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spk14: Good morning. Welcome to Palantir's third quarter 2021 earnings call. We'll be discussing the results announced in our press release, issued prior to the market open 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 2021 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 prior to market open today and in our SEC filings. We undertake no obligation to update these 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 an 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 .palantir.com. Joining me on today's call are Shom Sankar, Chief Operating Officer, Dave Glazer, Chief Financial Officer, and Kevin Kawasaki, Global Head of Business Development. 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. I'll turn the call over to Shom to get us started. Thank you, Rodney.
spk17: It was a fantastic quarter across the board. In Q3, total revenue grew 36%. Commercial revenue growth has accelerated in every quarter over the last year. From 4% in Q4 2020 to 19% in Q1 to 28% in Q2, now 37% in Q3. At this scale, acceleration like this, it's gravity defying. U.S. commercial revenue growth accelerated once again to 103% year over year. We added 34 net new customers in Q3. To put this in perspective, our commercial customer count grew by 46% sequentially. We have more than doubled our commercial customer count since the beginning of the year. We closed 54 deals of a million dollars or more, 33 of which were 5 million or more, and 18 of which were 10 million or more. Adjusted free cash flow was 119 million, a margin of 30%. Total deal value grew 50% to 3.6 billion. Commercial deal value more than doubled to 2.2 billion. Remaining performance obligations increased by 172%. In year to date, we have grown revenue 44% to over 1.1 billion. We have generated an adjusted free cash flow margin of 29% and 32% adjusted operating margin. There are so many wins this quarter. Instead of going through them customer by customer, as I usually do, I wanted to highlight three themes. One, we are seeing more traction selling into the defense industrial base as a customer. Foundry has shown that it can help in the production of the A320 of RAM pickup trucks, auto parts, PPE, and tractors. It can do it better, faster, and cheaper. And the defense industrial base is seeing that it can have the same impact on the production of fighter jets, naval ships, and land vehicles. We are excited to do more here with L3 Harris, Hunting Ingalls, and other large primes. Secondly, our work in automotive, and more generally mobility, is growing. We are adding more customers across the mobility value chain from OEMs and their suppliers all the way to EV charging companies and insurers. And lastly, our work in healthcare is exploding. The NHS, MD Anderson, 70 academic medical centers through the NIH's N3C, the Department of Veteran Affairs, and even more regional US providers means that Foundry is helping to manage over 300 million patient lives and growing. We have a very unique opportunity and a diverse footprint that we believe continues to uniquely position us to deliver on the necessary transformation in healthcare delivery, from operational excellence to complex clinical care. Cutting edge product and continued innovation and distribution drove these exceptional results in Q3. And you can really see that in the consistently accelerating commercial business. We are seeing a profound pull on Foundry in the market. As organizations digest and synthesize lessons from the shocks of COVID and subsequent events, there is a canonical spot for Foundry in the enterprise architecture that the market has synthesized. Foundry is the nervous system and the cardiovascular system of the enterprise. It is the connective tissue that connects your analytics to your operational systems. Such an architecture marries a digital twin of the enterprise with action APIs that allow you to first model and simulate and second orchestrate and execute complex cross functional transactions. As the COVID-19 crisis pulled the tide out, that's exactly what was revealed as missing. Companies needed to move beyond visibility, beyond analytical insights to having the technical infrastructure to translate that into coordinated orchestrated actions in the operations of their business. And one of the coolest places to see this working is with our Day Zero companies. These companies have enormous ambition and deeply value the step change in speed and the reduction of expenses Foundry delivers when consumed as infrastructure as a service. Wejo was able to develop market ready applications in as little as six weeks on Foundry. Sarcos is integrating half a trillion data points per month to accelerate design, maintenance and commercialization of their Ironman suits. Lilium is flying through ground and flight testing, wielding the vast data generated by every sensor streaming from the aircraft. I'd like to introduce some of our Day Zero founders to unpack this a little bit more.
spk01: These companies have a strong engineering culture and they've been able to very quickly take on the platform and make it a core part of their tech infrastructure.
spk10: I'm a third generation manufacturer. I grew up in Detroit from my earliest days was inspired by the importance of manufacturing as an industry. At Fast Radius, we believe the impact of cloud manufacturing will be as profound on the physical world as cloud computing has been in the digital world.
spk15: Wejo is igniting and leading the mobility revolution. We're locking the value of connected vehicle data and autonomous vehicle data. Houndstead Foundry supercharges our distribution to thousands and thousands of new suppliers and new solutions in industry.
spk11: Foundry unlocks the business potential of value. We found ourselves constantly trying to twist our business to fit inside someone else's perspective of how businesses work and that didn't work.
spk01: They've been using Foundry as their data operating system, so end to end from cloud hosting to data integration from different data sources through using a lot of the out of the box connectors that we have on the platform. From there, harmonizing the data using open source languages like Python, SQL, using Spark as their distributed computer engine.
