Palantir Technologies Inc. 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX Page Reports of Independent Registered Public Accounting Firm (PCAOB ID: 42 ) 81 Consolidated Balance Sheets 85 Consolidated Statements of Operations 86 Consolidated Statements of Comprehensive Loss 87 Consolidated Statements of Redeemable Convertible and Convertible Preferred Stock and Stockholders' Equity 88 Consolidated Statements of Cash Flows 90 Notes to Consolidated Financial Statements 92 80 Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of Palantir Technologies Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Palantir Technologies Inc. (the Company) as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive loss, redeemable convertible and convertible preferred stock and stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 21, 2023 expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. 81 Revenue Recognition Description of the Matter As discussed in Note 2 to the consolidated financial statements, the Company generates its revenue primarily from the sale of subscriptions to access its software in the Company’s hosted environment, along with ongoing operations and maintenance (“O&M”) services (“Palantir Cloud”); software licenses, primarily term licenses in the customers’ environments, with ongoing O&M services (“On-Premises Software”); and professional services. Management applies significant judgment in identifying and evaluating any non-standard terms and conditions in customer arrangements which may impact the determination of performance obligations or the timing of revenue recognition. In addition, the determining whether promises are distinct performance obligations that should be accounted for separately – or not distinct within the context of the contract and, thus, accounted for together – requires significant judgment. The Company concluded that the promise to provide a software license is highly interdependent and interrelated with the promise to provide O&M services and such promises are not distinct within the context of its contracts and are accounted for as a single performance obligation for the Company’s On-Premises Software. Auditing revenue recognition was complex and required a significant level of auditor judgment to identify and evaluate non-standard terms and conditions that impact revenue recognition and to assess whether the software licenses and O&M services should be accounted for as distinct performance obligations or combined as a single performance obligation. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design, and tested the operating effectiveness of the Company’s controls to identify and evaluate terms and conditions and performance obligations in customer arrangements that would impact revenue recognition. Our substantive procedures included, among others, testing the completeness and accuracy of management’s identification and evaluation of non-standard terms and conditions, reading executed contracts for a sample of revenue transactions and evaluating whether the Company appropriately applied its revenue recognition policy to the arrangements based on the terms and conditions therein and consistent with U.S. GAAP. In addition, we evaluated management’s key assumptions and analysis of its performance obligations, including their assessment of the nature, interdependency, and level of integration between the software license and O&M services. We also evaluated the appropriateness of the related disclosures in the consolidated financial statements. /s/ Ernst & Young LLP We have served as the Company’s auditor since 2008. San Jose, California February 21, 2023 82 Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of Palantir Technologies Inc. Opinion on Internal Control Over Financial Reporting We have audited Palantir Technologies Inc.’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Palantir Technologies Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on the COSO criteria. As indicated in the accompanying Management’s Report on Internal Control over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Palantir Technologies Japan K.K, which is included in the 2022 consolidated financial statements of the Company and constituted 0.3% and 0.1% of total and net assets, respectively, as of December 31, 2022 and 0.4% and 0.5% of revenues and net loss, respectively, for the year then ended. Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of Palantir Technologies Japan K.K. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive loss, redeemable convertible and convertible preferred stock and stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2022, and the related notes and our report dated February 21, 2023 expressed an unqualified opinion thereon. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. 83 Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Ernst & Young LLP San Jose, California February 21, 2023 84 Palantir Technologies Inc. Consolidated Balance Sheets (in thousands, except per share amounts) As of December 31, 2022 2021 Assets Current assets: Cash and cash equivalents $ 2,598,540 $ 2,290,674 Restricted cash 16,244 36,628 Accounts receivable, net 258,346 190,923 Marketable securities 35,135 234,153 Prepaid expenses and other current assets 133,312 110,872 Total current assets 3,041,577 2,863,250 Property and equipment, net 69,170 31,304 Restricted cash, noncurrent 12,551 39,612 Operating lease right-of-use assets 200,240 216,898 Other assets 137,701 96,386 Total assets $ 3,461,239 $ 3,247,450 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 44,788 $ 74,907 Accrued liabilities 172,715 155,806 Deferred revenue 183,350 227,816 Customer deposits 141,989 161,605 Operating lease liabilities 45,099 39,927 Total current liabilities 587,941 660,061 Deferred revenue, noncurrent 9,965 40,217 Customer deposits, noncurrent 3,936 33,699 Operating lease liabilities, noncurrent 204,305 220,146 Other noncurrent liabilities 12,655 2,297 Total liabilities 818,802 956,420 Commitments and Contingencies (Note 8) Stockholders’ equity: Common stock, $ 0.001 par value: 20,000,000 Class A shares authorized as of December 31, 2022 and December 31, 2021; 1,995,414 and 1,926,589 shares issued and outstanding as of December 31, 2022 and December 31, 2021, respectively; 2,700,000 Class B shares authorized as of December 31, 2022 and December 31, 2021; 102,656 and 99,880 shares issued and outstanding as of December 31, 2022 and December 31, 2021, respectively; and 1,005 Class F shares authorized, issued, and outstanding as of December 31, 2022 and December 31, 2021 2,099 2,027 Additional paid-in capital 8,427,998 7,777,085 Accumulated other comprehensive loss ( 5,333 ) ( 2,349 ) Accumulated deficit ( 5,859,438 ) ( 5,485,733 ) Total stockholders’ equity 2,565,326 2,291,030 Noncontrolling interests 77,111 — Total equity 2,642,437 2,291,030 Total liabilities and equity $ 3,461,239 $ 3,247,450 The accompanying notes are an integral part of these consolidated financial statements. 85 Palantir Technologies Inc. Consolidated Statements of Operations (in thousands, except per share amounts) Years Ended December 31, 2022 2021 2020 Revenue $ 1,905,871 $ 1,541,889 $ 1,092,673 Cost of revenue 408,549 339,404 352,547 Gross profit 1,497,322 1,202,485 740,126 Operating expenses: Sales and marketing 702,511 614,512 683,701 Research and development 359,679 387,487 560,660 General and administrative 596,333 611,532 669,444 Total operating expenses 1,658,523 1,613,531 1,913,805 Loss from operations ( 161,201 ) ( 411,046 ) ( 1,173,679 ) Interest income 20,309 1,607 4,680 Interest expense ( 4,058 ) ( 3,640 ) ( 14,139 ) Other income (expense), net ( 216,077 ) ( 75,415 ) 4,111 Loss before provision for (benefit from) income taxes ( 361,027 ) ( 488,494 ) ( 1,179,027 ) Provision for (benefit from) income taxes 10,067 31,885 ( 12,636 ) Net loss ( 371,094 ) ( 520,379 ) ( 1,166,391 ) Less: Net income attributable to noncontrolling interests 2,611 — — Net loss attributable to common stockholders $ ( 373,705 ) $ ( 520,379 ) $ ( 1,166,391 ) Net loss per share attributable to common stockholders, basic $ ( 0.18 ) $ ( 0.27 ) $ ( 1.19 ) Net loss per share attributable to common stockholders, diluted $ ( 0.18 ) $ ( 0.27 ) $ ( 1.20 ) Weighted-average shares of common stock outstanding used in computing net loss per share attributable to common stockholders, basic 2,063,793 1,923,617 977,722 Weighted-average shares of common stock outstanding used in computing net loss per share attributable to common stockholders, diluted 2,063,793 1,923,617 979,330 The accompanying notes are an integral part of these consolidated financial statements. 86 Palantir Technologies Inc. Consolidated Statements of Comprehensive Loss (in thousands) Years Ended December 31, 2022 2021 2020 Net loss $ ( 371,094 ) $ ( 520,379 ) $ ( 1,166,391 ) Other comprehensive income (loss) Foreign currency translation adjustments ( 2,984 ) 396 ( 2,042 ) Comprehensive loss ( 374,078 ) ( 519,983 ) ( 1,168,433 ) Less: Comprehensive income attributable to noncontrolling interests 2,611 — — Comprehensive loss attributable to common stockholders $ ( 376,689 ) $ ( 519,983 ) $ ( 1,168,433 ) The accompanying notes are an integral part of these consolidated financial statements. 87 Palantir Technologies Inc. Consolidated Statements of Redeemable Convertible and Convertible Preferred Stock and Stockholders’ Equity (in thousands) Redeemable Convertible Preferred Stock Convertible Preferred Stock Common Stock Additional Paid-in Capital Treasury Stock Accumulated Other Comprehensive Loss Accumulated Deficit Total Stockholders’ (Deficit) Equity Shares Amount Shares Amount Shares Amount Shares Amount Balance as of December 31, 2019 4,017 $ 33,569 742,840 $ 2,093,662 581,497 $ 588 $ 1,857,331 6,393 $ ( 38,895 ) $ ( 703 ) $ ( 3,798,963 ) $ ( 1,980,642 ) Conversion of Series H-1 convertible preferred stock to common stock — — ( 28 ) ( 100 ) 28 — 100 — — — — 100 Issuance of Series K convertible preferred stock — — 121 947 — — — — — — — — Issuance of Series D preferred stock upon net exercise of Series D preferred stock warrants — — 2,380 10,810 — — — — — — — — Repurchase of common stock, held in treasury — — — — ( 808 ) — — 808 ( 3,777 ) — — ( 3,777 ) Retirement of treasury stock — — — — — ( 7 ) ( 42,665 ) ( 7,201 ) 42,672 — — — Issuance of common stock upon net exercise of common stock warrants — — — — 7,631 8 ( 8 ) — — — — — Issuance of common stock, net of issuance costs — — — — 206,501 207 942,322 — — — — 942,529 Conversion of redeemable convertible preferred stock to common stock ( 4,017 ) ( 33,569 ) — — 4,017 4 33,565 — — — — 33,569 Conversion of convertible preferred stock to common stock — — ( 745,313 ) ( 2,105,319 ) 793,726 794 2,104,525 — — — — 2,105,319 Conversion of preferred stock warrants to common stock warrants — — — — — — 31,007 — — — — 31,007 Issuance of common stock from the exercise of stock options — — — — 120,618 120 298,709 — — — — 298,829 Issuance of common stock upon vesting of restricted stock units ("RSUs") — — — — 82,430 82 ( 82 ) — — — — — Stock-based compensation — — — — — — 1,264,254 — — — — 1,264,254 Settlement of employee loan accounted for as a modification to stock option — — — — ( 3,500 ) ( 4 ) ( 201 ) — — — — ( 205 ) Other comprehensive loss — — — — — — — — — ( 2,042 ) — ( 2,042 ) Net loss — — — — — — — — — — ( 1,166,391 ) ( 1,166,391 ) Balance as of December 31, 2020 — $ — — $ — 1,792,140 $ 1,792 $ 6,488,857 — $ — $ ( 2,745 ) $ ( 4,965,354 ) $ 1,522,550 The accompanying notes are an integral part of these consolidated financial statements. 