Earnings Call Transcript - PLTR Q4 2023

Ana Soro, Finance Team

Good afternoon. I'm Ana Soro from Palantir's Finance Team, and I'd like to welcome you to our Fourth Quarter 2023 Earnings Call. We'll be discussing the results announced in our press release issued after the market close and posted on our Investor Relations website. During the call, we will make statements regarding our business that may be considered forward looking within applicable securities laws, including statements regarding our first quarter and fiscal 2024 results, management's expectations for our future financial and operational performance, and other statements regarding our plans, prospects, and expectations. These statements are not promises or guarantees and are subject to risks and uncertainties, which could cause them to differ materially from actual results. Information concerning those risks is available in our earnings press release, distributed after the market closed today, and in our SEC filings. We undertake no obligation to update forward-looking statements except as required by law. Further, during the course of today's call, we will refer to certain adjusted financial measures. These non-GAAP financial measures should be considered in addition to, not as a substitute for or in isolation from, GAAP measures. Additional information about these non-GAAP measures, including reconciliation of non-GAAP to comparable GAAP measures, is included in our press release and investor presentation provided today. Our press release, investor presentation, and SEC filings are available on our Investor Relations website at investors.palantir.com. Over the course of the call, we will refer to various growth rates when discussing our business. These rates reflect year-over-year comparisons, unless otherwise stated. Joining me on today's call are Alex Karp, Chief Executive Officer; Shyam Sankar, Chief Technology Officer; Dave Glazer, Chief Financial Officer; and Ryan Taylor, Chief Revenue Officer and Chief Legal Officer. I'll now turn it over to Ryan to start the call.

