Earnings Call Transcript - PLTR Q4 2024

Ana Soro, Finance Team Member

Good afternoon. I'm Ana Soro from Palantir's Finance Team, and I'd like to welcome you to our Fourth Quarter 2024 Earnings Call. We'll be discussing the results announced in our press release issued after the market closed and posted on our Investor Relations website. During the call, we will make statements regarding our business that may be considered forward-looking within applicable securities laws, including statements regarding our first quarter and fiscal 2025 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 other earnings materials 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, Chief Revenue Officer

2024 was nothing short of incredible for Palantir. Our momentum accelerated through year end, closing out 2024 with exceptional Q4 results, including an extraordinary top-line beat and outperformance led by our U.S. business. Revenue grew 14% sequentially and 36% year-over-year in Q4 and 29% year-over-year for the full-year. The AI revolution continues, transforming industries and redefining how organizations operate. AI is a pivotal component in driving innovation and efficiency, something companies need to embrace or fall behind. With the proliferation of AI models, the raw AI labor supply is exploding. While everyone else is focused on the model supply side, we're transforming AI into a measurable stream of high-value finished goods and services. The result, the rapid emergence of quantified exceptionalism for organizations able to unlock the potential of these commoditized models through AIP. A byproduct of our incredible progress, our Rule of 40 score increased to 81 in the fourth quarter. It's a substantial leap to deploy LLMs into production with real impact. Most organizations are currently stuck on the wrong side of the widening chasm, working on their two, five, and 10-year plans, which become obsolete days later failing to ever take action, but not Palantir or our quickly growing customer base. We've taken our position through our decades-long investment in developing the ontology, which allows organizations to seamlessly weave LLMs into their enterprise, unlocking their highest potential leverage. In this AI revolution, anyone looking for a solution that actually works is going to choose Palantir. Last quarter alone, we closed $1.8 billion of TCV across our business, which represents a 56% increase year-over-year. We closed a record-setting number of deals in Q4, including 32 deals worth $10 million or more. Our U.S. business is at the forefront of the AI revolution, growing 52% year-over-year in Q4. Last quarter, U.S. commercial revenue grew 64% year-over-year and 20% sequentially. AIP continues to fuel new customer acquisition as we have nearly 5 times the number of U.S. commercial customers as we did three years ago and significant expansion opportunities at existing customers. Organizations who have crossed the chasm with Palantir are driving real impact quickly. In this AI revolution, the biggest risk is not moving fast enough and organizations are looking to us. With Palantir, as soon as work begins, we're delivering real quantified exceptionalism for our customers. In my conversations, they're excitedly asking how we can replicate this success across their organizations. One of America's largest pharmacies has been a customer since early 2024 and signed a $67 million TCV engagement with us right after the pilot for workflows including automatically load-balancing prescription fulfillment and orchestrating patient outreach. An American telecom company became a customer approximately two years ago and recently signed a $40 million TCV expansion deal to help manage and accelerate their decommissioning of old network technologies and equipment in order to achieve significant cost savings. Last earnings call, we mentioned the leading global insurance organization that deployed AIP to help automate underwriting workflows, reducing a two-week process to three hours. That organization signed a nearly $11 million ACV expansion deal in Q4. Panasonic Energy North America is seeing the effects of its AIP expansion as they've created a maintenance assistant to help 350 technicians in making 5.5 million batteries per day, resulting in reduced machine downtime, greater throughput, and rapid onboarding of new technicians. In Q4, we also announced the customers in the inaugural Warp Speed cohort, which are using Palantir's Warp Speed to gain an advantage in aspects of their manufacturing operating system, including automated visual quality inspections and dynamic production scheduling. Anduril CIO, Tom Bosco, noted, "by using the software, we've seen up to 200 times efficiency gained in our ability to anticipate and respond to supply shortages". Our U.S. government business, the foundation on which Palantir was built is exceedingly strong with revenue growing 45% year-over-year last quarter. We take pride in supporting the critical missions we're delivering against. Notable deals included the U.S. Army extending its long-standing partnership with Palantir to deliver the Army Vantage capability in support of the Army Data Platform for up to four years. We also announced our recent contract expansion with U.S. Special Operations Command, marking the first deployment of Mission Manager to U.S. Special Operations Forces units. Our international commercial business continues to see pockets of growth alongside the large renewals of some of our long-standing customers. For example, Rio Tinto extended their partnership with Palantir for an additional four years, noting AIP is making their unstructured data accessible, allowing them to quickly attack problems previously deemed too complex. Using our software, network rail specialists coordinate 53 driverless trains, each with 240 wagons, ultimately improving throughput and safety. Our International Government business also achieved strong growth. Revenue increased 26% sequentially last quarter, driven in large part by the U.K., including our work with the NHS to roll out the Federated Data Platform as 87 Acute NHS Trusts and 28 integrated care boards have signed up to use it as of November 2024. We accelerated through the end of the year and we remain full throttle. We're at the dawn of this AI revolution and in this winner take all AI economy, Palantir leads the way. I'll now turn it over to Shyam.

