Planet Labs - Q2 2025

Transcript

Operator (participant)

Hello, everyone. Thank you for attending today's Planet Labs PBC Q2 of fiscal 2025 Earnings Call. My name is Sierra, and I will be your moderator for today. All lines will be muted during the presentation portion of the call, with an opportunity for questions and answers at the end. If you would like to ask a question, press star one on your telephone keypad. I would now like to pass the conference over to our host, Cleo Palmer-Poroner, Director of Investor Relations at Planet Labs PBC. Please proceed.

Cleo Palmer-Poroner (Director of Investor Relations)

Thanks, operator, and hello, everyone. This is Cleo Palmer-Poroner, Director of Investor Relations at Planet Labs PBC. Welcome to Planet's Q2 of fiscal 2025 earnings call. I'm joined today 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. 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 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 (Co-founder, CEO, and Chairperson)

Thanks, Cleo, and hi, everyone. Thanks for joining the call today. For the Q2 of fiscal year 2025, we generated a record $61.1 million in revenue, representing a 14% year-on-year growth. This was driven by continued strength in the government sector. Non-GAAP gross margin for the quarter was 58%, and Adjusted EBITDA loss was $4.4 million. These results were all in line with or better than the guidance provided on our last earnings call. Q2 marked our fifth sequential quarter of improvement in Adjusted EBITDA, as we persistently march towards our target of achieving Adjusted EBITDA profitability by Q4 of this fiscal year. We also successfully launched our first Tanager satellite, along with 36 new SuperDoves last month. All of the satellites have been contacted and are undergoing commissioning.

Today, I'll cover a number of topics, including recent organizational changes, sales wins, satellite launches, and product updates. Ashley will then provide more color on the business and our financials. So let's dive in. Starting with recent organizational changes. In Q2, we took action to align resources to the market opportunity and improve our operational efficiency. We consider which areas of our business are operating most efficiently and which need improvement, as well as the demand trends we're seeing across geographies and sectors. These actions were simultaneously aimed at improving our go-to-market towards accelerating growth as well as reducing costs. We are creating industry-aligned business groups focused on specific sectors to help drive both product and sales strategy.

As part of these changes, we undertook a headcount reduction that resulted in parting ways with approximately 17% of our Planeteers, a process that was very difficult but allowed us to meaningfully improve our cost structure. We expect this new, more efficient operating model will support the sustainable long-term growth and profitability of the business. Ashley will provide additional details on these changes shortly, as she oversees our go-to-market teams in her capacity as President and works with our go-to-market leaders to architect this new operating model. Let's turn now to some of our customer highlights from Q2. The defense and intelligence sector continues to be a strong industry vertical for Planet, with revenue in the quarter growing more than 30% year-over-year.

I'd like to highlight a few of the sales wins we saw in the quarter, which are indicative of the increasing interest we are seeing from both U.S. and international government customers around the world for Planet's unique data sets and the solutions we're delivering with our partners. During the quarter, we closed a new deal with NATO. Their communications and information agency's new Alliance Persistent Surveillance from Space program or APSS, will evaluate using both Planet's broad area monitoring and tasking solutions to perform detailed tracking and analysis of foreign military activities, monitor infrastructure, and fill intelligence gaps. We're proud to partner with NATO in this time of heightened global conflict to reinforce multinational alliances, to enhance global security, and we look forward to developing our relationship. While this is an introductory deal, we view it as strategically important.

Additionally, we closed a seven-figure deal with an international defense customer, which includes an expansion of high-resolution tasking and a pilot for PlanetScope data enhanced with AI capabilities from our partner, SynMax, for maritime domain awareness. As discussed on previous calls, this is part of a growing trend we see in using AI on Planet's daily scan imagery to gather intelligence more efficiently and speed customer time to value. Overall, demand in the defense and intelligence sector remains strong, and we believe in our new industry-aligned operating model will further support our ability to capitalize on the momentum we're seeing. Progress in the civil government sector also continues to be solid, with revenue growth of over 20% year-on-year in Q2. I'll take a moment to highlight a couple of use cases that are highly repeatable for the civil government market.

We recently announced that the Kingdom of Bahrain is using Planet SkySat data, enhanced with AI solutions from our partner, Aetosky, to support smart city management and urban planning initiatives across the country. Bahrain reported that thus far, this has led to a significant increase in the effectiveness of building permit validation activities. This is a great example of a use case that could be repeated in other nations and cities around the world. Last month, at Planet on the Road, we announced that INRA, Bolivia's land management agency, is using Planet Insights Platform with our local partner and geospatial AI service provider, Civis, for land use, titling, and emissions compliance. We also introduced IGAC, the Colombian cartographic entity, which utilizes AI and PlanetScope scenes and base maps for land use planning and infrastructure monitoring across Colombia.

Ashley, who attended on the road in Colombia, will share her reflections on the event shortly. Finally, we closed a seven-figure expansion with another international government agency for SkySat high-resolution data, which we previously announced in July. Overall, our ability to save government customers time and resources with our broad area management solutions is driving customer adoption globally. Leveraging our platform and solution partners, we believe we can further penetrate the global market opportunity we see for our data in the civil government sector. Shifting to the commercial sector, where we discussed on prior calls, we've seen both macroeconomic headwinds generally and challenges in the agriculture sector, specifically. Under our new operating model, we are refining our resource allocations and focusing efforts on building out our insights platform for a lower friction experience for our customers and partners that are building solutions on top of Earth observation data.

