Planet Labs PBC (PL) Q1 2024 Earnings Call Transcript

Good afternoon. Thank you for joining today's Planet Labs PBC First Quarter of Fiscal 2024 Earnings Call. My name is Anna, and I will be your moderator. All lines will be muted during the presentation, with a chance for questions and answers at the end. I will now hand the conference over to our host Chris Genualdi, Vice President of Investor Relations. You may proceed.

Thanks, operator, and hello, everyone. Welcome to Planet's first quarter of 2024 earnings call. Before we begin today's call, we'd like to remind everyone that we may make forward-looking statements related to future events or our financial outlook. We also reference qualified pipeline, which represents potential sales leads that have not yet executed contracts. Any forward-looking statements are based on management's current outlook, plans, estimates, expectations, and projections. The inclusion of such forward-looking information should not be regarded as a representation by Planet that future plans, estimates, or expectations will be achieved. Such forward-looking statements are subject to various risks and uncertainties and assumptions as detailed in our SEC filings, which can be found at www.sec.gov. Our actual results or performance may differ materially from those indicated by such forward-looking statements, and we undertake no responsibility to update such forward-looking statements to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. During the call, we will also discuss non-GAAP financial measures. We use these non-GAAP financial measures for financial and operational decision-making and as a means to evaluate period-to-period comparisons. We believe that these measures provide useful information about operating results, enhance the overall understanding of past financial performance and future prospects, and allow for greater transparency with respect to key metrics used by management in its financial and operational decision-making. For more information on the non-GAAP financial measures, please see the reconciliation tables provided in our press release issued earlier this afternoon. Further, throughout this call, we provide a number of key performance indicators used by management and often used by competitors in our industry. These and other key performance indicators are discussed in more detail in our press release. Before we jump in, I'd like to encourage everyone to reference the slides we have posted on our Investor Relations website, which are intended to accompany our prepared remarks. Finally, for each of the customer contracts referenced during this call, please note that the revenue figures we cite will generally be recognized over the term of the contract, which can last several years. Further, the terms of these contracts can vary, and many of these contracts can be terminated by Planet or our customers prior to their maturity. As a result, we may not realize the total revenue expected for each such contract. At this time, I'd now like to turn the call over to Will Marshall, Planet's CEO, Chairperson, and Co-founder. Over to you, Will.

