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Item 5. Market for Registrant’s Common Equity

2022-02-24 compared with 2021-02-26 · 10 added, 868 removed, 8 unchanged (99% of the section changed)

MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information for Class A Common Stock

Our Class A common stock has been listed on the New York Stock Exchange (the NYSE) under the symbol PLTR since

September 30, 2020.

Our Class A common stock has been listed on the New York Stock Exchange (the “NYSE”) under the symbol “PLTR” since September 30, 2020.

Prior to that date, there was no public trading market for our Class A common stock.

Holders of Record

As of February 22, 2021, there were 1,306 holders of record of our Class A common stock, 49 holders of record of our Class B

common stock, and one holder of record of our Class F common stock.

Because many of our shares of Class A common stock are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of

stockholders represented by these record holders.

As of February 17, 2022, there were 730 holders of record of our Class A common stock, 36 holders of record of our Class B common stock, and one holder of record of our Class F common stock.

Because many of our shares of Class A common stock are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of stockholders represented by these record holders.

Dividend Policy

We have never declared or paid any cash dividends on our capital stock.

We intend to retain any future earnings and do not expect to pay any

dividends in the foreseeable future.

Any future determination to declare cash dividends will be made at the discretion of our board of directors, subject to applicable laws, and will depend on a number of factors, including our financial condition,

results of operations, capital requirements, contractual restrictions, general business conditions, and other factors that our board of directors may deem relevant.

In addition, the terms of our credit facility contain restrictions on our ability to

declare and pay cash dividends on our capital stock, and we may enter into credit agreements or other borrowing arrangements in the future that may restrict our ability to declare and pay cash dividends.

We intend to retain any future earnings and do not expect to pay any dividends in the foreseeable future.

Any future determination to declare cash dividends will be made at the discretion of our Board of Directors, subject to applicable laws, and will depend on a number of factors, including our financial condition, results of operations, capital requirements, contractual restrictions, general business conditions, and other factors that our Board of Directors may deem relevant.

In addition, the terms of our credit facility contain restrictions on our ability to declare and pay cash dividends on our capital stock, and we may enter into credit agreements or other borrowing arrangements in the future that may restrict our ability to declare and pay cash dividends.

Performance Graph

This performance graph shall not be deemed soliciting material or to be filed with the Securities Exchange

Commission (SEC) for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (Exchange Act), or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by

reference into any of our filings under the Securities Act or the Exchange Act.

The following graph compares the cumulative total

return to stockholders on our Class A common stock since September 30, 2020 (the date our Class A common stock commenced trading on the NYSE) relative to the cumulative total returns of the Standard & Poors 500 Index

and the Standard & Poors Information Technology Index over the same period.

An investment of $100 (with reinvestment of all dividends) is assumed to have been made in our Class A common stock and in each index at the market close

on September 30, 2020, and its relative performance is tracked through December 31, 2020.

This performance graph shall not be deemed “soliciting material” or to be “filed” with the Securities Exchange Commission (“SEC”) for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (“Exchange Act”), or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any of our filings under the Securities Act or the Exchange Act.

The following graph compares the cumulative total return to stockholders on our Class A common stock since September 30, 2020, the date of the Company’s direct listing of its Class A common stock on the NYSE (“Direct Listing”), relative to the cumulative total returns of the Standard & Poor’s 500 Index and the Standard & Poor’s Information Technology Index over the same period.

An investment of $100 (with reinvestment of all dividends) is assumed to have been made in our Class A common stock and in each index at the market close on September 30, 2020, and its relative performance is tracked through December 31, 2021.

The returns shown are based on historical results and are not intended to suggest future performance.

Unregistered Sales of Equity Securities

FINANCIAL DATA

Not applicable.

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our

consolidated financial statements and the accompanying notes thereto included elsewhere in this Annual Report on Form 10-K.

This discussion contains forward-looking statements based upon current plans,

expectations, and beliefs, involving risks and uncertainties.

Our actual results may differ materially from those anticipated in these forward-looking statements.

You should review the section titled Special Note Regarding Forward-Looking

Statements for a discussion of forward-looking statements and the section titled Risk Factors for a discussion of factors that could cause actual results to differ materially from the results described in or implied by the

forward-looking statements contained in the following discussion and analysis and elsewhere in this Annual Report on Form 10-K.

Our historical results are not necessarily indicative of the results that may be

expected for any period in the future.

We founded the company in 2003 to build software for use in counterterrorism operations.

In 2008, we released our first platform, Palantir Gotham, for customers in the intelligence sector.

Gotham enables users to identify patterns

hidden deep within datasets, ranging from signals intelligence sources to reports from confidential informants.

Defense agencies in the

United States then began using Gotham to investigate potential threats and to help protect soldiers from improvised explosive devices.

Today, the platform is widely used by government agencies in the United States and its allies.

Our software is on

the front lines, sometimes literally, and that means so are we.

We later began working with leading companies across industries,

including companies in the energy, transportation, financial services, and healthcare sectors.

In 2016, we released our second software platform, Palantir Foundry, to address a common set of challenges that we saw at large companies.

Foundry is becoming a central operating system not only for individual institutions but also for entire industries.

In 2017, for example, our partnership with Airbus expanded into a platform for the aviation industry, and today connects data from more than

one hundred airlines and 9,000 aircraft around the world.

We believe that every large institution faces challenges that our platforms

were designed to address.

Our focus in the near term is to build partnerships with institutions that have the leadership necessary to effect structural change within their organizations to reconstitute their operations around data.

long term, we believe that every large institution in the markets we serve is a potential partner.

Direct Listing

On September 30, 2020, we completed a direct listing of our Class A common stock, on the New York Stock Exchange (NYSE) (the

Direct Listing).

Immediately prior to the Direct Listing and the filing of our amended and restated certificate of incorporation, all outstanding shares of redeemable convertible preferred stock and convertible preferred stock were

converted into 797,743,185 shares of our Class B common stock, and all of our outstanding preferred stock warrants were converted into common stock warrants, which resulted in the reclassification of the warrants liability to additional paid-in

Additionally, our restricted stock units (RSUs) had a performance vesting condition that was satisfied upon the completion of the Direct Listing.

Accordingly, the Direct Listing resulted in the vesting and settlement of RSUs

covering 68,149,214 shares of Class A common stock and as a result we recorded cumulative stock-based compensation of $769.5 million on September 30, 2020.

In addition, we incurred fees related to financial advisory, accounting, legal and other professional services related to the Direct Listing

and public company readiness initiatives and recorded $53.7 million primarily in general and administrative expense during the quarter ended September 30, 2020.

the year ended December 31, 2020, we generated $1.1 billion in revenue, reflecting a 47% growth rate from the year ended December 31, 2019, when we generated $742.6 million in revenue.

Our operating results have improved significantly in recent years when excluding stock-based compensation.