spk10: We're collecting data on every part that we make today. Data about the design, data about how that part is made in our factories, data about how and when that part is moved ultimately to our customers.
spk15: Speed is our superpower. Speed to me means real-time processing of over 17 billion data points a day, the fact we've processed in real-time over 12 trillion data points.
spk11: Our business is premised upon high quality data and the understanding of that data on the part of people. Once
spk01: they have this data asset, they've been just building a number of operational applications, both for their internal operations to help supercharge that, but also for even external third-party users as part of their tech offering.
spk15: Foundry enables us to build solutions faster and unlock unique intelligence for industry. For Wejo, a partial currency was the obvious choice.
spk11: If you're not using Foundry, you better think about what your position in the company is because everybody will be using Foundry.
spk17: A big thanks to our builders who shared more about their ambition and the transformative impact of Foundry on their operations. We started this program to supercharge earlier stage companies, enabling them to create a central operating system for their data and to scale rapidly from day zero. These companies, they're not just managing their data and their operations, they are wielding them to blitz scale and win. We announced our second cohort of builders in October. There are seven companies from a diverse set of industries and we continue to partner with innovative companies across industries such as automotive, biotech, healthcare, media and more. Turning more broadly to the commercial business, the scope of our impact is expanding. Foundry as infrastructure is a big theme we are excited about. Customers are building their software on top of our platform. And now we have yet another way to power that with a major product innovation that extends the openness and flexibility of our infrastructure for developers that we're calling operational APIs or OPIs for short. This liberates the ontology to serve as a nervous system, the cardiovascular system of the enterprise, as a unified action and orchestration layer. This API tool set allows for third parties and customer developers to programmatically interact with Foundry's ontology. In this headless mode, IT can leverage the power of the ontology in all of their enterprise applications via this open architecture. What's uniquely powerful about the ontology, it's not the nouns, it's not the things in the business, it's the representation of the verbs, the actions that can be taken to those things in the business. The fact that inventory can be allocated, production can be scheduled, orders can be fulfilled. To accomplish these deceptively simple actions requires you to read and write to potentially tens of source systems transactionally. Foundry lets you orchestrate complex cross-system decisions to win and turn market disruption into your competitive glory. For example, a large industry partner is unlocking value by integrating Microsoft Power Apps with the Foundry ontology. Power Apps, through our OPIs, can affect business decisions, powering workflows, and writing data back to external operational and transactional systems like ERP, MES, warehouse management systems, and more. This is the modern operating system in action. We launched Apollo this past week as a commercial offering, enabling any software company to leverage our deployment infrastructure to take their SaaS where no SaaS has gone before. On-prem, classified clouds, air gap networks, and to the edge. Here to tell us more is Greg D'Arment, the mad scientist behind the conception and launch of Apollo.
spk13: Apollo is an orchestration engine for the enterprise, enabling continuous deployment, configuration management, and central software operations across these many cloud and on-prem environments. Apollo employs a number of different concurrent processes including version management, advanced rollout strategies, and release promotion to ensure platforms stay up to date and operational 24-7. With Apollo, you can release new capabilities, deploy them at scale, compose them into novel platforms, de-risk releases, and rapidly resolve problems as they arise. Having deployment health and continuity on a single pane of glass gives engineers a common interface to handle risk management concerns unique to each environment. Different environments have different risk tolerances when it comes to software updates. For instance, you'll want to roll out new features to canary environments first before moving those same updates to classified networks or to critical edge hardware that are harder to operate with. Apollo facilitates software stability across these different environments by using a concept called release channels. Environments can subscribe to a release channel in accordance with their individual risk tolerance and appetite for new features. Once pushed via release channel, Apollo enables the evaluation of rollouts through a powerful suite of tools to help operators understand the risks associated with each pipeline, surface problems, and ship code better. Apollo makes it possible to take the same approach to continuous delivery across different security or classification boundaries by enabling you to deploy an Apollo Hub within each network boundary. Each network hub is responsible for managing the environments on that network. This compliance aware change management enables Apollo to centrally manage services and environments across different compliance regimes, empowering seamless operations across highly regulated business environments. Apollo effectively removes the deployment environment as a constraint, enabling engineers to focus on velocity and application code. They write code once that works for all customer environments.
