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Item 7. Management’s Discussion and Analysis

2023-02-21 compared with 2022-02-24 · 251 added, 291 removed, 265 unchanged (67% of the section changed)

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Our historical results are not necessarily indicative of the results that may be expected for any period in the future.

This section of this Annual Report on Form 10-K

generally discusses fiscal years 2021 and 2020 items and year-to-year

comparisons between fiscal years 2021 and 2020.

Discussions of fiscal year 2020 items and year-to-year

comparisons between fiscal years 2020 and 2019 that are not included in this Annual Report on Form 10-K

can be found in Part II, Item 7 of our Annual Report on Form 10-K

for the fiscal year ended December 31, 2020, which was filed with the SEC on February 26, 2021.

This section of this Annual Report on Form 10-K generally discusses fiscal years 2022 and 2021 items and year-to-year comparisons between fiscal years 2022 and 2021.

Discussions of fiscal year 2021 items and year-to-year comparisons between fiscal years 2021 and 2020 that are not included in this Annual Report on Form 10-K can be found in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, which was filed with the SEC on February 24, 2022 and is incorporated herein by reference.

We build software that empowers organizations to effectively integrate their data, decisions, and operations at scale.

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Gotham and Foundry enable institutions to transform massive amounts of information into an integrated data asset that reflects their operations.

For over a decade, Gotham has surfaced insights for global defense agencies, the intelligence community, disaster relief organizations and beyond.

For over a decade, Gotham

has surfaced insights for global defense agencies, the intelligence community, disaster relief organizations and beyond.

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

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Apollo allows our customers to run their software in virtually any environment.

In addition to the investments we have made in our platforms, we plan to continue to expand our ability to sell our subscriptions globally by investing in resources to address the business needs of local markets, including, increasing our sales and marketing functions and activities, expanding our ecosystem of service partners to support local deployments, and investing in personnel to support our growing customer base and product offerings.

We believe that every institution faces challenges that our platforms were designed to address.

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

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

While our focus in the short term remains on making our principal software platforms available to increasingly broad swaths of the market, we are also working to identify additional component parts and products embedded within those platforms that have potential as commercial offerings on their own.

We believe that every institution faces challenges that our platforms and products were designed to address.

Our approach with all our clients is to establish a partnership that transforms the way they use data in pursuit of their goals.

We regularly evaluate partnerships and investment opportunities in complementary businesses, employee teams, technologies, and intellectual property rights in an effort to expand our product and service offerings.

For example, we have approved and entered into Investment Agreements to purchase, or commit to purchase

shares of various entities, including special purpose acquisition companies and/or other privately-held or publicly-traded

See further discussion in Note 4.

Investments and Fair Value Measurements

Commitments and Contingencies—Investment Commitments.

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

While we generally offer contract terms of one to five years in length, our customers sometimes enter into shorter-term contracts.

Revenue is generally recognized ratably over the contract term.

Many of our customer contracts contain termination for convenience provisions.

For the year ended December 31, 2022, we generated $1.9 billion in revenue, reflecting a 24% growth rate from the year ended December 31, 2021, when we generated $1.5 billion in revenue.

Our operating results continued to improve, including when adjusting for stock-based compensation.

In the year ended December 31, 2022, we incurred losses from operations of $161.2 million, or adjusted income from operations of $420.8 million when excluding stock-based compensation and related employer payroll taxes.

In the year ended December 31, 2020, our losses from operations were $1.2 billion, or adjusted income from operations of $189.9 million when excluding stock-based compensation, related employer payroll taxes, and non-recurring

Direct Listing charges.

In the year ended December 31, 2021, our losses from operations were $411.0 million, or adjusted income from operations of $473.5 million when excluding stock-based compensation and related employer payroll taxes.

In the year ended December 31, 2022, our gross profit was $1.5 billion, reflecting a gross margin of 79%, or 81% when excluding stock-based compensation.

In the year ended December 31, 2020, our gross profit was $740.1 million, reflecting a gross margin of 68%, or 81% when excluding stock-based compensation.

For more information about our adjusted income from operations, which excludes stock-based compensation, related employer payroll taxes, and non-recurring

Direct Listing charges;

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

Reconciliations

In the year ended December 31, 2021, our gross profit was $1.2 billion, reflecting a gross margin of 78%, or 82% when excluding stock-based compensation.

For more information about our adjusted income from operations, which excludes stock-based compensation and related employer payroll taxes;

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

as well as reconciliations from loss from operations and gross profit, see the section titled “Non-GAAP Reconciliations” below.

Our Customers

We define a customer as an organization from which we have recognized revenue during the trailing twelve-month period.

During the period ended December 31, 2021, we had 237 customers, including companies in various commercial sectors as well as government agencies around the world.

During the period ended December 31, 2022, we had 367 customers, including companies in various commercial sectors and government agencies around the world.

During the period ended December 31, 2021, we had 237 customers.

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Department of Health and Human Services, we treat each of those agencies as a separate customer given that the governing structures and procurement processes of each agency are independent.

We have built lasting and significant customer relationships with some of the world’s leading government institutions and companies, and are expanding our partnerships with early- and growth-stage companies.

Our average revenue per customer during the trailing twelve months ended December 31, 2021 was $6.5 million, which decreased 18% from an average of $7.9 million in revenue per customer in the year ended December 31, 2020, reflecting our continued acceleration in customer acquisition.

We have built lasting and significant customer relationships and partnerships with some of the world’s leading government institutions and companies.

As of December 31, 2022, we expect to generate revenue under our existing customer contracts for an additional 2.8 years on a dollar-weighted average contract duration basis.

Dollar-weighted average contract duration represents the length of time we expect to generate revenue on average, including existing contractual obligations and assuming that our customers will exercise all of the contractual options available to them, and is subject to change as we enter into new contracts or if customers terminate for convenience.

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

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

Our average revenue for the top twenty customers during the trailing twelve months ended December 31, 2022 was $49.4 million, which grew 13% from an average of $43.6 million in revenue from the top twenty customers during the trailing twelve months ended December 31, 2021, demonstrating our expanding relationships with existing customers.

Organizations in the commercial and government sectors face similar challenges when it comes to managing data, and we intend to expand our reach in both markets moving forward.

In the year ended December 31, 2021, 58% of our revenue came from government customers and 42% came from commercial agencies.

In the year ended December 31, 2021, we generated 57% of our revenue from customers in the United States and the remaining 43% from customers abroad.

Our decisions about which customer relationships require further investment may change over time, based on our assessment of the potential long-term value that our software can generate for them.

