Item 5. Market for Registrant’s Common Equity
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY
SECURITIES
Market Information for Class A Common Stock
Our Class A common stock has been listed on the New York Stock Exchange (the NYSE) under the symbol PLTR since
September 30, 2020. Prior to that date, there was no public trading market for our Class A common stock.
Holders of Record
As of February 22, 2021, there were 1,306 holders of record of our Class A common stock, 49 holders of record of our Class B
common stock, and one holder of record of our Class F common stock. Because many of our shares of Class A common stock are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of
stockholders represented by these record holders.
Dividend Policy
We have never declared or paid any cash dividends on our capital stock. We intend to retain any future earnings and do not expect to pay any
dividends in the foreseeable future. Any future determination to declare cash dividends will be made at the discretion of our board of directors, subject to applicable laws, and will depend on a number of factors, including our financial condition,
results of operations, capital requirements, contractual restrictions, general business conditions, and other factors that our board of directors may deem relevant. In addition, the terms of our credit facility contain restrictions on our ability to
declare and pay cash dividends on our capital stock, and we may enter into credit agreements or other borrowing arrangements in the future that may restrict our ability to declare and pay cash dividends.
82
Table of Contents
Performance Graph
This performance graph shall not be deemed soliciting material or to be filed with the Securities Exchange
Commission (SEC) for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (Exchange Act), or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by
reference into any of our filings under the Securities Act or the Exchange Act.
The following graph compares the cumulative total
return to stockholders on our Class A common stock since September 30, 2020 (the date our Class A common stock commenced trading on the NYSE) relative to the cumulative total returns of the Standard & Poors 500 Index
and the Standard & Poors Information Technology Index over the same period. An investment of $100 (with reinvestment of all dividends) is assumed to have been made in our Class A common stock and in each index at the market close
on September 30, 2020, and its relative performance is tracked through December 31, 2020. The returns shown are based on historical results and are not intended to suggest future performance.
Unregistered Sales of Equity Securities
None.
ITEM 6. SELECTED
FINANCIAL DATA
Not applicable.
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our
consolidated financial statements and the accompanying notes thereto included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements based upon current plans,
expectations, and beliefs, involving risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements. You should review the section titled Special Note Regarding Forward-Looking
Statements for a discussion of forward-looking statements and the section titled Risk Factors for a discussion of factors that could cause actual results to differ materially from the results described in or implied by the
forward-looking statements contained in the following discussion and analysis and elsewhere in this Annual Report on Form 10-K. Our historical results are not necessarily indicative of the results that may be
expected for any period in the future.
83
Table of Contents
Overview
We founded the company in 2003 to build software for use in counterterrorism operations.
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 signals intelligence sources to reports from confidential informants.
Defense agencies in the
United States then began using Gotham to investigate potential threats and to help protect soldiers from improvised explosive devices. Today, the platform is widely used by government agencies in the United States and its allies. Our software is on
the front lines, sometimes literally, and that means so are we.
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, to address a common set of challenges that we saw at large companies.
Foundry is becoming a central operating system not only for individual institutions but also for entire industries.
In 2017, for example, our partnership with Airbus expanded into a platform for the aviation industry, and today connects data from more than
one hundred airlines and 9,000 aircraft around the world.
We believe that every large institution faces challenges that our platforms
were designed to address. Our focus in the near term is to build partnerships with institutions that have the leadership necessary to effect structural change within their organizations to reconstitute their operations around data. Over the
long term, we believe that every large institution in the markets we serve is a potential partner.
Direct Listing
On September 30, 2020, we completed a direct listing of our Class A common stock, on the New York Stock Exchange (NYSE) (the
Direct Listing). Immediately prior to the Direct Listing and the filing of our amended and restated certificate of incorporation, all outstanding shares of redeemable convertible preferred stock and convertible preferred stock were
converted into 797,743,185 shares of our Class B common stock, and all of our outstanding preferred stock warrants were converted into common stock warrants, which resulted in the reclassification of the warrants liability to additional paid-in
capital. Additionally, our restricted stock units (RSUs) had a performance vesting condition that was satisfied upon the completion of the Direct Listing. Accordingly, the Direct Listing resulted in the vesting and settlement of RSUs
covering 68,149,214 shares of Class A common stock and as a result we recorded cumulative stock-based compensation of $769.5 million on September 30, 2020.
In addition, we incurred fees related to financial advisory, accounting, legal and other professional services related to the Direct Listing
and public company readiness initiatives and recorded $53.7 million primarily in general and administrative expense during the quarter ended September 30, 2020.
Our Business
For
the year ended December 31, 2020, we generated $1.1 billion in revenue, reflecting a 47% growth rate from the year ended December 31, 2019, when we generated $742.6 million in revenue.
Our operating results have improved significantly in recent years when excluding stock-based compensation. In the year ended December 31,
2020, we incurred losses from operations of $1.2 billion, or income from operations of $189.9 million when excluding stock-based compensation, related employer payroll taxes, and non-recurring charges relating to our direct listing in 2020. In the
year ended December 31, 2019, our losses from operations were $576.4 million, or $334.5 million when excluding stock-based compensation.
84
Table of Contents
In the year ended December 31, 2020, our gross profit was $740.1 million, reflecting a
gross margin of 68%, or 81% when excluding stock-based compensation. In the year ended December 31, 2019, our gross profit was $500.2 million, reflecting a gross margin of 67%, or 71% when excluding stock-based compensation.
For more information about our income or loss from operations, when excluding stock-based compensation, related employer payroll taxes, and
non-recurring direct listing charges; and gross profit, and gross margin, when excluding stock-based compensation, as well as reconciliations from loss from operations and gross profit, see the section titled Non-GAAP
Reconciliations below.
Our Customers
As of December 31, 2020, we had 139 customers, including leading companies in various commercial sectors as well as government agencies
around the world.
We define a customer as an organization from which we have recognized revenue in a reporting period. For large
government agencies, where a single institution has multiple divisions, units, or subsidiary agencies, each such division, unit, or subsidiary agency that enters into a separate contract with us and is invoiced as a separate entity is treated as a
separate customer. For example, while the U.S. Food and Drug Administration, Centers for Disease Control, and National Institutes of Health are subsidiary agencies of the U.S. Department of Health and Human Services, we treat each of those agencies
as a separate customer given that the governing structures and procurement processes of each agency are independent.
We have built
lasting and significant customer relationships with some of the worlds leading government institutions and companies. Our average revenue per customer in the year ended December 31, 2020 was $7.9 million, which grew 41% from $5.6 million
per customer in the year ended December 31, 2019. Our top twenty customers generated $663.1 million in revenue, or 61% of our total revenue in the year ended December 31, 2020. From those top twenty customers we generated average revenue
per customer of $33.2 million during the year ended December 31, 2020, which grew 34% from an average of $24.8 million from the top twenty customers during the year ended December 31, 2019.
Large organizations in the commercial and government sectors face similar challenges when it comes to managing data, and we intend to expand
our reach in both markets moving forward. In the year ended December 31, 2020, 44% of our revenue came from commercial customers and 56% came from government agencies.
We have also expanded significantly outside the United States. In the year ended December 31, 2020, we generated 52% of our revenue from
customers in the United States and the remaining 48% from customers abroad.
Coronavirus (COVID-19) Impact
As a result of COVID-19, we have taken precautionary measures in order to minimize the risk of the virus to our employees, our customers, and
the communities in which we operate, including the suspension of all non-essential business travel of employees and the temporary closure of all of our major offices. Although the majority of our workforce currently works remotely, there has been
minimal disruption in our ability to ensure the effective operation of our software platforms.
The economic consequences of the COVID-19
pandemic have been challenging for certain of our customers and prospective customers. While the broader implications of the COVID-19 pandemic on our results of operations and overall financial performance remain uncertain, the COVID-19 pandemic
has, to date, not had a material adverse impact on our results of operations. The economic effects of the pandemic and resulting societal changes are currently not predictable.
85
Table of Contents
The pandemic has made clear to many of our customers that accommodating the extended
timelines ordinarily required to realize results from implementing new software solutions is not an option during a crisis. As a result, customers are increasingly adopting our software, which can be ready in days, over internal software development
efforts, which may take months or years.