Shyam Sankar, Chief Technology Officer

Thanks, Ryan. For the last two years, we've been saying that even while the LLMs are improving, the models across both open and closed source are becoming more similar and performance will converge, all while the cost per token for inference continues to drop substantially, and that's because the market has been focused on AI supply, the models. With the release of DeepSeek-R1, that has gone from a contrarian position to consensus. It's now blindingly obvious to everyone. Our foundational investments in ontology and infrastructure have positioned us to uniquely deliver on AI demand. From the beginning, AIP was built for this reality. Chat was always a dead end. Instead, we viewed LLMs as a new runtime for the AI labor. To capture the productive value of this AI labor, you need an intermediate representation of your enterprise that AI can actually interact with. How do you allocate inventory, onboard customers, process claims, call for prior authorization, and the like? That intermediary representation that makes all of that possible is ontology, and that's why it's been the secret to our meteoric rise. We are convinced the normative value for AI is enterprise autonomy, the self-driving company. Users go from performing the workflow to supervising an army of agents, teaching them how to handle edge cases. This is where we are manically focused with our customers. We've been working with a large multinational bank to automate core back-office processes. What used to take five days now takes three minutes. Much more than the labor savings, this improvement eliminates historical constraints on the middle office and now enables the bank to create entirely new and differentiated financial products. We're working with a top engineering and construction firm to automate the identification of risks across tens of thousands of pages of technical documents, replacing months of arduous manual reviews with AI labor that can flag major risks to engineers in minutes. And we're working with a large power systems company to automate the understanding of technical diagrams to turn them into quotes and orders. And finally, we're working with an automotive supplier to analyze CAD files for component designs to have AI labor validate engineering standards and manufacturability checks. That is a 100-hour process for human engineers, now automated and serving up exceptions for human review. The before and after with AI is stark and the speed of implementation is accelerating. You can divide companies up into two categories, the quick and the dead. Turning to Warp Speed, Palantir's modern American manufacturing operating system, it continues to move at Warp 10. Our nation is at the beginning of a great reindustrialization as we compete with China to secure a free world and individual liberties. This is a competition we cannot afford to lose. We announced our first cohort of Warp Speed customers, including Anduril and L3Harris. The response has been exceptional and the pipeline is swelling. Warp Speed integrates engineering, test, production, quality, and operations so that manufacturers can build better and build faster. Our FedStart Offering hit a major milestone with the approval of our FedRAMP High Environment for FedStart customers. This is radical acceleration, both in reduction of time and costs of market access for software companies in the federal space. Finally, in U.S. government, our deep investments in CJADC2 continue to deliver results. Maven continues to see significant adoption in its pathfinding new AI capabilities throughout the kill chain. Substantial new investments integrating contested logistics into MAVEN's AI-enabled kill chain met their moment in exercises in Q4. Adoption continues within the military departments, specifically Army, Air Force, and Space Force, as well as at the combatant commands with expansions at Spacecom, SOUTHCOM, AFRICOM, and Stratcom. While Hurricane Helene response galvanized the adoption of MAVEN on unclassified beyond just the secret and top-secret networks, the adoption has continued to grow as MAVEN is used for securing our nation's border and securing our nation's airspace by enabling drone domain awareness. And MAVEN is reaching our allies and partners via U.S.-supplied capabilities called MAVEN REL, all spurred by real-world events and the need to collaborate in real-time in crisis. We are really just getting started with MAVEN and have an ambitious roadmap and a set of customer opportunities in front of us to deliver the unfair advantage our warfighters deserve. I'll turn it over to Dave to talk us through the numbers.

