Palantir Technologies Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) Palantir Technologies Inc. Condensed Consolidated Balance Sheets (in thousands, except per share amounts) (unaudited) As of March 31, As of December 31, 2021 2020 Assets Current assets: Cash and cash equivalents $ 2,339,437 $ 2,011,323 Restricted cash 37,106 37,285 Accounts receivable 151,400 156,932 Prepaid expenses and other current assets 61,755 51,889 Total current assets 2,589,698 2,257,429 Property and equipment, net 27,378 29,541 Restricted cash, noncurrent 71,933 79,538 Operating lease right-of-use assets 213,331 217,075 Other assets 111,845 106,921 Total assets $ 3,014,185 $ 2,690,504 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 17,234 $ 16,358 Accrued liabilities 181,603 158,546 Deferred revenue (1) 186,498 189,520 Customer deposits 250,181 210,320 Operating lease liabilities 32,110 29,079 Total current liabilities 667,626 603,823 Deferred revenue, noncurrent (1) 44,998 50,525 Customer deposits, noncurrent 70,768 81,513 Debt, noncurrent, net 198,185 197,977 Operating lease liabilities, noncurrent 222,429 229,800 Other noncurrent liabilities 4,236 4,316 Total liabilities 1,208,242 1,167,954 Commitments and Contingencies (Note 8) Stockholders’ equity: Preferred stock, par value $0.001: 2,000,000 shares authorized and 0 issued and outstanding as of March 31, 2021 and December 31, 2020 — — Common stock, $0.001 par value: 20,000,000 Class A shares authorized as of March 31, 2021 and December 31, 2020; 1,792,699 shares issued and outstanding as of March 31, 2021, and 1,542,058 shares issued and outstanding as of December 31, 2020; 2,700,000 Class B shares authorized as of March 31, 2021 and December 31, 2020; 66,903 shares issued and outstanding as of March 31, 2021, and 249,077 shares issued and outstanding as of December 31, 2020; and 1,005 Class F shares authorized, issued, and outstanding as of March 31, 2021 and December 31, 2020 1,860 1,792 Additional paid-in capital 6,892,046 6,488,857 Accumulated other comprehensive income (loss) 865 (2,745) Accumulated deficit (5,088,828) (4,965,354) Total stockholders’ equity 1,805,943 1,522,550 Total liabilities and stockholders’ equity $ 3,014,185 $ 2,690,504 (1) Deferred revenue as of March 31, 2021 and December 31, 2020 includes $61.1 million and $68.2 million, respectively, from Palantir Technologies Japan, K.K. See Note 6 . Equity Method Investments, for more information. The accompanying notes are an integral part of these condensed consolidated financial statements. 3 Table of Contents Palantir Technologies Inc. Condensed Consolidated Statements of Operations (in thousands, except per share amounts) (unaudited) Three Months Ended March 31, 2021 2020 Revenue $ 341,234 $ 229,327 Cost of revenue 74,111 64,294 Gross profit 267,123 165,033 Operating expenses: Sales and marketing 136,097 98,653 Research and development 98,471 65,800 General and administrative 146,569 70,765 Total operating expenses 381,137 235,218 Loss from operations (114,014) (70,185) Interest income 376 3,267 Interest expense (1,840) (4,594) Change in fair value of warrants — 13,695 Other income (expense), net (4,894) 6,100 Loss before provision for income taxes (120,372) (51,717) Provision for income taxes 3,102 2,557 Net loss $ (123,474) $ (54,274) Net loss per share attributable to common stockholders, basic $ (0.07) $ (0.09) Net loss per share attributable to common stockholders, diluted $ (0.07) $ (0.10) Weighted-average shares of common stock outstanding used in computing net loss per share attributable to common stockholders, basic 1,821,158 591,850 Weighted-average shares of common stock outstanding used in computing net loss per share attributable to common stockholders, diluted 1,821,158 594,363 The accompanying notes are an integral part of these condensed consolidated financial statements. 4 Table of Contents Palantir Technologies Inc. Condensed Consolidated Statements of Comprehensive Loss (in thousands) (unaudited) Three Months Ended March 31, 2021 2020 Net loss $ (123,474) $ (54,274) Other comprehensive income: Foreign currency translation adjustments 3,610 1,026 Comprehensive loss $ (119,864) $ (53,248) The accompanying notes are an integral part of these condensed consolidated financial statements. 5 Table of Contents Palantir Technologies Inc. Condensed Consolidated Statements of Redeemable Convertible and Convertible Preferred Stock and Stockholders’ Equity (Deficit) (in thousands) (unaudited) Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Total Stockholders’ Equity Shares Amount Balance as of December 31, 2020 1,792,140 $ 1,792 $ 6,488,857 $ (2,745 ) $ (4,965,354 ) $ 1,522,550 Issuance of common stock from the exercise of stock options 55,300 55 208,805 — — 208,860 Issuance of common stock upon vesting of restricted stock units (“RSUs”) 10,960 11 (11 ) — — — Issuance of common stock upon vesting of growth units 1,471 1 (1 ) — — — Issuance of common stock upon net exercise of common stock warrants 736 1 (1 ) — — — Stock-based compensation — — 194,397 — — 194,397 Other comprehensive income — — — 3,610 — 3,610 Net loss — — — — (123,474 ) (123,474) Balance as of March 31, 2021 1,860,607 $ 1,860 $ 6,892,046 $ 865 $ (5,088,828 ) $ 1,805,943 Redeemable Convertible Preferred Stock Convertible Preferred Stock Common Stock Additional Paid-in Capital Treasury Stock Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Total Stockholders’ Deficit Shares Amount Shares Amount Shares Amount Shares Amount Balance as of December 31, 2019 4,017 $ 33,569 742,840 $ 2,093,662 581,497 $ 588 $ 1,857,331 6,393 $ (38,895 ) $ (703 ) $ (3,798,963 ) $ (1,980,642) Conversion of Series H-1 convertible preferred stock to common stock — — (28) (100) 28 — 100 — — — — 100 Repurchase of common stock, held in treasury — — — — (808) — — 808 (3,777) — — (3,777) Issuance of common stock from the exercise of stock options — — — — 7,316 7 6,703 — — — — 6,710 Stock-based compensation — — — — — — 54,238 — — — — 54,238 Other comprehensive income — — — — — — — — — 1,026 — 1,026 Net loss — — — — — — — — — — (54,274) (54,274) Balance as of March 31, 2020 4,017 $ 33,569 742,812 $ 2,093,562 588,033 $ 595 $ 1,918,372 7,201 $ (42,672) $ 323 $ (3,853,237) $ (1,976,619) The accompanying notes are an integral part of these condensed consolidated financial statements. 6 Table of Contents Palantir Technologies Inc. Condensed Consolidated Statements of Cash Flows (in thousands) (unaudited) Three Months Ended March 31, 2021 2020 Operating activities Net loss $ (123,474) $ (54,274) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 3,237 3,671 Stock-based compensation 193,731 54,107 Change in fair value of warrants — (13,695) Non-cash operating lease expense 6,477 10,160 Other operating activities 771 514 Changes in operating assets and liabilities: Accounts receivable 4,480 (51,403) Prepaid expenses and other current assets (9,753) (7,974) Other assets (4,865) (8,403) Accounts payable 51 (40,790) Accrued liabilities 44,488 (39,368) Deferred revenue, current and noncurrent (11,952) 8,599 Customer deposits, current and noncurrent 20,825 (132,077) Operating lease liabilities, current and noncurrent (7,132) (16,251) Other noncurrent liabilities (3) — Net cash provided by (used in) operating activities 116,881 (287,184) Investing activities Purchases of property and equipment (708) (3,016) Net cash used in investing activities (708) (3,016) Financing activities Proceeds from the exercise of common stock options 208,860 6,710 Repurchase of common stock — (3,777) Other financing activities (2,506) (439) Net cash provided by financing activities 206,354 2,494 Effect of foreign exchange on cash, cash equivalents, and restricted cash (2,197) (1,627) Net increase (decrease) in cash, cash equivalents, and restricted cash 320,330 (289,333) Cash, cash equivalents, and restricted cash - beginning of period 2,128,146 1,401,962 Cash, cash equivalents, and restricted cash - end of period $ 2,448,476 $ 1,112,629 Supplemental disclosures of cash flow information: Cash paid for income taxes $ 878 $ 7,665 Cash paid for interest 1,662 1,774 The accompanying notes are an integral part of these condensed consolidated financial statements. 7 Table of Contents Palantir Technologies Inc. Notes to Unaudited Condensed Consolidated Financial Statements 1. Organization Palantir Technologies Inc. (including its subsidiaries, “Palantir,” or “the Company”) was incorporated in Delaware on May 6, 2003. The Company builds and deploys software platforms, Palantir Gotham and Palantir Foundry, that serve as the central operating systems for its customers. 2. Significant Accounting Policies Basis of Presentation and Consolidation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. The accompanying condensed consolidated financial statements include the accounts of Palantir Technologies Inc. and its consolidated subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Investments in entities where the Company holds at least a 20% ownership interest and has the ability to exercise significant influence over the investee, but does not control, are accounted for using the equity method of accounting. For such investments, the share of the investee’s results of operations is included as a component of other income (expense), net in the condensed consolidated statements of operations and the investment balance is included in other assets and classified as noncurrent in the condensed consolidated balance sheets. The Company’s fiscal year ends on December 31. The unaudited condensed consolidated balance sheet as of December 31, 2020 included herein was derived from the audited consolidated financial statements as of that date, but does not include all disclosures, including certain notes required by GAAP on an annual reporting basis. In management’s opinion, the unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the balance sheets and statements of operations, comprehensive loss, stockholders’ equity (deficit), and cash flows for the interim periods, but are not necessarily indicative of the results of operations to be anticipated for the full fiscal year or any future period. The Company ceased to be an emerging growth company as of December 31, 2020, which accelerated its adoption of Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842). As a result, certain components of cash flows used in operating activities within the Company’s condensed consolidated statements of cash flows for the three months ended March 31, 2020 have been presented to conform to the new standard. The impact to the presentation of the other statements was not material. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes included in its Annual Report on Form 10-K for the year ended December 31, 2020, which was filed with the SEC on February 26, 2021. Use of Estimates The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make certain estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenue and expenses during the reporting periods. Significant estimates and assumptions made in the accompanying condensed consolidated financial statements include, but are not limited to, identification of performance obligations in customer contracts, the valuation of deferred tax assets and uncertain tax positions, collectability of accounts receivable, useful lives of tangible assets, and the incremental borrowing rate for operating leases. Estimates and judgments are based on historical experience, forecasted events, and various other assumptions that management believes to be reasonable under the circumstances. Actual results could differ from those estimates and such differences could affect the Company’s financial position and results of operations. Summary of Significant Accounting Policies The Company’s significant accounting policies are discussed in Note 2. Significant Accounting Policies in the notes to consolidated financial statements in its Annual Report on Form 10-K for the year ended December 31, 2020, which was filed with the SEC on February 26, 2021. There have been no significant changes to these policies during the three months ended March 31, 2021. 8 Table of Contents Palantir Technologies Inc. Notes to Unaudited Condensed Consolidated Financial Statements Cash, Cash Equivalents, and Restricted Cash The Company considers all highly liquid investments purchased with an original maturity of three months or less at the time of purchase to be cash equivalents. Cash equivalents consists of amounts invested in money market funds. Restricted cash primarily consists of cash and certificates of deposit that are held as collateral against letters of credit and guarantees that the Company is required to maintain for operating lease agreements, certain customer contracts, and other guarantees and financing arrangements. The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the amounts shown in the condensed consolidated statements of cash flows (in thousands): As of March 31, 2021 2020 Cash and cash equivalents $ 2,339,437 $ 809,530 Restricted cash 37,106 65,795 Restricted cash, noncurrent 71,933 237,304 Total cash, cash equivalents, and restricted cash $ 2,448,476 $ 1,112,629 Accounts Receivable and Allowance for Credit Losses Accounts receivable are recorded at the invoiced amount, net of an allowance for credit losses, if any. The Company generally grants non-collateralized credit terms to its customers. Allowance for credit losses is based on the Company’s best estimate of probable losses inherent in its accounts receivable portfolio and is determined based on expectations of the customer’s ability to pay by considering factors such as customer type (commercial or government), historical experience, financial position of the customer, age of the accounts receivable, current economic conditions, including the ongoing COVID-19 pandemic, and reasonable and supportable forward-looking factors about its portfolio and future economic conditions. Accounts receivable are written-off and charged against an allowance for credit losses when the Company has exhausted collection efforts without success. Based upon the Company’s assessment as of March 31, 2021 and December 31, 2020, it did not record an allowance for credit losses as probable losses are not expected to be material. Concentrations of Credit Risk and Other Concentrations Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash, cash equivalents, restricted cash, and accounts receivable. Cash equivalents consist of money market funds with original maturities of three months or less, which are invested primarily with U.S. financial institutions. Cash deposits with financial institutions, including restricted cash, generally exceed federally insured limits. Management believes minimal credit risk exists with respect to these financial institutions and the Company has not experienced any losses on such amounts. The Company is exposed to concentrations of credit risk with respect to accounts receivable presented on the condensed consolidated balance sheets. The Company’s accounts receivable balances as of March 31, 2021 and December 31, 2020 were $151.4 million and $156.9 million, respectively. Customer G represented 14% and 13% of total accounts receivable as of March 31, 2021 and December 31, 2020, respectively. No other customer represented more than 10% of total accounts receivable as of March 31, 2021 and December 31, 2020. The Company seeks to mitigate its credit risk with respect to accounts receivable by contracting with large commercial customers and government agencies and regularly monitoring the aging of accounts receivable balances. As of March 31, 2021 and December 31, 2020, the Company had not experienced any significant losses on its accounts receivable. For the three months ended March 31, 2021, no customer represented more than 10% of total revenue. For the three months ended March 31, 2020, Customer F, which is in the government operating segment, represented 12% of total revenue and Customer A, which is in the commercial operating segment, represented 11% of total revenue. No other customer represented more than 10% of total revenue for the three months ended March 31, 2020. 9 Table of Contents Palantir Technologies Inc. Notes to Unaudited Condensed Consolidated Financial Statements The Company relies on the technology, infrastructure, and software applications, including software-as-a-service offerings, of third parties in order to host or operate certain key products and functions of its business. Recently Adopted Accounting Pronouncements In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes (Topic 740) as part of its simplification initiative to reduce the cost and complexity in accounting for income taxes. ASU 2019-12 removes certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. ASU 2019-12 also amends other aspects of the guidance to help simplify and promote consistent application of GAAP. The Company adopted ASU 2019-12 as of January 1, 2021 using transition methods allowed under each aspect of the guidance. The adoption of the standard did not have a material impact on the Company’s condensed consolidated financial statements. 3. Contract Liabilities and Remaining Performance Obligations Contract Liabilities The Company’s contract liabilities consist of deferred revenue and customer deposits. As March 31, 2021 and December 31, 2020 the Company’s contract liability balances were $552.4 million and $531.9 million, respectively. Revenue of $169.5 million and $181.2 million was recognized during the three months ended March 31, 2021 and 2020, respectively, that was included in the contract liability balances as of December 31, 2020 and 2019, respectively. Remaining Performance Obligations The Company’s arrangements with its customers often have terms that span over multiple years. However, the Company generally allows its customers to terminate contracts for convenience prior to the end of the stated term with less than twelve months’ notice. Revenue allocated to remaining performance obligations represents noncancelable contracted revenue that has not yet been recognized, which includes deferred revenue and, in certain instances, amounts that will be invoiced. The Company has elected the practical expedient allowing the Company to not disclose remaining performance obligations for contracts with original terms of twelve months or less. Cancelable contracted revenue, which includes customer deposits, is not considered a remaining performance obligation. The Company’s remaining performance obligations were $625.9 million as of March 31, 2021, of which the Company expects to recognize approximately 50% as revenue over the next twelve months. Disaggregation of Revenue See Note 13. Segment and Geographic Information , for disaggregated revenue by customer segment and geographic region. 10 Table of Contents Palantir Technologies Inc. Notes to Unaudited Condensed Consolidated Financial Statements 4. Fair Value Measurements Financial instruments consist of cash equivalents, restricted cash, accounts receivable, other assets accounted for at fair value, accounts payable, and accrued liabilities. Cash equivalents and restricted cash are stated at fair value on a recurring basis. Accounts receivable, accounts payable, and accrued liabilities are stated at their carrying value, which approximates fair value due to the short time to the expected receipt or payment date. The carrying amount of the Company’s outstanding debt approximates the fair value as the debt bears a floating rate that approximates the market interest rate. The following table presents the Company’s assets and liabilities that are measured at fair value on a recurring and nonrecurring basis and indicates the fair value hierarchy of the valuation (in thousands): As of March 31, 2021 Total Level 1 Level 2 Level 3 Assets: Cash equivalents: Money market funds $ 1,163,796 $ 1,163,796 $ — $ — Restricted cash: Certificates of deposit 66,116 — 66,116 — Total $ 1,229,912 $ 1,163,796 $ 66,116 $ — As of December 31, 2020 Total Level 1 Level 2 Level 3 Assets: Cash equivalents: Money market funds $ 1,075,783 $ 1,075,783 $ — $ — Restricted cash: Certificates of deposit 74,097 — 74,097 — Total $ 1,149,880 $ 1,075,783 $ 74,097 $ — Certificates of Deposit The Company’s Level 2 instruments consist of restricted cash invested in certificates of deposit. The fair value of such instruments is estimated based on valuations obtained from third-party pricing services that utilize industry standard valuation models, including both income-based and market-based approaches, for which all significant inputs are observable either directly or indirectly. These inputs include interest rate curves, foreign exchange rates, and credit ratings. Gross unrealized gains or losses for cash equivalents as of March 31, 2021 and December 31, 2020 were not material. 