| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
2023
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
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| Delaware | 68-0551851 | |||||||
(State or other jurisdiction of
| (I.R.S. Employer
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1200 17th Street, Floor 15 Denver, Colorado | 80202 | |||||||
| (Address of principal executive offices) | (Zip Code) | |||||||
Title of each class | Trading
| Name of each exchange
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| Class A Common Stock, par value $0.001 per share | PLTR | New York Stock Exchange | ||||||||||||
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| Large accelerated filer | ☒ | Accelerated filer | ☐ | |||||||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |||||||||||||
| Emerging growth company | ☐ | |||||||||||||||
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning
the impact of the ongoing COVID-19 pandemic, including on our and our customers’, vendors’, and partners’ respective businesses and the markets in which we and our customers, vendors, and partners operate; and
the increased expenses associated with being a public company.
We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q.
You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations, and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, and other factors, including those described in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time and it is not possible for us to predict all risks and uncertainties that could have an impact on any forward-looking statements contained in this Quarterly Report on Form 10-Q. We cannot assure you that the results, events, and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events, or circumstances could differ materially from those described in such forward-looking statements.
Neither we nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. Moreover, the forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, restructurings, joint ventures, partnerships, or investments we may make.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.
| As of September 30, | As of December 31, | |||||||
| 2020 | 2019 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 1,800,190 | $ | 1,079,154 | ||||
Restricted cash | 43,800 | 52,099 | ||||||
Accounts receivable | 162,269 | 50,315 | ||||||
Prepaid expenses and other current assets | 388,165 | 32,585 | ||||||
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Total current assets | 2,394,424 | 1,214,153 | ||||||
Property and equipment, net | 29,369 | 31,589 | ||||||
Restricted cash, noncurrent | 86,343 | 270,709 | ||||||
Other assets | 93,576 | 77,574 | ||||||
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Total assets | $ | 2,603,712 | $ | 1,594,025 | ||||
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Liabilities, Redeemable Convertible and Convertible Preferred Stock, and Stockholders’ Equity (Deficit) |
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Current liabilities: | ||||||||
Accounts payable | $ | 22,221 | $ | 51,735 | ||||
Accrued liabilities | 466,999 | 126,620 | ||||||
Deferred revenue(1) | 172,066 | 186,105 | ||||||
Customer deposits | 280,901 | 364,138 | ||||||
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Total current liabilities | 942,187 | 728,598 | ||||||
Deferred revenue, noncurrent(1) | 67,064 | 77,030 | ||||||
Customer deposits, noncurrent | 102,231 | 167,538 | ||||||
Debt, noncurrent, net | 197,753 | 396,065 | ||||||
Other noncurrent liabilities | 42,724 | 78,205 | ||||||
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Total liabilities | 1,351,959 | 1,447,436 | ||||||
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Commitments and Contingencies (Note 8) | ||||||||
Redeemable convertible preferred stock, $0.001 par value: 0 and 35,002,700 shares authorized as of September 30, 2020 and December 31, 2019, respectively; 0 and 4,017,378 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively; aggregate liquidation preference of $0 and $14,101 as of September 30, 2020 and December 31, 2019, respectively | — | 33,569 | ||||||
Convertible preferred stock, $0.001 par value: 0 and 877,442,966 shares authorized as of September 30, 2020 and December 31, 2019, respectively; 0 and 742,839,990 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively; aggregate liquidation preference of $0 and $2,102,556 as of September 30, 2020 and December 31, 2019, respectively | — | 2,093,662 | ||||||
Stockholders’ equity (deficit): | ||||||||
Preferred stock, par value $0.001: 2,000,000,000 and 0 shares authorized as of September 30, 2020 and December 31, 2019, respectively; 0 shares issued and outstanding as of September 30, 2020 and December 31, 2019 | — | — | ||||||
Common stock, $0.001 par value: 20,000,000,000 and 2,200,000,000 Class A shares authorized as of September 30, 2020 and December 31, 2019, respectively; 1,320,584,721 shares issued and outstanding as of September 30, 2020, and 315,615,753 shares issued and 309,223,182 shares outstanding as of December 31, 2019; 2,700,000,000 and 1,800,000,000 Class B shares authorized as of September 30, 2020 and December 31, 2019, respectively; 405,096,034 and 272,273,934 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively; and 1,005,000 Class F shares authorized, issued, and outstanding as of September 30, 2020, and 0 Class F shares authorized, issued and outstanding as of December 31, 2019 | 1,727 | 588 | ||||||
Additional paid-in capital | 6,065,869 | 1,857,331 | ||||||
Treasury stock, at cost: 0 and 6,392,571 shares held as of September 30, 2020 and December 31, 2019, respectively | — | (38,895 | ) | |||||
Accumulated other comprehensive income (loss) | 1,168 | (703 | ) | |||||
Accumulated deficit | (4,817,011 | ) | (3,798,963 | ) | ||||
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Total stockholders’ equity (deficit) | 1,251,753 | (1,980,642 | ) | |||||
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Total liabilities, redeemable convertible and convertible preferred stock, and stockholders’ equity (deficit) | $ | 2,603,712 | $ | 1,594,025 | ||||
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| As of September 30, | As of December 31, | ||||||||||
| 2023 | 2022 | ||||||||||
| Assets | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 1,040,310 | $ | 2,598,540 | |||||||
| Marketable securities | 2,243,264 | 35,135 | |||||||||
| Accounts receivable, net | 430,269 | 258,346 | |||||||||
| Prepaid expenses and other current assets | 95,554 | 149,556 | |||||||||
| Total current assets | 3,809,397 | 3,041,577 | |||||||||
| Property and equipment, net | 50,133 | 69,170 | |||||||||
| Operating lease right-of-use assets | 190,191 | 200,240 | |||||||||
| Other assets | 143,696 | 150,252 | |||||||||
| Total assets | $ | 4,193,417 | $ | 3,461,239 | |||||||
| Liabilities and Stockholders' Equity | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | 9,475 | $ | 44,788 | |||||||
| Accrued liabilities | 174,753 | 172,715 | |||||||||
| Deferred revenue | 223,507 | 183,350 | |||||||||
| Customer deposits | 228,986 | 141,989 | |||||||||
| Operating lease liabilities | 52,204 | 45,099 | |||||||||
| Total current liabilities | 688,925 | 587,941 | |||||||||
| Deferred revenue, noncurrent | 34,880 | 9,965 | |||||||||
| Customer deposits, noncurrent | 2,234 | 3,936 | |||||||||
| Operating lease liabilities, noncurrent | 184,067 | 204,305 | |||||||||
| Other noncurrent liabilities | 11,414 | 12,655 | |||||||||
| Total liabilities | 921,520 | 818,802 | |||||||||
| Commitments and Contingencies (Note 7) | |||||||||||
| Stockholders’ equity: | |||||||||||
| Common stock, $0.001 par value: 20,000,000 Class A shares authorized as of September 30, 2023 and December 31, 2022; 2,068,689 and 1,995,414 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively; 2,700,000 Class B shares authorized as of September 30, 2023 and December 31, 2022; 105,547 and 102,656 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively; and 1,005 Class F shares authorized, issued, and outstanding as of September 30, 2023 and December 31, 2022 | 2,174 | 2,099 | |||||||||
| Additional paid-in capital | 8,938,050 | 8,427,998 | |||||||||
| Accumulated other comprehensive loss, net | (7,205) | (5,333) | |||||||||
| Accumulated deficit | (5,743,004) | (5,859,438) | |||||||||
| Total stockholders’ equity | 3,190,015 | 2,565,326 | |||||||||
| Noncontrolling interests | 81,882 | 77,111 | |||||||||
| Total equity | 3,271,897 | 2,642,437 | |||||||||
| Total liabilities and equity | $ | 4,193,417 | $ | 3,461,239 | |||||||
Inc.
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
Revenue | $ | 289,366 | $ | 190,541 | $ | 770,582 | $ | 513,197 | ||||||||
Cost of revenue | 149,340 | 65,073 | 282,044 | 166,471 | ||||||||||||
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Gross profit | 140,026 | 125,468 | 488,538 | 346,726 | ||||||||||||
Operating expenses: | ||||||||||||||||
Sales and marketing | 334,911 | 119,666 | 536,082 | 337,255 | ||||||||||||
Research and development | 313,915 | 75,880 | 466,530 | 229,728 | ||||||||||||
General and administrative | 338,977 | 74,062 | 503,033 | 208,736 | ||||||||||||
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Total operating expenses | 987,803 | 269,608 | 1,505,645 | 775,719 | ||||||||||||
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Loss from operations | (847,777 | ) | (144,140 | ) | (1,017,107 | ) | (428,993 | ) | ||||||||
Interest income | 494 | 3,390 | 4,312 | 12,953 | ||||||||||||
Interest expense | (2,085 | ) | (173 | ) | (12,325 | ) | (395 | ) | ||||||||
Change in fair value of warrants | (9,201 | ) | 784 | 811 | 2,743 | |||||||||||
Other income (expense), net | (3,293 | ) | 2,305 | 1,218 | 1,858 | |||||||||||
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Loss before provision (benefit) for income taxes | (861,862 | ) | (137,834 | ) | (1,023,091 | ) | (411,834 | ) | ||||||||
Provision (benefit) for income taxes | (8,543 | ) | 2,026 | (5,043 | ) | 8,485 | ||||||||||
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Net loss | $ | (853,319 | ) | $ | (139,860 | ) | $ | (1,018,048 | ) | $ | (420,319 | ) | ||||
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Net loss per share attributable to common stockholders, basic | $ | (0.94 | ) | $ | (0.24 | ) | $ | (1.43 | ) | $ | (0.73 | ) | ||||
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Net loss per share attributable to common stockholders, diluted | $ | (0.94 | ) | $ | (0.24 | ) | $ | (1.43 | ) | $ | (0.73 | ) | ||||
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Weighted-average shares of common stock outstanding used in computing net loss per share attributable to common stockholders, basic | 905,462,010 | 580,104,846 | 713,879,104 | 574,342,061 | ||||||||||||
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Weighted-average shares of common stock outstanding used in computing net loss per share attributable to common stockholders, diluted | 905,462,010 | 580,104,846 | 716,027,459 | 574,342,061 | ||||||||||||
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| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Revenue | $ | 558,159 | $ | 477,880 | $ | 1,616,662 | $ | 1,397,247 | |||||||||||||||
| Cost of revenue | 107,922 | 107,611 | 322,466 | 304,238 | |||||||||||||||||||
| Gross profit | 450,237 | 370,269 | 1,294,196 | 1,093,009 | |||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Sales and marketing | 176,373 | 182,918 | 547,629 | 512,278 | |||||||||||||||||||
| Research and development | 105,708 | 100,863 | 295,341 | 277,635 | |||||||||||||||||||
| General and administrative | 128,173 | 148,679 | 397,054 | 446,471 | |||||||||||||||||||
| Total operating expenses | 410,254 | 432,460 | 1,240,024 | 1,236,384 | |||||||||||||||||||
| Income (loss) from operations | 39,983 | (62,191) | 54,172 | (143,375) | |||||||||||||||||||
| Interest income | 36,864 | 5,540 | 88,027 | 7,559 | |||||||||||||||||||
| Interest expense | (742) | (1,082) | (3,334) | (2,346) | |||||||||||||||||||
| Other income (expense), net | 3,864 | (65,046) | (8,021) | (260,714) | |||||||||||||||||||
| Income (loss) before provision for income taxes | 79,969 | (122,779) | 130,844 | (398,876) | |||||||||||||||||||
| Provision for income taxes | 6,530 | 1,096 | 10,382 | 5,707 | |||||||||||||||||||
| Net income (loss) | 73,439 | (123,875) | 120,462 | (404,583) | |||||||||||||||||||
| Less: Net income attributable to noncontrolling interests | 1,934 | — | 4,028 | — | |||||||||||||||||||
| Net income (loss) attributable to common stockholders | $ | 71,505 | $ | (123,875) | $ | 116,434 | $ | (404,583) | |||||||||||||||
| Net earnings (loss) per share attributable to common stockholders, basic | $ | 0.03 | $ | (0.06) | $ | 0.05 | $ | (0.20) | |||||||||||||||
| Net earnings (loss) per share attributable to common stockholders, diluted | $ | 0.03 | $ | (0.06) | $ | 0.05 | $ | (0.20) | |||||||||||||||
| Weighted-average shares of common stock outstanding used in computing net earnings (loss) per share attributable to common stockholders, basic | 2,162,530 | 2,073,265 | 2,134,045 | 2,054,926 | |||||||||||||||||||
| Weighted-average shares of common stock outstanding used in computing net earnings (loss) per share attributable to common stockholders, diluted | 2,325,600 | 2,073,265 | 2,281,347 | 2,054,926 | |||||||||||||||||||
Income (Loss)
| Three Months Ended September 30, | Nine Months Ended September 30, 2020 | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
Net loss | $ | (853,319 | ) | $ | (139,860 | ) | $ | (1,018,048 | ) | $ | (420,319 | ) | ||||
Other comprehensive income (loss): | ||||||||||||||||
Foreign currency translation adjustments | 268 | (5,133 | ) | 1,871 | (470 | ) | ||||||||||
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Comprehensive loss | $ | (853,051 | ) | $ | (144,993 | ) | $ | (1,016,177 | ) | $ | (420,789 | ) | ||||
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| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Net income (loss) | $ | 73,439 | $ | (123,875) | $ | 120,462 | $ | (404,583) | |||||||||||||||
| Other comprehensive income (loss) | |||||||||||||||||||||||
| Foreign currency translation adjustments | (2,164) | (3,161) | (1,268) | (7,486) | |||||||||||||||||||
| Net unrealized gain (loss) on available-for-sale securities | 168 | — | (604) | — | |||||||||||||||||||
| Comprehensive income (loss) | 71,443 | (127,036) | 118,590 | (412,069) | |||||||||||||||||||
| Less: Comprehensive income attributable to noncontrolling interests | 1,934 | — | 4,028 | — | |||||||||||||||||||
| Comprehensive income (loss) attributable to common stockholders | $ | 69,509 | $ | (127,036) | $ | 114,562 | $ | (412,069) | |||||||||||||||
thousands)
| Redeemable Convertible Preferred Stock | Convertible Preferred Stock | Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Income | Accumulated Deficit | Total Stockholders’ Equity (Deficit) | ||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||||
Balance as of June 30, 2020 | 4,017,378 | $ | 33,569 | 742,932,765 | $ | 2,094,509 | 736,634,601 | $ | 737 | $ | 2,563,354 | $ | 900 | $ | (3,963,692 | ) | $ | (1,398,701 | ) | |||||||||||||||||||||||||
Issuance of Series D preferred stock upon net exercise of Series D preferred stock warrants | — | — | 2,380,034 | 10,810 | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||
Issuance of common stock upon net exercise of common stock warrants | — | — | — | — | 7,631,329 | 8 | (8 | ) | — | — | — | |||||||||||||||||||||||||||||||||
Issuance of common stock, net of issuance costs | — | — | — | — | 88,279,569 | 88 | 404,591 | — | — | 404,679 | ||||||||||||||||||||||||||||||||||
Conversion of redeemable convertible preferred stock to common stock | (4,017,378 | ) | (33,569 | ) | — | — | 4,017,378 | 4 | 33,565 | — | — | 33,569 | ||||||||||||||||||||||||||||||||
Conversion of convertible preferred stock to common stock | — | — | (745,312,799 | ) | (2,105,319 | ) | 793,725,807 | 794 | 2,104,525 | — | — | 2,105,319 | ||||||||||||||||||||||||||||||||
Conversion of preferred stock warrants to common stock warrants | — | — | — | — | — | — | 31,007 | — | — | 31,007 | ||||||||||||||||||||||||||||||||||
Issuance of common stock from the exercise of stock options | — | — | — | — | 31,747,857 | 32 | 87,175 | — | — | 87,207 | ||||||||||||||||||||||||||||||||||
Issuance of common stock upon vesting of restricted stock units (“RSUs”) | — | — | — | — | 68,149,214 | 68 | (68 | ) | — | — | — | |||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | — | — | — | — | 841,929 | — | — | 841,929 | ||||||||||||||||||||||||||||||||||
Settlement of employee loan accounted for as a modification to stock option | — | — | — | — | (3,500,000 | ) | (4 | ) | (201 | ) | — | — | (205 | ) | ||||||||||||||||||||||||||||||
Other comprehensive income | — | — | — | — | — | — | — | 268 | — | 268 | ||||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | — | — | (853,319 | ) | (853,319 | ) | ||||||||||||||||||||||||||||||||
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Balance as of September 30, 2020 | — | $ | — | — | $ | — | 1,726,685,755 | $ | 1,727 | $ | 6,065,869 | $ | 1,168 | $ | (4,817,011 | ) | $ | 1,251,753 | ||||||||||||||||||||||||||
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| Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Loss, Net | Accumulated Deficit | Total Stockholders’ Equity | Noncontrolling Interests | Total Equity | |||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of June 30, 2023 | 2,149,980 | $ | 2,149 | $ | 8,773,043 | $ | (5,209) | $ | (5,814,509) | $ | 2,955,474 | $ | 79,664 | $ | 3,035,138 | ||||||||||||||||||||||||||||||||
| Issuance of common stock from the exercise of stock options | 10,889 | 11 | 50,545 | — | — | 50,556 | — | 50,556 | |||||||||||||||||||||||||||||||||||||||
| Issuance of common stock upon vesting of restricted stock units (“RSUs”) | 14,372 | 14 | (14) | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | 114,476 | — | — | 114,476 | — | 114,476 | |||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | (1,996) | — | (1,996) | — | (1,996) | |||||||||||||||||||||||||||||||||||||||
| Other, net | — | — | — | — | — | — | 284 | 284 | |||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | 71,505 | 71,505 | 1,934 | 73,439 | |||||||||||||||||||||||||||||||||||||||
| Balance as of September 30, 2023 | 2,175,241 | $ | 2,174 | $ | 8,938,050 | $ | (7,205) | $ | (5,743,004) | $ | 3,190,015 | $ | 81,882 | $ | 3,271,897 | ||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Loss, Net | Accumulated Deficit | Total Stockholders’ Equity | Noncontrolling Interests | Total Equity | |||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2022 | 2,099,075 | $ | 2,099 | $ | 8,427,998 | $ | (5,333) | $ | (5,859,438) | $ | 2,565,326 | $ | 77,111 | $ | 2,642,437 | ||||||||||||||||||||||||||||||||
| Issuance of common stock from the exercise of stock options | 35,332 | 35 | 166,794 | — | — | 166,829 | — | 166,829 | |||||||||||||||||||||||||||||||||||||||
| Issuance of common stock upon vesting of RSUs | 40,834 | 40 | (40) | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | 343,298 | — | — | 343,298 | — | 343,298 | |||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | (1,872) | — | (1,872) | — | (1,872) | |||||||||||||||||||||||||||||||||||||||
| Other, net | — | — | — | — | — | — | 743 | 743 | |||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | 116,434 | 116,434 | 4,028 | 120,462 | |||||||||||||||||||||||||||||||||||||||
| Balance as of September 30, 2023 | 2,175,241 | $ | 2,174 | $ | 8,938,050 | $ | (7,205) | $ | (5,743,004) | $ | 3,190,015 | $ | 81,882 | $ | 3,271,897 | ||||||||||||||||||||||||||||||||
thousands)
| Redeemable Convertible Preferred Stock | Convertible Preferred Stock | Common Stock | Additional Paid-in Capital | Treasury Stock | Accumulated Other Comprehensive Income (Loss) | Accumulated Deficit | Total Stockholders’ Equity (Deficit) | |||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||
Balance as of December 31, 2019 | 4,017,378 | $ | 33,569 | 742,839,990 | $ | 2,093,662 | 581,497,116 | $ | 588 | $ | 1,857,331 | 6,392,571 | $ | (38,895 | ) | $ | (703 | ) | $ | (3,798,963 | ) | $ | (1,980,642 | ) | ||||||||||||||||||||||||||
Conversion of Series H-1 convertible preferred stock to common stock | — | — | (28,490 | ) | (100 | ) | 28,490 | — | 100 | — | — | — | — | 100 | ||||||||||||||||||||||||||||||||||||
Issuance of Series K convertible preferred stock | — | — | 121,265 | 947 | — | —�� | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
Issuance of Series D preferred stock upon net exercise of Series D preferred stock warrants | — | — | 2,380,034 | 10,810 | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
Repurchase of common stock, held in treasury | — | — | — | — | (808,201 | ) | — | — | 808,201 | (3,777 | ) | — | — | (3,777 | ) | |||||||||||||||||||||||||||||||||||
Retirement of treasury stock | — | — | — | — | — | (7 | ) | (42,665 | ) | (7,200,772 | ) | 42,672 | — | — | — | |||||||||||||||||||||||||||||||||||
Issuance of common stock upon net exercise of common stock warrants | — | — | — | — | 7,631,329 | 8 | (8 | ) | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||
Issuance of common stock, net of issuance costs | — | — | — | — | 206,500,523 | 207 | 942,322 | — | — | — | — | 942,529 | ||||||||||||||||||||||||||||||||||||||
Conversion of redeemable convertible preferred stock to common stock | (4,017,378 | ) | (33,569 | ) | — | — | 4,017,378 | 4 | 33,565 | — | — | — | — | 33,569 | ||||||||||||||||||||||||||||||||||||
Conversion of convertible preferred stock to common stock | — | — | (745,312,799 | ) | (2,105,319 | ) | 793,725,807 | 794 | 2,104,525 | — | — | ��� | — | 2,105,319 | ||||||||||||||||||||||||||||||||||||
Conversion of preferred stock warrants to common stock warrants | — | — | — | — | — | — | 31,007 | — | — | — | — | 31,007 | ||||||||||||||||||||||||||||||||||||||
Issuance of common stock from the exercise of stock options | — | — | — | — | 69,444,099 | 69 | 115,961 | — | — | — | — | 116,030 | ||||||||||||||||||||||||||||||||||||||
Issuance of common stock upon vesting of RSUs | — | — | — | — | 68,149,214 | 68 | (68 | ) | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | — | — | — | — | 1,024,000 | — | — | — | — | 1,024,000 | ||||||||||||||||||||||||||||||||||||||
Settlement of employee loan accounted for as a modification to stock option | — | — | — | — | (3,500,000 | ) | (4 | ) | (201 | ) | — | — | — | — | (205 | ) | ||||||||||||||||||||||||||||||||||
Other comprehensive income | — | — | — | — | — | — | — | — | — | 1,871 | — | 1,871 | ||||||||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | — | — | — | — | (1,018,048 | ) | (1,018,048 | ) | ||||||||||||||||||||||||||||||||||||
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Balance as of September 30, 2020 | — | $ | — | — | $ | — | 1,726,685,755 | $ | 1,727 | $ | 6,065,869 | — | $ | — | $ | 1,168 | $ | (4,817,011 | ) | $ | 1,251,753 | |||||||||||||||||||||||||||||
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Palantir Technologies Inc.
