Palantir Technologies | Q1 2022 Earnings Conference

Palantir Technologies | Q1 2022 Earnings Conference

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Good morning. Welcome to Palantir's first quarter 2022 earnings call. We'll be discussing the results announced in our press release issued prior to the market open and posted on our investor relations website.

During the call, we will make statements regarding our business that may be considered forward looking within applicable securities laws, including statements regarding our second quarter and fiscal 2022 results. Management's expectations for our future financial and operational performance and other statements regarding our plans, prospects and expectations. These statements are not promises or guarantees and are subject to risks and uncertainties which could cause them to differ materially from actual results. Information concerning those risks is available in our earnings press release distributed prior to market open today and in our SEC filings. We undertake no obligation to update forward looking statements except as required by law. Further, during the course of today's call, we will refer to certain adjusted financial measures.

These non-GAAP financial measures should be considered in addition to not as a substitute for or in isolation from GAAP measures. Additional information about these non-GAAP measures including reconciliation of non-GAAP to comparable GAAP measures, is included in our press release and investor presentation provided today. Our press release investor presentation and SEC filings are available on our investor relations website at

Joining me today on today's call are Alex Karp Chief Executive Officer Shyam Sankar, Chief Operating Officer Dave Glazer Chief Financial Officer, and Kevin Kawasaki, Global Head of Business Development. Over the course of the call, we'll refer to various growth rates when discussing our business. These rates reflect year over year comparisons unless otherwise stated.

I'll turn the call over to Alex Welcome to our earnings. We are in London in past earnings calls and over the course of two decades, we've been involved in many of the most important things that have affected Western society. But what makes these times special is the trends that we believed would happen are happening at an accelerating rate. And what's super interesting is why is the broader world so late in recognizing how these things are accelerating? What's happening? What is the genesis of the escapism that our broader institutions financial, cultural, legal, technical? Why are they escaping to the metaverse or faculty lounge jargon or political structures that are clearly not solving problems where inputs and outputs are totally anti if at all correlated Why is it that we are unable to see the violence that is occurring as truly something that it will be part of our ongoing future and not as episodic? Why do we describe these things as uncertainty when they are certain and are happening? Why is it that our institutions are not even pretending that they will be able to hold the center while simultaneously pretending the center will coagulate to a center independent of new structures, new ways of doing things of new products, new institutions, new ideas, and part of that is, is, you know, we have theology, theological structures around how we build for example, on our space products. And that theology presupposes that the world will be stable.

So specialized things we built for both commercial and, for example, Special Forces, things that are powering current events now were built over the last two decades precisely because if you are in the periphery doing the most sensitive, important work in the world, as you need to be able to interact with your software in a way where it's disconnected and the reconnects simple problem, normal software sucks at it. You need a very specialized product. We've been supplying this to the world's most important elite soldiers for nearly a decade.

Under the context of what we call a Nexus pairing, you need an ability to interact with space where you solve certain problems involving compute and involving the reduction of data. Using a colloquially defined, A.I. tuned by Foundry getting that to the soldier. You need to be able to, in the context of commercial entities, rebuild the supply chain.

Because there's war, there's obviously going to be food shortages, there's disruptions. You can no longer get certain resources from countries. You can have to get them from others overnight. The systems literally presuppose that will never happen and therefore fall completely apart. When it does happen. There is no plan for when it doesn't happen.

This is why, you know, even though we've been a completely focused product company that is only focused on building these products and we have new products coming and not as focused on actually convincing people that we're right, they still sell. And because the other products are not built for this world, you have a financial context, just like we have raging inflation. We are very likely to see this war increase.

The risk of a nuclear event is so much higher than is being presented in the public world. That it's almost surreal to watch the coverage. And yet, you know, there's really no idea of what you would do with valuing the quality of revenue so that, you know, Palantir, for example, we are a company to thrive in good times and we thrive in bad times. We are not built in the way the theologians of our financial institutions would love us to be built.