In the year ended December 31,

2020, we incurred losses from operations of $1.2 billion, or income from operations of $189.9 million when excluding stock-based compensation, related employer payroll taxes, and non-recurring charges relating to our direct listing in 2020.

year ended December 31, 2019, our losses from operations were $576.4 million, or $334.5 million when excluding stock-based compensation.

In the year ended December 31, 2020, our gross profit was $740.1 million, reflecting a

gross margin of 68%, or 81% when excluding stock-based compensation.

In the year ended December 31, 2019, our gross profit was $500.2 million, reflecting a gross margin of 67%, or 71% when excluding stock-based compensation.

For more information about our income or loss from operations, when excluding stock-based compensation, related employer payroll taxes, and

non-recurring direct listing charges;

and gross profit, and gross margin, when excluding stock-based compensation, as well as reconciliations from loss from operations and gross profit, see the section titled Non-GAAP

Reconciliations below.

Our Customers

As of December 31, 2020, we had 139 customers, including leading companies in various commercial sectors as well as government agencies

around the world.

We define a customer as an organization from which we have recognized revenue in a reporting period.

government agencies, where a single institution has multiple divisions, units, or subsidiary agencies, each such division, unit, or subsidiary agency that enters into a separate contract with us and is invoiced as a separate entity is treated as a

separate customer.

For example, while the U.S.

Food and Drug Administration, Centers for Disease Control, and National Institutes of Health are subsidiary agencies of the U.S.

Department of Health and Human Services, we treat each of those agencies

as a separate customer given that the governing structures and procurement processes of each agency are independent.

We have built

lasting and significant customer relationships with some of the worlds leading government institutions and companies.

Our average revenue per customer in the year ended December 31, 2020 was $7.9 million, which grew 41% from $5.6 million

per customer in the year ended December 31, 2019.

Our top twenty customers generated $663.1 million in revenue, or 61% of our total revenue in the year ended December 31, 2020.

From those top twenty customers we generated average revenue

per customer of $33.2 million during the year ended December 31, 2020, which grew 34% from an average of $24.8 million from the top twenty customers during the year ended December 31, 2019.

Large organizations in the commercial and government sectors face similar challenges when it comes to managing data, and we intend to expand

our reach in both markets moving forward.

In the year ended December 31, 2020, 44% of our revenue came from commercial customers and 56% came from government agencies.

We have also expanded significantly outside the United States.

In the year ended December 31, 2020, we generated 52% of our revenue from

customers in the United States and the remaining 48% from customers abroad.

Coronavirus (COVID-19) Impact

As a result of COVID-19, we have taken precautionary measures in order to minimize the risk of the virus to our employees, our customers, and

the communities in which we operate, including the suspension of all non-essential business travel of employees and the temporary closure of all of our major offices.

Although the majority of our workforce currently works remotely, there has been

minimal disruption in our ability to ensure the effective operation of our software platforms.

The economic consequences of the COVID-19

pandemic have been challenging for certain of our customers and prospective customers.

While the broader implications of the COVID-19 pandemic on our results of operations and overall financial performance remain uncertain, the COVID-19 pandemic

has, to date, not had a material adverse impact on our results of operations.

The economic effects of the pandemic and resulting societal changes are currently not predictable.

The pandemic has made clear to many of our customers that accommodating the extended

timelines ordinarily required to realize results from implementing new software solutions is not an option during a crisis.

As a result, customers are increasingly adopting our software, which can be ready in days, over internal software development

efforts, which may take months or years.

We have seen a decrease in our travel and office-related expenditures, including temporary

closures of our offices globally and reductions in related operating expenses, related to the ongoing pandemic.

However, improvement of our contribution metric this year has also been driven by the expansion of existing customer accounts, improved

sales efficiency, and the increasing deployment of centralized hosting and other software deployment infrastructure.

While we expect our travel and office-related expenditures to increase moving forward, especially once we reopen our offices, we do

not expect such expenditures to return to their pre-pandemic levels, given that we have made significant investments in enabling employees to work with customers remotely.

See the section titled Risk Factors included elsewhere in this Annual Report on Form 10-K for further discussion of the

possible impact of the COVID-19 pandemic on our business.

Our Business Model

Our customers pay us to use the software platforms we have built.

As of December 31, 2020, we expect to generate revenue under our existing customer contracts for an additional 3.6 years on

dollar-weighted average contract duration basis.

Dollar-weighted average contract duration represents the length of time we expect to generate revenue on average, including existing contractual obligations and assuming that our customers will

exercise all of the contractual options available to them, and is subject to change as we enter into new contracts or if customers terminate for convenience.

We calculate this duration on a dollar-weighted basis to adjust for smaller deals.

timing of our customer billings and receipt of payments varies from contract to contract.

Revenue is generally recognized over the contract term.

Our contracts generally include terms that allow the customer to terminate the contract for

Our business model with respect to acquiring and growing our accounts has three phases:

(1) Acquire, (2) Expand, and (3)

We categorize all customers into cohorts on December 31st each year.

Our decisions about which customer relationships require

further investment may change over time, based on our assessment of the potential long-term value that our software can generate for them.

As a result, customers may move back and forth through phases, as relationship needs and our assessment of the merits of further investment

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

Some customers may have a rapid Acquire phase followed by a long Expand phase.

Others may skip the Expand phase altogether and

move immediately into the Scale phase.

We manage customers at the account level, not by industry or sector, so that we can optimize on the specific growth opportunities for each.

In 2019, we generated a total of $742.6 million in revenue, of which $0.6 million came from customers in the Acquire phase, $176.3 million

came from customers in the Expand phase, and $565.7 million came from customers in the Scale phase.

In 2020, those same customers from

2019 generated a total of $1.1 billion in revenue.

New customers acquired during the year ended December 31, 2020 generated an additional $41.8 million in revenue and were assigned a cohort as of December 31, 2020.

A more detailed discussion of

the three phases, for purposes of illustration of how we manage accounts across the business, follows below.

We actively pursue discussions with existing and prospective customers in order to identify ways in which our software platforms can provide

long-term value.

In the first phase, we typically acquire new opportunities with minimal risk to our customers through short-term pilot

deployments of our software platforms at no or low cost to them.

We believe in proving the value of our platforms to our customers.

During these short-term pilots, we operate the accounts at a loss.

We believe that our investments during this phase

will drive future revenue growth.

We define a customer or potential customer as being in the Acquire phase if, as of the end of a

calendar year, we have recognized less than $100,000 in revenue from the customer that respective year.

Customers may make nominal payments in connection with the evaluation of our software that we do not consider material in evaluating the

performance of our accounts.

We evaluate the success of customer accounts in the Acquire phase based on the revenue such accounts

generate in the following year.

In 2019, we generated $0.6 million in revenue from customers in the Acquire phase, which yielded a contribution loss of $65.4 million.

In 2020, those same customers generated $77.1 million in revenue which yielded

contribution profit of $13.2 million.

