Palantir Technologies Inc. Q1 FY2023 Earnings Call

Good afternoon. I'm Ana Soro from Palantir's finance team, and I'd like to welcome you to our First 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 second 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 would cause them to differ materially from actual results. Information concerning those risks is available in our earnings press release distributed after the market close 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.

On any normal earnings call where we have just been profitable and where we're going to be profitable for the next couple of quarters, which opens up the possibility to be on the S&P, where the U.S. market grew by 28% and where we made $187 million in free cash flow, that would be the thing that was the most exciting. But in fact, what's most exciting about Palantir is, we have our ability to launch products that are literally the only products on the market and that will, in fact, change your life and will determine who succeeds and who fails across enterprise, both government and commercial. The large language model revolution is one that will raise ships and sink ships. Of course, the profitability is important. Of course, the fact that we make free cash flow is important. But it's not nearly as exciting as our ability to invest our resources and our founder-led energy in using the things we've built to supply enterprises with an otherwise unavailable and in crazy high-demand product. This is just one of the most exciting times to be at Palantir, because you have the resources of a large profitable enterprise company. So, there is an issue with non-profitable tech, if you're powering the most important enterprises in the world. They want to know, 'Can you provide the resources, the product we need tomorrow, purely on a financial basis?' But more importantly to us and to them long-term is, 'Can you help us disrupt our adversaries? Can you just help us disrupt our competitors? Can, for me personally, can you have a product that will help the West win, especially our government, but also our commercial clients, so that we, in fact, are stronger than our adversaries?' And in the last 20 years, there's never been a development like this. You have a technology that will allow you to outproduce; change the margin of the company; understand your business; react on the battlefield quicker; predict things on the battlefield in a way; collapse your enterprise, so that the top and the bottom actually work together; preempt attacks; create software that is so obviously dominant that adversaries quiver and scurry away instead of attacking us or our allies. And there is one company in the world that is positioned. The issue of how do you have security, a data model or knowledge and wisdom that's proprietary, interact with an external large language model or with generative AI is not new to Palantir, and that's why we were able to launch our platform AIP so quickly, the demand for which is nothing I've ever seen in 20 years of being involved in Palantir. And the reason the demand is high is people suspect that if we wield these technologies correctly, safely and securely, meaning extract the value, in the context of your own enterprise, whether that's sensitive or non-sensitive or regulated or it's moderately regulated, you have a weapon that will allow you to win, that will scare your competitors and adversaries, and we are in a unique position to supply that platform and we have the resources, both because of our profitability, our $2.9 billion in the bank, our lack of debt, and quite frankly, our entrepreneurial founder-led spirit at this company. Welcome to our earnings day. Thank you.

