, thank you for raising this because I mean, it is we're seeing this sort of regulation from the EU, in particular the EU Doctor, The deforestation regulation that is looking at importing of commodities and ensuring that they don't cause deforestation elsewhere. There's not many ways, at least at scale, that you can do this without our data set. And our data set is primed to check whether or not A commodity from a source is causing deforestation or not. So how we play into it, to answer your question, is really We have many agricultural companies that we're working to with who are trying to address this and how they will Meet the regulatory requirements under this act, which by the way, I think comes into force next year.

Speaker 2

So it's not like it's not that far away. And the scale of the proposition really demands our solution. Also though, we can work with the regulators themselves, which is The other side of that because, of course, they want to check that the companies are doing what they say. So we can play both sides of that.

Speaker 5

Right. Okay, great. I'll pass the line. Appreciate the comments.

Speaker 3

Thanks, Jason.

Operator

Thank you for your question. Our next question will come from the line of Trevor Walsh with JMP Securities. You may proceed.

Speaker 6

Great. Thanks, team, for taking my questions. Will, maybe for you, from your prepared remarks, you mentioned the Unfortunate kind of, I guess, uptick or at least deals coming off of some of the Natural disasters that we've seen lately, whether it's the fires in Maui or hurricanes and fires in Canada, etcetera, do you get a sense or Feel that those are state and local governments being very reactionary in their kind of use of turning the planet for the data that you can provide to help with those issues or do you also see governments taking a more proactive nature to sort of bring in your solution beforehand before the problem actually becomes a problem? Just We'd like to hear your thoughts on kind of it's more of a one off thing where something bad has to happen first for there to be an action taken.

Speaker 2

Well, look, governments are beginning to see the value of this to really help them both in the response and prevention. Let me just touch on it a tiny bit. In the Maui case, I mean, it was a terrible event. Our maps really helped in practical ways. So The Red Cross was using our data on the ground, in particular, the map of all the building damage as well as Hawaii state officials And even the President had a map with our our map in his hands when being briefed on this.

Speaker 2

So across the board, we're seeing real use And it's also, by the way, a great example of how AI can play a part because this is making that data more useful For the people on the ground, it's not just a picture. It is a map of the building with the damage and that can help in quick response and prioritization on the ground. But And one more issue point on that. The Canadian wildfires, we're seeing a similar sort of And that's why there were those 3 customer deals in Canada that I mentioned in my prepared remarks. But To your point about prevention, I think that's a really critical one.

Speaker 2

We can do work to help civil governments prevent and prepare for disasters. In fact, the work with the California that I mentioned with California on fires is actually about fire prevention by looking for the stocks For future fires that they can then do clearing in or and we are also Working with our soil water content on giving pre warnings of potential drought risk. Also you can help through that provide Flooding risk. And so some of these data sets can enable getting ahead. And as I mentioned, civil governments are spending 100 of 1,000,000,000 of dollars a year With these events, sadly, climate change is causing these extreme weather events to increase.

Speaker 2

And so that 100 of 1,000,000,000 is only going to go up. And we can help them save 1,000,000,000 of dollars getting ahead of that. So it stands to reason. I mean, so the civil governments are taking a while to pick this stuff up, But it is the pace is increasing. And we've had we've got a significant fraction of that pipeline that I mentioned of 77 or 8 figure deals, is civil government.

Speaker 3

The other sector where obviously this data is of interest, especially around Soil water content as well as, soil temperature is obviously the insurance sector, and that's both understanding risk models as well as thinking about preparedness for business continuity and business disruption.

Speaker 6

Great. Thank you both for that color on that. Super helpful. Maybe just one more from me. With respect to the Synergize acquisition closing, appreciate the perspective or the additional detail that The revenues might be coming in from that a little bit later than expected.

Speaker 6

Can you give us a sense of how customer numbers may or may not be adjusted? And I ask Given the fact that you had some nice acceleration in terms of the customer new customer adds in the quarter, and just curious if that is reflective of the Cynergize Acquisition at all or if those numbers are not necessarily included yet and how that might look? Thanks.

Speaker 3

None of the metrics that we provided from Q2 include synergize revenue or customer accounts. Synergize revenue or customer counts. Obviously, Synergize has a very large number of users on their Sentinel Health platform in In addition to a number of enterprise customers that would be coming over and government customers. So we'll be updating those numbers and talking about how We will roll those into our metrics at our Analyst Day.

Speaker 2

And let me just broaden it out just a tiny bit to say that we are Super excited by that acquisition closing. We really think it meaningfully accelerates our Earthdata platform strategy. And to my point about small deals and automation and how that's one of the components of speeding up Time to value for customers and sales cycles, and it's a way of dealing with smaller deals, enabling our AEs to focus on the big deals. Synergize really helps with that as well. So it's a product accelerant and it's a sales accelerant.

Speaker 6

Great. Thank you both for taking my questions.

Speaker 2

No problem.

Operator

Thank you. Thank you for your question. The next question comes from the line of Jeff Ben Ranghi with Craig Hallum. You may proceed.

Speaker 7

Great. Thanks. Thanks for taking my questions guys. A couple. First, just On synergize, I think the original number was around $7,000,000 was the expectation.

