Palantir Technologies Inc

NYSE:PLTR

Earnings Call Transcript 2022-Q2

[Operator]

Good morning. Welcome to Palantir's Second 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 investors.palantir.com. 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; Shyam Sankar, Chief Operating Officer; Dave Glazer, Chief Financial Officer; Ryan Taylor, Chief Business Affairs and Legal Officer; and Kevin Kawasaki, Global Head of Business Development.

I'll now turn the call over to Alex.

[Alex Karp, Chief Executive Officer]

In the last 3 years, we have grown Palantir from a 743 revenue business with hundreds of millions of dollars in actual loss to, in the last 12 months, a $1.74 billion business with $300 million in free cash flow, which represents a 41% CAGR. 41% CAGR on a business that is now in its 18th year is very unusual. There are many reasons for this strong growth, but you live by the same sword that you pay the price for. And we deal with very, very large contracts. And the USG has some of the large -- our largest contracts, and they have been pushed out. But because of uncertainty towards the end of the year, we're revisioning guidance down to $1.9 billion.

I personally remain very optimistic that the next 3 years will look a lot like the last 3 years, again, where we took a money-losing business and made a business that throws off free cash flow, where we ended up as of today with $2.4 billion in the bank and no debt, and that the large and chunky nature of our contracts will continue to be in large part an advantage because these contracts do not disappear.

Sometimes, they are put off. Sometimes, they take too long for us to get them. But at the $1 billion range of the contracts that we are working on, they have the bug of sometimes taking too long and the feature of a highly difficult, tumultuous and politically uncertain world that you actually get paid and you actually make free cash flow.

Moreover, we have 5 of the most interesting, important and crazy baller, impactful products in the world: PG, Foundry, Nexus Peering, MetaConstellation and Apollo, all of which were built before their time, all of which have made a 41% CAGR possible. These products should be measured not just in their ability to throw off free cash flow, to generate outsized revenue, but most importantly, in their quintessential attribute that large companies, which essentially control distribution, cannot easily copy them or if at all, they are too integrate, difficult and thick to be replaced by larger incumbents and then distributed through their distribution chain.

In the end, all software products actually have to be measured by is this replaceable, how easy could it get replaced, is the underlying platform durable or fleeting, and could a third-party highly technical with massive distribution disrupt these products. If you look closely at PG, Foundry, Nexus Peering, MetaConstellation and Apollo, as different as they are, they have one thing in common, it would take many, many years of the world's best engineers to build them and it would take -- you would be building them as we've improved them and as we capture the market.

Thank you.

[Ryan Taylor, Chief Business Affairs and Legal Officer]

Thank you, Alex. We have the great privilege of being on the forefront of the problems that matter most in the world from the war in Ukraine to fighting famine and monkeypox. Across government and commercial, the opportunity in front of us is enormous, which makes the revised near-term outlook, all the more disappointing. It doesn't come close to representing our ambition and the opportunity before us.

While the timing of large contracts in government can be frustrating, the underlying requirements and needs are enduring. It's worth noting that our revised guidance excludes any new major U.S. government awards.

At the same time, we have seen the opportunity presented by this environment before. As organizations around the world face more pressure and experience more pain, there will be a slowdown in the rate of spending and lengthening of sales cycles, but it will also reveal gaps in enterprises operations. Gaps our software can solve.

In the short term, this means less revenue now. But on longer time horizons, it accelerates our business. The global financial crisis, ISIS attacks in Europe, the COVID pandemic, through each upheaval, we emerged substantially stronger by investing in our customers ahead of revenue and delivering results in days, not months.

It is exactly in times like these that we build our most important and most impactful partnerships. Each of these periods has been an inflection point for Palantir, a time during which we developed pathbreaking software platforms and expanded our footprint.

To our results. We generated $473 million in revenue in Q2 2022, representing a growth rate of 26% year-over-year and 6% sequential. Our customer count increased to 304, up from 169 a year ago. Our business in the United States alone generated more than $1 billion on a trailing 12-month basis, representing 42% growth.

I'll now hand it over to Shyam.