Our investment in this second phase is often significant as we seek to understand the principal challenges faced by our customers and ensure

that our software delivers value and results.

We define a customer in the Expand phase as any customer from which we have recognized more

than $100,000 in revenue in a calendar year and whose account had a negative contribution margin during the year at issue, as determined as of the end of the year.

In this phase, we operate at a loss, as measured by contribution margin, in order to

drive future revenue growth and margin expansion.

In 2019, we generated $176.3 million in revenue from customers that were in the Expand

phase as of the end of that year, with a contribution margin of (43)%.

In 2020, those same customers generated $360.4 million in revenue, with a contribution margin of 47%.

customer accounts mature, our investment costs relative to revenue generally decrease, while the value our software provides to our customer increases, often significantly, as usage of the platform increases across the customers operations.

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.

we generated $565.7 million in revenue from customers in the Scale phase, with a contribution margin of 55%.

In 2020, those same customers generated $613.4 million in revenue with a contribution margin of 70%.

We believe that our customers will move into the Scale phase over the long term.

believe that contribution margin for Scale phase accounts will increase further as we become more efficient at deploying our software platforms across the entirety of our customers operations and at managing and operating our software.

Total Remaining Deal Value

We are focused on building strategic relationships with, and delivering significant outcomes for, our customers over the long term.

contracts with our customers reflect that long-term orientation, often lasting for multiple years at a time.

As of December 31,

2020, the total remaining deal value of the contracts that we have been awarded by, or entered into with, government and commercial customers, including existing contractual obligations and contractual options available to those customers, was

$2.8 billion, up from December 31, 2019, when our total remaining deal value of such contracts was $2.2 billion.

total remaining deal value, as of December 31, 2020, the total remaining deal value of the contracts that we entered into with commercial customers, including existing contractual obligations and available contractual options, was

$1.5 billion, up 45% from December 31, 2019, when the total remaining deal value of such contracts was $1.0 billion.

December 31, 2020, the total remaining deal value of the contracts that we had been awarded by government agencies in the United States and allied countries around the world, including existing contractual obligations and contractual options

available to those government agencies, was $1.3 billion, up 14% from December 31, 2019, when the total value of such contracts was $1.1 billion.

When calculating the total remaining deal value of government contracts, we do not

include government contracts totaling $2.7 billion, as of December 31, 2020, that we have been awarded where the funding of such contracts also known as indefinite delivery, indefinite quantity (IDIQ) contracts

has not yet been determined.

Funding of such contracts is not guaranteed.

The majority of our government and commercial contracts are

subject to termination for convenience provisions.

Additionally, the U.S.

federal government is prohibited from exercising contract options more than one year in advance.

As a result, there can be no guarantee that our customer contracts will not be

terminated or that contract options will be exercised.

Key Business Measure

In addition to the measures presented in our consolidated financial statements, we use the following key non-GAAP business measure to help us

evaluate our business, identify trends affecting our business, formulate business plans and financial projections, and make strategic decisions.

Contribution Margin

We believe that the revenue we generate relative to the costs we incur in order to generate such revenue is an important measure of the

efficiency of our business.

We define contribution margin as revenue less our cost of revenue and sales and marketing expenses, excluding stock-based compensation, divided by revenue.

At the end of each year, we categorize each customer account into

one of the three phases based on its revenue and contribution margin for that year.

Revenue is allocated to each customer account

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

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

Direct costs, such as third-party cloud hosting services, are directly allocated to the account to which they relate.

Contribution, both across our business and on specific customer accounts, is intended to capture how much we have earned from customers after

accounting for the costs associated with deploying and operating our software, as well as any sales and marketing expenses involved in acquiring and expanding our partnerships with those customers, including allocated overhead.

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

Contribution margin should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP.

For more information about contribution margin, including the limitations of this measure, and a reconciliation to loss from operations, see

the section titled Non-GAAP Reconciliations below.

Non-GAAP Reconciliations

We use the non-GAAP measures contribution margin;

gross profit and gross margin, excluding stock-based compensation;

(loss) from operations, excluding stock-based compensation, related employer payroll taxes, and non-recurring direct listing charges to help us evaluate our business, identify trends affecting our business, formulate business plans and financial

projections, and make strategic decisions.

We exclude stock-based compensation, which is a non-cash expense, from these non-GAAP financial measures because we believe that excluding this item provides meaningful supplemental information regarding

operational performance and provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management team.

Additionally, we exclude expenses primarily related to the direct

listing during the quarter ended September 30, 2020, as they are a one-time nonrecurring charge, and employer payroll taxes related to stock-based compensation, as it is difficult to predict and outside of our control.

Our definitions may differ from the definitions used by other companies and therefore comparability may be limited.

In addition, other

companies may not publish these or similar metrics.

Further, these metrics have certain limitations, as they do not include the impact of certain expenses that are reflected in our consolidated statement of operations.

Thus, our non-GAAP

contribution margin;

gross profit and gross margin, excluding stock-based compensation;

and income (loss) from operations, excluding stock-based compensation, related employer payroll taxes, and non-recurring direct listing charges should be

considered in addition to, not as a substitute for, or in isolation from, measures prepared in accordance with GAAP.

We compensate for

these limitations by providing reconciliations of these non-GAAP measures to the most comparable GAAP measures.

We encourage investors and others to review our business, results of operations, and financial information in its entirety, not to rely

on any single financial measure, and to view these non-GAAP measures in conjunction with the most directly comparable GAAP financial measures.

Contribution Margin

The following table provides a reconciliation of contribution margin for the years ended December 31, 2020 and 2019 (in thousands, except

percentages):

Years Ended December 31,

Loss from operations

Research and development expenses (1)

General and administrative

Stock-based compensation

Contribution margin

Excludes stock-based compensation.

Gross Profit and Gross Margin, Excluding Stock-Based Compensation

The following table provides a reconciliation of gross profit and gross margin, excluding stock-based compensation for the years ended

December 31, 2020 and 2019 (in thousands, except percentages):

Years Ended December 31,

stock-based compensation

Gross profit, excluding stock-based compensation

Gross margin, excluding stock-based compensation

Income (Loss) from Operations, Excluding Stock-Based Compensation, Related Employer Payroll Taxes, and

Non-Recurring Direct Listing Charges

The following table provides a reconciliation of income (loss) from operations, excluding

stock-based compensation, related employer payroll taxes, and non-recurring direct listing charges for the years ended December 31, 2020 and 2019 (in thousands):

Years Ended December 31,

Loss from operations

stock-based compensation

employer payroll taxes related to stock-based compensation (1)

non-recurring direct listing

Income (loss) from operations, excluding stock-based compensation, related employer payroll taxes,

and non-recurring direct listing charges

Employer payroll taxes related to stock-based compensation were immaterial prior to the quarter ended

September 30, 2020.

