Planet Labs PBC (PL) Earnings Call Transcript

Hello, everyone. Thank you for attending today's Planet Labs PBC Third Quarter of Fiscal 2025 Earnings Call. My name is Sierra, and I'll be your moderator for today. [Operator Instructions] I would now like to pass the conference over to our host, Chris Genualdi, Vice President of Investor Relations. Please proceed.

Thanks, operator, and hello, everyone. This is Chris Genualdi, Vice President of Investor Relations at Planet Labs PBC. Welcome to Planet's Third Quarter of Fiscal 2025 Earnings Call. I'm joined by Will Marshall and Ashley Johnson, who will provide a recap of our results and discuss our current outlook. We encourage everyone to please reference the earnings press release and earnings update presentation for today's call, which are available on our Investor Relations website. Before we begin, we'd like to remind everyone that we may make forward-looking statements related to future events or our financial outlook. We also may 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 historic and forward-looking 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, which is available on our website at investors.planet.com. 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 and our earnings update presentation, which are intended to accompany our prepared remarks. At this point, I'd now like to turn the call over to Will Marshall, Planet's CEO, Chairperson and Co-Founder. Over to you, Will.

Thanks, Chris, and hello, everyone. Thanks for joining us today. During the third quarter, we made significant progress across our go-to-market, technology and financial objectives. We secured multiple large contracts with government customers globally, advanced our next-generation data sets towards commercialization and enhanced the Planet Insights Platform with new capabilities. We also meaningfully improved the fundamentals of the business. To quickly summarize our financial achievements, for the third quarter of fiscal 2025, we generated a record $61.3 million in revenue, representing 11% year-on-year growth. Non-GAAP gross margin for the quarter increased to a record 64%, up from 52% a year ago and 58% last quarter. Adjusted EBITDA loss for Q3 narrowed to approximately $242,000, marking our sixth sequential quarter of improvement in adjusted EBITDA as we substantively narrow in on our target to achieving adjusted EBITDA profitability next quarter. Ashley will provide more detail on the financials shortly. Turning to sales highlights. Let's start with the Defense and Intelligence sector. During Q3, we saw a substantial increase in new and expansion bookings with D&I customers, primarily driven by wins in the international market, which have contributed to the increase in our backlog and strengthened our foundation for growth going forward. Revenue from the D&I sector grew approximately 25% on a year-on -- year-over-year basis, and we continue to see the emerging trend of defense customers adopting partner and AI-enabled solutions powered by our data to enhance their ability to identify known and unknown threats over broad areas. For example, during the quarter, Planet won an 8-figure expansion with an international defense customer to provide a full range of Planet products, including PlanetScope, SkySat, Maritime Domain Awareness and other analytics. We expect this contract to ramp into the next year. Planet also was selected for another 7-figure pilot with the U.S. Department of Defense. This is our third such pilot program with the U.S. DoD this year. Under this 3-month project, Planet will provide satellite imagery in key areas of interest with analytics-powered insights developed with a Planet partner. We continue to work towards converting these pilots into operational contracts. The opportunity to sell global and regional monitoring services to existing and new government customers is significant in our view. Additionally, we have the opportunity to sell upcoming new data sets like Tanager Hyperspectral or Pelican High Resolution to government customers as those come available. We'll share more on Tanager and Pelican in a moment. Turning to the Civil Government sector, where revenue grew approximately 10% year-over-year in Q3. We're pleased to announce that we've received our first order under the new NASA Commercial SmallSat Data Acquisition contract vehicle, or CSDA, for approximately $20 million, covering 1 year of performance. As a reminder, NASA announced in early September that Planet was selected for the CSDA, the framework under which NASA can place orders through November 2028. While the first order came in later than we anticipated, landing on November 25, with the renewal delay impacting revenue in Q3 by approximately $2.3 million, we were pleased to see that it came in as a 7-figure ACV expansion on our prior contract. Planet is very proud of the work our data have enabled through the CSDA program, which serves thousands of researchers at NASA and labs across the U.S. working on a wide range of Earth system sciences and applications. In a similar program across the Atlantic, we also recently signed a multiyear contract with the German Space Agency, DLR, to provide data access and development support for the agency's Earth Observation Data platform, integrating Planet data into their system and offering advanced services. These are 2 examples of government-wide agreements, which provide broad access to our vast Earth Observation archives to empower education research users in furthering science, research and identifying and validating new use cases. These broad agreements enable substantial user bases at research institutions and government agencies to access large data sets, often covering entire countries or regions. There are often 7- or 8-figure deals, and we believe there are over 100 countries that could benefit from such offerings. Shifting to the commercial sector. We're cautiously optimistic that the improving business environment, combined with the changes we've made in our go-to-market will position this sector to return to growth. We were pleased to observe in the quarter that average deal sizes for new and expansion contracts continue to trend