spk17: And we continue to push the envelope of Apollo capability by enabling streaming processing at the edge. Once again, we are building five years ahead of the market. Software shamans building technology that will meet its moment. With our latest investments, you will be able to develop streaming pipelines in Foundry that you then package up, version, and continuously deploy to edge compute infrastructure, be it a Humvee, a satellite, a 5G base station, to enable real-time processing of large amounts of data in a decentralized, efficient manner. These pipelines, they'll be versioned, upgraded, managed, and orchestrated by Apollo. Imagine you'll be able to blue-green upgrade your streaming pipelines across submarines, factory floors, 5 and 6G networks. This is a revolutionary capability that will give our customers the edge against their competition. There are two modular offerings that we've taken to market that we are really quite excited about. Carbon and emissions management and AML for crypto and fintechs. Starting with carbon and emissions management, there is a huge need to not simply account for carbon and more broadly emissions, but what are you going to do about it? -to-day, -to-month, how do you manage trade-offs between production on time and full, revenue, margin, and emissions targets? How do you understand the levers you have to pull and the implications of each lever? Do you have the ability to understand the consequences of changing a supplier or setting a different delivery routing or changing a production location on your emissions? Can you put that information into a single pane of glass, the same pane that your company uses to manage production or revenue or margin? Because until you do, emissions management will only be a source of beta for you, something that you do so that you're not left behind. But once you do, you'll be able to use it to beat your competition and win in the market. These workflows are tailor-made for Foundry and leverage our digital twin and supply chain capabilities to present a single pane of glass to view revenue, margin, production, and emissions targets. And not just see, but to manage the outcome. This is an area that we are seeing growing momentum in no small part because of the obvious charisma of Alpha of developing a competitive edge. Customers across disparate industries are building carbon-focused common operating pictures to track live emissions, to simulate emissions impacts of the changes to, for example, suppliers, to technologies and regulations, and to make real-time changes to their business. The other offering we are really excited about is Foundry for Crypto. We have found a unique fit with fast-growing crypto companies that need industrialized compliance solutions. We are leveraging our deep anti-money laundering and Know Your Customer expertise developed over years helping governments find compliance issues with the world's largest banks and helping those banks respond and harden their compliance programs. I mentioned last quarter how one of Europe's largest retail banks has deployed our AML solution in two days. Two days. The cost, speed, and performance is unmatchable. These crypto exchanges and fintech disruptors are actually technical and can easily discern what legacy banks struggle to, that legacy compliance solutions are often two or more decades behind. We believe there are no alternatives that can compete on cost, speed, and performance, and we are really excited to put more weight behind this in the market. Turning to government, we continue to advance our mission of becoming the U.S. government's central operating system as we extend our footprint across defense, health care, and civilian agencies. In the third quarter, we signed new deals with the Department of Health and Human Services, the Air Force, the NIH, and more. I'm proud to say that the Meta Constellation, which we featured in last quarter's earnings call, met its moment when called upon by UKMOD to enable noncombatant evacuation operations in Afghanistan. As a reminder, the Meta Constellation is radically changing how satellites are tasked, the latency of collection, and it's creating a fundamental link in the AI-enabled kill chain. We are orchestrating a Meta Constellation of more than 300 satellites by working with an array of commercial space companies. These companies have been deploying constellations of hyperspectral, radar, and ELINT sensors into orbit, and we are putting all that power directly into the hands of the front lines, empowering the edge. -to-end Gotham and foundry infrastructure, including Meta Constellation, provided unparalleled capability and was stood up in less than a day for UKMOD operations. In addition, Meta Constellation was also used to great effect at last month's Scarlet Dragon U.S. military exercises, where it provided timely and effective targeting information. This is all made possible because of Apollo for Edge AI. We were recently downselected by the U.S. Army to be the sole provider of the Army's Intelligence Data Fabric and Analytics Foundation for the Capability Drop II program. The Army will deploy Gotham to support intelligence workflows worldwide with a globally federated intelligence data fabric and analytics platform spanning multiple security classifications. Our work on CD2 is just one of many initiatives of which we are engaging with the Army, including CD1 and Titan, that will accelerate the decision chain and provide decisive advantage for our armed forces in the near-pure fight. We have a motivating set of customers and growing pipeline for big pursuits in 22 and beyond. And it is growing every quarter. We're not just competing for programs, our unique capabilities are creating their own opportunities. Our work in healthcare continues to expand, and we recently signed a four-year, $87 million contract with the Department of Veteran Affairs. This department serves 9 million veterans and their family members and spends nearly a quarter trillion dollars per year. After supporting them in the exigency during COVID-19 response, we won an unrestricted competition to help power their data transformation efforts. Our software is going to enable the VA to integrate data across its large IT landscape and ultimately to deliver better care and services for our veterans. It is a privilege to serve our veterans and warfighters, both on the battlefield and in their period after service. Our collaboration with the NIH continues in the fight against COVID-19. As N3C deepens its partnership with Palantir, leveraging Foundry as their research backbone, this two-year award carries a total potential value of $60 million. And the N3C data enclave represents one of the largest collections of COVID-19 health records in the world. Additionally, our work with NCATS expanded with an increase in total potential value of $24 million. Zooming out a bit, from mud to space, big picture in the government segment, we are seeing an emerging opportunity to help define the next wave of disruption. One thing, perhaps the one thing we have demonstrated to the market is that it is possible to sell software at scale to the government for programs of record where the government might have historically otherwise bought labor and services. And of course, in doing so, we have radically transformed the margin profile of these big government contracts. There is an immense opportunity in this sector to partner with existing government contractors to productize their solutions that they are delivering as services today and in doing so, to transform the EBITDA they generate against their existing revenue with our platforms. We have proven we can do this with our business and we are exploring opportunities to partner with firms that have a disruptive vision and realize that they can stand on our shoulders the 15 years and nearly $3 billion of R&D that we have done to productize and scale their own offerings. Before turning it over to Dave, I wanted to give a quick shout out to every Hobbit and just reflect on our journey as much over the last two decades as over the last year. A year ago, we gave our first results as a public company. We should be proud of those five quarters of results, but even prouder of the collective effort and passion that begot those results. We pivoted the whole company to respond to the exigent events of COVID for governments and commercial entities around the world. But of course, that happened before we went public. And we all had that question. Will we preserve the cultural essence of Palantir after the listing? Will we have the radical ability to organize and reorganize around the problem at hand while capturing the integral of our innovation? Well, in Q3, we could answer that question definitively. Yes, when the bat signal was put up in the night sky, the Motley crew of Hobbits answered the call for America and her allies. Five quarters down, at least 500 more to go. Over to you, Dave.
