PLANET LABS PBC MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF PLANET
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations ("MD&A") is intended to help the reader understand the
results of operations and financial condition of Planet Labs PBC . The MD&A is
provided as a supplement and should be read in conjunction with the unaudited
condensed consolidated financial statements and related notes included elsewhere
in this Quarterly Report on Form 10-Q (Part I, Item 1), as well as our audited
annual consolidated financial statements and related notes as disclosed in our
Annual Report on Form 10-K for the fiscal year ended January 31, 2022 (the "2022
Form 10-K"). This discussion contains forward-looking statements and involves
numerous risks and uncertainties, including, but not limited to, those described
in Part II, Item 1A, "Risk Factors" in this Quarterly Report and Part I, Item
1A, "Risk Factors" of our 2022 Form 10-K. Actual results may differ materially
from those contained in any forward-looking statements. Our historical results
are not necessarily indicative of the results that may be expected for any
period in the future.
Business and Overview
Our mission is to use space to help life on Earth, by imaging the world every day and making global change visible, accessible, and actionable. Our platform includes imagery, insights, and machine learning that empower companies, governments, and communities around the world to make timely decisions about our evolving world.
As a public benefit corporation, our purpose is to accelerate humanity toward a more sustainable, secure, and prosperous world, by illuminating the most important forms of environmental and social change.
We deliver a differentiated data set: a new image of the entire Earth landmass every day. To collect this powerful data set, we design, build and operate hundreds of satellites, making our fleet the largest Earth observation fleet of satellites in history. Our daily stream of proprietary data and machine learning analytics, delivered through our cloud-native platform, helps companies, governments and civil society use satellite imagery to discover insights as change happens. To help further our mission, we have developed advanced satellite technology that increases the cost performance of each satellite. This has enabled us to launch large fleets of satellites at lower cost and in turn record over 2,000 images on average for every point on Earth's landmass, a non-replicable historical archive for analytics, machine learning, and insights. We have advanced data processing capabilities that enable us to produce "AI-ready" data sets. As this data set continues to grow, we believe its value to our customers will further increase. We currently serve over 800 customers across large commercial and government verticals, including agriculture, mapping, forestry, finance and insurance, as well as federal, state, and local government bodies. Our products serve a variety of diverse customer needs. For example, our products help farmers make decisions that result in significant increases in their harvests, while using fewer resources, by timely alerting them to changes happening within their fields. Governments use our data to help deliver public services more effectively in disaster response. Mapping companies use our data to keep online maps up to date. Also, journalists and human rights organizations use our data to uncover and report the truth about events in hard-to-reach places. Our proprietary data set and analytics are delivered pursuant to subscription and usage-based data licensing agreements and are accessed by our customers through our online platform and subscription APIs. We believe our efficient cost structure, one-to-many business model and differentiated data set have enabled us to grow our customer base across multiple vertical markets. As ofJuly 31, 2022 , our EoP Customer Count was 855 customers, which represented a 17% year-over-year growth when compared toJuly 31, 2021 . Our EoP Customer Count has grown quarter-over-quarter for every quarter in the prior two years. For a definition of EoP Customer Count see the section titled "Key Operational and Business Metrics." Over 90% of our customers sign annual or multiyear contracts, with an average contract length of approximately two years, weighted on an annual contract value basis. 31
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The Business Combination
OnJuly 7, 2021 ,Planet Labs Inc. ("Former Planet") entered into an Agreement and Plan of Merger (the "Merger Agreement") with dMYTechnology Group, Inc. IV ("dMY IV"), a special purpose acquisition company ("SPAC") incorporated inDelaware onDecember 15, 2020 ,Photon Merger Sub, Inc. , aDelaware corporation and a direct wholly owned subsidiary of dMY IV ("First Merger Sub"), andPhoton Merger Sub Two, LLC , aDelaware limited liability company and a direct wholly owned subsidiary of dMY IV ("Second Merger Sub"). Pursuant to the Merger Agreement, upon the favorable vote of dMY IV's stockholders onDecember 3, 2021 , onDecember 7, 2021 , First Merger Sub merged with and into Former Planet (the "Surviving Corporation"), with Former Planet surviving the merger as a wholly owned subsidiary of dMY IV (the "First Merger"), and pursuant to Former Planet's election immediately following the First Merger and as part of the same overall transaction as the First Merger, theSurviving Corporation merged with and into dMY IV, with dMY IV surviving the merger (the "Business Combination"). Following the completion of the Business Combination, dMY IV was renamedPlanet Labs PBC . The Business Combination was accounted for as a reverse recapitalization, with no goodwill or other intangible assets recorded, in accordance withU.S. GAAP. Under the guidance in Accounting Standard Codification ("ASC") 805, Business Combinations, dMY IV was treated as the "acquired" company for financial reporting purposes. Former Planet was deemed to be the accounting predecessor of the combined business, andPlanet Labs PBC , as the parent company of the combined business, is the successorSEC registrant, meaning that our reported consolidated assets, liabilities and results of operations prior to the Business Combination are those of Former Planet. Upon the closing of the Business Combination, we received aggregate gross proceeds of$590.4 million , including$252.0 million in gross proceeds from aPrivate Investment in Public Equity financing ("PIPE Investment ") which closed substantially simultaneously with the Business Combination. We paid approximately$57.2 million of transaction expenses in connection with the Business Combination. We also repaid our existing debt of approximately$67.1 million , including repayment fees associated with the debt of approximately$2.0 million and accrued interest, after the Business Combination was consummated. In addition, immediately prior to the effective time of the Business Combination, Former Planet's outstanding convertible notes were automatically converted into shares of Class A common stock, and as such, the converted convertible notes are no longer outstanding and ceased to exist at the effective time of the Business Combination. As a result of the Business Combination, we are anSEC -registered company listed on the NYSE which requires us to hire additional personnel and implement procedures and processes to address public company regulatory requirements and customary practices. We expect to incur additional annual expenses as a public company for, among other things, directors' and officers' liability insurance, director fees, and additional internal and external accounting, legal, and administrative resources, including increased personnel costs, audit and other professional service fees. Our results of operations and statements of financial position may not be comparable between periods as a result of the Business Combination described above.
