Planet Labs PBC (NYSE:PL) Q1 2024 Earnings Call Transcript

Planet Labs PBC (NYSE:PL) Q1 2024 Earnings Call Transcript June 8, 2023

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

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. [Operator Instructions] I would now like to pass the conference over to our host Chris Genualdi, Vice President of Investor Relations. You may go ahead.

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

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

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

Further, the terms of these contracts can vary, and many of these contracts can be terminated by Planet or our customers 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.

Will Marshall: Thanks, Chris, and hello, everyone. Thanks for joining the call today. Our first quarter financial results were solid. We generated $52.7 million 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 an 11 percentage point increase, showing the ability for one-to-many data business model to drive significant margin expansion as revenue scales. We ended the first quarter 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 and 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 dataset. And we saw our products 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 is that 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.

We believe these recent changes reflect hesitation from customers as they enter the year with heightened budget uncertainty, as well as government procurement cycle is taking longer than we expected. Because of our data subscription business model [lighter] (ph) bookings in the beginning of the year have a more significant impact on the full-year revenue forecast and 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 [indiscernible] back our headcount expansion plans, which generated savings in the current year.

But more importantly, we estimate these changes will reduce our annual run rate expenses by more than $35 million going into next fiscal year. 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 higher gross margins and operational levers in the business that enable us to do this. I’d like to emphasize that through this, we continue to believe we have 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.

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 of opportunities in Q1. It was more than double the quarterly average of the prior year. For some additional color, let me mention that we added five new eight-figure potential customer opportunities to the pipeline for FY 2024 during this first quarter. 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, in particular, have to unlock value in our data is a further catalyst to our existing tailwinds. On our last call, we shared how our partner Synthetaic ran AI models on our data archive to track the Chinese high altitude balloon to its origin point, synthetics analytics when combined with the Planet Scope archive function almost like a time machine for the earth allowing users to scalably search data back through time going back six years. We’ve added a video to our Investor Relations website under the videos tab that shows Synthetaic’s model running on Planet data and extracting insights. Their solution automates the analysis of large unstructured data sets 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 purchase.

It’s hard to overstate the power of this. Being able to search the world for objects on demand has huge value for defense and intelligence customers, civil government, and the 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 North Korea Ballistic Missile Operations Search project, with the goal of enhancing Global Risk Management and mitigating tensions in Asia and beyond. As you joined us in the user conference in April, you would have seen our demonstration of Queryable California, which you can find online.

This is a proof-of-concept project from our ongoing collaboration with Microsoft, the global California demo aims to show how next-generation AI can make satellite data more accessible by making it searchable, conversational, and context-aware. Well, 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 Queryable Earth, as a Vision I outlined five years ago at 2018. These AI-centered partnerships are just the beginning. We see AI as a catalyst to help unlock the full potential of our data archive, which has the depth and consistency that others in the industry can’t match, enabled by our unique earth scanning constellation.

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 the 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 two multiyear deals with international customers centered around defense and intelligence applications. One in the eight-figures to a partner and one in seven-figures. Overall, in a world of heightened global tensions, the need for greater security and transparency is clear. 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. In Q1, we also closed a seven-figure multi-year renewal and expansion with Syngenta which will enable their use of Planet Scope to globally set the foundation for growth, new applications, and R&D and 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. The initiative aims to provide our data to countries facing higher 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 Agricultural Policy or CAP drives the need for governments in Europe to monitor for compliance, together with our partner NEO, we closed a new deal with a Dutch paying Agency.

We’re delivering Planet Fusion as part of the area monitoring system provided to the Netherlands by NEO as part of their efforts in turn to increase automation of their monitoring. Relatedly Planet won a multiyear seven-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 CAP, coming down the pipe, we expect new — the newly adopted and far-reaching EU regulation on deforestation-free product to be a driver. It forces companies bringing any of seven commodities 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.

Turning to South America, we recently signed a seven-figure multi-year contract with Bolivia’s Institute for National Agrarian Reform or INRA, is our largest deal in the Spanish-speaking country. INRA is using PlanetScope and SkySat map the country and monitor for good stewardship of public lands and title enforcement. They’re also using our archives to gain insight into previous land use. Planet data has proven more cost-effective than the alternative of flying airplanes to capture inventory for INRA. Finally, on the sustainability thread. The Environmental Resources Management or ERM, a global sustainability consultancy also became a Planet partner. ERM brings deep subject matter expertise to clients across the industry has contributed to more than 20,000 sustainability related projects each year.

The partnership is designed to expand our imagery use cases, applications, and reporting capabilities having enabled the 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&A front. This last week, we launched planetary variables live on planets subscription API enabled through the VanderSat acquisition. These products have opened new opportunities for us in markets like insurance. We’ve also been pleased with our recent acquisition of Salo Sciences, the integration is going well and they have been successfully executing to plan. At our Planet Explore conference, we announced that we would add new planetary variable building on that team’s work and they have already delivered on multiple sales opportunities for Planet.

