Q1 2023 Palantir Technologies Inc Earnings Call
Over the course of the call we will refer to various growth rates when discussing our business. These rates reflect year over year comparisons unless otherwise stated.
Joining me on today's call are Alex Karp, Chief Executive Officer, Sean <unk>, Our Chief Technology Officer.
<unk> Glaser, Chief Financial Officer, and Ryan Taylor, Chief revenue Officer, and Chief Legal Officer.
I'll now turn it over to Alex for opening remarks.
On any normal earnings call, where we have just been profitable and where we're going to be profitable for next quarter next couple of quarters, which opens up the possibility of you on the S&P, where the U S market grew by 28% and where we made a $187 million in free cash flow that would be the thing that was the most exciting.
But in fact, what's most exciting about power interiors, we had our ability to launch products that are literally the only products on the market and that will in fact change your life and will determine who succeeds and who fails across enterprise, both government and commercial but large language model Revolution is one that.
We'll raise ships and sanctions of course the profitability is important of course, the fact that we make free cash flow is important but it's not nearly as exciting as our ability to invest our resources and our founder led energy in using our things we have built to supply enterprises with an otherwise not.
Available and in Crazy high demand product. This is just one of the most exciting times to be a pound here because you have the resources of a large profitable.
Enterprise company. So there is an issue with nonprofit will tack if you're powering the most important enterprises in the world. They want to know can you provide the resources and a product that product, we need tomorrow purely on a financial basis.
But more importantly to us and to them long term is can you help us disrupt our adversaries can you just help us disrupt our competitors.
Ken for me personally cannula product that will help the west when especially our government, but also are our commercial clients. So that we in fact are stronger than our adversaries and in the last 20 years, there's never been a development like this you have a technology that will allow you to out produce changed.
The margin of the company understand your business.
React on the battlefield Quaker predict things on the battlefield and away collapse. Your enterprise so that the top and the bottom actually worked together preempt attacks create a software that is so obviously dominant that average shares quiver and scurry away instead of attacking us or our.
<unk> or our allies.
And there is one company in the World that has positioned the issue of how do you have security.
A data model or knowledge and wisdom, that's proprietary interact with an external.
Large language model or with generative AI is not new to Pearland chairs and that's why we're able to launch our platform AIP. So quickly the demand for AV, which is nothing I've ever seen in 20 years of being involved in pounds here and the reason the demand is high as people suspect that this one if you will these technologies correct.
We safely and securely, meaning extract the value in the context of your own or.
Your own enterprise, whether that's sensitive or non sensitive or regulated or moderately regulated you have you have a weapon that will allow you to win that will scare your competitors and adversaries.
We are in the unique position to supply that platform and we have the resources, both because of our profitability our $2.9 billion in the bank or a lack of debt and quite frankly, our entrepreneurial founder led.
Spirit at this company.
Welcome to our R. R.
Earnings day.
<unk>.
As Alex highlighted our company once again achieved GAAP profitability last quarter, including GAAP operating income for the first time. This marks another milestone in our company's sustained growth ensuring that we will continue delivering results and impact for our partners for years to come while also investing deeply in the transformational.
AI opportunities before us.
We have been taking steps across the company in recent months to refocus our efforts and optimize on the parts of our business that will drive even further growth alongside sustained profitability in.
In Q1, 2023 we generated $525 million in revenue.
Due to the seasonality of our business Q1 tends to be our slowest quarter, but despite that headwind and the difficult macroeconomic environment that the technology industry continues to face our commercial business generated $236 million of revenue last quarter and achieved $176 million in T. C V a 70% year over year Tc.
<unk> increase.
These strong results were driven primarily by the Reacceleration of our U S commercial business, which surpassed the $100 million revenue threshold for the first time with 26% year over year growth.
We continue to see robust pilot starts and promising conversions and we're also beginning to see the realization of our expansion strategy, meaning we're beginning to see meaningful growth in upsell opportunities with our newer customer base.
Some notable examples include the expansion of our work with Hertz who's using foundry to more efficiently manage and operate its fleet of nearly 500000 vehicles and Jacobs engineering, who is doubling down on our partnership to reduce costs and improve performance across plants.
We also signed significant expansion agreements with the largest health system in the country for continued acceleration of our hospital operations efforts and with one of the world's largest paper and packaging companies.
Our U S commercial customer base, which stood at 155 at the end of Q1 2023.
Seven fold increase in customer count over just two years presents an immense opportunity for continued expansion.
While aspects of our international commercial business have been challenging in today's climate, we continue to focus on delivering transformational results to long term customers for.
For example, BP our customer of over a decade recently shared that foundry helped them reduce production costs by approximately 60% from $14 a barrel to less than $6 a barrel.
We're also investing for growth in targeted industries and geographies, such as Korea, where I recently met with customers and saw our momentum. There firsthand. This includes several strong pilot starts in the expansion of our work with Korea Shipbuilding and offshore engineering focused on using foundry to enhance safety and operational efficiency.
Our government business generated $289 million in revenue driven in large part by our U S government business, which grew 22% year over year.
With strong conviction in our work on the ground and the critical missions, we're delivering against we continue to focus on building our U S government business for the long term, while acknowledging timing uncertainty in the short term.
We're investing in delivering digital deterrence and AI driven efforts around the world from the middle Eastern Pacific and European theaters, and with pressing global events, we continue to lean into our support for the U S and its allies across eastern Europe .
More broadly as we look at opportunities across our company. We are strongly investing in AI efforts with a focus on delivering the foundational systems and software architecture that will enable enterprises to leverage the power of the latest large language models and other machine learning technologies.
We're already seeing unprecedented demand for AIP and we are reorganizing our efforts aggressively to capitalize on the interest.
We anticipate that these technologies will be transformational both for ourselves and for our customers and we are positioned to meet the moment.
I'll now turn it over to Sean.
Thanks, Brian This past February overlapping with our last earnings call I had the opportunity to visit Ukraine and witness the incredible speed with which the Ukrainian forces, we're able to employ AI on the battlefield. It was clear that the future has already arrived and that future requires us broadly to rewrite roadmaps it changes.
Anything to some degree in something completely.
We all can either choose to join the Disruptors driving this change where we can be disrupted.
From diffusion to large language models, the accelerating pace of AI development is an inspiring and exhilarating, but there are many challenges customers will encounter as they attempt to leverage this technology operationally had any scale for.
For managing the mismatch between the ever growing big data scale of the enterprise and the bottlenecks and Chokepoints of smaller context windows of LLS to product design challenges of constructively embedding these models and workflows and safety and trust challenges and governing the AI in an operational and decision making context.
We are well ahead of the curve because we've built the frameworks the infrastructure and the software needed.
We have already had to solve so many of the heart problems, including the development of deep expertise with the necessary intermediary scale data challenges required to effectively spend the gap from big data to small LLM context windows.
And there will be many surprises and who ultimately comes up as the winners and losers of all of this disruption the AI models themselves within months have gone from cutting edge to quickly being commoditized developing GPT too and GPT three class models at this point table Stakes anyone can build them in a few days with a few hundred dollars as the memo.
Reportedly leak from Google titled We have no moat and neither does open AI makes clear things that big Tech companies have considered major open areas of development have actually been solved by a handful of people in the open source community. While some of the proprietary models hold a slight quality edge. The lead is vanishing quickly the speed of iteration on these models bias.
