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Palantir Technologies Inc. (PLTR -0.34%)
Q3 2021 Earnings Call
Nov 09, 2021, 8:00 a.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Rodney Nelson

Good morning. Welcome to the Palantir's third quarter 2021 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 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 releases 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.

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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. 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'll 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 is gravity defined. US 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 count at 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 $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 an adjusted free cash flow margin of 29% and 32% adjusted operating margin. There are so many wins this quarter.

Instead of going through them customer by customer as I usually do, I wanted to highlight three themes. One, we are seeing more traction selling into the defense industrial base as a customer. Foundry has shown that it can help in the production of the A320 of RAM pickup trucks, auto parts, PPE, and tractors. We can do it better, faster, and cheaper.

And the defense industrial base is 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, MDAnderson, 70 academic medical centers through the NIH's N3C, the Department of Veteran Affairs, and even more regional US providers means that Foundry is helping to manage over 300 million patient lives and growing. We have a very unique opportunity and a diverse footprint that we believe continues to uniquely position us to deliver on the necessary transformation in 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 pull 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 connects 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 as a Service. Wejo is able to develop market-ready applications in as little as six weeks on Foundry. Sarcos is integrating half a trillion data points per month to accelerate design, maintenance, and commercialization of their Iron Man suits.

Lilium is flying through ground and flight testing the 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.[Commercial break]

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 zero. These companies, they're not just managing their data and their operations, they are wielding them to blitz, scale, and win. We announced our second cohort of builders in October.

There are seven companies from a diverse set of industries, and we continue to partner with innovative companies across industries such as automotive, biotech, healthcare, media, and more. Turning more broadly to the commercial business, the scope of our impact is expanding. Foundry as infrastructure is a big theme we are excited about. Customers are building their software on top of our platform.

And now we have yet another way to power that with a major product innovation that extends the openness and flexibility of our infrastructure for developers that we're calling Operational APIs or OPIs for short. This liberates the ontology to serve as a nervous system, the cardiovascular system of the enterprise as a unified action and orchestration layer. This API tool set 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 the nouns, it's not the things in the business. It's the representation of the verbs, the actions that can be taken to those things in the business. The fact that inventory can be allocated, production can be scheduled, orders can be fulfilled. 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 into your competitive glory. For example, a large industry partner is unlocking value by integrating Microsoft Power apps with the Foundry ontology. Power apps through our OPIs, can affect business decision, powering workflows and writing data back to external operational and transactional systems like ERP, MES, warehouse management systems, and more. This is the modern operating system in action.

We launched Apollo this past week as a commercial offering, enabling any software company to leverage our deployment infrastructure to take their SaaS, where no SaaS has gone before, on-prem, classified clouds, air gap networks, and to the edge. Here to tell us more is Greg DeArment, the mad scientist behind the conception and launch of Apollo.

Greg DeArment -- Product Development, Deployment Infrastructure

Apollo is an orchestration engine for the enterprise, enabling continuous deployment, configuration management, and central software operations across these many cloud and on-prem environments. Apollo employs 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 to put them at scale, compose them into novel platforms, derisk releases and rapidly resolve problems as they arise. Having deployment health and continuity on a single pane of glass gives engineers a common interface to handle risk management concerns unique to each environment.

Different environments have different risk tolerances when it comes to software updates. For instance, once we're all at new features to canary environments first before moving those same updates to classified networks or to critical edge hardware that are harder to operate them. Apollo facilitates software stability across these different environments by using a concept called release channels. Environments can subscribe to a release channel in accordance with our individual risk tolerance and appetite for new features.

Once pushed via release channel, Apollo enables the evaluation of rollout through a powerful suite of tools to help operators understand the risks associated with each pipeline surface problems and ship code better. Apollo makes it possible to take the same approach to continuous delivery across different security or 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 change management enables Apollo to centrally manage services in environments across different compliance regimes, powering seamless operations across highly regulated business environments.

Apollo effectively removes the deployment environment as a constraint, enabling engineers to focus on velocity and application code. They write code once that works for all customer environments.

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 five years ahead of the market, software shamans building technology that will meet its moment. With our latest investments, you will be able to develop streaming pipelines in Foundry that you then package up, version, and continuously deploy to Edge compute infrastructure, be it a Humvee, a satellite, a 5G base station to enable real-time processing of large amounts of data in a decentralized efficient manner. These pipelines, they'll be versioned, upgrade, managed, and orchestrated by Apollo.

