Hi, everybody. I'm Brian Feroldi. And I am Brian Stoffel. Welcome to another Stocks From Scratch. In this series, Brian and I take a stock that we don't know that well, in this case, Palantir, ticker PLTR, through our investing checklists live. We show you how we research these stocks from scratch, starting with them. absolute baseline of zero. And we take them through and fill in our checklist to figure out, is this business worth investing in? Brian, you ready? I'm ready. I know nothing.
Great. That's great. I've done some work on Palantir, but I haven't looked at it recently. So it'll be interesting to keep track. And I hope this company was red hot as soon as it came public in 2012. And more recently, it's fallen just a lot. like many other growth stocks. So 2020, 2020, 2020. Correct. All right. With that, let's get started.
we're going to be going to my checklist that we have created. And by the way, if you want access to this exact checklist, check out the show notes. There's a link in there. All right. So step one. Fill out this ticker symbol, which is PLTR. We see that this is a $43 billion company. We're going to find out is revenue recurring? Is it profitable? Is it cashflow positive? And has it beaten the S&P 500?
So let's just start. Let's start with that last one there. Ticker simple PLTR. How is it done versus the S&P 500? Pretty good. Not bad. This company is up 141% since coming public. That thrashes the 25% gain of the market over the same timeframe. So we're going to change that to yes. All right, Brian, how do we do it? All right. I like to go to the investor relations page for the company. And when we get there, we get to see how friendly they are to us. There you go. Okay.
Palantir investor relations. Okay. So we have Palantir and Farisha embark on a long-term strategic partnership. Okay. It's an interesting driving experience. Is that a car? I think so. Farecia. Okay. Never heard of them. Their first quarter earnings report. Sure. We'll look at that. Akin Gump, collaborate. Palantirin 3M, expand relationship. Okay. Let's try financials, SEC filings. So this company came public in 2020. So we'll go to registration statements.
prospectus prospectus right yeah so four two four speed three it's a lot of ugly letters but that is what we are looking for so let's get that i will zoom in a whole bunch There we go. Talent here. So this perspective was on September 20th. That relates to the risk that they sold 257 million shares.
Financial statements. Okay. Because this is direct listing, the numbers look a little bit differently than they do for like when a company files an S1 as an IPO, but we should be able to get along just fine. Okay. And to be clear, a direct listing basically just means that they're not raising any money. They're allowing people who already own shares to sell them. Is that correct? That's correct. They're just taking their stock.
privately held and putting it directly onto an exchange. So shares can then be bought or sold. But it's not a capital raising. event. It is just a direct listing. It's different than an IPO and it's a lot cheaper. And it actually, I think allows for better price discovery. So there's a lot of reasons why direct listings are becoming more popular. Many of them are positive.
All right. Well, we'll skip this balance sheet, but we can just look quickly. So they had, as of September 30th, 1.8 billion in cash. Deferred revenue. Not much debt. Nope. Not. Debt, 197 million. So it looks like a quite strong balance sheet. Yeah. Okay. This is, again, as of their direct listing, we will take a look at their most recent financial results later. But so through the nine months of September, revenue was about $770 million.
The cost of that revenue was 282 million. So that's a gross margin of roughly 65%-ish. So they had that much in gross profit, which they... Blue on sales and marketing alone. Research and development, general administration, all up huge. I'm sure stock-based compensation was a- I'm guessing so too. So their costs more than doubled. So at least prior to coming public, they were losing money on a gap basis. And do you care too much about gap basis?
I don't look that hard at GAAP. I personally will accept GAAP or non-GAAP. And I usually look at non-GAAP. You? I look at free cash flow. Yeah. So I don't even care either way. So here we go. consolidated statements of free cashflow. So this is again for the nine months end of September. So it's a little bit old. We are recording this on Monday, March 31st, 2021. May 31st. May 31st. Thank you.
May 31st. So they had a billion dollars in net loss. Stock-based comp, $1 billion. Pretty big. Pretty big. But they still had an operating cash flow. They were still negative cash flow from operations. minus property, prints, and equipments. They were still burning capital, but not nearly as much as their net loss would indicate. And look at that. Their stock-based comp, 9X year over year, 8X year over year. So I'm sure a whole bunch of that had to do with...
The direct listing. All right, some more stuff. Okay, the bump, Palantir. The company builds and deploys software platforms. Palantir Gotham and Palantir Foundry. That serve as the central operating system for its customers. So it's software. It doesn't tell me much. It's a central operating system. Gap in the basis. Use of estimates. Yep. Concentrations. Oh, right up front. Here we go. The company's account receivable balance was bliss. This 162 million at 53 million customers. E and H.
represented 15% and 11% of total accounts receivables. Customers A and C represented 38% and 21% of total accounts receivable. That is a year ago. So it got better. Well, no, these are two different customers too. Yeah, that first one was of 2019. No other customer was more than 10% of accounts receivable as of September 30th, 2020. Uh, no customer represented more than 10% of revenue. So as of September, 2020, no customer was more than 10% of revenue. Uh,
For the three months ending. For the three months. Yeah. Okay. For the nine months ending, 11% of total revenue. Customer F, which is in the government segment, for the three and nine months segments, customer D in the commercial operating center was 12%. and 13% of total revenue. So it seems they had, at least at the time of this filing, they had two customers that were over 10% of revenue. Yeah. Yeah. All right.
and that might be the timing of uh okay so they do have some customer concentration risk as of the time of this filing okay Assets, cash, yep. Balance sheet stuff, equipment stuff, debt, credit facilities, lease commitments. We saw they had plenty of liquidity prior to that, so I'm not worried about any of that. What do they do? Yeah. Let's get down to the management discussion and analysis. Oh, okay. Here we go. Oh, that's interesting. Here is something. So government revenue.
is 420 million. Again, as of the nine months ending September 30th, commercial revenue was 350 million. So they're about 60% government, 40% commercial. Okay. Contribution. So it's like gross profit pretty much. Yep. Relatively same split. Geographic. So. The big half of revenue is in the U S and the UK is number two. France is number three and then rest of world 26. So this is a fairly international business.
Already. The U.S. is only half of revenue. That's good to know. It's going up. There we go. It's interesting. Management's discussion and analysis. We founded the company in 2003. to build software for use in counter-terrorism organizations. Okay, now I'm getting interested. Now I'm finding out something about what they actually do. Gotham. In 2008, we released our first platform.
Palantir Gotham for customers in the intelligence sector. Gotham enables users to identify patterns hidden deep within datasets ranging from signal intelligence sources to reports from confidential informants. So they make software that helps identify patterns in massive data sets. So it's big data crunching software. This is like that.
secret tool that they had in the Dark Knight Returns. Yes. Nice call right there. Defense agencies in the U.S. then began using Gotham to investigate potential threats and help protect soldiers. from improvised explosive devices. Today, the platform is widely used by government agencies in the US and its allies. The software is on the front lines, sometimes literally, and that means so are we. Okay.
We later began working with leading companies across industries, including companies in the energy, transportation, financial services, and healthcare sectors. In 2016, we released our second software platform, Palantir Foundry. So it started as Gotham and they launched a new platform called Foundry in 2016. I would have appreciated if they kept the Batman theme going somehow. Palantir Joker.
Yes. Yeah, there you go. To address a common set of challenges we saw at large companies, Foundry is becoming a central operating system, not only for individual institutions, but also for entire higher industries. In 2007, we partnered our partnership with Airbus. I know who they are. Expanded into a platform for the aviation industry and today connects data from more than 100 airlines. You know what I call that? Switching costs?
And network effects. Yeah. Because it sounds like if you're not using it and you're in the aviation industry, you're on the outside looking in. Yep. Yeah, if you can seriously become the operating system, that's going to be a hard thing to get out. Ask Microsoft. So do you have a sense of what it is they actually do for these commercial companies?
Not yet. It sounds like they help with big data crunching and analysis. So it sounds like they started in the government with a focus on counterterrorism. and software for probably helping take large disparate data and separating the signal from the noise. I can totally see that being a thing that is highly, highly needed. And then they...
took that and they say, hey, we can also apply that into the commercial sector. Yeah, I can see that. I'm just trying to think in my head about how like, so like Viva Systems, company that I follow in the healthcare space that helps companies. bring something from idea all the way to market, right? So a company that was really important over the past year, because I'm sure that their software was used to bring the vaccines that you and I have going through our bodies to market. I'm wondering.
does does what palantir offers does does it rival something like that because i saw it was in healthcare or or is it is it going to try and displace some of these companies we already know about it's i'm just curious we'll find out It's not uncommon for companies to use lots and lots and lots of different software.
to run them but i would think that my my hunch would be viva's viva in particular is so specific good luck getting good luck competing with them uh i don't know if these are more general purpose um but All right. So our business. So as of September 30th, 2020, we generated $289 million in revenue, 52% growth rate. That's pretty strong. 50% growth rate for the nine months ending September 30th. As of September 30th, we had 132 customers. What does that tell you?
That's pretty concentrated. I mean, that's not a ton, but I'm sure getting your foot in the door with any of these customers is a massive challenge. And so they're going after huge customers too. If this is a $40 billion company and they only have 132 customers. They're going after the whales. This was about seven months ago, so I'm sure they have more now. We define a customer as an organization from which we recognize revenue.
For large government agencies where a single institution has multiple divisions, units, or subsidiaries. Or a subsidiary agent that enters into a separate contract with us and is invoiced as a separate entity is treated as a separate customer. For example, the US FDA. the Center for Disease Control, and the National Institute of Health are subsidiary agencies of the Department of Health and Human Services, and we treat each of those agencies as a separate customer.
Interesting. So it's less than 132. Maybe, depending on how you count it. But if you're billing the FDA, if you're billing the CDC, if you're billing the NIH, I don't have a problem calling those different customers. I don't either, but what I would say is someone in that cabinet position, I doubt they would, but just to be the devil's advocate could make a decision.
And it wouldn't just be one customer that was affected. It might be, in this case, three. Potentially. Yes. Is there a single point of failure? Potentially. Potentially. Okay. We have built lasting and significant customer relationships with some of the world's leading government institutions and companies. Our average revenue per customer was 5.8 million.
in the nine months ending September 30th, which grew 38% from 4.2 million per customer in the nine month ending September 20th, September 2019. Our top 20 customers based on revenue generated 61% of our total. From those top 20 customers, we generated an average revenue of $23.6 million. which grew 36% per customer. And that's just in nine months. That's crazy. That's $2 million a month for this software.
You know, I will say you're right. This is two sides of the same coin where concentration, yes, but the switching costs must be just bananas high. It must be enormous. So COVID was a risk. Yep, sure. We have expanded into the commercial sector for the three months ending September 30th. 44% of our revenue came from the commercial customers, 56% from government agencies. So they are moving into commercial and they're getting a good job of splitting those out.
Large organizations in the commercial and government sector face similar challenges when it comes to managing data. And we intend to expand our reach in both markets moving forward. We're also expanding outside the US. Yep. Our operating results have improved significantly. Our losses, we incurred a loss of 848 million and 1 billion respectively.
or losses from operations of 0.8 million and 12 million when excluding stock-based compensation. So that's- So they kind of break even. I mean, this is a $20 billion company, was it? At the time, yeah. And a billion dollars in stock-based compensation? In the year they went public. in the year they went public. So we'll have to check that more recently, but holy cow. Our gross profit margin was 63% or 79% excluding stock-based compensation.
Our gross profit was a margin of 68%. All right. Or 81%. So gross margin is pretty good. especially adjusted gross, adjusted gross margin of 80, of 81%. All right. Our business model, our customers pay us to use the software platforms we have built. I actually, I like that, but.
But pretty much every SaaS company should have that sentence. We expect to generate revenue under our existing customer contracts for an additional 3.6 years on average. Although we may change as we enter into new contracts or if customers terminate. Our business model is to acquire, expand, and scale. We categorize all customers into cohorts.
Some customers have rapid acquire phase following by a long expand phase. Others may skip the expand phase and move immediately into the scale phase. Yeah, that is one of the challenges of looking at the... uh, the same customer spending is if, if a new, if, if first, if a customer joins and they're spending half a million and then you have success and people get to know your product and later the customers join and they're spending 2 million. Well, that's a benefit.
But then your expansion per customer isn't as high because they're starting from such a higher base. Given the two, you want them to spend as much money as possible as quickly as possible. So that can be a limiting factor to just think of. We generated a loss of a whole bunch of which 6 million came from customers in the acquire phase.
Wow, that's not much. 176 million came from the contract for the expand phase. But that makes sense, right? Like in the acquire phase, because they're just dipping their toe. I mean, that's... Yeah. Yeah. So I can imagine given the numbers, given what we know so far and given that they're selling to big customers, I can imagine that the selling phase is long and hard.
But once you're in, you're in. Yeah. And good luck ripping you out. We acquire new opportunities with minimal risk to customers through short-term. pilot deployments of our software at no or low cost to them can you go up just a bit that last paragraph here so in 2019 we generated 743 million in revenue and then it says those same customers generated 747 million in revenue. So what that tells me, because that's through nine months, if we assume that that pattern continues.
then you're looking at an expansion rate of about 133%. I don't know why they wouldn't call that out, but whatever. Okay. Does that make sense? Yeah, that seemed to jive with what they said above about their top 20 customers and how much they were spending per customer. It seems to be in the 30th percent range or software speak 130th percent range. Right. Yep. So they give their software away for free in the beginning during pilot programs to get customers on board.
Our investment in the second phase is often significant as we seek to understand the principal challenges faced by our customers, ensure that our software delivers results and values. So a customer is in the expand phase. if they have recognized $100,000 in revenue per year and had a negative contribution margin. Okay. So in this phase, in the expand phase, they operate at a loss. Yep.
Okay? Probably because if they're customizing the software for the customers, that's a lot of development up front. Also, high switching costs. On the back side. Yep. And then in the nine months, so in the... In the scale phase, that's where they must make up everything. Yeah. In the scale phase, yeah, that's when margins. So very high, very, very high acquisition costs, onboarding costs, and then.
and then they scale. Our partnerships with the government agencies in the US and abroad have and will continue to have a significant impact on our business. The remaining deal values of our contracts have been awarded to us and our allies. It was 1.3 billion. up 14% versus $4.1 billion. Okay. So when calculating, we do not include government contracts totaling $2.6 billion that have been awarded where the funding...
has not been determined. That's actually good to know. Yeah. That they're not counting that. I think that's why. Only if the funding is there. Sure, they have a contract, but if they don't have the ability to pay, they're not going to count that. Okay. So key metrics, contribution margins. so as they scale up how much more every additional dollar of sales how much of that becomes gross profit non-gap contribution margin
Yeah. So they are really in the scale up phase. Oh, wow. Yeah. You can see why they decided to direct list right now. Yeah. So they're really scaling up nicely. So yeah, again, and they're, they're gross margins. has big time potential. It's already 70% and rising. Cool. Okay.
uh they come from on premise we generate rooms to sale subscription to access our software hosted environments with o m services palantir cloud software subscription from our customers environment with ongoing uh o and m on premise so they do it both yeah they have to have that if they have government agencies there's no way they're going to use the cloud
And professional services, Palantir Cloud. Subscriptions grant customers the right to access our software functionality in a hosted environment and are sold together with O&Ms. We promise to provide continuous access. on-premise software yep so some of it is sold in the cloud some of it is online and professional services our professional services support our customers use of the software so they have again a team that goes in to help them customize and get trained on it
That costs us money. We spend a lot on sales. We spend a lot of R&D, overhead costs, interest, et cetera, everything else. So we got to look at their numbers before. Yeah, look at the difference in stock-based compensation. Everybody had a big payday in 2020. There was someone on Twitter when we said we were going to do this that said we should check out their CEO's payday because it was like a billion dollars last year.
All right. Well, if that counted in sales and marketing, research and development, and GNA. Or maybe it came, this was last September. Maybe it came after. See, that's the tricky thing about looking at new IPOs or new companies that come public is oftentimes their stock-based compensation numbers are wonky. Is that going to be steady state?
No, a lot of times there's a lot of like one-time bonuses for that kind of thing in there. So you always have to just keep that in mind. Plus as investors, if we were to be investing today, all of those expenses are in the past. So I will say that while I have a broad idea of what they do, what Gotham does, I...
Have less of clarity on what Foundry does, although I will also say that it sounds like they build this stuff up significantly for each individual customer. So it would be both difficult and perhaps. they're not able to share what it is that they do because there's trade secrets involved. I'm sure there's all kinds of things that they can't talk about in their business. But as long as the investors can look at the numbers and get a rough sense.
So, okay. How about we just go to Palantir.com? Yeah. Okay. So Foundry. Okay, Foundry, the next generation technology for the next generation in your industry. We build software for the world to come. I think that means the future. Okay. Our next generation of software powers the most competitive organizations in the world can turn insights into actions, models into outcome faster than anyone else. We're not trying to see the future. We're trying to create it.
And I can't imagine a better partner doing that within Palantir. And that's the CEO of BP, British Petroleum. Okay. That's a lot of industries. Yes, it is. Most software make companies more similar, not different. Foundry is not most software. Foundry empowers you to achieve more with what makes you unique. Our customers achieve alpha by building safer cars.
Coordinating worldwide logistics and accelerating cancer research. Leverage the power of your own expertise. Empower your decision makers and scale what is exceptional. I'm getting to the point where this is just one of those things where you have to just trust that if the customers are coming back, what they're getting is worth it, even if you can't understand exactly what it is. Connects intelligence to operations developed in crisis time for what matters most.
It's years of implementation work so you can start operating smarter right away. So they take, yeah. Data solutions and decision-making for race engineering. Interoperable and modular. The Foundry 21 launch introduces interoperable product approach. Break out our inflexible software and connect your... crucial business functions making use of existing investments while removing the blocker of system migrations so they're trying to make it easy to get on energy healthcare auto
A major European telecommunications company uses Foundry to build a complete digital twin of their physical network, link it to customer information, improve network reliability. We use...
We use Palantir to save time and money so we can effectively and efficiently feed 90 million people. And that's from the World Food Program. Foundry Oncology. Preserve granulated... data governance and security while mapping all of your company's data into shared easily understood frameworks specific to your business okay airbus well i mean
Yeah, to your point, Brian, they clearly have winning over governments and getting governments to trust you with your data. That ain't easy. No. it as we read through it i'm like so what can't they do hey what's palantir apollo power sass in places no sass has gone before Our platforms are often deployed to users in environments where other SASs could never operate. From the back of a Humvee to the hull of a submarine.
Huh Palantir is the continuous delivery software that powers SAS platforms Foundry and Gotham in the public cloud and beyond Apollo works around the clock to put our latest features in the hands of customers and alleviates trade-offs between stability and speed by delivering continuous automated updates without disruption operations. Does that remind you of a company we've talked about before?
I'm quizzing you a little bit here. That reminds me of JFrog. About liquid software. Yes, how it's like constantly updated. Yeah. Yeah. So it seems that they have three products now, Apollo, Foundry, and Gotham. So that's optionality. Yep. Although truth be told, the fact that they went from Gotham to Foundry is... A huge sign of it. A big one. Palantir Foundry is the platform that reimagines how people use data by removing batteries between backend data management and front end data analysis.
Okay. So that must be the data. That must be the operating system that they're talking about. It allows backend data management and data analysis to come together. Foundry now enables users with varying technical ability and deep subject matter expertise to work meaningfully with data. Anyone can source, connect, and transform data into any shape they desire and then use it to take action.
Okay. APIs, branches of code. Diverse. Okay. It better be secure. It better be really secure. Business ontology. Unify. what organizations so they're using this data to make decisions to collaborate uh to manage their data one place securely and Do all kinds of analysis Okay, so that is that is foundry and Gotham. How does it work? Start with data from multiple sources, organizations have lots of data.
Structured data like log files, spreadsheets, and tables. Unstructured data like emails, documents, images, and video. This data is typically stored in disconnect systems where it rapidly diversifies in type. Increases in volume may cause more difficult to use. Yeah, this is a problem that MongoDB is solving. That's exactly what I was thinking. I totally buy the structured data thing. Videos and emails don't fit into columns and rows.
It's really interesting to read through this because as we're doing it, I'm like, oh, JFrog does that. Oh, MongoDB does that. Yeah. Oh, that's what Okta does. Yeah. And it does all that securely and the governments trust it. Yeah. And you can do the analysis on it. Automotive energy insurance. Anti-money laundering. Oh, good lord. That's a long list. Okay.
All right. Is there anything else that you want, you like to look at? You know, let's look at the most recent. Yeah. Yeah. Okay. Ooh, presentation. Okay. 1.5 million individual shareholders strong. I have never. I have never seen that either. I've never seen that called out. Wow. Okay. But you know what? They probably got all the data on it. Record-breaking quarter. We generated $151 million in adjusted free cash flow. An increase from 44% adjusted free cash flow margin.
What does adjusted mean? Because whenever you use adjusted- I'm guessing stock-based compensation. But that's already in there. That's what free cash flow takes it out. Plus cash paid for employer taxes related to stock-based compensation. Less cash used to purchase property plan equipment. How's that any different than free cash flow? Revenue grew 49%. Yeah, I don't know. I don't know. Revenue grew 49% in revenue.
Generating $341 million in revenue across government and commercial. So really strong quarter. Billings grew 248%. Ah, so that's why they got such a big boost in cash flow. Because people paid for stuff, but they haven't recognized it yet. Duration adjusted. Commercial deal value grew by 76%. Good Lord. And this stock is down 49% from its highs. All right. Total US revenue grew.
81%. So that's faster than the total. So they had a great quarter in the US. Apollo for edge AI is enabling US governments to operate or to operationalize AI at scale, upgrade software, upgrade sensor, upgrade chains. Same innovations apply to the commercials sector. Okay. And commercial opportunities in the US and UK. Opportunities have increased by 2.5x since February 2021. That was when this report came out, wasn't it? So they really had a strong quarter.
Really strong quarter. Okay. Our platform serves as the modern operating system for the enterprise. Okay. Lilium, a revolutionary... EVTOL transportation company will use Foundry to connect, design, engineer, procure, test, production, quality, logistics, and in-service operation. Look at all those things they're using it for. See, that's what I'm saying. They can...
Is this going to be the one software company to like replace them all? It's the Microsoft. It seems they're trying to be the Microsoft of data. Huh? Okay. Do we invest deeply in Western innovation? Okay. Wait, Western? That's what it says. We are investing deeply in Western innovation. So you just talked about their international exposure. But I think it's pretty clear that this company will only be...
giving these products to the US and its allies. Probably. Just to point out, I see something like Western right there and I'm like, okay, so we probably shouldn't expect a ton of revenue growth coming from the Asia Pacific region, for example. Maybe. I think that that's probably fair, but they seem to be doing just fine in the geographies they're currently working in. So government revenue group is 76%, fueled largely by 83% growth in the US.
So they had a great quarter for governments. We were awarded a five-year contract worth up to $90 million by the National Nuclear Security Administration. Okay. Given the nature of this company, I'm sure that... the results are going to be pretty lumpy. Yes. So some quarters might be bang up spectacular. Others might be not as much so. Okay, so here we go.
Palantir software was leveraged in the global information dominance experiment, enabling all Department of Defense strategic to generate global integrations. Okay. Oh, Q1, we hired 50 new salespeople in total remaining deal value, 5.4 billion. So that's, now let me just point something out what they did there.
that they didn't do before. They're including those ones that they aren't sure about. That's the IDIQ. Yes. It's like indefinite. So that's a slight change from how they reported in their prospectus. Not a huge deal, but it's worth pointing out. Yeah, because it was, yep, good catch there. Our channel partnerships continue to accelerate with complementary independent software vendors, hyperscalers, and global system integrators across government and commercials.
Okay. Enabling channel partners. Unlock. We are emancipating data from legacy systems at no cost. Okay. Thank you. Palantirians. Okay. Financial update. Revenue up. Adjusted operating income. Adjusted free cash flow. Positive. We grew 49%. Ahead of guidance. Government grew commercial. So commercial only grew 19%. That doesn't surprise me a ton. It was a... Big quarter for governments, not a big quarter for commercial. Although, I mean, 19% isn't. It's not terrible. No. And it...
We're talking about customers that are spending millions and millions and millions. I can see how just coming out. I mean, we're not out of the pandemic, but this is the first quarter when things were still pretty hairy. So I'm not surprised. We ended Q1 with 2.8 billion in remaining daily value up 40%, 3.7 years contract life, 4.6 years average contract duration of commercial customers, 15 deals worth 5 million and six worth 10.
So I think that this is the number we can compare to that 1.1 or 1.3 that we saw in the prospectus, 2.8. That's a huge jump since September. They're clearly crushing it. Revenue per customer. So if you want to call this DBNR, it would be 129%. 11 new commercial customers, 34%. growth in top 20 customers. Yeah, so now they're spending $3 million a month. Wow. That's a lot. Gross margin up and rising. Contribution margin up and rising.
Adjusted operating income was $177 million. Free cash flow positive. Looking ahead. Revenue is going to grow 43%, raising adjusted free cashflow guidance from breakeven to in excess of 150 million. Revenue growth of 30% for this year and the next four years. That's a, that's a ball saying 30% plus revenue growth this year over the next five years. Well, you know what? Some of that they know for sure though, right? They probably have a lot of visibility.
Okay. So this is this cashflow, cashflow from operations, adjusted free cashflow Q1. I get it. I get it. It's taxes. That's why they use the word adjusted. So it's very similar. Either way, very positive. It's positive. Last quarter. We don't know trailing 12 months though. Which do you care more about? trailing 12 months i can look that up though too yeah
So their confirmation, I mean, all their numbers are hitting it. This is a really long quarterly presentation. What are some of those? 46 slides. What was slide 43? I'm just curious. What they call out here. To help government combat the pandemic, built a no-code PPE distribution application in Foundry in two days. Use software-defined data integration to manage capability and manage inventory across 6,000 hospitals within weeks. Yeah, that's scalable.
The logistics of the vaccine distribution alone is mind boggling. All right. So let's look at this on a quarterly basis. Do they have a balance sheet? So revenue. So. Yeah, margins up big time. So on a gap basis, they were losing money. In fact, their gap loss doubled. Gap. Stock-based compensation, woof. 193 million in the quarter. And this is after coming public, keep in mind. So stock-based compensation is 50% of revenue. Yeah, look at their share count.
Wait, say that one more time. Stock-based compensation is 50% of revenue. More than. Wow. Like 60% of revenue. And this is in a post. public quarter so that is more likely to be steady state i'm knocking points off for that yeah and boy i wonder how many employees they have It said they hired 50 salespeople. Well, I know. 50 is just like. So 2.3 billion in cash. Debt was only 200 million. That's good. Yep.
I mean, their total liabilities, including deferred revenue, was $1.2 billion. So they have a very strong balance sheet. And they were free cash flow, very free cash flow positive, as we saw. So they're losing money on a gap basis. On a non-gap basis, they're making money. Okay. Let's check out Glassdoor. I'm only laughing because it seems like it's such a secretive company.
What are we going to find out in Glassdoor? How many reviews today? Oh, that's a pretty good number. 420? 380 out of 442 reviews. 4.2 stars out of 5. CEO Alex Karp gets 258. 82% approved. These are good numbers. Yeah. Great. And governance. So let's look at management. Alex Karp. Co-founder, CEO, and director. He's one of our co-founders and has served as board since 2003. That is some tenure. Stephen Cohen, co-founder, president. Wait a minute.
If that guy helped found the company almost 20 years ago, how old were these guys? Young, obviously. Matthew. Okay. And board of directors. Karp Spencer Raskoff. Hey, I know him. Former CEO of Zillow and the founder of Hotwire. Alexander Moore, Alexander Schrift, Stephen Cohen, Peter Thiel, one of our co-founders. Oh, oh, all right. That's a big name to have as a co-founder. Yep. Sure is. Okay. Brian, the only thing I didn't see, the only thing that I think I need is ownership. Yep.
Let's see. Where would that be? I'll go back to the... The deaf? Yeah. Well, I'll go to the 424. Um, what was that? Uh, the founders were retained 49%. So there's class B. So there's got, this is going to be, uh, This is going to be controlled. There's two classes of stock. If you want, while you get started, I can look up the... They should have filed a proxy statement by now.
You think they did? I guess we can check SEC filings. Yes, they have. Have they? You see it? Yeah, and it's very recent too. Oh, okay. Proxy statement. There it is. DEF 14A, so we can look at that. Ownership. Okay. Yeah, it's good to have up-to-date numbers. Okay, so Alexander Karp. He owns 5% of voting shares, 74 million shares. That's 60% of the class B. And so he owns 80 million shares. What's this? 20, 20.
billion dollar company uh to 20 stock something like that uh so that's 161.2 billion yeah it's about 23 stock yeah yeah They do that max, right? So 6 million shares, 160 pluses here. Yep. 1.6 billion. So he owns 5%. Stephen Cohen owns, that's the voting though. Oh, there's three classes of shares. Well, go up and let's see what the class F gets. Because it looks like this company is just... I assume that just means super voting.
Yeah. Peter Thiel owns 13%. Oh, yeah. So he's the biggest individual shareholder. If you're looking for skin in the game, they got it. How's that? Yeah. Somehow they arrive at 50% by adding 5, 3, and 13. That's a percent of votes, not total shares outstanding. Right. Founders control. Founder voting trust. Oh, well, there you go. Oh, wow. Okay. Yep. There it is. Designated founders exclusive shares.
Yeah. So this is just there directly, founder of Voting Control. So it's basically Karp, Cohen, and Peter Thiel. Yep. All right. Calling the shots. You know one thing we didn't see? Their mission. Oh, we didn't. That might be a secret too. Yeah. Let's see. Do they have it on there? You're being the overview. Palantir helps the world's most important institutions to solve their most critical problems by unlocking the value of their data. We do a lot with data. Okay.
How about about? About us? Why we're here. Oh, there we go. We believe in augmenting human intelligence, not replacing it. with good data and the right technology, people at institutions today can still solve hard problems. I don't see a mission statement. Okay, we make products for human-driven analysis of real-world data? Okay, we have built our company around mission-driven engineering. We're engineers, not academics. Okay, we meet problems. Okay.
Great. What's your mission? I would think that this is a mission-driven company. It's just that I don't see anything that says our mission. Especially, I just, I feel like Peter Thiel, of all people, he strikes me as the type of person that would be very clear on the mission. Is a mission focused company. Okay. Okay. What is it? Our team is dedicated to working for the common good and doing what's right. Was founded on the conviction that it's essential.
to preserve fundamental principles of privacy and civil liberties while using our data. Our earliest work in counterterrorism required us to ask whether we could meaningfully strengthen national security in the U.S. without weakening constitutional privacy protections. In response, we invested financial and intellectual capital to build technology that's now trusted by the most stringent and skeptical data protection regimes. Yep.
I mean, I have just randomly heard about how privacy and civil liberties are. I mean, they operate in an area that's obviously highly. I don't even know what the right. Yeah, but you can still say our mission is to make data usable or to protect civil liberties or, you know. All those would be great missions. So I have no doubt. I have no doubt that this is a mission driven company. I just don't see the words. Our mission. I agree.
All right. Well, let's start filling out my checklist, shall we? Okay. So we're going to go to the quality score. Again, if you want access to this checklist, check the show notes. So I put the ticker here, PLTR. And is revenue recurring? Yes. Is it net income profitable?
Most recent quarter, they were on a gap basis, but they weren't on a non-gap basis. I'll put sort of. Are they free cash flow positive? I will give them credit for the most recent quarter. Yeah, and I looked. It's $100 million over the past 12 months. Great. Okay. All right. So put the same ticker there. Financial resilience, their balance sheet, five out of five. Gross margin. Well, it was...
79% and rising or 81% rising. That's a three. Returns on capital. That's going to be very, very low because they are not yet. positive. They're not producing positive gap net income yet. So I'm not going to give them any credit there. Free cash flow is positive and rising fast. And earnings, again, adjusted is positive and rising fast. moat I'm not gonna give them well do they have an ecosystem of products um I'm not gonna give them
I'm just going to switch. I'm going to go straight to switching costs and just say, I'm going to give them full credit for switching costs. 15 out of 15 and nothing else matters on mine. I think they probably have a brand name. I think they probably have, you could give them a weak product ecosystem. But once you hit 15 on mine, you're done. And is their moat getting wider? Yes, it is.
Okay. Optionality. Is the company rolling out new products and services? Yes. And they are within its industry. They're all software-based. So I'm going to give them a five out of seven on that. Organic growth runway. I'm going to give them a four out of four. They're calling for 30% plus growth over the next five years. Are they the top dog? As far as I can tell, do they have operating leverage ahead? Yes, they do.
They are only now just becoming profitable. So they have a lot of operating leverage ahead. Customers. Is it expensive to get them in the door? Yes. Ridiculously expensive. I'm giving them a zero there. Most software companies, I give a one. I'm giving them a zero.
Dependents. Once they're in, you're in. Five out of five. Is revenue recurring? Yep. Is there room for this company to raise prices or gain gross margin expansion? Yes. I'll give them... yeah we clearly saw that they were expanding very well soul in the game the founder i'm gonna give them a four out of four brian can you see that okay yeah it's a little greeny uh okay i will uh is that better yep
Inside ownership, big time. CEO approval rating, great scores. Mission statement, is it inspirational? Is their mission inspirational? Yes. Is it optionable? Yes. Is it simple? I don't even know what it is. I don't know what their mission is. For that reason, I'm going to give them a one. Okay. Their stock has...
thrashed the market already. So that's a four out of four. Are they buying back stock, paying a dividend or debt repaying? No, we don't want them doing those things anyway. How are they doing versus Wall Street's expectations? So PLTR. Let's see. So I'm going to go to the analysis tab of Yahoo, and I see they've recorded three times. So they met, they beat.
