Palantir Technologies Inc. 10-K

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the accompanying notes thereto included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements based upon current plans, expectations, and beliefs, involving risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements. You should review the section titled “Special Note Regarding Forward-Looking Statements” for a discussion of forward-looking statements and the section titled “Risk Factors” for a discussion of factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis and elsewhere in this Annual Report on Form 10-K. Our historical results are not necessarily indicative of the results that may be expected for any period in the future. This section of this Annual Report on Form 10-K generally discusses fiscal years 2024 and 2023 items and year-to-year comparisons between fiscal years 2024 and 2023. Discussions of fiscal year 2023 items and year-to-year comparisons between fiscal years 2023 and 2022 that are not included in this Annual Report on Form 10-K can be found in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, which was filed with the SEC on February 20, 2024 and is incorporated herein by reference. Overview We build software that empowers organizations to effectively integrate their data, decisions, and operations at scale. 65 Table of Contents We were founded in 2003 and started building software for the intelligence community in the United States to assist in counterterrorism investigations and operations. We later began working with commercial enterprises, who often faced fundamentally similar challenges in working with data. 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 generative AI models, including large language models (“LLMs”), directly within Gotham and/or Foundry to help operationalize AI on enterprise data. For over a decade, Gotham has surfaced insights for global defense agencies, the intelligence community, disaster relief organizations and beyond. Foundry is becoming a central operating system not only for individual institutions but also for entire industries. Apollo, which we began offering as a commercial solution in 2021, is a cloud-agnostic, single control layer that coordinates ongoing delivery of new features, security updates, and platform configurations, helping to ensure the continuous operation of critical systems. Apollo allows our customers to run their software in virtually any environment. 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 generative AI models, including 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. 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. Our Business Our customers pay us to use the software platforms we have built. While we generally offer contract terms of one to five years in length, our customers sometimes enter into shorter-term contracts. Revenue is generally recognized ratably over the contract term. Many of our customer contracts contain termination for convenience provisions. For the year ended December 31, 2024, we generated $2.9 billion in revenue, reflecting a 29% growth rate from the year ended December 31, 2023, when we generated $2.2 billion in revenue. In the year ended December 31, 2024, we generated income from operations of $310.4 million, or adjusted income from operations of $1.1 billion when excluding stock-based compensation and related employer payroll taxes. In the year ended December 31, 2023, we generated income from operations of $120.0 million, or adjusted income from operations of $632.8 million when excluding stock-based compensation and related employer payroll taxes. In the year ended December 31, 2024, our gross profit was $2.3 billion, reflecting a gross margin of 80%, or 83% when excluding stock-based compensation. In the year ended December 31, 2023, our gross profit was $1.8 billion, reflecting a gross margin of 81%, or 82% when excluding stock-based compensation. For more information about our adjusted income from operations, which excludes stock-based compensation and related employer payroll taxes; and gross profit and gross margin, when excluding stock-based compensation; as well as reconciliations from 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 December 31, 2024, we had 711 customers, including companies in various commercial sectors and government agencies around the world. During the period ended December 31, 2023, we had 497 customers. 66 Table of Contents 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. For example, while the U.S. 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. We have built lasting and significant customer relationships and partnerships with some of the world’s leading government institutions and companies. As of December 31, 2024, we expect to generate revenue from contracts closed during the three months and year ended December 31, 2024 for an additional 4.7 and 3.6 years, respectively, on a dollar-weighted average contract duration basis. Dollar-weighted average contract duration represents the length of time we expect to generate revenue on average, based on the total potential lifetime length and value of contracts entered into with, or awarded by, our customers at the time of contract execution, presuming that our customers will exercise all of the contractual options available to them and no termination of contracts, although many of our contracts are subject to termination provisions, including for convenience, and there can be no guarantee that contracts are not terminated or that contract options will be exercised. We calculate this duration on a dollar-weighted basis to adjust for smaller deals. The timing of