What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-09 compared with 2022-11-07 · 160 added, 185 removed, 242 unchanged (59% of the section changed)

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

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

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

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

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

We are in the process of developing and releasing components of our newest offering, the Artificial Intelligence Platform (“AIP”).

AIP is designed for customers across the commercial and government sectors, enabling them to derive value from recent breakthroughs in artificial intelligence via the combination of our existing software platforms with large language models (“LLMs”).

We believe AIP uniquely allows users to connect LLMs with their data and operations to facilitate decision-making within the legal, ethical, and security constraints that they require.

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

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

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

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

For example, we have approved and entered into strategic investments pursuant to certain approved 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”).

See further discussion in Note 4.

Investments and Fair Value Measurements .

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

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Many of our customer contracts contain termination for convenience provisions.

For the three months ended September 30, 2022, we generated $477.9 million in revenue, reflecting a 22% growth rate from the three months ended September 30, 2021, when we generated $392.1 million in revenue.

For the nine months ended September 30, 2022, we generated $1.4 billion in revenue, reflecting a 26% growth rate from the nine months ended September 30, 2021, when we generated $1.1 billion in revenue.

In the three months ended September 30, 2022, we incurred losses from operations of $62.2 million, or generated adjusted income from operations of $81.3 million when excluding stock-based compensation and related employer payroll taxes.

In the three months ended September 30, 2021, we incurred losses from operations of $91.9 million, or generated adjusted income from operations of $116.1 million when excluding stock-based compensation and related employer payroll taxes.

months ended September 30, 2022, we incurred losses from operations of $143.4 million, or generated adjusted income from operations of $306.5 million when excluding stock-based compensation and related employer payroll taxes.

In the nine months ended September 30, 2021, our losses from operations were $352.1 million, or generated adjusted income from operations of $349.4 million when excluding stock-based compensation and related employer payroll taxes.

In the three months ended September 30, 2022, our gross profit was $370.3 million, reflecting a gross margin of 77%, or 80% when excluding stock-based compensation.

In the three months ended September 30, 2021, our gross profit was $305.3 million, reflecting a gross margin of 78%, or 82% when excluding stock-based compensation.

In the nine months ended September 30, 2022, our gross profit was $1.1 billion, reflecting a gross margin of 78%, or 81% when excluding stock-based compensation.

In the nine months ended September 30, 2021, our gross profit was $857.2 million, reflecting a gross margin of 77%, or 82% when excluding stock-based compensation.

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

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

For the three months ended March 31, 2023, we generated $525.2 million in revenue, reflecting an 18% growth rate from the three months ended March 31, 2022, when we generated $446.4 million in revenue.

In the three months ended March 31, 2023, we generated income from operations of $4.1 million, or adjusted income from operations of $125.1 million when excluding stock-based compensation and related employer payroll taxes.

In the three months ended March 31, 2022, we incurred losses from operations of $39.4 million, or generated adjusted income from operations of $117.4 million when excluding stock-based compensation and related employer payroll taxes.

In the three months ended March 31, 2023, our gross profit was $417.5 million, reflecting a gross margin of 80%, or 81% when excluding stock-based compensation.

In the three months ended March 31, 2022, our gross profit was $352.0 million, reflecting a gross margin of 79%, or 81% when excluding stock-based compensation.

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

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

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

Our Customers

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

During the period ended September 30, 2022, we had 337 customers, including companies in various commercial sectors and government agencies around the world.

During the period ended September 30, 2021, we had 203 customers.

During the period ended March 31, 2023, we had 391 customers, including companies in various commercial sectors and government agencies around the world.

During the period ended March 31, 2022, we had 277 customers.

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

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

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

Our average revenue for the top twenty customers during the trailing twelve months ended September 30, 2022 was $47.7 million, which grew 15% from an average of $41.3 million in revenue from the top twenty customers during the trailing twelve months ended September 30, 2021, demonstrating our expanding relationships with existing customers.

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

Our average revenue for the top twenty customers during the trailing twelve months ended March 31, 2023 was $50.9 million, which grew 14% from an average of $44.6 million in revenue from the top twenty customers during the trailing twelve months ended March 31, 2022, demonstrating our expanding relationships with existing customers.

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

In the nine months ended September 30, 2022, 56% of our revenue came from government customers and 44% came from commercial customers.

