Palantir Technologies Inc. 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX Page Reports of Independent Registered Public Accounting Firm (PCAOB ID: 42 ) 98 Consolidated Balance Sheets 1 0 1 Consolidated Statements of Operations 102 Consolidated Statements of Comprehensive Loss 103 Consolidated Statements of Redeemable Convertible and Convertible Preferred Stock and Stockholders’ Equity (Deficit) 104 Consolidated Statements of Cash Flows 107 Notes to Consolidated Financial Statements 109 97 Table of Contents Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of Palantir Technologies Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Palantir Technologies Inc. (the Company) as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive loss, redeemable convertible and convertible preferred stock and stockholders’ equity (deficit), and cash flows for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 24, 2022 expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. 98 Table of Contents Revenue Recognition Description of the Matter As discussed in Note 2 to the consolidated financial statements, the Company derives its revenue primarily from the sale of subscriptions to access its software in the Company’s hosted environment with ongoing operations and maintenance (“O&M”) services (“Palantir Cloud”), software licenses, primarily term licenses in the customers’ environments, with ongoing O&M services (“On-Premises Software”), and professional services. Management applies significant judgment in identifying and evaluating any non-standard terms and conditions in customer arrangements which may impact the determination of performance obligations or the timing of revenue recognition. In addition, the determination as to whether the Company’s On-Premises Software licenses and O&M services are considered distinct performance obligations that should be accounted for separately or combined as a single performance obligation requires significant judgment. The Company has concluded that the On-Premises Software licenses and O&M services are highly interdependent and interrelated and represent a single distinct performance obligation within the context of the contract that is generally recognized ratably over the contract term. Auditing revenue recognition was complex and required a significant level of auditor judgment to identify and evaluate non-standard terms and conditions that impact revenue recognition and to assess whether the On-Premises software licenses and O&M services should be accounted for as distinct performance obligations or combined as a single performance obligation. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of the Company’s controls to identify and evaluate terms and conditions and performance obligations in customer arrangements that would impact revenue recognition. Our substantive procedures included, among others, testing the completeness and accuracy of management’s identification and evaluation of non-standard terms and conditions, reading executed contracts for a sample of revenue transactions and evaluating whether the Company appropriately applied its revenue recognition policy to the arrangements based on the terms and conditions therein and consistent with U.S. GAAP. In addition, we evaluated management’s key assumptions and analysis of its performance obligations, including their assessment of the nature, interdependency, and level of integration between the On-Premises software license and O&M services. We also evaluated the appropriateness of the related disclosures in the consolidated financial statements. /s/ Ernst & Young LLP We have served as the Company’s auditor since 2008. San Jose, California February 24, 2022 99 Table of Contents Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of Palantir Technologies Inc. Opinion on Internal Control over Financial Reporting We have audited Palantir Technologies Inc.’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Palantir Technologies Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive loss, redeemable convertible and convertible preferred stock and stockholders’ equity (deficit), and cash flows for each of the three years in the period ended December 31, 2021, and the related notes and our report dated February 24, 2022 expressed an unqualified opinion thereon. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Ernst & Young LLP San Jose, California February 24, 2022 100 Table of Contents Palantir Technologies Inc. Consolidated Balance Sheets (in thousands, except per share amounts) As of December 31, 2021 2020 Assets Current assets: Cash and cash equivalents $ 2,290,674 $ 2,011,323 Restricted cash 36,628 37,285 Accounts receivable 190,923 156,932 Marketable securities 234,153 — Prepaid expenses and other current assets 110,872 51,889 Total current assets 2,863,250 2,257,429 Property and equipment, net 31,304 29,541 Restricted cash, noncurrent 39,612 79,538 Operating lease right-of-use assets 216,898 217,075 Other assets 96,386 106,921 Total assets $ 3,247,450 $ 2,690,504 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 74,907 $ 16,358 Accrued liabilities 155,806 158,546 Deferred revenue 227,816 189,520 Customer deposits 161,605 210,320 Operating lease liabilities 39,927 29,079 Total current liabilities 660,061 603,823 Deferred revenue, noncurrent 40,217 50,525 Customer deposits, noncurrent 33,699 81,513 Debt, noncurrent, net — 197,977 Operating lease liabilities, noncurrent 220,146 229,800 Other noncurrent liabilities 2,297 4,316 Total liabilities 956,420 1,167,954 Commitments and Contingencies (Note 9) Stockholders’ equity: Preferred stock, $ 0.001 par value: 2,000,000 shares authorized and 0 shares issued and outstanding as of December 31, 2021 and 2020 — — Common stock, $ 0.001 par value: 20,000,000 Class A shares authorized as of December 31, 2021 and 2020; 1,926,589 shares issued and outstanding as of December 31, 2021, and 1,542,058 shares issued and outstanding as of December 31, 2020, respectively; 2,700,000 Class B shares authorized as of December 31, 2021 and 2020; 99,880 and 249,077 shares issued and outstanding as of December 31, 2021 and 2020, respectively; and 1,005 Class F shares authorized, issued, and outstanding as of December 31, 2021 and 2020 2,027 1,792 Additional paid-in capital 7,777,085 6,488,857 Accumulated other comprehensive loss ( 2,349 ) ( 2,745 ) Accumulated deficit ( 5,485,733 ) ( 4,965,354 ) Total stockholders’ equity 2,291,030 1,522,550 Total liabilities and stockholders’ equity $ 3,247,450 $ 2,690,504 The accompanying notes are an integral part of these consolidated financial statements. 10 1 Table of Contents Palantir Technologies Inc. Consolidated Statements of Operations (in thousands, except per share amounts) Years Ended December 31, 2021 2020 2019 Revenue $ 1,541,889 $ 1,092,673 $ 742,555 Cost of revenue 339,404 352,547 242,373 Gross profit 1,202,485 740,126 500,182 Operating expenses: Sales and marketing 614,512 683,701 450,120 Research and development 387,487 560,660 305,563 General and administrative 611,532 669,444 320,943 Total operating expenses 1,613,531 1,913,805 1,076,626 Loss from operations ( 411,046 ) ( 1,173,679 ) ( 576,444 ) Interest income 1,607 4,680 15,090 Interest expense ( 3,640 ) ( 14,139 ) ( 3,061 ) Other income (expense), net ( 75,415 ) 4,111 ( 2,856 ) Loss before provision for (benefit from) income taxes ( 488,494 ) ( 1,179,027 ) ( 567,271 ) Provision for (benefit from) income taxes 31,885 ( 12,636 ) 12,375 Net loss $ ( 520,379 ) $ ( 1,166,391 ) $ ( 579,646 ) Net loss per share attributable to common stockholders, basic $ ( 0.27 ) $ ( 1.19 ) $ ( 1.02 ) Net loss per share attributable to common stockholders, diluted $ ( 0.27 ) $ ( 1.20 ) $ ( 1.02 ) Weighted-average shares of common stock outstanding used in computing net loss per share attributable to common stockholders, basic 1,923,617 977,722 576,959 Weighted-average shares of common stock outstanding used in computing net loss per share attributable to common stockholders, diluted 1,923,617 979,330 576,959 The accompanying notes are an integral part of these consolidated financial statements. 10 2 Table of Contents Palantir Technologies Inc. Consolidated Statements of Comprehensive Loss (in thousands) Years Ended December 31, 2021 2020 2019 Net loss $ ( 520,379 ) $ ( 1,166,391 ) $ ( 579,646 ) Other comprehensive loss Foreign currency translation adjustments 396 ( 2,042 ) ( 1,465 ) Comprehensive loss $ ( 519,983 ) $ ( 1,168,433 ) $ ( 581,111 ) The accompanying notes are an integral part of these consolidated financial statements. 10 3 Table of Contents Palantir Technologies Inc. Consolidated Statements of Redeemable Convertible and Convertible Preferred Stock and Stockholders’ Equity (Deficit) (in thousands) 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, 2018 25,947 $ 172,163 742,813 $ 2,087,560 549,368 $ 570 $ 1,627,737 20,637 $ ( 148,621 ) $ 762 $ ( 3,231,876 ) $ ( 1,751,428 ) Cumulative effect of accounting changes — — — — — — ( 34 ) — — — 12,559 12,525 Issuance of Series H redeemable convertible preferred stock upon exercise of warrants 2,949 26,069 — — — — — — — — — — Redemption of Series H redeemable convertible preferred stock ( 23,931 ) ( 168,000 ) — — — — — — — — — — Sale of Series H redeemable convertible preferred stock 1,068 7,500 — — — — — — — — — — Reclassification of Series H redeemable convertible preferred stock into convertible preferred stock upon expiration of redemption option ( 2,016 ) ( 4,163 ) 2,016 4,163 — — — — — — — — Repurchase of Series A convertible preferred stock — — ( 1 ) — — — — — — — — — Repurchase of Series D convertible preferred stock — — ( 8 ) ( 6 ) — — — — — — — — Repurchase of Series F convertible preferred stock — — ( 3,037 ) ( 5,386 ) — — — — — — — — Distributed earnings attributable to participating securities — — — — — — ( 8,481 ) — — — — ( 8,481 ) Conversion of Series F convertible stock to common stock — — ( 10 ) ( 20 ) 10 — 20 — — — — 20 Issuance of Series D convertible preferred stock upon exercise of warrants — — 1,097 7,375 — — — — — — — — Conversion of Series D convertible stock to common stock — — ( 30 ) ( 24 ) 30 — 24 — — — — 24 Sale of common stock, held in treasury — — — — 16,584 — ( 20,928 ) ( 16,584 ) 120,928 — — 100,000 Repurchase of common stock, held in treasury — — — — ( 2,340 ) — — 2,340 ( 11,202 ) — — ( 11,202 ) Issuance of common stock from the exercise of stock options — — — — 17,845 18 16,879 — — — — 16,897 Stock-based compensation — — — — — — 242,114 — — — — 242,114 Other comprehensive loss — — — — — — — — — ( 1,465 ) — ( 1,465 ) Net loss — — — — — — — — — — ( 579,646 ) ( 579,646 ) 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 ) The accompanying notes are an integral part of these consolidated financial statements. 