We enter into initial pilots with customers, generally at our own expense and without a guarantee of future returns, in order to access a unique set of opportunities that others may pass over for lack of resources and shorter investment horizons.

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

In the year ended December 31, 2022, 56% of our revenue came from government customers and 44% came from commercial customers.

customers have been a meaningful source of revenue growth for our business.

In the year ended December 31, 2022, we generated 61% of our revenue from customers in the United States and the remaining 39% from non-U.S.

Revenue from our U.S.

customers during the trailing twelve months ended December 31, 2022 was $1.2 billion, which grew 32% from the prior twelve-month period.

We expect that U.S.

customers will continue to be a source of significant revenue growth for us.

We continue to believe that our government customers remain a meaningful and resilient source of revenue for our business, particularly during periods of economic uncertainty.

However, large government customers, in particular, are generally subject to a number of uncertainties regarding budgets and spending levels, changes in timing and spending priorities, and regulatory and policy changes, which can make it difficult to predict when, or if, we will make sales to such customers or the size and scope of any contract awards.

See also the discussion of “ Risks Related to Relationships and Business with the Public Sector” within Item 1A.

Risk Factors included in this Annual Report on Form 10-K.

Expansion of Access to Platforms

We have recently begun to expand access to our platforms to early- and growth-stage companies, including startups, as we continue our outreach efforts to an increasingly broad swath of the potential market.

The speed with which our platforms can be deployed has significantly expanded the range of potential customers with which we plan on partnering over the long term.

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Our proximity to these businesses and the industries in which they are operating has enhanced, and is expected to continue enhancing, our own product and business development efforts, as we continue expanding access to our platforms to the broadest possible set of customers.

As a result of COVID-19,

we continue to take precautionary measures in order to minimize the risk of the virus to our employees, our customers, and the communities in which we operate, which included the suspension of all non-essential

business travel of employees and the temporary closure of all of our major offices.

Although the majority of our workforce worked remotely, there was minimal disruption in our ability to ensure the effective operation of our software platforms.

As local situations permit, we continue to reopen our offices, in at least a limited capacity, and are allowing business travel to resume, while continuing to closely monitor the pandemic.

The economic consequences of the COVID-19

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

While the broader implications of the COVID-19

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

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

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

pandemic has made clear to many of our customers that accommodating the extended timelines ordinarily required to realize results from implementing new software solutions is not an option during a crisis.

As a result, customers are increasingly adopting our software, which can be ready in days, over internal software development efforts, which may take months or years.

We saw decreases in our travel and office-related expenditures, including during the temporary closures of our offices globally and reductions in related operating expenses, related to the ongoing COVID-19

However, improvement of our contribution metric has also been driven by the expansion of existing customer accounts, improved sales efficiency, and the increasing deployment of centralized hosting and other software deployment infrastructure.

While we expect our travel and office-related expenditures to increase moving forward, especially as we continue to reopen our offices, we do not expect such expenditures to return to their pre-pandemic

levels, given that we have made significant investments in enabling employees to work with customers remotely.

See the section titled “ Risk Factors

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

for further discussion of the possible impact of the COVID-19

pandemic on our business.

Our Business Model

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

As of December 31, 2021, we expect to generate revenue under our existing customer contracts for an additional 3.5 years on a dollar-weighted average contract duration basis.

or if customers terminate for convenience.

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

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

Revenue is generally recognized over the contract term.

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

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

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

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

Our decisions about which customer relationships require further investment may change over time, based on our assessment of the potential long-term value that our software can generate for them.

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

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

Others may skip the Expand phase altogether and move immediately into the Scale phase.

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

In 2020, we generated a total of $1.1 billion in revenue.

Acquire phase customers cohorted as of December 31, 2020 generated $0.3 million in revenue in 2020.

Expand phase customers cohorted as of December 31, 2020 generated $20.3 million in revenue in 2020.

Scale phase customers cohorted as of December 31, 2020 generated $1.1 billion in revenue in 2020.

In 2021, customers cohorted as of December 31, 2020 generated a total of $1.5 billion in revenue.

New customers acquired during the year ended December 31, 2021 generated an additional $83.9 million in revenue and were assigned a cohort as of December 31, 2021.

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

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

In the first phase, we typically acquire new opportunities with minimal risk to our customers through short-term pilot deployments of our software platforms at no or low cost to them.

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

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

We believe that our investments during this phase will drive future revenue growth.

We define a customer or potential customer as being in the Acquire phase if, as of the end of a calendar year, we have recognized less than $100,000 in revenue from the customer that respective year.

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

We evaluate the success of customer accounts in the Acquire phase based on the revenue such accounts generate in the following year.

In 2020, we generated $0.3 million in revenue from customers in the Acquire phase, which yielded a contribution loss of $36.8 million.

In 2021, those same customers generated $45.1 million in revenue which yielded a contribution profit of $7.2 million.

Our investment in this second phase is often significant as we seek to understand the principal challenges faced by our customers and ensure that our software delivers value and results.

We define a customer in the Expand phase as any customer from which we have recognized more than $100,000 in revenue in a calendar year and whose account had a negative contribution margin during the year at issue, as determined as of the end of the year.

In this phase, we operate at a loss, as measured by contribution margin, in order to drive future revenue growth and margin expansion.

In 2020, we generated $20.3 million in revenue from customers that were in the Expand phase as of the end of that year, with a contribution margin of (159)%.

In 2021, those same customers generated $83.3 million in revenue, with a contribution margin of 45%.

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

In this third phase, after having installed and configured the software across an entire enterprise, customers become more self-sufficient in their use of our platforms, including developing software and applications that run on top of our platforms, while still continuing to benefit from the support of our O&M services.

We define a customer in the Scale phase as any customer from which we recognized more than $100,000 in revenue in a calendar year and whose account had a positive contribution margin during the year at issue, as determined as of the end of the year.

It is in the Scale phase of our partnerships with customers that we generally see contribution margin on particular accounts improve.

In 2020, we generated $1.1 billion in revenue from customers in the Scale phase, with a contribution margin of 63%.

In 2021, those same customers generated $1.3 billion in revenue with a contribution margin of 63%.

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

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

Total Remaining Deal Value

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however, the majority of our contracts are subject to termination provisions, including for convenience, and there can be no guarantee that contracts are not terminated or that contract options will be exercised.

Also included within total remaining deal value is remaining contract value from commercial contracts entered into in connection with our strategic investments, many of which are subject to termination, including for convenience in the event the proposed business combination is not completed.

