Q2 2021 Palantir Technologies Inc Earnings Call
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Good morning.
Welcome to Palin tiers second quarter 2021 earnings call.
We'll be discussing the results announced in our press release issued prior to the market open and posted on our Investor Relations website.
During the call we will make statements regarding our business that may be considered forward looking within the applicable securities laws, including statements regarding our third quarter and fiscal 2021.
Management's expectations for our future financial and operational performance and.
And other statements regarding our plans prospects and expectations.
These statements are not promises or guarantees and are subject to risks and uncertainties, which could cause them to differ materially from actual results information concerning those risks is available in our earnings press release distributed prior to market open today and in our SEC filings, we undertake no obligation to update forward looking statements except as required.
Feared 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 measure.
<unk> 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 that talented dot com <unk>.
Joining me on today's call are Sean <unk>, our Chief operating Officer, Dave Glaser, Chief Financial Officer, and Kevin Kawasaki Global head of business development 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 I will turn the call over to Sean to get Us started.
Thank you Rodney.
Before diving into results I'd like to share a bit of our latest product innovation something that we deployed at the global information dominance experiments guide three last month, we call. It the meta constellation and it's radically changing how satellites our task the latency of collection and its creating a fundamental link and that AI enabled decision change overnight, we orchestrated a med <unk>.
<unk> of 237 satellites by working with an array of commercial space companies.
These companies they've been deploying constellations of hyper spectral radar and sensors into orbit and we are putting all of that power directly into the hands of the frontline's empowering the edge. It's one of the largest collaborative sensor constellation's ever to see operational use here to show US more Shannon, who has led our work defining and building the AI enabled.
Jamie.
Parity with meta constellation software harnessing the power of growing satellite constellations.
During AI interface to provide insights and decision makers here on it.
Our medical insulation innovative existing satellite optimizing Henry of orbital centers.
AI models.
Wowing users to add time sensitive questions across the entire planet endpoint.
Important questions like where are there indicators of wildfires or power climate changes affecting crop productivity and when and where our naval fleets conducting operations.
Medical inflation, pushing <unk> edge AI technology to a new frontier.
As we all know submarines present threats to the U S and its allies and to protect strategic interests Allied forces need to track every submarines deployment around the world and at the forefront of this challenge our anti submarine warfare officers.
They turn to meta constellation to monitor towards specific.
Let me tell you a little bit about what that looks like.
In response to Allied monitoring request medical installation dynamically determining which orbiting sensors are available.
Integrated talent here the constellation then collaboratively schedule coverage over each port.
Meanwhile, our polo for Agi ethane tailored and micro models to each satellite running onboard the satellite the models will automatically find <unk> and stream those insights directly to users.
With emission plan Apollo automatically reconfigure as each of the satellites pushing the right micro models into orbit.
And as a software payload on board commentary as edge AI platform connects complex satellite subsystem to model integrating new AI with the hardware. The best part my favorite part is that as at orbit the edge AI platform hotspot micro models.
Rapidly reconfiguring the satellite.
The model is packed with imagery they detect submarine geo locate them and then determine any movement since the last collection times all in under a second.
When the AICPA submarine movement that Anthony directly Downlinks to Allied forces.
Satellite passes overhead and the anti submarine warfare officers are notified in just minutes empowering them to respond in a way that we've never seen before.
As you can tell we're really excited about <unk> and.
Indeed at the software that brings hundreds of satellites to bear on your hardest problems.
Other FC anti submarine warfare officer that I, just described using it to find February or first responders, leveraging AI chatbot wildfires guidance.
Medical installation is there to empower users.
Thank you Shannon cutting edge product and continued efficiencies in distribution drove exceptionally strong year over year Q2 results total revenue grew 49% in Q2 U S commercial revenue accelerated to 90% second quarter PCB book Rose one one.
175% year over year to $925 million, we added 20 net new customers in Q2 alone while generating $7.9 million of average revenue per customer. The average revenue of the top 20 customers grew sequentially quarter over quarter from 36 million to $39 million the number of commercial customers.
Grew 32% over last quarter.
We closed 62 deals of $1 million more 30 of which were for $5 million or more in 'twenty, one where for $10 million or more for the first half. We grew revenue, 49%, we generated 28% adjusted free cash flow and a 33% adjusted operating margin and visibility into future growth is strong as total deal value increase.