88 Palantir Technologies Inc. Consolidated Statements of Redeemable Convertible and Convertible Preferred Stock and Stockholders’ Equity (in thousands) Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Loss Accumulated Deficit Total Stockholders’ Equity Shares Amount Balance as of December 31, 2020 1,792,140 $ 1,792 $ 6,488,857 $ ( 2,745 ) $ ( 4,965,354 ) $ 1,522,550 Issuance of common stock from the exercise of stock options 178,849 178 507,277 — — 507,455 Issuance of common stock upon vesting of RSUs 50,350 50 ( 50 ) — — — Issuance of common stock upon vesting of growth units 1,471 1 ( 1 ) — — — Issuance of common stock upon net exercise of common stock warrants and other 4,664 6 1,706 — — 1,712 Stock-based compensation — — 779,296 — — 779,296 Other comprehensive income — — — 396 — 396 Net loss — — — — ( 520,379 ) ( 520,379 ) Balance as of December 31, 2021 2,027,474 $ 2,027 $ 7,777,085 $ ( 2,349 ) $ ( 5,485,733 ) $ 2,291,030 Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Loss Accumulated Deficit Total Stockholders’ Equity Noncontrolling Interests Total 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 $ — $ 2,291,030 Issuance of common stock from the exercise of stock options 19,660 20 86,068 — — 86,088 — 86,088 Issuance of common stock upon vesting of RSUs 51,941 52 ( 52 ) — — — — — Stock-based compensation — — 564,897 — — 564,897 — 564,897 Other comprehensive loss — — — ( 2,984 ) — ( 2,984 ) — ( 2,984 ) Noncontrolling interests — — — — — — 74,500 74,500 Net loss — — — — ( 373,705 ) ( 373,705 ) 2,611 ( 371,094 ) Balance as of December 31, 2022 2,099,075 $ 2,099 $ 8,427,998 $ ( 5,333 ) $ ( 5,859,438 ) $ 2,565,326 $ 77,111 $ 2,642,437 The accompanying notes are an integral part of these consolidated financial statements. 89 Palantir Technologies Inc. Consolidated Statements of Cash Flows (in thousands) Years Ended December 31, 2022 2021 2020 Operating activities Net loss $ ( 371,094 ) $ ( 520,379 ) $ ( 1,166,391 ) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 22,522 14,897 13,871 Stock-based compensation 564,798 778,215 1,270,702 Deferred income taxes ( 174 ) 43,316 ( 20,385 ) Non-cash operating lease expense 40,309 33,821 35,049 Unrealized and realized (gain) loss from marketable securities, net 272,108 73,311 — Gain from step acquisition ( 44,306 ) — — Other operating activities 6,677 2,722 4,280 Changes in operating assets and liabilities, net of effect of acquisitions: Accounts receivable, net ( 77,519 ) ( 35,237 ) ( 108,476 ) Prepaid expenses and other current assets ( 25,997 ) ( 10,929 ) ( 18,565 ) Other assets 6,033 ( 3,345 ) ( 8,605 ) Accounts payable ( 29,859 ) 57,767 ( 34,681 ) Accrued liabilities 5,527 15,245 38,505 Deferred revenue, current and noncurrent ( 61,154 ) 24,732 ( 30,905 ) Customer deposits, current and noncurrent ( 49,471 ) ( 104,944 ) ( 230,873 ) Operating lease liabilities, current and noncurrent ( 34,590 ) ( 32,156 ) ( 43,639 ) Other noncurrent liabilities ( 73 ) ( 3,185 ) 3,505 Net cash provided by (used in) operating activities 223,737 333,851 ( 296,608 ) Investing activities Purchases of property and equipment ( 40,027 ) ( 12,627 ) ( 12,236 ) Purchases of marketable securities ( 124,500 ) ( 308,315 ) — Proceeds from sales and redemption of marketable securities 52,319 851 — Business combinations, net of cash acquired 66,708 — — Purchases of alternative investments — ( 50,941 ) — Purchases of privately-held securities — ( 23,009 ) — Other investing activities 73 ( 3,871 ) ( 2,684 ) Net cash used in investing activities ( 45,427 ) ( 397,912 ) ( 14,920 ) Financing activities Proceeds from the issuance of common stock, net of issuance costs — — 942,529 Proceeds from issuance of debt, net of borrowing costs — — 199,369 Principal payments on borrowings — ( 200,000 ) ( 400,000 ) Proceeds from the exercise of common stock options 86,089 507,455 298,829 Other financing activities ( 93 ) ( 708 ) ( 4,274 ) Net cash provided by financing activities 85,996 306,747 1,036,453 Effect of foreign exchange on 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 Cash, cash equivalents, and restricted cash - beginning of period 2,366,914 2,128,146 1,401,962 Cash, cash equivalents, and restricted cash - end of period $ 2,627,335 $ 2,366,914 $ 2,128,146 90 Palantir Technologies Inc. Consolidated Statements of Cash Flows (in thousands) Years Ended December 31, 2022 2021 2020 Supplemental disclosures of cash flow information Cash paid for income taxes $ 2,904 $ 4,131 $ 14,283 Cash paid for interest 5 2,774 11,432 Supplemental disclosures of non-cash investing and financing information: Conversion of redeemable convertible and convertible preferred stock to common stock $ — $ — $ 2,138,988 Conversion of convertible preferred stock warrants to common stock warrants — — 31,007 Cashless net exercise of warrants for convertible preferred stock — — 10,810 The accompanying notes are an integral part of these consolidated financial statements. 91 Palantir Technologies Inc. Notes to Consolidated Financial Statements 1. Organization Palantir Technologies Inc. (including its subsidiaries, “Palantir” or the “Company”) was incorporated in Delaware on May 6, 2003. The Company builds and deploys software platforms that serve as the central operating systems for its customers. 2. Significant Accounting Policies Basis of Presentation and Consolidation The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission regarding annual financial reporting. The accompanying consolidated financial statements include the accounts of Palantir Technologies Inc. and its consolidated subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Investments in entities where the Company holds at least a 20% ownership interest and has the ability to exercise significant influence over, but does not control, the investee are accounted for using the equity method of accounting. For such investments, the share of the investee’s results of operations is included as a component of other income (expense), net in the consolidated statements of operations and the investment balance is included in other assets and classified as noncurrent in the consolidated balance sheets. Certain prior year balances have been reclassified to conform to the current year presentation. Such reclassifications did not affect total revenues, loss from operations, net loss, or cash flows. The Company’s fiscal year ends on December 31. Direct Listing On September 30, 2020, the Company completed a direct listing of its Class A common stock on the New York Stock Exchange (“NYSE”) (the “Direct Listing”). Immediately prior to the Direct Listing, all outstanding shares of redeemable convertible preferred stock and convertible preferred stock were converted into Class B common stock, and all of the Company’s outstanding preferred stock warrants were converted into common stock warrants, which resulted in the reclassification of the warrants liability to additional paid-in capital. Use of Estimates The preparation of the consolidated financial statements in conformity with GAAP requires management to make certain estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting periods. Significant estimates and assumptions made in the accompanying consolidated financial statements include, but are not limited to, the identification of performance obligations in customer contracts; the valuation of deferred tax assets and uncertain tax positions; the collectability of contract consideration, including accounts receivable; the useful lives of tangible assets; the valuation of assets acquired and liabilities assumed from business combinations, including intangible assets and goodwill; and the incremental borrowing rate for operating leases. Estimates and judgments are based on historical experience, forecasted events, and various other assumptions that management believes to be reasonable under the circumstances. Actual results could differ from those estimates, and such differences could affect the Company’s financial position and results of operations. Segments The Company has two operating segments, commercial and government, which were determined based on the manner in which the chief operating decision maker (“CODM”), who is the chief executive officer, manages the operations of the Company for purposes of allocating resources and evaluating performance. Various factors, including the Company’s organizational and management reporting structure and customer type, were considered in determining these operating segments. The Company’s operating segments are described below: • Commercial: This segment primarily serves customers working in non-government industries. • Government: This segment primarily serves customers that are United States (“U.S.”) government and non-U.S. government agencies. 92 Palantir Technologies Inc. Notes to Consolidated Financial Statements (continued) Cash, Cash Equivalents, and Restricted Cash The Company considers all highly liquid investments purchased with an original maturity of three months or less at the time of purchase to be cash equivalents. Cash equivalents primarily consist of amounts invested in money market funds. Restricted cash primarily consists of cash and certificates of deposit that are held as collateral against letters of credit and guarantees that the Company is required to maintain for operating lease agreements, certain customer contracts, and other guarantees and financing arrangements. The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the consolidated balance sheets that sum to the total of the amounts shown in the consolidated statements of cash flows (in thousands): As of December 31, 2022 2021 2020 Cash and cash equivalents $ 2,598,540 $ 2,290,674 $ 2,011,323 Restricted cash 16,244 36,628 37,285 Restricted cash, noncurrent 12,551 39,612 79,538 Total cash, cash equivalents, and restricted cash $ 2,627,335 $ 2,366,914 $ 2,128,146 Accounts Receivable and Allowance for Credit Losses Accounts receivable are recorded at the invoiced amount, net of an allowance for credit losses. The Company generally grants non-collateralized credit terms to its customers. Allowance for credit losses is based on the Company’s best estimate of probable losses inherent in its accounts receivable portfolio and is determined based on expectations of the customer’s ability to pay by considering factors such as customer type (commercial or government), historical experience, financial position of the customer, age of the accounts receivable, current economic conditions, including the ongoing COVID-19 pandemic, and reasonable and supportable forward-looking factors about its portfolio and future economic conditions. Accounts receivable are written-off and charged against an allowance for credit losses when the Company has exhausted collection efforts without success. Based upon the Company’s assessment as of December 31, 2022 the Company recorded an allowance for credit losses of $ 10.1 million. Based upon the Company’s assessment as of December 31, 2021, the allowances for credit losses were not material. Concentrations of Credit 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 consolidated balance sheets. The Company’s accounts receivable balances as of December 31, 2022 and 2021 were $ 258.3 million and $ 190.9 million, respectively. No customer represented more than 10% of total accounts receivable as of December 31, 2022 and 2021. For the years ended December 31, 2022 and 2021, no customer represented 10% or more of total revenue. For the year ended December 31, 2020, Customer F, which is in the government operating segment, represented 10 % of total revenue. No other customers represented more than 10% of total revenue for the year ended December 31, 2020. Alternative Investments Alternative investments include gold bars and are recorded in prepaid expenses and other current assets on the consolidated balance sheets. The investments are initially recorded at cost and subsequently remeasured at the lower of cost or market each reporting period. Market value is determined by using quoted market prices of identical or similar assets from active markets. Unrealized losses are recorded in other income (expense), net in the consolidated statements of operations. Realized gains and losses are recorded in other income (expense), net upon realization. 