We have seen a decrease in our travel and office-related expenditures, including temporary
closures of our offices globally and reductions in related operating expenses, related to the ongoing pandemic. However, improvement of our contribution metric this year has also been driven by the expansion of existing customer accounts, improved
sales efficiency, and the increasing deployment of centralized hosting and other software deployment infrastructure. While we expect our travel and office-related expenditures to increase moving forward, especially once we reopen our offices, we do
not expect such expenditures to return to their pre-pandemic levels, given that we have made significant investments in enabling employees to work with customers remotely.
See the section titled Risk Factors included elsewhere in this Annual Report on Form 10-K for further discussion of the
possible impact of the COVID-19 pandemic on our business.
Our Business Model
Our customers pay us to use the software platforms we have built.
As of December 31, 2020, we expect to generate revenue under our existing customer contracts for an additional 3.6 years on
dollar-weighted average contract duration basis. Dollar-weighted average contract duration represents the length of time we expect to generate revenue on average, including existing contractual obligations and assuming that our customers will
exercise all of the contractual options available to them, and is subject to change as we enter into new contracts or if customers terminate for convenience. We calculate this duration on a dollar-weighted basis to adjust for smaller deals. The
timing of our customer billings and receipt of payments varies from contract to contract. Revenue is generally recognized over the contract term. Our contracts generally include terms that allow the customer to terminate the contract for
convenience.
Our business model with respect to acquiring and growing our accounts has three phases: (1) Acquire, (2) Expand, and (3)
Scale. We categorize all customers into cohorts on December 31st each year.
Our decisions about which customer relationships require
further investment may change over time, based on our assessment of the potential long-term value that our software can generate for them.
As a result, customers may move back and forth through phases, as relationship needs and our assessment of the merits of further investment
change. We enter into initial pilots with customers, generally at our own expense and without a guarantee of future returns, in order to access a unique set of opportunities that others may pass over for lack of resources and shorter investment
horizons.
Some customers may have a rapid Acquire phase followed by a long Expand phase. Others may skip the Expand phase altogether and
move immediately into the Scale phase. We manage customers at the account level, not by industry or sector, so that we can optimize on the specific growth opportunities for each.
In 2019, we generated a total of $742.6 million in revenue, of which $0.6 million came from customers in the Acquire phase, $176.3 million
came from customers in the Expand phase, and $565.7 million came from customers in the Scale phase.
In 2020, those same customers from
2019 generated a total of $1.1 billion in revenue. New customers acquired during the year ended December 31, 2020 generated an additional $41.8 million in revenue and were assigned a cohort as of December 31, 2020. A more detailed discussion of
the three phases, for purposes of illustration of how we manage accounts across the business, follows below.
86
Table of Contents
Acquire
We actively pursue discussions with existing and prospective customers in order to identify ways in which our software platforms can provide
long-term value.
In the first phase, we typically acquire new opportunities with minimal risk to our customers through short-term pilot
deployments of our software platforms at no or low cost to them. We believe in proving the value of our platforms to our customers. During these short-term pilots, we operate the accounts at a loss. We believe that our investments during this phase
will drive future revenue growth.
We define a customer or potential customer as being in the Acquire phase if, as of the end of a
calendar year, we have recognized less than $100,000 in revenue from the customer that respective year. Customers may make nominal payments in connection with the evaluation of our software that we do not consider material in evaluating the
performance of our accounts.
We evaluate the success of customer accounts in the Acquire phase based on the revenue such accounts
generate in the following year. In 2019, we generated $0.6 million in revenue from customers in the Acquire phase, which yielded a contribution loss of $65.4 million. In 2020, those same customers generated $77.1 million in revenue which yielded
contribution profit of $13.2 million.
Expand
Our investment in this second phase is often significant as we seek to understand the principal challenges faced by our customers and ensure
that our software delivers value and results.
We define a customer in the Expand phase as any customer from which we have recognized more
than $100,000 in revenue in a calendar year and whose account had a negative contribution margin during the year at issue, as determined as of the end of the year. In this phase, we operate at a loss, as measured by contribution margin, in order to
drive future revenue growth and margin expansion.
In 2019, we generated $176.3 million in revenue from customers that were in the Expand
phase as of the end of that year, with a contribution margin of (43)%. In 2020, those same customers generated $360.4 million in revenue, with a contribution margin of 47%.
Scale
As
customer accounts mature, our investment costs relative to revenue generally decrease, while the value our software provides to our customer increases, often significantly, as usage of the platform increases across the customers operations. In
this third phase, after having installed and configured the software across an entire enterprise, customers become more self-sufficient in their use of our platforms, including developing software and applications that run on top of our platforms,
while still continuing to benefit from the support of our operations and maintenance (O&M) services.
We define a customer
in the Scale phase as any customer from which we recognized more than $100,000 in revenue in a calendar year and whose account had a positive contribution margin during the year at issue, as determined as of the end of the year.
It is in the Scale phase of our partnerships with customers that we generally see contribution margin on particular accounts improve. In 2019,
we generated $565.7 million in revenue from customers in the Scale phase, with a contribution margin of 55%. In 2020, those same customers generated $613.4 million in revenue with a contribution margin of 70%.
87
Table of Contents
We believe that our customers will move into the Scale phase over the long term. We also
believe that contribution margin for Scale phase accounts will increase further as we become more efficient at deploying our software platforms across the entirety of our customers operations and at managing and operating our software.
Total Remaining Deal Value
We are focused on building strategic relationships with, and delivering significant outcomes for, our customers over the long term. Our
contracts with our customers reflect that long-term orientation, often lasting for multiple years at a time.
As of December 31,
2020, the total remaining deal value of the contracts that we have been awarded by, or entered into with, government and commercial customers, including existing contractual obligations and contractual options available to those customers, was
$2.8 billion, up from December 31, 2019, when our total remaining deal value of such contracts was $2.2 billion.
Of our
total remaining deal value, as of December 31, 2020, the total remaining deal value of the contracts that we entered into with commercial customers, including existing contractual obligations and available contractual options, was
$1.5 billion, up 45% from December 31, 2019, when the total remaining deal value of such contracts was $1.0 billion.
As of
December 31, 2020, the total remaining deal value of the contracts that we had been awarded by government agencies in the United States and allied countries around the world, including existing contractual obligations and contractual options
available to those government agencies, was $1.3 billion, up 14% from December 31, 2019, when the total value of such contracts was $1.1 billion. When calculating the total remaining deal value of government contracts, we do not
include government contracts totaling $2.7 billion, as of December 31, 2020, that we have been awarded where the funding of such contracts also known as indefinite delivery, indefinite quantity (IDIQ) contracts
has not yet been determined. Funding of such contracts is not guaranteed.
The majority of our government and commercial contracts are
subject to termination for convenience provisions. Additionally, the U.S. federal government is prohibited from exercising contract options more than one year in advance. As a result, there can be no guarantee that our customer contracts will not be
terminated or that contract options will be exercised.
Key Business Measure
In addition to the measures presented in our consolidated financial statements, we use the following key non-GAAP business measure to help us
evaluate our business, identify trends affecting our business, formulate business plans and financial projections, and make strategic decisions.
Contribution Margin
We believe that the revenue we generate relative to the costs we incur in order to generate such revenue is an important measure of the
efficiency of our business. We define contribution margin as revenue less our cost of revenue and sales and marketing expenses, excluding stock-based compensation, divided by revenue. At the end of each year, we categorize each customer account into
one of the three phases based on its revenue and contribution margin for that year.
Revenue is allocated to each customer account
directly. The cost of revenue and sales and marketing costs include both the costs associated with the deployment and operation of our software as well as expenses associated with identifying new customers and expanding partnerships with existing
ones. Our software engineers working with existing customers often manage the deployment and operation of our platforms as well
88
Table of Contents
as identify new ways that those platforms can be used. To calculate the contribution by customer, we allocate cost of revenue and sales and marketing expenses, excluding stock-based compensation,
to an account pro rata based on headcount and time spent on the account during the period. To the extent certain costs or personnel are not directly assigned to a specific account, they are allocated pro rata based on total headcount staffed during
such period. Direct costs, such as third-party cloud hosting services, are directly allocated to the account to which they relate.