Ryan Taylor, Chief Revenue Officer

2023 was a tremendous year of opportunity and growth for our company, with US commercial at the forefront, which was meaningfully driven by AIP as the product and bootcamps as the go-to-market motion. We closed out the year with $608 million in fourth quarter revenue, representing 20% year-over-year and 9% sequential growth. Our commercial business surpassed $1 billion in revenue over the last 12 months, a noteworthy milestone. And our fourth quarter commercial revenue grew 32% year-over-year. AIP and bootcamps are accelerating our business, particularly in US commercial, where fourth quarter revenue grew 70% year-over-year, evidencing a significantly expanding addressable market. In October, we set a goal of executing 500 AIP bootcamps within one year. We have already blown that goal out of the water, having completed more than 560 bootcamps across 465 organizations to date. We are deploying AIP to implement hundreds of real tangible use cases in production for our customers. One bootcamp attendee remarked, 'What your team did in just two days was incredible. We can already think of 100 use cases for this.' While another said, 'It seems there are endless solutions. It seems there's nothing Palantir cannot do.' When combining LLMs with Foundry through AIP, the ability to deploy use cases becomes much more widely accessible, so the addressable market expands considerably. We're seeing initial momentum as a result of that expansion, while also still being at the starting line in the journey to capture that market. In our US commercial business, the expanding addressable market, driven by AIP, is propelling growth both through new customer acquisitions and expansions with existing customers. I've never before seen the level of customer enthusiasm and demand that we are currently seeing from AIP in US commercial. With regard to new customer acquisition, the expanding addressable market is reflected in the greater scale of the top of our sales funnel. And now we're doubling down on how we're converting bootcamps to enterprise deals. We're already seeing evidence of bootcamps helping to significantly compress sales cycles and accelerate the rate of new customer acquisition, which rose to 22% sequentially for US commercial in Q4 versus 12% and 4% in Q3 and Q2, respectively. And we more than doubled the number of US commercial deals with TCV of $1 million or more from the fourth quarter in 2022 to 2023. We're also seeing a meaningful increase in our US commercial TCV on a dollar-weighted duration basis, which is up 107% year-over-year and 42% sequentially. We signed a multitude of US commercial deals last quarter. Just to name a few, we signed deals over $25 million each with one of the largest car rental companies, one of the largest telecommunication companies, and one of the largest pharmaceutical and biotechnology corporations in the world. And then, we also signed deals over $10 million each with an American consumer packaged goods holding company, an American automotive seat and electrical systems manufacturer, a comprehensive health network in the Midwest, and a large-scale battery manufacturer. In addition, we signed deals over $5 million each with an American bank holding company, a horse racing regulatory organization, one of the world's largest equipment rental companies, and one of the largest independent non-profit cooperatives in the quick-service restaurant industry. And these are just a few of the examples. Out of these deals, we're seeing several archetypes emerge as a result of AIP. First is the new customer who attends a bootcamp and signs an enterprise contract shortly after. For instance, an American cable television provider signed a nearly $3 million deal following cold outreach on LinkedIn that led to a five-day bootcamp, then an enterprise agreement, all in the span of last quarter. Then, there's AIP-driven conversions of ongoing pilots. Following a two-year prospecting effort, a large American consumer packaged goods holding company agreed to a pilot, during which AIP was also introduced, then converted in December to a five-year $19 million contract. Then, also, there's AIP-driven expansions in key existing accounts, including one of the world's largest telecommunication companies where we demonstrated speed to value at bootcamps by delivering new use cases on top of the existing ontology in as little as 24 hours, with the results contributing to an agreement for a multimillion-dollar expansion of our existing contract. Within our international commercial business, AIP is solidifying our long-standing partnerships with existing customers, particularly in Continental Europe, while also driving pockets of growth in select markets. This includes the renewal of our long-standing partnership with Novartis, a five-year renewal with one of the largest European vehicle manufacturers, and a five-year renewal of our partnership with Swiss Re. In addition to bootcamps, we are deepening distribution channels to more rapidly seize opportunities in certain regions, including Japan. In Q4, we expanded and extended our partnership with Fujitsu to enable them to bring AIP and data integration capabilities to their global client base. We also signed an expansion with SOMPO Care to enable delivery of their real data platform to nursing homes and elder care facilities. Both of these reflected a culmination of months-long efforts prior to deal closing. In our government business, we are actively engaged across all theaters of crisis and conflict. The strength of our US government business is not reflected in the fourth quarter results, which remain muted. Some of this is due to the continuing resolution and timing of large potential contract awards. But it's also a function of the department's pace of scaling their AI and software efforts to match the realities of modern combat, particularly with JADC2. The department is responding to great power competition by ramping up investments in America's unique strength, software. We are focused on deploying on the battlefield and in large programs related to JADC2 combined with our rollout of Mission Manager and the First Breakfast initiatives, which is driving innovation in our engagement model with the government and the defense industrial base. The Army has publicly indicated they anticipate down selection to a single vendor for the next phase of TITAN to occur in Q2 of 2024. We also announced the extension of our partnership with the Army to continue operating and enhancing the Army Vantage platform, which is used for data-driven operations and decision making. We will continue to onboard partners and demonstrate the value of Mission Manager during this option year to deliver on the Army's multi-vendor ecosystem vision. On the strength of our work on the ground and our software that actually works, we expect reacceleration of our US government business in 2024. Conventional wisdom is that government acquisitions are slow, and then you need to invest in the programs that the government is buying in a two to three-year acquisition cycle. And that's what programs like CD 1, AIDP, Vantage, and TITAN look like. But our business has also been driven by urgent acquisitions to meet emergent needs that we predicted and invested in years ahead of time. As the US confronts conflict in three theaters, and as all services seek rapid capabilities to meet those moments, we see substantial opportunity across the department. Turning to our international government business, we are incredibly honored that the NHS chose Palantir to help deliver a federated data platform, awarding us a consumption-based contract with £330 million allocated to improve patient care by bringing together the information needed to plan and deliver care while reducing administrative burden. Over the past few years, an increasing number of NHS trusts have used the software to reduce the care backlog. For example, at Chelsea and Westminster NHS Foundation Trust, it helped bring down the in-patient waiting list by 28%, and operations canceled on the day due to missed preoperative assessments subsequently fell by half. In the fourth quarter, we also received funding from a partner nation related to our ongoing efforts in Eastern Europe, which had a substantial impact on our international government results. Recent world events and global conflicts illustrate the utmost importance of Palantir's mission. It's our duty to uphold our founding principles through our continued dedication to our allies in the midst of current events. We don't take this lightly. Last month, we held our Board meeting in Tel Aviv where I saw firsthand our commitment to and support for Israel. While there, we were proud to announce our strategic partnership to supply the Israeli Defense Ministry with technology to aid in addressing the current situation in Israel. My experience there was a humbling reminder of the role we play and the responsibility that we hold. Reflecting on 2023, we feel immense pride in the missions we are supporting and in our role shepherding our customers through the ongoing transformation of their enterprises with AIP. This ongoing transformation isn't just limited to our customers. I'm proud of the incredible transformation of our enterprise in 2023, and I'm excited about what it will bring in 2024 as we conquer the expanding market. I'll now turn it over to Shyam.