93 Palantir Technologies Inc. Notes to Consolidated Financial Statements (continued) Property and Equipment, Net Property and equipment, net are stated at cost less accumulated depreciation and amortization. Depreciation is recognized using the straight-line method over the estimated useful lives of the respective assets, which are generally three years . Leasehold improvements are capitalized and amortized using the straight-line method over the shorter of the remaining lease term or the estimated useful life, which is generally five years . Maintenance and repairs that do not improve or extend the useful lives of the assets are expensed when incurred. Upon sale or retirement of assets, the cost and related accumulated depreciation and amortization are derecognized from the consolidated balance sheet and any resulting gain or loss is recorded in the consolidated statements of operations in the period realized. Privately-held Securities Equity securities in private-held companies without readily determinable fair values are recorded using the measurement alternative. Such investments are carried at cost, less any impairments, and are adjusted for subsequent observable price changes in orderly transactions for identical or similar investments of the same issuer. Changes in the basis of the equity securities are recognized in other income (expense), net in the consolidated statements of operations. Business Combinations Business combinations are accounted for using the acquisition method of accounting in accordance with Accounting Standards Codification (“ASC”) 805, Business Combinations, and are included in our consolidated financial statements from their respective acquisition dates. Assets acquired and liabilities assumed, if any, are measured at fair value on the acquisition date using the appropriate valuation method. Goodwill generated from acquisitions is recognized if the fair value of the purchase consideration transferred, or the fair value of the acquirer’s interest in the acquiree if no consideration is transferred, and any noncontrolling interests is in excess of the net fair value of the identifiable assets acquired and the liabilities assumed. In determining the fair value of identifiable assets, we use various valuation techniques which require us to make estimates and assumptions surrounding projected revenues and costs, future growth, and discount rates. Goodwill Goodwill represents the excess of the fair value of the purchase consideration transferred, or the fair value of the acquirer’s interest in the acquiree if no consideration is transferred, and any noncontrolling interests over the net fair value of the identifiable assets acquired and the liabilities assumed in business combinations. Goodwill is not amortized but is subject to an annual impairment test. We perform our annual goodwill impairment assessment on the first day of the fourth quarter. Tests are performed more frequently if events occur or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount. Goodwill is recorded in other assets in the consolidated balance sheet. Other Intangible Assets Other intangible assets include finite-lived intangible assets, which mainly consist of customer relationships, reacquired rights, and backlog. These assets are amortized over their estimated useful lives and are tested for impairment using a similar methodology to our property and equipment, as described below. Other intangible assets are recorded in other assets in the consolidated balance sheet. Impairment of Long-Lived Assets Long-lived assets are reviewed for impairment annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability is measured by comparing the carrying amount of an asset to the future undiscounted cash flows that the asset is expected to generate. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset. Impairments of long-lived assets during the years ended December 31, 2022, 2021, and 2020 were not material. Leases The Company adopted the Accounting Standard Update (“ASU”) 2016-02, Leases, and additional ASUs issued to clarify and update the guidance in ASU 2016-02 (collectively “ASC 842”), as of January 1, 2020. The Company determines if an arrangement is a lease at inception. An arrangement is or contains a lease if it conveys the right to control the use of an identified asset for a period of time in exchange for consideration. If a lease is identified, classification is determined at lease commencement. Operating lease liabilities are recognized at the present value of the future lease payments at the lease commencement date. The Company’s leases do not provide an implicit interest rate and therefore the Company estimates its incremental borrowing rate to discount lease payments. The incremental borrowing rate reflects the 94 Palantir Technologies Inc. Notes to Consolidated Financial Statements (continued) interest rate that the Company would have to pay to borrow on a collateralized basis an amount equal to the lease payments in a similar economic environment over a similar term. Operating lease right-of-use (“ROU”) assets are based on the corresponding lease liability adjusted for any lease payments made at or before commencement, initial direct costs, and lease incentives. Renewals or early terminations are not accounted for unless the Company is reasonably certain to exercise these options. Operating lease expense is recognized and the ROU asset is amortized on a straight-line basis over the lease term. The Company has lease agreements with lease and non-lease components, which are accounted for as a single lease component. The Company elected to use the transition relief package of practical expedients but did not elect to use the hindsight practical expedient in determining a lease term and impairment of ROU assets at the adoption date. For short-term leases, defined as leases with a term of twelve months or less, the Company elected the practical expedient to not recognize an associated lease liability and ROU asset. Lease payments for short-term leases are expensed on a straight-line basis over the lease term. Operating leases are included in operating lease right-of-use assets, operating lease liabilities, and operating lease liabilities, non-current on the Company’s consolidated balance sheets. Finance leases are not material. Fair Value Measurement Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability, or an exit price, in the principal or most advantageous market for that asset or liability in an orderly transaction between market participants on the measurement date. The Company measures fair value based on a three-level hierarchy of inputs, maximizing the use of observable inputs, where available, and minimizing the use of unobservable inputs when measuring fair value. A financial instrument’s level within the three-level hierarchy is based on the lowest level of input that is significant to the fair value measurement. The three-level hierarchy of inputs is as follows: Level 1: Observable inputs such as unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date; Level 2: Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. These inputs are based on the Company’s own assumptions about current market conditions and require significant management judgment or estimation. Financial instruments consist of money market funds and certificates of deposit included in cash equivalents and restricted cash, accounts receivable, marketable securities, other assets accounted for at fair value, accounts payable, and accrued liabilities. Money market funds, certificates of deposit, and marketable securities are stated at fair value on a recurring basis. Accounts receivable, accounts payable, and accrued liabilities are stated at their carrying value, which approximates fair value due to the short time to the expected receipt or payment date. Revenue Recognition The Company generates revenue from the sale of subscriptions to access its software in the Company’s hosted environment, along with ongoing operations and maintenance (“O&M”) services (“Palantir Cloud”); software licenses, primarily term licenses in the customers’ environments, with ongoing O&M services (“On-Premises Software”); and professional services. In accordance with ASC 606, Revenue from Contracts with Customers , the Company recognizes revenue upon the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for promised goods or services. The Company applies the following five-step revenue recognition model in accounting for its revenue arrangements: • Identification of the contract(s) with the customer, including whether collectability of the consideration is probable by considering the customers’ ability and intention to pay; • Identification of the performance obligations in the contract; • Determination of the transaction price; • Allocation of the transaction price to the performance obligations in the contract; and • Recognition of revenue when, or as, the Company satisfies a performance obligation. 95 Palantir Technologies Inc. Notes to Consolidated Financial Statements (continued) Each of the Company’s significant performance obligations and the Company’s application of ASC 606 to its revenue arrangements is discussed in further detail below. Palantir Cloud The Company’s Palantir Cloud subscriptions grant customers the right to access the software functionality in a hosted environment controlled by Palantir and are sold together with stand-ready O&M services, as further described below. The Company promises to provide continuous access to the hosted software throughout the contract term. Revenue associated with Palantir Cloud subscriptions is generally recognized over the contract term on a ratable basis, which is consistent with the transfer of control of the Palantir Cloud subscription to the customer. On-Premises Software Sales of the Company’s software licenses, primarily term licenses, grant customers the right to use functional intellectual property, either on their internal hardware infrastructure or on their own cloud instance, over the contractual term and are also sold together with stand-ready O&M services. The O&M services include critical updates, support, and maintenance services required to operate the software and, as such, are necessary for the software to maintain its intended utility over the contractual term. Because of this requirement, the Company has concluded that the software licenses and O&M services, which together the Company refers to as On-Premises Software, are highly interdependent and interrelated and represent a single distinct performance obligation within the context of the contract. Revenue is generally recognized over the contract term on a ratable basis. Professional Services The Company’s professional services support the customers’ use of the software and include, as needed, on-demand user support, user-interface configuration, training, and ongoing ontology and data modeling support. Professional services contracts typically include the provision of on-demand professional services for the duration of the contractual term. These services are typically coterminous with a Palantir Cloud subscription or the On-Premises Software. Professional services are on-demand, whereby the Company performs services throughout the contract period; therefore, the