What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-07 compared with 2023-11-03 · 134 added, 203 removed, 260 unchanged (56% of the section changed)

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We later began working with commercial enterprises, who often faced fundamentally similar challenges in working with data.

We have built three principal software platforms, Gotham, Foundry, and Apollo.

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

We have built four principal software platforms, Gotham, Foundry, Apollo, and our Artificial Intelligence Platform (“AIP”).

Gotham and Foundry enable institutions to transform massive amounts of information into an integrated data asset that reflects their operations, and AIP leverages the power of our existing machine learning technologies alongside large language models (“LLMs”) directly within Gotham and/or Foundry to help connect AI to enterprise data.

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

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

We have deployed our newest offering, the Artificial Intelligence Platform (“AIP”), to select customers, and we are continuing to onboard additional customers to AIP while we develop and release new features and components.

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.

In 2023, we began deploying our newest offering, AIP, which 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 LLMs.

We believe AIP uniquely allows users to connect LLMs and other AI 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.

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Many of our customer contracts contain termination for convenience provisions.

For the three months ended September 30, 2023, we generated $558.2 million in revenue, reflecting a 17% growth rate from the three months ended September 30, 2022, when we generated $477.9 million in revenue.

For the nine months ended September 30, 2023, we generated $1.6 billion in revenue, reflecting a 16% growth rate from the nine months ended September 30, 2022, when we generated $1.4 billion in revenue.

In the three months ended September 30, 2023, we generated income from operations of $40.0 million, or adjusted income from operations of $163.3 million when excluding stock-based compensation and related employer payroll taxes.

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 nine months ended

September 30, 2023, we generated income from operations of $54.2 million, or adjusted income from operations of $423.4 million when excluding stock-based compensation and related employer payroll taxes.

In the nine 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 three months ended September 30, 2023, our gross profit was $450.2 million, reflecting a gross margin of 81%, or 82% when excluding stock-based compensation.

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 nine months ended September 30, 2023, our gross profit was $1.3 billion, reflecting a gross margin of 80%, 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.

For the three months ended March 31, 2024, we generated $634.3 million in revenue, reflecting a 21% growth rate from the three months ended March 31, 2023, when we generated $525.2 million in revenue.

In the three months ended March 31, 2024, we generated income from operations of $80.9 million, or adjusted income from operations of $226.5 million when excluding stock-based compensation and related employer payroll taxes.

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, 2024, our gross profit was $518.1 million, reflecting a gross margin of 82%, or 83% when excluding stock-based compensation.

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.

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, excluding stock-based compensation;

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

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

as well as reconciliations from income 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, 2023, we had 453 customers, including companies in various commercial sectors and government agencies around the world.

During the period ended September 30, 2022, we had 337 customers.

During the period ended March 31, 2024, we had 554 customers, including companies in various commercial sectors and government agencies around the world.

During the period ended March 31, 2023, we had 391 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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Food and Drug Administration, Centers for Disease Control and Prevention, and National Institutes of Health are subsidiary agencies of the U.S.

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.

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

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 September 30, 2023 was $53.7 million, which grew 13% from an average of $47.7 million in revenue from the top twenty customers during the trailing twelve months ended September 30, 2022, demonstrating our expanding relationships with existing customers.

Our average revenue for the top twenty customers during the trailing twelve months ended March 31, 2024 was $55.5 million, which grew 9% from an average of $50.9 million in revenue from the top twenty customers during the trailing twelve months ended March 31, 2023, 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.

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 conduct pilots and bootcamps 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 nine months ended September 30, 2023, 56% of our revenue came from government customers and 44% came from commercial customers.

In the three months ended March 31, 2024, 53% of our revenue came from government customers and 47% came from commercial customers.

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

In the nine months ended September 30, 2023, 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, 2024, 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, 2023 was $1.3 billion, which grew 18% from the prior twelve-month period.

customers during the trailing twelve months ended March 31, 2024 was $1.4 billion, which grew 18% from the prior twelve-month period.