As Alex highlighted, our company once again achieved GAAP profitability last quarter, including GAAP operating income for the first time. This marks another milestone in our company's sustained growth, ensuring that we will continue delivering results and impact for our partners for years to come, while also investing deeply in the transformational AI opportunities before us. We have been taking steps across the company in recent months to refocus our efforts and optimize on the parts of our business that will drive even further growth alongside and sustain profitability. In Q1 2023, we generated $525 million in revenue. Due to the seasonality of our business, Q1 tends to be our slowest quarter, but despite that headwind and the difficult macroeconomic environment that the technology industry continues to face, our commercial business generated $236 million of revenue last quarter and achieved $176 million in TCV, a 70% year-over-year TCV increase. These strong results were driven primarily by the re-acceleration of our U.S. commercial business, which surpassed the $100 million revenue threshold for the first time with 26% year-over-year growth. We continue to see robust pilot starts and promising conversions and we're also beginning to see the realization of our expansion strategy, meaning we're beginning to see meaningful growth and upsell opportunities with our newer customer base. Some notable examples include the expansion of our work with Hertz, who is using Foundry to more efficiently manage and operate its fleet of nearly 500,000 vehicles; and Jacobs Engineering, who is doubling down on our partnership to reduce cost and improve performance across plants. We also signed significant expansion agreements with the largest health system in the country for continued acceleration of our hospital operations efforts, and with one of the world's largest paper and packaging companies. Our U.S. commercial customer base, which stood at 155 at the end of Q1 2023, a seven-fold increase in customer count over just two years, presents an immense opportunity for continued expansion. While aspects of our international commercial business have been challenging in today's climate, we continue to focus on delivering transformational results to long-term customers. For example, BP, our customer of over a decade, recently shared that Foundry helped them reduce production cost by approximately 60% from $14 a barrel to less than $6 a barrel. We're also investing for growth in targeted industries and geographies, such as Korea, where I recently met with customers and saw our momentum there firsthand. This includes several strong pilot starts in the expansion of our work with Korea shipbuilding and offshore engineering, focused on using Foundry to enhance safety and operational efficiency. Our government business generated $289 million in revenue, driven in large part by our U.S. government business, which grew 22% year-over-year. With strong conviction in our work on the ground and the critical missions we're delivering against, we continue to focus on building our U.S. government business for the long-term while acknowledging timing uncertainty in the short term. We're investing in delivering digital deterrence and AI-driven efforts around the world from the Middle Eastern, Pacific and European theaters. And with pressing global events, we continue to lean into our support for the U.S. and its allies across Eastern Europe. More broadly, as we look at opportunities across our company, we are strongly investing in AI efforts, with a focus on delivering the foundational systems and software architecture that will enable enterprises to leverage the power of the latest large language models and other machine learning technologies. We're already seeing unprecedented demand for AIP, and we are reorganizing our efforts aggressively to capitalize on the interest. We anticipate that these technologies will be transformational, both for ourselves and for our customers, and we are positioned to meet the moment.