spk16: Thanks, Sean. I'll review our third quarter performance followed by our outlook. We had a record-breaking Q3 as continued product innovation and our ongoing investments and distribution led to accelerating customer account growth and strong free capital. We generated revenue growth of 36% in the quarter, bringing Q3 revenue to 392 million and -to-date revenue to more than 1.1 billion, up 44% versus the first nine months of last year. Our business continues to demonstrate very strong cash generation. Third quarter cash from operations was 101 million and improvement of 153 million versus the prior year period. We delivered 119 million in adjusted free cash flow in the third quarter, representing a margin of 30%. The strength of our third quarter performance brings -to-date adjusted free cash flow to 320 million, representing a free cash flow margin of 29% and a $605 million improvement from the prior year period. Third quarter adjusted operating income increased to 116 million, representing a margin of 30%, our fourth consecutive quarter with adjusted operating margin of 30%, and our total customer account through 20% quarter over quarter. Our commercial customer account increased 46% quarter over quarter and it has more than doubled since 66% to 38 million and these customers are already generating contribution margin of 36%. This compares with just 23 million in revenue and a negative 26% contribution margin for new customers over the comparable period in 2020. Drilling down into our third quarter revenue, total revenue grew 36% year over year ahead of our prior guidance of 33%. Our U.S. business continues to demonstrate strong growth with revenue increasing 45% year over year in Q3. We continue to see broad-based momentum in our commercial business. Total commercial revenue grew by a significant amount in Q3 and representing our third straight quarter of accelerating commercial revenue growth. Our investments in product and distribution continue to drive growth, particularly in the U.S. where commercial revenue increased 103% in Q3. And our international business continues to gain momentum as well, with international commercial revenue growth accelerating for the third straight quarter as economies continue to reopen and recover. Government revenue increased 34% as we signed new deals with the Air Force, HHS, and NIH and we were recently down selected by the U.S. Army to provide its intelligence data fabric and analytics solution under CD2. In the third quarter, we closed 54 deals of a million or more in total contract value, including 33 deals of 5 million or more and 18 deals of 10 million or more. Third quarter billings increased 172% year over year as we continued to improve contracting, push out or remove termination for convenience causes, and move to shorter duration billing cycles. Total remaining deal value increased 50% year over year to 3.6 billion, with commercial remaining deal value increasing 101%. Third quarter trailing 12-month revenue per customer was 7 million, down sequentially and reflecting continued acceleration in customer acquisition as we added 34 net new customers in the quarter. We continue to expect rapid expansion in our customer base moving forward as we invest in our sales teams and channel partners, and we'd expect average revenue per customer to continue to taper as a result of our growing customer count. When excluding new customers added in the quarter, average revenue per customer was 8.8 million, up 26% year over year, and we continue to generate strong growth with our largest customers. Trailing 12-month revenue per top 20 customers was 41.3 million, up 35% year over year. Next, I'll discuss our third quarter margins and expenses on an adjusted basis, which excludes stock-based compensation. Adjusted gross margin was 82%, up from 81% in the year-ago period. Contribution margin was 57%, up from 56% in the year-ago period. Third quarter income from operations, excluding stock-based compensation and related employer payroll taxes, was 116 million, representing an adjusted operating margin of 30%, or fourth consecutive quarter with adjusted operating margin at or above 30%. Third quarter adjusted expenses The
spk03: bulk of expense
spk16: growth is driven by continued investments in product development and sales to support durable, long-term growth. Marketing expenses were up 144% quarter over quarter as we continued to fuel demand generation. In the third quarter, we generated 119 million in adjusted free cash flow, representing a margin of 30%. Through the first nine months of 2021, adjusted free cash flow was 320 million, representing an improvement of 605 million versus a prior year period. We ended the third quarter with over 2.3 billion in cash and no debt. Turning to our outlook. For our Q4 revenue guidance, we expect revenue of 418 million and we expect adjusted operating margin of 22%. Our Q4 revenue guidance implies full year 2021 revenue of 1.527 billion, which represents another year of revenue growth of 40% or higher. Additionally, for the full year 2021, we are raising our annual adjusted free cash flow guidance to an excess of 400 million and increase of 100 million from our prior guidance. Continuing to execute the guidance strategy set forth by our CEO Alex Karp in our year-end 2020 earnings call with regard to long-term revenue guidance, we are providing and will continue to provide guidance of 30% or greater revenue growth for this year and the next four years at each earnings call. With that, I'll turn the call over to Roddy to open up Q&A.