Thanks, Chris, and hello, everyone. Thanks for joining the call today. Our first quarter financial results were solid. We generated $52.7 million in revenue, representing a 31% year-over-year growth, in line with our guidance. Non-GAAP gross margins expanded to 56%, up from 45% in the prior year, an 11 percentage point increase, showing the ability for our one-to-many data business model to drive significant margin expansion as revenue scales. We ended the first quarter with over 900 unique customers spanning across government and commercial markets. While our Q1 results were in line with our expectations, we faced some recent headwinds in April and May, which inform our guidance for the year, and I'll address this in a moment. Before that, I do want to underscore our sustained confidence in the market opportunity. In Q1, we saw the largest quarter for pipeline generation in the company's history. We saw rapid advancements in AI that are unlocking new possibilities with our dataset. Our products are enabling our customers to address some of their most pressing security and sustainability challenges. That is all to say, we continue to see strong demand for our solutions. Let me now address our update to guidance for this year. The primary driver is that sales bookings came in lighter than we expected. In recent weeks, we observed a combination of factors coming together, including extended sales cycles, as well as some of our larger deal opportunities closing with smaller values than anticipated. We believe these recent changes reflect hesitation from customers as they enter the year with heightened budget uncertainty, as well as government procurement cycles taking longer than we expected. Because of our data subscription business model, lighter bookings in the beginning of the year have a more significant impact on the full-year revenue forecast than bookings in later quarters. Furthermore, because we believe this customer behavior may continue, we are revising our guidance presuming these trends continue for the remainder of the fiscal year. To maintain our path to profitability at this lower assumed revenue growth rate, we are adjusting our expense plan. We have significantly cut back our headcount expansion plans, which generated savings in the current year. More importantly, we estimate these changes will reduce our annual run rate expenses by more than $35 million going into next fiscal year. We believe this adjustment to our expense plan supports our standing objective to be adjusted EBITDA profitable no later than Q4 of next year. In scaling back our spend, we're prioritizing investments that support revenue for our core business and our path to profitability. We're focusing our resources on our highest ROI customers and opportunities, as well as looking at additional ways to optimize expenses. We are fortunate to have higher gross margins and operational levers in the business that enable us to do this. I'd like to emphasize that through this, we continue to believe we have sufficient capital on our balance sheet to capture the market opportunity, drive strong growth, and achieve cash flow breakeven without needing to raise further capital. As I stated earlier, our conviction in the opportunity for our business over the long term remains strong. Let me expand on some of the recent deals and other signals that give us confidence. Firstly on demand, as mentioned, we generated a record amount of qualified pipeline of opportunities in Q1. It was more than double the quarterly average of the prior year. For some additional color, let me mention that we added five new eight-figure potential customer opportunities to the pipeline for FY 2024 during this first quarter. We've never seen anything like the scale of these large opportunities. Generating qualified pipeline lays the foundation for future growth year-on-year. Now it's up to us to convert that pipeline into bookings and revenue. Secondly, on AI, the recent advances in AI and the potential of generative AI and large language models, in particular, have the potential to unlock value in our data as a further catalyst to our existing tailwinds. On our last call, we shared how our partner Synthetaic ran AI models on our data archive to track the Chinese high-altitude balloon to its origin point. Synthetaic's analytics, when combined with the Planet Scope archive function, almost acts like a time machine for the Earth, allowing users to scalably search data back through time going back six years. We've added a video to our Investor Relations website under the videos tab that shows Synthetaic's model running on Planet data and extracting insights. Their solution automates the analysis of large unstructured data sets like ours, so that even a non-technical user can detect objects in minutes or train and deploy AI models radically faster than even traditional AI approaches. It's hard to overstate the power of this. Being able to search the world for objects on demand has huge value for defense and intelligence customers, civil government, and sustainability applications too. It's been inspiring to watch the reaction of customers and prospects when they see the value that the combined capabilities of these models and our proprietary data unlock. Similarly, we also signed a partnership with South Korea-based AI company SI Analytics. SI Analytics plans to use Planet Data for a North Korea Ballistic Missile Operations Search project, with the goal of enhancing Global Risk Management and mitigating tensions in Asia and beyond. As you joined us in the user conference in April, you would have seen our demonstration of Queryable California, which you can find online. This is a proof-of-concept project from our ongoing collaboration with Microsoft. The global California demo aims to show how next-generation AI can make satellite data more accessible by making it searchable, conversational, and context-aware. While only video is available in your browser today, it's a glimpse of what's possible when you combine our proprietary data with industry-leading AI capabilities. It's another milestone in our journey towards building Queryable Earth, a vision I outlined five years ago in 