104 Table of Contents Palantir Technologies Inc. Consolidated Statements of Redeemable Convertible and Convertible Preferred Stock and Stockholders’ Equity (Deficit) (in thousands) Redeemable Convertible Preferred Stock Convertible Preferred Stock Common Stock Additional Paid-in Capital Treasury Stock Accumulated Other Comprehensive Loss Accumulated Deficit Total Stockholders’ (Deficit) Equity 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 Issuance of Series K convertible preferred stock — — 121 947 — — — — — — — — Issuance of Series D preferred stock upon net exercise of Series D preferred stock warrants — — 2,380 10,810 — — — — — — — — Repurchase of common stock, held in treasury — — — — ( 808 ) — — 808 ( 3,777 ) — — ( 3,777 ) Retirement of treasury stock — — — — — ( 7 ) ( 42,665 ) ( 7,201 ) 42,672 — — — Issuance of common stock upon net exercise of common stock warrants — — — — 7,631 8 ( 8 ) — — — — — Issuance of common stock, net of issuance costs — — — — 206,501 207 942,322 — — — — 942,529 Conversion of redeemable convertible preferred stock to common stock ( 4,017 ) ( 33,569 ) — — 4,017 4 33,565 — — — — 33,569 Conversion of convertible preferred stock to common stock — — ( 745,313 ) ( 2,105,319 ) 793,726 794 2,104,525 — — — — 2,105,319 Conversion of preferred stock warrants to common stock warrants — — — — — — 31,007 — — — — 31,007 Issuance of common stock from the exercise of stock options — — — — 120,618 120 298,709 — — — — 298,829 Issuance of common stock upon vesting of restricted stock units (“RSUs”) — — — — 82,430 82 ( 82 ) — — — — — Stock-based compensation — — — — — — 1,264,254 — — — — 1,264,254 Settlement of employee loan accounted for as a modification to stock option — — — — ( 3,500 ) ( 4 ) ( 201 ) — — — — ( 205 ) Other comprehensive loss — — — — — — — — — ( 2,042 ) — ( 2,042 ) Net loss — — — — — — — — — — ( 1,166,391 ) ( 1,166,391 ) Balance as of December 31, 2020 — $ — — $ — 1,792,140 $ 1,792 $ 6,488,857 — $ — $ ( 2,745 ) $ ( 4,965,354 ) $ 1,522,550 The accompanying notes are an integral part of these consolidated financial statements. 105 Table of Contents Palantir Technologies Inc. Consolidated Statements of Redeemable Convertible and Convertible Preferred Stock and Stockholders’ Equity (Deficit) (in thousands) Common Stock Additional Paid-in Capital Accumulated Other Comprehensive 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 178,849 178 507,277 — — 507,455 Issuance of common stock upon vesting of RSUs 50,350 50 ( 50 ) — — — Issuance of common stock upon vesting of growth units 1,471 1 ( 1 ) — — — Issuance of common stock upon net exercise of common stock warrants and other 4,664 6 1,706 — — 1,712 Stock-based compensation — — 779,296 — — 779,296 Other comprehensive income — — — 396 — 396 Net loss — — — — ( 520,379 ) ( 520,379 ) Balance as of December 31, 2021 2,027,474 $ 2,027 $ 7,777,085 $ ( 2,349 ) $ ( 5,485,733 ) $ 2,291,030 The accompanying notes are an integral part of these consolidated financial statements. 106 Table of Contents Palantir Technologies Inc. Consolidated Statements of Cash Flows (in thousands) Years Ended December 31, 2021 2020 2019 Operating activities Net loss $ ( 520,379 ) $ ( 1,166,391 ) $ ( 579,646 ) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 14,897 13,871 12,255 Stock-based compensation 778,215 1,270,702 241,970 Deferred income taxes 43,316 ( 20,385 ) ( 7,199 ) Impairment of assets held for sale — 674 23,407 Non-cash operating lease expense 33,821 35,049 — Unrealized and realized loss (gain) from marketable securities, net 73,311 — — Other operating activities 2,722 3,606 2,772 Changes in operating assets and liabilities: Accounts receivable ( 35,237 ) ( 108,476 ) ( 23,905 ) Prepaid expenses and other current assets ( 10,929 ) ( 18,565 ) 18,809 Other assets ( 3,345 ) ( 8,605 ) ( 22,251 ) Accounts payable 57,767 ( 34,681 ) 23,424 Accrued liabilities 15,245 38,505 3,733 Deferred revenue, current and noncurrent 24,732 ( 30,905 ) ( 134,396 ) Customer deposits, current and noncurrent ( 104,944 ) ( 230,873 ) 279,226 Operating lease liabilities, current and noncurrent ( 32,156 ) ( 43,639 ) — Other noncurrent liabilities ( 3,185 ) 3,505 ( 3,414 ) Net cash provided by (used in) operating activities 333,851 ( 296,608 ) ( 165,215 ) Investing activities Purchases of property and equipment ( 12,627 ) ( 12,236 ) ( 13,096 ) Purchases of marketable securities ( 308,315 ) — — Purchases of equity method investments — ( 2,934 ) ( 25,868 ) Return of capital from equity method investment — — 17,000 Purchases of alternative investments ( 50,941 ) — — Purchases of privately-held securities ( 23,009 ) — — Other investing activities ( 3,020 ) 250 — Net cash used in investing activities ( 397,912 ) ( 14,920 ) ( 21,964 ) Financing activities Proceeds from the issuance of common stock, net of issuance costs — 942,529 100,000 Proceeds from issuance of debt, net of issuance costs — 199,369 544,413 Principal payments on borrowings ( 200,000 ) ( 400,000 ) ( 150,000 ) Proceeds from the exercise of common stock options 507,455 298,829 16,897 Repurchase of common stock — ( 3,777 ) ( 11,202 ) Proceeds from the sale of redeemable convertible preferred stock — — 7,500 Redemption of redeemable convertible preferred stock — — ( 168,000 ) Repurchase of convertible preferred stock — — ( 13,873 ) Other financing activities ( 708 ) ( 497 ) ( 1,202 ) Net cash provided by financing activities 306,747 1,036,453 324,533 Effect of foreign exchange on cash, cash equivalents, and restricted cash ( 3,918 ) 1,259 ( 2,227 ) Net increase in cash, cash equivalents, and restricted cash 238,768 726,184 135,127 Cash, cash equivalents, and restricted cash - beginning of period 2,128,146 1,401,962 1,266,835 Cash, cash equivalents, and restricted cash - end of period $ 2,366,914 $ 2,128,146 $ 1,401,962 107 Table of Contents Palantir Technologies Inc. Consolidated Statements of Cash Flows (in thousands) Years Ended December 31, 2021 2020 2019 Supplemental disclosures of cash flow information: Cash paid for income taxes $ 4,131 $ 14,283 $ 8,579 Cash paid for interest 2,774 11,432 2,710 Supplemental disclosures of non-cash investing and financing information: Conversion of redeemable convertible and convertible preferred stock to common stock $ — $ 2,138,988 $ — Conversion of convertible preferred stock warrants to common stock warrants — 31,007 — Cashless net exercise of warrants for redeemable convertible preferred stock — — 26,069 Cashless net exercise of warrants for convertible preferred stock — 10,810 7,375 Reclassification of redeemable convertible preferred stock into convertible preferred stock upon expiration of redemption option — — 4,163 The accompanying notes are an integral part of these consolidated financial statements. 108 Table of Contents Palantir Technologies Inc. Notes to 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, that serve as the central operating systems for its customers. 2. Significant Accounting Policies Basis of Presentation and Consolidation The accompanying 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 annual financial reporting. The accompanying 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 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 consolidated statements of operations and the investment balance is included in other assets and classified as noncurrent in the consolidated balance sheets. Certain prior year balances have been reclassified to conform to the current year presentation. Such reclassifications did not affect total revenues, loss from operations, net loss, or cash flows. The Company’s fiscal year ends on December 31. Direct Listing On September 30, 2020, the Company completed a direct listing of its Class A common stock on the New York Stock Exchange (“NYSE”) (the “Direct Listing”). Immediately prior to the Direct Listing, all outstanding shares of redeemable convertible preferred stock and convertible preferred stock were converted into Class B common stock, and 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. Use of Estimates The preparation of the 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 consolidated financial statements, and the reported amounts of revenue and expenses during the reporting periods. Significant estimates and assumptions made in the accompanying consolidated financial statements include, but are not limited to, the identification of performance obligations in customer contracts; the valuation of deferred tax assets and uncertain tax positions; the collectability of contract consideration, including accounts receivable; the 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. Segments The Company has two operating segments, commercial and government, which were determined based on the manner in which the chief operating decision maker (“CODM”), who is the chief executive officer, manages the 109 Table of Contents Palantir Technologies Inc. Notes to Consolidated Financial Statements operations of the Company for purposes of allocating resources and evaluating performance. Various factors, including the Company’s organizational and management reporting structure and customer type, were considered in determining these operating segments. The Company’s operating segments are described below: • Commercial : This segment primarily serves customers working in non-government industries. • Government : This segment primarily serves customers that are United States (“U.S.”) government and non-U.S. government agencies. 