spk09: Thanks Dave. We'll begin with questions from our shareholders submitted via SA. Sean, this first one's for you. Jason B and Jacob P both asked, does Palantir view any other AI companies as competitors? If so, what makes Palantir's platforms a better choice? Thank you, Jason. Thank you, Jacob. Our competition is not any other company. It's really the competition is our customers. Specifically, our customers' IT department and their desire to build their own solution. And you know what? It's not even really their fault. There's an army of consultants and cloud providers who peddle completely bogus DIY architectures that are never going to work. It took us 15 years and nearly $3 billion in development, and we continue to innovate every day. Just last week, we had a meeting with the Fortune 200 CIO who was so excited to see Foundry because he had spent the last three years trying unsuccessful to solve the same problems with the leading cloud provider. Three years. And they aren't the only ones. These are our favorite conversations because having tried and failed, the customer knows exactly how valuable it is to buy a solution that works in days at scale. But that's not really what makes us a better choice. We're a better choice because we focus exclusively on Alpha. We express their strategy. Whereas most enterprise software makes the customer more similar to the competition, our products, they are designed to make them more different, more differentiated. Great, Chom. Another one for you. Alex A. and Jeff C. ask, are you planning to invest in any cryptocurrency? Thanks, Alex and Jeff. We are super excited about Foundry for crypto. We see a unique fit with fast growing crypto companies that need industrialized compliance solutions. These are highly technical buyers and they're highly motivated disruptors. We are leveraging our deep anti-money laundering and know your customer expertise. Expertise that we developed over years, helping governments find comp...
spk03: ...and helping those banks in turn respond... ...justicide and at the banks themselves.
spk09: We think we're going to be a massive accelerant for crypto companies. We're going to give them credible AML platforms to enable them to go toe to toe and beyond with the legacy players.
spk03: Do you intend to focus on profitability in the near term or are you still focused
spk09: on expansion?
spk08: Thanks, Avi. As you see in our results, we're delivering strong growth with strong cash flow. We expect revenue growth of 40% for the full year, expecting our second year in a row of 40% for higher revenue growth. We've raised our adjusted pre-cash flow guide to an excess of $400 million for the year, the second straight quarter rating our guidance. And it applies in over $670 million year over year improvement. Stepping back, we're continuing to deliver high growth with very strong cash flow results
spk09: and
spk08: we remain focused on expansion. And so pivoting to expansion. We have more pilots today than at any time in our history. We added 34 net new customers in Q3. We
spk03: signed 54 deals... ...of Apollo. We've added
spk08: 150 sales sets this year, not to mention building the infrastructure to support them and future hires. And we're continuing to build out and invest in marketing. Still in its early days, but our marketing spend is up 144% quarter over quarter. Thanks,
spk09: Dave. Shum, another one for you. Daniel Q asks, Gotham and Foundry can be used on personal computers, tablets, and smartphones. Can Palantir's platforms be used on augmented reality and virtual reality devices? How impactful will AR, VR, and the Metaverse be for Palantir, its clients, and big data analytics? Thanks, Daniel. We have been doing augmented and virtual reality for a long time, more than a decade. We have worked on pushing mission information to smartphones in augmented reality. We have also worked on using our mobile phone to view mission plans, routes, HLZs, helicopter landing zones, points of interest, waypoints overlaid while you're on mission. We have worked on augmenting imagery and full motion video with AI detections and mission contacts real time to drive operational decision making. At a recent military exercise, our Apollo 4 Edge AI capability was used across air launch effects and unmanned aerial vehicles to send targets to fighter jets. Those targets pop up in the pilot's augmented reality heads-up display. We are at the edge. We are integrating with Edge devices from night vision goggles to heads-up displays from augmented reality and cockpit to training simulations. AI enabling the kill chain requires pushing context to the decision making edge. So we see AR and VR as an integral part of everything that we do. Great. Thanks, Sean. Kevin, one for you. Dustin R., Jackson K., and others have asked, can you talk about the opportunity for Palantir in small businesses and consumer use down the line? Thank you, Dustin. Thank you, Jackson. Our SMB offering delivers the full power of Foundry through Apollo and can be adopted in days. And we see this with Foundries for Builders and other day zero companies. Not only are companies using Foundry as their internal infrastructure, they are pioneering the use of Foundry and Apollo as a platform to build SaaS offerings and consumer software products as well. With Foundry, they are doing this faster. Companies in mobility building entire data ecosystems in Foundry for connected vehicles and autonomous vehicles. And we see this with Foundry as a new technology. A renewable energy company using Foundry not just for advanced physics models, but also using Foundry to create a software offering for their customers. A B2B software company building an ERP for construction. The founder told us that Foundry is making it possible for him to build orders of magnitude bigger and with less effort. And we've got a lot of questions about when Palantir is going to have a consumer product available. Well, something I can say is that day zero companies are building their consumer products on top of Foundry. Take companies like Chapter, whose products help enroll customers in the right Medicare plan. It's backed by Foundry and delivered through Apollo. We expect to see more of this and it's an exciting part of our journey. Great. Commercial revenue up 21% sequentially in Q3 quarter over quarter. The numbers are especially strong in the United States where the US commercial business has accelerated from 72% revenue growth rate in Q1 to 90% growth rate in Q2.