revenue is recognized over the contractual term. Contract Liabilities The timing of customer billing and payment relative to the start of the service period varies from contract to contract; however, the Company bills many of its customers in advance of the provision of services under its contracts, resulting in contract liabilities consisting of either deferred revenue or customer deposits (“contract liabilities”). Deferred revenue represents billings under noncancelable contracts before the related product or service is transferred to the customer. Customer deposits consist of 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 the Company’s arrangements include terms that allow the customer to terminate the contract for convenience and receive a pro-rata refund of the amount of the customer deposit for the period of time remaining in the contract term after the applicable termination notice period expires. In these arrangements, the Company concluded there are no enforceable rights and obligations after such notice period and therefore the consideration received or due from the customer that is subject to termination for convenience is recorded as customer deposits. The payment terms and conditions vary by contract; however, the Company’s terms generally require payment within 30 to 60 days from the invoice date. In instances where the timing of revenue recognition differs from the timing of payment, the Company elected to apply the practical expedient in accordance with ASC 606 to not adjust contract consideration for the effects of a significant financing component as the Company expects, at contract inception, that the period between when promised goods and services are transferred to the customer and when the customer pays for those goods and services will be one year or less. As such, the Company determined its contracts do not generally contain a significant financing component. Areas of Judgment and Estimation The Company’s contracts with customers can include multiple promises to transfer goods or services to the customer. Determining whether promises are distinct performance obligations that should be accounted for separately – or not distinct within the context of the contract and, thus, accounted for together – requires significant judgment. The Company concluded that the promise to provide a software license is highly interdependent and interrelated with the promise to provide O&M services and such promises are not distinct within the context of its contracts and are accounted for as a single performance obligation as the Company’s On-Premises Software. Additionally, the pricing of the Company’s contracts is generally fixed; however, it is possible for contracts to include variable consideration, which can be based on subjective or objective criteria. The Company includes the estimated amount of variable 96 Palantir Technologies Inc. Notes to Consolidated Financial Statements (continued) consideration that it expects to receive to the extent it is probable that a significant revenue reversal will not occur. Variable consideration received was not material in the periods presented. Costs to Obtain and Fulfill Contracts Incremental costs of obtaining a contract include only those costs that are directly related to the acquisition of contracts, including sales commissions, and that would not have been incurred if the contract had not been obtained. The Company recognizes a contract cost asset for the incremental costs of obtaining a contract with a customer if it is expected that the economic benefit and amortization period will be longer than one year. Costs to obtain contracts were not material in the periods presented. The Company recognizes an asset for the costs to fulfill a contract with a customer if the costs are specifically identifiable, generate or enhance resources used to satisfy future performance obligations, and are expected to be recovered. Costs to fulfill contracts were not material in the periods presented. Software Development Costs The Company evaluates capitalization of certain software development costs subsequent to the establishment of technological feasibility. Based on the Company’s product development process and substantial development risks, technological feasibility is established for the Company’s products when they are made available for general release. Accordingly, the Company has charged all such costs to research and development expense in the period incurred. Cost of Revenue Cost of revenue primarily includes salaries, stock-based compensation expense, and benefits for personnel involved in performing O&M and professional services, as well as third-party cloud hosting services, travel costs, allocated overhead, and other direct costs. Sales and Marketing Costs Sales and marketing costs primarily include salaries, stock-based compensation expense, and benefits for personnel involved in sales functions, executing on pilots, and performing other brand building activities, as well as third-party cloud hosting services for our pilots, marketing and sales event-related costs, travel costs, and allocated overhead. The Company generally charges all such costs to sales and marketing expense in the period incurred. Advertising costs are expensed as incurred and included in sales and marketing expense within the consolidated statements of operations. Advertising expense totaled $ 38.6 million and $ 26.3 million for the years ended December 31, 2022 and 2021, respectively, and was immaterial for the year ended December 31, 2020. Research and Development Costs Research and development costs primarily include salaries, stock-based compensation expense, and benefits for personnel involved in performing the activities to develop and improve the Company’s platforms and products, as well as third-party cloud hosting services, travel costs, and allocated overhead. Research and development costs are expensed as incurred. Commitments and Contingencies Liabilities for loss contingencies arising from claims, disputes, legal proceedings, fines and penalties, and other sources are recorded when it is probable that a liability has been or will be incurred and the amount of the liability can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred. Recoveries of such legal costs from insurance policies are recorded as an offset to legal expenses in the period they are received. Stock-Based Compensation The Company accounts for stock-based compensation expense in accordance with the fair value recognition and measurement provisions of GAAP, which require compensation cost for the grant-date fair value of stock-based awards to be recognized over the requisite service period. The Company determines the fair value of stock-based awards granted or modified on the grant date or modification date using appropriate valuation techniques. Service-Based Vesting The Company grants RSUs and stock option awards that vest only based upon the satisfaction of a service condition. For RSUs, the Company determines the grant-date fair value of the RSUs as the fair value of the Company’s common stock on the grant date. The Company records stock-based compensation expense for stock options and RSUs that vest only based upon the 97 Palantir Technologies Inc. Notes to Consolidated Financial Statements (continued) satisfaction of a service condition on a straight-line basis over the requisite service period, which is generally four years . For stock option awards, the Company uses the Black-Scholes option pricing model to determine the fair value of the stock options granted. The Black-Scholes option pricing model requires the input of highly subjective assumptions, including the expected term of the option, the expected volatility of the price of the common stock, risk-free interest rates, and the expected dividend yield of the common stock. The assumptions used to determine the fair value of the option awards represent management’s best estimates. These estimates involve inherent uncertainties and the application of management’s judgment. The Company recognizes forfeitures as they occur. Performance-Based Vesting The Company grants awards, including RSUs, that vest upon the satisfaction of both a service condition and a performance condition. The performance-based vesting condition for the RSUs granted prior to the Company’s Direct Listing was satisfied upon the occurrence of the Direct Listing and are expensed using the accelerated attribution method over the remaining service period. Employee Benefit Plan The Company sponsors a 401(k) tax-deferred savings plan for all employees who meet certain eligibility requirements. Participants may contribute, on a pretax and post-tax basis, a percentage of their qualifying annual compensation, but not to exceed a maximum contribution amount pursuant to Section 401(k) of the Internal Revenue Code. The Company may make additional matching contributions on behalf of the participants. The Company did not make matching contributions for the years ended December 31, 2022, 2021, and 2020. Income Taxes The Company estimates its current tax expense together with assessing temporary differences resulting from differing treatment of items not currently deductible for tax purposes. These differences result in deferred tax assets and liabilities on the Company’s consolidated balance sheets, which are estimated based upon the difference between the financial statement and tax bases of assets and liabilities using the enacted tax rates that will be in effect when these differences reverse. In general, deferred tax assets represent future tax benefits to be received when certain expenses previously recognized in the Company’s consolidated statements of operations become deductible expenses under applicable income tax laws or loss or credit carryforwards are utilized. Accordingly, the realization of the Company’s deferred tax assets is dependent on future taxable income against which these deductions, losses, and credits can be utilized. The Company evaluates the realizability of its deferred tax assets and recognizes a valuation allowance when it is more likely than not that a future benefit on such deferred tax assets will not be realized. Changes in the valuation allowance, when recorded, would be included in the Company’s consolidated statements of operations. Management’s judgment is required in determining the Company’s valuation allowance recorded against its net deferred tax assets. The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon settlement. The Company is subject to the Global Intangible Low Taxed Income (“GILTI”) tax in the U.S. and has elected to treat taxes on future GILTI inclusions as current period expense if and when incurred. Net Loss Per Share Attributable to Common Stockholders The Company computes net loss per share attributable to its common stockholders using the two-class method required for participating securities, which determines net loss per common share for each class of common stock and participating securities according to dividends declared or accumulated and participation rights in distributed and undistributed earnings. The two-class method requires income available to common stockholders for the period to be allocated between common stock and participating securities based upon their respective rights to receive dividends as if all income for the period had been distributed. The rights, including the liquidation and dividend rights, of the holders of Class A, Class B, and Class F common stock (collectively, the “common stock”) are identical, except with respect to voting and conversion. As the liquidation and dividend rights are identical, the undistributed earnings are allocated on a proportionate basis and the resulting net loss per share will, therefore, be the same for all classes of common stock on an individual or comb ined basis. As such, the Company has presented the net loss attributed to its common stock on a combined basis. 