63% to $3.4 billion product innovation is at the core of these results and the momentum that's driving our business forward you just saw how innovations on edge AI delivered through Apollo are transforming the capabilities of our customers. We recently completed a number of crucial first for this technology, including running onboard advanced military.
Helicopters and special operations faster and just last week, our edge AI was inferencing from space 484 kilometers above our heads truly from space to mud.
Now Apollo our third platform has always been our secret advantage. It enables us to take our SaaS offerings to where no SaaS has gone before drone sub satellites classified networks and on premises without losing the efficiencies and the scalability of our centrally managed SaaS solution.
We've been able to meet our customers, where they are and now we're going to help our customers meet their customers, where they are by commercializing Apollo itself. We are hearing from established software companies that have large installed bases of on prem customers, but theyre investing other future R&D and cloud only solution they have a problem.
The big ones were a core part of their key large enterprises and government customers, they're not going to upgrade to the cloud they require on prem deployments.
At one fortune 500 prospect alone, we've identified a quarter to a $5 billion worth of Upsells that theyre going to have to forego because the latest and greatest that they've developed only works in the cloud and these specific customers require to work on premises. This company can leverage our years of R&D and Apollo to enable their existing cloud based SaaS software too.
One where the customer needs it with minimal effort leveraging the same Dev ops and SRA teams, who runs all of their cloud native offerings to run this as well Apollo makes running on Prem feel like running in the cloud we expect to start to do a lot more here as the sheer expanse of the last 15 years of R&D investments that sought to see around corners start to become.
Commercialized, we continue to see distributional efficiencies, coupled with accelerating product innovation for established companies as well for instance, one of the largest banks in Europe came to us with an urgent compliance challenge facing its retail banking or the bank has over 10000 branches and needed to move quickly to match, new regulatory requirements and optimize <unk>.
Anti money laundering, and compliance processes in just two days, we were able to deploy an entire solution for this customer leveraging our out of the box functionality built in foundry a timeline previously unthinkable in the eyes of the customer and frankly, it would have been unthinkable to us even three years ago, where an equivalent project might have taken three months. This is <unk>.
<unk> possible because of our product innovations from software defined data integration are driving the marginal cost of data integration to zero archetypes and are no code technology Theyre driving the marginal cost of application development to zero. All of this allows our customers to focus on solving the ever evolving problem at hand from the outset instead of wasting time wrangling.
These systems for months or years on it.
It is exciting to see our technology being tasked with increasingly complex operational challenges and to see deliver compounding wins for these customers in these scenarios and.
In mining foundries deployed at one of Rio Tinto state of the art underground mining operations and asset made up of five separate mine shafts, comprising 200 kilometers of tunnels and reaching a maximum of one three kilometers below the Earth's surface Rio is using foundry to build a digital <unk> to keep its employees safe and streamline operations Center.
Data will allow rio to pinpoint precision to monitor equipment performance to measure geotechnical conditions ensure the safety of its people underground.
You can do all of this from thousands of miles away and it's Bruce Mann hub, where caving experts are able to assist operations in the field and energy we are pioneering more ways to empower operational users to drive strategic outcomes are no code technologies, extending to real time sensor data, enabling the frontline to easily create and manage their own multi source sensor fusion.
Speed of their operations. This is the shortest path from data to decisions real time High consequence high school environments, whether it's edge AI or edge application. We are at the extreme edge our momentum in utilities continues to accelerate where the foundry platform has a unique fit and is delivering scaled value in weeks in Q1, we announced our partner.
Our ship with Engie in PGD and Q2, we added two more utilities national grid, and Southern California, Edison, where we're creating a connected utility from <unk>, that's public safety power shutoff to procurement to grid management and safety.
More broadly what we've really proven over the last few quarters and Thats really reflected in the tremendous growth of the commercial customer account, 32% growth in Q2.
Is that foundries for everyone. The market is change I've talked about how covid really showed where the emperor has no closed it isn't just the big established companies that took notice of his bear assets. The young guns did too and these young guns basically foundry as an alternative to building bespoke solutions in AWS or azure or any other cloud they need software today that is ready for <unk>.