spk07: Now
spk09: 103% revenue growth in Q3. That's more than doubling year over year. And this is driven by continued product innovation and more efficiencies in distribution. The acquisition of new customers is accelerating. We mentioned 10 new customers in Q1, 20 in Q2, 34 in Q3, more than tripling. Commercial revenue has accelerated in every quarter over the last year from 4% in Q4 of last year, 19 in Q1, 28 in Q2, and 37 in Q3. Total commercial deal value is up 2.2 billion. That's more than doubling since last year. Our RPO remaining performance obligation has increased 172% to 874 million. And account coverage and distribution channels bring us to great companies like Apache, a large hospital system in Florida, a large health insurance provider in the United States, Kinder Morgan, Vallejo, Dave and Buster's, just to name a few. Great. Thanks, Kevin. Sean, this next one is for you. Marcellus asks, what is it that will keep Palantir ahead of the competition for the next 10 years? Thanks, Marcellus. Well, that's the trillion dollar question. Of course, trillion dollars. That's well short of our ambition over the next 10 years. We always have and will always continue to focus on building cutting edge product that the world needs, anticipating the future, operating with presence. We are software shamans, building before the need is obvious, always ready to meet its moment, as was true with IEDs in Iraq and Afghanistan, the global financial crisis, ISIS attacks in Europe, or more recently with COVID supply chain disruptions in Afghan noncombatant evacuation operations. With Gotham, we are focused on continuing to build the AI enabled kill chain across every sensor and every shooter, covering all domains from space to much. Our platforms are modern operating systems for the enterprise. With Foundry, we are creating the nervous system and the cardiovascular system of the enterprise. With OPIs, you can expose complex cross-system actions in a repeatable manner that enables you to go from sensing business disruptions before they even happen to changing your business to seamlessly respond, organizing and reorganizing your business around reality at pace. And we just launched Apollo commercial this past week. We have already used Apollo to accomplish so much in the world, from edge AI in space, real-time comms with weapon systems to running our global software delivery free. Taking Gotham and Foundry to where no SAS has gone before. And today I talked about Apollo for streaming. It feels like every quarter we are creating things that we could not have conceived of ourselves just a couple quarters before. Central to our value creation engine is that we are focused on solving hard problems. We are focused on creating fundamental value. Most software companies make software that's easy to sell and over time that corrupts the value of the product. We make software that is profoundly valuable, cutting edge product, and then innovate on distribution. Thanks, Sean. Dave, one for you. James K. and Rafael W. ask, the company's chief executive officer, Alex Karp, has been selling a large amount of shares this year. Why has he been selling so much and will these sales continue?
spk08: James, Rafael, thank you for the questions. As we mentioned on prior earnings calls, Karp was granted options a decade ago, which were set to expire on December 3rd of this year. Specifically, as of our direct listing, he held 68.9 million options that were set to expire this December. The taxes from the exercise of the options are more than half a billion dollars. And so he's been selling shares along the way to generate funds to pay those taxes. Of his 68.9 million expiring options, he has now exercised 94% of the total. Of the remaining 6%, roughly half, or 1.9 million of them will be sold by the expiration date. The other half exercised, and as a result, all the near-term expiring options will have been exercised.
