Planet Labs PBC

NYSE:PL

Earnings Call Analysis

Earnings Call Transcript 2025-Q2

[Operator]

Hello, everyone. Thank you for attending today's Planet Labs PBC Second Quarter of Fiscal 2025 Earnings Call. My name is Sierra, and I will be your moderator for today. [Operator Instructions]

I would now like to pass the conference over to our host, Cleo Palmer-Poroner, Investor Relations at Planet Labs PBC. Please proceed.

[Cleo Palmer-Poroner, executive]

Thanks, operator, and hello, everyone. This is Cleo Palmer-Poroner, Investor Relations at Planet Labs PBC. Welcome to Planet's second quarter 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 projection. 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.

[William Marshall, executive]

Thanks, Cleo, and hi, everyone. Thanks for joining the call today. For the second quarter of fiscal year 2025, we generated a record $61.1 million in revenue, representing 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 work 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 & 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 datasets and the solutions we're delivering with our partners.

During the quarter, we closed a new deal with NATO. The Communications & 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 a introductory deal, we view it as strategically important.

Additionally, we closed a 7-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 & 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 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 show her reflections on the event shortly.

Finally, we closed the 7-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've discussed on prior calls, we've seen both macroeconomic headwinds generally and challenges in the agriculture sector specifically. Under our new operating model, we're 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 long time 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 onboard a SpaceX launch vehicle on August 16. We're 3 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 36 satellites have been contacted. The first reached first light in a record 3 days, and they are rapidly going into production mode. This constellation remains the largest earth imaging fleet in history and the basis for our 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 has 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 onboard 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 Whitfield Johnson, executive]

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 Bogota, 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 Bogota 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 partner's 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 Brazil 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 has 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 second quarter 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 second quarter 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 second quarter, 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 multiyear contracts. Our average contract length continues to be approximately 2 years weighted on an ACB basis.

Net dollar retention rate at the end of Q2 was 99%, and net dollar retention rate with win backs was a 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 6 months of contract renewals. Our net dollar retention rate starts each fiscal year at a 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 second quarter 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 nonrecurring charges related to the restructuring during the quarter.

The reductions align with our commitment to reaching adjusted EBITDA profitability by the fourth quarter 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 break-even 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 a $112 million of which approximately 78% applied to the next 12 months and 97% to the next 2 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 12 months and 87% to the next 2 years. As a reminder RPOs and backlog can fluctuate quarter-to-quarter as revenue is recognized against customer contracts and multiyear contracts come up for renewal.

Let me now turn to our guidance for the third quarter 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 $0.5 million of impact from the higher depreciation expense related to 3 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 third quarter to be between negative $5 million and negative $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]

[Operator Instructions] Our first question today comes from Ryan Koontz with Needham & Company.

[Ryan Koontz, analyst]

With regards to the -- some housekeeping first on numbers, I see North America down in the quarter sequentially as well as RPO down 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 Whitfield Johnson, executive]

Yes. I think the simplest answer is to -- is just to remind you that we have a number of larger opportunities particularly with government entities, many of whom cannot sign more than 1 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 growth rate.

[Ryan Koontz, analyst]

And in terms of the gross margin there, nice gross margin improvement in the quarter 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 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 Whitfield Johnson, executive]

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

[Operator]

Our next question comes from Michael Latimore with Northland.

[Mike Latimore, analyst]

Yes, 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 third quarter here. Is that a good new kind of baseline to think about that it should be at least that level going forward?

[Ashley Whitfield Johnson, executive]

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 if we were to sign a larger deal that included for which we were prime and includes other partners. But yes, and as we move forward, obviously, the more business we're bringing on to the platform, that's a very scalable model. So that helps us balance out other times where we might see partner costs weighing it down. So that's certainly our ambition is to sustain and improve from here.

[Mike Latimore, analyst]

And then, can you just give an update on the pilots that you've been working on? How many did you have in the second quarter? Do you have any in the third quarter? Just an update on that would be great.

[William Marshall, executive]

Yes. I'm happy to speak to that a little bit. Yes. So as you know, we've been doing these pilots for 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]

And I guess just last on the ag sector. The headwinds there, do you feel like does that stabilize on a sequential basis third or fourth quarter this year?

[Ashley Whitfield Johnson, executive]

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 really good customers in that space, some of whom were referenced on this call, so.

[William Marshall, executive]

Yes, the BASF, xarvio. And look, as I mentioned, we're moving towards the right sort of incentive model and that's important. And 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 this beginning to do, I think we begin to see that turnaround. So we very much believe in the long-term in that market still.