As of December 31, 2021, the total remaining deal value of the contracts that we have been awarded by, or entered into with, government and commercial customers, including existing contractual obligations and contractual options available to those customers, was $3.8 billion, up 35% from December 31, 2020, when our total remaining deal value of such contracts was $2.8 billion.

Of our total remaining deal value, as of December 31, 2021, the total remaining deal value of the contracts that we entered into with commercial customers, including existing contractual obligations and available contractual options, was $2.6 billion, up 71% from December 31, 2020, when the total remaining deal value of such contracts was $1.5 billion.

As of December 31, 2021, the total remaining deal value of the contracts that we had been awarded by government agencies in the United States and allied countries around the world, including existing contractual obligations and contractual options available to those government agencies, was $1.2 billion, down 6% from December 31, 2020, when the total value of such contracts was $1.3 billion.

When calculating the total remaining deal value of government contracts, we do not include government contracts — also known as indefinite delivery, indefinite quantity (“IDIQ”) contracts — totaling $2.8 billion, as of December 31, 2021, that we have been awarded, but where the funding of such contracts has not yet been determined.

Total remaining deal value also includes remaining contract value from Strategic Commercial Contracts, which are subject to termination for cause provisions.

Total remaining deal value excludes all or some portion of the value of certain commercial contracts as a result of our ongoing assessments of customers’ financial condition, including the consideration of such customers’ ability and intention to pay, and whether such contracts continue to meet the criteria for revenue recognition, among other factors.

As of December 31, 2022, the total remaining deal value of the contracts, as defined above, was $3.7 billion, down 3% from December 31, 2021, when our total remaining deal value of such contracts was $3.8 billion.

Of our total remaining deal value, as of December 31, 2022, the total remaining deal value of the contracts that we entered into with commercial customers, including existing contractual obligations and available contractual options, as defined above, was $2.0 billion, down 23% from December 31, 2021, when the total remaining deal value of such contracts was $2.6 billion.

The decrease was due to the exclusion of certain contracts, as described above, as well as decreases resulting from the recognition of revenue and renegotiation of a commercial contract.

As of December 31, 2022, the total remaining deal value of the contracts that we had been awarded by government agencies in the United States and allied countries around the world, including existing contractual obligations and contractual options

available to those government agencies, was $1.7 billion, up 37% from December 31, 2021, when the total value of such contracts was $1.2 billion.

When calculating the total remaining deal value of government contracts, we do not include government contracts known as IDIQ contracts, totaling $2.8 billion, as of December 31, 2022, that we have been awarded, but where the funding of such contracts has not yet been determined.

The funding of these contracts is not guaranteed.

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As a result, there can be no guarantee that our customer contracts will not be terminated or that contract options will be exercised.

Macroeconomic Trends

As a corporation with an international presence, we are subject to risks and uncertainties caused by significant events with macroeconomic impacts, including, but not limited to, the ongoing COVID-19 pandemic, the impact of the ongoing Russia-Ukraine conflict, rising inflation and interest rates, monetary policy changes, and foreign currency fluctuations.

Additionally, these macroeconomic impacts have generally disrupted the operations of our customers and prospective customers.

We continuously monitor the direct and indirect impacts of these circumstances on our business and financial results, as well as the overall global economy and geopolitical landscape.

See the section titled “Risk Factors” included elsewhere in this Annual Report on Form 10-K for further discussion of the impact of macroeconomic trends on our business.

COVID-19 Impact

The COVID-19 pandemic continues to impact the global economy.

The extent to which COVID-19 may impact our financial conditions or results of operations in future periods remains uncertain, but to date has not had a material adverse impact on our results of operations.

We continue to prioritize the health and safety of our employees, our customers, and the communities in which we operate.

We have reopened our offices and have allowed business travel and in-person events to resume, while continuing to closely monitor developments around the evolving nature of the pandemic.

As such, our travel and office-related expenditures have increased, and may continue to increase moving forward.

However, we expect that some of our employees will continue to work remotely.

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

The COVID-19 pandemic has made clear to many of our customers that accommodating the extended timelines ordinarily required to realize results from implementing new software solutions is not an option during a crisis.

As a result, customers are increasingly adopting our software, which can be ready in days, over internal software development efforts, which may take months or years.

Russia-Ukraine Conflict

We continue to closely monitor the impact of the ongoing Russia-Ukraine conflict and its global impacts on our business.

While the conflict is still evolving and the outcome remains highly uncertain, we do not expect that the Russian invasion will have a material impact on our business and results of operations.

We do not currently have office locations in Russia and none of our revenues came from sales to entities headquartered in Russia.

In June 2022, our Chief Executive Officer, Alexander Karp, met with the President of Ukraine and other senior officials to discuss opening an office in Ukraine and providing ongoing support.

Our current operations related to Ukraine are not material to our financial position or results of operations.

However, if the conflict continues or worsens, leading to greater disruptions and uncertainty within the technology industry or global economy, our business and results of operations could be negatively impacted.

Foreign Currency Exchange Rates

Exchange rates are subject to significant and rapid fluctuations due to a number of factors, including interest rate changes and political and economic uncertainty which may adversely affect our results of operations or financial position.

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

As a result, the general strengthening of the U.S.

dollar relative to other major foreign currencies (primarily the Euro and GBP) had an unfavorable impact on our revenues from certain non-U.S.

however, that impact for the year ended December 31, 2022 was not material to our financial position or results of operations.

Customer Impacts

Current macroeconomic conditions may also adversely impact our customers’ business, particularly our early- and growth-stage customers.

Relationships with early- or growth-stage customers carry inherent risks because, among other things, such customers may be unable to generate sufficient revenues or profitability or to access any necessary financing or funding in a timely manner or on favorable terms to them in the current macroeconomic environment, which has impacted, and may continue to impact, our expected revenue and collections.

As a result, current macroeconomic conditions may continue to impact our ability to realize the full value of our commercial contracts with such early- or growth-stage customers.

For additional information see Note 4.

Investments and Fair Value Measurements in the consolidated financials statements included elsewhere in this Annual Report on Form 10-K.

Key Business Measure

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

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

In addition to the measures presented in our consolidated financial statements, we use the following key non-GAAP business measure to help us evaluate our business, identify trends affecting our business, formulate business plans and financial projections, and make strategic decisions.

Contribution Margin

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

At the end of each year, we categorize each customer account into one of the three phases based on its revenue and contribution margin for that year.

Revenue is allocated to each customer account directly.

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Our software engineers working with existing customers often manage the deployment and operation of our platforms as well as identify new ways that those platforms can be used.

To calculate the contribution by customer, we allocate cost of revenue and sales and marketing expenses, excluding stock-based compensation, to an account pro rata based on headcount and time spent on the account during the period.

