Q3 2021 Palantir Technologies Inc Earnings Call
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Good morning, Good morning, welcome to the calendar year's third quarter 2021 earnings will.
We will be discussing the results announced in our press release issued prior to the market open market hosted on our Investor Relations website.
Okay.
During the call we will make statements regarding our business that may be considered forward looking within applicable security laws.
Including statements regarding our fourth quarter fiscal 2021 resolve unresolved management's expectations for 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 could cause that could cause material materially Maxwell is actual 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 these 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.
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 <unk> SEC filings are available on our Investor Relations website at investors that Pelletier Dot com.
Joining me on today's call are Sean Thank our Chief operating Officer, Dave Glaser, Chief Financial Officer, and Kevin <unk> 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.
You Rodney.
It was a fantastic quarter across the board in Q3 total revenue grew 36% commercial revenue growth has accelerated every quarter over the last year from 4% in Q4, 2020% to 19% in Q1 to 28% in Q2 now 37% in Q3 at this scale acceleration like this its gravity.
Defy U S commercial revenue growth accelerated once again to 103% year over year. We added 34 net new customers in Q3 to put this in perspective, our commercial customer account grew by 46% sequentially, we have more than doubled our commercial customer accounts at the beginning of the year.
We closed 54 deals of $1 million of more 33 of which were $5 million or more in 18 of which were 10 million or more.
Adjusted free cash flow was 119 million a margin of 30%.
Total deal value grew 50% to $3 6 billion.
Commercial deal value more than doubled to $2 2 billion.
Remaining performance obligations increased by 172% and year to date, we have grown revenue 44% to over 1.1 billion. We have generated adjusted free cash flow margin of 29% and 32% adjusted operating margin. There are so many wins this quarter instead of going through them customer by customer as I, usually do I wanted to highlight three.
The themes.
One we are seeing more traction selling into the defense industrial base as a customer foundry has shown that it can help in the production of the <unk> hundred 20 of Ram pickup trucks auto parts PPE in tractors, you can do it better faster and cheaper than the defense industrial base is seeing that he can have the same impact on the production of fighter Jets Naval ships.
Land vehicles, we're excited to do more here with L. Three Harris Huntington Ingalls and other large prime secondly, our work in automotive and more generally mobility is growing we are adding more customers across the mobility value chain from Oems and their suppliers all the way to EV charging companies and insurers and lastly, our work in health care is.
Adding the NHS MD Anderson 70 academic medical centers through the NIH and received the department of veteran affairs, and even more regional U S providers means that foundry is helping to manage over 300 million patient lives and growing.
We have a very unique opportunity and a diverse footprint that we believe continues to uniquely position us to deliver on the necessary transformation in health care delivery from operational excellence the complex clinical care.
Cutting edge product and continued innovation and distribution drove these exceptional results in Q3, and you can really see that in the consistently accelerating commercial business. We are seeing a profound pull on foundry in the market as organizations Digest and synthesize the lessons from the shocks of Covid and subsequent events. There is a canonical spot for <unk>.
Read the enterprise architecture that the market is synthesized foundry as the nervous system and the cardiovascular system of the enterprise. It is the connective tissue that connects your analytics to your operational systems, such an architecture marries a digital twin of the enterprise with action API that allow you to first model and stimulate and second orchestrate and execute complex.
<unk> cross functional transaction.
As the COVID-19 crisis pulled the tied out that's exactly what was revealed as missing companies needed to move beyond visibility beyond analytical insights to having the technical infrastructure to translate that into coordinated orchestrated actions in the operations of their business and one of the coolest places to see this working as with our days zero companies. These companies.
These have enormous ambition and deeply value the step change in speed and the reduction of expenses foundry delivers when consumed as infrastructure as a service we Joe was able to develop market ready applications in as little as six weeks on foundry sarcos integrating half a trillion data points per month to accelerate design maintenance and commercialization of their iron Man suite.
Lithium is flying through ground and flight testing wielding the vast data generated by every sensor streaming from the aircraft I'd like to introduce some of our days here of founders to unpack this a little bit more.
[music]. These companies have a strong engineering culture, and they've been able to very quickly take on the paas.
Farm and make it a core part of their tech infrastructure.
Our generation manufacturer grew.
Grew up in Detroit from my earliest days was inspired by the importance of manufacturing is an industry. That's Australia. We believe the impact of cloud manufacturing will be as profound on the physical world as cloud computing has been in a digital world.
Igniting a leading the mobility revolution, we're locking the value of connected vehicle data and autonomous vehicle data pounces foundry supercharged, our distribution to thousands and thousands of new supplies of new solutions and industry foundry locks.
The business potential of volume.
And ourselves.
Constantly try to twist, our business to fit inside someone else's perspective of how businesses work and that's it.
They've been using foundry and their data operating system and to and from cloud hosting too.