our customer billings and receipt of payments varies from contract to contract. Our average revenue for the top twenty customers during the trailing twelve months ended December 31, 2024 was $64.6 million, which grew 18% from an average of $54.6 million in revenue from the top twenty customers during the trailing twelve months ended December 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 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 year ended December 31, 2024, 55% of our revenue came from government customers and 45% came from commercial customers. Our U.S. customers have been a meaningful source of revenue growth for our business. In the year ended December 31, 2024, we generated 66% of our revenue from customers in the United States and the remaining 34% from non-U.S. customers. Revenue from our U.S. customers during the trailing twelve months ended December 31, 2024 was $1.9 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. We continue to believe that our government customers remain a meaningful source of revenue for our business, particularly during periods of economic uncertainty. However, large government customers in particular are generally subject to a number of uncertainties regarding budgets and spending levels, changes in timing and spending priorities, and regulatory and policy changes, which can make it difficult to predict when, or if, we will make sales to such customers or the size and scope of any contract awards. See also the discussion of “ Risks Related to Relationships and Business with the Public Sector” within “ Item 1A. Risk Factors” included in this Annual Report on Form 10-K. Expansion of Access to Platforms 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 believe that, as these new partners grow, we will grow with them. 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. Total Remaining Deal Value We are focused on building strategic relationships with, and delivering significant outcomes for, our customers over the long term. Our contracts with our customers reflect that long-term orientation, often lasting for multiple years at a time. Total remaining deal value is the total remaining value, as of the end of the reporting period, of contracts that have been entered into with, or awarded by, our customers. Total remaining deal value presumes the exercise of all contract options available to our customers and no termination of contracts. However, many of our contracts are subject to termination provisions, including 67 Table of Contents for convenience, and there can be no guarantee that contracts are not terminated or that contract options will be exercised. Further, total remaining deal value may exclude all or some portion of the value of certain commercial contracts as a result of our ongoing assessments of customers’ financial condition, including the consideration of such customers’ ability and intention to pay, and whether such contracts continue to meet the criteria for revenue recognition, among other factors. As of December 31, 2024, the total remaining deal value of the contracts, as defined above, was $5.4 billion, up 40% from December 31, 2023, when our total remaining deal value of such contracts was $3.9 billion. Of our total remaining deal value, as of December 31, 2024, the total remaining deal value of the contracts that we entered into with commercial customers, including existing contractual obligations and available contractual options, as defined above, was $3.1 billion, up 47% from December 31, 2023, when the total remaining deal value of such contracts was $2.1 billion. As of December 31, 2024, the total remaining deal value of the contracts that we had been awarded by government agencies in the United States and allied countries around the world, including existing contractual obligations and contractual options available to those government agencies, was $2.3 billion, up 30% from December 31, 2023, when the total value of such contracts was $1.8 billion. When calculating the total remaining deal value of government contracts, we do not include government contracts known as IDIQ contracts, totaling $3.7 billion, as of December 31, 2024, that we have also been awarded, but where the funding of such contracts has not yet been determined or guaranteed. Many of our government and commercial contracts are subject to termination for convenience provisions. Additionally, the U.S. federal government is prohibited from exercising contract options more than one year in advance. As a result, there can be no guarantee that our customer contracts will not be terminated or that contract options will be exercised. Macroeconomic Trends As a corporation with an international presence, we are subject to risks and uncertainties caused by significant events with macroeconomic impacts, including, but not limited to, 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 Annual Report on Form 10-K for further discussion of the impact of macroeconomic trends on our business. 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. 