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 primarily consist 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 consolidated balance sheets that sum to the total of the amounts shown in the consolidated statements of cash flows (in thousands): As of December 31, 2021 2020 2019 Cash and cash equivalents $ 2,290,674 $ 2,011,323 $ 1,079,154 Restricted cash 36,628 37,285 52,099 Restricted cash, noncurrent 39,612 79,538 270,709 Total cash, cash equivalents, and restricted cash $ 2,366,914 $ 2,128,146 $ 1,401,962 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 December 31, 2021 and 2020, it did no t record an allowance for credit losses as probable losses are not expected to be material. Concentrations of Risk Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash, cash equivalents, restricted cash, accounts receivable, and marketable securities. Cash 110 Table of Contents Palantir Technologies Inc. Notes to Consolidated Financial Statements equivalents primarily 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 consolidated balance sheets. The Company’s accounts receivable balances as of December 31, 2021 and 2020 were $ 190.9 million and $ 156.9 million, respectively. No customer represented more than 10 % of total accounts receivable as of December 31, 2021. Customer G represented 13 % of total accounts receivable as of December 31, 2020. No other customer represented more than 10 % of total accounts receivable as of December 31, 2020. For the year ended December 31, 2021, no customer represented 10 % or more of total revenue. For the year ended December 31, 2020, Customer F, which is in the government operating segment, represented 10 % of total revenue. For the year ended December 31, 2019, Customer D, which is in the commercial operating segment, represented 12 % of total revenue. No other customers represented more than 10 % of total revenue for the years ended December 31, 2020 and 2019. Alternative Investments Alternative investments include gold bars and are recorded in prepaid expenses and other current assets on the consolidated balance sheets. The investments are initially recorded at cost and subsequently remeasured at the lower of cost or market each reporting period. Market value is determined by using quoted market prices of identical or similar assets from active markets. Unrealized losses are recorded in other income (expense), net in the consolidated statements of operations. Realized gains and losses are recorded in other income (expense), net upon realization. Property and Equipment, Net Property and equipment, net are stated at cost less accumulated depreciation and amortization. Depreciation is recognized using the straight-line method over the estimated useful lives of the respective assets, which are generally three years. Leasehold improvements are capitalized and amortized using the straight-line method over the shorter of the remaining lease term or the estimated useful life, which is generally five years . Maintenance and repairs that do not improve or extend the useful lives of the assets are expensed when incurred. Upon sale or retirement of assets, the cost and related accumulated depreciation and amortization are derecognized from the consolidated balance sheet and any resulting gain or loss is recorded in the consolidated statements of operations in the period realized. Equity Method Investments In general, nonconsolidated investments in which the Company owns 20 % to 50 % of the affiliate’s equity and has the ability to exercise significant influence but does not control are accounted for under the equity method. In making this determination, the Company first considers whether it has a direct or indirect controlling financial interest based on either the variable interest entity (“VIE”) model or the voting interest entity (“VOE”) model. The Company adjusts the carrying value of its investment by its proportionate share of the net earnings or losses of the investee, adjustments for unrealized profits or losses on intra-entity transactions, impairment charges, dividends received, additional capital investments, and the amortization of basis differences during the respective reporting period. The Company’s proportionate share of the net earnings or loss of its equity method investments 111 Table of Contents Palantir Technologies Inc. Notes to Consolidated Financial Statements are based on the most recently available financial statements of the investee and is reflected as a component of other income (expense), net in the consolidated statements of operations. The income tax benefit or expense related to the Company’s interest in the net earnings or loss of the equity method investee is reported in the consolidated provision (benefit) for income taxes. The Company reviews the investments for impairment whenever factors indicate that the carrying amount of the investment might not be recoverable. In such a case, the decrease in value is recognized in the period the impairment occurs in the consolidated statements of operations . Privately-held Securities Equity securities in private-held companies without readily determinable fair values are recorded using the measurement alternative. Such investments are carried at cost, less any impairments, and are adjusted for subsequent observable price changes in orderly transactions for identical or similar investments of the same issuer. Changes in the basis of the equity securities are recognized in other income (expense), net in the consolidated statements of operations. Impairment of Long-Lived Assets Long-lived assets are reviewed for impairment annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability is measured by comparing the carrying amount of an asset to the future undiscounted cash flows that the asset is expected to generate. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset. Leases The Company adopted the Accounting Standard Update (“ASU”) 2016-02, Leases, and additional ASUs issued to clarify and update the guidance in ASU 2016-02 (collectively “ASC 842”), as of January 1, 2020. The Company determines if an arrangement is a lease at inception. An arrangement is or contains a lease if it conveys the right to control the use of an identified asset for a period of time in exchange for consideration. If a lease is identified, classification is determined at lease commencement. Operating lease liabilities are recognized at the present value of the future lease payments at the lease commencement date. The Company’s leases do not provide an implicit interest rate and therefore the Company estimates its incremental borrowing rate to discount lease payments. The incremental borrowing rate reflects the interest rate that the Company would have to pay to borrow on a collateralized basis an amount equal to the lease payments in a similar economic environment over a similar term. Operating lease right-of-use (“ROU”) assets are based on the corresponding lease liability adjusted for any lease payments made at or before commencement, initial direct costs, and lease incentives. Renewals or early terminations are not accounted for unless the Company is reasonably certain to exercise these options. Operating lease expense is recognized and the ROU asset is amortized on a straight-line basis over the lease term. The Company has lease agreements with lease and non-lease components, which are accounted for as a single lease component. The Company elected to use the transition relief package of practical expedients but did not elect to use the hindsight practical expedient in determining a lease term and impairment of ROU assets at the adoption date. For short-term leases, defined as leases with a term of twelve months or less, the Company elected the practical expedient to not recognize an associated lease liability and ROU asset. Lease payments for short-term leases are expensed on a straight-line basis over the lease term. Operating leases are included in operating lease right-of-use assets, operating lease liabilities, and operating lease liabilities, non-current on the Company’s consolidated balance sheets. Finance leases are not material . 