So that you're built, you know, exactly. Like if we had listened to them, we would only be growth and no free cash flow. We're a company that throws off free cash flow.

We're a company that expected inflation. We obviously super committed to the mission, but it was obvious to us, even at inception, in bad times, the quality of government revenues would be crucial because other revenues would suffer from inflation. They would have a lower quality, they'd be less sticky.

We built these products for the right reasons, and we're not ashamed to say that we're winning. Maybe because we were right. We didn't want to be right. But the some of this stuff was so obvious.

It was obvious that these institutions, the theology of how we model these things in every context is just corrosive. So you end up with the wrong products, the wrong quality of revenue, so you have growth without free cash flow or free cash flow. Without growth. You have products that work now that can be hyped up with sales, but clearly are not going to work the day after tomorrow. No ability to build new products. Why would you build new products?

You're going to have this perfectly tinkered model get the institutions to invest in you and acquire all these companies that actually build product. Yeah, but it's a nearly impossible to build products for tomorrow. There aren't companies to acquire. You actually have to do it yourself. Sure. Here and there you can look for things to accelerate.

Palantir has done that. So we at Palantir are not fleeing to a different world, whether it's the meta world or a theological world or financial version of theological world or a grad school version of a theological world, which isn't even actually academic because academic pursuit presupposes interacting with the object from a theoretical perspective, differentiated from the object, not importing a theological preconceived version of an object onto the theory and re importing that onto the object. Products don't work like that. Reality doesn't work like that. Palantir, we are playing a critical, crucial and much bigger role than we're allowed to mention or whatever discuss in public and current events. Obviously commercially, because our partners and other future partners are being disrupted, their supply chains are disrupted.

That's and many realize that the reality of a truly monumental epic and horrific disruption in the form of a nuclear attack is much higher than is being reported. But also in the government context where we are playing an outsized role and and we're very proud of that and we're proud of the people we're able to support. And we're also eager to continue to help to support them. Must also say the people who are watching this, many of whom share our belief that the future is to be won by people who accept the reality of what it is, not what it ought to be, that you can only change the ought by accepting what is that you've stuck with us.

And I hope will stick with us. And we are going to continue supplying the world's most important products to the most interesting, creative and effectual people in the world and continue to thrive as this hybrid company that is both bull and bear and comes into full stride in both environments, but in absolutely anomalous stride when times are rough and people are hiding, Palantir's products are on the absolute front right line, and you see them in the news every day. And we would love someday to discuss exactly what we're doing. But we are playing a good role in your support and in buying into the world as it is, is enormously important to us.

Thank you. In Q1, revenue grew 31%, commercial revenue grew 54%, accelerating for the fifth quarter in a row. U.S. commercial revenue grew 136%, also accelerating for the fifth quarter in a row we added 40 new customers growing customer count 86% year over year we had GAAP operating margins of -9% versus -33% a year ago reflecting our continued march to GAAP profitability and we had adjusted operating margins of 26%.

We have been building our company and our products for this world the stability on which so many models that purported to explain the world rely it's vanished if it ever existed at all. We have built a company for the world that is not the world that ought to be and it is instability, not its absence, that makes our software all the more essential as our customers confront an extraordinarily significant and rapidly escalating conflict in Eastern Europe, runaway inflation disrupted supply chains and a new wave of refugees. Our products have become more essential than ever. At our last earnings call, the invasion of Ukraine had not yet occurred. From the moment those tanks rolled into Ukraine, we have been delivering our capabilities to the front. We have been continuously shipping innovation over the course of the conflict to provide Western militaries the software that they need to fulfill their missions.

Every product and capability has been employed by our customers from Gaia Gotham, Edge AI, Foundry, Nexus Peering in more and the newest of them MetaConstellation continues to deliver value in making space based collection. Truly operational, delivering significant mission outcomes. And we have been working across Poland, Lithuania, the UK and other nations to power refugee relief operations. Our software is powering the World Food Program's Ukraine response, getting aid as far east as possible. And across our commercial customers, we are powering resilience to a whole new set of supply chain shocks. Real world events are driving enormous and long term opportunities for growth.

