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Palantir Technologies (NYSE: PLTR)
Q3 2024 Earnings Call
Nov 04, 2024, 5:00 p.m. ET
Palantir Technologies Reports Impressive Q3 2024: A Strong Performance Amid AI Growth
Overview of the Earnings Call
Ana Soro — Office of the Chief Financial Officer
Good afternoon. I’m Ana Soro from Palantir’s finance team, and I’d like to welcome you to our third quarter 2024 earnings call. During this call, we will discuss the results from our recent press release available after the market closed on our Investor Relations website. You may hear forward-looking statements about our upcoming quarters and management’s views on our future performance and plans. It’s important to note that these statements come with risks and uncertainties and may not guarantee actual results. More details on these risks can be found in our press release and SEC filings. Also, we’ll touch on some adjusted financial measures during the call.
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The non-GAAP financial measures mentioned today should supplement, not replace, GAAP measures. You can find additional detail, including reconciliations, in our press release and investor materials available on our Investor Relations website and by contacting investors@palantir.com.
Key Financial Results
Ryan Taylor — Chief Revenue Officer and Chief Legal Officer
Our performance this quarter has been remarkable. Revenue grew by 30% year over year, driven by a surge in AI utilization across the U.S. Our U.S. business showed a 44% year-over-year revenue increase and a sequential growth of 14%. We are focusing on deploying AI models effectively as the technology rapidly expands. Revenue for our U.S. government business grew by 40% year over year, while our U.S. commercial sector experienced 54% growth.
Palantir’s inclusion in the S&P 500 in September highlights our exceptional growth and market leadership amid today’s technological evolution. Most investments in AI have focused on enhancing AI models, but what will truly set apart successful companies is their ability to utilize these models within their own operations. Palantir aims to excel in this area.
Our clients using AIP have successfully automated key processes, drastically improving performance. For example, at one major insurer, we reduced underwriting turnaround from two weeks to three hours. Associated Materials recorded a boost in delivery rates, and Trinity Rail saw a $30 million increase in its bottom line within three months.
In the last quarter, we closed 104 deals exceeding $1 million, with our U.S. commercial business seeing massive growth. We secured nearly $300 million in total contract value, with customer count increasing by 77% compared to 37% the previous year.
Our government business also performed strongly, achieving notable growth as the fiscal year closed. Our Department of Defense business, in particular, grew by 21% quarter-over-quarter. We continue to advance our technology for the military, enabling efficiency that significantly reduces personnel needs.
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Palantir Reports Strong Q3 Growth Amid Rapid AI Advances
The latest quarterly results from Palantir reveal a significant improvement in revenue, driven by increasing demands in the AI sector. With contributions from both government and commercial entities, the company’s outlook remains strong.
Operational Highlights from AI Leadership
Palantir’s commitment to its role in supporting U.S. military services—including the Army, Air Force, Space Force, Navy, and Marine Corps—was emphasized by Vice Admiral Frank Whitworth. He noted, “This partnership is tantamount to ensuring that we keep America safe and ready.” As the AI revolution accelerates, the disparities between those who effectively leverage AI and those who do not are becoming increasingly pronounced.
Shyam Sankar, Chief Technology Officer, discussed the unique positioning of Palantir to meet the rising AI demand, stating, “The divide between AI haves and have-nots is rapidly accelerating in this winner-take-all AI economy.” Highlighting the importance of application delivery, he affirmed that Palantir’s emphasis on producing tangible outcomes instead of mere concepts is proving beneficial.
Sankar pointed out that years of investment in infrastructure have allowed Palantir to excel in AI application. As models improve and converge, the company asserts that the true value lies in the application and workflow layer, where it specializes. He showcased dramatic results from recent implementations, such as automating insurance underwriting for a major insurer with 78 AI agents, reducing processing time from two weeks to just three hours. Similarly, in the government sector, critical intelligence-sharing processes were streamlined significantly.
Strategic Advancements Across Military Applications
Enterprise autonomy remains a focal point for Palantir. The growth and effectiveness of the Combined Joint All Domain Command & Control (CJADC2) system have been essential, with Maven leading operational responses globally. Recently, the Army adopted Maven, setting a precedent within the military framework.
Sankar noted ongoing collaborations with major defense contractors like L3Harris, and highlighted the urgency for U.S. industrial revitalization, especially considering the historical context of military production. He reflected on past manufacturing strategies, like those of Chrysler and General Mills, which displayed the synergistic relationship between defense and commercial industries.