Two a goldilocks size of power iteration pace ratio will dominate we.
We believe larger enduring value, it's more likely to emerge from the application and workflow layer by the players who know how to navigate the challenges of data skill mismatch that llm's present, and we are uniquely positioned to continue to be a leader here.
And because that future is already here, we must act with speed and conviction customers must completely rethink what they are building and how they build it we are moving fast to ensure existing customers can quickly deploy AIP beside goffman foundry to transform their operations with intelligent contextual decision, making and sophisticated automation and coordinate.
From the battlefield to the boardroom.
It enables customers to operate not only foundry and got them, but also their businesses from a greater strategic vantage point, we provide powerful interfaces to rapidly integrate your data build your ontology forge AI, driven applications and workflows and build agents to orchestrate and automate enterprise actions all in an environment with guardrails safe handoff function.
<unk> and military grade security AIP, not only knows how to speak to you, but more importantly, it knows how to speak to Gaia meta constellation every foundry service your ontology and your enterprise.
At a major insurance company, we deployed a pre release version of AIP and in a few days built a collaborative AI agent to automate claims processing the chief data officer told us at AIP was years ahead of anything they had seen.
The pace of innovation around AI, and <unk> presents a unique opportunity for leveraging our Apollo and fed start infrastructure. There is tremendous demand for these models and fed ramp IL five and IL six.
Via our fed start offering we can bring these startups to U S government markets and weeks in Q1, we also closed our first $1 million deal for Apollo with a major Tech company.
Our foundry ontology SDK has met the market to a great reception.
These SDK is make it easy for customers to build new enterprise applications and integrate ontology into their existing ones. We plan to support AIP directly from these sdk's extending the AI application forged deep into your enterprise ecosystem.
The Gotham ecosystem continues to expand with enhanced capabilities across the AI enabled kill chain. Our most recent developments include substantial new capabilities called Maverick and fires in the broader air Battle management process.
This capability enables efficient translation of approved targets to weapons systems.
On a final note, we will be sharing our insights on the latest cutting edge AI, who will be the victors in the vanquished and of course, showing the latest across AIP and foundry as well as hearing from our customers on how our products are powering their transformations at our June 1st customer event in Palo Alto.
With that I'll turn it over to Dave.
Thanks, Shawn the first quarter of 2023 was a record setting quarter for us we achieved our second consecutive quarter of GAAP profitability and also achieved GAAP operating income for the first time. This accomplishment was the result of strong topline growth driven by the Reacceleration of our U S commercial business, coupled with continued disciplined spin.
And management.
These achievements demonstrate our commitment to driving profitable growth and we continue to expect 2023 to be our first full year of GAAP profitability.
On the back of these exceptional results and this trajectory, we now expect to be GAAP profitable in each quarter. This year.
Turning to our global top line results.
We generated $525 million in revenue in the first quarter of 2023 up 18% year over year 20 million ahead of the midpoint of our prior guidance.
Our U S business generated $337 million in total revenue in the first quarter up 23% year over year, and 12% sequentially demonstrating our continued momentum in the U S.
Revenue from our largest customers continues to expand first quarter trailing 12 month revenue per customer from our top 20 customers increased 14% year over year to $51 million per customer new customer acquisition also remains strong as we saw customer count grew 41% year over year and 7% sequentially.
Now moving to our commercial segment in the first quarter of 2023 commercial revenue grew 15% year over year, and 10% sequentially to $236 million.
Our first quarter U S. Commercial revenue grew 26% year over year, and 39% sequentially to $107 million, excluding revenue from strategic commercial contracts U S. Commercial revenue grew 46% year over year in 'twenty.
That sequentially. In addition to the strength of our U S commercial revenue growth our U S commercial customer count grew 50% year over year, and 8% sequentially, marking the ninth consecutive quarter of sequential growth.
Commercial revenue from our strategic commercial contracts to your best first quarter expectations at $33 million due to the unanticipated acceleration of revenue from certain of these contracts. We expect second quarter revenue from these customers to be between 17 and $19 million and to drop off significantly in the third and fourth quarter.
Our expectations of full year revenue from these customers remains unchanged at approximately 3% of total full year revenue.
In the first quarter, our international commercial business grew 8% year over year and declined 7% sequentially.
The results were impacted in part due to a tough comparison to the prior quarter as a result of the timing of revenue recognition on certain contracts in the fourth quarter and the seasonal headwinds, we often seen in the first quarter with some of our largest international enterprise customers.
Turning to our government segment.
First quarter government revenue grew 20% year over year and declined 1% sequentially to $289 million.
First quarter U S government revenue grew 22% year over year, and 2% sequentially to $230 million.
While we have a strong pipeline of opportunities in our U S government business. We acknowledged that there are uncertainties associated with the timing of these contract expansions and renewals. Nonetheless, we remain confident in the growth of our U S government business.
First quarter International government revenue grew 11% year over year and declined 13% sequentially to $59 million.
The sequential decline was driven by nonrecurring revenue catch up that we saw in the fourth quarter as well as some challenges with the timing of contract awards in the first quarter.
Turning to bookings <unk> booked in the first quarter was $397 million up 60% year over year U S. Commercial <unk> grew 170% year over year to $124 million again, demonstrating the strength of our U S commercial business we.
We ended the first quarter with $3 4 billion in total remaining deal value and $936 million in remaining performance obligations.
As a reminder, <unk> is primarily comprised of our commercial business as it does not take into account contracts with initial term of less than 12 months and contractual obligations that fall beyond termination for convenience causes both of which are common in most of our government business.
With remaining deal value and remaining performance obligations have continued to face headwinds from the macroeconomic impact on customers from the strategic investment program.
As a result, the total remaining deal value and the total value of our commercial contracts from our strategic investment program decreased by $102 million since last quarter as we continue to review and assess the financial condition of these businesses.
Turning to margin and expense adjusted gross margin, which excludes stock based compensation expense was 81% for the quarter first quarter adjusted income from operations, which excludes stock based compensation expense was $125 million, representing an adjusted operating margin of 24% 600 basis points ahead of our prior guidance and working that.
Third consecutive quarter of expanding adjusted operating margins. These results demonstrate our ability to drive strong revenue growth, while managing cost effectively with first quarter adjusted expense of only 1% sequentially to $400 million, we continue to manage expense growth by optimizing operations and G&A, capturing cloud efficiencies and focused.
Our head count investments in key strategic areas.
We remain committed to sustained GAAP profitability, while at the same time, increasing investment in both the U S to capture the momentum we are seeing and in the development of advanced software capabilities, particularly our AI driven offerings, we believe that artificial intelligence, including large language models will prove transformational for our business and for.
Enterprises, and the government and commercial context.
To that end, we're rebalancing our efforts and investments to capitalize on these developments.
In the first quarter, we generated income from operations of $4 million, our first ever quarter of GAAP operating income. This reflects our laser focus on profitable growth and continued management of our stock based compensation.
While we expect to see stock based compensation expense trend up through the remainder of the year. We remain focused on GAAP net income and operating profitability.
Turning to net income.
First quarter GAAP net income was $17 million, our second consecutive quarter of GAAP profitability.