Impact of COVID-19
COVID-19 continues to spread throughoutthe United States and other parts of the world and has negatively affected theU.S. and global economies, disrupted global supply chains, resulted in significant travel and transport restrictions, including mandated closures and orders to "shelter-in-place" and quarantine restrictions. We have taken measures to protect the health and safety of our employees. We have also worked with our customers and suppliers to minimize disruptions, and we support our community in addressing the challenges posed by this ongoing global pandemic. The COVID-19 pandemic has generally disrupted the operations of our vendors, customers, and prospective customers, and may continue to disrupt their operations, including as a result of travel restrictions and/or business shutdowns, uncertainty in the financial markets, or other harm to their business and financial results. This disruption could result in a reduction to information technology budgets, delayed purchasing decisions, longer sales cycles, extended payment terms, the timing of payments, and postponed or canceled projects, all of which could negatively impact our business and operating results, including sales and cash flows. The ultimate impact of COVID-19, including the impact of any new strains or variants of the virus, on our financial and operating results is unknown and will depend on the length of time that the disruptions to our vendors, customers and prospective customers exist. The full extent of the impact of COVID-19 is unknown but we do not expect the COVID-19 pandemic to have a material impact on our business going forward. 32 -------------------------------------------------------------------------------- Table of Contents Our Business Model We primarily generate revenue through selling licenses to our data and analytics to customers over an entirely cloud-based platform via fixed price subscription and usage-based contracts. Data licensing subscriptions and minimum commitment usage-based contracts provide a large recurring revenue base for our business with a low incremental cost to serve each additional customer. Payment terms of our customer agreements are most commonly in advance on an either quarterly or annual basis, although a small number of large contracts have required payment terms that are monthly or quarterly in arrears. We also generate an immaterial amount of revenue from sales of third-party imagery, professional services, and customer support. We employ a "land-and-expand" go-to-market strategy with the goal to deliver increasing value to our customers and generate more revenue with each customer over time by expanding the scope of the services we offer. We work closely with our customers and partners to enable their early success, both from an account management and technical management perspective. Deeper adoption from our customers comes in many forms, including more users, more area coverage, and more advanced software analytics capabilities.
Two key elements of our growth strategy include scaling in existing verticals and expanding into new verticals.
Scaling in Existing Verticals:
We plan to invest in sales, marketing and software solutions to drive our expansion within our existing customer base and further penetrate verticals that are early adopters of geospatial data, such as Civil Government, Agriculture, Defense & Intelligence, and Mapping. In addition, we plan to invest in expanding the analytic tools we make available to these customers with the goal of increasing the services we provide to these customers and more deeply embed our data and analytics into their business intelligence systems.
Expansion into New Verticals:
We plan to invest in our software engineering teams to develop solutions to address use cases in emerging markets in our industry such asEnergy & Infrastructure, Finance & Insurance, and Consumer Packaged Goods. In addition, to expand our reach within vertical markets, we intend to leverage our open data platform with specific vertical partners to deliver vertical market-specific solutions. We believe our increased investment in developing software analytics solutions has the potential to accelerate the usage of our data and analytics across broader audiences.
Factors Affecting the Results of Operations
We believe that our financial condition and result of operations have been, and will continue to be, affected by a number of factors that present significant opportunities for us but also pose risks and challenges, including those discussed below, in Part II, Item 1A "Risk Factors" of this Quarterly Report and in Part I, Item 1A, "Risk Factors" of our 2022 Form 10-K.
Continuing to Acquire New Customers
Attracting new customers is an important factor affecting our future growth and
operating performance. We believe our ability to attract customers will be
driven by our ability to continue to improve our data and offer software and
analytic solutions that make our data easier to consume and integrate into our
customers' workflows, our success in offering new data sets and products to
solve customer problems, increases in our global sales presence and increases in
our marketing investments. We plan to invest in making our data more digestible
and accessible to non-technical business users and build solutions to address
more use cases and expand our addressable market. As a result of this strategy,
we anticipate our research and development expenditures will increase in the
near term. In addition, to expand our reach with customers, we intend to partner
with independent software vendors and solution providers who are building
vertical market-specific solutions. While we have customers and partners today
in many markets, we believe that our increased investment in developing software
analytics solutions has the potential to accelerate the usage of our data and
analytics across broader audiences.
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Retention and Expansion of Existing Customers
We are focused on increasing customer retention and expanding revenue with existing customers because this will affect our financial results, including revenues, gross profit, operating loss, and operating cash flows. To increase customer retention and expansion of revenue from existing customers, we are making a number of investments in our operations. Areas of investment that affect customer retention and expansion include our customer success function, continuous improvements to our existing data, and the software tools and analytic tools that make our data easier to consume. Additionally, customer retention and expansion is driven by the speed with which our customers realize the value of our data once they become customers, our ability to cross-sell our different products to our existing customers and our ability to offer new products to our customers. As a result of the foregoing, we anticipate our cost of revenue, operating expenses, and capital expenditures will continue to increase and consequently, we are likely to experience losses in the near term, delaying our ability to achieve profitability and adversely affecting cash flows.