We expect that U.S.

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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.

We anticipate that our reach among an increasingly broad set of customers, in both

the commercial and government sectors, will accelerate moving forward.

We anticipate that our reach among an increasingly broad set of customers, in both the commercial and government sectors, will accelerate moving forward.

We believe that, as these new partners grow, we will grow with them.

We have also made a number of investments in companies whose businesses rely on the ability of their organizations to manage and analyze data effectively at scale.

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

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 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.

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, geopolitical tensions, heightened interest rates, monetary policy changes, and foreign currency fluctuations.

Additionally, these macroeconomic impacts have disrupted, and may continue to disrupt, 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

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

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

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

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

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

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

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

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

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

Russia-Ukraine Conflict

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

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

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

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

Geopolitical Tensions

Our business operations are subject to interruption by events that are beyond our control, including geopolitical tensions.

We continue to closely monitor the impact of various geopolitical tensions and their global impacts on our business.

While the ongoing Russia-Ukraine and Israel conflicts are still evolving and the outcomes remain highly uncertain, we do not expect that the resulting challenging macroeconomic conditions will have a material impact on our business or results of operations.

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

In 2023, we announced partnerships with Ukraine to support its defense and reconstruction efforts and investigations of potential war crimes, among other activities.

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

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

In 2024, we agreed to a strategic partnership with the Israeli Defense Ministry to supply technology to Israel to assist in the ongoing war.

However, our current operations related to Ukraine and Israel are not material to our financial position or results of operations.

If the respective conflicts continue or worsen, leading to greater disruptions and uncertainty within the technology industry or global economy, our business and results of operations could be negatively impacted.

Foreign Currency Exchange Rates

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

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

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

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customers or vendors whose contracts are denominated in currencies other than U.S.

For the nine months ended September 30, 2023, that impact 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.

For the three months ended March 31, 2024 such impacts were not material to our financial position or results of operations.

Customer Impacts

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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.

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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 income (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 from operations, see the section titled “Non-GAAP Reconciliations” below.

Non-GAAP Reconciliations

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Contribution Margin

The following table provides a reconciliation of contribution margin for the three and nine months ended September 30, 2023 and 2022 (in thousands, except percentages):

Three Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

Income (loss) from operations $ 39,983 $ (62,191) $ 54,172 $ (143,375)

The following table provides a reconciliation of contribution margin for the three months ended March 31, 2024 and 2023 (in thousands, except percentages):

Three Months Ended March 31,

Income from operations $ 80,881 $ 4,115

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, 2023 and 2022 (in thousands, except percentages):

Three Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

The following table provides a reconciliation of gross profit and gross margin, excluding stock-based compensation for the three months ended March 31, 2024 and 2023 (in thousands, except percentages):

Three Months Ended March 31,

Gross profit $ 518,082 $ 417,541

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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, 2023 and 2022 (in thousands):

Three Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

Income (loss) from operations $ 39,983 $ (62,191) $ 54,172 $ (143,375)

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, 2024 and 2023 (in thousands):

Three Months Ended March 31,

Income from operations $ 80,881 $ 4,115

stock-based compensation 125,651 114,714

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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 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.

We generate revenue from the sale of subscriptions to access our software platforms 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 agree to provide continuous access to the hosted software throughout the contract term.

We agree to provide continuous access to our 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 field-service representatives, third-party cloud hosting services, travel costs, 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, hardware costs, 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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Our sales and marketing efforts span all stages of our sales cycle, including personnel involved with sales functions, and executing pilots at new or existing customers.

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

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

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

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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 platforms, 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 of third-party cloud hosting services and other IT-related costs, travel costs, and allocated overhead.

Our research and development efforts are aimed at continuing to develop and refine our offerings, including adding new platforms, 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 and products, as well as third-party cloud hosting services and other IT-related costs, travel costs, and allocated overhead.

