Good morning. Welcome to Palantir's Fourth Quarter 2021 Earnings Video Conference. We'll be discussing the results announced in our press release and related materials issued prior to the market open and posted on our Investor Relations website. This morning, 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 2022 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 forward-looking statements, except as required by law. Further, during the course of today's earnings video conference, 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.

Welcome to our earnings call from Denver. This is my first time leading the call. I'll start with a few opening remarks before we move on to audience questions. When Palantir started, many thought data was worthless and that software was a luxury we would not succeed with. It’s fascinating to see how perceptions of software have changed drastically from being viewed as an optional tool to becoming the essential differentiator in business today. The challenge now is measuring the impact of software—how to determine its effectiveness, value, and growth potential. The tools we used in the past for measurement may not be applicable now. This industry is still developing and is predominantly located in a small area of the United States, which is quite unique. America excels in enterprise software, and at Palantir, we believe we are not only the best at creating it but also at understanding the relevant software innovations today, even when they come from nontraditional companies with unconventional leaders. I won't take too much time with opening remarks because I believe if someone talks too long or uses a lot of scripted comments, it can feel monotonous. Our legal and investor relations teams keep me in check to ensure I stay engaging. Instead of lengthy prepared comments, let's focus on an interesting chart we shared. While some of you may have seen it, others might not have. This visual represents our journey and serves as a metaphor for all software companies. We were pioneers in data exploration and analytic tools that are critical for national security. However, because these solutions were created in 2004 and introduced in 2008, we faced challenges adapting to current demands, which prioritize operational software rather than just data exploration. The chart highlights cohort analysis, showing the inception of Foundry alongside the decline of older software products and a remarkable growth trajectory, reflecting around 100% year-on-year growth. Importantly, this growth stems from a strong base, as small figures can increase quickly even with weaker software, while substantial figures can struggle without solid products, particularly since our sales team is still in its early stages with only 25 experienced software salespeople. The compound annual growth rate for us is impressive, exceeding 150%, which is noteworthy considering we have been in this space for over 15 years. Typically, software companies experience significant declines, but we are distinct in our ability to continuously develop transformative software throughout this duration. Most companies lack the combination of distribution, product, and innovation that we possess. Looking at the next chart for the U.S. Government, a similar trend emerges since the launch of Foundry. While there is much qualitative information to discuss, the key takeaway is that these trends align with future growth programs for the U.S. Government. It's essential to identify what will be needed in a world where threats are increasingly recognized. With that, I think we should move forward to the questions.

Great. Thanks, Alex. Our first question is from Brent Thill with Jefferies.

Thanks. Good morning, Alex. Can you share your overall perspective on what needs to be done with the sales team to ensure proper growth? Additionally, what are your capacity plans for 2022?

It would have been great to see you. Regarding your question about how we can enhance our sales force this year and next, there are a couple of aspects to address. First, we need to examine what is currently driving Palantir's growth and how we can expedite that process. My goal for this call and future discussions is to clarify what I believe is happening at Palantir. We’re experiencing a situation reminiscent of Silicon Valley's earlier days when companies created desirable products and transitioned from government to commercial markets. This shift is progressing well. Even after accounting for SPAC-related growth, the organic growth rate in commercial last year was just below 80%, around 76% to 77%. As for our net dollar retention figures, which many financial experts are interested in, it's performing exceptionally well, exceeding 150. We have Glazer here who can provide additional insights, but it's approximately in that range. One aspect we lack is a more mature sales force, which some might view negatively. However, this small team has resulted in strong net dollar retention because, unlike many companies that have a large number of salespeople seeking to expand client deployments, that's not the case at Palantir. Here, our Foundry product largely drives our sales, and we believe we can achieve significant improvements by adding more salespeople. Currently, we have about 150, and we're aggressively looking to hire more across Palantir. However, our focus remains on our ability to develop cutting-edge products. We plan to add around 200 employees. It's important to note that hiring and effectively utilizing these hires are different challenges. As we move forward, we need to determine the best way to leverage our sales team to capitalize on the value generated by our products. We are in the early stages of this process and are eager to learn from other companies as we navigate it over the next few years. This year, the main driver for revenue in U.S. commercial will likely stem from how IT organizations are increasingly requesting what Foundry offers, often without explicitly naming it. Many CEOs assume such solutions are available, yet there is no other product that effectively transitions from a traditional data warehouse setup to addressing specific business challenges in a unique way like Foundry does. While it’s still early to predict the exact impact, if we execute this correctly, we could see even higher growth than we are experiencing, which is already solid. We have doubled our U.S. commercial business from 50 to 100, then 200, and I anticipate we will double it again this year. While uncertainties remain, we are actively working on this. Outside the U.S., the situation is more complex. Financial analysts often normalize data, excluding inorganic elements, so when doing that, it's also crucial to consider the impact of COVID-19 in Europe. Last year, Europe grew by about 9%, which is roughly inline with inflation, but that growth was hindered. We are taking steps to facilitate a transition from the U.S. government to U.S. commercial sectors and then to Europe, leveraging some highly capable salespeople from top companies who can help us achieve this. We can approach this in two ways. One is our commitment to aggressively expand in the U.S. and focus our current sales hires on that objective. The second, longer-term vision involves capitalizing on the desire for a return to the earlier dynamics of Silicon Valley, where the government-to-commercial transition can replicate globally, with a lag effect. For us to achieve a 30% overall growth, everything outside of Europe needs to grow by 38%. Therefore, enhancing Europe’s performance, aligning it with the transition from America, and adopting a more conventional sales approach are our key goals for this year, with expectations of seeing significant results next year.