[Shyam Sankar, Chief Operating Officer]

Thanks, Ryan. Our revenue growth in the U.S. commercial market continues to be our focus and is gathering momentum. Our U.S. commercial business grew 120%, rising from $39 million in Q2 2021 to $86 million this quarter. Our core U.S. commercial business, which excludes strategic investments, grew 10% quarter-over-quarter or greater for the past 4 quarters, most recently reaching $67.4 million, 14% sequential growth. Our core U.S. commercial ACV grew 2.4x, our best quarter ever.

Our U.S. commercial customer count grew from 34 to 119 customers year-over-year. Our overall commercial revenue grew 46% and continued to increase for the ninth quarter in a row on a quarter-over-quarter basis, reaching $210 million in Q2. We are seeing former customers, particularly those in the U.S., including some of the world's largest transportation, banking and retail enterprises return to our platforms in increasing numbers after periods of experimentation with other platforms and approaches. These customers, they're not returning to our software platforms merely because of the expansion of our sales operations, which does continue, they are often returning because they have tried other options, and those options have failed to deliver needed results.

Our commercial business in Europe and elsewhere outside the United States continues to expand as well, although the exceptional strength of the U.S. dollar has been a factor given the significantly increased effective cost of goods. Our government work remains at the center of everything that we have built and everything that motivates us. The expansion of our reach with agencies working on the front lines and conflicts around the world, including in Eastern Europe and the South China Sea, continues.

The contracts we have in our pipeline are key to facing the challenges in front of the West. Our government business grew to $263 million in revenue in Q2, rising 9% quarter-over-quarter. More broadly, across the commercial and government sectors, health care has become a substantial and rapidly growing business, generating approximately $153 million in revenue in the first half of 2022, up from $42 million in the first half of 2020 at the onset of the pandemic. That represents a 91% compounded annual growth rate.

We see substantial opportunities for Palantir as a health care technology company, driving transformation across major pharmaceutical companies, biotechnology companies, insurers, providers, regulatory agencies and research organizations, building on our work with organizations such as the U.K.'s NHS, U.S. HHS, the CDC, the FDA, the NIH, Sanofi, Merck and SOMPO’s health care business in Japan.

Our software products and platforms continue to operate behind the scenes in connection with some of the most significant events around the world, including the distribution of vaccines to millions in an ongoing war in Eastern Europe. One of our most recent offerings within Foundry, a no-code application development environment known as Workshop that allows users with little or no coding experience to build operational applications on top of data warehouses within minutes is showing particularly strong growth with more than 10,000 developers now building applications within the platform.

And our most recent offering, Pipeline Builder, brings this same no-code approach to authoring data pipelines, turning every business analyst into a production data engineer in Foundry. We just launched an experimental feature that leverages OpenAI's GPT-3 to turn natural human language into pipeline logic, a sentence like “find me all the hospitals that have limited ICU bed availability in the next 3 weeks” is transformed into a pipeline in seconds, a new standard in no-code.

Forrester named Foundry the leader in AI platforms as part of the Forrester Wave AIML Platform’s Q3 report. Palantir's Foundry operating system received the highest possible scores in the product vision, performance, market approach and applications criteria.

Turning to Gotham. Urgent operational needs are driving innovation in our integrated hardware software offerings, building on products like TITAN. Skykit will combine Palantir's MetaConstellation software on a small human portable form factor with Starlink comms to enable heroes in the field to test low-latency, AI-driven satellite collection.

Our focus in the short term remains on making our 3 principal software platforms, Gotham, Foundry and Apollo, available to broader segments of the market with unbeatable time to value.

I'll turn it over to Dave to take us through the financials.

[Dave Glazer, Chief Financial Officer]

Thanks, Shyam. As we've highlighted, our U.S. business is remarkably strong. U.S. revenue grew 45% year-over-year to $290 million, and on a trailing 12-month basis, U.S. revenue grew to $1.04 billion. U.S. commercial revenue grew 120% year-over-year to $86 million.

Our core U.S. commercial revenue, which excludes our strategic investment program, grew 14% sequentially. On the customer side, our net new U.S. commercial customers grew 16% sequentially. U.S. government revenue increased 27% versus the year ago period to $205 million, up from a 16% year-over-year increase in the first quarter.

Turning to our global top line results. Second quarter total revenue grew 26% year-over-year, ahead of our prior guidance to $473 million. Our overall net dollar retention was 119%. Commercial revenue increased 46% year-over-year to $210 million. Government revenue increased 13% versus the year ago period to $263 million.

