Palantir Technologies 10-Q 2021-09-30

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM

10-Q

(Mark One)

For the quarterly period ended September 30, 2021

OR

For the transition period from

to

Commission File Number:

001-39540

Palantir Technologies Inc.

(Exact Name of Registrant as Specified in its Charter)

Registrant’s telephone number, including area code: (720)

358-3679

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation

S-T

(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a

non-accelerated

filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule

12b-2

of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule

12b-2

of the Exchange Act). Yes ☐ No ☒

As of November 4, 2021, there

were 1,906,589,959 shares of the registrant’s Class A common stock outstanding,

97,225,971 shares of the registrant’s Class B common stock outstanding, and 1,005,000 shares of the registrant’s Class F common stock outstanding.

TABLE OF CONTENTS

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Palantir Technologies Inc.

Condensed Consolidated Balance Sheets

(in thousands, except per share amounts)

(unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements.

Palantir Technologies Inc.

Condensed Consolidated Statements of Operations

(in thousands, except per share amounts)

(unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements.

Palantir Technologies Inc.

Condensed Consolidated Statements of Comprehensive Loss

(in thousands)

(unaudited)

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The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and the accompanying notes thereto included elsewhere in this Quarterly Report on Form

10-Q.

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 Quarterly Report on Form

10-Q.

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

Overview

We founded the Company in 2003 to build software for use in counterterrorism operations.

In 2008, we released our first platform, Palantir Gotham (“Gotham”), for customers in the intelligence sector. Gotham enables users to identify patterns hidden deep within datasets, ranging from signals intelligence sources to reports from confidential informants.

Defense agencies in the United States then began using Gotham to investigate potential threats and to help protect soldiers from improvised explosive devices. Today, the platform is widely used by government agencies in the United States and its allies. Our software is on the front lines, sometimes literally, and that means so are we.

We later began working with leading companies across industries, including companies in the energy, transportation, financial services, and healthcare sectors. In 2016, we released our second software platform, Palantir Foundry (“Foundry”), to address a common set of challenges that we saw at large companies.

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

In 2017, for example, our partnership with Airbus expanded into a platform for the aviation industry, and today connects data from more than one hundred airlines and 9,000 aircraft around the world.

We believe that every large institution faces challenges that our platforms were designed to address. Our focus in the near term is to build partnerships with institutions that have the leadership necessary to effect structural change within their organizations — to reconstitute their operations around data. Over the long term, we believe that every large institution in the markets we serve is a potential partner.

Our Business

For the three months ended September 30, 2021, we generated $392.1 million in revenue, reflecting a 36% growth rate from the three months ended September 30, 2020, when we generated $289.4 million in revenue. In the nine months ended September 30, 2021, we generated $1.1 billion in revenue, reflecting a 44% growth rate from the nine months ended September 30, 2020, when we generated $770.6 million in revenue.

Our operating results continued to improve when excluding stock-based compensation. In the three months ended September 30, 2021, we incurred losses from operations of $91.9 million, or adjusted income from operations of $116.1 million when excluding stock-based compensation and related employer payroll taxes. In the three months ended September 30, 2020, our losses from operations were $847.8 million, or adjusted income from operations of $73.1 million when excluding stock-based compensation, related employer payroll taxes, and

non-recurring

charges relating to the direct listing of our Class A common stock (“Direct Listing”) on the New York Stock Exchange (“NYSE”). In the nine months ended September 30, 2021, we incurred losses from operations of $352.1 million, or adjusted income from operations of $349.4 million when excluding stock-based compensation and related employer payroll taxes. In the nine months ended September 30, 2020, our losses from operations were $1.0 billion, or adjusted income from operations of $85.7 million when excluding stock-based compensation, related employer payroll taxes, and

non-recurring

charges relating to our Direct Listing.

In the three months ended September 30, 2021, our gross profit was $305.3 million, reflecting a gross margin of 78%, or 82% when excluding stock-based compensation. In the three months ended September 30, 2020, our gross profit was $140.0 million, reflecting a gross margin of 48%, or 81% when excluding stock-based compensation. In the nine months ended September 30, 2021, our gross profit was $857.2 million, reflecting a gross margin of 77%, or 82% when excluding stock-based compensation. In the nine months ended September 30, 2020, our gross profit was $488.5 million, reflecting a gross margin of 63%, or 79% when excluding stock-based compensation.

For more information about our income from operations, when excluding stock-based compensation, related employer payroll taxes, and non-recurring charges related to our Direct Listing; and gross profit and gross margin, when excluding stock-based compensation, as well as reconciliations from loss from operations and gross profit, see the section titled

“Non-GAAP

Reconciliations

” below.

Our Customers

We define a customer to be an organization from which we have recognized revenue during the trailing twelve month period. During the period ended September 30, 2021, we had 203 customers, including leading companies in various commercial sectors as well as government agencies around the world. During the period ended September 30, 2020, we had 142 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. 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 with some of the world’s leading government institutions and companies. Our average revenue per customer during the trailing twelve months ended September 30, 2021 and 2020 was $7.0 million. Our average revenue for the top twenty customers during the trailing twelve months ended September 30, 2021 was $41.3 million, which grew 35% from an average of $30.7 million from the top twenty customers during the trailing twelve months ended September 30, 2020.

Organizations in the commercial and government sectors face similar challenges when it comes to managing data, and we intend to expand our reach in both markets moving forward. In the nine months ended September 30, 2021, commercial customers accounted for 41% of our revenue while government agencies accounted for 59%. In the nine months ended September 30, 2021, we generated 56% of our revenue from customers in the United States and the remaining 44% from customers abroad.

Expansion of Access to Platforms

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

Our software platforms can now be installed and ready for use within hours. 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 a

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We are exposed to market risks in the ordinary course of our business, which primarily relate to fluctuations in the value of our investments, interest rates, foreign exchange, and inflation.