11 Table of Contents Palantir Technologies Inc. Notes to Unaudited Condensed Consolidated Financial Statements 5. Balance Sheet Components Property and Equipment, Net Property and equipment, net consisted of the following (in thousands): As of March 31, 2021 As of December 31, 2020 Leasehold improvements $ 85,303 $ 85,196 Computer equipment, software, and other 22,978 22,275 Furniture and fixtures 9,957 9,976 Construction in progress 710 493 Total property and equipment, gross 118,948 117,940 Less: accumulated depreciation and amortization (91,570) (88,399) Total property and equipment, net $ 27,378 $ 29,541 Depreciation and amortization expense related to property and equipment, net was $3.2 million and $3.7 million for the three months ended March 31, 2021 and 2020, respectively. Accrued Liabilities Accrued liabilities consisted of the following (in thousands): As of March 31, 2021 As of December 31, 2020 Accrued payroll and related expenses $ 113,513 $ 85,466 Accrued other liabilities 68,090 73,080 Total accrued liabilities $ 181,603 $ 158,546 6. Equity Method Investments Palantir Technologies Japan, K.K. During November 2019, the Company and SOMPO Holdings, Inc. (“SOMPO”) created a Japanese Kabushiki Kaisha (“K.K.”), Palantir Technologies Japan, K.K. (“Palantir Japan”), to distribute Palantir platforms to the Japanese market. Upon closing of the transaction with SOMPO, the Company purchased a total of 100,000 shares of Palantir Japan common stock for $25.0 million. The shares the Company received in exchange represent a 50% voting interest in Palantir Japan. The remaining 50% of the voting interest is held by SOMPO. The Company’s investment in Palantir Japan is accounted for as an equity method investment as the Company is able to exercise significant influence over, but does not control, the investee. Concurrently with the formation of Palantir Japan, the Company entered into a ten-year license and services agreement with Palantir Japan for a limited non-transferable right to resell the Company’s platforms and use certain of the Company’s trademarks in exchange for $25.0 million and future quarterly royalty payments to be paid based on Palantir Japan’s net revenue. In connection with the license rights sold to Palantir Japan, the Company recorded the receipt of the $25.0 million in deferred revenue, which will be recognized over the term of the agreement. In addition, the Company received a prepayment of $50.0 million to be used toward future products and services provided by the Company to support the business operations and future deployments of the Company’s platforms by Palantir Japan (“service credit”). The Company recorded the $50.0 million service credit in deferred revenue, which will be utilized on an as-needed basis and expires after five years. For the three months ended March 31, 2021 and 2020, Palantir Japan utilized $6.7 million and $0.3 million, respectively, of the service credit. 12 Table of Contents Palantir Technologies Inc. Notes to Unaudited Condensed Consolidated Financial Statements 7. Debt 2014 Credit Facility In October 2014, the Company 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, as amended, matures on June 4, 2023. As of March 31, 2021, the Company had $200.0 million of term loans outstanding under the 2014 Credit Facility and an additional $200.0 million undrawn revolving credit facility available. The 2014 Credit Facility is secured with substantially all of the Company’s assets. The 2014 Credit Facility contains customary representations and warranties, and certain financial and nonfinancial covenants, including but not limited to maintaining minimum liquidity of $50.0 million, and certain limitations on liens and indebtedness. The Company was in compliance with all covenants associated with the 2014 Credit Facility as of March 31, 2021. The Company’s outstanding debt consisted of the following as of March 31, 2021 and December 31, 2020 (in thousands): As of March 31, 2021 As of December 31, 2020 Principal amount $ 200,000 $ 200,000 Unamortized discount (1,815) (2,023) Carrying value of debt $ 198,185 $ 197,977 8. Commitments and Contingencies Letters of Credit and Guarantees The Company had irrevocable standby letters of credit and guarantees, including bank guarantees, outstanding in the amounts of $109.0 million and $116.8 million as of March 31, 2021 and December 31, 2020, respectively, which were fully collateralized. The Company is required to maintain these letters of credit and guarantees primarily for operating lease agreements, certain customer contracts, and other guarantees and financing arrangements. As of March 31, 2021, these letters of credit and guarantees had expiration dates through August 2028. Purchase Commitments In December 2019, the Company entered into, and subsequently amended during December 2020, a minimum annual commitment to purchase cloud hosting services of at least $1.49 billion over six contract years, with an optional carryover period through June 30, 2029, in exchange for various discounts on such services. If the spend does not meet the minimum annual commitment each year or at the end of the term, the Company is obligated to make a return payment. If the difference is greater than $30.0 million for each of the first three contract years or $50.0 million for each of the contract years thereafter (“relief amounts”), the Company has the option to pay the respective relief amount for that year for services to be utilized in the future and the excess amount of the difference above the relief amount would be added to the minimum annual commitment of the following year through the end of the contract. As of March 31, 2021, the Company had satisfied $111.2 million of its $126.0 million commitment for the contract year ending June 30, 2021. In June 2020, the Company entered into an additional commitment to purchase at least $45.0 million of cloud hosting services over a period of five years commencing on June 1, 2020 and ending on May 31, 2025. If the spend commitment is not met at the end of the term, the Company is obligated to pay the full amount of the outstanding balance (“shortfall payment”). The shortfall payment may be applied as a prepayment against consumption during an additional twelve-month coverage period expiring on May 31, 2026, at which time any unused amount would be forfeited. As of March 31, 2021, the Company had satisfied $4.4 million of its commitment. 13 Table of Contents Palantir Technologies Inc. Notes to Unaudited Condensed Consolidated Financial Statements Investment Commitment On March 30, 2021, the Company entered into a subscription agreement with Qell Acquisition Corp (“Qell”) and Qell DutchCo B.V (“Lilium HoldCo”) to purchase 4.1 million Class A ordinary shares of Lilium HoldCo in a private placement for a total purchase price of $41.0 million. The closing of the private placement is contingent upon the completion of the proposed business combination between Qell, Lilium HoldCo, and Lilium GmbH (“Lilium”). Additionally, concurrent with signing the subscription agreement, Lilium and the Company entered into a five-year enterprise subscription contract to access the Company’s products and services. Litigation and Legal Proceedings From time to time, third parties may assert patent infringement claims against the Company. In addition, from time to time, the Company may be subject to other legal proceedings and claims in the ordinary course of business, including claims of alleged infringement of trademarks, copyrights, and other intellectual property rights; employment claims; securities claims; investor claims; corporate claims; class action claims; and general contract, tort, or other claims. The Company may from time to time also be subject to various legal or government claims, disputes, or investigations. Such matters may include, but not be limited to, claims, disputes, allegations, or investigations related to warranty; refund; breach of contract; breach, leak, or misuse of personal data or confidential information; employment; government procurement; intellectual property; government regulation or compliance (including but not limited to anti-corruption requirements, export or other trade controls, data privacy or data protection, cybersecurity requirements, or antitrust/competition law requirements); securities; investor; corporate; or other matters. The Company is unable to predict whether or when any such matters may arise, the outcome of these matters, or the ultimate legal and financial liability, and cannot reasonably estimate the possible loss or range of loss at this time and accordingly has not accrued a related liability. On December 14, 2017, members of KT4 Partners LLC (Managing Member Marc Abramowitz) and Sandra Martin Clark, as trustee for the Marc Abramowitz Irrevocable Trust Number 7 (together, “KT4 Plaintiffs”), filed an action in the Delaware Superior Court against the Company and Disruptive Technology Advisers