Our global customer acquisition remains strong. We added 27 net new customers in the second quarter, bringing our Q2 2022 customer count to 304, an 80% increase year-over-year. We added 19 net new commercial customers, which represents 157% growth year-over-year. Our growth with existing customers also continues to remain strong. Trailing 12-month revenue from our top 20 customers increased 17% year-over-year to $46 million. Second quarter billings were $396 million, up 5% year-over-year.

In the second quarter, TCV booked was $792 million. U.S. TCV booked was $588 million. As Alex mentioned, we saw that large new USG contract awards have been pushed out. While government bookings grew quarter-over-quarter, increasing 128% sequentially, this was primarily driven by renewals. We ended the second quarter with $3.5 billion in total remaining deal value, roughly flat quarter-over-quarter. Despite the excellent TCV quarter, total remaining deal value was impacted primarily by 2 things.

One, we voluntarily terminated several contracts related to investment commitments that we decided to not move forward with. Two, our TCV number included the successful conversion of option years from a U.S. commercial customer contract that are resulting in lower overall deal value secured commitment for additional years.

We ended the second quarter with $1.2 billion in remaining performance obligations, up 79% year-over-year.

As a reminder, RPO is primarily comprised of our commercial business as it does not take into account contracts with an initial term of less than 12 months and contractual obligations that fall beyond termination for convenience clauses, both of which are common in our government business.

Turning to our margins and expense. Adjusted gross margin, which excludes stock-based compensation expense was 81%. Second quarter adjusted income from operations, excluding stock-based compensation and related employer payroll taxes, was $108 million, representing adjusted operating margin of 23% ahead of our prior guidance of 20%.

Second quarter adjusted expenses were $365 million, up 11% sequentially. Second quarter adjusted earnings per share was negative $0.01, which includes a negative $0.05 impact driven primarily by losses on marketable securities. We generated $62 million in cash from operations, and our adjusted free cash flow was $61 million, representing a margin of 13% and our seventh consecutive quarter of positive free cash flow on an adjusted basis.

On a trailing 12-month basis, we have generated $314 million in adjusted free cash flow. We ended the second quarter with $2.4 billion in cash and cash equivalents and no debt. In July, we expanded our revolving credit facility by adding a $450 million new incremental delayed draw term loan facility, which provides for additional liquidity up to $950 million and remains entirely undrawn.

As we highlighted last quarter, our balance sheet leaves us uniquely positioned to take advantage of the opportunities that may arise from the larger macroeconomic environment.

Now turning to our outlook, we are presently guiding to the third quarter and full year 2022. For the third quarter, we expect revenue of between $474 million and $475 million and adjusted operating income of $54 million to $55 million. For full year 2022, we now expect revenue of between $1.9 billion and $1.902 billion, and adjusted operating income of $341 million to $343 million. This revised guidance excludes any new major U.S. government awards, and we believe this to be the base case.

With that, I'll turn it over to Ana to start the Q&A.

[Unidentified Company Representative]

Thanks, Dave. Our first question comes from Martin who asks, when are you expecting to become profitable?

[Alex Karp, Chief Executive Officer]

Thank you for your question. Yes, we -- driven by our 5 products and by our ability to control costs mainly because we left Palo Alto, which we left primarily for political reasons, but of course, Palo Alto is somewhat of a inelastic luxury product, meaning you must pay and pay and pay for the comfort of having oddly misaligned with American interest political views and in general, high cost.

That combination of radical optionality on expenses and what we perceive to be macro conditions converging with product conditions allow us to kind of see what we think will be a profitable company in 2025.

[Unidentified Company Representative]

Great. Thanks, Alex. Our next question comes from Jose who asks, what is your 10-year plan for the future?

[Alex Karp, Chief Executive Officer]

Well, we built 5 products. Those of you who follow us know them well. Those of you who don't follow us know them well because they've influenced your life, especially PG, our anti-terror product; Foundry, which is responsible for any vaccination you've had if you're listening to this from America and Britain or 20 some other countries. Those of you who are following the war know some of our other products even at a distance, and a number of other products. We are going to continue to deploy those products.

By the way, as you may have noticed, we've now crossed the $1 billion mark a second time when we DPO-ed. There was a real question, could Palantir cross the $1 billion software mark? This is a massive mark for enterprise software. We've now crossed this in America. We will cross that for all 5 of our products. Obviously, Foundry will be a multibillion-dollar product. We will do this in the service of the West, which we will fight to help win, rejuvenizing institutions the way we have in the past on numerous fronts.