To calculate the contribution by segment, we allocate cost of revenue and sales and marketing expenses, excluding stock-based compensation, to an account pro rata based on headcount and time spent on the account during the period.

To the extent certain costs or personnel are not directly assigned to a specific account, they are allocated pro rata based on total headcount staffed during such period.

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

Contribution margin, both across our business and on specific customer accounts, is intended to capture how much we have earned from customers after accounting for the costs associated with deploying and operating our software, as well as any sales and marketing expenses involved in acquiring and expanding our partnerships with those customers, including allocated overhead.

We exclude stock-based compensation as it is a non-cash

We believe that our contribution margin across the business and on specific customer accounts provides an important measure of the efficiency of our operations over time.

Allocated revenues and expenses are then aggregated into a segment based upon the customer account to which they relate.

Contribution margin, both across our business and segments, is intended to capture how much we have earned from customers after accounting for the costs associated with deploying and operating our software, as well as any sales and marketing expenses involved in acquiring and expanding our partnerships with those customers, including allocated overhead.

We exclude stock-based compensation as it is a non-cash expense.

We believe that our contribution margin provides an important measure of the efficiency of our operations over time.

We have included contribution margin because it is a key measure used by our management to evaluate our performance, and we believe that it also provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management team.

Our calculation of contribution margin may differ from similarly titled

measures, if any, reported by other companies.

Our calculation of contribution margin may differ from similarly titled measures, if any, reported by other companies.

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

For more information about contribution margin, including the limitations of this measure, and a reconciliation to loss from operations, see the section titled “ Non-GAAP

Reconciliations

We use the non-GAAP

measures contribution margin;

For more information about contribution margin, including the limitations of this measure, and a reconciliation to loss from operations, see the section titled “Non-GAAP Reconciliations” below.

Non-GAAP Reconciliations

We use the non-GAAP measures contribution margin;

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

and adjusted income from operations, which excludes stock-based compensation, related employer payroll taxes, and non-recurring

Direct Listing charges to help us evaluate our business, identify trends affecting our business, formulate business plans and financial projections, and make strategic decisions.

We exclude stock-based compensation, which is a non-cash

expense, from these non-GAAP

financial measures because we believe that excluding this item provides meaningful supplemental information regarding operational performance and provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management team.

Additionally, we exclude expenses primarily related to our Direct Listing during the quarter ended September 30, 2020 as they are a one-time

non-recurring

charge, and employer payroll taxes related to stock-based compensation as it is difficult to predict and outside of our control.

and adjusted income from operations, which excludes stock-based compensation and related employer payroll taxes to help us evaluate our business, identify trends affecting our business, formulate business plans and financial projections, and make strategic decisions.

We exclude stock-based compensation, which is a non-cash expense, from these non-GAAP financial measures because we believe that excluding this item provides meaningful supplemental information regarding operational performance and provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management team.

Additionally, we exclude employer payroll taxes related to stock-based compensation as it is difficult to predict and outside of our control.

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

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

Thus, our non-GAAP

contribution margin;

Thus, our non-GAAP contribution margin;

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

and adjusted income from operations should be considered in addition to, not as a substitute for, or in isolation from, measures prepared in accordance with GAAP.

We compensate for these limitations by providing reconciliations of these non-GAAP

measures to the most comparable GAAP measures.

We encourage investors and others to review our business, results of operations, and financial information in its entirety, not to rely on any single financial measure, and to view these non-GAAP

measures in conjunction with the most directly comparable GAAP financial measures.

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

We encourage investors and others to review our business, results of operations, and financial information in its entirety, not to rely on any single financial measure, and to view these non-GAAP measures in conjunction with the most directly comparable GAAP financial measures.

Contribution Margin

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Research and development expenses (1)

265,808 237,189

General and administrative expenses (1)

365,768 295,071

Total stock-based compensation expense 564,798 778,215

Total contribution $ 1,035,173 $ 899,429

Contribution margin 54 % 58 %

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Years Ended December 31,

Gross profit $ 1,497,322 $ 1,202,485

stock-based compensation 44,061 68,546

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Adjusted Income from Operations

The following table provides a reconciliation of adjusted income from operations, which excludes stock-based compensation, related employer payroll taxes, and non-recurring

Direct Listing charges for the years ended December 31, 2021 and 2020 (in thousands):

The following table provides a reconciliation of adjusted income from operations, which excludes stock-based compensation and related employer payroll taxes for the years ended December 31, 2022 and 2021 (in thousands):

Years Ended December 31,

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employer payroll taxes related to stock-based compensation 17,156 106,283

non-recurring

Direct Listing charges

Adjusted income from operations $ 420,753 $ 473,452

Components of Results of Operations

We generate revenue from the sale of subscriptions to access our software in our hosted environment along with ongoing O&M services (“Palantir Cloud”);

software subscriptions in our customers’ environments with ongoing O&M services (“On-Premises

and professional services.

We generate revenue from the sale of subscriptions to access our software in our hosted environment along with ongoing O&M services (“Palantir Cloud”), software subscriptions in our customers’ environments with ongoing O&M services (“On-Premises Software”), and professional services.

Palantir Cloud

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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 services to the customer.

On-Premises Software

Sales of our software subscriptions grant customers the right to use functional intellectual property, either on their internal hardware infrastructure or on their own cloud instance, over the contractual term and are also sold together with stand-ready O&M services.

O&M services include critical updates and support and maintenance services required to operate the software and, as such, are necessary for the software to maintain its intended utility over the contractual term.

Because of this requirement, we have concluded that the software subscriptions

and O&M services, which together we refer to as our On-Premises

Software, are highly interdependent and interrelated and represent a single distinct performance obligation within the context of the contract.

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

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

Professional Services

Our professional services support the customers’ use of the software and include, as needed, on-demand

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

Professional services contracts typically include the provision of on-demand

professional services for the duration of the contractual term.

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

Software subscriptions.

Professional services are on-demand,

whereby we perform services throughout the contract period;

Our professional services support the customers’ use of the software and include, as needed, on-demand user support, user-interface configuration, training, and ongoing ontology and data modeling support.

Professional services contracts typically include the provision of on-demand professional services for the duration of the contractual term.

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

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

therefore, the revenue is recognized over the contractual term.

Cost of Revenue

Cost of revenue primarily includes salaries, stock-based compensation expense, and benefits for personnel involved in performing O&M and professional services, as well as third-party cloud hosting services, allocated overhead, and other direct costs.

We expect that cost of revenue will increase in absolute dollars as our revenue grows and will vary from period-to-period

as a percentage of revenue.