upwards, indicative of our sales team's focus on higher-value accounts with strong ROI use cases. Here, we are also seeing a growing trend for customers adopting AI-enabled solutions powered by Planet's differentiated data sets. We see these solutions as facilitating analysis across significantly broader areas and speeding up time to value for our customers. To share some examples, we recently signed an expansion with Abelio, a French technology company offering Smart Farming solutions. They're leveraging Planet Insights Platform and our PlanetScope data to enhance their digital agriculture solutions. Their solutions apply algorithms and AI models on top of Planet data to generate insights for precision farming and help save farmers between 5% and 10% in nitrogen application on average. They'll have access to our agriculture data across France, nearly 3x the amount of data that they had previously integrated into their solutions last year. We also recently won an expansion with Global Fishing Watch, an international nonprofit dedicated to advancing ocean governance. This 6-figure deal represents a 650% expansion and enables a 20x the ocean coverage, allowing Global Fishing Watch to fully leverage PlanetScope data and machine learning to map vessel activity across millions of square kilometers of the ocean to better detect small vessels engaged in illegal fishing activities. Finally, we recently announced a partnership with Laconic to deliver AI-powered Forest Carbon Insights aimed at enabling informed carbon credit trading. Under the 7-figure deal, Laconic will gain access to Planet's new forest carbon monitoring products we released last quarter. Leveraging these data feeds, Laconic plans to offer their customers accurate trends and verifications to instill trusted trading confidence and empower informed carbon credit decision-making. Overall, we're proud to share that Q3 represented our largest ever quarter of ACV bookings. We remain focused on driving growth acceleration while also building greater predictability into our book of business. This quarter's bookings expansion gives us confidence in our team's ability to do this, and Ashley will speak more to this shortly. Now to some recent product updates. During Q3, we released our analytics-ready PlanetScope ARPS product for time series analysis and machine learning models on our core daily scan. This product harnesses our proprietary algorithm to create harmonized and spatially consistent stacks of images of the same location over time. The result is a more precise data set that's readily available for manipulation analysis and visualization, all delivered in the Planet Insights Platform. It's available today to our customers. In Q3, we also released our AI-powered forest carbon monitoring product at the UN Climate Week in New York. It's the world's first global scale forest structure monitoring system at a 3-meter resolution, an unprecedented data set that can be used to underpin voluntary carbon markets, regulatory compliance and deforestation mitigation. Turning to updates on our next-generation satellite fleet. As many of you saw in September, we shared the first light images from Tanager 1 Hyperspectral satellite. Tanager 1 has since begun helping Carbon Mapper monitor hundreds of emission sites globally under our commercial partnership. Just last month, Carbon Mapper published over 300 methane and CO2 plume detections at COP29 in Azerbaijan. In an incredible early win for the program, 1 emissions leak in Texas was voluntarily fixed by the commercial operator. This provides a small sense of the power of this data. It can lead to accountability and benefits for companies enhancing their efficiency while also providing significant benefits for the environment. Tanager 1 continues to go through its final commissioning and calibration, after which we plan to make the data commercially available to other customers across government and commercial markets. We're pleased with the near-term traction we're seeing in our pipeline for hyperspectral data, particularly in the energy and government sectors. I'd also like to highlight how the Tanager program represents a powerful blueprint for accelerating our technology road map by leveraging our space systems capabilities and IP with a partner. Now that, that first satellite is in orbit and delivering data, we can begin to unlock the growth potential of the Tanager program while also accelerating our partner Carbon Mapper's mission. Overall, we see such opportunities as highly strategic, enabling us to scale our business more rapidly and strengthen our financial position. We expect to pursue similar opportunities going forward. Moving to our Pelican fleet. We're pleased to share today, we shipped the Pelican 2 satellite to Vandenberg Space Force Base in preparation for launch, which is currently scheduled for January. As a reminder, the Pelican program is our next-generation high-resolution satellite, which enables continuity and enhancements over our current SkySat fleet, including in image quality, spectral bands, imaging capacity and latency. The Pelican 2 design incorporates NVIDIA's latest Jetson GPU module, enabling edge compute, the power to run powerful AI on the satellite and speed time to insights. It also incorporates satellite to satellite links previously discussed, speeding time to value. In summary, we won multiple large contracts with government customers that we believe positions us to reaccelerate growth as those contracts ramp and expand. On the product front, we've made improvements to our core daily scan data. We're capturing a powerful new data set with our first Tanager satellite, which we expect to commercialize in the months ahead, and we plan to launch our next Pelican satellite shortly. Finally, the adoption of AI-enabled solutions amongst both government and commercial customers is growing. We're focused on leveraging our platform and partners to nurture this adoption, increase customer value, expand the addressable market and ultimately build greater predictability and growth into the business. With that, I'll turn it over to Ashley to talk through more details around our financials. Over to you, Ashley.