We will use the distribution network we have built to provide them, these institutions with new and better products. Apollo will be a multibillion-dollar product as a standalone product. Our company will be, as of -- in the next 2 years, a 70% dollar revenue company, and we will preserve our culture.

And we are going to do this our way, essentially, which is a very long-term focus, do not expect us to be like another company. We will make aspirational goals. I think there's a lot we could learn, by the way, on modeling these goals and -- but we believe we're the best in the world as software for the West. And with the attributes and awards of that, we will push forward to make the West stronger and better and build multibillion-dollar company on top of each one of our single products.

By the way, we'll build new products. We're already working on a number of products. We have products like Nexus Peering that are not apparent to the world that power very important things, and we'll continue to build those kind of products as well.

[Unidentified Company Representative]

Thank you, Alex. Our next question is from John who asks, what are you doing differently from your competition that is allowing you to be successful?

[Alex Karp, Chief Executive Officer]

Well, we're doing -- I mean, we're not -- we're pretty orthogonal to our competition. So I wouldn't even like -- and by the way, I would say we're less competitive with our competition than -- we have a lot of people compete with us, most of the companies that kind of are built for Wall Street, which have perfect financials and have perfect proclamations of what they're going to hit and very, very thin products, sales forces that are 50% of their total people.

The sales in the U.S. commercial, which are by any standard unanimously strong, almost 80% growth this year without specs. Total organic revenue. It's being driven by 42 salespeople, less than 1.5% of our company as a credit. We have more, but those are the ones that have actually learned our product and are able to sell it.

This is a company -- we have this -- and because there's some real features, we've built this product. The product is obviously ahead of the market. We believe the growth in the U.S. I mean, you can tell our trend line of this is doubling now again or close without specs. You could see how this could double or be in that range again next year. And again, we're doing this in a completely unique way.

And so then I would also say, as like competition, one of the things that is just not paid attention to at all by normal -- the normal investing company is the very basic fact of is this a product that will be, in some ways, replicated by the big companies? Wonderous, truly interesting, great companies, but that will basically take thin products and get them into their offering and have better distribution.

And in fact, in the end, the products are over a long period of time, relatively worthless. So you get a high growth built on back of selling equity and going into -- and taking equity and buying a sales force and selling a thin product, which is no longer going to be around in a couple of years, either because it will not be useful or because a big company will replicate it and sell basically the same product. Our products are not like that. Nobody is really endeavoring to take -- to do a version of PG or Nexus Peering, which people don't understand, which is powering defense efforts globally.

Foundry is very thick, and there's essentially hundreds of products integrated and can be -- and deployable quickly. You have Apollo, these are very, very unique products. And so what I would say on the competition thing is it is surprising how different we are from other people and broadly speaking, in the same space. And that has some advantages.

We see enormous traction on our products. You're also getting this at a price because we run this company as owners, and we do not run it purely to actually make people happy quarter-to-quarter. I honestly don't pay a lot of attention to that. I'm paying attention to where will the company be in 2 years and what will the products be like in deployment. Will they be adopted? Who's building them? How are they going to be built? And are they, in fact, in front of the market?

So we have this very unique hybrid. You have to look at it as a unique company and assess it as, well, what feature set do I like? What bugs set do I not like?

[Unidentified Company Representative]

Great. Thanks, Alex. I'll turn to you, Shyam, for this next one before we open up the call.

Christopher asks, can you explain to Palantir shareholders what becoming the sixth prime for the U.S. government and the first software prime would mean for the company? Also, what sort of timeline are you targeting to become the first software prime of the U.S. government?

[Shyam Sankar, Chief Operating Officer]

Thanks, Christopher. Our ambition in the U.S. government and by extension, all of government, is to be the sixth prime contractor. And that means that we're the trusted partner capable of delivering end-to-end platforms and programs that we're willing to invest deeply in the specific needs and requirements for these customers. But we just want to do this as the first software prime, and we already are.

