Palantir Technologies Inc. (NYSE:PLTR) Q4 2023 Earnings Call Transcript

Palantir Technologies Inc. (NYSE:PLTR) Q4 2023 Earnings Call Transcript February 5, 2024

Palantir Technologies Inc. misses on earnings expectations. Reported EPS is $0.03961 EPS, expectations were $0.08. Palantir Technologies Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Ana Soro: Good afternoon. I’m Ana Soro from Palantir’s Finance Team, and I’d like to welcome you to our Fourth Quarter 2023 Earnings Call. We’ll be discussing the results announced in our press release issued after the market close 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 first quarter and fiscal 2024 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 Ryan to start the call.

Ryan Taylor: 2023 was a tremendous year of opportunity and growth for our company, with US commercial at the forefront, which was meaningfully driven by AIP as the product and bootcamps as the go-to-market motion. We closed out the year with $608 million in fourth quarter revenue, representing 20% year-over-year and 9% sequential growth. Our commercial business surpassed $1 billion in revenue over the last 12 months, a noteworthy milestone. And our fourth quarter commercial revenue grew 32% year-over-year. AIP and bootcamps are accelerating our business, particularly in US commercial, where fourth quarter revenue grew 70% year-over-year, evidencing a significantly expanding addressable market. In October, we set a goal of executing 500 AIP bootcamps within one year.

We have already blown that goal out of the water, having completed more than 560 bootcamps across 465 organizations to-date. We are deploying AIP to implement hundreds of real tangible use cases in production for our customers. One bootcamp attendee remarked, “What your team did in just two days was incredible. We can already think of 100 use cases for this.” While another said, “It seems there are endless solutions. It seems there’s nothing Palantir cannot do.” When combining LLMs with Foundry through AIP, the ability to deploy use cases becomes much more widely accessible, so the addressable market expands considerably. We’re seeing initial momentum as a result of that expansion, while also still being at the starting line in the journey to capture that market.

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Q&A Session

In our US commercial business, the expanding addressable market, driven by AIP, is propelling growth both through new customer acquisitions and expansions with existing customers. I’ve never before seen the level of customer enthusiasm and demand that we are currently seeing from AIP in US commercial. With regard to new customer acquisition, the expanding addressable market is reflected in the greater scale of the top of our sales funnel. And now we’re doubling down on how we’re converting bootcamps to enterprise deals. We’re already seeing evidence of bootcamps helping to significantly compress sales cycles and accelerate the rate of new customer acquisition, which rose to 22% sequentially for US commercial in Q4 versus 12% and 4% in Q3 and Q2, respectively.

And we more than doubled the number of US commercial deals with TCV of $1 million or more from the fourth quarter in 2022 to 2023. We’re also seeing a meaningful increase in our US commercial TCV on a dollar-weighted duration basis, which is up 107% year-over-year and 42% sequentially. We signed a multitude of US commercial deals last quarter. Just to name a few, we signed deals over $25 million each with one of the largest car rental companies, one of the largest telecommunication companies, and one of the largest pharmaceutical and biotechnology corporations in the world. And then, we also signed deals over $10 million each with an American consumer packaged goods holding company, an American automotive seat and electrical systems manufacturer, a comprehensive health network in the Midwest, and a large scale battery manufacturer.

In addition, we signed deals over $5 million each with an American bank holding company, a horse racing regulatory organization, one of the world’s largest equipment rental companies, and one of the largest independent non-profit cooperatives in the quick-service restaurant industry. And these are just a few of the examples. Out of these deals, we’re seeing several archetypes emerge as a result of AIP. First is the new customer who attends a bootcamp and signs an enterprise contract shortly after. For instance, an American cable television provider signed a nearly $3 million deal following cold outreach on LinkedIn that led to a five-day bootcamp, then an enterprise agreement, all in the span of last quarter. Then, there’s AIP-driven conversions of ongoing pilots.

Following a two-year prospecting effort, a large American consumer packaged goods holding company agreed to a pilot, during which AIP was also introduced, then converted in December to a five-year $19 million contract. Then, also, there’s AIP-driven expansions in key existing accounts, including one of the world’s largest telecommunication companies where we demonstrated speed to value at bootcamps by delivering new use cases on top of the existing ontology in as little as 24 hours, with the results contributing to an agreement for a multimillion-dollar expansion of our existing contract. Within our international commercial business, AIP is solidifying our long-standing partnerships with existing customers, particularly in Continental Europe, while also driving pockets of growth in select markets.