Condensed Consolidated Statements of Redeemable Convertible and Convertible Preferred Stock and Stockholders’ Equity (Deficit)
(in thousands, except share amounts)
(unaudited)
| Redeemable Convertible Preferred Stock | Convertible Preferred Stock | Common Stock | Additional Paid-in Capital | Treasury Stock | Accumulated Other Comprehensive Income | Accumulated Deficit | Total Stockholders’ Deficit | |||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||
Balance as of June 30, 2019 | 23,931,624 | $ | — | 745,886,186 | $ | 2,099,054 | 571,702,167 | $ | 577 | $ | 1,727,804 | 5,435,072 | $ | (34,439 | ) | $ | 5,425 | $ | (3,499,776 | ) | $ | (1,800,409 | ) | |||||||||||||||||||||||||||
Issuance of Series H redeemable convertible preferred stock upon exercise of warrants | 2,949,002 | 26,069 | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
Redemption of Series H redeemable convertible preferred stock previously accrued for | (23,931,624 | ) | — | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||
Sale of Series H redeemable convertible preferred stock | 1,068,376 | 7,500 | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
Repurchase of common stock, held in treasury | — | — | — | — | (66,666 | ) | — | — | 66,666 | (327 | ) | — | — | (327 | ) | |||||||||||||||||||||||||||||||||||
Issuance of common stock from the exercise of stock options | — | — | — | — | 1,799,680 | 2 | 1,374 | — | — | — | — | 1,376 | ||||||||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | — | — | — | — | 51,763 | — | — | — | — | 51,763 | ||||||||||||||||||||||||||||||||||||||
Other comprehensive loss | — | — | — | — | — | — | — | — | — | (5,133 | ) | — | (5,133 | ) | ||||||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | — | — | — | — | (139,860 | ) | (139,860 | ) | ||||||||||||||||||||||||||||||||||||
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Balance as of September 30, 2019 | 4,017,378 | $ | 33,569 | 745,886,186 | $ | 2,099,054 | 573,435,181 | $ | 579 | $ | 1,780,941 | 5,501,738 | $ | (34,766 | ) | $ | 292 | $ | (3,639,636 | ) | $ | (1,892,590 | ) | |||||||||||||||||||||||||||
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| Redeemable Convertible Preferred Stock | Convertible Preferred Stock | Common Stock | Additional Paid-in Capital | Treasury Stock | Accumulated Other Comprehensive Income | Accumulated Deficit | Total Stockholders’ Deficit | |||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||
Balance as of December 31, 2018 | 25,947,422 | $ | 172,163 | 742,813,372 | $ | 2,087,560 | 549,367,691 | $ | 570 | $ | 1,627,737 | 20,636,798 | $ | (148,621 | ) | $ | 762 | $ | (3,231,876 | ) | $ | (1,751,428 | ) | |||||||||||||||||||||||||||
Cumulative effect of accounting changes | — | — | — | — | — | — | (34 | ) | — | — | — | 12,559 | 12,525 | |||||||||||||||||||||||||||||||||||||
Issuance of Series H redeemable convertible preferred stock upon exercise of warrants | 2,949,002 | 26,069 | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
Redemption of Series H redeemable convertible preferred stock | (23,931,624 | ) | (168,000 | ) | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Sale of Series H redeemable convertible preferred stock | 1,068,376 | 7,500 | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
Reclassification of Series H redeemable convertible preferred stock into convertible preferred stock upon expiration of redemption option | (2,015,798 | ) | (4,163 | ) | 2,015,798 | 4,163 | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Conversion of Series F convertible stock to common stock | — | — | (10,078 | ) | (20 | ) | 10,078 | — | 20 | — | — | — | — | 20 | ||||||||||||||||||||||||||||||||||||
Issuance of Series D convertible preferred stock upon exercise of warrants | — | — | 1,097,094 | 7,375 | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
Conversion of Series D convertible stock to common stock | — | — | (30,000 | ) | (24 | ) | 30,000 | — | 24 | — | — | — | — | 24 | ||||||||||||||||||||||||||||||||||||
Sale of common stock, held in treasury | — | — | — | — | 16,583,747 | — | (20,928 | ) | (16,583,747 | ) | 120,928 | — | — | 100,000 | ||||||||||||||||||||||||||||||||||||
Repurchase of common stock, held in treasury | — | — | — | — | (1,448,687 | ) | — | — | 1,448,687 | (7,073 | ) | — | — | (7,073 | ) | |||||||||||||||||||||||||||||||||||
Issuance of common stock from the exercise of stock options | — | — | — | — | 8,892,352 | 9 | 9,328 | — | — | — | — | 9,337 | ||||||||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | — | — | — | — | 164,794 | — | — | — | — | 164,794 | ||||||||||||||||||||||||||||||||||||||
Other comprehensive loss | — | — | — | — | — | — | — | — | — | (470 | ) | — | (470 | ) | ||||||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | — | — | — | — | (420,319 | ) | (420,319 | ) | ||||||||||||||||||||||||||||||||||||
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Balance as of September 30, 2019 | 4,017,378 | $ | 33,569 | 745,886,186 | $ | 2,099,054 | 573,435,181 | $ | 579 | $ | 1,780,941 | 5,501,738 | $ | (34,766 | ) | $ | 292 | $ | (3,639,636 | ) | $ | (1,892,590 | ) | |||||||||||||||||||||||||||
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Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Loss Accumulated Deficit Total Stockholders’ Equity Shares Amount Balance as of June 30, 2022 2,062,741 $ 2,063 $ 8,119,876 $ (6,674) $ (5,766,441) $ 2,348,824 Issuance of common stock from the exercise of stock options 4,907 5 24,562 — — 24,567 Issuance of common stock upon vesting of RSUs 12,016 12 (12) — — — Stock-based compensation — — 140,260 — — 140,260 Other comprehensive loss — — — (3,161) — (3,161) Net loss — — — — (123,875) (123,875) Balance as of September 30, 2022 2,079,664 $ 2,080 $ 8,284,686 $ (9,835) $ (5,890,316) $ 2,386,615 Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Loss Accumulated Deficit Total Stockholders’ Equity Shares Amount Balance as of December 31, 2021 2,027,474 $ 2,027 $ 7,777,085 $ (2,349) $ (5,485,733) $ 2,291,030 Issuance of common stock from the exercise of stock options 16,341 17 72,091 — — 72,108 Issuance of common stock upon vesting of RSUs 35,849 36 (36) — — — Stock-based compensation — — 435,546 — — 435,546 Other comprehensive loss — — — (7,486) — (7,486) Net loss — — — — (404,583) (404,583) Balance as of September 30, 2022 2,079,664 $ 2,080 $ 8,284,686 $ (9,835) $ (5,890,316) $ 2,386,615
| Nine Months Ended September 30, | ||||||||
| 2020 | 2019 | |||||||
Operating activities | ||||||||
Net loss | $ | (1,018,048 | ) | $ | (420,319 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation and amortization | 10,308 | 9,450 | ||||||
Stock-based compensation | 1,028,914 | 164,650 | ||||||
Amortization of debt issuance costs | 2,319 | 87 | ||||||
Change in fair value of warrants | (811 | ) | (2,743 | ) | ||||
Loss from equity method investments | 1,439 | — | ||||||
Impairment of assets | 674 | — | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | (112,723 | ) | (96,142 | ) | ||||
Prepaid expenses and other current assets | (16,434 | ) | (8,045 | ) | ||||
Other assets | (14,192 | ) | (6,393 | ) | ||||
Accounts payable | (29,372 | ) | (21,133 | ) | ||||
Accrued liabilities | 33,634 | 12,105 | ||||||
Deferred revenue, current and noncurrent | (30,937 | ) | (226,829 | ) | ||||
Customer deposits, current and noncurrent | (140,162 | ) | 102,100 | |||||
Other noncurrent liabilities | 7,071 | (6,836 | ) | |||||
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Net cash used in operating activities | (278,320 | ) | (500,048 | ) | ||||
Investing activities | ||||||||
Purchases of property and equipment | (7,475 | ) | (10,947 | ) | ||||
Purchase of equity method investment | (2,500 | ) | — | |||||
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Net cash used in investing activities | (9,975 | ) | (10,947 | ) | ||||
Financing activities | ||||||||
Proceeds from the issuance of common stock, net of issuance costs | 942,529 | 100,000 | ||||||
Proceeds from issuance of debt, net of issuance costs | 199,369 | — | ||||||
Principal payments on borrowings | (400,000 | ) | — | |||||
Proceeds from the exercise of common stock options | 79,473 | 9,337 | ||||||
Repurchase of common stock | (3,777 | ) | (7,073 | ) | ||||
Proceeds from the sale of redeemable convertible preferred stock | — | 7,500 | ||||||
Redemption of redeemable convertible preferred stock | — | (168,000 | ) | |||||
Other financing activities | (250 | ) | (1,198 | ) | ||||
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Net cash provided by (used in) financing activities | 817,344 | (59,434 | ) | |||||
Effect of foreign exchange on cash, cash equivalents, and restricted cash | (678 | ) | (2,992 | ) | ||||
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Net increase (decrease) in cash, cash equivalents, and restricted cash | 528,371 | (573,421 | ) | |||||
Cash, cash equivalents, and restricted cash - beginning of period | 1,401,962 | 1,266,835 | ||||||
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Cash, cash equivalents, and restricted cash - end of period | $ | 1,930,333 | $ | 693,414 | ||||
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Palantir Technologies Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
| Nine Months Ended September 30, | ||||||||
| 2020 | 2019 | |||||||
Supplemental disclosures of cash flow information: | ||||||||
Cash paid for income taxes | $ | 9,143 | $ | 1,981 | ||||
Cash paid for interest | 9,737 | — | ||||||
Supplemental disclosures of non-cash investing and financing information: | ||||||||
Conversion of redeemable convertible and convertible preferred stock to common stock | $ | 2,138,988 | $ | — | ||||
Receivable from the exercise of common stock options included in prepaid expenses and other current assets | 36,557 | — | ||||||
Conversion of convertible preferred stock warrants to common stock warrants | 31,007 | — | ||||||
Cashless net exercise of warrants for convertible preferred stock | 10,810 | 7,375 | ||||||
Cashless net exercise of warrants for redeemable convertible preferred stock | — | 26,069 | ||||||
Reclassification of redeemable convertible preferred stock into convertible preferred stock upon expiration of redemption option | — | 4,163 | ||||||
Accrued purchase of property and equipment | 461 | — | ||||||
Nine Months Ended September 30, 2023 2022 Operating activities Net income (loss) $ 120,462 $ (404,583) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 25,382 15,149 Stock-based compensation 343,295 435,400 Noncash operating lease expense 34,810 30,130 Unrealized and realized (gain) loss from marketable securities, net 11,810 260,720 Noncash consideration (34,852) (7,971) Other operating activities (13,328) 9,001 Changes in operating assets and liabilities: Accounts receivable, net (159,752) (154,591) Prepaid expenses and other current assets (75) (4,497) Other assets 1,941 10,490 Accounts payable (32,387) (15,165) Accrued liabilities 2,552 (828) Deferred revenue, current and noncurrent 64,464 (44,912) Customer deposits, current and noncurrent 84,272 44,263 Operating lease liabilities, current and noncurrent (37,767) (27,437) Other noncurrent liabilities 184 (195) Net cash provided by operating activities 411,011 144,974 Investing activities Purchases of property and equipment (10,254) (35,109) Purchases of marketable securities (4,791,670) (124,500) Proceeds from sales and redemption of marketable securities 2,608,898 41,101 Proceeds from sales of alternative investments 51,072 — Net cash used in investing activities (2,141,954) (118,508) Financing activities Proceeds from the exercise of common stock options 166,829 72,108 Other financing activities 778 (269) Net cash provided by financing activities 167,607 71,839 Effect of foreign exchange on cash, cash equivalents, and restricted cash (2,113) (12,470) Net increase (decrease) in cash, cash equivalents, and restricted cash (1,565,449) 85,835 Cash, cash equivalents, and restricted cash - beginning of period 2,627,335 2,366,914 Cash, cash equivalents, and restricted cash - end of period $ 1,061,886 $ 2,452,749
Direct Listing
On September 30, 2020, the Company completed a direct listing of its Class A common stock (the “Direct Listing”) on the New York Stock Exchange (“NYSE”).
In connection with the Direct Listing, on September 22, 2020, the Company filed an amended and restated certificate of incorporation, which became effective on that date. The amended and restated certificate of incorporation authorized the issuance of a total of 20,000,000,000 shares of Class A common stock and 2,700,000,000 shares of Class B common stock, authorized 1,005,000 shares of a new class of common stock (“Class F common stock”) and 2,000,000,000 shares of undesignated preferred stock. In connection with the Direct Listing, Alexander Karp, Stephen Cohen, and Peter Thiel (the “Founders”) each transferred 335,000 shares of their Class B common stock to a voting trust, which were then exchanged for an equivalent number of shares of Class F common stock.
Immediately prior to the filing of the amended and restated certificate of incorporation, all outstanding shares of redeemable convertible preferred stock and convertible preferred stock were converted into 797,743,185 shares of the Company’s Class B common stock, and all of the Company’s outstanding preferred stock warrants were converted into common stock warrants, which resulted in the reclassification of the warrants liability to additional paid-in capital. Subsequent to the filing of the amended and restated certificate of incorporation, there were no shares of redeemable convertible preferred stock or convertible preferred stock outstanding.
Furthermore, upon the occurrence of the Direct Listing, the Company determined that the performance-based vesting condition was satisfied for 68,149,214 restricted stock units (“RSUs”), which resulted in the issuance of an equivalent number of shares of Class A common stock. See further discussion in Note 11. Stock-Based Compensation regarding the cumulative stock-based compensation charge recognized upon the Direct Listing.
Palantir Technologies Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
certain notes required by GAAP on an annual reporting basis. In management’s opinion, the unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the balance sheets and statements of operations, comprehensive loss,income (loss), stockholders’ equity, (deficit), and cash flows for the interim periods, but are not necessarily indicative of the results of operations to be anticipated for the full fiscal year or any future period.
February 21, 2023.
2023, except for the changes noted below.
funds and available-for-sale debt securities.
Palantir Technologies Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the amounts shown in the condensed consolidated statements of cash flows (in thousands):
| As of September 30, | ||||||||
| 2020 | 2019 | |||||||
Cash and cash equivalents | $ | 1,800,190 | $ | 507,319 | ||||
Restricted cash | 43,800 | 72,219 | ||||||
Restricted cash, noncurrent | 86,343 | 113,876 | ||||||
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Total cash, cash equivalents, and restricted cash | $ | 1,930,333 | $ | 693,414 | ||||
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| As of September 30, | |||||||||||
| 2023 | 2022 | ||||||||||
| Cash and cash equivalents | $ | 1,040,310 | $ | 2,411,290 | |||||||
| Restricted cash included in prepaid expenses and other current assets | 3,132 | 20,557 | |||||||||
| Restricted cash included in other assets | 18,444 | 20,902 | |||||||||
| Total cash, cash equivalents, and restricted cash | $ | 1,061,886 | $ | 2,452,749 | |||||||
2022.
The Company relies on the technology, infrastructure, and software applications, including software-as-a-service offerings, of third parties in order to host or operate certain key products and functions of its business.
Recently Adopted Accounting Pronouncements
As of September 30, 2020, the Company qualified as an emerging growth company (“EGC”) under the Jumpstart Our Business Startups Act (“JOBS Act”) which permits the Company an extended transition period for complying with new or revised accounting standards affecting public companies.
Palantir Technologies Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
The Company adopted the following accounting standard during the nine months ended September 30, 2020:
Accounting Standard Update (“ASU”) 2018-13,Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. This standard update modified the disclosure requirements on fair value measurements by removing, modifying, or adding certain disclosures. The ASU eliminated such disclosures as the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy and valuation processes for Level 3 fair value measurements. The ASU adds new disclosure requirements for Level 3 measurements. The Company adopted ASU 2018-13 as of January 1, 2020. The Company’s disclosures related to its Level 3 financial instruments did not materially change for the periods presented. See Note 4. Fair Value Measurements for more information.
Recently Issued Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, Leases (Topic 842), which requires lessees to recognize a right-of-use (“ROU”) asset and lease liability on its condensed consolidated balances sheet for all leases with a term longer than twelve months. Leases will be classified as finance or operating leases, with classification affecting the pattern and classification of expense recognition in the condensed consolidated statements of operation. If the Company loses its EGC status as of December 31, 2020, the new standard will be effective for the Company for its fiscal year beginning January 1, 2020. The Company is currently evaluating the impact of the new standard on its condensed consolidated financial statements and related disclosures; however, the Company believes that, upon adopting the new standard, it will recognize material right-of-use assets and lease liabilities on its condensed consolidated balance sheets associated primarily with real estate related operating leases. The Company intends to adopt the standard using an optional transition method and will not restate comparative periods. The Company does not believe this standard will have a material impact on its condensed consolidated statements of operations.
In June 2016, the FASB amended guidance related to impairment of financial instruments as part of ASU 2016-13,Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which replaces the incurred loss impairment methodology with an expected credit loss model for which a company recognizes an allowance based on the estimate of expected credit loss. If the Company loses its EGC status as of December 31, 2020, the new standard will be effective for the Company for its fiscal year beginning January 1, 2020. The Company is currently evaluating the impact of the new standard on its condensed consolidated financial statements and related disclosures.
In August 2018, the FASB issued ASU 2018-15,Intangibles – Goodwill and Other – Internal-Use Software – (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which requires a customer in a hosting arrangement that is a service contract to follow the internal-use software guidance in ASC 350-40 to determine which implementation costs to capitalize as assets or expense as incurred. If the Company loses its EGC status as of December 31, 2020, the new standard will be effective for the Company for its fiscal year beginning January 1, 2020. The amendments in this ASU can be applied either retrospectively or prospectively to all implementation costs after the date of adoption. The Company is currently evaluating the impact of the new standard on its condensed consolidated financial statements and related disclosures.
In December 2019, the FASB issued ASU 2019-12,Simplifying the Accounting for Income Taxes (Topic 740), which is intended to simplify various aspects related to accounting for income taxes. If the Company loses its EGC status as of December 31, 2020, the new standard will be effective for the Company for its fiscal year beginning January 1, 2021. The Company is currently evaluating the impact of the new standard on its condensed consolidated financial statements and related disclosures.
Palantir Technologies Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
3. Revenue Recognition
Contract Balances
Liabilities
| Nine Months Ended September 30, 2020 | ||||
Balance, beginning of period | $ | 794,811 | ||
Billings and other (1) | 608,033 | |||
Revenue recognized | (770,582 | ) | ||
Refunds accrued or paid to customers | (10,000 | ) | ||
|
|
| ||
Balance, end of period | $ | 622,262 | ||
|
|
| ||
| ||||
(1) Other primarily includes the impact of foreign currency translation. |
| |||
of December 31, 2022 and 2021, respectively.
12 months, 35% as revenue over the subsequent 13 to 36 months, and the remainder thereafter.
Financial instruments consist of cash equivalents, restricted cash, accounts receivable, other assets accounted for at fair value, accounts payable, accrued liabilities, and warrants liability. Cash equivalents, restricted cash, and warrants liability are stated at fair value on a recurring basis. Accounts receivable, accounts payable, and accrued liabilities are stated at their carrying value, which approximates fair value due to the short time to the expected receipt or payment date.
Palantir Technologies Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
The following table presents the Company’s assets and liabilities that are measured at fair value on a recurring and nonrecurring basis and indicatesindicate the fair value hierarchy of the valuation (in thousands):
| As of September 30, 2020 | ||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | |||||||||||||
Assets: | ||||||||||||||||
Cash equivalents: | ||||||||||||||||
Money market funds | $ | 980,254 | $ | 980,254 | $ | — | $ | — | ||||||||
Restricted cash: | ||||||||||||||||
Certificates of deposit | 80,912 | — | 80,912 | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Total | $ | 1,061,166 | $ | 980,254 | $ | 80,912 | $ | — | ||||||||
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| |||||
| As of December 31, 2019 | ||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | |||||||||||||
Assets: | ||||||||||||||||
Cash equivalents: | ||||||||||||||||
Money market funds | $ | 650,498 | $ | 650,498 | $ | — | �� | $ | — | |||||||
Restricted cash: | ||||||||||||||||
Certificates of deposit | 102,904 | — | 102,904 | — | ||||||||||||
Prepaid expenses and other current assets: | ||||||||||||||||
Assets held for sale | 980 | — | — | 980 | ||||||||||||
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| |||||
Total | $ | 754,382 | $ | 650,498 | $ | 102,904 | $ | 980 | ||||||||
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Liabilities: | ||||||||||||||||
Warrants liability | $ | 42,628 | $ | — | $ | — | $ | 42,628 | ||||||||
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Total | $ | 42,628 | $ | — | $ | — | $ | 42,628 | ||||||||
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| |||||
| As of September 30, 2023 | |||||||||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Cash and cash equivalents: | |||||||||||||||||||||||
| Money market funds | $ | 599,605 | $ | 599,605 | $ | — | $ | — | |||||||||||||||
| U.S. treasury securities | 141,946 | — | 141,946 | — | |||||||||||||||||||
| Certificates of deposit | 938 | — | 938 | — | |||||||||||||||||||
| Prepaid expenses and other current assets and other assets: | |||||||||||||||||||||||
| Certificates of deposit | 7,577 | — | 7,577 | — | |||||||||||||||||||
| Marketable securities: | |||||||||||||||||||||||
| U.S. treasury securities | 2,233,198 | — | 2,233,198 | — | |||||||||||||||||||
| Publicly-traded equity securities | 10,066 | 10,066 | — | — | |||||||||||||||||||
| Total | $ | 2,993,330 | $ | 609,671 | $ | 2,383,659 | $ | — | |||||||||||||||
| As of December 31, 2022 | |||||||||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Cash and cash equivalents: | |||||||||||||||||||||||
| Money market funds | $ | 1,149,302 | $ | 1,149,302 | $ | — | $ | — | |||||||||||||||
| Certificates of deposit | 6,791 | — | 6,791 | — | |||||||||||||||||||
| Prepaid expenses and other current assets and other assets: | |||||||||||||||||||||||
| Certificates of deposit | 18,707 | — | 18,707 | — | |||||||||||||||||||
| Marketable securities: | |||||||||||||||||||||||
| Publicly-traded equity securities | 35,135 | 35,135 | — | — | |||||||||||||||||||
| Total | $ | 1,209,935 | $ | 1,184,437 | $ | 25,498 | $ | — | |||||||||||||||
Gross unrealized
| As of September 30, 2023 | |||||||||||||||||||||||
| Amortized Cost | Unrealized Gains | Unrealized Losses | Fair Value | ||||||||||||||||||||
| U.S. treasury securities | $ | 2,375,747 | $ | 123 | $ | (726) | $ | 2,375,144 | |||||||||||||||
| Total debt securities | $ | 2,375,747 | $ | 123 | $ | (726) | $ | 2,375,144 | |||||||||||||||
| Included in cash and cash equivalents | $ | 141,925 | $ | 21 | $ | — | $ | 141,946 | |||||||||||||||
| Included in marketable securities | $ | 2,233,822 | $ | 102 | $ | (726) | $ | 2,233,198 | |||||||||||||||
Warrants Liability
In connection with the completionrecorded as of September 30, 2023. All of the Company’s Direct Listing, allU.S. treasury securities had contractual maturities due within one year.