2018. These AI-centered partnerships are just the beginning. We see AI as a catalyst to help unlock the full potential of our data archive, which has the depth and consistency that others in the industry can't match, enabled by our unique Earth scanning constellation. AI models themselves hold little or no value without data to run on, but Planet Data and AI is an incredibly powerful combination. In short, Planet sits on a treasure trove of real-time and archived data that is an incredible asset for this AI revolution. Thirdly, I'd like to share some additional business highlights that represent the pressing issues that our solutions are helping customers address. In the last month, we closed two multiyear deals with international customers centered around defense and intelligence applications—one in the eight-figures to a partner and one in the seven-figures. Overall, in a world of heightened global tensions, the need for greater security and transparency is clear. Recent global events are driving elevated interest in our capabilities among the defense and intelligence community. Turning to commercial clients, we extended our strategic partnership with AXA Climate, which I previewed on our prior call. AXA is a leading provider of consultancy services helping clients adapt to climate change and biodiversity loss. The partnership aims to offer continued satellite data-driven insights for the development of parametric insurance products. In Q1, we also closed a seven-figure multiyear renewal and expansion with Syngenta, which will enable their use of Planet Scope to globally set the foundation for growth, new applications, research and development, and precision agriculture. Syngenta's existing work with Planet over the last several years has included using SkySat for monitoring corn and soy as well as plot verification. Turning to Climate and Sustainability, we have a few partnerships to mention here. The United Arab Emirates is hosting this year's Climate Conference COP28, with this context we recently signed a partnership with the UAE Space Agency to build a regional satellite data-driven loss and damage atlas for climate change resilience. The initiative aims to provide our data to countries facing higher degrees of climate risk so that they can better respond, make informed policy decisions, and enable financial programs for climate adaptation and mitigation. We are also seeing that sustainability regulation in various geographies is a significant catalyst for wide-scale adoption by civil government. Let me mention a few examples. Europe's Common Agricultural Policy drives the need for governments in Europe to monitor for compliance; together with our partner NEO, we closed a new deal with a Dutch paying Agency. We're delivering Planet Fusion as part of their area monitoring system provided to the Netherlands by NEO as part of their efforts to increase automation of their monitoring. Relatedly, Planet won a multiyear seven-figure Open Tender award from the Welsh Government to support the design and implementation of the Rural Investment Schemes and the Sustainable Farming Scheme. Similar to CAP, coming down the pipe, we expect the newly adopted and far-reaching EU regulation on deforestation-free products to be a driver. It forces companies bringing any of seven commodities into the EU to prove that they did not cause deforestation—all starting next year. In our view, satellite data is the scalable solution for monitoring to ensure compliance. Turning to South America, we recently signed a seven-figure multiyear contract with Bolivia's Institute for National Agrarian Reform, which is our largest deal in the Spanish-speaking country. INRA is using PlanetScope and SkySat to map the country and monitor for good stewardship of public lands and title enforcement. They're also using our archives to gain insight into previous land use. Planet data has proven more cost-effective than the alternative of flying airplanes to capture inventory for INRA. Finally, on the sustainability thread, the Environmental Resources Management, a global sustainability consultancy, also became a Planet partner. ERM brings deep subject matter expertise to clients across the industry and has contributed to more than 20,000 sustainability-related projects each year. The partnership is designed to expand our imagery use cases, applications, and reporting capabilities, helping enable decision-makers to address their operational and sustainability goals. These recent wins are indicative of the diversity of customers we can serve and the critical needs that our data address. Now to give a brief update on the M&A front. This last week, we launched planetary variables live on Planet's subscription API, enabled through the VanderSat acquisition. These products have opened new opportunities for us in markets like insurance. We've also been pleased with our recent acquisition of Salo Sciences; the integration is going well, and they have been successfully executing to plan. At our Planet Explore conference, we announced that we would add new planetary variables, building on that team's work, and they have already delivered on multiple sales opportunities for Planet. Meanwhile, in Q1, we announced our intention to acquire the business of Sinergise, and I'm pleased to say that it's still on track to close this quarter. We view this Sinergise acquisition as a key part of our strategy to bring the power of earth observation to the mainstream and to position us to support regulatory programs, such as the EU's common agricultural policy that I mentioned earlier. To summarize, we delivered solid Q1 results and had our strongest pipeline generation quarter in the company's history. Bookings came in lighter than we expected, with some sales taking longer than expected and others landing at smaller values than anticipated. We are responding by adjusting our spending plans, prioritizing our investments on customers and opportunities where we see the highest ROI. As a result, we are maintaining our profitability objective for next year. Our conviction in the significant scale of the opportunity for our business remains strong. And with that, I'll turn it over to Ashley.

