Palantir Technologies Inc.

good afternoon i'm anna sarro from palantir's finance team and i'd like to welcome you to our second quarter 2023 earnings call we'll be discussing the results announced in our press release issued after the market closed 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 third 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 after the market closed 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 Alex for opening remarks.

Welcome to our earnings. We are at a unique period at Palantir. Through the course of the last 20 years, we built what is arguably one of the most interesting, impactful product offerings in the world, PGA Foundry, our target selection platform, Apollo. Our goal at Palantir was to be the most impactful, important software company in the world a company transforming Western institutions. And the underlying goal there was to make the West stronger and to make Palantir the most important software company in the world. In a weird way, in the last couple couple months since we launched AIP, since we had AIPCON, we have seen the way in which technologies we've built that seem to be of moderate utility were built almost in anticipation of the AI revolution, both algorithmatic and large language models. And that convergence has remade Palantir Taking Palantir away from its terminal value being it made the world better by making our institutions in the West stronger, more productive, more efficient, in some cases more deadly, to giving us the aspiration and realistic perspective of being the most valuable enterprise software company in the world. We see a market, especially in the US, which is hungry for an ability to apply AI, both large language models and algorithms, to transform our businesses. I believe this transformation will change the GDP of America and that Palantir will participate in the delta between where the GDP is now and where it will get to, powered by unique technologies that are almost exclusively being built in the United States and are being adopted more rapidly, more efficiently, with more vigor. Of course, there are headwinds. Many of the people and companies who have no product to offer and do not have the technical capabilities to build them are trying to slow down this revolution for the obvious reason that they're not participating. And these tools are accelerating innovation so that if you're not participating, you're literally standing still while everyone is accelerating. And they're no longer luxury products. in the way people thought having world-class software was, so buying Foundry, appeared to many institutions as, well, of course it's the best product, but it would require us to change how we function or change how we procure software. By the way, the large language model revolution has changed Palantir's relationship to institutions. Because we were misaligned for years and years with IT, all globally. We were misaligned with the way in which we thought an enterprise should be run. But the way in which you actually can process large language models to get more exact, more precise, more operationally valuable insights, the way you can actually write them safely into your enterprise, meaning you can control your enterprise, the way you can turn them into logic that allows you to power your enterprise both in a read-write function with governance that is mandated by law or by ethics, we provide... Those ways of working are exactly the ways we always thought one would have to work, but before the delta was insufficient. And then last not least, there's no roadmap. Palantir is the world's best at no roadmap innovation products built for a world where things disintegrate and you actually need to do things in the way they would be done in the natural state. In the natural state, you would have something like Foundry, you would have an ontology, you would have AIP. Institutions in America are going back to their natural state, a state for which we've built products, especially in the US. You see this in Palantir's numbers. So why is that? Because we've built products for the natural state of how an enterprise should work. That state is apparent to people because of the enormous power, the power to accelerate, accelerate time, change your business using large language models. And therefore, it is something which people embrace. We've now moved from being... And that product... our product, our culture fits both efficiently and in a way that's charismatic to especially U.S. commercial institutions and also government institutions that are realistically aware of the dangers of adversaries who are cunning and exceedingly competent, especially at technology. So this puts us in a remade, transformed position where we can – the aspiration of powering our most important institutions, which is clearly nowhere near done, so intelligence and defense – has gotten us to the point where I think it's indisputable that Palantir's software in that space is the most important in the world. Now, while continuing to focus on that, we can focus on, okay, but given that we've built these precursor technologies, given that our product has moved from being nascent to having thousands of users the AIP product, given that we believe that the reception to this is unlike anything we've seen in PGA, Foundry, Apollo, target selection. And given the receptivity of the market, also not to mention that we have been profitable now, we expect to be eligible for the S&P for several quarters we've been profitable, that we have over $3 billion in the bank. fulfill our new aspiration. It allows us to see in the future how we would do that, which is to simply be the most valuable enterprise software company in the world. And we are joyous for this moment. And thank you for being with us today.