Developing New Sensors and Data Sets
We expect that our ability to provide new data sets through new sensors and new proprietary data will be an important factor for our long-term growth and future market penetration. We believe offering new data sets and fusing new data sets with our existing data sets will enable us to deliver greater value to our existing customers and help us attract new customers. This may require significant investment in technology and personnel and result in increased research and development costs as well as costs of revenue.
Investment Decisions
We regularly review our existing customers and target markets to determine where we should invest in our product and technology roadmap, both for our space systems engineering to enable new geospatial coverage models, as well as our software engineering focused on providing sophisticated analytics models and tools to service an expanding set of markets and use cases. Our financial performance relies heavily on effective balance between driving continued growth, maintaining technology leadership, and improving margins across the business.
Seasonality
We have experienced, and expect to continue to experience, seasonality in our business and fluctuations in our operating results due to customer behavior, buying patterns and usage-based contracts. For example, we typically have customers who increase their usage of our data services when they need more frequent data monitoring over broader areas during peak agricultural seasons, during natural disasters or other global events, or when commodity prices are at certain levels. These customers may expand their usage and then subsequently scale back. We believe that the seasonal trends that we have experienced in the past may occur in the future. To the extent that we experience seasonality, it may impact our operating results and financial metrics, as well as our ability to forecast future operating results and financial metrics. Additionally, when we introduce new products to the market, we may not have sufficient experience in selling certain products to determine if demand for these products are or will be subject to material seasonality.
Key Operational and Business Metrics
In addition to the measures presented in our consolidated financial statements, we use the following key operational and business metrics to evaluate our business, measure our performance, develop financial forecasts, and make strategic decisions.
ACV and EoP ACV Book of Business
In connection with the calculation of several of the key operational and
business metrics we utilize, we calculate Annual Contract Value ("ACV") for
contracts of one year or greater as the total amount of value that a customer
has contracted to pay for the most recent 12 month period for the contract. For
short-term contracts (contracts less than 12 months), ACV is equal to total
contract value.
We also calculate EoP ACV Book of Business in connection with the calculation of
several of the key operational and business metrics we utilize. We define EoP
ACV Book of Business as the sum of the ACV of all contracts that are active on
the last day of the period pursuant to the effective dates and end dates of such
contracts. Active contracts exclude any contract that has been canceled, expired
prior to the last day of the period without renewing, or for any other reason is
not expected to generate revenue in the subsequent period. For contracts ending
on the last
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day of the period, the ACV is either updated to reflect the ACV of the renewed
contract or, if the contract has not yet renewed or extended, the ACV is
excluded from the EoP ACV Book of Business. We do not annualize short-term
contracts in calculating our EoP ACV Book of Business. We calculate the ACV of
usage-based contracts based on the committed contracted revenue or the revenue
achieved on the usage-based contract in the prior 12-month period.
Net Dollar Retention Rate
Six Months Ended July 31,
2022 2021
Net Dollar Retention Rate 124.8 % 89.5 %
We define Net Dollar Retention Rate as the percentage of ACV generated by
existing customers in a given period as compared to the ACV of all contracts at
the beginning of the fiscal year from the same set of existing customers. We
define existing customers as customers with an active contract with Planet. We
believe our Net Dollar Retention Rate is a useful metric for investors as it can
be used to measure our ability to retain and grow revenue generated from our
existing customers, on which our ability to drive long-term growth and
profitability is, in part, dependent. We use Net Dollar Retention Rate to assess
customer adoption of new products, inform opportunities to make improvements
across our products, identify opportunities to improve operations, and manage go
to market functions, as well as to understand how much future growth may come
from cross-selling and up-selling customers. Management applies judgment in
determining the value of active contracts in a given period, as set forth in the
definition of ACV above. Net Dollar Retention Rate increased to 124.8% for the
six months ended July 31, 2022 , as compared to 89.5% for the six months ended
July 31, 2021 , primarily due to higher renewal value of large government
contracts and the expansion of large agricultural customers in the six months
ended July 31, 2022 .
Net Dollar Retention Rate including Winbacks
Six Months Ended July 31,
2022 2021
Net Dollar Retention Rate including Winbacks 126.7 % 96.2 %
We report on two metrics for net dollar retention-net retention excluding winbacks and including winbacks. A winback is a previously existing customer who was inactive at the start of the current fiscal year, but has reactivated during the current fiscal year. The reactivation period must be within 24 months from the last active contract with the customer; otherwise, the customer is counted as a new customer and therefore excluded from the retention rate metrics. We define Net Dollar Retention Rate including winbacks as the percentage of ACV generated by existing customers and winbacks in a given period as compared to the ACV of all contracts at the beginning of the fiscal year from the same set of existing customers. We believe this metric is useful to investors as it captures the value of customer contracts that resume business with Planet after being inactive and thereby provides a quantification of Planet's ability to recapture lost business. Management uses this metric to understand the adoption of our products and long-term customer retention, as well as the success of marketing campaigns and sales initiatives in re-engaging inactive customers. Beyond the judgments underlying managements' calculation of Net Dollar Retention set forth above, there are no additional assumptions or estimates made in connection with Net Dollar Retention Rate including winbacks.Net Dollar Retention Rate including winbacks increased to 126.7% for the six months endedJuly 31, 2022 , as compared to 96.2% for the six months endedJuly 31, 2021 , primarily due to higher renewal value of large government contracts and the expansion of large agricultural customers in the six months endedJuly 31, 2022 . EoP Customer Count As of July 31, 2022 2021 EoP Customer Count 855 732 We define EoP Customer Count as the total count of all existing customers at the end of the period. We define existing customers as customers with an active contract with us at the end of the reported period. For the purpose of this metric, we define a customer as a distinct entity that uses our data or services. We sell directly to customers, as well as indirectly through our partner network. If a partner does not provide the end customer's name, then the partner is reported as the customer. Each customer, regardless of the number of active opportunities with us, is 35
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counted only once. For example, if a customer utilizes multiple products of Planet, we only count that customer once for purposes of EoP Customer Count. A customer with multiple divisions, segments, or subsidiaries are also counted as a single unique customer based on the parent organization or parent account. We believe EoP Customer Count is a useful metric for investors and management to track as it is an important indicator of the broader adoption of our platform and is a measure of our success in growing our market presence and penetration. Management applies judgment as to which customers are deemed to have an active contract in a period, as well as whether a customer is a distinct entity that uses our data or services. The EoP Customer Count increased to 855 as ofJuly 31, 2022 , as compared to 732 as ofJuly 31, 2021 . The increase was primarily attributable to the increased demand for our data as well as the acquisition of VanderSat inDecember 2021 .