Market Risk

As of September 30, 2021, we had investments valued at $148.1 million in marketable securities. We may continue to make additional investments or sell the existing investments. These investments are often in early or growth stage companies that have minimal public trading history; as such the fair value of these investments may fluctuate depending on the financial outcome and prospects of the investees, as well as global market conditions including recent and ongoing volatility related to the impacts of

COVID-19.

We record gains or losses as the fair value of these investments changes and as we sell them. We anticipate additional volatility to our condensed consolidated statements of operations due to changes in market prices, and as such gains and losses are realized.

During the three and nine months ended September 30, 2021, net unrealized losses of $7.2 million related to marketable securities were recorded in other income (expense), net on the condensed consolidated statements of operations.

Interest Rate Risk

Our cash, cash equivalents, and restricted cash consist of cash, certificates of deposit, and money market funds. Our primary investment policy and strategies are focused on the preservation of capital and supporting our liquidity requirements. Other than the investments disclosed in

Note 4. Investments and Fair Value Measurements

and investment commitments disclosed in

Note

8. Commitments and Contingencies

and

Note

14. Subsequent Events

in our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form

10-Q,

we have not entered into investments for trading or speculative purposes.

Due to the short-term nature of the financial instruments, we have not been exposed to, nor do we anticipate being exposed to, material risks due to changes in interest rates. A hypothetical 10% change in interest rates during any of the periods presented would not have had a material impact on our condensed consolidated financial statements. As of September 30, 2021, we had no debt outstanding.

Foreign Currency Exchange Risk

Our contracts with customers are primarily denominated in U.S. dollars, with a small amount denominated in foreign currencies. Our expenses are generally denominated in the currencies of the jurisdictions in which we conduct our operations, which are primarily in the United States, United Kingdom, and other European countries. Our results of current and future operations and cash flows are, therefore, subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the Euro and GBP. Additionally, fluctuations in foreign currency exchange rates may cause us to recognize transaction gains and losses in our statement of operations. To date, foreign currency transaction gains and losses have not been material to our condensed consolidated financial statements, and we have not engaged in any foreign currency hedging transactions.

Inflation Risk

We do not believe that inflation has had a material effect on our business, results of operations, or financial condition.

Evaluation of Disclosure Controls and Procedures

Our disclosure controls and procedures are designed to ensure that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Our management, with the participation and supervision of our Chief Executive Officer and our Chief Financial Officer, have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules

13a-15(e)

and

15d-15(e)

under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form

10-Q.

Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of such date, our disclosure controls and procedures were, in design and operation, effective at a reasonable assurance level.

Changes in Internal Controls Over Financial Reporting

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule

13a-15(d)

and

15d-15(d)

of the Exchange Act that occurred during the period covered by this Quarterly Report on Form

10-Q

that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on the Effectiveness of Controls

The effectiveness of any system of internal control over financial reporting, including ours, is subject to inherent limitations, including the exercise of judgment in designing, implementing, operating, and evaluating the controls and procedures, and the inability to eliminate misconduct completely. Accordingly, in designing and evaluating the disclosure controls and procedures, management recognizes that any system of internal control over financial reporting, including ours, no matter how well designed and operated, can only provide reasonable, not absolute, assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs. Moreover, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We intend to continue to monitor and upgrade our internal controls as necessary or appropriate for our business but cannot assure you that such improvements will be sufficient to provide us with effective internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS | --- | --- |

From time to time, we are subject to legal proceedings and claims arising in the ordinary course of business. Based on our current knowledge, we believe that the amount or range of reasonably possible losses will not, either individually or in the aggregate, have a material adverse effect on our business, results of operations, or financial condition.

The results of any litigation cannot be predicted with certainty, and an unfavorable resolution in any legal proceedings could materially affect our future business, results of operations, or financial condition. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources, and other factors.

For information on legal proceedings, refer to

Note 8. Commitments and Contingencies—Litigation and Legal Proceedings

in our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form

10-Q.

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Investing in our Class A common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information in this Quarterly Report on Form

10-Q,

including the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our condensed consolidated financial statements and accompanying notes, before making a decision to invest in our Class A common stock. Our business, financial condition, results of operations, or prospects could also be harmed by risks and uncertainties not currently known to us or that we currently do not believe are material. If any of the risks actually occur, our business, financial condition, results of operations, and prospects could be adversely affected. In that event, the trading price of our Class A common stock could decline, and you could lose part or all of your investment.

Risk Factor Summary

Our business is subject to numerous risks and uncertainties that you should consider before investing in our Class A common stock. These risks are described more fully below and include, but are not limited to, risks relating to the following:

Risks Related to Our Business and Industry

We have incurred losses each year since our inception, we expect our operating expenses to increase, and we may not become profitable in the future.

We have incurred losses each year since our inception as reflected in our condensed consolidated statements of operations included elsewhere in this filing, and we may never achieve or maintain profitability. In addition, our operating expenses have increased over time. As we continue to expand our business, industry verticals, and the breadth of our operations, upgrade our infrastructure, hire additional employees, expand into new markets, invest in research and development, invest in sales and marketing, including expanding our sales organization and related sales-based payments that may come with such expansion, lease more real estate to accommodate our anticipated future growth, and incur costs associated with general administration, including expenses related to being a public company, we expect that our costs of revenue and operating expenses will continue to increase. To the extent we are successful in increasing our customer base, we may also incur increased losses because the costs associated with acquiring and growing our customers via our Acquire, Expand, and Scale business model and with research and development are generally incurred upfront, while our revenue from customer contracts is generally recognized over the contract term. Furthermore, our sales model often requ

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Not applicable.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.