Dave Glazer, Chief Financial Officer

Thanks, Shyam. We had an outstanding fourth quarter. Revenue growth accelerated to 36% year-over-year, exceeding the high-end of our prior guidance by over 900 basis points and representing a 1,600 basis point increase compared to the growth rate in Q4 of last year. America continues to rapidly embrace the AI revolution, and we saw this unrelenting demand drive impressive outperformance in our U.S. business, which grew 52% year-over-year and 12% sequentially. Our U.S. Commercial business grew 64% year-over-year and 20% sequentially, and our U.S. government business grew 45% year-over-year and 7% sequentially. On the back of this continued strength, we are guiding to a full year 2025 revenue midpoint of $3.749 billion, representing a 31% year-over-year growth rate. We delivered these outstanding top-line results while expanding adjusted operating margin to 45%, the strongest adjusted operating margin in the company's history. Our revenue and profitability drove a 13-point sequential increase to a Rule of 40 score from 68 in the third quarter to 81 in the fourth quarter. We also had an exceptional cash flow quarter with adjusted free cash flow of $517 million, representing a margin of 63%, and $1.25 billion in adjusted free cash flow for the full year, representing a margin of 44%. Turning to our global top-line results. Fourth quarter revenue grew 36% year-over-year and 14% sequentially to $828 million. Full-year revenue grew 29% year-over-year to $2.87 billion. Full year U.S. revenue grew 38% year-over-year to $1.9 billion. Excluding the impact of revenue from strategic commercial contracts, fourth quarter revenue grew 39% year-over-year and 14% sequentially, and full year revenue grew 32% year-over-year. Customer count grew 43% year-over-year and 13% sequentially to 711 customers. Revenue from our largest customers continues to expand. Fourth quarter trailing 12-month revenue from our top-20 customers increased 18% year-over-year to $65 million per customer. Now moving to our Commercial segment. Fourth quarter commercial revenue grew 31% year-over-year and 17% sequentially to $372 million. Full-year commercial revenue grew 29% year-over-year to $1.3 billion. Excluding the impact from strategic commercial contracts, fourth quarter commercial revenue grew 37% year-over-year and 18% sequentially, and full-year commercial revenue grew 36% year-over-year. We had the strongest quarter of commercial TCV booked at $995 million, representing 42% growth year-over-year and 63% growth sequentially. Our U.S. commercial business is seeing unprecedented demand with AIP driving both new customer conversions and existing customer expansions in the U.S. Fourth quarter U.S. commercial revenue grew 64% year-over-year and 20% sequentially to $214 million. Full year U.S. commercial revenue grew 54% year-over-year to $702 million. Excluding revenue from strategic commercial contracts, fourth quarter U.S. commercial revenue grew 76% year-over-year and 19% sequentially, and full-year U.S. commercial revenue grew 69% year-over-year. We also had our strongest quarter of U.S. commercial TCV booked at $803 million, representing growth of 134% year-over-year and 170% sequentially. This exceeded our next highest quarter of U.S. commercial TCV book by nearly $400 million, highlighting the increased demand for AI production use cases. Total remaining deal value in our U.S. Commercial business grew 99% year-over-year and 47% sequentially. Our U.S. commercial customer count grew to 382 customers, reflecting growth of 73% year-over-year and 19% sequentially. Fourth quarter international commercial revenue grew 3% year-over-year and 15% sequentially to $158 million, partially driven by revenue catch-up from a customer in Asia. Full-year international commercial revenue grew 9% year-over-year to $594 million. For our International Commercial business, we continue to capitalize on targeted growth opportunities in Asia, the Middle East, and beyond, but remain focused on accelerating our growth in the U.S. Commercial business. Revenue from strategic commercial contracts was $9.6 million for the quarter. We anticipate first quarter 2025 revenue from these contracts to decline to between $4 million and $6 million compared to $24 million in the first quarter of 2024. We anticipate 2025 revenue from these contracts to be approximately half of 1% of full-year revenue. Shifting to our government segment. Fourth quarter government revenue grew 40% year-over-year and 11% sequentially to $455 million. Full year government revenue grew 28% year-over-year to $1.57 billion. Fourth quarter U.S. government revenue grew 45% year-over-year and 7% sequentially to $343 million. Full year U.S. government revenue grew 30% year-over-year to $1.2 billion. This acceleration was driven by continued execution in existing programs and new awards reflecting the growing demand for AI in our government software offerings. Fourth