LLC. The complaint alleges tortious interference with prospective economic advantage and civil conspiracy in connection with a potential sale of stock by the KT4 Plaintiffs to a third party. The KT4 Plaintiffs seek compensatory and punitive damages, interest, fees, and costs. The Company believes this lawsuit is without merit and is vigorously defending itself against it. Given the uncertainty of litigation, it may be reasonably possible that the Company will incur a loss with regards to the matter; however, it cannot currently estimate a range of possible losses. Accordingly, the Company is unable at this time to estimate the overall effects that may result from the case on its financial condition, results of operations, or cash flows. As of March 31, 2021, the Company was not aware of any currently pending legal matters or claims, individually or in the aggregate, that were expected to have a material adverse impact on its condensed consolidated financial statements. Warranties and Indemnification The Company generally provides a warranty for its software products and services and a service level agreement (“SLA”) for the Company’s performance of software operations via its operations and maintenance (“O&M”) services to its customers. The Company’s products are generally warranted to perform substantially as described in the associated product documentation during the subscription term or for a period of up to 90 days where the software is hosted by the customer; and the Company includes O&M services as part of its subscription and license agreements to support this warranty and maintain the operability of the software. The Company’s services are generally warranted to be performed in a professional manner and by an adequate staff with knowledge about the products. In the event there is a failure of such warranties, the Company generally is obligated to correct the product or service to conform to the warranty provision, as set forth in the applicable SLA, or, if the Company is unable to do so, the customer is entitled to seek a refund of the purchase price of the product and service (generally prorated over the contract term). Due to the absence of historical warranty claims, the Company’s expectations of future claims related to products under warranty continue to be insignificant. The Company has not recorded warranty expense or related accruals as of March 31, 2021 and December 31, 2020. 14 Table of Contents Palantir Technologies Inc. Notes to Unaudited Condensed Consolidated Financial Statements The Company generally agrees to indemnify its customers against legal claims that the Company’s software products infringe certain third-party intellectual property rights and accounts for its indemnification obligations. In the event of such a claim, the Company is generally obligated to defend its customer against the claim and to either settle the claim at the Company’s expense or pay damages that the customer is legally required to pay to the third-party claimant. In addition, in the event of an infringement, the Company generally agrees to secure the right for the customer to continue using the infringing product; to modify or replace the infringing product; or, if those options are not commercially practicable, to refund the cost of the software, as prorated over the period. To date, the Company has not been required to make any payment resulting from infringement claims asserted against its customers and does not believe that the Company will be liable for such claims in the foreseeable future. As such, the Company has not recorded a liability for infringement costs as of March 31, 2021 and December 31, 2020. The Company has obligations under certain circumstances to indemnify each of the defendant directors and certain officers against judgments, fines, settlements, and expenses related to claims against such directors and certain officers and otherwise to the fullest extent permitted under the law and the Company’s bylaws and Amended and Restated Certificate of Incorporation. 9. Stockholders’ Equity The Company’s Class A, Class B, and Class F common stock (collectively, the “common stock”) all have the same rights, except with respect to voting and conversion rights. Class A and Class B common stock have voting rights of 1 and 10 votes per share, respectively. The Class F common stock has the voting rights generally described below and each share of Class F common stock is convertible at any time, at the option of the holder thereof, into one share of Class B common stock. All shares of Class F common stock are held in a voting trust established by Stephen Cohen, Alexander Karp, and Peter Thiel (our “Founders”). The Class F common stock generally gives the Founders the ability to control up to 49.999999% of the total voting power of the Company’s capital stock, so long as the Founders and certain of their affiliates collectively meet a minimum ownership threshold, which was 100.0 million of the Company’s equity securities as of March 31, 2021. Holders of common stock are entitled to dividends when, as and if declared by the Company’s Board of Directors, subject to the rights of the holders of all classes of stock outstanding having priority rights to dividends. No dividends have been declared as of March 31, 2021. In connection with the Company’s direct listing of its Class A common stock on the New York Stock Exchange (“Direct Listing”) in September 2020, all outstanding shares of redeemable convertible preferred stock and convertible preferred stock were converted into 4,017,378 and 793,725,807 shares of Class B common stock, respectively, and 1,005,000 shares of Class B common stock held by the Founders were exchanged for an equal number of shares of Class F common stock. The following represented the total authorized, issued, and outstanding shares for each class of common stock (in thousands): As of March 31, 2021 As of December 31, 2020 Authorized Issued and Outstanding Authorized Issued and Outstanding Common stock: Class A 20,000,000 1,792,699 20,000,000 1,542,058 Class B 2,700,000 66,903 2,700,000 249,077 Class F 1,005 1,005 1,005 1,005 Total 22,701,005 1,860,607 22,701,005 1,792,140 15 Table of Contents Palantir Technologies Inc. Notes to Unaudited Condensed Consolidated Financial Statements 10. Stock-Based Compensation Stock Options The following table summarizes stock option activity for the three months ended March 31, 2021 (in thousands, except per share amounts): Options Outstanding Weighted- Average Exercise Price Per Share Weighted- Average Remaining Contractual Life (years) Aggregate Intrinsic Value Balance as of December 31, 2020 535,767 $ 6.12 7.99 $ 9,340,245 Options exercised (55,301) 3.78 Options canceled and forfeited (2,889) 5.16 Balance as of March 31, 2021 477,577 $ 6.39 8.08 $ 8,069,476 Options vested and exercisable as of March 31, 2021 259,517 $ 3.67 5.85 $ 5,093,003 As of March 31, 2021, the unrecognized expense related to options outstanding was $1.1 billion, which is expected to be recognized over a weighted-average service period of 8.09 years. RSUs The following table summarizes the RSU activity for the three months ended March 31, 2021 (in thousands, except per share amounts): RSUs Outstanding Weighted Average Grant Date Fair Value per Share Unvested and outstanding as of December 31, 2020 184,870 $ 6.97 RSUs granted 3,225 38.12 RSUs vested (10,960) 6.84 RSUs canceled (2,612) 6.39 Unvested and outstanding as of March 31, 2021 174,523 $ 7.55 As of March 31, 2021, the total unrecognized stock-based compensation expense related to the RSUs outstanding was $850.8 million, which the Company expects to recognize over 3.30 years. Growth Units In May 2019, the Company granted growth units which vest upon the satisfaction of both a performance-based vesting condition, which was satisfied upon the Company’s Direct Listing, and a service-based vesting condition, which was satisfied in March 2021. In March 2021, the 3.6 million outstanding growth units vested and, per the formula applicable to the awards, converted into 1.5 million shares of common stock. During the three months ended March 31, 2021, the Company recognized the remaining stock-based compensation expense related to the growth units of $1.2 million. 16 Table of Contents Palantir Technologies Inc. Notes to Unaudited Condensed Consolidated Financial Statements Stock-based Compensation Expense Total stock-based compensation expense was as follows (in thousands): Three Months Ended March 31, 2021 2020 Cost of revenue $ 15,977 $ 8,068 Sales and marketing 57,286 18,463 Research and development 37,874 15,032 General and administrative 82,594 12,544 Total stock-based compensation expense $ 193,731 $ 54,107 Related Party Non-Recourse Note In November 2016, the Company entered into a non-recourse promissory note to lend an employee director $25.9 million, which was secured by 10.5 million shares of the Company common stock held by the employee director (“pledged collateral”). Such arrangement was accounted for as a stock option issued to the employee, and the Company recorded the related stock-based compensation expense upon the issuance of the note. The promissory note accrued interest at a rate of 1.5% per annum, compounded semi-annually. In August 2020, the Company received a payment of $26.6 million for a portion of the principal and accrued interest on the outstanding non-recourse promissory note in the form of 3.5 million shares of common stock based on the fair market value of the common stock on the date of repayment. The Company forgave the remaining $0.8 million owed under the note, guaranteed the employee director a tax neutrality payment to cover his additional tax liability associated with the transaction, and terminated its security interest in the remaining shares of common stock that were originally pledged as collateral. The forgiveness of the remaining debt and the provision of the tax neutrality payment was accounted for as a modification to the original stock option, and the Company recorded additional stock-based compensation expense of $4.5 million during the year ended December 31, 2020 and satisfied the liability as of March 31, 2021. 