Palantir Technologies Inc

NYSE:PLTR

Earnings Call Transcript 2021-Q3

[Rodney Nelson, Investor Relations]

Good morning. Welcome to Palantir's Third Quarter 2021 earnings call. We'll be the discussing the results announced in our press release issued prior to the market and posted on our Investor Relations website. During the call, you will make statements regarding our business that maybe be considered forward-looking within applicable securities [Indiscernible], including statements regarding our fourth quarter and fiscal 2021 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 these forward-looking statements, except as required by law.

Further, during the course of today's call, we will refer to certain adjusted financial measures. These non-GAAP financial measures should be considered in addition to not as a substitute for or in isolation from GAAP measures. Additional information 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. palentir.com. Joining me on today's call are 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 will refer to various growth rates when discussing our business. These rates reflect year-over-year comparisons unless otherwise stated. I will turn the call over to Shyam to get us started.

[Shyam Sankar, Chief Operating Officer]

Thank you, Rodney. It was a fantastic quarter across the board. In Q3, total revenue grew 36%. Commercial revenue growth has accelerated in every quarter over the last year, from 4% in Q4 2020 to 19% in Q1 to 28% in Q2. Now, 37% in Q3. At this scale, acceleration like this, it's grabby-defined. U.S. commercial revenue growth accelerated once again to 103% year-over-year. We added 34 net new customers in Q3. To put this in perspective, our commercial customer count grew by 46%, sequentially. We have more than doubled our commercial customer accounts since the beginning of the year. We closed 54 deals of $1 million or more, 33 of which were $5 million or more, and 18 of which were $10 million or more.

Adjusted free cash flow was a $119 million a margin of 30%. Total deal value grew 50% to $3.6 billion. Commercial deal value more than doubled to $2.2 billion. Remaining performance obligations increased by 172%, and year-to-date we have grown revenue 44% to over $1.1 billion. We have generated adjusted free cash flow margin of 29% and 32% adjusted operating margin. There are still many wins this quarter. Instead of going through them customer by customers as I usually do, I wanted to highlight 3 things: 1. we are seeing more traction selling into the Defense Industrial Base as a customer. Foundry has shown that it can help in the production of the A-320 of Ram pickup trucks, auto parts, PPE and tractors.

You can do it better, faster and cheaper. And the defense industrial basis, seeing that it can have the same impact on the production of fighter jets, naval ships, and land vehicles. We are excited to do more here with L3Harris, Huntington Ingalls, and other large primes. Secondly, our work in automotive, and more generally, mobility is growing. We are adding more customers across the mobility value chain from OEMs and their suppliers all the way to EV charging companies and insurers. And lastly, our work in healthcare is exploding. The NHS, MD Anderson, 70 academic medical centers through the NIH N3C, the Department of Veteran Affairs, and even more regional U.S. providers means that Foundry is helping to manage over 300 million patient lives and growing. We have a very unique opportunity and a diverse footprint that we believe continues to uniquely position us deliver on the necessary transformation in healthcare delivery from operational excellence to complex clinical care.

Cutting-edge product and continued innovation and distribution drove these exceptional results in Q3. And you can really see that in the consistently accelerating commercial business. We are seeing a profound pool on foundry in the market. As organizations digest and synthesize lessons from the shocks of COVID and subsequent events, there is a canonical spot for foundry in the enterprise architecture that the market has synthesized. Foundry is the nervous system and the cardiovascular system of the enterprise. It is the connective tissue that connect your analytics to your operational systems. Such an architecture marries a digital twin of the enterprise with action APIs that allow you to first model and simulate and second orchestrate and execute complex, cross-functional transactions. As the COVID-19 crisis pulled the tide out, that's exactly what was revealed as missing.

Companies needed to move beyond visibility, beyond analytical insights to having the technical infrastructure to translate that into coordinated, orchestrated actions in the operations of their business. And one of the coolest places to see this working is with our Day Zero companies. These companies have enormous ambition and deeply value the step change in speed and the reduction of expenses Foundry delivers when consumed as infrastructure of the service. [Indiscernible] was able to develop market ready applications and as little as 6 weeks on Foundry, SARCO is integrating 0.5 trillion data points per month to accelerate designed maintenance and commercialization of their iron man suits. Lillian (ph ) is flying through ground and flight testing willing to vast data generated by every sensor streaming from the aircraft. I'd like to introduce some of our Day Zero founders to unpack this a little bit more.

[Unspecified Speaker, Participants]

These companies have a strong engineering culture and they've been able to very quickly take on the platform and make it a fore front in their tech infrastructure. I'm a forth generation manufacturer. I grew up in Detroit. And from my earliest days was inspired by the importance of manufacturing industry. In future years we believe the impact of Foundry in manufacturing will be as profound on the physical world as cloud continuing has been in the digital world. We target 19 leading market revolution for locking bio-connected vehicle data on autonomous vehicle data. Palantir Foundry super charges our distribution to thousands and thousands of new supplies in new solutions and industry.

Foundry unlocks the business potential volume we found ourselves constantly trying to twist our business to fit in side someone else's perspective of how businesses work. And that didn't work. They've been using foundry as their data operating system. So end to end from cloud hosting to data integration from different data sources through using a lot of the out-of-the-box connectors that we have in the platform.