Contribution, both across our business and on specific customer accounts, is intended to capture how much we have earned from customers after
accounting for the costs associated with deploying and operating our software, as well as any sales and marketing expenses involved in acquiring and expanding our partnerships with those customers, including allocated overhead. We exclude
stock-based compensation as it is a non-cash expense.
We believe that our contribution margin across the business, and on specific
customer accounts provides an important measure of the efficiency of our operations over time. We have included contribution margin because it is a key measure used by our management to evaluate our performance, and we believe that it also provides
useful information to investors and others in understanding and evaluating our operating results in the same manner as our management team. Our calculation of contribution margin may differ from similarly titled measures, if any, reported by other
companies. Contribution margin should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP.
For more information about contribution margin, including the limitations of this measure, and a reconciliation to loss from operations, see
the section titled Non-GAAP Reconciliations below.
Non-GAAP Reconciliations
We use the non-GAAP measures contribution margin; gross profit and gross margin, excluding stock-based compensation; and income
(loss) from operations, excluding stock-based compensation, related employer payroll taxes, and non-recurring direct listing charges to help us evaluate our business, identify trends affecting our business, formulate business plans and financial
projections, and make strategic decisions. We exclude stock-based compensation, which is a non-cash expense, from these non-GAAP financial measures because we believe that excluding this item provides meaningful supplemental information regarding
operational performance and provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management team. Additionally, we exclude expenses primarily related to the direct
listing during the quarter ended September 30, 2020, as they are a one-time nonrecurring charge, and employer payroll taxes related to stock-based compensation, as it is difficult to predict and outside of our control.
Our definitions may differ from the definitions used by other companies and therefore comparability may be limited. In addition, other
companies may not publish these or similar metrics. Further, these metrics have certain limitations, as they do not include the impact of certain expenses that are reflected in our consolidated statement of operations. Thus, our non-GAAP
contribution margin; gross profit and gross margin, excluding stock-based compensation; and income (loss) from operations, excluding stock-based compensation, related employer payroll taxes, and non-recurring direct listing charges should be
considered in addition to, not as a substitute for, or in isolation from, measures prepared in accordance with GAAP.
We compensate for
these limitations by providing reconciliations of these non-GAAP measures to the most comparable GAAP measures. We encourage investors and others to review our business, results of operations, and financial information in its entirety, not to rely
on any single financial measure, and to view these non-GAAP measures in conjunction with the most directly comparable GAAP financial measures.
89
Table of Contents
Contribution Margin
The following table provides a reconciliation of contribution margin for the years ended December 31, 2020 and 2019 (in thousands, except
percentages):
Years Ended December 31,
2020
2019
Loss from operations
$
(1,173,679
)
$
(576,444
)
Add:
Research and development expenses (1)
203,597
237,630
General and administrative
expenses (1)
293,637
254,025
Stock-based compensation
1,270,702
241,970
Contribution
$
594,257
$
157,181
Contribution margin
54
%
21
%
(1)
Excludes stock-based compensation.
Gross Profit and Gross Margin, Excluding Stock-Based Compensation
The following table provides a reconciliation of gross profit and gross margin, excluding stock-based compensation for the years ended
December 31, 2020 and 2019 (in thousands, except percentages):
Years Ended December 31,
2020
2019
Gross profit
$
740,126
$
500,182
Add: stock-based compensation
139,627
27,904
Gross profit, excluding stock-based compensation
$
879,753
$
528,086
Gross margin, excluding stock-based compensation
81
%
71
%
Income (Loss) from Operations, Excluding Stock-Based Compensation, Related Employer Payroll Taxes, and
Non-Recurring Direct Listing Charges
The following table provides a reconciliation of income (loss) from operations, excluding
stock-based compensation, related employer payroll taxes, and non-recurring direct listing charges for the years ended December 31, 2020 and 2019 (in thousands):
Years Ended December 31,
2020
2019
Loss from operations
$
(1,173,679)
$
(576,444)
Add: stock-based compensation
1,270,702
241,970
Add: employer payroll taxes related to stock-based compensation (1)
39,105
Add: non-recurring direct listing
charges (2)
53,737
Income (loss) from operations, excluding stock-based compensation, related employer payroll taxes,
and non-recurring direct listing charges
$
189,865
$
(334,474)
(1)
Employer payroll taxes related to stock-based compensation were immaterial prior to the quarter ended
September 30, 2020.
(2)
Non-recurring direct listing charges were primarily incurred during the quarter ended September 30, 2020 and
were immaterial in other periods presented and as such are not excluded from such periods.
90
Table of Contents
Components of Results of Operations
Revenue
We
generate revenue from the sale of subscriptions to access our software in our hosted environment with O&M services (Palantir Cloud), software subscriptions in our customers environments with ongoing O&M services (On-Premises Software), and professional services.
Palantir Cloud
Our Palantir Cloud subscriptions grant customers the right to access the software functionality in a hosted environment controlled by Palantir
and are sold together with stand-ready O&M services, as further described below. We promise to provide continuous access to the hosted software throughout the contract term. Revenue associated with Palantir Cloud subscriptions is recognized over
the contract term on a ratable basis, which is consistent with the transfer of control of the Palantir services to the customer.
On-Premises Software
Sales of our software subscriptions grant customers the right to use
functional intellectual property, either on their internal hardware infrastructure or on their own cloud instance, over the contractual term and are also sold together with stand-ready O&M services. O&M services include critical updates and
support and maintenance services required to operate the software and, as such, are necessary for the software to maintain its intended utility over the contractual term. Because of this requirement, we have concluded that the software subscriptions
and O&M services, which together we refer to as our On-Premises Software, are highly interdependent and interrelated and represent a single distinct performance obligation within the context of the
contract. Revenue is generally recognized over the contract term on a ratable basis.
Professional Services
Our professional services support the customers use of the software and include, as needed,
on-demand user support, user-interface configuration, training, and ongoing ontology and data modeling support. Professional services contracts typically include the provision of
on-demand professional services for the duration of the contractual term. These services are typically coterminous with a Palantir Cloud or On-Premises Software
subscriptions. Professional services are on-demand, whereby we perform services throughout the contract period; therefore, the revenue is recognized over the contractual term.
Cost of Revenue
Cost of revenue primarily includes salaries, stock-based compensation expense, and benefits for personnel involved in performing O&M and
professional services, as well as third-party cloud hosting services, allocated overhead, and other direct costs.
We expect that cost of
revenue will increase in absolute dollars as our revenue grows and will vary from period-to-period as a percentage of revenue.
Sales and Marketing
Our sales and marketing efforts span all stages of our sales cycle, including personnel engaging with or executing pilots at new or existing
customers. Sales and marketing costs primarily include salaries, stock-based compensation expense, and benefits for personnel involved in executing on pilots and customer growth activities, as well as third-party cloud hosting services for our
pilots, marketing and sales event-related costs, and allocated overhead. Sales and marketing costs are generally expensed as incurred.
91
Table of Contents
We expect that sales and marketing expenses will increase in absolute dollars as we continue
to invest in our potential and current customers, in growing our business and enhancing our brand awareness.
Research and
Development
Our research and development efforts are aimed at continuing to develop and refine our platforms, including adding
new features and modules, increasing their functionality, and enhancing the usability of our platforms. Research and development costs primarily include salaries, stock-based compensation expense, and benefits for personnel involved in performing
the activities to develop and refine our platforms, internal use third-party cloud hosting services and other IT-related costs, and allocated overhead. Research and development costs are expensed as incurred.
We plan to continue to invest in personnel to support our research and development efforts. As a result, we expect that research and
development expenses will increase in absolute dollars for the foreseeable future as we continue to invest to support these activities.
General and Administrative
General and administrative costs include salaries, stock-based compensation expense, and benefits for personnel involved in our executive,
finance, legal, human resources, and administrative functions, as well as third-party professional services and fees, and allocated overhead.
We expect that general and administrative expenses will increase in absolute dollars as we hire additional personnel and enhance our systems,
processes, and controls to support the growth in our business as well as our increased compliance and reporting requirements as a public company.
