Good afternoon. Thank you for attending today's Planet Labs PBC First Quarter of Fiscal 2024 Earnings Call. My name is Anna, and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions-and-answers at the end. [Operator Instructions] I would now like to pass the conference over to our host Chris Genualdi, Vice President of Investor Relations. You may go ahead.

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

Thanks, Chris, and hello, everyone. Thanks for joining the call today. Our first quarter financial results were solid. We generated $52.7 million in revenue, representing a 31% year-over-year growth, in line with our guidance. Non-GAAP gross margins expanded to 56% up from 45% in the prior year and an 11 percentage point increase, showing the ability for one-to-many data business model to drive significant margin expansion as revenue scales. We ended the first quarter with over 900 unique customers spanning across government and commercial markets. While our Q1 results were in line with our expectations we faced some recent headwinds in April and May, which inform our guidance for the year and I'll address this in a moment. Before that, I do want to underscore our sustained confidence in the market opportunity. In Q1, we saw the largest quarter for pipeline generation in the company's history. We saw rapid advancements in AI that are unlocking new possibilities with our dataset. And we saw our products enabling our customers to address some of their most pressing security and sustainability challenges. That is all to say, we continue to see strong demand for our solutions. Let me now address our update to guidance for this year. The primary driver is that sales bookings came in lighter than we expected. In recent weeks, we observed a combination of factors coming together, including extended sales cycles, as well as some of our larger deal opportunities closing with smaller values than anticipated. We believe these recent changes reflect hesitation from customers as they enter the year with heightened budget uncertainty, as well as government procurement cycle is taking longer than we expected. Because of our data subscription business model [lighter] (ph) bookings in the beginning of the year have a more significant impact on the…

Thank you, Will, and thanks, everyone, for joining us today. As Will mentioned, our revenue for the first quarter of fiscal 2024 ending April 30 came in at $52.7 million, which represents 31% year-over-year growth. As of the end of Q1, recurring ACV or Annual Contract Value was 93% of our book of business. Over 90% of our book of business consisted of annual or multiyear contracts. Our average contract length continues to be approximately two years weighted on an ACV basis. Net dollar retention rate, which we measure relative to the book of business at the beginning of each year was 98%, and net dollar retention rate with Winbacks was 99%. It's important to understand that at this point in the year, our net dollar retention rate is reflective of only three months. If you look at our prior two years of net dollar retention rate as detailed in our quarterly earnings investor presentation, our net dollar retention rate starts each fiscal year at 100% and then builds through the course of the year towards our final full-year results. The slight decrease in NDRR for Q1 relative to the beginning of the year is primarily due to delays in renewing certain government contracts. For the full year, we are targeting an approximate 120% net dollar retention rate, consistent with the targets that we have shared for the business in the past. Turning to gross margin, we expanded our non-GAAP gross margin to 56% for the first quarter of fiscal 2024 compared to 45% in the prior year. This 11-point expansion of gross margins is driven by the growth of revenue, the efficiency of our agile aerospace approach, and our one-to-many data subscription business model. As a reminder, we include the depreciation and amortization of CapEx in our cost of…

[Operator Instructions] The first question is from the line of Ryan Koontz with Needham and Company. You may proceed.

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

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

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

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

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

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

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

Great. Thank you.

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

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

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

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

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

Great. Thanks for taking the questions.

Great. Thank you.

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

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

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

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

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

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

Yes. The second question?

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

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

Okay, great. Thank you.

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

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

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

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

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

What was the last week?

Seven-figured. [indiscernible]

Yes. Well, firstly, I mean we've never seen pipeline generation quite like this last quarter and we really scrutinize and only have to put qualified deals into our plan. And to have those five eight-figure deals is just again we've -- noticed anything like that. Most of that isn't government space, but there is a healthy mix has been civil government and defense and intelligence. So, it's quite a variety of applications and what we're seeing drive this as we hinted out on a little bit on the call prepared remarks the sustainability regulations are driving big deals and then there's also AI which is -- it's really an accelerant and a catalyst. So, we're seeing this pretty strong momentum of these seven and eight-figure deals and you've heard some of the wins that I spoke about. So, yeah, but off-the-charts pipeline generation, which is why it's a little bit of a mixed signal when we're talking about the -- reducing the revenue growth rate.