Non-recurring direct listing charges were primarily incurred during the quarter ended September 30, 2020 and

were immaterial in other periods presented and as such are not excluded from such periods.

Components of Results of Operations

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

Revenue is generally recognized over the contract term on a ratable basis.

Professional Services

Our professional services support the customers use of the software and include, as needed,

on-demand user support, user-interface configuration, training, and ongoing ontology and data modeling support.

Professional services contracts typically include the provision of

on-demand professional services for the duration of the contractual term.

These services are typically coterminous with a Palantir Cloud or On-Premises Software

subscriptions.

Professional services are on-demand, whereby we perform services throughout the contract period;

therefore, the revenue is recognized over the contractual term.

Cost of Revenue

Cost of revenue primarily includes salaries, stock-based compensation expense, and benefits for personnel involved in performing O&M and

professional services, as well as third-party cloud hosting services, allocated overhead, and other direct costs.

We expect that cost of

revenue will increase in absolute dollars as our revenue grows and will vary from period-to-period as a percentage of revenue.

Sales and Marketing

Our sales and marketing efforts span all stages of our sales cycle, including personnel engaging with or executing pilots at new or existing

Sales and marketing costs primarily include salaries, stock-based compensation expense, and benefits for personnel involved in executing on pilots and customer growth activities, as well as third-party cloud hosting services for our

pilots, marketing and sales event-related costs, and allocated overhead.

Sales and marketing costs are generally expensed as incurred.

We expect that sales and marketing expenses will increase in absolute dollars as we continue

to invest in our potential and current customers, in growing our business and enhancing our brand awareness.

Our research and development efforts are aimed at continuing to develop and refine our platforms, including adding

new features and modules, increasing their functionality, and enhancing the usability of our platforms.

Research and development costs primarily include salaries, stock-based compensation expense, and benefits for personnel involved in performing

the activities to develop and refine our platforms, internal use third-party cloud hosting services and other IT-related costs, and allocated overhead.

Research and development costs are expensed as incurred.

We plan to continue to invest in personnel to support our research and development efforts.

As a result, we expect that research and

development expenses will increase in absolute dollars for the foreseeable future as we continue to invest to support these activities.

General and Administrative

General and administrative costs include salaries, stock-based compensation expense, and benefits for personnel involved in our executive,

finance, legal, human resources, and administrative functions, as well as third-party professional services and fees, and allocated overhead.

We expect that general and administrative expenses will increase in absolute dollars as we hire additional personnel and enhance our systems,

processes, and controls to support the growth in our business as well as our increased compliance and reporting requirements as a public company.

Interest Income

Interest income consists primarily of interest income earned on our cash, cash equivalents, and restricted cash balances.

Interest Expense

Interest expense consists primarily of interest expense and commitment fees incurred under our credit facilities.

Other Income (Expense), Net

Other income (expense), net consists primarily of foreign currency exchange gains and losses and our share of income and losses from our

equity method investments.

Change in Fair Value of Warrants

The change in the fair value of warrants consists of the net changes in the fair value of our liability classified warrants to purchase

redeemable convertible and convertible preferred stock that were remeasured at the end of each reporting period.

In connection with the Direct Listing, all of the Companys outstanding preferred stock warrants were converted into common stock

warrants, which resulted in the reclassification of the warrants liability to additional paid-in capital.

As such, we do not expect additional charges related to the fair value of these warrants.

Provision (Benefit) for Income Taxes

Provision (benefit) for income taxes consists of income taxes related to foreign and state jurisdictions in which we conduct business and

withholding taxes.

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:

This segment primarily serves customers working in

non-government industries.

This segment primarily serves customers that are agencies in the U.S.

federal government

Segment profitability is evaluated based on

contribution and contribution margin.

Contribution is segment revenue less the related costs of revenue and sales and marketing expenses, excluding stock-based compensation expense.

Contribution margin is segment contribution divided by revenue.

the extent costs of revenue or sales and marketing expenses are not directly attributable to a particular segment, they are allocated based upon headcount at each operating segment during the period.

We use it, in part, to evaluate the performance

of, and allocate resources to, each of our operating segments, which excludes certain operating expenses that are not allocated to operating segments because they are separately managed at the consolidated corporate level.

These unallocated costs

include stock-based compensation expense, research and development costs, and general and administrative costs, such as legal and accounting.

Results of Operations

The following table summarizes our consolidated statements of operations data (in thousands):

Years Ended December 31,

Cost of revenue (1)

Operating expenses:

Sales and marketing (1)

Research and development (1)

General and administrative (1)

Total operating expenses

Loss from operations

Interest income

Interest expense

Change in fair value of warrants

Other income (expense), net

Loss before provision (benefit) for income taxes

Provision (benefit) for income taxes

Includes stock-based compensation expense as follows (in thousands):

Years Ended December 31,

Cost of revenue

Sales and marketing

Research and development

General and administrative

Total stock-based compensation expense (i) (ii)

On September 30, 2020, in connection with the Direct Listing, we incurred $769.5 million and

$8.4 million of stock-based compensation using the accelerated attribution method related to the satisfaction of the performance-based vesting condition for RSUs and growth units, respectively, that had satisfied the service-based vesting

condition as of such date.

During the years ended December 31, 2020, 2019, and 2018, we incurred modification charges of

$96.2 million, $27.4 million, and $44.6 million, respectively, from repricing of certain options held by our employees.

Additionally, during the years ended December 31, 2020, 2019, and 2018, we incurred modification charges of

$9.9 million, $5.6 million, and $3.6 million respectively, related to the extension of the period to exercise of certain options that were approaching expiration.

The following table sets forth the components of our consolidated statements of operations data as a percentage of revenue:

Years Ended December 31,

Cost of revenue

Operating expenses:

Sales and marketing

Research and development

General and administrative

Total operating expenses

Loss from operations

Interest income

Interest expense

Change in fair value of warrants

Other income (expense), net

Loss before provision (benefit) for income taxes

Provision (benefit) for income taxes

Comparison of the Years Ended December 31, 2020 and 2019

Years Ended December 31,

Total revenue

Revenue increased by $350.1 million, or 47%, for the year ended December 31, 2020

compared to 2019.

Revenue from government customers increased by $264.7 million, or 77%, for the year ended December 31, 2020 compared to 2019, primarily from customers in the United States.

Of the increase, $243.4 million was from

customers existing as of December 31, 2019.

Revenue from commercial customers increased by $85.4 million, or 22%, for the year ended December 31, 2020 compared to 2019.

The increase is primarily due to an increase of

$59.7 million from customers existing as of December 31, 2019.

Generally, increases in revenue from our existing customers are a result of increases in their adoption of our products and services within their organizations.