11. Income Taxes The Company recorded provision for income taxes of $3.1 million and $2.6 million for the three months ended March 31, 2021 and 2020, respectively. The Company is subject to income tax in the U.S. as well as other tax jurisdictions in which it conducts business. The Company’s 2021 effective tax rate differs from the U.S. statutory rate primarily due to the valuation allowance recorded on the Company’s losses in the U.S. and other jurisdictions. The change was primarily due to increases in profits from the Company’s international operations offset by decreases in foreign withholding taxes. The realization of deferred tax assets is dependent upon the generation of sufficient taxable income of the appropriate character in future periods. The Company assesses its ability to realize the deferred tax assets on a quarterly basis, and it establishes a valuation allowance if it is more-likely-than-not that some portion of the deferred tax assets will not be realized. The Company weighs all available positive and negative evidence, including its earnings history and results of recent operations, scheduled reversals of deferred tax liabilities, projected future taxable income, and tax planning strategies. For example, due to the weight of objectively verifiable negative evidence, including its history of losses in certain jurisdictions, the Company believes that it is more likely than not that its U.S. federal and state deferred tax assets will not be fully realized. Accordingly, the Company has maintained a valuation allowance on its U.S. federal and state deferred tax assets. The Company’s effective rate differs from the U.S. statutory rate primarily due to the valuation allowance recorded on its losses from the U.S. and other jurisdictions, foreign income taxed at different rates, non-deductible of stock-based compensation, and withholding tax expense. 17 Table of Contents Palantir Technologies Inc. Notes to Unaudited Condensed Consolidated Financial Statements 12. Net Loss Per Share Attributable to Common Stockholders The following table presents the calculation of basic and diluted net loss per share attributable to common stockholders (in thousands, except per share amounts): Three Months Ended March 31, 2021 2020 Numerator Net loss attributable to common stockholders $ (123,474) $ (54,274) Less: Change in fair value attributable to participating securities — (7,773) Net loss attributable to common stockholders, for diluted net loss per share $ (123,474) $ (62,047) Denominator Weighted-average shares used in computing net loss per share, basic 1,821,158 591,850 Weighted-average shares used in computing net loss per share, diluted 1,821,158 594,363 Net loss per share Net loss per share attributable to common stockholders, basic $ (0.07) $ (0.09) Net loss per share attributable to common stockholders, diluted $ (0.07) $ (0.10) The following outstanding potentially dilutive common stock equivalents have been excluded from the computation of diluted net loss per share attributable to common stockholders for the periods presented due to their anti-dilutive effect (in thousands): As of March 31, 2021 2020 Redeemable convertible preferred stock — 4,017 Convertible preferred stock — 791,225 Warrants to purchase redeemable convertible and convertible preferred stock — 18,254 Warrants to purchase common stock 18,253 993 Options and SARs issued and outstanding 477,602 486,342 RSUs outstanding 174,523 175,954 Growth units outstanding — 3,583 Total 670,378 1,480,368 13. Segment and Geographic Information The following tables reflect the results of the Company’s reportable operating segments consistent with the manner in which the chief operating decision maker (“CODM”) evaluates the performance of each segment and allocates the Company’s resources. The CODM does not evaluate the performance of the Company’s assets on a segment basis for internal management reporting and, therefore, such information is not presented. Contribution is used, in part, to evaluate the performance of, and allocate resources to, each of the segments. A segment’s contribution is calculated as segment revenue less the related costs of revenue and sales and marketing expenses. It excludes certain operating expenses that are not allocated to segments because they are separately managed at the consolidated corporate level. These unallocated costs include stock-based compensation expense, research and development expenses, and general and administrative expenses. 18 Table of Contents Palantir Technologies Inc. Notes to Unaudited Condensed Consolidated Financial Statements Financial information for each reportable segment was as follows (in thousands): Three Months Ended March 31, 2021 2020 Revenue: Government $ 208,420 $ 118,127 Commercial 132,814 111,200 Total revenue $ 341,234 $ 229,327 Three Months Ended March 31, 2021 2020 Contribution: Government $ 131,746 $ 51,897 Commercial 72,543 41,014 Total contribution $ 204,289 $ 92,911 The reconciliation of contribution to loss from operations is as follows (in thousands): Three Months Ended March 31, 2021 2020 Loss from operations $ (114,014) $ (70,185) Research and development expenses (1) 60,597 50,768 General and administrative expenses (1) 63,975 58,221 Stock-based compensation expense 193,731 54,107 Total contribution $ 204,289 $ 92,911 (1) Excludes stock-based compensation expense. Geographic Information Revenue by geography is based on the customer’s headquarters or agency location at the time of sale. Revenue is as follows (in thousands, except percentages): Three Months Ended March 31, 2021 2020 Amount % Amount % Revenue: United States $ 198,447 58% $ 109,777 48% United Kingdom 34,385 10% 28,975 13% France 21,090 6% 25,730 11% Rest of world (1) 87,312 26% 64,845 28% Total revenue $ 341,234 100% $ 229,327 100% (1) No other country represents 10% or more of total revenue for the three months ended March 31, 2021 or 2020. 19 Table of Contents Palantir Technologies Inc. Notes to Unaudited Condensed Consolidated Financial Statements 14. Subsequent Events Amendment of the 2014 Credit Facility and Repayment of the Outstanding Revolving Term Loan On April 1, 2021, the Company entered into an amendment to the 2014 Credit Facility, which provides for an increase of $200.0 million to the revolving commitments of the existing lenders under the 2014 Credit Facility, for total revolving commitments of $400.0 million, and which also provides for an incremental loan facility of additional term loans or revolving loans in an aggregate principal amount of up to $100.0 million with one or more existing or new lenders upon mutual agreement between the Company and such lenders. Upon entering into the amendment, the Company repaid its outstanding term loans of $200.0 million and no amounts were outstanding under the 2014 Credit Facility. Investments On April 5, 2021, the Company entered into a subscription agreement with Rotor Acquisition Corp. (“Rotor”) to purchase 2.1 million shares of Class A common stock of Rotor in a private placement for a total purchase price of $21.0 million. The closing of the private placement is contingent upon the completion of the proposed business combination between Rotor, Rotor Merger Sub Corp. (a wholly owned subsidiary of Rotor), and Sarcos Corp. (“Sarcos”). Additionally, concurrent with signing the subscription agreement, Sarcos and the Company entered into a six-year enterprise subscription contract to access the Company’s products and services. On May 1, 2021, the Company entered into a subscription agreement with Montes Archimedes Acquisition Corp. (“Montes”) and Roivant Sciences Ltd. (“Roivant”) to purchase 3.0 million shares of Class A common stock of Montes in a private placement for a total purchase price of $30.0 million. The closing of the private placement is contingent upon the completion of the proposed business combination between Montes, Roivant, and other applicable parties. Additionally, concurrent with signing the subscription agreement, Roivant and the Company entered into a five-year enterprise subscription contract to access the Company’s products and services. On May 5, 2021, the Company entered into a subscription agreement with GX Acquisition Corp. (“GX”) to purchase 2.0 million shares of Class A common stock of GX in a private placement for a total purchase price of $20.0 million. The closing of the private placement is contingent upon the completion of the proposed business combination between GX, Celularity Inc. (“Celularity”), and other applicable parties. Additionally, concurrent with signing the subscription agreement, Celularity and the Company entered into a five-year enterprise subscription contract to access the Company’s products and services. On May 11, 2021, the Company entered into a subscription agreement with a special purpose acquisition company to purchase 2.0 million shares of its Class A common stock in a private placement for a total purchase price of $20.0 million. The closing of the private placement is contingent upon the completion of the proposed business combination between the special purpose acquisition company and a mobility company, and other applicable parties. Additionally, concurrent with signing the subscription agreement, the mobility company and the Company entered into a five-year enterprise subscription contract to access the Company’s products and services. 