Imagine you'll be able to bluegreen upgrade your streaming pipelines across submarines, factory floors, five and 6G networks. This is a revolutionary capability that will give our customers the edge against their competition. There are two modular offerings that we've taken to market that we are really quite excited about, carbon and emissions management and AML for crypto and fintechs. Starting with carbon emissions management, there is 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 lever? 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 data 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 and supply chain capabilities to present a single pane of glass to view revenue, margin, production, and all emissions. To not just see, but to manage the outcome.

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 real-time changes to their business. The other offering, we're really excited about is Foundry for Crypto. We have found a unique fit with fast-growing crypto companies that need industrialized compliance solutions.

We are leveraging our deep anti-money laundering and know-your-customer expertise developed over years, helping governments find compliance issues with the world's largest banks, and helping those banks respond and harden their compliance 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 and fintech disruptors are actually technical and can easily discern what legacy banks struggle to that legacy compliance solutions are often two or more decades behind. We believe there are no alternatives that can compete on cost, speed and performance, and we're really excited to put more weight behind this in the market. Turning to government, we continue to advance our mission of becoming the US 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 Meta-Constellation, 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 Meta-Constellation is radically changing how satellites are tasked, the latency of collection, and is 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 ELIN sensors into orbit, and we are putting all that power directly into the hands of the front lines, 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 that last month's Scarlet Dragon in US military exercises, where it provided timely and effective targeting information. This is all made possible because of Apollo for Edge AI. We were recently down-selected by the US Army to be the sole provider of the Army's Intelligence Data Fabric and Analytics Foundation for the 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 CD-2 is just one of many initiatives of which we are engaging with the Army, including CD- 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 four-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 warfighters, 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 two-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 mud to space, big picture in the government segment, we are seeing an emerging opportunity to help define the next wave of disruption. One thing, perhaps the one thing we have demonstrated to the market is that it is possible to sell software at scale to the government for programs of record where the government might have historically otherwise bought labor and services.

And of course in doing so, we have radically 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 two decades as over the last year.

A year ago, we gave our first results as a public company. We should be proud of those five quarters of results. but even prouder of the collective effort and passion that we got those results. We pivoted the whole company to respond to the exigent events of COVID for governments and commercial entities around the world.

But of course, that happened before we went public. And we all have 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? Well in Q3, we could answer that question definitively. Yes. When the bat signal was put up in the night sky, the Motley crew of Hobbits answered the call for America and her allies, five 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 nine months of last year.

Our business continues to demonstrate very strong cash generation. Third quarter cash from operations was $101 million, an improvement of $153 million versus the prior-year period. We delivered $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 a $605 million improvement from the prior-year period.

Third quarter adjusted operating income increased to $116 million, representing a margin of 30%, our fourth consecutive quarter with adjusted operating margin of 30% or greater. We added 34 net new customers in the third quarter, and our total customer count grew 20% quarter-over-quarter. Our commercial customer count increased 46% quarter over quarter and it has more than doubled since the end of 2020. Our new customers are scaling faster and more efficiently than ever before.

Year to date, revenue from new customers acquired in year is up 66% to $38 million, and these customers are already generating contribution margin of 36%. This compares with just $23 million in revenue and a negative 26% contribution margin for new customers over the comparable period in 2020. Drilling down into our third quarter revenue, total revenue grew 36% year over year ahead of our prior guidance of 33%. Our US business continues to demonstrate strong growth with revenue increasing 45% year over year in Q3.

Looking at our Q3 revenue year over year by segment, we continue to see broad-based momentum in our commercial business. Total commercial revenue was $174 million, up 37% and representing our third straight quarter of accelerating commercial revenue growth. Our investments in product and distribution continue to drive growth, particularly in the US, where commercial revenue increased 103% in Q3. And our international business continues 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 US Army to provide its Intelligence Data Fabric and Analytics solution under CD-2. In the third quarter, we closed 54 deals of $1 million or more in total contract value, including 33 deals of $5 million or more and 18 deals of $10 million or more. Third quarter billings increased 56% year over year and remaining performance obligation increased 172% year over year as we continue to improve contracting, push out or remove termination for convenience clauses 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-month revenue per customer was $7 million, down sequentially and reflecting continued acceleration in customer acquisition as we added 34 net new customers in the quarter. We continue to expect rapid expansion in our customer base moving forward as 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 were $276 million, up 2% year over year and 28% when adjusting for onetime direct listing expenses incurred in Q3 2020. The bulk of expense growth is driven by continued investments in product development and sales to support durable long-term growth. Marketing expenses were up 144% quarter over quarter as we continue to fuel demand generation.