112 Table of Contents Palantir Technologies Inc. Notes to Consolidated Financial Statements Fair Value Measurement Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability, or an exit price, in the principal or most advantageous market for that asset or liability in an orderly transaction between market participants on the measurement date. The Company measures fair value based on a three-level hierarchy of inputs, maximizing the use of observable inputs, where available, and minimizing the use of unobservable inputs when measuring fair value. A financial instrument’s level within the three-level hierarchy is based on the lowest level of input that is significant to the fair value measurement. The three-level hierarchy of inputs is as follows: Level 1 : Observable inputs such as unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date; Level 2 : Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and Level 3 : Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. These inputs are based on the Company’s own assumptions about current market conditions and require significant management judgment or estimation. Financial instruments consist of money market funds and certificates of deposit included in cash equivalents and restricted cash, accounts receivable, marketable securities, other assets accounted for at fair value, accounts payable, and accrued liabilities. Money market funds, certificates of deposit, and marketable securities 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. Revenue Recognition The Company generates revenue from the sale of subscriptions to access its software in the Company’s hosted environment, along with ongoing operations and maintenance (“O&M”) services (“Palantir Cloud”); software licenses, primarily term licenses in the customers’ environments, with ongoing O&M services (“On-Premises Software”); and professional services. In accordance with Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers , the Company recognizes revenue upon the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for promised goods or services. The Company applies the following five-step revenue recognition model in accounting for its revenue arrangements: • Identification of the contract(s) with the customer, including whether collectability of the consideration is probable by considering the customers’ ability and intention to pay; • 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, the Company satisfies a performance obligation. Each of the Company’s significant performance obligations and the Company’s application of ASC 606 to its revenue arrangements is discussed in further detail below. 113 Table of Contents Palantir Technologies Inc. Notes to Consolidated Financial Statements Palantir Cloud The Company’s 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. The Company promises to provide continuous access to the hosted software throughout the contract term. Revenue associated with Palantir Cloud subscriptions is generally recognized over the contract term on a ratable basis, which is consistent with the transfer of control of the Palantir Cloud subscription to the customer. On-Premises Software Sales of the Company’s software licenses, primarily term licenses, 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. The O&M services include critical updates, 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, the Company has concluded that the software licenses and O&M services, which together the Company refers to as 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 The Company’s professional services support the customers’ use of the software and include, as needed, on-demand user support, user-interface configuration, training, and ongoing ontology and data modeling support. Professional services contracts typically include the provision of on-demand professional services for the duration of the contractual term. These services are typically coterminous with a Palantir Cloud subscription or the On-Premises Software. Professional services are on-demand, whereby the Company performs services throughout the contract period; therefore, the revenue is recognized over the contractual term. Contract Liabilities The timing of customer billing and payment relative to the start of the service period varies from contract to contract; however, the Company bills many of its customers in advance of the provision of services under its 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 refundable 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. Many of the Company’s arrangements 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, the Company 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, the Company’s 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, the Company 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 the Company expects, 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, the Company determined its contracts do not generally contain a significant financing component. 114 Table of Contents Palantir Technologies Inc. Notes to Consolidated Financial Statements Areas of Judgment and Estimation The Company’s 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. The Company concluded that the promise to provide a software license is highly interdependent and interrelated with the promise to provide O&M services and such promises are not distinct within the context of its contracts and are accounted for as a single performance obligation as the Company’s On-Premises Software. Additionally, the pricing of the Company’s 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. The Company includes the estimated amount of variable consideration that it expects 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. Costs to Obtain and Fulfill Contracts Incremental costs of obtaining a contract include only those costs that are directly related to the acquisition of contracts, including sales commissions, and that would not have been incurred if the contract had not been obtained. The Company recognizes a contract cost asset for the incremental costs of obtaining a contract with a customer if it is expected that the economic benefit and amortization period will be longer than one year. Costs to obtain contracts were not material in the periods presented. The Company recognizes an asset for the costs to fulfill a contract with a customer if the costs are specifically identifiable, generate or enhance resources used to satisfy future performance obligations, and are expected to be recovered. Costs to fulfill contracts were not material in the periods presented. Software Development Costs The Company evaluates capitalization of certain software development costs subsequent to the establishment of technological feasibility. Based on the Company’s product development process and substantial development risks, technological feasibility is established for the Company’s products when they are made available for general release. Accordingly, the Company has charged all such costs to research and development expense in the period incurred. 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. Sales and Marketing Costs Sales and marketing costs primarily include salaries, stock-based compensation expense, and benefits for personnel involved in sales functions, executing on pilots, and performing other brand building activities, as well as third-party cloud hosting services for our pilots, marketing and sales event-related costs, and allocated overhead. The Company generally charges all such costs to sales and marketing expense in the period incurred. Advertising costs are expensed as incurred and included in sales and marketing expense in the consolidated statements of operations. Advertising expense totaled $ 26.3 million for the year ended December 31, 2021 and was immaterial for the years ended December 31, 2020 and 2019. 115 Table of Contents Palantir Technologies Inc. Notes to Consolidated Financial Statements Research and Development Costs Research and development costs primarily include salaries, stock-based compensation expense, and benefits for personnel involved in performing the activities to develop and improve the Company’s platforms, as well as third-party cloud hosting services, and allocated overhead. Research and development costs are expensed as incurred. Commitments and Contingencies Liabilities for loss contingencies arising from claims, disputes, legal proceedings, fines and penalties, and other sources are recorded when it is probable that a liability has been or will be incurred and the amount of the liability can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred. Recoveries of such legal costs from insurance policies are recorded as an offset to legal expenses in the period they are received. Stock-Based Compensation The Company accounts 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. The Company determines the fair value of stock-based awards granted or modified on the grant date or modification date using appropriate valuation techniques. Service-Based Vesting The Company grants RSUs and stock option awards, that vest only based upon the satisfaction of a service condition. For RSUs, the Company determines the grant-date fair value of the RSUs as the fair value of the Company’s common stock on the grant date. The Company records 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. For stock option awards, the Company uses 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 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 management’s best estimates. These estimates involve inherent uncertainties and the application of management’s judgment. The Company recognizes forfeitures as they occur. Performance-Based Vesting The Company grants 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 the Company’s Direct Listing was satisfied upon the occurrence of the Direct Listing and are expensed using the accelerated attribution method over the remaining service period. Employee Benefit Plan The Company sponsors a 401(k) tax-deferred savings plan for all employees who meet certain eligibility requirements. Participants may contribute, on a pretax and post-tax basis, a percentage of their qualifying annual compensation, but not to exceed a maximum contribution amount pursuant to Section 401(k) of the Internal Revenue Code. The Company may make additional matching contributions on behalf of the participants. The Company did no t make matching contributions for the years ended December 31, 2021, 2020, and 2019. 