D at Atkins of integration from different data sources to using a lot of the out of the box connectors that we have in the platform.
From their harmonizing the data App using open source languages take Python sequel.
Using spark as they're distributed compute engine.
We're collecting data on every part that we make today about the design day about how that part is made in our factories data about how when that parties moved ultimately to our customers.
Speed is all superpower speeds mean real time processing of over 17 billion data points a day.
First in real time, if a 12 trillion data points, our business is premised upon high quality data and the understanding of their data on the part of people once they have the data at hand.
They've been just studying a number of operational applications, mostly for their internal operations to help think supercharged side, but also for even kind of external third party users as part of their infection.
Offering.
Foundry enables us to build solutions Boston unlock the unique intelligence for discrete for Huizhou Apache with talented was the obvious choice.
If youre using foundry.
Think about what your positioning as a company is because everybody will be using.
A big thanks to our builders, who shared more about their ambition in the transformative impact of foundry on their operations. We started this program to supercharge earlier stage companies, enabling them to create a central operating system.
For their data and to scale rapidly from day zero. These companies, they're not just managing their data and their operations. They are wielding that tablet scale and win.
We announced our second cohort of builders in October there are seven companies from a diverse set of industries and we continue to partner with innovative companies across industries, such as automotive biotech healthcare media and more.
Turning more broadly to the commercial business the scope of our impact of expanding foundry as infrastructure is a big theme. We are excited about customers are building their software on top of our platform and now we have yet another way to power that with a major product innovation that extends the openness and flexibility of our infrastructure for developers that were calling operational Apis.
Or <unk> for short this liberate the ontology to serve as the nervous system. The cardiovascular system. The enterprise as a unified action an orchestration layer. This API toolset allows for third parties and customer developers to programmatically interact with foundries ontology in this headless mode, you can leverage the power of the ontology.
And all of their enterprise applications via this open architecture.
What's uniquely powerful about the ontology, it's not announce it's not the things in the business. It's the representation of the verbs the actions that can be taken to those things in the business. The fact that inventory can be allocated production can be scheduled orders can be fulfilled.
Accomplish these deceptively simple actions requires you to read and write to potentially tens of source systems transactional.
Andre let you orchestrate complex cross system decisions to win in turn market disruption into your competitive Glory. For example, a large industry partner is unlocking value by integrating Microsoft power apps with the foundry ontology power apps through our O P eyes can affect business decision powering workflows and writing data back to external.
A racial and transactional systems like ERP Mes warehouse management systems and more.
This is the modern operating system in action.
We launched at Pollo this past week as a commercial offering enabling any software company to leverage our deployment infrastructure to take their staff, where no SAS has gone before on prep classified clouds are GAAP networks and to the edge.
Here to tell us more as Greg the army the Mad scientist behind the conception and launch of Apollo.
Pose an orchestration engine for the enterprise, enabling continuous deployment configuration management and central software operations across many cloud and on Prem environments.
Pollo employees, a number of different concurrent processes, including Virgin management advanced raw strategies, and released promotion to ensure platform stay up to date and operational 24 seven.
So you can release new capabilities deployed them at scale compose they mentioned novel platforms, Derisk releases and rapidly resolve problems as they arise.
Having deployment health and continuity on a single pane of glass engineers common interface to handle risk management concerns unique to each environment.
Different environments have different risk tolerance is when it comes to software updates for instance, you once raw new features Mary environments first before moving those same updates to classified networks are critical edge hardware that are harder to operate.
Paula facilities software stability across these different environments by using a constant called released channels.
<unk> can subscribe to release channel in accordance with their individual risk tolerance appetite for new features.
Once pushed via release channel Hollow enables the evaluation of rollout through a powerful suite of tools to help operators understand the risks associated with each pipeline surface problems and ship code better.
Pollo makes it possible to take the same approach to continuous delivery across different security classification boundaries by enabling you to deploy an Apollo hub within each network now.
Each network hub is responsible for managing the environment on that network.
This compliance were changed management enables pollo to essentially managed services environment across different compliance regime.
During seamless operations across a highly regulated business environments.
Paulo, effectively removes the deployment environment as constrained, enabling engineers to focus on velocity and application code.
They are a code once that works for all customer environments.
And we continue to push the envelope of Apollo capability by enabling streaming processing at the edge. Once again, we are building five years ahead of the market software Sherman's building technology that will meet its moment with our latest inverse.
You will be able to develop streaming pipelines in foundry that you then package up version and continuously deploy to edge compute infrastructure be it a humvee a satellite of <unk> base station to enable real time processing of large amounts of data in a decentralized efficient manner. These pipelines there'll be version upgrade manage an orchestrated by Apollo.
You'll be able to blue Green upgrade your streaming pipeline across submarines factory floors, five and 16 networks. This is a revolutionary capability that will give our customers the edge against their competition.