This was a result of our strong GAAP operating income as well as interest income from our balance sheet and the narrowing of losses from investments.
First quarter adjusted earnings per share was <unk> <unk> and GAAP earnings per share was one set our second consecutive quarter of positive GAAP EPS.
We are extremely proud that we're able to continue to deliver GAAP profitability on a consistent basis.
Additionally, our combined revenue growth and adjusted operating margin was 42% in the first quarter. We will continue to strive to achieve the rule of 40 throughout 2023 and beyond.
Turning to our strong cash flow in the first quarter, we generated $189 million and $187 million and adjusted free cash flow and cash from operations, respectively. Each representing a margin of 36%. We ended the quarter with $2 $9 billion in cash cash equivalents and short term U S Treasury bills.
Retain access to additional liquidity of up to $950 million through our 500 million revolving credit facility and $450 million delayed draw term loan facility, both of which remain entirely undrawn.
Now turning to our outlook.
For Q2, 2023, we expect revenue of between 528 and $532 million adjusted income from operations of between 118, and 122 million and GAAP net income for full year 2023, we are raising our revenue guidance to between $2 25, and $2 235 billion. We are raised.
Our adjusted income from operations guidance to between 506 and $556 million and we now expect GAAP net income in each quarter of this year.
With that I will turn it over to Anna to start the Q&A.
Thanks, Dave will begin with a few questions from our shareholders before we open up the call.
Received a lot of questions on AI and AIP.
Would you like to share some thoughts.
Well, thank you for being here.
I've been at the.
The parents here building since the beginning for 20 years, we our first product with <unk>.
Jay.
Which changed the course of history, especially in Europe by preventing terror attacks in a constitutional order.
And that product basically is the only product for what for that use case in the world and then we built a number of other products products on the battlefield.
Special operators foundry, which needs no introduction.
And in the process of building. These products, we were always thinking about human mind human computer symbiotic relationships and then later.
Algorithm attic relationships to data, especially what's called generative AI and so we built these precursor technologies over the since inception and also biases. So how would you interact with an algorithm where you expose only the part of the enterprise that you want to expose need to express how would you do a handoff when youre doing.
Deciding to make a lethal decision.
<unk> makes the lethal decision what data sources are used.
How do you map the knowledge and wisdom of your enterprise onto the external database and then with the rise of large language models. How do you impose that on the large language model. How do you take what's useful from the from AI, whether it especially in the large language model context without.
Hallucinating your way into a disaster, how do you expose sensitive parts of your enterprise that need to be exposed while protecting parts of your enterprise that should never be exposed not just in the classified environment, but if you're working in a hospital contacts not exposing healthcare personal health care data too.
<unk> run by a third party.
How do you how do you do this in a context, where some people are technical and nontechnical, how do you expand our offering and this is one of the big advantages of the current revolution to people, who have very technical needs, but don't know how to wield them.
And in general our business has been a business driven by moral imperatives.
One of my I don't want to make this overly philosophical.
Although in some ways I prefer it but when you look at the history of Silicon Valley over the last 20 years.
Weird way a tacit alliance between.
The way in which are maybe adversary think of the world and the way in which many people in silicon valley or thought about essentially we will use data to serve our interests not inherently the interests of the people, meaning it in our context monetize and we've always believed in a moral imperative where the hue.
<unk> and our governments with defined the context in which.
Data and algorithm attic and now large language models implicitly with.
Be controlled and so that looks like a weird philosophical bias, but in fact that philosophical bias allowed us to develop branching allowed us to develop ways of doing handoff technologies that allow us to think broadly about what it means to be an lethal situations and behave ethically and now positioned us to be able to launch.
Ways in which to deal with large language models that are is a once in a generational opportunity with with.
With technologies that are otherwise not available by other people also even our bias of understanding the Shaun was saying as introduction that it is it is the person that wheel to the technology that makes it valuable that makes it moral not not the technology itself and these minuses if just put us very very far ahead of the market.
And especially we're seeing this a reception to this in United States, which makes me obviously, particularly.
Happy.
And.
So we're going to be very involved enrolling is out into kind of pretty disciplined way, we see it as unprecedented once in a generation opportunity.
We have odd resources in terms of.
Our software platforms that are uniquely suited for this but we have an ability to run hard both because we are entrepreneurial many people in this space in fact don't really build products say byproducts that theres just too late to buy our product to catch up with what has to be done now and what were the winners will really accelerate so.
We feel like we're at a obviously our profitability, it's really important to us, particularly because.
As we begin to power more and more of them most important institutions in the world. It basically takes off the table. The legitimate question, while it's pure technology. So powerful why cant you make any money.
So we I believe is unique time for us any place for us.
And we're very very busily at work.
Thanks, Alex We also received a few questions on GAAP profitability, Michel and Eric ask do you still expect to be GAAP profitable this year.
Vishal Rick Thanks for the question in short absolutely we do.
And really on the strength of Q1, we now know.
We expect to be profitable in each quarter of this year not just for the full year, which is obviously a big milestone for us and to recap Q1, it was our second consecutive quarter.
GAAP profitability, we did $17 million of net income, it's our first ever GAAP operating income profitable quarter, we had $4 million of operating income is our strongest cash flow quarter ever of $189 million of free cash flow and we do this all with the U S commercial business growing 39% sequentially.
And so profitability it will remain core to our growth and Thats as we mobilize our business and our resources around the opportunities that are in front of us.
Instead, we received questions about expanding our customer base and the growth and momentum of our commercial business. Ryan do you want to share some thoughts on the commercial business for 2023, yeah, absolutely. So in our results you see the reacceleration of our U S commercial business, 26% year over year growth U S commercial as Dave said, 39%.
Sequential customer count, which is now at a 155 customers on our U S. Commercial business grew 50% year over year and the TCE closed in Q1 grew 170% year over year.
That's on the back of pilot conversions, new pilot starting in expansions at customers as I highlighted earlier, such as Hertz Jacobs engineering, the largest health system in the country and one of the largest paper and packaging companies in the world. Among other examples we expect that momentum to carry forward and as the U S. Commercial continues to become a lot.
And larger part of our overall business that will obviously have larger and larger impacts on our overall results and momentum as well on top of that we've highlighted AI presented an opportunity that is creating unprecedented demand for us we can deliver against it in ways that no one else can and we're running at that full speed and we expect that momentum to continue in 2023.
And beyond.
Thanks, Brian . Our next question is from Michael who asks with potential S&P 500 inclusion how does that correlate with the company's prospects and profitability moving forward.
Im sure Theres, a prepared answer here, but I.
I believe I know that we are outsiders.
And this outside our status as one of the main reasons. We built all of these products because we never ever thought anyone with by our products except for that they were disruptive and unique.
In many ways. If you look at the products, we built but also and somehow are uncanny preparedness for this moment, it's because we approached this as we have to succeed under adverse conditions.
My interest in profitability is for obvious reasons, but it's also I think will just be in a much stronger position as it becomes clear that we are we qualify for participation in S&P.
And a lot of people will look at as a fresh new and we will begin to look closer at our strengths, but any cases as the outsider strategy is we are going to be profitable, we're going to within the context of being profitable we are going to take all resources and disrupt especially in the USA and we are going to use the profitability.
<unk> to scale, our business and to scale attract the attractiveness of our business to new investors.