Thanks, Ryan. This past February, overlapping with our last earnings call, I had the opportunity to visit Ukraine and witness the incredible speed with which the Ukrainian forces were able to employ AI on the battlefield. It was clear that the future has already arrived. And that future requires us broadly to rewrite roadmaps. It changes everything to some degree and some things completely. We all can either choose to join the disruptors driving this change or we can be disrupted. From diffusion to large language models, the accelerating pace of AI development is awe inspiring and exhilarating, but there are many challenges customers will encounter as they attempt to leverage this technology operationally at any scale. From managing the mismatch between the ever-growing big data scale of the enterprise and the bottlenecks and choke points of smaller context windows of LLMs, to product design challenges of constructively embedding these models and workflows, and safety and trust challenges in governing the AI in an operational and decision-making context, we are well ahead of the curve because we've built the frameworks, the infrastructure, and the software needed. We have already had to solve so many of the hard problems, including the development of deep expertise with the necessary intermediary scale data challenges required to effectively span the gap from big data to small LLM context windows. And there will be many surprises in who ultimately comes up as the winners and losers of all of this disruption. The AI models themselves have gone from cutting-edge to quickly being commoditized in months. Developing GPT-2 and GPT-3 class models at this point is a quick task. Anyone can build them in a few days with a few hundred dollars. As the memo purportedly leaked from a major tech company made clear, things that big tech companies have considered major open areas of development have actually been solved by a handful of people in the open-source community. While some of the proprietary models hold a slight quality edge, the lead is vanishing quickly. The speed of iteration on these models will dominate. We believe larger enduring value is more likely to emerge from the application and workflow layer by the players who know how to navigate the challenges of data skill mismatch that LLMs present, and we are uniquely positioned to continue to be a leader here. And because that future is already here, we must act with speed and conviction. Customers must completely rethink what they are building and how they build it. We are moving fast to ensure existing customers can quickly deploy AIP beside Gotham and Foundry to transform their operations with intelligent, contextual decision-making and sophisticated automation and coordination from the battlefield to the boardroom. AIP enables customers to operate not only Foundry and Gotham, but also their businesses from a greater strategic vantage point. We provide powerful interfaces to rapidly integrate your data, build your ontology, forge AI-driven applications and workflows, and build agents to orchestrate and automate enterprise actions, all in an environment with guardrails, safe hand-off functions, and military-grade security. AIP not only knows how to speak to you, but more importantly, it knows how to speak to data systems, every Foundry service, your ontology, and your enterprise. At a major insurance company, we deployed a pre-release version of AIP and in a few days built a collaborative AI agent to automate claims processing. The Chief Data Officer told us that AIP was years ahead of anything they had seen. The pace of innovation around AI and LLMs presents a unique opportunity for leveraging our infrastructure. There is tremendous demand for these modules in regulatory environments. Via our offerings, we can bring these startups to U.S. government markets quickly. In Q1, we also closed our first $1 million deal for our solution with a major tech company. Our SDK has met the market with great reception. These SDKs make it easy for customers to build new applications and integrate ontology into their existing ones. We plan to support AIP directly from these SDKs, extending the AI application development deep into your enterprise ecosystem. The ecosystem continues to expand with enhanced capabilities across the AI-enabled landscape. Our most recent developments include substantial new capabilities in broader management processes. This capability enables efficient translation of approved targets to action. On a final note, we will be sharing our insights on the latest cutting-edge AI, who will be the victors and the vanquished, and of course, showing the latest across AIP and Foundry, as well as hearing from our customers on how our products are powering their transformations at our customer event in Palo Alto.