98 Palantir Technologies Inc. Notes to Consolidated Financial Statements (continued) Noncontrolling Interests A noncontrolling interest represents the proportionate equity interest in a subsidiary that is not attributable, either directly or indirectly, to the Company and is reported as equity of the Company, separate from the Company’s controlling interest. Revenues, expenses, gains, losses, net income (loss), and other comprehensive income (loss) are reported in the consolidated financial statements at the consolidated amounts, which include the amounts attributable to both the controlling and noncontrolling interest. Foreign Currency Generally, the functional currency of the Company’s international subsidiaries is the local currency of the country in which they operate. The Company translates the assets and liabilities of its non-U.S. dollar functional currency subsidiaries into U.S. dollars using exchange rates in effect at the end of each reporting period. Revenue and expenses for these subsidiaries are translated using rates that approximate those in effect during the period. Gains and losses from these translations are recognized as a cumulative translation adjustment and included in accumulated other comprehensive income (loss). For transactions that are not denominated in the local functional currency, the Company remeasures monetary assets and liabilities at exchange rates in effect at the end of each reporting period. Transaction gains and losses from the remeasurement are recognized in other income (expense), net within the consolidated statements of operations. Recently Adopted Accounting Pronouncements In October 2021, the Financial Accounting Standards Board issued ASU 2021-08, Business Combinations—Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (Topic 805) . The new guidance requires contract assets and contract liabilities acquired in a business combination to be recognized in accordance with ASC 606 as if the acquirer had originated the contracts. The standard is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted, including an adoption in an interim period. The Company adopted this standard effective October 1, 2022. The adoption of this standard did not have a material effect on the Company’s consolidated financial statements. 3. Contract Liabilities and Remaining Performance Obligations Contract Liabilities The Company’s contract liabilities consist of deferred revenue and customer deposits. As of December 31, 2022 and 2021, the Company’s contract liability balances were $ 339.2 million and $ 463.3 million, respectively. Revenue of $ 384.3 million and $ 378.4 million was recognized during the years ended December 31, 2022 and 2021, respectively, that was included in the contract liabilities 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 $ 972.7 million as of December 31, 2022, of which the Company expects to recognize approximately 53 % as revenue over the next 12 months, 38 % as revenue over the subsequent 13 to 36 months, and the remainder thereafter. Disaggregation of Revenue See Note 13. Segment and Geographic Information for disaggregated revenue by customer segment and geographic region. 99 Palantir Technologies Inc. Notes to Consolidated Financial Statements (continued) 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 indicate the fair value hierarchy of the valuation (in thousands): As of December 31, 2022 Total Level 1 Level 2 Level 3 Assets: Cash and cash equivalents: Money market funds $ 1,149,302 $ 1,149,302 $ — $ — Certificates of deposit 6,791 — 6,791 — Restricted cash, current and noncurrent Certificates of deposit 18,707 — 18,707 — Marketable securities: Marketable securities 35,135 35,135 — — Total $ 1,209,935 $ 1,184,437 $ 25,498 $ — 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 consolidated statements of operations. During the years ended December 31, 2022 and 2021, the Company recorded net unrealized losses of $ 159.0 million and $ 72.8 million, respectively, and realized losses of $ 113.1 million during the year ended December 31, 2022. An immaterial amount of realized gains and losses were recorded during the year ended December 31, 2021. Net realized and unrealized gains and losses are recorded within other income (expense), net on the consolidated statements of operations. Investments Since 2021, the Company has approved and entered into certain agreements (“Investment Agreements”) to purchase shares of various entities, including special purpose acquisition companies and/or other privately-held or publicly-traded entities (each, an “Investee,” and such purchases, the “Investments”). During the year ended December 31, 2021, the Company purchased shares for a total investment of $ 326.0 million. 100 Palantir Technologies Inc. Notes to Consolidated Financial Statements (continued) The following table presents the details of the investments purchased under such Investment Agreements during the year ended December 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 Rubicon Technologies 3,500 35,000 Total 13,983 $ 124,500 ————— (1) Investments are in publicly-traded marketable securities at the time of investment. 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 (collectively, the “Strategic Commercial Contracts”). As of December 31, 2022, the terms of such contracts, including contractual options, range from three years to eight years and are subject to termination for cause provisions. The Company assesses the concurrent agreements under the noncash and consideration paid or payable to a customer 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. As currently assessed, the total value of such Strategic Commercial Contracts with Investees or associated entities was $ 492.7 million as of December 31, 2022, which is inclusive of $ 63.7 million of contractual options. The Company performs ongoing assessments of customers’ financial condition, including the consideration of customers’ ability and intention to pay, and whether all or some portion of the value of such contracts continue to meet the criteria for revenue recognition, among other factors. As of December 31, 2022, the cumulative amount of revenue recognized from Strategic Commercial Contracts was $ 166.6 million, of which $ 118.4 million of revenue was recognized during the year ended December 31, 2022. 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. Net unrealized losses related to alternative investments, which are recorded within other income (expense), net on the consolidated statements of operations, were not material for the years ended December 31, 2022 and 2021. 101 Palantir Technologies Inc. Notes to Consolidated Financial Statements (continued) 5. Balance Sheet Components Property and Equipment, Net Property and equipment, net consisted of the following (in thousands): As of December 31, 2022 2021 Leasehold improvements $ 80,378 $ 72,834 Computer equipment, software, and other 52,688 16,916 Furniture and fixtures 13,010 8,358 Construction in progress 5,506 3,126 Total property and equipment, gross 151,582 101,234 Less: accumulated depreciation and amortization ( 82,412 ) ( 69,930 ) Total property and equipment, net $ 69,170 $ 31,304 Depreciation and amortization expense related to property and equipment, net was $ 19.5 million, $ 12.8 million, and $ 13.9 million for the years ended December 31, 2022, 2021, and 2020, respectively. Accrued Liabilities Accrued liabilities consisted of the following (in thousands): As of December 31, 2022 2021 Accrued payroll and related expenses $ 43,495 $ 60,732 Accrued taxes 41,326 22,550 Accrued other liabilities 87,894 72,524 Total accrued liabilities $ 172,715 $ 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 on March 31, 2022 (the “March 2022 Amendment”) and on July 1, 2022 (the “July 2022 Amendment”). The March 2022 Amendment provided 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 July 2022 Amendment provided for, among other things, a new incremental delayed draw term loan (“DDTL”) commitment in an aggregate principal amount of up to $ 450.0 million, upon the terms and conditions set forth in the 2014 Credit Facility, as amended, with new and existing lenders. The DDTL commitment is available to draw upon through July 1, 2023 and any drawn amounts will mature on March 31, 2027. As of December 31, 2022, the 2014 Credit Facility allows for the drawdown of up to $ 950.0 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 and DDTL 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. 102 Palantir Technologies Inc. Notes to Consolidated Financial Statements (continued) As of December 31, 2022, the Company had no outstanding debt balances and an aggregate of $ 950.0 million undrawn of revolving and DDTL 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 December 31, 2022. 7. Leases The Company has operating leases primarily for corporate office space and equipment . Certain lease agreements contain renewal options, rent abatement, and escalation clauses that are factored into our determination of lease payments when appropriate. The Company's leases have remaining terms up to December 2033, some of which include one or more options to extend the leases up to June 2033. Additionally, some lease contracts include termination options within the next five years . Supplemental balance sheet information related to lease liabilities at December 31, 2022 and 2021 was as follows (in thousands): As of December 31, Lease-Related Assets and Liabilities Financial Statement Line Items 2022 2021 Right-of-use assets: Operating leases Operating lease right-of-use assets $ 200,240 $ 216,898 Total right-of-use assets $ 200,240 $ 216,898 Lease liabilities: Operating leases Operating lease liabilities $ 45,099 $ 39,927 Operating lease liabilities, noncurrent 204,305 220,146 Total lease liabilities $ 249,404 $ 260,073 The components of lease expense included in the Company's consolidated statements of operations include (in thousands): Years Ended December 31, 2022 2021 Operating lease expense $ 55,483 $ 51,330 Short-term lease expense 4,956 4,165 Variable lease expense 5,309 7,518 Sublease income ( 13,011 ) ( 19,957 ) Total lease expense, net $ 52,737 $ 43,056 Variable lease costs are primarily related to payments made to lessors for common area maintenance, property taxes, insurance, and other operating expenses. Short-term lease costs primarily represent temporary employee housing. Finance lease costs were not material for the years ended December 31, 2022 and 2021. 103 Palantir Technologies Inc. Notes to Consolidated Financial Statements (continued) Maturities of operating lease liabilities as of December 31, 2022 were as follows (in thousands): As of December 31, 2022 Operating Lease Commitments Less: Sublease Income Net Lease Commitments Year ended December 31, 2023 $ 58,843 $ 18,458 $ 40,385 2024 54,672 16,593 38,079 2025 50,910 14,356 36,554 2026 39,173 13,748 25,425 2027 27,548 14,423 13,125 Thereafter 82,738 43,231 39,507 Total undiscounted liabilities 313,884 120,809 193,075 Less: Leases not yet commenced ( 8,446 ) — ( 8,446 ) Less: Imputed interest ( 56,034 ) — ( 56,034 ) Total operating lease liabilities $ 249,404 $ 120,809 $ 128,595 The weighted-average remaining lease term related to the Company’s operating lease liabilities as of December 31, 2022 and 2021 was 6.5 and 6.9 years, respectively. The weighted-average discount rate related to the Company’s operating lease liabilities as of December 31, 2022 and 2021 was 6.25 % and 6.03 %, respectively. The following table sets forth the supplemental information related to the Company's operating leases for the years ended December 31, 2022 and 2021 (in thousands): Years Ended December 31, 2022 2021 Cash paid for operating lease liabilities $ 53,772 $ 49,228 Lease liabilities arising from obtaining right-of-use assets $ 28,169 $ 34,606 As of December 31, 2022, the Company has additional operating leases for office space that have not yet commenced with future lease obligations of $ 8.4 million. These operating leases will commence in 2023 with lease terms of up to ten years . 