There are two modular offerings. So we've taken the market that we're really quite excited about carbon emissions management and AML for crypto and Fintech.
Starting with carbon emissions management, there's a huge need to not simply account for carbon and more broadly admissions, but what are you going to do about it day to day month to month, how do you manage tradeoffs between production on time and full revenue margin and emissions targets. How do you understand the levers you have to pull and the implications of each levers do you have the ability.
To understand the consequences of changing a supplier or setting a different delivery routing or changing our production location on your emission can you put that information into a single pane of glass. The same pain that your company uses to manage production or revenue or margin because until you do emissions management will only be a source of data for you something.
You do so that you're not left behind.
But once you do you'll be able to use it to beat your competition and win in the market. These workflows are tailor made for foundry and leverage our digital twin and supply chain capabilities to present, a single pane of glass to view revenue margin production and all emissions to not just see but to manage the outcome there.
This is an area that we are seeing growing momentum in no small part because of the obvious charisma of alpha of developing a competitive edge customers across disparate industries are building carbon focused common operating pictures to track live emissions to stimulate emissions impacts of the changes to for example suppliers to technologies and regulations.
To make real time changes to their business. The other offering we're really excited about is foundry for crypto. We have found a unique fit with fast growing crypto companies that need industrialized compliance solutions, we are leveraging our deep anti money laundering and know your customer expertise developed over years, helping governments find compliance issues with the world's largest banks.
And helping those banks respond and harden their compliance program I mentioned last quarter, how one of Europe's largest retail banks has deployed our AML solution in two days.
Two days the cost speed and performance is Unmatchable. These crypto exchanges in Fintech Disruptors are actually technical and can easily discern what legacy banks struggle to that legacy compliance solutions are often two or more decades behind.
We believe there are no alternatives that can compete on cost speed and performance and we're really excited to put more weight behind us in the market.
Turning to government, we continue to advance our mission of becoming the U S government central operating system as we extend our footprint across defense health care and civilian agencies.
In the third quarter, we signed new deals with the department of Health and Human services, The Air Force, the NIH and more.
I'm proud to say that the meta constellation, which we featured in last quarter's earnings call met its moment when called upon by U K M O D to enable noncombatant evacuation operations in Afghanistan.
As a reminder, and met a constellation is radically changing how satellites or test the latency of collection and its creating a fundamental link in the AI enabled kill chain. We are orchestrating a meta constellation of more than 300 satellites by working with an array of commercial space companies. These companies had been deploying constellations of hyper spectral radar and eland.
Sensors into orbit and we're putting all of that power directly into the hands of the frontline empowering the edge end to end Gotham and foundry infrastructure, including meta constellation provided unparalleled capability and we stood up and lessen the day for U K M. O D. Operations. In addition, medic constellation was also used to great effect at last month's scar.
Dragon U S military exercises, where it provided timely and effective targeting information. This is all made possible because of our pollo for edge AI.
We were recently down selected by the U S army to be the sole provider of the Army's intelligence data fabric and analytics foundation for the capability dropped two program.
The army will deploy Gotham to support intelligence workflows worldwide with a globally Federated intelligence data fabric and analytics platform spanning multiple security classifications.
Our work on <unk> is just one of many initiatives of which we are engaging with the army, including PD, one and tighten that will accelerate the decision chain and provide decisive advantage for our armed forces in the near pure fight.
We have a motivating set of customers and growing pipeline for our big pursuits in 'twenty, two and beyond and.
And it is growing every quarter, we're not just competing for programs our unique capabilities are creating their own opportunities. Our work in health care continues to expand and we recently signed a four year $87 million contract with the Department of veteran Affairs. This department served 9 million veterans and their family members and spends nearly eight.
Quarter trillion dollars per year.
After supporting them in the exigent see during COVID-19 response, we won an unrestricted competition to help power their data transformation efforts. Our software is going to enable the VA to integrate data across its large it landscape and ultimately to deliver better care and services for our veterans. It is a privilege to serve our veterans and Warfighters.
On the battlefield and in their period after service.
Our collaboration with the NIH continues in the fight against COVID-19, as entry see deepens its partnership with passenger leveraging foundry as their research backbone. This two year award carries a total potential value of $60 million and the entry C. Data enclave represents one of the largest collections of COVID-19 Health records in the World.
Additionally, our work with and Cat's expanded with an increase in total potential value of $24 million.
Zooming out a bit for mud this space Big picture in the government segment, we are seeing an emerging opportunity to help define the next wave of disruption one thing perhaps the one thing we have demonstrated to the market is that it is possible to sell software at scale to the government for programs of record where the government might have historically, otherwise bought labor and services and of course in doing so we have.