The platform provides valuable tools to our partners and customers, while also reducing our cost to service these customers. We're seeing a lot of green shoots and experimentation in the platform at a small scale, which enables us to tap into the solid growth potential of the broader market, but in an automated and scalable way. We expect this structure will better position Planet to serve the large addressable markets in the commercial sector, in particular, which we believe can be a driver of upside over the long term. To share some commercial wins from the quarter: we expanded our contract with longtime customer and agricultural leader, BASF, who have added Planet's field boundary solution to support the Xarvio digital platform.

As we discussed in our prior call, we're seeing digital agriculture applications shift towards new business models with better aligned incentives, and customers like BASF are at the forefront leading this transition. We also recently announced a partner-led renewal and expansion with American Crystal Sugar via Planet partner, SatAgro, a precision agriculture company. Under this contract, SatAgro will use Planet data to provide American Crystal Sugar with advanced sugar beet monitoring in the Northern United States, including harvest progression, yield prediction, and other insights to enable crop management decisions. This brings us to product updates for Q2. As many of you saw, we successfully launched our first Tanager satellite and 36 SuperDoves on board a SpaceX launch vehicle on August 16th. We're three weeks into a few months-long commissioning period for this first-of-its-kind Tanager hyperspectral satellite.

I'm very proud of the progress that we've made as we work towards first light. On SuperDoves, our mature fleet that supports the PlanetScope daily scan, I'm pleased to report that all satellites have been contacted. The first reached first light in a record three days, and they are rapidly going into production mode. This constellation remains the largest Earth imaging fleet in history and the basis for Planet's core differentiated data. I want to thank the global team that worked nights and weekends to make this launch and these missions happen. Finally, we are preparing to ship the Pelican-2 satellite in the coming months. As a reminder, the Pelican program is our next-generation high-resolution fleet, which enables continuity and enhancements over its predecessor, SkySat, including in resolution, image quality, spectral bands, and imaging capacity. The Pelican-2 design incorporates NVIDIA's latest Jetson GPU module.

With this GPU, Planet plans to enable edge compute, allowing us to run AI on board the satellite. When paired with our next-generation communication technology, the program has the potential to decrease time to value by 10x, increasing customer value by significantly shortening the time of delivery of actionable insights. Finally, Pelican will also improve resolution, with the Pelican-2 satellite already expected to offer up to 40-centimeter-class resolution imagery as part of a program that we expect will ultimately deliver 30-centimeter-class resolution. We look forward to sharing updates on Pelican-2 as the launch date approaches. In software products, we recently rolled out customer education on how to use our land surface temperature planetary variable to optimize agricultural practices. Land surface temperature can be a powerful tool to predict crop growth rates.

Together with crop and regional-specific models and Planet's daily monitoring, customers can use these tools to infer crop growth progress in specific areas. Our platform strategy continues to focus on providing tools that help reduce customer time to value and improve ease of use. In summary, we're steadily executing on our strategy and implementing a new industry-aligned operating model across Planet to better support our customers and growth. The trends we're seeing in the government sector remain strong, fueled by heightened security needs, increased sustainability requirements, and global climate risks. In the commercial sector, we're making the strategic changes needed to better position Planet for the significant market opportunity that we believe we can capture while continuing our progress towards Adjusted EBITDA profitability. Finally, I'd like to say thank you to the Planet team members around the world for all your commitment and enthusiasm.

I'm continually impressed by our innovation and leadership of Planeteers in pursuit of our mission. I'll now turn it over to Ashley. Over to you.

Ashley Johnson (CFO and COO)

Thanks, Will. The past quarter has been especially busy at Planet, with a number of customer events, new technology launches, and of course, realigning our business. I'd like to start off by sharing some of my reflections from our Explore on the Road customer events around the globe. Over the summer, we hosted events in Berlin, Washington, DC, and Bogotá, where we showcased our Planet Insights Platform to help our partners and customers better understand the capabilities we seek to unlock for them with this new suite of tools. We talked about AI, not as magic, but as a practical accelerant to insights, and our platform, not as a substitution for the solutions our partners build, but as an enabler for their solutions that can speed time to value for customers.

In August, I joined customers and partners in Bogotá for a series of talks on topics ranging from law enforcement to forest protection, to land management and infrastructure monitoring, all ideal use cases for our broad area management solutions. It was personally energizing to spend time with customers and partners that are using Planet's data and platform, combined with our partners' software and services, to solve some of the world's most pressing challenges. We heard from representatives from a wide range of partners and customers joining us from all over Latin America. At the event, the Brazilian Federal Police and our partner, SCCON, spoke about their latest ROI figures from the Brasil MAIS program, which uses Planet data paired with SCCON solutions to stop illegal deforestation. They shared that they've collected billions of U.S. Dollars from fines, seized goods, and frozen assets since 2020.

They also highlighted the path they took to secure the funds and governmental support for the program in the first place, offering other countries a roadmap to follow. This program's been so impactful that the Brazilian Federal Police announced on stage their ambitions to work with neighboring countries on similar programs for all countries of Amazonia. It's been truly inspiring to hear directly from our customers and partners how they're using Planet's data to solve critical problems, and to understand what we can do to deliver greater value to them. I'll turn now to the financials for the quarter. Revenue for our Q2 in fiscal 2025 came in at a record $61.1 million, which represents approximately 14% year-over-year growth.