Thank you, Will, and thanks, everyone, for joining us today. As Will mentioned, our revenue for the first quarter of fiscal 2024 ending April 30 came in at $52.7 million, which represents a 31% year-over-year growth. As of the end of Q1, recurring ACV, or Annual Contract Value, was 93% of our book of business. Over 90% of our book of business consisted of annual or multiyear contracts. Our average contract length continues to be approximately two years weighted on an ACV basis. The net dollar retention rate, which we measure relative to the book of business at the beginning of each year, was 98%, and the net dollar retention rate with Winbacks was 99%. It's important to understand that at this point in the year, our net dollar retention rate is reflective of only three months. If you look at our prior two years of the net dollar retention rate as detailed in our quarterly earnings investor presentation, our net dollar retention rate starts each fiscal year at 100% and then builds through the course of the year towards our final full-year results. The slight decrease in NDRR for Q1 relative to the beginning of the year is primarily due to delays in renewing certain government contracts. For the full year, we are targeting an approximate 120% net dollar retention rate, consistent with the targets that we have shared for the business in the past. Turning to gross margin, we expanded our non-GAAP gross margin to 56% for the first quarter of fiscal 2024 compared to 45% in the prior year. This 11-point expansion of gross margins is driven by the growth of revenue, the efficiency of our agile aerospace approach, and our one-to-many data subscription business model. As a reminder, we include the depreciation and amortization of CapEx in our cost of goods sold, aligning with the practices of publicly traded SaaS businesses. Adjusted EBITDA loss was $19.1 million for the quarter. Capital expenditures, including capitalized software development, were $7.1 million for the quarter or approximately 13% of revenue. This is lower than we anticipated due to the timing of receiving materials. Turning to the balance sheet, we ended the quarter with $376 million of cash, cash equivalents, and short-term investments, which we continue to believe provides us with sufficient capital to invest behind our growth-accelerating initiatives without needing to raise additional capital. We also continue to have no debt outstanding. At the end of Q1, our remaining performance obligations, or RPOs, were approximately $138 million, of which, approximately 80% apply to the next 12 months and 99% to the next two years. As we've shared on prior calls, RPOs can fluctuate quarter-to-quarter as multi-year contracts come up for renewal. Also, please keep in mind that our reported 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. While our Q1 results were solid, the lighter-than-expected bookings in the past couple of months that Will mentioned earlier have led us to update our outlook for the full year. We are lowering our assumptions for new and expansion business in fiscal 2024 and modeling longer sales cycles and smaller average deal sizes consistent with what we've recently observed. I'll note that we signed two contracts in the last two months that were seven or eight figures in size, but that are not expected to drive significant incremental revenue until Q3 or Q4 this year because of the expected timing of data consumption and the associated revenue recognition. So some of the challenge around our updated revenue forecast is timing; we see a similar challenge as we look forward to Q2, as some of our customers with contracts that are up for renewal in Q2 and Q3 are slowing data consumption to stay within their annual contract allowance. We believe the adjustments we have made to our forecast in response to all of these factors address the headwinds we saw and position us appropriately for the remainder of the year. With the changes we have made as of the end of Q1, approximately 80% of our revenue forecast for the year is already committed, and that's before factoring in additional renewals, new business, or revenue from the acquisition of Sinergise. Will already outlined how we're adjusting our expense plans and prioritizing our spend in light of our updated revenue outlook. We expect these adjustments to generate savings in the current year. But more importantly, we expect it to reduce our planned operating expense run rate at year-end by over $35 million to support our targeted path to profitability. I'd like to underscore our commitment to the objective of achieving adjusted EBITDA profitability by no later than the fourth quarter of fiscal 2025 or calendar year-end 2024. As we've said before, we have multiple levers to align our spend to growth rates, both on the CapEx and OpEx side of our business. We expect we can make these adjustments while continuing to maintain our competitive lead in the market. Turning to guidance for the second quarter of fiscal 2024, we expect revenue of $53 million to $55 million, which represents growth of approximately 11% year-over-year at the midpoint. Please note that the year-over-year growth rate is adversely impacted by the revenue upside of approximately $5.5 million that we delivered in the second quarter of fiscal 2023, which was driven by elevated usage with several of our consumption customers. The heightened usage rates last year create a challenging year-over-year comparison, especially as some customers have adjusted their usage rates down to stay within their annual budget envelope, as I mentioned previously. Additionally, the year-over-year growth rate comparison is impacted by the conclusion of a large legacy contract in Q1, which we referenced on our last earnings call. We expect non-GAAP gross margin for Q2 of 48% to 49%. The sequential decline in gross margin reflects the accelerated depreciation of two of our SkySat satellites, which we expect to lower and re-enter the Earth's atmosphere later this year and mid-next year, earlier than initially estimated, which was caused by an unusual increase in solar activity that we, and other LEO satellite operators, have experienced in recent months. Our approach to earth observation provides us with significant redundancy to our operations, such that we continue to have capacity to onboard new customers and are not concerned with our ability to serve existing customers with the SkySat fleet. Our adjusted EBITDA loss for the second quarter is expected to be between negative $20 million and negative $17 million. We are planning for capital expenditures of approximately $10 million to $14 million. For the full fiscal year ending January 31, 2024, we expect revenue to be between $225 million and $235 million, or growth of 18% to 23% year-over-year, which includes approximately $7 million of revenue we expect from the Sinergise acquisition based on an assumed closure in mid-Q2. Our non-GAAP gross margin is expected to be between 52% and 54%, which is lower than prior guidance, both because of the lower revenue guidance as well as the approximately $5 million of additional depreciation expense. Adjusted EBITDA loss is expected to be between negative $67 million and negative $58 million. We expect CapEx to be approximately $45 million to $55 million, or approximately 20% to 23% of revenue. As shared on our prior call, CapEx for this year is driven primarily by investments in our Pelican program, which is on schedule to be ready in advance of the end of life of our SkySat fleet. Overall, we're pleased with how the program has been progressing and look forward to our first tech demo, which is currently scheduled for launch later this year. Finally, before we turn to Q&A, I'd like to highlight that we're proud to have published our inaugural ESG report. It is meant to outline our company mission and lay the groundwork for Planet's sustainability program while highlighting some of the ways we are making progress toward a more sustainable and equitable world. That includes our second year of reporting carbon emissions data and our first SASB disclosure. This marks just the beginning of our ESG reporting journey, and we are excited to share our progress with all of you as we continue to grow and scale our operations and impact. You can find our ESG report on our website at planet.com/esg. Operator, that concludes our comments. We can now take questions.