Shyam Sankar, Chief Technology Officer

Thanks, Ryan. As Ryan mentioned, the expanding addressable market, driven by AIP, is propelling growth both through new customer acquisitions and expansions with existing customers. We continue to focus on accelerating the rate of bootcamps with current and prospective customers. From customer feedback, the AI platform meets this moment like none other. AI has radically recalibrated customer expectations for software. Expectations at AIP and Foundry exceed by enabling the elegant integration of humans, software, and AI to deliver operational outcomes quickly. We are focused on the end-to-end problem of value creation, not a small narrow technical slice. Accordingly, our platforms focus on tools, not tuning on transforming business processes, not seeking iotas of insight. AIP is the AI-powered operating system for the enterprise, not a Q&A bot, not an agent framework, not a way to dabble, but a way to deliver. At a recent two-day bootcamp with the construction, engineering, and architecture company, our customer developed a production-ready use case that provided $10 million of savings. They used AIP to build an AI-powered disruption manager application that processes production disruption notifications through AIP Logic to determine what the best new production plan would be. AIP, wielding a linear optimizer as a tool and using LLMs to parameterize and contextualize the disruption, translates the notification to a clear understanding of impact on the optimized schedule. AIP Logic and AIP Automate then rerun the optimizer to generate opportunities to respond to disruption, two days, $10 million. We have covered nearly 200 use cases coming out of all these bootcamps, and we are just getting started. The core theory of value that has driven our product strategy for time eternal is data integration, that bringing new data into an operationally relevant context to expand the complexity, nuance, and surface area of decision-making always produces value. AIP enables us to integrate so many types of new data, video conferences, incident response calls, Slack rooms, PDFs, images, video, audio, and exploit them through the power of LLMs and ontology. So much of what data defines a process is not actually in the system that runs that process but instead in conversations, conference calls, videos of the factory floor, or images of a site. What's in the enterprise process system is a lossy latent representation of this reality. Our software always exploited that phenomenon that the truth is out there, not in your ERP system or that blessed application. With AIP, we are investing in multi-modal approaches to compound on this proven value driver and expand the addressable market of use cases within the enterprise. As I've said before, with AI and LLMs, you can't think your way through it. You have to get your hands dirty and work in anger to get use cases into production. In AIP, we have built a platform to deliver proof, not just proofs of concept, to our customers, and bootcamps are the way to flex that strength. At AIPCon 3, we will have many customers on stage showing you their great work. Come taste the pudding. Turning to government, Palantir is experiencing its own Amazon.com-to-AWS moment, taking exquisite first-party technology that supports the largest scale defense tech player and making it available for third parties to build on and win: Gotham, Gaia, MetaConstellation; this is our software, less well understood. And now, being commercialized is our software infrastructure, platforms like Apollo, the capabilities that we had to build over 20 years to enable hundreds of dev teams to independently release 2,500 products and services to nearly 1,000 customer environments, including about 100 air-gapped environments delivering 90,000 upgrades a week. This infrastructure abstracts away supply chain security, environment heterogeneity, and infrastructure, so that developers can be operationally responsible for their services across it all so they can focus on delivering innovation to the warfighter. And that's exactly why the Palantir government web service's offering is so compelling. $100 billion has been invested by venture capitalists into defense tech since 2021. These companies want to compete on quality, not beating back bureaucracy. Government Web Services creates a capital and time-efficient way to unlock market access for new entrants and incumbents alike. But even beyond defense tech companies, an extended set of these capabilities that we call Mission Manager are uniquely suited to delivering the capabilities that we have heard all government PMs asking for. Program offices want to pursue multi-vendor, big tent ecosystem acquisition strategies with government-owned and managed interfaces. The typical way to pursue this is with a systems integrator where they are managing the integration with billable hours constrained by humans. At Palantir, we do this with software as a software integrator. We see a more significant market opportunity in Mission Manager and Government Web Services over the long term than C2, intel, and data platforms alone. We have already launched Mission Manager projects starting with the US Army, a customer whose needs and feedback have heavily shaped this offering. We continue to invest in relationships with the defense industrial base to help them bend metal more profitably and efficiently. In their earnings calls, America's prime signaled that they're pulling back from getting substantially burned on firm fixed-price contracts. This is a giant step in the wrong direction for America. So, we want to lean in and help them optimize their supply chains, their production plans, quality, and overall delivery against these contracts that have enormous opportunity to generate margin for them. But we are also working aggressively with new entrants to start with Foundry as their production software from day zero. M-Day was yesterday. We have no time to waste to mobilize America's industrial base to ramp production. Finally, our products could not be playing a more central role for real-world events. Our AI-enabled platforms are being leveraged maximally to support key US government goals in the Middle East. We have surged support to Israel to enable the Israeli Defense Forces and intelligence services to leverage Gaia, Gotham Foundry, and AIP to tackle a growing list of use cases from tactical command and control, visual intelligence, forensics, readiness, and production. At the same time, great power competition with China remains top of mind as we continue to invest in moving more of Palantir's mass west of the international date line. And we continue to support Ukraine's efforts directly and through allies. When the bat signal goes up, Palantir's Gotham platform and its family of products have always answered the call. At the same time, monetization of these efforts will take time. The principal reason is that the DoD is at the very beginning of a long-term allocation shift from hardware to software. For example, the Army is spending a mere 0.015% of its budget on command and control software in fiscal year ’24. But as we confront crisis and conflict in three theaters, this is changing. Growth is being driven by the incredible dynamism of the US commercial market, and US government will follow.