spk09: Thanks, Dave. Sean, one for you. Antonio asks, being a nurse myself, I see great potential for Palantir. In these pandemic times, health care workers of the new defense, does Palantir have a plan to create a product that can help health care institutions on how to assign us? Thank you, Antonio, and thank you for all that you and your fellow health care workers have done for us over the pandemic. My mother is a nurse, and I've been living this alongside so many, not just in the U.S., but all over the world. I made reference in my earlier remarks to the substantial growth of our health care work. The NHS, MD Anderson, 70 academic medical centers through the NIH's N3C, the VA, Sombos Nursing
spk03: Home Facilities in Japan. Unique and diverse footprint that I believe
spk09: positions us to deliver on the necessary transformation in health care. And yes, we are absolutely doing the work at the cutting edge of both research and complex clinical care, but we are also doing the work on operational excellence. The world over, COVID has caused or severely exacerbated procedure backlogs. There are people that need care, life-saving care, waiting to be seen. And at the same time, many facilities have spare capacity. There's a complex operational problem in maximizing the utilization of scarce health care capacity to save lives. But the challenge is multifaceted staffing, operating theater management, patient management, demand management, and more. But as you highlight, one of the most acute challenges, and we are engaged on it in the U.S. and Japan, is the nursing shortage and staffing optimization. I was recently visiting one of our hospital customers, sitting with their nurses, watching. They were being trained on boundary for the first time. You could feel the excitement. They were buzzing at how they could transform patient scheduling, care delivery, and ultimately how it was going to empower them to do so much more, so much faster. To me, it was like what it felt like when I was watching Marines being trained on Palantir for the first time in Kandahar a decade or more ago. They were so excited, so generative. The Iron Man suit, it fits them like a glove, as these modern-day superheroes save our friends and our families. Great. Sean, one more for you before we open up the call. Erin and Avi ask, what is the future of Palantir's public sector business, including if there are any billion-dollar contracts like the latest U.S. Army wins in the pipeline? Thank you, Erin and Avi. We are so excited about the government business. It is where our cutting-edge product is meeting its moment. It was an incredibly strong quarter. The wins on CD2, a truly massive program of record, at the U.S. Navy, Indo-Pacom, the U.K. and Australian navies, at the VA with a four-year, $87 million contract, at the NIH, $60 million two-year contract deals at NHS, PEPFAR, FDA, Department of Justice, Department of Energy, the State Department, and more. CD2 is a substantial win. It builds on another program of record that we already won, CD1. It was an enormous amount of work. We're so proud of the outcome. And we believe that CD1 and CD2 together uniquely positions us for future U.S. Army programs of record. But that's just the Army. We have incredible opportunities at Space Force and at the Air Force, places that we are investing a lot. We are building on Project Brown Heron in the Air Force and at Warp Corps at the Space Force. Warp Corps is the space domain awareness platform, a very unique position. We have many independent opportunities to extend the work that we have done under USDA and NGA into the combatant commands themselves to directly take on near-peer threats and deter the enemy, maintaining dominance. Beyond defense, we see immense opportunities in our pipeline across health, from the NHS and the VA to the NIH and HHS. We see new opportunities within the defense industrial base in its own right as customers to help them with their own manufacturing, but also in being a strategic partner, helping them capture new revenue streams by AI enabling their hardware platforms. This pipeline and aggregate is big and building. And all this is happening despite the macro headwinds that we've all heard about across government services, COVID's impact on delaying the pace of awards. And we aren't just competing for known opportunities. Our capabilities are so unique, we are creating our own opportunities. The macro factors here are big, big tailwinds for us. Clear consensus on the threat from an aggressive CCP, not only in terms of impacts on demand in the US, but also Japan, Korea, Australia, the UK, the West and her allies broadly. The infrastructure bill and our fit on the programs and awards that are being driven there. Carbon emissions management. ED charging infrastructure, building on our incredible commercial momentum in the mobility value chain. Delivery of major projects on time and on budget and more broadly the opportunity for SIs and primes on infrastructure projects to partner with Palantir to develop their own high margin software streams in place of historically low margin non recurring services on our platform. We are just at the beginning of big secular trends here. Trends that we anticipated and have invested in for years. We are uniquely positioned, cutting edge product, ready to meet its moment. Thanks, Sean. Operator, we'll open up the call for Q&A.
spk12: To ask a question via the phone, you'll need to press star 1 in your telephone. To withdraw your question, press the pound key. Your first question will come from Brent Phil with Jeffreys. Please proceed.
spk07: Good morning. On RPO, you had a really nice improvement in backlog. I'm curious if you could just comment on what's driving that backlog. And maybe as a follow up for Sean, just as you look at the go to market on commercial, can you give us an update on direct sales, build out and partnership opportunities there? Thanks.
spk09: Hey, Brent. Thanks for the question. Great Q3. We're having a great year. With our Q4 guide, we're expecting to do 40% revenue growth for the full year. And this is driven by continued product innovation, also more efficiencies in distribution like account based sales, distribution channels. And we're very excited about the progress of our account based sales team. We've hired about 150 people so far this year. A lot of that has been focused in the U.S. market where we first started. And many are just getting started, but you can see some of the activity. We mentioned we've more than doubled our commercial customer count this year, and those numbers are accelerating. Growing our installation base is really great because we expand in places where we are. If you look at our top 20 customers, average over 40 million a year revenue, that's up 35% year over year. Our average revenue per customer was 8.8 million when excluding new customers. So a lot of room to expand as we expand our customer base. Another big driver, U.S. commercial revenue, where we've seen acceleration. We mentioned up to 103% growth doubling in Q3. Our forward indicators also really strong. Total deal value up 50% to 3.6 billion. Total deal value in commercial doubled to 2.2 billion. Our third straight quarter of accelerating commercial revenue. And just to wrap up, commercial revenue up 21% sequentially quarter over quarter.