We are on the front lines seeing what needs to exist, hearing from commanders and users and building now what is needed and what will power the next decade of U.S. and allied defense programs. We did this a decade ago in Afghanistan with Nexus Peering. We did this a year ago with MetaConstellation whose impact writes headlines in The New York Times, and we will continue building this offer of the future, ramping our investment heavily across the business. In the face of these Palantir shaped macro conditions, this focus has delivered tremendous depth in our R&D and our full stack IP.

We now have this opportunity in addition to releasing new products at pace to bring an increasing amount of that innovation to market. And that's what you're seeing with Apollo. We believe Apollo will fundamentally change how software is deployed, anticipating a future where multi-tenant SaaS is dead and is clearly dying in the present, a trend that is accelerated by geopolitical events. Every software company will need to be able to deploy their software into their customers environments, requiring them to manage fleets of heterogeneous environments across public clouds. On premises, sovereign clouds and growing data, jurisdictional boundaries. And to do all that seamlessly, Apollo will take customers from a world of continuous deployment to autonomous deployment.

And we have been pleased with the market reception to Apollo in our Demo Day event, really being received by a completely new buying audience we are also now offering Nexus Peering as a standalone capability for customers to build their own data fabrics on top of. Over a decade ago, we pioneered a technology that enabled Gotham to reason about the causality of a distributed system of many, many different Gotham nodes. These nodes could all have independent concurrent edits to the same objects in Nexus. Peering meant that we could synchronize these edits across the network, either in real time with consistent comms, as well as across unreliable, intermittent and disconnected environments.

Nexus Peering means that you have a distributed data fabric that is survivable and resilient. The loss of any number of nodes or facilities won't impact the whole this is a core and fundamental, hard technology breakthrough that has powered Gotham's unique success across coalition information sharing for defense and intelligence agencies. And by enabling Nexus peering to be sold as a separate capability, we can enable every program in the Department of Defense to leverage this distributed data synchronization and data fabric.

As we further demonstrate our own commitment to DOD's modular open systems approach, the greatest opportunity for foundry continues to be the application development infrastructure platform. We believe that foundry will become the place that you go to build the applications of the future. With AWS or Azure, with their highly opinionated collection of services, most of the work remains in front of you to get to value, and all of that onus is on you, the customer to get to that value. With Foundry, you're 90% of the way there. On day one. Software defined data integration native multi tenancy for your applications.

The OPI's versioned pipelines, applications, artifacts. To just name some of the components that make Foundry work from the start. That's why U.S. based forces Kobayashi Maru software factory realize their ambition. Building 13 operationally accepted applications on top of foundry in months while sun setting legacy hundred million dollar plus programs.

That's why Airbus rolled out an internally developed supply chain network control tower, a suite built on top of foundries application development infrastructure and in this set of applications, it mitigates supply chain issues and is working towards saving hundreds of millions of euros annually by speeding up production against existing fixed capacity and reducing inventory across all parts. What AWS was in the last decade, Foundry will be in the next Turning to the highlights in our commercial business, we added 37 net new customers. In Q1, we saw continued growth in automotive and financial services and energy, including a new super major customer.

And in Lifesciences in April, we closed a renewal with a major U.S. fortune. 100 company for over $150 million this customer hosted a hackathon with over 600 participants featuring applications built in under four days across finance, build planning, network resiliency and customer experience. This was a good and telling example of how scaled customers built better on Palantir as application development infrastructure. Last quarter, we saw continued interest in our modular offerings.