Cost of Revenue and Gross Profit

Years Ended December 31,

Cost of revenue

Cost of revenue for the year ended December 31, 2020 increased by $110.2 million, or 45%, compared

The increase was primarily due to increases in personnel costs of $128.6 million, which included increases of $111.7 million in stock-based compensation expense primarily due to the recognition of cumulative stock-based

compensation expense upon the Direct Listing related to RSUs and charges related to the modification of certain options;

$21.6 million in payroll and other costs primarily driven by an increase in headcount attributable to cost of revenue

functions to support new and existing customers;

and $5.7 million in employer payroll taxes primarily driven by income from the vesting of RSUs and increases in headcount.

These increases in personnel costs were partially offset by decreases in

travel-related expenses and other personnel costs of $7.3 million as a result of COVID-related travel restrictions and company-wide initiatives to decrease overall travel and $3.1 million due to the timing of variable compensation

Additionally, there was an increase of $0.5 million related to other direct deployment costs and allocated overhead.

These increases to costs of revenue were offset by decreases of $9.8 million related to third-party cloud

hosting costs, generally as a result of volume-based discounts, $4.7 million related to hardware costs, and $4.4 million related to reduced usage of field service representatives.

Our gross margin for the year ended December 31, 2020 increased by 1% compared to 2019.

Gross margin increased as a result of

efficiencies in supporting the revenue growth at our customer deployments, for example investments in our platforms, as well as reductions in third-party cloud hosting and hardware costs for customers.

This was partly offset by increases in

stock-based compensation related to the satisfaction of the performance-based vesting condition for RSUs upon our Direct Listing and charges related to the modification of certain options.

Operating Expenses

Years Ended December 31,

Sales and marketing

Research and development

General and administrative

Total operating expenses

Sales and Marketing

Sales and marketing expenses increased by $233.6 million, or 52%, for the year ended December 31, 2020 compared to 2019.

increase was primarily driven by increases in personnel costs of $262.9 million, which included increases of $319.0 million in stock-based compensation expense primarily due to the recognition of cumulative stock-based compensation expense

upon the Direct Listing from RSUs and charges related to the modification of certain options;

$15.8 million from employer payroll taxes primarily driven by income from the vesting of RSUs;

and $5.6 million in payroll costs related to an

increase in headcount attributable to our sales and marketing functions.

These personnel costs were partially offset by decreases of $64.8 million in travel-related expenses and other personnel costs as a result of COVID-related travel

restrictions and company-wide initiatives to decrease overall travel, $7.2 million due to the timing of variable compensation payments, and $5.5 million from other payroll-related costs.

Additionally, there was a decrease of

$13.9 million in office related expenses as a result of temporary office closures and a decrease of $15.4 million related to allocated overhead.

Research and Development

development expenses increased by $255.1 million, or 83%, for the year ended December 31, 2020 compared to 2019.

The increase was primarily driven by increases in personnel costs of $283.4 million, which included increases of

$289.1 million in stock-based compensation expense primarily due to the recognition of cumulative stock-based compensation expense upon the Direct Listing from RSUs and charges related to the modification of certain options;

in employer payroll taxes, primarily driven by income from the vesting of RSUs;

and $8.6 million in payroll costs related to an increase in headcount attributable to our research and development functions.

These personnel costs were partially

offset by decreases of $13.8 million in travel-related expenses and other personnel costs as a result of COVID-related travel restrictions and company-wide initiatives to decrease overall travel, $6.9 million due to the timing of variable

compensation payments, and $3.5 million in other payroll-related costs.

Additionally, there were decreases of $17.4 million in third-party cloud hosting services generally as a result of volume-based discounts, $9.5 million in office

related expenses as a result of temporary office closures, and $1.4 million related to allocated overhead.

General and Administrative

General and administrative expenses increased by $348.5 million, or 109%, for the year ended December 31, 2020 compared to 2019.

increase in expenses was primarily driven by increases in personnel costs of $306.0 million, which included increases of $308.9 million in stock-based compensation expense primarily due to the recognition of cumulative stock-based

compensation expense upon the Direct Listing from RSUs and charges related to the modification of certain options;

$7.8 million in employer payroll taxes, partially driven by income from the vesting of RSUs;

and $6.3 million in payroll

costs related to an increase in headcount attributable to our general and administrative functions.

These personnel costs were partially offset by decreases of $12.4 million in travel-related expenses and other personnel costs primarily as a

result of COVID-related travel restrictions and company-wide initiatives to decrease overall travel, and $4.6 million due to the timing of variable compensation payments.

Additionally, there were other increases in general and administrative

expenses of $50.5 million in legal professional services primarily related to the Direct Listing, $11.8 million for other professional services related to the Direct Listing and corporate IT and consulting functions to support initiatives

for becoming a public company and the overall growth of our operations, $12.9 million in third-party cloud hosting services and other IT, and $6.1 million in corporate insurance and other fees, which were offset by decreases of

$22.4 million primarily from non-recurring impairment charges related to assets held for sale, $10.7 million in office related expenses as a result of temporary office closures, and $5.7 million

related to allocated overhead.

Interest Income

Years Ended December 31,

Interest income

Interest income decreased by $10.4 million for the year ended December 31, 2020 compared to 2019

primarily due to a reduction in U.S.

interest rates on interest earned from our cash, cash equivalents, and restricted cash.

Interest Expense

Years Ended December 31,

Interest expense

Interest expense increased by $11.1 million for the year ended December 31, 2020 compared to 2019.

The increase was primarily due to the absence of outstanding debt until December 2019.

Change in Fair Value of Warrants

Years Ended December 31,

Change in fair value of warrants

The gain on the change in fair value of warrants increased by $0.8 million for the year ended

December 31, 2020 compared to 2019.

The change was primarily due to adjustments to the fair value of the warrants immediately before reclassifying them from liability to equity, partially offset by an increase in the fair value of the

securities underlying certain warrants during the year ended December 31, 2020 compared to 2019.

Other Income (Expense), Net

Years Ended December 31,

Other income (expense), net

Other income (expense), net changed by $6.2 million for the year ended December 31, 2020 compared to

2019 primarily due to increases in net realized and unrealized gains from foreign exchange transactions.

Provision (Benefit) for

Years Ended December 31,

Provision (benefit) for income taxes

We recorded a benefit for income taxes of $12.6 million for the year ended December 31, 2020

compared to a provision of $12.4 million for the year ended December 31, 2019.

The change was primarily due to decreases in profits from our international operations and foreign benefits from stock-based compensation.

Quarterly Results of Operations Data

The following tables set forth our unaudited quarterly statements of operations data for each of the last eight quarters ended

December 31, 2020 (in thousands, except per share amounts and percentages).

The information for each of these quarters has been prepared on the same basis as our audited consolidated financial statements, included elsewhere in this Annual

Report on Form 10-K and includes, in our opinion, all adjustments, necessary to state fairly our results of operations for these periods.

This data should be read in conjunction with our consolidated financial

statements included elsewhere in this Annual Report on Form 10-K.

These quarterly results of operations are not necessarily indicative of the future results of operations for any future period.