From there, harmonizing the data using open source [Indiscernible] like Python, SQL, using Spark as their distributed compute engine. We're collecting data on every part that we make today. Data about the design, data about how that part has made in our factories, data about how when that partners moved ultimately our customers. [Indiscernible] meaning real-time processing of ever 17 billion data points today, we processed [Indiscernible] slime with a 12 trillion data points.

How business is premised upon high-quality data, and the understanding of that data on the part of people What they had to say to asad then you've been building a number of operational applications, mostly for their internal operations to help like super chart sad, but also for even kind of external third-party users as part of their -- can affect offering. Foundry [Indiscernible] build solutions fast and develop unique intelligence for industry. For WEJO [Indiscernible] was the obvious choice. If you're using Foundry, you better think about what your position in the Company is because everybody will be using [Indiscernible].

[Shyam Sankar, Chief Operating Officer]

A big thanks to our builders who shared more about their ambition and the transformative impact of Foundry on their operations. We started this program to supercharge earlier stage companies, enabling them to create a central operating system for their data and to scale rapidly from day 0. These companies, they're not just managing their data and their operations, they are wielding that to breach scale and win. We announced our second cohort of Builders in October. There are 7 companies from a diverse set of industries, and we continue to partner with innovative companies across industries such as automotive, biotech, healthcare, media, and more. Turning more broadly to the commercial business, the scope of our impact is expanding.

Foundry 's infrastructure is a big theme we're excited about. Customers are building their software on top of our platform. And now we have yet another way to power that with a major product innovation that extends the openness and flexibility of our infrastructure for developers that we're calling Operational APIs or OPIs for short. This liberates the ontology to serve as the nervous system, the cardiovascular system of the enterprise, as a unified action in orchestration layer. This API toolset allows for third parties and customer developers to programmatically interact with Foundry 's ontology. In this headless mode, ID can leverage the power of the ontology in all of their enterprise applications via this open architecture.

What's uniquely powerful about the ontology, it's not denounced. It's not the things in the business. It's the representation of the verbs, the actions that could be taken to those things in the business. The fact that inventory can be allocated, production can be scheduled, orders can be fulfilled. To accomplish these deceptively simple actions requires you to read and write to potentially tens of source systems transactionally.

Foundry lets you orchestrate complex cross-system decisions to win and turn market disruption in to your competitive glory. For example, a large industry partner is unlocking value by integrating Microsoft Power Apps with the Foundry ontology. Power Apps through our OPIs can affect business decisions, powering workflows, and writing data back to external, operational, and transactional systems like ERP, MES, Warehouse Management Systems, and more. This is a modern operating system and action. We launched Apollo this past week as a commercial offerings enabling any software Company to leverage our deployment infrastructure to take their SaaS where no SaaS has gone before, on press, classified clouds, air gap networks and to the Edge. Here to tell us more is Greg DRM, the mad scientist behind the conception and launch of Apollo.

[Greg Dearman, Lead Specialist Biomedical Scientist]

[Indiscernible] orchestration engine for the enterprise, enabling continuous deployment, configuration management, and central software operations across many cloud and on - prem environment. Apollo employees, a number of different concurrent processes, including version management, advanced rollout strategies, and release promotion to ensure platforms stay up-to-date and operational 24/7. With Apollo, you can release new capabilities, deploy the mid scale, compose them into novel platforms, de -risk releases, and rapidly resolve problems as they arise. Having deployment, health, and continuity on a single panning glass, these engineers common interface to handle risk management concerns, unique teach environment.

Different environments have different risk tolerances when it comes to software updates. For instance, once for all new features to canary environments first before moving those same updates to classified networks are critical edge hardware that are harder to operate. Apollo facilitates software stability across these different environments by using a concept called release channels. Environments can subscribe to release channel in accordance with our individual risk tolerance and appetite for new features. Once pushed via release channel, Apollo enables the evaluation roll-outs through a powerful suite of tools to help operators understand the risks associated with each pipeline, surface problems in ship code better.

Apollo makes it possible to take the same approach to continuous delivery across different security classification boundaries by enabling you to deploy an Apollo hub within each network boundary. Each network hub is responsible for managing the environments on that network. This compliance aware changed management enables Apollo to essentially managed services in environments across different compliance regime, powering seamless operations across highly regulated business environments. Apollo effectively removes the deployment environment as constrained, enabling engineers to focus on velocity and application code. The rate code one that works for all customer requirements.

[Shyam Sankar, Chief Operating Officer]

And we continue to push the envelope of Apollo capability by enabling Streaming Processing at the Edge. Once again, we are building 5 years ahead of the market. A software is building technology that will meet its moment. With our latest investments, we'll be able to develop streaming pipelines in Foundry that you then package up, version, and continuously deploy to Edge's compute Infrastructure be it a Humby, a satellite, a 5G base stations to enable real-time processing of large amounts of data in a decentralized, efficient manner. These pipelines, there'll be version upgrade, managing, orchestrated by Apollo. Imagine, you'll be able to Bluegreen upgrade your streaming pipeline across submarines, factory floors, 5G and 6G networks. This is a revolutionary capability that will give our customers the Edge against their competition.