And just a quick follow up on the government. I know you had a tough comp. It did decelerate pretty materially in Q1 in terms of the growth. Can you give us your perspective on what's happening on the government side?

Well, there are a couple of things that are happening there. So if you looked at this from a scientific perspective, you had a time series that’s 15 years; the first thing you would do is say, okay, what's happening in that time series over the 15 years? What you see in U.S. government is a compounded growth of 30%, but the positive is that U.S. government is reliable. The sums are big. The quality of the revenue is very high. Essentially, there are a number of problems, but the biggest problem is barrier to entry, which we've clearly solved and then rebarriers to entry, which we've solved or are solving; that’s going very well. The second one is lumpiness. That lumpiness still exists, and in some ways, it's worse because to get the integral to grow, you need these massive deals. We also have small deals, but the fact that we are on the biggest, most important parts of the U.S. government on our software is critical. So there’s really a twofold answer to your question. One, what will happen this year? Is there deceleration in actual one over a long time series? The answer is clearly no. But then the question is, if the baseline is 30, how does it get to where we want it, which was like the beginning of last year? The way that happens is the deals we’re already positioned to win actually close. Then you get into the granularity of what will happen in the U.S. government, who gets the deals if there's no new budget. There's a lot of granularity there, which we should probably do a better job of sharing. The short answer is, it’s like huge chairs get pulled first; the people who are trying to enter the market first, last are the new startups, totally screwed. The people who are not sitting on crucial programs, partially screwed. The people that have software or products that are useful in the past but have the right connections are probably. Another version of this is if you just look at that chart, I showed you with the CAGR on Foundry, these are the most important programs for a dangerous world. I can’t go into all the details, but we used to debate with people, especially my academic friends if the world was dangerous. The danger of the world being clear and present to the U.S. government is very protective; it doesn't guarantee when this actual integral behaves, but it makes it much more likely that it will happen here and positively affect our revenue which is another reason why I suspect that we will do well.

Great. Thanks, Brent. Our next question comes from Palantir shareholder, Chase P.

Yes. First and foremost, congratulations on all the hard work. It seems like you guys have a great team and are executing really well. From a retail investor perspective, the most negative sentiment I hear regarding Palantir is in regards to the dilution of shares outstanding over the past 12 to 18 months and primarily in relation to stock-based compensation that's occurred. Other than the remaining shares to be invested that have already been announced, can we expect further dilution in share offerings going forward? Or is it kind of reasonable to assume that the majority of this was from the IPO process and sort of a one-time event for the company? Once again, thanks, and congratulations on all the hard work and business developments.

Thank you. I truly appreciate our investors for their support and trust in us. To simplify, there are concerns about stock-based compensation and dilution. However, the dilution is minimal, around $9 million. I don’t want to downplay it, but it's important to understand that Palantir's success isn't just a product of the direct public offering; it's due to our commitment to building our products. We weren't anticipating a DPO right before it happened. Many companies tailor their offerings to please software analysts rather than their actual clients. Our focus is on serving our clients directly. We're exploring ways to present our data that is accessible to outside observers like analysts, allowing for better insights into our performance. Our primary mission has been to support U.S. military efforts while also benefiting humanity, especially in the West. As a result, our strategic choices weren't influenced by typical market trends or hedge fund expectations. We are creating a system that normalizes our data presentation on future calls, ensuring it remains comprehensible while adhering to our original goals. Our alignment with our clients is crucial to our survival, even with a developing sales force. We can achieve substantial growth together. Regarding stock-based compensation, we will see a normalization in our approach in the next 18 months to two years, aligning more closely with industry standards for software companies. Our aim is to ensure GAAP profitability without disregarding compensation when necessary. We are in a solid financial position with no debt and $2.3 billion on our books, which has prepared us well for challenging times. Such challenges create opportunities for strong internal finances, leading to GAAP profits. To achieve this, it's essential that our stock-based compensation aligns with our investors' interests. Long-term value relies on ensuring our technology and business fundamentals support sustainable growth, turning free cash flow into GAAP profitability. This is a top priority for us, as it impacts both our investors' interests and the overall health of our company, which we value greatly.