This includes the renewal of our long-standing partnership with Novartis, a five-year renewal with one of the largest European vehicle manufacturers, and a five-year renewal of our partnership with Swiss Re. In addition to bootcamps, we are deepening distribution channels to more rapidly seize opportunities in certain regions, including Japan. In Q4, we expanded and extended our partnership with Fujitsu to enable them to bring AIP and data integration capabilities to their global client base. We also signed an expansion with SOMPO Care to enable delivery of their real data platform to nursing homes and elder care facilities. Both of these reflected a culmination of months-long efforts prior to deal closing. In our government business, we are actively engaged across all theaters of crisis and conflict.

The strength of our US government business is not reflected in the fourth quarter results, which remain muted. Some of this is due to the continuing resolution and timing of large potential contract awards. But it’s also a function of the department’s pace of scaling their AI and software efforts to match the realities of modern combat, particularly with JADC2. The department is responding to great power competition by ramping up investments in America’s unique strength, software. We are focused on deploying on the battlefield and in large programs related to JADC2 combined with our rollout of Mission Manager and the First Breakfast initiatives, which is driving innovation in our engagement model with the government and the defense industrial base.

The Army has publicly indicated they anticipate down selection to a single vendor for the next phase of TITAN to occur in Q2 of 2024. We also announced the extension of our partnership with the Army to continue operating and enhancing the Army Vantage platform, which is used for data-driven operations and decision making. We will continue to onboard partners and demonstrate the value of Mission Manager during this option year to deliver on the Army’s multi-vendor ecosystem vision. On the strength of our work on the ground and our software that actually works, we expect reacceleration of our US government business in 2024. Conventional wisdom is that government acquisitions are slow, and then you need to invest in the programs that the government is buying in a two to three year acquisition cycle.

And that’s what programs like CD 1, AIDP, Vantage, and TITAN look like. But our business has also been driven by urgent acquisitions to meet emergent needs that we predicted and invested in years ahead of time. As the US confronts conflict in three theaters, and as all services seek rapid capabilities to meet those moments, we see substantial opportunity across the department. Turning to our international government business. We are incredibly honored that the NHS chose Palantir to help deliver a federated data platform, awarding us a consumption-based contract with £330 million allocated to improve patient care by bringing together the information needed to plan and deliver care while reducing administrative burden. Over the past few years, an increasing number of NHS trusts have used the software to reduce the care backlog.

For example, at Chelsea and Westminster NHS Foundation Trust, it helped bring down the in-patient waiting list by 28%, and operations canceled on the day due to missed preoperative assessments subsequently fell by half. In the fourth quarter, we also received funding from a partner nation related to our ongoing efforts in Eastern Europe, which had a substantial impact on our international government results. Recent world events and global conflicts illustrate the utmost importance of Palantir’s mission. It’s our duty to uphold our founding principles through our continued dedication to our allies in the midst of current events. We don’t take this lightly. Last month, we held our Board meeting in Tel Aviv where I saw firsthand our commitment to and support for Israel.

While there, we were proud to announce our strategic partnership to supply the Israeli Defense Ministry with technology to aid in addressing the current situation in Israel. My experience there was a humbling reminder of the role we play and the responsibility that we hold. Reflecting on 2023, we feel immense pride in the missions we are supporting and in our role shepherding our customers through the ongoing transformation of their enterprises with AIP. This ongoing transformation isn’t just limited to our customers. I’m proud of the incredible transformation of our enterprise in 2023, and I’m excited about what it will bring in 2024 as we conquer the expanding market. I’ll now turn it over to Shyam.

Shyam Sankar: Thanks, Ryan. As Ryan mentioned, the expanding addressable market, driven by AIP, is propelling growth both through new customer acquisitions and expansions with existing customers. We continue to focus on accelerating the rate of bootcamps with current and prospective customers. From customer feedback, the AI platform meets this moment like none other. AI has radically recalibrated customer expectations for software. Expectations at AIP and Foundry exceed by enabling the elegant integration of humans, software, and AI to deliver operational outcomes quickly. We are focused on the end-to-end problem of value creation, not a small narrow technical slice. Accordingly, our platforms focus on tools, not tuning on transforming business processes, not seeking iotas of insight.

AIP is the AI-powered operating system for the enterprise, not a Q&A bot, not an agent framework, not a way to dabble, but a way to deliver. At a recent two-day bootcamp with the construction, engineering and architecture company, our customer developed a production-ready use case that provided $10 million of savings. They used AIP to build an AI-powered disruption manager application that processes production disruption notifications through AIP Logic to determine what the best new production plan would be. AIP, wielding a linear optimizer as a tool, and using LLMs to parameterize and contextualize the disruption, translates the notification to a clear understanding of impact on the optimized schedule. AIP Logic and AIP Automate then rerun the optimizer to generate opportunities to respond to disruption, two days, $10 million.