The first question is from Ryan Koontz with Needham and Company. You may proceed.

Thanks for the question. I'm trying to correlate some of the change in mix in Q1 with the downtick in the outlook for the rest of the year. It looked like North America was a little soft and Commercial was quite soft in your fiscal first quarter. Is it fair to extrapolate that that's a source of weakness for the balance of the year?

Well, I'd say, a lot of it is timing and some of it is the legacy contract. There clearly are some challenges in the economic environment with commercial customers. But we're definitely seeing increased budget scrutiny and longer sales cycles on the government side as well. So, it's not just that—would you add anything, Ashley?

No, I think that's right. If you're talking about year-over-year comparisons, it's important to remember we referenced the one larger contract that completed in Q1, and that was a North America contract. So that's certainly going to be one of the factors.

Got it. Helpful. And on the change in gross margin outlook, I didn't quite catch everything you said there about the SkySat decline—was there an accelerated depreciation or something that's impacting gross margin beyond just volume there on the outlook?

Yeah, yeah. That is exactly right. So, there are two satellites where we're now estimating a shorter useful life. So, the impact to COGS on this year is roughly $5 million, and that's a relatively recent development. So, it just started at the very tail end of Q1. But most of the impact is hitting Q2 through about Q1 next year.

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

That's really helpful. I'll pass the question queue, thanks.

Great. Thank you.

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

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

Yeah. Well, absolutely. So, the most important thing about our fleet is the significant redundancy we have in our system, and that's both on the high-resolution fleet, the SkySat, and the Dove fleet that does the daily scan. The other thing to bear in mind is our agile aerospace approach just enables us to flex to the demand much more swiftly. I mean, Dove, because we build and design and build all of these things in-house, we can just flexibly launch more when we need more, and that also helps with this. But the core factor is the redundancy in the fleet.

Great, terrific. And then maybe just a follow-up around the consumption piece either jump-off for you or for Ashley. Do you get the sense as customers are maybe trailing back or curtailing their consumption rates a little bit to match the contracts? Is that really a function of just what's happening with the macro and budgetary concerns, or would there also just need to be a larger rightsizing of their kind of consumption just based on they’ve had a year or two to understand what their needs are, and they're just now rightsizing the contract regardless of macro, or is it really just attributable to them not wanting to get ahead of their usage given the uncertainty in the market? Does that make sense?

It does make sense. I'd say the good news is as we think about the renewals front, actually, we continue to see a strong line of sight to a strong renewal rate this year. As I said, we're still targeting north of 120% NDRR. So, it's not that we're seeing contracts renewing necessarily at smaller amounts. The issue is, as I mentioned last year, we saw a pretty significant uptick in the pace of consumption. Starting in Q2, we attributed that to we had rolled out a number of software improvements that frankly just made it easier to access the data. We’d cautioned at that time that we didn't know whether customers would renew early or increase the size of their contracts. Because if it continued at that pace, they would use up their contract allowance early. And what we're seeing now is as we are getting to those Q2, Q3 renewal dates, we're seeing customers slow down because they just can’t get the budget ahead of when it's set at the renewal date.

Great. Thanks for taking the questions.

Great. Thank you.

Thank you, Mr. Walsh. The next question is from the line of Jason Gursky with Citigroup. You may proceed.

Hey, good afternoon, everybody. Can you just provide a little bit more color on what's going on with the government contracts you suggested that things are not moving along as fast as you'd like, either on new deals or renewals? Where are you seeing that behavior here in the United States, outside of the United States? Just a little bit more color on what's going on with the government markets would be helpful.

Yeah, happy to do that. So, we've seen softness on the commercial side before. This is a little bit new data point on the government piece added by the way the elongation on the commercial side, but on the government piece, I think we've seen some of these procurement cycles taking longer than we had expected. These are complex government processes. Where does that divide up? I would say we've seen it both in small deals and larger deals, and I don't know any particular geographic focus, so not aware of any distinction there.