Impressive Financial Performance
Chief Financial Officer Dave Glazer shared that Q3 was particularly successful for Palantir, with a year-over-year revenue growth of 30%, surpassing previous forecasts. This surge was largely attributed to increased AI demand, with the U.S. business growing by 44% year over year.
The U.S. commercial sector saw a remarkable 54% growth year over year. Additionally, the government business expanded by 40%. This achievement influenced an increase in the company’s full-year revenue guidance to a midpoint of $2.807 billion, representing a year-over-year growth rate of 26%.
Palantir also managed to enhance its adjusted operating margin to 38%, demonstrating solid unit economics. The impressive cash flow metrics included $420 million in cash from operations and $435 million in adjusted free cash flow, marking 58% and 60% margins, respectively. For the first time in its history, Palantir recorded over $1 billion in adjusted free cash flow over a trailing 12-month basis and celebrated its addition to the S&P 500 during the previous quarter.
Customer Growth and Future Projections
Palantir’s customer base continues to grow, reaching 629 clients by the end of Q3, reflecting a 39% year-over-year increase. Revenue from their top customers also increased, with trailing 12-month revenue from the top 20 customers rising 12% year over year to $60 million per customer.
In the commercial segment, Q3 revenue grew to $317 million, marking a 27% year-over-year increase. As trends in AI continue to evolve, Palantir’s focus on delivering actionable insights and innovations is set to shape its future growth trajectory.
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Palantir Reports Strong Q3 Growth Amid Rising AI Demand
Commercial Revenue Sees Remarkable Increases
In the third quarter, Palantir’s U.S. commercial revenue reached $179 million, reflecting a significant 54% growth year over year and a 13% increase from the previous quarter. Notably, excluding revenue from strategic commercial contracts, the U.S. commercial business experienced an even greater year-over-year growth rate of 59% and a 12% increase sequentially. This surge is attributed to the growing demand for artificial intelligence, especially through Palantir’s AIP, which has been successfully converting new customers and expanding existing accounts.
New Customers and Total Contract Value Rise
Palantir booked $297 million in U.S. commercial Total Contract Value (TCV) during the quarter, marking a 13% sequential growth. The total remaining deal value for U.S. commercial business climbed 73% year over year and 7% sequentially. The customer base also grew, reaching 321 clients — a 77% increase compared to the same period last year and a 9% rise from the previous quarter.
International Revenue Challenges and Opportunities
International commercial revenue totaled $138 million in the third quarter, showing a modest 3% year-over-year increase but a 7% decline sequentially due to ongoing challenges in Europe and a reduction in revenue from a government-supported enterprise in the Middle East. Despite these challenges, Palantir is boosting its presence in strategic regions, including Asia and the Middle East, and recently secured a multiyear renewal with BP.
Government Segment Growth
Turning to the government segment, third-quarter revenue climbed to $408 million, a 33% year-over-year growth and a 10% increase sequentially. U.S. government revenue surged to $320 million, marking a robust 40% growth year over year and a 15% rise sequentially. This growth stemmed from the execution of existing contracts, new awards related to AI offerings, and favorable timing within the government’s fiscal year-end cycle.
Net Dollar Retention and Remaining Deal Values
The company achieved a net dollar retention rate of 118%, which is an impressive increase of 400 basis points from last quarter. This increase is driven by expansions within existing accounts and newly acquired customer contracts. However, net dollar retention figures do not account for new customer revenues from the past 12 months, suggesting that the company’s recent performance may be even stronger than these numbers indicate.
Financial Margins and Operating Income
Palantir reported an adjusted gross margin of 82% for the quarter. Adjusted income from operations was $276 million, which represents an operating margin of 38%, marking the eighth consecutive quarter of margin expansion. While adjusted expenses rose to $450 million, primarily due to investments in AIP and talent, the company continues to be optimistic about its product pipelines.
Strong Cash Flow Generation
During the quarter, Palantir generated $420 million in cash from operations and an adjusted free cash flow of $435 million, reflecting margins of 58% and 60%, respectively. Notably, the company recorded over $1 billion in adjusted free cash flow over the trailing 12 months for the first time, showcasing solid financial health. As of the end of the quarter, Palantir had $954 million remaining in its share buyback program, having repurchased approximately 1.8 million shares.
Outlook for Q4 and Beyond
Palantir is anticipating fourth-quarter 2024 revenue within the range of $767 million to $771 million, while raising its full-year revenue guidance to between $2.805 billion and $2.809 billion. The company also expects adjusted income from operations to exceed $1 billion, reflecting confidence in continued growth.