Immediately prior
For“Investments”). During the year ended December 31, 2019,2022, the warrants liabilityCompany purchased shares for a total investment of $124.5 million. No Investments were purchased under such Investment Agreements during the nine months ended September 30, 2023.
The assumptions used to calculate the warrants liability as of September 29, 2020, the date immediately before the Direct Listing, and December 31, 2019 were as follows:
| September 29, 2020 | December 31, 2019 | |||
Discounts for lack of marketability | — | 20.0% - 28.0% | ||
Fair value of underlying securities | $9.50 | $6.81 - $8.04 | ||
Expected volatility | 66.0% | 66.0% | ||
Dividend rate | — | — | ||
Risk-free interest rate | 0.1% | 1.3% |
The following table sets forth a summary of the changes in the estimated fair value of the Company’s warrants liability (in thousands):
Balance as of December 31, 2019 | $ | 42,628 | ||
Net exercises in the period | (10,810 | ) | ||
Change in fair value of warrants | (811 | ) | ||
Reclassification to additional paid-in capital as a result of conversion of preferred stock warrants to common stock warrants | (31,007 | ) | ||
|
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| ||
Balance as of September 30, 2020 | $ | — | ||
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operations.
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following (in thousands):
| As of September 30, 2020 | As of December 31, 2019 | |||||||
Equity related withholding tax and exercise proceeds receivable | $ | 339,409 | $ | — | ||||
Other prepaid expenses and current assets | 48,756 | 32,585 | ||||||
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|
|
|
|
| |||
Total prepaid expenses and other current assets | $ | 388,165 | $ | 32,585 | ||||
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| |||
Palantir Technologies Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
Property and Equipment, Net
| As of September 30, 2020 | As of December 31, 2019 | |||||||
Leasehold improvements | $ | 88,198 | $ | 93,530 | ||||
Computer equipment, software, and other | 18,722 | 32,757 | ||||||
Furniture and fixtures | 9,596 | 10,753 | ||||||
Construction in progress | 5,817 | 3,161 | ||||||
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| |||
Total property and equipment, gross | 122,333 | 140,201 | ||||||
Less: accumulated depreciation and amortization | (92,964 | ) | (108,612 | ) | ||||
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|
|
| |||
Total property and equipment, net | $ | 29,369 | $ | 31,589 | ||||
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|
|
| |||
| As of September 30, 2023 | As of December 31, 2022 | ||||||||||
| Leasehold improvements | $ | 82,214 | $ | 80,378 | |||||||
| Computer equipment, software, and other | 48,353 | 52,688 | |||||||||
| Furniture and fixtures | 13,725 | 13,010 | |||||||||
| Construction in progress | 1,389 | 5,506 | |||||||||
| Total property and equipment, gross | 145,681 | 151,582 | |||||||||
| Less: accumulated depreciation and amortization | (95,548) | (82,412) | |||||||||
| Total property and equipment, net | $ | 50,133 | $ | 69,170 | |||||||
| As of September 30, 2020 | As of December 31, 2019 | |||||||
Accrued payroll and related expenses(1) | $ | 342,191 | $ | 31,355 | ||||
Accrued other liabilities | 124,808 | 95,265 | ||||||
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| |||
Total accrued liabilities | $ | 466,999 | $ | 126,620 | ||||
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| ||||||||
(1) Includes $302.9 million owed by the Company for equity related employee withholding taxes related to the Direct Listing. |
| |||||||
| As of September 30, 2023 | As of December 31, 2022 | ||||||||||
| Accrued payroll and related expenses | $ | 62,410 | $ | 43,495 | |||||||
| Accrued taxes | 36,479 | 41,326 | |||||||||
| Accrued other liabilities | 75,864 | 87,894 | |||||||||
| Total accrued liabilities | $ | 174,753 | $ | 172,715 | |||||||
Palantir Technologies Japan, K.K.
During November 2019, the Company and SOMPO Holdings, Inc. (“SOMPO”) created a Japanese Kabushiki Kaisha (“K.K.”), Palantir Technologies Japan, K.K. (“Palantir Japan”) to distribute Palantir platforms to the Japanese market. Upon closing of the transaction with SOMPO, the Company purchased a total of 100,000 shares of Palantir Japan common stock for $25.0 million. The shares the Company received in exchange represent a 50% voting interest in Palantir Japan. The remaining 50% of the voting interest is held by SOMPO. The Company’s investment in Palantir Japan is accounted for as an equity method investment as the Company is able to exercise significant influence over, but does not control, the investee. The Company recorded a $25.9 million initial investment in Palantir Japan, of which $0.9 million was related to direct costs incurred in connection with the transaction. The Company’s 50% share of profits or losses generated from Palantir Japan are reported on a quarter lag. The Company recorded $0.5 million and $1.4 million share of losses during the three and nine months ended September 30, 2020.
Palantir Technologies Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
Concurrently with the formation of Palantir Japan, the Company entered into a ten-year license and services agreement with Palantir Japan for a limited non-transferable right to resell the Company’s platforms and use certain of the Company’s trademarks in exchange for $25.0 million and future quarterly royalty payments to be paid based on Palantir Japan’s net revenue. In addition, the Company received a prepayment of $50.0 million to be used toward future services provided by the Company to support the business operations and future deployments of the Company’s platforms by Palantir Japan (“service credit”).
In connection with the license rights sold to Palantir Japan, the Company recorded the receipt of the $25.0 million in deferred revenue which will be recognized over the term of the agreement. The Company recorded the $50.0 million service credit in deferred revenue, which will be utilized on an as-needed basis and expires after five years. In the event there was a dissolution of Palantir Japan in the first five years following its formation, any remaining service credit would be refunded by the Company to Palantir Japan. As of December 31, 2019, Palantir Japan did not utilize any of the outstanding services credit. For the three and nine months ended September 30, 2020, Palantir Japan utilized $0.9 million and $1.9 million, respectively, of the services credit.
7. Debt
2014 Credit Facility
In December 2019, the Company entered into an amendment to themore or less frequently in certain circumstances. The 2014 Credit Facility to includealso allows for an incremental loan facility of additional $150.0 million term loan and secured the credit facility with substantially all of the Company’s assets. Upon entering into this amendment, the Company drew down the $150.0 million term loan and $150.0 million under the existingloans or revolving credit facility. The term loan portion of the 2014 Credit Facility was fully repaid and terminated as of December 31, 2019.
In June 2020, the Company amended the 2014 Credit Facility to include a $150.0 million term loan, extend the maturity date to June 4, 2023, and addloans in an additional lender. Additionally, this amendment increased the requirement to maintain minimum liquidity to $50.0 million, and provided the Company with an option to increase the total commitments byaggregate principal amount up to an additional $200.0 million, subject to the lenders’ approval. All otheramount and upon the terms and conditions remained substantially the sameset forth therein with one or more existing or new lenders upon the effectiveness of the amendment. Upon entering into this amendment,mutual agreement between the Company drew down the total available term loan commitment of $150.0 million.
In July 2020, the Company entered into another amendment to the 2014 Credit Facility, which added an additional lender and provided for an increase of $50.0 million to the revolving credit facility and a $50.0 million term loan. The incremental commitments were provided under the same terms as the existing commitments under the 2014 Credit Facility. During July 2020, the Company drew down the additional available term loan of $50.0 million and repaid the $150.0 million outstanding revolving credit facility.
As of September 30, 2020, the Company had a $200.0 million term loan outstanding under the 2014 Credit Facility and an additional $200.0 million undrawn revolving credit facility available.
Palantir Technologies Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
The 2014 Credit Facility contains customary representations and warranties, and certain financial and nonfinancial covenants, including but not limited to maintaining minimum liquidity of $50.0 million, and certain limitations on liens and indebtedness. The Company was in compliance with all covenants associated with the 2014 Credit Facility as of September 30, 2020.
2019 Credit Facility
On December 31, 2019,2023.
As of December 31, 2019, the Company had $250.0 million outstanding and elected to incur interest at three-month LIBOR plus 2.0%. During June 2020, the outstanding balance was fully repaid and the 2019 Credit Facility was terminated, which released all restrictions on the cash collateral.
The Company’s outstanding debt consisted of the following as of September 30, 2020 and December 31, 2019 (in thousands):
| As of September 30, 2020 | As of December 31, 2019 | |||||||
Principal amount | $ | 200,000 | $ | 400,000 | ||||
Unamortized discount | (2,247 | ) | (3,935 | ) | ||||
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Carrying value of debt | $ | 197,753 | $ | 396,065 | ||||
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8. Commitments and Contingencies
Lease Commitments
As of September 30, 2020, the majority of the Company’s leases were classified as operating. The Company leases office space under noncancelable operating leases with various expiration dates through March 2032. Certain of the Company’s operating leases contain renewal options and rent acceleration clauses. During the three months ended September 30, 2020 and 2019, net rent expense was $8.3 million and $10.4 million, respectively, which includes sublease income of $4.5 million and $3.7 million, respectively. During the nine months ended September 30, 2020 and 2019, net rent expense was $26.8 million and $26.0 million, respectively, and sublease income was $13.9 million and $10.5 million, respectively.
Palantir Technologies Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
Future annual minimum payments under noncancelable operating leases as of September 30, 2020 were as follows (in thousands):
| Operating Lease Commitments | Less: Sublease Income | Net Operating Lease Commitments | ||||||||||
Remainder 2020 | $ | 11,846 | $ | 4,352 | $ | 7,494 | ||||||
2021 | 46,209 | 17,582 | 28,627 | |||||||||
2022 | 44,753 | 18,393 | 26,360 | |||||||||
2023 | 44,015 | 18,288 | 25,727 | |||||||||
2024 | 41,068 | 16,407 | 24,661 | |||||||||
Thereafter | 169,543 | 85,612 | 83,931 | |||||||||
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Total minimum lease payments | $ | 357,434 | $ | 160,634 | $ | 196,800 | ||||||
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Letters of Credit and Guarantees
The Company had irrevocable standby letters of credit and guarantees, including bank guarantees, outstanding in the amounts of $130.1 million and $322.8 million as of September 30, 2020 and December 31, 2019, respectively, which were fully collateralized. The Company is required to maintain these letters of credit and guarantees primarily for the 2019 Credit Facility, operating lease agreements, certain customer contracts, and other guarantees and financing arrangements. As a result of the 2019 Credit Facility being terminated during June 2020, as described in Note 7. Debt, the restricted cash collateral previously required was released. These letters of credit and guarantees had expiration dates through August 2028 as of September 30, 2020 and December 31, 2019.
Purchase Commitments
In December 2019, the Company entered into a minimum annual commitment to purchaseits third-party cloud hosting services of at least $1.49 billion over six contract years, with an optional seventh carryover year, effective beginning January 1, 2020, in exchange for various discounts on such services. If the spend does not meet the minimum annual commitment each year or at the end of the term, the Company is obligated to make a return payment. If the difference is greater than $30.0 million for each of the first three contract years or $50.0 million for each of the contract years thereafter (“relief amounts”),agreements. Under this amendment, the Company has the optiona commitment to pay the respective relief amount for that year for services to be utilized in the future and the excess amount of the difference above the relief amount would be added to the minimum annual commitment of the following yearspend at least $1.95 billion over ten contract years through the end of the contract. As of September 30, 2020, the Company had satisfied $60.0 million of its $126.0 million commitment for the year ending December 31, 2020. If the Company is required2033, as well as certain additional minimum usage commitments, among other things. Any and all previous payment obligations related to pay the $30.0 million relief amount it will be recorded as a prepayment for futuresuch third-party cloud hosting services when due.agreement were terminated concurrently with the signing of this amendment. The difference between the commitment and the amount satisfied will also be added to the Company’s commitment for the contract year ended December 31, 2021.
In June 2020, the Company entered into a commitment to purchase at least $45.0 million of cloud hosting services over a period of five years commencing on Junebeginning October 1, 20202023 and ending on May 31, 2025. If the spend commitment is not met at the end of the term, the Company is obligated to pay the full amount of the outstanding balance (“shortfall payment”). The shortfall payment may be applied as a prepayment against consumption, including to purchase reserved instances, during an additional twelve-month coverage period expiring on May 31, 2026, at which time any unused amount would be forfeited. As of September 30, 2020, the Company had satisfied $1.6 million of its commitment.
Palantir Technologies Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
Litigation and Legal Proceedings
On December 14, 2017, members of KT4 Partners LLC (Managing Member Marc Abramowitz) and Sandra Martin Clark, as trustee for the Marc Abramowitz Irrevocable Trust Number 7 (together, “KT4 Plaintiffs”) filed an action in the Delaware Superior Court against the Company and Disruptive Technology Advisers LLC. The complaint alleges tortious interference with prospective economic advantage and civil conspiracy in connection with a potential sale of stock by the KT4 Plaintiffs to a third party. The KT4 Plaintiffs seek compensatory and punitive damages, interest, fees, and costs.
On August 30, 2019, BTIG, LLC (the “BTIG Plaintiff”), the alleged broker of the potential sale of stock that is the subject of the KT4 Plaintiffs’ December 2017 action, filed an action in the Delaware Superior Court against the Company and Disruptive Technology Advisers LLC. The complaint alleges tortious interference with prospective economic advantage and civil conspiracy in connection with the same potential sale of stock at issue in the KT4 Plaintiffs’ action by a group of sellers purportedly represented by the BTIG Plaintiff to a third party. The BTIG Plaintiff is seeking compensatory and punitive damages, interest, fees, and costs.
The Company believes these lawsuits are without merit and is vigorously defending itself against them. Given the uncertainty of litigation it may be reasonably possible that the Company will incur a loss with regards to these matters; however, it cannot currently estimate a range of possible losses. Accordingly, the Company is unable at this time to estimate the overall effectsif any, that may result from these cases on its financial condition, results of operations, or cash flows.
matters.
Palantir Technologies Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
are generally warranted to be performed in a professional manner and by an adequate staff with knowledge about the products. In the event there is a failure of such warranties, the Company generally is obligated to correct the product or service to conform to the warranty provision as set forth in the applicable SLA, or, if the Company is unable to do so, the customer is entitled to seek a refund of the purchase price of the product and service (generally prorated over the contract term). Due to the absence of historical warranty claims, the Company’s expectations of future claims related to products under warranty continue to be insignificant. The Company has not recorded warranty expense or related accruals as of September 30, 20202023 and December 31, 2019.
2022.
2022.
Contingent Compensation
During 2008, the Company formed a retention plan for certain employees and other service providers that were previously focused on the development
9. Stockholders’Unaudited Condensed Consolidated Financial Statements
During September 2020, the Company filed an amended and restated certificate of incorporation, which became effective on the date of its filing. The amended and restated certificate of incorporation authorized the issuance of a total of 20,000,000,000 shares of Class A common stock, 2,700,000,000 shares of Class B common stock, 1,005,000 shares of Class F common stock, and 2,000,000,000 shares of undesignated preferred stock. Substantially concurrently with the filing and acceptance of the amended and restated certificate of incorporation in connection with the Direct Listing, each of the Founders exchanged 335,000 shares of their Class B common stock for an equivalent number of shares of Class F common stock.
Palantir Technologies Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
ability to control up to 49.999999% of the total voting power of the Company’sCompany's capital stock, so long as the Founders and certain of their affiliates collectively meet a minimum ownership threshold, which was 100.0 million of the Company’sCompany's equity securities as of September 30, 2020.
2023.
During the nine months ended September 30, 2020 the Company sold a total of 206,500,523 shares of its Class A common stock at a price of $4.65 per share, for aggregate proceeds of $942.5 million, net of issuance costs of $17.7 million. Included in these sales were 107,526,881 shares of Class A common stock sold to SOMPO, a partner investor in the Company’s equity method investee, Palantir Japan.
In connection with the Direct Listing in September 2020, all outstanding shares of redeemable convertible preferred stock and convertible preferred stock were converted into 4,017,378 and 793,725,807 shares of Class B common stock, respectively, and 1,005,000 shares of Class B common stock held by the Founders were exchanged for an equal number of shares of Class F common stock.
2023.
| As of September 30, 2020 | As of December 31, 2019 | |||||||||||||||||||||||
| Authorized | Issued | Outstanding | Authorized | Issued | Outstanding | |||||||||||||||||||
Common stock: |
| |||||||||||||||||||||||
Class A | 20,000,000,000 | 1,320,584,721 | 1,320,584,721 | 2,200,000,000 | 315,615,753 | 309,223,182 | ||||||||||||||||||
Class B | 2,700,000,000 | 405,096,034 | 405,096,034 | 1,800,000,000 | 272,273,934 | 272,273,934 | ||||||||||||||||||
Class F | 1,005,000 | 1,005,000 | 1,005,000 | — | — | — | ||||||||||||||||||
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Total | 22,701,005,000 | 1,726,685,755 | 1,726,685,755 | 4,000,000,000 | 587,889,687 | 581,497,116 | ||||||||||||||||||
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Treasury Stock
On April 30, 2020,stock (in thousands):
| As of September 30, 2023 | As of December 31, 2022 | ||||||||||||||||||||||
| Authorized | Issued and Outstanding | Authorized | Issued and Outstanding | ||||||||||||||||||||
| Class A Common Stock | 20,000,000 | 2,068,689 | 20,000,000 | 1,995,414 | |||||||||||||||||||
| Class B Common Stock | 2,700,000 | 105,547 | 2,700,000 | 102,656 | |||||||||||||||||||
| Class F Common Stock | 1,005 | 1,005 | 1,005 | 1,005 | |||||||||||||||||||
| Total | 22,701,005 | 2,175,241 | 22,701,005 | 2,099,075 | |||||||||||||||||||
10. Warrants
and may be discontinued at any time. During the three months ended September 30, 2020, a warrant for 2,586,2082023, the Company did not repurchase any shares of Series D preferred stock with a strike price of $0.7406 was cashless exercised and net settled into 2,380,034 shares of Series D convertible preferred stock. Additionally, a warrant for 7,632,154 shares of Class B common stock with a strike price of $0.001 was cashless exercised and net settled into 7,631,329 shares of Class B common stock.
Upon the effectiveness of the amended and restated certificate of incorporation filed in connection with the Direct Listing, all of the outstanding preferred stock warrants were converted into common stock warrants. As a result of the conversion, the warrants became equity-classified and the warrants liability was reclassified to additional paid-in capital.
Palantir Technologies Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
As of September 30, 2020, warrants outstanding include warrants to purchase 5,211,093 shares of Class B common stock with a strike price of $6.13 per share, and warrants to purchase 814,666 shares of Class B common stock with a strike price of $3.51 per share. The warrants expire in between December 2021 to January 2025.
In addition, the Company has warrants outstanding to purchase up to 13,042,415 shares of Class B common stock that will be automatically net exercised upon a Qualifying IPO, which did not include the Company’s Direct Listing, and only if the valuation of the Company immediately prior to such IPO (“IPO Valuation”) is less than $12.9 billion. These warrants expire in November 2023 and, as of September 30, 2020, were considered not probable of vesting.
11. Stock-Based Compensation
2010 Equity Incentive Plan
In 2010, the Company adopted the 2010 Equity Incentive Plan, as amended from time to time (“Amended 2010 Equity Incentive Plan”, or “2010 Plan”). The 2010 Plan permitted the granting of incentive stock options (“ISOs”), non-statutory stock options (“NSOs”), stock appreciation rights (“SARs”), restricted stock, RSUs, and growth units to eligible participants. Under the 2010 Plan, the exercise price of options granted generally was at least equal to the fair market value of the applicable class of the Company’s common stock on the date of grant. Options and other equity awards become vested and, if applicable, exercisable based on terms determined by the Board of Directors or other plan administrator on the date of grant (or per later modification), which was typically five years for new employees and varies for subsequent grants. Under the 2010 Plan, unless provided otherwise for an applicable award, the vesting and exercisability of awards accelerates by 25% on a change in control, if the award holder remains a service provider as of or immediately prior to such event.
The 2010 Plan was terminated prior to the Company’s Direct Listing, and no additional awards will be granted under the 2010 Plan. However, the 2010 Plan will continue to govern the terms and conditions of the outstanding awards previously granted under the 2010 Plan.
2020 Executive Equity Incentive Plan
In August 2020, the Company’s Board of Directors approved the 2020 Executive Equity Incentive Plan (the “Executive Equity Plan”). The Executive Equity Plan permitted the granting NSOs and RSUs to the Company’s employees, consultants, and directors. A total of 165,900,000 shares of the Company’s Class B common stock were reserved for issuance under the Executive Equity Plan. During August 2020, options to purchase 162,000,000 shares of Class B common stock and restricted stock units covering 3,900,000 shares of the Company’s Class B common stock were granted to certain officers and all were outstanding as of September 30, 2020.
The Executive Equity Plan was terminated prior to the Company’s Direct Listing, and no additional awards will be granted under the Executive Equity Plan. However, the Executive Equity Plan will continue to govern the terms and conditions of the outstanding awards previously granted under the Executive Equity Plan.
2020 Equity Incentive Plan
In September 2020, prior to the Direct Listing, the Company’s Board of Directors approved the 2020 Equity Incentive Plan (“2020 Plan”). The 2020 Plan provides for the grant of ISOs, NSOs, restricted stock, RSUs, SARs, and performance awards to the Company’s employees, directors, and consultants. A total of 150,000,000 shares
Palantir Technologies Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
of the Company’sits Class A common stock are reserved for issuance pursuant to the 2020 Plan. In addition, the number of shares of Class A common stock reserved for issuance under the 2020 Plan includes the number of shares of Class A common stock or Class B common stock subject to awards under the Company’s Amended 2010 Equity Incentive Plan and Executive Equity Plan. Shares of Class B common stock added to the 2020 Plan from the 2010 Plan or Executive Equity Plan are reserved for issuance under the Company’s 2020 Plan as Class A common stock. The number of shares of Class A common stock available for issuance under the 2020 Plan will also include an annual increase on the first day of each fiscal year beginning on January 1, 2022, equal to the least of:
250,000,000 shares of the Company’s Class A common stock;
Five percent (5%) of the outstanding shares of the Company’s common stock as of the last day of the immediately preceding fiscal year; or
such other amount as the administrator of the 2020 Plan determines.
Under the 2020 Plan, the exercise price of options granted is generally at least equal to the fair market value of the Company’s Class A common stock on the date of grant. The term of an ISO generally may not exceed ten years. Additionally, the exercise price of any ISO granted to a 10% stockholder shall not be less than 110% of the estimated fair value of the common stock on the date of grant, and the term of such option grant shall not exceed five years. Options and other equity awards become vested and, if applicable, exercisable based on terms determined by the Board of Directors or an other plan administrator on the date of grant, which is typically five years for new employees and varies for subsequent grants.