Tomorrow, our software is that enabling platform and a growing number of companies from early stage to newly newly public companies. They are pursuing that vision on foundry, we refer to these organizations as Dave zero companies.
The innovation and our distribution is enabling us to partner with these organizations across many industries as they build their offerings on foundry.
And biotech Cellulosic is leveraging our experience in both pharma R&D and manufacturing to accelerate drug development and set a new standard for cell based therapies <unk> is drawing on the work that we've done spanning pharma companies like the no fee and Merck group and public health platforms like <unk> unite to pool in share trial data with development partners and build out real world evidence.
<unk> capabilities to support key disease areas in automotive, we Joe is building a SaaS ecosystem connected vehicle data expanding use cases across OEM suppliers insurers and government authorities on top of the foundry and logistics box is building a digital twin incorporating both shipment and sales operation spending raw materials, all the way through to end customers and just so much more.
We are making foundry accessible to even more days zero companies with foundry for builders program, which supports early stage companies with access to foundry, allowing these companies to build their operations on foundry from the outset, enabling them not just to efficiently manage but actually to yield the increasing complexity of their growing businesses to disrupt incumbents and to win.
And in the marketplace and while competitors are bogged down by legacy investments and an obsession with reinventing every wheel internally. These companies. They have no. It kind of lumpy. They are just founders entrepreneurs and engineers focused on winning and they see foundry is the best way to do that this program includes companies like chapter who is revolutionizing the consumer experience in Medicare plan.
Selection enrollment, where GETCO robotics is doing badass robots for industrial inspection and origin materials, which is helping companies decarbonize the supply chain to achieve net zero and really net negative carbon footprint and we plan to extend this offering to more early stage companies in a variety of industries over time, we see substantial opportunity to grow our business and push the ambition of.
Our product with these days of a company and we couldnt be more excited to power. The next generation of builders.
And this innovation is all happening in the context of ongoing investment and business strength, we continue to invest in distribution across the business. We added more than 60 hires into our sales function in the second quarter, surpassing 100 hires for the first half of the year and the pipeline is accelerating active commercial pilots increased 26% just since the end of April we added 20 net new.
In the second quarter alone our commercial customer account grew 32% in Q2, and we booked just over $900 million of total contract value in the second quarter, providing substantial visibility into our future growth.
In our government business, we continue to see a broadening scope of opportunities and expansion of work that we're doing across defense health care and other critical initiatives, we signed new deals with the U S Army Air Force and Coast Guard, including a two year $100 million deal with U S. Special operations Command, we participated in the U S. Northern command third global information Dom.
Minutes experiment in July where our software is driving applied AI decision, making for real world scenarios revolutionizing north comparability to wheel data to outpace adversaries and healthcare, we signed new deals in the U S with HHS and CDC in July we announced the doubling of our contract with the Tiberius platform, which the U S government users to track vaccine <unk>.
Reduction distribution and administration these wins they reflect our expanding reach in both combating the pandemic and driving innovation across the healthcare landscape.
Our work in government continues to expand beyond defense and healthcare and Q2, the FAA selected <unk> to provide the software backbone that will support aircraft certification and operational safety activities. The.
The FAA will deploy foundry to conduct critical tasks, including the ongoing monitoring of the 737 Max fleets returned to service.
This continues powershares thriving aerospace business with our deep partnership with Airbus and our work with airlines through Skyway.
We continue to develop our channel partnerships as well in June we announced a new partnership with data robot focused on helping customers with demand forecast Covid disruptions have made a fool all the old ways of managing these forecast and created a huge amount of urgency to transform by leveraging data robots model development and foundry is best in class offer differ.
Data integration ontology and operational applications and workflows brands can employ agile strategies for demand forecasting that can be deployed in minutes. Instead of months, we continued to build our relationships with global size. Our work with Accenture Federal has really taken off we're working across agencies from Intel defense and civilian and Accenture is investing and scaling this momentum.
Across all of their market units.
As a cultural note we were very excited to hold our annual hack week last week back in our offices, how quick is a storied and lively pounder tradition dating back to our earliest days aggregates. So demonstrative of our culture of innovation one that puts the very best people next to the problems that matter the problems that define our time and empowers each and every one of them to <unk>.