Radically transform the margin profile of these big government contracts. There is an immense opportunity in this sector to partner with existing government contractors to product ties their solutions that they are delivering our services today and in doing so to transform the EBITDA they generate against their existing revenue with our platforms. We have proven we can do this with our business.
And we are exploring opportunities to partner with firms that have a disruptive vision and realize that they can stand on our shoulders to 15 years and nearly $3 billion of R&D that we've done the product size and scale their own offerings.
Before turning it over to Dave I wanted to give a quick shout out to every Hobbit and just reflect on our journey as much over the last two decades has over the last year.
A year ago, we gave our first results as a public company, we should be proud of those five quarters of results, but even prouder of the collective effort and passion that we got those results. We pivoted the whole company to respond to the exigent event that COVID-19 for government and commercial entities around the world, but of course that happened before we went public.
And we all had that question.
Will we preserve the cultural essence of pound or after the listing will.
Well, we have the radical ability to organize and reorganized around the problem at hand, while capturing the integral of our innovation.
While in Q3, we could answer that question definitively, yes, when the bat signal was put up in the night Sky. The Motley crew of habits answered the call for America and her allied five quarters down at least 500 more to go over to you Dave.
Thanks, Sean I'll review, our third quarter performance, followed by our outlook, we had a record breaking Q3 as continued product innovation and our ongoing investments in distribution led to accelerating customer account growth and strong free cash flow.
We generated revenue growth of 36% in the quarter, bringing Q3 revenue to $392 million and year to date revenue to more than $1 1 billion up 44% versus the first nine months of last year. Our business continues to demonstrate very strong cash generation third.
Third quarter cash from operations was $101 million, an improvement of $153 million versus the prior year period.
We delivered $119 million and adjusted free cash flow in the third quarter, representing a margin of 30% the strength of our third quarter performance brings year to date adjusted free cash flow to $320 million, representing a free cash flow margin of 29% and a $605 million improvement from the prior year period third.
<unk> adjusted operating income increased to $116 million, representing a margin of 30% our fourth consecutive quarter with adjusted operating margin of 30% or greater.
We added 34 net new customers in the third quarter, and our total customer count from 20% quarter over quarter, our commercial customer count increased 46% quarter over quarter and it has more than doubled since the end of 2020.
Our new customers are scaling faster and more efficiently than ever before.
Year to date revenue from new customers acquired in year is up 66% to $38 million and these customers are already generating contribution margin of 36%. This compares which is $23 million in revenue and a negative 26% contribution margin for new customers over the comparable period in 2020.
Drilling down into our third quarter revenue total revenue grew 36% year over year ahead of our prior guidance of 33%.
Our U S business continues to demonstrate strong growth with revenue increasing 45% year over year in Q3.
Looking at our Q3 revenue year over year by segment, we continue to see broad based momentum in our commercial business.
Total commercial revenue was $174 million up 37% and representing our third straight quarter of accelerating commercial revenue growth.
Our investments in product and distribution continue to drive growth, particularly in the U S where commercial revenue increased 103% in Q3 and.
In our international business continues to gain momentum as well with international and commercial revenue growth accelerating for the third straight quarter as economies continue to reopen and recover government revenue increased 34% as we signed new deals with the Air Force HHS and NIH and we were recently down selected by the U S Army to provide its intelligence data.
Rick and analytic solution under <unk> in.
In the third quarter, we closed 54 deals of a million or more in total contract value, including 33 deals of 5 million or more than 80 deals of $10 million more third quarter billings increased 56% year over year and remaining performance obligation increased 172% year over year as we continued to improve contracting pushout or removed termination.
For convenience causes and moved to shorter duration billing cycles.
Total remaining deal value increased 50% year over year to $3 6 billion with commercial remaining deal value, increasing a 101% third quarter trailing 12 month revenue per customer was $7 million down sequentially and reflecting continued acceleration in customer acquisition as we added 34 net new customers in the quarter.
We continue to expect rapid expansion in our customer base moving forward as you invest in our sales teams and channel partners and we would expect average revenue per customer to continue to taper as a result of our growing customer count.
When excluding new customers added in the quarter average revenue per customer was $8 8 million of 26% year over year, and we continue to generate strong growth with our largest customers trailing 12 month revenue per top 20 customers was $41 3 million up 35% year over year.
Next I'll discuss our third quarter margins and expenses on an adjusted basis, which excludes stock based compensation.
Adjusted gross margin was 82% up from 81% in a year ago period.
Contribution margin was 57% up from 56% in the year ago period.
Third quarter income from operations, excluding stock based compensation and related employer payroll taxes was $116 million, representing an adjusted operating margin of 30% our fourth consecutive quarter with adjusted operating margin at or above 30%.
Third quarter, adjusted expenses were $276 million up 2% year over year and 28% when adjusting for one time direct listing expenses incurred in Q3 2020.