Stock Options
| Options Outstanding | Weighted- Average Exercise Price Per Share | Weighted- Average Remaining Contractual Life (years) | Aggregate Intrinsic Value | |||||||||||||
Balance as of December 31, 2019 | 497,441,159 | $ | 4.10 | 5.81 | $ | 975,798 | ||||||||||
Options granted(1) | 397,885,337 | 7.43 | ||||||||||||||
Options exercised | (69,444,099 | ) | 1.67 | |||||||||||||
Options canceled and forfeited(1) | (238,005,542 | ) | 5.95 | |||||||||||||
|
|
| ||||||||||||||
Balance as of September 30, 2020 | 587,876,855 | $ | 5.89 | 7.99 | $ | 2,120,561 | ||||||||||
|
|
| ||||||||||||||
Options vested and exercisable as of September 30, 2020 | 344,033,233 | $ | 3.64 | 5.90 | $ | 2,014,537 | ||||||||||
|
|
| ||||||||||||||
|
| Options Outstanding | Weighted-Average Exercise Price Per Share | Weighted-Average Remaining Contractual Life (years) | Aggregate Intrinsic Value | ||||||||||||||||||||
| Balance as of December 31, 2022 | 326,913 | $ | 8.05 | 8.33 | $ | 272,603 | |||||||||||||||||
| Options exercised | (35,332) | 4.72 | |||||||||||||||||||||
| Options canceled and forfeited | (1,844) | 5.18 | |||||||||||||||||||||
| Balance as of September 30, 2023 | 289,737 | $ | 8.47 | 7.82 | $ | 2,181,036 | |||||||||||||||||
| Options vested and exercisable as of September 30, 2023 | 166,761 | $ | 6.41 | 7.07 | $ | 1,598,629 | |||||||||||||||||
Additionally, as
Palantir Technologies Inc.
Stock Option Modifications
During the nine months ended September 30, 2020, the Company modified 37,451,458 fully vested and outstanding options that were approaching expiration. The extension of the original options was recorded as a stock option modification whereby the incremental fair value of each option was determined at the date of the modification and $9.4 million was immediately recognized related to vested options. The weighted average extended term for the modified options was approximately 0.46 years.
In June 2020, the Company repriced 235,885,337 stock options. As part of the repricing, the original options were canceled and new options were granted with an exercise price of $4.72 per share and a remaining contractual term of ten years. The new options were generally subject to the same service-based vesting schedule as the original options. The repricing was recorded as a stock option modification whereby the incremental fair value of each option was determined at the date of the modification and $74.0 million was immediately recognized related to vested options in June 2020 and an additional $4.5 million was recognized during the three months ended September 30, 2020. As of September 30, 2020, there was remaining incremental fair value of $27.0 million which will be recognized over the remaining requisite service period.
| RSUs Outstanding | Weighted Average Grant Date Fair Value per Share | |||||||
Unvested and outstanding as of December 31, 2019 | 179,494,619 | $ | 6.03 | |||||
RSUs granted | 96,707,758 | 7.49 | ||||||
RSUs vested | (68,149,214 | ) | 6.18 | |||||
RSUs canceled | (8,397,930 | ) | 6.02 | |||||
|
|
| ||||||
Unvested and outstanding at September 30, 2020 | 199,655,233 | $ | 6.69 | |||||
|
|
| ||||||
The performance-based vesting condition for all RSUs was satisfied upon the Company’s Direct Listing, September 30, 2020. Upon such satisfaction, 68,149,214 RSUs, for which the service-based vesting condition was met as of such date, vested and converted into an equivalent number of shares of Class A common stock. As a result, the Company recognized $769.5 million in cumulative stock-based compensation expense using the accelerated attribution method from the grant date. 2023 (in thousands, except per share amounts):
| RSUs Outstanding | Weighted Average Grant Date Fair Value per Share | ||||||||||
| RSUs unvested and outstanding as of December 31, 2022 | 126,426 | $ | 10.07 | ||||||||
| RSUs granted | 14,601 | 9.47 | |||||||||
| RSUs vested and converted to shares | (40,834) | 9.53 | |||||||||
| RSUs canceled | (7,580) | 10.60 | |||||||||
| RSUs unvested and outstanding as of September 30, 2023 | 92,613 | $ | 10.11 | ||||||||
Growth Units
In May 2019, the Company granted growth units which vest upon the satisfaction of both a performance-based vesting condition, which was satisfied upon the Company’s Direct Listing, and a service-based vesting condition. Growth units have a formula used to calculate the number of shares of the Company’s common stock that would be earned by the holder upon the satisfaction of all vesting criteria.
Upon the Direct Listing, the Company recognized $8.4 million in cumulative stock-based compensation expense using the accelerated attribution method from the service start date through the effective date of the Direct
Palantir Technologies Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
Listing. As of September 30, 2020, the total unrecognized stock-based compensation expense related to the 3,582,674 growth units outstanding was $2.4$565.1 million, which the Company expects to recognize over the remainder of the 180-daya weighted-average service period following the Direct Listing. Upon satisfaction of the 180-day service period, the outstanding growth units will fully vest and convert into 1.5 million shares of common stock.
three years.
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
Cost of revenue | $ | 94,385 | $ | 7,183 | $ | 120,285 | $ | 16,520 | ||||||||
Sales and marketing | 263,958 | 15,898 | 322,353 | 56,242 | ||||||||||||
Research and development | 256,769 | 15,031 | 309,698 | 49,137 | ||||||||||||
General and administrative | 231,847 | 13,651 | 276,578 | 42,751 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Total stock-based compensation expense | $ | 846,959 | $ | 51,763 | $ | 1,028,914 | $ | 164,650 | ||||||||
|
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|
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| |||||
Related Party Non-Recourse Note
In November 2016, the Company entered into a non-recourse promissory note to lend an employee director $25.9 million, which was secured by 10,500,000 shares of the Company common stock held by the employee director (“pledged collateral”). Such arrangement was accounted for as a stock option issued to the employee, and the Company recorded the related stock-based compensation expense upon the issuance of the note. The promissory note accrued interest at a rate of 1.5% per annum, compounded semi-annually.
In August 2020, the Company received a payment of $26.6 million for a portion of the principal and accrued interest on the outstanding non-recourse promissory note in the form of 3,500,000 shares of common stock based on the fair market value of the common stock on the date of repayment. The Company forgave the remaining $0.8 million owed under the note, guaranteed the employee director a tax neutrality payment to cover his additional tax liability associated with the transaction, and terminated its security interest in the remaining shares of common stock that were originally pledged as collateral. The forgiveness of the remaining debt and the provision of the tax neutrality payment was accounted for as a modification to the original stock option, and the Company recorded additional stock-based compensation expense of $4.5 million during the three months ended September 30, 2020. As of September 30, 2020, the Company paid $0.8 million in tax neutrality payments and accrued a $4.0 million liability for its estimate of the remaining amount to be paid to the employee director.
12.
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Cost of revenue | $ | 7,814 | $ | 10,525 | $ | 24,995 | $ | 33,413 | |||||||||||||||
| Sales and marketing | 39,290 | 48,824 | 116,956 | 147,501 | |||||||||||||||||||
| Research and development | 21,952 | 25,113 | 65,068 | 76,996 | |||||||||||||||||||
| General and administrative | 45,324 | 55,846 | 136,276 | 177,490 | |||||||||||||||||||
| Total stock-based compensation expense | $ | 114,380 | $ | 140,308 | $ | 343,295 | $ | 435,400 | |||||||||||||||
Palantir Technologies Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted on March 27, 2020 in the United States. The CARES Act and related notices include several significant provisions, including delaying certain payroll tax payments, mandatory transition tax payments under the Tax Cut and Jobs Act, and estimated income tax payments that the Company is deferring to future periods. The CARES Act did not have a material impact on the Company’s financial results, including on its annual estimated effective tax rate or on its liquidity. The Company will continue to monitor and assess the impact the CARES Act and similar legislation in other countries may have on its business and financial results.
13.Unaudited Condensed Consolidated Financial Statements
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
Numerator | ||||||||||||||||
Net loss attributable to common stockholders | $ | (853,319 | ) | $ | (139,860 | ) | $ | (1,018,048 | ) | $ | (420,319 | ) | ||||
Less: Change in fair value attributable to participating securities | — | — | (5,483 | ) | — | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net loss attributable to common stockholders, for diluted net loss per share | $ | (853,319 | ) | $ | (139,860 | ) | $ | (1,023,531 | ) | $ | (420,319 | ) | ||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Denominator | ||||||||||||||||
Weighted-average shares used in computing net loss per share, basic | 905,462,010 | 580,104,846 | 713,879,104 | 574,342,061 | ||||||||||||
|
|
|
|
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|
|
|
|
|
|
| |||||
Weighted-average shares used in computing net loss per share, diluted | 905,462,010 | 580,104,846 | 716,027,459 | 574,342,061 | ||||||||||||
|
|
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|
|
|
|
|
|
|
|
| |||||
Net loss per share | ||||||||||||||||
Net loss per share attributable to common stockholders, basic | $ | (0.94 | ) | $ | (0.24 | ) | $ | (1.43 | ) | $ | (0.73 | ) | ||||
|
|
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|
|
|
|
|
|
| |||||
Net loss per share attributable to common stockholders, diluted | $ | (0.94 | ) | $ | (0.24 | ) | $ | (1.43 | ) | $ | (0.73 | ) | ||||
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| |||||
Palantir Technologies Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
Three Months Ended
September 30,Nine Months Ended
September 30,2023 2022 2023 2022 Numerator Net income (loss) attributable to common stockholders for diluted net earnings (loss) per share $ 71,505 $ (123,875) $ 116,434 $ (404,583) Denominator Weighted-average shares used in computing net earnings (loss) per share: Basic 2,162,530 2,073,265 2,134,045 2,054,926 Effect of dilutive shares 163,070 — 147,302 — Diluted 2,325,600 2,073,265 2,281,347 2,054,926 Net earnings (loss) per share Net earnings (loss) per share attributable to common stockholders: Basic $ 0.03 $ (0.06) $ 0.05 $ (0.20) Diluted $ 0.03 $ (0.06) $ 0.05 $ (0.20)
| As of September 30, | ||||||||
| 2020 | 2019 | |||||||
Redeemable convertible preferred stock | — | 4,017,378 | ||||||
Convertible preferred stock | — | 794,336,186 | ||||||
Warrants to purchase redeemable convertible and convertible preferred stock | — | 21,831,545 | ||||||
Warrants to purchase common stock | 19,068,174 | 993,266 | ||||||
Options and SARs issued and outstanding | 587,976,855 | 470,352,024 | ||||||
RSUs outstanding | 199,655,233 | — | ||||||
Growth units outstanding | 3,582,674 | 22,377,040 | ||||||
|
|
|
| |||||
Total | 810,282,936 | 1,313,907,439 | ||||||
|
|
|
| |||||
14.effect (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Options issued and outstanding | — | 331,121 | 162,000 | 331,121 | |||||||||||||||||||
| RSUs outstanding | 6,941 | 128,182 | 12,032 | 128,182 | |||||||||||||||||||
| Warrants to purchase common stock | 13,042 | 13,042 | 13,042 | 13,042 | |||||||||||||||||||
| Total | 19,983 | 472,345 | 187,074 | 472,345 | |||||||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
Revenue: | ||||||||||||||||
Government | $ | 162,561 | $ | 96,801 | $ | 420,257 | $ | 242,843 | ||||||||
Commercial | 126,805 | 93,740 | 350,325 | 270,354 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Total revenue | $ | 289,366 | $ | 190,541 | $ | 770,582 | $ | 513,197 | ||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
Contribution: | ||||||||||||||||
Government | $ | 93,962 | $ | 23,934 | $ | 226,186 | $ | 46,614 | ||||||||
Commercial | 69,496 | 4,949 | 168,908 | 35,619 | ||||||||||||
|
|
|
|
|
|
|
|
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|
|
| |||||
Total segment contribution | $ | 163,458 | $ | 28,883 | $ | 395,094 | $ | 82,233 | ||||||||
|
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|
|
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| |||||
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||
| Government | $ | 307,603 | $ | 273,834 | $ | 898,178 | $ | 778,622 | |||||||||||||||
| Commercial | 250,556 | 204,046 | 718,484 | 618,625 | |||||||||||||||||||
| Total revenue | $ | 558,159 | $ | 477,880 | $ | 1,616,662 | $ | 1,397,247 | |||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Contribution: | |||||||||||||||||||||||
| Government | $ | 185,867 | $ | 153,552 | $ | 526,330 | $ | 447,004 | |||||||||||||||
| Commercial | 135,101 | 93,148 | 362,188 | 314,641 | |||||||||||||||||||
| Total contribution | $ | 320,968 | $ | 246,700 | $ | 888,518 | $ | 761,645 | |||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
Loss from operations | $ | (847,777 | ) | $ | (144,140 | ) | $ | (1,017,107 | ) | $ | (428,993 | ) | ||||
Research and development expenses(1) | 57,146 | 60,849 | 156,832 | 180,591 | ||||||||||||
General and administrative expenses(1) | 107,130 | 60,411 | 226,455 | 165,985 | ||||||||||||
Stock-based compensation expense | 846,959 | 51,763 | 1,028,914 | 164,650 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Segment contribution | $ | 163,458 | $ | 28,883 | $ | 395,094 | $ | 82,233 | ||||||||
|
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|
|
|
|
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| |||||
|
| 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) | |||||||||||||||
Research and development expenses (1) | 83,756 | 75,750 | 230,273 | 200,639 | |||||||||||||||||||
General and administrative expenses (1) | 82,849 | 92,833 | 260,778 | 268,981 | |||||||||||||||||||
| Total stock-based compensation expense | 114,380 | 140,308 | 343,295 | 435,400 | |||||||||||||||||||
| Total contribution | $ | 320,968 | $ | 246,700 | $ | 888,518 | $ | 761,645 | |||||||||||||||
| Three Months Ended September 30, | ||||||||||||||||
| 2020 | 2019 | |||||||||||||||
| Amount | % | Amount | % | |||||||||||||
Revenue: | ||||||||||||||||
United States | $ | 156,336 | 54 | % | $ | 79,185 | 42 | % | ||||||||
United Kingdom | 35,432 | 12 | % | 29,765 | 16 | % | ||||||||||
France | 23,214 | 8 | % | 16,930 | 9 | % | ||||||||||
Rest of world(1) | 74,384 | 26 | % | 64,661 | 33 | % | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Total revenue | $ | 289,366 | 100 | % | $ | 190,541 | 100 | % | ||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Three Months Ended
September 30,Nine Months Ended
September 30,2023 2022 2023 2022 Amount % Amount % Amount % Amount % Revenue: United States $ 345,479 62 % $ 296,650 62 % $ 1,010,336 62 % $ 859,786 62 % United Kingdom 64,390 11 % 59,435 12 % 177,198 11 % 161,477 11 % 148,290 27 % 121,795 26 % 429,128 27 % 375,984 27 % Total revenue $ 558,159 100 % $ 477,880 100 % $ 1,616,662 100 % $ 1,397,247 100 %
| Nine Months Ended September 30, | ||||||||||||||||
| 2020 | 2019 | |||||||||||||||
| Amount | % | Amount | % | |||||||||||||
Revenue: | ||||||||||||||||
United States | $ | 391,106 | 51 | % | $ | 197,351 | 38 | % | ||||||||
United Kingdom | 94,440 | 12 | % | 89,384 | 17 | % | ||||||||||
France | 78,572 | 10 | % | 50,222 | 10 | % | ||||||||||
Rest of world(1) | 206,464 | 27 | % | 176,240 | 35 | % | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Total revenue | $ | 770,582 | 100 | % | $ | 513,197 | 100 | % | ||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
| Weighted average useful life | As of September 30, 2023 | As of December 31, 2022 | |||||||||||||||||||||||||||||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | ||||||||||||||||||||||||||||||||||||
| Customer relationships | 4.08 | $ | 10,400 | $ | (1,907) | $ | 8,493 | $ | 10,400 | $ | (347) | $ | 10,053 | ||||||||||||||||||||||||||||
| Reacquired rights | 6.08 | 17,619 | (2,306) | 15,313 | 17,619 | (420) | 17,199 | ||||||||||||||||||||||||||||||||||
| Backlog | 1.08 | 6,700 | (3,071) | 3,629 | 6,700 | (558) | 6,142 | ||||||||||||||||||||||||||||||||||
| Other | 0.52 | 4,224 | (3,347) | 877 | 5,717 | (3,572) | 2,145 | ||||||||||||||||||||||||||||||||||
| Total intangible assets | $ | 38,943 | $ | (10,631) | $ | 28,312 | $ | 40,436 | $ | (4,897) | $ | 35,539 | |||||||||||||||||||||||||||||
| Year ended December 31, | Amount | ||||
| Remainder of 2023 | $ | 2,410 | |||
| 2024 | 7,844 | ||||
| 2025 | 4,597 | ||||
| 2026 | 4,597 | ||||
| 2027 | 4,250 | ||||
| Thereafter | 4,614 | ||||
| Total | $ | 28,312 | |||
|
operations. We later began working with beyond. Foundry is becoming a central operating system not only for individual institutions but also for entire industries. products embedded within those platforms that have potential as commercial offerings on their own.10-Q and the consolidated financial statements and the accompanying notes thereto included in our final prospectus (the “Prospectus”) filed with the Securities and Exchange Commission (the “SEC”) pursuant to Rule 424(b) under the Securities Act of 1933, as amended (the “Securities Act”) on September 30, 2020.10-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. the company in 2003 to buildand started building 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 agenciescommunity in the United States then began using Gotham to investigate potential threatsassist in counterterrorism investigations 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.leading companies across industries, including companiescommercial enterprises, who often faced fundamentally similar challenges in working with data.energy, transportation, financial services,intelligence community, disaster relief organizations 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.In 2017, 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.example,customers across the commercial and government sectors, enabling them to derive value from recent breakthroughs in artificial intelligence via the combination of our partnershipexisting software platforms with Airbus expanded into a platform forlarge language models (“LLMs”). We believe AIP uniquely allows users to connect LLMs with their data and operations to facilitate decision-making within the aviation industry,legal, ethical, and today connects data from more than one hundred airlinessecurity constraints that they require.9,000 aircraft around the world. large institution faces challenges that our platforms and products were designed to address. Our focus in the near termapproach with all our clients is to buildestablish a partnership that transforms the way they use data in pursuit of their goals.with institutions thatand investment opportunities in complementary businesses, employee teams, technologies, and intellectual property rights in an effort to expand our product and service offerings.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.Direct ListingOn September 30, 2020, we completed a direct listingcontract term. Many of our Class A common stock (the “Direct Listing”), on the New York Stock Exchange (the “NYSE”). Immediately prior to the direct listing and the filing of our amended and restated certificate of incorporation, all outstanding shares of redeemable convertible preferred stock and convertible preferred stock were converted into 797,743,185 shares of our Class B common stock, and all of our outstanding preferred stock warrants were converted into common stock warrants, which resulted in the reclassification of the warrants liability to additional paid-in capital. Additionally, our restricted stock units
(“RSUs”) had a performance vesting condition that was satisfied upon the completion of the Direct Listing. Accordingly, the Direct Listing resulted in the vesting and settlement of RSUs covering 68,149,214 shares of Class A common stock and as a result we recorded cumulative stock-based compensation of $769.5 million on September 30, 2020.
In addition, we incurred fees related to financial advisory, accounting, legal and other professional services related to the Direct Listing and public company readiness initiatives and recorded $53.7 million and $56.2 million primarily in general and administrative expensecustomer contracts contain termination for the three and nine months ended September 30, 2020, respectively.
Our Business
convenience provisions.
As of
section titled
“Non-GAAP Reconciliations” below.Coronavirus (“COVID-19”) Impact
As a result of COVID-19, we have taken precautionary measures in order to minimize the risk of the virus to our employees, our customers, and the communities in which we operate, including the suspension of all non-essential business travel of employees and the temporary closure of all of our major offices. Although the majority of our workforce currently works remotely, there has been minimal disruption in our ability to ensure the effective operation of our software platforms.
The economic consequences of the COVID-19 pandemic have been challenging for certain of our customers and prospectiveexpanding relationships with existing customers. While the broader implications of the COVID-19 pandemic on our results of operations and overall financial performance remain uncertain, the COVID-19 pandemic has, to date, not had a material adverse impact on our results of operations. The economic effects of the pandemic and resulting societal changes are currently not predictable.
The 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.
We have seen a decrease in our travel and office-related expenditures, including temporary closures of our offices globally and reductions in related operating expenses, related to the ongoing pandemic. However, improvement of our contribution metric in the first nine months of this year has also been driven by the expansion of existing customer accounts, improved sales efficiency, and the increasing deployment of centralized hosting and other software deployment infrastructure. While we expect our travel and office-related expenditures to increase moving forward, especially once we reopen our offices, we do not expect such expenditures to return to their pre-pandemic levels, given that we have made significant investments in enabling employees to work with customers remotely.
See the section titled “Risk Factors” included elsewhere in this Quarterly Report on Form 10-Q and our final Prospectus for further discussion of the possible impact of the COVID-19 pandemic on our business.
Expansion & Growth
We expanded into the commercial sector in recent years. In the three months ended September 30, 2020, 44% of our revenue came from commercial customers and 56% came from government agencies. In the nine months ended September 30, 2020, 45% of our revenue came from commercial customers and 55% came from government agencies.
Large organizationsOrganizations 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.
We have also expanded significantly outside the United States. In the three months ended September 30, 2020, we generated 54% of our revenue from customers in the United States and the remaining 46% from customers abroad. In the nine months ended September 30, 2020, we generated 51% of our revenue from customers in the United States and the remaining 49% from customers abroad.
Our operating results have improved significantly in recent years when excluding stock-based compensation. In the three and nine months ended September 30, 2020, we incurred losses from operations of $847.8 million and $1.0 billion, respectively, or losses from operations of $0.8 million and income from operations of $11.8 million, respectively, when excluding stock-based compensation. In the three and nine months ended September 30, 2019, our losses from operations were $144.1 million and $429.0 million, respectively, or $92.4 million and $264.3 million, respectively, 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. In the nine months ended September 30, 2019, our gross profit was $346.7 million, reflecting a gross margin of 68%, or 71% 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 three months ended September 30, 2019, our gross profit was $125.5 million, reflecting a gross margin of 66%, or 70% when excluding stock-based compensation.
Our Business Model
Our customers pay us to use the software platforms we have built.
As of September 30, 2020, we expect to generate revenue under our existing customer contracts for an additional 3.6 years on average, including existing contractual obligations and assuming that our customers exercise all of the contractual options available to them, although this may change as we enter into new contracts or if
customers terminate for convenience. We calculate this duration on a dollar-weighted basis to adjust for small deals. The timing of our customer billings and receipt of payments varies from contract to contract. Revenue is generally recognized over the contract term. Our contracts generally include terms that allow the customer to terminate the contract for convenience.