Research and development costs are expensed as incurred.

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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, travel costs, and allocated overhead.

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.

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 continuing compliance and reporting requirements as a public company.

Interest Income

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treasury securities, and restricted cash balances.

Interest Expense

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

Other Income (Expense), Net

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

Other income (expense), net consists primarily of realized and unrealized losses from equity securities and foreign currency exchange gains and losses.

Provision for Income Taxes

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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.

Net income attributable to noncontrolling interests represents the share of income that is not attributable to the Company.

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.

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To the extent costs of revenue or sales and marketing expenses are not directly attributable to a particular segment, they are allocated based upon headcount at each operating segment during the period.

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 costs.

These noncash or unallocated costs include stock-based compensation expense, research and development costs, and general and administrative 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,

2023 2022 2023 2022

Three Months Ended March 31,

Revenue $ 634,338 $ 525,186

Cost of revenue

116,256 107,645

Gross profit 518,082 417,541

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Sales and marketing

193,177 187,093

Research and development

110,040 90,100

General and administrative

133,984 136,233

Total operating expenses 437,201 413,426

Income (loss) from operations 39,983 (62,191) 54,172 (143,375)

Income from operations

Interest income 43,352 20,853

Interest expense (742) (1,082) (3,334) (2,346)

Other income (expense), net (13,507) (4,136)

Income (loss) before provision for income taxes 79,969 (122,779) 130,844 (398,876)

Income before provision for income taxes

110,726 20,832

Provision for income taxes 4,655 1,681

Net income (loss) 73,439 (123,875) 120,462 (404,583)

106,071 19,151

Net income attributable to noncontrolling interests 541 2,349

Net income (loss) attributable to common stockholders $ 71,505 $ (123,875) $ 116,434 $ (404,583)

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,

Net income attributable to common stockholders

$ 105,530 $ 16,802

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

Three Months Ended March 31,

Revenue 100 % 100 %

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Total operating expenses 69 79

Income (loss) from operations 7 (13) 3 (10)

Income from operations 13 1

Interest income 7 4

Interest expense — — — —

Other income (expense), net (2) (1)

Income (loss) before provision for income taxes 14 (26) 8 (29)

Income before provision for income taxes 18 4

Provision for income taxes 1 —

Net income (loss) 13 (26) 7 (29)

Net income 17 % 4 %

Net income attributable to noncontrolling interests — 1

Net income (loss) attributable to common stockholders 17 % 3 %

Comparison of the Three and Nine Months Ended September 30, 2023 and 2022

Three Months Ended

September 30, Change Nine Months Ended

September 30, Change

2023 2022 Amount % 2023 2022 Amount %

Comparison of the Three Months Ended March 31, 2024 and 2023

Three Months Ended March 31, Change

2024 2023 Amount %

Government $ 335,373 $ 289,070 $ 46,303 16 %

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Total revenue $ 634,338 $ 525,186 $ 109,152 21 %

Revenue increased by $80.3 million, or 17%, for the three months ended September 30, 2023 compared to the same period in 2022.

Revenue from government customers increased by $33.8 million, or 12%, for the three months ended September 30, 2023 compared to the same period in 2022, primarily from customers in the United States.

Of the increase, $26.9 million was from government customers existing as of December 31, 2022.

Revenue from U.S.

government customers was $229.2 million for the three months ended September 30, 2023 compared to $208.9 million for the same period in 2022.

Revenue from commercial customers increased by $46.5 million, or 23%, for the three months ended September 30, 2023 compared to the same period in 2022.

Of the increase, $16.4 million was from customers existing as of December 31, 2022, which included an offsetting decrease of $13.5 million of revenue from Strategic Commercial Contracts.

Revenue increased by $219.4 million, or 16%, for the nine months ended September 30, 2023 compared to the same period in 2022.