quarter international government revenue grew 28% year-over-year and 26% sequentially to $112 million, bolstered by our continued work in U.K. healthcare and defense. Full year international government revenue grew 23% year-over-year to $372 million. Fourth quarter TCV book was $1.79 billion, up 56% year-over-year and 63% sequentially. Net dollar retention was 120%, an increase of 200 basis points from last quarter. The increase was driven both by expansions at existing customers and new customers acquired in Q4 of last year as we see the effect of the AI revolution. As net dollar retention does not include revenue from new customers that were acquired in the past 12 months, it is not yet fully capturing the acceleration and velocity in our U.S. business over the past year. We ended the fourth quarter with $5.43 billion in total remaining deal value, an increase of 40% year-over-year and 20% sequentially, and $1.73 billion in remaining performance obligations, an increase of 39% year-over-year and 10% sequentially. 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. Turning to margin and expense. Adjusted gross margin, which excludes stock-based compensation expense was 83% for the quarter and the full-year. Adjusted income from operations, which excludes stock-based compensation expense and related employer payroll taxes was $373 million, representing an adjusted operating margin of 45%. Full-year adjusted income from operations was $1.13 billion, representing a margin of 39%. Q4 adjusted expense was $455 million, up 1% sequentially and 14% year-over-year and full-year adjusted expense was $1.74 billion, up 9% year-over-year, primarily driven by our continued investment in AIP and technical talent. We expect to see a more significant increase in expense in 2025 as we invest in technical hires, the product pipeline, and continue our focus on AI production use cases, all while delivering our goals of sustained GAAP profitability. On the back of the strength of our results, we want to congratulate our employees for the successful delivery of their market-vesting stock appreciation rights or SARs. As a result of this achievement, we accelerated $131 million of one-time expenses in the fourth quarter related to these equity awards. Fourth quarter stock-based compensation expense was $282 million and employer-related equity tax expense was $80 million. Full-year stock-based compensation expense was $692 million and employer-related equity tax expense was $126 million. Fourth quarter GAAP operating income was $11 million, representing a margin of 1%. Fourth quarter operating income, when excluding one-time SAR-related expenses was $142 million, representing a 17% margin. Full-year GAAP operating income was $310 million, representing an 11% margin. Full-year operating income when excluding one-time SAR-related expenses was $442 million, representing a 15% margin. Fourth quarter GAAP net income was $79 million, representing a 10% margin. Fourth quarter net income, when excluding one-time SAR-related expenses was $165 million, representing a 20% margin. Full-year GAAP net income was $462 million, representing a 16% margin. Fourth quarter GAAP earnings per share was $0.03 and earnings per share when excluding one-time SAR-related expenses was $0.07. Full-year GAAP earnings per share was $0.19. Fourth quarter adjusted earnings per share was $0.14. Full-year adjusted earnings per share was $0.41. Additionally, our combined revenue growth and adjusted operating margin accelerated to 81% in the fourth quarter, a 13-point increase to our Rule of 40 score from the prior quarter. Turning to our cash flow. In the fourth quarter, we generated $460 million in cash from operations and $517 million in adjusted free cash flow, representing margins of 56% and 63%, respectively. For the full-year, we generated $1.15 billion in cash from operations and $1.25 billion in adjusted free cash flow, representing margins of 40% and 44%, respectively. Through the end of the fourth quarter, we repurchased approximately 2.1 million shares as part of our share repurchase program. As of the end of the quarter, we have $936 million remaining of the original authorization. We ended the quarter with $5.2 billion in cash, cash equivalents, and short-term U.S. treasury securities. Now turning to our outlook. For Q1 2025, we expect revenue of between $858 million and $862 million and adjusted income from operations of between $354 million and $358 million. For full-year 2025, we expect revenue of between $3.741 billion and $3.757 billion, U.S. commercial revenue in excess of $1.079 billion, representing a growth rate of at least 54%, adjusted income from operations of between $1.551 billion and $1.567 billion, adjusted free cash flow of between $1.5 billion and $1.7 million, and GAAP operating income and net income in each quarter of this year. With that, I'll turn it over to Alex for a few remarks, and then Ana will kick off the Q&A.