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

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

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

In the three months ended March 31, 2023, 55% of our revenue came from government customers and 45% came from commercial customers.

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

In the nine months ended September 30, 2022, we generated 62% of our revenue from customers in the United States and the remaining 38% from non-U.S.

In the three months ended March 31, 2023, we generated 64% of our revenue from customers in the United States and the remaining 36% from non-U.S.

Revenue from our U.S.

customers during the trailing twelve months ended September 30, 2022 was $1.1 billion, which grew 38% from the prior twelve-month period.

We expect that U.S customers will continue to be a source of significant revenue growth for us.

customers during the trailing twelve months ended March 31, 2023 was $1.2 billion, which grew 28% from the prior twelve-month period.

We expect that U.S.

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

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

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Expansion of Access to Platforms

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

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

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Macroeconomic Trends

As a corporation with an international presence, we are subject to risks and uncertainties caused by significant events with macroeconomic impacts, including, but not limited to, the ongoing COVID-19 pandemic, the impact of the Russian invasion of Ukraine, inflationary pressures, and foreign currency fluctuations.

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

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

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

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

COVID-19 Impact

As a result of the ongoing COVID-19 pandemic, we continue to take precautionary measures in order to minimize the risk of the virus to our employees, our customers, and the communities in which we operate, which initially included the suspension of all non-essential business travel of employees and the temporary closure of all of our major offices.

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

We have reopened our offices and are allowing business travel to resume, while continuing to closely monitor developments around the evolving nature of the pandemic, and some of our employees continue to work remotely.

The economic consequences of the COVID-19 pandemic have been challenging for certain of our customers and prospective customers.

While the broader implications of the COVID-19 pandemic on our results of operations and overall financial performance remain uncertain, the COVID-19 pandemic has, to date, not had a material adverse impact on our results of operations.

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

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

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

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

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

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

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

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

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

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

Russian Invasion of Ukraine

We continue to closely monitor the impact of the Russian invasion of Ukraine and its global impacts on our business.

Russia-Ukraine Conflict

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

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

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Foreign Currency Exchange Rates

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

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

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

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

however, that impact for the three and nine months ended September 30, 2022 was not material to our financial position or results of operations.

See the section titled “Risk Factors” included elsewhere in this Quarterly Report on Form 10-Q, and in the Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the SEC on February 24, 2022, for further discussion of the impact of macroeconomic trends on our business.

dollar relative to other major foreign currencies (primarily the Euro and British pound sterling (“GBP”)) has had and could in the future have an unfavorable impact on our revenues from certain non-U.S.

however, that impact for the three months ended March 31, 2023 was not material to our financial position or results of operations.

Additionally, certain of our U.S.

subsidiaries may hold monetary assets and liabilities in currencies other than their functional currency (primarily the Japanese Yen (“JPY”), Euro and GBP), which could subject our results of operations and cash flows to adverse fluctuations due to changes in such foreign currency exchange rates as compared to the U.S.

Customer Impacts

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

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

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

For additional information, see Note 4.

Investments and Fair Value Measurements in the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Key Business Measure

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The cost of revenue and sales and marketing costs include both the costs associated with the deployment and operation of our software as well as expenses associated with identifying new customers and expanding partnerships with existing ones.

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

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

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

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

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

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

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

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

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

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

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generally accepted accounting principles (“GAAP”).

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

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

Non-GAAP Reconciliations

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

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

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

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

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Contribution Margin

The following table provides a reconciliation of contribution margin for the three and nine months ended September 30, 2022 and 2021 (in thousands, except percentages):

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

Loss from operations $ (62,191) $ (91,941) $ (143,375) $ (352,103)

The following table provides a reconciliation of contribution margin for the three months ended March 31, 2023 and 2022 (in thousands, except percentages):

Three Months Ended March 31,

Income (loss) from operations $ 4,115 $ (39,439)

Research and development expenses (1)

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Gross Profit and Gross Margin, Excluding Stock-Based Compensation

The following table provides a reconciliation of gross profit and gross margin, excluding stock-based compensation for the three and nine months ended September 30, 2022 and 2021 (in thousands, except percentages):

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

The following table provides a reconciliation of gross profit and gross margin, excluding stock-based compensation for the three months ended March 31, 2023 and 2022 (in thousands, except percentages):