Interest Income
Interest income consists primarily of interest income earned on our cash, cash equivalents, and restricted cash balances.
Interest Expense
Interest expense consists primarily of interest expense and commitment fees incurred under our credit facilities.
Other Income (Expense), Net
Other income (expense), net consists primarily of foreign currency exchange gains and losses and our share of income and losses from our
equity method investments.
Change in Fair Value of Warrants
The change in the fair value of warrants consists of the net changes in the fair value of our liability classified warrants to purchase
redeemable convertible and convertible preferred stock that were remeasured at the end of each reporting period. In connection with the Direct Listing, all of the Companys outstanding preferred stock warrants were converted into common stock
warrants, which resulted in the reclassification of the warrants liability to additional paid-in capital. As such, we do not expect additional charges related to the fair value of these warrants.
Provision (Benefit) for Income Taxes
Provision (benefit) for income taxes consists of income taxes related to foreign and state jurisdictions in which we conduct business and
withholding taxes.
92
Table of Contents
Segments
We have two operating segments, commercial and government, which were determined based on the manner in which the chief operating decision
maker (CODM), who is our chief executive officer, manages our operations for purposes of allocating resources and evaluating performance. Various factors, including our organizational and management reporting structure and customer type,
were considered in determining these operating segments.
Our operating segments are described below:
Commercial : This segment primarily serves customers working in
non-government industries.
Government : This segment primarily serves customers that are agencies in the U.S. federal government
and non-U.S. governments.
Segment profitability is evaluated based on
contribution and contribution margin. Contribution is segment revenue less the related costs of revenue and sales and marketing expenses, excluding stock-based compensation expense. Contribution margin is segment contribution divided by revenue. To
the extent costs of revenue or sales and marketing expenses are not directly attributable to a particular segment, they are allocated based upon headcount at each operating segment during the period. We use it, in part, to evaluate the performance
of, and allocate resources to, each of our operating segments, which excludes certain operating expenses that are not allocated to operating segments because they are separately managed at the consolidated corporate level. These unallocated costs
include stock-based compensation expense, research and development costs, and general and administrative costs, such as legal and accounting.
Results of Operations
The following table summarizes our consolidated statements of operations data (in thousands):
Years Ended December 31,
2020
2019
2018
Revenue
$
1,092,673
$
742,555
$
595,409
Cost of revenue (1)
352,547
242,373
165,401
Gross profit
740,126
500,182
430,008
Operating expenses:
Sales and marketing (1)
683,701
450,120
461,762
Research and development (1)
560,660
305,563
285,451
General and administrative (1)
669,444
320,943
306,235
Total operating expenses
1,913,805
1,076,626
1,053,448
Loss from operations
(1,173,679)
(576,444)
(623,440)
Interest income
4,680
15,090
10,500
Interest expense
(14,139)
(3,061)
(3,440)
Change in fair value of warrants
811
(3)
48,093
Other income (expense), net
3,300
(2,853)
(2,638)
Loss before provision (benefit) for income taxes
(1,179,027)
(567,271)
(570,925)
Provision (benefit) for income taxes
(12,636)
12,375
9,102
Net loss
$
(1,166,391)
$
(579,646)
$
(580,027)
93
Table of Contents
(1)
Includes stock-based compensation expense as follows (in thousands):
Years Ended December 31,
2020
2019
2018
Cost of revenue
$
139,627
$
27,904
$
19,629
Sales and marketing
398,205
79,215
93,510
Research and development
357,063
67,933
72,039
General and administrative
375,807
66,918
63,325
Total stock-based compensation expense (i) (ii)
$
1,270,702
$
241,970
$
248,503
(i)
On September 30, 2020, in connection with the Direct Listing, we incurred $769.5 million and
$8.4 million of stock-based compensation using the accelerated attribution method related to the satisfaction of the performance-based vesting condition for RSUs and growth units, respectively, that had satisfied the service-based vesting
condition as of such date.
(ii)
During the years ended December 31, 2020, 2019, and 2018, we incurred modification charges of
$96.2 million, $27.4 million, and $44.6 million, respectively, from repricing of certain options held by our employees. Additionally, during the years ended December 31, 2020, 2019, and 2018, we incurred modification charges of
$9.9 million, $5.6 million, and $3.6 million respectively, related to the extension of the period to exercise of certain options that were approaching expiration.
The following table sets forth the components of our consolidated statements of operations data as a percentage of revenue:
Years Ended December 31,
2020
2019
2018
Revenue
100
%
100
%
100
%
Cost of revenue
32
33
28
Gross profit
68
67
72
Operating expenses:
Sales and marketing
63
61
78
Research and development
51
41
48
General and administrative
61
43
51
Total operating expenses
175
145
177
Loss from operations
(107
)
(78
)
(105
)
Interest income
2
2
Interest expense
(1
)
(1
)
Change in fair value of warrants
8
Other income (expense), net
Loss before provision (benefit) for income taxes
(108
)
(76
)
(96
)
Provision (benefit) for income taxes
(1
)
2
1
Net loss
(107
)%
(78
)%
(97
)%
Comparison of the Years Ended December 31, 2020 and 2019
Revenue
Years Ended December 31,
Change
2020
2019
Amount
%
Revenue:
Government
$
610,198
$
345,521
$
264,677
77%
Commercial
482,475
397,034
85,441
22%
Total revenue
$
1,092,673
$
742,555
$
350,118
47%
94
Table of Contents
Revenue increased by $350.1 million, or 47%, for the year ended December 31, 2020
compared to 2019. Revenue from government customers increased by $264.7 million, or 77%, for the year ended December 31, 2020 compared to 2019, primarily from customers in the United States. Of the increase, $243.4 million was from
customers existing as of December 31, 2019. Revenue from commercial customers increased by $85.4 million, or 22%, for the year ended December 31, 2020 compared to 2019. The increase is primarily due to an increase of
$59.7 million from customers existing as of December 31, 2019. Generally, increases in revenue from our existing customers are a result of increases in their adoption of our products and services within their organizations.
Cost of Revenue and Gross Profit
Years Ended December 31,
Change
2020
2019
Amount
%
Cost of revenue
$
352,547
$
242,373
$
110,174
45%
Gross profit
740,126
500,182
239,944
48%
Gross margin
68
%
67
%
1
%
Cost of revenue for the year ended December 31, 2020 increased by $110.2 million, or 45%, compared
to 2019. The increase was primarily due to increases in personnel costs of $128.6 million, which included increases of $111.7 million in stock-based compensation expense primarily due to the recognition of cumulative stock-based
compensation expense upon the Direct Listing related to RSUs and charges related to the modification of certain options; $21.6 million in payroll and other costs primarily driven by an increase in headcount attributable to cost of revenue
functions to support new and existing customers; and $5.7 million in employer payroll taxes primarily driven by income from the vesting of RSUs and increases in headcount. These increases in personnel costs were partially offset by decreases in
travel-related expenses and other personnel costs of $7.3 million as a result of COVID-related travel restrictions and company-wide initiatives to decrease overall travel and $3.1 million due to the timing of variable compensation
payments. Additionally, there was an increase of $0.5 million related to other direct deployment costs and allocated overhead. These increases to costs of revenue were offset by decreases of $9.8 million related to third-party cloud
hosting costs, generally as a result of volume-based discounts, $4.7 million related to hardware costs, and $4.4 million related to reduced usage of field service representatives.
Our gross margin for the year ended December 31, 2020 increased by 1% compared to 2019. Gross margin increased as a result of
efficiencies in supporting the revenue growth at our customer deployments, for example investments in our platforms, as well as reductions in third-party cloud hosting and hardware costs for customers. This was partly offset by increases in
stock-based compensation related to the satisfaction of the performance-based vesting condition for RSUs upon our Direct Listing and charges related to the modification of certain options.