Dave Glazer, Chief Financial Officer

Thanks, Shyam. We had an exceptionally strong fourth quarter, marked by our outperformance across revenue, profitability, and cash flow. Revenue growth accelerated to 20% year-over-year in Q4 on the back of our US commercial business, which alone grew 70% year-over-year, a result driven by our momentum in AIP. Adjusted operating margin continued to expand to 34% in the fourth quarter, highlighting the strong unit economics of our business. We beat the high end of our guidance range on both revenue and adjusted operating margin, driving an 800 basis point sequential increase to our Rule of 40 score, from 46% in the third quarter to 54% in the fourth quarter. We also delivered our fifth consecutive quarter of GAAP profitability. In 2023, we generated $210 million of GAAP net income, a $584 million increase from 2022. In the fourth quarter alone, we generated nearly $100 million in GAAP net income. We also delivered our fourth consecutive quarter of GAAP operating profit, generating a $120 million of GAAP operating income in 2023, a $281 million increase year-over-year. Our GAAP operating profit accelerated in each quarter of last year. And in the fourth quarter alone, GAAP operating income increased 65% sequentially to $66 million, our highest quarter ever of GAAP operating income. We generated over $300 million in adjusted free cash flow in the fourth quarter, representing a margin of 50% and over $730 million of adjusted free cash flow for the full year. Turning to our global top-line results. Fourth quarter revenue accelerated to $608 million, up 20% year-over-year and 9% sequentially. We generated $2.23 billion of revenue in 2023, representing a growth rate of 17% year-over-year. We generated $1.38 billion in total US revenue in 2023, representing a growth rate of 19% year-over-year. Excluding the impact of revenue from strategic commercial contracts, fourth quarter revenue grew 20% year-over-year and 8% sequentially, and full year revenue grew 20% year-over-year. Customer count grew 35% year-over-year and 10% sequentially to 497 customers. Revenue from our largest customers continues to expand. Fourth quarter trailing 12-month revenue from our top 20 customers increased to 11% year-over-year to $55 million per customer. Now moving to our commercial segment. Fourth quarter commercial revenue grew 32% year-over-year and 13% sequentially to $284 million. Full year commercial revenue grew 20% year-over-year to over $1 billion, surpassing the $1 billion mark for the first time. Excluding the impact from strategic commercial contracts, fourth quarter commercial revenue grew 35% year-over-year and 12% sequentially, and full year commercial revenue grew 28% year-over-year. Fourth quarter commercial TCV booked was $699 million, our highest commercial TCV quarter in the company's history, representing a 156% growth year-over-year and 74% growth sequentially. Last quarter, our US commercial business saw rapid acceleration and unprecedented demand. Fourth quarter US commercial revenue grew 70% year-over-year and 12% sequentially to $131 million. Full year US commercial revenue grew 36% year-over-year to $457 million. Excluding revenue from strategic commercial contracts, fourth quarter US commercial revenue grew 71% year-over-year and 8% sequentially, and full year US commercial revenue grew 52% year-over-year. Our momentum in AIP is driving both new customer conversions and existing customer expansions. The transformation that AIP is having on our business is best highlighted in our US commercial bookings and backlog. In the fourth quarter, we booked $343 million of US commercial TCV, representing a 107% growth year-over-year on a dollar-weighted duration basis. Total remaining deal value in our US commercial business grew 32% year-over-year and 28% sequentially. Our US commercial customer count grew to 221 customers, reflecting 55% growth year-over-year and 22% growth sequentially. Fourth quarter international commercial revenue grew 11% year-over-year and 14% sequentially to a $154 million, as we continue to capitalize on targeted growth opportunities in Asia, the Middle East, and beyond. As Ryan mentioned, we've been capturing value and footprint from AIP momentum, and two examples are from our work with Fujitsu and SOMPO. These customers have been using AIP for months prior to the deal's closing, resulting in some revenue catch-up last quarter. Full year international commercial revenue grew 9% year-over-year to $546 million. Revenue from strategic commercial contracts was $20 million for the quarter. We anticipate first quarter 2024 revenue from these customers to decline to between $14 million and $16 