Three Months Ended March 31,

Gross profit $ 417,541 $ 351,954

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Adjusted Income from Operations

The following table provides a reconciliation of adjusted income from operations, which excludes stock-based compensation and related employer payroll taxes for the three and nine months ended September 30, 2022 and 2021 (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

Loss from operations $ (62,191) $ (91,941) $ (143,375) $ (352,103)

The following table provides a reconciliation of adjusted income from operations, which excludes stock-based compensation and related employer payroll taxes for the three months ended March 31, 2023 and 2022 (in thousands):

Three Months Ended March 31,

Income (loss) from operations $ 4,115 $ (39,439)

stock-based compensation 114,714 149,323

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Components of Results of Operations

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

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

Palantir Cloud

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

We promise to provide continuous access to the hosted software throughout the contract term.

We agree 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 services to the customer.

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Cost of Revenue

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

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

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

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

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

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

Sales and marketing costs are generally expensed as incurred.

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Research and Development

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

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

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

Research and development costs are expensed as incurred.

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General and Administrative

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

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

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

Interest Income

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

Interest income consists primarily of interest income earned on our cash, cash equivalents, U.S.

treasury securities, and restricted cash balances.

Interest Expense

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

Provision for (Benefit from) Income Taxes

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

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

Provision for Income Taxes

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

Net Income Attributable to Noncontrolling Interests

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

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

Various factors, including our organizational and management reporting structure and customer type, were considered in determining these operating segments.

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

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

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

Results of Operations

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

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

Three Months Ended March 31,

Revenue $ 525,186 $ 446,357

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Total operating expenses 413,426 391,393

Loss from operations (62,191) (91,941) (143,375) (352,103)

Income (loss) from operations 4,115 (39,439)

Interest income 20,853 547

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Other income (expense), net (2,861) (59,870)

Loss before provision for income taxes (122,779) (100,699) (398,876) (365,312)

Provision for (benefit from) income taxes 1,096 1,438 5,707 (1,121)

Net loss $ (123,875) $ (102,137) $ (404,583) $ (364,191)

(1) Includes stock-based compensation expense.

Income (loss) before provision for income taxes 20,832 (99,356)

Provision for income taxes 1,681 2,023

Net income (loss) 19,151 (101,379)

Net income attributable to noncontrolling interests 2,349 —

Net income (loss) attributable to common stockholders $ 16,802 $ (101,379)

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

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

Three Months Ended March 31,

Revenue 100 % 100 %

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Total operating expenses 79 88

Loss from operations (13) (23) (10) (32)

Income (loss) from operations 1 (9)

Interest income 4 —

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Other income (expense), net (1) (13)

Loss before provision for (benefit from) income taxes (26) (26) (29) (33)

Provision for (benefit from) income taxes — — — —

Net loss (26) % (26) % (29) % (33) %

Comparison of the Three and Nine Months Ended September 30, 2022 and 2021

Three Months Ended September 30, Change Nine Months Ended September 30, Change

2022 2021 Amount % 2022 2021 Amount %

Income (loss) before provision for income taxes 4 (22)

Provision for income taxes — 1

Net income (loss) 4 % (23) %

Net income attributable to noncontrolling interests 1 —

Net income (loss) attributable to common stockholders 3 % (23) %

Comparison of the Three Months Ended March 31, 2023 and 2022

Three Months Ended March 31, Change

2023 2022 Amount %

Government $ 289,070 $ 241,790 $ 47,280 20 %

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Total revenue $ 525,186 $ 446,357 $ 78,829 18 %

Revenue increased by $85.7 million, or 22%, for the three months ended September 30, 2022 compared to the same period in 2021.

Revenue from government customers increased by $56.0 million, or 26%, for the three months ended September 30, 2022 compared to the same period in 2021, primarily from customers in the United States.

Revenue from U.S.

government customers was $208.9 million for the three months ended September 30, 2022 compared to $170.1 million for the same period in 2021.

Of the total increase in revenue from government customers, $48.7 million was from government customers existing as of December 31, 2021.

Generally, increases in revenue from our existing customers are related to increased adoption of our products and services within their organizations.

Revenue from commercial customers increased by $29.7 million, or 17%, for the three months ended September 30, 2022 compared to the same period in 2021.