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 field service representatives, third-party cloud hosting services, travel costs, allocated overhead, and other direct costs.

We expect that cost of revenue will increase in absolute dollars as our revenue grows and will vary from period to period as a percentage of revenue.

Sales and Marketing

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Sales and marketing costs primarily include salaries, stock-based compensation expense, and benefits for our sales force and personnel involved in sales functions, executing on pilots and customer growth activities;

as well as third-party cloud hosting services for our pilots, marketing and sales event-related costs, and allocated overhead.

as well as third-party cloud hosting services for our pilots, marketing and sales event-related costs, travel costs, and allocated overhead.

Sales and marketing costs are generally expensed as incurred.

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Our research and development efforts are aimed at continuing to develop and refine our platforms, including adding new features and modules, increasing their functionality, and enhancing the usability of our platforms.

Research and development costs primarily include salaries, stock-based compensation expense, and benefits for personnel involved in performing the activities to develop and refine our platforms, internal use third-party cloud hosting services and other IT-related

costs, and allocated overhead.

Research and development costs are expensed as incurred.

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General and Administrative

General and administrative costs include salaries, stock-based compensation expense, and benefits for personnel involved in our executive, finance, legal, human resources, and administrative functions, as well as third-party professional services and fees, and allocated overhead.

We expect that general and administrative expenses will increase in absolute dollars as we hire additional personnel and enhance our systems, processes, and controls to support the growth in our business as well as our increased compliance and reporting requirements as a public company.

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Interest Expense

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

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

Other Income (Expense), Net

Other income (expense), net consists primarily of foreign currency exchange gains and losses, realized and unrealized losses from Investments, and our share of income and losses from our equity method investments.

The year ended December 31, 2022 also included a gain from a step acquisition.

Provision for (Benefit from) Income Taxes

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

Net Income (Loss) Attributable to Noncontrolling Interests

Net income (loss) attributable to noncontrolling interests represents our joint venture partners’ proportionate share of the results of operations of the respective joint venture.

We have two operating segments, commercial and government, which were determined based on the manner in which the chief operating decision maker (“CODM”), who is our chief executive officer, manages our operations for purposes of allocating resources and evaluating performance.

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Our operating segments are described below:

This segment primarily serves customers working in non-government

• Commercial:

This segment primarily serves customers working in non-government industries.

• Government:

This segment primarily serves customers that are U.S.

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Years Ended December 31,

2022 2021 2020

Revenue $ 1,905,871 $ 1,541,889 $ 1,092,673

Cost of revenue (1)

408,549 339,404 352,547

Gross profit 1,497,322 1,202,485 740,126

Operating expenses:

Sales and marketing (1)

702,511 614,512 683,701

Research and development (1)

359,679 387,487 560,660

General and administrative (1)

596,333 611,532 669,444

Total operating expenses 1,658,523 1,613,531 1,913,805

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Provision for (benefit from) income taxes 10,067 31,885 (12,636)

Net loss (371,094) (520,379) (1,166,391)

Net income attributable to noncontrolling interests 2,611 — —

Net loss attributable to common stockholders $ (373,705) $ (520,379) $ (1,166,391)

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

Years Ended December 31,

2022 2021 2020

Cost of revenue $ 44,061 $ 68,546 $ 139,627

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Total stock-based compensation expense (i)

On September 30, 2020, in connection with our Direct Listing, we incurred $769.5 million and $8.4 million of stock-based compensation using the accelerated attribution method related to the satisfaction of the performance-based vesting condition for RSUs and growth units, respectively, that had satisfied the service-based vesting condition as of such date.

$ 564,798 $ 778,215 $ 1,270,702

(i) On September 30, 2020, in connection with our Direct Listing, we incurred $769.5 million and $8.4 million of stock-based compensation using the accelerated attribution method related to the satisfaction of the performance-based vesting condition for RSUs and growth units, respectively, that had satisfied the service-based vesting condition as of such date.

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

Years Ended December 31,

2022 2021 2020

Revenue 100 % 100 % 100 %

Cost of revenue 21 22 32

Gross profit 79 78 68

Operating expenses:

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Provision for (benefit from) income taxes 1 2 (1)

Net loss (20) (34) (107)

Net income attributable to noncontrolling interests — — —

Net loss attributable to common stockholders (20) % (34) % (107) %

Comparison of the Years Ended December 31, 2022 and 2021

Years Ended December 31,

Years Ended December 31, Change

2022 2021 Amount %

Government $ 1,071,776 $ 897,356 $ 174,420 19 %

Commercial 834,095 644,533 189,562 29 %

Total revenue $ 1,905,871 $ 1,541,889 $ 363,982 24 %

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Revenue from government customers increased by $174.4 million, or 19%, for the year ended December 31, 2022 compared to 2021, primarily from customers in the United States.

Of the increase, $279.2 million was from customers existing as of December 31, 2020.

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

Revenue growth slowed compared to the prior year as a result of increased delays in the completion of the U.S.

government budgeting process when compared to their budgeting process in the prior year.

Of the increase, $151.1 million was from government customers existing as of December 31, 2021.

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

Revenue from U.S.

government customers was $826.3 million for the year ended December 31, 2022 compared to $678.2 million for the same period in 2021.

Revenue from commercial customers increased by $189.6 million, or 29%, for the year ended December 31, 2022 compared to 2021.

Of the increase, $98.4 million was from new customers, of which $48.3 million was revenue from customers that we have entered into concurrent investment agreements with.

Investments and Fair Value Measurements

Commitments and Contingencies

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

for additional information.

Of the increase, $96.8 million was from new customers as of December 31, 2021, of which $27.0 million was revenue from customers with which we had entered into concurrent Investment Agreements.

Investments and Fair Value Measurements in our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information.

Cost of Revenue and Gross Profit

Years Ended December 31,

Years Ended December 31, Change

2022 2021 Amount %

Cost of revenue $ 408,549 $ 339,404 $ 69,145 20 %

Cost of revenue for the year ended December 31, 2021 decreased by $13.1 million, or 4%, compared to 2020.

The decrease was primarily due to a decrease of $71.1 million in stock-based compensation expense as a result of the recognition of cumulative stock-based compensation expense related to RSUs upon our Direct Listing in the prior year.

This was partially offset by increases of $43.6 million related to third-party cloud hosting services and $15.4 million related to higher usage of field service representatives and other direct deployment costs.

Our gross margin for the year ended December 31, 2021 increased from 68% in 2020 to 78% as a result of efficiencies in supporting the revenue growth at our customer deployments, for example investments in our platforms, as well as a decrease in stock-based compensation expense as compared to the prior year.