116 Table of Contents Palantir Technologies Inc. Notes to Consolidated Financial Statements Income Taxes The Company estimates its 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 the Company’s 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 the Company’s consolidated statements of operations become deductible expenses under applicable income tax laws or loss or credit carryforwards are utilized. Accordingly, the realization of the Company’s deferred tax assets are dependent on future taxable income against which these deductions, losses, and credits can be utilized. The Company evaluates the realizability of its deferred tax assets and recognizes 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 the Company’s consolidated statements of operations. Management’s judgment is required in determining the Company’s valuation allowance recorded against its net deferred tax assets. The Company recognizes 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. The Company recognizes interest and penalties related to uncertain tax positions in its provision (benefit) for income taxes. The Company is subject to the Global Intangible Low Taxed income (“GILTI”) tax in the U.S. The Company has elected to treat taxes on future GILTI inclusions as a current period expense if and when incurred. Net Loss Per Share Attributable to Common Stockholders The Company computes net loss per share attributable to its common stockholders using the two-class method required for participating securities, which determines net loss per common share for each class of common stock and participating securities according to dividends declared or accumulated and participation rights in distributed and undistributed earnings. The two-class method requires income available to common stockholders for the period to be allocated between common stock and participating securities based upon their respective rights to receive dividends as if all income for the period had been distributed. The rights, including the liquidation and dividend rights, of the holders of Class A, Class B, and Class F common stock (collectively, the “common stock”) are identical, except with respect to voting and conversion. As the liquidation and dividend rights are identical, the undistributed earnings are allocated on a proportionate basis and the resulting net loss per share will, therefore, be the same for all classes of common stock on an individual or combined basis. As such, the Company has presented the net loss attributed to its common stock on a combined basis. Foreign Currency Generally the functional currency of the Company’s international subsidiaries is the local currency of the country in which they operate. The Company translates the assets and liabilities of its non-U.S. dollar functional currency subsidiaries into U.S. dollars using exchange rates in effect at the end of each reporting period. Revenue and expenses for these subsidiaries are translated using rates that approximate those in effect during the period. Gains and losses from these translations are recognized as a cumulative translation adjustment and included in accumulated other comprehensive income (loss). 117 Table of Contents Palantir Technologies Inc. Notes to Consolidated Financial Statements For transactions that are not denominated in the local functional currency, the Company remeasures monetary assets and liabilities at exchange rates in effect at the end of each reporting period. Transaction gains and losses from the remeasurement are recognized in other income (expense), net within the consolidated statements of operations. 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 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 of December 31, 2021 and 2020, the Company’s contract liability balances were $ 463.3 million and $ 531.9 million, respectively. Revenue of $ 378.4 million and $ 477.7 million was recognized during the years ended December 31, 2021 and 2020, respectively, that was included in the contract liabilities 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 allows many of 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 $ 1.1 billion as of December 31, 2021, of which the Company expects to recognize approximately 42 % as revenue over the next twelve months. Disaggregation of Revenue See Note 14. Segment and Geographic Information for disaggregated revenue by customer segment and geographic region. 118 Table of Contents Palantir Technologies Inc. Notes to Consolidated Financial Statements 4. Investments and Fair Value Measurements The following table presents the Company’s assets and liabilities that are measured at fair value on a recurring basis and indicates the fair value hierarchy of the valuation (in thousands): As of December 31, 2021 Total Level 1 Level 2 Level 3 Assets: Money market funds $ 507,317 $ 507,317 $ — $ — Certificates of deposit 51,892 — 51,892 — Marketable securities 234,153 234,153 — — Total $ 793,362 $ 741,470 $ 51,892 $ — As of December 31, 2020 Total Level 1 Level 2 Level 3 Assets: Money market funds $ 1,075,783 $ 1,075,783 $ — $ — 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. Marketable Securities Marketable securities consist of equity securities in publicly-traded companies and are recorded at fair market value each reporting period. Realized and unrealized gains and losses are recorded in other income (expense), net on the consolidated statements of operations. During the year ended December 31, 2021, the Company recorded net unrealized losses of $ 72.8 million within other income (expense), net on the consolidated statements of operations. Investments During 2021, the Company approved and entered into certain agreements (“Investment Agreements”) to purchase, or commit to purchase, as further discussed in Note 9. Commitments and Contingencies — Investment Commitments, shares of various entities, including special purpose acquisition companies and/or other privately-held or publicly-traded entities (each, an “Investee,” and such purchases, and commitments to purchase, the “Investments”). In connection with signing the Investment Agreements, each Investee or an associated entity and the Company entered into a commercial contract for access to the Company’s products and services. The total value of such commercial contracts was $ 767.9 million as of December 31, 2021, which is inclusive of $ 116.2 million of contractual options. The terms of such contracts, including contractual options, range from three to ten years. The majority of these commercial contracts are subject to various termination provisions, including for convenience in the event a proposed business combination is not completed. 119 Table of Contents Palantir Technologies Inc. Notes to Consolidated Financial Statements During 2021, the Company assessed the concurrent agreements under the non-monetary guidance within ASC 606 — Revenue from Contracts with Customers as well as the commercial substance of each arrangement considering the customer’s ability and intention to pay as well as the Company’s obligation to perform under each contract. The total revenue recognized from these commercial contracts during the year ended December 31, 2021 was $ 48.3 million. The following table presents the details of the investments purchased under such Investment Agreements during the year ended December 31, 2021 (in thousands): Entity (1) Share Amount Investment Amount Celularity 2,000 $ 20,000 Faraday Future 2,500 25,000 Astrocast 1,520 5,000 BlackSky 800 8,000 Lilium 4,100 41,000 Sarcos Robotics 2,100 21,000 Roivant Sciences 3,000 30,000 Babylon Health 3,500 35,000 Bird Global 2,000 20,000 Embark Trucks 1,800 18,000 Wejo 3,500 35,000 Pear Therapeutics 1,000 10,000 Boxed 2,000 20,000 Skydweller (2) 3,000 3,000 Hyundai Oilbank (2) 676 20,000 AdTheorent 1,500 15,000 Total 34,996 $ 326,000 (1) Investments are in publicly-traded marketable securities, unless otherwise noted. (2) Investment in privately-held company. Alternative Investments During the year ended December 31, 2021, the Company purchased $ 50.9 million in 100 -ounce gold bars. The gold bars will initially be kept in a secure third-party facility located in the northeastern United States. The Company is able to take physical possession of the gold bars stored at the facility at any time with reasonable notice. During the year ended December 31, 2021, unrealized losses on the Company’s alternative investments were not material. 120 Table of Contents Palantir Technologies Inc. Notes to Consolidated Financial Statements 5. Balance Sheet Components Property and Equipment, Net Property and equipment, net consisted of the following (in thousands): As of December 31, 2021 2020 Leasehold improvements $ 72,834 $ 85,196 Computer equipment, software, and other 16,916 22,275 Furniture and fixtures 8,358 9,976 Construction in progress 3,126 493 Total property and equipment, gross 101,234 117,940 Less: accumulated depreciation and amortization ( 69,930 ) ( 88,399 ) Total property and equipment, net $ 31,304 $ 29,541 Depreciation and amortization expense related to property and equipment, net was $ 12.8 million, $ 13.9 million, and $ 12.2 million for the years ended December 31, 2021, 2020, and 2019, respectively. Accrued Liabilities Accrued liabilities consisted of the following (in thousands): As of December 31, 2021 2020 Accrued payroll and related expenses $ 60,732 $ 85,466 Accrued other liabilities 95,074 73,080 Total accrued liabilities $ 155,806 $ 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. 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 revolving credit facility allows for the drawdown of up to 121 Table of Contents Palantir Technologies Inc. Notes to Consolidated Financial Statements $ 400.0 million to fund working capital and general corporate expenditures. Outstanding balances under the 2014 Credit Facility incur interest at the London Interbank Offered Rate (“LIBOR”), or the applicable benchmark replacement rate, plus a margin of 2.75 % per annum, subject to certain adjustments, and the Company 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 December 31, 2021, the Company had no amounts outstanding and a $ 400.0 million undrawn revolving credit facility. As of December 31, 2020, the Company had $ 200.0 million in outstanding debt. 