Yeah, I think so. So, you're not seeing it concentrated either inside or outside the United States, it's everywhere.

No, no. Just to shed a tiny bit more light on that. One of the eight-figure deals that we mentioned in our remarks slipped, but now it's signed, and the revenue increase really ticks up—expected to pick up later in the year like Q3, and that was later than we had planned. So this is just timing, basically.

Yeah. We saw this impacting a couple of deals. It's not specific to the US where the deal was expected to land right at the end of the quarter but slipped into early Q2. We got awarded the business, but that process of getting the ink on the paper is just taking a little longer. We’re seeing some of the government bureaucracy ticking up. It’s unclear whether this is just a point in time or whether there's something else going on where, given the economic environment, governments are getting more scrutiny around getting these procurements over the goal line. So, we're looking at it and trying to understand it. Right now we're making the assumption that deals are going to be slower, so that we factor that into our revenue assumptions, but it's kind of early days.

Yes. Second question?

Look, I know you've added a lot of—yeah, I do. I know you've added a lot of headcounts in CSM, headcount—So sales headcount CSM. I'm just kind of curious how accurate you all have been in the past in forecasting out this kind of activity, and given the growth that you've all seen, whether the accuracy is not as robust as it has been in the past. Just trying to get an understanding of whether this is truly a market seeing, or if this is a result of potentially some growing pains as you all are bringing in onboarding a lot of new people, and you all are trying to figure out the right process to be able to get the visibility that you need to appropriately manage the business.

I think that's a fair question. We had a lot of activity going on in Q1. We had our Explore conference, which was phenomenal. We had our sales kickoff. We had two phenomenal international conferences at Munich Security and Davos. All of that led to, as Will referenced, really strong pipeline. I think our best ever as a company and significantly above our historical averages. So, all of that was pointing to a lot of great activity going on. I think to your question, is some of this now a lot for the team to be processing? We have a lot of new people that we were onboarding, and so is some of that factoring into the delays in getting the deals closed. I think in general, the important thing is one: great signals from the market, so having the pipeline, and two: we remain very confident in our team's ability to close it. But to your point, we want to make sure that we're factoring in whether it's a macroeconomic environment or new people on forecasting. We want to make sure that we're factoring in just some data points we saw coming out of Q1 into how we're thinking about the rest of the year. So, that we don't run into this kind of situation in future quarters.

Okay, great. Thank you.

Thank you, Mr. Gursky. Our next question is from Mike Latimore with Northland. You may proceed.

Yes, thanks very much. Just on the OpEx changes you're planning this year. Can you just give a little more detail there across the board? And then I guess in the midst of that, what is the thought on sales headcount growth this year?

Well, maybe I can talk to the former, and Ashley can do a little bit to that. Overall, we are prioritizing high-ROI business areas, as we sort of mentioned in our remarks. On the go-to-market side, what that really means is that it's about streamlining and focusing on high-ROI business areas in terms of geographies, vertical markets, higher ROI products, moving some of the long-tail smaller deals to our partners and to our platform, hence the Sinergise acquisition. On the product side, I don't know if you saw Planet Explore conference and what we announced there, but we really talked about focusing—refocusing on the key products that we spoke about: planetary variables, Pelican, AI, and other areas. We made a number of bets on the smaller side, some of which have clear near-term ROI, that are a bit further off and we'll be focusing more on the former, less on the latter given the situation. Ashley, do you want to take the second?

Great. Yes. So, I think what's important is, again, we see a positive signal in terms of the market and the demand. And as Will referenced, there are areas where we will continue to invest, and obviously, having feet on the street in those places where we have the pipeline and need to ensure we have the teams to go close it. Similarly, behind those products where we are feeling a lot of pull from the market, we still want to make sure that we are putting appropriate share behind those areas. But part of this also is just making sure that we're being very focused, and that's how we make these investments. We've done a lot of investing over the last 18 months, and now is the time to ensure that we're being efficient and focusing on the path to profitability.

Got it. And then just on the pipeline. Sounds like that was very strong in the quarter, and you referenced those five eight-figure deals. Are there any commonalities among those deals in terms of new logos, expansions or commercial versus government, and then how does the sort of seven-figure pipeline during the quarter?