Thanks, Shyam. The first quarter of 2023 was a record-setting quarter for us. We achieved our second consecutive quarter of GAAP profitability and also achieved GAAP operating income for the first time. This accomplishment was a result of strong top-line growth, driven by the reacceleration of our U.S. commercial business, coupled with continued disciplined spend management. These achievements demonstrate our commitment to driving profitable growth and we continue to expect 2023 to be our first full year of GAAP profitability. On the back of these exceptional results and this trajectory, we now expect to be GAAP profitable in each quarter this year. Turning to our global top-line results, we generated $525 million in revenue in the first quarter of 2023, up 18% year-over-year, $20 million ahead of the midpoint of our prior guidance. Our U.S. business generated $337 million in total revenue in the first quarter, up 23% year-over-year and 12% sequentially, demonstrating our continued momentum in the US. Revenue from our largest customers continues to expand. In the first quarter, trailing 12-month revenue per customer from our top 20 customers increased 14% year-over-year to $51 million per customer. New customer acquisition also remains strong as we saw customer count grow 41% year-over-year and 7% sequentially. Now moving to our commercial segment. In the first quarter of 2023, commercial revenue grew 15% year-over-year and 10% sequentially to $236 million. Our first quarter U.S. commercial revenue grew 26% year-over-year and 39% sequentially to $107 million. Excluding revenue from strategic commercial contracts, U.S. commercial revenue grew 46% year-over-year and 24% sequentially. In addition to the strength of our U.S. commercial revenue growth, our U.S. commercial customer count grew 50% year-over-year and 8% sequentially, marking the ninth consecutive quarter of sequential growth. Commercial revenue from our strategic commercial contracts surpassed first quarter expectations at $33 million due to the unanticipated acceleration of revenue from certain of these contracts. We expect second quarter revenue from these customers to be between $17 million and $19 million and to drop off significantly in the third and fourth quarter. Our expectations of full-year revenue from these customers remains unchanged at approximately 3% of total full-year revenue. In the first quarter, our international commercial business grew 8% year-over-year and declined 7% sequentially. The results were impacted in part due to a tough comparison to the prior quarter as a result of the timing of revenue recognition on certain contracts in the fourth quarter and the seasonal headwinds we often see in the first quarter with some of our largest international enterprise customers. Turning to our government segment, first quarter government revenue grew 20% year-over-year and declined 1% sequentially to $289 million. First quarter U.S. government revenue grew 22% year-over-year and 2% sequentially to $230 million. While we have a strong pipeline of opportunities in our U.S. government business, we acknowledge that there are uncertainties associated with the timing of these contract expansions and renewals. Nonetheless, we remain confident in the growth of our U.S. government business. First quarter international government revenue grew 11% year-over-year and declined 13% sequentially to $59 million. The sequential decline was driven by the non-recurring revenue catch-up that we saw in the fourth quarter as well as some challenges with the timing of contract awards in the first quarter. Turning to bookings, TCV booked in the first quarter was $397 million, up 60% year-over-year. U.S. commercial TCV grew 170% year-over-year to $124 million, again demonstrating the strength of our U.S. commercial business. We ended the first quarter with $3.4 billion in total remaining deal value and $936 million in remaining performance obligations. As a reminder, RPO is primarily comprised of our commercial business, as it does not take into account contracts with an initial term of less than 12 months and contractual obligations that fall beyond termination for convenience clauses, both of which are common in most of our government business. Both remaining deal value and remaining performance obligations have continued to face headwinds from the macroeconomic impact on customers from the strategic investment program. As a result, the total remaining deal value and the total value of our commercial contracts from our strategic investment program decreased by $102 million since last quarter as we continue to review and assess the financial condition of these businesses. Turning to margin and expense, adjusted gross margin, which excludes stock-based compensation expense, was 81% for the quarter. First quarter adjusted income from operations, which excludes stock-based compensation expense, was $125 million, representing an adjusted operating margin of 24%, 600 basis points ahead of our prior guidance and marking the third consecutive quarter of expanding adjusted operating margins. These results demonstrate our ability to drive strong revenue growth while managing costs effectively, with first quarter adjusted expenses up only 1% sequentially to $400 million. We continued to manage expense growth by optimizing operations in G&A, capturing cloud efficiencies, and focusing our headcount investments in key strategic areas. We remain committed to sustaining GAAP profitability while at the same time increasing investment in both the U.S. to capture the momentum we are seeing, and in the development of advanced software capabilities, particularly our AI-driven offerings. We believe that artificial intelligence, including large language models, will prove transformational for our business and for enterprises in the government and commercial context. To that end, we are rebalancing our efforts and investment to capitalize on these developments. In the first quarter, we generated income from operations of $4 million, our first-ever quarter of GAAP operating income. This reflects our laser focus on profitable growth and continued management of our stock-based compensation. While we expect to see stock-based compensation expense trend up through the remainder of the year, we remain focused on GAAP net income and operating profitability. Turning to net income, first quarter GAAP net income was $17 million, our second consecutive quarter of GAAP profitability. This was a result of our strong GAAP operating income, as well as interest income from our balance sheet and the narrowing of losses from investments. First quarter adjusted earnings per share was $0.05 and GAAP earnings per share was $0.01, our second consecutive quarter of positive GAAP EPS. We are extremely proud that we are able to continue to deliver GAAP profitability on a consistent basis. Additionally, our combined revenue growth and adjusted operating margin was 42% in the first quarter. We will continue to strive to achieve the Rule 40 throughout 2023 and beyond. Turning to our strong cash flow in the first quarter, we generated $189 million and $187 million in adjusted free cash flow and cash from operations, respectively, each representing a margin of 36%. We ended the quarter with $2.9 billion in cash, cash equivalents and short-term U.S. treasury bills. We retain access to additional liquidity of up to $950 million through our $500 million revolving credit facility and $450 million delayed-draw term-loan facility, both of which remain entirely undrawn. Now turning to our outlook. For Q2 2023, we expect revenue of between $528 million and $532 million. Adjusted income from operations of between $118 million and $122 million, and GAAP net income. For full year 2023, we are raising our revenue guidance to between $2.185 billion and $2.235 billion. We are raising our adjusted income from operations guidance to between $506 million and $556 million, and we now expect GAAP net income in each quarter of this year.