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, 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. dollars. However, when the U.S. dollar strengthens compared to other currencies (primarily the Euro and GBP), it has had, and could in the future have, an unfavorable impact on our revenues and expenses from certain non-U.S. customers or vendors whose contracts are denominated in currencies other than the U.S. dollar. Additionally, certain of our U.S. and non-U.S. subsidiaries may hold monetary assets and 68 Table of Contents liabilities in currencies other than their functional currency (primarily the 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. dollar. For the year ended December 31, 2024, such impacts were not material to our financial position or results of operations. Customer Impacts Current macroeconomic conditions have impacted, and may continue to adversely impact, our customers’ businesses, 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. Key Business Measure In addition to the measures presented in our consolidated financial statements, we use the following key non-GAAP business measure to help us evaluate our business, identify trends affecting our business, formulate business plans and financial projections, and make strategic decisions. Contribution Margin We believe that the revenue we generate relative to the costs we incur in order to generate such revenue is an important measure of the efficiency of our business. We define contribution margin as revenue less our cost of revenue and sales and marketing expenses, excluding stock-based compensation, divided by revenue. Revenue is allocated to each customer account directly. 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. 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 customers or potential 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. We have included contribution margin because it is a key measure used by our management to evaluate our performance, and we believe that it also provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management team. Our calculation of contribution margin may differ from similarly titled measures, if any, reported by other companies. Contribution margin should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. For more information about contribution margin, including the limitations of this measure, and a reconciliation to income from operations, see the section titled “Non-GAAP Reconciliations” below. Non-GAAP Reconciliations We use the non-GAAP measures contribution margin; gross profit and gross margin, excluding stock-based compensation; and adjusted income from operations, which excludes stock-based compensation 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 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 69 Table of Contents the same manner as our management team. Additionally, we exclude employer payroll taxes related to stock-based compensation as it is difficult to predict and outside of our control. Our definitions may differ from the definitions used by other companies and therefore comparability may be limited. In addition, other companies may not publish these or similar metrics. Further, these metrics have certain limitations, as they do not include the impact of certain expenses that are reflected in our consolidated statements of operations. Thus, our non-GAAP contribution margin; gross profit and gross margin, excluding stock-based compensation; and adjusted income from operations should be considered in addition to, not as a substitute for, or in isolation from, measures prepared in accordance with GAAP. We compensate for these limitations by providing reconciliations of these non-GAAP measures to the most comparable GAAP measures. We encourage investors and others to review our business, results of operations, and financial information in their entirety, not to rely on any single financial measure, and to view these non-GAAP measures in conjunction with the most directly comparable GAAP financial measures. Contribution Margin The following table provides a reconciliation of contribution margin for the years ended December 31, 2024 and 2023 (in thousands, except percentages): Years Ended December 31, 2024 2023 Income from operations $ 310,403 $ 119,966 Add: Research and development expenses (1) 342,813 306,560 General and administrative expenses (1) 375,094 343,126 Total stock-based compensation expense 691,638 475,903 Total contribution $ 1,719,948 $ 1,245,555 Contribution margin 60 % 56 % ———— (1) Excludes stock-based compensation. 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 years ended December 31, 2024 and 2023 (in thousands, except percentages): Years Ended December 31, 2024 2023 Gross profit $ 2,299,517 $ 1,793,907 Add: stock-based compensation 69,065 35,995 Gross profit, excluding stock-based compensation $ 2,368,582 $ 1,829,902 Gross margin, excluding stock-based compensation 83 % 82 % 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 years ended December 31, 2024 and 2023 (in thousands): Years Ended December 31, 2024 2023 Income from operations $ 310,403 $ 119,966 Add: stock-based compensation 691,638 475,903 Add: employer payroll taxes related to stock-based compensation 126,021 36,907 Adjusted income from operations $ 1,128,062 $ 632,776 Adjusted operating margin 39 % 28 % 70 Table of Contents Components of Results of Operations Revenue We generate revenue from the sale of subscriptions to access our software platforms in our hosted environment along with ongoing O&M services (“Palantir Cloud”), software subscriptions in our customers’ environments with ongoing O&M services (“On-Premises Software”), and professional services. Palantir Cloud 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 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. On-Premises Software Sales of our software licenses, primarily term licenses, grant customers the right to use functional intellectual property, either on their internal hardware infrastructure or on their own cloud instance, over the contractual term and are also sold together with stand-ready O&M services. O&M services include critical updates and support and maintenance services required to operate the software and, as such, are necessary for the