Of the increase, $26.1 million was from new customers as of December 31, 2021, of which $5.2 million was revenue from customers with which we have entered into concurrent Investment Agreements.

For additional information, see Note 4.

Investments and Fair Value Measurements in our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Revenue increased by $288.2 million, or 26%, for the nine months ended September 30, 2022 compared to the same period in 2021.

Revenue from government customers increased by $120.2 million, or 18%, for the nine months ended September 30, 2022 compared to the same period in 2021, primarily from customers in the United States.

Revenue increased by $78.8 million, or 18%, for the three months ended March 31, 2023 compared to the same period in 2022.

Revenue from government customers increased by $47.3 million, or 20%, for the three months ended March 31, 2023 compared to the same period in 2022, primarily from customers in the United States.

Revenue from U.S.

government customers was $601.6 million for the nine months ended September 30, 2022 compared to $493.6 million for the same period in 2021.

Of the total increase in revenue from government customers, $106.7 million was from government customers existing as of December 31, 2021.

Revenue from commercial customers increased by $168.0 million, or 37%, for the nine months ended September 30, 2022 compared to the same period in 2021.

Of the increase, $103.7 million was from existing customers as of December 31, 2021, of which $53.6 million was revenue from customers with which we have entered into concurrent Investment Agreements.

government customers was $229.8 million for the three months ended March 31, 2023 compared to $188.1 million for the same period in 2022.

Of the increase, $46.2 million was from government customers existing as of December 31, 2022.

Revenue from commercial customers increased by $31.5 million, or 15%, for the three months ended March 31, 2023 compared to the same period in 2022.

Of the increase, $22.3 million was from existing customers as of December 31, 2022, which includes an offsetting decrease of $5.8 million of revenue from Strategic Commercial Contracts.

For additional information, see Note 4.

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Cost of Revenue and Gross Profit

Three Months Ended September 30, Change Nine Months Ended September 30, Change

2022 2021 Amount % 2022 2021 Amount %

Three Months Ended March 31, Change

2023 2022 Amount %

Cost of revenue $ 107,645 $ 94,403 $ 13,242 14 %

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Gross margin 80 % 79 % 1 %

Cost of revenue for the three months ended September 30, 2022 increased by $20.8 million, or 24%, compared to the same period in 2021.

The increase was primarily due to increases of $12.6 million in field service representatives and other direct deployment costs mainly related to new projects, $5.3 million in third-party cloud hosting services driven by increased usage from customer growth and expansion, and $4.5 million in payroll and other payroll-related costs as a result of increased headcount attributable to our cost of revenue function.

These increases were partially offset by a decrease of $5.9 million in stock-based compensation expense and related expenses.

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

Our gross margin for the three months ended September 30, 2022 decreased from 78% for the same period in 2021 to 77% as a result of increased costs to support new deployments and company growth, including field service representatives and payroll costs, growing at a higher rate than revenue.

Cost of revenue for the nine months ended September 30, 2022 increased by $52.4 million, or 21%, compared to the same period in 2021.

The increase was primarily due to increases of $30.7 million in third-party cloud hosting services driven by increased usage from customer growth and expansion, $25.3 million in field service representatives and other direct deployment

costs mainly related to new projects, and $11.6 million in payroll and other payroll-related costs as a result of increased headcount attributable to our cost of revenue function.

Cost of revenue for the three months ended March 31, 2023 increased by $13.2 million, or 14%, compared to the same period in 2022.

The increase was primarily due to increases of $4.4 million in payroll and other payroll-related costs driven by an increase in headcount attributable to our cost of revenue function, and $4.7 million in hardware and $3.5 million for field service representatives mainly related to new projects.

These increases were partially offset by a decrease of $2.7 million in stock-based compensation expense and related expenses.

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

Our gross margin for the nine months ended September 30, 2022 increased from 77% for the same period in 2021 to 78% as a result of increased efficiencies in supporting revenue growth at our customer deployments, for example from making investments in our platforms as well as a lower rate of increase in cost of revenue partially driven by a decrease in stock-based compensation expense.

Our gross margin for the three months ended March 31, 2023 increased from 79% for the same period in 2022 to 80% as a result of revenue growth outpacing costs of revenue.