Alex Karp, Chief Executive Officer

Welcome to our earnings call. There is considerable discussion about these figures, including whether we should even hold an earnings call. We debated which growth numbers are most significant internally, including our 29% overall growth, 38% growth in the U.S., and 54% growth in U.S. Commercial. The Rule of 81 may need reconsideration, as achieving over twice the Rule of 40 suggests we might need a new measure. Claiming we did this in our way underplays its significance. We have made a long-term investment based on the hope that if we build the right products for our partners, especially in the U.S., we would generate substantial value, of which we would capture a small portion, ultimately establishing a powerful and impactful company that supports the West's strengths and improves existing systems. Our primary success has been in enhancing human-driven analytics while looking ahead to future AI capabilities, such as large language models (LLMs). What we’ve introduced is a collaborative framework that transcends data, computers, and LLMs, made effective and valuable by what we term an ontology, initially misunderstood as an attempt to obscure poor financials. Our steadfastness in this approach, despite significant investment in large language models, has positioned us uniquely to operationalize these models in practical, enterprise settings. We’re proud to report 54% growth in U.S. Commercial, and U.S. Government growth has reaccelerated to 30%. We are guiding for a growth rate above 30%, at 31%, all while navigating a complex environment. Our success stems from our forward-looking perspective, contrasting with experts who often rely on historical data to predict future trends. Though we strive for growth in the broader West, including Continental Europe, we face challenges, with only 4% growth observed in that market. Europe appears to cling to its past, uncertain that the most valuable technology originates in the U.S. Realizing the potential of LLMs requires developing an ontology, which we have at Palantir. Our commitment to transparency and civil liberties remains strong. The ontology embedded in our products accelerates revenue and manages capital expenditure, resulting in high margins while enhancing enterprise health and ethics. Ultimately, we export our culture to institutions, enabling them to utilize their unique knowledge alongside the advantages of LLMs. We believe our contributions are fortifying America, instilling fear in our adversaries regarding threats to U.S. interests, and we remain optimistic about America’s future. Consequently, we should now proceed with our earnings call. This is an exciting time for Palantir, with high spirits among our team. We believe we are at the beginning of a significant journey and aim to be a leading force in driving this revolution in the U.S. over the next three to five years.

Ana Soro, Finance Team Member

Thanks, Alex. We'll now turn to a few questions from our shareholders before opening up the call. Our first question is from Christina, who asks, what is so unique about the ontology? How does it give you an edge over your competitors and why wouldn't any of them be able to recreate something similar?