There are 2 modular offerings that we've taken the market that we were really quite excited about, carbon and emissions management and AML for Crypto and Cintex. Starting with carbon emissions management, there's a huge need to not simply account for carbon, and more broadly, emissions, but what are you going to do about it? Day-to-day, month-to-month, how do you manage trade-offs between production on time and full revenue, margin, and emissions targets? How do you understand the levers you have to pull and the implications of each levers? Do you have the ability to understand the consequences of changing a supplier or setting a different delivery routing or changing a production location on your emissions? Can you put that information into a single pane of glass? The same pane that your Company uses to manage production or revenue or margin. Because until you do, emissions management will only be a source of beta for you, something that you do so that you're not left behind. But once you do, you'll be able to use it to beat your competition and win in the market.

These workflows are tailor made for Foundry and leverage our digital twin in supply chain capabilities to present a single pane of glass to view revenue, margin, production, and all emissions to not just see, but to manage the outcome. This is an area that we are seeing growing momentum in no small part because of the obvious charisma of alpha of developing a competitive edge. Customers across disparate industries are building carbon focused common operating pictures to track live emissions, to simulate emissions impacts of the changes to, for example, suppliers to technologies, and regulations, and to make a real-time changes to their business. The other offerings we're really excited about is Foundry for crypto. We have found a unique fit with fast-growing crypto companies that need industrialized compliance solutions.

We are leveraging our deep anti-money laundering and know-your-customer expertise developed over years helping governments find compliance issues with the world largest banks, and helping those banks respond and harden their compliance programs. I mentioned last quarter how one of Europe's largest retail banks has deployed our AML solution in two days. Two days, the cost, speed, and performance is unmatchable. These crypto exchanges in FinTech disruptors are actually technical and can easily discern what legacy bank struggled to. That legacy compliance solutions are often 2 or more decades behind. We believe there are no alternatives that can compete on cost, speed, and performance.

And we're really excited to put more weight behind this in the market. Turning to government, we continue to advance our mission of becoming the U.S. government's central operating system as we extend our footprint across defense, healthcare, and civilian agencies. In the third quarter, we signed new deals with the Department of Health and Human Services, the Air Force, the NIH, and more. I'm proud to say that the MetaConstellation, which we featured in last quarter's earnings call met its moment when called upon by UK MOD to enable Noncombatant Evacuation Operations in Afghanistan. As a reminder, the MetaConstellation is radically changing how satellites are test, the latency of collection and it's creating a fundamental link in the AI enabled kill chain. We are orchestrating a Meta-constellation of more than 300 satellites by working with an array of commercial space companies.

These companies have been deploying constellations of hyperspectral radar and Elan sensors into orbit. And we're putting all that power directly into the hands to the frontlines empowering the Edge. End-to-end Gotham and Foundry infrastructure, including Meta-constellation provided unparalleled capability and was stood up in less than a day for UK MOD operations. In addition, Meta-constellation was also used to great effect at last month's [Indiscernible] U.S. military exercises were provided timely and effective targeting information. This is all made possible because of Apollo for Edge AI. We were recently down selected by the U.S. Army to be the sole provider of the army's intelligence data fabric and analytics foundation for the capability drop Capability Drop 2 program.

The army will deploy Gotham to support intelligence workflows worldwide with a globally federated intelligence data fabric and analytics platform, spanning multiple security classifications. Our work on CD2 is just one of many initiatives, of which we are engaging with the army, including CD1 and TITAN that will accelerate the decision chain and provide decisive advantage for our armed forces in the near-peer fight. We have a motivating set of customers and growing pipeline for big pursuits in '22 and beyond, and it is growing every quarter. We're not just competing for programs. Our unique capabilities are creating their own opportunities. Our work in healthcare continues to expand, and we recently signed a 4-year $87 million contract with the Department of Veteran Affairs.

This department serves 9 million veterans and their family members and spends nearly $0.25 trillion per year. After supporting them in the exigency during COVID-19 response, we won an unrestricted competition to help power their data transformation efforts. Our software is going to enable the VA to integrate data across its large IT landscape and ultimately to deliver better care and services for our veterans. It is a privilege to serve our veterans and war fighters, both on the battlefield and in their period after service. Our collaboration with the NIH continues in the fight against COVID-19. As N3C deepens its partnership with Palantir, leveraging Foundry as their research backbone. This 2-year award carries a total potential value of $60 million and the N3C data enclave represents one of the largest collections of COVID-19 health records in the world.

Additionally, our work with NCATS expanded with an increase in total potential value of $24 million. Zooming out a bit, from an emerging space, a big picture in the government segment, we're seeing an emerging opportunity to help define the next wave of disruption. One thing -- perhaps the one thing we have demonstrated to the market is that it is possible to sell software at scale to the government for programs of record where the government might have historically otherwise bought labor and services. And of course in doing so, we have radically transformed the margin profile of these big government contracts. There is an immense opportunity in this sector to partner with existing government contractors to productize their solutions that they are delivering as services today and in doing so, to transform the EBITDA they generate against their existing revenue with our platforms.