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

Operating Expenses

Three Months Ended September 30, Change Nine Months Ended September 30, Change

2022 2021 Amount % 2022 2021 Amount %

Three Months Ended March 31, Change

2023 2022 Amount %

Sales and marketing $ 187,093 $ 160,485 $ 26,608 17 %

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Sales and Marketing

Sales and marketing expenses increased by $29.5 million, or 19%, for the three months ended September 30, 2022 compared to the same period in 2021.

The increase was primarily due to increases of $28.2 million in payroll and other payroll-related costs driven by increased headcount attributable to our sales and marketing function and $12.0 million in travel and office-related costs as employees increasingly return to offices.

These increases were partially offset by a decrease of $17.3 million in stock-based compensation expense and related expenses.

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

Sales and marketing expenses increased by $60.4 million, or 13%, for the nine months ended September 30, 2022 compared to the same period in 2021.

The increase was primarily due to increases of $56.3 million in payroll and other payroll-related costs driven by increased headcount attributable to our sales and marketing function, $27.0 million in travel and office-related costs as employees increasingly return to offices, and $24.2 million in marketing and advertising expenses.

These increases were partially offset by a decrease of $60.0 million in stock-based compensation expense and related expenses.

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

Sales and marketing expenses increased by $26.6 million, or 17%, for the three months ended March 31, 2023 compared to the same period in 2022.

The increase was primarily due to increases of $26.8 million in payroll and other payroll-related costs driven by an increase in headcount attributable to our sales and marketing function and $10.5 million in travel and office-related

These increases were partially offset by decreases of $10.1 million in stock-based compensation expense and related expenses and $3.5 million in marketing costs.

For additional information related to stock-based compensation expense, see the section titled “Stock-Based Compensation” below.

Research and Development

Research and development expenses increased by $6.5 million, or 7%, for the three months ended September 30, 2022 compared to the same period in 2021.

The increase was primarily due to increases of $10.6 million in payroll and other payroll-related costs driven by increased headcount attributable to our research and development function;

and $6.2 million in third-party cloud hosting services driven by increased usage to support customer growth and expansion, other IT costs to support company growth, and office-related expenses primarily due to the increasing return of employees to offices.

These increases were partially offset by a decrease of $12.3 million in stock-based compensation expense and related expenses.

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

Research and development expenses decreased by $25.7 million, or 8%, for the nine months ended September 30, 2022 compared to the same period in 2021.

The decrease was primarily due to a decrease of $60.2 million in stock-based compensation expense and related expenses.

Research and development expenses increased by $1.5 million, or 2%, for the three months ended March 31, 2023 compared to the same period in 2022.

The increase was primarily due to increases of $4.2 million in third-party cloud hosting services, other IT costs, and office-related expenses and $4.1 million in payroll and other payroll-related costs primarily driven by an increase in headcount attributable to our research and development function.

This increase was partially offset by a decrease of $7.5 million in stock-based compensation expense and related expenses.

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

This decrease was partially offset by increases of $17.0 million in payroll and other payroll-related costs driven by increased headcount attributable to our research and development function, $8.6 million in travel and office-related costs as employees increasingly return to offices, and $8.0 million in third-party cloud hosting services driven by increased usage to support customer growth and expansion, as well as other IT costs to support company growth.

General and Administrative

General and administrative expenses decreased by $0.8 million, or 1%, for the three months ended September 30, 2022 compared to the same period in 2021.

The decrease was primarily due to a decrease of $29.0 million in stock-based compensation expense and related expenses.

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

This decrease was partially offset by increases of $14.8 million in travel and office-related costs as employees increasingly return to offices and $8.6 million in payroll and other payroll-related costs driven by increased headcount attributable to our general and administrative functions.

General and administrative expenses decreased by $7.6 million, or 2%, for the nine months ended September 30, 2022 compared to the same period in 2021.

General and administrative expenses decreased by $6.1 million, or 4%, for the three months ended March 31, 2023 compared to the same period in 2022.

The decrease was primarily due to a decrease of $15.6 million in stock-based compensation expense and related expenses.

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

This decrease was partially offset by increases of $34.1 million in travel and office-related costs as employees increasingly return to offices, $21.9 million in professional service fees mainly related to legal and financial services, $13.4 million in payroll and other payroll-related costs driven by increased headcount attributable to our general and administrative functions, and $5.3 million in third-party cloud hosting services driven by increased usage and other IT costs to support company growth.