Three Months Ended,

Cost of revenue (1)

Operating expenses:

Sales and marketing (1)

Research and development (1)

General and administrative (1)

Total operating expenses

Loss from operations

Interest income

Interest expense

Change in fair value of warrants

Other income (expense), net

Loss before provision (benefit) for income taxes

Provision (benefit) for income taxes

Net loss attributable to common stockholders

Net loss per share attributable to common stockholders, basic

Net loss per share attributable to common stockholders, diluted

Includes stock-based compensation expense as follows (in thousands):

Three Months Ended,

Cost of revenue

Sales and marketing

Research and development

General and administrative

Total stock-based compensation expense

The following table sets forth our results of operations for the last eight quarterly periods presented as a

percentage of our total revenue for those periods:

Three Months Ended,

Cost of revenue

Operating expenses:

Sales and marketing

Research and development

General and administrative

Total operating expenses

Loss from operations

Interest income

Interest expense

Change in fair value of warrants

Other income (expense), net

Loss before provision (benefit) for income taxes

Provision (benefit) for income taxes

The following table provides a reconciliation of contribution margin for the last eight quarterly periods (in

thousands, except percentages):

Three Months Ended,

Loss from operations

Research and development (1)

General and administrative (1)

Total stock-based compensation expense

Contribution margin

Excludes stock-based compensation.

Liquidity and Capital Resources

Since our inception, we have generated negative cash flows from operations and have financed our operations primarily through the sale of our

equity securities, borrowings under our credit facilities, and payments received from our customers.

For many customers, we historically billed and collected payment for the entire contract term in advance of our performance of the related

Our billing terms, however, are shifting to align with the timing of the work performed for our customers.

As a result, our cash flows from operations may temporarily decrease as our billing cycles, deferred revenue and customer

deposits adjust to this shift.

We believe our existing cash and cash equivalents will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months, as well as our short-term and long-term contractual

obligations and commitments primarily consisting of operating lease commitments and non-cancelable purchase commitments related to third-party cloud hosting services.

As of December 31, 2020, our accumulated deficit balance was $5.0 billion, and our principal sources of liquidity were

$2.0 billion of cash and cash equivalents, exclusive of additional restricted cash of $116.8 million.

Cash and cash equivalents consist primarily of cash on deposit with banks as well as institutional money market funds.

Restricted cash

primarily consists of cash and certificates of deposit that are held as collateral against letters of credit and guarantees we are required to maintain for various purposes.

As of December 31, 2020, we had $200.0 million outstanding of the available term commitment under the 2014 Credit Facility due in

June 2023 and an additional $200.0 million revolving credit facility available and undrawn.

For more information, see the section titled Managements Discussion and Analysis of Financial Condition and Results of

Operations Credit Facilities.

Additionally, during the year ended December 31, 2020, we sold 206,500,523

shares of our Class A common stock at $4.65 per share for net proceeds of approximately $942.5 million, which is net of issuance costs of $17.7 million, and received proceeds of $298.8 million from the exercise of 120,617,527

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.

additional funds are not available to us on acceptable terms, or at all, our business, financial condition, and results of operations could be adversely affected.

The following table summarizes our cash flows for the periods indicated (in thousands):

Years Ended December 31,

Net cash (used in) provided by:

Operating activities

Investing activities

Financing activities

Effect of foreign exchange on cash, cash equivalents, and restricted cash

Net increase (decrease) in cash, cash equivalents, and restricted cash

Operating Activities

Net cash used in operating activities was $296.6 million for the year ended December 31, 2020.

The factors affecting our operating

cash flows during this period were our net loss of $1.2 billion and changes in net operating assets and liabilities of $454.1 million, offset by non-cash charges of $1.3 billion.

The non-cash charges primarily consisted of $1.3 billion in stock-based compensation expense, $35.0 million of non-cash operating lease expense, and $13.9 million

of depreciation and amortization.

The net change in operating assets and liabilities were primarily due to net decrease of $261.8 million in deferred revenue and customer deposits due to the timing of revenue being recognized from amounts

billed and collected in prior periods, and an increase in assets of $156.0 million primarily due to an increase in accounts receivable driven by the timing of billings to and collections from our customers.

Net cash used in operating activities was $165.2 million for the year ended December 31, 2019.

The factors affecting our operating

cash flows during this period were our net loss of $579.6 million, offset by non-cash charges of $280.4 million, and $134.0 million of cash provided from changes in our operating assets and

The non-cash charges primarily consisted of $242.0 million in stock-based compensation expense, $23.4 million of impairment of assets held for sale, and $12.3 million of

depreciation and amortization.

The cash provided from changes in our operating assets and liabilities was primarily due to a net increase of $144.8 million in deferred revenue and customer deposits due to increased billings and payments

received from customers in advance of revenue recognition and a $27.2 million increase in accounts payable and accrued liabilities as a result of our increased spending and headcount associated with the growth of our business.

These amounts

were partially offset by an increase in assets of $34.5 million primarily due to an increase in accounts receivable driven by timing of contracts as well as an increase in deferred tax assets.

Investing Activities

Net cash used in investing activities was $14.9 million for the year ended December 31, 2020, which consisted of purchases of

property and equipment of $12.2 million.

Net cash used in investing activities was $22.0 million for the year ended

December 31, 2019, which consisted of an investment of $25.9 million in our equity method investment Palantir Technologies Japan, K.K.

entity and purchases of property and equipment of $13.1 million, partially offset by a

$17.0 million return of investment associated with the dissolution of our equity method investment Signac, LLC.

Financing Activities

Net cash provided by financing activities was $1.0 billion for the year ended December 31, 2020, which primarily consisted of

$942.5 million of net proceeds from the issuance of common stock, $199.4 million of net proceeds from borrowings under our credit facilities, and $298.8 million of proceeds from the exercise of common stock options, partially offset

by repayments of $400.0 million of debt.

Net cash provided by financing activities was $324.5 million for the year ended

December 31, 2019, which consisted of $394.4 million of net proceeds from borrowings under our credit facilities, $100.0 million of proceeds from the issuance of common stock, $16.9 million of proceeds from the exercise of common

stock options, and $7.5 million of proceeds from the sale of redeemable convertible preferred stock, partially offset by the redemption of redeemable convertible preferred stock of $168.0 million and the repurchase of convertible preferred

and common stock of $25.1 million.

Credit Facilities

2014 Credit Facility

In October 2014, we entered into an unsecured revolving credit facility which has been subsequently amended (the 2014 Credit

The 2014 Credit Facility bears interest at the London Interbank Offered Rate (LIBOR) plus a margin of 2.75% per annum, subject to certain adjustments, and incurs a commitment fee of 0.375% assessed on the daily average

undrawn portion of revolving commitments.

Interest and commitment fees are payable at the end of an interest period or at each three-month interval if the interest period is longer than three months.

The 2014 Credit Facility is secured with

substantially all of our assets.