Our business model with respect to acquiring and growing our accounts has three phases: (1) Acquire, (2) Expand, and (3) Scale. We categorize all customers into cohorts on December 31st each year.
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.
As a result, customers may move back and forth through phases, as relationship needs and our assessment of the merits of further investment change. 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.
Some customers may have a rapid Acquire phase followed by a long Expand phase. Others may skip the Expand phase altogether and move immediately into the Scale phase. We manage customers at the account level, not by industry or sector, so that we can optimize on the specific growth opportunities for each.
In 2019, we generated a total of $742.6 million in revenue, of which $0.6 million came from customers in the Acquire phase, $176.3 million came from customers in the Expand phase, and $565.7 million came from customers in the Scale phase.
each customer. In the nine months ended September 30, 2020, those same customers from 2019 generated a total of $747.7 million in revenue. New customers acquired during the nine months ended September 30, 2020 generated an additional $22.8 million in revenue and will be assigned a cohort as of December 31, 2020. A more detailed discussion of the three phases, for purposes of illustration of how we manage accounts across the business, follows below.
Acquire
We actively pursue discussions with existing and prospective customers in order to identify ways in which our software platforms can provide long-term value.
In the first phase, we typically acquire new opportunities with minimal risk to our customers through short-term pilot deployments2023, 56% of our software platforms at no or low cost to them. We believe in proving the valuerevenue came from government customers and 44% came from commercial customers.
We define a customer or potential customer as being in the Acquire phase if, as of the end of a calendar year, we have recognized less than $100,000 in revenue from the customer that respective year. Customers may make nominal payments in connection with the evaluation of our software that we do not consider material in evaluating the performance of our accounts.
We evaluate the success of customer accounts in the Acquire phase based on the revenue such accounts generate in the following year. In 2019, we generated $0.6 million in revenue from customers in the Acquire phase, which yielded a contribution loss of $65.4 million.business. In the nine months ended September 30, 2020, those same2023, we generated 62% of our revenue from customers generated $41.1 million in the United States and the remaining 38% from non-U.S. customers. 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. We expect that U.S. customers will continue to be a source of significant revenue growth for us.
Expand
Our investmentany 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 second phaseQuarterly Report on Form 10-Q.
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 definedo 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. 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 2019, we generated $176.3 million in revenue from customers that were in the Expand phase as of the end of that year, with a contribution margin of (43)%. InU.S. dollars. For the nine months ended September 30, 2020, those same customers generated $254.4 million in revenue, with a contribution margin of 41%.
Scale
As customer accounts mature, our investment costs relative to revenue generally decrease, while the value our software provides2023, that impact was not material to our customer increases, often significantly, as usagefinancial position or results of the platform increases across the customer’s operations. In this third phase, after having installed and configured the software across an entire enterprise, customers become more self-sufficient in their useAdditionally, certain of our platforms, including developing softwareU.S. and applications that run on topnon-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 our platforms, while still continuing to benefit from the support of our operations and maintenance (“O&M”) services.
We definecash flows to adverse fluctuations due to changes in such foreign currency exchange rates as compared to the U.S. dollar.
It is in the Scale phase of our partnerships with customers that we generally see contribution margin on particular accounts improve. In 2019, we generated $565.7 million in revenue from customers in the Scale phase, with a contribution margin of 55%. In the nine months ended September 30, 2020, those same customers generated $452.2 million in revenue with a contribution margin of 69%.
We believe that our customers will move into the Scale phase over the long term. We also believe that contribution margin for Scale phase accounts will increase further as we become more efficient at deploying our software platforms across the entirety of our customers’ operations and at managing and operating our software.
Government Contracts
Our partnerships with government agencies in the United States and abroad have had and willmay continue to have a significant impact, on our business.
As of September 30, 2020, the total remaining deal value of the contracts that we had been awarded by government agencies in the United Statesexpected revenue and allied countries around the world, including existing contractual obligations and contractual options available to those government agencies, was $1.3 billion, up 14% from December 31, 2019, when the total value of such contracts was $1.1 billion.
When calculating the total value of such contracts, we do not include government contracts totaling $2.6 billion, as of September 30, 2020, that we have been awarded where the funding of such contracts — also known as indefinite delivery, indefinite quantity (“IDIQ”) contracts — has not yet been determined. Funding of such contracts is not guaranteed. The majority of our government contracts are subject to termination for convenience provisions, and the U.S. federal government is prohibited from exercising contract options more than one year in advance.collections. As a result, there can be no guarantee thatcurrent macroeconomic conditions have impacted, and may continue to impact, our ability to realize the full value of our commercial contracts with government customers will not be terminatedsuch early- or that contract options will be exercised.
Allocated revenues and expenses are then aggregated into a segment based upon the customer account to which they relate.
U.S. generally accepted accounting principles (“GAAP”).
Non-GAAP Reconciliations
We use the non-GAAP measures contribution margin; gross profit and gross margin, excluding stock-based compensation; and adjusted income (loss) from operations, excludingwhich excludes stock-based compensation and related employer payroll taxes, to help us evaluate our business, identify trends affecting our business, formulate business plans and financial projections, and make strategic decisions. We exclude stock-based compensation, which is a non-cashnoncash expense, from these non-GAAP financial measures because we believe that excluding this item provides meaningful supplemental information regarding operational performance and provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management team. Additionally, we exclude employer payroll taxes related to stock-based compensation as it is difficult to predict and outside of our control.
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
Loss from operations | $ | (847,777 | ) | $ | (144,140 | ) | $ | (1,017,107 | ) | $ | (428,993 | ) | ||||
Add: | ||||||||||||||||
Research and development expenses (1) | 57,146 | 60,849 | 156,832 | 180,591 | ||||||||||||
General and administrative expenses (1) | 107,130 | 60,411 | 226,455 | 165,985 | ||||||||||||
Stock-based compensation | 846,959 | 51,763 | 1,028,914 | 164,650 | ||||||||||||
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Contribution | $ | 163,458 | $ | 28,883 | $ | 395,094 | $ | 82,233 | ||||||||
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Contribution margin | 56 | % | 15 | % | 51 | % | 16 | % | ||||||||
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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) Add: 83,756 75,750 230,273 200,639 82,849 92,833 260,778 268,981 Total stock-based compensation expense 114,380 140,308 343,295 435,400 Total contribution $ 320,968 $ 246,700 $ 888,518 $ 761,645 Contribution margin 58 % 52 % 55 % 55 %
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
Gross profit | $ | 140,026 | $ | 125,468 | $ | 488,538 | $ | 346,726 | ||||||||
Add: stock-based compensation | 94,385 | 7,183 | 120,285 | 16,520 | ||||||||||||
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Gross profit, excluding stock-based compensation | $ | 234,411 | $ | 132,651 | $ | 608,823 | $ | 363,246 | ||||||||
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Gross margin, excluding stock-based compensation | 81 | % | 70 | % | 79 | % | 71 | % | ||||||||
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| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Gross profit | $ | 450,237 | $ | 370,269 | $ | 1,294,196 | $ | 1,093,009 | |||||||||||||||
| Add: stock-based compensation | 7,814 | 10,525 | 24,995 | 33,413 | |||||||||||||||||||
| Gross profit, excluding stock-based compensation | $ | 458,051 | $ | 380,794 | $ | 1,319,191 | $ | 1,126,422 | |||||||||||||||
| Gross margin, excluding stock-based compensation | 82 | % | 80 | % | 82 | % | 81 | % | |||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
Loss from operations | $ | (847,777 | ) | $ | (144,140 | ) | $ | (1,017,107 | ) | $ | (428,993 | ) | ||||
Add: stock-based compensation | 846,959 | 51,763 | 1,028,914 | 164,650 | ||||||||||||
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Income (loss) from operations, excluding stock- based compensation | $ | (818 | ) | $ | (92,377 | ) | $ | 11,807 | $ | (264,343 | ) | |||||
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| 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) | |||||||||||||||
| Add: stock-based compensation | 114,380 | 140,308 | 343,295 | 435,400 | |||||||||||||||||||
| Add: employer payroll taxes related to stock-based compensation | 8,909 | 3,133 | 25,954 | 14,464 | |||||||||||||||||||
| Adjusted income from operations | $ | 163,272 | $ | 81,250 | $ | 423,421 | $ | 306,489 | |||||||||||||||
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 subscriptions 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.
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 increasedcontinuing compliance and reporting requirements as a public company.
facility.
Change in Fair Value of Warrants
The change in the fair value of warrants consists of the net changes in the fair value of our liability classified warrants to purchase redeemable convertible and convertible preferred stock that were remeasured at the end of each reporting period. In connection with the Direct Listing, all of the Company’s outstanding preferred stock warrants were converted into common stock warrants, which resulted in the reclassification of the warrants liability to additional paid-in capital. As such, we do not expect additional charges related to the fair value of these warrants.
business and withholding taxes.
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unallocated costs include stock-based compensation expense, research and development costs, and general and administrative costs, such as legal and accounting. Contribution margin is segment contribution divided by revenue.
accounting costs.
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
Revenue | $ | 289,366 | $ | 190,541 | $ | 770,582 | $ | 513,197 | ||||||||
Cost of revenue(1) | 149,340 | 65,073 | 282,044 | 166,471 | ||||||||||||
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Gross profit | 140,026 | 125,468 | 488,538 | 346,726 | ||||||||||||
Operating expenses: | ||||||||||||||||
Sales and marketing(1) | 334,911 | 119,666 | 536,082 | 337,255 | ||||||||||||
Research and development(1) | 313,915 | 75,880 | 466,530 | 229,728 | ||||||||||||
General and administrative(1) | 338,977 | 74,062 | 503,033 | 208,736 | ||||||||||||
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Total operating expenses | 987,803 | 269,608 | 1,505,645 | 775,719 | ||||||||||||
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Loss from operations | (847,777 | ) | (144,140 | ) | (1,017,107 | ) | (428,993 | ) | ||||||||
Interest income | 494 | 3,390 | 4,312 | 12,953 | ||||||||||||
Interest expense | (2,085 | ) | (173 | ) | (12,325 | ) | (395 | ) | ||||||||
Change in fair value of warrants | (9,201 | ) | 784 | 811 | 2,743 | |||||||||||
Other income (expense), net | (3,293 | ) | 2,305 | 1,218 | 1,858 | |||||||||||
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Loss before provision (benefit) for income taxes | (861,862 | ) | (137,834 | ) | (1,023,091 | ) | (411,834 | ) | ||||||||
Provision (benefit) for income taxes | (8,543 | ) | 2,026 | (5,043 | ) | 8,485 | ||||||||||
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Net loss | $ | (853,319 | ) | $ | (139,860 | ) | $ | (1,018,048 | ) | $ | (420,319 | ) | ||||
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| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
Cost of revenue | $ | 94,385 | $ | 7,183 | $ | 120,285 | $ | 16,520 | ||||||||
Sales and marketing | 263,958 | 15,898 | 322,353 | 56,242 | ||||||||||||
Research and development | 256,769 | 15,031 | 309,698 | 49,137 | ||||||||||||
General and administrative | 231,847 | 13,651 | 276,578 | 42,751 | ||||||||||||
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Total stock-based compensation expense (i) (ii) | $ | 846,959 | $ | 51,763 | $ | 1,028,914 | $ | 164,650 | ||||||||
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Three Months Ended
September 30,Nine Months Ended
September 30,2023 2022 2023 2022 Revenue $ 558,159 $ 477,880 $ 1,616,662 $ 1,397,247 Cost of revenue 107,922 107,611 322,466 304,238 Gross profit 450,237 370,269 1,294,196 1,093,009 Operating expenses: Sales and marketing 176,373 182,918 547,629 512,278 Research and development 105,708 100,863 295,341 277,635 General and administrative 128,173 148,679 397,054 446,471 Total operating expenses 410,254 432,460 1,240,024 1,236,384 Income (loss) from operations 39,983 (62,191) 54,172 (143,375) Interest income 36,864 5,540 88,027 7,559 Interest expense (742) (1,082) (3,334) (2,346) Other income (expense), net 3,864 (65,046) (8,021) (260,714) Income (loss) before provision for income taxes 79,969 (122,779) 130,844 (398,876) Provision for income taxes 6,530 1,096 10,382 5,707 Net income (loss) 73,439 (123,875) 120,462 (404,583) Less: Net income attributable to noncontrolling interests 1,934 — 4,028 — Net income (loss) attributable to common stockholders $ 71,505 $ (123,875) $ 116,434 $ (404,583)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
Revenue | 100 | % | 100 | % | 100 | % | 100 | % | ||||||||
Cost of revenue | 52 | 34 | 37 | 32 | ||||||||||||
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Gross profit | 48 | 66 | 63 | 68 | ||||||||||||
Operating expenses: | ||||||||||||||||
Sales and marketing | 116 | 63 | 70 | 66 | ||||||||||||
Research and development | 108 | 40 | 61 | 45 | ||||||||||||
General and administrative | 117 | 39 | 64 | 41 | ||||||||||||
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Total operating expenses | 341 | 142 | 195 | 152 | ||||||||||||
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Loss from operations | (293 | ) | (76 | ) | (132 | ) | (84 | ) | ||||||||
Interest income | — | 2 | 1 | 3 | ||||||||||||
Interest expense | (1 | ) | — | (2 | ) | — | ||||||||||
Change in fair value of warrants | (3 | ) | 1 | — | 1 | |||||||||||
Other income (expense), net | (1 | ) | 1 | — | — | |||||||||||
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Loss before provision (benefit) for income taxes | (298 | ) | (72 | ) | (133 | ) | (80 | ) | ||||||||
Provision (benefit) for income taxes | (3 | ) | 1 | (1 | ) | 2 | ||||||||||
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Net loss | (295 | )% | (73 | )% | (132 | )% | (82 | )% | ||||||||
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| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Revenue | 100 | % | 100 | % | 100 | % | 100 | % | |||||||||||||||
| Cost of revenue | 19 | 23 | 20 | 22 | |||||||||||||||||||
| Gross margin | 81 | 77 | 80 | 78 | |||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Sales and marketing | 32 | 38 | 34 | 36 | |||||||||||||||||||
| Research and development | 19 | 21 | 18 | 20 | |||||||||||||||||||
| General and administrative | 23 | 31 | 25 | 32 | |||||||||||||||||||
| Total operating expenses | 74 | 90 | 77 | 88 | |||||||||||||||||||
| Income (loss) from operations | 7 | (13) | 3 | (10) | |||||||||||||||||||
| Interest income | 6 | 1 | 5 | — | |||||||||||||||||||
| Interest expense | — | — | — | — | |||||||||||||||||||
| Other income (expense), net | 1 | (14) | — | (19) | |||||||||||||||||||
| Income (loss) before provision for income taxes | 14 | (26) | 8 | (29) | |||||||||||||||||||
| Provision for income taxes | 1 | — | 1 | — | |||||||||||||||||||
| Net income (loss) | 13 | (26) | 7 | (29) | |||||||||||||||||||
| Less: Net income attributable to noncontrolling interests | — | — | — | — | |||||||||||||||||||
| Net income (loss) attributable to common stockholders | 13 | % | (26) | % | 7 | % | (29) | % | |||||||||||||||
2022
| Three Months Ended September 30, | Change | |||||||||||||||
| 2020 | 2019 | Amount | % | |||||||||||||
Revenue: | ||||||||||||||||
Government | $ | 162,561 | $ | 96,801 | $ | 65,760 | 68 | % | ||||||||
Commercial | 126,805 | 93,740 | 33,065 | 35 | % | |||||||||||
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Total revenue | $ | 289,366 | $ | 190,541 | $ | 98,825 | 52 | % | ||||||||
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| Three Months Ended September 30, | Change | Nine Months Ended September 30, | Change | ||||||||||||||||||||||||||||||||||||||||||||
| 2023 | 2022 | Amount | % | 2023 | 2022 | Amount | % | ||||||||||||||||||||||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||||||||||||||||||||||||||
| Government | $ | 307,603 | $ | 273,834 | $ | 33,769 | 12 | % | $ | 898,178 | $ | 778,622 | $ | 119,556 | 15 | % | |||||||||||||||||||||||||||||||
| Commercial | 250,556 | 204,046 | 46,510 | 23 | % | 718,484 | 618,625 | 99,859 | 16 | % | |||||||||||||||||||||||||||||||||||||
| Total revenue | $ | 558,159 | $ | 477,880 | $ | 80,279 | 17 | % | $ | 1,616,662 | $ | 1,397,247 | $ | 219,415 | 16 | % | |||||||||||||||||||||||||||||||
| Three Months Ended September 30, | Change | |||||||||||||||
| 2020 | 2019 | Amount | % | |||||||||||||
Cost of revenue | $ | 149,340 | $ | 65,073 | $ | 84,267 | 129 | % | ||||||||
Gross profit | 140,026 | 125,468 | 14,558 | 12 | % | |||||||||||
Gross margin | 48 | % | 66 | % | (18 | )% | ||||||||||
| Three Months Ended September 30, | Change | Nine Months Ended September 30, | Change | ||||||||||||||||||||||||||||||||||||||||||||
| 2023 | 2022 | Amount | % | 2023 | 2022 | Amount | % | ||||||||||||||||||||||||||||||||||||||||
| Cost of revenue | $ | 107,922 | $ | 107,611 | $ | 311 | — | % | $ | 322,466 | $ | 304,238 | $ | 18,228 | 6 | % | |||||||||||||||||||||||||||||||
| Gross profit | 450,237 | 370,269 | 79,968 | 22 | % | 1,294,196 | 1,093,009 | 201,187 | 18 | % | |||||||||||||||||||||||||||||||||||||
| Gross margin | 81 | % | 77 | % | 4 | % | 80 | % | 78 | % | 2 | % | |||||||||||||||||||||||||||||||||||
Operating Expenses
| Three Months Ended September 30, | Change | |||||||||||||||
| 2020 | 2019 | Amount | % | |||||||||||||
Sales and marketing | $ | 334,911 | $ | 119,666 | $ | 215,245 | 180 | % | ||||||||
Research and development | 313,915 | 75,880 | 238,035 | 314 | % | |||||||||||
General and administrative | 338,977 | 74,062 | 264,915 | 358 | % | |||||||||||
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Total operating expenses | $ | 987,803 | $ | 269,608 | $ | 718,195 | 266 | % | ||||||||
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Sales and Marketing
Sales and marketing expenses increased by $215.2$18.2 million, or 180%6%, for the three months ended September 30, 2020 compared to the three months ended September 30, 2019.same period in 2022. The increase was primarily driven bydue to increases in personnel costs of $230.2 million, which included an increase of $248.1$9.4 million in stock-based compensation expense primarily due to the recognition of cumulative stock-based compensation expense upon the Direct Listing related to the Company’s RSUspayroll and growth units, as well as vesting of stock options;other payroll-related costs, $5.6 million in hardware costs, $4.7 million in third-party cloud hosting services costs, and an increase of $8.0$4.4 million related to an increase in headcount attributable to our sales and marketing functions.field service representatives. These costsincreases were partially offset by a decrease of $25.9 million in travel-related expenses and other personnel costs as a result of COVID-related travel restrictions and company-wide initiatives to decrease overall travel. Additionally, there was a decrease of $15.0 million related to allocated overhead, including office related expenses.
Research and Development
Research and development expenses increased by $238.0 million, or 314%, for the three months ended September 30, 2020 compared to the three months ended September 30, 2019. The increase was primarily driven by increases in personnel costs of $244.0 million, which included an increase of $241.7$7.2 million in stock-based compensation expense primarily due to the recognition of cumulative stock-based compensation expense upon the Direct Listingand related to the Company’s RSUs as well as vesting of stock options, and an increase of $5.1 million related to an increase in headcount attributable to our research and development functions. These costs were partially offset by a decrease of $2.8 million in travel-related expenses and other personnel costs as a result of COVID-related travel restrictions and company-wide initiatives to decrease overall travel. Additionally, there was a decrease of $6.0 million in third-party cloud hosting services generally as a result of volume-based discounts.
General and Administrative
General and administrative expenses increased by $264.9 million, or 358%, for the three months ended September 30, 2020 compared to the three months ended September 30, 2019. The increase in expenses was primarily driven by increases in personnel costs of $220.7 million, which included an increase of $218.2 million in stock-based compensation expense primarily due to the recognition of cumulative stock-based compensation expense upon the Direct Listing related to the Company’s RSUs and growth units, as well as vesting of stock options; and an increase of $3.2 million related to an increase in headcount attributable to our general and administrative functions; These costs partially offset by a decrease of $0.7 million in travel-related expenses and other personnel costs primarily as a result of COVID-related travel restrictions and company-wide initiatives to decrease overall travel. Additionally, there were increases of $42.7 million in legal professional services primarily related to the Direct Listing and $8.0 million for other professional services related to the Direct Listing and corporate IT and consulting functions to support initiatives for becoming a public company and the overall growth of our operations, which were offset by a decrease of $6.5 million related to allocated overhead, including office related expenses.
Interest Income
| Three Months Ended September 30, | Change | |||||||||||
| 2020 | 2019 | Amount | ||||||||||
Interest income | $ | 494 | $ | 3,390 | $ | (2,896 | ) | |||||
Interest income decreased by $2.9 million for the three months ended September 30, 2020 compared to the three months ended September 30, 2019 primarily due to a reduction in U.S. interest rates on interest earned from our cash, cash equivalents, and restricted cash.
Interest Expense
| Three Months Ended September 30, | Change | |||||||||||
| 2020 | 2019 | Amount | ||||||||||
Interest expense | $ | (2,085 | ) | $ | (173) | $ | (1,912 | ) | ||||
Interest expense increased by $1.9 million for the three months ended September 30, 2020 compared to the three months ended September 30, 2019. The increase was primarily due to the absence of outstanding debt during the three months ended September 30, 2019.
Change in Fair Value of Warrants
| Three Months Ended September 30, | Change | |||||||||||
| 2020 | 2019 | Amount | ||||||||||
Change in fair value of warrants | $ | (9,201 | ) | $ | 784 | $ | (9,985 | ) | ||||
The gain on the change in fair value of warrants decreased by $10.0 million for the three months ended September 30, 2020 compared to the three months ended September 30, 2019. The change was primarily due to adjustments to the fair value of the warrants immediately before reclassifying them from a liability to equity, partially offset by an increase in the fair value of the securities underlying certain warrants during the three months ended September 30, 2020 as compared to the changes in the fair value of the underlying securities during the three months ended September 30, 2019.
Other Income (Expense), Net
| Three Months Ended September 30, | Change | |||||||||||
2020 | 2019 | Amount | ||||||||||
Other income (expense), net | $ | (3,293 | ) | $ | 2,305 | $ | (5,598 | ) | ||||
Other income (expense), net decreased by $5.6 million for the three months ended September 30, 2020 compared to the three months ended September 30, 2019 primarily due to changes in net realized and unrealized gains from foreign exchange transactions.