million compared to $33 million in the first quarter of 2023. We anticipate 2024 revenue from these customers to decline to approximately 2% of full-year revenue compared to approximately 4% of revenue in 2023. Shifting to our government segment. Fourth quarter government revenue grew 11% year-over-year and 5% sequentially to $324 million. Full year government revenue grew 14% year-over-year to $1.22 billion. Fourth quarter US government revenue grew 6% year-over-year and 3% sequentially to $237 million. Full year US government revenue grew 11% year-over-year to $921 million. As Ryan mentioned, while our fourth quarter US government results are muted due to the timing of larger contract awards, we expect our US government business to reaccelerate in 2024. Fourth quarter international government revenue grew 27% year-over-year and 11% sequentially to $87 million, bolstered by our work in healthcare and defense. This included the receipt of funding from a partner nation related to our ongoing efforts in Eastern Europe, which resulted in a revenue catch-up for the quarter. Full year international government revenue grew 23% year-over-year to $301 million. We had an outstanding quarter of bookings. Fourth quarter TCV booked was $1.15 billion, up 192% year-over-year and 38% sequentially. Net dollar retention was 108%, an increase of 100 basis points from last quarter. Net dollar retention does not include revenue from new customers that we acquired in the past 12 months and, therefore, does not yet fully capture the acceleration in our US commercial business. We ended the fourth quarter with $3.9 billion in total remaining deal value, an increase of 5% sequentially, and $1.2 billion in remaining performance obligations, an increase of 28% year-over-year and 26% 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 84% for the quarter and 82% for the year. Adjusted income from operations, which excludes stock-based compensation expense and related employer payroll taxes, was $209 million, representing an adjusted operating margin of 34% and marking the fifth consecutive quarter of expanding adjusted operating margins. Full year adjusted income from operations was $633 million, representing a margin of 28% and a 600 basis point increase compared to 2022. Q4 adjusted expense was $399 million, up 1% sequentially and up 1% year-over-year. Full year adjusted expense was $1.6 billion, up 7% year-over-year. Our bottom-line outperformance in 2023 has positioned us to be able to escalate investment and resources to AIP. As a result, we expect expenses to increase in Q1, but remain focused on calibrating expense growth below revenue growth for the full year in order to continue delivering on our goals of sustained GAAP profitability and operating income. In the fourth quarter, we generated GAAP operating income of $66 million, representing an 11% margin, our fourth consecutive quarter of GAAP operating income. Full year GAAP operating income was $120 million. We generated fourth quarter GAAP net income of $93 million, representing a 15% margin, our fifth consecutive quarter of GAAP profitability. Full year GAAP net income was $210 million. Fourth quarter adjusted earnings per share was $0.08, and GAAP earnings per share was $0.04. Full year adjusted earnings per share was $0.25, and GAAP earnings per share was $0.09. Additionally, our combined revenue growth and adjusted operating margin accelerated to 54% in the fourth quarter, an 800 basis point increase to our Rule of 40 score from the prior quarter. We continue to strive to maintain this exceptional balance of top- and bottom-line performance. Turning to our cash flow. In the fourth quarter, we generated $301 million in cash from operations and $305 million in adjusted free cash flow, both representing a margin of 50%. In 2023, we generated $712 million in cash flow from operations and $731 million in adjusted free cash flow. We ended Q4 with $3.7 billion in cash, cash equivalents, and short-term US treasury securities. We retain access to additional liquidity of up to $500 million through our revolving credit facility, which remains entirely undrawn. Now, turning to our outlook. For Q1 2024, we expect revenue of between $612 million and $616 million; adjusted income from operations of between $196 million and $200 million. For full year 2024, we expect revenue of between $2.652 billion and $2.668 billion; US commercial revenue in excess of $640 million, representing a growth rate of at least 40%; adjusted income from operations of between $834 million and $850 million; adjusted free cash flow of between $800 million and $1 billion; GAAP operating income and net income in each quarter of this year.