The man, who yes is often me to F off.
Some of our most innovative ideas and core technologies came out of <unk>, including the precursor to Apollo and Thats. The interesting thing the big ideas arent always on the roadmap that term of false comfort and polished lie that big Tech companies provide us market texture note the big ideas, they come out of inspiration and perspiration and I am keenly aware.
As management at the very best ideas and most profound ideas. They started heresy heterodoxies that a hierarchical structure will snuff out.
We apologize where an artist colony extraordinarily an exquisitely flat.
And that has kept alive by organizing and reorganizing around our customers' problems often with great volatility now by gazing at our enables or testifying roadmaps, we do the hard thing and the brave thing because that's the right thing for our customers. So I just wanted to celebrate the hobbits, who crushed <unk> present and past.
Along with <unk>.
Now I'll turn it over to Dave to talk through the financials. Thanks, Sean I'll review, our second quarter performance, followed by our outlook.
We had a record breaking Q2 as continued product innovation and our ongoing investments in distribution to a strong financial performance as deal activity accelerated in the second quarter.
We generated year over year revenue growth of 49% for the quarter and for the first half, bringing Q2 revenue to $376 million in first half revenue to $717 million.
We generated $50 million and adjusted free cash flow in the second quarter, bringing our adjusted free cash flow for the first half of the year about $200 million of free cash flow margin of 28% in the first half, which was a $433 million improvement year over year, we had a strong first half and have increasing visibility for the second half of the year as reflected by our raised full year.
Adjusted free cash flow guidance Q2, adjusted operating income increased to $117 million representing margin of 31% our third straight quarter with adjusted operating margins above 30% second quarter total contract value bookings grew 175% year over year to $925 million, providing increased visibility for <unk>.
<unk> long term growth, while second quarter billings increased 40% year over year to $379 million. We added 20, net new customers in the quarter, 13% quarter over quarter sequential growth for our customer count our commercial customer count grew 32% quarter over quarter sequentially drilling down into our second quarter revenue revenue.
Growth was 49% ahead of our prior guidance of 43%, we continue to see strength across our U S business, which grew 60% year over year in Q2 looking at revenue by segment second quarter government revenue was $232 million of 66% year over year to strengthen our government business was driven by new deals with the U S Army.
<unk> Air Force Coos Guard HHS, CDC as well as milestone revenue for international government customer.
We continue to build a strong pipeline of opportunities within our government segment and we expect these yields to drive sustained elevated growth in our government business moving forward.
Second quarter commercial revenue growth accelerated to $144 million of 28% year over year, compared with 19% growth in the first quarter.
Speed and innovation are driving strong results in our commercial business, particularly in the U S where commercial revenue growth accelerated to 90% year over year in Q2 up from 72% in Q1.
We're also seeing growth in our international business as economies abroad continue to reopen.
In the second quarter, we closed 62 deals of 1 million or more in total contract value was 30 deals of $5 million or more including 21 deals were $10 million more.
Total contract value booked in the second quarter grew 175% year over year to $925 million.
We ended the second quarter with total remaining deal value of $3.4 billion of 63% year over year, while commercial deal value was up 122% year over year to $2.1 billion.
Average contract duration was three nine years up.
From three seven years at the end of Q1.
Second quarter trailing 12 month revenue per customer with $7.9 million up 19% year over year and down modestly from Q1 result of rapid customer acquisition that yielded 20 net new customers in the quarter.
As we noted on our first quarter call as new customer additions accelerated driven by growth in our sales team and channel partners and Onboarding of new innovative D. Zero companies, we would expect average revenue per customer to taper, reflecting a broadening customer base when excluding the impact of new customers added in Q2 average revenue per customer was $8.8 million up nine.
Percent compared with Q1 average trailing 12 month revenue for top 20 customers was $39 million up 36% year over year next I'll discuss our margins and expenses on an adjusted basis, which excludes stock based compensation second quarter. Adjusted gross margin was 82% up 200 basis points versus the year ago period Conor.
<unk> margin was 58% a 300 basis points versus the year ago period second quarter income from operations, excluding stock based compensation and related employer payroll taxes was $117 million, representing a margin of 31% adjusted expenses were $259 million up 16% year over year and reflect our ongoing.