Shyam Sankar, Chief Technology Officer

Thank you, Christina, for your question. Let's begin by considering that if I were developing software for a single company, there's no need for an ontology; I would simply take the most direct route. However, if I were creating enterprise software for multiple clients in a conventional manner, where large multi-year implementations are common, ontology wouldn’t even cross my mind. Yet, if the goal is to develop software that functions across various government sectors and 50 different industries, building an ontology becomes essential. It may represent the longest journey between Point A and Point B, but it empowers both us and our customers as they navigate changes within their enterprises, handle mergers and acquisitions, and compete in their markets. The critical role of ontology comes into play with AI; it serves as an intermediary structure that makes your enterprise accessible to AI in a manner that is secure and regulated, ensuring the necessary observability to build trust in the AI. Additionally, it provides the transparency that regulators require to have confidence in your transition towards becoming a self-driving company.

Alex Karp, Chief Executive Officer

Yes. It allows you to manage large language models more effectively, enabling precise deployment at scale. You can think of it as the process we use on the Foundry back end, where we create pipelines by re-segmenting the data. To make AI functional in an enterprise setting, you need to reorganize and integrate large language models so that they can deliver precise information in thin-use cases. This integration needs to be accurate in order to yield genuine results in an enterprise context, allowing the large language model to perform tasks that would typically require 500 text experts, but with just three people. The question Shyam is addressing is why this development is challenging. While Palantir is succeeding with significant growth and a developing salesforce, building these models is difficult because it requires an understanding of all our product lessons, including security models and how to effectively interact with enterprise data. You need to approach this process with accurate perceptions of the large language models, not just optimistic expectations, and that journey is just beginning for many companies. Creating a productized version of this is a lengthy and complex endeavor. Many tech companies have not recognized this need because they operate individually or lack a product. Transitioning from a single company to one that can be widely implemented demands a specialized product development culture with deep enterprise knowledge. Additionally, to train the large language model for more precise information, you need secure and clean access to the enterprise's underlying data. No other company has this level of access like Palantir, which uniquely positions us to succeed in this area. Fortunately for the world, we are committed to doing this primarily in America, maximizing our potential.

Ana Soro, Finance Team Member

Thank you, both. Our next question is from Kamal who asks, how will the new Chinese AI model DeepSeek impact Palantir and how can Palantir mitigate its impact?

Shyam Sankar, Chief Technology Officer

Well, I think one of the obvious lessons of DeepSeek-R1 is something that we've been saying for the last two years, which is that the models are commoditizing. Yes, they're getting better across both closed and open, but they're also getting more similar and the price of inference is dropping like a rock. But I think the real lesson, the more profound one is that we are at war with China. We are in an AI arms race. And I got into a disagreement with Sam Altman about this at the Senate AI Summit over a year ago, where I was arguing that we are in an AI arms race and there's an opposing view that we can all get along and we can cooperate on these things, and I'm sure the other side feels quite different realizing that their IP has been stolen in this process here. But this war started long ago, it is an economic war with the ascension of China to the World Trade Organization, the greatest IP theft in history, the greatest wealth transfer in history, it is an opium war. The number one cause of deaths of 18 to 45-year-olds in this country is fentanyl. That is coming from China. It is a diplomatic war. The Belt and Road initiative is basically indentured servitude for other countries to the CCP here. And the unprecedented Phase Zero Gray Zone operations of the CCP, how many times are we going to believe that anchors are dragged across the sea that cut undersea cables here? But I think one of the things, China knows they're at war, the question is we kind of equivocate on it as a peace-loving nation. But one of the things I want to make sure we all realize is that the engineering in R1 is exquisite. The optimizations that they've done are really impressive. And I don't think you can get away with the facile explanation that the Chinese just copy and we're the only innovators, we have to wake up with the respect for our adversary and realize that we are competing, but they absolutely did steal a lot of that through distillation of the models and perhaps they stole even more. And then you can look at the GPU sales growth in Singapore. It's a tiny island nation. I'm pretty sure there's some sanction invasion going on there, and we have to realize that the AI race is winner-take-all and it's going to be a whole of nation effort that extends well beyond the DoD in order for us as a nation to win, and that M day was yesterday; the time to mobilize has come.