The bulk of expense growth is driven by continued investments in product development and sales to support durable long term growth.
Marketing expenses were up 144% quarter over quarter as we continue to fuel demand generation.
The third quarter, we generated $119 million and adjusted free cash flow, representing a margin of 30%.
Through the first nine months of 2021, adjusted free cash flow was $320 million, representing an improvement of $605 million versus the prior year period.
We ended the third quarter with over $2 3 billion in cash and no debt.
Turning to our outlook for Q4 revenue guidance, we expect revenue of $418 million and we expect adjusted operating margin of 22%. Our Q4 revenue guidance implies full year 2021 revenue of 1.5, $2 7 billion, which represents another year revenue growth of 40% or higher.
Additionally for the full year 2021, we are raising our annual adjusted free cash flow guidance to an excess of $400 million, an increase of $100 million from our prior guidance.
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 are providing and will continue to provide guidance of 30% or greater 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 will begin with questions from our shareholders submitted via say, Sean Thats first one for you Jason B and Jacob both ask this counter view any other AI companies as competitors.
So what makes powershares platforms better choice.
Thank you Jason Thank you Jacob our competition is not any other company.
The competition is our customers specifically.
Specifically, our customers' IP department and their desire to build their own solution and you know what.
It's not even really their fault.
Army of consultants and cloud providers, who peddle completely bogus DIY market sectors that are never going to work eight truck.
Teen years, and nearly $3 billion of development and we continue to innovate every day.
Just last week, we had a meeting with a fortune 200, CIO who was.
So excited to see foundry they can see it.
The last three years trying unsuccessfully to salt.
The same problems with the leading cloud provider.
Three years.
And they aren't the only ones. These are our favorite conversations because having tried and failed the customer knows exactly how valuable it is to buy a solution that works in days at scale.
But that's not really what makes us a better choice, where a better choice because.
Because we focus exclusively on alpha that we have.
That and capabilities that enable our company to uniquely expressed their strategy, whereas most enterprise software. It makes the customer more similar to the competition our products. They are designed to make them more different and more differentiated.
Great job on another one for you Alex a and Jeff C. Ask are you planning to invest in any crypto currency.
Thanks, Alex and Jeff we are Super excited about foundry for Caribbean.
We see a unique fit with fast growing companies that need industrialized compliance solutions. These are highly technical buyers and they're highly motivated disruptors. We are leveraging our key anti money laundering and know your customer expertise expertise that we developed over years, helping governments and.
Compliance issues with the world's largest banks and helping those banks in turn respond and harden their compliance program some of the largest and our investigation in the world. We're powered by Panther, both on the department of Justice and at the banks themselves.
We think we're going to be a massive salary for crypto companies, we're going to give them.
Credible and all platforms to enable them to go toe to toe and beyond with the legacy players, we're going to deliver compliance. So they can focus on disruption and of course. They are welcome to pay I think brookdale.
Great. Thanks, Sean Dave One for you Avi asks do you intend to focus on profitability in the near term or are you still focused on expansion.
Thanks, Avi as you see in our results, we are delivering strong growth with strong cash flow.
Revenue growth of 40% for the full year expecting our second year in a row of 40% or higher revenue growth.
We've raised our adjusted free cash flow guidance.
The second straight quarter, raising our guidance.
And over $670 million year over year improvement.
Stepping back we are continuing to deliver high growth with very strong cash flow results and we remain focused on expansion and so pivoting to expansion.
More pilots today than at any time in our history. We added 34 net new customers in Q3, we signed 54 deals in Q3 of $1 million or now.
We're scaling our investments in R&D hiring dense investing in new product offerings for crypto domestic constellation and the commercialization of Apollo.
We've added 150 sales heads this year not to mention building infrastructure to support them and future hires and we're continuing to build out and invest in marketing as you want it's early days, but our marketing spend is up 144% quarter over quarter.
Thanks, Dave another one for you Daniel Q asks Goffman foundry can be used on personal computers tablets and smartphones compounds as platforms for use in augmented reality and virtual reality devices, how impactful RBR in the meta first Beaver county, or its clients and big data analytics.
Thanks Daniel.
Been doing augmented and virtual reality for a long time more than a decade. We have worked on pushing mission information just smartphones in augmented reality, we can hold up your phone and view mission plan throughout hlv helicopter landing points of interest waypoint overlaid. While you are on mission. We have worked on augmenting imagery in full motion video with AI detection and imaging.
<unk> real time to drive operational decision, making at a recent military exercise our Apollo for edge AI capability with you across air launch effects and unmanned aerial vehicles and target the fighter jet those targets pop up in the pilots augmented reality heads up display we are at the edge, we are integrating with edge devices from 90 vision goggles.
A heads up displays from augmented reality and cockpit.
<unk> simulation.