Meanwhile, in Q1, we announced our intention to acquire the business of Sinergise and I’m pleased to say that it’s still on track to close this quarter. We view this Sinergise 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 are 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. Our conviction in the significant scale of the opportunity for our business remains strong. And with that, I’ll turn it over to Ashley.

Ashley Fieglein Johnson: Thank you, Will, and thanks, everyone, for joining us today. As Will mentioned, our revenue for the first quarter of fiscal 2024 ending April 30 came in at $52.7 million, 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 consisted of annual or multiyear contracts. Our average contract length continues to be approximately two years weighted on an ACV basis. 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 Winbacks was 99%. It’s important to understand that at this point in the year, our net dollar retention rate is reflective of only three months.

If you look at our prior two 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 are targeting an approximate 120% net dollar retention rate, consistent with the targets that we have shared for the business in the past. Turning to gross margin, we expanded our non-GAAP gross margin to 56% for the first quarter 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, marrying the practices of publicly traded SaaS businesses. Adjusted EBITDA loss was $19.1 million for the quarter. Capital expenditures, including capitalized software development were $7.1 million for the quarter or approximately 13% of revenue. This is lower than we anticipated due to the timing of receiving materials. Turning to the balance sheet, we ended the quarter with $376 million 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 were approximately $138 million, of which, approximately 80% apply to the next 12 months and 99% to the next two years. As we’ve shared on prior calls, RPOs can fluctuate quarter-to-quarter as multi-year contracts come up for renewal. Also, please keep in mind, that our reported our RPOs excludes the value associated with the EOCL contract, as well as other contracts that include a termination for convenience clause which is common in our federal contracts. While our Q1 results were solid, 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 two contracts in the last two months that were seven or eight 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, 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 Sinergise.

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 million to support our targeted path to profitability. I’d like to underscore our commitment to the objective of achieving adjusted EBITDA profitability by no later than the fourth quarter of fiscal 2025 or calendar year end 2024. 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 second quarter of fiscal 2024, we expect revenue of $53 million to $55 million, 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 $5.5 million that we delivered in the second quarter of fiscal 2023, which was driven by elevated usage with a number of our consumption customers. The heightened usage rates last year create a challenging year-over-year comparison, especially as some customers have adjusted their usage rates down to stay within their annual budget envelope, as I mentioned previously. 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.

We expect non-GAAP gross margin for Q2 of 48% to 49%. The sequential decline in gross margin reflects the accelerated depreciation of two of our SkySat satellites, which we expect to lower and re-enter the earth’s atmosphere later this year and mid-next year, 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 second quarter is expected to be between negative $20 million and negative $17 million.

We are planning for capital expenditures of approximately $10 million to $14 million. For the full fiscal year ending January 31, 2024, we expect revenue to be between $225 million and $235 million or growth of 18% to 23% year-over-year, which includes approximately $7 million of revenue we expect from the Sinergise acquisition based on an assumed closure in mid-Q2. Our non-GAAP gross margin is expected to be between 52% and 54%, which is lower than prior guidance, both because of the lower revenue guidance and the approximately $5 million of additional depreciation expense. Adjusted EBITDA loss is expected to be between negative $67 million and negative $58 million. We expect CapEx to be approximately $45 million to $55 million 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 first tech demo currently scheduled for launch later this year. Finally, before we turn to Q&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 sustainability program while highlighting some of the ways we are making progress toward a more sustainable and equitable world. That includes our second year of reporting carbon emissions data and our first SASB 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.

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Q&A Session

Operator: [Operator Instructions] The first question is from the line of Ryan Koontz with Needham and Company. You may proceed.

Ryan Koontz: Thanks for the question. I’m trying to correlate kind of 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 first quarter. Is it fair to kind of extrapolate that that’s a source of weakness for the balance of the year?

Will Marshall: Well, I’d 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 and 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?

Ashley Fieglein Johnson: 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.

Ryan Koontz: 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?

Ashley Fieglein Johnson: Yeah, yeah. That is exactly right. So, there are two satellites where we’re now estimating a shorter useful life. So, the impact to COGS on this year is roughly $5 million 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.

Will Marshall: And if I may just add a little bit of context here. What’s going on is that the sun has really abnormal amount of activity. And what that does is that heats up the top of the atmosphere of earth adding more drag. So, basically, all LEO satellite operators are facing this challenge and this accelerated the end-of-life of these two satellites.

Ryan Koontz: That’s really helpful. I’ll pass the question queue, thanks.

Ashley Fieglein Johnson: Great. Thank you.

Operator: Thank you, Mr. Koontz. Next question is from Trevor Walsh with JMP. You may proceed.

Trevor Walsh: Great. Thanks for taking my questions. Appreciate it. Will, maybe just to paying off your comments on that — from that last question. Would that abnormal sun activity just potentially affect competitors a little bit more — more in earnest since they might have a smaller fleet and so they have less to kind of be able to defend depending on kind of the backfill if you will, or do you not see that necessarily kind of affecting them in that way?

Will Marshall: Yeah. 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. Yeah. We, obviously, the other thing to bear in mind is our agile aerospace approach just enabled us to flex to the demand much more swiftly. I mean, Dove, because as 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, but I mean the most core factors the redundancy in the fleet.