Thanks, Alex next question is from Brian <unk> with Jefferies.
Please turn on your camera and then you'll receive a prom Chinese airline.
Good afternoon.
There were a lot of questions about in the quarter the backlog growth.
Significantly decelerated.
Yet the comments about the overall business re accelerating you guys were clear about and so there were questions are on were there any onetime milestone GB <unk> contribution in the quarter.
That <unk>.
Blayne this and can you just comment about the backlog growth versus.
The comments you said about reacceleration, because they don't really match up when we look at the numbers.
Yes, so I'll be happy to take that and I think just to start off when youre looking at a reacceleration I point to the U S. Commercial business is really driving our business forward and sort of where our focus is and.
And it's you'd reaccelerate significantly in in Q1, it was 26% year over year growth, 39% sequential if you want to exclude.
Stock revenue it grew over 45% and grew 24% sequentially so like.
Is the exceptional Reacceleration and then if you want to look at you.
You want to look at bookings you can look at <unk>.
100 <unk>.
170%.
<unk> U S commercial GCB is up 170% year over year. So all in all the measures are there.
<unk>.
Additionally to give you a somewhat orthogonal to answer your question. We are a tale of two cities here, We have America, which is growing around 28% does now 64% of our business four years ago was 37% of our business. We're absolutely disrupting in the USA International is growing around 10% and that is becoming obviously a smaller part of our business and so what you what I tend to see.
When I look at the numbers is yes, if we believe the U S. As we see the U S is growing we see that U S is really accelerating although we accelerating is the wrong word because in fact, you as commercial has been accelerating and accelerating our end.
It's just become a much bigger part of our business and last not least what's not in the numbers as I spend a lot of my time on the road I'm talking to the U S customers I'm talking and they're not the quality of the questions has shifted from why would we need this to how would I use it.
That's just purely on the foundry front and then the inbound on anything rely to AI both from existing customers by the way on that score we sit on the world's most important private sensitive networks, both in commercial and government every single one of those clients needs in AIA, our strategy and we have unique technology and software for.
So.
<unk>.
But I think if you were if you wanted to look at the positive negative or business like yes, sure. We I do not expect international to grow much more than it is growing now I do expect the U S to continue to grow and we're very optimistic about what will happen there.
Thanks, Alex Our next question is from Mariano with Bank of America Marianna. Please turn on your camera and then you'll receive a prompt on mute your line.
Mariana <unk>.
Hello.
Can you hear me.
Yes.
Oh perfect.
Charles with technology still.
They're high them yet.
Okay.
My question is about the.
We can't hear you, sorry, Mariana Youre cutting out.
I'm sorry.
No problem, we can just move on our next question is from Keith <unk> with Morgan Stanley Keith. Please turn on your camera and then you'll receive a prompt Janney your line.
Yeah.
Alright, great.
Yeah.
Excellent.
We talked a lot about accelerating U S commercial business.
We are entering the company to a certain extent or this.
Commercial opportunity with the AI platform too.
Two questions. One can you talk to us a little bit about changes that youre looking to make in the go to market or this AI platform.
Any sense you can give us in terms of how youre looking at a price of the platform.
Sort of like the initial conversations been like and what do you think that price modality is going to be like.
<unk>.
That AI platform and then the.
Last question on GAAP profitability.
This quarter you did have a pull forward of revenues that kind of helped the commercial business helped overall profitability to some sense you got to make that up a little bit in Q2 Q3 are there any.
Tactical things that youre doing or cost reduction initiatives that youre, putting in place to ensure that GAAP profitability to offset that or is that.
Upfront revenue recognition is on Q1.
Sure I'll take that the AI thing and John maybe you want to add something and then you can talk about all of our various strategies too.
Be more and more efficient.
Our basic it's counterintuitive, but we where we're going to work.
Within the context of remaining profitable.
Our idea that our strategy on AI is to just to take the whole market. We have no pricing strategy, we're going to create a lot of value, we're going to get hundreds of customers and we will price it as we go.
One of the things you we've seen over and over again is when you are ahead of the market you need to take territory, where you want to take territory for two reasons. One we believe we have the only product currently on the market that can solve some of these intricate technical needs. Two we've spent years building certain things like how do you manage now all systems across.
Algorithms across security interest, we know how hard it is to build this we believe that people will take years for people to build these things.
And three because as we take territory educate the market and the market quite frankly, many analysts believe this stuff is real easy you educate the market and to see how hard it is and in doing that you didn't have pricing parity because they will try other things at for technical reasons are likely to fail. So are especially in the U S. We have some non U S customers.
There are some exceptions to this we can't do this for free for governments for legal reasons and because we have so many already AI driven clients, but in the U S. Commercial context, our strategy is going to be to take territory educate the market and make it very difficult for other people entering the market because they'll have to compete with a product. That's what we've already been working on for de facto years with us.
Having technical issues that the market doesn't get realized exist.
Then I'll leave what I would just say from a from a product perspective, with AIP, where just razor focused on creating value as quickly as possible I think its not actually cleared from the outside how far ahead. We are if you think about the intermediary scaled data challenges that you face and getting value out of <unk> and they are extremely small context windows like how are you going to bridge the gap between big data.
And smaller context windows, you need an ontology and all of these like how did we build an insurance GPT agent in two days because we stood on the shoulders of two years of a very robust ontology that enabled us to unlock maybe a huge value of an ontology is because for most people yes.
Yes.
I could take the rest of the call with that but I think it's simply love that.
You have the semantic representation of the business, sometimes people call. It digital twin I hate that because it cheapens it and how it's been diluted but like what is the business. How do we think about it has the data map to the operations that happened and then you have the kinetic layer of like well how do we make decisions how do I adjudicate a claim what does that mean, how does it flow through the system. These are prerequisite. If you can think about that second piece of the <unk>.
<unk> has the tools you give the <unk> to actually drive and automate your business processes and you think about the former part of like how to actually reason about what's going on and I need that as almost like a form of compression to get everything into that small contact window right. That's a physical limitation of the <unk>. So I think the amount of ground. We can take means that the only reasonable strategy is to focus.
And then implicit in what Tom is saying is that without essentially other people call. It a knowledge gaps in fact de facto you could view it as like a dynamics <unk>.
Semantic layer, where the assumptions of your world are built in and can map a crusher you will just not be able to use. This technology now that's something we know no one else knows no. One believes it but they are about to find out and so we don't have to have this debate with people. We're just going to show clients. Hey, This will work you will get value. We've done this before it's in.
Also crazy hard to build this so if you know how to do it you have a three year build.
And I didn't even talk about the guardrails the military grade security the safe handoff functions that are extent really we can go running at this so hard and.
And again in a highly regulated environment, whether people listen to this like it or not America's a highly regular environment, you will not be able to use this technology without which Thomas calling guardrails that show what do you really mean, just with a a branching technology, where <unk> can be applied to the internal systems in a way that you can still get it that work be able to do the work.
Because you have a semantic layer and that's all garbling to people except for it will not be garlic to everybody who wants to use this technology in a productive way and we just we spent 20 years building these things and we're going to we're going to litigate that on the front and figure out how we get paid later.
And our GAAP profitability, we're going to get there with the U S business and when you look to two U S commercial that will help push us there.