Thank you, Chase. Our next question is from Keith Weiss with Morgan Stanley.

In New York, I have two questions. First, I'd like to understand the product roadmap moving forward, Alex. From our perspective, you have effectively modularized the platform, making it more suitable for commercial enterprises, which seems to be reflected in customer adoption. Moving forward, will there be more efforts in this area? Are you planning to create more prebuilt solutions that directly target these opportunities and productize them? That could be an interesting direction for your products. Secondly, regarding investments for growth in 2022, could you provide some insight into the nature of these investments? Are they focused on hiring sales staff or deploying engineers? How should we view the allocation of these funds?

Thank you for your question. I believe there is a strong connection between the two topics. Our main focus for growth investment lies in our product, and we are undertaking several initiatives in this area. Generally speaking, we aim to make our product more modular. Recently, our relationship with IT has shifted from adversarial to collaborative. Previously, we faced resistance as IT believed Foundry was a threat to their role. Last year, the average sale price for Palantir Foundry was approximately $6.5 million, which many IT professionals find large; they prefer a smaller consumption model. Instead of opposing them, we see it as beneficial to safely integrate our product into their workflow. Currently, we recognize that customers are paying heavily for consumption and compute, which is similar to the costs of gas and oil exploration, but what they truly want is a fully utilized product. Think of it like driving a car, where the final product incorporates various materials and chemicals. We plan to create both modules reflective of Foundry and new ones in areas we comprehend and anticipate development in, ensuring that these elements work both independently and cohesively. We envision that future computing won't just be computational; it will be packaged as a product. This is the direction we are taking with Foundry. The main obstacle to Palantir has always been internal resistance within the IT framework, not a shortage of sales force. We intend to provide them with what they desire and cultivate an ecosystem around it. We’re attracting former employees who are well aware of how valuable our returners are. Few companies of our stature manage to bring back former staff. Their return highlights the intriguing nature of our work. One area we have struggled with is fully recognizing the value of our past efforts; most products delivered were developed seven years ago, and we did not effectively capture that value, partly due to our previous adversarial approach to IT. We will not make that mistake again. In the Americas, we are assembling a specialized sales force, which may take longer to establish as we are actively building it. In Europe, we're focusing on specialized strategies; if we analyze the raw data, our investments are largely directed towards hiring top-tier salespeople and acquiring the best tech engineers globally, as we know how to attract and retain them, which sets us apart.

Great. Thanks, Keith. Our next question comes from Palantir shareholder, Brian L.

Karp, thank you for furthering the ideals of Western democracy around the globe. Of the 1,000 plus roles that you intend to hire this year, how many of those will be focused on sales?

So we're looking to hire 200 salespeople basically, and everyone else is just like in the past. The way I think about it is like x salespeople. It's still 75% technical. We're going to try and hire 200 salespeople. As I mentioned, we just hired some very high-end sales acumen in Europe. Yes. Thank you for your question and thank you for being an investor.

Great. Thanks, Brian. Our next question comes from Mark Cash with Morningstar.

Kind of going up what you were just talking about. There's been commentary in the past around becoming the operating system for commercial industries. You talked about the airline industry. Maybe just talk about health care for a little bit there. But are there other examples, industry examples you could talk about, how that's pulling customers to standardize operations around Palantir?

Thank you. There are a lot of new deals we're working on. If you look at the timeline of Palantir, two years ago, it was all kind of analytics and operations. What you see now is kind of people wanting a standardized productized version of what we did at Airbus, what we've done internally at BP. What I can tell you is that of the very big deals we're working on now, almost all are like this. It's very exciting. I do think that there was also just the COVID distribution thing. COVID distribution in England, in England, it’s not one healthcare system; it's 600 hospitals that are like countries. Just seeing this happen, the networks of people hearing this happen is the reason why you have 80% organic growth in the U.S. ex SPAC and with almost no salespeople. It’s because people are now saying, okay. The caveat is that this is not for everybody; if you have a business that is not protected by a moat, that has real insights on how to do something and wants to take over their industry, you're sitting there, you have a product that is maybe the best in the world, but it’s not protected. That's where we're seeing it. The shift in the last few years is that we’re not the ones pushing into offices anymore; it's them calling and saying that they know this can work. The pilot phase is now our days, and we're on.