As Will mentioned, year-over-year revenue growth for the Q2 was led by our government customers, while we've continued to see macroeconomic and agriculture-specific headwinds in the commercial sector. Under the new industry-aligned operating model mentioned by Will, we believe we will enable greater team agility, better alignment with our customers, and sustainable growth across all sectors that we serve. To that end, we've assigned global go-to-market leads for the defense and intelligence, civil government, and commercial sectors to help drive both product and sales strategy. These business groups and leads will help direct product priorities and shape go-to-market strategy with a singular focus: growing the book of business in that market. We expect this new structure will enable us to better serve the needs of our customers with a more efficient model. From a geographic perspective, during the Q2, EMEA revenue grew over 20% year-over-year.

Asia Pacific grew over 40% year-over-year, while our team in Latin America drove revenue growth of over 30% year-over-year. Revenue in North America was up modestly on a year-over-year basis, reflecting solid growth in defense and intelligence, offset by headwinds in the commercial sector. As of the end of Q2, our end-of-period customer count was 1,012 customers. The sequential change in end-of-period customer count reflects the increased focus of our direct sales team on larger customers in our core verticals, and the focus of our product teams to enable smaller, more transactional customers to purchase through our platform or our marketplace partners. Recurring ACV or annual contract value was 96% 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 multi-year contracts.

Our average contract length continues to be approximately two years, weighted on an ACV basis. Net dollar retention rate at the end of Q2 was 99%, and net dollar retention rate with win backs was 100%. Our net dollar retention rate for the quarter reflects some delays we experienced with bookings for certain large opportunities that we're pursuing with partners, as well as continued headwinds in the commercial sector. As a reminder, at this point in the year, our net dollar retention rate reflects six months of contract renewals. Our net dollar retention rate starts each fiscal year at 100%, then builds through the course of the year toward our final full year result. Turning to gross margin, non-GAAP gross margin for the Q2 was 58%.

which was better than we had originally expected, in part due to the mix of deals leveraging partner solutions, as well as benefits from the cloud infrastructure investments we've made to optimize cost. Adjusted EBITDA loss was $4.4 million for Q2, marking another quarter of sequential improvement in adjusted EBITDA. The upside to our prior guidance was driven largely by better-than-expected gross margins and increased efficiencies in our new industry-aligned go-to-market structure. As Will noted, we made reductions to our teams in Q2 in service of becoming more effective and more efficient in our global operations. As a result, we expect to achieve an estimated $35 million of annual operating expense run rate savings. Additionally, we incurred approximately $10.5 million of one-time, non-recurring charges related to the restructuring during the quarter.

The reductions align with our commitment to reaching adjusted EBITDA profitability by the Q4 of this fiscal year, and we remain on track to achieve this important milestone. Capital expenditures, including capitalized software development, were $16.6 million for the quarter. With the additional investment in the Pelican and Tanager programs anticipated for this year, we expect CapEx to remain at a similar level in Q3 and Q4. Turning to the balance sheet. We ended the quarter with approximately $249 million 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 achieve cash flow breakeven without needing to raise additional capital, and we still have no debt outstanding.

At the end of Q2, our remaining performance obligations, or RPOs, were approximately $112 million, of which approximately 78% apply to the next 12 months and 97% to the next two years. Our backlog, which includes contracts with the termination for convenience clause, which is common in our U.S. federal contracts and occasionally found in other customer contracts, was approximately $214 million, of which approximately 65% apply to the next twelve months and 87% to the next two years. As a reminder, RPOs and backlog can fluctuate quarter-to-quarter as revenue is recognized against customer contracts and multi-year contracts come up for renewal. Let me now turn to our guidance for the Q3 of fiscal 2025.

We're expecting revenue to be between $61 million and $64 million, which represents growth of approximately 10% to 16% year-over-year. We expect non-GAAP gross margin for Q3 to be between 59% and 61%. As a reminder, quarterly gross margin can fluctuate based on the mix of business and the inclusion of partner solutions in our contracts, particularly with government customers. Gross margin guidance also reflects approximately $500,000 of impact from the higher depreciation expense related to three of our SkySat satellites that we've discussed on our prior calls, which we expect will be completed during the quarter. We expect our adjusted EBITDA loss for the Q3 to be between -$5 million and -$2 million.

We are planning for capital expenditures of approximately $13 million to $16 million in Q3, reflecting our continued investments in our next-generation fleets, as well as the ongoing maintenance CapEx for our PlanetScope constellation. Looking to the remainder of the year, we continue to see strong demand signals from the government sector. Our pipeline of 7 and 8-figure opportunities in both the defense and intelligence and civil government sectors remains healthy, and we're pursuing a range of large opportunities both domestically and abroad, although it remains hard to predict the timing and size of large customer wins. We were pleased with our Q2 wins, which included NATO and multiple international government customers. Proof points of the demand and value of our high-cadence, broad-area solutions and representative of opportunities where we see significant room for expansion.

I'd like to close by saying that I'm incredibly proud of the commitment and performance of our Planeteers globally. As a testament to the commitment of our teams to our customers, our technical support team was once again honored as a Stevie Award winner in multiple categories for 2024, a prestigious award in sales and customer service. We believe the changes we talked about today will enable us to strengthen even further our commitment to our customers, while also driving greater predictability, consistency, and efficiency to the business over time, which are key priorities that we consider fundamental to accelerating our growth scalably, and we believe our partner and platform-led strategy will enable us to tap into the larger market opportunity that we see for our data across both commercial and government sectors. Operator, that concludes our comments. We can now take questions.