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 December 31, 2021. 8. Leases The Company has operating leases primarily for corporate office space, and equipment. Certain lease agreements contain renewal options, rent abatement, and escalation clauses that are factored into our determination of lease payments when appropriate. The Company’s leases have remaining terms up to March 2032 with renewal terms up to June 2033 or options to terminate leases within the next six years. Supplemental balance sheet information related to lease liabilities at December 31, 2021 and 2020 was as follows (in thousands): As of December 31, Lease-Related Assets and Liabilities Financial Statement Line Items 2021 2020 Right-of-use assets: Operating leases Operating lease right-of-use assets $ 216,898 $ 217,075 Total right-of-use assets $ 216,898 $ 217,075 Lease liabilities: Operating leases Operating lease liabilities $ 39,927 $ 29,079 Operating lease liabilities, noncurrent 220,146 229,800 Total lease liabilities $ 260,073 $ 258,879 The components of lease expense included in the Company’s consolidated statements of operations include (in thousands): Years Ended December 31, 2021 2020 Operating lease expense $ 51,330 $ 53,576 Short-term lease expense 4,165 8,942 Variable lease expense 7,518 9,433 Less: Sublease income 19,957 19,769 Total lease expense, net $ 43,056 $ 52,182 122 Table of Contents Palantir Technologies Inc. Notes to Consolidated Financial Statements Variable lease costs are primarily related to payments made to lessors for common area maintenance, property taxes, insurance, and other operating expenses. Short-term lease costs primarily represent temporary employee housing. Finance lease costs were not material for the years ended December 31, 2021 and 2020. Maturities of operating lease liabilities as of December 31, 2021 were as follows (in thousands): As of December 31, 2021 Operating Lease Commitments Less: Sublease Income Net Lease Commitments Year ended December 31, 2022 $ 53,258 $ 12,461 $ 40,797 2023 54,206 18,274 35,932 2024 44,025 16,403 27,622 2025 42,163 14,210 27,953 2026 37,045 13,748 23,297 Thereafter 92,365 57,653 34,712 Total undiscounted liabilities 323,062 132,749 190,313 Less: Imputed interest ( 62,989 ) — ( 62,989 ) Total operating lease liabilities $ 260,073 $ 132,749 $ 127,324 The weighted-average remaining lease term related to the Company’s operating lease liabilities as of December 31, 2021 and 2020 was 6.9 years and 8.1 years, respectively. The weighted-average discount rate related to the Company’s operating lease liabilities as of December 31, 2021 and 2020 was 6.03 % and 6.34 %, respectively. The following table sets forth the supplemental information related to the Company’s operating leases for the year ended December 31, 2021 (in thousands): Years Ended December 31, 2021 2020 Cash paid for operating lease liabilities $ 49,228 $ 58,157 Lease liabilities arising from obtaining right-of-use assets $ 34,606 $ 17,647 Under ASC 840, during the year ended December 31, 2019, net rent expense was $ 38.5 million, which included sublease income of $ 14.8 million. 9. 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 $ 76.2 million and $ 116.8 million as of December 31, 2021 and 2020, respectively, which were fully collateralized. The Company is required to maintain these letters of credit and guarantees primarily in connection with operating lease agreements, certain customer contracts, and other guarantees and financing arrangements. As of December 31, 2021, these letters of credit and guarantees had expiration dates through August 2028. 123 Table of Contents Palantir Technologies Inc. Notes to Consolidated Financial Statements Purchase Commitments In December 2019, the Company entered into, and subsequently amended, 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 December 31, 2021, the Company had satisfied $ 72.8 million of its $ 167.0 million commitment for the contract year ending June 30, 2022. 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 December 31, 2021, the Company had satisfied $ 10.4 million of its commitment. Investment Commitments The Company approved and entered into certain Investment Agreements with Investees, as further discussed in Note 4. Investments and Fair Value Measurements—Investments. As of December 31, 2021, the Company had outstanding investment commitments, subject to the applicable terms and conditions, to purchase a total of 13.5 million shares for an aggregate purchase price of $ 134.5 million. The closings of certain of such Investments are contingent upon the completion of a proposed business combination between the applicable Investee and other applicable parties. The following table presents details related to the Company’s investment commitments outstanding as of December 31, 2021 (in thousands): Entity Investment Agreement Date Committed Share Amount Committed Investment Amount Fast Radius (1)(2) July 18, 2021 2,000 $ 20,000 Tritium (1)(2) July 27, 2021 1,500 15,000 FinAccel August 2, 2021 1,000 10,000 Energy Vault (1)(2) September 8, 2021 850 8,500 Electric vehicle charging company (1) September 10, 2021 2,000 20,000 Rigetti & Co, Inc. (1) October 6, 2021 1,000 10,000 Telecommunications company (1) October 6, 2021 1,600 16,000 Rubicon Technologies (1) December 15, 2021 3,500 35,000 Total 13,450 $ 134,500 (1) Commercial contract contains termination for convenience clauses in the event the proposed business combination and/or the Company’s proposed investment is not completed. (2) The Company’s investment closed after December 31, 2021. See further discussion in Note 15. Subsequent Events. 124 Table of Contents Palantir Technologies Inc. Notes to Consolidated Financial Statements 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 establishes an accrual for loss contingencies when the loss is both probable and reasonably estimable. 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 the lawsuit brought by the KT4 Plaintiffs 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 remaining case on its financial condition, results of operations, or cash flows. As of December 31, 2021 and 2020, the Company was not aware of any currently pending legal matters or claims, individually or in the aggregate, that are expected to have a material adverse impact on its 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 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 December 31, 2021 and 2020. 1 25 Table of Contents Palantir Technologies Inc. Notes to 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 December 31, 2021 and 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. 10. Stockholders’ Equity (Deficit) During September 2020, the Company filed an amended and restated certificate of incorporation, which became effective on the date of its filing. The amended and restated certificate of incorporation authorized the issuance of a total of 20,000,000,000 shares of Class A common stock, 2,700,000,000 shares of Class B common stock, and 1,005,000 shares of Class F common stock. Additionally, each of the Founders exchanged 335,000 shares of their Class B common stock for an equivalent number of shares of Class F common stock. The Company’s Class A, Class B, and Class F 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 herein 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 the Founders. The Class F common stock generally give 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 December 31, 2021. Holders of the 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 December 31, 2021. During the year ended December 31, 2020, the Company sold a total of 206,500,523 shares of its Class A common stock at a price of $ 4.65 per share, for aggregate proceeds of $ 942.5 million, net of issuance costs of $ 17.7 million. Included in these sales were 107,526,881 shares of Class A common stock sold to SOMPO, a partner investor in the Company’s equity method investee, Palantir Japan. 1 26 Table of Contents Palantir Technologies Inc. Notes to Consolidated Financial Statements The following represented the total authorized, issued, and outstanding shares for each class of common stock (in thousands): As of December 31, 2021 As of December 31, 2020 Authorized Issued and Outstanding Authorized Issued and Outstanding Class A Common Stock 20,000,000 1,926,589 20,000,000 1,542,058 Class B Common Stock 2,700,000 99,880 2,700,000 249,077 Class F Common Stock 1,005 1,005 1,005 1,005 Total 22,701,005 2,027,474 22,701,005 1,792,140 11. Stock-Based Compensation 2020 Executive Equity Incentive Plan In August 2020, the Company’s Board of Directors approved the 2020 Executive Equity Incentive Plan (the “Executive Equity Plan”). The Executive Equity Plan permitted the granting of NSOs and RSUs to the Company’s employees, consultants, and directors. A total of 165,900,000 shares of the Company’s Class B common stock were reserved for issuance under the Executive Equity Plan. During August 2020, options to purchase 162,000,000 shares of Class B common stock and restricted stock units covering 3,900,000 shares of the Company’s Class B common stock were granted to certain officers. The Executive Equity Plan was terminated prior to the Company’s Direct Listing, and no additional awards will be granted under the Executive Equity Plan. However, the Executive Equity Plan will continue to govern the terms and conditions of the outstanding awards previously granted under the Executive Equity Plan. 2020 Equity Incentive Plan In September 2020, prior to the Direct Listing, the Company’s Board of Directors approved the 2020 Equity Incentive Plan (“2020 Plan”). The 2020 Plan provides for the grant of ISOs, NSOs, restricted