Thanks, Will. As a quick reminder, it was less than 6 months ago that we completed a restructuring and introduced a new industry-aligned operating model to the business. In spite of the significant amount of change that this introduced to our teams, during this last quarter, our go-to-market teams delivered our best quarter of ACV bookings, including renewals, expansions and new business, and I'm impressed with the team's performance. We also saw a meaningful step up in average deal sizes across all 3 sectors. These early proof points give us confidence that the new operating model is facilitating the foundational changes needed to reaccelerate our growth. While deal timing continues to be hard to predict, particularly given the large deal nature of our business, the underlying fundamentals of the business continue to improve and our competitive position is strengthening. We've made significant strides towards profitability this quarter, showing substantial margin expansion and reducing our cash burn. So let's turn to the results. Revenue for the third quarter came in at a record $61.3 million, representing approximately 11% year-over-year growth. From a geographic perspective during the third quarter, EMEA revenue grew approximately 15% year-over-year; Asia Pacific grew over 25% year-over-year; Latin America grew over 30% year-over-year; and revenue in North America was flat on a year-over-year basis, impacted primarily by the delay in renewing and expanding our contract with NASA. As of the end of Q3, our end-of-period customer count was 1015 customers. As we've shared before, this metric reflects our direct sales team's focus on large customers in our core verticals and our initiative to enable smaller, more transactional customers to purchase through our platform or our marketplace partners. Customers who transact solely through our platform are not reflected in this number. Recurring ACV or annual contract value was 97% of our end-of-period ACV book of business and over 90% of our end-of-period ACV book of business consists of annual or multiyear contracts. Our average contract length continues to be approximately 2 years weighted on an ACV basis. Net dollar retention rate at the end of Q3 was 104% and net dollar retention rate with winbacks was 105%. The delayed NASA task order impacted our net dollar retention rate by approximately 8.5 percentage points. As a reminder, at this point in the year, our net dollar retention rate reflects 9 months of contract renewals. Our net dollar retention rate starts each fiscal year at 100%, and then builds through the course of the year toward our final full year results. Turning to gross margin. Non-GAAP gross margin for the third quarter was a record 64%, up over 1200 basis points year-over-year and over 600 basis points sequentially. This was better than we had expected coming into the quarter, largely driven by optimizations in our cloud infrastructure. We expect to continue to benefit from these optimizations going forward, although at a more moderate pace of improvement. Adjusted EBITDA loss was approximately $242,000 for Q3 marking another quarter of sequential improvement in adjusted EBITDA and putting us in a strong position to end the year with achieving EBITDA profitability in Q4. Capital expenditures, including capitalized software development were $8.9 million for the quarter, lower than we anticipated due to the timing of certain procurements. Turning to the balance sheet. We ended the quarter with approximately $242 million of cash, cash equivalents and short-term investments. We continue to believe that our balance sheet provides us with sufficient capital to invest behind our core growth accelerating initiatives and achieve cash flow breakeven without needing to raise additional capital and we still have no debt outstanding. At the end of Q3, our remaining performance obligations or RPOs were approximately $146 million, up 30% quarter-over-quarter, of which approximately 82% apply to the next 12 months and 98% to the next 2 years. Our backlog, which includes contracts with a termination for convenience clause which is common in our U.S. federal contracts and occasionally found in other customer contracts, was approximately $232 million, of which approximately 70% applied to the next 12 months and 91% to the next 2 years. To be clear, RPOs and backlog at the quarter end do not include the $20 million NASA order received on November 25. As a reminder, RPOs and backlog can fluctuate quarter-to-quarter as revenue is recognized against customer contracts and multiyear contracts come up for renewal. Let me turn now to our guidance for the fourth quarter of fiscal 2025. We are expecting revenue to be between $61 million and $63 million, comparable to Q3 levels as we work to ramp large customers and our new operating model begins to take effect. On the commercial sector specifically, we expect the tale of the digital agriculture application headwinds that we've discussed on prior calls to roll-off in Q4 as we've transitioned many of these accounts to more internal use operational contracts. We have seen this focus on higher value use cases such as precision agriculture and informed scouting enable us to establish stickier and larger contracts with agriculture customers over time. Similar to Q3, we expect non-GAAP gross margin for Q4 to be between 63% and 65%. We expect our adjusted EBITDA profit for the fourth quarter to be between 0 and $2 million, consistent with the profitability target we set nearly 2 years ago. We're planning for capital expenditures of approximately $8 million to $11 million in Q4, reflecting our continued investments in our next generation fleets and the ongoing maintenance CapEx for our PlanetScope constellation. To close, I'd like to underscore the objectives of the changes we made earlier this year, centering our business around our customers with an industry-aligned operating model. By making our customers the core of everything we do, we ensure that we deliver the right solutions to unlock the economic value of our powerful datasets. We furthermore ensure that we're developing the right next generation of datasets that can increase that value for our customers. The opportunity for the Earth Observation industry over the next decade is significant. A report published earlier this year by the World Economic Forum in collaboration with Deloitte estimated that by 2030, Earth Observation data and insights could provide over $700 billion of economic value to global gross domestic product annually, made possible by rapid advancements in satellites and sensors, computing power, and greater accessibility to insights driven by Analytics and AI. We see Planet as being an important driver for this global economic opportunity. With relentless focus on delivering customer value across all of our teams, we not only increase our own share of the Earth Observation value chain, but we also increase the positive economic impact that we make through our customers, while improving the growth and predictability of our business. This is our core focus as we move through the final quarter of fiscal 2025 and look forward to fiscal 2026. Operator, that concludes our comments. We can now take questions.