Firstly, I mean, we've never seen pipeline generation quite like this last quarter, and we really scrutinize and only have to put qualified deals into our plan. To have those five eight-figure deals is just—we've never seen anything like that. Most of that is in the government space, but there is a healthy mix of civil government and defense and intelligence. So, it's quite a variety of applications, and what we're seeing drive this, as we hinted at a little bit on the call prepared remarks, the sustainability regulations are driving big deals, and then there's also AI which is really an accelerant and a catalyst. So, we're seeing this pretty strong momentum of these seven and eight-figure deals, and you've heard some of the wins that I spoke about. So, yes, a lot of pipeline generation, which is why it's a mixed signal when we're talking about reducing the revenue growth rate.

Yes. Okay, thanks.

Okay. Thank you.

Thank you, Mr. Latimore. Our next question is from Jeff Van Rhee with Craig-Hallum. You may proceed.

Great. Thanks for taking my questions. A couple—first, just walk me through the sales, I guess just the sales and usage environment and how it evolved, particularly when this weakness started to really manifest itself? Just a little more precision on when and what you saw.

Yes. I'd say in general, we always expect backend loading on a quarter for closing deals. We have the pipeline coming in. We had a lot of commitment that we expected to convert. As we reached the final weeks of the quarter, things pushed into early Q2, it still felt like we were on track. As Will referenced, we had a really nice eight-figure deal close in May; we had a couple of other wins that came over the goal line right in the final weeks in early May. So, the signal remained relatively strong. But there were—as I mentioned, one where we got the award still working to get the ink on the paper. Will referenced the eight-figure deal where, because of budget constraints on the part of the customer, they actually went up to uptick their usage until much later in the year. From our revenue recognition perspective, we've got this multiyear committed dollar amount, and when we actually start to report that revenue is going to be later than we anticipated. Some of the challenge around our updated revenue forecast is timing; we see a similar challenge as we look forward to Q2 as some of our customers with contracts that are up for renewal in Q2 and Q3 are slowing data consumption to stay within their annual contract allowance. We believe the adjustments we have made to our forecast in response to all of these factors address the headwinds we saw and position us appropriately for the remainder of the year. With the changes we have made as of the end of Q1, approximately 80% of our revenue forecast for the year is already committed, and that's before factoring in additional renewals, new business, or revenue from the acquisition of Sinergise.

Maybe the only thing I'd just add to that is that keep in mind that this is just very recent data and really only a data point of one in a sense. And we are creating new markets here, but we are paying close attention to it and understanding it more over time, but as I was just saying, we've got the demand and the pipeline here; it's up to us to convert it.

Okay. And then my last question, just to read it back to you, it sounds like you're saying you didn't see any differences really with respect to Civil D&I and commercial whether it was new business booked in the quarter, usage, pipeline. It sounds like you're calling those all out as being on prior trends and not varying in any meaningful ways?

No. I think I've said something different, or at least how I heard you read it back on a different to me. We saw, when we look back on the quarter, that average deal sizes were down, whereas historically we've seen them trend up. We saw sales cycles

Sorry. Ashley, no. I'm sorry. I definitely didn't— I didn't phrase it well. I was just, I guess the question was Civil D&I and commercial specifically the weakness. Obviously, you're taking everything down going forward. Are you taking down equally in terms of the outlook in each of those Civil D&I and commercial usage and new business across the board?

Got it. Yes. Okay, good. I'd say generally across the board, and in particular, like I said, some of the larger contracts where they were on that accelerated pace of usage over the last few quarters, we've been engaging with those customers around the renewal, and that is—there's a lot of that, for example, in government where they just frankly don't have the budget lined up until the quarter of the renewal. Those are some of the things that are factoring—that we're factoring in. I don't think it's specific to any one sector. I think the surprise to us was that, historically, we've seen the government actually being strong in spite of the macro headwinds, whereas we saw a lot of caution already on the commercial side. This impact of budget cycles for governments is a relatively new phenomenon. Again, I don't anticipate any challenges with the renewals; it's just because they've been on such a high usage rate, the timing of getting that renewal versus getting that new revenue is working against us.

Yes. And again, this is one data point. So, it's not a trend yet. We need to wait and see and really understand it, still analyzing.

Yes. Okay, all right. Got it, got it. Okay, thank you.

Great. Thanks.

Thank you, Mr. Van Rhee. Our next question is from Christine with Morgan Stanley. You may proceed.

Hey, good afternoon, guys. Maybe bridging the slower bookings in the quarter that you mentioned, and a smaller revenue conversion. You bridge that versus a doubling of qualified pipeline. I mean how similar or different the customer profiles that's driving the near-term headwind versus the longer-term tailwinds?