software to maintain its intended utility over the contractual term. Because of this requirement, we have concluded that the software licenses and O&M services, which together we refer to as our On-Premises Software, are highly interdependent and interrelated and represent a single distinct performance obligation within the context of the contract. Revenue is generally recognized over the contract term on a ratable basis. Professional Services Our professional services support the customers’ use of the software and include, as needed, on-demand user support, user-interface configuration, training, and ongoing ontology and data modeling support. Professional services contracts typically include the provision of on-demand professional services for the duration of the contractual term, which may be coterminous or non-coterminous with a Palantir Cloud subscription or the On-Premises Software. Professional services are on-demand, whereby we perform services throughout the service period; therefore, the revenue is recognized over the related term. Cost of Revenue Cost of revenue primarily includes salaries, stock-based compensation expense, and benefits for personnel involved in performing O&M and professional services, as well as subcontractor expenses, 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. Sales and Marketing 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, 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. Sales and marketing costs are generally expensed as incurred. We expect that sales and marketing expenses will increase in absolute dollars as we continue to invest in our potential and current customers, in growing our business, in our sales force, and in enhancing our brand awareness. Research and Development 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. 71 Table of Contents We plan to continue to invest in personnel to support our research and development efforts. As a result, we expect that research and development expenses will increase in absolute dollars for the foreseeable future as we continue to invest to support these activities. 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, travel costs, 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 continuing compliance and reporting requirements as a public company. Interest Income Interest income consists primarily of interest income earned on our cash, cash equivalents, U.S. Treasury securities, and restricted cash balances. Other Income (Expense), Net Other income (expense), net consists primarily of realized and unrealized losses from equity securities and foreign currency exchange gains and losses. The year ended December 31, 2022 also included a gain from a step acquisition. 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 the share of income (loss) that is not attributable to the Company. Segments 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. Our operating segments are described below: • Commercial: This segment primarily serves customers working in non-government industries. • Government: This segment primarily serves customers that are U.S. government and non-U.S. government agencies. Segment profitability is evaluated based on contribution and contribution margin. Contribution is segment revenue less the related costs of revenue and sales and marketing expenses, excluding stock-based compensation expense. Contribution margin is contribution divided by revenue. 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, or are noncash costs. These noncash or unallocated costs include stock-based compensation expense, research and development costs, and general and administrative costs. 72 Table of Contents Results of Operations The following table summarizes our consolidated statements of operations data (in thousands): Years Ended December 31, 2024 2023 2022 Revenue $ 2,865,507 $ 2,225,012 $ 1,905,871 Cost of revenue 565,990 431,105 408,549 Gross profit 2,299,517 1,793,907 1,497,322 Operating expenses: Sales and marketing 887,755 744,992 702,511 Research and development 507,878 404,624 359,679 General and administrative 593,481 524,325 596,333 Total operating expenses 1,989,114 1,673,941 1,658,523 Income (loss) from operations 310,403 119,966 (161,201) Interest income 196,792 132,572 20,309 Other income (expense), net (18,022) (15,447) (220,135) Income (loss) before provision for income taxes 489,173 237,091 (361,027) Provision for income taxes 21,255 19,716 10,067 Net income (loss) 467,918 217,375 (371,094) Less: Net income attributable to noncontrolling interests 5,728 7,550 2,611 Net income (loss) attributable to common stockholders $ 462,190 $ 209,825 $ (373,705) The following table sets forth the components of our consolidated statements of operations data as a percentage of revenue: Years Ended December 31, 2024 2023 2022 Revenue 100 % 100 % 100 % Cost of revenue 20 19 21 Gross margin 80 81 79 Operating expenses: Sales and marketing 31 34 37 Research and development 18 18 19 General and administrative 20 24 31 Total operating expenses 69 76 87 Income (loss) from operations 11 5 (8) Interest income 7 6 1 Other income (expense), net (1) — (12) Income (loss) before provision for income taxes 17 11 (19) Provision for income taxes 1 1 1 Net income (loss) 16 10 (20) Less: Net income attributable to noncontrolling interests — 1 — Net income (loss) attributable to common stockholders 16 % 9 % (20) % 73 Table of Contents Comparison of the Years Ended December 31, 2024 and 2023 Revenue Years Ended December 31, Change 2024 2023 Amount % Revenue: Government $ 1,569,605 $ 1,222,215 $ 347,390 28 % Commercial 1,295,902 1,002,797 293,105 29 % Total revenue $ 2,865,507 $ 2,225,012 $ 640,495 