Comments from the CEO
Alex Karp, CEO – Karp expressed satisfaction with the impressive results, emphasizing the company’s commitment to building a strong defense infrastructure through software innovation. He reiterated the belief that the software industry would play a critical role in ensuring security and advancing the interests of the United States and its allies, while also highlighting the exceptional talent at Palantir that drives this mission forward.
Palantir Reports Impressive Growth Amid AI Advancements
Transformative Trends in U.S. Market Performance
The U.S. market has displayed a remarkable 44% growth, producing impressive results from a $2 billion base. This growth reflects a powerful trend in both U.S. Government (USG) and commercial sectors, which saw increases of 40% and 30% respectively. Companies like Palantir emphasize the critical role of artificial intelligence (AI) in modernizing defense strategies against aggressive and unethical adversaries. The value AI brings to businesses varies widely—from improving logistics in healthcare to enhancing operational efficiencies in complex manufacturing industries.
Acknowledging American Innovation and Adaptation
Palantir is positioned at the forefront of technological evolution, capitalizing on American innovation without altering its core strategy. The company’s approach asserts that the real value lies not in commoditized AI models but in how these tools are integrated into enterprise practices, producing tangible benefits across various sectors. As skepticism persists around AI capabilities, the market has begun to recognize the genuine utility of these technologies through successful implementation.
Government Adoption & Future Aspirations
Support from vital U.S. government entities, including the White House and defense agencies, showcases a growing trust in large language models to enhance infrastructure. Leaders at Palantir take pride in this development, which reinforces their company mission to delve into AI-driven solutions for enterprise-level needs. After years of steady growth, current achievements affirm their perspective on improving operational efficiency.
In response to shareholder questions on differentiating AI offerings, Chief Technology Officer Shyam Sankar highlighted that while AI models improve, they also become more similar—creating opportunities for established players to leverage years of experience. Palantir’s unique ontology serves as a foundation for implementing AI applications, establishing a competitive edge by enabling customization that drives enterprise performance.
Insights on AI’s Practical Use Cases
Alex Karp, Chief Executive Officer, noted that while perceptions of large language models are evolving, there remains significant skepticism about their practical application. Drawing attention to challenges in applying these technologies effectively, he underscored the importance of tailored solutions that address the intricacies of enterprise environments, particularly in sectors like defense and healthcare—where precise decision-making is crucial.
Demonstrating Profitability Amid Growth Initiatives
Despite increasing investments in AI and global expansion, steady profitability remains a priority. Chief Financial Officer Dave Glazer reported a 30% year-over-year revenue growth for Q3, with U.S. growth reaching 44%. Palantir has consistently maintained a 38% adjusted operating margin, marking the eighth straight quarter of improvement. Looking ahead, the company has raised its guidance for adjusted free cash flow, projecting over $1 billion for the full year of 2024.
These developments assure shareholders of Palantir’s commitment to navigating market challenges while driving innovation and profitability.
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Palantir Reports Strong Q4 Guidance, Emphasizing Strategic Investments in AI
Operating Income Guidance Rises to Over $1 Billion
Palantir Technologies has announced that its operating income guidance for Q4 is exceeding $1 billion, which translates to a remarkable 39% profit margin. This achievement comes as the company continues to invest heavily in the burgeoning field of artificial intelligence (AI), responding to the high demand by attracting technical talent and enhancing its product offerings.
CEO Alex Karp Discusses Unique Business Model
During a recent call, CEO Alex Karp defended Palantir’s unconventional approach, which emphasizes maintaining high-quality partnerships over simply increasing the number of clients. Despite the U.S. market growing by 44%, he expressed confidence in the company’s “Rule of 68,” which reflects its commitment to both margins and growth. Instead of pursuing a vast client base that may not value the product, Palantir seeks to work with fewer, top-tier partners that excel in their industries, leveraging Palantir’s innovative solutions.
Karp pointed out, “We are not trying to become a typical business with thin products and lower margins. Our aim is to maintain both high growth and high profit margins simultaneously.” By enriching product features, he believes the company enhances sales and fosters a competitive edge.
Impressive Growth in Boot Camp Customer Conversions
Ana Soro from the Office of the Chief Financial Officer welcomed the next question from Wedbush analyst Dan Ives, who praised Palantir’s successful quarter. Ives inquired about the fast pace of converting boot camp participants into major deals. Chief Revenue Officer Ryan Taylor attributed this acceleration to impressive year-over-year growth—44% in the U.S. and 54% in U.S. commercial segments. Within two months, new customers from the boot camps have rapidly signed on for seven-figure annual contracts.