Operator (participant)

Thank you. We will now begin the Q&A session. If you would like to ask a question, please press star followed by one on your telephone keypad. To remove your question for any reason, press star followed by two. As a reminder, if you are using a speakerphone, please pick up your handset before asking your question, and in the interest of time, we ask that you please limit yourself to two questions each. Our first question today comes from Ryan Koontz with Needham & Company. Your line is now open.

Ryan Koontz (Analyst)

Hi, thanks for the question. With regards to some housekeeping first on numbers. I see North America down in the quarter sequentially, as well as RPO down the last couple of quarters. Can you actually kind of unpack what's going on there in terms of some of the puts and takes across different segments? Appreciate that.

Ashley Johnson (CFO and COO)

Yeah. I think the simplest answer is just to remind you that we have a number of larger opportunities, particularly with government entities, many of whom cannot sign more than one year at a time. There's just a baked-in renewal, and so that can create some lumpiness in terms of timing of new business. And I think that's generally what is driving RPOs and backlog this quarter. In terms of the geographic growth rates in North America, specifically the U.S., the performance by commercial is what's impacting that year, that growth rate.

Ryan Koontz (Analyst)

Right. Okay, great. And, in terms of the gross margin there, a nice gross margin improvement in the quarter, really, really strong, and nice to see it reflected in the guide as well. Can you unpack that for us a little bit in terms of what some of the drivers there? I recall that, you know, some packaging of partner products were weighing that down in past quarters, as well as some of the write-offs from the solar storm. Is a lot of that in the rearview mirror now?

Ashley Johnson (CFO and COO)

It's getting into the rearview mirror. That actually continued into Q2, and there's a bit of a tail of that into Q3, which I referenced. The gross margins benefited, one, from the performance of our software engineering teams and the efficiencies that they've been driving in our cloud infrastructure. Another driver is mix of business. So as you referenced, depending on the mix of new business in the quarter that includes partners, we can see cost of goods sold fluctuate as a result of that. So that is another one of the drivers versus the guidance that we had previously given. And then again, you know, in our core business, as we continue to sell data deals with our one-to-many model, bringing new customers on allows gross margins to expand.

So, you know, it's a combination of all those factors that drove the upside in the quarter.

Ryan Koontz (Analyst)

Great. Thanks so much. That's all I have.

Ashley Johnson (CFO and COO)

Great. Thank you.

Operator (participant)

Our next question comes from Mike Latimore with Northland. Your line is now open.

Mike Latimore (Analyst)

All right. Great, thanks. Yeah, I guess just sticking with gross margin, you've guided for that to be in the sort of 59% to 61% range, I think, in the Q3. Is that, is that a good new kind of baseline to think about that, you know, it should be at least that level going forward?

Ashley Johnson (CFO and COO)

I mean, that's certainly how we're targeting it. Again, the only caution I would give is, depending on mix of business that we sign, we could see pressure, you know, if we were to sign a larger deal, that included for which we were prime, and it includes other partners. But yes, you know, as we move forward, obviously, the more business we're bringing onto the platform, that's a very scalable model. So that helps us balance out, you know, other times where we might see, you know, partner costs weighing it down. So, that's certainly our ambition is to sustain and improve from here.

Mike Latimore (Analyst)

Great. And then, can you just give an update on the pilots that you've been working on? You know, how many did you have in the Q2? Do you have any in the Q3? Just an update on that would be great.

Will Marshall (Co-founder, CEO, and Chairperson)

Yeah, I'm happy to speak to that a little bit. Yeah, so, as you know, we've been doing these pilots with AI on top of our PlanetScope daily scan, and we've done a couple this year already. We expect to have more later this year, and then we're, most importantly, building the foundations to build those into operational vehicles, which doesn't happen overnight, but we're definitely making good progress on that.

Mike Latimore (Analyst)

Great. And I guess just last on the ag sector, you know, the headwinds there, do you feel like that that

Will Marshall (Co-founder, CEO, and Chairperson)

Yep

Mike Latimore (Analyst)

stabilize on a sequential basis, you know, Q3 or Q4 of this year?

Ashley Johnson (CFO and COO)

I mean, we certainly are hearing more positivity from our ag partners and customers, so I'm optimistic about that as a market that can certainly get a lot of benefit from Planet's products and solutions. And we've got a number of, you know, really good customers in that space, some of whom were referenced on this call.

Will Marshall (Co-founder, CEO, and Chairperson)

Yeah, the BASF, Xarvio. And look, we as I mentioned, we're moving towards the right sort of incentive model, and that's important. And, you know, the overall optimism that Ashley and I share there is that the sector fundamentally can benefit from our data, and farmers can improve yields, decrease costs, and therefore increase profitability. And all of that sense remains, and as these customers, like BASF, leverage the tools in a way that's where we have business alignment, like they're beginning to do, I think we begin to see that turn around. So we very much believe in the long term in that market still.

Mike Latimore (Analyst)

Okay, great. Thanks a lot.

Ashley Johnson (CFO and COO)

Thank you.

Operator (participant)

Our next question comes from Kristine Liwag with Morgan Stanley. Your line is now open.

Kristine Liwag (Analyst)

Hey, good afternoon, guys. Just wanted to follow up on the NATO contract that you won, the NATO APSS contract. Can you provide a little bit more color?