Provision (Benefit) for Income Taxes
| Three Months Ended September 30, | Change | |||||||||||
| 2020 | 2019 | Amount | ||||||||||
Provision (benefit) for income taxes | $ | (8,543 | ) | $ | 2,026 | $ | (10,569 | ) | ||||
Provision (benefit) for income taxes decreased by $10.6 million for the three months ended September 30, 2020 compared to the three months ended September 30, 2019. The change in provision (benefit) for income taxes was primarily due to decreases in profits from our international operations, benefits from stock-based compensation windfalls, and the revaluation of our UK deferred tax assets as a result of a change in the UK corporate tax rate enacted during the current quarter.
Comparison of the Nine Months Ended September 30, 2020 and 2019
Revenue
| Nine Months Ended September 30, | Change | |||||||||||||||
| 2020 | 2019 | Amount | % | |||||||||||||
Revenue: | ||||||||||||||||
Government | $ | 420,257 | $ | 242,843 | $ | 177,414 | 73 | % | ||||||||
Commercial | 350,325 | 270,354 | 79,971 | 30 | % | |||||||||||
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Total revenue | $ | 770,582 | $ | 513,197 | $ | 257,385 | 50 | % | ||||||||
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Revenue increased by $257.4 million, or 50%, for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019. Revenue from government customers increased by $177.4 million, or 73%, for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, primarily in the United States. Of the increase, $148.5 million was from customers existing as of December 31, 2019. Revenue from commercial customers increased by $80.0 million, or 30%, for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019. The increase was primarily due to an increase of $67.1 million from customers existing as of December 31, 2019.
Cost of Revenue and Gross Profit
| Nine Months Ended September 30, | Change | |||||||||||||||
| 2020 | 2019 | Amount | % | |||||||||||||
Cost of revenue | $ | 282,044 | $ | 166,471 | $ | 115,573 | 69 | % | ||||||||
Gross profit | 488,538 | 346,726 | 141,812 | 41 | % | |||||||||||
Gross margin | 63 | % | 68 | % | (5 | )% | ||||||||||
Cost of revenue increased by $115.6 million, or 69%, for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019. The increase was primarily due to increases in personnel costs of $123.3 million, which included an increase of $103.8 million in stock-based compensation expense primarily due to the recognition of cumulative stock-based compensation expense upon the Direct Listing related to the Company’s RSUs and vesting of stock options, as well as the incremental charge from the repricing of certain options; and an increase of $23.2 million primarily driven by an increase in headcount attributable to cost of revenue functions to support new and existing customers. These costs were partially offset by a decrease in travel-related expenses and other personnel costs of $3.7 million as a result of COVID-related travel restrictions and company-wide initiatives to decrease overall travel. Such increases to cost of revenue were also offset by decreases of $6.1 million related to third-party cloud hosting services generally as a result of volume-based discounts and $2.6 million related to other direct deployment costs.
Our gross margin for the nine months ended September 30, 2020 decreased by 5%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 nineprior year.
| Three Months Ended September 30, | Change | Nine Months Ended September 30, | Change | ||||||||||||||||||||||||||||||||||||||||||||
| 2023 | 2022 | Amount | % | 2023 | 2022 | Amount | % | ||||||||||||||||||||||||||||||||||||||||
| Sales and marketing | $ | 176,373 | $ | 182,918 | $ | (6,545) | (4) | % | $ | 547,629 | $ | 512,278 | $ | 35,351 | 7 | % | |||||||||||||||||||||||||||||||
| Research and development | 105,708 | 100,863 | 4,845 | 5 | % | 295,341 | 277,635 | 17,706 | 6 | % | |||||||||||||||||||||||||||||||||||||
| General and administrative | 128,173 | 148,679 | (20,506) | (14) | % | 397,054 | 446,471 | (49,417) | (11) | % | |||||||||||||||||||||||||||||||||||||
| Total operating expenses | $ | 410,254 | $ | 432,460 | $ | (22,206) | (5) | % | $ | 1,240,024 | $ | 1,236,384 | $ | 3,640 | — | % | |||||||||||||||||||||||||||||||
Operating Expenses
| Nine Months Ended September 30, | Change | |||||||||||||||
| 2020 | 2019 | Amount | % | |||||||||||||
Sales and marketing | $ | 536,082 | $ | 337,255 | $ | 198,827 | 59 | % | ||||||||
Research and development | 466,530 | 229,728 | 236,802 | 103 | % | |||||||||||
General and administrative | 503,033 | 208,736 | 294,297 | 141 | % | |||||||||||
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Total operating expenses | $ | 1,505,645 | $ | 775,719 | $ | 729,926 | 94 | % | ||||||||
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Salesour sales and Marketing
marketing function.
Listing related to the Company’s RSUs and growth units, and vesting
stock-based compensation expense, see the section titled
“Stock-Based Compensation” below.| Three Months Ended September 30, | Change | Nine Months Ended September 30, | Change | ||||||||||||||||||||||||||||||||||||||||||||
| 2023 | 2022 | Amount | % | 2023 | 2022 | Amount | % | ||||||||||||||||||||||||||||||||||||||||
| Cost of revenue | $ | 7,814 | $ | 10,525 | $ | (2,711) | (26) | % | $ | 24,995 | $ | 33,413 | $ | (8,418) | (25) | % | |||||||||||||||||||||||||||||||
| Sales and marketing | 39,290 | 48,824 | (9,534) | (20) | % | 116,956 | 147,501 | (30,545) | (21) | % | |||||||||||||||||||||||||||||||||||||
| Research and development | 21,952 | 25,113 | (3,161) | (13) | % | 65,068 | 76,996 | (11,928) | (15) | % | |||||||||||||||||||||||||||||||||||||
| General and administrative | 45,324 | 55,846 | (10,522) | (19) | % | 136,276 | 177,490 | (41,214) | (23) | % | |||||||||||||||||||||||||||||||||||||
| Total stock-based compensation expense | $ | 114,380 | $ | 140,308 | $ | (25,928) | (18) | % | $ | 343,295 | $ | 435,400 | $ | (92,105) | (21) | % | |||||||||||||||||||||||||||||||
| Three Months Ended September 30, | Change | Nine Months Ended September 30, | Change | ||||||||||||||||||||||||||||||||||||||||||||
| 2023 | 2022 | Amount | 2023 | 2022 | Amount | ||||||||||||||||||||||||||||||||||||||||||
| Interest income | $ | 36,864 | $ | 5,540 | $ | 31,324 | $ | 88,027 | $ | 7,559 | $ | 80,468 | |||||||||||||||||||||||||||||||||||
| 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) | |||||||||||||||||||||||||||||||||||
| Three Months Ended September 30, | Change | Nine Months Ended September 30, | Change | ||||||||||||||||||||||||||||||||||||||||||||
| 2023 | 2022 | Amount | 2023 | 2022 | Amount | ||||||||||||||||||||||||||||||||||||||||||
| Other income (expense), net | $ | 3,864 | $ | (65,046) | $ | 68,910 | $ | (8,021) | $ | (260,714) | $ | 252,693 | |||||||||||||||||||||||||||||||||||
| Three Months Ended September 30, | Change | Nine Months Ended September 30, | Change | ||||||||||||||||||||||||||||||||||||||||||||
| 2023 | 2022 | Amount | 2023 | 2022 | Amount | ||||||||||||||||||||||||||||||||||||||||||
| Provision for income taxes | $ | 6,530 | $ | 1,096 | $ | 5,434 | $ | 10,382 | $ | 5,707 | $ | 4,675 | |||||||||||||||||||||||||||||||||||
Interest Income
| Nine Months Ended September 30, | Change | |||||||||||
| 2020 | 2019 | Amount | ||||||||||
Interest income | $ | 4,312 | $ | 12,953 | $ | (8,641) | ||||||
Interest income decreased by $8.6 millionCapital Resources
Interest Expense
| Nine Months Ended September 30, | Change | |||||||||||
| 2020 | 2019 | Amount | ||||||||||
Interest expense | $ | (12,325) | $ | (395) | $ | (11,930 | ) | |||||
Interest expense increased by $11.9 million for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019. The increase was primarily due to the absence of outstanding debt during the nine months ended September 30, 2019.
Change in Fair Value of Warrants
| Nine Months Ended September 30, | Change | |||||||||||
| 2020 | 2019 | Amount | ||||||||||
Change in fair value of warrants | $ | 811 | $ | 2,743 | $ | (1,932) | ||||||
The gain on the change in fair value of warrants decreased by $1.9 million for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019. The change was primarily due to adjustments to the fair value of the warrants immediately before reclassifying them from a liability to equity, partially offset by an increase in the fair value of the securities underlying certain warrants during the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019.
Other Income (Expense), Net
| Nine Months Ended September 30, | Change | |||||||||||
| 2020 | 2019 | Amount | ||||||||||
Other income (expense), net | $ | 1,218 | $ | 1,858 | $ | (640) | ||||||
Other income (expense), net decreased by $0.6 million for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 primarily due to changes in net realized and unrealized gains from foreign exchange transactions.
Provision (Benefit) for Income Taxes
| Nine Months Ended September 30, | Change | |||||||||||
| 2020 | 2019 | Amount | ||||||||||
Provision (benefit) for income taxes | $ | (5,043 | ) | $ | 8,485 | $ | (13,528 | ) | ||||
Provision (benefit) for income taxes decreased by $13.5 million for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019. The change in provision (benefit) for income taxes was primarily due to decreases in profitssubstantial uncertainty. We have historically generated significant losses from our international operations benefits from stock-based compensation windfalls,as reflected in our condensed consolidated balance sheets and the revaluation of our UK deferred tax assets as a result of a change in the UK corporate tax rate enacted during the current quarter.
Liquidity and Capital Resources
Since our inception, we have generated negativeexpect cash flows from operations andmay fluctuate for the foreseeable future. Historically, we have financed our operations primarily through the sale of our equity securities, borrowings under our credit facilities,including proceeds from option exercises, and payments received from our customers. For many customers, we bill and collect payment for the entire contract term in advance of our performance of the related obligations. We believe our existing cash and cash equivalents will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months.
Cash and cash equivalents consist primarily of cash on deposit with banks as well as institutional money market funds. Restricted cash primarily consists of cash and certificates of deposit that are held as collateral against letters of credit and guarantees we are required to maintain for various purposes.
short-term U.S. treasury securities totaling $3.3 billion.
Additionally, during the nine months ended September 30, 2020,develop our products. Further, we sold 206,500,523may 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. As such, we may be required to seek additional equity or debt financing. 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 $4.65 per share for net proceedsall. If additional funds are not available to us on acceptable terms, or at all, our business, financial condition, and results of approximately $942.5 million, which is netoperations could be adversely affected. For additional information on our Share
| Nine Months Ended September 30, | ||||||||
| 2020 | 2019 | |||||||
Net cash (used in) provided by: | ||||||||
Operating activities | $ | (278,320 | ) | $ | (500,048 | ) | ||
Investing activities | (9,975 | ) | (10,947 | ) | ||||
Financing activities | 817,344 | (59,434 | ) | |||||
Effect of foreign exchange on cash, cash equivalents, and restricted cash | (678 | ) | (2,992 | ) | ||||
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Net increase (decrease) in cash, cash equivalents, and restricted cash | $ | 528,371 | $ | (573,421 | ) | |||
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| Nine Months Ended September 30, | |||||||||||
| 2023 | 2022 | ||||||||||
| Net cash provided by (used in): | |||||||||||
| Operating activities | $ | 411,011 | $ | 144,974 | |||||||
| Investing activities | (2,141,954) | (118,508) | |||||||||
| Financing activities | 167,607 | 71,839 | |||||||||
| Effect of foreign exchange on cash, cash equivalents, and restricted cash | (2,113) | (12,470) | |||||||||
| Net increase in cash, cash equivalents, and restricted cash | $ | (1,565,449) | $ | 85,835 | |||||||
payments to vendors.
Investing Activities
Net cash used in investing activities was $10.0primarily 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 $10.9 million for the nine months ended September 30, 2019, which consisted of purchases of property and equipment.
Financing Activities
Net cash provided by financing activities was $817.3 million for the nine months ended September 30, 2020, which primarily consisted of $942.5 million of net proceeds from the issuance of common stock, $199.4 million of net proceeds from borrowings under our credit facilities, and $79.5 million of proceeds from the exercise of common stock options, partially offset by repayments of $400.0 million of debt.
Net cash used in financing activities was $59.4 million for the nine months ended September 30, 2019, which primarily consisted of $168.0 million for the redemption of redeemable convertible preferred stock, and $7.1 million net cash used for repurchases of common stock, partially offset by $100.0 million of net proceeds from the issuance of common stock, $9.3 million of proceeds from exercise of common stock options, and $7.5 million of proceeds from the sale of redeemable convertible preferred stock.
Credit Facilities
2014 Credit Facility
In October 2014, we entered into an unsecured revolving credit facility (the “2014 Credit Facility”). The 2014 Credit Facility bears interest at the London Interbank Offered Rate (“LIBOR”) plus a margin of 2.75% per annum, subject to certain adjustments, and incurs a commitment fee of 0.375% assessed on the daily average undrawn portion of revolving commitments. Interest and commitment fees are payable at the end of an interest period or at each three-month interval if the interest period is longer than three months.
In December 2019, we entered into an amendment to the 2014 Credit Facility to include an additional $150.0 million term loan and secured the credit facility with substantially all of our assets. Upon entering into this amendment, we drew down the $150.0 million term loan and $150.0 million under the existing revolving credit facility. The term loan portion of the 2014 Credit Facility was fully repaid and terminated as of December 31, 2019.
In June 2020, we amended the 2014 Credit Facility to include a $150.0 million term loan, extend the maturity date to June 4, 2023, and add an additional lender. Additionally, this amendment increased the requirement to maintain minimum liquidity to $50.0 million, and we were provided with an option to increase the total commitments by up to an additional $200.0 million, subject to the lenders’ approval. All other terms and conditions remained substantially the same upon the effectiveness of the amendment. Upon entering into this amendment, we drew down the total available term loan commitment of $150.0 million.
In July 2020, we entered into another amendment to the 2014 Credit Facility, which added an additional lender and provided for an increase of $50.0 million to the revolving credit facility and a $50.0 million term loan. The incremental commitments were provided under the same terms as the existing commitments under the 2014 Credit Facility. During July 2020, we drew down the additional available term loan of $50.0 million and repaid the $150.0 million outstanding revolving credit facility.
As of September 30, 2020, we had a $200.0 million term loan outstanding under the 2014 Credit Facility and an additional $200.0 million undrawn revolving credit facility available.
options.
information, refer to Note 8.7. Commitments and Contingencies to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. There Except as already disclosed in Note 7. 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, 2019.2022. See our ProspectusAnnual 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.
Off-Balance Sheet Arrangements
We did not have, during the periods presented, any off-balance sheet financing arrangements or any relationships with unconsolidated entities or financial partnerships, including entities sometimes referred to as structured finance or special purpose entities, that were established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
Prior to our Direct Listing, our common stock was not publicly traded; therefore we estimated the fair value of our common stock as discussed in the Prospectus. Following our Direct Listing, the closing sale price per share of our common stock as reported on the NYSE on the date of grant is used to determine the fair value of our common stock. Our significant accounting policies are discussed in “Notes to Consolidated Financial Statements —
JOBS Act Accounting Election
We are an emerging growth company, as defined in the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent
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in early- and growth-stage companies, as disclosed in
Note 4. Investments and Fair Value Measurementsin our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.As of September 30, 2020, we had a $200.0 million variable rate term loan outstanding that is scheduled to mature in June 2023. An immediate 10% change in LIBOR would not have a material impact on our debt-related obligations, financial position or results of operations.
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incurreda history of losses, each year since our inception, we expectanticipate our operating expenses will continue to increase in the future, and we may not become profitablebe able to achieve or maintain profitability in the future.We haveyearperiod since our inception, including net losses of $580.0 million and $579.6 million for the years ended December 31, 2018 and 2019, respectively, and net losses of $420.3 million and $1.0 billion for the nine months ended September 30, 2019 and 2020, respectively, and weinception. We may nevernot achieve or maintain profitability.profitability in future periods or, if we are profitable, we may not fully achieve our profitability targets. In addition, while we remain focused on operating efficiently, we anticipate that our operating expenses have increased over time.will continue to increase in the future. 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 requires us to spend months and invest significant resources working with customers on pilot deployments at no or low cost to them, which may result in no or minimal future revenue. We may also encounter unforeseen or unpredictable factors, includingachieve, and then sustainmaintain or increase profitability on a consistent basisin the future or achieve our profitability targets could adversely affect our business, financial condition, and results of operations.
evaluating the specific organizational needs of our potential customers and educating these potential customers about the technical capabilities and value of our platforms and services. We often also provide our platforms to potential customers at no or low cost initially to them for evaluation purposes through short-term pilot deployments of our platforms, in the Acquire phase of our business model,including at bootcamps, and there is no guarantee that we will be able to moveconvert customers from the Acquire phase into later phases.these short-term pilot deployments to full revenue-generating contracts. In addition, we currently have a limitedgrown and may continue to grow our direct sales force, and our sales efforts have historically depended on the significant involvement of our senior management team. The length of our sales cycle, from initial demonstration of our platforms to sale of our platforms and services, tends to be long and varies substantially from customer to customer. Our sales cycle often lasts six to nine months but can extend to a year or more for some customers. Because decisions to purchase our platforms involve significant financial commitments, potential customers generally evaluate our platforms at multiple levels within their organization, each of which often have specific requirements, and typically involve their senior management.
generally three to six months. If one or more of our customers terminate their contracts with us, whether for convenience, for default in the event of a breach by us, or for other reasons specified in our contracts, as applicable; if our customers elect not to renew their contracts with us; if our customers renew their contractual arrangements with us for shorter contract lengths;lengths or for a reduced scope; or if our customers otherwise seek to renegotiate terms of their existing agreements on terms less favorable to us, our business and results of operations could be adversely affected. This adverse impact would be even more pronounced for customers that represent a material portion of our revenue or business operations.
The•the success of our sales and marketing efforts, including the success of our pilot deployments;
Our•our ability to increase our contribution margins and move our customers into margins;
The timing of expenses and revenue recognition;
The•the timing and amount of payments received from our customers;
Termination•termination of one or more large contracts by customers, including for convenience;
The•the time and cost-intensive nature of our sales efforts and the length and variability of sales cycles;
The•the amount and timing of operating expenses related to the development, maintenance, and expansion of our business and operations;
The•the timing and effectiveness of new sales and marketing initiatives;
Changes•changes in our pricing policies or those of our competitors;
The•the timing and success of new platforms, products, features, and functionality introduced by us or our competitors;
Interruptions•interruptions or delays in our operations and maintenance (“O&M”)&M services;
Cyberattacks•cyberattacks and other actual or perceived data or security breaches;
Our•our ability to hire and retain employees, in particular, those responsible for operations and maintenance of and the selling or marketing of our platforms, and develop and retain talented sales personnel who are able to achieve desired productivity levels in a reasonable period of time and provide sales leadership in areas in which we are expanding our sales and marketing efforts;
The•the amount and timing of our stock-based compensation expenses;
Changes•the amount and timing of employer payroll taxes related to stock-based compensation resulting from increases in our stock price;
Changes•changes in the way we operate and maintain our platforms;
Unforeseen•unforeseen negative results in operations from our partnerships, including those accounted for under the equity method;
Changes•changes in the competitive dynamics of our industry;
The•the cost of and potential outcomes of existing and future claims or litigation, which could have a material adverse effect on our business;
Changes•changes in laws and regulations that impact our business, such as the Federal Acquisition Streamlining Act of 1994 (“FASA”);
Indemnification•indemnification payments to our customers or other third parties;
Ability•ability to scale our business with increasing demands;
The•the timing of expenses related to any future acquisitions; and
General
revenue or other key metrics for a particular period. If we fail to meet or exceed such expectations for these or any other reasons, the trading price of our Class A common stock could fall, and we could face costly lawsuits, including securitieslawsuits. We and certain of our officers and directors were recently sued in purported class action suits.
lawsuits and derivative lawsuits, which could result in substantial costs and a diversion of our management’s attention and resources. For additional information see Note 7. Commitments and Contingencies in our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
The•the fiscal year end procurement cycle of our government customers, and in particular U.S. government customers which have a fiscal year end of September 30;
The•the fiscal year budgeting process for our commercial customers, many of which have a fiscal year end of December 31;
Seasonal•seasonal reductions in business activity during the summer months in the United States, Europe, and certain other regions; and
Timing•timing of projects and our customers’ evaluation of our work progress.
platforms for a customer’s unique environment. Inability to meet the unique needs of our customers may result in customer dissatisfaction and/or damage to our reputation, which could materially harm our business. Further, the proper use of our platforms requiresmay require training of the customer and the initial or ongoing services of our technical personnel as well as O&M services over the contract term. If training and/or ongoing services require more of our expenditures than we originally estimated, our margins will be lower than projected.
Our new and existing platforms and changes to our existing platforms could fail to attain sufficient market acceptance for many reasons, including:
Our•our failure to predict market demand accurately in terms of product functionality and to supply offerings that meet this demand in a timely fashion;
Product•product defects, errors, or failures or our inability to satisfy customer service level requirements;
Negative
Delays•delays in releasing to the market our new offerings or enhancements to our existing offerings;
Introduction•introduction or anticipated introduction of competing platforms or functionalities by our competitors;
Inability•inability of our platforms or product enhancements to scale and perform to meet customer demands;
Receiving•receiving qualified or adverse opinions in connection with security or penetration testing, certifications or audits, such as those related to IT controls and security standards and frameworks or compliance;
Poor•poor business conditions for our customers, causing them to delay software purchases;
Reluctance•reluctance of customers to purchase proprietary software products;
Reluctance•reluctance of customers to purchase products incorporating open source software.
If any of the systems of any third parties upon which we rely, our customers’ cloud or on-premises environments, or our internal systems, are breached or if unauthorized access to customer or third-party data is otherwise obtained, public perception
Our success depends in part on ourtheir ability to provide effective data security protection in connectionoperate with our platformsthird-party products and services, and if we rely on information technology networksare not successful in maintaining and systems to securely store, transmit, index, and otherwise process electronic information. Becauseexpanding the compatibility of our platforms and services are used to store, transmit, index, or otherwise process and analyze large data sets that often contain proprietary, confidential, and/or sensitive information (including in some instances personal or identifying information and personal health information), we are perceived as an attractive target for attacks by computer hackers or others seeking unauthorized access, and we face threats of unintended exposure, exfiltration, alteration, deletion, or loss of data. Additionally, because many of our customers use our platforms to store, transmit, and otherwise process proprietary, confidential, or sensitive information, and complete mission critical tasks, they have a lower risk tolerance for security vulnerabilities in our platforms and services than for vulnerabilities in other, less critical, softwarewith such third-party products and services.