And then when you look at sort of what we've been doing on the cost side.
G&A efficiency the cloud for us we keep talking about because it really really is making a difference in our business and then we're going to be prudent with our head count in certain places and in other places.
We're going to really I mean, there is an obvious thing we're growing we believe and the numbers show we're disrupting in the U S. We're going to invest heavily in places, we're growing 10%, we're going to reduce costs.
There's no mystery here.
Thanks, Alex as I always do we have a lot of individual investors on the line is there anything you'd like to say before we end the call.
You're my favorite investors I say it every call a lot of the decisions. We make are made because we.
We are in full alignment with you theres a tendency among elites to overlook.
Your knowledge.
My experience is that people that pay attention to the product the powder products used in a more accurate in the strengths and weaknesses of PGA foundry semantic layer and now AI are very often people investing their own money and I know as we as we go become profitable in the next two quarters I expect that we will become part of the S&P and will have.
Many more institutional investors, but I will not stop value you and I appreciate your support.
Thanks that concludes Q&A for today's call.
Okay.
Yeah.
Hello, everyone and congratulations Kelvin.
<unk> earned that award and we have to find out where we get Sox like yours.
And really cute children like yours.
Sure.
And I have the distinct pleasure and honor of welcoming our feature luncheon speaker and his moderator questioner.
Our Doctor Alex Karp.
At 10 over 10 years ago. He is now the cofounder and CEO of talent here. When we met 10 years ago. He was also the cofounder and CEO voluntary, but what's important to know about Alex is that he represents the second wave of Silicon Valley Pioneer is the first way is being Andy Grove and people who bring.
He brought us computing, but alex's in.
Really special class of people, who took all of that to the next level. If you will.
And he's really a huge patriot.
I'll give you a little bit more about his resume before I get into what a patriot is but he has also an educational pedigree, having attended Harvard sorry, Haverford College, Stanford law and he got his ph D. At the Johan Wolfgang Goethe University in Frankfurt, Germany. He speaks fluent German and you can try.
It I've tried it he speaks excellent chairman great accident too.
He has brought the power of talented air to help D. O D tackle some of the greatest threats and challenges that we in America has faced including of course terrorism and now Russia's attack on Ukraine.
He was the first CEO to travel to Ukraine in the last year. During this horrendous time for the Ukrainian people.
And he really has.
Put his patriotism front and center before a lot of other Ceos, even thought about it even before this latest attack on Ukraine. He he understood that it's in a sense of responsibility of the private sector to appreciate the the security that the rule of law. These the frankly the safe space.
With that our country that our government provides for our private sector and in exchange. He has given so much to the American government to the Ukrainian government to the peoples of America in Ukraine, and so we really are honored to have him here. He is also a very generous his company is a generous sponsor of the Sedona Forum.
His company is also a member of the Ukraine business Alliance, which frankly is colleague Wendy Anderson was kind of the brain brain godmother of this alliance, where we work with defense Tech companies and Tech companies to help our government helped the Ukrainian government when the war start the reconstruction and get it.
Countability for Ukraine, So I really can't say more to applaud the efforts of this man.
In corporate America on behalf of America writ large.
He will be joined on the stage here by another great American Farmer U S. Congressman will heard he represented Texas' twenty-third district for many many years. He prior to that was also a national security expert. He was at specialized in cyber security and he was an undercover C I.
Hey officer very exciting.
He is currently in the managing director of Allen <unk> Company. He also happens to be a board member of open AI Chubb and talented here and I'm not sure whether I'd want one of my Board members questioning me in public, especially right before earnings.
Alex's brain.
Will has also recently in the last year or so written a book called America American reboot, Collyn and Idealists guide to getting things done, which sounds awesome very makena <unk> and also kind of like the type of book you had right. If you were maybe thinking of running for higher office.
Anyway, we are really really happy and honored to have these two gentlemen here for our keynote luncheon event pleased without further Ado further Ado helped me welcome them to the stage Doctor Karp and Robert.
Yes.
Yes.
Well Sedona as Doctor Farkas said I spent about a decade as an undercover officer in the CIA in and one of the things you learn in the agency is P. T bar put.
The benefits upfront and what I'm, hoping we accomplish in this next.
I don't know if its 61 minutes or 38 minutes I've been giving conflicting Ah report, but what we're going to do and I hope that you all take away from this is that software is a new hardware.
And if we don't understand that at every level of government. If we don't understand that at every level of society, we could potentially be as a country. The United Kingdom of 20, <unk> century, and we're good at we're going to explore this topic by understanding and learning about talented journey, where they've been.
Are they currently are and where they plan to go and we're going to open. This up we made a decision walking in here, we're going to open this up to Q&A. So have some questions ready with such in a golf body here I'm sure you have good questions. If you don't have questions don't make me resort to chat GPT.
I ask you to ask questions.
But I will.
Alex win.
August of 2001, I had been about nine months.
And the CIA or with a young trainee I was working in this counterterrorism center.
And the CIA and people were sleeping in their cars.
They were.
I'm not going home because there was a feeling that something was going to happen and that we knew something was going to happen, but we couldnt put the dots together and then a month later when the second plane flew into the World Trade Center, we all knew the.
What wasn't put together was that what al-qaeda was trying to do to our country and that intelligence failure being able to put those got together played an integral role in the founding of talented where you all help put all those disparate pieces of information together why was that jobs.
<unk> proposition why is that.
A problem have you tried to solve.
Thank you I'm very happy to be here and honored and honestly I hope come on place that introduction and home Houston plus points.
Uh huh.
At least to my colleagues here can record that will play when you come into the office every day.
Through it we said.
Yeah, you know so it was.
I kind of after I was at Stanford I went abroad.
To become an academic and then I came back and are reconnected.
With my.
Buddy Peter.
Peter and.
There was a methodology they developed a paypal, which was basically the human mind was.
Good at recognizing patterns in a way computers at the time weren't is interesting because some of the basic methodology things. We built now worked very well for AI, but.
Basically was to help.
We thought we can find anomalies and large datasets.
And then I had an idea that you would have to focus on the architecture of data protection because.
You wouldn't it with more philosophical men and interacting with the agency and other parts of U S intelligence community, we discover that the actual problem with how to unify the datasets and then I was passionate about how you not unify them. So that how you could protect data. So that if you look at one person and in an anti terror.
Next.
You don't that data doesn't inherently get.
Export trade it to maybe outside of the building or to a police context.
And building that architecture basically meant you could in a in a highly scaled way you could begin to run at the time primitive algorithms and use technical experts defined terrorists in accordance with western norms.
I think the bigger philosophical thing was we believe from the beginning that the west is a noble place.
Further we have works but.
Nothing like the huge work, our adversaries have and that the U S. At the time, we already believed and it's clearly been proven to be true, we havent software advantage over our adversaries at least in <unk>.
Enterprise software and.
And we thought by.
Bringing together the best people in the world to build this for the agency also these issues are really boring like even.
But the end use case and the people are using it are kind of sexy.
So you can really motivate people to do I was the procurement Guy in Congress, Okay that is not a sexy topic nobody's ever held a parade for IP procurement.
I'm riveted right now, but it's a gallon.
But then if you kind of fast forward the ability to just slightly more technically the ability to.
Take data from any data source reduce it to the data that's useful in accordance with the ideas norms of your institution and make it useful on the battlefield or in your business is.