Our next question is from Palantir shareholder Juan.

Alex, my question to you is, in a recent interview, Shyam said that what AWS was for developers of the last decade, Foundry really will be for developers of this decade. Can you expand on what paths Foundry has to make available to a broader developer community? Again, thank you for allowing a retail investor like myself to have a seat at the table. I think it's much appreciated. It doesn't go unnoticed.

I see myself as a retail investor, and I have all my assets in Palantir. So I'm very happy to meet another retail investor. In any case, we’ve done these founder-for-builders programs in America and in France, and it’s not charity. We want people in the tech community broadly to learn how to write to Palantir. We also want to learn from them. That’s one very important program, not revenue-based, but very valuable for our tech development and to get technical people on Palantir so they can see what they can do and tell us what they can’t do. Then there's the broader commercial. A lot of the companies we've supplied and government agencies side of Palantir require an ability to write to Foundry or to one of our products as a core competence. We’re figuring out ways to train people, make that experience easier, how can we widen the aperture.

Great. Thanks, Juan. Our next question is from Phil Winslow with Credit Suisse.

I do appreciate the cohort data that you disclosed today. That was very helpful. Just to dig into that a little bit. Alex, you talked about seeing an inflection where Foundry is getting pulled into some of these commercial deals sort of asking for Palantir without even knowing necessarily that's what they needed. You see that in the cohort number on the commercial side in terms of the new for 2021. I'm curious if we can just dig into that a little bit. Are you seeing specific industries really starting to have that aha moment? Are there certain use cases that they're leaning into? And then just have one follow up to that.

What makes Palantir Foundry valuable is its independence from any specific industry, which is important for us given that our sales force is still developing. We rely heavily on crises or companies looking to enter new markets and expand. Previously, we depended significantly on manufacturing, particularly high-level engineering firms like BP and others, because we needed engineering talent to validate our differentiated product. Now, we are seeing success across a wider range of businesses. There's no specific type of company where we don't perform well, although we aren't targeting marketing firms. In Europe, for example, growth has been slower overall, but if it rebounds, we expect significant expansion. Switzerland is one strong area for us, with numerous pharmaceutical, insurance, and banking companies using our products. They likely choose us because Palantir represents a level of quality that aligns with Swiss standards.

And then just to follow up on that specifically because, obviously, the net retention numbers you have in U.S. government, government in general is huge, U.S. commercial is huge. That’s the one thing I noticed is that with the disclosure of the net retention non-U.S. commercial significantly lower. What drives that? And how do you sort of inflect that higher?

First of all, I do think there's a hand off function, I think these things are repeating what happened in the earlier days in America, where you have a hand off built in government because you have more time to actually get it right; hand off to commercial, go to Europe. Certain Swiss institutions, German institutions, French institutions are not included, it’s slower. If you are building something very, very new, it will be adopted a little later. But then there’s just the COVID. The reaction to COVID in Continental Europe was different than in America. While it slowed things down in America, it didn't stop them. What I suspect is going to happen is that Europe, because of COVID reopening and because of basically people copying what's happening in highly adaptive America and sometimes in Switzerland, you will see the European cohort grow. To just make it a little more quantitative, we have 150% net dollar retention in U.S. commercial. A number which we're getting with basically no one holding it up. I think it’s a very strong number. What we’re going to show is net dollar retention in the U.S., and over time, we're going to show how this expands outside the U.S. I think what you'll begin to see is that the strength in the U.S. will go outside and make our business very robust.

Thanks, Phil. Alex, we have received over 1,000 questions from shareholders. Obviously, we can't address them all. Do you have any final insights or thoughts to share with our shareholders about the business?

It's really tough times out there, really tough for a lot of businesses. A lot of things are going wrong in the world, in our world. The obvious danger, the lack of legitimacy of a lot of our institutions. I can tell you while at Palantir, we are very focused on our business, and bad times are very motivating for us. When we get to good times, we'll be even stronger. We're a bit of a wacky group of guerrilla war fighters, but we're very much in fighting mode. Not just for us and the West, but also for our shareholders. I hope to talk to you soon. Thank you.