Planet Labs PBC (NYSE:PL) Q3 2023 Earnings Call Transcript

Planet Labs PBC (NYSE:PL) Q3 2023 Earnings Call Transcript December 14, 2022

Planet Labs PBC beats earnings expectations. Reported EPS is $-0.15, expectations were $-0.17.

Operator: Good afternoon. Thank you for attending the Planet Labs PBC Third Quarter of Fiscal 2023 Earnings Call. I would now like to pass the conference over to your host, Mr. Chris Genualdi, Vice President of Investor Relations. Thank you. You may proceed.

Chris Genualdi: Hello and welcome to Planet’s third quarter of fiscal year 2023 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. 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. 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.

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Will Marshall: Thanks, Chris, and hello everyone. We’re glad you could join us. I’m pleased to share with you today our results for the third quarter of fiscal 2023, highlight some recent sales wins and talk through our progress on a number of strategic initiatives. I’ll also provide a perspective on the demand environment and our outlook for the remainder of the year. So let’s dive in. In Q3, we generated $49.7 million in revenue, representing 57% year-over-year growth. Non-GAAP gross margins expanded to 54%, up from 35% a year-ago. Yes, another significant year-over-year increase. We think this demonstrates the margin, potential of planet’s one-to-many data subscription business model. We ended the quarter with 864 unique customers spanning a diverse range of industries.

So to sum it up, we delivered another quarter of solid results in the face of an uncertain macro environment, which is a testament to the strong execution across the company and the mission critical nature of Planet solutions. Now I’ll take you through some highlights. As we discussed at our Investor Day in October, we’re increasingly focused on building partnerships to accelerate growth of our ecosystem of customers and users. There are three new and exciting strategic partnerships that I’d like to discuss first here today, the first of which is that last week, we announced a collaborative agreement with Accenture. We are combining Planet’s high-frequency satellite data with Accenture’s industry and technology expertise to collaborate on an array of sustainability and impact initiatives including traceable supply-chain strategy and database climate risk assessments to mitigate disruption across global value chains.

These are just our initial areas of focus. We’re thrilled to be working with Accenture and think our partnership will drive greater awareness of our offerings and the benefits of our data to deliver to organizations across many industry sectors. During the quarter, we also expanded our work with Microsoft. At the United Nations 2022 Climate Change Conference also known as COP27, we announced that we will be supplying satellite datas for African Climate Adaptation Projects developed out of Microsoft’s first global expansion of its AI for good lab into Nairobi, Kenya and Cairo, Egypt. This work builds on prior projects including the global renewables watch which is mapping the world’s utility scale, solar and wind installations and the creation of an important building damage assessment tool of Ukraine for the United Nations.

Our partnership with Microsoft demonstrates how the combination of AI and satellite data is a powerful tool for helping to address some of the world’s most complex and critical challenges. Finally, I’d like to highlight our partnership with Amazon Web Services, which we just announced today. We are directly embedding Planet data into AWS SageMaker, enabling data sciences and machine-learning engineers to acquire global, daily satellite data through the platform. This partnership helps customers build, train and deploy machine-learning model on geospatial data with great efficiency. The data from Planet’s consistent daily scan of the earth is and answers ready and ideal for developers to build-on. It’s an exciting early-stage go-to-market collaboration that amplifies the power of our sales organization with the significant potential given the large customer base of AWS.

This new collaboration with AWS supports our go-to-market strategy to accelerate data access within Geospatial tools and cloud platforms. Shifting gears to M&A, as you know, we view Planet as a natural consolidator and we’re particularly interested in joining forces with teams that have potential to accelerate our product roadmap and enhance our value proposition. With this in mind, we’re very excited to announce that we have signed an agreement to acquire Salo Sciences, a small California climate company specializing, measuring us constantly changing ecosystems. Since 2019, we partnered with Salo Sciences team to deliver insights, one example is their, California Forest Observatory, which dynamically maps first structure and vegetative pure loads at the individual tree level across California.

Earlier this year, we partnered to directly measure forest carbon in select areas around the world. We at Planet see a planetary variable for carbon as a key element for the global sustainability transition in general and the carbon offsetting market in particular. Today, Salo Sciences products include a forest carbon measurement tool, powered by Planet data that can help enable accountability towards the climate policies and market first carbon inventories and storage and much more. The next step is to extend the Salo sciences products and reach and that’s where Planet comes in. This acquisition plays in neatly with our Board of planetary variable work including developments from our previous acquisition of VanderSat. I’m very excited what we can accomplish together.