[Operator Instructions] To begin, we have an online question from an analyst. The question is, can you please discuss how AI spend is flowing through the Planet pipeline? Which sectors are you seeing the most traction in?

Yes. Thank you. So clearly, AI is helping to drive our pipeline. And you saw it in the big deals that we discussed in our prepared remarks. Just to pick on the first 2 as an example, the expansion of the large D&I customer, that uses an MDA maritime domain awareness tools that uses AI and that is driving use of our PlanetScope imagery across those ocean territories. And the second deal, of course, is our third pilot with the DoD, and that is -- also central to that is AI, and we're driving, again, PlanetScope in this case, over land territory. So we see that -- I mean so to the sectors -- it's definitely more focused on the government, but we're seeing it across the board. I mean the Laconic example I also mentioned, a commercial deal leverages our Forest Carbon Planetary Variable, which also leverages AI. So I think it's all over the board. It's definitely driving our pipeline and it's an accelerant to our business because it speeds up time to value and it opens up new markets. Next question?

Our next question comes from Michael Latimore with Northland.

Yes. Congrats on the strong bookings quarter here. I guess in terms of the pilot you just highlighted there, third pilot, great to see. What are the kind of key catalysts or events that need to occur here to kind of get that to commercialization? And is that something that is a couple of quarters, a couple of years away?

Yes. Great question. I mean, look, I mean, we're really excited that the DoD is leaning in with this third pilot this year. I mean it's quite a new capability coming here because what it is enabling is the government to look at large areas to find new threats. That new system based on the fact that we have this daily scan with AI finding tools is a very new capability. So what we're doing with these pilots is the government is iterating what they need, and we're reacting to that and changing it. There's opportunities for more pilots, extensions to these current ones, and we do believe we can grow into operational contracts over time.