20 Table of Contents SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws, which statements involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “would,” “intend,” “target,” “goal,” “outlook,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential,” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans, or intentions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about: • our expectations regarding financial performance and liquidity, including but not limited to our expectations regarding revenue, cost of revenue, operating expenses, stock-based compensation, our ability to achieve and maintain future profitability, and cash flows; • our ability to successfully execute our business and growth strategy; • the sufficiency of our cash and cash equivalents to meet our liquidity needs; • the demand for our platforms in general; • our ability to increase our number of customers and revenue generated from customers; • our expectations regarding the future contribution margin of our existing and future customers; • our expectations regarding our ability to quickly and effectively integrate our platforms for our existing and future customers; • our ability to develop new platforms, and enhancements to existing platforms, and bring them to market in a timely manner; • our market share, category positions, and market trends, including our ability to grow our business in large government and commercial organizations, including our expectations regarding the impact of Federal Acquisition Streamlining Act of 1994 (“FASA”); • our ability to compete with existing and new competitors in existing and new markets and products; • our expectations regarding anticipated technology needs and developments and our ability to address those needs and developments with our platforms; • our expectations regarding litigation and legal and regulatory matters; • our expectations regarding our ability to meet existing performance obligations and maintain the operability of our products; • our expectations regarding the effects of existing and developing laws and regulations, including with respect to taxation, privacy and data protection; • our expectations regarding new and evolving markets; • our ability to develop and protect our brand; • our ability to maintain the security and availability of our platforms; • our expectations and management of future growth; • our expectations concerning relationships with third parties, including our customers, equity method investment partners, and vendors; • our ability to maintain, protect, and enhance our intellectual property; • our expectations regarding our multi-class stock and governance structure and the benefits thereof; • the impact of the ongoing COVID-19 pandemic, including on our and our customers’, vendors’, and partners’ respective businesses and the markets in which we and our customers, vendors, and partners operate; and • the increased expenses associated with being a public company. We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q. 21 Table of Contents You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations, and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, and other factors, including those described in the section titled “ Risk Factors ” and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time and it is not possible for us to predict all risks and uncertainties that could have an impact on any forward-looking statements contained in this Quarterly Report on Form 10-Q. We cannot assure you that the results, events, and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events, or circumstances could differ materially from those described in such forward-looking statements. Neither we nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. Moreover, the forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, restructurings, joint ventures, partnerships, channel sales relationships, or investments we may make. In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements. 22 Table of Contents ITEM 2. MANAGEMENT’S 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 condensed consolidated financial statements and the accompanying notes thereto included elsewhere in this Quarterly Report on Form 10-Q. 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 Quarterly Report on Form 10-Q. Our historical results are not necessarily indicative of the results that may be expected for any period in the future. Overview We founded the Company in 2003 to build software for use in counterterrorism operations. In 2008, we released our first platform, Palantir Gotham (“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 (“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. Our Business For the three months ended March 31, 2021, we generated $341.2 million in revenue, reflecting a 49% growth rate from the three months ended March 31, 2020, when we generated $229.3 million in revenue. Our operating results continued to improve when excluding stock-based compensation. In the three months ended March 31, 2021, we incurred losses from operations of $114.0 million, or income from operations of $116.6 million when excluding stock-based compensation and related employer payroll taxes. In the three months ended March 31, 2020, our losses from operations were $70.2 million, or $16.1 million when excluding stock-based compensation. In the three months ended March 31, 2021, our gross profit was $267.1 million, reflecting a gross margin of 78%, or 83% when excluding stock-based compensation. In the three months ended March 31, 2020, our gross profit was $165.0 million, reflecting a gross margin of 72%, or 75% when excluding stock-based compensation. For more information about our income or loss from operations, when excluding stock-based compensation and related employer payroll taxes; 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. 23 Table of Contents Our Customers We have updated our definition of a customer to be an organization from which we have recognized revenue during the trailing twelve month period to provide more meaningful period over period comparisons. During the period ended March 31, 2021, we had 149 customers, including leading companies in various commercial sectors as well as government agencies around the world. During the period ended March 31, 2020, we had 131 customers. 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 Prevention, 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 world’s leading government institutions and companies. Our average revenue per customer during the trailing twelve months ended March 31, 2021 was $8.1 million, which grew 29% from $6.3 million per customer during the trailing twelve months ended March 31, 2020. Our average revenue for the top twenty customers during the during the trailing twelve months ended March 31, 2021 was $36.1 million, which grew 34% from an average of $27.0 million from the top twenty customers during the trailing twelve months ended March 31, 2020. 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 three months ended March 31, 2021, commercial customers accounted for 39% of our revenue while government agencies accounted for 61%. In the three months ended March 31, 2021, we generated 58% of our revenue from customers in the United States and the remaining 42% 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. We expect to begin to open certain of our offices in a limited capacity over the remainder of the year, while closely monitoring the pandemic. 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. 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 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 as we begin to open certain of 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 Quarterly Report on Form 10-Q, and Annual Report on Form 10-K for the year ended December 31, 2020, which was filed with the SEC on February 26, 2021, 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. 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. 24 Table of Contents 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 2020, we generated a total of $1,092.7 million in revenue. Acquire phase customers cohorted as of December 31, 2020 generated $0.3 million in revenue in 2020. Expand phase customers cohorted as of December 31, 2020 generated $20.3 million in revenue in 2020. Scale phase customers cohorted as of December 31, 2020 generated $1,072.1 million in revenue in 2020. In the three months ended March 31, 2021, customers cohorted as of December 31, 2020 generated a total of $340.8 million in revenue. New customers acquired during the three months ended March 31, 2021 generated an additional $0.4 million in revenue and will be assigned a cohort as of December 31, 2021. A more detailed discussion of the three phases, for purposes of illustration of how we manage accounts across the business, follows below. 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 2020, we generated $0.3 million in revenue from customers in the Acquire phase, which yielded a contribution loss of $36.8 million. In the three months ended March 31, 2021, those same customers generated $3.6 million in revenue, which yielded a contribution loss of $4.3 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 2020, we generated $20.3 million in revenue from customers that were in the Expand phase as of the end of that year, with a contribution margin of (159)%. In the three months ended March 31, 2021, those same customers generated $12.4 million in revenue with a contribution margin of 4%. 25 Table of Contents 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 customer’s 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 2020, we generated $1,072.1 million in revenue from customers in the Scale phase, with a contribution margin of 63%. In the three months ended March 31, 2021, those same customers generated $324.8 million in revenue with a contribution margin of 66%. 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. Key Business Measure In addition to the measures presented in our condensed 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 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 margin, 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. 