stock, RSUs, SARs, and performance awards to the Company’s employees, directors, and consultants. A total of 150,000,000 shares of the Company’s Class A common stock were initially reserved for issuance pursuant to the 2020 Plan. In addition, the number of shares of Class A common stock reserved for issuance under the 2020 Plan includes certain shares of common stock subject to awards under the 2010 Plan and Executive Equity Plan in the case of certain occurrences such as expirations, terminations, exercise and tax-related withholding, or failures to vest. Shares of Class B common stock added to the 2020 Plan from the 2010 Plan or Executive Equity Plan are reserved for issuance under the Company’s 2020 Plan as Class A common stock. The number of shares of Class A common stock available for issuance under the 2020 Plan will also include an annual increase on the first day of each fiscal year beginning on January 1, 2022, equal to the least of: • 250,000,000 shares of the Company’s Class A common stock; • Five percent of the outstanding shares of the Company’s common stock as of the last day of the immediately preceding fiscal year; or • such other amount as the administrator of the 2020 Plan determines. Under the 2020 Plan, the exercise price of options granted is generally at least equal to the fair market value of the Company’s Class A common stock on the date of grant. The term of an ISO generally may not exceed ten 127 Table of Contents Palantir Technologies Inc. Notes to Consolidated Financial Statements years. Additionally, the exercise price of any ISO granted to a 10 % stockholder shall not be less than 110 % of the fair market value of the common stock on the date of grant, and the term of such option grant shall not exceed five years . Options and other equity awards become vested and, if applicable, exercisable based on terms determined by the Board of Directors or another plan administrator on the date of grant, which is typically four years for new employees and varies for subsequent grants. Stock Options The following table summarizes stock option activity for the year ended December 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 ( 178,849 ) 2.84 — Options canceled and forfeited ( 6,966 ) 5.12 — Balance as of December 31, 2021 349,952 $ 7.81 9.06 $ 3,638,685 Options vested and exercisable as of December 31, 2021 169,563 $ 5.10 7.75 $ 2,223,706 The aggregate intrinsic value of options outstanding, and vested and exercisable is calculated as the difference between the exercise price of the underlying options and the fair value of the Company’s common stock as of December 31, 2021. The aggregate intrinsic value of options exercised during the years ended December 31, 2021, 2020, and 2019 was $ 3.8 billion, $ 974.2 million, and $ 90.7 million, respectively, and is calculated based on the difference between the exercise price and the fair value of the Company’s common stock on the exercise date. There were no options granted during the year ended December 31, 2021. The weighted average grant-date fair value of options granted during the years ended December 31, 2020 and 2019 was $ 2.57 and $ 3.67 per share, respectively. The total grant-date fair value of options that vested during the years ended December 31, 2021, 2020, and 2019 was $ 189.5 million, $ 214.7 million, and $ 229.4 million, respectively. As of December 31, 2021, the unrecognized expense related to options outstanding was $ 888.6 million, which is expected to be recognized over a weighted-average service period of eight years . 128 Table of Contents Palantir Technologies Inc. Notes to Consolidated Financial Statements Determination of Stock Option Fair Value The estimated grant-date fair value of all the Company’s stock-based option awards was calculated using the Black-Scholes option-pricing model, based on the below assumptions. There were no options granted during the year ended December 31, 2021. Years Ended December 31, 2020 2019 Fair value of common stock $ 7.60 $ 6.03 Expected volatility 71.00 % 65.00 % Expected term (in years) 12.04 6.36 Expected dividend yield — % — % Risk-free interest rate 0.64 % 1.65 % RSUs The following table summarizes the RSU activity for the year ended December 31, 2021 (in thousands, except per share amounts): RSUs Outstanding Weighted Average Grant Date Fair Value per Share RSUs unvested and outstanding as of December 31, 2020 184,870 $ 6.97 RSUs granted 28,097 24.08 RSUs vested ( 50,350 ) 8.36 RSUs canceled ( 8,868 ) 8.07 RSUs unvested and outstanding as of December 31, 2021 153,749 $ 9.56 Prior to September 30, 2020, the Company granted RSUs with both a service-based vesting condition and a liquidity event-related performance condition which was considered a performance-based vesting condition. The stock-based compensation expense related to such RSUs is recognized using the accelerated attribution method from the grant date. The service-based vesting period for these awards varies across service providers and is up to five years . The performance-based vesting condition for the RSUs was satisfied upon the Company’s Direct Listing, which occurred on September 30, 2020. Additionally, subsequent to September 30, 2020 the Company granted RSUs with only a service based-based vesting condition. The stock-based compensation expense related to such RSUs is recognized ratably over the service period. During the year ended December 31, 2020, the Company recognized $ 940.0 million in stock-based compensation expense related to RSUs, of which $ 769.5 million was recognized upon the Company’s Direct Listing which satisfied the performance-based vesting condition. No compensation expense related to RSUs was recognized for the year ended December 31, 2019 as the performance-based vesting condition was not achieved. The total grant-date fair value of RSUs vested during the years ended December 31, 2021 and 2020 was $ 421.0 million and $ 531.9 million. As of December 31, 2021, the total unrecognized stock-based compensation expense related to the RSUs outstanding was $ 922.4 million, which is expected to be recognized over a weighted-average service period of three years . 129 Table of Contents Palantir Technologies Inc. Notes to Consolidated Financial Statements Stock-based Compensation Expense Total stock-based compensation expense was as follows (in thousands): Years Ended December 31, 2021 2020 2019 Cost of revenue $ 68,546 $ 139,627 $ 27,904 Sales and marketing 242,910 398,205 79,215 Research and development 150,298 357,063 67,933 General and administrative 316,461 375,807 66,918 Total stock-based compensation expense $ 778,215 $ 1,270,702 $ 241,970 The Company did no t recognize any tax benefits related to stock-based compensation expense during the year ended December 31, 2021 , and it recognized tax benefits of $ 18.2 million and $ 6.4 million during the years ended December 31, 2020 and 2019, respectively. 12. Income Taxes Loss before provision for (benefit from) income taxes consisted of the following (in thousands): Years Ended December 31, 2021 2020 2019 United States $ ( 514,200 ) $ ( 1,203,682 ) $ ( 580,362 ) Foreign 25,706 24,655 13,091 Loss before provision for (benefit from) income taxes $ ( 488,494 ) $ ( 1,179,027 ) $ ( 567,271 ) Provision for (benefit from) income taxes consisted of the following (in thousands): Years Ended December 31, 2021 2020 2019 Current: Federal $ — $ — $ — State ( 88 ) 500 139 Foreign ( 11,343 ) 7,249 19,435 Total current provision ( 11,431 ) 7,749 19,574 Deferred: Federal ( 111 ) — — State — — — Foreign 43,427 ( 20,385 ) ( 7,199 ) Total deferred provision 43,316 ( 20,385 ) ( 7,199 ) Total provision for (benefit from) income taxes $ 31,885 $ ( 12,636 ) $ 12,375 130 Table of Contents Palantir Technologies Inc. Notes to Consolidated Financial Statements A reconciliation of the expected tax provision (benefit) at the statutory federal income tax rate to the Company’s recorded tax provision (benefit) consisted of the following (in thousands): Years Ended December 31, 2021 2020 2019 Expected tax (benefit) at U.S. federal statutory rate $ ( 102,584 ) $ ( 247,596 ) $ ( 119,127 ) State income taxes - net of federal benefit ( 88 ) 500 139 Foreign tax rate differential 870 ( 4,131 ) 25,430 Research and development tax credits ( 94,591 ) ( 26,294 ) ( 2,106 ) Stock-based compensation ( 817,839 ) ( 194,730 ) ( 6,069 ) Non-deductible officers’ compensation 428,682 76,093 — Change in valuation allowance 616,572 373,632 112,149 Other 863 9,890 1,959 Total provision for (benefit from) income taxes $ 31,885 $ ( 12,636 ) $ 12,375 For the year ended December 31, 2021, the Company recorded a provision for income taxes compared to a benefit from income taxes for the year ended December 31, 2020, primarily due to the establishment of a full valuation allowance against its U.K. deferred tax assets during the fourth quarter of 2021, partially offset by a one-time benefit related to the refund of the Company’s U.K. 2019 taxes paid based on the tax election to carry back the 2020 U.K. net tax operating losses. For the year ended December 31, 2020, the Company recorded a benefit from income taxes compared to a provision for income taxes for the year ended December 31, 2019, primarily due to decreases in profits from our international operations and foreign benefits from stock-based compensation. Deferred tax assets and liabilities are recognized for the future tax consequences of differences between the carrying amounts of assets and liabilities and their respective tax basis using enacted tax rates in effect for the year in which the differences are expected to reverse. Significant deferred tax assets and liabilities consisted of the following (in thousands): As of December 31, 2021 2020 Net operating loss carryforwards $ 1,497,774 $ 853,861 Reserves and accruals 43,348 55,685 