The way that we think about our products and government is as offerings that are built with our platforms. They're built with Gotham, with Foundry and Apollo. The products would be, for example, at the U.S. Army, Vantage, TITAN, CD1, CD2, massive programs of record, or Operation Warp Speed's Tiberius. That's their vaccine management platform that was built with Foundry, DCIPHER at the CDC, Project Brown Heron at the Air Force, Warp Core at the space force. At INDOPACOM, it's the Mission Partner Environment.

TITAN would deliver a next-generation, expeditionary, scalable and maneuverable platform that is purpose-built to address the Army's number one gap in large-scale combat operations, Deep Sensing. In simpler terms, it's an armored truck that connects to satellites and theater assets, and we are offering an end-to-end integrated hardware software solution here.

This is exactly what we're doing with Skykit, fusing MetaConstellation, Starlink, a purpose-built compute platform to enable war fighters to task satellites from the field and receive low-latency, AI-driven detections to drive kinetic operations. Look no further than the CCP's intimidation exercise in Taiwan still ongoing. We think this being the sixth prime is how we rebuild the arsenal of democracy.

[Unidentified Company Representative]

Thanks, Shyam. Our next question comes from Brent at Jefferies. Brent, please turn on your camera, and then you'll receive a prompt to unmute your line.

[Brent Thill, Jefferies]

On the government side, I'm curious if you can address what you're seeing and some of the deals that you expected to close, can you give us a sense of kind of timing on the government side? And I had a quick follow-up question for Alex.

[Alex Karp, Chief Executive Officer]

Do you want to take this, and then I'll do the -- and I'll give my --

[Shyam Sankar, Chief Operating Officer]

Sure. Look, the programs that we're going after, these are enduring programs. The competition is ongoing. The needs that we're servicing here are vital to the future of the West on both fronts of the potential conflicts.

We have revised guidance given the clarity that we have around when we think we're likely to get them. And so we continue to invest in these things. The pipeline around the government business continues to be really robust, both domestically and internationally. But we also have more certainty around what is obviously a frustrating contracting experience.

[Alex Karp, Chief Executive Officer]

Let me give you a different riff on this. So a number that -- I don't know, I think we shared in one of our earnings calls was that our government U.S. business has a CAGR over a decade or more of 35%. During that time, we've had a number of years that were flat, and this is frustrating. Believe me, it's more frustrating for us than anyone else because we would prefer an even lower CAGR, but having more certainty.

And so nevertheless, you can ask yourself the question, does it appear that the last 10 years were less dangerous or the next 10 years are going to be more or less dangerous than the last 10 years? So it's just a very basic view that we have. The next 10 years, the next 2 years are clearly more dangerous. America's engaged on multiple fronts. And then there's a question, does Palantir have the product market fit and access to the market?

Our product, we're looking at the U.S. business that's going to cross the $1 billion mark next year as well. This is like so you have a $1 billion software business as of next year with positioning that has never been as good. So both our micro positioning and obviously, the macro position, it's so sublime. It's hard to talk about without sounding like we're kind of warmongering.

And that's why I am positing internally and externally the growth in U.S. government over a multiyear period will be at least as good in the future as it was in the past. However, that 35% CAGR included a number of years where it was flat or even negative, and that's just the frustrating part about contracting at our level. The contracts are so big and meaty that you got to kind of wait.

[Brent Thill, Jefferies]

And just a quick follow-up. When you think about the overall macro conditions that seem to be hitting a number of other software companies, can you discuss what you're seeing on the commercial side? Any slowdown there? Or are you seeing the business stay --

[Alex Karp, Chief Executive Officer]

One of the things because, and we're not exactly sure how I ought to put this, but the typical way in which a company would interact with, say, analyst is we would have these precise goals, and then we go after them. And then when we're not going to get them, we would say things that we could have said on this call, like almost 40% of our business is outside of America. Every single one of those contracts is being impacted by dollars.

Obviously, it's not just that people are paying us in local currency. If you're paying us in dollars, which many of them are, you've de facto paying 20 sometimes more percent more that we can't capture on our balance sheet and can't show to you. Those things are impacting our business. I would say the primary impact to our business, though, is actually positive. It's -- U.S. adapts when things are bad, and it adapts very quickly. I spent a lot of my life in Europe. Europe does not adapt as quickly.

And so what we're really seeing is America adapting to what we believed 5 years ago was the product of the future and buying it at -- like at a very anomalous way and beginning at scale. So we're not talking $50 million to $100 million. We're now talking $350 million, $400 million to $650 million, $750 million.