The decrease was partially offset by an increase of $8.6 million in payroll and other payroll-related costs driven by an increase in headcount attributable to our general and administrative functions.

Stock-Based Compensation

Three Months Ended September 30, Change Nine Months Ended September 30, Change

2022 2021 Amount % 2022 2021 Amount %

Three Months Ended March 31, Change

2023 2022 Amount %

Cost of revenue $ 9,177 $ 11,677 $ (2,500) (21) %

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Total stock-based compensation expense $ 114,714 $ 149,323 $ (34,609) (23) %

Stock-based compensation expenses decreased by $44.5 million, or 24%, for the three months ended September 30, 2022 compared to the same period in 2021.

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

Stock-based compensation expenses decreased by $175.9 million, or 29%, for the nine months ended September 30, 2022 compared to the same period in 2021.

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

Stock-based compensation expenses decreased by $34.6 million, or 23%, for the three months ended March 31, 2023 compared to the same period in 2022.

The decrease was driven by lower expense under the accelerated attribution method for restricted stock units (“RSUs”) granted prior to September 30, 2020, the date of our direct listing, during the three months ended March 31, 2023 compared to the same period in 2022, as well as lower expense due to options becoming fully vested and the cancellation of options and RSUs.

Interest Income

Three Months Ended September 30, Change Nine Months Ended September 30, Change

2022 2021 Amount 2022 2021 Amount

Three Months Ended March 31, Change

2023 2022 Amount

Interest income $ 20,853 $ 547 $ 20,306

Interest income increased by $5.2 million for the three months ended September 30, 2022 compared to the same period in 2021 primarily due to an increase in U.S.

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

Interest income increased by $6.4 million for the nine months ended September 30, 2022 compared to the same period in 2021 primarily due to an increase in U.S.

Interest income increased by $20.3 million for the three months ended March 31, 2023 compared to the same period in 2022 primarily due to an increase in U.S.

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

and new investments in U.S.

treasury securities.

Interest Expense

Three Months Ended September 30, Change Nine Months Ended September 30, Change

2022 2021 Amount 2022 2021 Amount

Three Months Ended March 31, Change

2023 2022 Amount

Interest expense $ (1,275) $ (594) $ (681)

Interest expense increased by $0.5 million for the three months ended September 30, 2022 compared to the same period in 2021 primarily due to amortization of upfront debt issuance costs.

Interest expense decreased by $0.7 million for the nine months ended September 30, 2022 compared to the same period in 2021 primarily due to the full repayment of the outstanding debt balance during the second quarter of 2021.

Interest expense increased by $0.7 million for the three months ended March 31, 2023 compared to the same period in 2022 primarily due to the amortization of upfront debt issuance costs.

Other Income (Expense), Net

Three Months Ended September 30, Change Nine Months Ended September 30, Change

2022 2021 Amount 2022 2021 Amount

Three Months Ended March 31, Change

2023 2022 Amount

Other income (expense), net $ (2,861) $ (59,870) $ 57,009

Other income (expense), net changed by $56.5 million for the three months ended September 30, 2022 compared to the same period in 2021 primarily due to unrealized and realized losses, net from our investments in marketable securities.

Other income (expense), net changed by $249.4 million for the nine months ended September 30, 2022 compared to the same period in 2021 primarily due to unrealized and realized losses, net from our investments in marketable securities.

Provision for (Benefit From) Income Taxes

Three Months Ended September 30, Change Nine Months Ended September 30, Change

2022 2021 Amount 2022 2021 Amount

Provision for (benefit from) income taxes $ 1,096 $ 1,438 $ (342) $ 5,707 $ (1,121) $ 6,828

Provision for income taxes decreased by $0.3 million for the three months ended September 30, 2022 compared to the same period in 2021 primarily due to the absence in the current period of the revaluation of our U.K.

deferred tax assets as a result of a change in the U.K.

corporate tax rate enacted in June 2021.

Provision for income taxes increased by $6.8 million for the nine months ended September 30, 2022 compared to a benefit from income taxes the same period in 2021 primarily due to the absence in the current period of the revaluation of our U.K.

deferred tax assets as a result of a change in the U.K.

corporate tax rate enacted in June 2021.

Other income (expense), net changed by $57.0 million for the three months ended March 31, 2023 compared to the same period in 2022 primarily due to net decrease in losses from our shares held in publicly-traded equity securities.