Ana Soro, Finance Team Member

Thank you, Shyam. Our next question is from Dan with Wedbush. Dan, please turn on your camera and then you'll receive a prompt to unmute your line.

Daniel Ives, Analyst

Thank you. Are you surprised at all?

Shyam Sankar, Chief Technology Officer

Can you repeat the question? We didn't hear you. Thank you.

Daniel Ives, Analyst

Yes. Are you surprised at how quick these sales cycles are actually taking place from when a customer first meets Palantir to now deploying AI initiatives? I mean, does that surprise the team at all?

Ryan Taylor, Chief Revenue Officer

I would say I'm not surprised because of the energy we feel on the ground in talking to customers and the impact. You know, Shyam, shared some examples taking a back office process from the largest banks from five days to under three minutes, taking what used to automating a process for an automotive supplier from what used to take 100 hours to be automated with just a human check and seeing the reactions of those customers when those are implemented and seeing the impact and seeing them wanting to move quickly, seeing them wanting to start quickly, expand quickly, and essentially stay ahead of their competitors like feeling that energy and feeling that reaction on the ground, I'm not surprised because you feel it, it's tangible.

Alex Karp, Chief Executive Officer

What surprises me is how differently customers and countries are reacting. In general, American companies are tackling this revolution pragmatically. Experts advised buying a large language model for enterprises, and customers responded positively, eager to try that alongside options like Palantir. There seems to be no unifying ideology in how things are done in the U.S.; it’s all about results and speed. There’s extensive communication between American enterprises, particularly within sectors, where they share what works and what doesn’t. In contrast, Europe, representing 13% of our business and experiencing just a 4% growth rate last year, is lagging significantly behind the U.S. market, which is more than ten times better in U.S. Comm. In Europe, many are still following outdated practices from the 1950s regarding tech installations. It’s striking to witness rapid adoption from some clients in the U.S., while others still see their projects as just experiments. It's astonishing that one set of companies in one region can embrace change, while those in a culturally similar area resist it. This divergence isn’t solely limited to U.S. Commercial; the battlefield illustrates equally different approaches that reflect cultural values. Some cultures prioritize effective strategies that align with their ethics, reassessing what they value, evaluating past successes, failures, and costs. Yet, there are many who view adopting new technologies as a hindrance rather than an opportunity. This situation is perplexing for investors observing Palantir since paths to adoption differ widely. However, the response in the U.S. is clear: customers expect results in a certain timeframe, and we’ve often exceeded those expectations significantly. Moreover, two or three years ago, delivering projects like Foundry in defense would yield results in six months that previously could have taken a decade. The advantage of time and power makes it harder to obscure departments within the enterprise. In the past, our projects would get stalled despite their importance due to misunderstandings or lack of engagement, but now their impact is undeniable. People acknowledge the significant results even if they don’t appreciate our methods or presentation styles. This tangible success drives the positive outcomes in U.S. Commercial, reflecting our ability to maintain our culture. The Rule of 81 also stems from this response to our organization. We can operate effectively without needing to bring on hundreds of extra personnel each quarter. The demand for our solutions is strong enough to overcome the institutional barriers that previously hindered us.

Ana Soro, Finance Team Member

Thank you. 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.

Mariana Perez Mora, Analyst

Good afternoon, everyone. So my first question is about disruption. Palantir has been thriving when there is disruption from the very beginnings of the company, 9/11, Coronavirus, supply chains, LLMs; now everyone is really concerned about Dodge with the change of administration. I could imagine focus on efficiencies, focus on software modernization, digitalization could actually be a really good opportunity for you. I don't know if you can deep dive on like how is Palantir positioned to that? And my second question probably to Dave, but like I know Shyam as well, when you see this demand, where do you invest to make sure that you are prepared to actually execute on it? Like is it talent, is it sales? Is it engineers? Is it partnerships? Like what do you do to make sure that you can actually capture this opportunity?