Yes. Okay, thanks.

Okay. Thank you.

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

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

Yes. I'd say, in general, we always expect backend loading on a quarter for closing deals, we have the pipeline coming in. We had a lot of commit that we expected to convert. As we reached the final weeks of the quarter and things pushed into early Q2, it still felt like we were on track as Will referenced, we had a really nice eight-figure deal close in May, we had a couple of other wins that came over the goal line right in the final weeks early in May. So, the signal remained relatively strong. But there were -- as I mentioned, one where we got the award still working to get the ink on the paper, Will referenced the eight-figure deal where because of budget constraints on the part of the customer, they actually went up uptick their usage until much later in the year, which from our revenue recognition perspective, we've got this multiyear committed dollar amount when we actually start to report that revenue is going to be later than what we anticipated. And so, those were some of the factors that caused us to have to read from the numbers as we were closing out the quarter, and then as we just looked at some of the metric averages coming out of the quarter, historically, we've talked about sales cycles accelerating and average deal sizes are improving and things of that nature. And this is really the first quarter whereas we ran those numbers we saw that trend going the opposite direction. And so, we could treat that as the blip, where we can make assumptions that that's a trend. We have a very strong commitment to getting this company to profitability and to ensure that we did that, we have to assume that these factors are going to continue. So, that we rightsize our expenses for that circumstance. But generally speaking, there's still a lot of really positive signals that we're seeing from the market and a lot of great activity going on with our sales team. We know we have to close the business, but we want to make sure that as we think about what's going to close, when we take more conservative assumptions so that we can size the expenses accordingly.

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

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

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

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

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

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

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

Great, thanks.

Thank you, Mr. Van Rhee. Our next question is from the line of Christine [indiscernible] with Morgan Stanley. You may proceed.

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

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

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

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

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

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

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

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

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

Great. Thank you very much.

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Yes, thanks.

Thank you. Our next question is from Edison Yu with Deutsche Bank. You may proceed.

Thanks for taking the questions. First just wanted to follow up, I think you mentioned that you're going to maintain the EBITDA target. Can you just go over kind of how you plan that offset the lower growth?

Yes. As I mentioned, we've been looking at the expense growth plans and headcount growth plans that we had for the year and obviously scaling this back and making sure that they're focused on the highest ROI areas. So, there are number of areas as we've referenced multiple times where we're seeing strong demand signals. So, we don't want to back away from investments behind that, but one, we can make sure that we're very focused on efficiency internally of our operations and to make sure that we're being very strategic and selective as to where we're making any incremental investments. So, by doing these assessments we've already scaled back expense growth on the year such that our exit run rate is north of $35 million less than we had expected to be.

Understood. And I just wanted to ask quickly about Sinergise. I know you mentioned that it's a pretty kind of normally low but wondering if you can give any insight into how fast that's growing? Obviously, we started covers a lot of customers use it, maybe the growth trajectory and an opportunity that brings forward.

We see it has been a very valuable add-on to almost every one of our customer relationships. It is the -- front end helps people to easy use of our data, especially on the small long tail of small clients, as I mentioned, that helps automate a lot of that segment, which has been costly in a sense, but also the big deals as well. I mean a number of the partnerships we're talking about in Europe driven by the sustainability pieces like sustainable Agriculture, Regulation, Demands countries track how they're doing on the Sustainable AG practices and monitoring those and report on those and they have some great automated tools that sit on top of our data all that don't want to name of that. So, it's great. And overall, I'd also just comment that, we're still on track to close in Q2, Q2 with that and we feel pretty happy about that. I'm very happy. Also with the other two acquisitions. And so we feel confident, it's the right move.

Okay. Thank you.

Thank you, Mr. Yu. Our next question is from the line of Greg Mesniaeff with WestPark. You may proceed.