We, and the third-party vendors upon which we rely, have experienced, and may in the future experience, cybersecurity threats, including threats or attempts to disrupt our information technology infrastructure and unauthorized attempts to gain access to sensitive or confidential information. Our and our third-party vendors’ technology systems may be damaged or compromised by malicious events, such as cyberattacks (including
computer viruses, malicious and destructive code, phishing attacks, and denial of service attacks), physical or electronic security breaches, natural disasters, fire, power loss, telecommunications failures, personnel misconduct, and human error. Such attacks or security breaches may be perpetrated by internal bad actors, such as employees or contractors, or by third parties (including traditional computer hackers, persons involved with organized crime, or foreign state or foreign state-supported actors). Cybersecurity threats can employ a wide variety of methods and techniques, which may include the use of social engineering techniques, are constantly evolving, and have become increasingly complex and sophisticated; all of which increase the difficulty of detecting and successfully defending against them. Furthermore, because the techniques used to obtain unauthorized access or sabotage systems change frequently and generally are not identified until after they are launched against a target, we and our third-party vendors may be unable to anticipate these techniques or implement adequate preventative measures. Although prior cyberattacks directed at us have not had a material impact on our financial results, and we are continuing to bolster our threat detection and mitigation processes and procedures, we cannot guarantee that future cyberattacks, if successful, will not have a material impact on our business or financial results. While we have security measures in place to protect our information and our customers’ information and to prevent data loss and other security breaches, we have not always been able to do so and there can be no assurance that in the future we will be able to anticipate or prevent security breaches or unauthorized access of our information technology systems or the information technology systems of the third-party vendors upon which we rely. Despite our implementation of network security measures and internal information security policies, data stored on personnel computer systems is also vulnerable to similar security breaches, unauthorized tampering or human error.
Many governments have enacted laws requiring companies to provide notice of data security incidents involving certain types of data, including personal data. In addition, most of our customers, including U.S. government customers, contractually require us to notify them of data security breaches. If an actual or perceived breach of security measures, unauthorized access to our system or the systems of the third-party vendors that we rely upon, or any other cybersecurity threat occurs, we may face direct or indirect liability, costs, or damages, contract termination, our reputation in the industry and with current and potential customers may be compromised, our ability to attract new customers could be negatively affected, andservices, our business, financial condition, and results of operations could be materiallyadversely impacted.
Further, unauthorized accessservices of third parties, software services, and infrastructure, including but not limited to, in connection with our joint ventures, channel sales relationships, platform partnerships, strategic alliances, and other similar arrangements where applicable. As such, we must continuously modify and enhance our platforms to adapt to changes in, or our third-party vendors’ informationto be integrated or otherwise compatible with, hardware, software, networking, browser, and database technologies. In the future, one or more technology systems or data or other security breaches could result in the loss of information; significant remediation costs; litigation, disputes, regulatory action, or investigations that could result in damages, material fines, and penalties; indemnity obligations; interruptions incompanies may choose not to support the operation of their hardware, software, or infrastructure, or our platforms may not support the capabilities needed to operate with such hardware, software, or infrastructure. In addition, to the extent that a third party were to develop software or services that compete with ours, that provider may choose not to support one or more of our platforms. We intend to facilitate the compatibility of our platforms with various third-party hardware, software, and infrastructure by maintaining and expanding our business includingand technical relationships. If we are not successful in achieving this goal, our ability to provide new product features, new platforms, or services to our customers; damage to our operation technology networksbusiness, financial condition, and information technology systems; and other liabilities. Moreover, our remediation efforts may not be successful. Any or all of these issues, or the perception that any of them have occurred, could negatively affect our ability to attract new customers, cause existing customers to terminate or not renew their agreements, hinder our ability to obtain and maintain required or desirable cybersecurity certifications, and result in reputational damage, any of which could materially adversely affect our results of operations financial condition, and future prospects. There cancould be no assurance that any limitations of liability provisions in our license arrangements with customers or in our agreements with vendors, partners, or others would be enforceable, applicable, or adequate or would otherwise protect us from any such liabilities or damages with respect to any particular claim.
We maintain cybersecurity insurance and other types of insurance, subject to applicable deductibles and policy limits, but our insurance may not be sufficient to cover all costs associated with a potential data security incident. We also cannot be sure that our existing general liability insurance coverage and coverage for cyber liability or errors or omissions will continue to be available on acceptable terms or will be available in sufficient amounts to cover one or more large claims or that the insurer will not deny coverage as to any future claim. The successful assertion of one or more large claims against us that exceed available insurance coverage, or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could harm our financial condition.
If we fail to manage future growth effectively, our business could be harmed.
local employers in these regions for talent. If we fail to attract new personnel or fail to retain and motivate our current personnel who are capable of meeting our growing technical, operational, and managerial requirements on a timely basis or at all, our business may be harmed.
In order to successfully scale our unique sales model, we must, and we intend to increase the size of our direct sales force, both in the United States and outside of the United States, to generate additional revenue from new and existing customers.customers while preserving the cultural and mission-oriented elements of our company. If we do not hire a sufficient number of qualified sales personnel, our future revenue growth and business could be adversely impacted. It may take a significant period of time before our sales personnel are fully trained and productive, particularly in light of our unique sales model, and there is no guarantee we will be successful in adequately training and effectively deploying our sales personnel. In addition, we have invested, and may need to continue investing, significant resources in our sales operations to enable our sales organization to run effectively and efficiently, including supporting sales strategy planning, sales process optimization, data analytics and reporting, and administering incentive compensation arrangements. Furthermore, hiring personnel in new countries requires additional setup and upfront costs that we may not recover if those personnel fail to achieve full productivity in a timely manner. Our business would be adversely affected if our efforts to build, expand, train, and manage our sales organization are not successful. We periodically change and make adjustments to our sales organization in response to market opportunities, competitive threats, management changes, product introductions or enhancements, acquisitions, sales performance, increases in sales headcount, cost levels, and other internal and external considerations. Any future sales organization changes may result in a temporary reduction of productivity, which could negatively affect our rate of growth. In addition, any significant change to the way we structure and implement the compensation of our sales organization may be disruptive or may not be effective and may affect our revenue growth. If we are unable to attract, hire, develop, retain, and motivate qualified sales personnel, if our new sales personnel are unable to achieve sufficient sales productivity levels in a reasonable period of time or at all, if our marketing programs are not effective or if we are unable to effectively build, expand, and manage our sales organization and operations, our sales and revenue may grow more slowly than expected or materially decline, and our business may be significantly harmed.
enterprise and government customers require higher levels of servicesservice than
•cause certain customers to cease doing business with us;
•impair our ability to attract new customers, or to expand our relationships with existing customers;
•diminish our ability to recruit, hire, or retain employees;
•undermine our standing in professional communities to which we contribute and from which we receive expert knowledge; or
•prompt us to cease doing business with certain customers.
time, which could adversely impact our business, financial condition, and results of operations.
We have entered into, and expect in the future to enter into, agreements with our customers that include exclusivity arrangements or unique contractual, pricing, or pricingpayment terms, which may result in significant risks or liabilities to us.
Historically, we
the receipt of noncash consideration. Our ability to sell or transfer, convert to cash, or realize value from, any noncash consideration we have received, or may receive in the future, in a timely manner or at all, may be limited by, among other things, applicable securities law and regulations, and global market and macroeconomic conditions, which could adversely impact our business, financial condition, cash flows, and results of operations.
Greater•greater name recognition, longer operating histories, and larger customer bases;
Larger•larger sales and marketing budgets and resources and the capacity to leverage their sales efforts and marketing expenditures across a broader portfolio of products;
Broader,•broader, deeper, or otherwise more established relationships with technology, channel and distribution partners, and customers;
Wider•wider geographic presence or greater access to larger potential customer bases;
Greater•greater focus in specific geographies;
Lower•lower labor and research and development costs;
Larger•larger and more mature intellectual property portfolios; and
Substantially•substantially greater financial, technical, and other resources to provide services, to make acquisitions, and to develop and introduce new products and capabilities.
provider rather than a new provider regardless of platform performance or features. As a result, even if the features of our platforms offer advantages that others do not, customers may not purchase our platforms. These larger competitors often have broader product lines and market focus or greater resources and may therefore not be as susceptible to economic downturns or other significant reductions in capital spending by customers. If we are unable to sufficiently differentiate our platforms from the integrated or bundled products of our competitors, such as by offering enhanced functionality, performance, or value, we may see a decrease in demand for those platforms, which could adversely affect our business, financial condition, and results of operations.
Our business is subject to complex and evolving U.S. and non-U.S. laws and regulations regarding privacy, data protection and security, technology protection, and other matters. Many of these laws and regulations are subject to change and uncertain interpretation, and could result in claims, changes to our business practices, monetary penalties, increased cost of operations, or otherwise harm our business.
We are subject to a variety of local, state, national, and international laws and directives and regulations in the United States and abroad that involve matters central to our business, including privacy and data protection, data security, data storage, retention, transfer and deletion, technology protection, and personal information. Foreign data protection, data security, privacy, and other laws and regulations can impose different obligations or be more restrictive than those in the United States. These U.S. federal and state and foreign laws and regulations, which, depending on the regime, may be enforced by private parties or government entities, are constantly evolving and can be subject to significant change, and they are likely to remain uncertain for the foreseeable future. In addition, the application, interpretation, and enforcement of these laws and regulations are often uncertain, particularly in the new and rapidly evolving software and technology industry in which we operate, and may be interpreted and applied inconsistently from country to country and inconsistently with our current policies and practices. A number of proposals are pending before U.S. federal, state, and foreign legislative and regulatory bodies that could significantly affect our business. For example, ongoing legal challenges in Europe to the mechanisms allowing companies to transfer personal data from the European Economic Area to certain other jurisdictions, including the United States, could result in further limitations on the ability to transfer data across borders, particularly if governments are unable or unwilling to reach new or maintain existing agreements that
permit cross-border data transfers. The California state legislature passed the California Consumer Privacy Act (“CCPA”) in 2018 which regulates the processing of personal information of California residents and increases the privacy and security obligations of entities handling certain personal information of California residents, including requiring covered companies to provide new disclosures to California consumers, and affords such consumers new abilities to opt-out of certain sales of personal information. The CCPA came into effect on January 1, 2020, and the California Attorney General may bring enforcement actions, with penalties for violations of the CCPA, commencing on July 1, 2020. While aspects of the CCPA and its interpretation remain to be determined in practice, we are committed to comply with its obligations. We cannot yet fully predict the impact of the CCPA on our business or operations, but developments regarding the CCPA and all privacy and data protection laws and regulations around the world may require us to modify our data processing practices and policies and to incur substantial costs and expenses in an effort to maintain compliance on an ongoing basis. Moreover, a new privacy law, the California Privacy Rights Act was recently approved by California voters, which significantly modifies the CCPA, potentially resulting in further uncertainty and requiring us to incur additional costs and expenses in an effort to comply.
Outside of the United States, virtually every jurisdiction in which we operate has established its own legal framework relating to privacy, data protection, and information security matters with which we and/or our customers must comply. Laws and regulations in these jurisdictions apply broadly to the collection, use, storage, retention, disclosure, security, transfer, and other processing of data that identifies or may be used to identify or locate an individual. Some countries and regions, including the European Union, are considering or have passed legislation that imposes significant obligations in connection with privacy, data protection, and information security that could increase the cost and complexity of delivering our platforms and services, including the European General Data Protection Regulation (“GDPR”) which took effect in May 2018. Complying with the GDPR or other data protection laws and regulations as they emerge may cause us to incur substantial operational costs or require us to modify our data handling practices on an ongoing basis. Non-compliance with the GDPR specifically may result in administrative fines or monetary penalties of up to 4% of worldwide annual revenue in the preceding financial year or €20 million (whichever is higher) for the most serious infringements, and could result in proceedings against us by governmental entities or other related parties and may otherwise adversely impact our business, financial condition, and results of operations.
The overarching complexity of privacy and data protection laws and regulations around the world pose a compliance challenge that could manifest in costs, damages, or liability in other forms as a result of failure to implement proper programmatic controls, failure to adhere to those controls, or the malicious or inadvertent breach of applicable privacy and data protection requirements by us, our employees, our business partners, or our customers.
In addition to government regulation, self-regulatory standards and other industry standards may legally or contractually apply to us, be argued to apply to us, or we may elect to comply with such standards or to facilitate our customers’ compliance with such standards. Because privacy, data protection, and information security are critical competitive factors in our industry, we may make statements on our website, in marketing materials, or in other settings about our data security measures and our compliance with, or our ability to facilitate our customers’ compliance with, these standards. We also expect that there will continue to be new proposed laws and regulations concerning privacy, data protection, and information security, and we cannot yet determine the impact such future laws, regulations and standards, or amendments to or re-interpretations of existing laws and regulations, industry standards, or other obligations may have on our business. New laws, amendments to or re-interpretations of existing laws and regulations, industry standards, and contractual and other obligations may require us to incur additional costs and restrict our business operations. As these legal regimes relating to privacy, data protection, and information security continue to evolve, they may result in ever-increasing public scrutiny and escalating levels of enforcement and sanctions. Furthermore, because the interpretation and application of laws, standards, contractual obligations and other obligations relating to privacy, data protection, and information security are uncertain, these laws, standards, and contractual and other obligations may be interpreted and applied in a manner that is, or is alleged to be, inconsistent with our data management practices,
our policies or procedures, or the features of our platforms. If so, in addition to the possibility of fines, lawsuits, and other claims, we could be required to fundamentally change our business activities and practices or modify our platforms, which could have an adverse effect on our business. We may be unable to make such changes and modifications in a commercially reasonable manner or at all, and our ability to fulfill existing obligations, make enhancements, or develop new platforms and features could be limited. Furthermore, the costs of compliance with, and other burdens imposed by, the laws, regulations, and policies that are applicable to the businesses of our customers may limit the use and adoption of, and reduce the overall demand for, our platforms.
These existing and proposed laws and regulations can be costly to comply with and can make our platforms and services less effective or valuable, delay or impede the development of new products, result in negative publicity, increase our operating costs, require us to modify our data handling practices, limit our operations, impose substantial fines and penalties, require significant management time and attention, or put our data or technology at risk. Any failure or perceived failure by us or our platforms to comply with U.S., European Union, or other foreign laws, regulations, directives, policies, industry standards, or legal obligations relating to privacy, data protection, or information security, or any security incident that results in loss of or the unauthorized access to, or acquisition, use, release, or transfer of, personal information, personal data, or other customer or sensitive data sensitive data or information may result in governmental investigations, inquiries, enforcement actions and prosecutions, private claims and litigation, indemnification or other contractual obligations, other remedies, including fines or demands that we modify or cease existing business practices, or adverse publicity, and related costs and liabilities, which could significantly and adversely affect our business and results of operations.
Our policies regarding customer confidential information and support for individual privacy and civil liberties could cause us to experience adverse business and reputational consequences.
We strive to protect our customers’ confidential information and individuals’ privacy consistent with applicable laws, directives, and regulations. Consequently, we do not provide information about our customers to third parties without legal process. From time to time, government entities may seek our assistance with obtaining information about our customers or could request that we modify our platforms in a manner to permit access or monitoring. In light of our confidentiality and privacy commitments, we may legally challenge law enforcement or other government requests to provide information, to obtain encryption keys, or to modify or weaken encryption. To the extent that we do not provide assistance to or comply with requests from government entities, or if we challenge those requests publicly or in court, we may experience adverse political, business, and reputational consequences among certain customers or portions of the public. Conversely, to the extent that we do provide such assistance, or do not challenge those requests publicly in court, we may experience adverse political, business, and reputational consequences from other customers or portions of the public arising from concerns over privacy or the government’s activities.
A significant portion of our business depends on sales to the public sector, and our failure to receive and maintain government contracts or changes in the contracting or fiscal policies of the public sector could have a material adverse effect on our business.
We derive a significant portion of our revenue from contracts with federal, state, local, and foreign governments and government agencies, and we believe that the success and growth of our business will continue to depend on our successful procurement of government contracts. For example, we have historically derived, and expect to continue to derive, a significant portion of our revenue from sales to agencies of the U.S. federal government, either directly by us or through other government contractors. Our perceived relationship with the U.S. government could adversely affect our business prospects in certain non-U.S. geographies or with certain non-U.S. governments.
Sales to such government agencies are subject to a number of challenges and risks. Selling to government agencies can be highly competitive, expensive, and time-consuming, often requiring significant upfront time and expense without any assurance that these efforts will generate a sale. We also must comply with laws and
regulations relating to the formation, administration, and performance of contracts, which provide public sector customers rights, many of which are not typically found in commercial contracts.
Accordingly, our business, financial condition, results of operations, and growth prospects may be adversely affected by certain events or activities, including, but not limited to:
Changes in fiscal or contracting policies or decreases in available government funding;
Changes in government programs or applicable requirements;
Restrictions in the grant of personnel security clearances to our employees;
Ability to maintain facility clearances required to perform on classified contracts for U.S. federal government agencies;
Changes in the political environment, including before or after a change to the leadership within the government administration, and any resulting uncertainty or changes in policy or priorities and resultant funding;
Changes in the government’s attitude towards the capabilities that we offer, especially in the areas of national defense, cybersecurity, and critical infrastructure, including the financial, energy, telecommunications, and healthcare sectors;
Changes in the government’s attitude towards us as a company or our platforms as viable or acceptable software solutions;
Appeals, disputes, or litigation relating to government procurement, including but not limited to bid protests by unsuccessful bidders on potential or actual awards of contracts to us or our partners by the government;
The adoption of new laws or regulations or changes to existing laws or regulations;
Budgetary constraints, including automatic reductions as a result of “sequestration” or similar measures and constraints imposed by any lapses in appropriations for the federal government or certain of its departments and agencies;
Influence by, or competition from, third parties with respect to pending, new, or existing contracts with government customers;
Changes in political or social attitudes with respect to security or data privacy issues;
Potential delays or changes in the government appropriations or procurement processes, including as a result of events such as war, incidents of terrorism, natural disasters, and public health concerns or epidemics, such as the recent coronavirus outbreak; and
Increased or unexpected costs or unanticipated delays caused by other factors outside of our control, such as performance failures of our subcontractors.
Any such event or activity, among others, could cause governments and governmental agencies to delay or refrain from purchasing our platforms and services in the future, reduce the size or payment amounts of purchases from existing or new government customers, or otherwise have an adverse effect on our business, results of operations, financial condition, and growth prospects.
Issues in the use of artificial intelligence (“AI”), (including machine learning) in our platforms may result in reputational harm or liability.
AI is enabled by or integrated into some of our platforms and is a significant and potentially growing element of our business. As with many developing technologies, AI presents risks and challenges that could affect its further development, adoption, and use, and therefore our business. AI algorithms may be flawed. Datasets may be
insufficient, of poor quality, or contain biased information. Inappropriate or controversial data practices by data scientists, engineers, and end-users of our systems could impair the acceptance of AI solutions. If the recommendations, forecasts, or analyses that AI applications assist in producing are deficient or inaccurate, we could be subjected to competitive harm, potential legal liability, and brand or reputational harm. Some AI scenarios present ethical issues. Though our technologies and business practices are designed to mitigate many of these risks, if we enable or offer AI solutions that are controversial because of their purported or real impact on human rights, privacy, employment, or other social issues, we may experience brand or reputational harm.
Our culture emphasizes rapid innovation and advancement of successful hires who may notin some cases have limited prior industry expertise and prioritizes customer satisfactionoutcomes over short-term financial results, and if we cannot maintain or properly manage our culture as we grow, our business may be harmed.
We do not work with the Chinese communist party and have chosen not to host our platforms in China, which may limit our growth prospects.
maintaining our relationships with these partners, our ability to compete in a given marketplace or to grow our revenue would be impaired, and our results of operations may suffer. Even if we are successful in establishing and maintaining these relationships with our partners, we cannot assure you that these relationships will result in increased customer usage of our platforms or increased revenue.
Additionally, if our partners’ brand, reputation, or products are negatively impacted in any way, that could impact our expected outcomes in those markets.
Increased•increased leverage held by large customers in negotiating contractual arrangements with us;
Changes•changes in key decisionmakersdecision makers within these organizations that may negatively impact our ability to negotiate in the future;
Customer•customer IT departments may perceive that our platforms and services pose a threat to their internal control and advocate for legacy or internally developed solutions over our platforms;
Resources
More•more stringent requirements in our service contracts, including stricter service response times, and increased penalties for any failure to meet service requirements;
Increased•increased competition from larger competitors, such as defense contractors, system integrators, or large software and service companies that traditionally target large enterprises and government entities and that may already have purchase commitments from those customers; and
Less•less predictability in completing some of our sales than we do with smaller customers.
require additional investment of time and human resources to train the third parties and allow third parties (who may be building competitive projects or engaging in other competitive activities) to influence our customers’ perception of our platforms. All these factors can add further risk to business conducted with these customers. If sales expected from a large customer for a particular quarter are not realized in that quarter or at all, our business, financial condition, results of operations, and growth prospects could be materially and adversely affected.
The outbreak of the novel coronavirusoperations, and the COVID-19 disease that it causes has evolved into a global pandemic. In lightduration and extent to which these factors may impact our future business, financial condition, and results of operations remain uncertain.
Historically, a significant portiontravel restrictions, many of our field sales, operations and maintenance, and professional services activities were conducted remotely, and a majority of our workforce worked remotely. We have been conducted in person. Currently, asreopened our offices and have allowed business travel to resume, but some of our employees will continue to work remotely. We have a resultlimited history of the work and travel restrictions related to the COVID-19 pandemic, and the precautionary measuresoperating with a hybrid workforce. There is no guarantee that we have adopted, substantially all of our field sales and professional services activities are being conducted remotely, which has resulted in a decrease in our travel expenditures. However, we expect our travel expenditureswill realize any anticipated benefits to increase in the future, which could negatively impact our financial condition and results of operations. As of the date of this Quarterly Report on Form 10-Q, we do not yet know the extent of the negative impact of such restrictions and precautionary measures on our ability to attract new customers or retain and expand our relationships with existing customers.
In addition, COVID-19 may disrupt the operations of our customers and partners for an indefinite period of time, including as a result of travel restrictions and/or business shutdowns, all of which could negatively impact our business financial condition, and results of operations.
Furthermore, as a result of the COVID-19 pandemic, we are not requiring employees who are able to work remotely to come into the office through the end of June 2021.from this model, including cost savings, operational efficiencies, or productivity. It is also possible that widespread remote work arrangements may have a negative impact on our operations,operations; the execution of our business plans,plans; our ability to recruit, train, manage, and retain employees; our ability to maintain and strengthen our company culture; the productivity and availability of key personnel and other employees necessary to conduct our business,business; and on third-party service providers who perform critical services for us, or otherwise cause operational failures due to changes in our normal business practices necessitated by the outbreak and related governmental actions.practices. If a natural disaster, power outage, connectivity issue, or other event occurred that impacted our employees’ ability to work remotely, it may be difficult or, in certain cases, impossible, for us to continue our business for a substantial period of time. The increase in remote working may also result in increased consumer privacy, data security, and fraud risks, and our understanding of applicable legal and regulatory requirements, as well as the latest guidance from regulatory authorities, in connection with the COVID-19 pandemic, may be subject to legal or regulatory challenge, particularly as regulatory guidance evolves in response to future developments.
