Palantir Technologies Inc. (NYSE:PLTR) Q3 2023 Earnings Call Transcript

Palantir Technologies Inc. (NYSE:PLTR) Q3 2023 Earnings Call Transcript November 2, 2023

Palantir Technologies Inc. beats earnings expectations. Reported EPS is $0.07, expectations were $0.06.

Ana Soro: Good morning. I’m Ana Soro from Palantir’s finance team, and I’d like to welcome you to our Third Quarter 2023 Earnings Call. We’ll be discussing the results announced in our press release issued before the market opened and posted on our Investor Relations website. During the call, we will make statements regarding our business that may be considered forward-looking within applicable securities laws, including statements regarding our fourth quarter and fiscal 2023 results. Management’s expectations for our future financial and operational performance and other statements regarding our plans, prospects and expectations. These statements are not promises or guarantees and are subject to risks and uncertainties, which could cause them to differ materially from actual results.

Information concerning those risks is available in our earnings press release distributed before the market opened today, and in our SEC filings. We undertake no obligation to update forward-looking statements, except as required by law. Further, during the course of today’s call, we will refer to certain adjusted financial measures. These non-GAAP financial measures should be considered in addition to, not as a substitute for, or in isolation from GAAP measures. Additional information about these non-GAAP measures, including reconciliation of non-GAAP to comparable GAAP measures, is included in our press release and investor presentation provided today. Our press release, investor presentation and SEC filings are available on our Investor Relations website at investors.palantir.com.

Over the course of the call, we will refer to various growth rates when discussing our business. These rates reflect year-over-year comparisons unless otherwise stated. Joining me on today’s call are Alex Karp, Chief Executive Officer; Shyam Sankar, Chief Technology Officer; Dave Glazer, Chief Financial Officer; and Ryan Taylor, Chief Revenue Officer and Chief Legal Officer. I’ll now turn it over to Ryan to start the call.

Ryan Taylor: We are pleased to report that our company achieved GAAP profitability for the fourth consecutive quarter, and we continue to drive strong results across our company. In Q3, we closed 80 deals of $1 million or more across 30 industries, 29 deals of $5 million or more across 16 industries, and 12 deals of $10 million or more across 11 industries. Our U.S. commercial business accelerated last quarter, growing 33% year-over-year. Excluding strategic commercial contracts, it grew 52% year-over-year and 19% sequentially, and three-fourths of our quarter-over-quarter growth is from customers that started with us in 2023. Our U.S. commercial customer count rose 12% quarter-over-quarter and is now ten-fold what it was just three years ago.

Deal count for our U.S. commercial business is 2.4x what it was in Q3 of last year and U.S. commercial TCV closed at $252 million, up 55% year-over-year on a dollar-weighted duration basis. We’re also seeing the acceleration of larger deals and shorter times to conversion and expansion, including a multiyear deal in excess of $40 million with one of the largest home construction companies in the U.S. to start up pilot and converted all within Q3. This growth is in part due to AIP’s continued transformation of the way we partner with and deliver value for our customers, and we expect AIP’s impact to continue to intensify. The rapid expansion of AIP at both our existing and new customers, and the impact it is having on their operations is nothing short of remarkable.

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Q&A Session

In the last quarter, we reoriented our go-to-market approach around AIP boot camps, which has allowed us to deliver real workflows on actual customer data in five days or less versus our traditional pilots, which generally take one to three months. We’re seeing different stakeholders at the table, including tangible engagement from IT, a quicker time to value for customers, a wider range of organizations partnering with us and the ability to have multi-organization boot camps. Early indications point to vast improvements on our unit economics from initial contact to customer conversion, all while accelerating new customer negotiations. Boot camps are also driving contract expansions. We’re on track to conduct boot camps for more than 140 organizations by the end of November, nearly half of those are taking place this month alone, which is more than the number of U.S. commercial pilots we conducted all of last year.

In these boot camps, our customers attack problems that have immediate impact and learn how to deploy AI into their unique operating environment in a matter of days. Our customers’ results speak for themselves. One attendee said that we achieved more in one day for them with AIP than one of the top three hyperscalers had accomplished over the last four months, and then presented their work with Palantir instead of the hyperscaler to the CEO the very next day. Another attendee said, we basically built 10x faster with 3x less resources, and yet another claimed, we have built in a day what they wouldn’t be able to get internally in months, and then it probably still wouldn’t meet the requirements. AIP is being used for a multitude of workflows at customers across the globe.

Just a few examples include the following: our partners in the health care space, including Tampa General, HCA and Cleveland Clinic, are using AIP for dynamic scheduling, turning software from a place of data entry into a provider of operating leverage. Aramark is using AI to procure more efficiently, generating custom proactive negotiating strategies. Panasonic North America is using AIP to scale its workforce and accelerate how quickly new engineers can level up. Eaton is using AIP to more efficiently deploy fixes by identifying available materials across different plants or assembly patterns. Carrefour Brazil is increasing the fill rate of online grocery orders with higher accuracy. The energy and engagement around AIP is unlike anything we’ve ever seen.