20 years ago, when I mean, no one in Silicon Valley wanted to invest or like the government whenever by your product data is worthless.
You'll never get paid and you're a freak get out of the office.
Literally sand Hill road with littered with people that were like Oh, yeah, but cockroach that's comments that we'd get kicked out of every meeting because like somebody like cockroaches Dotcom why don't you change your business you could be cockroach dot com number two and because these things were worthless and then what has played out as the architectural decisions we were.
<unk> made and the things we were focused on became very very valuable for.
For example, Europe just to take a neutral example for this audience.
Without the products obviously the people are using them are very very talented but that this product. That's a small part of our business did change the course of European history, because without it. They would have had massive terror attacks in Europe I spent half my life in Germany would be run by the far right. There are some Europeans here they may disagree with it but I disagree with.
As a fact so and.
And so these products really can change the course of our country.
Affect political movements is so is it fair to say is it fair to say you are in those early days, it's the proverbial needle in a haystack and the way you find the needle is taken the haystack and organizing the haystack in such a way that it can be looked and search for the needle that youre looking for yes, and while youre.
Looking at the needle, let's just take an actual use case you are looking at the needle you're in domestic intelligence.
We're looking at the needle there and external intelligence and the police Department is looking for the needle and it turns out the person next to the needle is is is is an asset but obviously the police department isn't allowed to know that it's not even clear internal intelligence is allowed to know that so how do you look at and then you have those issues are exactly the same as I'm looking for there.
Needle on Tuesday that needle was supposed to be at a doctor's appointment, but actually they are having a cheesecake and cheese steaks are not allowed in this person's home I'm, making it somewhat P J, but but how do you make sure you can look for the needle without exposing someone's personal life every aspect of their life for people, who shouldn't be able to see it and that's not just a moral.
Hugh it's actually an issue of it will not be adopted and if it could be that you create a counter lobby one of the beautiful things about software is you can actually get for example, the civil Libertarian and the Intel person have exactly the same worries, what's going to happen to the data who sees the data. There's a person who's says a person does the answer require you to know everything about the <unk>.
<unk> civil libertarians want that and you want that because in your former role you are undercover it's really important that somebody who's making a targeting decision who maybe or.
They don't inherently know that you're undercover you're talking about when I was in and see a lot Congress right.
Yeah.
So help us go from solving that challenge from an intelligent perspective to the fusion of a number of different intelligence projects.
Intelligence products on the battlefield for the Ukrainian military to be able to use our tools that are antiquated and old.
To defend against a superior adversary, how did how did that happen in the cloud. It is certain way happened as you know.
Russia wishes not spending on these things and we were very lucky we in our budget. We we don't spend obviously, maybe as much as we should but we have this vibrant taxane. So in fact you targeting.
People or if you say I'm not supposed to use a tiered.
But say you are.
Say you were trying to find somebody on the right thing on the battlefield and you had access to satellite data and say youre not the U S of AC. The satellite data you have is commercial you have access to.
Our sensor data sell off of laptops off of cars off of phones.
It is very hard to then what you'd want to do is say I want to acquire the targets much quicker than my adversary. So without software you could acquire these targets, but youre doing at 50 or 100 X slower and so if you take one side, the Russian sidespin spending $65 billion.
American centers, maybe not a lot, but by international standards. That's I think the third largest spend in the world on military and I do think that there are quite good at certain things but.
<unk> target acquisition done by hand, as 50 to 100 X slower and you can't find targets that are at the stated that if you and if so in fact, if you use algorithms you can find targets that are human human can't find and you can find it at 50 or 100 X faster than your adversary, which means a small country what brave people.
Could fight off a much larger stronger country.
On the battlefield. So it actually ends up being determined it now there is not a direct link between the product we built for the agency and this product with the architectural understanding of what it means to take data and large scale reduce it to a scale that that can actually be used in a constitutional context because also.
If you if youre doing this on the battlefield as people here now youre not acquiring the targets and automatically then going after them. They have to be vetted is the target next door hospital, how far away is it from the hospital is there an asset in the car that belongs to US is the person in the car have a phone we've broken into and we don't want it we don't want to lose that information before you actually pull.
That trigger you have to know all of these things and that requires a handoff function between gathering the data algorithm in our rheumatic ability to reduce it to a form that means you have.
Something to work with and then a handoff function to okay. Yes, we're going to do it no we're not going to do it.
But how does your the software is enabling a our ally to defend against the superior adversary that has better hardware. How does that same technology then be used also by the Ukrainians to prove a war crimes in a trial.
Hi, Bruno within hours.
How has that same technology being used in a clinic to provide better outcomes for their patients and how does the.
A shipping entity.
Better improve their product in a in a in a thunderstorm right like how can one thing I think it's not harmful how can one thing well I'll explain to you technically but the real answer is we were so blindly interested in building. These things at work we didn't build things that they normally you Bill talk workers like it turns.
The ranch, that's how you make money if you if you're if you want to make a lot of money you build a piece of software is like current it does one rent turn and that that actually can make you a lot of money in your business. It won't turn the ranch on a ship, but it will turn their renting a car it won't turn out on a rig we were so blindly interested quite frankly on taking it to our enemies.
<unk> that we built this large.
Infrastructure of software and that software does architectural things on the backend that will then allow you to build things on top of it that or the way you interact with it so for US we are completely agnostic to whether you're drilling for oil and gas youre doing admissions your de facto the work we do to acquire adversary.
On the battlefield.
That there are things built on top of that engine, but we spent five six years building. This engine that's basically universally applicable so now even when we're working with large language models. We have the precursor work has been built over the last five years to the end user it's like yes, how could this possibly work it work because.
We didn't have a purely capitalizing interest in what we built actually we had to be philosophic way the enormity of interests or like if you want to win and then also we're outsider. So I always thought he was going to buy from me.
That thing better work.
<unk>.
And.
This is like the positive conversions of being patriotic than believing or unpopular has really really helped our business.
Well, Alex I can attest the the first time, we met I was my first year in Congress and I came out to San Francisco to meet with you and and you had this nice lobby and there was not many people there, but my chief of staff and I will like.
Wow. This is a proper Sam San Francisco company Theres, a homeless person in the lobby and that that homeless person is going Tai chi or something and I was like that's nice of them to allow that to happen and somebody comes and gets me and we go up to the.
Rome, and my Chief of staff Elbows me and was like that homeless guys coming up to speed.
Yes.
And I'm like well.
If California, right away from Texas, and California, and that's how they do it.
And that homeless person was doctor Alex Karp.
So I was like is that who is this all my my formal organization is buying software from.
Yeah.
Why would that be an academic I just.
<unk>.
Right.
So your volunteers of software Prime right.
If you were appointed Secretary of defense.
How would you change the way, let's start with Vod, where to operate to make sure that we're prepared for a future where our address areas appear well first of all I'd probably be going Mr. President.
Yeah.
I don't know if you get approved.
Yes.
So that let's assume that.
Yes.
So I would say with permission.
Day, one 1% of all spend goes to software software enabled weaponry, where the software it's been proven on the battlefield, 1% of total budget and every six months. It goes up by a percent till you get to 10% because it's like in business you win where you're winning and we have interestingly as you know I kind of grew up.