This deal is signed and subject to closing conditions. We expect to close early next year. We look-forward to sharing more at that time. Turning to customer wins, let’s start with the government sector. Demand for our solutions with the government customers both civil and defense, domestic and international is robust. During the third quarter, we closed the renewal and expansion contract worth more than $10 million over the next 12 months with an international Ministry of Defense customer. We’ve worked with this customer for over three years and we’re proud to continue to support them. On the civil government side, during the last month, we expanded our contract with a German Federal Agency for cartography and Geodesy also known BKG. As shared previously, this pioneering countrywide partnership is providing access to planet data for over 400 German federal institutions to help promote public and silver safety and many other use cases.

We see this as an innovative model that has the potential to be repeated in other countries. I’d like to take a moment to share some of the recent highlights that have come out of the Brazil MAIS Program, which is the largest remote sensing project in Brazil. Through this project, Brazilian federal agencies are able to gain access to planet’s daily satellite imagery and change from our partner, SCCON, a Brazilian company that develops and supplies geo IT solutions. With the implementation of our joint solution, the Brazilian Federal Police have used our data to help address a list of activities in the region, as an amazing example of capabilities of our products at scale and the potential to deliver huge value to customers. The project leverages Planet’s monthly base maps and daily PlanetScope data and Planet’s analytics feeds to staff and new roads and buildings across the country.

Then these feeds into specialized alerting software developed by SCCON to bring the right information to the end-customer. The project has already yielded significant benefits including helping the Brazilian government collect the equivalent of over US$1.9 billion in fines, seas goods and frozen assets since 2020. Additionally, over 3,000 public agents were mobilized throughout the project in over 120 operations. We’re proud to be able to support this initiative with our partners in Brazil. Turning to the commercial side of the market, during the quarter we signed a deal with a Fortune 500 Global Energy Services company. Planet is providing this customer it’s high-resolution imagery of remote energy facilities, that is being used in a digital platform for the display of greenhouse gas emission, measured by onsite census, helping to quantify, prioritize and rectify emissions quickly and efficiently, another example of how satellite and on-the-ground data can be combined to solve critical issues.

In the insurance sector, we recently signed a deal with ZEP-RE, an reinsurance provider based in Nairobi, Kenya. ZEP-RE is leveraging Planet’s base maps to enhance drought risk protection in the Horn of Africa. Planet will deliver Normalized Difference Vegetative Index or NDVI time series data to measure vegetative health for an area of more than 600,000 square kilometers. ZEP-RE also plans to use Planet data as their independent calculation agent to quantify condition and provide metrics to measure drought. Working with Planet they aim to expand their insurance program from supporting a 150,000 to over 250,000 per store less in the process ZEP-RE is seeking to generate a Drought Index, which can be customized to locations to determine payout amounts, generate premium rates and enable faster claims.

We’re also expanding our partnership with Swiss Re. In the last year, we have provided index insurance services with Swiss Re in 14 countries, providing drought cover for organizations of farmers around the globe, leveraging the planetary variables from the VanderSat acquisition, most notably the global soil moisture product is a very valuable and unique application of our data that we are seeing scaled across global markets. In other developments, we launched this quarter, a nonprofit and NGO program to provide access to Planet imagery and support services, specifically for these types of organizations. This program enables NGOs to get up and running with standard pricing and packaging and customer onboarding. It’s a seed investment at this stage, but overtime we hope it will foster similar benefits to those we have seen with our successful education research program, which is an important contributor to our sales top of funnel as it cultivates new applications for our data that can later be commercialized.

Let me make some perspectives that we’re seeing in the market today. Demand pipeline, win rates and our sales team execution all continue to be strong despite the economic backdrop. The pace at which our reps are signing new and expansion business remains healthy and our average deal size continues to increase as the reps are focusing on those opportunities with the strongest product to market fit. As you’ve heard, the government segment of the market, both domestic and international continues to be especially robust. On the commercial side of the market, we are seeing some customers become more cautious as they navigate the current economic environment, leading to increased scrutiny of spend. This market dynamic will require continued focus on these opportunities where our data can provide proven economic outcomes for commercial customers.