8. 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. In May 2022, the agreement was amended to extend the second contract year from June 30, 2022 to September 30, 2022 and the optional carryover period from June 30, 2029 to September 30, 2029. If the spend does not meet the minimum annual commitment each year or at the end of the term, the Company is obligated to make a return payment. If the difference is greater than $ 30.0 million for each of the first three contract years or $ 50.0 million for each of the contract years thereafter (“relief amounts”), the Company has the option to pay the respective relief amount for that year for services to be utilized in the future and the excess amount of the difference above the relief amount would be added to the minimum annual commitment of the following year through the end of the contract. As of December 31, 2022, the Company had satisfied $ 40.9 million of its $ 199.0 million commitment for the contract year ending September 30, 2023. Litigation and Legal Proceedings From time to time, third parties may assert patent infringement claims against the Company. In addition, from time to time, the Company may be subject to other legal proceedings and claims in the ordinary course of business, including claims of alleged infringement of trademarks, copyrights, and other intellectual property rights; employment claims; securities claims; investor claims; corporate claims; class action claims; and general contract, tort, or other claims. The Company may from time to time also be subject to various legal or government claims, disputes, or investigations. Such matters may include, but not be limited to, claims, disputes, allegations, or investigations related to warranty; refund; breach of contract; breach, leak, or misuse of 104 Palantir Technologies Inc. Notes to Consolidated Financial Statements (continued) 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 sought compensatory and punitive damages, interest, fees, and costs. On June 27, 2022, the Company and the KT4 Plaintiffs entered into an agreement to settle the litigation and certain other matters. The Company has paid the amount of the settlement in full and has received the insurance reimbursement as of December 31, 2022. This matter is now concluded. On September 15, 2022, October 25, 2022, and November 4, 2022, putative securities class action complaints were filed in the United States District Court for the District of Colorado, captioned Cupat v. Palantir Technologies Inc., et al. , Case No. 1:22-cv-02384, Allegheny County Employees’ Retirement System v. Palantir Technologies, Inc., et al., Case No. 1:22-cv-02805, and Shijun Liu, Individually and as Trustee of the Liu Family Trust 2019 v. Palantir Technologies Inc., et al., Case No. 1:22-cv-02893, respectively, naming the Company and certain current and former officers and directors as defendants. The suits allege false and misleading statements about our business and prospects, and purport to allege claims under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and the Securities Act of 1933, as amended (the “Securities Act”), and seek unspecified damages and remedies under Sections 10(b), 20(a), and 20(A) of the Exchange Act and Sections 11 and 15 of the Securities Act. These three actions subsequently were consolidated as Cupat v. Palantir Technologies Inc., et al. , Lead Civil Action No. 1:22-cv-02834-CNS-SKC, consolidated with civil actions 1:22-cv-02805-CNS-SKC and 1:22-cv-02893-CNS-SKC. On November 21, 2022 and January 13, 2023, stockholder derivative actions were filed in the United States District Court for the District of Colorado, captioned Li v. Karp, et al. , Case No. 22-cv-3028 and Parmenter v. Karp, et al. , Case No. 23-cv-118, and on January 27, 2023, a stockholder derivative action was filed in the United States District Court for the District of Delaware captioned Miao v. Karp, et al. , Case No. 1:23-cv-00103-MN, each against certain current and former officers and directors asserting breach of fiduciary duty and related claims relating to the allegations of the securities class action complaints and seek unspecified damages and injunctive remedies under Section 14(a) of the Exchange Act and Delaware law. Because the litigation is in early stages, the Company is unable to estimate the reasonably possible loss or range of loss, if any, that may result from these matters. As of December 31, 2022 and 2021, the Company was not aware of any currently pending legal matters or claims, individually or in the aggregate, that are expected to have a material adverse impact on its consolidated financial statements. Letters of Credit and Guarantees The Company had irrevocable standby letters of credit and guarantees, including bank guarantees, outstanding in the amounts of $ 28.8 million and $ 76.2 million as of December 31, 2022 and 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 December 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 O&M services to its customers. The Company’s products are generally warranted to perform substantially as described in the associated product documentation during the subscription term or for a period of up to 90 days where the software is hosted by the customer, and the Company includes O&M services as part of its subscription and license agreements to support this warranty and maintain the operability of the software. The Company’s services are generally warranted to be performed in a professional manner and by an adequate staff with knowledge about the products. In the event there is a failure of such warranties, the Company generally is obligated to correct the product or service to conform to the warranty provision, as set forth in the applicable SLA, or, if the Company is unable to do so, the customer is entitled to seek a refund of the purchase price of the product and service (generally prorated over the contract term). Due to the absence of historical warranty claims, the Company’s expectations of future claims related to products under warranty continue to be insignificant. The Company has not recorded warranty expense or related accruals as of December 31, 2022 and 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 105 Palantir Technologies Inc. Notes to Consolidated Financial Statements (continued) or pay damages that the customer is legally required to pay to the third-party claimant. In addition, in the event of an infringement, the Company generally agrees to secure the right for the customer to continue using the infringing product; to modify or replace the infringing product; or, if those options are not commercially practicable, to refund the cost of the software, as prorated over the period. To date, the Company has not been required to make any payment resulting from infringement claims asserted against its customers and does not believe that the Company will be liable for such claims in the foreseeable future. As such, the Company has not recorded a liability for infringement costs as of December 31, 2022 and 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. 9. Stockholders’ Equity The Company’s amended and restated certificate of incorporation authorizes the issuance of a total of 20,000,000,000 shares of Class A common stock, 2,700,000,000 shares of Class B common stock, and 1,005,000 shares of Class F common stock. In September 2020, each of the Founders exchanged 335,000 shares of their Class B common stock for an equivalent number of shares of Class F common stock. The Company’s Class A, Class B, and Class F common stock (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 December 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 December 31, 2022. The following represented the total authorized, issued, and outstanding shares for each class of common stock (in thousands): As of December 31, 2022 As of December 31, 2021 Authorized Issued and Outstanding Authorized Issued and Outstanding Class A Common Stock 20,000,000 1,995,414 20,000,000 1,926,589 Class B Common Stock 2,700,000 102,656 2,700,000 99,880 Class F Common Stock 1,005 1,005 1,005 1,005 Total 22,701,005 2,099,075 22,701,005 2,027,474 10. Stock-Based Compensation 2020 Executive Equity Incentive Plan In August 2020, the Company’s Board of Directors approved the 2020 Executive Equity Incentive Plan (the “Executive Equity Plan”). The Executive Equity Plan permitted the granting of nonstatutory stock options (“NSOs”) and RSUs to the Company’s employees, consultants, and directors. A total of 165,900,000 shares of the Company’s Class B common stock were reserved for issuance under the Executive Equity Plan. During August 2020, options to purchase 162,000,000 shares of Class B common stock and restricted stock units covering 3,900,000 shares of the Company’s Class B common stock were granted to certain officers. The Executive Equity Plan was terminated prior to the Company’s Direct Listing, and no additional awards will be granted under the Executive Equity Plan. However, the Executive Equity Plan will continue to govern the terms and conditions of the outstanding awards previously granted under the Executive Equity Plan. 106 Palantir Technologies Inc. Notes to Consolidated Financial Statements (continued) 2020 Equity Incentive Plan In September 2020, prior to the Direct Listing, the Company’s Board of Directors approved the 2020 Equity Incentive Plan (“2020 Plan”). The 2020 Plan provides for the grant of incentive stock options (“ISOs”), NSOs, restricted stock, RSUs, stock appreciation rights (“SARs”), and performance awards to the Company’s employees, directors, and consultants. A total of 150,000,000 shares of the Company’s Class A common stock were initially reserved for issuance pursuant to the 2020 Plan. In addition, the number of shares of Class A common stock reserved for issuance under the 2020 Plan includes certain shares of common stock subject to awards under the 2010 Plan and Executive Equity Plan in the case of certain occurrences, such as expirations, terminations, exercise and tax-related withholding, or failures to vest. Shares of Class B common stock added to the 2020 Plan from the 2010 Plan or Executive Equity Plan are reserved for issuance under the Company’s 2020 Plan as Class A common stock. The number of shares of Class A common stock available for issuance under the 2020 Plan will also include an annual increase on the first day of each fiscal year beginning on January 1, 2022, equal to the least of: • 250,000,000 shares of the Company’s Class A common stock; • Five percent of the outstanding shares of the Company’s common stock as of the last day of the immediately preceding fiscal year; or • such other amount as the administrator of the 2020 Plan determines. Under the 2020 Plan, the exercise price of options granted is generally at least equal to the fair market value of the Company’s Class A common stock on the date of grant. The term of an ISO generally may not exceed ten years . Additionally, the exercise price of any ISO granted to a 10 % stockholder shall not be less than 110 % of the fair market value of the common stock on the date of grant, and the term of