We have proven we can do this with our business, and we are exploring opportunities to partner with firms that have a disruptive vision and realize that they can stand on our shoulders the 15 years and nearly $3 billion of R&D that we have done to productize and scale their own offerings. Before turning it over to Dave, I wanted to give a quick shout out to every Hobbit and just reflect on our journey as much over the last 2 decades as over the last year. A year ago, we gave our first result as a public Company. We should be proud of those 5 quarters of results, but even prouder of the collective effort and passion that begot those results.

We pivoted the whole Company to respond to the exigent events of COVID for governments and commercial entities around the world, but of course, that happened before we went public, and we all had that question. Will we preserve the cultural essence of Palantir after the listing? Will we have the radical ability to organize and reorganize around the problem at hand while capturing the integral of our innovation. While in Q3, we could answer that question definitively. Yes. When the bat signal was put up in the night sky, the Motley [Indiscernible] habits answered the call for America and her allies, 5 quarters down, at least 500 more to go. Over to you, Dave.

[Dave Glazer, Chief Financial Officer]

Thanks, Shyam. I'll review our third quarter performance followed by our outlook. We had a record-breaking Q3 as continued product innovation and our ongoing investments in distribution led to accelerating customer account growth and strong free cash flow. We generated revenue growth of 36% in the quarter, bringing Q3 revenue to $392 million and year-to-date revenue to more than $1.1 billion, up 44% versus the first 9 months of last year. Our business continues to demonstrate very strong cash-generation. Third quarter cash [Indiscernible] operations was a $101 million, an improvement of a $153 million versus the prior year period.

We delivered a $119 million in adjusted free cash flow in the third quarter, representing a margin of 30%. The strength of our third quarter performance brings year-to-date adjusted free cash flow to $320 million, representing a free cash flow margin of 29% and $605 million improvement from the prior-year period. Third quarter adjusted operating income increased to a $116 million representing a margin of 30% or a fourth consecutive quarter with adjusted operating margin of 30% -- and a total customer count grew 20% quarter-over-quarter. Our commercial customer count increased 46% quarter-over-quarter, and it is more than doubled since -- 66% to $38 million, and these customers are already generating contribution margin of 36%.

This compares with just $23 million in revenue and a -26% contribution margin for new customers over the comparable period in 2020. Drilling down into our third quarter revenue, total revenue grew 36% year-over-year ahead of our prior guidance of 33%. Our U.S. business continues to demonstrate strong growth with revenue increasing 45% year-over-year in Q3. I need you to see broad-based momentum in our commercial business. Total commercial and representing our third straight quarter of accelerating commercial revenue growth. Our investments in product and distribution continued to drive growth, particularly in the U.S. where commercial revenue increased 103% in Q3. And our international business continue to gain momentum as well with international commercial revenue growth accelerating for the third straight quarter as economies continue to reopen and recover.

Government revenue increased 34% as we signed new deals with the Air Force, HHS, and NIH. And we were recently down-selected by the U.S. Army to provide its intelligence data fabric and analytics solution under CD-2. In the third quarter, we closed 54 deals of a $1 million or more in total contract value, including 33 deals of $5 million or more and 18 deals of $10 million and more. Third quarter billings increased -- 172% year-over-year. As you continue to improve contracting, push out, or remove termination for convenience causes and move to shorter duration billing cycles. Total remaining deal value increased 50% year-over-year to $3.6 billion with commercial remaining deal value increasing 101%.

Third quarter trailing 12-months revenue per customer was $7 million, down sequentially and reflecting continued acceleration in customer acquisition as we added 34 net new customers in the quarter. We continue to expect rapid expansion in our customer base moving forward, as we invest in our sales teams and channel partners and we would expect average revenue per customer to continue to taper as a result of our growing customer count. When excluding new customers added in the quarter, average revenue per customer was $8.8 million, up 26% year-over-year, and we continue to generate strong growth with our largest customers. Trailing 12-month revenue per top 20 customers was $41.3 million, up 35% year-over-year. Next, I'll discuss our third quarter margins and expenses on an adjusted basis, which excludes stock-based compensation.

Adjusted gross margin was 82%, up from 81% in the year-ago period. Contribution margin was 57%, up from 56% in the year-ago period. Third quarter income from operations excluding stock based compensation and related employer payroll taxes, was $116 million, representing an adjusted operating margin of 30% our fourth consecutive quarter with adjusted operating margin at or above 30%. Third-quarter adjusted expenses, the bulk of expense growth is driven by continued investments in product development in sales to support, durable, long-term growth. Marketing expenses were up a 144% quarter-over-quarter as we continue to fuel demand generation. In the third quarter we generated a $119 million in adjusted free cash flow, representing a margin of 30%. Through the first 9 months of 2021, adjusted free cash flow was $320 million, representing an improvement of $605 million versus the prior year period.