Enabling the kill chain requires pushing context to the decision, making it so we see a RMB art an integral part of everything that we do.
Great. Thanks, Sean Kevin one for you Dustin our Jackson K and others have asked can you talk about the opportunity for <unk> in small businesses and consumer use down the line.
Thank you Catherine Thank you Jackson.
Our F&B offering delivers the full power of foundry through Apollo and can be adopted in.
EBIT with foundry for builders and other days euro companies not only our company's usage foundry as their internal infrastructure.
We're pioneering the use of foundry in Apollo as a platform to build SaaS offerings and consumer software products as well.
With foundry Theyre doing it faster companies in mobility building entire data ecosystems in foundry for connected vehicles and autonomous vehicles, a renewable energy company using foundry not just for advanced physics model, but also using foundry to create.
Software offerings for their customers.
<unk> software company building, an ERP for construction the founder told us that foundry is making it possible for him to build orders of magnitude bigger.
And with less effort.
And we've got a lot of questions about when talent here is going to have a consumer product available well.
Something I can say is that days your companies are building their consumer products on top of foundry take companies like chapter whose products helped to enroll customers in the right Medicare plans.
By foundry and delivered through Apollo, we expect to see more of it and it's an exciting part of our journey.
Great.
Commercial revenue up 21% sequentially.
Q3 quarter over quarter. The numbers are actually strong in the United States, where the U S. Commercial business has accelerated from <unk>.
72% revenue growth rate in Q1 to 90% growth rate in Q2, now 103% revenue growth in Q3, that's more than doubling year over year.
And this is driven by continued product innovation and more efficiencies in distribution.
The acquisition of new customers is accelerating we mentioned 10 net new <unk>.
Customers in Q1 'twenty in Q2 34 in Q3 more than tripling commercial revenue has accelerated every quarter over the last year from 4% in Q4 of last year 19 in Q1 2008 in Q2 and 37.
In Q3.
Total commercial deal value is up $2 2 billion, that's more than doubling since last year, our RPM remaining performance obligations increased 172% to $874 million.
And account coverage and distribution channels, bringing us to great companies like Apache a large hospital system in Florida, a large health insurance provider in the United States Kinder Morgan Vallejo, Dave and Busters just to name a few.
Great. Thanks, Kevin Sean that's excellent for you Marcellus asks what is it that will keep <unk> ahead of the competition for the next 10 years.
Thanks, Marcellus well.
Julian all our questions of course Julien.
Sort of our ambition over the next 10 years.
We always have and will always continue to focus on building cutting edge products that the world needs anticipating the future operating with practice, where software Shannon building before they needed obvious always ready to meet its moment as is true with ies in Iraq, and Afghanistan, The global financial crisis, Isis attacks in Europe or <unk>.
With Covid supply chain disruptions and Afghan noncombatant evacuation operation.
With Gotham, we are focused on continuing to build the AI enabled kill chain across every sensor and every theater covering all domains from space.
Our platforms are modern operating systems for the enterprise with.
With foundry, we are creating the nervous system and the cardiovascular system at the enterprise with OPI you can expose complex cross system accurate and repeatable manner that enables you to go from sensing business restructuring before they even happen.
And your business to seamlessly response, organizing and reorganizing your business around reality at pace.
And we just launched Apollo commercially this past week, we have already used the pollo to accomplish so much in the world from edge AI and space real time comes with weapons system to running our global software delivery free taking Gotham and foundry. So weird note that has gone before.
I talked about Apollo for streaming it feels like every quarter, we are creating things that we could not have <unk> dug ourselves just a couple of quarters before.
Central to our value creation engine that we're focused on solving hard problems. We are focused on creating fundamental value. Most software companies make software that's easy to sell and overtime that corrupts the value of the product. We make software that is profoundly valuable cutting edge product and then innovate on distributions.
Thanks, Sean Dave one for you James Cayenne Raphael W asked.
The company's Chief Executive Officer, Alex Karp has been selling a large amount of shares. This year why have you been selling so much in <unk> sales continue.
James Thank you for the questions.
As we mentioned on prior earnings calls Kirk was granted options a decade ago, which was set to expire on December 30 of this year.
Specifically.
Roderick with $68 9 million options that were set to expire. This December the taxes from the exercise of the options are more than $5 billion.
We've been selling shares along the way to generate funds to pay those taxes.
$68 9 million expiring options. He has now exercised 94% of the total of the remaining 6% roughly half are <unk> 9 million.
We sold by the expiration of the other half exercised and as a result, all the near term expiring options.
Thanks.
Thanks, Dave Sean one for you Antonio asks being a nurse myself I see great potential for volunteer and these pandemic times health care workers are the new defense.
Alan do you have a plan to create a product that can help healthcare institutions on how to assign us.