such option grant shall not exceed five years . Options and other equity awards become vested and, if applicable, exercisable based on terms determined by the Board of Directors or another plan administrator on the date of grant, which is typically four years for new employees and varies for subsequent grants. Stock Options The following table summarizes stock option activity for the year ended December 31, 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 ( 19,660 ) 4.38 Options canceled and forfeited ( 3,379 ) 4.95 Balance as of December 31, 2022 326,913 $ 8.05 8.33 $ 272,603 Options vested and exercisable as of December 31, 2022 183,119 $ 5.77 7.43 $ 257,113 The aggregate intrinsic value of options outstanding, and vested and exercisable is calculated as the difference between the exercise price of the underlying options and the fair value of the Company’s common stock as of December 31, 2022. The aggregate intrinsic value of options exercised during the years ended December 31, 2022, 2021, and 2020 was $ 112.3 million, $ 3.8 billion, and $ 974.2 million, respectively, and is calculated based on the difference between the exercise price and the fair value of the Company’s common stock on the exercise date. There were no options granted during the year ended December 31, 2022 and 2021. The weighted average grant-date fair value of options granted during the year ended December 31 2020 was $ 2.57 per share. The total grant-date fair value of options that vested during the years ended December 31, 2022, 2021, and 2020 was $ 170.8 million, $ 189.5 million, and $ 214.7 million, respectively . As of December 31, 2022, the total unrecognized stock-based compensation expense related to options outstanding was $ 721.9 million, which is expected to be recognized over a weighted-average service period of eight years . 107 Palantir Technologies Inc. Notes to Consolidated Financial Statements (continued) Determination of Stock Option Fair Value The estimated grant-date fair value of all the Company’s stock-based option awards was calculated using the Black-Scholes option-pricing model, based on the below assumptions. There were no options granted during the years ended December 31, 2022 and 2021. Year Ended December 31, 2020 Fair value of common stock $ 7.60 Expected volatility 71.00 % Expected term (in years) 12.04 Expected dividend yield — % Risk-free interest rate 0.64 % RSUs The following table summarizes the RSU activity for the year ended December 31, 2022 (in thousands, except per share amounts): RSUs Outstanding Weighted Average Grant Date Fair Value per Share RSUs unvested and outstanding as of December 31, 2021 153,749 $ 9.56 RSUs granted 33,673 10.24 RSUs vested and converted to shares ( 51,941 ) 8.73 RSUs canceled ( 9,055 ) 9.78 RSUs unvested and outstanding as of December 31, 2022 126,426 $ 10.07 Prior to September 30, 2020, the Company granted RSUs with both a service-based vesting condition and a liquidity event-related performance condition which was considered a performance-based vesting condition. The stock-based compensation expense related to such RSUs is recognized using the accelerated attribution method from the grant date. The service-based vesting period for these awards varies across service providers and is up to five years . The performance-based vesting condition for the RSUs was satisfied upon the Company’s Direct Listing, which occurred on September 30, 2020. Additionally, subsequent to September 30, 2020, the Company granted RSUs with only a service based-based vesting condition. The stock-based compensation expense related to such RSUs is recognized ratably over the service period. During the year ended December 31, 2020, the Company recognized $ 940.0 million in stock-based compensation expense related to RSUs, of which $ 769.5 million was recognized upon the Company's Direct Listing which satisfied the performance-based vesting condition. The total grant-date fair value of RSUs vested during the years ended December 31, 2022, 2021, and 2020 was $ 453.2 million, $ 421.0 million, and $ 531.9 million. As of December 31, 2022, the total unrecognized stock-based compensation expense related to the RSUs outstanding was $ 770.3 million, which is expected to be recognized over a weighted-average service period of three years . 108 Palantir Technologies Inc. Notes to Consolidated Financial Statements (continued) Stock-based Compensation Expense Total stock-based compensation expense was as follows (in thousands): Years Ended December 31, 2022 2021 2020 Cost of revenue $ 44,061 $ 68,546 $ 139,627 Sales and marketing 196,301 242,910 398,205 Research and development 93,871 150,298 357,063 General and administrative 230,565 316,461 375,807 Total stock-based compensation expense $ 564,798 $ 778,215 $ 1,270,702 The Company did not recognize any tax benefits related to stock-based compensation expense during the years ended December 31, 2022 or 2021, and it recognized tax benefits of $ 18.2 million during the year ended December 31, 2020. 11. Income Taxes Loss before provision for (benefit from) income taxes consisted of the following (in thousands): Years Ended December 31, 2022 2021 2020 United States $ ( 402,834 ) $ ( 514,200 ) $ ( 1,203,682 ) Foreign 41,807 25,706 24,655 Loss before provision for (benefit from) income taxes $ ( 361,027 ) $ ( 488,494 ) $ ( 1,179,027 ) Provision for (benefit from) income taxes consisted of the following (in thousands): Years Ended December 31, 2022 2021 2020 Current: Federal $ — $ — $ — State 765 ( 88 ) 500 Foreign 9,476 ( 11,343 ) 7,249 Total current provision 10,241 ( 11,431 ) 7,749 Deferred: Federal — ( 111 ) — State — — — Foreign ( 174 ) 43,427 ( 20,385 ) Total deferred provision ( 174 ) 43,316 ( 20,385 ) Total provision for (benefit from) income taxes $ 10,067 $ 31,885 $ ( 12,636 ) 109 Palantir Technologies Inc. Notes to Consolidated Financial Statements (continued) A reconciliation of the expected tax provision (benefit) at the statutory federal income tax rate to the Company’s recorded tax provision (benefit) consisted of the following (in thousands): Years Ended December 31, 2022 2021 2020 Expected tax (benefit) at U.S. federal statutory rate $ ( 75,592 ) $ ( 102,584 ) $ ( 247,596 ) State income taxes - net of federal benefit 766 ( 88 ) 500 Foreign tax rate differential 832 870 ( 4,131 ) Research and development tax credits ( 34,546 ) ( 94,591 ) ( 26,294 ) Stock-based compensation 1,374 ( 817,839 ) ( 194,730 ) Non-deductible officers’ compensation 40,629 428,682 76,093 Change in valuation allowance 49,833 616,572 373,632 Base Erosion Anti-Abuse Tax and related elections 25,200 — — Other 1,571 863 9,890 Total provision for (benefit from) income taxes $ 10,067 $ 31,885 $ ( 12,636 ) For the year ended December 31, 2022, the Company recorded a provision for income taxes of $ 10.1 million compared to $ 31.9 million for the year ended December 31, 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 the year ended December 31, 2021, the Company recorded a provision for income taxes compared to a benefit from income taxes for the year ended December 31, 2020, primarily due to the establishment of a full valuation allowance against its U.K. deferred tax assets during the fourth quarter of 2021, partially offset by a one-time benefit related to the refund of the Company’s U.K. 2019 taxes paid based on the tax election to carry back the 2020 U.K. net tax operating losses. Deferred tax assets and liabilities are recognized for the future tax consequences of differences between the carrying amounts of assets and liabilities and their respective tax basis using enacted tax rates in effect for the year in which the differences are expected to reverse. Significant deferred tax assets and liabilities consisted of the following (in thousands): As of December 31, 2022 2021 Net operating loss carryforwards $ 1,436,957 $ 1,497,774 Capitalized research and experimental expenses 70,839 — Reserves and accruals 76,905 43,348 Tax credit carryforwards 226,565 177,402 Stock-based compensation 203,735 212,163 Lease liabilities 58,056 59,787 Depreciation and amortization 29,665 35,176 Gross deferred tax assets 2,102,722 2,025,650 Outside basis difference ( 6,512 ) — Acquisition related intangibles ( 10,225 ) — Right-of-use assets ( 46,295 ) ( 49,665 ) Total net deferred tax assets before valuation allowance 2,039,690 1,975,985 Valuation allowance ( 2,051,655 ) ( 1,977,565 ) Net deferred tax assets $ ( 11,965 ) $ ( 1,580 ) The Company performs an assessment of both 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 when determining whether it is more likely than not that deferred tax assets are recoverable. Such assessment is required on a jurisdiction by jurisdiction basis. The Company reviews the recognition of deferred tax assets on a regular basis to determine if 110 Palantir Technologies Inc. Notes to Consolidated Financial Statements (continued) realization of such assets is more likely than not. A valuation allowance is provided when it is more likely than not that such assets will not be realized. The Company maintains a full valuation allowance against its U.S. federal and state deferred tax assets. Provisions enacted by 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 years and 15 years, respectively. Beginning January 1, 2022, the Company began capitalizing and amortizing R&E expenditures over five years for domestic research and 15 for international research rather than expensing these costs as incurred. As a result, the Company has recorded a deferred tax asset of $ 70.8 million related to the capitalization requirement. The valuation allowance totaled $ 2.1 billion and $ 2.0 billion for the years ended December 31, 2022 and 2021, respectively. The valuation allowance on our net deferred tax assets increased by $ 74.1 million and $ 757.5 million during the years ended December 31, 2022 and 2021, respectively. As of December 31, 2022, the Company had U.S. federal and state net operating losses of approximately $ 5.6 billion and $ 2.8 billion, respectively. As of December 31, 2021, the Company had U.S. federal and state net operating losses of approximately $ 5.9 billion and $ 2.9 billion, respectively. The U.S. federal net operating loss carryforwards will expire at various dates beginning in 2024 through 2037 if not utilized, with the exception of $ 1.4 billion which can be carried forward indefinitely. The state net operating loss carryforwards will expire at various dates beginning in 2023 through 2041 if not utilized. Additionally, as of December 31, 2022, the Company had federal and California research and development credits of approximately $ 230.2 million and $ 91.4 million, respectively. As of December 31, 2021, the Company had federal and California research and development credits of approximately $ 184.1 million and $ 68.7 million, respectively. The federal research and development credits will begin to expire in the years 2027 through 2041 if not utilized and the California research and development credits have no expiration date. Utilization of the net operating losses and research and development credit carryforwards may be subject to an annual limitation due to the ownership percentage change limitations provided by the Internal Revenue Code of 1986 and similar state provisions. The annual limitation may result in the expiration of the net operating loss and research and development credit carryforwards before utilization. As of December 31, 2022, the Company had net operating losses in the United Kingdom of approximately $ 303.4 million. The U.K. net operating losses can be carried forward indefinitely. As of December 31, 2022, the Company had an immaterial amount of earnings from its wholly-owned non-U.S. subsidiaries indefinitely reinvested outside the U.S. The Company does not intend to repatriate these earnings and, accordingly, the Company does not provide for U.S. income taxes and foreign withholding tax on these earnings. The Company recorded $ 6.5 million of deferred tax liability on the outside basis differences in its investment in Palantir Technologies Japan, Kabushiki Kaisha (“Palantir Japan”) that is unrelated to unremitted earnings. On August 16, 2022, the U.S. enacted the Inflation Reduction Act of 2022, which, among other things, implements a 15% minimum tax on book income of certain large corporations, a 1% excise tax on net stock repurchases and several tax incentives to promote clean energy. Based on the Company’s current analysis of the provisions, the Company does not believe this legislation will have a material impact on its consolidated financial statements. 