Planet Labs Roaring With A+ Balance Sheet
I want to own some of this small-cap stock.
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It's been a long time since we've taken a look at Planet Labs PBC PL for the "Stocks Under $10" crowd.
I know we had the portfolio in the name for a while. Without doing more research than I am willing to do on a Monday, I don't recall whether or not the old "SU $10" portfolio turned a profit on the name or not. This likely means that whatever we did with it. it did not leave an impression on my remaining brain cells.
I do know that PL was no longer an existing position during the waning days of that product like some of the other names that I still keep you up on (quite simply because I am long them myself). That said, Planet Labs reported on Monday morning and the stock is simply roaring in response. Perhaps it behooves us to at least take a peek under the hood.
The Quarter
For the firm's fiscal second quarter, which ended July 31, Planet Labs posted an adjusted EPS of -$0.03 (GAAP EPS: -$0.07) on revenue of $73.386 million. These top- and adjusted bottom-line results both beat Wall Street's expectations, while the revenue generation print was good enough for year-over-year growth of 20.1%. That's not what was so impressive. That's not why the shares are up more than 25% this morning.
RPO, or remaining performance obligation, was up 516% year over year to $690.1 million. The firm's order backlog was up 245% year over year to $736.1 million. To put it bluntly, this firm's biggest problem at the moment is simply meeting an intense demand for its services that is growing exponentially.
The CEO
Will Marshall, who is CEO, chairperson and a co-founder of the firm, commented on Monday morning and it speaks volumes:
“Our second quarter results demonstrate incredibly strong momentum across our business, with record revenue and substantial growth in our backlog. The increased demand for our unique Earth intelligence, highlighted by pivotal contracts including one in collaboration with the German government, one with NATO, and others with the U.S. Department of Defense, underscores the critical role Planet plays in addressing global challenges and supporting peace and security. We are continuing to innovate with the recent launch of two additional next-generation Pelican satellites, with more on the horizon, reinforcing our commitment to delivering the most comprehensive and timely data and insights to our customers worldwide.”
Operations
As the firm was growing revenue 20.1% to $73.386 million, the cost of that revenue grew 8.1% to $31.118 million. This left a gross profit of $42.268 million (+30.8%) on a gross margin of 57.6%, up sharply from 52.9% a year ago. GAAP operating expenses decreased 16.2% to $60.228 million, taking GAAP operating income/loss from -$39.577 million for the year-ago comp to -$17.96 million.
After accounting for interest, other income and expenses and taxes, the firm's GAAP net income/loss improved from -$38.668 million to -$22.592 million. That works out to a GAAP EPS of -$0.07 versus the year-ago comparison of -$0.13. Once adjusted for primarily stock-based compensation expense, the EPS print improved to -$0.03 and compares to last year's -$0.06.
Fundamentals
For the period reported, Plant Labs generated operating cash flow of $67.774 million, up from -$7.858 million a year ago. Out of that number came capex spending of $20.291 million and $1.195 million in spending on capitalized internal use software. That left free cash flow of $46.288 million, up from -$24.479 million.
Moving on to the balance sheet, the firm ended the period with a cash position of $277.853 million and current assets of $355.463 million. Current liabilities add up to $203.491 million. This includes no short-term debt, but $148.006 million in deferred revenue (not a true financial liability). At the headline level, the firm's current ratio stands at a strong enough 1.75. However, once adjusted for those deferred revenues, this ratio rises to an absolutely beastly 6.41.
Total assets amount to $696.425 million. Of that, $165.268 million is labeled as either goodwill or other intangibles. At 24% of total assets, I don't love it, but that is not outside of modern norms. Total liabilities less equity comes to $260.736 million. That included some more deferred revenue but still no debt. That's right, this firm has no debt on the books. This balance sheet gets an A+.
Guidance
For the current quarter, which will end October 31, Plant Labs sees revenue of $71 million to $74 million. This brings the low end of the range above the $69 million or so that Wall Street was looking for. The firm also sees an adjusted gross margin of 555 to 56% and an adjusted EBITDA loss of -$4 million to $0.
For the full year, the firm is looking for revenue of $281 million to $289 million. That, too, brings the low end of the range well above the $273 million that Wall Street had in mind. Adjusted gross margin is projected at 55% to 57%, while adjusted EBITDA loss is projected to land in between -$7 million and $0.
My Thoughts
This is a firm moving in the right direction rapidly, largely because they sell what the U.S. Department of Defense (Department of War) and its NATO counterparts need. Cash flows are impressive. The balance sheet is in excellent shape. The biggest threat will come from an unforeseen rise in competition if the firm can't find a way to accelerate its ability to handle the increased demand. For those about to ask if Monday morning's move is being exacerbated by short covering, there may be some of that, but less than 7% of the float came into the release being held in short positions. This mutes to some degree that idea.
We see here that the stock has made a little bit of a habit of developing falling-wedge patterns of bullish reversal and then blasting out from those patterns. The pivot here would be the $7.72 July 1 high. That would make the target price for this move up around $9.75. I don't know if that justifies chasing the stock on Monday for you. It does not for me. Especially with a suddenly bullish looking daily MACD and a parabolic move in the reading for relative strength.
That said, I do want to own this stock. If it can retain the increase in demand without sharing too much of it, this stock will double once it can show an actual profit on top of positive cash flows. Personally, I think I would rather write October 17 $8 puts for $0.55 or January $7 puts for about $0.70 than buy the equity outright at these prices at this time.
Being forced to purchase a like number of shares at those two strikes less premiums received like that would permit the trader to purchase shares at a net basis close to the current 50-day SMA. If the stock never comes in, well, the trader still received the premiums.
At the time of publication, Guilfoyle had no positions in any securities mentioned.