Got it. And one basic kind of financial question. It looks like sales and marketing took a step down sequentially quite a fair amount. Is that kind of a good new run rate? Or was there a onetime item in there?

To my knowledge, I don't think there's any onetime item driving that. It's really about the restructuring that we did in the middle of the year. And as I mentioned before, a lot of that was really looking at our cost of acquisition and making acquiring customers more efficient.

Our next question comes from Trevor Walsh with JMP.

Will, maybe to start with you. Just at a high level, lots of kind of interest and buzz just broadly around the Space domain kind of from early November to now, just given the incoming administration. Just would be curious to hear your thoughts just broadly on that. And also, just what you're hearing from customers in terms of how they think things might either change positively, negatively, neutral for coming kind of heading into next year?

Yes, certainly. Certainly, it's something we've been thinking a fair bit about, obviously. Overall, let's just step back and say that the priorities that we serve for the government, which tends to be national security, disaster response, these sort of things are pretty nonpartisan as they go. And -- but we -- as regard to this incoming administration, we do see them pretty focused on efficiency generally and commercial capabilities in particular. And we think that applies very well to Space, and that Planet is very well positioned to support that. In fact, I was just in D.C. last week and conversations with multiple agencies there reflect -- who are already reflecting on these incoming administration's priorities are focused on exactly that. How can they do things more efficiently, especially with the commercial sector. So I think Planet is very well positioned for that.

Great. Terrific. And maybe just one quick follow-up. Ashley, around the new customer numbers, I understand that you're not adding as much just based on that commercial kind of shift in the go-to-market and whatnot. How -- should we even really be concentrating on that metric just generally? I know, you're going to report on it, but it just seems like it's maybe not the best way to kind of be looking at the business in terms of net new or maybe that is still kind of relevant? I'm just trying to kind of get an understanding of as you bring a large company like Laconic, for example, just how that kind of gets -- how that -- what the onboarding is for that customer in terms of -- from a rev rec perspective? And just again, just kind of wrapping all those things kind of in my head around just from that perspective.

Yes. It's a good question. I do think that it's a useful metric just because it really spotlights how differentiated Planet is from kind of the traditional Earth Observation industry. We have such a broad and diversified customer base. The focus of the sales team really is around those opportunities where we can land and expand the customer. And so to ensure that we are operating efficiently, that's really where we're focused our direct sales. But as you recall, we have also been making investments in the platform, including an acquisition of a really strong platform in Sentinel Hub, which enables us to continue to work with a broader community that might be more transactional in nature, just much more efficiently. And as I said, some of these customers are unlikely to be counted in the overall customer count because they just transact directly and not through our sales team. But -- so that's where that change in focus is impacting the pace of growth of that number, but I still think it's an important metric and one that we'll continue to track over time. In terms of onboarding new customers, it really depends on the complexity of the business. So some of our more complex government sales can take longer to onboard. There are going to be multiple parties that are involved in getting that account up and running. I don't know specifically as it relates to Laconic, whether that's more straightforward of turning the customer on and getting them working with the data or there's a ramp time associated with that. And the ramping of revenue typically relates to which product specifically was sold. So if it's a pure data subscription, that's going to be more ratable. If it's one of our usage contracts related to tasking, that can see some variability based on those onboarding characteristics. So it's a little bit of some and some, if that helps.

Our next question comes from Ryan Koontz with Needham & Company.

Ashley, on the guide, it sounds like the NASA renewal came in a little late and there might have been a couple of other deal slips. But relative to your expectations, say, 90 days ago, was there a sizable impact from a couple of deal slips that impacted the fourth quarter guide? Or maybe can you walk us through that a little bit, numbers?

Yes. Obviously, you hit on one, which was simply the timing of that NASA renewal definitely coming in later due to the procurement process. Obviously, very glad to have that in and to see an expansion with that customer. So I'd say in terms of the guide, it's timing. So as I mentioned, NASA, it's timing as it relates to some of these large bookings that we got in Q3 and the time it will take to onboard either that expansion or new customer. And so, expectations about the ramp time for that revenue. And some of it is really usage variability quarter-to-quarter. So that's the primary impact on the revenue guide for the year or for the back half of the year.

That makes sense. And what's the typical time to onboard some of these larger customers? Is it 2, 3 quarters type of thing? Or how should we think about that?