Revenue from government customers increased by $119.6 million, or 15%, for the nine months ended September 30, 2023 compared to the same period in 2022, primarily from customers in the United States.

Of the increase, $107.0 million was from government customers existing as of December 31, 2022.

Revenue from U.S.

government customers was $684.0 million for the nine months ended September 30, 2023 compared to $601.6 million for the same period in 2022.

Revenue from commercial customers increased by $99.9 million, or 16%, for the nine months ended September 30, 2023 compared to the same period in 2022.

Of the increase, $49.4 million was from customers existing as of December 31, 2022, which included an offsetting decrease of $31.2 million of revenue from Strategic Commercial Contracts.

Revenue increased by $109.2 million, or 21%, for the three months ended March 31, 2024 compared to the same period in 2023.

Revenue from government customers increased by $46.3 million, or 16%, for the three months ended March 31, 2024 compared to the same period in 2023.

Of the increase, $41.9 million was from existing government customers as of December 31, 2023.

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

For additional information on Strategic Commercial Contracts, see Note 4.

Revenue from U.S.

government customers was $256.7 million for the three months ended March 31, 2024 compared to $229.8 million for the same period in 2023.

Revenue from commercial customers increased by $62.8 million, or 27%, for the three months ended March 31, 2024 compared to the same period in 2023.

Of the increase, $49.5 million was from existing customers as of December 31, 2023, which includes an offsetting decrease of $9.5 million of revenue from Strategic Commercial Contracts.

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 from U.S.

commercial customers was $149.7 million for the three months ended March 31, 2024 compared to $107.1 million for the same period in 2023, a 40% increase.

Cost of Revenue and Gross Profit

Three Months Ended

September 30, Change Nine Months Ended

September 30, Change

2023 2022 Amount % 2023 2022 Amount %

Three Months Ended March 31, Change

2024 2023 Amount %

Cost of revenue $ 116,256 $ 107,645 $ 8,611 8 %

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Gross margin 82 % 80 % 2 %

Cost of revenue for the three months ended September 30, 2023 increased by $0.3 million compared to the same period in 2022.

The increase was primarily due to increases of $4.5 million in third-party cloud hosting services and $3.1 million in payroll and other payroll-related costs.

These increases were partially offset by decreases of $4.3 million in field service representatives, hardware, and other direct costs, as well as $1.8 million in stock-based compensation expense and related expenses.

Our gross margin for the three months ended September 30, 2023 increased from 77% for the same period in 2022 to 81% 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 timing of other direct costs in costs of revenue relative to total expense growth as compared to the prior year.

Cost of revenue for the nine months ended September 30, 2023 increased by $18.2 million, or 6%, compared to the same period in 2022.

The increase was primarily due to increases of $9.4 million in payroll and other payroll-related costs, $5.6 million in hardware costs, $4.7 million in third-party cloud hosting services costs, and $4.4 million in field service representatives.

These increases were partially offset by a decrease of $7.2 million in stock-based compensation expense and related expenses.

Our gross margin for the nine months ended September 30, 2023 increased from 78% 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 in costs of revenue relative to total expense growth as compared to the prior year.

Cost of revenue for the three months ended March 31, 2024 increased by $8.6 million, or 8%, compared to the same period in 2023.

The increase was primarily due to increases of $6.5 million in third-party cloud hosting services, $3.7 million in field service representatives and other direct costs, and $3.2 million for stock-based compensation expense and related expenses.

These increases were partially offset by a decrease of $4.2 million in hardware.

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

Our gross margin for the three months ended March 31, 2024 increased from 80% for the same period in 2023 to 82% as a result of revenue growth outpacing costs of revenue.

The primary cause of this growth rate variation was due to decreases in hardware in cost of revenue and lower growth in third-party cloud hosting relative to revenue growth as compared to the prior year.