Hospitals need to improve operational efficiencies surrounding patient flow and staffing processes in order to decrease the length of stay and ensure patients have access to proper care. Palantir's Hospital Operations Suite has proven a unique ability to solve these problems through collaborative decision making. Based on real time data with targeted event driven notifications and actionable AI Palantir's Hospital Operations Suite is now used by hospitals covering over 37,000 beds across the U.S., up from just over a thousand on January 1st. Turning to government. As instability in the world increases, we continue to double down on our support of the missions of the West most critical, foundational institutions. Our ambition is to be the sixth prime contractor for the U.S.

federal government, a trusted partner to deliver a complex end to end integrated hardware and software solutions. Building on the legacy of programs that we prime today. But we seek to be the first company to do this as a software prime, using software innovation and our unmatched expertise to deliver new integrated hardware software capabilities faster than the pace of conflict. In Q1, we launched our U.S. Federal Advisory Board, an important milestone in this journey.

The war is not just happening on the ground in Ukraine. But also in space. And accordingly, our opportunities in the space universe continue to expand.

U.S. Space Force continues to deliver new operational capabilities to America's space guardians. Who have set the gold standard for allies. This is leading to substantial interest in U.S.

Space Force's WarpCore platform, which was built on Foundry among allied nations. At Space Symposium in Colorado Springs to an audience of U.S. and allied governments. Peter Marquez, the former head of space policy at the National Security Council and the head of space policy at AWS presented Project Argus, a new space situational awareness platform built on foundry.

We close a £10 million enterprise expansion with the UK Royal Navy Palantir software is used by the Royal Navy across a broad spectrum of areas, from strategic workforce planning to supply chain management and world events. Have accelerated our opportunity in Western and Northern Europe. In Germany, we were awarded a framework agreement for state and federal government organizations to purchase Gotham and Foundry with an initial order coming from the Bavarian police, adding to our existing German security customers in North Rhine-Westphalia in Hesse Our government health care business grew with an expansion with the Centers for Disease Control and Prevention.

The growth of the work is reflected in the doubling of the run rate over the past year, while continuing to deliver on the CDC's foodborne pathogen program, which we have been powering since 2009. The CDC expanded foundries, pathogen surveillance and response work and deployed generalized modules built on top of a common foundry ontology against new pathogens, including measles, mumps, Legionella and novel flu. The CDC is also using Foundry to process genetic sequence data derived from wastewater samples. On the other side of the Atlantic our continued investments in software defined data integration with our newest pipeline builder product continues to pay off at the NHS, where they were able to roll out foundry to 38 hospitals, integrating hundreds of data sets in March alone to enable them to work through the national care backlog. I'll turn it over to Dave to take us through the financials.

As Alex and Shyam highlighted, we're uniquely positioned for unstable times. We work with some of the most crucial and important institutions in the world. The U.S. government was 42% of our first quarter revenue, and it's been a leading driver of growth for eight years with a 30% CAGR from 2013 to 2021, which we view as the long term trend. More fundamentally, we believe supplying our products to the U.S. government and her allies is a core pillar of our business.

As Alex mentioned in the face of substantial macroeconomic and geopolitical challenges and uncertainty, the quality of our revenue as viewed through growth margin performance and durability and especially resilience is unique to Palantir, as Alex wrote in his letter. We combine the resilience of the defense industrial sector with the growth of a software company in the face of our customers challenges. We have and will continue to incur expenses prior to having contracts and the delivery of mission critical capabilities Following these investments, we expect acceleration of our U.S. government revenue into the second half of the year. In Q2 to date, we've already seen the re-acceleration of U.S. government revenue and expect acceleration of the overall government segment to follow in the next quarter or shortly thereafter.

