Palantir Technologies Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) Palantir Technologies Inc. Condensed Consolidated Balance Sheets (in thousands, except per share amounts) (unaudited) As of March 31, As of December 31, 2022 2021 Assets Current assets: Cash and cash equivalents $ 2,269,411 $ 2,290,674 Restricted cash 33,804 36,628 Accounts receivable 256,554 190,923 Marketable securities 252,563 234,153 Prepaid expenses and other current assets 115,042 110,872 Total current assets 2,927,374 2,863,250 Property and equipment, net 41,866 31,304 Restricted cash, noncurrent 29,222 39,612 Operating lease right-of-use assets 224,888 216,898 Other assets 95,829 96,386 Total assets $ 3,319,179 $ 3,247,450 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 27,454 $ 74,907 Accrued liabilities 150,176 155,806 Deferred revenue 218,521 227,816 Customer deposits 232,908 161,605 Operating lease liabilities 40,045 39,927 Total current liabilities 669,104 660,061 Deferred revenue, noncurrent 33,244 40,217 Customer deposits, noncurrent 22,276 33,699 Operating lease liabilities, noncurrent 227,617 220,146 Other noncurrent liabilities 2,192 2,297 Total liabilities 954,433 956,420 Commitments and Contingencies (Note 7) Stockholders’ equity: Common stock, $ 0.001 par value: 20,000,000 Class A shares authorized as of March 31, 2022 and December 31, 2021; 1,945,140 and 1,926,589 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively; 2,700,000 Class B shares authorized as of March 31, 2022 and December 31, 2021; 99,731 and 99,880 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively; and 1,005 Class F shares authorized, issued, and outstanding as of March 31, 2022 and December 31, 2021 2,046 2,027 Additional paid-in capital 7,953,856 7,777,085 Accumulated other comprehensive loss ( 4,044 ) ( 2,349 ) Accumulated deficit ( 5,587,112 ) ( 5,485,733 ) Total stockholders’ equity 2,364,746 2,291,030 Total liabilities and stockholders’ equity $ 3,319,179 $ 3,247,450 The accompanying notes are an integral part of these condensed consolidated financial statements. 3 Table of contents Palantir Technologies Inc. Condensed Consolidated Statements of Operations (in thousands, except per share amounts) (unaudited) Three Months Ended March 31, 2022 2021 Revenue $ 446,357 $ 341,234 Cost of revenue 94,403 74,111 Gross profit 351,954 267,123 Operating expenses: Sales and marketing 160,485 136,097 Research and development 88,601 98,471 General and administrative 142,307 146,569 Total operating expenses 391,393 381,137 Loss from operations ( 39,439 ) ( 114,014 ) Interest income 547 376 Interest expense ( 594 ) ( 1,840 ) Other income (expense), net ( 59,870 ) ( 4,894 ) Loss before provision for income taxes ( 99,356 ) ( 120,372 ) Provision for income taxes 2,023 3,102 Net loss $ ( 101,379 ) $ ( 123,474 ) Net loss per share attributable to common stockholders, basic $ ( 0.05 ) $ ( 0.07 ) Net loss per share attributable to common stockholders, diluted $ ( 0.05 ) $ ( 0.07 ) Weighted-average shares of common stock outstanding used in computing net loss per share attributable to common stockholders, basic 2,036,307 1,821,158 Weighted-average shares of common stock outstanding used in computing net loss per share attributable to common stockholders, diluted 2,036,307 1,821,158 The accompanying notes are an integral part of these condensed consolidated financial statements. 4 Table of contents Palantir Technologies Inc. Condensed Consolidated Statements of Comprehensive Loss (in thousands) (unaudited) Three Months Ended March 31, 2022 2021 Net loss $ ( 101,379 ) $ ( 123,474 ) Other comprehensive income (loss) Foreign currency translation adjustments ( 1,695 ) 3,610 Comprehensive loss $ ( 103,074 ) $ ( 119,864 ) The accompanying notes are an integral part of these condensed consolidated financial statements. 5 Table of contents Palantir Technologies Inc. Condensed Consolidated Statements of Stockholders’ Equity (in thousands) (unaudited) Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Loss Accumulated Deficit Total Stockholders’ Equity Shares Amount Balance as of December 31, 2021 2,027,474 $ 2,027 $ 7,777,085 $ ( 2,349 ) $ ( 5,485,733 ) $ 2,291,030 Issuance of common stock from the exercise of stock options 6,654 7 27,218 — — 27,225 Issuance of common stock upon vesting of restricted stock units (“RSUs”) 11,748 12 ( 12 ) — — — Stock-based compensation — — 149,565 — — 149,565 Other comprehensive loss — — — ( 1,695 ) — ( 1,695 ) Net loss — — — — ( 101,379 ) ( 101,379 ) Balance as of March 31, 2022 2,045,876 $ 2,046 $ 7,953,856 $ ( 4,044 ) $ ( 5,587,112 ) $ 2,364,746 Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Total