spk12: Your next question will come from the line of Keith Weiss from Morgan Stanley. Please proceed.
spk05: Thank you for taking the questions. This is Keith Weiss. There was a really nice performance across commercial, and government was strong as well. I just sort of, with the new administration sort of taking in place, in terms of the velocity of those deals and getting those deal signs, any change that you've seen thus far in the new administration versus the prior admin?
spk09: No meaningful change there. I mean, the government is moving at pace. I think what's really out there is the near-peer threat, and that's become the real pace-setter for not only the U.S., but allied countries as well. And so there's a lot of focus, a lot of speed. We've worked under four administrations and have seen consistent continuity across that.
spk12: Your next question will come from the line of Rishi Deloria from RBC Capital Markets. Please proceed with your question.
spk04: Wonderful. Thanks so much for taking my questions. And nice to see continued strength on the commercial side. Just maybe high level, can you help us understand how the land and expand and -to-market motion on the commercial side has differed from government in your experience and especially so far this year? And maybe can you talk to us a little bit about how involved you are at the pilot phase and beyond, and maybe what that time of value looks like? Thanks.
spk09: Great. Yeah, you know, we talked earlier about modules. That was a big thing a year ago that really changed how we went to market. The modules have been very successful. Just this quarter we discussed the carbon emissions management module and Foundry for Crypto. But if we go back a little bit, what we can see is the real success of software-defined data integration, the SCDI and ERP Suite modules, where we've been able to really use these modules to meet our customers where they are, predictable price points. It also enables us to really scale channels and enable our partners to help us go to market. So predictable price points, clear problems to go after. And in doing so, we at this point have developed enough success to see that after solving a single problem in an understandable way, it really sets us up to better expand and land the full proposition of Foundry and expand the contract over time there. So we really have a lot of faith in the module strategy, both as a direct sales force augmentation and channel partners in commercial. On the government side, we have seen similar success. We actually won a significant program on a module that is based on readiness. And so we were able to compete for a multi-million dollar program with less than a day worth of effort. Of course, we love how it transforms the economics of our business, but I think the speed to value for customers is really what sets it apart.
spk12: Your next question will come from the line of Brad Zelnick from Deutsche Bank. Please proceed. Hello, Brad Zelnick. Your line is open. Please proceed with your question. And we will move on to the next question in queue. Your next question is from Mark Cash from Morningstar. Please proceed with your question.
spk02: Hi, good morning. Thanks for the question. It's kind of a multi-part one. So you talked about the recently launched Foundry module around crypto. And I'm just wondering, there wasn't really a press release around that. The modules kind of appeared. So finding new use cases is great, but I was curious if you could talk about the size of the crypto opportunity, but then also the strategy of releasing modules. Is it finding lead customers and commercializing it quietly, or really does it depend on the market size and the interest? Thank you.
spk09: Thanks, Mark. Yeah, the focus on modules is to really meet the customer where they are. Where do we see repeatable challenges that we can create an offering that is very fast to deploy? Last quarter I talked about how we deployed AML at the largest European retail bank in less than two days. This gives you kind of an indicative sense of the performance. You know, we were able to integrate with complicated ERP solutions and unlock that data for customers in hours. So we start with cutting edge product. And then where we see the module, we invest in it because it gives us innovative distribution. It enables us both from a direct Salesforce perspective, but also channel partners and to be really successful in penetrating the market.
spk12: And we do have one final question. We have time for one final question, which is from Ethan Brooks from Wolf Research. Please proceed with your question.
spk06: Hey, guys. This is Alex Zucan from Wolf Research. I just had maybe two quick numbers questions. Roughly, if we think about Q4 guidance, how much revenue do you expect to come from commercial contracts and investment arrangements in the quarter? And then if it's possible to get, what percentage of the total RPO would be recognized over the next 12 months?
spk09: So on the investment program, we're really excited about the opportunity here. Just to repeat some numbers and get some context, with our Q4 guide, we're expecting 40% revenue growth for the year in 2021. That's over one and a half billion for the year. We raised our cash flow guidance to an excess of 400 million. We've invested about 150 million through Q3. Total revenue from the program is about 2% of revenue for the year through Q3. And there's about 640 million of total revenue long term from this program
spk08: at
spk09: the end of the quarter.
spk12: This concludes today's conference call. Thank you for participating. You may now disconnect.
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