26 Table of Contents 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 and related employer payroll taxes 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 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 condensed 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 and related employer payroll taxes 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. Contribution Margin The following table provides a reconciliation of contribution margin for the three months ended March 31, 2021 and 2020 (in thousands, except percentages): Three Months Ended March 31, 2021 2020 Loss from operations $ (114,014) $ (70,185) Add: Research and development expenses (1) 60,597 50,768 General and administrative expenses (1) 63,975 58,221 Stock-based compensation 193,731 54,107 Contribution $ 204,289 $ 92,911 Contribution margin 60% 41% ———— (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 three months ended March 31, 2021 and 2020 (in thousands, except percentages): Three Months Ended March 31, 2021 2020 Gross profit $ 267,123 $ 165,033 Add: stock-based compensation 15,977 8,068 Gross profit, excluding stock-based compensation $ 283,100 $ 173,101 Gross margin, excluding stock-based compensation 83% 75% 27 Table of Contents Income (Loss) from Operations, Excluding Stock-Based Compensation and Related Employer Payroll Taxes The following table provides a reconciliation of income (loss) from operations, excluding stock-based compensation and related employer payroll taxes for the three months ended March 31, 2021 and 2020 (in thousands): Three Months Ended March 31, 2021 2020 Loss from operations $ (114,014) $ (70,185) Add: stock-based compensation 193,731 54,107 Add: employer payroll taxes related to stock-based compensation 36,866 — Income (loss) from operations, excluding stock-based compensation and related employer payroll taxes $ 116,583 $ (16,078) 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. 28 Table of Contents 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 our sales force and 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. 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, sales force, 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. During September 2020, in connection with the direct listing of our Class A common stock on the New York Stock Exchange (“NYSE”) (“Direct Listing”), all of the Company’s 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 for Income Taxes Provision for income taxes consists of income taxes related to foreign and state jurisdictions in which we conduct business and withholding taxes. 29 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 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 condensed consolidated statements of operations data (in thousands): Three Months Ended March 31, 2021 2020 Revenue $ 341,234 $ 229,327 Cost of revenue (1) 74,111 64,294 Gross profit 267,123 165,033 Operating expenses: Sales and marketing (1) 136,097 98,653 Research and development (1) 98,471 65,800 General and administrative (1) 146,569 70,765 Total operating expenses 381,137 235,218 Loss from operations (114,014) (70,185) Interest income 376 3,267 Interest expense (1,840) (4,594) Change in fair value of warrants — 13,695 Other income (expense), net (4,894) 6,100 Loss before provision for income taxes (120,372) (51,717) Provision for income taxes 3,102 2,557 Net loss $ (123,474) $ (54,274) (1) Includes stock-based compensation expense as follows (in thousands): 30 Table of Contents Three Months Ended March 31, 2021 2020 Cost of revenue $ 15,977 $ 8,068 Sales and marketing 57,286 18,463 Research and development 37,874 15,032 General and administrative 82,594 12,544 Total stock-based compensation expense $ 193,731 $ 54,107 The following table sets forth the components of our condensed consolidated statements of operations data as a percentage of revenue: Three Months Ended March 31, 2021 2020 Revenue 100% 100% Cost of revenue 22 28 Gross profit 78 72 Operating expenses: Sales and marketing 40 43 Research and development 28 29 General and administrative 43 31 Total operating expenses 111 103 Loss from operations (33) (31) Interest income — 1 Interest expense (1) (2) Change in fair value of warrants — 6 Other income (expense), net (1) 3 Loss before provision for income taxes (35) (23) Provision for income taxes 1 1 Net loss (36)% (24)% Comparison of the Three Months Ended March 31, 2021 and 2020 Revenue Three Months Ended March 31, Change 2021 2020 Amount % Revenue: Government $ 208,420 $ 118,127 $ 90,293 76% Commercial 132,814 111,200 21,614 19% Total revenue $ 341,234 $ 229,327 $ 111,907 49% Revenue increased by $111.9 million, or 49%, for the three months ended March 31, 2021 compared to the three months ended March 31, 2020. Revenue from government customers increased by $90.3 million, or 76%, for the three months ended March 31, 2021 compared to the three months ended March 31, 2020, primarily from customers in the United States. Of the increase, $90.1 million was from government customers existing as of December 31, 2020. Revenue from commercial customers increased by $21.6 million, or 19%, for the three months ended March 31, 2021 compared to the three months ended March 31, 2020. The increase is primarily due to an increase of $19.2 million from customers existing as of December 31, 2020. Generally, increases in revenue from our existing customers are related to increased adoption of our products and services within their organizations. 31 Table of Contents Cost of Revenue and Gross Profit Three Months Ended March 31, Change 2021 2020 Amount % Cost of revenue $ 74,111 $ 64,294 $ 9,817 15% Gross profit 267,123 165,033 102,090 62% Gross margin 78% 72% 6% Cost of revenue for the three months ended March 31, 2021 increased by $9.8 million, or 15%, compared to the three months ended March 31, 2020. The increase was primarily due to increases in personnel costs of $6.0 million, which included an increase of $7.9 million in stock-based compensation expense primarily due to the recognition of stock-based compensation expense related to the Company’s RSUs, which vested in connection with the Company’s Direct Listing; and $3.2 million in employer payroll taxes primarily related to income from share-based payments. These increases in personnel costs were partially offset by decreases in travel-related expenses and other personnel costs of $3.3 million as a result of COVID-related travel restrictions and company-wide initiatives to decrease overall travel, and $1.8 million in payroll and payroll-related costs driven by a decrease of headcount attributable to cost of revenue functions. Additionally, there were increases of $6.5 million related to third-party cloud hosting services, and $2.7 million related to other direct deployment costs and increased usage of field service representatives. These increases to cost of revenue were offset by decreases of $3.7 million from office related expenses and other allocated costs, and $1.7 million related to reductions in hardware costs. Our gross margin for the three months ended March 31, 2021 increased by 6% compared to the three months ended March 31, 2020. Gross margin increased primarily as a result of increased efficiencies in supporting revenue growth at our customer deployments, including investments in our platforms as well as reductions in hardware costs for customers. This was partly offset by increases in stock-based compensation expense and third-party cloud hosting services. For the three months ended March 31, 2021 and 2020, gross margin, excluding stock-based compensation, would have increased by 8% to 83%. Operating Expenses Three Months Ended March 31, Change 2021 2020 Amount % Sales and marketing $ 136,097 $ 98,653 $ 37,444 38% Research and development 98,471 65,800 32,671 50% General and administrative 146,569 70,765 75,804 107% Total operating expenses $ 381,137 $ 235,218 $ 145,919 62% Sales and Marketing Sales and marketing expenses increased by $37.4 million, or 38%, for the three months ended March 31, 2021 compared to the three months ended March 31, 2020. The increase was primarily driven by increases in personnel costs of $44.7 million, which included an increase of $38.8 million in stock-based compensation expense primarily due to the recognition of stock-based compensation expense related to the Company’s RSUs and growth units, which vested in connection with the Company’s Direct Listing; $11.9 million in employer payroll taxes primarily related to income from share-based payments; and $2.8 million in payroll due to an increase in headcount attributable to our sales and marketing functions. These increases in personnel costs were partially offset by a decrease of $7.2 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, and $1.6 million from other payroll-related costs. Additionally, there was an increase of $1.3 million in third-party cloud based hosting services; offset by decreases of $6.3 million from office related expenses and other allocated costs, and $2.3 million in marketing costs. 