Thanks, Dave. We'll begin with a few questions from our shareholders before we open up the call. We received a lot of questions on AI and AIP. Alex, would you like to share some thoughts?

Thank you for joining us today. I've been with Palantir since its inception, for 20 years. Our first product, PG, had a significant impact, particularly in Europe, by preventing terrorist attacks while respecting constitutional rights. This product remains unique in its category. Following that, we developed various other products, including those for battlefields, specialized operators, and Foundry, which everyone is familiar with. Throughout the development of these products, we have focused on the interactions between human intelligence and computers, evolving towards algorithmic relationships with data, particularly in the realm of generative AI. Over the years, we have created foundational technologies, along with understanding biases. We've explored how to engage with algorithms by selectively sharing parts of an enterprise. We've also considered how to manage sensitive decisions, who is accountable for legal choices, what data sources to utilize, and how to incorporate the intelligence of our organization into external databases. The emergence of large language models raises questions about how to leverage their capabilities without falling into pitfalls or exposing sensitive information, especially in contexts like healthcare. Our objective is to make our offerings accessible to individuals with diverse technical backgrounds. Our business is fundamentally driven by moral imperatives. While I don't want to delve too deep into philosophy, it’s important to note a unique dynamic in Silicon Valley over the past 20 years, where some companies have prioritized self-serving interests over the public good. We believe that data and technology should be guided by human values and government regulations. This outlook may seem philosophical, but it has enabled us to innovate and create technologies for ethical decision-making in high-stakes scenarios, giving us a significant advantage in launching groundbreaking solutions for large language models that are not available elsewhere. Moreover, as emphasized by Shyam earlier, the value and morality of technology stem from the individuals using it, not the technology itself. These perspectives have positioned us well ahead in the market, especially with the positive reception we are experiencing in the United States. We plan to roll out our initiatives carefully, seizing what we see as a once-in-a-generation opportunity. We possess unique intellectual property and software platforms ideally suited for this landscape. As a company, we are entrepreneurial and agile, unlike many in the industry who focus on acquiring products. It is now too late for others to catch up simply by buying solutions. We believe we are at a pivotal moment and are fully engaged in our work.

Thanks, Alex. We also received a few questions on GAAP profitability. Do you still expect to be GAAP profitable this year?

Vishal and Rick, thanks for the question. In short, absolutely, we do. And really on the strength of Q1, we now expect to be profitable in each quarter of this year, not just for the full year, which is obviously a big milestone for us. To recap Q1, it was our second consecutive quarter of GAAP profitability. We did $17 million of net income. It's our first-ever GAAP operating income profitable quarter. We did $4 million of operating income. It's our strongest cash flow quarter ever, $189 million of free cash flow. And we did this all with the U.S. commercial business growing 39% sequentially. And so, profitability will remain core to our growth as we mobilize our business and our resources around the AI opportunities that are in front of us.

Thanks, Dave. We received questions about expanding our customer base and the growth and momentum of our commercial business. Ryan, do you want to share some thoughts on the commercial business for 2023?

Yeah, absolutely. So in our results, you see the re-acceleration of our U.S. commercial business, 26% year-over-year growth, U.S. commercial, as Dave said, 39% sequential. Our customer count, which is now at 155 customers in our U.S. commercial business, grew 50% year-over-year, and the TCV closed in Q1 grew 170% year-over-year. That's on the back of pilot conversions, new pilot starts, and expansions at customers, as I highlighted earlier, such as Hertz, Jacobs Engineering, the largest health system in the country, and one of the largest paper and packaging companies in the world among other examples. We expect that momentum to carry forward, and as the U.S. commercial continues to become a larger and larger part of our overall business, that will obviously have larger and larger impacts on our overall results and momentum as well. On top of that, we've highlighted AI presented in opportunity that is creating unprecedented demand for us. We can deliver against it in ways that no one else can and we're running at full speed, and we expect that momentum to continue in 2023 and beyond.