<unk> scaling across the business, including both product development and sales to support durable long term growth, we hired more than 100 salespeople in the first half of the year and expect hiring to continue at a strong clip in the second half of 2021 marketing spend nearly doubled in Q2 compared with Q1 as we continue to build out with brand and performance marketing to drive both sales and.
Recruiting funnels.
In the second quarter, we generated $50 million and adjusted free cash flow, representing a margin of 13% and adjusted free cash flow exceeded $200 million in the first half of 2021, given our strong cash flow position, we repaid our outstanding $200 million term loan facility and are currently debt free after paying off the debt we ended the quarter with $2.3 billion.
And cash and cash equivalents with.
With our balance sheet and our strengthening cash flow profile, we plan to continue to invest in both product innovation and broadening distribution as well as partnering with D zero companies to help them rapidly scale their businesses, while leveraging our software platforms in the first half of the year, we committed to invest $250 million and we funded approximately $20 million of those.
Commitments to date.
We have and expect to continue to make additional strategic investments in the future.
In the second quarter $3 million or less than 1% of our quarterly revenue was from companies. We invested in as part of this strategic investment program, we launched earlier this year.
Turning to our outlook for Q3 revenue guidance, we expect revenue of $385 million and we expect adjusted operating margin of 22% for the quarter on the back of a strong first half adjusted free cash flow performance and continuing momentum in the second half of the year, we are raising full year adjusted free cash flow guidance to in excess of 300.
Yes.
Continuing to execute the guidance strategy set forth by our CEO, Alex Karp and our year end 2020 earnings call with regard to long term revenue guidance, we're providing and we'll continue to provide guidance of greater than 30% revenue growth for this year and the next four years at each earnings call.
With that I'll turn the call over to Rodney to open up Q&A.
Thanks, Dave we'll begin Q&A with questions submitted from our shareholders through SEC.
Sean This first one for you Ralph can asks as pounds or deepen its relationships within the enterprise customer base to increase share of wallet.
These customers lifecycle is evolving over time as <unk> becomes a default operating system and how is it creating a flywheel of network effects.
Thanks Ralph.
It took about eight years I think are all going to be the operating system of the special operations.
Took about four years to be the operating system at aviation.
Two months to be the operating system of Covid research and collaboration and taking about two days due to the operating and the danger of companies and their ambitions to power their industry, our vision remains unchanged.
The <unk> operating system for the enterprise in the industry, but customers are moving faster and faster and the network effects are profound.
Today, the 5% of the Boeing fleet is managed and Airbus is skywards ecosystem that is a particularly powerful testament to the network effects. When you recall that Microsoft Boeing launched a competitive ecosystem nearly a year before pound Euro Airbus launched Skyway and this further underscores the fundamental.
Between that.
Lego block DIY approach versus our end to end operating system.
Another example, one pharma company is harmonized over 2000 clinical trials in foundry.
The pooled analysis of five clinical trials is often considered a big deal to get the FERC category defining and their ambition to take that clinical trial at the other pharma companies and collaborate on R&D and if you believe that superior clinical impacts will drive superior R&D outcome and the network effect you are going to be a game changer.
And if you're a pharma company and you are participating where does that leave probably at a fundamental compounding disadvantage.
Remain relevant joy.
Right.
Using foundry as an operating system for their internal R&D to the operating system for the entire industry.
Distinct for us about Dave Europe, how big is that Theyre, starting with that ambition from the begin qualification.
Transponder industry they are starting ecosystem first.
Great. Thanks, Sean.
Kevin It's excellent for you Avi asks are you satisfied with the number of new customers added in the last quarter. Thanks Avi.
Yes, the numbers are strong customer count is accelerating, especially if you look at the commercial space, where we grew our customer count to 32% quarter over quarter and up 61% for the first half of the year. So on track to more than double our commercial customer base by end of the year.
Deal volume was also up we closed 62 deals of $1 million or more.
That is a 72% increase from last quarter.
Second quarter, PCV grew 175% to $925 million year over year.
Current customers also group if you net out new customers. The average revenue per customer grew from $8.1 million to eight 8 million quarter over quarter, our largest customers top 20 also grew from 36 million to 39.
These results are driven by investments in our product.