Alex Karp, Chief Executive Officer

Welcome to our earnings call. There's a lot to discuss. Our performance in US commercial has been exceptional, with a remarkable 70% year-on-year growth in Q4. We saw over 100 contracts valued at over $1 million, 37 exceeding $5 million, and approximately 21 over $10 million. Achieving this number of contracts is nearly unimaginable given our product’s previous complexity. This improvement is due to our product becoming more user-friendly and enhanced by AI developments, which have made it accessible to a wider market. We are also witnessing significant demand and our ability to meet it through a new piloting method called bootcamp. Two years ago, we conducted 92 pilots, and last year, mainly in the second half, we executed over 500 bootcamps. I am now encouraging CEOs, CTOs, and anyone with a budget to invest in our product to take their best efforts in AI and allow us to run their data through a bootcamp for 10 hours, showing results that significantly outperform their months of efforts. This has resonated well because it is evident that this is a viable solution. While many companies are engaging in AI to varying degrees, we have 300 customers generating operational results with our AIP power, which indicates our approach is working. The scale and speed of our progress are unprecedented for Palantir until now. However, there are challenges; Europe seems hesitant to embrace this technology revolution. Internally, we need to reformulate our entire company to manage the increased demand and develop a more robust sales force. We take pride in our work supporting the US and its military and being involved in critical operations in Ukraine and Israel shortly after October 7. I don’t know any other software company that has engaged so directly in these crucial contexts. This is a pivotal time, built on the belief that software will shape our future, and the successful will be those who embrace this understanding. Our company is attracting top talent, and we are experiencing an unprecedented interest from applicants. Every day, chances to connect with potential recruits are coming in. We are excelling in recruitment like never before, with strong alignment on our values and vision, leading to a successful year. We have streamlined our operations and events, and our internal alignment has never been better. We engage some of the most talented people globally, and we are more motivated and unified in our goals than ever. I'm proud of our shared achievements and our outlook for a strong year ahead, particularly in US commercial. Moreover, the strength of our US commercial performance and the application of our technologies in critical global conflicts should translate well into the government sector, and I am optimistic about our potential success there.

Ana Soro, Finance Team

With that, we'll begin with a few questions from our shareholders before we open up the call. Our first question is from Andrew. Given the significant increase in demand for AIP, could the management team elaborate on the advancements made in formulating a monetization strategy for these offerings?

Ryan Taylor, Chief Revenue Officer

The demand for AIP is exceptionally high, with bootcamps serving as the key delivery method. We're experiencing AIP drive our expanding addressable market. In Q4 alone, we closed 103 deals exceeding $1 million. Having been closely involved in many of these deals, I can confidently say that the enthusiasm and demand for AIP and Palantir are unparalleled in my 14 years here. We are witnessing this excitement firsthand with our customers, and it's starting to reflect in our Q4 results. In October, we aimed to conduct 500 bootcamps for AIP's outreach, and we've already surpassed that goal with over 560 bootcamps within just four months, and the momentum is growing. In US commercial, we achieved a 70% year-over-year revenue growth in Q4, a 55% increase in customer count year-over-year, and a 107% growth in TCV on an adjusted basis. We're also observing different monetization opportunities, such as bootcamps rapidly converting into paying customers, expanding existing accounts, and accelerating AIP introductions with customers we have engaged previously. We are just scratching the surface of that addressable market, and I’m eager to see where this journey takes us.

Ana Soro, Finance Team

Thanks, Ryan. Our next question is from Tanner who asks, what kind of interest has the FedStart program seen as of late? Has the market responded to this? And will there be additional marketing made towards these start-ups? And relatedly, when do you expect Apollo to be a significant contributor to Palantir's revenue?