Thanks, Ryan. Our next question is from Michael who asks with potential S&P 500 inclusion, how does that correlate with the company's prospects and profitability moving forward?

I'm sure there's a prepared answer here, but I believe or I know that we are outsiders, and this outsider status is one of the main reasons we built all these products, because we never ever thought anyone would buy our products except for that they were disruptive and unique. And that's in many — if you look at the products we've built, but also in how we have been prepared for this moment. It's because we approach this as we have to succeed under adverse conditions. My interest in profitability is for obvious reasons, but I also think we'll just be in a much stronger position as it becomes clear that we qualify for participation in S&P, and a lot of people will begin to look closer at our strengths. But in any case, this outsider strategy is, we are going to be profitable. We're going to leverage our profitability to scale our business and to scale the attractiveness of our business to new investors.

Thanks, Alex. Our next question is from Brent with Jefferies. Brent, please turn on your camera, and then you'll receive a prompt to unmute your line.

Good afternoon. There were a lot of questions about, in the quarter, the backlog growth significantly decelerated, yet the comments about the overall business re-accelerating, you guys were clear about. And so there were questions around, were there any one-time milestone JV revenue recognition or SPAC contribution in the quarter that may have explained this? And can you just comment about the backlog growth versus the comments you said about re-acceleration, because they don't really match up when we look at the numbers?

Yeah, happy to take that, and I think just to start off, when you're looking at re-acceleration, I'd point to the U.S. commercial business is really driving our business forward and sort of where our focus is, and it did reaccelerate significantly in Q1, right? It was 26% year-over-year growth, 39% sequential. If you want to exclude SPAC revenue, it grew over 45% and grew 24% sequentially, so exceptional reacceleration. And then if you want to look at bookings, you can look at U.S. TCV up 170% year-over-year. So, all the measures are there.

I think, look, I want to give you a somewhat orthogonal answer to your question. We have a tale of two cities here. We have America, which is growing around 28%, it is now 64% of our business. Four years ago was 37% of our business. We are absolutely disrupting in the U.S. of A. International is growing around 10% and that is becoming a smaller part of our business. What I tend to see when I look at the numbers is, we see the U.S. is growing, we see that U.S. is reaccelerating. Although re-accelerating is the wrong word, because U.S. commercial has been accelerating and accelerating, and it's just become a much bigger part of our business. Last, what's not in the numbers is, I spend a lot of my time on the road talking to the U.S. customers. The quality of the questions has shifted from 'Why would we need this?' to 'How would I use it?' And that's just purely on the Foundry front. And then, the inbound on anything related to AI, both from existing customers — by the way on that score, we sit on the world's most important sensitive networks, both in commercial and government. Every single one of those clients needs an AI strategy and we have unique technology and software for that. But I think if you were to look at the positive and negative of our business, I do not expect international to grow much more than it's growing now. I do expect the U.S. to continue to grow, and we're very optimistic about what will happen there.

Thanks, Alex. Our next question is from Mariana with Bank of America. Mariana, please turn on your camera and then you'll receive a prompt to unmute your line. Can you hear us?

Do you hear me?

Yeah.

Oh, perfect. I've had trouble with technology still. My question is about the...

Sorry, Mariana, you're cutting out. No problem, we can just move on. Our next question is from Keith with Morgan Stanley. Keith, please turn on your camera and then you'll receive a prompt to unmute your line.

Alright. Can you guys hear me?

Yeah.