Operating Expenses

Three Months Ended

September 30, Change Nine Months Ended

September 30, Change

2023 2022 Amount % 2023 2022 Amount %

Three Months Ended March 31, Change

2024 2023 Amount %

Sales and marketing $ 193,177 $ 187,093 $ 6,084 3 %

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Sales and Marketing

Sales and marketing expenses decreased by $6.5 million, or 4%, for the three months ended September 30, 2023 compared to the same period in 2022.

The decrease was primarily due to decreases of $7.2 million in stock-based compensation expense and related expenses and $4.3 million in marketing costs.

These decreases were partially offset by an increase of $6.5 million in payroll and other payroll-related costs driven by increased headcount attributable to our sales and marketing function.

Sales and marketing expenses increased by $35.4 million, or 7%, for the nine months ended September 30, 2023 compared to the same period in 2022.

The increase was primarily due to increases of $51.2 million in payroll and other payroll-related costs and $17.2 million in travel and office-related costs driven by increased headcount attributable to our sales and marketing function.

These increases were partially offset by decreases of $25.0 million in stock-based compensation expense and related expenses, and $14.8 million in marketing costs.

Sales and marketing expenses increased by $6.1 million, or 3%, for the three months ended March 31, 2024 compared to the same period in 2023.

The increase was primarily due to increases of $7.5 million in stock-based compensation expense and related expenses and $4.8 million in variable compensation, including commissions.

These increases were partially offset by decreases of $5.9 million in payroll and other payroll-related costs driven by a decrease in headcount attributable to our sales and marketing function.

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 $4.8 million, or 5%, for the three months ended September 30, 2023 compared to the same period in 2022.

The increase was primarily due to increases of $3.5 million in third-party cloud hosting services and other IT costs and $2.5 million in payroll and other payroll-related costs driven by increased headcount attributable to our research and development function.

These increases were partially offset by a decrease of $1.9 million in stock-based compensation expense and related expenses.

Research and development expenses increased by $17.7 million, or 6%, for the nine months ended September 30, 2023 compared to the same period in 2022.

The increase was primarily due to increases of $11.6 million in payroll and other payroll-related costs driven by increased headcount attributable to our research and development function, $8.7 million in third-party cloud hosting services and other IT costs, and $5.3 million in office-related costs.

These increases were partially offset by a decrease of $9.1 million in stock-based compensation expense and related expenses.

Research and development expenses increased by $19.9 million, or 22%, for the three months ended March 31, 2024 compared to the same period in 2023.

The increase was primarily due to increases of $11.1 million in stock-based compensation expense and related expenses, $4.7 million in third-party cloud hosting services, and $4.4 million in payroll and other payroll-related costs driven by an increase in headcount attributable to our research and development function.

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

General and Administrative

General and administrative expenses decreased by $20.5 million, or 14%, for the three months ended September 30, 2023 compared to the same period in 2022.

The decrease was primarily due to decreases of $9.3 million in stock-based compensation expense and related expenses and $8.2 million in travel-related costs.

General and administrative expenses decreased by $49.4 million, or 11%, for the nine months ended September 30, 2023 compared to the same period in 2022.

The decrease was primarily due to decreases of $39.3 million in stock-based compensation expense and related expenses, $24.6 million in professional service fees, and $7.7 million in travel-related costs.

These decreases were partially offset by an increase of $15.4 million in payroll and other payroll-related costs.

General and administrative expenses decreased by $2.2 million, or 2%, for the three months ended March 31, 2024 compared to the same period in 2023.

The decrease was primarily due to a decrease of $2.7 million in professional services and $2.6 million in payroll and other payroll-related costs driven by a decrease in headcount attributable to our general and administrative functions.

The decrease was partially offset by an increase of $2.8 million in stock-based compensation expense and related expenses.