Will Marshall (Co-founder, CEO, and Chairperson)

Yep

Kristine Liwag (Analyst)

around the program structure and the size of that opportunity? I think NATO had said that the overall program could be worth, like, a combined $1 billion over five years. Like, what's addressable to you?

Will Marshall (Co-founder, CEO, and Chairperson)

Yeah, it's great, great question. Yeah, I mean, firstly, we're very excited about this, introductory partnership. It's very exciting what value proposition I think NATO can gain from our data, broad assessment of threats, and across wide areas of interest that they have, and also a common operating picture between allies, with our data being unclassified and shareable. It means they can share this information between different countries, and of course, NATO as an alliance, can really benefit from that sort of common operating and understanding. To your point about the size, yeah, I mean, that's right. The governments have committed up to $1 billion to that program over five years. We're at the beginning end of that, so it will ramp.

But we, you know, think it's a significant opportunity for Planet to support, so we're very excited about it.

Kristine Liwag (Analyst)

Great. That's helpful. And then, I guess with the first satellite now launched, can you peel back the curtain a little bit on Tanager? I mean, what sort of early contributions are you expecting from this first satellite, and what's your latest thinking about launching the second one?

Will Marshall (Co-founder, CEO, and Chairperson)

Great. Great, yeah. I mean, firstly, I mean, the teams have worked incredibly to build and now starting to commission that first satellite. It's really fantastic to see the progress there, and hard work. That satellite, as I mentioned, is in early part of its commissioning. As to the revenue opportunities, we're very excited about the number of vertical markets and use cases that hyperspectral imagery opens up. I think we, we've mentioned before that we've already got two customers there, one in the form of Carbon Mapper, the people that helped to fund the program, looking at the environmental use case of methane data.

And we also have the NRO, National Reconnaissance Office, that buys our data, and we have a small contracting vehicle for that, that can expand as we get operational data, which is exciting. But also, we have been working with multiple other entities, we've about a dozen oil and gas operators, two large ag companies, and others, where mining companies and so on. That, we're doing early product work, developing the use cases, at such that when we start producing operational data, we can start building those markets. It is a nascent market, but we believe that this is, you know, this is our first foray into it, and it's an exciting opportunity.

Kristine Liwag (Analyst)

Great. Thanks, Will. And, if I could just squeeze a last question in. I mean, the NGA

Will Marshall (Co-founder, CEO, and Chairperson)

All right

Kristine Liwag (Analyst)

announced plans to spend $700 million over the next five years to improve AI labeling of space imagery. I guess for something like that, that seems like exactly in your wheelhouse. So can you talk about how you're positioned for this contract, and is this a winner-takes-all type of pursuit, or do you see this carrying multiple vendors? How do you think about timing and, you know, so any sort of perspective on the sizable opportunity for you would be really helpful. And I promise this is my last question.

Will Marshall (Co-founder, CEO, and Chairperson)

Yeah. No, no, it is all good. I was just being silly. Yeah, absolutely. We track that. Obviously, we work closely with the NGA. That particular opportunity is more focused on labeling of data, which is not what we do. We don't do labeling, right? Generally, the technology is moving away from that kind of method, more towards the sort of automatic. These large language models and foundation models are able to be more zero shot or one shot learning, which is very different, where you don't have to mass scale labeling of data.

I think the better place for us to be able to be contributing is where we combine these foundation models with our data set to do profound things, like look over large areas for new threats and so on, which fits more into other opportunities.

Kristine Liwag (Analyst)

Great, thanks for the color.

Operator (participant)

Our next question comes from Trevor Walsh from JMP. Your line is now open.

Trevor Walsh (Analyst)

Great. Hi, team. Thanks for taking my questions. Ashley or Will, just a question around the go-to-market changes, kind of at the top level that you had mentioned. Understand you've got new leadership at kind of at each of the primary vertical areas. Just curious, kind of, maybe just diving in a little deeper, what exactly those new leaders will be focusing on that's maybe different or in addition to kind of how each of those business units were kind of being run before, and sort of what the kind of, you know, 30, 60, 90-day plan is for those folks?

Ashley Johnson (CFO and COO)

Yeah, thanks for the question. Again, it's really more of taking the work that we started last year and actually just moving a bit deeper and more aggressively towards aligning around our customers. So a year ago, we talked about the fact that we were aligning our sales teams to these customer verticals. So that was really kind of focused on our AEs and kind of how our balance of investment was on that line. What we've done is said, you know, really we should be looking at a broader commercial organization and alignment, as well as our product teams and how we're thinking about the alignment of those resources behind the demands that are gonna serve the broadest array of customers and meet the needs of these customers very directly.

So that's really the nature of the organizational model changes. In terms of the leadership, so these are all people that existed in the company and were strong leaders already in their own right, partnering sales and product to lead these initiatives, to really focus on accelerating the growth of the book of business. And so that means really thinking about, you know, the renewals of existing accounts, the opportunities to expand them, and where the most robust pipeline is that we can be targeting both our sales execution and our product development strategies, too. So that's the nature of the organizational changes, and with that, you know, quite honestly, we were able to drive a lot of efficiencies and frankly, achieve upside on those efficiencies versus what we had expected, you know, coming into the quarter.