Stockholders’ Equity Shares Amount Balance as of December 31, 2020 1,792,140 $ 1,792 $ 6,488,857 $ ( 2,745 ) $ ( 4,965,354 ) $ 1,522,550 Issuance of common stock from the exercise of stock options 55,300 55 208,805 — — 208,860 Issuance of common stock upon vesting of RSUs 10,960 11 ( 11 ) — — — Issuance of common stock upon vesting of growth units 1,471 1 ( 1 ) — — — Issuance of common stock upon net exercise of common stock warrants 736 1 ( 1 ) — — — Stock-based compensation — — 194,397 — — 194,397 Other comprehensive income — — — 3,610 — 3,610 Net loss — — — — ( 123,474 ) ( 123,474 ) Balance as of March 31, 2021 1,860,607 $ 1,860 $ 6,892,046 $ 865 $ ( 5,088,828 ) $ 1,805,943 The accompanying notes are an integral part of these condensed consolidated financial statements. 6 Table of contents Palantir Technologies Inc. Condensed Consolidated Statements of Cash Flows (in thousands) (unaudited) Three Months Ended March 31, 2022 2021 Operating activities Net loss $ ( 101,379 ) $ ( 123,474 ) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 4,312 3,237 Stock-based compensation 149,323 193,731 Deferred income taxes ( 3 ) 1,846 Non-cash operating lease expense 10,142 6,477 Unrealized and realized (gain) loss from marketable securities, net 62,843 — Other operating activities ( 2,751 ) 771 Changes in operating assets and liabilities: Accounts receivable ( 65,867 ) 4,480 Prepaid expenses and other current assets ( 4,320 ) ( 9,753 ) Other assets 2,891 ( 6,711 ) Accounts payable ( 47,404 ) 51 Accrued liabilities ( 5,334 ) 44,488 Deferred revenue, current and noncurrent ( 16,335 ) ( 11,952 ) Customer deposits, current and noncurrent 59,822 20,825 Operating lease liabilities, current and noncurrent ( 10,388 ) ( 7,132 ) Other noncurrent liabilities ( 75 ) ( 3 ) Net cash provided by operating activities 35,477 116,881 Investing activities Purchases of property and equipment ( 15,215 ) ( 708 ) Purchases of marketable securities ( 89,500 ) — Proceeds from sales of marketable securities 8,247 — Net cash used in investing activities ( 96,468 ) ( 708 ) Financing activities Proceeds from the exercise of common stock options 27,225 208,860 Other financing activities 16 ( 2,506 ) Net cash provided by financing activities 27,241 206,354 Effect of foreign exchange on cash, cash equivalents, and restricted cash ( 727 ) ( 2,197 ) Net increase (decrease) in cash, cash equivalents, and restricted cash ( 34,477 ) 320,330 Cash, cash equivalents, and restricted cash - beginning of period 2,366,914 2,128,146 Cash, cash equivalents, and restricted cash - end of period $ 2,332,437 $ 2,448,476 Supplemental disclosures of cash flow information Cash paid for income taxes $ 659 $ 878 Cash paid for interest 2 1,662 The accompanying notes are an integral part of these condensed consolidated financial statements. 7 Table of contents Palantir Technologies Inc. Notes to Unaudited Condensed Consolidated Financial Statements 1. Organization Palantir Technologies Inc. (including its subsidiaries, “Palantir” or the “Company”) was incorporated in Delaware on May 6, 2003. The Company builds and deploys software platforms that serve as the central operating systems for its customers. 2. Significant Accounting Policies Basis of Presentation and Consolidation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. The accompanying condensed consolidated financial statements include the accounts of Palantir Technologies Inc. and its consolidated subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Investments in entities where the Company holds at least a 20 % ownership interest and has the ability to exercise significant influence over the investee, but does not control, are accounted for using the equity method of accounting. 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. The unaudited condensed consolidated balance sheet as of December 31, 2021 included herein was derived from the audited consolidated financial statements as of that date, but does not include all disclosures, including certain notes required by GAAP on an annual reporting basis. In management’s opinion, the unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the balance sheets and statements of operations, comprehensive loss, stockholders’ equity, and cash flows for the interim periods, but are not necessarily indicative of the results of operations to be anticipated for the full fiscal year or any future period. These unaudited condensed consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements and notes included in its Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the SEC on February 24, 2022. Use of Estimates