We ended the third quarter with over $2.3 billion in cash and no debt. Turning to our outlook. For a Q4 revenue guidance, we expect revenue of $418 million and we expect adjusted operating margin of 22%. Our Q4 revenue guidance implies full-year 2021 revenue of $1.527 billion, which represents another year of revenue growth of 40% or higher. Additionally, for the full-year 2021, we are raising our annual adjusted free cash flow guidance to an excess of $400 million, an increase of $100 million from our prior guidance. Continuing to execute the guidance strategy set forth by our CEO, Alex Karp, in 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 4 years at each earnings call. With that, I'll turn the call over to Rodney to open up Q&A.

[Rodney Nelson, Investor Relations]

Thanks, Dave. We will begin with questions from our shareholders submitted today. Shyam, this first one's for you. Jason B and Jacob P both asked, does Palantir view any other AI companies as competitors? If so, what makes Palantir platforms a better choice?

[Shyam Sankar, Chief Operating Officer]

Thank you, Jason. Thank you, Jacob. Our competition is not any other Company. It's really -- the competition is our customer, specifically, our customer's IT department and their desire to build their own solution. And you know what? It's not even really their fault. There's an army of consultants and comp providers who pedal completely bogus DIY market textures that are never going to work. It took us 15 years and nearly $3 billion of development and we continue to innovate every day. Just last week, we had a meeting with the Fortune 200 CIO, who was so excited to see Foundry because he has spent the last 3 years trying unsuccessfully to solve the same problems with a leading cloud provider; 3 years. And they aren't the only ones. These are our favorite conversations because having tried and failed, the customer knows exactly how valuable it is to buy a solution that works in days at scale. But that's not really what makes us a better choice. We're a better choice, because we focus exclusively on alpha. We express their strategy. Whereas most enterprise software makes the customer more similar to the competition our products, they are designed to make them more different, more differentiated.

[Rodney Nelson, Investor Relations]

Great Shyam, another one for you, Alex, [Indiscernible] and Jeff asked, are you planning to invest in any cryptocurrency?

[Shyam Sankar, Chief Operating Officer]

Thanks, Alex and Jeff. We are super excited about Foundry for crypto. We thinking -- we see a unique fit with fast-growing crypto companies that need industrialized compliance solutions. These are highly technical buyers and they're highly motivated disruptors. We are leveraging our deep anti-money laundering and know your customer expertise, expertise that we developed over years, helping government sign [Indiscernible] and helping those banks in turn were [Indiscernible] just decide and at the banks themselves, we think we're going to be a massive accelerate for crypto companies. We're going to give them credible AML platforms to enable them to go toe-to-toe and beyond with the legacy players. We're going to deliver.

[Rodney Nelson, Investor Relations]

Do you intend to focus on profitability in the near-term or are you still focused on expansion?

[Dave Glazer, Chief Financial Officer]

Thanks, Rodney. As you see in our results, we're delivering strong growth with strong cash flow. We expect revenue growth of 40% for the full year. Expecting our second year in a row of 40% or higher revenue growth. We've raised our adjusted free cash flow guide to an excess of $400 million for the year to second straight quarter rate in our guidance. And it implies an over $670 million year-over-year improvement. Stepping back, we are continuing to deliver high-growth with very strong cash flow results and we remain focused on expansion. And so pivoting to expansion, we have more pilots today than at any time in our history. We added 34 net new customers in Q3. We signed 54 deals -- [Indiscernible ] with Apollo. We've added 150 sales heads this year, not to mention building the infrastructure to support them and future hires, and we're continuing to build out and invest in marketing. Still in its early days, but our marketing spend is up 144% quarter-over-quarter.

[Rodney Nelson, Investor Relations]

Thanks, Dave. Shyam, another one for you. Daniel Q (ph ) asks, Gotham and Foundry can be used on personal computers, tablets, and smartphones, can Palantir's platforms be used on augmented reality and virtual reality devices? How impactful will AR, VR, and the metaverse will be for Palantir, its clients, and big data analytics?

[Shyam Sankar, Chief Operating Officer]

Thanks, Daniel. We have been doing augmented in virtual reality for a long time, more than a decade. We have worked on pushing mission information to smartphones in augmented reality. So you can hold up your phone and view mission plans, route, HLZ helicopter landing zones, points of interest, way points overlaid while you're on mission. We have worked on augmenting imagery and full-motion video with AI detection in mission context real-time to drive operational decision-making. At a recent military exercise, our Apollo for Edge AI capability was used across air-launched effect and unmanned aerial vehicles to send targets to fighter jet. Those targets popped up in the pilot's augmented reality heads-up display. We are at the Edge. We are integrating with Edge devices from night vision goggles, to heads-up displays from augmented reality and cockpit's training simulations. AI enabling the kill chain requires pushing context to the decision-making Edge. So we see AI and VR as integral part of everything that we do.

[Rodney Nelson, Investor Relations]

Great. Thanks Shyam. Kevin, one for you. Justin R, Jackson K, and others have asked, can you talk about the opportunity for Palantir and small businesses and consumer use down the line?

[Kevin Kawasaki, Global Head of Business Development]

Thank you, Justin. Thank you, Jackson. Our SMB offering delivers the full power of Foundry through Apollo and to be adopted in days. And we see this with Foundry for Builders and other Day Zero companies. Not only our companies using Foundry as our internal infrastructure. They are pioneering the use of Foundry and Apollo as a platform to build [Indiscernible] offerings and consumer software products as well. With Foundry they're doing the faster companies in mobility, building entire data ecosystems in Foundry for connected vehicles and autonomous vehicles of renewable energy Company using Foundry, not just for advanced physics models, but also using Foundry to create a software offering for their customers. A B2B software Company, building an ERP for construction. The founder told us that Foundry is making it possible for him to build orders of magnitude bigger and with less effort.

And we've had a lot of questions about when Palantir is going to have a consumer product available. Well, something I can say is that Day Zero companies are building their consumer products on top of Foundry. Take companies like Chapter, whose products helped enroll customers in the right Medicare plans. It's backed by Foundry and delivered through Apollo. We expect to see more of this, and it's an exciting part of our journey. Commercial revenue up 21% sequentially in Q3 quarter-over-quarter. The numbers are especially strong in the U.S., where the U.S. commercial business has accelerated from 72% revenue growth rate in Q1 to 90% growth rate in Q2, now 103% revenue growth in Q3, that's more than doubling year-over-year. And this is driven by continued product innovation and more efficiencies in distribution like -- The acquisition of new customers is accelerating.

We mentioned 10 net new customers in Q1, 20 in Q2, 34 in Q3, more than tripling. Commercial revenue has accelerated in every quarter over the last year from 4% in Q4 of last year, 19% in Q1, 28% in Q2, and 37% in Q3. Total commercial deal value is up $2.2 billion. That's more than doubling since last year. Our RPO remaining performance obligations increased 172% to $874 million. And account coverage and distribution channels bring us to great companies like Apache, a large hospital system in Florida, a large e-health insurance provider in the U.S., Kinder Morgan for layoff, Dave & Buster's just to name a few.

[Rodney Nelson, Investor Relations]

Great. Thanks, Kevin. Sean, this question is for you [Indiscernible] asks, what is it that will keep Palantir ahead of the competition for the next 10 years?

[Shyam Sankar, Chief Operating Officer]

Thanks, Marcellus. Well, that's the trillion-dollar question. Of course, trillion dollar [Indiscernible] is well short of our ambition over the next 10 years. We always have and will always continue to focus on building cutting-edge product that the world needs anticipating the future, operating with precision. We are software Schumann's, building before the need is obvious, always ready to me it's moment as was true with IEDs and the rocket in Afghanistan, the global financial crisis, ISIS attacks in Europe, or more recently with COVID, supply chain disruptions in Afghan Noncombatant Evacuation Operations. With Gotham, we are focused on continuing to build the AI enabled kill chain across every sensor and every shooter covering all domains from space to Mars. Our platforms are modern operating systems for the enterprise.

With Foundry, we're creating the nervous system and the cardiovascular system of the enterprise. With OPI, you can expose complex, cross-system actions, in a repeatable manner that enables you to go from sensing business disruptions before they even happened, to changing your business to seamlessly respond, organizing and reorganizing your business around reality at pace. And we just launched Apollo Commercial, this past week. We have already used Apollo to accomplished so much in the world from Edge AI and space, real-time cams with weapons systems to running our global software delivery, free. Taking Gotham and Foundry to where no SaaS has gone before. And today, I talked about Apollo for streaming. It feels like every quarter we are creating things that we could not have conceived, dug ourselves just a couple of quarters before. Central to our value-creation engine that we were focused on solving hard problem. We are focused on creating fundamental value. Most software companies make software that's easy to sell and overtime that corrupts the value of the product. We make software is profoundly valuable, cutting edge product and then innovate on distribution.

[Rodney Nelson, Investor Relations]

Thanks, Shyam. Dave, one for you. James K. and Raphael W. ask, the Company's Chief Executive Officer, Alex Karp, has been selling a large amount of shares this year. Why has he been selling so much and will these sales continue?

[Dave Glazer, Chief Financial Officer]

James, Raphael, thank you for the questions. As we mentioned on prior earnings calls, Karp was granted options a decade ago which we set to expire on December 3rd of this year. Specifically, as a report equity yields 60.9 million options that were set to expire this December. The taxes from the exercise of the options are more than $0.5 billion. And so we've been selling shares along the way to generate funds to pay those taxes. Of the 16.9 million expiring options, he has now exercised 94% of the total. Of the remaining 6%, roughly half or 1.9 million of them will be sold by the expiration date, the other half exercised and as a result, all the near-term expiring options will [Indiscernible].

[Rodney Nelson, Investor Relations]

Thanks, Dave. Shyam, one for you. Antonio (ph ) asks, being a nurse myself, I see great potential for Palantir. In these pandemic times, healthcare workers are the new defense. Does Palantir have a plan to create a product that can help healthcare institutions on how to assign us?

[Shyam Sankar, Chief Operating Officer]

Thank you, Antonio. And thank you for all that you and your fellow healthcare workers have done for us over the pandemic. My mother is a nurse, and I've been living this alongside so many, not just in the U.S. but all over the world. I made reference in my earlier remarks to the substantial growth of our healthcare work. The NHS, MD Anderson, 70 academic medical centers to the NIHs, N3Cs, The VA samples nursing home facilities in Japan. [Indiscernible] unique and diverse footprint that I believe positions us to deliver on the necessary transformation in healthcare. And yes, we are absolutely doing the work at the cutting-edge of both research and complex clinical care, but we're also doing the work on operational excellence. The world over COVID has cost for severely exacerbated procedure backlog.

There are people that need care -- life-saving care, waiting to be seen. And at the same time many facilities have spare capacity. There is a complex operational problem in maximizing the utilization of scarce healthcare capacity to save lives, but the challenge is multifaceted, staffing, operating theater management, patient management, demand management, and more. But as you highlight, one of the most acute challenges, and we're engaged on it in the U.S. and Japan, is the nursing shortage and staffing optimization. I was recently visiting one of our hospital customers, sitting with their nurses, watching they're being trained on Foundry for the first time. You could feel the excitement. They were buzzing in how they could transform patient scheduling, care delivery, and ultimately, how it was going to empower them to do so much more, so much faster. To me, it was like what it felt like when I was I watching marine being trained on Palantir the -- for the first time in Kandahar a decade or more ago. They were so excited. So generally, the Iron Man suit, it fits them like a globe as these modern day superheroes save our friends and our families.

[Rodney Nelson, Investor Relations]

Great Shyam, one more for you before we open up the call, Aaron and Avi asks, what is the future of Palantir 's Public Sector business, including if there are any billion-dollar contracts like the latest U.S. Army wins in the pipeline?

[Shyam Sankar, Chief Operating Officer]

Thank you, Aaron and Avi. We are so excited about the government business. It is where our cutting-edge product is meeting its moment. It was an incredibly strong quarter. The wins on CD2, a truly massive program of record at the U.S. Navy, INDOPACOM, the U.K. and Australian Navies, at the VA with the 4-year $87 million contract, at the NIH $60 million 2-year contract, deals at NHS, PEPFAR, FDA, Department of Justice, Department of Energy, the State Department, and more. CD2 is a substantial win. It builds on another program of record that we already won, CD1. CD1. It was an enormous amount of work. We're so proud of the outcome and we believe the CD1 and CD2 together uniquely positions us for future U.S. Army programs are record.

But that's just the army. We had incredible opportunity that Space forced and at the Air Force, places that we are investing a lot, we're building on [Indiscernible] Project from [Indiscernible] air force and that forecourt space force reporting to the Space domains awareness platform. A very unique position. We have many independent opportunities to extend the work that we have done under, under USDI and NGA into the Combatant Commands themselves to directly take on near-peer threats and deter the enemy maintaining dominant. Beyond defense, we see immense opportunities in our pipeline across health from the NHF and VA to the NIH and HHS. We see new opportunities within the Defense Industrial Base in its own right as customers to help them with their own manufacturing, but also in being a strategic partner, helping them capture new revenue streams by AI enabling their hardware platforms. This pipeline has aggregated fee in building. And all of this is happening despite the macro headwinds that we've all heard about across government services.

COVID's impact on delaying the pace of work. And we are just competing for known opportunities. Our capabilities are so unique, we're creating our own opportunities. The macro factors here are big, big tailwinds for us. Clear consensus on the threat from an aggressive CCP, not only in terms of impacts on demand in the U.S. but also in Japan, Korea, Australia, the UK, the west and her allies broadly. The infrastructure bill, and our fit on the programs and awards that are being driven there. Carbon emissions management, EV charging infrastructure, building on our incredible commercial momentum in the mobility value chain. Delivery of major projects on time and on budget, and more broadly, the opportunity for SIs and primes on infrastructure projects to partner with Palantir, to develop their own high-margin software streams in place of historically low-margin nonrecurring services on our platforms. We are just at the beginning of big secular trends here. Trends that we anticipated and have invested in for years. We are uniquely positioned, cutting-edge product, ready to meet its moment.

[Rodney Nelson, Investor Relations]

Thanks, Shyam. Operator, we'll open up the call for Q&A.

[Operator]

[Operator Instructions]. Your first question will come from Brent Thill with Jefferies. Please proceed.

[Brent Thill, Jefferies]

Hi, good morning. On RPO, you had a really nice improvement in backlog. I'm curious if you could just comment on what's driving that backlog. And maybe as a follow up for Shyam, just as you look at the go-to-market on commercial, can you give us an update on the direct sales build-out and partnership opportunities there? Thanks.

[Shyam Sankar, Chief Operating Officer]

Hey, Brent. Thanks for the question. Great Q3, wrapping a great year with our Q4 guide, we're expected to do 40% revenue growth for the full year. And this is driven by continued product innovation. Also, more efficiencies in distribution, like account base sales, distribution channels. And we're very excited about the progress of our account base sales team. We've hired about a 150 people so far this year. A lot of that has been focused in the U.S. market where we first started. And many are just getting started, but you can see some of the activity that we mentioned. We've more than doubled our commercial customer

[Kevin Kawasaki, Global Head of Business Development]

count this year, and those numbers are accelerating. Growing our installation base is really great because we expand in places where we are. If you look at our top 20 customers, average over $40 million in year revenue, that's up 35% year-over-year. Our average revenue per customer was $8.8 million when excluding new customers. So a lot of room to expand as we expand our customer base. Another big driver, U.S. commercial revenue, where we've seen acceleration. We mentioned up to 103% growth, doubling in Q3. Our forward indicators also

[Shyam Sankar, Chief Operating Officer]

really strong total deal value up 50% to $3.6 billion total deal value in commercial doubled to $2.2 billion. Our third straight quarter of accelerating commercial revenue. And just to wrap up to commercial revenue, up 21% sequentially, quarter-over-quarter.