Will Marshall (Co-founder, CEO, and Chairperson)

If I can only add, that I think the teams have got going really quickly, and, you know, this with a singular focus of growing the book of business for this, for their vertical, across sales and product, as Ashley was just saying. They've really got going quite quickly, and I think it will, as I said, both lead to better growth and to operational efficiency that we've seen.

Trevor Walsh (Analyst)

Great. Thanks, both.

Just one last one from me.

Yeah, just one last one for me. So Ashley, just around the guidance for Q3 and kind of beyond, I know you've talked previously about just challenges around, especially the larger government contracts and getting the timing of those. You've talked about the pipeline as well, but then in this quarter, you actually, you know, it looks like between the NATO deal and some of the other seven-figure contracts that you mentioned, it looks like some of those are actually coming to fruition.

As you think about the guidance, is it now kind of a, is it the rev rec around just getting those completed contracts operational, and that's what's kind of, you know, the lack of visibility on that front is kind of gumming up the works a little bit to kind of give a little bit broader, kind of full year guide? I'm just curious kind of where the kind of challenges remain as far as kind of the outlook on the top line.

Ashley Johnson (CFO and COO)

Yeah, it's actually, you know, consistent with what I spoke about even at the beginning of the year, in terms of, you know, having a lot of different ways that we can kinda get to the number and the balance of those opportunities, then drive different outcomes in terms of specifically what you referenced, so revenue recognition, but also the mix of partners and therefore the impact on gross margin, and obviously, that flows through the rest of the P&L, so we are obviously progressing through the year and getting a better sense for how these deals are coming together and what we need to do to close them.

But until we are in a position where, you know, we know exactly what the mix of business is gonna be driving revenue in the quarter, it just makes it challenging to give that full year guidance. But, as you noted, we had a number of really great wins in the quarter. We continue to have really strong pipeline, for Q3. So, you know, we remain very optimistic, especially with these new business leaders and, being able to reaccelerate the growth. But at this point, you know, kind of taking it a quarter at a time and, until we've got, you know, a bit more predictability, and ability to call with confidence the full year number all the way through the P&L.

Trevor Walsh (Analyst)

Great. Appreciate the questions, and thanks.

Will Marshall (Co-founder, CEO, and Chairperson)

Yep.

Operator (participant)

Our next question comes from Jason Gursky with Citi. Your line is now open.

Jason Gursky (Analyst)

Yeah, good afternoon. Hey, Will, can you talk a little bit more about the pilots that you were doing for the U.S. Government, the D&I customers there? I know you gave some comments in response to a question earlier, but I think some more detail might be helpful. How did those pilots go? What did you learn? What did your customers learn? And you know, how does this become a larger opportunity for you, and when might that happen?

Will Marshall (Co-founder, CEO, and Chairperson)

Yeah, happy to speak a little bit more. Obviously, I already gave a little bit of a cut on this. Firstly, the pilots earlier this year were broadly successful, and we expect more to come, as I mentioned. I think one way to think about what they're getting value at is actually an example we gave in our slides, with the New York Times article that came out, where investigative journalists. Often, we come to the specific use cases with the DOD and intelligence, defense intelligence customers, right? But actually, what The New York Times did with their investigative journalists is somewhat analogous.

They are looking at China and found these new settlements, villages that China's put sometimes in disputed territory between China and India, China and Bhutan, and other countries, and exposed a new threat that the world didn't know about, right? So that is exactly using AI on top of our broad area, scan to find new threats, and that's what these pilots are doing. The potential is a peripheral vision to help find unknown unknowns for the intelligence community, and that's a big thing. That's why we have very strong demand signal, but also, new programs and budgets, as you're aware, Jason, take time to establish, and that's what we're working on with them.

Jason Gursky (Analyst)

Okay. So this is, you know, multiple quarter, multiple year, kind of, process to bring this to a meaningful contract value? I'm just trying to get a little bit better understanding. And then, Ashley, I think it'd be helpful, if you don't mind, maybe providing some insight on, what revenue level, you think the company needs to achieve in order to get to cash flow breakeven. Thanks.

Will Marshall (Co-founder, CEO, and Chairperson)

.Yeah, I mean, I would say it is a multiple quarter effort, and that's the sort of timeframe we can expect to see ramp. Ashley, on the,

Ashley Johnson (CFO and COO)

Yeah. I mean, my color on cash flow breakeven will be consistent with what I've said in prior quarters. So, you know, obviously, first order priority is, you know, making sure that we're maintaining a cost structure such that, regardless of the top line, we're always in a position of maintaining a healthy balance sheet. So as we think about, you know, moving first to the objective of EBITDA profitability and then bringing down cash burn, by expanding EBITDA profitability to offset CapEx, and then managing CapEx, either by, you know, kind of being in more of a maintenance CapEx mode, as opposed to right now we're in an investing CapEx mode, to ensure that we're preserving cash and not putting ourselves in a situation where we need to raise outside capital.

So, you know, it's a combination of, you know, continuing to drive operational efficiencies, focusing on revenue acceleration, and pacing our CapEx investments so that, you know, we're existing with the cash that we've got on our balance sheet today. Any follow-up questions, Jason?

Jason Gursky (Analyst)

Oh, no, sorry. I had thanked you for the two and thought you were limiting it there, so all set. Thank you.

Ashley Johnson (CFO and COO)

Great. Thanks, Jason.

Operator (participant)

Our next question today comes from Jeff Van Rhee with Craig-Hallum. Your line is now open.