111 Palantir Technologies Inc. Notes to Consolidated Financial Statements (continued) Uncertain Tax Positions A reconciliation of the gross unrecognized tax benefits consists of the following (in thousands): Years Ended December 31, 2022 2021 2020 Unrecognized tax benefit beginning of year $ 65,070 $ 75,557 $ 31,702 Increases in current year tax positions 5,733 19,638 43,855 Increases in prior year tax positions 11,497 967 — Decreases in prior year tax positions ( 36 ) ( 30,895 ) — Decreases in prior year tax positions due to settlements ( 360 ) ( 197 ) — Decreases in prior year tax positions due to lapse of statute of limitations — — — Unrecognized tax benefit end of year $ 81,904 $ 65,070 $ 75,557 For the years ended December 31, 2022, 2021, and 2020, the Company recorded gross unrecognized tax benefits of $ 81.9 million, $ 65.1 million, and $ 75.6 million, respectively, that, if recognized, would not benefit the Company’s effective tax rate due to the valuation allowance that currently offsets deferred tax assets. As of December 31, 2022, no significant increases or decreases are expected to the Company’s uncertain tax positions within the next twelve months. It is the Company’s policy to recognize interest and penalties related to income tax matters in income tax expense. The Company has recorded immaterial interest and penalties related to uncertain tax positions as of December 31, 2022 and 2021. The Company files U.S. federal, state, and foreign income tax returns in jurisdictions with varying statutes of limitation. The material jurisdictions where the Company is subject to potential examination by tax authorities are the U.S. (federal and state) for tax years 2004 through 2022 and the UK for tax years 2013 through 2022. 12. Net Loss Per Share Attributable to Common Stockholders The following table presents the calculation of basic and diluted net loss per share attributable to common stockholders (in thousands, except share and per share amounts): As of December 31, 2022 2021 2020 Numerator Net loss attributable to common stockholders $ ( 373,705 ) $ ( 520,379 ) $ ( 1,166,391 ) Less: Change in fair value attributable to participating securities — — ( 5,483 ) Net loss attributable to common stockholders for diluted net loss per share $ ( 373,705 ) $ ( 520,379 ) $ ( 1,171,874 ) Denominator Weighted-average shares used in computing net loss per share, basic 2,063,793 1,923,617 977,722 Weighted-average shares used in computing net loss per share, diluted 2,063,793 1,923,617 979,330 Net loss per share Net loss per share attributable to common stockholders, basic $ ( 0.18 ) $ ( 0.27 ) $ ( 1.19 ) Net loss per share attributable to common stockholders, diluted $ ( 0.18 ) $ ( 0.27 ) $ ( 1.20 ) 112 Palantir Technologies Inc. Notes to Consolidated Financial Statements (continued) The following outstanding potentially dilutive common stock equivalents have been excluded from the computation of diluted net loss per share attributable to common stockholders for the periods presented due to their anti-dilutive effect (in thousands): As of December 31, 2022 2021 2020 Options and SARs issued and outstanding 326,913 349,977 535,792 RSUs outstanding 126,426 153,749 184,870 Warrants to purchase common stock 13,042 13,042 19,068 Growth units outstanding — — 3,583 Total 466,381 516,768 743,313 13. Segment and Geographic Information The following reporting segment tables reflect the results of the Company’s reportable operating segments consistent with the manner in which the CODM evaluates the performance of each segment and allocates the Company’s resources. The CODM does not evaluate the performance of the Company’s assets on a segment basis for internal management reporting and, therefore, such information is not presented. Contribution is used, in part, to evaluate the performance of, and allocate resources to, each of the segments. A segment’s contribution is calculated as segment revenue less the related costs of revenue and sales and marketing expenses. It excludes certain operating expenses that are not allocated to segments because they are separately managed at the consolidated corporate level. These unallocated costs include stock-based compensation expense, research and development expenses, and general and administrative expenses. Financial information for each reportable segment was as follows (in thousands): Years Ended December 31, 2022 2021 2020 Revenue: Government $ 1,071,776 $ 897,356 $ 610,198 Commercial 834,095 644,533 482,475 Total revenue $ 1,905,871 $ 1,541,889 $ 1,092,673 Years Ended December 31, 2022 2021 2020 Amount % Amount % Amount % Contribution: Government $ 620,677 58 % $ 541,883 60 % $ 346,937 57 % Commercial 414,496 50 % 357,546 55 % 247,320 51 % Total contribution $ 1,035,173 54 % $ 899,429 58 % $ 594,257 54 % 113 Palantir Technologies Inc. Notes to Consolidated Financial Statements (continued) The reconciliation of contribution to loss from operations is as follows (in thousands): Years Ended December 31, 2022 2021 2020 Loss from operations $ ( 161,201 ) $ ( 411,046 ) $ ( 1,173,679 ) Research and development expenses (1) 265,808 237,189 203,597 General and administrative expenses (1) 365,768 295,071 293,637 Total stock-based compensation expense 564,798 778,215 1,270,702 Total contribution $ 1,035,173 $ 899,429 $ 594,257 ————— (1) Excludes stock-based compensation expense. Geographic Information Revenue by geography is based on the customer’s headquarters or agency location at the time of sale. Revenue is as follows (in thousands, except percentages): Years Ended December 31, 2022 2021 2020 Amount % Amount % Amount % Revenue: United States $ 1,161,416 61 % $ 879,156 57 % $ 573,549 52 % United Kingdom 220,942 12 % 173,362 11 % 132,427 12 % Rest of world (1) 523,513 27 % 489,371 32 % 386,697 36 % Total revenue $ 1,905,871 100 % $ 1,541,889 100 % $ 1,092,673 100 % ————— (1) No other country represented 10 % or more of total revenue for the years ended December 31, 2022 , 2021, or 2020 . Property and equipment, net is attributed to the Company’s office locations as follows (in thousands, except percentages): As of December 31, 2022 2021 Amount % Amount % Property and equipment, net: United States $ 46,599 67 % $ 18,728 60 % Japan 13,318 19 % 1,340 4 % United Kingdom 6,746 10 % 8,375 27 % Rest of world 2,507 4 % 2,861 9 % Total property and equipment, net $ 69,170 100 % $ 31,304 100 % 14. Business Combinations On November 8, 2022, the Company gained the right to majority representation on the board of directors of Palantir Japan, thereby obtaining a controlling interest. Prior to obtaining a controlling interest, the Company accounted for its 50 % ownership in Palantir Japan as an equity method investment, which was created to distribute Palantir platforms to the Japanese market. This transaction was accounted for as a “step acquisition” (as defined by U.S. GAAP), as such, the Company remeasured its pre-existing equity interest in Palantir Japan immediately prior to the completion of the acquisition to its estimated fair value. The results of Palantir Japan have been included in the Company’s consolidated financial statements since the acquisition date, with the portion outside of its control forming a noncontrolling interest. The fair value of Palantir Japan on the acquisition date totaled $ 149.0 million, which included the Company’s equity interest immediately prior to the acquisition of $ 74.5 million and the noncontrolling interest of $ 74.5 million. The amounts recognized 114 Palantir Technologies Inc. Notes to Consolidated Financial Statements (continued) of assets acquired and liabilities assumed as of the acquisition date included: cash of $ 66.7 million; goodwill of $ 36.1 million; intangible assets of $ 34.7 million related to customer relationships, reacquired rights, and backlog; $ 32.5 million of other identifiable assets; and $ 21.0 million of net liabilities. The intangible assets are reported in other assets and are being amortized over a period of two to seven years in accordance with the underlying pattern of economic benefit reflected by the future net cash flows. Goodwill is reported in other assets and is primarily attributed to the value expected from synergies resulting from the Palantir Japan acquisition. None of the goodwill recognized is expected to be deductible for income tax purposes. The acquisition-date fair value of the noncontrolling and controlling equity interest was determined using a combination of the income and market approaches. With respect to intangible assets, the estimated fair values were determined based on the excess earnings method of the income approach. These models used primarily Level 3 inputs, including estimates of projected revenue growth rates, projected EBITDA margins, and an estimated discount rate. In accordance with accounting for a step acquisition, the Company recognized a gain of $ 44.3 million as a result of remeasuring its pre-existing interest in Palantir Japan held immediately before the business combination, which is included in other income (expense), net in the consolidated statements of operations. The amounts of Palantir Japan’s revenue and net income included in the Company’s consolidated statement of operations for the year ended December 31, 2022 were immaterial. This acquisition did not have a material impact on the Company’s reported revenue or net loss amounts for any period presented; therefore, historical and pro forma disclosures have not been presented. 15. Intangible Assets and Goodwill Intangible assets subject to amortization that are not fully amortized are as follows (in thousands): Weighted average useful life As of December 31, 2022 As of December 31, 2021 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount Customer relationships 4.85 $ 10,400 $ ( 347 ) $ 10,053 $ — $ — $ — Reacquired rights 6.85 17,618 ( 419 ) 17,199 — — — Backlog 1.85 6,700 ( 558 ) 6,142 — — — Other 1.27 5,717 ( 3,572 ) 2,145 5,717 ( 1,881 ) 3,836 Total intangible assets $ 40,436 $ ( 4,897 ) $ 35,539 $ 5,717 $ ( 1,881 ) $ 3,836 Amortization expense of intangible assets was not material for the years ended December 31, 2022 and 2021. As of December 31, 2022, expected amortization expense for the unamortized finite-lived intangible assets for the next five years and thereafter is as follows (in thousands): Year ended December 31, Amount 2023 $ 9,637 2024 7,844 2025 4,597 2026 4,597 2027 4,250 Thereafter 4,614 Total $ 35,539 115 Palantir Technologies Inc. Notes to Consolidated Financial Statements (continued) Changes in the carrying amount of goodwill, which is reported in the commercial segment, for the year ended December 31, 2022 are as follows (in thousands): Amount Goodwill at December 31, 2021 $ 1,869 Acquisitions 36,069 Goodwill at December 31, 2022 $ 37,938 116 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.