Gross profit 1,497,322 1,202,485 294,837 25 %

Gross margin 79 % 78 %

Cost of revenue for the year ended December 31, 2022 increased by $69.1 million, or 20%, compared to 2021.

The increase was primarily due to increases of $33.0 million in third-party cloud hosting services driven by increased usage from customer growth and expansion, $29.4 million in field service representatives mainly related to new projects, $18.1 million in payroll and other payroll-related costs as a result of increased headcount attributable to our cost of revenue function, and $11.9 million in travel and office-related costs.

The increases were partially offset by a decrease of $31.0 million in stock-based compensation expense and related expenses.

For additional information, see the section titled “Stock-Based Compensation” below.

Our gross margin for the year ended December 31, 2022 increased by 1% compared to 2021.

Gross margin increased as a result of revenue growth outpacing costs of revenue.

The primary cause of this growth rate variation was the decrease in stock-based compensation expense and related expenses in cost of revenue relative to total expense growth as compared to the prior year.

Operating Expenses

Years Ended December 31,

Years Ended December 31, Change

2022 2021 Amount %

Sales and marketing $ 702,511 $ 614,512 $ 87,999 14 %

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Sales and Marketing

Sales and marketing expenses decreased by $69.2 million, or 10%, for the year ended December 31, 2021 compared to 2020.

The decrease was primarily due to decreases in personnel costs of $107.6 million, which included a decrease of $155.3 million in stock-based compensation expense as a result of the recognition of cumulative stock-based compensation expense related to RSUs upon our Direct Listing in the prior year;

partially offset by increases of $25.7 million from employer payroll taxes mainly driven by higher option exercises and $21.6 million in payroll costs related to an increase in headcount attributable to our sales and marketing functions.

Additionally, there was an increase of $26.7 million in marketing and advertising expenses.

Sales and marketing expenses increased by $88.0 million, or 14%, for the year ended December 31, 2022 compared to 2021.

The increase was primarily due to increases of $93.1 million in payroll and other payroll-related costs driven by increased headcount attributable to our sales and marketing function, $36.3 million in travel and office-related costs, and $23.5 million in marketing and advertising expenses.

The increases were partially offset by a decrease of $81.3 million in stock-based compensation expense and related expenses.

For additional information, see the section titled “Stock-Based Compensation” below.

Research and Development

Research and development expenses decreased by $27.8 million, or 7%, for the year ended December 31, 2022 compared to 2021.

The decrease was primarily due to a decrease of $206.8 million in stock-based compensation expense as a result of the recognition of cumulative stock-based compensation expense related to RSUs upon our Direct Listing in the prior year;

partially offset by $18.8 million in payroll costs related to an increase in headcount attributable to our research and development functions.

The decrease was primarily due to a decrease of $75.1 million in stock-based compensation expense and related expenses.

For additional information, see the section titled “Stock-Based Compensation” below.

The decrease was partially offset by increases of $22.8 million in payroll and other payroll-related costs driven by increased headcount attributable to our research and development function, $12.0 million in travel and office-related costs, and $11.6 million in third-party cloud hosting services and other IT costs driven by increased usage to support customer growth and expansion, as well as other IT costs to support company growth.

General and Administrative

General and administrative expenses decreased by $15.2 million, or 2%, for the year ended December 31, 2022 compared to 2021.

The decrease in expenses was primarily due to a decrease in stock-based compensation

expense of $59.3 million as a result of the recognition of cumulative stock-based compensation expense related to RSUs upon our Direct Listing in the prior year;

partially offset by increases of $17.5 million in employer payroll taxes, mainly driven by higher option exercises.

Additionally, there was a net decrease of $48.8 million in legal professional services generally due to non-recurring

legal services incurred in the prior year related to our Direct Listing.

The decrease was primarily due to a decrease of $113.0 million in stock-based compensation expense and related expenses.

For additional information see the section titled “Stock-Based Compensation” below.

This decrease was partially offset by increases of $34.1 million in travel and office-related costs, $28.9 million in payroll and other payroll-related costs driven by increased headcount attributable to our general and administrative functions, $15.0 million in professional service fees mainly related to legal and financial services, and a $10.1 million allowance for credit losses.

Stock-Based Compensation

Years Ended December 31, Change

2022 2021 Amount %

Cost of revenue $ 44,061 $ 68,546 $ (24,485) (36) %

Sales and marketing 196,301 242,910 (46,609) (19) %

Research and development 93,871 150,298 (56,427) (38) %

General and administrative 230,565 316,461 (85,896) (27) %

Total stock-based compensation expense $ 564,798 $ 778,215 $ (213,417) (27) %

Stock-based compensation expenses decreased by $213.4 million, or 27%, for the year ended December 31, 2022 compared to 2021.

The decrease was primarily driven by forfeitures and lower expense under the accelerated attribution method for RSUs granted prior to September 30, 2020, the date of our Direct Listing, during the year ended December 31, 2022 compared to the same period in 2021, partially offset by an increase related to awards granted after December 31, 2021.

Interest Income

Years Ended December 31,

Years Ended December 31, Change

2022 2021 Amount

Interest income $ 20,309 $ 1,607 $ 18,702

Interest income decreased by $3.1 million for the year ended December 31, 2021 compared to 2020 primarily due to a reduction in U.S.

Interest income increased by $18.7 million for the year ended December 31, 2022 compared to 2021 primarily due to an increase in U.S.

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

Interest Expense

Years Ended December 31,

Years Ended December 31, Change

2022 2021 Amount

Interest expense $ (4,058) $ (3,640) $ (418)

Interest expense decreased by $10.5 million for the year ended December 31, 2021 compared to 2020.

The decrease was primarily due to the full repayment of the outstanding debt balance during the second quarter of 2021.

Interest expense increased by $0.4 million for the year ended December 31, 2022 compared to 2021 driven by the amendments to our credit facility during the year.

Other Income (Expense), Net

Years Ended December 31,

Years Ended December 31, Change

2022 2021 Amount

Other income (expense), net $ (216,077) $ (75,415) $ (140,662)

Other income (expense), net changed by $79.5 million for the year ended December 31, 2021 compared to 2020 primarily due to unrealized losses, net from our investments in marketable securities.

Provision for (Benefit from) Income Taxes

Years Ended December 31,

Provision for (benefit from) income taxes

We recorded a provision for income taxes of $31.9 million for the year ended December 31, 2021 compared to a benefit from income taxes of $12.6 million for the year ended December 31, 2020.

The change was primarily due to the establishment of a valuation allowance against our 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.