The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make certain estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenue and expenses during the reporting periods. Significant estimates and assumptions made in the accompanying condensed consolidated financial statements include, but are not limited to, 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. Summary of Significant Accounting Policies The Company’s significant accounting policies are discussed in Note 2. Significant Accounting Policies in the notes to consolidated financial statements in its Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the SEC on February 24, 2022. There have been no significant changes to these policies during the three months ended March 31, 2022. 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. 8 Table of contents Palantir Technologies Inc. Notes to Unaudited Condensed Consolidated Financial Statements The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the amounts shown in the condensed consolidated statements of cash flows (in thousands): As of March 31, 2022 2021 Cash and cash equivalents $ 2,269,411 $ 2,339,437 Restricted cash 33,804 37,106 Restricted cash, noncurrent 29,222 71,933 Total cash, cash equivalents, and restricted cash $ 2,332,437 $ 2,448,476 Accounts Receivable and Allowance for Credit Losses Accounts receivable are recorded at the invoiced amount, net of an allowance for credit losses, if any. The Company generally grants non-collateralized credit terms to its customers. Allowance for credit losses is based on the Company’s best estimate of probable losses inherent in its accounts receivable portfolio and is determined based on expectations of the customer’s ability to pay by considering factors such as customer type (commercial or government), historical experience, financial position of the customer, age of the accounts receivable, current economic conditions, including the ongoing COVID-19 pandemic, and reasonable and supportable forward-looking factors about its portfolio and future economic conditions. Accounts receivable are written-off and charged against an allowance for credit losses when the Company has exhausted collection efforts without success. Based upon the Company’s assessment as of March 31, 2022 and December 31, 2021, it did not 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 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 condensed consolidated balance sheets. The Company’s accounts receivable balances as of March 31, 2022 and December 31, 2021 were $ 256.6 million and $ 190.9 million, respectively. Customer I represented 14 % of total accounts receivable as of March 31, 2022, No other customers represented more than 10 % of total accounts receivable as of March 31, 2022 or December 31, 2021. For the three months ended March 31, 2022 and 2021, no customer represented 10 % or more of total revenue. 3. Contract Liabilities and Remaining Performance Obligations Contract Liabilities The Company’s contract liabilities consist of deferred revenue and customer deposits. As of March 31, 2022 and December 31, 2021 the Company's contract liability balances were $ 506.9 million and $ 463.3 million, respectively. Revenue of $ 187.0 million and $ 169.5 million was recognized during the three months ended March 31, 2022 and 2021, respectively, that was included in the contract liability balances as of December 31, 2021 and 2020, 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 $ 1.2 billion as of March 31, 2022, of which the Company expects to recognize approximately 42 % as revenue over the next 12 months, 41 % as revenue over the subsequent 13 to 36 months, and the remainder thereafter. 9 Table of contents Palantir Technologies Inc. Notes to Unaudited Condensed Consolidated Financial Statements Disaggregation of Revenue See Note 12. Segment and Geographic Information for disaggregated revenue by customer segment and geographic region. 4. Investments and Fair Value Measurements The following tables present the Company’s assets that are measured at fair value on a recurring basis and indicates the fair value hierarchy of the valuation (in thousands): As of March 31, 2022 Total Level 1 Level 2 Level 3 Assets: Cash and cash equivalents: Money market funds $ 365,487 $ 365,487 $ — $ — Certificates of deposit 8,253 — 8,253 — Restricted cash, current and noncurrent Certificates of deposit 38,721 $ — 38,721 — Marketable securities: Marketable securities 252,563 252,563 — — Total $ 665,024 $ 618,050 $ 46,974 $ — As of December 31, 2021 Total Level 1 Level 2 Level 3 Assets: Cash and cash equivalents: Money market funds $ 507,317 $ 507,317 $ — $ — Certificates of deposit 