Daniel Hibshman (Analyst)

Hey, this is Daniel on for Jeff. Thanks for taking the questions. I wanted to ask on the RIF and how to model that. So the 10% RIF last year, you know, just because of other expenses coming in, overall, OpEx stayed pretty flat. You know, this year, obviously a bigger RIF with the 17% or the $35 million. Just any thoughts on how much other expense will be coming in offsetting that, or just sort of on a net basis, how to think about what we should be modeling taking out?

Ashley Johnson (CFO and COO)

Yeah, really good question, Daniel. So, you know, we're seeing most of the savings in salary and payroll, as I outlined. And we'll see the majority of that, you know, most of that in Q3, and obviously, Q4 is when that should be pretty clean. This will be partially offset by less contra R&D expenses as the Tanager program is coming to completion, so that funded R&D offset will decrease pretty substantially. But there's also some seasonality in some other expenses, in particular, sales and marketing and G&A. You know, as you know, depending on timing of new bookings and certain key renewals, that can impact the timing of commission expense. And then, you know, audit timing can impact the recognition of those fees.

The other factor just to keep in mind is the mix of partner revenues. So as I mentioned, that drove upside for us in the quarter, where we saw less partner expenses in the quarter relative to other business that was closed and revenue recognized. And as that fluxes quarter-to-quarter, that can cause some changes. But you know, the savings were realized across largely sales and marketing and R&D, with a little bit in COGS and G&A as well.

Daniel Hibshman (Analyst)

Okay, and then just to maybe as you talk about partners, just take on the partner theme. Gross margins, great to see them coming in at 57%. I think the expectation was around 52%. Just, I take it on the driver of that, if that's the partner revenue, that would be sort of a several million dollar, you know, revenue delta between, you know, what was expected from partners and what came in. So if that didn't come in, just what was some of the, the strength this quarter that, that you saw that filled that?

Ashley Johnson (CFO and COO)

Again, it just depends on whether we sign as the prime, and so therefore, you know, we're taking gross revenue and recognizing the partner expense, or whether we're coming in as not prime and delivering just a pure data deal. Sometimes it's, you know, some of the core business that we just have direct relationships with expanding. So again, the mix of business in our pipeline is quite varied, and then the nature of how we close that business can also change, you know, mid-deal, depending on what makes sense for the end customer and for our partners. So that's why it's a little bit hard to predict.

and so we try to, you know, make sure as we're providing guidance, that we're doing so with an eye to, you know, what those range of outcomes can be.

Daniel Hibshman (Analyst)

And then last for me, just one question for you, Will. On Pelican, just any thoughts on, you know, it sounds like some pretty significant changes being made to Pelican-2. You know, that program still, you know, early stages and undergoing R&D. Any thoughts on how we should, you know, peg our anticipations for that in terms of this becoming commercially, you know, viable? Is this sort of more of a 2025 or a 2026 thing? Just what's sort of the timetable for that program to mature?

Will Marshall (Co-founder, CEO, and Chairperson)

Great question. I mean, look, Pelican-2, which we're excited to be shipping to the launch pad here in a couple of months, yeah, it is first an R&D satellite, but we do hope to convert that to an operational satellite that would be able to start producing real data for customers.

So, and then, you know, going on from beyond that, we have a rapid deployment of future Pelicans that enable us to then carry on the SkySat work, but then make all these improvements that I've mentioned, the better resolution being one of them, but also the improved capacity for satellite, the improved agility, and then most of all, this faster time to get the data down, all of which we think can improve customer value.

Daniel Hibshman (Analyst)

Thanks for that, Will. Thanks, guys.

Ashley Johnson (CFO and COO)

Thank you.

Operator (participant)

Our next question comes from Noah Poponak with Goldman Sachs. Your line is now open.

Anthony Valentini (Analyst)

Hey, guys. You got Anthony Valentini on for Noah. Thanks for taking my question.

Ashley Johnson (CFO and COO)

No problem. Hi, Anthony.

Anthony Valentini (Analyst)

I'm curious if you guys do any work on the Economic Indicator Monitoring program with the NGA that was awarded a few years ago?

Will Marshall (Co-founder, CEO, and Chairperson)

So we are applying with the various work with the NGA in the area that is, EIM is the previous one. Luno is the next vehicle that will go into that direction of using analytics on top of satellite data. And then there's a whole suite of opportunities, and we're applying for the ones that are best fit for our differentiation. And by the way, both some direct and some as a subcontractor, there's a lot of opportunities there, especially for PlanetScope with AI on top. But I think Luno is now the new piece which took over from EIM.

Anthony Valentini (Analyst)

Okay. Yeah. And I guess I'm curious if Tanager, the capabilities there, if, you know, Luno, that program, you know, that's gonna be replacing

Will Marshall (Co-founder, CEO, and Chairperson)

Mm-hmm

Anthony Valentini (Analyst)

EIM, if that opens up, you know, capabilities for you guys and for the customer that, you know, makes your bid more competitive.

Will Marshall (Co-founder, CEO, and Chairperson)

100%, it opens up capabilities. I mean, in fact, you know, stepping back a bit, when we first launched the SuperDove satellites, the reason we moved to eight spectral band is, and then called that fleet, the first machine learning first fleet, is that as you add more spectral bands, there's different ways of pulling out what's going on on the ground, even if you can't see it in the visual RGB imagery. Hyperspectral is that plus plus, you know, with 400 spectral band. But I would also say it's early days, and I think Luno is more focused on the more classical, let's say, few band or multispectral, as we call it, imagery, than hyperspectral imagery.