29 % Revenue increased by $640.5 million, or 29%, for the year ended December 31, 2024 compared to 2023. Revenue from government customers increased by $347.4 million, or 28%, for the year ended December 31, 2024 compared to 2023. Of the increase, $280.7 million was from government customers existing as of December 31, 2023. Revenue from U.S. government customers was $1.2 billion for the year ended December 31, 2024 compared to $921.2 million for the same period in 2023. Revenue from commercial customers increased by $293.1 million, or 29%, for the year ended December 31, 2024 compared to 2023. Of the increase, $190.7 million was from commercial customers existing as of December 31, 2023, including a decrease of $35.0 million of revenue from Strategic Commercial Contracts. Revenue from U.S. commercial customers was $702.3 million for the year ended December 31, 2024 compared to $457.1 million for the same period in 2023, a 54% increase. Generally, increases in revenue from our existing customers are related to the increased adoption of our products and services within their organizations. For additional information on Strategic Commercial Contracts, see Note 4. Investments and Fair Value Measurements in our consolidated financial statements included elsewhere in this Annual Report on Form 10-K. Cost of Revenue and Gross Profit Years Ended December 31, Change 2024 2023 Amount % Cost of revenue $ 565,990 $ 431,105 $ 134,885 31 % Gross profit 2,299,517 1,793,907 505,610 28 % Gross margin 80 % 81 % Cost of revenue for the year ended December 31, 2024 increased by $134.9 million, or 31%, compared to 2023. The increase was primarily due to increases of $56.6 million in subcontractor expenses, $42.3 million in stock-based compensation expense and related expenses, and $37.4 million in third-party cloud hosting services. Our gross margin for the year ended December 31, 2024 decreased from 81% for the same period in 2023 to 80% as a result of the growth of cost of revenue slightly outpacing revenue growth. For additional information related to stock-based compensation expense, see the section titled “Stock-Based Compensation” below. Operating Expenses Years Ended December 31, Change 2024 2023 Amount % Sales and marketing $ 887,755 $ 744,992 $ 142,763 19 % Research and development 507,878 404,624 103,254 26 % General and administrative 593,481 524,325 69,156 13 % Total operating expenses $ 1,989,114 $ 1,673,941 $ 315,173 19 % Sales and Marketing Sales and marketing expenses increased by $142.8 million, or 19%, for the year ended December 31, 2024 compared to 2023. The increase was primarily due to increases of $111.4 million in stock-based compensation expense and related expenses, $13.9 million in third-party cloud hosting services, and $12.9 million in payroll and other payroll-related costs. 74 Table of Contents 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 $103.3 million, or 26%, for the year ended December 31, 2024 compared to 2023. The increase was primarily due to increases of $87.4 million in stock-based compensation expense and related expenses and $17.5 million in third-party cloud hosting services. For additional information related to stock-based compensation expense, see the section titled “Stock-Based Compensation” below. General and Administrative General and administrative expenses increased by $69.2 million, or 13%, for the year ended December 31, 2024 compared to 2023. The increase was primarily due to increases of $63.7 million in stock-based compensation expense and related expenses and $11.6 million in travel costs. For additional information related to stock-based compensation expense, see the section titled “Stock-Based Compensation” below. Stock-Based Compensation Years Ended December 31, Change 2024 2023 Amount % Cost of revenue $ 69,065 $ 35,995 $ 33,070 92 % Sales and marketing 239,121 160,645 78,476 49 % Research and development 165,065 98,064 67,001 68 % General and administrative 218,387 181,199 37,188 21 % Total stock-based compensation expense $ 691,638 $ 475,903 $ 215,735 45 % Stock-based compensation expenses increased by $215.7 million, or 45%, for the year ended December 31, 2024 compared to 2023. The increase was primarily driven by the acceleration of $115.8 million of expense for Market-Vesting SARs upon achieving the applicable market condition, as well as expense from new equity grants awarded since December 31, 2023, including grants for RSUs, P-RSUs, and SARs. These were partially offset by a reduction in expense from equity awards that became fully vested, forfeitures, and lower expense under the accelerated attribution method for RSUs granted prior to September 30, 2020, the date we completed the direct listing of our Class A common stock on the NYSE. Interest Income Years Ended December 31, Change 2024 2023 Amount Interest income $ 196,792 $ 132,572 $ 64,220 Interest income increased by $64.2 million for the year ended December 31, 2024 compared to 2023 primarily due to an increase in our interest-bearing cash, cash equivalents, and investments in short-term U.S. Treasury securities. Other Income (Expense), Net Years Ended December 31, Change 2024 2023 Amount Other income (expense), net $ (18,022) $ (15,447) $ (2,575) Other income (expense), net changed by $2.6 million for the year ended December 31, 2024 compared to 2023 primarily due to an increase in net realized and unrealized losses from our shares held in equity securities. 