Yes. I mean, just to your general point, there is a mixed signal here. We did have incredibly strong pipeline generation in the quarter, and we saw some slowness in bookings, especially in recent weeks. So, sales elongating and so on. I had only just—I don't think there is a distinction and the mix between the past and the pipeline and the revenue we're bookings. So, I don't think there's much distinction there. But again, Ashley mentioned this. We did spend a lot of our energies in Q1 on generating pipeline. It's true that we spent on that. And obviously not satisfied with the bookings result, and it's our job to now spend the rest of the year converting that pipeline into revenue.

Yes, and to your question about sectors, I think mixed signals actually spend across all the sectors. We saw some really strong pipeline and strong interest from customers across commercial sectors such as insurance and agriculture we referenced. Some of these in the call. In the energy space, there is a lot of really good activity going on there. I do think that there is heightened budget scrutiny, and when you're talking about a market-making activity, you're not necessarily just replacing another budget. As a commercial customer, you're having to make budget for something that's new. That makes for longer sales cycles, especially in this environment. But the good news is, what we see is a lot of strong activity on that front, pointing to pipeline and demand on the government side, as Will referenced, there are so many things going on right now that are tailwinds for our business from a piece of security, more obviously on the D&I side, but also a lot of the regulatory activity going on the sustainability side of the business.

Great. Thank you. And then following up on the contracts where the dollar amount is smaller than you anticipated. Can you share any insights if the customer's budget for that category of spend for your product is the same, meaning that could be acquiring similar or complementary capabilities with your competitors, or is it that they really completely cutting this category of spend resulting in a smaller bookings?

I'll just comment on the competitive piece. I mean, we're not seeing us lose any deals to competitors. It's much more macroeconomic budget-related issues and/or government complexity of deals than it is anything to the competition. Our solution is completely unique, especially the data again, which drives a lot of these deals. Anything to add?

Yeah, I would actually say it's quite the opposite from what you described in terms of, it's not necessarily that they're downsizing because there is not demand for the broader data amounts but rather they are pacing the consumption. So that they can get the budget dollars in for the larger deals. So, I can't think of a number of examples off the top of my head where the customer has used the budget that they had available to get the contract started and to get going with our data while they line up budget to have a larger consumption later in the year. Sometimes funds line up that takes time. But I think that's indicative of the fact that they are actually trying to figure out how to get more budget dollars allocated our way versus scaling it back.

Great, thank you. If I could squeeze one more in, I mean in AI, you guys mentioned that you have a few different partners that you're working with in the future. How do you think about sharing economics and how would that work?

I mean, you have the data, but if they've got the processing power, how do you make sure that you're going to keep your portion profitable, and you're going to protect the data that you have?

It's a great question. Firstly, we're just so excited about what's going on in the field of AI here right now. The power of being able to search the Planet is incredible, and that's what's happening with the combination of our data and these new AI tools enhances and speeds up the ability to extract value for everyone. We've seen a few kinds of use case areas like in defense and intelligence searching for spy balloons or in disaster response and civil applications like conducting building damage assessments; it's a wide variety of areas. But to your specific question about it, I'd just point out something mentioned a number of times: AI without data is not useful. You have to train it on data. Firstly, we have a massive stock of data; it's a treasure trove for these AI models. Secondly, we have the ongoing daily scan, which is how companies and governments can continue to monitor things. That’s all because of this unique daily scan, 2014 images in our archive and this daily scan—that is what's opening up all these new applications and that is driving this interest in AI on top of satellite data. That puts us in an unusual position and a very powerful one where a lot of these top AI companies are coming to us because they know that AI without the datasets is not nearly as valuable, but once they are combined with the dataset, it creates a powerful position to do these sorts of licensing terms, and so far, they have been pretty favorable to us because of that recognition, I’d say.

Great. Thank you very much.

We are in a unique and strong position due to the increasing interest in AI combined with satellite data. Many leading AI companies are turning to us because they understand that AI alone lacks value without datasets. The combination enhances our negotiating power for licensing agreements, which have been advantageous for us because of this recognition. Thank you very much.

A lot of these top AI companies are turning to us because they understand that AI is significantly less valuable without the necessary datasets. When combined with our datasets, it creates a strong position for licensing agreements, which have so far been quite favorable for us due to this acknowledgment.

Yes, thanks.

Thank you. That concludes today's call. Thank you for your participation; you may now disconnect your lines.