32 Table of Contents Research and Development Research and development expenses increased by $32.7 million, or 50%, for the three months ended March 31, 2021 compared to the three months ended March 31, 2020. The increase was primarily driven by increases in personnel costs of $34.6 million, which included an increase of $22.8 million in stock-based compensation expense primarily due to the recognition of stock-based compensation expense related to the Company’s RSUs, which vested in connection with the Company’s Direct Listing; $11.2 million related to increase in payroll taxes primarily related to income from share-based payments; and $3.9 million in payroll related to an increase in headcount attributable to our research and development functions. These increases in personnel costs were partially offset by a decrease of $2.2 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, and $1.2 million from other payroll-related costs. Additionally, there was an increase of $2.3 million in third-party cloud hosting services and other IT; offset by decreases of $4.2 million from office related expenses and other allocated costs. General and Administrative General and administrative expenses increased by $75.8 million, or 107%, for the three months ended March 31, 2021 compared to the three months ended March 31, 2020. The increase was primarily driven by increases in personnel costs of $79.1 million, which included an increase of $70.1 million in stock-based compensation expense primarily due to the recognition of stock-based compensation expense related to the Company’s RSUs and growth units, which vested in connection with the Company’s Direct Listing; $9.3 million related to increase in payroll taxes primarily related to income from share-based payments; and $1.7 million in other payroll-related costs. These increases in personnel costs were partially offset by a decrease of $1.9 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, payroll related to a decrease in headcount attributable to our general and administrative functions. Additionally, there was a decrease of $3.3 million from office related expenses and other allocated costs. Interest Income Three Months Ended March 31, Change 2021 2020 Amount Interest income $ 376 $ 3,267 $ (2,891) Interest income decreased by $2.9 million for the three months ended March 31, 2021 compared to the three months ended March 31, 2020 primarily due to a reduction in U.S. interest rates on interest earned from our cash, cash equivalents, and restricted cash. Interest Expense Three Months Ended March 31, Change 2021 2020 Amount Interest expense $ (1,840) $ (4,594) $ 2,754 Interest expense decreased by $2.8 million for the three months ended March 31, 2021 compared to the three months ended March 31, 2020. The decrease was primarily due to a lower debt balance during the three months ended March 31, 2021 compared to the three months ended March 31, 2020. Change in Fair Value of Warrants Three Months Ended March 31, Change 2021 2020 Amount Change in fair value of warrants $ — $ 13,695 $ (13,695) During the three months ended March 31, 2020, the $13.7 million gain from the change in fair value of warrants was primarily driven by the decrease in the fair value of our stock during the period. During the three months ended March 31, 2021, there were no outstanding liability classified warrants. 33 Table of Contents Other Income (Expense), Net Three Months Ended March 31, Change 2021 2020 Amount Other income (expense), net $ (4,894) $ 6,100 $ (10,994) Other income (expense), net changed by $11.0 million for the three months ended March 31, 2021 compared to the three months ended March 31, 2020 primarily due to changes in net realized and unrealized gains from foreign exchange transactions. Provision for Income Taxes Three Months Ended March 31, Change 2021 2020 Amount Provision for income taxes $ 3,102 $ 2,557 $ 545 Provision for income tax increased by $0.5 million for the three months ended March 31, 2021 compared to the three months ended March 31, 2020. The change was primarily due to increases in profits from the Company’s international operations partially offset by decreases in foreign withholding taxes. Liquidity and Capital Resources Since our inception, we have primarily generated negative cash flows from operations and have financed our operations primarily through the sale of our equity securities, including proceeds from option exercises, and payments received from our customers. 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 twelve 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 March 31, 2021, our accumulated deficit balance was $5.1 billion, and our principal sources of liquidity were $2.3 billion of cash and cash equivalents, exclusive of additional restricted cash of $109.0 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 March 31, 2021, we had $200.0 million of term loans outstanding under the 2014 Credit Facility and had additional $200.0 million revolving credit facility available and undrawn. For more information, see the section titled “ Management’s Discussion and Analysis of Financial Condition and Results of Operations — Credit Facilities. ” 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 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. 34 Table of Contents The following table summarizes our cash flows for the periods indicated (in thousands): Three Months Ended March 31, 2021 2020 Net cash provided by (used in): Operating activities $ 116,881 $ (287,184 ) Investing activities (708 ) (3,016 ) Financing activities 206,354 2,494 Effect of foreign exchange on cash, cash equivalents, and restricted cash (2,197 ) (1,627 ) Net increase (decrease) in cash, cash equivalents, and restricted cash $ 320,330 $ (289,333 ) Operating Activities Net cash provided by operating activities was $116.9 million for the three months ended March 31, 2021. The factors affecting our operating cash flows during this period were our net loss of $123.5 million, offset by non-cash charges of $204.2 million and changes in net operating assets and liabilities of $36.1 million. The non-cash charges primarily consisted of $193.7 million in stock-based compensation expense, $6.5 million in operating lease expense, and $3.2 million of depreciation and amortization. The net change in operating assets and liabilities were due to an increase in accounts payable and accrued liabilities of $44.5 million due to timing of expense payments, and a net increase of $8.9 million in deferred revenue and customer deposits due to increases in customer billings, partially offset by a net increase in assets of $10.1 million. Net cash used in operating activities was $287.2 million for the three months ended March 31, 2020. The factors affecting our operating cash flows during this period were our net loss of $54.3 million, offset by non-cash charges of $54.8 million and changes in net operating assets and liabilities of $287.7 million. The non-cash charges primarily consisted of $54.1 million in stock-based compensation expense, $10.2 million in operating lease expense, and $3.7 million of depreciation and amortization, partially offset by a $13.7 million reduction in the fair value of warrant liabilities. The net change in operating assets and liabilities were due to a net decrease of $123.5 million in deferred revenue and customer deposits due to increases in revenue recognized from amounts billed and collected in prior periods, a decrease in accounts payable and accrued liabilities of $80.2 million, and an increase in assets of $67.8 million primarily due to an increase in accounts receivable. Investing Activities Net cash used in investing activities was $0.7 million and $3.0 million for the three months ended March 31, 2021 and 2020, which consisted of purchases of property and equipment. Financing Activities Net cash provided by financing activities was $206.4 million for the three months ended March 31, 2021, which primarily consisted of $208.9 million of proceeds from the exercise of common stock options. Net cash provided by financing activities was $2.5 million for the three months ended March 31, 2020, which primarily consisted of $6.7 million of proceeds from exercise of common stock options, offset by $3.8 million net cash used for repurchases of common stock. 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. The 2014 Credit Facility is secured with substantially all of our assets. As of March 31, 2021, 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. During April 2021, we amended the credit facility to increase the total undrawn revolving credit facility to be $400.0 million and which also provides for an incremental loan facility of additional term loans or revolving loans in an aggregate principal amount of up to $100.0 million with one or more existing or new lenders upon mutual agreement between the Company and such lenders. Upon amending the facility, we repaid the outstanding $200.0 million term loan. 35 Table of Contents Contractual Obligations and Commitments Our contractual obligations and commitments primarily consist of operating lease commitments for our facilities and non-cancelable purchase commitments related to third-party cloud hosting services. For additional information, refer to Note 8. Commitments and Contingencies to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. There has been no material change in our contractual obligations and commitments other than in the ordinary course of business since our fiscal year ended December 31, 2020. See our Annual Report on Form 10-K for the year ended December 31, 2020, which was filed with the SEC on February 26, 2021, for additional information regarding the Company’s contractual obligations. 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 condensed consolidated financial statements and the accompanying notes thereto included elsewhere in this Quarterly Report on Form 10-Q are prepared in accordance with GAAP. The preparation of condensed 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. There have been no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates discussed in the Annual Report on Form 10-K for the year ended December 31, 2020, which was filed with the SEC on February 26, 2021. Recent Accounting Pronouncements For information on recently issued accounting pronouncements, refer to Note 2. Significant Accounting Policies in our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. 36 Table of Contents ITEM 3. 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 condensed consolidated financial statements. As of March 31, 2021, we had $200.0 million in variable rate term loans outstanding that were repaid during April 2021. 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 condensed 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. 37 Table of Contents