6,844 — 6,844 — Restricted cash, current and noncurrent Certificates of deposit 45,048 — 45,048 — Marketable securities: Marketable securities 234,153 234,153 — — Total $ 793,362 $ 741,470 $ 51,892 $ — 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 condensed consolidated statements of operations. During the three months ended March 31, 2022, the Company recorded net unrealized losses of $ 51.9 million and realized losses of $ 10.9 million within other income (expense), net on the condensed consolidated statements of operations. Investments Since 2021, the Company has approved and entered into certain agreements (“Investment Agreements”) to purchase, or commit to purchase, as further discussed in Note 7. 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 $ 754.9 million as of March 31, 2022, which is inclusive of $ 116.2 million of 10 Table of contents Palantir Technologies Inc. Notes to Unaudited Condensed Consolidated Financial Statements 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. The Company assesses 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 three months ended March 31, 2022 was $ 39.2 million. During the year ended December 31, 2021, the Company purchased shares for a total investment of $ 326.0 million. The following table presents the details of the investments purchased under such Investment Agreements during the three months ended March 31, 2022 (in thousands): Entity (1) Share Amount Investment Amount Fast Radius 2,000 $ 20,000 Energy Vault 850 8,500 Tritium 2,500 15,000 Rigetti 1,000 10,000 Allego 2,000 20,000 Starry Group Holdings 2,133 16,000 Total 10,483 $ 89,500 ————— (1) Investments are in publicly-traded marketable securities. Alternative Investments During the year ended December 31, 2021, the Company purchased $ 50.9 million in 100 -ounce gold bars. The gold bars are 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. 5. Balance Sheet Components Property and Equipment, Net Property and equipment, net consisted of the following (in thousands): As of March 31, 2022 As of December 31, 2021 Leasehold improvements $ 74,730 $ 72,834 Computer equipment, software, and other 24,424 16,916 Furniture and fixtures 8,774 8,358 Construction in progress 3,683 3,126 Total property and equipment, gross 111,611 101,234 Less: accumulated depreciation and amortization ( 69,745 ) ( 69,930 ) Total property and equipment, net $ 41,866 $ 31,304 Depreciation and amortization expense related to property and equipment, net was $ 3.9 million and $ 3.2 million for the three months ended March 31, 2022 and 2021, respectively. 11 Table of contents Palantir Technologies Inc. Notes to Unaudited Condensed Consolidated Financial Statements Accrued Liabilities Accrued liabilities consisted of the following (in thousands): As of March 31, 2022 As of December 31, 2021 Accrued payroll and related expenses $ 46,741 $ 60,732 Accrued other liabilities 103,435 95,074 Total accrued liabilities $ 150,176 $ 155,806 6. Debt 2014 Credit Facility In October 2014, the Company entered into an unsecured revolving credit facility, which has been subsequently secured by substantially all of the Company’s assets and amended from time to time (as amended, the “2014 Credit Facility”), including most recently on March 31, 2022 (the “March 2022 Amendment”). The March 2022 Amendment provides for, among other things, an extension of the revolving loan facility maturity date to March 31, 2027 and an increase of $ 100.0 million to the lenders’ revolving commitments for total revolving commitments of $ 500.0 million. The 2014 Credit Facility allows for the drawdown of up to $ 500.0 million to fund working capital and general corporate expenditures. Outstanding balances under the 2014 Credit Facility would incur interest at the Secured Overnight Financing Rate (“SOFR”) as administered by the Federal Reserve Bank of New York, or a successor administrator of the SOFR (or the applicable benchmark replacement), plus 2.00 % or a base rate plus 1.00 %, subject to certain adjustments. The Company incurs a commitment fee of 0.30 % assessed on the daily average undrawn portion of revolving commitments. Applicable interest and commitment fees are payable quarterly or more or less frequently in certain circumstances. The 2014 Credit Facility also allows for an incremental loan facility of additional term loans or revolving loans in an aggregate principal amount up to the amount and upon the terms and conditions set forth therein with one or more existing or new lenders upon mutual agreement between the Company and such lenders. As of March 31, 2022, the Company had no outstanding debt balances and $ 500.0 million undrawn revolving commitments under the 2014 Credit Facility. The 2014 Credit Facility contains customary representations and warranties, and certain financial and nonfinancial covenants, including but not limited to maintaining minimum liquidity of $ 50.0 million, and certain limitations on liens and indebtedness. The Company was in compliance with all covenants associated with the 2014 Credit Facility as of March 31, 2022. 