In December 2019, we drew down the $150.0 million term loan and $150.0 million under the

existing revolving credit facility.

The term loan portion of the 2014 Credit Facility was fully repaid and terminated as of December 31, 2019.

In June 2020, we amended the 2014 Credit Facility to include a $150.0 million term loan, extend the maturity date to June 4, 2023,

and add an additional lender.

Additionally, this amendment increased the minimum liquidity required to be maintained, and we were provided with an option to increase the total commitments by up to an additional $200.0 million, subject to the

lenders approval.

All other terms and conditions remained substantially the same upon the effectiveness of the amendment.

Upon entering into this amendment, we drew down the total available term loan commitment of $150.0 million.

In July 2020, we entered into another amendment to the 2014 Credit Facility, which added an additional lender and provided for an increase of

$50.0 million to the revolving credit facility and a $50.0 million term loan.

The incremental commitments were provided under the same terms as the existing commitments under the 2014 Credit Facility.

During July 2020, we drew down the

additional available term loan of $50.0 million and repaid the $150.0 million outstanding revolving credit facility.

December 31, 2020, we had $200.0 million of term loans outstanding under the 2014 Credit Facility and an additional $200.0 million undrawn revolving credit facility available.

2019 Credit Facility

On December 31, 2019, we entered into a senior secured revolving credit facility (the 2019 Credit Facility) with a second

The 2019 Credit Facility allowed for the drawdown of up to $250.0 million.

As of December 31, 2019 we had $250.0 million outstanding under the 2019 Credit Facility, and $125.0 million of the proceeds were required to be

maintained in a specified collateral account, which was reported in restricted cash, noncurrent in the consolidated balance sheet.

During June 2020, a portion of the proceeds drawn down under the 2014 Credit Facility were

used to pay off the $250.0 million outstanding, balance of the revolving loan commitment under the 2019 Credit Facility, thus releasing the 50% restricted cash collateral previously required.

As of December 31, 2020, the 2019 Credit

Facility was terminated and there were no amounts outstanding.

Contractual Obligations and Commitments

The following table summarizes our contractual obligations and commitments as of December 31, 2020 (in thousands):

Payments Due by Period

Operating lease commitments, net of sublease income amounts (1)

Noncancelable purchase

commitments (2)

Total contractual obligations and commitments

The contractual commitment amounts under operating leases in the table above are primarily related to

facility and equipment leases.

Operating lease commitments are reflected net of $150.3 million of sublease income from tenants in certain of our leased facilities.

Refer to Note 8 .

Leases in our consolidated financial statements

included elsewhere in this Annual Report on Form 10-K for additional information.

Noncancelable purchase commitments primarily relate to purchase commitments for third-party cloud hosting

services and represents only contracts which are enforceable and legally binding.

Obligations under contracts that we can cancel without a significant penalty are not included in the table above.

Refer to Note 9.

Commitments and Contingencies

in our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information.

Includes principal payments on our outstanding senior secured revolving credit facility, which bears floating

interest rates of LIBOR plus 2.75% per annum.

Refer to Note 7.

Debt in our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information.

The contractual obligations and commitments in the table above are associated with agreements that are enforceable and

legally binding.

Deferred Revenue and Customer Deposits

Deferred revenue represents billings under noncancelable contracts before the related product or service is transferred to the customer.

portion of deferred revenue that is anticipated to be recognized as revenue during the succeeding twelve-month period is recorded as deferred revenue and the remaining portion is recorded as deferred revenue, noncurrent.

Customer deposits consist of payments received for anticipated revenue generating activities in advance of the start of the contractual term

or for the portion of a contract term that is subject to cancellation and refund.

The portion of customer deposits that is anticipated to be recognized as revenue during the succeeding twelve-month period is recorded as customer deposits and the

remaining portion is recorded as customer deposits, noncurrent.

Our deferred revenue and deferred revenue, noncurrent as of

December 31, 2020 was $189.5 million and $50.5 million, respectively.

Our customer deposits and customer deposits, noncurrent as of December 31, 2020 was $210.3 million and $81.5 million, respectively.

Our total deferred

revenue and deferred revenue, noncurrent as of December 31, 2019 was $186.1 million and $77.0 million, respectively.

Our total customer deposits and customer deposits, noncurrent as of December 31, 2019 was $364.1 million

and $167.5 million, respectively.

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.

Accounting Policies and Estimates

Our consolidated financial statements and the accompanying notes thereto included elsewhere in this

Annual Report on Form 10-K are prepared in accordance with GAAP.

The preparation of consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets,

liabilities, revenue, costs and expenses, and related disclosures.

We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances.

Actual results could differ significantly

from our estimates.

To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations, and cash flows will be affected.

We believe that the accounting policies described below involve a significant degree of judgment and complexity.

Accordingly, we believe these

are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of operations.

For further information, see Note 2.

Significant Accounting Policies in our consolidated financial statements

included elsewhere in this Annual Report on Form 10-K.

Revenue Recognition

We generate revenue from the sale of subscriptions to access our software Palantir Cloud and

On-Premises Software, with ongoing O&M services and professional services.

In accordance with

ASC 606, Revenue from Contracts with Customers , we recognized revenue upon the transfer of promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for promised goods

We apply the following five-step revenue recognition model in accounting for our revenue arrangements:

Identification of the contract(s) with the customer,

Identification of the performance obligations in the contract,

Determination of the transaction price,

Allocation of the transaction price to the performance obligations in the contract, and

Recognition of revenue when, or as, we satisfy a performance obligation.

Each of our significant performance obligations and our application of ASC 606 to our revenue arrangements is discussed in further detail

Palantir Cloud

Cloud subscriptions grant customers the right to access the software functionality in a hosted environment controlled by Palantir and are also sold together with stand-ready O&M services.

We promise to provide continuous access to the hosted

software throughout the contract term.

Revenue associated with Palantir Cloud subscriptions is recognized over the contract term on a ratable basis, which is consistent with the transfer of control of the Palantir Cloud services to the customer.

On-Premises Software

Sales of our software subscriptions grant customers the right to use functional intellectual property, either on their internal hardware

infrastructure or on their own cloud instance, over the contractual term and are sold together with stand-ready O&M services.

The O&M services include critical updates, support, and maintenance services required to operate our software and,

as such, are necessary for our software to maintain its intended utility over the contractual term.

Because of this requirement, we have concluded that the software subscriptions and O&M services, which together we refer to as our On-Premises Software, are highly interdependent and interrelated and represent a single distinct performance obligation within the context of the contract.

Revenue is generally recognized over the contract term on a

ratable basis.

Professional Services

Our professional services support the customers use of the software and include, as needed,

on-demand user support, user-interface configuration, training, and ongoing ontology and data modeling support.

Professional services contracts typically include the provision of

on-demand professional services for the duration of the contractual term.