Thank you Antonio and thank you for all that you and your fellow Harris Health care workers have done for us over the pandemic my mother's a nurse and I've been living this alongside so many not just in the U S, but all over the world.
Made reference in my earlier remarks, the substantial growth of our health care work. The NHS MD Anderson 70 academic medical centers to the NIH entry fee. The VA Sandoz nursing home facilities in Japan, and tableau more regional U S providers foundry is helping to manage over 300 million patient lives and growing we have a very unique and diverse footprint.
That I believe positions us to deliver on the necessary transformation in health care.
And yes, we are absolutely doing the work at the cutting edge of both research and complex clinical care, but we're also doing the work on operational excellence the world over Covid at cost or severely exacerbated procedure backlog. There are people that need care life saving care waiting to be seen and at the same time many facilities has spare capacity.
There is a complex operational problem and maximizing the utilization of scares health care capacity to save lives, but the challenge is multifaceted staffing operating theater management patient management demand management and more but as you highlight one of the most acute challenges and we are engaged on it in the U S and Japan is the nursing shortage and staffing optimization.
Innovation.
I was recently visiting one of our hospital customers sitting with their nurses watching they are being trained on foundry for the first time you can feel the excitement they were budgeting, how they can transform patient scheduling care delivery and ultimately how we can empower them to do so much more so much factor to me it was like what it felt like when I was watching <unk>.
<unk> being trained on <unk> for the first time in Kandahar, a decade or more ago. They were so excited so generally the iron man.
I'm like a glove as these modern data superheroes, Dave our friends and our families.
Great one more for you before we open up the call Aaron and Avi ask what is the future of Powershares public sector business, including if there are any billion dollar contracts like the latest U S Army wins in the pipeline.
Thank you Erin and Avi.
We are so excited about the government business is where our cutting edge product is meeting its moment it.
It was an incredibly strong quarter the wins on the <unk> 82, a truly massive program of record at the U S Navy into the UK and Australia, and maybe at the VA with a four year $87 million contract at the NIH $60 million two year contract deal that NHS PEPFAR FDA Department of Justice Department of Ed.
The state Department and more.
Cdti is a substantial win it build in another program of record that we already won CD. One it was an enormous amount of work. We're so proud of the outcome and we believe that CD one CD two together uniquely positions us for future U S Army program of record.
But that's just the army, we have incredible opportunity that space for us and at the Air Force Places that we are investing a lot. We're building on project Brown, Aaron and the Air Force and that work court stay towards the space domain awareness platform, a very unique position.
We have many independent opportunities to extend the work that we've done under USD and NDA into the comeback to manage themselves.
To directly take on near peer threats deter the enemy maintaining dominant.
Beyond defense, we see immense opportunities in our pipeline across California, NHS and the VA to the NIH and HHS, we see new opportunities within the defense industrial base.
Its own right as customers to help them with their own manufacturing, but also in being a strategic partner, helping them capture new revenue streams by AI, enabling their hardware platform. This pipeline in aggregate is big and building and all of this is happening despite the macro headwinds that we've all heard about across government services COVID-19 impact on delaying the pace of.
Award.
And we are just competing for known opportunities our capabilities are so unique we are creating our own opportunities.
The macro factors here are big Big tailwind for us clear consensus on the direct from an aggressive CCP not only in terms of impact on demand in the U S. But also Japan Korea, Australia, the UK the western her allied broadly the same.
Infrastructure, Bill and our fit on the programs and awards that are that are being driven their carbon emissions management EV charging infrastructure building on our incredible commercial momentum in the mobility value chain delivery of major projects on time and on budget and more broadly the opportunity for <unk> and primes on infrastructure projects to partner with Alger developed there.
Oh in high margin software stream and places historically low margin nonrecurring services on our platform.
We are just at the beginning of big secular trends trends that we anticipated and have invested in for years, we are uniquely positioned cutting edge product ready to meet at the moment.
Thanks, John Operator, we'll open up the call for Q&A.
You asked a question via the phone you will need to press star one on your telephone to withdraw your question press. The pound key your first question will come from Brent Thill with Jefferies. Please proceed.
Hi, good morning.
<unk> you had a really nice improvement in backlog and I'm curious if you could just comment on what's driving that that backlog in and maybe as follow up for Sean just as you look at.
The go to market on commercial can you give us an update on the direct sales build out and partnership opportunities there. Thanks.
Hey, Brian.
Thanks for the question.
Great Q3 revenue great year, with our Q4 guide, we're expecting to do 40% revenue growth for the full year.
This is driven by continued product innovation also more efficiencies in distribution like account based sales distribution channels.
And we're very excited about the progress of our account based sales team. We've hired about 150 people. So far this year a lot of that has been focused in the U S market, where we first started and many are just getting started but you can see some of the activity.
Mentioned, we've more than doubled our commercial customer count this year and those numbers are accelerating.