7. Commitments and Contingencies 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 March 31, 2022, the Company had satisfied $ 115.2 million of its $ 167.0 million commitment for the contract year ending June 30, 2022. 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 March 31, 2022, the Company had an outstanding investment commitment relating to Rubicon, effective as of December 15, 2021, subject to the applicable terms and conditions, to purchase a total of 3.5 million shares for an aggregate purchase price of $ 35.0 million. The closing of such investment commitment is contingent upon the completion of a proposed business combination by and among Rubicon and other applicable parties. The Company’s commercial contract with Rubicon contains termination for convenience clauses in the event the proposed business combination or the Company’s proposed investment is not completed. 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 12 Table of contents Palantir Technologies Inc. Notes to Unaudited Condensed Consolidated Financial Statements 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 ultimate impact of the litigation on its financial condition, results of operations, or cash flows. As of March 31, 2022, the Company was not aware of any currently pending legal matters or claims, individually or in the aggregate, that were expected to have a material adverse impact on its condensed consolidated financial statements. Letters of Credit and Guarantees The Company had irrevocable standby letters of credit and guarantees, including bank guarantees, outstanding in the amounts of $ 63.0 million and $ 76.2 million as of March 31, 2022 and December 31, 2021, 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 March 31, 2022, these letters of credit and guarantees had expiration dates through August 2031. Warranties and Indemnification The Company generally provides a warranty for its software products and services and a service level agreement (“SLA”) for the Company’s performance of software operations via its operations and maintenance (“O&M”) services to its customers. The Company’s products are generally warranted to perform substantially as described in the associated product documentation during the subscription term or for a period of up to 90 days where the software is hosted by the customer; and the Company includes O&M services as part of its subscription and license agreements to support this warranty and maintain the operability of the software. The Company’s services are generally warranted to be performed in a professional manner and by an adequate staff with knowledge about the products. In the event there is a failure of such warranties, the Company generally is obligated to correct the product or service to conform to the warranty provision, as set forth in the applicable SLA, or, if the Company is unable to do so, the customer is entitled to seek a refund of the purchase price of the product and service (generally prorated over the contract term). Due to the absence of historical warranty claims, the Company’s expectations of future claims related to products under warranty continue to be insignificant. The Company has not recorded warranty expense or related accruals as of March 31, 2022 and December 31, 2021. The Company generally agrees to indemnify its customers against legal claims that the Company’s software products infringe certain third-party intellectual property rights and accounts for its indemnification obligations. In the event of such a claim, the Company is generally obligated to defend its customer against the claim and to either settle the claim at the Company’s expense or pay damages that the customer is legally required to pay to the third-party claimant. In addition, in the event of an infringement, the Company generally agrees to secure the right for the customer to continue using the infringing product; to modify or replace the infringing product; or, if those options are not commercially practicable, to refund the cost of the software, as prorated over the period. To date, the Company has not been required to make any payment resulting from infringement claims asserted against its customers and does not believe that the Company will be liable for such claims in the foreseeable future. As such, the Company has not recorded a liability for infringement costs as of March 31, 2022 and December 31, 2021. 