As Taylor highlighted, “Successful AI adoption is becoming a key differentiator. Those embracing AI quickly are thriving.” Conversations with customers reveal a swift transition from initial boot camps to significantly larger agreements, showcasing Palantir’s impact across various sectors.
The AI Revolution and Palantir’s Expanding Influence
Karp added that a select group of enthusiastic clients is driving rapid growth. This momentum stems from an increasing number of professionals who, after experiencing Palantir at one organization, readily advocate for its adoption when they move to new companies. The current climate enables organizations to seamlessly integrate business insights with effective technology.
Reflecting on the past decade, Karp noted, “Ten years ago, software adoption at this scale was unprecedented. Now, quick results from our products are achievable thanks to advancements in AI and large language models.” This dynamic allows the company to efficiently serve more organizations without increasing staffing, provided those personnel are exceptionally skilled.
Karp concluded by addressing how insights gained from existing sectors are enriching offerings across different domains, leading to cross-industry applications that were previously nonexistent. This collaborative improvement among various verticals showcases the growing versatility of Palantir’s products.
Further Inquiries and Market Insight
Ana Soro then opened the floor to Mariana Mora from Bank of America. Mora’s question centered on the U.S. government segment, which has seen approximately 40% growth, indicating continued confidence in Palantir’s contributions to governmental solutions.
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Palantir’s Strengthened Partnerships Propel Market Access
Exploring Why Defense Firms Are Seeking Alliances with Palantir
During a recent discussion, questions arose about how firms like L3Harris, Anduril, and Shield AI shifted to highlight their collaboration with Palantir Technologies. What prompted this change in relationship dynamics?
Understanding The Motivations Behind New Partnerships
Shyam Sankar — Chief Technology Officer
The acceleration of partnerships with U.S. government contractors stems from two main factors. First, our Mission Manager initiative is designed to leverage our software infrastructure—Rubix and Apollo—as tools to help these companies increase their revenue. By improving their services in a more profitable way, we also open doors to expanded market access. This strategy positively impacts the government, our partners, and Palantir as well.
Alex Karp — Chief Executive Officer
Shyam isn’t fully acknowledging his contributions, along with Aki and the team. One challenge we faced with the U.S. government was a significant amount of friction. Past perceptions of Palantir suggested we had too much success, resulting in competitors feeling we were profiting at their expense. We strive to support U.S. government allies first, and that’s why the team is committed. Our approach aims to foster collaboration by allowing partners access to government data via our innovative products while ensuring safety and security.
As a result, many tech innovators now see Palantir as an ally. The sentiment has shifted from skepticism to acknowledgment of our superior product offerings. This transition reflects our business strategy and has enhanced our market access, as we’ve encouraged collaboration rather than resistance.
Shyam Sankar — Chief Technology Officer
To build on Alex’s points, our role also involves supporting these defense firms in their production processes. Just as we assist Airbus and Chrysler, we are committed to collaborating with L3, Anduril, Shield AI, and other manufacturers to improve their weapon systems. This is particularly vital where fixed-price contracts can lead to higher profit margins.
Dave Glazer — Chief Financial Officer
Addressing the strategic commercial contracts, it’s important to note they constitute only about 1% of our revenue in Q3. Given that this program concluded three years ago, its relevance is limited moving forward.
Ana Soro — Office of the Chief Financial Officer
With many individual investors joining us today, Alex, do you have any closing thoughts before we conclude our call?
Alex Karp — Chief Executive Officer
We share a collective vision of strengthening our capabilities in America and enhancing our allies’ power. Our individual investors hold a special place within our mission, and I truly appreciate your commitment. Building a business comes with its highs and lows, but we are dedicated to fighting for your interests. Opting for a Direct Public Offering (DPO) allowed individuals like you to participate directly, which has fundamentally contributed to Palantir’s success and benefited our nation.
Thank you for your continued support.
Ana Soro — Office of the Chief Financial Officer
That wraps up the Q&A segment for today’s call.
Duration: 0 minutes
Call participants:
Ana Soro — Office of the Chief Financial Officer
Ryan Taylor — Chief Revenue Officer and Chief Legal Officer
Shyam Sankar — Chief Technology Officer
Dave Glazer — Chief Financial Officer
Alex Karp — Chief Executive Officer
Daniel Ives — Analyst
Mariana Mora — Bank of America Merrill Lynch — Analyst
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