Growing our installation base is really great because we expand in places where we are if you look at our top 20 customers average over $40 million a year revenue thats up 35% year over year.
Our average revenue per customer was $8 8 million when excluding new customers so lot of room to expand.
As we expand our customer base.
Another big driver U S commercial revenue, where we've seen acceleration, we mentioned up to 103% grow.
<unk> doubling in Q3.
Our forward indicators also really strong total deal value up 50% to $3 6 billion.
Total deal valued commercial doubled to $2 2 billion.
Our third straight quarter of accelerating commercial revenue and.
Just to wrap up and commercial revenue up 21% sequentially quarter over quarter.
Your next question will come from the line of Keith Weiss from Morgan Stanley. Please proceed.
Okay.
Thank you for taking the questions and Sanjay group Keith Weiss.
Really nice performance across commercial and government was strong as well and sort of what the new administration sort of kicking in place in terms of.
The velocity of those deals and getting those deals side any change that you've seen thus far this new administration versus the prior Adnan.
No meaningful change there I mean, the government is moving at pace I think what's really out there is the near peer threats and thats become the real pay setter for not only the U S but allied.
Allied countries as well and so there's a lot of focus a lot of speed we've worked under four administrations.
<unk> has seen consistent continuity across that.
Your next question will come from the line of receipt Deloria from RBC capital markets. Please proceed with your question.
Wonderful. Thanks, so much for taking my questions and nice to see continued strength on the commercial side, just maybe high level can you help us understand how the how the land and expand and go to market motion on the commercial side.
From from government, and you're experiencing and especially so far this year and maybe can you talk a little bit about how involved you are at the pilot phase and beer.
And maybe with that time to value.
Great. Yes, we talked earlier about module that was a big thing a year ago that really changed how we went to market. The modules have been very successful just this quarter. We discussed the carbon emission management module in foundry for crypto, but if we go back a little bit what we can see is the real success of software defined data integration of the CDI.
And ERP suite modules, where we've been able to really use these modules to meet our customers where they are predictable price point. It also enables us to really scale channels and enable our partners to help us go to market.
So predictable price points clear problems to go after and in doing so we at this point have developed enough success to see that after solving a single problem in an understandable way it really sets us up to better expand and land the full proposition of foundry foundry and expand the contract over over time there. So we.
We really have a lot of faith in the module strategy, both as a direct salesforce augmentation and channel partners and commercial.
On the government side, we have seen similar success, we actually won a significant program.
On a module that is based on readiness.
So we were able to compete for a multimillion dollars program less than a day worth of effort of course, we'd love how it transforms the economics of our business, but I think the speed to value for customers is really what sets it apart.
Your next question will come from the line of Brad Zelnick from Deutsche Bank. Please proceed.
Hello, Brad Zelnick. Your line is open. Please proceed with your question.
And we will move onto the next question in queue. Your next question is from Mark cash from Morningstar. Please proceed with your question.
Hi, good morning, Thanks for the question.
I have a multipart one so you talked about the recently relaunched foundry module around crypto and I'm. Just wondering if there wasn't really a press release around that the models just kind of module kind of appeared so far.
Finding new use cases is great, but I was curious if you could talk about the size of the crypto opportunity. But then also the strategy of releasing modules finding lead customers and commercializing it quietly or really just depends on the market size and the interest. Thank you.
Thanks, Mark Yeah. The focus on module is to really meet the customer where they are where do we see repeatable challenges that we can create a.
An offering that is very fast to deploy at last quarter I talked about how we deploy it AML at the largest European retail bank in less than two days.
It gives you kind of an indicative sense of the performance, we were able to integrate with complicated.
ERP solutions and unlock that data for customers and hours. So we start with cutting edge product and then where we see the module we invest in it because it gives us innovative distribution that enables us both from a direct salesforce perspective, but also channel partners it would be.
A really successful in penetrating the market.
And we do have one final question have time for one final question from Ethan <unk> from Wolfe Research. Please proceed with your question.
Hey, guys. This is Alex <unk> from Wolfe Research I just had.
Maybe two quick numbers questions roughly if we think about Q4 guidance how much revenue do you expect to come from commercial contracts with investment arrangements.
In the quarter and then it is possible to get what.
What percentage of the total ARPA.
Would be recognized over the next 12 months.
So on the on the investment program, we're really excited about the opportunity here.
Just to repeat from numbers that gives some context with our Q4 guide we're expecting 40% revenue growth for the year of 2021, that's over $1 5 billion for the year, we raised our cash flow guidance to in excess of $400 million.
We've.
Invested about $150 million through Q3.
Total revenue from the program.
About 2% of revenue for the year through Q3.
And there is about $640 million of total revenue long term from this program at the end of the quarter.
This concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
[music].
Yes.
Okay.
Yeah.