I'll now review our first quarter performance followed by our outlook. First quarter revenue grew 31% year over year ahead of our prior guidance to 446 million Overall, net dollar retention was 124% commercial revenue growth accelerated for the fifth consecutive quarter. First quarter commercial revenue increased 54% year over year to 205 million up from 47% increase in the fourth quarter. Commercial growth continues to be driven by our U.S. business. As U.S.

commercial revenue growth accelerated to 136% in the first quarter up from 132% in Q4, international commercial revenue growth accelerated in Q1 to 24% year over year, up from 22% in Q4 and 7% a year ago. Our U.S. business revenue grew 38% versus the year ago, period. Government revenue increased 16% versus the year ago period to 242 million. Adjusted operating margin was 26% ahead of our prior guidance by roughly 300 basis points. Our customer acquisition continues to accelerate.

We added 40 net new customers in the first quarter up from 34 in the fourth quarter. We had our strongest quarter of net commercial customer adds adding 37 commercial net adds which equals 25% sequential growth and 207% year over year growth. We continued growth in commercial customer acquisition throughout the year. Our growth with existing customers remains strong. Trailing 12 month revenue from our top 20 customers increased 24% year over year to nearly 45 million. First quarter billings were 490 million up 35% year over year.

First quarter ACV closed increased 35% year over year on the back of 208 deals versus 81 deals in the year ago period. First quarter TCV closed was 248 million. The U.S. government's business's TCV has been impacted by the continuing resolution. But now that a new budget has been passed. We're already seeing Q2 U.S.

government revenue re-accelerate. Additionally, with the geopolitical landscape outlined by Alex, we expect government bookings activity to increase for the remainder of the year, resulting in stronger government revenue growth in the second half of 2022 We ended the first quarter with 3.5 billion in total meaningful value up 26% year over year, while duration shortened 4% over the same period. We ended the first quarter with 1.2 billion in remaining performance obligations, up 86% year over year.

As a reminder, RPO 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 our government business. Margins and expenses on an adjusted basis which excludes stock based compensation. Adjusted gross margin was 81% contribution margin was 57%. First quarter adjusted income from operations, excluding stock based compensation and related employer payroll taxes was 117 million representing adjusted operating margin of 26% ahead of our prior guidance of 23%.

First quarter adjusted expenses were 329 million, up 7% sequentially. We are spending to position the company and our customers to win in the current geopolitical environment. These investments in product and our customers will continue over the balance of 2022 first quarter adjusted earnings per share were $0.02 which includes a -2 cent impact driven primarily by unrealized losses on marketable securities. We generated 35 million in cash from operations and 30 million in adjusted free cash flow cash flows vary quarter to quarter. But it's worth noting the $66 million increase in our accounts receivable balance.

At the end of Q1, we had a very strong war chest 2.3 billion in cash and no debt. In March, we expanded our revolving credit facility to 500 million from 400 million previously, and our credit facility remains entirely undrawn. Our balance sheet leaves us ideally positioned to take advantage of the opportunities that may arise from further deterioration of global conditions. Turning to our outlook, we're guiding to a base case of 470 million in revenue for Q2.

There's a wide range of potential upside above our guidance including those driven by our role in responding to developing geopolitical events. We expect second quarter adjusted operating margin of 20% in the base case as we accelerate investments to support our customers mission in advance of anticipated contract awards and continue to expect full year adjusted operating margin of 27%. We expect and are already seeing an acceleration of our U.S. government revenue resulting from these investments.

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 three years at each earnings call. With that, I'll turn the call over to Rodney to open up Q&A Thanks, Dave.

Joining me for Q&A are Shyam Sankar, Dave Glazer and Kevin Kawasaki. Shyam this first questions for you. Kurnish P.

asks, Are there any new products you are looking to launch in the near future? Thank you, Kurnish. We have released so much new product. Pipeline Builder has improved data integration, productivity 2-3x at the NHS, Autonomous Sales and Operation Planning and Execution, the Hospital Operations Suite, MetaConstellation Edge AI and Edge Stream and beyond. New product we are bringing to market 15 years of deep tech that we built to power Gotham and Foundry Nexus. Peering our distributed DDIL data fabric is going to power the next decade of DOD programs.