But in the medium and longer term, I certainly think it's a machine learning field day, actually, that data set.

Anthony Valentini (Analyst)

Okay, great. Thank you so much, Will. I appreciate it.

Operator (participant)

Our next question comes from Caleb Henry with Quilty Space. Your line is now open.

Caleb Henry (Analyst)

Hi, thanks for taking the questions. One just about growth internationally. I think it was mentioned earlier that growth is going faster in Latin America and Asia-Pacific, kind of outside North America. Can you talk to me any about the reasons for that, you know, why you're seeing that growth? And does that look mainly like pilots, or are you seeing kind of longer contractual commitments?

Will Marshall (Co-founder, CEO, and Chairperson)

There's many things going on. I mean, we've got a number of large deals in defense and intelligence around the world. We mentioned the new international defense intelligence expansion. Civil government work, you know, and I mentioned a number in my prepared remarks. We had Bahrain doing that urban monitoring, INRA from Bolivia, IGAC from Colombia. And I can mention a few more. I mean, we've got government of New South Wales and has been doing some new work with us, which is establishing new use cases along the line of urban housing and protecting wildlife. We're doing some work with Kazakhstan, which is also civil government doing some work in disaster response.

There's a lot of different use cases emerging in civil government around the world, and they're quite pioneering. Often more, you know, they're pushing the boundaries, and then some of that is really repeatable in other governments as well. So the opportunity there in the civil government space is also really huge and pulling us.

Ashley Johnson (CFO and COO)

Yeah, if I could just add on, just from, as I mentioned, my experience down in Colombia, the product market fit is incredibly strong in a lot of these regions that are, quite frankly, much more focused on sustainability initiatives than we might be here in North America. In terms of wanting to be able to account for, you know, natural capital in places like South America, Latin America, Africa, etc. Some of the sustainability initiatives that you see European governments implementing, wanting to both enforce and implement incentives and enforce penalties. These are a direct fit with our broad area management solutions, the need to be able to cover these broad areas, identify anomalies, identify changes, and put programs in place that are supported by, you know, the solutions that we have.

I do think that that is one of the drivers of the success we're seeing in our international markets.

Caleb Henry (Analyst)

Okay, thanks. I, I think, maybe one clarification on that is just, you know, I was looking at the Planet backlog, and it looks like it's down a little bit. I was wondering if that's because of the, the influx of kind of new players from around the world that are, like, trialing the service before, you know, going on to longer term programs. Is there a connection between those two or-no?

Ashley Johnson (CFO and COO)

Not really. You know, when I look under the covers at backlog, it's a combination of timing of renewals, some larger multi-year contracts that are just burning their way down, so not up for renewal yet. It is truly a mix of things that factor into that. If you look at backlog on a next 12-month basis, you know, it's relatively flat quarter-to-quarter. So it's not indicative of anything, you know, competitive or otherwise, but that's certainly worth calling out.

Caleb Henry (Analyst)

Okay. And then, if I can do just one more on Pelican. Has Planet settled on a size for the Pelican fleet? I want to say in an FCC filing, it was 30 or 32 satellites, but I realize that it's not always. That's usually an upper limit. So is that the target, or have you settled on a different number?

Will Marshall (Co-founder, CEO, and Chairperson)

That's what you understand it exactly right. I mean, we did the filings up to 32 satellites. The great thing of having this in-house is the ability to throttle that to demand. First and foremost, it's getting to the SkySat replenishment as that fleet comes to the end of its life. And the second thing is adding all these new capabilities that I enlisted earlier. And the third thing is expanding to more frequency and coverage that would be enabled by satellites beyond that. So that's how we think about it. And the other exciting aspect of that fleet, if I can just throw it in there, is, you know, we constantly iterate our technology in space.

You know, as I mentioned, we find the NVIDIA processor on this Pelican-2 next mission enables AI edge compute. You know, that shows the ability of us to take the latest capability and put it into space. That will continue through the mission. Even just the 36 SuperDoves that we launched, we included a tech demo that's looking at next-generation sensors for that medium res fleet. You know, we're constantly iterating to get better and better data.

Caleb Henry (Analyst)

Okay, thank you.

Ashley Johnson (CFO and COO)

Thanks, will. Thank you all for your questions.

Operator (participant)

That will conclude the Q&A session, so I will pass the conference over to Will Marshall, CEO, for closing remarks.

Will Marshall (Co-founder, CEO, and Chairperson)

Just to close up, we're really pleased with the progress in Q2. If I could just summarize. Firstly, we saw the strong growth with government customers, with some exciting new customers during the quarter. Secondly, we restructured the business towards our industry-aligned operating model, which we expect to better support growth. Thirdly, we delivered solid financials, including the strong expansion in gross margin, the strong progress in EBITDA, as we march towards our adjusted EBITDA profitability goal for Q4. And finally, we're excited about the launch, of course, of 36 SuperDoves and our first Tanager spacecraft, marking our foray into the hyperspectral market.

We see a fair bit of growth potential in the near term via large government deals, and in the medium term, via the commercial sector with our Planet Insights Platform and our Partner Ecosystem. So overall, we're excited by the progress we're making and executing against our plan against these growth catalysts. So thanks, all, for tuning in.

Operator (participant)

That will conclude today's conference call. Thank you all for your participation. You may now disconnect your lines.