Sure.
Personally I spent a lot of time abroad, and part of the reason why it kind of became even more patriotic resist that time abroad, but.
Hum.
But we underestimate our software advantage because we're just naturally has a culture of good at it.
Almost all valuable software products in the enterprise context, nowadays come from a <unk>.
One part of the USA.
So we just don't understand.
Well actually no one really understands why we're so good at it by Avalon and.
Answers, but we shouldn't really worry about why we're so good that we should be heavily investing in software context software is only valuable if it's been proven to be valuable to the 1%.
Purchases are going to military software that where its been proven on the battlefield is our product and every six months that goes towards 10% of our spend is basically scare our adversaries fund with things that are about it. So it's like and then second thing I would do is I would go to Congress and say I need your help every payer.
Bit of software that's produced in this country will be used in the will be usable.
In the context of National Security I know American company will ever produced software again and not sell it to the U S. Government. Because this is just a structural and deadly advantage we have.
I heard a few clubs out there.
You can do that fab yards allowed that allowed to.
<unk>.
To produce software in this country and not sell it to our Warfighters.
You just never be allowed and if we can't get that done in Congress, everyone, who doesn't want to sell it you'd have to go on television once a week and explain to people why youre not selling the software to the U S government and maybe they have reasons I don't think most Americans would agree with it.
And then you know.
But that should just this if this is not a this is like the single most valuable thing we produce.
Purely from a market cap it is a single differentiator between us earn adversaries and.
It can't be the case by the way I don't think there's any other country in the world, where you could produce something of this differentiated value and not sell it here one government without ending up in a weird.
Orange color too.
And so.
That would be number two and then kind of build the business that we have we only have 4000 people, but I would then have.
For.
For senior leaders at the top and the bottom line.
Alike.
Once a week thing where you can come in you can complain and nothing that happens to you because in large organizations, it's very very hard for the truth.
Actually disseminate.
And then last not least I would increase the pay because I don't think warfighters and others do this for pay but I think it should be higher.
And.
Yeah, those are the things I would do.
We've been talking a weaken here at this hello to form about a deterrent right and how can we do things too.
To ensure that China wakes up and says Hey, I don't want to start a war and is what is software's rule and deterrent and is there also warn escalation with my personal opinion is.
Too many people think escalation, we think rationally we think of this concept that if we do something the other side is going to be a little bit more aggressive and it turned out to be wrong. When it came to the most recent invasion of Russia, and the Ukraine, but when other.
Countries do thing that's more aggressive we don't escalate our posture is does what rolled a software play.
In and saying Hey, this is a this is a deterrent because we have the best software that will enable us to do something that you don't want us to do to you.
The use of large language model, so and AI is something where Americas. So far ahead that I think.
Fittingly I view myself kind of as a pacifist I want our military to be so strong that no one would ever think of fighting with us.
And where we're differentiated is on rolling out AI empowered software empowered decision, making and weapons.
And and I think the way too.
Boyd miscalculations.
Of our adversaries is to.
Really really lean into this and I.
Again, I think one of the things one of the dangers Ics, we just moved too slowly on this because.
Quite frankly also on a lot of these algorithm attic thing, they're not that many people who've been involved in it. So it's not like everyone can participate and maybe then we get into the slow with some slowness machine, but I think I'm more passionate I'm, probably actually a little bit more pacifists then.
And then you and I.
I would like to get to a point, where escalation isn't necessary because we're very focused on our central advantage and focusing on making sure our institutions adopt it and then I would advise you if our working for you to maybe you should expose to the other side. While these are our capabilities.
You know, maybe you shouldn't act up as much.
And then on the other issue is I view that more of their policy issues, but I I think I don't believe Russia had understood.
The availability of some of the stuff I think they would have thought a little longer.
Are we doing enough right now in Ukraine.
Prior to February of last year, a lot of the the interactions between the Russians and Ukrainians we were testing a number of electronic warfare Act actions. In response are we are we pushing some of our best technology to use this as an opportunity.
Two two perfect and improve our new tools look obviously, we could do more and people in this room not just US who are involved in that I think one of the most important things. We can do for Ukraine is just exposed to the American public what actually has happened there because you know the American public has to support this and while.
Most people in this room are pretty engaged in these issues and well informed and most people have life, where they're focused on other things and.
The counter narrative is quite strong and so I think the most important thing we can do and this is why I'm happy we're supplying our products to document where crimes, but.
If you keep the support of the American people, you're very likely to do well, it's where you lose the support and that requires an ongoing educational effort.
We got to explain it because because right now if something were to happen in Taiwan. The American public would say why are we potentially spending resources, a blood and treasure in that in that particular conflict, who is who is the.
The competitor to Pal interior that you're concerned about whether it's a Russian company, a Chinese company Iranian company and what does the future.
Battlefield intelligence in the fusion of artificial intelligence, what I'm really worried about is just mostly in when you're dealing with technological developments people are roughly similar. So therefore, there's a strong bias that everyone pushes to adopt the technology because maybe this person's rocket is better in this call.
Next.
What I'm worried about is there are really only a couple of people on the.
In this space commercially and and in government that had been involved in this long enough to supply products. Now you would think that we would adopt quicker than I think America will adopt quicker commercially we're already seeing this last year, even before we are supplying these kind of AI products, our commercial U S grew at almost 70% but.
Where you could easily have a situation, where we end up in a debate club well, maybe we could adopt this in two years, maybe we can adopt it in 15 days and.
That's not the place we want to be.
Because yes, it's unfortunate that you know not a lot of people invested in this but it is fortunate that people who did our in this country.
And that's that's like we do not want to beg club there that doesn't mean, we don't go through the architectural issues and they're really difficult is you can't take a large language model and just put it on your classified network that no one's going to do that but how do you train. These models. How do you have a handoff function tier classified non classified how do you have a civilian decision tree.
And in these decisions. These are really invaluable really valuable and necessary discussions and things have to be mandated but with the time, we simultaneously we can't wait for everyone to have a product.
While our adversaries are not waiting and the outcomes here, both commercial and government are going to be hugely variable. So like just a neutral example company adopts these kind of technologies correctly and maybe they don't have as good they will win.
So it's like the ability to adopt and implement technology is the deciding variable and just because we're very very far ahead does not mean, we stay ahead I mean, both Russia and China have very very strong engineering cultures, and a political apparatus that is a very influenced or run by engineers.
And so we don't stay ahead, just because you're ahead in fact that sometimes can be a disadvantage because it's like well we have so that's my main worry it's like well, yes, the ability to supply products and here is uneven.
Our blessing because it's also uneven that theyre here, we cannot wait and that by the way, it's going to take a lot of leadership from people in this room.
Because.
They're just going to be like it's just like.
These things are dangerous so I'm very open to we no one knows where they're going to go but it seems like there's like 500 reasons now for why we have to delay implementation and we want to avoid that as a culture because our adversaries are not going to wait and it is not a question of money. So it's like you have maybe we have a money event is it.
<unk> of how you use the money.
The first thing.
I would hope that Congress would do is say guess what artificial intelligence needs to follow the law, we have a lot of laws already on the books on how to protect civil liberties and how to protect civil rights the algorithms have to follow that themselves.