Other income (expense), net changed by $140.7 million for the year ended December 31, 2022 compared to 2021 primarily due to $272.1 million of net unrealized and realized losses from our investments in marketable securities, partially offset by a $44.3 million gain from a “step acquisition” (as defined by U.S.

For additional information see Note 4.

Investments and Fair Value Measurements and Note 14.

Business Combinations in our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Provision for Income Taxes

Years Ended December 31, Change

2022 2021 Amount

Provision for income taxes $ 10,067 $ 31,885 $ (21,818)

Provision for income taxes decreased by $21.8 million for the year ended December 31, 2022 compared to 2021 primarily due to the prior year establishment of a full valuation allowance against its U.K.

deferred tax assets during the fourth quarter of 2021 partially offset by permanent differences associated with U.S.

Base Erosion and Anti Abuse Tax elections.

The Company maintains a full valuation allowance against its U.S.

federal and state and U.K.

deferred tax assets.

For additional information see Note 11.

Income Taxes in our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Liquidity and Capital Resources

We generated positive cash flow from operations for the year ended December 31, 2021 as our customer billing cycles have continued to normalize and our growth in customer collections outpaced our operating expenses.

had $2.3 billion in cash and cash equivalents available as of December 31, 2021.

We believe that cash flows generated from operations, cash, cash equivalents, available funds and access to financing sources, including our revolving credit facility, will be sufficient to meet our anticipated operating cash needs for at least the next twelve months.

We generated positive cash flow from operations for the year ended December 31, 2022 and had $2.6 billion in cash and cash equivalents available as of December 31, 2022.

We believe that cash flows generated from operations, cash, cash equivalents, available funds and access to financing sources, including our credit facility, will be sufficient to meet our anticipated operating cash needs for at least the next twelve months.

However, any projections of future cash needs and cash flows are subject to substantial uncertainty.

Historically we generated negative cash flows from operations, and financed our operations primarily through the sale of our equity securities, including proceeds from option exercises, and payments received from our customers.

We have generated significant losses from our operations as reflected in our consolidated balance sheets and we expect cash flow from operations may fluctuate for the foreseeable future.

Historically, we have financed our operations primarily through the sale of our equity securities, including proceeds from option exercises, and payments received from our customers.

As of December 31, 2022, our accumulated deficit balance was $5.9 billion, and our principal sources of liquidity were $2.6 billion of cash and cash equivalents.

During April 2021, we repaid our outstanding term loans of $200.0 million.

As of December 31, 2021, we had no outstanding debt balances and an available and undrawn $400.0 million revolving credit facility.

As of December 31, 2022, we had no outstanding debt balances and additional available and undrawn revolving and DDTL commitments of $950.0 million under our credit agreement to fund working capital and general corporate expenditures.

No amounts were drawn as of the date of this Annual Report on Form 10-K.

For more information, see Note 6.

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

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

Our future capital requirements will depend on many factors, including, but not limited to the rate of our growth, our ability to attract and retain customers and their willingness and ability to pay for our products and services, and the timing and extent of spending to support our efforts to market and develop our products.

Further, as of December 31, 2021, our approved investment commitments outstanding totaled $134.5 million, which are in addition to the investments we made during the period, and we may enter into future arrangements to acquire or invest in businesses, products, services, strategic partnerships, and technologies.

Further, we may enter into future arrangements to acquire or invest in businesses, products, services, strategic partnerships, and technologies.

As such, we may be required to seek additional equity or debt financing.

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Years Ended December 31,

2022 2021 2020

Net cash provided by (used in):

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

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

(3,885) (3,918) 1,259

Net increase in cash, cash equivalents, and restricted cash

$ 260,421 $ 238,768 $ 726,184

Operating Activities

Net cash provided by operating activities was $333.9 million for the year ended December 31, 2021.

The factors affecting our operating cash flows during this period were our net loss of $520.4 million and changes in net operating assets and liabilities of $92.1 million, offset by non-cash

charges of $946.3 million.

charges primarily consisted of $778.2 million in stock-based compensation expense, $73.3 million of net unrealized and realized losses and gains from marketable securities, and $43.3 million of deferred income taxes mainly due to the recording of a full valuation allowance for our UK deferred tax assets.

The change in net working capital was generally driven by decreases of $80.2 million related to a decrease in deferred revenue and customer deposits, $49.5 million related to increases in accounts receivable, prepaid expenses, and other current and noncurrent assets, and $32.2 million related to a decrease in operating lease liabilities, current and noncurrent;

offset by an increase of $73.0 million in accounts payable and accrued liabilities.

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

The factors affecting our operating cash flows during this period were our net loss of $1.2 billion and changes in net working capital of $454.1 million, offset by non-cash

charges of $1.3 billion, which primarily consisted of stock-based compensation expense.

The change in net working capital generally consisted of a net decrease of $261.8 million in deferred revenue and customer deposits, and an increase in assets of $156.0 million mainly due to an increase in accounts receivable.

Net cash provided by operating activities was $223.7 million and $333.9 million for the year ended December 31, 2022 and 2021, respectively.

The decrease was primarily driven by timing of payments to vendors and timing of the receipt of payments from our customers.

Investing Activities

Net cash used in investing activities was $397.9 million for the year ended December 31, 2021, which consisted of purchases of marketable securities of $308.3 million, purchases of alternative investments of $50.9 million, purchases of privately-held securities of $23.0 million, and purchases of property and equipment of $12.6 million.

Net cash used in investing activities was $14.9 million for the year ended December 31, 2020, which consisted primarily of purchases of property and equipment of $12.2 million.

Net cash used in investing activities was $45.4 million and $397.9 million for the year ended December 31, 2022 and 2021, respectively.

The decrease in cash used in investing activities was primarily due to a reduction of our purchases of alternative investments and marketable securities, as well as increases from cash acquired from business combinations and sales or redemption of certain marketable securities.

Financing Activities

Net cash provided by financing activities was $306.7 million for the year ended December 31, 2021, which primarily consisted of proceeds from the exercise of common stock options of $507.5 million, partially offset by repayments of $200.0 million of debt.

Net cash provided by financing activities was $1.0 billion for the year ended December 31, 2020, which primarily consisted of $942.5 million of net proceeds from the issuance of common stock, $199.4 million of net proceeds from borrowings under our credit facilities, $298.8 million of proceeds from the exercise of common stock options, partially offset by repayments of $400.0 million of debt.

Net cash provided by financing activities was $86.0 million and $306.7 million for the year ended December 31, 2022 and 2021, respectively.