Shyam Sankar, Chief Technology Officer

Great. Thanks, Tanner. Yeah, FedStart has been a hit. And I think it's easy to understand why. There's been $100 billion of capital that's flowed into the defense tech community at large. No one can afford the two years and $2 million it takes to achieve this accreditation. This provides market access. We've started with an intense focus on IL5, bringing folks to the DoD market. We plan to release an IL6 FedStart at the end of Q2 and FedRAMP High at the end of Q3, early Q4. And we're also going to be taking this to our allies. So, we intend to launch FedStart with the UK on the secret network and above top-secret network later this year. Apollo is having its moment. I think the charisma it has with customers when they see it running at scale, managing all $2.2 billion of our revenue. I think a big part of this is they've spent the last two years trying to solve these problems on their own. And then, this really understands how much value it can contribute to them, how much can accelerate them, both on the government program side but also on the company side, where companies are struggling with how to efficiently deliver modern software into these environments. But I think the bigger thing that I'm really excited about is Mission Manager, which is Apollo Rubix, which is our Zero Trust compute and networking infrastructure and the ontology software development kit, the OSDK as a combined offering to the government to really give the government what they've been asking for, which is infrastructure that allows them to build and manage multi-vendor big tent ecosystems that drive continuous competition and allow the government to actually control the interfaces and avoid lock-in. And so, you can think of FedStart as actually the first product that we've launched on top of Mission Manager infrastructure. We've started doing other projects, including Army C2 work, but that's going to be a very exciting trend for us.

Alex Karp, Chief Executive Officer

Let me just give an addendum here. Shyam launched and built FedStart. But one of the most important things it did is before we launched FedStart, the $100 billion of investment in kind of new defense tech, largely at the impression Palantir was competitive with them. And we weren't competitive with them. And FedStart aligns all those venture capitalists and all their investments in most of their companies with Palantir because we can allow them to get on to classified networks much quicker so that they can actually show results to their investors much quicker. And that means a lot of the resistance to us is not only disappearing but it's actually been converted into support for Palantir, support for what we're doing. And those people are really helping spread the obvious Palantir gospel instead of wondering how they can compete with us, they're wondering how we can succeed together.

Ana Soro, Finance Team

Thank you, both. Our next question is from Keith. Is your greatest competitor still your potential customers' own IT department, or has that changed?

Shyam Sankar, Chief Technology Officer

Thanks, Keith. We certainly used to feel that way. But when you look at bootcamps, you look at how much charisma AIP has with IT and the fact that we're winning with IT with Apollo, with the OSDK, with capabilities like Marketplace, that's certainly not the case anymore. IT has become some of our biggest champions. And I think what that's revealed for us is that perhaps the issue was never actually IT. It was this software industrial complex. Everything Alex was talking about earlier, these thin products that were really designed to sell and they're more like a drug than they are like medicine, and the sort of strict adherence to architectural conformity. But what I think is exciting about GenAI is it's blown up all of that. It's been a big reset button here. The whole map, the whole architecture is up for grabs, and we're working very closely with IT to write that map, to write the architecture that is actually delivering all these operational use cases for these customers.

Alex Karp, Chief Executive Officer

One of the most exciting aspects of attending these meetings is that, unlike three or four years ago, it's now unpredictable who will support us and who won’t. During these meetings, often the IT personnel are informing the CEO that there's no option but to move forward with installation quickly. There's a cultural transformation happening in the US, particularly within IT departments, where they are now accountable for creating business value, including on a global scale. They are less interested in creating PowerPoint presentations to illustrate theoretical benefits and more focused on demonstrating tangible revenue results quickly for themselves, their company, and their employees. As a result, they are now largely our allies, and potentially, we can also engage with analysts.

Ana Soro, Finance Team

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

Mariana Perez, Analyst

Good afternoon, everyone. So, I have two questions, one in US government and the second one today on financials. So, the first one is this. You mentioned in your prepared remarks, we're accelerating US government growth and opportunities across the board. But this is contrasting to what we have heard from the primes this quarter. They have agreed that more things are moving towards software, but they argue that the DoD has to figure out how to buy software and they have to figure out how to sell software. From your point of view, how large is the change that is netted in this award approach, but also how large is the advantage that Palantir has in this environment where you have been selling software for a long time now?

Shyam Sankar, Chief Technology Officer

Yeah. Look, we've been doing this for two decades as you point out, and I think that gives us a perspective of what was it like two decades ago and what is it like now. And it's wildly different and so much has changed. Now, I don't want to underestimate how much has to continue changing. And I think the department recognizes that and is working on that, but to not acknowledge the progress, I think, would be disingenuous here. Unlike the primes, who use to focus on hardware and now responding to software, we've always focused on software. And one of the things about software is it evolves incredibly quickly. If you think about the software we were deploying to do the Afghan non-combatant evacuation operations and how much that evolved moving into Ukraine, how much that evolved moving into the current crisis in CENTCOM, it is evolving faster than procurement can procure it. And I think one of the unique strengths that we have is that we are investing and mutating and managing the software independent of the actual procurement actions. And that means that we always have software that’s so far in the future that it will meet the moment that the DoD actually has.