In the third quarter, we generated $119 million in adjusted free cash flow, representing a margin of 30%. Through the first nine months of 2021, adjusted free cash flow was $320 million, representing an improvement of $605 million versus the prior-year period. We ended the third quarter with over $2.3 billion in cash and no debt. Turning to our outlook.

For our 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 four years at each earnings call.

With that, I'll turn the call over to Rodney to open up Q&A.

Rodney Nelson

Thanks, Dave. We'll begin with questions from our shareholders submitted. Shyam, the first one is for you. Jason B.

and Jacob P., both asked, does Palantir view any other AI companies as competitors? If so, what makes Palantir's 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 customers' 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 cloud providers who pedal completely bogus DIY marchitectures 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 a Fortune 200 CIO, who was so excited to see Foundry because he has spent the last three years trying unsuccessfully to solve the same problems with the leading cloud provider. Three years. And they aren't the only ones. These are our favorite conversations because having tried and failed, the customer knows exactly how valuable it is to buy a solution that works in days at scale.

But that's not really what makes us a better choice. We're a better choice because we focus exclusively on alpha that we invest in capabilities that enable a company to uniquely 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

Great. Shyam. Another one for you, Alex A. and Jeff C.

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 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 governments find compliance issues with the world's largest banks and helping those banks in turn, respond and harden their compliance programs. Some of the largest AML investigations in the world were powered by Palantir, both on the Department of Justice side and at the banks themselves. We think we're going to be a massive accelerant 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 compliance so they can focus on disruption. And of course, they are welcome to pay us in crypto.

Rodney Nelson

Great. Dave, one for you. Avi asks, do you intend to focus on profitability in the near term? Or are you still focused on expansion?

Dave Glazer -- Chief Financial Officer

Thanks, Avi. 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 value to an excess of $400 million for the year, the second straight quarter raise in our guidance, and it applies in over $670 million year-over-year improvement.

Stepping back, we are continuing to deliver high growth with very strong cash flow result 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 in Q3 of $1 million or more.

We're scaling our investments in R&D, hiring devs, investing in new product offerings, value for crypto, the Meta-Constellation and the commercialization of 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

Shyam, another one for you. Daniel Q. asks, Gotham and Foundry can be used on personal computers, tablets and smartphones. Compounders platforms be used on augmented reality and virtual reality devices, how impactful AR/VR and the Metaverse be for Palantir, its clients and big data analytics.

Shyam Sankar -- Chief Operating Officer

Thanks, Daniel. We have been doing augmented and 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 zone, points of interest, waypoints overlaid while you're on mission.

We have worked on augmenting imagery in full-motion video with AI detections and mission context real time to drive operational decision-making. At a recent military exercise, our Apollo for Edge AI capability was used across air launch effects and unmanned aerial vehicles to send targets to fighter jets. Those targets pop up and the pilots' 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 training simulation.

AI enabling the kill chain requires pushing context to the decision-making edge. So we see AR and VR as an integral part of everything that we do.

Rodney Nelson

Kevin, one for you, Dustin 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, Dustin. Thank you, Jackson. Our SMB offering delivers the full power of Foundry through Apollo and could be adopted in days. And we see this with foundries for builders and other day zero companies.

Not only are companies using Foundry as their internal infrastructure, they are pioneering the use of Foundry and Apollo as a platform to build SaaS offerings and consumer software products as well. With Foundry, they are doing it faster. Companies in mobility building entire data ecosystems in Foundry for connected vehicles and autonomous vehicles. A renewable energy company using Foundry, not just for advanced physics 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 help enroll customers in the right Medicare plan.

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 United States, where the US 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 distributions 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 -- a health insurance provider in the United States, Kinder Morgan, Valeo, Dave & Buster's, just to name a few.

Rodney Nelson

Great. Thanks, Kevin. Shyam, the next one is for you. Marcellus 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 dollars, that's 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 presence.