Apollo is going to take our customers from continuous deployment to autonomous deployment. And this is what we're focused on everything else. Financials performance, those are the consequences of our execution.

On this focus, we build software the world needs before the world knows it needs it. The prescience of our software arises from a deep love and respect for the institutions that are required for the world to function, and a deep understanding of the macro and geopolitical shifts that some might say are coming. But we would say have already arrived, and the practicality of our software arises from the deep love of our users, the humans who are at the coalface, who do the hard work day in and day out from the factory floors of Detroit to the cold, concrete floors that refugees are sleeping on in Warsaw. We build software for the world as it is today to help our customers and their humans manage to get to the world.

That ought to be. Thanks, Shyam Dave, this next question is for you. Daniel L. asks, What is Palantir doing to reduce share dilution Thank you Daniel.

This is actually something that is repeatedly misunderstood. If you take a look at last year, we only added four tenths of a percent in fully diluted shares outstanding in the entire year. If you flipped to the first quarter of this year, that fully diluted number actually declined for the quarter. So you literally ended Q1 with fewer shares than when it started.

Thanks, Dave. Shyam this next question is for you. Noah A.

asks Alex Karp said bad times are good for Palantir. What is Palantir doing during this time of war? Inflation and hyper partisanship to back up Karp's words. How is Palantir solving the world's current greatest problems? Thanks, Noah. This question is really important.

The answer to it is literally Palantir. It is the reason that we exist. As Alex has mentioned many times, we have been building our company and our products for this world. As our customers confront rapidly escalating conflict in Eastern Europe, runaway inflation disrupted supply chains and a new wave of refugees. Our products have become more essential than ever. I've already talked about how we are helping governments respond to Russia's invasion and the resulting humanitarian disaster.

From MetaConstellation and Edge AI to powering refugee and relief operations. But it's also important to understand that a chain of events has been set in motion a Rube Goldberg like set of bangs, boings and ricochets that extend in will continue to extend into every facet of the world. Food is short and prices are exploding. The availability of fertilizer required to grow more food is disrupted. Commodity prices are skyrocketing.

neon gas, CF-46 palladium all disrupted, all crucial in the semiconductor supply chain. Ukraine is a major regional center for clinical trials. All of those trials and the life saving medicines behind them are now disrupted.

Simple but essential automotive components like wiring harnesses and seatbelts are disrupted. All of this is coming on the back of a set of dynamic disturbances from COVID and the resulting supply and demand shocks people are still coping with. And the emergent wave of shocks that will come from extended and severe lockdowns in China. To solve these problems, you cannot operate on software that was built to assume a stable world in the stable world. You can make plans and you edit it occasionally. The plan is static.

The assumptions are fixed and immutable. In the real world, in this world, you only make a plan so you can change it. You need all your data ontologized into your digital twin flowing into dynamically delivered applications that connect to each other. You need your A.I.

to move faster than the rate of disruption. When something goes wrong, it needs to tell the person at the coalface what to do next. Inflation flowing through your supply chain means you need an entirely different approach to manage suppliers, logistics, production and SNOP. Our work with Tyson Foods is delivering $10 million of value realization every week by moving them from legacy approaches like integrated business planning to autonomous sales and operations execution by moving from a static plan that was assumed to be right to autonomously planning where you go turn by turn as they are dynamically updated to navigate around unforeseen obstacles.

Literally, every function of every business is breaking under the stress of these events events where the aftershocks are strong and more profound than the initial earthquake. And foundry was built for this Thanks, Shyam Dave, this next question's for you. Deepak C. asks, When is the company targeting to be GAAP profitable? Thank you, Deepak. We had a -9% GAAp operating margin in Q1, an improvement from -14% in Q4.

And from -33% in Q1. 2021 So we're making significant progress. And Q1 was our strongest GAAP quarter to date. And not to mention last year for the full year, we posted 424 million in adjusted free cash flow with a 31% adjusted operating margin. And we're already off to a strong start this year.

