Planet Labs PBC (PL) Earnings Call Transcript & Summary

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

Hello and welcome to Planet's third quarter of fiscal year 2023 earnings call. Before we begin today's call, we'd like to remind everyone that we may make forward-looking statements related to future events or our financial outlook. Any forward-looking statements are based on management's current outlook, plans, estimates, expectations and projections. The inclusion of such forward-looking information should not be regarded as a representation by Planet that future plans, estimates or expectations will be achieved. Such forward-looking statements are subject to various risks and uncertainties and assumptions, as detailed in our SEC filings, which can be found at www.sec.gov. Our actual results or performance may differ materially from those indicated by such forward-looking statements and we undertake no responsibility to update such forward-looking statements to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. During the call, we will also discuss non-GAAP financial measures. We use these non-GAAP financial measures for financial and operational decision-making and as a means to evaluate period-to-period comparisons. We believe that these measures provide useful information about operating results, enhance the overall understanding of past financial performance and future prospects and allow for greater transparency with respect to key metrics used by management in its financial and operational decision-making. For more information on the non-GAAP financial measures, please see the reconciliation tables provided in our press release issued earlier this afternoon. Further, throughout this call, we provide a number of key performance indicators used by management and often used by competitors in our industry. These and other key performance indicators are discussed in more detail in our press release. Before we jump-in, I'd like to encourage everyone to reference the slides we have posted on our Investor Relations website, which are intended to accompany our prepared remarks. At this time, I'd now like to turn the call over to Will Marshall, Planet's CEO, Chairperson and Co-Founder. Over to you, Will.