Operating Expenses
Years Ended December 31,
Change
2020
2019
Amount
%
Sales and marketing
$
683,701
$
450,120
$
233,581
52%
Research and development
560,660
305,563
255,097
83%
General and administrative
669,444
320,943
348,501
109%
Total operating expenses
$
1,913,805
$
1,076,626
$
837,179
78%
95
Table of Contents
Sales and Marketing
Sales and marketing expenses increased by $233.6 million, or 52%, for the year ended December 31, 2020 compared to 2019. The
increase was primarily driven by increases in personnel costs of $262.9 million, which included increases of $319.0 million in stock-based compensation expense primarily due to the recognition of cumulative stock-based compensation expense
upon the Direct Listing from RSUs and charges related to the modification of certain options; $15.8 million from employer payroll taxes primarily driven by income from the vesting of RSUs; and $5.6 million in payroll costs related to an
increase in headcount attributable to our sales and marketing functions. These personnel costs were partially offset by decreases of $64.8 million in travel-related expenses and other personnel costs as a result of COVID-related travel
restrictions and company-wide initiatives to decrease overall travel, $7.2 million due to the timing of variable compensation payments, and $5.5 million from other payroll-related costs. Additionally, there was a decrease of
$13.9 million in office related expenses as a result of temporary office closures and a decrease of $15.4 million related to allocated overhead.
Research and Development
Research and
development expenses increased by $255.1 million, or 83%, for the year ended December 31, 2020 compared to 2019. The increase was primarily driven by increases in personnel costs of $283.4 million, which included increases of
$289.1 million in stock-based compensation expense primarily due to the recognition of cumulative stock-based compensation expense upon the Direct Listing from RSUs and charges related to the modification of certain options; $9.9 million
in employer payroll taxes, primarily driven by income from the vesting of RSUs; and $8.6 million in payroll costs related to an increase in headcount attributable to our research and development functions. These personnel costs were partially
offset by decreases of $13.8 million in travel-related expenses and other personnel costs as a result of COVID-related travel restrictions and company-wide initiatives to decrease overall travel, $6.9 million due to the timing of variable
compensation payments, and $3.5 million in other payroll-related costs. Additionally, there were decreases of $17.4 million in third-party cloud hosting services generally as a result of volume-based discounts, $9.5 million in office
related expenses as a result of temporary office closures, and $1.4 million related to allocated overhead.
General and Administrative
General and administrative expenses increased by $348.5 million, or 109%, for the year ended December 31, 2020 compared to 2019. The
increase in expenses was primarily driven by increases in personnel costs of $306.0 million, which included increases of $308.9 million in stock-based compensation expense primarily due to the recognition of cumulative stock-based
compensation expense upon the Direct Listing from RSUs and charges related to the modification of certain options; $7.8 million in employer payroll taxes, partially driven by income from the vesting of RSUs; and $6.3 million in payroll
costs related to an increase in headcount attributable to our general and administrative functions. These personnel costs were partially offset by decreases of $12.4 million in travel-related expenses and other personnel costs primarily as a
result of COVID-related travel restrictions and company-wide initiatives to decrease overall travel, and $4.6 million due to the timing of variable compensation payments. Additionally, there were other increases in general and administrative
expenses of $50.5 million in legal professional services primarily related to the Direct Listing, $11.8 million for other professional services related to the Direct Listing and corporate IT and consulting functions to support initiatives
for becoming a public company and the overall growth of our operations, $12.9 million in third-party cloud hosting services and other IT, and $6.1 million in corporate insurance and other fees, which were offset by decreases of
$22.4 million primarily from non-recurring impairment charges related to assets held for sale, $10.7 million in office related expenses as a result of temporary office closures, and $5.7 million
related to allocated overhead.
96
Table of Contents
Interest Income
Years Ended December 31,
Change
2020
2019
Amount
Interest income
$
4,680
$
15,090
$
(10,410)
Interest income decreased by $10.4 million for the year ended December 31, 2020 compared to 2019
primarily due to a reduction in U.S. interest rates on interest earned from our cash, cash equivalents, and restricted cash.
Interest Expense
Years Ended December 31,
Change
2020
2019
Amount
Interest expense
$
(14,139)
$
(3,061)
$
(11,078)
Interest expense increased by $11.1 million for the year ended December 31, 2020 compared to 2019.
The increase was primarily due to the absence of outstanding debt until December 2019.
Change in Fair Value of Warrants
Years Ended December 31,
Change
2020
2019
Amount
Change in fair value of warrants
$
811
$
(3)
$
814
The gain on the change in fair value of warrants increased by $0.8 million for the year ended
December 31, 2020 compared to 2019. The change was primarily due to adjustments to the fair value of the warrants immediately before reclassifying them from liability to equity, partially offset by an increase in the fair value of the
securities underlying certain warrants during the year ended December 31, 2020 compared to 2019.
Other Income (Expense), Net
Years Ended December 31,
Change
2020
2019
Amount
Other income (expense), net
$
3,300
$
(2,853)
$
6,153
Other income (expense), net changed by $6.2 million for the year ended December 31, 2020 compared to
2019 primarily due to increases in net realized and unrealized gains from foreign exchange transactions.
Provision (Benefit) for
Income Taxes
Years Ended December 31,
Change
2020
2019
Amount
Provision (benefit) for income taxes
$
(12,636)
$
12,375
$
(25,011)
We recorded a benefit for income taxes of $12.6 million for the year ended December 31, 2020
compared to a provision of $12.4 million for the year ended December 31, 2019. The change was primarily due to decreases in profits from our international operations and foreign benefits from stock-based compensation.
97
Table of Contents
Quarterly Results of Operations Data
The following tables set forth our unaudited quarterly statements of operations data for each of the last eight quarters ended
December 31, 2020 (in thousands, except per share amounts and percentages). The information for each of these quarters has been prepared on the same basis as our audited consolidated financial statements, included elsewhere in this Annual
Report on Form 10-K and includes, in our opinion, all adjustments, necessary to state fairly our results of operations for these periods. This data should be read in conjunction with our consolidated financial
statements included elsewhere in this Annual Report on Form 10-K. These quarterly results of operations are not necessarily indicative of the future results of operations for any future period.