And efficiencies and distribution so I'll finish by reiterating what Sean just discussed we are now delivering the full power of foundry small companies through a subscription model and we're doing this across many sectors ranging from healthcare to robotic software company SaaS businesses using <unk>.
<unk> to build their offerings.
Great Kevin sticking with you on the next one Gigabits on asks can you guys describe the long term vision with your pipe investments into pre revenue companies talking foundry is buying revenue, but I believe it is a clever high risk high reward strategy enhancing network effects.
Thank you.
Huge opportunity for us to invest in our customers and Thats something we feel we've always done now we can do with our balance sheet. These are companies that we think we will be working with for a very long time further we think that using our product is going to help them win.
One thing, we've always looked score and our customer relationships.
The founder mentality that is one of our most of the lines no bureaucracy high speed quality execution. So that's something that we're looking for in the deal.
Founder mentality.
So also break down the numbers a little bit here, Dave already mentioned that less than 1% of our revenue came from this program in Q2. Additionally.
Additionally of the $925 million of total TPB in Q2.
$543 million from this program.
This is a long term strategy and the deal in the long term as well, so we expect longer duration and time to revenue recognition.
A portion of the Q2 TCE outside of the strategic investments is also strong totaling $382 million. This grew at a sequential rate of 33% quarter over quarter. So in other words assume no investment program GCB growing 33%.
Holly from last quarter, so very pleased with that.
And when we sign a lot of great institution, Sds and National Greg John Deere bass Pro <unk>. The FAA, we expanded with the U S Army Air Force Coast Guard CDC, HHS, Tiberius, which as you probably know by now you have to track vaccine production distribution and administration.
And last but not least we did $100 million expansion with United States Special forces.
Great. Thanks, Kevin Dave coming to you at the next one Linda asks when does talented you expect to report positive GAAP EPS.
Thanks Lynn.
Delivering high growth with strong cash flow results and very few institutions can do that at our scale.
Three numbers, we focus on a lot of revenue.
Our ability to generate cash from that revenue, which is measured by adjusted free cash flow in the first half of this year, we had 49% revenue growth with 28% adjusted free cash flow margin.
And we raised our full year adjusted free cash flow outlook by 100% to in excess of $300 million from our prior guidance of 150 million.
Great. Thanks, Dave Sean coming back to you Ahmed asks how fast is the business growing and what are some possible competitive threats to volunteer.
Thanks Mohamad.
For the first half we grew revenue 49%.
We generated 28% adjusted free cash flow margin and a 33% adjusted operating income.
Our commercial customer count grew 32% sequentially, it's up 61% since the beginning of the year. Our US commercial revenue grew 90% year over year. The international commercial revenue is accelerating our healthcare at work is growing and what you see with all of these things.
Our growth, it's only constrained by the addition of our customer and on the front lines of Covid. There is no lack of ambition around the vaccination programs or brave clinical R&D projects by the transformation of commercial supply chain and what and you see that most clearly.
Zero companies. These days are of companies they want to accomplish in five months with the PPP and the Airbus decides to do with foundry over five years.
And that's the thing I'm most excited about in terms of working with these companies or calculate enormous problems on aggressive timelines and they're planning to do all of that on top of the foundry.
You should talk to that and see what they think about the competitive threat and what their alternatives, where the mic to think compression is that they either build on top of foundry or are they spend a lot more time and a lot more money building something bespoke from scratch on the revenue and I think thats, a pretty easy decision initiatives. So simply put the competitive threat is powered it and lease it and where the customer is breakeven.
We win every time.
Great job on another one for you Jason apps. It seems that nominee analysts understand with calendar does are there plans for the company to increase its PR presence to increase awareness of its business model, which may lead to increased utilization of powershares various software platforms.
Thanks, Jason.
Can't really tell you why some people don't know or understand what we do I can tell you about the people who do know though.
Special operator, who chasetown cart to give them.
<unk>, who worked tirelessly to deliver vaccines in the U S and the UK the French government is a rates correct.
Putting on the eve of Micron's election, the German police, who constituted by Congress and time and supply chain operators at the World Food program tackling Covid <unk> impact on global poverty hunger. The factory workers on the Assembly line from Duluth to Detroit decides it's driving clinical R&D among covid the hostages.
This is a Nigerian who will rescue.