Fortunately, we believe the secular tailwinds driving adoption of our solutions, digital transformation and the sustainability transition the need for greater patient security remain top priorities for countries and companies alike and our sales team continue to systematically execute and win in the market. In summary, Q3 was another truly excellent quarter and I’m proud of the team’s execution. I’m particularly proud of the sales deals such as those I’ve just touched upon and the burgeoning strategic partnerships. It’s exciting to see global technology leaders leveraging Planet solutions to helping new capabilities to their customers and users. I’m also excited about the signed acquisition agreement with Salo Sciences. We see a plan to be variable for carbon, the key element for the global sustainability transition.

With that, I’ll now turn over to Ashley, after which, we’ll have some time for Q&A.

Ashley Fieglein Johnson: Thank you, Will and thanks everyone for joining today. As Will mentioned, our revenue for the third quarter of fiscal ’23 ending October 31st came in at $49.7 million, which represents 57% year-over-year growth. It’s worth calling out that $1.5 million of the upside this quarter came in the form of onetime revenue associated with an option renewal by a European customer, focused on climate and environmental monitoring. We’re proud to continue to support this partnership and I’m especially proud of the strong execution of our global teams who are delivering results for our customers. Our end-of-period customer count grew to 864 customers, which represent 16% year-over-year growth and is an indicator of the broader adoption of our platform.

Our end-of-period customer count has grown quarter-over-quarter for every quarter in the last three years. We’re pleased with our new logo additions in Q3, which showed continued momentum with large accounts. We’ve seen the average annual contract value of our customers grow year-over-year during the last four quarters, as our sales teams are prioritizing higher-value accounts with opportunity to expand over time. Net dollar retention rate at the end of Q3 was 123% and net dollar retention rate with win backs was 125%. This represent significant year-over-year improvement primarily driven by renewals and expansions in government and agriculture. This is down slightly quarter-over-quarter due to the timing of a renewal with a large international government customer in Asia, which was signed shortly after the end of our quarter.

We remain focused on driving higher retention through our investments in product and customer success. Turning to gross margin, we expanded our non-GAAP gross margin to 54% for the third quarter of fiscal ’23, compared to 35% in the prior year. The expansion of gross margins continues to be driven by the growth of revenue, the efficiency in our industry-leading agile aerospace approach and the fundamentals of our one-to-many data subscription business model. Adjusted EBITDA loss was $12.4 million for the quarter, better than we had expected, driven by revenue upside, effective cost management and the timing of some expenses which we expect will incur in the coming quarters. We have been disciplined in our pace and quality of hiring as we continue to invest in our teams across Planet to meet the growing demand for our solutions.

We believe that Planet’s commitment to our mission, technology and market leadership and the strength of our global organization, our competitive advantages in the market for talent. Turning to the balance sheet, we ended the quarter with $425 million in 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. Capital expenditures for the quarter including capitalized software development were $3 million or approximately 6% of revenue, which is lower than we had anticipated, primarily due to the timing of procurements. We anticipate these expenses will catch up in subsequent quarters.

At the end of Q3, our remaining performance obligations or RPOs were approximately $131 million, of which approximately 81% apply to the next 12 months and 96% apply to the next two years. Sequential RPO growth was impacted by the previously mentioned government customer in Asia that renewed their large multiyear contract shortly after the quarter end. As I’ve explained before, RPOs will fluctuate quarter-to-quarter as multiyear contracts come up for renewal. Additionally, please keep in mind that our reported RPOs exclude the value associated with the EOCL contract, as well as other contracts that include a termination for convenience clause, which is common in our federal contracts. Looking ahead to the fourth quarter, we expect revenue to come in between US$50 million and US$54 million, which represents growth of approximately 40% year-over-year at the midpoint.

We expect non-GAAP gross margin for Q4 of 56% to 59%, up from 42% in Q4 fiscal ’22. Our adjusted EBITDA loss for the fourth quarter is expected to be between negative $21 million and negative $16 million. We expect capital expenditures of approximately $4 million to $6 million, which represents 8% to 11% of revenue. For the fiscal year ending January 31st, 2023, we now expect revenue to be between US$188 million and US$192 million, representing 43% to 47% year-over-year growth. The midpoint of this guidance reflects revenue growth of approximately 45%, which would be a significant top line acceleration on a year-over-year basis. We expect our non-GAAP gross margin to be between 52% and 53%, an improvement of approximately 15 percentage points year-over-year.