I cannot steal your credit card and your identity, because thats a crime and so if I steal your face and do something with it it should be a crime as well too we shouldn't carb.
These new technologies out of the existing laws to force everybody to double down, but what are those barriers like what are the technical barriers that you all are trying to solve in order to get the next evolution of products.
Well again, it's like how do you train a large.
How do you change the larger language model to be more reliable how do you why you're training and how do you make sure you can get the value in your enterprise, while not allowing enterprise to be hallucinated into making bad decisions on the battlefield or in your enterprise how do you reduce.
It's very similar to algorithm attic warfare, how do you reduce the amount of data into a middle things. So you can get use wisdom against the data how do you make sure of the accuracy of the result is actually accurate enough to implement.
How do you expose people to this in a way that they begin using it.
How do you.
How do you navigate politically the fact that this is a very disruptive so by the way I love. This.
So those two are yes, we are.
But of course, the revenue out of this.
Yes.
Let's open it up I think we have some some we got a hand right here who.
Dan.
Go ahead and introduce yourself asking question.
And let's make these in the form of a question on a comment I know that's not going to be a problem for you Brian .
Alex My name is Frank Townsend, President Bush's Homeland security and counterterrorism adviser immediately post 911.
Two things I'd, just like to put in context for people in the room, who we're not living through it at the time we were on.
One you showed incredible courage at a time when your colleagues in Silicon Valley would not work with the U S government. So people should know that.
Yes.
Second and there should be no doubt anybody's mind here that as a result of that partnership working with the U S. Government you helped to save American lives.
Are you for that.
Thank you.
Positive comments are approved as well.
Thank you.
Francis as Rafi from Phoenix, Arizona So.
We in the U S.
Had the highest.
A number of capital formation for venture capital for the past few decades.
And Unfortunately, most of it has gone to software I appreciate your software centric approach.
Approach to everything but that in part has been our challenge because nobody has been wanting to really invest in hardware because it's considered the capital intensive lower margin, we essentially outsource it to Shenzhen in China. The challenge is that part of the sensor sensors.
Our hardware on a basis of AI and there are there are the one that actually manufacturing and now we find ourselves. After 20 years of so we're doing too much with software and other buy side yeah.
You emphasized on software I appreciate that and I agree I don't know.
I don't disagree, but what about our hardware problem.
By the way, thank you for saying that I appreciate it.
Really do.
Well again, I, obviously am software centric there are ways in which we're seeing this in our commercial business where a large.
Japanese and Korean companies unnamed when it built in America, and we can take the way they build.
And implement it in America, where maybe we haven't don't have the same view of how you would build until we can take advantages of manufacturing and systematize them. So I do think you know again back to my software centric view I think the reason again.
Somewhat against my.
Political pedigree I think the reason why dollars flow to software because that's where we're good.
So it's like.
And that's so I, even think on the hardware problem.
Which is an issue in America. The issue is going to begin to increase the level of software competence to make up for the fact that other countries have a hardware advantage.
And then just and again, it's a little bit I'm on my little diatribe, but you really want to compete where you have an advantage so and here in our national security, we have an advantage here, but I think in both cases youre going to find the accentuation of software actually helps us harbor, how hardware problem and some of the political decisions. We've made have made it super advantageous.
To build manufacturing in America, so I'm, a little more optimistic but in the end. There's a reason the dollars flow to software.
Do you feel it is the government and Eric in your experience are getting better at purchasing software or is it still difficult we know how to wrap our head around the airplane or battle carrier, but they are look the part of the reason why the U S government to this point spend so little on software is that heretofore it wasn't clear than it was.
That valuable.
So.
What has happened now as we now know it is valuable but software that has not been proven on the battlefield should not be installed so the U S government and just like every enterprise, we'd say the same thing to any enterprise, we have like hundreds of clients now I tell them the same thing.
What's the difference between your software and this honestly I talked in the Powerpoint.
Talk to someone who's used it see if it's been used on in enterprise and so by the way the U S. Government has gotten much better at this compared to other government. So we sell our software all over the world and the U S. Government has moved from <unk>.
Large only buying things from large procurement documents, which is just not the way software works. It just it just hardware can work that way software does not work that way so with the U S government needs in my view need to do is now that we know it works spend more under the condition that you can prove this software works so a lot.
More money, but only for software products that are demonstrated to work under very harsh conditions and and that that's the solution. We are going to get to that solution, but we need to get there really quickly because.
Our our competition adversaries are going to work very hard on this and as the former procurement Guy in Congress by don't build.
Take advantage of that expertise, we have we have time for one more yes sir.
We'll have a microphone coming to you.
Introduce yourself to the group in there to your question on <unk>.
So kudos to group now I have one question if we look at from a different perspective by looking at the value chain in all.
Order to be as efficient as possible for example immediate reaction.
It would be a portion that you consider as the right one for software versus hardware because at the end since the value chains it must be optimized Russell.
Individual element.
Yeah.
Well.
I mean, obviously, if you ask a doctor right.
Yes, there are kinetic action software by and large isn't going to do that.
Theres organizing their people on the ground software doesn't do that those are the most important people.
But the placement of those people, bringing them out safely.
The support function of figuring out what assets, you deploy and how you deploy them.
And then also by the way I think there's going to be a collapsing of the command chain in operations, where there's more touch points from top to bottom that's all software.
Alright.
I want to end on a positive note, but I don't think this question may elicit that.
<unk>.
What happens if our adversaries get as good as us and developing software.
Well you know I have this ongoing debate with my.
My people I know and my family and academics, where they believe the rule of law would have it.
<unk> automatically developed in the absence of the U S is material.
Terry superiority, especially superiority guaranteed with.
Nuclear weapons and I.
That's just the viewpoint and it's super interesting to discuss in Grad school, but its pretty bereft of how these things work in the world that we have a very special culture, where I think actually Americans might agree.
<unk> ourselves to a rule of law. If we were left alone. That's one of the things that makes this country. So special I don't think almost any other place in the world people would do that and our adversaries are certainly.
Actually I have a very high opinion of our adversaries like Theyre very honest like they don't believe in this worldview.
They only agree to it because we have a lot of force both economic and military and were if we lose either or both they will they will set up a different world order that actually consult conforms to their view of the world.
And we will not be happy with that.
And this is why like I think like we need to be very focused on these issues and maybe.
Like all these things that we fight it out in this country, you really get to fight about them because we have a world order, where we're guaranteed our right to fight about it but largely no one else cares about these issues besides us and <unk>.
And if we don't if we're not in a.
Superior position, both economically and militarily.
Basic tenants of the World order will shift.
And so when he is thinking about.
These debates is there really are a lot of people who disagree with that.
And I you know I.
Believe in dialogue that I don't think thats the bridgeville disagreement.
If you believe that.
We as humans and the kind of content away will automatically across cultures.
A world order aware of that involves rights of privacy and rule of law. Then you don't really need all the things that you know like military mind and economic Mike.
And.
But I think that's just.
Obviously, historically wrong and there is no evidence for it and quite frankly, that's a theological view and I think I'm interested in theology, but not on the battlefield.
Well, that's why we're here at the Sedona Forum debating these timeless principles that all of our friends Senator John Mccain or spouse.
When he was in government, ladies and gentlemen, Dr. Alex Karp.
Thank you.
Thank you.
We have not.
Okay.