75 Table of Contents Provision for Income Taxes Years Ended December 31, Change 2024 2023 Amount Provision for income taxes $ 21,255 $ 19,716 $ 1,539 Provision for income taxes increased by $1.5 million for the year ended December 31, 2024 compared to 2023 primarily due to the increased foreign tax expense as the result of higher foreign taxable income and withholding taxes. For additional information see Note 11. Income Taxes in our consolidated financial statements included elsewhere in this Annual Report on Form 10-K. Liquidity and Capital Resources We generated positive cash flow from operations for the year ended December 31, 2024. We had cash, cash equivalents, and short-term U.S. Treasury securities totaling $5.2 billion available as of December 31, 2024. We believe that cash flows generated from operations, available funds, and access to financing sources, including our undrawn 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. While we have generated income from operations and positive cash flows from operations in the year ended December 31, 2024, the amounts may fluctuate for the foreseeable future. As of December 31, 2024, our accumulated deficit balance was $5.2 billion, and our principal sources of liquidity were cash, cash equivalents, and short-term U.S. Treasury securities totaling $5.2 billion. As of December 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 consolidated financial statements included elsewhere in this Annual Report on Form 10-K. During the year ended December 31, 2024, the Company repurchased and subsequently retired 2.1 million shares of its Class A common stock for an aggregate amount, including commissions, of $64.2 million under our Share Repurchase Program. As of December 31, 2024, approximately $935.8 million of the originally authorized amount under our Share Repurchase Program remained available for future repurchases. 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 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 seek additional equity or debt financing on an as needed or opportunistic basis. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. 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 9. Stockholders’ Equity in our consolidated financial statements included elsewhere in this Annual Report on Form 10-K. The following table summarizes our cash flows for the periods indicated (in thousands): Years Ended December 31, 2024 2023 2022 Net cash provided by (used in): Operating activities $ 1,153,865 $ 712,183 $ 223,737 Investing activities (340,655) (2,711,180) (45,427) Financing activities 463,364 218,839 85,996 Effect of foreign exchange on cash, cash equivalents, and restricted cash (6,745) 2,930 (3,885) Net increase (decrease) in cash, cash equivalents, and restricted cash $ 1,269,829 $ (1,777,228) $ 260,421 76 Table of Contents Operating Activities Net cash provided by operating activities was $1.2 billion and $712.2 million for the year ended December 31, 2024 and 2023, respectively. The increase was primarily driven by the growth of our business and timing of payments to vendors. Investing Activities Net cash used in investing activities was $340.7 million and $2.7 billion for the year ended December 31, 2024 and 2023, respectively. The decrease in cash used in investing activities was primarily due to increased proceeds from maturities of short-term U.S. Treasury securities compared to the prior year. Financing Activities Net cash provided by financing activities was $463.4 million and $218.8 million for the year ended December 31, 2024 and 2023, respectively, each of which primarily consisted of proceeds from the exercise of common stock options. During the year ended December 31, 2024, these were partially offset by taxes paid related to the net settlement of SARs and repurchases of Class A common stock. Contractual Obligations and Commitments The following table summarizes our contractual obligations and commitments as of December 31, 2024 (in thousands): Payments Due by Period Total Less than 1 year 1-3 years 3-5 years More than 5 years Noncancelable purchase commitments (1) $ 2,001,637 $ 125,242 $ 419,909 $ 549,986 $ 906,500 Operating lease commitments, net of sublease income amounts (2) 221,829 46,726 67,535 21,522 86,046 Total contractual obligations and commitments $ 2,223,466 $ 171,968 $ 487,444 $ 571,508 $ 992,546 ————— (1) Noncancelable purchase commitments primarily relate to purchase commitments for third-party cloud hosting services and represents only contracts which are enforceable and legally binding. Obligations under contracts that we can cancel without a significant penalty are not included in the table above. Refer to Note 8. Commitments and Contingencies in our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information. (2) The contractual commitment amounts under operating leases in the table above are primarily related to facility and equipment leases. Operating lease commitments are reflected net of $86.2 million of sublease income from tenants in certain of our leased facilities and $68.8 million of imputed interest. Refer to Note 7. Leases in our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information. The contractual obligations and commitments in the table above are associated with agreements that are enforceable and legally binding. Contract Liabilities Our contract liabilities consist of deferred revenue and customer deposits. Deferred revenue represents billings under noncancelable contracts before the related product or service is transferred to the customer. The portion of deferred revenue that is anticipated to be recognized as revenue during the succeeding twelve-month period is recorded as deferred revenue and the remaining portion is recorded as deferred revenue, noncurrent. Customer deposits consist of amounts billed and/or paid for anticipated revenue generating activities in