Three Months Ended,
Dec. 31,
2020
Sep. 30,
2020
Jun. 30,
2020
Mar. 31,
2020
Dec. 31,
2019
Sep. 30,
2019
Jun. 30,
2019
Mar. 31,
2019
Revenue
$
322,091
$
289,366
$
251,889
$
229,327
$
229,358
$
190,541
$
176,320
$
146,336
Cost of revenue (1)
70,503
149,340
68,410
64,294
75,902
65,073
56,589
44,809
Gross profit
251,588
140,026
183,479
165,033
153,456
125,468
119,731
101,527
Operating expenses:
Sales and marketing (1)
147,619
334,911
102,518
98,653
112,865
119,666
110,533
107,056
Research and development (1)
94,130
313,915
86,815
65,800
75,835
75,880
78,724
75,124
General and administrative (1)
166,411
338,977
93,291
70,765
112,207
74,062
70,589
64,085
Total operating expenses
408,160
987,803
282,624
235,218
300,907
269,608
259,846
246,265
Loss from operations
(156,572)
(847,777)
(99,145)
(70,185)
(147,451)
(144,140)
(140,115)
(144,738)
Interest income
368
494
551
3,267
2,137
3,390
4,231
5,332
Interest expense
(1,814)
(2,085)
(5,646)
(4,594)
(2,666)
(173)
(172)
(50)
Change in fair value of warrants
(9,201)
(3,683)
13,695
(2,746)
784
1,959
Other income (expense), net
2,082
(3,293)
(1,589)
6,100
(4,711)
2,305
1,420
(1,867)
Loss before provision (benefit) for income taxes
(155,936)
(861,862)
(109,512)
(51,717)
(155,437)
(137,834)
(132,677)
(141,323)
Provision (benefit) for income taxes
(7,593)
(8,543)
943
2,557
3,890
2,026
1,389
5,070
Net loss
$
(148,343)
$
(853,319)
$
(110,455)
$
(54,274)
$
(159,327)
$
(139,860)
$
(134,066)
$
(146,393)
Net loss attributable to common stockholders
$
(148,343)
$
(853,319)
$
(110,626)
$
(62,047)
$
(159,327)
$
(139,860)
$
(134,066)
$
(146,393)
Net loss per share attributable to common stockholders, basic
$
(0.08)
$
(0.94)
$
(0.17)
$
(0.09)
$
(0.29)
$
(0.24)
$
(0.23)
$
(0.26)
Net loss per share attributable to common stockholders, diluted
$
(0.08)
$
(0.94)
$
(0.17)
$
(0.10)
$
(0.29)
$
(0.24)
$
(0.23)
$
(0.26)
98
Table of Contents
(1)
Includes stock-based compensation expense as follows (in thousands):
Three Months Ended,
Dec. 31,
2020
Sep. 30,
2020
Jun. 30,
2020
Mar. 31,
2020
Dec. 31,
2019
Sep. 30,
2019
Jun. 30,
2019
Mar. 31,
2019
Cost of revenue
$
19,342
$
94,385
$
17,832
$
8,068
$
11,384
$
7,183
$
4,496
$
4,841
Sales and marketing
75,852
263,958
39,932
18,463
22,973
15,898
18,852
21,492
Research and development
47,365
256,769
37,897
15,032
18,796
15,031
16,438
17,668
General and administrative
99,229
231,847
32,187
12,544
24,167
13,651
14,202
14,898
Total stock-based compensation expense
$
241,788
$
846,959
$
127,848
$
54,107
$
77,320
$
51,763
$
53,988
$
58,899
The following table sets forth our results of operations for the last eight quarterly periods presented as a
percentage of our total revenue for those periods:
Three Months Ended,
Dec. 31,
2020
Sep. 30,
2020
Jun. 30,
2020
Mar. 31,
2020
Dec. 31,
2019
Sep. 30,
2019
Jun. 30,
2019
Mar. 31,
2019
Revenue
100
%
100
%
100
%
100
%
100
%
100
%
100
%
100
%
Cost of revenue
22
52
27
28
33
34
32
31
Gross profit
78
48
73
72
67
66
68
69
Operating expenses:
Sales and marketing
46
116
41
43
49
63
63
73
Research and development
29
108
34
29
33
40
44
51
General and administrative
52
117
37
31
49
39
40
44
Total operating expenses
127
341
112
103
131
142
147
168
Loss from operations
(49
)
(293
)
(39
)
(31
)
(64
)
(76
)
(79
)
(99
)
Interest income
1
1
2
2
3
Interest expense
(1
)
(2
)
(2
)
(1
)
Change in fair value of warrants
(3
)
(1
)
6
(1
)
1
1
Other income (expense), net
1
(1
)
(1
)
3
(2
)
1
1
(1
)
Loss before provision (benefit) for income taxes
(48
)
(298
)
(43
)
(23
)
(67
)
(72
)
(75
)
(97
)
Provision (benefit) for income taxes
(2
)
(3
)
1
1
2
1
1
3
Net loss
(46
)%
(295
)%
(44
)%
(24
)%
(69
)%
(73
)%
(76
)%
(100
)%
99
Table of Contents
The following table provides a reconciliation of contribution margin for the last eight quarterly periods (in
thousands, except percentages):
Three Months Ended,
Dec. 31,
2020
Sep. 30,
2020
Jun. 30,
2020
Mar. 31,
2020
Dec. 31,
2019
Sep. 30,
2019
Jun. 30,
2019
Mar. 31,
2019
Loss from operations
$
(156,572
)
$
(847,777
)
$
(99,145
)
$
(70,185
)
$
(147,451
)
$
(144,140
)
$
(140,115
)
$
(144,738
)
Research and development (1)
46,765
57,146
48,918
50,768
57,039
60,849
62,286
57,456
General and administrative (1)
67,182
107,130
61,104
58,221
88,040
60,411
56,387
49,187
Total stock-based compensation expense
241,788
846,959
127,848
54,107
77,320
51,763
53,988
58,899
Contribution
$
199,163
$
163,458
$
138,725
$
92,911
$
74,948
$
28,883
$
32,546
$
20,804
Contribution margin
62
%
56
%
55
%
41
%
33
%
15
%
18
%
14
%
(1)
Excludes stock-based compensation.
Liquidity and Capital Resources
Since our inception, we have generated negative cash flows from operations and have financed our operations primarily through the sale of our
equity securities, borrowings under our credit facilities, and payments received from our customers. For many customers, we historically billed and collected payment for the entire contract term in advance of our performance of the related
obligations. Our billing terms, however, are shifting to align with the timing of the work performed for our customers. As a result, our cash flows from operations may temporarily decrease as our billing cycles, deferred revenue and customer
deposits adjust to this shift. We believe our existing cash and cash equivalents will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months, as well as our short-term and long-term contractual
obligations and commitments primarily consisting of operating lease commitments and non-cancelable purchase commitments related to third-party cloud hosting services.
As of December 31, 2020, our accumulated deficit balance was $5.0 billion, and our principal sources of liquidity were
$2.0 billion of cash and cash equivalents, exclusive of additional restricted cash of $116.8 million. Cash and cash equivalents consist primarily of cash on deposit with banks as well as institutional money market funds. Restricted cash
primarily consists of cash and certificates of deposit that are held as collateral against letters of credit and guarantees we are required to maintain for various purposes.
As of December 31, 2020, we had $200.0 million outstanding of the available term commitment under the 2014 Credit Facility due in
June 2023 and an additional $200.0 million revolving credit facility available and undrawn. For more information, see the section titled Managements Discussion and Analysis of Financial Condition and Results of
Operations Credit Facilities.
Additionally, during the year ended December 31, 2020, we sold 206,500,523
shares of our Class A common stock at $4.65 per share for net proceeds of approximately $942.5 million, which is net of issuance costs of $17.7 million, and received proceeds of $298.8 million from the exercise of 120,617,527
options.
Our future capital requirements will depend on many factors, including, but not limited to the rate of our growth, our ability
to attract and retain customers and their willingness and ability to pay for our products and services, and the timing and extent of spending to support our efforts to market and develop our products. Further, we may enter into future arrangements
to acquire or invest in businesses, products, services, strategic partnerships, and technologies. As such, we may be required to seek additional equity or debt financing. In the event that additional financing is required from outside sources, we
may not be able to raise it on terms acceptable to us or at all. If
100
Table of Contents
additional funds are not available to us on acceptable terms, or at all, our business, financial condition, and results of operations could be adversely affected.
The following table summarizes our cash flows for the periods indicated (in thousands):
Years Ended December 31,
2020
2019
2018
Net cash (used in) provided by:
Operating activities
$
(296,608)
$
(165,215)
$
(39,012)
Investing activities
(14,920)
(21,964)
(6,784)
Financing activities
1,036,453
324,533
46,154
Effect of foreign exchange on cash, cash equivalents, and restricted cash
1,259
(2,227)
(3,703)
Net increase (decrease) in cash, cash equivalents, and restricted cash
$
726,184
$
135,127
$
(3,345)
Operating Activities
Net cash used in operating activities was $296.6 million for the year ended December 31, 2020. The factors affecting our operating
cash flows during this period were our net loss of $1.2 billion and changes in net operating assets and liabilities of $454.1 million, offset by non-cash charges of $1.3 billion. The non-cash charges primarily consisted of $1.3 billion in stock-based compensation expense, $35.0 million of non-cash operating lease expense, and $13.9 million
of depreciation and amortization. The net change in operating assets and liabilities were primarily due to net decrease of $261.8 million in deferred revenue and customer deposits due to the timing of revenue being recognized from amounts
billed and collected in prior periods, and an increase in assets of $156.0 million primarily due to an increase in accounts receivable driven by the timing of billings to and collections from our customers.
Net cash used in operating activities was $165.2 million for the year ended December 31, 2019. The factors affecting our operating
cash flows during this period were our net loss of $579.6 million, offset by non-cash charges of $280.4 million, and $134.0 million of cash provided from changes in our operating assets and
liabilities. The non-cash charges primarily consisted of $242.0 million in stock-based compensation expense, $23.4 million of impairment of assets held for sale, and $12.3 million of
depreciation and amortization. The cash provided from changes in our operating assets and liabilities was primarily due to a net increase of $144.8 million in deferred revenue and customer deposits due to increased billings and payments
received from customers in advance of revenue recognition and a $27.2 million increase in accounts payable and accrued liabilities as a result of our increased spending and headcount associated with the growth of our business. These amounts
were partially offset by an increase in assets of $34.5 million primarily due to an increase in accounts receivable driven by timing of contracts as well as an increase in deferred tax assets.