The decrease in cash provided by financing activities was driven by a decrease in proceeds from the exercise of common stock options, partially offset by the principal repayments on borrowings of $200.0 million made during the year ended December 31, 2021.

Contractual Obligations and Commitments

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Payments Due by Period

Total Less than 1 year 1-3 years 3-5 years More than 5 years

Noncancelable purchase commitments (1)

$ 1,275,377 $ 169,124 $ 591,000 $ 515,253 $ —

Operating lease commitments, net of sublease income amounts (2)

Investment commitments (3)

193,075 40,385 74,633 38,550 39,507

Total contractual obligations and commitments $ 1,468,452 $ 209,509 $ 665,633 $ 553,803 $ 39,507

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Refer to Note 8.

Commitments and Contingencies

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

for additional information.

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

(2) The contractual commitment amounts under operating leases in the table above are primarily related to facility and equipment leases.

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Refer to Note 7.

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

for additional information.

Investment commitments relate to commitments under Investment Agreements we entered into with investees to purchase shares.

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.

Refer to Note 4.

Investments and Fair Value Measurements

Commitments and Contingencies

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

for additional information.

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

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

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

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

Customer deposits consist of amounts billed and/or paid for anticipated revenue generating activities in advance of the start of the contractual term or for the portion of a contract term that is subject to cancellation by our customers.

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

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Our customer deposits and customer deposits, noncurrent as of December 31, 2022 were $142.0 million and $3.9 million, respectively.

Our total deferred revenue and deferred revenue, noncurrent as of December 31, 2020 was $189.5 million and $50.5 million, respectively.

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

Our deferred revenue and deferred revenue, noncurrent as of December 31, 2021 were $227.8 million and $40.2 million, respectively.

Our customer deposits and customer deposits, noncurrent as of December 31, 2021 were $161.6 million and $33.7 million, respectively.

Critical Accounting Policies and Estimates

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

are prepared in accordance with GAAP.

Our consolidated financial statements and the accompanying notes thereto included elsewhere in this Annual Report on Form 10-K are prepared in accordance with GAAP.

The preparation of consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures.

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For further information, see Note 2.

Significant Accounting Policies

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

Significant Accounting Policies in our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Revenue Recognition

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

Software, with ongoing O&M services and professional services.

In accordance with ASC 606, Revenue from Contracts with Customers

, we recognized revenue upon the transfer of promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for promised goods or services.

We generate revenue from the sale of subscriptions to access our software Palantir Cloud and On-Premises Software, with ongoing O&M services and professional services.

In accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers , we recognized revenue upon the transfer of promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for promised goods or services.

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

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On-Premises Software

The O&M services include critical updates, support, and maintenance services required to operate our software and, as such, are necessary for our software to maintain its intended utility over the contractual term.

Because of this requirement, we have concluded that the software subscriptions and O&M services, which together we refer to as our On-Premises

Software, are highly interdependent and interrelated and represent a single distinct performance obligation within the context of the contract.

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

Professional Services

Our professional services support the customers’ use of the software and include, as needed, on-demand

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

Professional services contracts typically include the provision of on-demand

professional services for the duration of the contractual term.

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

Professional services are on-demand,

whereby we perform services throughout the contract period;

Professional services contracts typically include the provision of on-demand professional services for the duration of the contractual term.

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

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

therefore, the revenue is recognized over the contractual term.

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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 our 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.

Customer deposits consist of amounts billed and/or paid 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 by our customers.

Many of our 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, we concluded there are no enforceable rights and obligations after such notice period and therefore the consideration received or due from the customer that is subject to termination for convenience is recorded as customer deposits.

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however, our terms generally require payment within 30 to 60 days from the invoice date.

In instances where the timing of revenue recognition differs from the timing of

payment, we elected to apply the practical expedient in accordance with ASC 606 to not adjust contract consideration for the effects of a significant financing component as we expect, at contract inception, that the period between when promised goods and services are transferred to the customer and when the customer pays for those goods and services will be one year or less.

In instances where the timing of revenue recognition differs from the timing of payment, we elected to apply

the practical expedient in accordance with ASC 606 to not adjust contract consideration for the effects of a significant financing component as we expect, at contract inception, that the period between when promised goods and services are transferred to the customer and when the customer pays for those goods and services will be one year or less.

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

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

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

Additionally, the pricing of our contracts is generally fixed;

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

however, it is possible for contracts to include variable consideration, which can be based on subjective or objective criteria.

We include the estimated amount of variable consideration that we expect to receive to the extent it is probable that a significant revenue reversal will not occur.

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

Variable consideration received was not material in the periods presented.

Significant estimates and assumptions are used in the identification of performance obligations in customer contracts and collectability of contract consideration, including accounts receivable.

1 unchanged sentence

Actual results could differ from those estimates and such differences could affect our financial position and results of operations.

We estimate our current tax expense together with assessing temporary differences resulting from differing treatment of items not currently deductible for tax purposes.

These differences result in deferred tax assets and liabilities on our consolidated balance sheets, which are estimated based upon the difference between the financial statement and tax bases of assets and liabilities using the enacted tax rates that will be in effect when these differences reverse.

In general, deferred tax assets represent future tax benefits to be received when certain expenses previously recognized in our consolidated statements of operations become deductible expenses under applicable income tax laws or loss or credit carryforwards are utilized.

Accordingly, the realization of our deferred tax assets are dependent on future taxable income against which these deductions, losses, and credits can be utilized.

We evaluate the realizability of our deferred tax assets and recognize a valuation allowance when it is more likely than not that a future benefit on such deferred tax assets will not be realized.

Because of our history of U.S.

net operating tax losses, we have established a full valuation allowance against potential future benefits for U.S.

federal, state and U.K.

deferred tax assets.

We expect to maintain this full valuation allowance for the foreseeable future as it is more likely than not that some or all of those deferred tax assets may not be realized based on our history of losses.

We consider all evidence, both positive and negative, in determining any required valuation allowance and will continue to evaluate the need for a valuation allowance on a regular basis.

If certain factors change and we determine that the deferred tax assets are realizable at a more-likely-than-not

level, we will adjust the valuation allowance in the period the determination is made.

In the year ended December 31, 2021, 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.

Changes in the valuation allowance, when

recorded, would be included in our consolidated statements of operations.

Our judgment is required in determining the valuation allowance recorded against our net deferred tax assets.

We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position.

The tax benefits recognized in the consolidated financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon settlement.

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

Recent Accounting Pronouncements

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

Significant Accounting Policies

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

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

Significant Accounting Policies in our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

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What changed 10-K

Item 7. Management’s Discussion and Analysis