Provision for Income Taxes

Three Months Ended March 31, Change

2023 2022 Amount

Provision for income taxes $ 1,681 $ 2,023 $ (342)

There was no material change in the provision for income taxes for the three months ended March 31, 2023 compared to the same period in 2022.

Liquidity and Capital Resources

We generated positive cash flow from operations for the nine months ended September 30, 2022.

We had $2.4 billion in cash and cash equivalents available as of September 30, 2022.

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

We generated positive cash flow from operations for the three months ended March 31, 2023.

We had cash and cash equivalents and short-term U.S.

treasury securities totaling $2.9 billion available as of March 31, 2023.

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

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

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

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

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

As of September 30, 2022, our accumulated deficit balance was $5.9 billion, and our principal sources of liquidity were $2.4 billion of cash and cash equivalents.

As of September 30, 2022, we had no outstanding debt balances and additional available and undrawn revolving and DDTL commitments of $950.0 million under our credit agreement.

During July 2022, we amended our credit agreement, which provided for, among other things, a new incremental DDTL facility in an aggregate principal amount of up to $450.0 million, upon the terms and conditions set forth in the credit agreement.

The DDTL facility is available to draw upon through July 1, 2023 and any drawn amounts will mature on March 31, 2027.

The DDTL facility, together with our existing revolving credit facility with an aggregate principal amount of up to $500.0 million, provides for total revolving and DDTL commitments of up to $950.0 million available to draw to fund working capital and general corporate expenditures.

No amounts were drawn as of the date of this Quarterly Report on Form 10-Q.

As of March 31, 2023, our accumulated deficit balance was $5.8 billion, and our principal sources of liquidity were cash and cash equivalents and short-term U.S.

treasury securities totaling $2.9 billion.

As of March 31, 2023, we had no outstanding debt balances and additional available and undrawn revolving and delayed draw term loan (“DDTL”) commitments of $950.0 million under our credit facility.

For more information, see Note 6.

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

Nine Months Ended September 30,

Three Months Ended March 31,

Net cash provided by (used in):

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

(12,470) (3,638)

Net increase in cash, cash equivalents, and restricted cash

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

$ (1,338,556) $ (34,477)

Operating Activities

Net cash provided by operating activities was $145.0 million and $240.4 million for the nine months ended September 30, 2022 and 2021, respectively.

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

Net cash provided by operating activities was $187.4 million and $35.5 million for the three months ended March 31, 2023 and 2022, respectively.

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

Investing Activities

Net cash used in investing activities was $118.5 million and $216.0 million for the nine months ended September 30, 2022 and 2021, respectively.

The decrease in cash used in investing activities was primarily a result of reducing our purchases of alternative investments and marketable securities, as well as selling or redeeming certain marketable securities.

Net cash used in investing activities was $1.6 billion and $96.5 million for the three months ended March 31, 2023 and 2022, respectively.

The increase in cash used by investing activities was primarily due to purchases of marketable securities, primarily comprised of U.S.

treasury securities, offset by proceeds from sales and redemptions of marketable securities.

Financing Activities

Net cash provided by financing activities was $71.8 million and $274.3 million for the nine months ended September 30, 2022 and 2021, respectively, each of which primarily consisted of proceeds from the exercise of common stock options offset by the principal payments on borrowings of $200.0 million made during the nine months ended September 30, 2021.

Net cash provided by financing activities was $26.0 million and $27.2 million for the three months ended March 31, 2023 and 2022, respectively, each of which primarily consisted of proceeds from the exercise of common stock options.

Contractual Obligations and Commitments

4 unchanged sentences

Commitments and Contingencies in our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q, there has been no material change in our contractual obligations and commitments other than in the ordinary course of business since our fiscal year ended December 31, 2022.

See our Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the SEC on February 24, 2022, for additional information regarding the Company’s contractual obligations.

See our Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the Securities and Exchange Commission (“SEC”) on February 21, 2023, for additional information regarding the Company’s contractual obligations.

Critical Accounting Policies and Estimates

4 unchanged sentences

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

There have been no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates discussed in the Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the SEC on February 24, 2022.

There have been no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates discussed in the Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the SEC on February 21, 2023, except as described in Note 2.

Significant Accounting Policies to the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Recent Accounting Pronouncements

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis