Following is the unofficial transcript of the full CNBC EXCLUSIVE interview with Palantir Co-founder & CEO Alex Karp and CNBC's Josh Lipton, airing today Wednesday, February 28 at 11am ET. Following is a link to video of the full interview on CNBC.com: https://www.cnbc.com/video/2018/02/28/palantir-ceo-says-investors-will-be-positively-surprised-at-the-companys-margins.html.
All references must be sourced to CNBC.
Josh Lipton: So Alex, thank you for taking the time to chat. I appreciate it.
Alex Karp: Thank you for talking to me.
Josh Lipton: So I want to start, Alex, when people think of Palantir, even probably here in the Silicon Valley, they have this idea that it is a very secretive startup that works hand in hand with CIA, the FBI, helping to track down terrorists and criminals. But when you explain what Palantir does, how do you walk people through it?
Alex Karp: Well, it's different in different parts of the business. We're now a very global company. In the national security arena, we're probably the best known, most successful product. So people know us, and they know we are used for targeting and for data protection. And so people know us in the context of the special forces, so finding bad people, integrating the data, allowing special operators to use the data in the field on their laptops to continue their mission. They know our work in the kind of national security context, as finding networks that are hidden. They know our work in the illicit traffic networks, finding human traffickers, so more the police and internal security we do. And actually outside of America we are very well known for complying to civil liberties norms and data protection norms. So the interesting thing about it is we are somewhat of a company that's shy. I tend to think we are more shy than secretive. We are not consumer internet, we stick very closely to our own business. But because of the breadth and depth of our work, we're in over 40 countries, on the clandestine side it's much more that people know the results and then they want to know why. So what we sometimes have to explain is this is actually built on a data integration motor that is very specialized for very certain things. So in the national security context, we work hand in hand with most of the security operators in the Western world, we work hand in hand with most of the classic clandestine services, both external and internal in the Western world, especially in what's known as the Five Eyes, so the English speaking countries that won World War 2, and in Northern Europe but also in many other countries. We are also very well known for our police work and we are very well known for data protection. What we explain is, "why does it actually work?" And this has to do with our efforts. So we spent three years building an engine, that will allow you to take any data and any source and integrate it in a way that it is usable while applying rules to the data, so that the Secret Service person, the person in intelligence, or the person in special operator see all the data they are allowed to see and none of the data they are not allowed to see. Which is very important because these things tend to be collaborative. So if you go in the field as a special operator, you're probably working with special operators from Norway, from other NATO countries, from Britain. We share a lot but not everything. And then when you go to the final mile, and you're there, you need to know that the data you're integrating actually works. And that engine, the engine that powers that, that's what we provide. On the commercial side, we spent years and years trying to develop a commercial product and successfully built one recently which largely allows people to integrate industrial data. It is very specialized for industrial use cases. Also allows you to do data protection. But the power of it comes from the ability to scale across an enterprise and make workers more valuable.
Josh Lipton: Let me ask you, Alex, to stop there, when we talk about the commercial side, a corporate client, give me – Chrysler for example I know is a client – give me an example of how Chrysler is using Palantir's technology right now.
Alex Karp: So you have a problem when you are building any kind of motor or doing any kind of drilling. So we are well known in the industrial drilling context, in the flight context, in the automotive context although we don't talk about it that much publicly. But you have, essentially a massive amount of data but it is very hard to figure out or predict which part is to break under which conditions in a motor. And knowing that is the difference between making a lot of money, or much more money than your competitors or less money than your competitors. Because you know the parts have different costs, so one part, in a typical case, in a plane or in a car, one part costs like 2 cents and one part costs like a $1000. If you can predict that replacing the part that cost 2 cents every two months instead of five months, saves you the $1000, you have a massive market advantage, and a safety advantage. But these things actually have to be done on the line as well, so you need a product that interfaces with everyone in the company, the CEO, the managers but also the auto workers. That has an engine that can power that, but a front end too that they can work with intuitively. And the thing that is very special here that we are very much driving is, I believe that Silicon Valley is creating innovation without jobs, and it's really hurting our world. And what's very special about Foundry is that it creates innovation with jobs. So there's factory workers – there are 1500 people at Chrysler using our product, 1500 people who are technical but are not PHDs in Computer Science or Math. At Airbus we have 5000 workers using our product. Now maybe I am going back to my old philosophical days but what's made this company special is not that we are secretive, it's not that we are an enterprise software. It's that we have been very focused on fighting terrorism with data protection and what we are recently now focused on as well, is innovation with jobs. Now, why should we care? Well because if you don't have jobs you're not going to have democracy. I mean obviously we were born in Silicon Valley and we are of Silicon Valley in some ways but this movement of innovation with no jobs is really hurting our society. And it's bad for companies, it's bad for our country, it's bad for our partners and what's made our product successful is when we find a convergence between philosophical, moral and technical things and we bring it together. And that's actually been the secret of PG, our government product. It wasn't about making money. Sure, we're a business, we like making money, it was about how can we make sure a special operator comes home or comes home with legs and that really is motivating. And so, on the commercial side, making sure that workers can use the product. And once the worker starts using the product, they're like really valuable. Because the worker on the frontline can start begin to do something that here to forth no worker can do, actually a computer alone can't do it. Because it's weight – it's a factorial problem. Computers are not capable of actually doing this yet, maybe they will be in ten years, but by then the worker will be so good that maybe they don't get – they're irreplaceable.
Josh Lipton: So your point, Alex, is that Silicon Valley tech companies should be doing more to create job creation and Palantir's software is helping that effort?
Alex Karp: Well, I mean, you're being diplomatic. I think they should do more to stop destroying jobs. And we're doing innovation with jobs. So if it was just neutral. Like, you know, the cost of a house here is $4 million, $3 million. The cost of a house in Detroit is $40,000. It's like, why is that? Because Silicon Valley is eating up – the West Coast of America is eating up every job on the planet. And that's a problem for our society. Now maybe other companies don't want to be involved in that, that's their choice. Just like many companies don't want to be involved with stopping terrorists. That's their choice. OR protecting data. That's their choice. Our choice as a company is that we want to be involved in this and we are driving really, really hard on this.
And by the way, to your viewers, what's been very interesting, is a famous saying in the Valley that "Ask for money, get advice, ask for advice, get money." The more we have focused on these deep philosophical issues, the more we've crushed it as a business.
Josh Lipton: And so the idea is Palantir's software is creating jobs at a Chrysler plant?
Alex Karp: Well, it's preserving jobs, because once the Chrysler, once the 1500 employees are using the software, they're actually doing things that otherwise you'd need a PHD to do. So you are making them as valuable as a PHD, in software. And it scales across this enterprise, they are more valuable than what a single PHD has to offer, because then what they figure out scales across the enterprise. Once they figure out that oh this part and this part interact in a weird way, if we change that, then everyone in the whole – and in fact, you see this Airbus as well, where you have these 5000 people at a myriad of airlines hitting this data sac which allows them to lower costs and quite frankly, obviously more important to most of us, increase safety.
Josh Lipton: And do you think, Alex, as the CEO of the company, it's your responsibility then to also directly hire more people at Palantir?
Alex Karp: Well you know we do that. But our primary responsibility is to let people keep the jobs they already have. You know, again, like we're not – I'm not saying that Palantir can hire – change everyone who wasn't a software engineer into a software engineer. What I am saying is that if you have a part of the company eating up the whole economy of every other other part of the world, including America, including industrial things. And -- what is the promise to the person on the factory line? Why should they believe what they are doing? And that can be changed. And we are changing it. Also -- realize that most Silicon Valley companies don't care and nor do they have a corporate responsibility to care. The interesting thing about Palantir is that we only win big where we start from a moral thing. That's what actually motivates us. And it's what allows us go deep enough into the tech thing to be disruptive.
Josh Lipton: Let me ask you this, Alex, coming back to your business. There have been a lot of reports – I want to get your take on this, about customer churn at Palantir, right? So there's reports of Coca Cola, American Express – they ended those contracts because of pricing concerns.
Alex Karp: What's very interesting about our company is that once we moved – we moved everything to the Foundry platform and focused on industrials. And the central thing is that we have to focus on moral things that we care about. And so when you look at our business, you know the part of our business where we did this has grown 100% year on year for three to four years. So -- and part of getting these things right, in the beginning, just like in the U.S govt, took us years and years of experimenting with massive data sets, quite frankly I am quite grateful to all the companies we got to experiment with. That's how we built Foundry. And now we have this massive product, it's quite interesting, it's quite important. And you know the churn numbers on our government, project were diminus, meaning if you take out the ones where we had to leave for some reason, it was almost nonexistent. You know but it happens. In any big business. We are a large business. And some of that might be our fault. But what's interesting about the Foundry product is that we are starting to see the same kind of thing: very sticky, and very focused on industrial things and very focused on job creation. And then the workers and the corporate people become our allies. So, this is like a really good phase for us.
Josh Lipton: Let me ask you this. There are a lot of companies, Alex, that you know are focused on big data analytics software products and services. You know the names: Microsoft, IBM, Oracle, SAP. What do you think in that market, what's Palantir's competitive advantage?
Alex Karp: Well we're very focused on our own business, and we take that very seriously. We are primarily a creative organization, so that means we create, we try not to look at what other people are doing, or obviously not overly. But the essential difference is we go much deeper into integration because of moral reasons, like we are trying to do tech that saves lives and protects lives so find terrorists, protect our civil liberties. We are trying to do tech and are doing tech that does innovation and does jobs. It's a completely different mandate than the companies you've listed, which are great companies. And then, on the data integration side, quite frankly, I think, you know, people are very different. They're doing analytics which is very different than integration, we provide essentially the analytics sac for free. You know, we are very well known for our products being very robust. Most software comes in two flavors, it either doesn't work or it's not useful. Our software comes in the flavor of our software it's very useful, sometimes deadly.
Josh Lipton: There were reports out, I was reading you were on track to turn a profit in 2017. Did you hit that target?
Alex Karp: You know, my lawyers will not let me comment on any economic thing, like, which I'd be happy to talk about but I'm not really allowed to. What I can tell you which might be interesting that might be interesting to you in this context is we are – we're taking – we understand that as a creative company we look creative to the outside world and not like what people are expecting. In any context, we don't look like a national security company in the national security apparatus, we don't look like a classic enterprise software company to people who do that, we have no sales people, almost everyone here is an engineer, I'm a PHD in Philosophy. We are making great strides to standardize everything so that if we choose to ever do a public offering we can do it immediately. And so in that context, we're making a lot of strides. And at the time we chose to show things I think people will be very surprised at, like, the quality of the revenue.
Josh Lipton: Do you think that if some of those early investors had been patient, Alex, do you think – could the company now boost the kind of financials that you think would excite and attract public market investors?
Alex Karp: I think people will be – when we do this, I think people will be very surprised at what they see. And I think they will be positively surprised. Because we have been quote unquote "secretive" people always assume that we are different than what they expect, maybe sometimes positive, maybe sometimes negative. What they'd be surprised at is how a creative company can create margins that are very – that are significantly better than what people normally see.
Josh Lipton: I want to touch on valuations quickly Alex. So a couple of years ago you guys were valued at around $20 billion. Some of your investors including BlackRock have been marking the value of Palantir down, not up. What's your take on that? And what do you tell those investors to get them just more excited about the future of the business?
Alex Karp: Talk to the clients, look what we're doing, look at our track record for delivery. You know it's interesting, we've been through – we have had this for a while and we have times when people have been overly excited and not really excited. This is a time when people you know, are underestimating what we're doing and that time will be gone very quickly. And by the way, I'm very – it's like one of those things you're always annoyed when you're a CEO and people write an article that is – but quite frankly, we wouldn't be where we are except for these articles, you know, because people make no effort to compete with us. You know why? Because they don't understand how well we are doing. And that's really cool. Thank you, please thank all the people, every time someone writes something like that, they are making better. And not because – it's not the Nietzsche thing where what doesn't kill me, makes me – you know, people really look at Palantir and they don't understand what we are doing and why we are doing it. And I'll tell you what we're doing. We are stopping terrorism, with data protection and we are doing innovation with jobs. And you know, you'll find that the lightning indicator of value of that is much bigger than people realize. And they will find that too.
Josh Lipton: A couple years ago, Alex, you know President-elect Trump held a meeting with all of the top tech leaders. It was Tim Cook, Larry Page, Jeff Bezos, you were there, which surprised some people. Were you surprised that you got invited to that meeting?
Alex Karp: I'm surprised when anyone invites me over. You know, I'm just a guy – I'm a guy with a PHD and most people – like, when I am invited, I show up. We're a company that works in the service of more important institutions. I was happy to be invited, honored to be there, glad to show up.
Josh Lipton: Has the Trump administration been good for Palantir's business?
Alex Karp: You know we're very focused on our clients. We work with our agencies directly. I haven't seen a great impact on our business depending on who is president.
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