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. 13 Table of contents Palantir Technologies Inc. Notes to Unaudited Condensed Consolidated Financial Statements 8. Stockholders' Equity The Company’s Class A, Class B, and Class F common stock (collectively, the “common stock”) all have the same rights, except with respect to voting and conversion rights. Class A and Class B common stock have voting rights of 1 and 10 votes per share, respectively. The Class F common stock has the voting rights generally described 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 Stephen Cohen, Alexander Karp, and Peter Thiel (the “Founders”). The Class F common stock generally gives the Founders the ability to control up to 49.999999 % of the total voting power of the Company's capital stock, so long as the Founders and certain of their affiliates collectively meet a minimum ownership threshold, which was 100.0 million of the Company's equity securities as of March 31, 2022. 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 March 31, 2022. The following represented the total authorized, issued, and outstanding shares for each class of common stock (in thousands): As of March 31, 2022 As of December 31, 2021 Authorized Issued and Outstanding Authorized Issued and Outstanding Class A Common Stock 20,000,000 1,945,140 20,000,000 1,926,589 Class B Common Stock 2,700,000 99,731 2,700,000 99,880 Class F Common Stock 1,005 1,005 1,005 1,005 Total 22,701,005 2,045,876 22,701,005 2,027,474 9. Stock-Based Compensation Stock Options The following table summarizes stock option activity for the three months ended March 31, 2022 (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, 2021 349,952 $ 7.81 9.06 $ 3,638,685 Options exercised ( 6,654 ) 4.09 — Options canceled and forfeited ( 823 ) 4.81 — Balance as of March 31, 2022 342,475 $ 7.89 8.91 $ 1,999,422 Options vested and exercisable as of March 31, 2022 172,081 $ 5.29 7.74 $ 1,452,249 As of March 31, 2022, the unrecognized expense related to options outstanding was $ 842.8 million, which is expected to be recognized over a weighted-average service period of eight years. RSUs The following table summarizes the RSU activity for the three months ended March 31, 2022 (in thousands, except per share amounts): 14 Table of contents Palantir Technologies Inc. Notes to Unaudited Condensed Consolidated Financial Statements RSUs Outstanding Weighted Average Grant Date Fair Value per Share Balance as of December 31, 2021 153,749 $ 9.56 RSUs granted 1,373 16.01 RSUs vested and converted to shares ( 11,748 ) 8.50 RSUs canceled ( 1,607 ) 8.56 Balance as of March 31, 2022 141,767 $ 9.73 As of March 31, 2022, the total unrecognized stock-based compensation expense related to the RSUs outstanding was $ 824.4 million, which the Company expects to recognize over a weighted-average service period of three years. Stock-based Compensation Expense Total stock-based compensation expense was as follows (in thousands): Three Months Ended March 31, 2022 2021 Cost of revenue $ 11,677 $ 15,977 Sales and marketing 49,272 57,286 Research and development 26,905 37,874 General and administrative 61,469 82,594 Total stock-based compensation expense $ 149,323 $ 193,731 10. Income Taxes The Company recorded a provision for income taxes of $ 2.0 million and $ 3.1 million for the three months ended March 31, 2022 and 2021, respectively. The Company is subject to income tax in the U.S. as well as other tax jurisdictions in which it conducts business. The Company’s effective tax rate as of March 31, 2022 differs from the U.S. statutory rate primarily due to the valuation allowance recorded on its losses from the U.S. and other jurisdictions, foreign income taxed at different rates, non-deductible stock-based compensation, and foreign withholding taxes . The provision for income taxes decreased by $ 1.1 million for the three months ended March 31, 2022 compared to the same period in 2021 primarily due to decreases in profits from the Company’s international operations offset by an increase in foreign withholding taxes. The realization of deferred tax assets is dependent upon the generation of sufficient taxable income of the appropriate character in future periods. The Company assesses its ability to realize the deferred tax assets on a quarterly basis, and it establishes a valuation allowance if it is more likely than not that some portion of the deferred tax assets will not be realized. The Company weighs