[Operator]

Your next question will come from the line of Keith Weiss from Morgan Stanley. Please proceed.

[Unidentified Analyst, Morgan Stanley]

Thank you for taking the questions. It's [Indiscernible] for Keith Weiss. There was a really nice performance across commercial and government was strong as well. I just sort of -- with the new administration sort of taking in place, in terms of the velocity of those deals and getting those deals signs, any change that you've seen as far as this new administration versus the prior admin?

[Shyam Sankar, Chief Operating Officer]

No meaningful change there. I mean, the government is moving at pace. I think what's really out there is the near -peer threat, and that's become the real pacesetter for not only the U.S. but allied countries as well. And so there's a lot of focus, a lot of speed. We've worked under 4 administrations and have seen consistent continuity across them.

[Operator]

Your next question will come from the line of Rishi Jaluria from RBC Capital Markets. Please proceed with your question.

[Rishi Jaluria, RBC Capital Markets]

Wonderful, thanks so much for taking my questions, and nice to see continued strength on the commercial side. Just maybe on high level, can you help us understand how the land and expand and go-to-market motion on the commercial side has differed from government in your experience and especially so far this year. And maybe can you talk a little bit about how involved you are at the pilot phase and beyond and what the time-to-value looks like? Thanks.

[Shyam Sankar, Chief Operating Officer]

Great, yeah. We talked earlier about the module, though it was a big thing a year ago that really changed how we went to market. The modules have been very successful. Just this quarter we discussed the carbon emissions, management module, and Foundry for crypto. If we go back a little bit, what we can see is the real success of software-defined data integration, the SDDI and ERP suite modules, where we've been able to really use these modules to meet our customers where they are, predictable price points. It also enables us to really scale channels and enable our partners to help us go to market. So predictable price points, clear problems to go after.

And in doing so, we at this point have developed enough success to see that after solving a single problem in an understandable way, it really sets us up to better expand and land the full proposition of and expand the contract over time there. We really have a lot of faith in the module strategy, both as a direct sales force augmentation and channel partners in commercial. On the government side, we have seen similar success. We actually won a significant program on a module that is based on readiness, and so we were able to compete for a multi-million-dollar program with less - than -a-day worth of effort. Of course, we love how it transforms the economics of our business, but I think the speed-to-value for customers is really what sets it apart.

[Operator]

Your next question will come from the line of Brad Zelnick from Deutsche Bank. Please proceed. Hello, Brad Zelnick, your line is open. Please proceed with your question. And we will move onto the next question in queue. Your next question is from Mark Cash from Morningstar. Please proceed with your question.

[Mark Cash, Morningstar]

Hi. Good morning. Thanks for the question. Sort of multi-part one. So you talked about the recently launched Foundry module around crypto. And I'm just wondering, it wasn't really a press release around that the module kind of appeared so finding new use cases is great, but I was curious if you could talk about the size of the crypto opportunity, and then also the strategy for releasing modules. Is it fine [Indiscernible] customers and commercializing it quietly are really just depends on the market size and the interest. Thank you.

[Shyam Sankar, Chief Operating Officer]

Thanks, Mark. Yes, the focus on module is to really meet the customer where they are. Where do we see repeatable challenges that we can create an offering that is very fast to deploy. Last quarter, I talked about how we deployed AML at the largest European retail bank in less than 2 days. This gives you kind of an indicative sense of the performance. We were able to integrate with complicated ERP solutions and unlock that data for customers and ours. So we're -- we start with cutting-edge products. And then where we see the module, we invest in it because it gives us innovative distribution, it enables us both from a direct sales force perspective, but also general partners into really successfully penetrating the market.

[Operator]

All right. And we do have 1 final question -- have time for 1 final question, which is from Alex Zukin from Wolfe Research. Please proceed with your question.

[Alex Zukin, Wolfe Research]

Hey guys, this is Alex Zukin from Wolfe Research. I just had maybe 2 quick numbers questions. Roughly if we think about Q4 guidance, how much revenue do you expect to come from commercial contracts with investment arrangements in the quarter. And then is it possible to get what percentage of the total RPO that would be recognized over the next 12 months?

[Kevin Kawasaki, Global Head of Business Development]

So on the investment programs, we're really excited about the opportunity here. Just to repeat some numbers and get some context with our Q4 guide, we're expecting a 40% revenue growth for the year in 2021. That's over $1.5 billion for the year. We raised our cash flow guidance to an excess of 400 million. We've invested about a $150 million through Q3. Total revenue from the program is about 2% of revenue for the year through Q3. And there's about $640 million of total revenue long term from this program at the end of the quarter.

[Operator]

This concludes today's conference call. Thank you for participating. You may now disconnect.