Thanks, Chris, and hello everyone. We're glad you could join us. I'm pleased to share with you today our results for the third quarter of fiscal 2023, highlight some recent sales wins and talk through our progress on a number of strategic initiatives. I'll also provide a perspective on the demand environment and our outlook for the remainder of the year. So let's dive in. In Q3, we generated $49.7 million in revenue, representing 57% year-over-year growth. Non-GAAP gross margins expanded to 54%, up from 35% a year-ago. Yes, another significant year-over-year increase. We think this demonstrates the margin, potential of Planet's one-to-many data subscription business model. We ended the quarter with 864 unique customers spanning a diverse range of industries. So to sum it up, we delivered another quarter of solid results in the face of an uncertain macro environment, which is a testament to the strong execution across the company and the mission critical nature of Planet solutions. Now I'll take you through some highlights. As we discussed at our Investor Day in October, we're increasingly focused on building partnerships to accelerate growth of our ecosystem of customers and users. There are 3 new and exciting strategic partnerships that I'd like to discuss first here today, the first of which is that last week, we announced a collaborative agreement with Accenture. We are combining Planet's high-frequency satellite data with Accenture's industry and technology expertise to collaborate on an array of sustainability and impact initiatives including traceable supply-chain strategy and database climate risk assessments to mitigate disruption across global value chains. These are just our initial areas of focus. We're thrilled to be working with Accenture and think our partnership will drive greater awareness of our offerings and the benefits of our data to deliver to organizations across many industry sectors. During the quarter, we also expanded our work with Microsoft. At the United Nations 2022 Climate Change Conference also known as COP27, we announced that we will be supplying satellite datas for African Climate Adaptation Projects developed out of Microsoft's first global expansion of its AI for good lab into Nairobi, Kenya and Cairo, Egypt. This work builds on prior projects including the global renewables watch which is mapping the world's utility scale, solar and wind installations and the creation of an important building damage assessment tool of Ukraine for the United Nations. Our partnership with Microsoft demonstrates how the combination of AI and satellite data is a powerful tool for helping to address some of the world's most complex and critical challenges. Finally, I'd like to highlight our partnership with Amazon Web Services, which we just announced today. We are directly embedding Planet data into AWS SageMaker, enabling data sciences and machine-learning engineers to acquire global, daily satellite data through the platform. This partnership helps customers build, train and deploy machine-learning model on geospatial data with great efficiency. The data from Planet's consistent daily scan of the earth is and answers ready and ideal for developers to build-on. It's an exciting early-stage go-to-market collaboration that amplifies the power of our sales organization with the significant potential given the large customer base of AWS. This new collaboration with AWS supports our go-to-market strategy to accelerate data access within Geospatial tools and cloud platforms. Shifting gears to M&A, as you know, we view Planet as a natural consolidator and we're particularly interested in joining forces with teams that have potential to accelerate our product roadmap and enhance our value proposition. With this in mind, we're very excited to announce that we have signed an agreement to acquire Salo sciences, a small California climate company specializing, measuring us constantly changing ecosystems. Since 2019, we partnered with Salo Sciences team to deliver insights, one example is their, California Forest Observatory, which dynamically maps first structure and vegetative pure loads at the individual tree level across California. Earlier this year, we partnered to directly measure forest carbon in select areas around the world. We at Planet see a planetary variable for carbon as a key element for the global sustainability transition in general and the carbon offsetting market in particular. Today, Salo Sciences products include a forest carbon measurement tool, powered by Planet data that can help enable accountability towards the climate policies and market first carbon inventories and storage and much more. The next step is to extend the Salo sciences products and reach and that's where Planet comes in. This acquisition plays in neatly with our Board of planetary variable work including developments from our previous acquisition of VanderSat. I'm very excited what we can accomplish together. This deal is signed and subject to closing conditions. We expect to close early next year. We look-forward to sharing more at that time. Turning to customer wins, let's start with the government sector. Demand for our solutions with the government customers both civil and defense, domestic and international is robust. During the third quarter, we closed the renewal and expansion contract worth more than $10 million over the next 12 months with an international Ministry of Defense customer. We've worked with this customer for over 3 years and we're proud to continue to support them. On the civil government side, during the last month, we expanded our contract with a German Federal Agency for cartography and Geodesy also known BKG. As shared previously, this pioneering countrywide partnership is providing access to Planet data for over 400 German federal institutions to help promote public and silver safety and many other use cases. We see this as an innovative model that has the potential to be repeated in other countries. I'd like to take a moment to share some of the recent highlights that have come out of the Brasil MAIS Program, which is the largest remote sensing project in Brazil. Through this project, Brazilian federal agencies are able to gain access to Planet's daily satellite imagery and change alerts from our partner, SCCON, a Brazilian company that develops and supplies geo IT solutions. With the implementation of our joint solution, the Brazilian Federal Police have used our data to help address a list of activities in the region, as an amazing example of capabilities of our products at scale and the potential to deliver huge value to customers. The project leverages Planet's monthly basemap's and daily plant [ script ] data, a Planet's analytics feeds to staff and new roads and buildings across the country. Then this feeds into specialized alerting software developed by SCCON to bring the right information to the end-customer. The project has already yielded significant benefits including helping the Brazilian government collect the equivalent of over USD1.9 billion in fines, seize goods and frozen assets since 2020. Additionally, over 3,000 public agents were mobilized throughout the project in over 120 operations. We're proud to be able to support this initiative with our partners in Brazil. Turning to the commercial side of the market, during the quarter we signed a deal with a Fortune 500 Global Energy Services company. Planet is providing this customer it's high-resolution imagery of remote energy facilities, that is being used in a digital platform for the display of greenhouse gas emission, measured by onsite census, helping to quantify, prioritize and rectify emissions quickly and efficiently, another example of how satellite and on-the-ground data can be combined to solve critical issues. In the insurance sector, we recently signed a deal with ZEP-RE, an reinsurance provider based in Nairobi, Kenya. ZEP-RE is leveraging Planet's basemaps to enhance drought risk protection in the Horn of Africa. Planet will deliver Normalized Difference [ Vegetative ] Index or NDVI time series data to measure vegetative health for an area of more than 600,000 square kilometers. ZEP-RE also plans to use Planet data as their independent calculation agent to quantify condition and provide metrics to measure drought. Working with Planet, they aim to expand their insurance program from supporting a 150,000 to over 250,000 per store less in the process ZEP-RE is seeking to generate a Drought Index, which can be customized to locations to determine payout amounts, generate premium rates and enable faster claims. We're also expanding our partnership with Swiss Re. In the last year, we have provided index insurance services with Swiss Re in 14 countries, providing drought cover for organizations of farmers around the globe, leveraging the planetary variables from the VanderSat acquisition, most notably the global soil moisture product is a very valuable and unique application of our data that we are seeing scaled across global markets. In other developments, we launched this quarter, a nonprofit and NGO program to provide access to Planet imagery and support services, specifically for these types of organizations. This program enables NGOs to get up and running with standard pricing and packaging and customer onboarding. It's a seed investment at this stage, but overtime we hope it will foster similar benefits to those we have seen with our successful education research program, which is an important contributor to our sales top of funnel as it [indiscernible] new applications for our data that can later be commercialized. Let me make some perspectives that we're seeing in the market today. Demand pipeline, win rates and our sales team execution all continue to be strong despite the economic backdrop. The pace at which our reps are signing new and expansion business remains healthy and our average deal size continues to increase as the reps are focusing on those opportunities with the strongest product to market fit. As you've heard, the government segment of the market, both domestic and international continues to be especially robust. On the commercial side of the market, we are seeing some customers become more cautious as they navigate the current economic environment, leading to increased scrutiny of spend. This market dynamic will require continued focus on these opportunities where our data can provide proven economic outcomes for commercial customers. Fortunately, we believe the secular tailwinds driving adoption of our solutions, digital transformation and the sustainability transition the need for greater patient security remain top priorities for countries and companies alike and our sales team continue to systematically execute and win in the market. In summary, Q3 was another truly excellent quarter and I'm proud of the team's execution. I'm particularly proud of the sales deals such as those I've just touched upon and the burgeoning strategic partnerships. It's exciting to see global technology leaders leveraging Planet solutions to helping new capabilities to their customers and users. I'm also excited about the signed acquisition agreement with Salo Sciences. We see a plan to be variable for carbon, the key element for the global sustainability transition. With that, I'll now turn over to Ashley, after which, we'll have some time for Q&A.

Thank you, Will and thanks everyone for joining today. As Will mentioned, our revenue for the third quarter of fiscal '23 ending October 31st came in at $49.7 million, which represents 57% year-over-year growth. It's worth calling out that $1.5 million of the upside this quarter came in the form of onetime revenue associated with an option renewal by a European customer, focused on climate and environmental monitoring. We're proud to continue to support this partnership and I'm especially proud of the strong execution of our global teams who are delivering results for our customers. Our end-of-period customer count grew to 864 customers, which represent 16% year-over-year growth and is an indicator of the broader adoption of our platform. Our end-of-period customer count has grown quarter-over-quarter for every quarter in the last 3 years. We're pleased with our new logo additions in Q3, which showed continued momentum with large accounts. We've seen the average annual contract value of our customers grow year-over-year during the last 4 quarters, as our sales teams are prioritizing higher-value accounts with opportunity to expand over time. Net dollar retention rate at the end of Q3 was 123% and net dollar retention rate with win backs was 125%. This represent significant year-over-year improvement primarily driven by renewals and expansions in government and agriculture. This is down slightly quarter-over-quarter due to the timing of a renewal with a large international government customer in Asia, which was signed shortly after the end of our quarter. We remain focused on driving higher retention through our investments in product and customer success. Turning to gross margin, we expanded our non-GAAP gross margin to 54% for the third quarter of fiscal '23, compared to 35% in the prior year. The expansion of gross margins continues to be driven by the growth of revenue, the efficiency in our industry-leading agile aerospace approach and the fundamentals of our one-to-many data subscription business model. Adjusted EBITDA loss was $12.4 million for the quarter, better than we had expected, driven by revenue upside, effective cost management and the timing of some expenses which we expect will incur in the coming quarters. We have been disciplined in our pace and quality of hiring as we continue to invest in our teams across Planet to meet the growing demand for our solutions. We believe that Planet's commitment to our mission, technology and market leadership and the strength of our global organization, our competitive advantages in the market for talent. Turning to the balance sheet, we ended the quarter with $425 million in cash, cash equivalents and short-term investments, which we continue to believe provides us with sufficient capital to invest behind our growth accelerating initiatives without needing to raise additional capital. We also continue to have no debt outstanding. Capital expenditures for the quarter including capitalized software development were $3 million or approximately 6% of revenue, which is lower than we had anticipated, primarily due to the timing of procurements. We anticipate these expenses will catch up in subsequent quarters. At the end of Q3, our remaining performance obligations or RPOs were approximately $131 million, of which approximately 81% apply to the next 12 months and 96% apply to the next 2 years. Sequential RPO growth was impacted by the previously mentioned government customer in Asia that renewed their large multiyear contract shortly after the quarter end. As I've explained before, RPOs will fluctuate quarter-to-quarter as multiyear contracts come up for renewal. Additionally, please keep in mind that our reported RPOs exclude the value associated with the EOCL contract, as well as other contracts that include a termination for convenience clause, which is common in our federal contracts. Looking ahead to the fourth quarter, we expect revenue to come in between USD50 million and USD54 million, which represents growth of approximately 40% year-over-year at the midpoint. We expect non-GAAP gross margin for Q4 of 56% to 59%, up from 42% in Q4 fiscal '22. Our adjusted EBITDA loss for the fourth quarter is expected to be between negative $21 million and negative $16 million. We expect capital expenditures of approximately $4 million to $6 million, which represents 8% to 11% of revenue. For the fiscal year ending January 31st, 2023, we now expect revenue to be between USD188 million and USD192 million, representing 43% to 47% year-over-year growth. The midpoint of this guidance reflects revenue growth of approximately 45%, which would be a significant top line acceleration on a year-over-year basis. We expect our non-GAAP gross margin to be between 52% and 53%, an improvement of approximately 15 percentage points year-over-year. Our adjusted EBITDA loss is expected to be between negative $60 million and negative $56 million. We expect CapEx to be approximately $15 million to $17 million, which would be roughly 8% to 9% of revenue. The lower CapEx guidance is attributable to more measured procurement of ground stations for our future fleets and adjustments in our procurement schedule for our longer lead-time components. To close, I'd just like to say it was another great quarter. I'm proud of our Planet peers around the globe and the contributions they make to building such an incredible company. We are executing against our plan in a challenging macroeconomic environment and that's due to the focus and collaboration across our global teams. We remain confident in the market demand for our unique data sets and believe we're well positioned to continue to capture the opportunity ahead of us. Operator, that concludes our comments. We can now take questions.

[Operator Instructions] The first question is from the line of Michael J. Latimore with Northland.

I can't hear you.

Apologies, Mr. Latimore. Your line is now open.

Great. All right. Excellent. Yes, thanks. Very, very strong results. I guess I just wanted to touch on one of the topics really from last quarter where you had have several customers I think they used up their annual commitments early and there was some -- you sort of evaluate, do they kind of expand or renew early? Or do they kind of hold the pattern with that annual commitment. Can you provide any color on how that's played out in the last quarter?

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

Good, good. And then on the use of partners, can you elaborate a little bit more on how influential they are to new bookings and expansions and maybe segment a little bit between sort of the maybe traditional software kind of a size like Accenture versus tech partners here and how influential they are on leads and bookings at this point?

Yes, it's a great question. So we have both direct sales business and via finance. It's always -- we've always used partners quite a bit, but we are seeing is a very strong go-to-market approach. And the strategic partners that you saw, I think it really -- it's a great sign that those 3 large entities, AWA, Accenture and Microsoft are leaning in. It's obviously, from my perspective, demonstrating that they see the big value of geospatial data to their markets and it's mostly commercial markets that they have in mind by the way. And it's great to see them seize that big opportunity, they don't lean in for small opportunities, so these organizations and so that's really great. And we have a number of solution partners as well, where they're adding capabilities on top of our data that enable solutions and use cases that our solutions don't directly handle and that's more than the market, too. So we definitely are leaning into partners, we've done it before, but we are leaning in stronger and stronger into partners as a route market.

The next question is from the line of Edison Yu with Deutsche Bank.

I had a question on the acquisition announced. If we think about in the context of peer win, I think I heard that this kind of falls under the planetary variables piece. Do you foresee kind of doing some more scouting in this area? Or are you starting to think about kind of moving up to insights?

It's great question, I mean, we're very excited by this acquisition. Let me just speak a little bit broadly firstly the planetary variables and the sustainability business because I think that the sustainability transition is desperately in need of really good scientific measures and a planetary variable on carbon in particular is critical to our carbon offsetting strategy as a specie, so that's really exciting. Salo has great forest user for -- it's out data to make good forest measurement techniques and translating that into not just far as cover but to forest carbon, there's essential ground preparation for that sort of mood. And of course, we've worked with them for some years through the California Forest Observatory work and other pieces, so we've got a good relationship with that team, so it's really a good cultural fit and everything. And it does as you are pointing out, fit into the board a planetary variable strategy that we're embarking upon really started in earnest with the acquisition this time last year of VanderSat and they neatly fit into that as a piece of work. So -- and this is continuing as up the stack, I mean the planetary variables are a really important piece of it and I think that's where the bigger focus is right now than the insights and indicators that might come beyond that. But they are -- but they're at the critical horizontal component that we need to be building up today.

Understood. And just a follow-up on, actually a separate question on the financials. Obviously, very, very strong flow through. I know you said you mentioned that part of it was kind of a onetime upside, I think early renewal or something. Could you maybe just give us a sense of, I guess, what happened there? Why wouldn't kind of repeat? And then I think you also mentioned that there was a deal that kind of flipped after the quarter and any sense as what the rates would have looked like if that actually fell in the quarter?

Yes, so in terms of the onetime revenue that I referenced in my remarks, that was a 4 year deal that had a couple of renewal options after year 2 and year 3. And just based on the accounting treatment as it relates to the contract, it required analyzing the revenue recognition over the term and understanding where we are on that revenue recognition versus the full contract size. So I'm not an accountant by background, but the team worked with the auditors to do an analysis on where we are in that. It resulted in a onetime revenue recognition in the quarter. On a net basis, it was about $1.5 million impact to revenue. So obviously, that's significant, so I wanted to make sure to call that out. Even without that, obviously, we would have come in at the high end or just above the high end of our range. So -- but that was that's what I was referencing in that part of the remarks with respect to the delayed renewal that also, as you know, had the opposite impact on the quarter where when a renewal comes in late, then that's revenue that we miss out on. So had that come in on time, obviously, net dollar retention rate would have been higher in the quarter, RPOs would have been higher and revenue would have been higher. And so that's -- that underscores the importance of on-time renewals and it's something that we're very focused on internally.

The next question is from the line of Josh Sullivan with the Benchmark Company.

As far as the net dollar retention, just given the comments around more customer scrutiny of spend, do you think you'll be able to sustain this kind of level? Or do you think you might see some of those renewables extend more often?

Yes, I mean I think across the board, the broader customer success theme, investments we have made have given us really good visibility into both the renewals and the ability to drive expansion and we aim to be a business that operates in kind of the best-in-class net dollar retention rate levels, so north of 120%. Right now, we're on track for that and we think that the investments that we've been making both in the product and usability of our products as well as with the teams that are working with our customers to drive that value proposition is having that impact and it should be sustainable. In terms of the cautionary note about the headwinds, it's basically and we have to say, we're not immune to the macroeconomic environment. And so we are working with our customers to understand whether there's other ways to scope our relationships with them to continue to drive value, but the relationships remain strong and obviously the results in the quarter are speaking for themselves and that's...

Yes, no, I could just add that, yes, that's right, we're seeing a little bit more budget tightening, but also at the same time, in some of our commercial clients that is, but at the same time we just highlighted a bunch of new commercial sign-ups. So it's a mixed story there. But overall, we are continuing to grow even on the commercial side year-on-year. And if I step back a little bit more, there's still the secular tailwinds of digital transformation and sustainability transformation that are really driving excitement here. And so I remain bullish on the commercial potential in the long term no matter what. And you can see by these 3 strategic partners leaning in another example of -- again, they wouldn't do that if this was -- if they thought this was a small example, a small opportunity, they only lean in when it's a significant one. So I think that's a recognition of the opportunity from them as well. So yes, we remain bullish on this in the long run.

Great. And then just the comment on the timing of procurements in the quarter. How should we think of the cadence of those layering back end?

You're talking about on the send side?

Yes, I believe you made a comment just on -- there were some timing of procurements in the quarter, just curious how we should expect those coming back.

Yes, I mean, as I said, I anticipate that we'll catch up over the next couple of quarters. We are working closely with the teams to understand which are the -- we've talked about this a bit at our Analyst Day, which are those long lead time items where we see there could be risk and so we want to mitigate any risk in the future and which are those where we're actually feeling quite comfortable that procurement will not be problematic when we need it. We prefer to operate very agily as it relates to procurement, so that we can be judicious with our spend and our vertical integration actually gives us a lot of flexibility on that front. But the lower spend in the quarter, we do anticipate will catch up in the next couple of quarters.

The next question is from the line of Jeff Van Rhee with Craig-Hallum.

Ashley, well great job, great job to the team, love the gross margins, I'm sure you're pretty satisfied a lot of what you're looking at here. On the pipeline, just 2 quick questions, on the pipeline, can you quantitatively talk -- I mean I love some sense of the overall growth in pipeline year-over-year? And if you can quantitatively, qualitatively, just what's really standing out in terms of the pipeline build?

Well, I'm feeling really good about our pipeline overall, both on the commercial and the government side. In fact, I've never quite seen so many big deals, to be honest. I think we counted over 40 deals greater than $1 million in our pipeline, which is pretty amazing, I've never seen quite that many. So of course, these are big deals, so they can take some time, so it may not happen all overnight, but overall, the demand is incredibly strong, so feeling good about it.

How are 8 figure deals going to be?

Well, we have them a lot, they are happening. So I mean what would you say Ashley? How would you answer that?

Yes, how would I answer that? I would say that the good news is we see them. Obviously, the challenge with bigger deals is they tend to be longer procurement cycles and they can cause variability quarter-to-quarter on the bookings, but the fact that we have to see them in our pipeline and are closing them is really fantastic for the business. And quite often, we see these as multiyear procurements, which is also very helpful to us to know that these are relationships that are signed up at the outset for the long term.

Yes, makes sense. With the partners -- and then just one other question on the partner front. I mean, obviously, AWS, Microsoft, Accenture, I mean a lot of heavyweight names right there and I guess you already had meaningful partner influences. From a quantitative way, how are you going to measure it? I mean, are you already measuring partner influence, partner-led partner influence deals, do you have any numbers you can share?

Yes and in fact quite a large number of our deals are partner influenced, few of them are partner-led, but in a lot of cases we're bringing a partner in, particularly what we call our solution partners that are building that kind of last mile interface that's specific to the customer use case or the customer geography or both. So we do have a robust partner ecosystem. As we think about these larger partnerships, we're making fewer bets with those partners that view this as a really strategic opportunity. We're early days in them, so we'll be able to report on the progress of these relationships over time. But what's exciting as you see these big names at very high levels, thinking of this as a very strategic opportunity, which signals that we're not alone and seeing these tailwinds due to sustainability and digitization of economies. I don't know, anything you want to add to that, Will?

No, I think it's great.

[Operator Instructions] The next question is from the line of Greg Mesniaeff with WestPark Capital.

Question on your sales and marketing expense levels. Can you give us a little bit of color and guidance on what to expect going forward? I know you've had a pretty significant ramp in your sales force. And given the fact that you're focusing your incremental wins on partnerships, how sales force intensive are those wins? And how do you see the ramp in sales people continuing as you win more deals? Do you see that slowing down? Do you see it accelerating, I know you didn't give any guidance on sales and marketing, but your number was up, non-GAAP sales and marketing was up pretty significantly year-over-year at just over $16 million for this quarter.

Sure. Thanks for the question and yes, as you point out, we've been investing significantly in our sales infrastructure. We talked about before we went public that a large reason for raising the capital was wanting to have more feet on the street because there were a number of geographies where we weren't even vertically aligned in our sales organization because we just didn't have enough AEs on the ground to do so. So we've been adding on that front and with that comes a support infrastructure that you need to make a rep successful, so everything from our sales ops teams to our SDRs and sales engineers. And we've also been investing in customer success, so making sure when we sign these customers, we're getting them to value as early in that on ramping process as possible. The goal now is to make that scalable and there are multiple ways to scale the sales infrastructure. One of them is through the continued automation that we're building into the product to make it easier for customers to on-ramp and to make it lighter touch for the customer [ executive ] team, so they can cover a broader customer base. The other way is through partnership program. So right now, I would say most if not -- well, the vast majority of our partners still have a Planet rep involved in the sales process. Ultimately, as the products become more advanced again on the customer onboarding, et cetera, we can be lighter touch with our rep involvement in the sales process. So we've been scaling rapidly over the last year. We'll obviously be focusing on making sure we get operational scale over the coming years.

Great. And it sounds from what you're saying that given the scale in the business, we could expect the rate of growth in sales and marketing to taper off a little at some point.

Yes, we provided our long-term operating targets which would see sales and marketing as a percentage of revenue continue to drop. But obviously, we said we needed to first ramp it up. And then as we drive scale, we'll see that as a percentage of revenue start to taper down to our target margins.

The next question is from the line of Harry Wilmerding with Needham & Company.

Just a quick question on customer adds, they were lighter sequentially in the first half of the year, although it looks like 3Q is typically seasonally light. Any changes to call out on converting prospective customers in the quarter? And also, how are you thinking about customer growth as we enter the next year?

So was that the first one on customer growth, would you say...

Customer count.

Yes, well, I mean, that's primarily dominated by small accounts and so the reps are mainly focused on the large accounts and they're being very strategic and focused and disciplined about that. So some small deals and there was a few in education research that fell up, some added. This is -- we're not tracking that closely because that's not where the dominant revenue is. So the growth I would say is still good in revenue terms, which is the main thing that we're focused on.

Yes, just to underscore, obviously, we've added some really nice large customer wins and as Will said, that is where we're focusing the sales reps, those opportunities, where we see an opportunity to really land and expand. On a smaller account basis, as Will pointed out, in education and research, you can see some projects that will cause numbers to go up and go down. There may be some seasonality with that which you called out last year. So on the smaller deal size, it's less of a concern on the numerical numbers, what we're really or numerical accounts what we're really focused on is the quality of the deals that we're bringing on board and really seeing, well, NPS scores across the board improving.

[Operator Instructions] The next question is from the line of Ken Mestemacher with Edison Investment Research.

First, congratulations on the 3 announcements on Accenture and AWS and Microsoft. So how should we think about the revenue opportunity and financial impact on a company. And tied in with that, based on your responses to some of my colleagues earlier questions, should we be thinking it would be more medium or long term rather than something in the next year? Or how might that timing look?

I would just say, like as you mentioned, these are nascent partnerships, but the fact that they're leaning in again is a big sign of the scale of the opportunity that they see. I mean I do think we'll see things in the next year, I don't know how meaningful it will change our revenue, but in that year, but we're definitely seeing this lean in and it just enables us to scale in a different way, right? They have a lot of industry expertise, they have a lot of huge stack of customers that -- where our data is relevant. And so going to market together with them makes a huge amount of sense. We got incredibly exciting data set that can help solve their customers' challenges, they got the scale or the computer or the industry knowledge to do that. So that's the way I think about it. Does that make sense?

Definitely, definitely. And second, looking at gross margins, increase this quarter, that's great news. And how would you say plan it is mitigating the impact of inflation? You touched earlier on macroeconomic issues, but we keep seeing these wage increases and inflation and other people are struggling. So how are you all mitigating that, especially in light of expecting it to increase to 56% to 59% next quarter?

Yes, so I would say on the gross margin line, the majority of that expense relates to either depreciation and amortization, which is a fixed number, our hosting cost, which we have a long-term contract in place and then to a much lesser degree, the cost of our professional services and customer success teams, many of which we're able to locate in geographies outside of the United States, so we can service customers on a lower cost basis. I wouldn't say that we're immune to inflation and cognizant of the impact that, that has on our employees. So we are -- I think what I would say is we're very focused and thoughtful about our hiring plans and our spending plans. I highlighted at the Analyst Day how we think about the procurements and where there might be supply chain constraints where inflation could have a higher impact and maybe getting in front of some of those with earlier in bulk procurement. So I guess the net answer is, we're watching closely what's going on and making sure that we're thoughtful about our spending and budgeting.