Speaker 7

I guess it's going to be a little bit lower here, maybe a month lower. But what's the number there now in terms of expectation?

Speaker 3

Sorry. And in the low do I give a range? I would give a range of about $4,000,000 to $6,000,000 for the year For the remainder of

Speaker 4

the year,

Speaker 7

sorry. Okay. And then just curious, Kenny, the overall progression of the quarter as you move through the 3 months of the quarter, I mean, obviously pipelines massive as you've called out, but cycles Seem like they're stretching and stretching. Just talk about kind of how you progressed and how the market felt as you moved through the quarter?

Speaker 2

I don't think we could say anything in particular about how we moved through the quarter, but what I'd just highlight is that We are market making here and a lot of these governments have we bring in a new capability to them and they've never done this We don't understand that process fully. As we understand it, we are adapting and that's why we're doing some of those changes to our Go to market approach. So I just want to emphasize that even civil government, some of which who have used satellite data before, The change in the motion here from buying satellites and building satellites to buying data. And in many cases, it's just a totally unique and new data product. And so you haven't done this before.

Speaker 2

So both we and they are learning through this. So it's more about a few bigger deals taking a bit longer and slipping out of the quarter. And we did have that some of that in Q2, although I'd point out one of the biggest ones that we had that slipped out of the quarter subsequently closed in the few weeks Afterwards, so it's still happening, but we are learning and understanding and then adapting to those processes.

Speaker 7

And then I guess as it relates to as a follow on to that as it relates to the guide, As I look through my numbers, the guide implicit for Q4 for the January 24 quarter is about $10,000,000 give or take below me. I was roughly It looks like it's roughly $58,000 $59,000 at the midpoint give or take, maybe a smidge lower, but close. Can you talk maybe even just to whatever degree you're willing to put some bands around it terms of that, call it $8,000,000 to $10,000,000 in Q4 revenue that went away, what were the drivers? I know you had the mega 8 figure deal that you've talked about that pushed out presumably that's at play there. But Even proportionally, can you talk about what's pushing out of Q4, kind of the breakdown of what's pushing out of Q4?

Speaker 3

Yes, Jeff. Thanks for the question. And I tried to give a little bit of this color in my prepared remarks as we thought about guidance for the rest of the year. Obviously, As we get into the back half of the year, the timing of when deals close really impacts how much revenue we see from that business, especially If you factor in ramp time for new customers. So to take this into account and To avoid coming back again in a quarter and having subsequent changes in a similar way, On the low end of our range, we basically just assumed very late timing for the closing of new business.

Speaker 3

So very minimal revenue impact of These larger deals and that's why you're seeing so much of an impact on Q4 because obviously we do have business that we're continuing And if those do close in Q3 or in early Q4, we would see revenue from them. So really what we're Attempting to do is look at what are the major drivers to revenue and how can we Take that and take further timing changes into consideration, whether that's around very large renewals or very large new business. We've got strong line of sight, to renewals, and I feel very good about that side

Operator

of the business, as I mentioned.

Speaker 3

But the timing of new business just continues to be a source of frustration for us. The teams We worked really hard through the end of the quarter to try to bring that business in and subsequently driving at least One of those large deals to conclusion in August and getting it over the goal line. But as we thought about the range for revenue for the remainder of the year, It felt prudent to suggest that some of this business continues to push to the right in the same way, even as the teams continue to work hard to close them.

Speaker 2

Yes. Let me only add that, so we are seeing, as we've discussed, the sales cycle still be long, although this quarter, there's many a few deals slipping out. And a lot of that sales cycle has to do with civil government and Defense Intelligence just being longer. But on the positive side, We've also said last time that we had some impact on the size of deals coming in smaller, Whereas actually we've seen that normalize back to what it was before. So that's a little bit of positive signal there.

Speaker 5

Got it. Okay. Thank you.

Speaker 3

Thanks, Jeff.

Operator

Thank you for your question. The next question comes from the line of Ryan Kuntz with Needham and Company. You may proceed.

Speaker 8

Thanks for the question. Circling back to Cynergize and I can sense the Simon, you guys have for that in lowering friction and customer onboarding. Can you maybe give us a perspective of how Cynergize has sold to date And where they are now versus maybe where you want to take them at a high level in the future relative like 12, 18 months timeframe medium term? Thanks.

Speaker 2

Well, I can start. Actually, at a high level, we do see that their platform being utilized by civil government a fair bit. And we, in fact, Even in our partnership prior to the acquisition, we're working quite regularly with them. I mentioned one other customer that we established Quarter in the U. K.

Speaker 2

Rural Payments Agency and there another example of using synergize together. And so we were working on that obviously before close. We've seen that in a number of deals. But so civil government is one area, but I don't know about the historical mix, I don't know if you want to Mention anything about that. They do have a large number of small deals that they've done as a self serve, 1,000 in the 1,000 of smaller Entities, so that was part of the goal of the Sentinel Hub effort that they have.

Speaker 2

I don't know if you've got anything to add to that, Ashley?