Percent of Recurring ACV
As of July 31,
2022 2021
% Recurring ACV 93.0 % 93.3 %
Percent of Recurring ACV is the portion of the total EoP ACV Book of Business
that is recurring in nature. We define Percent of Recurring ACV as the dollar
value of all data subscription contracts and the committed portion of
usage-based contracts divided by the total dollar value of all contracts in our
ACV Book of Business at a specific point in time. We believe Percent of
Recurring ACV is useful to investors to better understand how much of our
revenue is from customers that have the potential to renew their contracts over
multiple years rather than being one-time in nature. We track Percent of
Recurring ACV to inform estimates for the future revenue growth potential of our
business and improve the predictability of our financial results. There are no
significant estimates underlying management's calculation of Percent of
Recurring ACV, but management applies judgment as to which customers have an
active contract at a period end for the purpose of determining ACV Book of
Business, which is used as part of the calculation of Percent of Recurring ACV.
Capital Expenditures as a Percentage of Revenue
Three Months Ended July 31, Six Months Ended July 31,
2022 2021 2022 2021
Capital Expenditures as Percentage of
Revenue 8.8 % 10.9 % 8.8 % 9.5 %
We define capital expenditures as purchases of property and equipment plus
capitalized internally developed software development costs, which are included
in our statements of cash flows from investing activities. We define Capital
Expenditures as a Percentage of Revenue as the total amount of capital
expenditures divided by total revenue in the reported period. Capital
Expenditures as a Percentage of Revenue is a performance measure that we use to
evaluate the appropriate level of capital expenditures needed to support demand
for our data services and related revenue, and to provide a comparable view of
our performance relative to other earth observation companies, which may invest
significantly greater amounts in their satellites to deliver their data to
customers. We use an agile space systems strategy, which means we invest in a
larger number of significantly lower cost satellites and software infrastructure
to automate the management of the satellites and to deliver our data to clients.
As a result of our strategy and our business model, our capital expenditures may
be more similar to software companies with large data center infrastructure
costs. Therefore, we believe it is important to look at our level of capital
expenditure investments relative to revenue when evaluating our performance
relative to other earth observation companies or to other software and data
companies with significant data center infrastructure investment requirements.
We believe Capital Expenditures as a Percentage of Revenue is a useful metric
for investors because it provides visibility to the level of capital
expenditures required to operate our business and our relative capital
efficiency. Capital Expenditures as a Percentage of Revenue decreased to 8.8%
and 8.8% for the three and six months ended July 31, 2022 , as compared to 10.9%
and 9.5% for the three and six months ended July 31, 2021 , respectively. The
decrease in Capital Expenditures as a Percentage of Revenue was primarily
attributable to an increase in revenue. Capital Expenditures for the three and
six months ended July 31, 2022 as compared to the three and six months ended
July 31, 2021 increased. The increase was primarily attributable to an increase
in ground station assets, offset in part by a decrease in capitalized
internal-use software.
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Components of Results of Operations
Revenue
We derive revenue principally from licensing rights to use our imagery that is delivered digitally through our online platform in addition to providing related services. Imagery licensing agreements vary by contract, but generally have annual or multi-year contractual terms. The data licenses are generally purchased via a fixed price contract on a subscription or usage basis, whereby a customer pays for access to our imagery or derived imagery data that may be downloaded over a specific period of time, or, less frequently, on a transactional basis, whereby the customer pays for individual content licenses. We also provide an immaterial amount of other services to customers, including professional services such as training, analytical services, research and development services to third parties, and other value-added activities related to our imagery, data and technology. These revenues are recognized as the services are rendered, on a proportional performance basis for fixed price contracts or ratably over the contract term for subscription professional services and analytics contracts. Training revenues are recognized as the services are performed.
Cost of Revenue
Cost of revenue consists of employee-related costs of performing account and data provisioning, customer support, satellite and engineering operations, as well as the costs of operating and retrieving information from the satellites, processing and storing the data retrieved, third party imagery expenses, depreciation of satellites and ground stations, and the amortization of capitalized internal-use software related to creating imagery provided to customers. Employee-related costs include salaries, benefits, bonuses and stock-based compensation. To a lesser extent, cost of revenue includes costs from professional services, including costs paid to subcontractors and certain third-party fees. We expect cost of revenue to continue to increase as we invest in our delivery organization and future product sets that will likely require higher compute capacity. As we continue to grow our subscription revenue contracts and increase the revenue associated with our analytic capabilities, we anticipate further economies of scale on our satellites and other infrastructure costs as we incur lower marginal cost with each new customer we add to our platform.