For the third consecutive quarter, our company achieved gap profitability and again maintained a gap operating income in Q2. This is a testament to our steadfast focus and commitment to delivering results and impact for our partners, all while innovating against the AI opportunities ahead. Last quarter, we hosted AIPcon, which convened over 150 unique organizations as we formally launched our new AIP product offering and customers demonstrated how we're partnering with them to unlock the value of AI. For example, Jacobs Engineering highlighted how AIP is enabling them to monitor current system conditions and conduct future infrastructure planning in real time, versus the months of analysis it would have taken previously. Similarly, J.D. Power's Chief Digital and Technology Officer asserted that the advantage comes not from the AI models you can build, but rather how you apply them to the data you have and deploy it into applications. This is where true value is created for our customers and where we stand poised to help. The CEO of Novartis was recently interviewed on CNBC discussing our partnership in which we created an integrated data lake that they are now leveraging to move AI forward quickly within the company, which the CEO calls Novartis' quote, fundamental advantage over its peers. We launched AIP just 10 weeks ago and already we're seeing unprecedented inbound interest. AIP is also opening expansion conversations with our largest, longest tenured customers as the new capabilities are causing them to reimagine how they can use our software. Looking at both existing and new customers, AIP is the solution for organizations who want to wield LLMs securely in their enterprise. We remain focused on aggressively capitalizing on this momentum by driving compounding growth of AIP usage. As this fast-moving market evolves and expands, so too will we. And it's just the beginning. This increasing demand will be incremental to the results you see today. Our U.S. commercial business continues to deliver outsized results. With our rapidly growing customer count, we are seeing the beginning of the network effects in the segment. Whether at events like AIPcon, through direct customer referrals to their network, or by leaders working with us in one organization taking us with them to their next one, we expect the expansion effect to be multiplicative. At the same time, we're seeing success across many different industries. In Q2, we closed deals in U.S. commercial in roughly 30 different industries, including across pharmaceuticals, energy, consumer staples, utilities, healthcare, construction, automotive, transportation infrastructure. The list goes on and spans industries and institutions at the core of today's society. While we see the breadth of our software-spanning industries, we still have immense opportunity for growth, both through expansion within these industries and growth in our existing customer relationships. For example, we're beginning to see this growth come to fruition in both healthcare and transportation, which grew 93% and 129% year-over-year, respectively. Foundry is being used at numerous healthcare facilities to generate nurse schedules and forecast patient placements, among other applications. For example, with Foundry, HCA now generates nurse schedules in one hour each month instead of 10 to 20. Tampa General has seen a 28% reduction in patient hold times and has reduced the time spent managing patient placements by 83%, and Cleveland Clinic has been able to accept an 8.5% increase in patient transfers from other hospitals in just four months since launch. While we continue to increase our breadth and expansion across industries, we also continue to grow at our existing customers. We had over two dozen U.S. commercial customers that brought in more than $1 million in revenue each during last quarter alone. And we're seeing outsized growth from our newest customers. 54% of the U.S. commercial revenue, excluding strategic commercial contracts, is from customers that have started since the beginning of 2021, with nearly all of the year-over-year growth coming from those same customers. We expect this trend to continue. We are investing in pockets of momentum within our international commercial business, such as Japan, Korea, Canada, and the Middle East, among other targeted opportunities across the world. For example, through our go-to-market partnership, Fujitsu has seen recent success onboarding eight new large-cap household-named Japanese customers. At the same time, we are seeing AIP lead to expansion conversations with our largest, long-standing customers in Europe, all against the challenging backdrop of today's climate. On the international government side, our UK government business was particularly strong in Q2 as a result of our work with organizations such as the NHS and UK Ministry of Defence, including the Royal Navy. Within our U.S. government business, while the revenue results in Q2 are disappointing, they belie the long-term strength of our business. We remain focused on converting significant deals in the pipeline and growing existing contracts through which we are core to the government mission. In Q2, we secured a multi-year contract award from the U.S. Special Operations Command worth up to $463 million, new contract awards for the Air and Space Forces of $110 million, and conversion of Army Research Lab R&D funding to longer-term work with COCOMS, starting with CENTCOM. We believe in the criticality and meaningful impact our work is having in today's world events and its eventual monetization, as well as the exceptional user impact we deliver. At the same time, our U.S. government business can be lumpy, and we continue to expect there to be near-term uncertainty around timing of contract awards. Turning back to the overall business, we are excited about our vast opportunities in the we're already seeing that AIP will be transformational for our customers and for our business. We look forward to continuing innovating at the forefront through this revolution. Lastly, on the back of our inaugural AIPcon in Q2, we're excited to share that we're hosting two additional events, the next AIPcon on September 14th, and a new event, the Software for Government S4G Summit on September 21st, which is specifically designed for our government customers. We look forward to sharing a recap of the events with you at future calls. I'll now turn it over to Shyam.