So we're seeing the doom and gloom that is a blight on society, how everyone wants to call it, both economic and political and quite frankly, the fact that legitimacy in our leaders is so embarrassingly low, it's hard to solve problems that we're seeing that negatively impact the business outside of America, particularly in Europe because people are entrenched and slower on the tech acquisition side and very, very positively accelerating our business.

We're seeing it in commercial, we believe, in government. And we're -- yes.

[Unidentified Company Representative]

Great. Thank you, Alex. Our next question comes from Sanjit at Morgan Stanley.

[Sanjit Singh, Morgan Stanley]

Alex, I wanted to get your view, not so much on the quarter, but sort of the longer-term framework. I noticed that you guys didn't reiterate the 30% outlook. And some sense, that makes sense because deals are uncertain. But I thought it was interesting that you guys took back the 30%, which made it seem that some of the issues that you're seeing in terms of contract, I'm sorry, were you able to hear the question, Alex --

[Alex Karp, Chief Executive Officer]

No, I hear you. I was hoping to see you as well, but it's okay. Keep going. I have the gist of the contract -- of the question.

[Sanjit Singh, Morgan Stanley]

Got it. So I think you know where I'm going at this with some of the contract --

[Alex Karp, Chief Executive Officer]

I am driving the company to get to $4.5 billion in 2025. I believe in driving the company that way. And I do not believe -- what I believe is that the future on USG and by the way, IG is likely to be at parity with the last decade for both macro reasons and because we simply have products that we built that were not deployed because they were basically they’re war time products.

So you have MetaConstellation, Nexus Peering and other products that de facto are not that useful unless you're at war. Then you have the Foundry uses, the use of Foundry in the Defense Department and another that get usage, but not the way they should, both on -- for all sorts of issues that are also in civilian. And then you have PG. And the fusing of PG and Foundry was particularly useful, but you have to understand it.

So I believe that we will get to the 2025 goal. I tend to view the business the way I view our most important segment of the business, which is there will be ups and downs. Again, the 10-year CAGR on USG is 35%.

[Unidentified Company Representative]

Thanks, Alex. Our next question comes from Mariana with Bank of America. Mariana, please turn on your camera and then you'll receive a prompt to unmute your line.

[Mariana Perez Mora, Bank of America]

Good morning, everyone. Can you hear?

[Alex Karp, Chief Executive Officer]

Yes, we can hear you.

[Mariana Perez Mora, Bank of America]

So my question is a follow-up on the U.S. government contracting environment. You mentioned it is still trading. I think most of the defense services company is the same. However, what I'd like to hear from you is like have you seen any change from the customer approach and the traditional approach to data rights given the urgency today to adopt new technologies?

[Alex Karp, Chief Executive Officer]

Well, first of all, the -- again, our frustration is built on the fact that we have a very large integral. So it's like, of course, we see smaller things accelerating. But to grow off of from last year’s 670 base and up into where we should grow requires very large contracts over many, many years.

By the way, orthogonal to your question is not exactly what you're asking. Part of our strategy is that we are going to grow commercial to be so big and so linear, and that – especially starting in the U.S. that, in fact, these vicissitudes are just less important. What you're seeing in our business now is the largest part of our business is subject to contracting. That actually is going to shift.

The U.S. business, I mean, even without doing FX currency, which I've been told everybody on the planet is doing, and I don't want to do, our European business is still growing at almost 20%. That's without FX adjustment.

So then if you look at our business, which continues to just in America, again, because of this adaptation in America and a willingness to embrace things that didn't make sense 2 years ago that now makes sense now, that you're looking at a business where the vicissitudes are just less important.

On the general political thing, what can the West do? Of course, I mean -- but we are just in a situation in the West, where we have the most interesting noble and virtuous societies and there is a real dearth in operational leadership. We could save money in the U.S. government by going around saying, "Look, we will contract quicker, but you get paid less." That would be obviously good for everyone. That's unlikely to happen.

And so what we're doing is building our business so it's less important and trying to get better at both forecasting how this will happen and getting locked into bigger and bigger and bigger contracts. But this will be an ongoing issue for Palantir. We believe the severity of it will be less every year simply because of the strength of the U.S. and later, the handoff function in Europe on our commercial sales.