We seem to be clear and crisp by communicating with depot with users at the extreme edge and perhaps San Luis can talk to them.
Great. Thanks, Dave.
Dave One for you Benjamin asks why has there been a significant increase of insider selling recently.
Thanks, Andrew Youre, referring to the scheduled sales you see from Gartner a few times a month each month that started earlier this year.
As I mentioned on the call last quarter Q1 harvest granted a large number of options 10 years ago that expired in December at the end of the year.
In short it doesn't exercise of the options before then you will lose all the shares.
So far in 2021.
Harvest exercised roughly $40 million of those options selling half of the shares and using the funds to exercise and hold the remaining half.
To put this in perspective purpose based hundreds of millions of dollars of income taxes. This year as part of these transactions and are likely a couple of hundred million more by the end of the year for.
For the roughly $27 million auctions that are set to expire at the end of December is scheduled to sell half of them and then use the funds received exercise and hold you back.
Great. Thanks, Dave I'm coming back to you Ralston asks as <unk> said <unk> numbers are a lagging indicator of several macro trends the management got right what forward looking micro and macro trends give management confidence that can be leveraged to improving shareholders' value are delivering alpha over time.
Thanks Alan.
If I told him analysts on Wall Street, Investor four months ago that Covid would not going away I would've been lap that I happened to notice because I can tell them that in I would lap that over and over again look.
You had a great fall the World has changed you think going back we built software for the World. We are in now in the World. We will continue to be and we saw that coming we anticipated future needs supply chain I'll never be the same isn't just about today's shortage. The old world is fixated on the accuracy of the forecast the new World is all about how well you manage the.
Eric in your forecast the era is the era is the opportunity to win health care is never going to be the same it's not just about the vaccine is going to be about working through the 18 month backlog and the impact on morbidity and mortality from delayed deferred diagnosis.
Every industry has been transformed our customers. They were just to put it and frankly angry but how few of their it investments over the last decade growth needed to know.
A huge mark to market.
The reality is that shocked will be morphing isn't a one off it's the new normal year of investing mindlessly inefficiency has resulted in enormous for agility.
We are the resilient operating system for the future champion.
Great John one more for you before you open it up Steve asks how will pound here continue to attract and keep great talent.
Thanks, Steve.
This is a question that is near and Dear to my heart.
We have such a unique culture and I think I can't really tell you the culture.
Management can explain our culture company it has to be.
Emanates from every corner of the institution.
And that culture and fueled by our mission, we have flipped on concrete floors at Bagdad, we have been on the Frontlines of fighting HIV TB malaria and Ebola in Africa, we have quoted from the factory floors from to loose the Detroit I can't describe the culture, but I can tell you the fundamental tenant that the culture is symptomatic of we arent artist Collyn, we're not a factory.
People don't come to how much we don't come to Patrick you want a predictable career trajectory or some sort of methodical ladder to climb we don't have that some companies are factory you startup and software engineer one and if you work your way up it can be offered a generic one and a half or something like that but we're an artist calling it makes no sense to tell DALI did paint more like Monet, we are looking for.
Unique and extraordinary people, who by definition are going to be uneven in spike and we're committed to going on a journey to build a bespoke roll around who they are assuming we spend so much time thinking critically about are people, who are they who can they be how do we maximize them and their potential with <unk>.
I'm kind of thinking about exactly what gamma radiation your incoming Bruce banner needs to turn into the incredible Hulk and then we irradiate them.
Working at foundry.
For everyone.
Is the fellowship as charismatic beyond compare.
And you don't get this culture for free the entropy of the universe is against you you have to wake up everyday and fight for.
Great. Thanks, John operator, well open up the call for Q&A.
If you would like to ask a question. Please press Star then the number one on your telephone keypad.
Again that is smaller than the number one and your first question is from Brexit.
<unk> with Jefferies.
Hey, good morning, Thanks for the color on the commercial business was impressive quarter on quarter I am curious if you could just drilling and can talk to.
A little more of the drivers from direct sales build out to the IBM partnership.
Bringing talented everyone can you can you maybe just.
Give us a little more color in terms of what's driving this and how you think about the shape of this for.
For the back half of the year. Thank you.
Absolutely Thanks, Brent I'll start there.