Investing Activities
Net cash used in investing activities was $14.9 million for the year ended December 31, 2020, which consisted of purchases of
property and equipment of $12.2 million.
Net cash used in investing activities was $22.0 million for the year ended
December 31, 2019, which consisted of an investment of $25.9 million in our equity method investment Palantir Technologies Japan, K.K. entity and purchases of property and equipment of $13.1 million, partially offset by a
$17.0 million return of investment associated with the dissolution of our equity method investment Signac, LLC.
101
Table of Contents
Financing Activities
Net cash provided by financing activities was $1.0 billion for the year ended December 31, 2020, which primarily consisted of
$942.5 million of net proceeds from the issuance of common stock, $199.4 million of net proceeds from borrowings under our credit facilities, and $298.8 million of proceeds from the exercise of common stock options, partially offset
by repayments of $400.0 million of debt.
Net cash provided by financing activities was $324.5 million for the year ended
December 31, 2019, which consisted of $394.4 million of net proceeds from borrowings under our credit facilities, $100.0 million of proceeds from the issuance of common stock, $16.9 million of proceeds from the exercise of common
stock options, and $7.5 million of proceeds from the sale of redeemable convertible preferred stock, partially offset by the redemption of redeemable convertible preferred stock of $168.0 million and the repurchase of convertible preferred
and common stock of $25.1 million.
Credit Facilities
2014 Credit Facility
In October 2014, we entered into an unsecured revolving credit facility which has been subsequently amended (the 2014 Credit
Facility). The 2014 Credit Facility bears interest at the London Interbank Offered Rate (LIBOR) plus a margin of 2.75% per annum, subject to certain adjustments, and incurs a commitment fee of 0.375% assessed on the daily average
undrawn portion of revolving commitments. Interest and commitment fees are payable at the end of an interest period or at each three-month interval if the interest period is longer than three months. The 2014 Credit Facility is secured with
substantially all of our assets.
In December 2019, we drew down the $150.0 million term loan and $150.0 million under the
existing revolving credit facility. The term loan portion of the 2014 Credit Facility was fully repaid and terminated as of December 31, 2019.
In June 2020, we amended the 2014 Credit Facility to include a $150.0 million term loan, extend the maturity date to June 4, 2023,
and add an additional lender. Additionally, this amendment increased the minimum liquidity required to be maintained, and we were provided with an option to increase the total commitments by up to an additional $200.0 million, subject to the
lenders approval. All other terms and conditions remained substantially the same upon the effectiveness of the amendment. Upon entering into this amendment, we drew down the total available term loan commitment of $150.0 million.
In July 2020, we entered into another amendment to the 2014 Credit Facility, which added an additional lender and provided for an increase of
$50.0 million to the revolving credit facility and a $50.0 million term loan. The incremental commitments were provided under the same terms as the existing commitments under the 2014 Credit Facility. During July 2020, we drew down the
additional available term loan of $50.0 million and repaid the $150.0 million outstanding revolving credit facility.
As of
December 31, 2020, we had $200.0 million of term loans outstanding under the 2014 Credit Facility and an additional $200.0 million undrawn revolving credit facility available.
2019 Credit Facility
On December 31, 2019, we entered into a senior secured revolving credit facility (the 2019 Credit Facility) with a second
lender. The 2019 Credit Facility allowed for the drawdown of up to $250.0 million. As of December 31, 2019 we had $250.0 million outstanding under the 2019 Credit Facility, and $125.0 million of the proceeds were required to be
maintained in a specified collateral account, which was reported in restricted cash, noncurrent in the consolidated balance sheet.
102
Table of Contents
During June 2020, a portion of the proceeds drawn down under the 2014 Credit Facility were
used to pay off the $250.0 million outstanding, balance of the revolving loan commitment under the 2019 Credit Facility, thus releasing the 50% restricted cash collateral previously required. As of December 31, 2020, the 2019 Credit
Facility was terminated and there were no amounts outstanding.
Contractual Obligations and Commitments
The following table summarizes our contractual obligations and commitments as of December 31, 2020 (in thousands):
Payments Due by Period
Total
Less than
1 year
1-3 years
3-5 years
More than
5 years
Operating lease commitments, net of sublease income amounts (1)
$
186,136
$
27,048
$
54,478
$
51,078
$
53,532
Noncancelable purchase
commitments (2)
1,449,669
41,482
366,000
624,187
418,000
Debt (3)
200,000
200,000
Total contractual obligations and commitments
$
1,835,805
$
68,530
$
620,478
$
675,265
$
471,532
(1)
The contractual commitment amounts under operating leases in the table above are primarily related to
facility and equipment leases. Operating lease commitments are reflected net of $150.3 million of sublease income from tenants in certain of our leased facilities. Refer to Note 8 . Leases in our consolidated financial statements
included elsewhere in this Annual Report on Form 10-K for additional information.
(2)
Noncancelable purchase commitments primarily relate to purchase commitments for third-party cloud hosting
services and represents only contracts which are enforceable and legally binding. Obligations under contracts that we can cancel without a significant penalty are not included in the table above. Refer to Note 9. Commitments and Contingencies
in our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information.
(3)
Includes principal payments on our outstanding senior secured revolving credit facility, which bears floating
interest rates of LIBOR plus 2.75% per annum. Refer to Note 7. Debt in our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information.
The contractual obligations and commitments in the table above are associated with agreements that are enforceable and
legally binding.
Deferred Revenue and Customer Deposits
Deferred revenue represents billings under noncancelable contracts before the related product or service is transferred to the customer. The
portion of deferred revenue that is anticipated to be recognized as revenue during the succeeding twelve-month period is recorded as deferred revenue and the remaining portion is recorded as deferred revenue, noncurrent.
Customer deposits consist of payments received for anticipated revenue generating activities in advance of the start of the contractual term
or for the portion of a contract term that is subject to cancellation and refund. The portion of customer deposits that is anticipated to be recognized as revenue during the succeeding twelve-month period is recorded as customer deposits and the
remaining portion is recorded as customer deposits, noncurrent.
Our deferred revenue and deferred revenue, noncurrent as of
December 31, 2020 was $189.5 million and $50.5 million, respectively. Our customer deposits and customer deposits, noncurrent as of December 31, 2020 was $210.3 million and $81.5 million, respectively. Our total deferred
revenue and deferred revenue, noncurrent as of December 31, 2019 was $186.1 million and $77.0 million, respectively. Our total customer deposits and customer deposits, noncurrent as of December 31, 2019 was $364.1 million
and $167.5 million, respectively.
103
Table of Contents
Off-Balance Sheet Arrangements
We did not have, during the periods presented, any off-balance sheet financing arrangements or any
relationships with unconsolidated entities or financial partnerships, including entities sometimes referred to as structured finance or special purpose entities, that were established for the purpose of facilitating
off-balance sheet arrangements or other contractually narrow or limited purposes.
Critical
Accounting Policies and Estimates
Our consolidated financial statements and the accompanying notes thereto included elsewhere in this
Annual Report on Form 10-K are prepared in accordance with GAAP. The preparation of consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets,
liabilities, revenue, costs and expenses, and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly
from our estimates. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations, and cash flows will be affected.
We believe that the accounting policies described below involve a significant degree of judgment and complexity. Accordingly, we believe these
are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of operations. For further information, see Note 2. Significant Accounting Policies in our consolidated financial statements
included elsewhere in this Annual Report on Form 10-K.
Revenue Recognition
We generate revenue from the sale of subscriptions to access our software Palantir Cloud and
On-Premises Software, with ongoing O&M services and professional services.
In accordance with
ASC 606, Revenue from Contracts with Customers , we recognized revenue upon the transfer of promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for promised goods
or services. We apply the following five-step revenue recognition model in accounting for our revenue arrangements:
Identification of the contract(s) with the customer,
Identification of the performance obligations in the contract,
Determination of the transaction price,
Allocation of the transaction price to the performance obligations in the contract, and
Recognition of revenue when, or as, we satisfy a performance obligation.
Each of our significant performance obligations and our application of ASC 606 to our revenue arrangements is discussed in further detail
below.