[Operator]

Our next question comes from Kristine Liwag with Morgan Stanley.

[Kristine Liwag, analyst]

Just wanted to follow up on the NATO contract that you won, the NATO apps contract. Can you provide a little bit more color 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 5 years, like, what's addressable to you?

[William Marshall, executive]

Yes, it's great question, 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, yes, I mean, that's right. The governments have committed up to $1 billion to that program over 5 years. We're at the beginning end of that, so it will ramp. But we think it's a significant opportunity for Planet to support, so we're very excited about it.

[Kristine Liwag, analyst]

And then when we -- I guess, we have the first satellite now launched, do 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?

[William Marshall, executive]

Great. Yes, 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. And that satellite as I mentioned is an early part of its commissioning. As the revenue opportunities, we're very excited about the number of vertical markets that that -- and use cases that that hyperspectral imagery opens up. And I think we've mentioned before that we've already got 2 customers there, one in the form of carbon mapper, the people that help to fund the program, looking at the environmental use case of methane data. And we also have the NRO, the National Reconnaissance Office that buys our data, and we have a small contracting vehicle for that that is 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, 2 large ag companies and others where mining companies and so on, that we're doing early product work developing the use cases 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 our first foray into it, and it's an exciting opportunity.

[Kristine Liwag, analyst]

And if I could squeeze the last question in. I mean, the NGA announced plans to spend $700 million over the next 5 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 your position 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 any sort of perspective on the sizable opportunity for you would be really helpful?

[William Marshall, executive]

Yes, absolutely we track that. Obviously, we work closely with 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 0 shot or 1 shot learning, which is very different, where you don't have to mass scale labeling of data. So 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.

[Operator]

Our next question comes from Trevor Walsh with JMP.

[Trevor Walsh, analyst]

Ashley or Will, just 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, kind of 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 30, 60, 90 kind of day plan is for those folks.

[Ashley Whitfield Johnson, executive]

Yes, 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 AE's and kind of how our balance of investment was on that line. What we've done is said, really, we should be looking at our 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 going to 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 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, quite honestly, we were able to drive a lot of efficiencies and frankly achieve upside on those efficiencies versus what we had expected coming into the quarter.

[William Marshall, executive]

If I can only add that I think the teams have got going really quickly and with the singular focus of growing the book of business for their vertical across sales and product, as Ashley was just saying, they 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.

[ Any other question? ]

[Trevor Walsh, analyst]

Yes. Just one last one from me. So actually, just around the guidance for 3Q and beyond, I know you've talked previously about just challenges around, especially the larger government contracts and getting the timing of those. I'm just -- you've talked about the pipeline as well. But then in this quarter, you actually, it looks like between the NATO deal and some of the other 7-figure contracts that you mentioned, it looks like some of those are actually coming to fruition. So 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 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 was just curious kind of where the kind of the challenges remain as far as kind of the outlook on the top-line.

[Ryan Koontz, analyst]

Yes, it's actually consistent with what I spoke about even at the beginning of the year, in terms of having a lot of different ways that we can kind of 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 we know exactly what the mix of business is going to 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 we remain very optimistic, especially with these new business leaders being able to reaccelerate the growth. But at this point, kind of taking it a quarter at a time until we've got a bit more predictability and ability to call with confidence the full year number all the way through the P&L.

[Operator]

Our next question comes from Jason Gursky with Citi.

[Jason Gursky, analyst]

Hey, Will, could 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 how does this become a larger opportunity for you, and when might that happen?

[William Marshall, executive]

Yes. Happy to speak a little bit more. Obviously, I gave a little bit of color 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 can't talk to the specific use cases with the DOD and intelligence -- defense intelligence customers, right? But actually, what the New York Times did with an investigative journalist is somewhat analogous. They are looking at China and found these new settlements, villages that China has put sometimes in disputed territory between China and India, China and Bhutan and other countries, and exposed a new threat 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]

So this is 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, actually, 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 break-even.

[William Marshall, executive]

Yes, I mean, I would say it is a multiple quarter effort. That's the sort of timeframe we can expect to see ramp. Ashely on the...

[Ashley Whitfield Johnson, executive]

Yes, I mean, my color on cash flow break-even will be consistent with what I've said in prior quarters. So obviously, first order priority is making sure that we're maintaining a cross 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 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 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 it's a combination of continuing to drive operation efficiencies, focusing on revenue acceleration, and pacing our CapEx investments so that we're existing with the cash that we've got on our balance sheet today.

Any follow up question, Jason?