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

Stock-Based Compensation

Three Months Ended

September 30, Change Nine Months Ended

September 30, Change

2023 2022 Amount % 2023 2022 Amount %

Three Months Ended March 31, Change

2024 2023 Amount %

Cost of revenue $ 10,416 $ 9,177 $ 1,239 14 %

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Total stock-based compensation expense $ 125,651 $ 114,714 $ 10,937 10 %

Stock-based compensation expenses decreased by $25.9 million and $92.1 million, or 18% and 21%, for the three and nine months ended September 30, 2023, respectively, compared to the same periods in 2022.

The decreases were driven by lower expense under the accelerated attribution method for RSUs granted prior to September 30, 2020, the date of our direct listing, during the three and nine months ended September 30, 2023 compared to the same periods in 2022, as well as lower expense due to options becoming fully vested and the cancellation of options and RSUs.

Stock-based compensation expenses increased by $10.9 million, or 10%, for the three months ended March 31, 2024 compared to the same period in 2023.

The increase was driven by expense from new grants awarded since March 31, 2023, including RSUs, P-RSUs, and SARs, partially offset 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, and the vesting and cancellation of options and RSUs.

Interest Income

Three Months Ended

September 30, Change Nine Months Ended

September 30, Change

2023 2022 Amount 2023 2022 Amount

Three Months Ended March 31, Change

2024 2023 Amount

Interest income $ 43,352 $ 20,853 $ 22,499

Interest income increased by $31.3 million and $80.5 million for the three and nine months ended September 30, 2023, respectively, compared to the same periods in 2022 primarily due to higher U.S.

interest rates and an increase in our interest-bearing cash, cash equivalents, and short-term U.S.

Interest income increased by $22.5 million for the three months ended March 31, 2024 compared to the same period in 2023 primarily due to higher U.S.

interest rates and increases in our interest-bearing cash and cash equivalents, and our investments in short-term U.S.

treasury securities.

Interest Expense

Three Months Ended

September 30, Change Nine Months Ended

September 30, Change

2023 2022 Amount 2023 2022 Amount

Interest expense $ (742) $ (1,082) $ 340 $ (3,334) $ (2,346) $ (988)

There was no material change in interest expense for the three and nine months ended September 30, 2023 compared to the same periods in 2022.

Other Income (Expense), Net

Three Months Ended

September 30, Change Nine Months Ended

September 30, Change

2023 2022 Amount 2023 2022 Amount

Three Months Ended March 31, Change

2024 2023 Amount

Other income (expense), net $ (13,507) $ (4,136) $ (9,371)

Other income (expense), net changed by $68.9 million and $252.7 million for the three and nine months ended September 30, 2023, respectively, compared to the same periods in 2022 primarily due to the net decrease in losses from our shares held in equity securities.

Other income (expense), net changed by $9.4 million for the three months ended March 31, 2024 compared to the same period in 2023 primarily due to an increase in net realized and unrealized losses from our shares held in equity securities.

Provision for Income Taxes

Three Months Ended

September 30, Change Nine Months Ended

September 30, Change

2023 2022 Amount 2023 2022 Amount

Three Months Ended March 31, Change

2024 2023 Amount

Provision for income taxes $ 4,655 $ 1,681 $ 2,974

The provision for income taxes increased by $5.4 million and $4.7 million for the three and nine months ended September 30, 2023, respectively, compared to the same periods in 2022 primarily related to higher foreign income taxes as the result of higher foreign taxable income and higher withholding taxes in the current year.

Provision for income taxes increased by $3.0 million for the three months ended March 31, 2024 compared to the same period in 2023 primarily related to higher foreign income taxes as the result of higher foreign taxable income.

Liquidity and Capital Resources

We generated positive cash flow from operations for the nine months ended September 30, 2023.

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

treasury securities totaling $3.3 billion available as of September 30, 2023.

We generated positive cash flow from operations for the three months ended March 31, 2024.

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

treasury securities totaling $3.9 billion available as of March 31, 2024.