Tax credit carryforwards 177,402 68,626 Stock-based compensation 212,163 246,380 Lease liabilities 59,787 57,543 Depreciation and amortization 35,176 28,970 Gross deferred tax assets 2,025,650 1,311,065 Right-of-use assets ( 49,665 ) ( 48,120 ) Total net deferred tax assets before valuation allowance 1,975,985 1,262,945 Valuation allowance ( 1,977,565 ) ( 1,220,093 ) Net deferred tax assets $ ( 1,580 ) $ 42,852 The Company performs an assessment of both positive and negative evidence when determining whether it is more likely than not that deferred tax assets are recoverable. Such assessment is required on a jurisdiction by 131 Table of Contents Palantir Technologies Inc. Notes to Consolidated Financial Statements jurisdiction basis. The Company reviews the recognition of deferred tax assets on a regular basis to determine if realization of such assets is more likely than not. A valuation allowance is provided when it is more likely than not that such assets will not be realized. For the year ended December 31, 2021, the provision for income taxes increased compared to the year ended December 31, 2020, due to the Company’s valuation allowance against its U.K. deferred tax assets. The Company maintains a full valuation allowance against its U.S. federal and state deferred tax assets. Additionally, due to the Company’s current and projected U.K. tax losses, the Company has determined its U.K. deferred tax assets are currently not more likely than not to be realized, and accordingly, the Company established a full valuation allowance against its total net U.K. deferred tax assets. As of December 31, 2021, the Company had U.S. federal and state net operating losses of approximately $ 5.9 billion and $ 2.9 billion, respectively. As of December 31, 2020, the Company had U.S. federal and state net operating losses of approximately $ 3.6 billion and $ 1.5 billion, respectively. The U.S. federal net operating loss carryforwards will expire at various dates beginning in 2024 through 2037 if not utilized, with the exception of $ 4.3 billion which can be carried forward indefinitely. The state net operating loss carryforwards will expire at various dates beginning in 2022 through 2041 if not utilized. As of December 31, 2021, the Company has net operating losses in the U.K. of approximately $ 333.0 million. The U.K. net operating losses can be carried forward indefinitely. Additionally, as of December 31, 2021, the Company had federal and California research and development credits of approximately $ 184.1 million and $ 68.7 million, respectively. As of December 31, 2020, the Company had federal and California research and development credits of approximately $ 85.1 million and $ 66.0 million, respectively. The federal research and development credits will begin to expire in the years 2027 through 2041 if not utilized and the California research and development credits have no expiration date. Utilization of the net operating losses and research and development credit carryforwards may be subject to an annual limitation due to the ownership percentage change limitations provided by the Internal Revenue Code (“IRC”) of 1986 and similar state provisions. The annual limitation may result in the expiration of the net operating loss and research and development credit carryforwards before utilization. As of December 31, 2021, the Company had an immaterial amount of earnings indefinitely reinvested outside the U.S. The Company does not intend to repatriate these earnings and, accordingly, the Company does not provide for U.S. income taxes and foreign withholding tax on these earnings. Uncertain Tax Positions A reconciliation of the gross unrecognized tax benefits consists of the following (in thousands): Years Ended December 31, 2021 2020 2019 Unrecognized tax benefit beginning of year $ 75,557 $ 31,702 $ 27,812 Increases in current year tax positions 19,638 43,855 6,301 Increases in prior year tax positions 967 — 114 Decreases in prior year tax positions ( 30,895 ) — ( 1,829 ) Decreases in prior year tax positions due to settlements ( 197 ) — ( 696 ) Decreases in prior year tax positions due to lapse of statute of limitations — — — Unrecognized tax benefit end of year $ 65,070 $ 75,557 $ 31,702 132 Table of Contents Palantir Technologies Inc. Notes to Consolidated Financial Statements For the years ended December 31, 2021, 2020, and 2019, the Company recorded gross unrecognized tax benefits of $ 65.1 million, $ 75.6 million, and $ 31.7 million, respectively, that, if recognized, would not benefit the Company’s effective tax rate due to the valuation allowance that currently offsets deferred tax assets. As of December 31, 2021, no significant increases or decreases are expected to the Company’s uncertain tax positions within the next twelve months. It is the Company’s policy to recognize interest and penalties related to income tax matters in income tax expense. The Company has accrued immaterial interest and penalties related to uncertain tax positions as of December 31, 2021 and has not accrued interest and penalties related to uncertain tax positions as of December 31, 2020. The Company files U.S. federal, state, and foreign income tax returns in jurisdictions with varying statutes of limitation. The material jurisdictions where the Company is subject to potential examination by tax authorities are the U.S. (federal and state) for tax years 2004 through 2021 and the UK for tax years 2017 through 2021. 13. 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 share and per share amounts): ​​​​​​​ As of December 31, 2021 2020 2019 Numerator Net loss $ ( 520,379 ) $ ( 1,166,391 ) $ ( 579,646 ) Less: Distributed earnings attributable to participating securities — — ( 8,481 ) Net loss attributable to common stockholders $ ( 520,379 ) $ ( 1,166,391 ) $ ( 588,127 ) Less: Change in fair value attributable to participating securities — ( 5,483 ) — Net loss attributable to common stockholders, for diluted net loss per share $ ( 520,379 ) $ ( 1,171,874 ) $ ( 588,127 ) Denominator Weighted-average shares used in computing net loss per share, basic 1,923,617 977,722 576,959 Weighted-average shares used in computing net loss per share, diluted 1,923,617 979,330 576,959 Net loss per share Net loss per share attributable to common stockholders, basic $ ( 0.27 ) $ ( 1.19 ) $ ( 1.02 ) Net loss per share attributable to common stockholders, diluted $ ( 0.27 ) $ ( 1.20 ) $ ( 1.02 ) 133 Table of Contents Palantir Technologies Inc. Notes to Consolidated Financial Statements 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 December 31, 2021 2020 2019 Options and SARs issued and outstanding 349,977 535,792 497,541 RSUs outstanding 153,749 184,870 179,495 Warrants to purchase common stock 13,042 19,068 993 Growth units outstanding — 3,583 3,583 Redeemable convertible preferred stock — — 4,017 Convertible preferred stock — — 791,253 Warrants to purchase redeemable convertible and convertible preferred stock — — 21,832 Total 516,768 743,313 1,498,714 14. Segment and Geographic Information The following reporting segment tables reflect the results of the Company’s reportable operating segments consistent with the manner in which the 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. Financial information for each reportable segment was as follows (in thousands): Years Ended December 31, 2021 2020 2019 Revenue: Government $ 897,356 $ 610,198 $ 345,521 Commercial 644,533 482,475 397,034 Total revenue $ 1,541,889 $ 1,092,673 $ 742,555 Years Ended December 31, 2021 2020 2019 Amount % Amount % Amount % Contribution: Government $ 541,883 60 % $ 346,937 57 % $ 79,606 23 % Commercial 357,546 55 % 247,320 51 % 77,575 20 % Total contribution $ 899,429 58 % $ 594,257 54 % $ 157,181 21 % 134 Table of Contents Palantir Technologies Inc. Notes to Consolidated Financial Statements The reconciliation of contribution to loss from operations is as follows (in thousands): Years Ended December 31, 2021 2020 2019 Loss from operations $ ( 411,046 ) $ ( 1,173,679 ) $ ( 576,444 ) Research and development expenses (1) 237,189 203,597 237,630 General and administrative expenses (1) 295,071 293,637 254,025 Total stock-based compensation expense 778,215 1,270,702 241,970 Total contribution $ 899,429 $ 594,257 $ 157,181 (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): Years Ended December 31, 2021 2020 2019 Amount % Amount % Amount % Revenue: United States $ 879,156 57 % $ 573,549 52 % $ 295,753 40 % United Kingdom 173,362 11 % 132,427 12 % 120,185 16 % France 85,652 6 % 97,702 9 % 76,220 10 % Rest of world (1) 403,719 26 % 288,995 27 % 250,397 34 % Total revenue $ 1,541,889 100 % $ 1,092,673 100 % $ 742,555 100 % (1) No other country represents 10 % or more of total revenue for the years ended December 31, 2021, 2020, or 2019. Property and equipment, net is attributed to the Company’s office locations as follows (in thousands, except percentages): As of December 31, 2021 2020 Amount % Amount % Property and equipment, net: United States $ 18,728 60 % $ 13,268 45 % United Kingdom 8,375 27 % 13,325 45 % Rest of world 4,201 13 % 2,948 10 % Total property and equipment, net $ 31,304 100 % $ 29,541 100 % 135 Table of Contents Palantir Technologies Inc. Notes to Consolidated Financial Statements 15. Subsequent Events From January 1, 2022 to the date of this filing, the Company purchased 5.4 million shares for an aggregate purchase price of $ 43.5 m illion, which were reflected as commitments in Note 9. Commitments and Contingencies- Investment Commitments as of December 31, 2021, as set forth in the following table (in thousands): Entity Share Amount Investment Amount Fast Radius 2,000 $ 20,000 Energy Vault 850 8,500 Tritium 2,500 15,000 Total investments 5,350 $ 43,500 13 6 Table of Contents ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.