And they beat, so that's plus two, minus zero. So you get a two there for me. That is an 83. That is a high score. Yes, it is. Now let's start knocking off points for the bad stuff. Customer concentration, for sure. Minus three. Industry disruption, nope. Are there outside forces that matter? Government spending definitely matters. Well, government spending, you know, election cycles. What if an ally becomes not an ally?
Yeah, I'm not going to ding them there, but all those things you could ding them for. Have they lost to the market? No. Is there a binary event? No. Is the dilution extreme? Yep. Really? Really extreme. Are they growing by acquisition? Nope. Are their financials complicated? Nope. Are there antitrust concerns? Not yet.
Not that I see. Headquarter concerns? Nope. And does more than half of their revenue come outside of the US? They're getting pretty darn close. But I'm not going to knock any points yet. So you add all that up and that is a total score of 76. That's pretty good. That is firmly in my investable range. All right, Brian, your turn. All right, let's go over to the...
Framework, we'll put the ticker symbol in. So mission statement. See, the thing is, is I don't even know what the mission is. So it's hard for me to say it's simple. It's clearly optionable, whatever it is. I'm just, it can go from negative one to two. I'm going to leave it at zero. Just going to leave it there. So, all right, let's talk through this. The network effect, I'd be willing to give them half a point because obviously the amount of data that you have is important. The ability to have.
They didn't even talk about AI or machine learning in there, but I mean, I have to assume that that's a critical part of what they're doing. So I give them a half point for that. The switching costs, I give them the most. potential points for two full points, low cost, intangibles. I'm willing to give them a half point for their brand. It's not consumer facing, but I'm sure that they have a strong brand.
within the business community. And I don't see any counter positioning here. So add that all together and I give them three points total. Okay. And then for the optionality. I mean, what they did with Foundry and then this Apollo, there's some serious optionality there. Let's see. What are my choices here? This is our first time doing the drop down. One, two, and three.
I'm going to give them a two, but it's really more like a two and a half. Okay. So we'll add a half point at the very end. Okay. All right. Cash debt, free cash flow. So they've got $2.3 billion in cash, $200 million in debt, $100 million in free cash flow. They're in strong footing, a full point. Now, for concentration, I'm going to take two points off because you've got...
And we don't even know quite how concentrated that is since they said that they separate out entities that fall under the same umbrella. And then for these last three, the Glassdoor, the founder, the ownership, they all get full credit. Those are really high marks. across the board. It'll be interesting. This one's, I think, see, this is lower. So a score of a seven and a half, we'll call it. Seven and a half. Okay. Seven and a half. That's a lot lower on my scale than it was compared to yours.
And just kind of looking at it, this is definitely an investable company. I think, honestly, I think part of it is just the black box-ishness of the business itself. um uh it just makes it harder i'm the type of investor i own i think 21 or 22 stocks so i don't make a ton of small bets, which is funny because that's actually a very anti-fragile thing to do and I don't do it. But it's important to know yourself as well. So I like to really get a company that I'm investing in.
And I think by its very nature, this is a company that if they're doing their job, I shouldn't be able to get it because to explain it to me would be to give away some of what makes them valuable to their customers. This just lands in a weird place for me. What about you? Well, according to my scoring system, they got a 76, which is... in my investable range uh yours it's in your robust range so i know you like to really you don't get you get really excited when you see 11
12, 13. I like 10 at least. Yeah. So this isn't something that jumps off the page to you. To me personally, there's a lot to like about this business. I mean, the things that I... I think the switching costs are... Gargantuan. Just enormous. They're clearly having a lot of business momentum. It wouldn't surprise me if they did the direct listing so that they could-
increase their brand recognition within the business community, which can help them to land commercial customers by making themselves that much more visible. So from that... They're clearly executing well. I like the guidance. I like the visibility. If somebody came to me and said, I'm interested in Palantir, I'd say, I get it. I understand why. This is a strong business.
Those are the strongest switching costs I think I've ever seen. There you go. Yeah, very, very high. So this is, 76 is well into my investable range. For you, it's a little bit, I think it's fair to call this company robust, but yeah. There's a lot to like about this business. I understand why its stock has done well. I understand why it was
so heavily voted. We put this poll out on Twitter like we do for anyone and say, which stock do you want us to talk about? Palantir won by a mile. I mean, it wasn't even close. There you go. I think that both of us think that this is a strong business. We understand the bull case for it. And if you're interested in Palantir, we now understand why.
yeah i mean there's a lot to like i think a lot of my misgivings are more idiosyncratic to myself personally i i i will say the the the other thing has to do with the the stock-based compensation i mean It's enormous. Yeah, very high. This will be a fun company to watch either way.
All right. Thank you all so much for watching. If you want us to research another stock from scratch, let us know. Hit us up on Twitter. I'm at Brian Feroldi. He's at TMF Stoffel. You can also comment in the section below. And again, if you want a copy... of the checklist that we do. We have a link in the show notes. Brian, until next week. See you then. All right. Bye.