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 historically generated significant losses from our operations as reflected in our condensed consolidated balance sheets and we expect cash flows 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, 2023, our accumulated deficit balance was $5.7 billion, and our principal sources of liquidity were cash and cash equivalents and short-term U.S.

While we have generated income from operations and positive cash flows from operations for the three months ended March 31, 2024, the amounts may fluctuate for the foreseeable future.

As of March 31, 2024, our accumulated deficit balance was $5.5 billion, and our principal sources of liquidity were cash, cash equivalents, and short-term U.S.

treasury securities totaling $3.9 billion.

As of September 30, 2023, we had no outstanding debt balances and available and undrawn revolving commitments of $500.0 million under our credit facility.

As of March 31, 2024, we had no outstanding debt balances and additional available and undrawn revolving commitments of $500.0 million under our credit facility.

For more information, see Note 6.

Debt in our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

In August 2023, the Company’s Board of Directors authorized a stock repurchase program of up to $1.0 billion of the Company’s outstanding shares of Class A common stock (the “Share Repurchase Program”).

The Company has and may continue to repurchase shares of its Class A common stock from time to time through open market purchases, in privately negotiated transactions, or by other means, including through the use of trading plans intended to qualify under Rule 10b5-1 under the Exchange Act in accordance with applicable securities laws and other restrictions.

The timing and the amount of stock repurchases under the Share Repurchase Program will be determined by the Company’s management, based on its evaluation of factors including business and market conditions, corporate and regulatory requirements, and other considerations.

The Share Repurchase Program does not obligate the Company to repurchase any specific number of shares and may be discontinued at any time.

During the three months ended March 31, 2024, the Company repurchased and subsequently retired 0.4 million shares of its Class A common stock for an aggregate amount, including commissions, of $9.0 million under the Share Repurchase Program.

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

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

additionally, we may repurchase shares of our Class A common stock from time to time under our Share Repurchase Program.

additionally, we have, and may in the future, repurchase shares of our Class A common stock from time to time under our Share Repurchase Program.

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

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If additional funds are not available to us on acceptable terms, or at all, our business, financial condition, and results of operations could be adversely affected.

For additional information on our Share

Repurchase Program, see Note 8.

For additional information on our Share Repurchase Program, see Note 8.

Stockholders’ Equity in our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

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):

4 unchanged sentences

(4,024) 2,676

Net increase in cash, cash equivalents, and restricted cash

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

$ (310,442) $ (1,338,556)

Operating Activities

Net cash provided by operating activities was $411.0 million and $145.0 million for the nine months ended September 30, 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.

Net cash provided by operating activities was $129.6 million and $187.4 million for the three months ended March 31, 2024 and 2023, respectively.

The decrease was primarily driven by timing of payments to vendors and timing of the receipt of payments from our customers, partially offset by an increase in interest income.

Investing Activities

Net cash used in investing activities was $2.1 billion and $118.5 million for the nine months ended September 30, 2023 and 2022, respectively.

The increase in cash used in 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.

Net cash used in investing activities was $0.5 billion and $1.6 billion for the three months ended March 31, 2024 and 2023, respectively.

The decrease in cash used in investing activities was primarily due to purchases of marketable securities, primarily comprised of short-term U.S.

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

Financing Activities

Net cash provided by financing activities was $167.6 million and $71.8 million for the nine months ended September 30, 2023 and 2022, respectively, each of which primarily consisted of proceeds from the exercise of common stock options.

Net cash provided by financing activities was $75.2 million and $26.0 million for the three months ended March 31, 2024 and 2023, respectively, each of which primarily consisted of proceeds from the exercise of common stock options partially offset by share repurchases of $9.0 million.

Contractual Obligations and Commitments

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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, 2023.

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.

See our Annual Report on Form 10-K for the year ended December 31, 2023, which was filed with the SEC on February 20, 2024, for additional information regarding the Company’s contractual obligations.

Critical Accounting Policies and Estimates

10 unchanged sentences

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