With that said, we're preparing for a world that has the highest chance of a nuclear war in my lifetime, let alone since my parents are kids. And as Alex discussed, the quality of our government revenue as you through growth margin, performance, durability and resilience is unique to Palantir. We think this uniqueness will be incredibly important in the quarters to come.

Thanks, Dave. Kevin, this question is for you. Jackson K. asks, Can you comment on the SPAC partnership strategy and its impact on the financials? Sure. Thanks, Jackson. You know, revenue from these contracts has peaked in Q1 at around 39 million and we will not have additional new customers from this program as we've wound the program down going forward. Expect about 30 million of revenue per quarter from these customers.

Revenue in Q1 is higher as a result of some catch up of about 9 million recognized in the quarter, reflecting work we started last year. We also saw roughly a -2 cent impact on earnings per share from the marketable securities. When you look at this by geography, you'll see continued strength and growth in the U.S. business expects growing at 65% year over year and 9% sequentially quarter over quarter.

We had our strongest quarter for winning new commercial customers. Overall, commercial customer count up 25% sequentially and up 207% from a year ago. And in the United States, commercial customer count grew 368%. We expect continued growth in commercial customer acquisition And as, Alex mentioned, we see a path to double our U.S. commercial revenue again. Great.

Thanks, Kevin. Shyam one more for you before we open up the call. Michael P. asks in the FY 2021 business update, there was a reference to OPS PI is a Foundry capability or perhaps module.

Could you elaborate on the problem this solves and what value it delivers to Foundry users? Thanks, Michael. When you think about Foundry, there are really three high level, massively differentiated capabilities. The first is that Foundry makes the marginal cost of data integration approach zero with software defined data integration with pipeline builder With all this data integration technology, we have software that writes its own data pipelines for you. This gets you to the starting line quickly. It helps you answer the question, How am I going to bring all my data together? How long is that going to take? And how I deal with the fact that there's new types of data created every single day. The second capability is that Foundry makes the marginal cost of application development.

Approach zero, no code WYSIWYG application builders for robust, interconnected applications. Importantly, these are not dashboards. These are applications that read and write to your existing enterprise transactional systems like your ERP or general ledger, your warehouse management system. And third, Foundry has native modeling and simulation capability that lets you interact the digital twin of your enterprise.

So, yes, you can compute something like an optimized production plan. But even much more importantly, you can respond to real world surprises in real time. The best analogy I have for this is that current technology is like most people are using something like MapQuest, where you put in a destination and then you print out the map. Foundries like Waze where, yeah, you put in the destination. But we are dynamically computing the best way to get there all the time. Turn by turn, based on the ever changing facts on the ground, traffic construction accidents, road closures.

While the competition is stuck in the traffic jam, you're racing across the finish line So all of this is possible because Foundry is a digital twin of your business, and that is powered by Foundry's ontology. So with our ontology we're modeling not just in nouns, but also the verbs of your business, the actions that you can take. So that means you can not only realize that there is a problem with your production plan based on real time data, but also compute the correct answer, the correct plan, and push that transaction to your ERP system. And all of that amazing capability has historically only been available for applications built inside of Foundry the OPI's So they change all of that. The power of the ontology can now be used by any application in the enterprise, whether it's first party apps developed by IT or third party apps developed by IT's suppliers and independent software vendors. The OPI is our clean, syntactically sugary sets of restful APIs I like to think about it as serverless enterprise orchestration.

It's lambda, but for your enterprise, simple abstractions that make the authentic complexity of the real world businesses manageable and programable. Thank Shyam Our next question comes from Brent Thill with Jefferies. Brent, you'll receive a prompt unmute your line and ask your question Regarding the government business, can you talk to the acceleration that you're seeing in the business? And I think you called out the United States is where you're seeing the re-acceleration. Can you also speak to the rest of the world and what you're seeing there? Absolutely. Thanks. Brent. We've been working with the U.S.

government for 15 years, and over the last decade we've seen a 30% CAGR And that covers times of peace and times of conflict. And I've already talked about our involvement with current events and the role that that we're playing there. And you can, you can kind of see the re-acceleration starting to happen with the wins that the work that we're doing with D6 CD2, which was literally built for a land war in Europe, the expansion of the work that we have with the U.K.