Our adjusted EBITDA loss is expected to be between negative $60 million and negative $56 million. We expect CapEx to be approximately $15 million to $17 million, which would be roughly 8% to 9% of revenue. The lower CapEx guidance is attributable to more measured procurement of ground stations for our future fleets and adjustments in our procurement schedule for our longer lead-time components. To close, I’d just like to say it was another great quarter. I’m proud of our Planet peers around the globe and the contributions they make to building such an incredible company. We are executing against our plan in a challenging macroeconomic environment and that’s due to the focus and collaboration across our global teams. We remain confident in the market demand for our unique data sets and believe we’re well positioned to continue to capture the opportunity ahead of us.

Operator, that concludes our comments. We can now take questions.

Q&A Session

Operator: The first question is from the line of Michael Latimore with Northland. You may proceed.

Will Marshall: We can’t hear you.

Operator: Apologies, Mr. Latimore, your line is now open.

Michael Latimore: Right. Hi. Excellent. Yes. Thanks. Very, very strong results. I guess, I just wanted to touch on one of the topics really from last quarter where you would have several customers. I think they used up their annual commitments early and there was some – reevaluate – did they coming expand or renew early or do they kind of hold the pattern with that annual commitment? Can you provide any color on how that’s played out in the last quarter?

Ashley Fieglein Johnson: Yes. I’d say, as we expected there are some customers that have engaged with us on either early renewals or expansions to their contracts, based on their higher consumption levels, and we’ve had others that continue to manage to the overall annual size that they have for their contract. So obviously we came in at the high end, we came in above our guidance range. And so we definitely continue to see strong consumption patterns, which is great.

Michael Latimore: Sounds good. And then on the use of partners, can you elaborate a little bit more on how influential they are to new bookings and expansion that maybe segment a little bit between sort of maybe traditional software kind of our size, like Accenture versus tech partners here and how influential there on your leads and bookings at this point?

Will Marshall: Yes, it’s great question. So we have both direct sales business and via partners. It’s always – we’ve always used partners quite a bit, but we are seeing is a very strong go-to-market approach. And the strategic partners that you saw, I think it really is a great sign that those three large entities, AWS, Accenture and Microsoft are leaning in. It’s obviously from my perspective, demonstrating that they see the big value of geospatial data to their markets, and it’s mostly commercial markets that they have in mind by the way. And it’s great to see them led that big opportunity, they don’t lean in for small opportunity. So these organizations and so that’s really great. And we have a number of solution partners as well where they’re adding capabilities on top of our data that enables solutions and use cases that our solutions don’t directly handle and that’s what the market do.

So we definitely leaning into partners. We’ve done it before but we’re leaning in stronger and stronger into the partners as a rich market.

Michael Latimore: Very good. Thanks a lot.

Ashley Fieglein Johnson: Thank you.

Operator: Thank you, Mr. Latimore. The next question is from the line of Edison Yu with Deutsche Bank. You may proceed.

Edison Yu: Hi, thanks and congratulations on the quarter. I had a question on the acquisition announced. If we think about the contacts your peer men – I think I heard that this kind of falls under the planetary variables piece. Do you foresee kind of doing some more scouting in this area or are you starting to think about kind of moving up to insights?

Will Marshall: It’s great question. We are very excited by this acquisition. Let me just speak a little bit broadly firstly, Planetary Variables and the sustainability business, because I think that the sustainability transition is desperately in need of really good scientific measures. And a Planetary Variables on carbon in particular it’s critical to our carbon offsetting strategy as a species. So that’s really exciting. Salo has great forest user for our satellite data to make good forest management techniques and translating that into not just forest cover but to forest carbon. This is essential ground preparation for that sort of move. And of course we’ve worked with them for some years through the California forest observatory work and other pieces.

So we’ve got a good relationship with that team. So it’s really good cultural fit and everything. And it does as you’re pointing out, fit into the Board of Planetary Variables strategy, that we’re embarking upon, really started in earnest with the acquisition this time last year of VanderSat, and they neatly fit into that as a piece of work. So – and this is continuing us up the stack, I’m the Planetary Variables are really important piece of it. And I think that’s where the bigger focus is right now than the insights and indicators that might come beyond that. But they are the critical horizontal component that we need to be building up today.