We are software shamans, building before the need is obvious, always ready to meet its moment. As was true with IEDs in Iraq, Afghanistan and the global financial crisis, ISIS attacks in Europe, or more recently with COVID supply chain disruptions and Afghan noncombatants evacuation operation. 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 mud. Our platforms are modern operating systems for the enterprise.

With Foundry, we are creating the nervous system and the cardiovascular system of the enterprise. With OPIs, you can expose complex cross-system actions in repeatable manner that enables you to go from sensing business disruption before they even happen, 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 accomplish so much in the world from Edge AI and space, real-time comms with weapon 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 of ourselves just a couple of quarters before. Central to our value creation engine is that we are focused on solving hard problems. We are focused on creating fundamental value.

Most software companies make software that's easy to sell. And over time, that corrupts the value of the product. We make software that is profoundly valuable cutting-edge product, and then innovate on distribution.

Rodney Nelson

Thanks, Shyam. Dave, one for you. James K. and Rafael W.

asked, the company's chief executive officer, Alex Karp, has been selling a large amount of shares this year. Why have you been selling so much? And will these sales continue?

Dave Glazer -- Chief Financial Officer

Thank you for the questions. As we mentioned on prior earnings calls, Karp was granted options a decade ago, which were set to expire on December 3 of this year. Specifically, as of our direct listing, he held 68.9 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 he's been selling shares along the way to generate funds to paying those taxes. Of the 68.9 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 be exercised.

Rodney Nelson

Thanks, Dave. Shyam, one for you, Antonio asks, being a nurse myself, I see great potential for Palantir. In these pandemic times, healthcare workers are the new defense. Does Palantir build 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 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 US, but all over the world. I made reference in my earlier remarks to the substantial growth of our healthcare work, the NHS, MDAnderson, 70 academic medical centers through the NIH's N3C, the VA nursing home facilities in Japan and several more regional US providers. Foundry is helping to manage over 300 million patient lives and growing.

We have a very unique and diverse footprint that I believe positions us to deliver on the necessary transformation in healthcare. And yes, we are absolutely doing the work at the cutting edge of both research and complex clinical care, but we are also doing the work on operational excellence. The world over COVID has caused or severely exacerbated procedure backlogs. There are people that need care, life-saving care, waiting to be seen.

And at the same time, many facilities have spare capacity. There's 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 were engaged on it in the US and Japan, is the nursing shortage and staffing optimization. I was recently visiting one of our hospital customers, sitting with their nurses, watching as they are being trained on Foundry for the first time.

You could feel the excitement. They were buzzing on 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 watching marines being trained on Palantir for the first time in Kandahar a decade or more ago. They were so excited, so generative, the Iron Man suit, it fits them like a glove, as these modern day superheroes save our friends and our families.

Rodney Nelson

Great, Shyam. One more for you before we open up the call. Aaron and Avi asked, what is the future of Palantir's public sector business, including if there are any billion-dollar contracts like the latest US 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 CD-2, a truly massive program of record at the US Navy, INDOPACOM, the UK and Australian Navies, at the VA with a four-year $87 million contract, at the NIH $60 million three-year contract, deals at NHS, PEPFAR, FDA, Department of Justice, Department of Energy, the State Department and more. CD-2 is a substantial win. It builds on another program of record that we already won, CD-1. It was an enormous amount of work.

We're so proud of the outcome. And we believe that CD-1 and CD-2 together uniquely positions us for future US Army programs of record. But that's just the army. We have incredible opportunities at Space Force and at the Air Force places that we are investing a lot.

We are building on Project Brown Heron in the Air Force and Space Force Workforce is the space domain awareness platform, a very unique position. We have many independent opportunities to extend the work that we have done under USDI and NGA into the combatant demands themselves to directly take on near-peer threats and deter the enemy, maintaining dominance. Beyond defense, we see immense opportunities in our pipeline across health from the NHS and the 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 in aggregate is big and building. And all of this is happening despite the macro headwinds that we've all heard about across government services, COVID's impact on delaying the pace of awards. And we are just competing for known opportunities. Our capabilities are so unique, we are creating our own opportunities.