Youre seeing the effects of our investment in the direct Salesforce CRM.
We are really happy about that.
100%, both you've hired in the first half of the year here the ramping well, we're getting a lot more account coverage here I'm really take logos in the quarter and national grid.
Year end.
And not just of course.
Exceptional strength in commercial sector, but also we're seeing that in the government sector as well with new wins like with the FAA.
And so you should expect to see more Europe of course channels contributing we're really happy about that I'd say about 10%.
The App came from the channel, but really the impact the direct salesforce starting to take hold here.
Your next question is from Alex Zukin with Wolfe.
Hey, guys. Thanks for taking my question I guess Chuck maybe.
Just first can you talk about.
Revisiting the question around the percentage of <unk>, that's coming from the strategic partnerships. How do you expect that to evolve what are the duration of some of these contracts that that was a pretty striking metric, but I think it was 50% of your <unk> was from the strategic partnerships. So just wanted to get a better understanding of what.
The overall strategy is.
For the company there.
Yeah sure so.
We break down the numbers, a little bit here, and David mentioned less than 1% of the revenue.
This program in Q2.
Additionally, at the $925 million or <unk> <unk> in Q2.543 from the program.
To your question the long term strategy the deal in the very long term as well. So we expect some longer duration and time to revenue recognition.
Talked about this a little bit, but just to reiterate the portion of piece of the outside of the strategic investment.
It is also very strong totaling $382 million sequential rate of 33% quarter over quarter. So in other words without the investment program Tc grew 33%.
Sequentially and then.
Thank you just a little bit more on sort of ITE.
The long term vision here Dr. Carpenter discussed how we are building software for the future in the prep and foundry is the operating system for the modern enterprise and we're bringing foundry for people who have the ambition to transform industries and create new ones.
Talked about this but we're looking at companies and.
Cell based therapeutics biomedical health care delivery quantum computing satellite electric vehicles, delivering worldwide intelligence from space and a lot more of.
These are companies that have cutting edge technology of their own and.
And they are choosing foundry to help drive their vision forward.
We think that it will follow and our strategic investment program accelerate.
Your next question is from Keith Weiss with Morgan Stanley.
Excellent. Thank you guys for taking the question.
Maybe two questions one following up on Alex's when we think about the 2008 net new commercial customers can you give us a sense of how many of those came from the strategic partnership program and then second question kind of more product related I know you guys have a lot of work to increase the modularity of the overall platform can you talk to us about how that is.
Progressing and how customers have been adopting that and thats been part of what's accelerating new customer adoption.
Absolutely. Thank you.
Seven of the 20 I believe came from the strategic investment program.
And on the product we absolutely are continuing to invest in modularity modularity theyre very excited about that I discuss some of the.
Evolution of edge AI, we shed some of the video earlier on.
But more broadly everything from ERP suite, the software defined data integration the expansion number systems, we're integrating with.
Accelerating the archetypes that I talked about the example, with the EU bank and being able to deploy production anti money laundering workflow compliance workload in two days, which would have taken us three months three years ago and I think the alternatives are years in the making there so.
Enabling our bank by just the AML answer instead of all the foundry has absolutely spent our time to market.
It is helping us accelerate our customer growth.
Okay. Thank you guys.
Your last question comes from Mark Kelley with Morningstar.
Hey, Thanks for taking my question.
When thinking about the guidance, where the last three quarters of over 30% operating margin kind of artificially high and then could you provide some details on the operating margin guidance for the third quarter are there particular line items are expected to ramp up and as the low to mid 20% range that we should expect as you ramp for growth in the next coming years.
Thanks, Mark and thanks for pointing out last three quarters.
Above 30%.
And this quarter.
Strategic lifestyle, three quarters about 30% this quarter above above.
Above 30% and I think we're doing that while we are investing in the business right and so if you look at the first half of this year. We added 100 salespeople Sean talked about how we can really keep that pace up going into the into the back to Europe. We're building on our structure around and building out the operation there.
Marketing spend really almost doubled in Q2 coming off Q1, we're going to continue to do that.
Throughout the year here.
John.
Can you to hire aggressively into product development.
It's across the business.
And so as we think about the year, how do we think about continuing to invest.
And we're really excited about.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.