Thanks a lot. So, we talked a lot about accelerating U.S. commercial business, reorienting the company for certain extent for this commercial opportunity with the AI platform. Two questions. One, can you talk just a little bit about changes that you're looking to make in the go-to-market for this AI platform? Any sense you could give us in terms of how you're looking to price the platform? What sort of like the initial conversations been like and what do you think that pricing modality is going to be like around that AI platform? And then, the last question on GAAP profitability. This quarter you did have a pull-forward of revenues that kind of helped the commercial business, helped the overall profitability. To some extent, you've got to make that up a little bit in Q2 and Q3. Are there any tactical things that you're doing or cost reduction initiatives that you're putting in place to ensure that GAAP profitability to offset that pull-forward revenue recognition you saw in Q1?

I'll take that AI think, and Shyam maybe you want to add something and you can talk about all of our various strategies to be more and more efficient. No, our basic — it's counter-intuitive, but we're going to — within the context of being profitable, our idea — our strategy on AI is just to take the whole market. We have no pricing strategy. We're going to create a lot of value. We're going to get hundreds of customers and we will price it as we go. One of the things we've seen over and over again is, when you're ahead of the market, you need to take territory. We want to take territory for two reasons. One, we believe we have the only product currently on the market that can solve some of these intricate technical needs. Two, we've spent years building certain things, like how do you manage knowledge systems across algorithms, across security interest. We know how hard it is to build this. We believe that people will take years to build these things. And three, as we take territory, educate the market, and the market, quite frankly, many analysts believe this stuff is really easy. You educate the market and to see how hard it is, and in doing that you then have pricing parity, because they will try other things that for technical reasons are likely to fail. So, our — especially in the U.S., we have some non-U.S. customers. There are some exceptions to this. We can't do this for free for governments for legal reasons and because we have so many already AI-driven clients, but in the U.S. commercial context, our strategy is going to be to take territory, educate the market, and make it very difficult for other people entering the market because they have to compete with a product that we've already been working on for de facto years, solving technical issues that the market doesn't yet realize exist.

Yeah, from a product perspective with AIP, we're just razor-focused on creating value as quickly as possible. I think it's not actually clear from the outside, how far ahead we are. If you think about the intermediary scale data challenges that you face in getting value out of LLMs and their extremely small context windows, like how are you going to bridge the gap between big data and smaller context windows, you need an ontology. And all these guys — like, how did we build an insurance GPT agent in two days, because we stood on the shoulders of two years of a very robust ontology that enabled us to unlock the necessary capabilities very quickly. So I think the amount of ground we can take means that the only reasonable strategy is to focus on rapid innovation and value creation.

Implicit in what Shyam is saying is that without essentially other people call it a knowledge graph, in fact, de facto you could view it as like a dynamic semantic layer, where the assumptions of your world are built-in and can map across your systems. You will not be able to use this technology. Now that's something we know, no one else knows, no one believes it, but they're about to find out. We just want to show clients, 'Hey, this will work. You will get value. We've done this before. It's also crazy hard to build this.' So, if you know how to do it, you have a three-year advantage.

And on GAAP profitability, we're going to get there with the U.S. business. When you look to U.S. commercial, that will help push us there. And then, when you look at sort of what we've been doing on the cost side, G&A efficiency, the cloud costs we keep talking about because it really is making a difference in our business. And then we're going to be prudent with our headcount in certain places and in other places, we're going to really invest in growth.

I mean, there is an obvious thing, we're growing — we believe and the numbers show we're disrupting in the U.S. We're going to invest heavily in places we're growing 10%, we're going to reduce costs; there's no mystery here.

Thanks, Alex. As always, we have a lot of individual investors on the line. Is there anything you'd like to say before we end the call?

You are my favorite investors, I say it every call. A lot of the decisions we make are made because we are in full alignment with you. There is a tendency among leads to overlook your knowledge. My experience is the people that pay attention to the product, the power of products used, and are more accurate in the strengths and weaknesses of PG, Foundry semantic layer and now AI are very often people investing their own money. Now as we become profitable in the next few quarters, I expect that we will become part of the S&P and will have many more institutional investors, but I will not start valuing you less, and I appreciate your support.

Thanks. That concludes Q&A for today's call.