The macro factors here are big, big tailwinds for us, clear consensus on the threat from an aggressive CCP, not only in terms of impacts on demand in the US, but also Japan, Korea, Australia, the UK, the West and her allies broadly. The infrastructure build and our fit on the programs and awards that are being driven their carbon emissions management, EV charging infrastructure, building on our incredible commercial momentum in the mobility value chain, delivery of major projects on time and on budget. And more broadly, the opportunity for SIs and primes on infrastructure projects to partner with Palantir 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 at the moment.

Rodney Nelson

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

Questions & Answers:


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

Brent Thill -- Jefferies -- Analyst

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.

Dave Glazer -- Chief Financial Officer

Hey, Brent. Thanks for the question. Great Q3, we're having a great year with our Q4 guide. We're expecting to do 40% revenue growth for the full year.

And this is driven by continued product innovation, also more efficiencies in distribution like account-based sales, distribution channels. And we're very excited about the progress of our account-based sales team. We've hired about 150 people so far this year. A lot of that has been focused in the US market, where we first started, and many are just getting started, but you can see some of the activity.

We mentioned we've more than doubled our commercial customer count this year, and those numbers are accelerating, growing our installation base is really great because we expand in places where we are. If you look at our top customers, average over $40 million a year of revenue. That's up 35% year over year. Our average revenue per customer was $8.8 million when excluding new customers.

So lot of room to expand as we expand our customer base. Another big driver, US commercial revenue, where we've seen acceleration, we mentioned up to 103% growth, doubling in Q3. Our forward indicators also 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, commercial revenue up 21% sequentially quarter over quarter.


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

Unknown speaker

Thank you for taking the questions. This is for Keith Weiss. There was a really nice performance across commercial and government was strong as well. And sort of with the new administration sort of taking in place in terms of the velocity of those deals and getting those deals signed, any change that you've seen thus far as the 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 pace setter for not only the US but allied countries as well because there's a lot of focus, a lot of speed. We've worked under four administrations, and have seen consistent continuity across that.


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 -- Analyst

Wonderful. Thanks so much for taking my questions, and nice to see continued strength on the commercial side. Just maybe high level, can you help us understand how the 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 maybe what that time the value looks like. Thanks.

Shyam Sankar -- Chief Operating Officer

Great, yes. We talked earlier about modules. That was a big thing a year ago that really changed how we went to market. The modules have been very successful.

Just this quarter, we discussed the carbon emissions management module and Foundry for Crypto. But if we go back a little bit, what we can see is the real success of software-defined data integration, 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 Foundry and expand the contract over time there. So 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 multimillion-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.


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 on to the next question in queue. Your next question is from Mark Cash from Morningstar. Please proceed with your question.

Mark Cash -- Morningstar -- Analyst

Hi. Good morning. Thanks for the question. I have a multipart one.

So you talked about the recently launched Foundry module around crypto, and I'm just wondering there wasn't really a press release around that. The modules kind of appeared. So finding new use case is great, but I was curious if you could talk about the size of the crypto opportunity. But then also the strategy of releasing modules.

Is it finding lead customers and commercializing it quietly, or really does it depend on the market size and the interest?

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 two days.

This gives you kind of an indicative sense of the performance. We're able to integrate with complicated ERP solutions and unlock that data for customers in hours. So we're -- we start with cutting-edge product. 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, and to be really successful in penetrating the market.


All right. And we do have one final question -- we have time for one final question, which is from Ethan Bruck from Wolfe Research. Please proceed with your question.

Alex Zukin -- Wolfe Research -- Analyst

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

Dave Glazer -- Chief Financial Officer

So on the investment program, we're really excited about the opportunity here. Just to repeat some numbers and get some context with our Q4 guide, we're expecting 40% revenue growth for the year in 2021. That's over one and a half billion for the year. We raised our cash flow guidance to an excess of $400 million.

We've invested about -- invested about $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 signoff]

Duration: 53 minutes

Call participants:

Rodney Nelson

Shyam Sankar -- Chief Operating Officer

Greg DeArment -- Product Development, Deployment Infrastructure

Dave Glazer -- Chief Financial Officer

Kevin Kawasaki -- Global Head of Business Development

Brent Thill -- Jefferies -- Analyst

Unknown speaker

Rishi Jaluria -- RBC Capital Markets -- Analyst

Mark Cash -- Morningstar -- Analyst

Alex Zukin -- Wolfe Research -- Analyst

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