These services are typically coterminous with a Palantir Cloud subscription or the On-Premises

Professional services are on-demand, whereby we perform services throughout the contract period;

therefore, the revenue is recognized over the contractual term.

Contract Balances

The timing of

customer billing and payment relative to the start of the service period varies from contract to contract;

however, we bill many of our customers in advance of the provision of services under our contracts, resulting in contract liabilities

consisting of either deferred revenue or customer deposits (contract liabilities).

Deferred revenue represents billings under noncancelable contracts before the related product or service is transferred to the customer.

Customer deposits

consist of payments received in advance of the start of the contractual term or for anticipated revenue generating activities for the portion of a contract term that is subject to cancellation and refund.

Our arrangements generally include terms

that allow the customer to terminate the contract for convenience and receive a pro-rata refund of the amount of the customer deposit for the period of time remaining in the contract term after the applicable

termination notice period expires.

In these arrangements, we concluded there are no enforceable rights and obligations after such notice period and therefore the consideration received or due from the customer that is subject to termination for

convenience is recorded as customer deposits.

The payment terms and conditions vary by contract;

however, our terms generally require

payment within 30 to 60 days from the invoice date.

In instances where the timing of revenue recognition differs from the timing of payment, we elected to apply the practical expedient in accordance with ASC 606 to not adjust contract consideration

for the effects of a significant financing component as we expect, at contract inception, that the period between when promised goods and services are transferred to the customer and when the customer pays for those goods and services will be one

year or less.

As such, we determined our contracts do not generally contain a significant financing component.

Areas of Judgment and Estimation

Our contracts with customers can include multiple promises to transfer goods or services to the customer.

Determining whether

promises are distinct performance obligations that should be accounted for separately or not distinct within the context of the contract and, thus, accounted for together requires significant judgment.

We concluded that the promise to

provide a software subscription is highly interdependent and interrelated with the promise to provide O&M services and such promises are not distinct within the context of our contracts and are accounted for as a single performance obligation

for our On-Premises Software.

Additionally, the pricing of our contracts is generally fixed;

however, it is possible for

contracts to include variable consideration in the form of performance bonuses, which can be based on subjective or objective criteria.

We include the estimated amount of variable consideration that we expect to receive to the extent it is probable

that a significant revenue reversal will not occur.

Any amounts received in the form of performance bonuses were not material in the periods presented.

Stock-Based Compensation

We account for stock-based compensation expense in accordance with the fair value recognition and measurement provisions of GAAP, which

require compensation cost for the grant-date fair value of stock-based awards to be recognized over the requisite service period.

We determine the fair value of stock-based awards granted or modified on the grant date or modification date using

appropriate valuation techniques.

Service-Based Vesting

We grant stock option awards and RSUs, that vest only based upon the satisfaction of a service condition.

For stock option awards, we use the

Black-Scholes option pricing model to determine the fair value of the stock options granted.

The Black-Scholes option pricing model requires the input of highly subjective assumptions, including the fair value of the underlying common stock, the

expected term of the option, the expected volatility of the price of the common stock, risk-free interest rates, and the expected dividend yield of the common stock.

The assumptions used to determine the fair value of the option awards represent

managements best estimates.

These estimates involve inherent uncertainties and the application of our judgment.

For RSUs, we determine the grant-date fair value of the RSUs as the fair value of our common stock on the grant date.

stock-based compensation expense for stock options and RSUs that vest only based upon the satisfaction of a service condition on a straight-line basis over the requisite service period, which is generally four years.

We recognize forfeitures as they

Performance-Based Vesting

We grant awards, including RSUs that vest upon the satisfaction of both a service condition and a performance condition.

The performance-based

vesting condition for the RSUs granted prior to our Direct Listing was satisfied upon the occurrence of the Direct Listing.

The stock-based compensation expense related to such RSUs is recognized using the accelerated attribution method from the

The service-based vesting period for these awards varies across service providers and is up to five years.

We estimate our current tax expense together with assessing temporary differences resulting from differing treatment of items not

currently deductible for tax purposes.

These differences result in deferred tax assets and liabilities on our consolidated balance sheets, which are estimated based upon the difference between the financial statement and tax bases of assets and

liabilities using the enacted tax rates that will be in effect when these differences reverse.

In general, deferred tax assets represent future tax benefits to be received when certain expenses previously recognized in our consolidated statements of

operations become deductible expenses under applicable income tax laws or loss or credit carryforwards are utilized.

Accordingly, the realization of our deferred tax assets are dependent on future taxable income against which these deductions,

losses, and credits can be utilized.

We evaluate the realizability of our deferred tax assets and recognize a valuation allowance when it

is more likely than not that a future benefit on such deferred tax assets will not be realized.

Changes in the valuation allowance, when recorded, would be included in our consolidated statements of operations.

Our judgment is required in

determining the valuation allowance recorded against our net deferred tax assets.

We recognize the tax benefit from an uncertain tax position only if it is more likely than

not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position.

The tax benefits recognized in the consolidated financial statements from such positions are then measured based on

the largest benefit that has a greater than 50% likelihood of being realized upon settlement.

We recognize interest and penalties related to uncertain tax positions in our provision (benefit) for income taxes.

Recent Accounting Pronouncements

For information on recently issued accounting pronouncements, refer to Note 2.

Significant Accounting Policies in our consolidated

financial statements included elsewhere in this Annual Report on Form 10-K.

QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risks in the ordinary course of our business, which primarily relate to fluctuations in interest rates, foreign

exchange, and inflation.

Interest Rate Risk

Our cash, cash equivalents, and restricted cash consist of cash, certificates of deposit, and money market funds.

Our investment policy and

strategy are focused on the preservation of capital and supporting our liquidity requirements.

We have not entered into investments for trading or speculative purposes.

Due to the short-term nature of the financial instruments, we have not been exposed to, nor do we anticipate being exposed to, material risks

due to changes in interest rates.

A hypothetical 10% change in interest rates during any of the periods presented would not have had a material impact on our consolidated financial statements.

As of December 31, 2020, we had $200.0 million in variable rate term loans outstanding that are scheduled to mature in June 2023.

immediate 10% change in LIBOR would not have a material impact on our debt-related obligations, financial position or results of operations.

Foreign Currency Exchange Risk

Our contracts with customers are primarily denominated in U.S.

dollars, with a small amount denominated in foreign currencies.

Our expenses are

generally denominated in the currencies of the jurisdictions in which we conduct our operations, which are primarily in the United States, United Kingdom, and other European countries.

Our results of current and future operations and cash flows are,

therefore, subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the Euro and GBP.

Additionally, fluctuations in foreign currency exchange rates may cause us to recognize transaction gains and losses in

our statement of operations.

To date, foreign currency transaction gains and losses have not been material to our consolidated financial statements, and we have not engaged in any foreign currency hedging transactions.

Inflation Risk

We do not believe that inflation has had a material effect on our business, results of operations, or financial condition.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 5. Market for Registrant’s Common Equity