Royal Navy, the framework agreement that we have in Germany, with state and local police cover in Bavaria, North Rhine-Westphalia, Hesse. The work that we're doing in space with U.S. Space Comm and warp core. But really the knock on opportunities that creates for us with allies as they approach space.

And so the end result of this is that in Q2, we've started to see the U.S. government business Re-accelerate. We're doing a substantial amount of work right now where we are investing in our customers.

And we expect that work to have both short term but also longer term payoff. We're doing work now that that matters and will likely be contracted. But we're also doing work that is defining the requirements for defense procurements over the decades to come here Thanks, Shyam Our next question comes from Brad Zelnick with Deutsche Bank. Brad, you will receive a prompt to unmute your line and ask your question I'm hoping that you can.

I think you guys might have come out cut out on me, but I wanted to double click on the range of upside that you referred to in your Q2 guidance. How much of that variability is coming from commercial versus government and how should we think about the variability and what it means for your 30% revenue and 27% margin guide for the full year Thank you. So in in this macro environment, we feel very well positioned for the full year and beyond. You know, our U.S. government revenue represented 42% of our Q1 revenue and a significant amount of this is in the defense space.

Your commercial business has been outpacing the government business accelerating in each of the last five quarters to a 54% growth rate in Q1. And as Shyam just mentioned in Q2, we've already seen some re-acceleration in U.S., U.S. government business, which we think is a long term trend and expect acceleration of the overall government segment. This quarter or shortly after Great. Thanks, Kevin.

Our next question comes from Mark Cash with Morningstar. Mark, you'll receive a prompt to unmute your line and ask your question Mark, you can go ahead Our next question comes from Rishi, Jaluria with RBC. Rishi.

You can unmute your line and ask your question I really appreciate it. Maybe I just wanted to go a little bit more into understanding the range of outcomes in Q2. You talked about maybe where you can get a little bit more upside. Can you walk us through through, you know, maybe a full set of assumptions there and more importantly, you know, when there's a base case and you're hinting at a bull case, what is a potential bear case that you would be thinking about in Q2? And just given everything that you're seeing going on from a macro perspective? Thank you. Look, the base case is really establishing how we're thinking about the the visibility that we have The upside is is quite large.

I mean, a lot of this comes down to contract timing and the acceleration of events. There's a fair amount of work that's in flight here. Our the way that we engage with customers is we're not going to deprive you of help in your moments of greatest need when you're at war because paperwork isn't in yet.

And so we think we have visibility into the upside. We're going to comment on the specifics of it, but it's meaningful. But it's also hard to predict and what we need to be focused on right now is just delivering not only because of what it implies for this quarter, the next quarter in this full year, but what it implies for the long term growth of the business and the relevance we have to solving the most important problems in the world. Great. Thanks, Shyam That concludes Q&A on today's call.

I'll turn the call back over to Shyam Sankar for closing remarks. Thank you, Rodney. Look, we feed our culture every day through the direct exposure that we have to our mission from the factory floors of European manufacturers to the cold concrete floors that so many refugees are sleeping on. In Q1, many of our people had the chance to go to Poland, Romania and Lithuania to stand up to software infrastructure to power refugee operations, processing nearly a hundred thousand people a day. And we are involved in supporting the military as they execute their sacred duty. Much as we positioned the entire company around COVID and delivered outsized impact to global health agencies and health delivery organizations, as we stabilize production and supply chains now we will throw our entire company behind the most significant set of geopolitical and macroeconomic situations in generations.

Our company was built for this. Our software was built for this back to work.

2022-05-12 17:02

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