Yes. Thank you for taking my question. I wanted to circle back to the OpEx rightsizing that you've announced. Focusing more specifically on the SG&A in line what areas do you see most likely to be impacted? If you could just kind of give us some more granularity on that.

Yeah. I think as Will referenced, as we're looking at how we're focusing our go-to-market activities. The larger customers have been an area of higher ROI for us and smaller customers where we can deploy more automation and having a much lighter touch model is obviously much more effective on multiple fronts. So, really as we're thinking about our support model and leveraging our partner base that enables us to reduce the amount of people internally that we're putting against supporting the longer tail of customers and really relying on partners as well as automation in our platform to address that side of the business. So, that's an example of how we're thinking about really focusing our go-to-market motion.

Thank you for that. And my follow-up is remaining to your revised gross margin guidance for the year. You mentioned that the headwind of the $5 million impact to close to goods sold from the end of life for the two satellites. I was wondering if there is any offsets to that headwind from some tailwinds associated with presumably a more favorable product mix, that's more heavily focused on software relating to analytics and AI.

As you may remember, our data subscription model is such that our direct margins on our core products are already quite high in the mid-'90s as it is. So, our primary expenses relate to our hosting costs which are predictable and then the depreciation of the satellites. So, there's -- as we...

No, there is no. So, what you're saying is this -- I guess what you're saying is there is not much of a tailwind left there given the high margin profile already, you're seeing.

I guess what I'd say is, from a gross margin perspective, revenue for us as a tailwind because the direct margins are so high. So, and, as we increase our share of wallet with customers by selling more analytics that is a tailwind because that revenue has also very high gross margin.

Thank you.

Thank you, Mr. Mesniaef. Our last question will be from the line of Josh Sullivan with The Benchmark Company. You may proceed.

Good afternoon. We're just given where macros sales cycles that you guys are seeing capital markets are currently do you think we see a consolidation cycle space AI and thus Planet have an appetite to be that consolidator?

Well, we've already talked about the fact that we kind of as a natural consolidator in this space in general I'd say we're more focused on going up the value stack them, and then the Aerospace side of API we'll always be disciplined and thinking about the return on investment on that sort of move. But yeah, I mean and data businesses in general, just stepping back and think about us and we think about ourselves more as the data business and our satellite business and as data business, they tend to be very powerful when they have more rare, but they have extremely high lock-in and high hard to displace when they come about and so, I think there is a natural situation for consolidation. And yeah, we think that we could, and in a position of strength to do that in time.

And then just one question on the solar intensity impact of the two satellites. Why wouldn't just have a broader -- on a console maybe what's the probability we see, additional Canadian accelerated depreciation and as that solar activity decreased at this point to reduce the risk?

No. It hasn't changed, it's still high and still elevated. We're you asking, the effects of the fleet? I think -- understand...

Yes. Just understanding if the activity -- the solar activity is still high, is there still a risk that we might the other satellites in the council impacted by this dynamic?

Well, no. Now, we've taken into account the difference this is now made. So, we can forecast that but yeah, it is an unusual situation and -- but remember that our fleet is highly redundant. And one of the reasons that we are able to survive this sort of situation is we have a lot of redundancy in our fleet. And then, also we continue to make operational improvements in that. So, we're not worried about being able to continue to provide to our customers. And so, yeah, we feel good about our ability to continue to this.

Okay, thank you, Will.

Okay.

Thank you, Mr. Sullivan. That is all the time we have for the question-and-answer session. So, I will now turn the call back over to Will Marshall, Co-Founder and CEO for any further remarks.

Just to summarize, we've said that we delivered pretty solid Q1 results and had our strongest pipeline generation quarter in the company's history. But they come in a bit lighter than we expected in the last -- in recent weeks and so we're responding by changing our spending plans and prioritizing around our investments around key customers and high ROI activities. And as a result, maintain our profitability guideline, and overall, I'd say our conviction remains high and the scale of the opportunity is high, backed by the tailwinds that we've seen in sustainability digital transformation piece of security and now as a further catalyst to AI, thanks for joining the call.

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