[Unidentified Company Representative]

Thanks, Alex. Our next question comes from Brad at Deutsche Bank. Brad, please turn on your camera, and then you'll receive a prompt to unmute your line.

[Brad Zelnick, Deutsche Bank]

Great. Can you guys see me?

[Alex Karp, Chief Executive Officer]

No. But we're rolling here. You can just -- we'll do it without the --

[Brad Zelnick, Deutsche Bank]

With no audio --

[Alex Karp, Chief Executive Officer]

Yes. We got the audio.

[Brad Zelnick, Deutsche Bank]

Excellent. I wanted to ask about partnerships, which you've spoken about in recent quarters, particularly with government contractors and other providers to USG and global governments. What proof points are there that support your confidence that these traditional providers to government are choosing to bid on business with Palantir versus maybe coming up with their own reusable IP that qualifies for meeting the requirements of the far and streamlined government --

[Alex Karp, Chief Executive Officer]

I'll let Shyam dig into the specifics. It is my belief that this space does not have comparable providers of software. I do not believe there's a single provider in the world that can produce our software. But they can produce things on top of our software that we can't produce. And I don't think this is a marriage of love. I think this is a marriage of necessity.

Honestly, if they could build the software we built, they would not partner with us. If we could build the hardware products they built or quite frankly, navigate some of the both American and international networks that they can navigate there, we wouldn't partner with them.

Now the specifics, Shyam is very much on top of.

[Shyam Sankar, Chief Operating Officer]

Yes, absolutely. So we are opening a large pipeline with partners that are built on this integrated hardware software offering. There are a lot of places where we're the prime, and they're partnering with us, deliver on this. That's led to a lot of productive collaboration that's brought opportunities within the 5 eyes and the U.S. more broadly, where they're the prime and we -- our software can be a key differentiator going faster.

There's also a maturity aspect of this where to Alex's point, they've tried to build this offer that we have and have failed. And that takes 5 years or longer. And so many of them are coming up to the point where they realized it would be much better for them as a matter of necessity to partner to go faster.

[Alex Karp, Chief Executive Officer]

By the way, on this point, one of the most important things driving our software, but especially in commercial is, is that people have tried and tried and tried to build our product. We have a number of customers that we've been able to bring on board this year that, quite frankly, didn't like us. And it's like -- but the product brought them back.

And why did the product bring them back? Because the product is actually delivering value that is otherwise not available. And you could imagine 2 years ago, you could spend $1 billion instead of spending $20 million on Palantir. A lot of those people have spent $1 billion. And lo and behold, they are bringing -- being brought back to this product often with people that do not inherently want to hang out with us, but the product has brought them back.

And in the U.S. government especially, the U.S. government has tried everything not to buy our product. We had to sue the U.S. government twice. Just imagine how popular I am. They still are buying the product. It's not a love relationship always. It's -- we bring you back. Our products bring you back.

Once you've used Foundry for whatever, all the use cases we talked about, you usee Nexus Peering, powering -- by powering GAIA and Foundry to bring yourself home alive, you're not eager to not come home alive. And you will buy the product that actually delivers that even if the person who's nominally or is actually in charge is unlikable to you.

[Unidentified Company Representative]

Thanks, Alex and Shyam. Alex, we've had a lot of individual investors to make questions. Is there anything you'd like to say before we end the call?

[Alex Karp, Chief Executive Officer]

We at Palantir are individual investors. I really, really -- there are a lot of motivations for fighting to win. Most of them are, I believe, the West needs people fighting for it. I think you know we're uniquely positioned. I have great reverence for the people at Palantir.

But one of the really big motivations for me personally are individual investors. I have a lot of respect for the time you take. Whenever I read reviews of Palantir, the person has actually used the product. By the way, we're going to begin to talk to institutional investors, but our primary way we're going to do it is use our product.

One of the largest, most important institutional investors -- is we're engaging with, and use our product first, and then we'll discuss whether it's differentiated, the unit economics, the margin numbers, all these things. But it all flows from do you believe the product is actually differentiated? Are these products the best in the world? Can Microsoft, Oracle, Amazon, Google replace these products quickly? Those are the kind of questions. And the people who spend the most time on those questions are individual investors, and now you have a lot of respect for that. And you're one of the many reasons that we fight.

[Unidentified Company Representative]

Thank you.