Speaker 3

Yes. What I would highlight is, this is a company that really did not have any type of sales or marketing So a lot was done by a handful of key employees in Pursuing RFPs and on the civil government side, specifically as it related to land monitoring and some of the sustainable agricultural programs in the EU. And We are excited to bring the power of Planet sales force to bear in expanding the reach of those kind of direct sales efforts, Even as also the fact that Sentinel Hub is as popular platform as it is without having had a lot of marketing or any marketing around it. In fact, when we had our Explore conference earlier in the year and we actually asked how many users in the audience were familiar with it And a very large number of hands went up. So it's exciting to us again to bring the power of Planet's platform and sales engine To their capabilities and bringing their capabilities into our customers is very exciting opportunity to grow that business.

Speaker 2

Yes. And their customers kept on wanting our data in their Platform, so here we sell both of those.

Speaker 8

Got it. Again, I remember that at the conference. On the so circling back on the self-service customers, would you say that the vast majority of the revenue is self-service today And you intend for it to remain that way? Or will you build some light touch or some kind of channels to feed that engine? Do you feel like you have work to do on go to market for that or you think it's ready to go, plug into your channel?

Speaker 3

Yes. So we've actually been we signed a partnership with them ahead of actually even signing the acquisition agreement. So our sales team is familiar with the synergized products and solutions and so there's a lot of activity already going on. I'd say From a revenue historical revenue perspective, it's been a blend of their larger direct business and then the smaller self-service business. And our intention, frankly, is to ramp both by bringing some of the business that we have that are smaller deals that are more suited To a light touch approach like Synergize has had, but also, like I mentioned, bringing the Synergize solutions into Some of our bigger opportunities both on the civil government side and on the enterprise side.

Speaker 5

Super helpful. Thank you.

Speaker 3

Great. Thank you, Ryan.

Operator

Thank you for your question. Your next question comes from the line of Greg Mesnias with Westpark Capital. You may proceed.

Speaker 9

Yes. Thank you for taking my question. In light of the cost cutting measures you've implemented, including a headcount reduction, how have those measures Impacted your sales and marketing effort. Have you guys perhaps shifted more of that effort to a 3rd party A reseller model or are you maintaining the current template with a different number of support staff? Any color would be great.

Speaker 9

Thanks.

Speaker 2

Maybe I can start at high level. I mean, look, in that restructuring, we took a deep look at all of the Projects and programs and which ones were the most effective, especially in terms of the growth areas, on our go to market. And Same was true in our go to market effort. And of course, the decision to make or do a restructuring And the reduction in force is really hard, but I think it positions the company in the right place going forward. Yes.

Speaker 2

And on the go to market side, it's not a fundamental change in strategy, but it is operational focus on these core vertical markets on streamlining small deals and other operational efficiencies, which can Speed up time to value and speed up sales cycles. Yes, that's what I would say at high level. Ashley, anything to add?

Speaker 3

Yes. In terms of your question around do we see a shift of moving to more of a reseller model, that's not really how I would think about The change in focus, obviously, relying on our partner ecosystem For solution selling and for some of the smaller deal opportunities and really More leveraging the capabilities of Cynergize and SentinelHub is the shift on the small deal side. But on the majority of our business, Certainly from an ACV perspective, the direct model continues to be the focus and really it's been about Narrowing the focus of our teams around those markets that the product market fit and the maturity of those markets is much farther along, so Do that through a focusing of the direct sales efforts, if that makes sense.

Speaker 9

Yes. Got it. Thank you. And just a quick follow-up. You mentioned some slowdown obviously in the commercial sector.

Speaker 9

With that, Have you guys changed or shifted any of the contract terms To your customers' future contracts that would perhaps address Any potential cherry picking of deliverables or alternatively give some inducements To increase the size of the contract? Thanks.

Speaker 3

Yes. So we're definitely as part of the Efforts that we've been doing in assessing our go to market motion, certainly looking at the packaging of our products, to Obviously, ensure that we continue to drive up average deal sizes. As Will said, we did see Average deal sizes tick up again in Q2, so back to kind of what we had seen in our historical averages. But as we continue to focus on those opportunities in those markets, where we have proof points and we know we drive value and we can drive value quickly, There's obviously an opportunity in the packaging of our solutions to drive higher overall average deal sizes.

Speaker 2

Great. Thank you.

Speaker 3

Thanks, Greg.

Operator

Thank you for your question. There are currently no further questions at this time. So I'll now turn the line back to the management team for closing or additional remarks.

Speaker 2

Thanks everyone for joining today. As you heard, the opportunity for our business is robust and our team is focused on executing. We're strengthening our go to market strategy and we've increased company wide focus on operational efficiency. The tailwinds for our business, the sustainability, digital transformation, as well as peace and security are driving demand, and we see AI as a further accelerant. In all, we're confident in the market opportunity and our team's ability to execute.

Speaker 2

And I look forward to seeing you at our Investor Day on October 10, where we share lots of exciting details about our product and business strategy. Thanks for joining today.

Operator

That concludes the Planet Labs PBC 2nd quarter of fiscal 2024 earnings conference call.

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Earnings Conference Call
Planet Labs PBC Q2 2024
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