all available positive and negative evidence, including its earnings history and results of recent operations, scheduled reversals of deferred tax liabilities, projected future taxable income, and tax planning strategies. For example, due to the weight of objectively verifiable negative evidence, including its history of U.S. and U.K. net operating tax losses, the Company believes that it is more likely than not that its U.S. and U.K. deferred tax assets will not be fully realized. Accordingly, the Company has maintained a full valuation allowance on its U.S. and U.K. deferred tax assets as of March 31, 2022. Provisions enacted in the 2017 Tax Cuts and Jobs Act related to the capitalization for tax purposes of research and experimental (“R&E”) expenditures became effective on January 1, 2022. Beginning January 1, 2022, all U.S. and non-U.S. based R&E expenditures must be capitalized and amortized over five and fifteen years, respectively. The U.S. Congress is considering legislation that would defer the amortization requirement to future periods. However, there is no assurance that the provision will be deferred, repealed or otherwise modified. The effect of the requirement did not have a material impact on our income tax provision. 15 Table of contents Palantir Technologies Inc. Notes to Unaudited Condensed Consolidated Financial Statements 11. Net Loss Per Share Attributable to Common Stockholders The following table presents the calculation of basic and diluted net loss per share attributable to common stockholders (in thousands, except per share amounts): Three Months Ended March 31, 2022 2021 Numerator Net loss attributable to common stockholders, for diluted net loss per share $ ( 101,379 ) $ ( 123,474 ) Denominator Weighted-average shares used in computing net loss per share, basic 2,036,307 1,821,158 Weighted-average shares used in computing net loss per share, diluted 2,036,307 1,821,158 Net loss per share Net loss per share attributable to common stockholders, basic $ ( 0.05 ) $ ( 0.07 ) Net loss per share attributable to common stockholders, diluted $ ( 0.05 ) $ ( 0.07 ) The following outstanding potentially dilutive common stock equivalents have been excluded from the computation of diluted net loss per share attributable to common stockholders for the periods presented due to their anti-dilutive effect (in thousands): As of March 31, 2022 2021 Options and stock appreciation rights issued and outstanding 342,475 477,602 RSUs outstanding 140,793 174,523 Warrants to purchase common stock 13,042 18,253 Total 496,310 670,378 12. 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 chief operating decision maker (“CODM”) evaluates the performance of each segment and allocates the Company’s resources. The CODM does not evaluate the performance of the Company’s assets on a segment basis for internal management reporting and, therefore, such information is not presented. Contribution is used, in part, to evaluate the performance of, and allocate resources to, each of the segments. A segment’s contribution is calculated as segment revenue less the related costs of revenue and sales and marketing expenses. It excludes certain operating expenses that are not allocated to segments because they are separately managed at the consolidated corporate level. These unallocated costs include stock-based compensation expense, research and development expenses, and general and administrative expenses. Financial information for each reportable segment was as follows (in thousands): Three Months Ended March 31, 2022 2021 Revenue: Government $ 241,790 $ 208,420 Commercial 204,567 132,814 Total revenue $ 446,357 $ 341,234 16 Table of contents Palantir Technologies Inc. Notes to Unaudited Condensed Consolidated Financial Statements Three Months Ended March 31, 2022 2021 Contribution: Government $ 139,810 $ 131,746 Commercial 112,608 72,543 Total contribution $ 252,418 $ 204,289 The reconciliation of contribution to loss from operations is as follows (in thousands): Three Months Ended March 31, 2022 2021 Loss from operations $ ( 39,439 ) $ ( 114,014 ) Research and development expenses (1) 61,696 60,597 General and administrative expenses (1) 80,838 63,975 Total stock-based compensation expense 149,323 193,731 Total contribution $ 252,418 $ 204,289 ————— (1) Excludes stock-based compensation expense. Geographic Information Revenue by geography is based on the customer’s headquarters or agency location at the time of sale. Revenue is as follows (in thousands, except percentages): Three Months Ended March 31, 2022 2021 Amount % Amount % Revenue: United States $ 272,913 61 % $ 198,447 58 % United Kingdom 49,902 11 % 34,385 10 % Rest of world (1) 123,542 28 % 108,402 32 % Total revenue $ 446,357 100 % $ 341,234 100 % ————— (1) No other country represents 10 % or more of total revenue for the three months ended March 31, 2022 or 2021. 