advance of the start of the contractual term or for the portion of a contract term that is subject to cancellation by our customers. The portion of customer deposits that is anticipated to be recognized as revenue during the succeeding twelve-month period is recorded as customer deposits and the remaining portion is recorded as customer deposits, noncurrent. Our deferred revenue and deferred revenue, noncurrent as of December 31, 2024 were $259.6 million and $39.9 million, respectively. Our customer deposits and customer deposits, noncurrent as of December 31, 2024 were $265.3 million and $1.7 million, respectively. Our deferred revenue and deferred revenue, noncurrent as of December 31, 2023 were $246.9 million and $28.0 million, respectively. Our customer deposits and customer deposits, noncurrent as of December 31, 2023 were $209.8 million and $1.5 million, respectively. 77 Table of Contents Critical Accounting Policies and Estimates Our consolidated financial statements and the accompanying notes thereto included elsewhere in this Annual Report on Form 10-K are prepared in accordance with GAAP. The preparation of consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from our estimates. 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. We believe that the accounting policies described below involve a significant degree of judgment and complexity. Accordingly, we believe these are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of operations. For further information, see Note 2. Significant Accounting Policies in our consolidated financial statements included elsewhere in this Annual Report on Form 10-K. Revenue Recognition We generate revenue from the sale of subscriptions to access our software platforms via Palantir Cloud and On-Premises Software, with ongoing O&M services and professional services. In accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers , we recognized revenue upon the transfer of promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for promised goods or services. We apply the following five-step revenue recognition model in accounting for our revenue arrangements: • identification of the contract(s) with the customer, including whether collectability of the consideration is probable by considering the customers’ ability and intention to pay; • identification of the performance obligations in the contract; • determination of the transaction price; • allocation of the transaction price to the performance obligations in the contract; and • recognition of revenue when, or as, we satisfy a performance obligation. Each of our significant performance obligations and our application of ASC 606 to our revenue arrangements is discussed in further detail below. Palantir Cloud Our Palantir Cloud subscriptions grant customers the right to access the software functionality in a hosted environment controlled by Palantir and are also sold together with stand-ready O&M services. We agree to provide continuous access to our hosted software platforms throughout the contract term. Revenue associated with Palantir Cloud subscriptions is generally recognized over the contract term on a ratable basis, which is consistent with the transfer of control of the Palantir Cloud services to the customer. On-Premises Software Sales of our software licenses, primarily term licenses, grant customers the right to use functional intellectual property, either on their internal hardware infrastructure or on their own cloud instance, over the contractual term and are also sold together with stand-ready O&M services. The O&M services include critical updates, support, and maintenance services required to operate our software and, as such, are necessary for our software to maintain its intended utility over the contractual term. Because of this requirement, we have concluded that the software licenses and O&M services, which together we refer to as our On-Premises Software, are highly interdependent and interrelated and represent a single distinct performance obligation within the context of the contract. Revenue is generally recognized over the contract term on a ratable basis. Professional Services Our professional services support the customers’ use of the software platforms and include, as needed, on-demand user support, user-interface configuration, training, and ongoing ontology and data modeling support. Professional services contracts typically include the provision of on-demand professional services for the duration of the contractual term, which may be coterminous or non-coterminous with a Palantir Cloud subscription or the On-Premises Software. Professional services are on-demand, whereby we perform services throughout the service period; therefore, the revenue is recognized over the related term. 78 Table of Contents Areas of Judgment and Estimation Our contracts with customers can include multiple promises to transfer goods or services to the customer. Determining whether promises are distinct performance obligations that should be accounted for separately – or not distinct within the context of the contract and, thus, accounted for together – requires significant judgment. We concluded that the promise to provide a software license is highly interdependent and interrelated with the promise to provide O&M services and such promises are not distinct within the context of our contracts and are accounted for as a single performance obligation for our On-Premises Software. Recent Accounting Pronouncements For information on recently issued accounting pronouncements, if any, refer to Note 2. Significant Accounting Policies in our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.