Research and Development
Research and development expenditures primarily include personnel related
expenses for employees and consultants, hardware costs, supplies costs,
contractor fees and administrative expenses. Employee-related costs include
salaries, benefits, bonuses and stock-based compensation. Expenses classified as
research and development are expensed as incurred and attributable to advancing
technology research, platform and infrastructure development and the research
and development of new product iterations. Fees and funding for our performance
of research and development services are recognized as a reduction of research
and development expenses based on a cost incurred method.
We continue to iterate on the design of our satellites and the capabilities of
our automated operations to optimize for
efficiency and technical capability of each satellite. Satellite costs
associated with the design, manufacturing, launch, and commissioning of
experimental satellites or other space related research and development
activities are expensed as incurred.
We intend to continue to invest in our software platform development, machine
learning and analytic tools and applications and new satellite technologies for
both the satellite fleet operations and data collection capabilities to drive
incremental value to our existing customers and to enable us to expand our
traction in emerging markets and with new customers. As a result of the
foregoing, we expect research and development expenditures to increase in future
periods.
Sales and Marketing
Sales and marketing expenditures primarily include costs incurred to market and
distribute our products. Such costs include expenses related to advertising and
conferences, sales commissions, salaries, benefits and stock-based compensation
for our sales and marketing personnel and sales office expenses. Sales and
marketing costs are expensed as incurred.
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We intend to continue to invest in our selling and marketing capabilities in the
future and expect this expense to increase in future periods as we look to
upsell new product features and expand into new market verticals. Selling and
marketing expenses as a percentage of total revenue may fluctuate from period to
period based on total revenue and the timing of our investments.
General and Administrative
General and administrative expenses include personnel-related expenses and facilities-related costs primarily for our executive, finance, accounting, legal and human resources functions. General and administrative expenses also include fees for professional services principally consisting of legal, audit, tax, and insurance, as well as executive management expenses. General and administrative expenses are expensed as incurred. We expect to incur additional general and administrative expenses as a result of operating as a public company, including expenses related to compliance and reporting obligations of public companies, and increased costs for insurance, investor relations, and professional services. As a result, we expect that our general and administrative expenses will increase in future periods and vary from period to period as a percentage of revenue, but we expect to realize operating scale with respect to these expenses over time as we grow our revenue.
Interest Expense
Interest expense primarily consists of interest expense associated with our borrowings and amortization of debt issuance costs for our loans. Our debt as ofJuly 31, 2021 included loans withVenture Lending & Leasing, Inc. ("Venture"), an affiliate ofWestern Technology Investment and our Credit Agreement withSilicon Valley Bank ("SVB") and Hercules Capital, Inc. ("Hercules"). We repaid our debt in connection with the Business Combination and we had no debt outstanding as ofJuly 31, 2022 .
Change in fair value of convertible notes and warrant liabilities
Change in fair value of liabilities includes the change in fair value of warrant liabilities, including the change in fair value of the public and private placement warrant liabilities assumed in connection with the Business Combination, and the change in fair value of our convertible notes, which converted into Class A common stock in connection with the Business Combination. We expect to incur other incremental income or expense for fair value adjustments resulting from warrant liabilities that remain outstanding.
Other Income (Expenses), net
Other income (expenses), net, primarily consists of interest income earned and net gains or losses on foreign currency.
Provision for Income Taxes
Our income tax provision consists of an estimate forU.S. federal and state income taxes, as well as those foreign jurisdictions where we have business operations, based on enacted tax rates, as adjusted for allowable credits, deductions, uncertain tax positions, changes in deferred tax assets and liabilities, and changes in the tax law. We believe that it is more likely than not that the majority of theU.S. and foreign deferred tax assets will not be realized. Accordingly, we recorded a valuation allowance against our deferred tax assets in these jurisdictions.
Results of Operations
Three months ended
The following table sets forth a summary of our consolidated results of operations for the interim periods indicated and the changes between such periods.
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Three Months Ended July 31, $ %
(in thousands, except percentages) 2022 2021 Change Change
Revenue $ 48,450 $ 30,406 $ 18,044 59 %
Cost of revenue 24,977 19,820 5,157 26 %
Gross profit 23,473 10,586 12,887 122 %
Operating expenses
Research and development 26,737 12,432 14,305 115 %
Sales and marketing 19,483 10,597 8,886 84 %
General and administrative 19,893 11,824 8,069 68 %
Total operating expenses 66,113 34,853 31,260 90 %
Loss from operations (42,640) (24,267) (18,373) 76 %
Interest expense - (2,611) 2,611 (100) %
Change in fair value of convertible notes and warrant 2,112 6,769 (4,657) (69) %
liabilities
Other income (expense), net 1,153 (84) 1,237 (1473) %
Total other income (expense), net 3,265 4,074 (809) (20) %
Loss before provision for income taxes (39,375) (20,193) (19,182) 95 %
Provision for income taxes 154 170 (16) (9) %
Net loss $ (39,529) $ (20,363) $ (19,166) 94 %
Revenue
Revenue increased $18.0 million , or 59%, to $48.5 million for the three months
ended July 31, 2022 from $30.4 million for the three months ended July 31, 2021 .
The increase was primarily due to net expansion of existing customer contracts
of $7.7 million and an increase in total customers worldwide of $10.4 million .
EoP Customer Count increased approximately 17% to 855 as of July 31, 2022 from
732 as of July 31, 2021 . The increase in total customers and the associated
revenue from those customers was largely due to our investment in expanding our
sales and marketing teams. The increase in revenue was also attributable to
increased usage from our customers in the current period.
Cost of Revenue
Cost of revenue increased$5.2 million , or 26%, to$25.0 million for the three months endedJuly 31, 2022 , from$19.8 million for the three months endedJuly 31, 2021 . The increase was primarily due to a$2.9 million increase in employee related costs, partially due to increased headcount and a$1.1 million increase in stock-based compensation. The increase in stock-based compensation was primarily due to earn-out shares and restricted stock unit awards for which the recognition of expense commenced upon the closing of the Business Combination and increased headcount. The increase was also partially due to a$1.5 million increase in hosting costs associated with an increase in archive data and growth in our customer base and a$0.4 million increase in amortization expense related to acquired intangible assets.
Research and Development
Research and development expenses increased$14.3 million , or 115%, to$26.7 million for the three months endedJuly 31, 2022 , from$12.4 million for the three months endedJuly 31, 2021 . The increase was primarily due to an increase of$11.9 million in employee related expenses, partially due to increased headcount and a$7.2 million increase in stock-based compensation. The increase in stock-based compensation was primarily due to earn-out shares and restricted stock unit awards for which the recognition of expense commenced upon the closing of the Business Combination and increased headcount.
Sales and Marketing
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Sales and marketing expenses increased$8.9 million , or 84%, to$19.5 million , for the three months endedJuly 31, 2022 , from$10.6 million for the three months endedJuly 31, 2021 . The increase was primarily due to an increase of$6.1 million in employee related expenses associated with our sales and marketing teams, partially due to increased headcount and commissions and a$3.1 million increase in stock-based compensation. The increase in stock-based compensation was primarily due to earn-out shares and restricted stock unit awards for which the recognition of expense commenced upon the closing of the Business Combination and increased headcount. Also contributing to the increase was a$0.9 million increase in travel and entertainment expenses, a$0.5 million increase in marketing expenses driven by increased events, and a$0.8 million increase in professional services fees.
General and Administrative
General and administrative expenses increased$8.1 million , or 68%, to$19.9 million for the three months endedJuly 31, 2022 , from$11.8 million for the three months endedJuly 31, 2021 . The increase was primarily due to an increase of$6.2 million in employee related expenses, partially due to increased headcount and a$4.3 million increase in stock-based compensation. The increase in stock-based compensation was primarily due to earn-out shares and restricted stock unit awards for which the recognition of expense commenced upon the closing of the Business Combination and increased headcount. The increase was also partially due to an increase of$1.2 million in directors' and officers' insurance. Interest Expense
No interest expense was recognized during the three months ended
Interest expense for the three months endedJuly 31, 2021 was related to our credit agreement with SVB and Hercules which we repaid upon completion of the Business Combination.
Change in fair value of convertible notes and warrant liabilities
The change in fair value of convertible notes and warrant liabilities decreased$4.7 million to a gain of$2.1 million for the three months endedJuly 31, 2022 , from a gain of$6.8 million for the three months endedJuly 31, 2021 . The change in fair value of convertible notes and warrant liabilities during the three months endedJuly 31, 2022 reflects a$2.1 million gain due to the revaluation of the liability classified public and private placement warrants that were assumed in connection with the Business Combination. The change in fair value of convertible notes and warrant liabilities during the three months endedJuly 31, 2021 reflects a$1.1 million gain due to the revaluation of the 2020 convertible promissory notes, a$0.3 million gain due to the revaluation of the Venture Tranche B convertible note and a$5.3 million gain due to the revaluation of liability classified preferred stock warrants.
Other Income (Expense), net
Other income (expense) increased$1.2 million , to$1.1 million for the three months endedJuly 31, 2022 , from$(0.1) million for the three months endedJuly 31, 2021 . The increase was primarily due to an increase in interest income recognized during the three months endedJuly 31, 2022 as a result of our short-term investment balances and an increase in interest rates.
Provision for Income Taxes
Provision for income taxes was$0.2 million for both of three month periods endedJuly 31, 2022 and 2021. For the three months endedJuly 31, 2022 and 2021, the income tax expense was primarily driven by the current tax on foreign earnings. The effective tax rate for the three months endedJuly 31, 2022 and 2021 differed from the federal statutory tax rate primarily due to the valuation allowance on the majority of ourU.S. and foreign deferred tax assets and foreign rate differences.
Six months ended
The following table sets forth a summary of our consolidated results of operations for the interim periods indicated and the changes between such periods.
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Six Months Ended July 31, $ %
(in thousands, except percentages) 2022 2021 Change Change
Revenue $ 88,577 $ 62,363 $ 26,214 42 %
Cost of revenue 48,605 38,946 9,659 25 %
Gross profit 39,972 23,417 16,555 71 %
Operating expenses
Research and development 51,487 24,562 26,925 110 %
Sales and marketing 38,338 21,250 17,088 80 %
General and administrative 40,501 20,139 20,362 101 %
Total operating expenses 130,326 65,951 64,375 98 %
Loss from operations (90,354) (42,534) (47,820) 112 %
Interest expense - (5,138) 5,138 (100) %
Change in fair value of convertible notes and warrant 5,388 (1,257) 6,645 (529) %
liabilities
Other income (expense), net 1,545 (261) 1,806 (692) % Total other income (expense), net 6,933 (6,656) 13,589 (204) % Loss before provision for income taxes (83,421) (49,190) (34,231) 70 % Provision for income taxes 468 428 40 9 % Net loss$ (83,889) $ (49,618) $ (34,271) 69 % Revenue Revenue increased$26.2 million , or 42%, to$88.6 million for the six months endedJuly 31, 2022 from$62.4 million for the six months endedJuly 31, 2021 . The increase was primarily due to net expansion of existing customer contracts of$14.0 million and an increase in total customers worldwide of$12.1 million . EoP Customer Count increased approximately 17% to 855 as ofJuly 31, 2022 from 732 as ofJuly 31, 2021 . The increase in total customers and the associated revenue from those customers was largely due to our investment in expanding our sales and marketing teams. The increase in revenue was also attributable to increased usage from our customers in the current period.
Cost of Revenue
Cost of revenue increased$9.7 million , or 25%, to$48.6 million for the six months endedJuly 31, 2022 , from$38.9 million for the six months endedJuly 31, 2021 . The increase was primarily due to a$5.6 million increase in employee related costs, partially due to increased headcount and a$2.2 million increase in stock-based compensation. The increase in stock-based compensation was primarily due to earn-out shares and restricted stock unit awards for which the recognition of expense commenced upon the closing of the Business Combination and increased headcount. The increase was also partially due to a$3.0 million increase in hosting costs associated with an increase in archive data and growth in our customer base and a$0.8 million increase in amortization expense related to acquired intangible assets.
Research and Development
Research and development expenses increased$26.9 million , or 110%, to$51.5 million for the six months endedJuly 31, 2022 , from$24.6 million for the six months endedJuly 31, 2021 . The increase was primarily due to an increase of$22.6 million in employee related expenses, partially due to increased headcount and a$14.4 million increase in stock-based compensation. The increase in stock-based compensation was primarily due to earn-out shares and restricted stock unit awards for which the recognition of expense commenced upon the closing of the Business Combination and increased headcount.
Sales and Marketing
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Sales and marketing expenses increased$17.1 million , or 80%, to$38.3 million , for the six months endedJuly 31, 2022 , from$21.3 million for the six months endedJuly 31, 2021 . The increase was primarily due to an increase of$12.3 million in employee related expenses associated with our sales and marketing teams, partially due to increased headcount and commissions and a$6.1 million increase in stock-based compensation. The increase in stock-based compensation was primarily due to earn-out shares and restricted stock unit awards for which the recognition of expense commenced upon the closing of the Business Combination and increased headcount. Also contributing to the increase was a$2.4 million increase in travel and entertainment expenses, a$1.0 million increase in marketing expenses driven by increased events, and a$0.8 million increase in professional services fees.
General and Administrative
General and administrative expenses increased$20.4 million , or 101%, to$40.5 million for the six months endedJuly 31, 2022 , from$20.1 million for the six months endedJuly 31, 2021 . The increase was partially due to an increase of$14.3 million in employee related expenses, partially due to increased headcount and a$9.7 million increase in stock-based compensation. The increase in stock-based compensation was primarily due to earn-out shares and restricted stock unit awards for which the recognition of expense commenced upon the closing of the Business Combination and increased headcount. The increase was also partially due to an increase of finance and accounting costs of$1.3 million , primarily due to accounting and consultant fees, and an increase of$2.5 million in directors' and officers' insurance.
Interest Expense
No interest expense was recognized during the six months ended
Interest expense for the six months ended
Change in fair value of convertible notes and warrant liabilities
The change in fair value of convertible notes and warrant liabilities increased$6.6 million to a gain of$5.4 million for the six months endedJuly 31, 2022 , from a loss of$1.3 million for the six months endedJuly 31, 2021 . The change in fair value of convertible notes and warrant liabilities during the six months endedJuly 31, 2022 reflects a$5.4 million gain due to the revaluation of the liability classified public and private placement warrants that were assumed in connection with the Business Combination. The change in fair value of convertible notes and warrant liabilities during the six months endedJuly 31, 2021 reflects a$3.1 million loss due to the revaluation of the 2020 convertible promissory notes and a$0.2 million loss due to the revaluation of the Venture Tranche B convertible note, offset by a$2.0 million gain due to the revaluation of liability classified preferred stock warrants.
Other Income (Expense), net
Other income (expense) increased
Provision for Income Taxes
Provision for income taxes was$0.5 million and$0.4 million for the six months endedJuly 31, 2022 and 2021, respectively. For the six months endedJuly 31, 2022 and 2021, the income tax expense was primarily driven by the current tax on foreign earnings. The effective tax rate for the six months endedJuly 31, 2022 and 2021 differed from the federal statutory tax rate primarily due to the valuation allowance on the majority of ourU.S. and foreign deferred tax assets and foreign rate differences.
Non-GAAP Information
This Quarterly Report on Form 10-Q includes Non-GAAP Gross Profit and Adjusted EBITDA, which are non-GAAP performance measures that we use to supplement our results presented in accordance withU.S. GAAP. We believe Non-GAAP Gross Profit and Adjusted EBITDA are useful in evaluating our operating performance, as they 42
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are similar to measures reported by our public competitors and are regularly used by security analysts, institutional investors, and other interested parties in analyzing operating performance and prospects. Non-GAAP Gross Profit and Adjusted EBITDA are non-GAAP measures, are additions, and not substitutes for or superior to, measures of financial performance prepared in accordance withU.S. GAAP and should not be considered as an alternative to gross profit, net income, operating income or any other performance measures derived in accordance withU.S. GAAP or as an alternative to cash flows from operating activities as a measure of liquidity. Further, Non-GAAP Gross Profit and Adjusted EBITDA are not based on any standardized methodology prescribed byU.S. GAAP and are not necessarily comparable to similarly-titled measures presented by other companies. We present Adjusted EBITDA because we believe it is frequently used by analysts, investors and other interested parties to evaluate companies in our industry and facilitates comparisons on a consistent basis across reporting periods. Further, we believe it is helpful in highlighting trends in our operating results because it excludes items that are not indicative of our core operating performance.
We include these non-GAAP financial measures because they are used by management to evaluate our core operating performance and trends and to make strategic decisions regarding the allocation of capital and new investments.