[Jason Gursky, analyst]

No, sorry. I had thanked you for the 2 and thought you were limiting it there, so all set.

[Operator]

Our next question today comes from Jeff Van Rhee with Craig-Hallum.

[Unknown Analyst]

Hey, this is Daniel on for Jeff. I wanted to ask on the RIF and how to model that. So the 10% RIF last year, just because of other expenses coming in. Overall, OpEx stayed pretty flat 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 Whitfield Johnson, executive]

Yes, really good question, Daniel. So we're seeing most of the savings in salary and payroll as I outlined, and we'll see the majority of that -- 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, as you know, depending on timing of new bookings and certain key renewals that can impact the timing of commission expense. And then audit timing can impact the recognition of those fees.

The other factor, just to keep in mind, is the mix of partner revenue. 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 flexes quarter-to-quarter, that can cause some changes. But the savings were realized across largely sales and marketing and R&D, with a little bit in COGS and G&A as well.

[Unknown Analyst]

And then just maybe as you talk about partners, to stick 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 that would be sort of a several million dollars revenue delta between what was expected from partners and what came in. So if that didn't come in, just what was some of the strength this quarter that you saw that filled that?

[Ashley Whitfield Johnson, executive]

Again, it just depends on whether we sign as the prime and so therefore, 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 a 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 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 make sure as we're providing guidance that we're doing so with an eye to what those range of outcomes can.

[Unknown Analyst]

And then last from me, just one question for you, Will, on Pelican, just any thoughts on -- it sounds like some pretty significant changes being made to Pelican-2, that program still early stages and undergoing R&D. Any thoughts on how we should peg our anticipations for that in terms of this becoming commercially viable, is this sort of more of a '25 or a '26 thing? Just what's sort of the timetable for that program to mature?

[William Marshall, executive]

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

[Operator]

Our next question comes from Noah Poponak with Goldman Sachs.

[Anthony Valentini, analyst]

You got Anthony Valentini on for Noah. 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?

[William Marshall, executive]

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 there, 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 subcontractor. There's a lot of opportunities there, especially for PlanetScope with AI on top. But I think Luno is now the new place which took over from EIM.

[Anthony Valentini, analyst]

Yes, and I guess I'm curious if Tanager the capabilities there, if Luno, that program that's going to be replacing EIM, if that opens up capabilities for you guys and for the customer that makes your bid more competitive.

[William Marshall, executive]

Well, 100% it opens up capabilities. I mean, in fact, when going -- stepping back a bit, when we first launched the SuperDove satellites, the reason we moved to 8 spectral bands 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 bus with 400 spectral bands. 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 longer-term or medium and longer-term, I certainly think it's a machine learning field day actually, that dataset.

[Operator]

Our next question comes from Caleb Henry with Quilty Space.

[Caleb Henry, analyst]

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

[William Marshall, executive]

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, 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 the government of New South Wales and -- has been doing some new work with us, 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 -- 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 Whitfield Johnson, executive]

Yes. If I could just add on just from, as I mentioned, my experience down in Colombia, the product to 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 in -- here in North America in terms of wanting to be able to account for natural capital in places like South America, Latin America, Africa, et cetera. Some of the sustainability initiatives that you see European governments implementing, wanting to both enforce-- 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 the solutions that we have. So I do think that that is one of the drivers of the success we're seeing in our international markets.

[Caleb Henry, analyst]

I think maybe one clarification on that is just looking at the Planet backlog and it looks like it's down a little bit. I was wondering if that's because of the influx of kind of new players from around the world that are like trialing the service before going on to longer-term programs. Is there a connection between those 2 or no?

[Ashley Whitfield Johnson, executive]

Not really. When I look under the covers at backlog it's a combination of timing of renewals, some larger multiyear 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 it's relatively flat quarter-to-quarter. So it's not indicative of anything competitive or otherwise that's worth -- certainly worth calling out.

[Caleb Henry, analyst]

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 the SEC filing it was 30 or 32 satellites, but I realized that it's not always -- that's usually an upper limit. So is that, is that the target or have you settled on a different number?

[William Marshall, executive]

That's what -- you understand 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 I listed 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, so if I can just throw it in there, is we constantly iterate our technology in space. And so, as I mentioned, we're flying the NVIDIA processor on this Pelican-2 next mission, that enables AI edge compute and that shows the ability of us to take the latest capability and put it into a 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. So we're constantly iterating to get better and better data.

[Operator]

Thank you all for your questions. That will conclude the Q&A session. So I will pass the conference over to Will Marshall, CEO, for closing remarks.

[William Marshall, executive]

Well, 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 marched 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]

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