Palantir Cloud
Our Palantir
Cloud subscriptions grant customers the right to access the software functionality in a hosted environment controlled by Palantir and are also sold together with stand-ready O&M services. We promise to provide continuous access to the hosted
software throughout the contract term. Revenue associated with Palantir Cloud subscriptions is recognized over the contract term on a ratable basis, which is consistent with the transfer of control of the Palantir Cloud services to the customer.
104
Table of Contents
On-Premises Software
Sales of our software subscriptions grant customers the right to use functional intellectual property, either on their internal hardware
infrastructure or on their own cloud instance, over the contractual term and are sold together with stand-ready O&M services. The O&M services include critical updates, support, and maintenance services required to operate our software and,
as such, are necessary for our software to maintain its intended utility over the contractual term. Because of this requirement, we have concluded that the software subscriptions and O&M services, which together we refer to as our On-Premises Software, are highly interdependent and interrelated and represent a single distinct performance obligation within the context of the contract. Revenue is generally recognized over the contract term on a
ratable basis.
Professional Services
Our professional services support the customers use of the software and include, as needed,
on-demand user support, user-interface configuration, training, and ongoing ontology and data modeling support. Professional services contracts typically include the provision of
on-demand professional services for the duration of the contractual term. These services are typically coterminous with a Palantir Cloud subscription or the On-Premises
Software. Professional services are on-demand, whereby we perform services throughout the contract period; therefore, the revenue is recognized over the contractual term.
Contract Balances
The timing of
customer billing and payment relative to the start of the service period varies from contract to contract; however, we bill many of our customers in advance of the provision of services under our contracts, resulting in contract liabilities
consisting of either deferred revenue or customer deposits (contract liabilities). Deferred revenue represents billings under noncancelable contracts before the related product or service is transferred to the customer. Customer deposits
consist of payments received in advance of the start of the contractual term or for anticipated revenue generating activities for the portion of a contract term that is subject to cancellation and refund. Our arrangements generally include terms
that allow the customer to terminate the contract for convenience and receive a pro-rata refund of the amount of the customer deposit for the period of time remaining in the contract term after the applicable
termination notice period expires. In these arrangements, we concluded there are no enforceable rights and obligations after such notice period and therefore the consideration received or due from the customer that is subject to termination for
convenience is recorded as customer deposits.
The payment terms and conditions vary by contract; however, our terms generally require
payment within 30 to 60 days from the invoice date. In instances where the timing of revenue recognition differs from the timing of payment, we elected to apply the practical expedient in accordance with ASC 606 to not adjust contract consideration
for the effects of a significant financing component as we expect, at contract inception, that the period between when promised goods and services are transferred to the customer and when the customer pays for those goods and services will be one
year or less. As such, we determined our contracts do not generally contain a significant financing component.
Areas of Judgment and Estimation
Our contracts with customers can include multiple promises to transfer goods or services to the customer. Determining whether
promises are distinct performance obligations that should be accounted for separately or not distinct within the context of the contract and, thus, accounted for together requires significant judgment. We concluded that the promise to
provide a software subscription is highly interdependent and interrelated with the promise to provide O&M services and such promises are not distinct within the context of our contracts and are accounted for as a single performance obligation
for our On-Premises Software.
105
Table of Contents
Additionally, the pricing of our contracts is generally fixed; however, it is possible for
contracts to include variable consideration in the form of performance bonuses, which can be based on subjective or objective criteria. We include the estimated amount of variable consideration that we expect to receive to the extent it is probable
that a significant revenue reversal will not occur. Any amounts received in the form of performance bonuses were not material in the periods presented.
Stock-Based Compensation
We account for stock-based compensation expense in accordance with the fair value recognition and measurement provisions of GAAP, which
require compensation cost for the grant-date fair value of stock-based awards to be recognized over the requisite service period. We determine the fair value of stock-based awards granted or modified on the grant date or modification date using
appropriate valuation techniques.
Service-Based Vesting
We grant stock option awards and RSUs, that vest only based upon the satisfaction of a service condition. For stock option awards, we use the
Black-Scholes option pricing model to determine the fair value of the stock options granted. The Black-Scholes option pricing model requires the input of highly subjective assumptions, including the fair value of the underlying common stock, the
expected term of the option, the expected volatility of the price of the common stock, risk-free interest rates, and the expected dividend yield of the common stock. The assumptions used to determine the fair value of the option awards represent
managements best estimates. These estimates involve inherent uncertainties and the application of our judgment. For RSUs, we determine the grant-date fair value of the RSUs as the fair value of our common stock on the grant date. We record
stock-based compensation expense for stock options and RSUs that vest only based upon the satisfaction of a service condition on a straight-line basis over the requisite service period, which is generally four years. We recognize forfeitures as they
occur.
Performance-Based Vesting
We grant awards, including RSUs that vest upon the satisfaction of both a service condition and a performance condition. The performance-based
vesting condition for the RSUs granted prior to our Direct Listing was satisfied upon the occurrence of the Direct Listing. The stock-based compensation expense related to such RSUs is recognized using the accelerated attribution method from the
grant date. The service-based vesting period for these awards varies across service providers and is up to five years.
Income Taxes
We estimate our current tax expense together with assessing temporary differences resulting from differing treatment of items not
currently deductible for tax purposes. These differences result in deferred tax assets and liabilities on our consolidated balance sheets, which are estimated based upon the difference between the financial statement and tax bases of assets and
liabilities using the enacted tax rates that will be in effect when these differences reverse. In general, deferred tax assets represent future tax benefits to be received when certain expenses previously recognized in our consolidated statements of
operations become deductible expenses under applicable income tax laws or loss or credit carryforwards are utilized. Accordingly, the realization of our deferred tax assets are dependent on future taxable income against which these deductions,
losses, and credits can be utilized.
We evaluate the realizability of our deferred tax assets and recognize a valuation allowance when it
is more likely than not that a future benefit on such deferred tax assets will not be realized. Changes in the valuation allowance, when recorded, would be included in our consolidated statements of operations. Our judgment is required in
determining the valuation allowance recorded against our net deferred tax assets.
106
Table of Contents
We recognize the tax benefit from an uncertain tax position only if it is more likely than
not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such positions are then measured based on
the largest benefit that has a greater than 50% likelihood of being realized upon settlement. We recognize interest and penalties related to uncertain tax positions in our provision (benefit) for income taxes.
Recent Accounting Pronouncements
For information on recently issued accounting pronouncements, refer to Note 2. Significant Accounting Policies in our consolidated
financial statements included elsewhere in this Annual Report on Form 10-K.
ITEM 7A.
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risks in the ordinary course of our business, which primarily relate to fluctuations in interest rates, foreign
exchange, and inflation.
Interest Rate Risk
Our cash, cash equivalents, and restricted cash consist of cash, certificates of deposit, and money market funds. Our investment policy and
strategy are focused on the preservation of capital and supporting our liquidity requirements. We have not entered into investments for trading or speculative purposes.
Due to the short-term nature of the financial instruments, we have not been exposed to, nor do we anticipate being exposed to, material risks
due to changes in interest rates. A hypothetical 10% change in interest rates during any of the periods presented would not have had a material impact on our consolidated financial statements.
As of December 31, 2020, we had $200.0 million in variable rate term loans outstanding that are scheduled to mature in June 2023. An
immediate 10% change in LIBOR would not have a material impact on our debt-related obligations, financial position or results of operations.
Foreign Currency Exchange Risk
Our contracts with customers are primarily denominated in U.S. dollars, with a small amount denominated in foreign currencies. Our expenses are
generally denominated in the currencies of the jurisdictions in which we conduct our operations, which are primarily in the United States, United Kingdom, and other European countries. Our results of current and future operations and cash flows are,
therefore, subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the Euro and GBP. Additionally, fluctuations in foreign currency exchange rates may cause us to recognize transaction gains and losses in
our statement of operations. To date, foreign currency transaction gains and losses have not been material to our consolidated financial statements, and we have not engaged in any foreign currency hedging transactions.
Inflation Risk
We do not believe that inflation has had a material effect on our business, results of operations, or financial condition.
107
Table of Contents
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.