The potential market for AIP and the trajectory of possible AIP growth for our business is massive. We almost tripled the number of AIP users last quarter and nearly 300 distinct organizations have used AIP since our launch just five months ago. We will continue investing meaningfully in boot camps as our go-to-market strategy for AIP. Through all of this, we never forget that we are a company built on a foundation of counterterrorism. In response to recent world events, we continue to be dedicated to our founding principles of supporting the most important missions in the world, including providing intelligence and defense capabilities to global allies. In that vein, our impact has never been more compelling. We have the products now that the world needs.

We expect our U.S. government business to reaccelerate beyond the current growth rate of 10% year-over-year, given increasing demand for those products to support our allies around the world. While we continue to expect near-term uncertainty given budgetary environments, we were encouraged by the pickup in activity at the end of the U.S. government fiscal year, and we feel well positioned for long-term growth through our evolving strategy, which Sean will speak to further. Just several weeks ago, it was announced that the Army awarded us a new contract worth up to $250 million over three years to provide additional capabilities in support of COCOMs, armed services, intelligence community and special forces as they continue to test, utilize and scale AI and ML capabilities.

As we enter the final months of the year, we are steadfast in our focus on AI and unlocking the impact it can have for our customers. We look forward to continued business momentum through year-end and are excited for the opportunities to continue delivering unmatched impact for our customers into the new year. I’ll now turn it over to Shyam.

Shyam Sankar: Thanks, Ryan. At AIPCon 2, this past September, I unpack some of the foundational engineering challenges that we’ve solved to deploy LLMs that are anchored in your data on your private network and to safely orchestrate your enterprise with tools, actions and other AI models. The core concept of the KLLM kernel enables you to reliably harness LLMs for critical workflows to manage the risks in the underlying models changing out from underneath you and to create the shortest and safest path to put your own fine-tuned models into production. Why use one LLM when you can use K? The art is in synthesizing the outputs from this committee of experts to create a rich topology of answers to the prompt. LLMs are statistics, not calculus.

It’s more like predicting the weather than predicting an eclipse. And that’s why we’re focused on proof, not proofs of concept. AIP gives our customers the infrastructure they actually need to ship production use cases quickly. This difference has been so profound that we shifted the entire commercial organization to focus on one to five-day long customer boot camps, where organizations exit with a scalable use case on their actual data that they built for themselves. Customers leave so excited with this definite optimistic view of what can be accomplished, and how they’ll drive transformation in their organizations. And these boot camps have created enormous tailwinds with IT attendees for two reasons. First, we’re defining the most advanced and valuable reference architecture for GenAI in the enterprise.

And second, with the release of virtual tables and foundry, IT’s primary objection of data duplication is eliminated. We’re running more boot camps per month than we had U.S. commercial pilots all last year. These boot camps really allow the customer to experience three magic moments for themselves. First, that you really can’t use LLMs without tools. That elegant integration of algorithmic reasoning to unlock the full potential. Second, that the object, in other words, the rich representation of your enterprise and its state and not chat is the prompt, or said differently, the Boot Camp experience enables them to transcend chat. And finally, the power of live integration of expert feedback through the AIP infrastructure to efficiently generate adaptive models.

At the end of the boot camp, customers say things like, once you see it, you can’t unsee it. As Ryan mentioned, it’s common to hear attendees express that they could do in days what they couldn’t previously with other AI technologies and months. In September, we also launched Palantir Government Web Services to expand Palantir’s mission by supporting and growing today’s nascent but inspiring defense tech ecosystem. Through Palantir GWS, we’re providing emerging and existing companies in the defense industrial base with the enabling software to quickly operationalize their mission-critical capabilities at scale, all aimed at minimizing the value of death and bringing the best of America’s greatest advantage software to the fight. FedStart and Apollo are the first offerings in GWS.

FedStarts platform accreditation as a service offering radically compresses the timeline and cost of unlocking IL-5 markets and beyond. Apollo’s autonomous software delivery platform is the most technically mature and sophisticated approach to continuously delivering complex modern software to the thousands of edge environments required to deter and defeat threats in the Pacific. FedStart customers like CalypsoAI and PrimerAI and Apollo customers like Lockheed shared their acceleration journeys at our software for government conference hosted in our DC offices in September. The reaction to Palantir GWS has been amazing. VCs, defense tech entrepreneurs and government PMs are responding to the investments in a big tent ecosystem and the efficiency and scale that we’re providing.

We also launched our mixed reality service and immersive C2, an application that was built on the mixed reality service at the Army’s AUSA Conference in October. It was met with rave reviews. Our immersive C2 application showed how command and control could be done on the move in the back of a vehicle, leveraging mixed-reality headsets built on GWS infrastructure. And our mixed reality service will mean that any application that builds on or integrates with GWS can instantly enable their own mixed reality offering. Finally, our products could not be playing a more central role for real-world events. It’s incredibly rewarding to see the products that we’ve built over the last 20 years meet their moments, often in new and impactful ways. From MetaConstellation, which is enabling tactical overhead imagery in the field, to guide for mission planning, to even foundry for complex video imagery and audio analysis and automation.