Shyam Sankar, Chief Technology Officer

Thank you. Regarding the first question, it's hard to say definitively, but we do observe significant anxiety among the traditional system integrators and providers. Despite this, we remain optimistic. As I mentioned in my recent Senate Armed Services testimony, Palantir's main challenge is the lack of accountability in government. There are ongoing software projects that consume vast resources but fail to deliver meaningful results; they have become entrenched within the bureaucratic system. Take D6A, for example; it cost billions but was ineffective. Soldiers in combat zones favored Palantir because it was functional and only cost millions. I believe Dodge will introduce meritocracy and transparency to government operations, reflecting the principles of our commercial business. The commercial sector thrives on meritocracy and transparency, and our success in that area underpins our optimism. The work we've accomplished in government is highly operational and valuable, and we're enthusiastic about skilled engineers getting involved and experiencing this firsthand.

Alex Karp, Chief Executive Officer

We appreciate disruption, and anything beneficial for America will also benefit Americans and Palantir. You've hit the nail on the head. Disruption reveals what isn't functioning well; there will be both successes and failures. We're witnessing a significant shift. Some may face challenges, but we anticipate unexpected outcomes and aim to succeed. Our focus is on recognizing unforeseen developments, sharing anticipated results, and ultimately achieving our goals. We are committed to this plan and feel quite optimistic about the U.S. landscape.

Dave Glazer, Chief Financial Officer

On the investment side, it's about having quality engineers. You can see this reflected in how we structure our compensation programs. This indicates that while headcount will increase to some extent, our focus is on the quality of engineers rather than quantity, and you will see us continue this approach this year. We implemented it last year, especially in the latter half, and the results are becoming evident in the numbers for the first quarter and beyond.

Shyam Sankar, Chief Technology Officer

Yes, for the first time, people are eager to partner with us. Previously, partnership meetings felt like a waste of time, mostly just for the sake of reporting interactions, similar to high school dating. Our previous experiences with partnerships were not genuine. However, in the last few weeks, I've engaged in meaningful partnership discussions, as many companies in specific industries are under pressure to deliver, and they recognize the quality of our products. Moreover, what we're really focusing on is maintaining our unique culture; I've been visiting different companies for 20 years, and I've never encountered one like ours. It’s crucial to preserve this culture, as every single person at Palantir brings something distinct and valuable. We need to continue attracting and retaining individuals who think differently and are committed to important missions, building products that truly matter, rather than those that are expected. This focus on talent is how we improve margins; it's about creating exceptional products and getting them into the hands of users.

Operator, Operator

Thank you, all. 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?

Alex Karp, Chief Executive Officer

We're doing it. We're doing it and I'm sure you're enjoying this as much as I am. Let's not talk to analysts about the burden of being right, our burdens of investing in ontology, our burdens of actually looking at the math, the burden of reading what the Rule of 40 is, the burden of being honest about what an enterprise software company is or the burden of explaining to your friends that you're really happy. Maybe we should just start talking about, I'm very happy to have you along for the journey, and you are partners for us. Every Palantirian, we are crushing it. Everyone else is listening. We are dedicating our company. We have dedicated our company to the service of the West and the United States of America and we're super proud of the role we play, especially in places we can't talk about. And we love our success in the U.S. and globally. Also, we are doing in the United Kingdom and many other places, Palantir is here to disrupt and make the institutions, we partner with the very best in the world, and when it's necessary to scare enemies and on occasion, kill them. And we hope you're in favor of that. We hope you're enjoying being a partner, and we're really happy and very, very focused on what we're doing. Thank you for your time.

Ana Soro, Finance Team Member

Thank you. That concludes Q&A for today's call.