Alex Karp, Chief Executive Officer

As a follow-up, the fundamental premise of Palantir has always been that the reality of a fragmented and violent world imposes optimal conditions on institutions. I believe everyone recognizes that we have the best software globally. In a non-threatening environment, that may not hold much significance. However, it has been crucial in Ukraine and Israel, where our software is deployed in some of the most vital areas within the Department of Defense. If we are compelled to face multiple threats, accurate software is essential for managing munitions effectively. The more perilous the situation becomes, the more essential it is for software to be battle-tested and reliable. I believe we are approaching a very critical juncture. The reason being, our GDP growth is significantly outpacing that of China. Some may argue that this should lead to peace, but I contend that the logical outcome is a perception among our adversaries that America will be more powerful tomorrow than it is today. They lack a strong GDP growth narrative because they don't build systems as effectively as we do, nor do they have a tech community or market comparable to ours. Just look at our results. As the world grows more dangerous, every company, large or small, including startups like ours, will need to validate that their software performs well in real-world scenarios. We embrace this challenge wholeheartedly. If it were up to me, software would only be released in America and its allies once validated in real battle conditions. Unfortunately, our adversaries will impose that necessity. For those who can't assess our battlefield capabilities directly, you can observe the outcomes in Israel and Ukraine, as well as what's occurring in the US commercial sector. We are operating in a logical environment, growing rapidly even with minimal salesforce, because our software truly matters. In critical situations, the personal rapport with our team members, whether they appreciate my humor or not, is secondary to ensuring safety. That's why we anticipate success.

Ana Soro, Finance Team

Thank you, Alex. 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.

Dan Ives, Analyst

Thank you. So, I think, inconceivable the right word in terms of everything that you produced this quarter. My question would be, are you starting to actually see an acceleration in terms of AIP customer engagement, not even just from Q4, but even starting 2024?

Alex Karp, Chief Executive Officer

Do you want to handle that as the man on the front line?

Ryan Taylor, Chief Revenue Officer

Yes, definitely. We are still in the early stages with AIP and its rollout, as well as in the market overall. However, based on what we are observing from our customers—looking at the results from Q3 to Q4 and our ongoing conversations—we are seeing a clear acceleration in the adoption of this technology by businesses. We believe this trend will continue.

Alex Karp, Chief Executive Officer

We cannot hold enough AIP conferences and we invite you and your team to join us. However, we have to limit the number of attendees, similar to how tickets are managed for a rock concert. For those assessing our company, we will extend invitations to our bootcamps. We encourage you to utilize our software; we’re not just debating theoretical concepts or business school teachings about what is better, we are showing you it is indeed better through practical demonstration. Regarding your question, we have already exceeded capacity for our AIP bootcamp, and we are struggling to manage this high demand. Consequently, we are restructuring the company and have numerous employees in Germany and France whom I am urging to relocate to America. Our recruiting efforts are ongoing and we are experiencing a surge of candidates who are interested in working with us because they are disenchanted with employers who seem to express opinions only when it is convenient and who offer ineffective products. I am personally getting involved in recruitment to find the right talent, as we aim to expand in response to the demand. This is a tangible challenge we are addressing.

Ana Soro, Finance Team

Thank you. Alex, as usual, we have a lot of our shareholders on the line. Is there anything you'd like to say before we end the call?

Alex Karp, Chief Executive Officer

We are committed to strengthening the West and its allies, and I truly appreciate your support. At our company, we prioritize our investors. Our most significant investors are at Palantir, followed by individuals investing their own money. Your support motivates us greatly. I encounter individual investors during customer visits, even at odd hours like 2:00 a.m. or 3:00 a.m. on video calls. When I ask why they are working at that hour to improve their enterprises with AIP or Foundry, they consistently respond that it is because Palantir is advocating for their rights and freedoms. We are dedicated to fighting for your rights and liberty, and we will continue to do so by delivering top-notch products to our allies, undermining our adversaries, and empowering U.S. commercial capabilities to significantly outpace other countries. Thank you.

Ana Soro, Finance Team

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