Non-GAAP Gross Profit excludes stock-based compensation expenses that are classified as cost of revenue from gross profit, which is required in accordance withU.S. GAAP. Non-GAAP Gross Profit also excludes amortization of acquired intangible assets related to business combinations, which is a non-cash expense required in accordance withU.S. GAAP. Adjusted EBITDA excludes certain expenses from net income (loss) that are required in accordance withU.S. GAAP. We exclude in this calculation certain non-cash expenses, such as depreciation and amortization, stock-based compensation and change in fair value of convertible notes and warrant liabilities, and expenses that are considered unrelated to our underlying business performance, such as interest income, interest expense, and taxes. Non-GAAP Gross Profit
We define and calculate Non-GAAP Gross Profit as gross profit adjusted for stock-based compensation and amortization of acquired intangible assets classified as cost of revenue, and Non-GAAP Gross Margin percentage as the percentage of Non-GAAP Gross Profit to revenue as outlined in the reconciliation below.
The table below reconciles our Gross Profit (the most directly comparable
Three Months Ended July 31, Six Months Ended July 31,
(in thousands, except percentages) 2022 2021 2022 2021
Gross Profit $ 23,473 $ 10,586 $ 39,972 $ 23,417
Cost of revenue-Stock-based compensation 1,357 228 2,676 462
Amortization of acquired intangible assets 366 - 797 -
Non-GAAP Gross Profit $ 25,196 $ 10,814 $ 43,445 $ 23,879
Gross Margin percentage 48 % 35 % 45 % 38 %
Non-GAAP Gross Margin percentage 52 % 36 % 49 % 38 %
Adjusted EBITDA
We define and calculate Adjusted EBITDA as net income (loss) before the impact
of interest income and expense, income tax expense and depreciation and
amortization, and further adjusted for the following items: stock-based
compensation, change in fair value of convertible notes and warrant liabilities,
gain or loss on the extinguishment of debt and non-operating income and expenses
such as foreign currency exchange gain or loss, as outlined in the
reconciliation below.
The table below reconciles our net loss (the most directly comparable
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Three Months Ended July 31, Six Months Ended July 31,
(in thousands) 2022 2021 2022 2021
Net loss $ (39,529) $ (20,363) $ (83,889) $ (49,618)
Interest expense - 2,611 - 5,138
Interest income (1,311) - (1,423) (4)
Income tax provision 154 170 468 428
Depreciation and amortization 11,588 11,041 23,213 22,516
Change in fair value of convertible notes
and warrant liabilities (2,112) (6,769) (5,388) 1,257
Stock-based compensation 20,581 4,874 40,403 7,976
Other (income) expense 158 84 (122) 265
Adjusted EBITDA $ (10,471) $ (8,352) $ (26,738) $ (12,042)
There are a number of limitations related to the use of Adjusted EBITDA,
including:
•Adjusted EBITDA excludes stock-based compensation, which has recently been, and
will continue to be for the foreseeable future, a significant recurring expense
for our business and an important part of our compensation strategy;
•Adjusted EBITDA excludes depreciation and amortization expense and, although
these are non-cash expenses, the assets being depreciated and amortized will
have to be replaced in the future;
•Adjusted EBITDA does not reflect interest expense, or the cash requirements
necessary to service interest or principal payments on our debt, which reduces
cash available to us;
•Adjusted EBITDA does not reflect income tax expense that reduces cash available
to us; and
•the expenses and other items that we exclude in our calculation of Adjusted
EBITDA may differ from the expenses and other items, if any, that other
companies may exclude from similar measures when they report their operating
results.
Liquidity and Capital Resources
Since inception, we have incurred net losses and negative cash flows from operations. Our operations have historically been primarily funded by the net proceeds from the sale of our equity securities and borrowings under credit facilities, as well as cash received from our customers. We currently have no debt outstanding. We measure liquidity in terms of our ability to fund the cash requirements of our business operations, including working capital and capital expenditure needs, contractual obligations, including debt obligations, and other commitments, with cash flows from operations and other sources of funding. Our current working capital needs relate mainly to our continued development of our platform and product offerings in new markets, as well as compensation and benefits of our employees. Our ability to expand and grow our business will depend on many factors, including our working capital needs and the evolution of our operating cash flows. As ofJuly 31, 2022 andJanuary 31, 2022 , we had$262.1 million and$490.8 million , respectively, in cash and cash equivalents. Additionally, as ofJuly 31, 2022 , we had short-term investments of$195.6 million which are highly liquid in nature and available for current operations. There were no short-term investments as ofJanuary 31, 2022 . We believe our anticipated operating cash flows together with our cash on hand provide us with the ability to meet our obligations as they become due during the next 12 months. We expect our capital expenditures and working capital requirements to continue to increase in the foreseeable future as we seek to grow our business. We could also need additional cash resources due to significant acquisitions, an accelerated manufacturing timeline for new satellites, competitive pressures or regulatory requirements. To the extent that our resources are insufficient to satisfy our cash requirements, we may need to seek additional equity or debt financing. The sale of additional equity would result in additional dilution to our stockholders. The incurrence of debt financing would result in debt service obligations and the instruments governing such debt could provide for operating and financial covenants that would restrict our operations. We cannot assure you that any such equity or debt financing will be available on favorable terms, or at all. If the needed financing is not available, or if the terms of financing are less desirable than we expect, we may be forced to decrease our level of investment in software and market expansion efforts or to scale back our existing operations, which could have an adverse impact on our business and financial prospects. 44
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Table of Contents As ofJuly 31, 2022 , our principal contractual obligations and commitments include lease obligations for real estate and ground stations, purchase commitments for future satellite launch services, and minimum purchase commitments for hosting services fromGoogle, LLC . Refer to Notes 6, 9, and 12 to our unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information regarding these cash requirements. We do not engage in any off-balance sheet activities or have any arrangements or relationships with unconsolidated entities, such as variable interest, special purpose, and structured finance entities.
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