Great. I had one more follow-up on the Accenture, AWS, Microsoft. You look at marketing, will those 3 groups be looking into doing a lot of marketing for you? Or will it be mostly directed by Planet? Just trying to get a good feel for how we need to reach customers.

No, there's definitely -- marketing is part of this and we're seeing their leadership of these companies lean in and speak about Planet in high-level forms in and itself helps us. Yes, so I think we will see them help. And again, so it broadly expands our reach and we're excited by that. Yes, it really does expand our reach. We have a number of initiatives that through this quarter that expand our reach beyond that as well. I mean I would note a couple of things that came out recently that both the economist and Bloomberg leveraged our planetary variables and got them into their various magazines and notes. And just incredibly important to see how the planetary variables are powering insights into the finance sector and they're bringing awareness to our products in that sense as well, so I encourage you to have a look at those, it's quite cool to see how that's been -- and that's just the tip of the iceberg. It starts with some of that marketing piece, but I think it's typically iceberg of the potential.

Great. It's always good to have them do some marketing for us, that's really exciting.

Yes, I was just going to add that we were on the front page of New York Times, again today is that we get a lot of this sort of free advertising in a way.

The next question is from the line of Noah Poponak with Goldman Sachs.

Sorry about that, wasn't coming through, but nice to speak to you. Ashley, so last quarter, you had guidance for revenue to grow sequentially with EBITDA to be down a decent amount and the EBITDA didn't play out that way for next quarter, you now have the same guidance revenue to be up sequentially, EBITDA to be down. If I go into your revenue guidance range and your gross margin guidance range, the operating cost between gross profit and EBITDA have to be up quite a lot sequentially to get into the EBITDA range. So what's the dynamic there? And why will that actually happen in the fourth quarter?

So as I mentioned on the lower spend in Q3 on the R&D side, there was some timing of procurement and I'd say across the board, there was timing of new hires. So some of that is what you saw in Q3 and the anticipation is we'll be catching up to some of that spend and hiring in Q4, so that's a primary driver.

That type of spending can [ gross ] around that much quarter-to-quarter or I would think you would be laying that out on a longer-term planning basis and that it would be smoother, but it sounds like you pretty want it.

Yes, on the Space System side, when we do procurements while we're in R&D mode for some of our newer fleets, that gets expensed as incurred as opposed to being capitalized. So that's why you can see if we make a large procurement for ground stations or some of the other spacecraft purchases that we make. If those procurements come in later, then that spend just moves from quarter-to-quarter. So yes, so it's a little bit lumpier because of that dynamic while these fleets are in R&D mode. It obviously will smooth out until we move out of R&D mode and into capitalizing those expenses and then it would just obviously be capitalized as CapEx and run through D&A primarily through gross margin in future years.

Okay. And then 2 months through the quarter here, you're almost to your fiscal year-end, so you're doing a lot of planning for next year. How are you feeling about how next year's total company organic revenue growth will compare to this year's? And how are you feeling about the ability to march towards breakeven EBITDA?

Well, overall, we feel very good about the tailwinds behind the company right now. And I mentioned just the demand on pipeline earlier, for example, is really strong, slightly more cautious on the commercial segment for reasons we discussed, very bullish on the government segment, both the civil and defense intelligence. Extremely pleased with the team's execution across the board on product side and the sales and marketing side. And so that feels like we're well set up. Similar to last year, we'll provide guidance on the next earnings call for next year.

That concludes our Q&A session. There are no more questions and I will turn it back to Will Marshall for closing remarks.

Thanks, everyone. Thanks for joining the call today. I'd just like to enter just a couple of 3 key points to conclude. So I think our Q3 results were really strong, underscoring the durability and demand for our mission-critical solution. I'm very proud of our sales deals, those I touched upon and the strategic partnerships. It's fair to see those global technology leaders leaning into Planet's tools and to develop new solutions for their clients. I'm also excited by the acquisition of Salo Sciences. As I mentioned, we see a carbon planetary variable is a critical element to the sustainability transition, so that's exciting. And finally, we remain confident in our opportunity despite the current macroeconomic environment and continue to invest in the long run, while maintaining our focus on the path of profitability. So thanks everyone for calling in today.

That concludes today's conference call. Thank you for your participation. Please enjoy the rest of your day.