17 Table of contents SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws, which statements involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “can,” “would,” “intend,” “target,” “goal,” “outlook,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential,” “future,” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans, or intentions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about: • our expectations regarding financial performance and liquidity, including but not limited to our expectations regarding revenue, cost of revenue, operating expenses, stock-based compensation, our ability to achieve and maintain future profitability, and cash flows; • our ability to successfully execute our business and growth strategy; • the sufficiency of our cash and cash equivalents to meet our liquidity needs; • the demand for our platforms in general; • our ability to increase our number of customers and revenue generated from customers; • our expectations regarding the future contribution margin of our existing and future customers; • our expectations regarding our ability to quickly and effectively integrate our platforms for our existing and future customers; • our ability to develop new platforms, and enhancements to existing platforms, and bring them to market in a timely manner; • our market share, category positions, and market trends, including our ability to grow our business in large government and commercial organizations, including our expectations regarding the impact of Federal Acquisition Streamlining Act of 1994 (“FASA”); • our ability to compete with existing and new competitors in existing and new markets and products; • our expectations regarding anticipated technology needs and developments and our ability to address those needs and developments with our platforms; • our expectations regarding litigation and legal and regulatory matters; • our expectations regarding our ability to meet existing performance obligations and maintain the operability of our products; • our expectations regarding the effects of existing and developing laws and regulations, including with respect to taxation, privacy, data protection, and cybersecurity; • our expectations regarding new and evolving markets; • our ability to develop and protect our brand; • our ability to maintain the security and availability of our platforms; • our expectations and management of future growth; • our expectations concerning relationships with third parties, including our customers, equity method investment partners, and vendors; • our expectations regarding our recent investments in, and enterprise agreements with, various entities, including special purpose acquisition companies and/or other privately-held or publicly-traded entities; • our ability to maintain, protect, and enhance our intellectual property; • our expectations regarding our multi-class stock and governance structure and the benefits thereof; • the impacts of the ongoing coronavirus (“COVID-19” or “COVID”) pandemic and the ongoing Russian invasion of Ukraine, including on our and our customers’, vendors’, and partners’ respective businesses and the markets in which we and our customers, vendors, and partners operate; and • the increased expenses associated with being a public company. We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q. You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends 18 Table of contents that we believe may affect our business, financial condition, results of operations, and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, and other factors, including those described in the section titled “ Risk Factors ” and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time and it is not possible for us to predict all risks and uncertainties that could have an impact on any forward-looking statements contained in this Quarterly Report on Form 10-Q. We cannot assure you that the results, events, and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events, or circumstances could differ materially from those described in such forward-looking statements. Neither we nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. Moreover, the forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, restructurings, joint ventures, partnerships, channel sales relationships, or investments we may make. In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements. 19 Table of contents