More generally, If we are unable to successfully address the COVID-19 pandemic hasforegoing risks and is expected to continue to adversely affect economies and financial markets globally, leading to a continued economic downturn, which is expected to decrease technology spending generally and could adversely affect demand for our platforms and services. It is not possible at this time to estimate the full impact that COVID-19 will have onchallenges as we encounter them, our business as the impact will depend on future developments, which are highly uncertain and cannotoperations could be predicted.
adversely affected.
We depend on computing infrastructure operated by Amazon Web Services (“AWS”), Microsoft, and other third parties to support some of our customers and any errors, disruption, performance problems, or failure in their or our operational infrastructure could adversely affect our business, financial condition, and results of operations.
We rely on the technology, infrastructure, and software applications, including software-as-a-service offerings, of certain third parties, such as AWS and Microsoft Azure, in order to host or operate some or all of certain key platform features or functions of our business, including our cloud-based services (including Palantir Cloud), customer relationship management activities, billing and order management, and financial accounting services. Additionally, we rely on computer hardware purchased in order to deliver our platforms and services. We do not have control over the operations of the facilities of the third parties that we use. If any of these third-party services experience errors, disruptions, security issues, or other performance deficiencies, if they are updated such that our platforms become incompatible, if these services, software, or hardware fail or become unavailable due to extended outages, interruptions, defects, or otherwise, or if they are no longer available on commercially reasonable terms or prices (or at all), these issues could result in errors or defects in our platforms, cause our platforms to fail, our revenue and margins could decline, or our reputation and brand to be damaged, we could be exposed to legal or contractual liability, our expenses could increase, our ability to manage our operations could be interrupted, and our processes for managing our sales and servicing our customers could be impaired until equivalent services or technology, if available, are identified, procured, and implemented, all of which may take significant time and resources, increase our costs, and could adversely affect our business. Many of these third-party providers attempt to impose limitations on their liability for such errors, disruptions, defects, performance deficiencies, or failures, and if enforceable, we may have additional liability to our customers or third-party providers.
We have experienced, and may in the future experience, disruptions, failures, data loss, outages, and other performance problems with our infrastructure and cloud-based offerings due to a variety of factors, including infrastructure changes, introductions of new functionality, human or software errors, employee misconduct, capacity constraints, denial of service attacks, phishing attacks, computer viruses, malicious or destructive code, or other security-related incidents, and our disaster recovery planning may not be sufficient for all situations. If we experience disruptions, failures, data loss, outages, or other performance problems, our business, financial condition, and results of operations could be adversely affected.
Our systems and the third-party systems upon which we and our customers rely are also vulnerable to damage or interruption from catastrophic occurrences such as earthquakes, floods, fires, power loss, telecommunication failures, cybersecurity threats, terrorist attacks, natural disasters, public health crises such as the COVID-19 pandemic, geopolitical and similar events, or acts of misconduct. Moreover, we have business operations in the San Francisco Bay Area, which is a seismically active region. Despite any precautions we may take, the occurrence of a catastrophic disaster or other unanticipated problems at our or our third-party vendors’ hosting facilities, or within our systems or the systems of third parties upon which we rely, could result in interruptions,
performance problems, or failure of our infrastructure, technology, or platforms, which may adversely impact our business. In addition, our ability to conduct normal business operations could be severely affected. In the event of significant physical damage to one of these facilities, it may take a significant period of time to achieve full resumption of our services, and our disaster recovery planning may not account for all eventualities. In addition, any negative publicity arising from these disruptions could harm our reputation and brand and adversely affect our business.
Furthermore, our platforms are in many cases important or essential to our customers’ operations, including in some cases, their cybersecurity or oversight and compliance programs, and subject to service level agreements (“SLAs”). Any interruption in our service, whether as a result of an internal or third-party issue, could damage our brand and reputation, cause our customers to terminate or not renew their contracts with us or decrease use of our platforms and services, require us to indemnify our customers against certain losses, result in our issuing credit or paying penalties or fines, subject us to other losses or liabilities, cause our platforms to be perceived as unreliable or unsecure, and prevent us from gaining new or additional business from current or future customers, any of which could harm our business, financial condition, and results of operations.
Moreover, to the extent that we do not effectively address capacity constraints, upgrade our systems as needed, and continually develop our technology and network architecture to accommodate actual and anticipated changes in technology, our business, financial condition, and results of operations could be adversely affected. The provisioning of additional cloud hosting capacity requires lead time. AWS, Microsoft Azure, and other third parties have no obligation to renew their agreements with us on commercially reasonable terms, or at all. If AWS, Microsoft Azure, or other third-parties increase pricing terms, terminate or seek to terminate our contractual relationship, establish more favorable relationships with our competitors, or change or interpret their terms of service or policies in a manner that is unfavorable with respect to us, we may be required to transfer to other cloud providers or invest in a private cloud. If we are required to transfer to other cloud providers or invest in a private cloud, we could incur significant costs and experience possible service interruption in connection with doing so, or risk loss of customer contracts if they are unwilling to accept such a change.
A failure to maintain our relationships with our third-party providers (or obtain adequate replacements), and to receive services from such providers that do not contain any material errors or defects, could adversely affect our ability to deliver effective products and solutions to our customers and adversely affect our business and results of operations.
The competitive position of our platforms depends in part on their ability to operate with third-party products and services, and if we are not successful in maintaining and expanding the compatibility of our platforms with such third-party products and services, business, financial condition, and results of operations could be adversely impacted.
The competitive position of our platforms depends in part on their ability to operate with products and services of third parties, software services, and infrastructure. As such, we must continuously modify and enhance our platforms to adapt to changes in hardware, software, networking, browser, and database technologies. In the future, one or more technology companies may choose not to support the operation of their hardware, software, or infrastructure, or our platforms may not support the capabilities needed to operate with such hardware, software, or infrastructure. In addition, to the extent that a third-party were to develop software or services that compete with ours, that provider may choose not to support one or more of our platforms. We intend to facilitate the compatibility of our platforms with various third-party hardware, software, and infrastructure by maintaining and expanding our business and technical relationships. If we are not successful in achieving this goal, our business, financial condition, and results of operations could be adversely impacted.
Our non-U.S. sales and operations subject us to additional risks and regulations that can adversely affect our results of operations.
Our successes to date have primarily come from customers in relatively stable and developed countries, but we are in the process of entering new and emerging markets in non-U.S. countries, including with COVID-19 response efforts and defense, law enforcement, national security, and other government agencies, as part of our growth strategy. These new and emerging markets may involve uncertain business, technology, and economic risks and may be difficult or impossible for us to penetrate, even if we were to commit significant resources to do so.
We currently have sales personnel and sales and services operations in the United States and certain countries around the world. To the extent that we experience difficulties in recruiting, training, managing, or retaining non-U.S. staff, and specifically sales management and sales personnel staff, we may experience difficulties in sales productivity in, or market penetration of, non-U.S. markets. Our ability to convince customers to expand their use of our platforms or renew their subscription, license, or maintenance and service agreements with us is correlated to, among other things, our direct engagement with the customer. To the extent we are restricted or unable to engage with non-U.S. customers effectively with our limited sales force and services capacity, we may be unable to grow sales to existing customers to the same degree we have experienced in the United States.
Our non-U.S. operations subject us to a variety of risks and challenges, including:
Increased management, travel, infrastructure, and legal and financial compliance costs and time associated with having multiple non-U.S. operations, including but not limited to compliance with local employment laws and other applicable laws and regulations;
Longer payment cycles, greater difficulty in enforcing contracts, difficulties in collecting accounts receivable, especially in emerging markets, and the likelihood that revenue from non-U.S. system integrators, government contractors, and customers may need to be recognized when cash is received, at least until satisfactory payment history has been established, or upon confirmation of certain acceptance criteria or milestones;
The need to adapt our platforms for non-U.S. customers whether to accommodate customer preferences or local law;
Differing regulatory and legal requirements and possible enactment of additional regulations or restrictions on the use, import, or re-export of our platforms or the provision of services, which could delay, restrict, or prevent the sale or use of our platforms and services in some jurisdictions;
Compliance with multiple and changing foreign laws and regulations, including those governing employment, privacy, data protection, information security, data transfer, and the risks and costs of non-compliance with such laws and regulations;
New and different sources of competition not present in the United States;
Heightened risks of unfair or corrupt business practices in certain geographies and of improper or fraudulent sales arrangements that may cause us to withdraw from particular markets, or impact financial results and result in restatements of financial statements and irregularities in financial statements;
Volatility in non-U.S. political and economic environments, including by way of examples, the potential effects of COVID-19 and the United Kingdom’s departure from the European Union;
Weaker protection of intellectual property rights in some countries and the risk of potential theft, copying, or other compromises of our technology, data, or intellectual property in connection with our non-U.S. operations, whether by state-sponsored malfeasance or other foreign entities or individuals;
Volatility and fluctuations in currency exchange rates, including that, because many of our non-U.S. contracts are denominated in U.S. dollars, an increase in the strength of the U.S. dollar may make doing business with us less appealing to a non-U.S. dollar denominated customer;
Management and employee communication and integration problems resulting from language differences, cultural differences, and geographic dispersion;
Difficulties in repatriating or transferring funds from, or converting currencies in, certain countries;
Potentially adverse tax consequences, including multiple and possibly overlapping tax regimes, the complexities of foreign value-added tax systems, and changes in tax rates;
Lack of familiarity with local laws, customs, and practices, and laws and business practices favoring local competitors or partners; and
Interruptions to our business operations and our customers’ business operations subject to events such as war, incidents of terrorism, natural disasters, public health concerns or epidemics (such as the recent COVID-19 outbreak), shortages or failures of power, internet, telecommunications, or hosting service providers, cyberattacks or malicious acts, or responses to these events.
In addition to the factors above, foreign governments may take administrative, legislative, or regulatory action that could materially interfere with our ability to sell our platforms in certain countries. For example, foreign governments may require a percentage of prime contracts be fulfilled by local contractors or provide special incentives to government-backed local customers to buy from local competitors, even if their products are inferior to ours. Moreover, both the U.S. government and foreign governments may regulate the acquisition of or import of our technologies or our entry into certain foreign markets or partnership with foreign third parties through investment screening or other regulations. Such regulations may apply to certain non-U.S. joint ventures, platform partnerships and strategic alliances that may be integral to our long-term business strategy.
Compliance with laws and regulations applicable to our non-U.S. operations increases our cost of doing business in foreign jurisdictions. We may be unable to keep current with changes in foreign government requirements and laws as they change from time to time. Failure to comply with these regulations could subject us to investigations, sanctions, enforcement actions, disgorgement of profits, fines, damages, civil and criminal penalties, injunctions, or other collateral consequences. In many foreign countries, it is common for others to engage in business practices that are prohibited by our internal policies and procedures or U.S. regulations applicable to us. In addition, although we have implemented policies and procedures designed to ensure compliance with these laws and policies, there can be no assurance that all of our employees, contractors, partners, and agents will comply with these laws and policies. Violations of laws or key control policies by our employees, contractors, partners, or agents could result in delays in revenue recognition, financial reporting misstatements, governmental sanctions, fines, penalties, or the prohibition of the importation or exportation of our platforms. In addition, responding to any action may result in a significant diversion of management’s attention and resources and an increase in professional fees. Enforcement actions and sanctions or failure to prevail in any possible civil or criminal litigation could harm our business, reputation, financial condition, and results of operations.
Also, we are expanding operations, including our work with existing commercial customers, into countries in Asia, Europe, the Middle East, and elsewhere, which may place restrictions on the transfer of data and potentially the import and use of foreign encryption technology. Any of these risks could harm our non-U.S. operations and reduce our non-U.S. sales, adversely affecting our business, results of operations, financial condition, and growth prospects.
Some of our business partners also have non-U.S. operations and are subject to the risks described above. Even if we are able to successfully manage the risks of our own non-U.S. operations, our business may be adversely affected if our business partners are not able to successfully manage these risks.
Failure to comply with governmental laws and regulations could harm our business, and we have been, and expect to be, the subject of legal and regulatory inquiries, which may result in monetary payments or may otherwise negatively impact our reputation, business, and results of operations.
Our business is subject to regulation by various federal, state, local, and foreign governments in which we operate. In certain jurisdictions, the regulatory requirements imposed by foreign governments may be more stringent than those in the United States. Noncompliance with applicable regulations or requirements could subject us to investigations, administrative proceedings, sanctions, enforcement actions, disgorgement of profits, fines, damages, litigation, civil and criminal penalties, termination of contracts, exclusion from sales channels or sales opportunities, injunctions, or other consequences. Such matters may include, but are not limited to, claims, disputes, allegations, or investigations related to alleged violations of laws or regulations relating to anticorruption requirements, lobbying or conflict-of-interest requirements, export or other trade controls, data privacy or data protection requirements, or laws or regulations relating to employment, procurement, cybersecurity, securities, or antitrust/competition requirements. The effects of recently imposed and proposed actions are uncertain because of the dynamic nature of governmental action and responses. We may be subject to government inquiries that drain our time and resources, tarnish our brand among customers and potential customers, prevent us from doing business with certain customers or markets, including government customers, affect our ability to hire, attract and maintain qualified employees, or require us to take remedial action or pay penalties. From time to time, we receive formal and informal inquiries from governmental agencies and regulators regarding our compliance with laws and regulations or otherwise relating to our business or transactions. Any negative outcome from such inquiries or investigations or failure to prevail in any possible civil or criminal litigation could adversely affect our business, reputation, financial condition, results of operations, and growth prospects.
We have contracts with governments that involve classified programs, which may limit investor insight into portions of our business.
We derive a portion of our revenue from programs with governments and government agencies that are subject to security restrictions (e.g., contracts involving classified information, classified contracts, and classified programs), which preclude the dissemination of information and technology that is classified for national security purposes under applicable law and regulation. In general, access to classified information, technology, facilities, or programs requires appropriate personnel security clearances, is subject to additional contract oversight and potential liability, and may also require appropriate facility clearances and other specialized infrastructure. In the event of a security incident involving classified information, technology, facilities, or programs or personnel holding clearances, we may be subject to legal, financial, operational, and reputational harm. We are limited in our ability to provide specific information about these classified programs, their risks, or any disputes or claims relating to such programs. As a result, investors have less insight into our classified programs than our other businesses and therefore less ability to fully evaluate the risks related to our classified business or our business overall. However, historically the business risks associated with our work on classified programs have not differed materially from those of our other government contracts.
Our business could be adversely affected if our employees cannot obtain and maintain required personnel security clearances or we cannot establish and maintain a required facility security clearance.
Certain U.S. government contracts may require our employees to maintain various levels of security clearances and may require us to maintain a facility security clearance to comply with Department of Defense and other U.S. government agency requirements. The government has strict security clearance requirements for personnel who perform work in support of classified programs. Obtaining and maintaining security clearances for employees involves a lengthy process, and it is difficult to identify, recruit, and retain employees who already hold security clearances. If our employees are unable to obtain security clearances in a timely manner, or at all, or if our employees who hold security clearances are unable to maintain their clearances or terminate employment with us, then we may be unable to comply with Department of Defense and other U.S. government agency requirements, or our customers requiring classified work could choose to terminate or decide not to
renew one or more contracts requiring employees to obtain or maintain security clearances upon expiration. To the extent we are not able to obtain or maintain a facility security clearance, we may not be able to bid on or win new classified contracts, and existing contracts requiring a facility security clearance could be terminated, either of which would have an adverse impact on our business, financial condition, and results of operations.
The majority of our customer contracts may be terminated by the customer at any time for convenience and may contain other provisions permitting the customer to discontinue contract performance, and if terminated contracts are not replaced, our results of operations may differ materially and adversely from those anticipated. In addition, our contracts with government customers often contain provisions with additional rights and remedies favorable to such customers that are not typically found in commercial contracts.
The majority of our contracts, including our government contracts, contain termination for convenience provisions. Customers that terminate such contracts may also be entitled to a pro rata refund of the amount of the customer deposit for the period of time remaining in the contract term after the applicable termination notice period expires. Government contracts often contain provisions and are subject to laws and regulations that provide government customers with additional rights and remedies not typically found in commercial contracts. These rights and remedies allow government customers, among other things, to:
Terminate existing contracts for convenience with short notice;
Reduce orders under or otherwise modify contracts;
For contracts subject to the Truth in Negotiations Act, reduce the contract price or cost where it was increased because a contractor or subcontractor furnished cost or pricing data during negotiations that was not complete, accurate, and current;
For some contracts, (i) demand a refund, make a forward price adjustment, or terminate a contract for default if a contractor provided inaccurate or incomplete data during the contract negotiation process and (ii) reduce the contract price under triggering circumstances, including the revision of price lists or other documents upon which the contract award was predicated;
Cancel multi-year contracts and related orders if funds for contract performance for any subsequent year become unavailable;
Decline to exercise an option to renew a multi-year contract or issue task orders in connection with indefinite delivery/indefinite quantity (“IDIQ”) contracts;
Claim rights in solutions, systems, or technology produced by us, appropriate such work-product for their continued use without continuing to contract for our services, and disclose such work-product to third parties, including other government agencies and our competitors, which could harm our competitive position;
Prohibit future procurement awards with a particular agency due to a finding of organizational conflicts of interest based upon prior related work performed for the agency that would give a contractor an unfair advantage over competing contractors, or the existence of conflicting roles that might bias a contractor’s judgment;
Subject the award of contracts to protest by competitors, which may require the contracting federal agency or department to suspend our performance pending the outcome of the protest and may also result in a requirement to resubmit offers for the contract or in the termination, reduction, or modification of the awarded contract;
Suspend or debar us from doing business with the applicable government; and
Control or prohibit the export of our services.
If a customer were to unexpectedly terminate, cancel, or decline to exercise an option to renew with respect to one or more of our significant contracts, or if a government were to suspend or debar us from doing business with such government, our business, financial condition, and results of operations would be materially harmed.
We may not realize the full deal value of our government contracts, which may result in lower than expected revenue.
As of September 30, 2020, 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 $1.3 billion. The majority of these contracts are subject to termination for convenience provisions, and 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 contracts with government customers will not be terminated or that contract options will be exercised.
We historically have not realized all of the revenue from the full deal value of our government contracts, and we may not do so in the future. This is because the actual timing and amount of revenue under contracts included are subject to various contingencies, including exercise of contractual options, customers not terminating their contracts, and renegotiations of contracts. In addition, delays in the completion of the U.S. government’s budgeting process, the use of continuing resolutions, and a potential lapse in appropriations could adversely affect our ability to timely recognize revenue under certain government contracts.
Failure to comply with laws, regulations, or contractual provisions applicable to our business could cause us to lose government customers or our ability to contract with the U.S. and other governments.
As a government contractor, we must comply with laws, regulations, and contractual provisions relating to the formation, administration, and performance of government contracts and inclusion on government contract vehicles, which affect how we and our partners do business with government agencies. As a result of actual or perceived noncompliance with government contracting laws, regulations, or contractual provisions, we may be subject to audits and internal investigations which may prove costly to our business financially, divert management time, or limit our ability to continue selling our platforms and services to our government customers. These laws and regulations may impose other added costs on our business, and failure to comply with these or other applicable regulations and requirements, including non-compliance in the past, could lead to claims for damages from our channel partners, penalties, and termination of contracts and suspension or debarment from government contracting for a period of time with government agencies. Any such damages, penalties, disruption, or limitation in our ability to do business with a government could adversely impact, and could have a material adverse effect on, our business, results of operations, financial condition, public perception, and growth prospects.
Evolving government procurement policies and increased emphasis on cost over performance could adversely affect our business.
Federal, state, local, and foreign governments and government agencies could implement procurement policies that negatively impact our profitability. Changes in procurement policy favoring more non-commercial purchases, different pricing, or evaluation criteria or government contract negotiation offers based upon the customer’s view of what our pricing should be may affect the predictability of our margins on such contracts or make it more difficult to compete on certain types of programs.
Governments and government agencies are continually evaluating their contract pricing and financing practices, and we have no assurance regarding the full scope and recurrence of any study and what changes will be proposed, if any, and their impact on our financial position, cash flows, or results of operations.
Increased competition and bid protests in a budget-constrained environment may make it more difficult to maintain our financial performance and customer relationships.
A substantial portion of our business is awarded through competitive bidding. Even if we are successful in obtaining an award, we may encounter bid protests from unsuccessful bidders on any specific award. Bid protests
could result, among other things, in significant expenses to us, contract modifications, or even loss of the contract award. Even where a bid protest does not result in the loss of a contract award, the resolution can extend the time until contract activity can begin and, as a result, delay the recognition of revenue. We also may not be successful in our efforts to protest or challenge any bids for contracts that were not awarded to us, and we would be required to incur significant time and expense in such efforts.
In addition, governments and agencies increasingly have relied on competitive contract award types, including IDIQ and other multi-award contracts, which have the potential to create pricing pressure and to increase our costs by requiring us to submit multiple bids and proposals. Multi-award contracts require us to make sustained efforts to obtain orders under the contract. The competitive bidding process entails substantial costs and managerial time to prepare bids and proposals for contracts that may not be awarded to us or may be split among competitors.
We are experiencing increased competition while, at the same time, many of our customers are facing budget pressures, cutting costs, identifying more affordable solutions, performing certain work internally rather than hiring contractors, and reducing product development cycles. To remain competitive, we must maintain consistently strong customer relationships, seek to understand customer priorities, and provide superior performance, advanced technology solutions, and service at an affordable cost with the agility that our customers require to satisfy their objectives in an increasingly price competitive environment. Failure to do so could have an adverse impact on our business, financial condition, and results of operations.
The U.S. government may procure non-commercial developmental services rather than commercial products, which could materially impact our future U.S. government business and revenue.
U.S. government agencies, including our customers, often award large developmental item and service contracts to build custom software rather than firm fixed-price contracts for commercial products. We sell commercial items and services and do not contract for non-commercial developmental services. The U.S. government is required to procure commercial items and services to the maximum extent practicable in accordance with FASA, 10 U.S.C. § 2377; 41 U.S.C. § 3307, and the U.S. government may instead decide to procure non-commercial developmental items and services if commercial items and services are not practicable. In order to challenge a government decision to procure developmental items and services instead of commercial items and services, we would be required to file a bid protest at the agency level and/or with the Government Accountability Office. This can result in contentious communications with government agency legal and contracting offices, and may escalate to litigation in federal court. The results of any future challenges or potential litigation cannot be predicted with certainty, however, and any dispute or litigation with the U.S. government may not be resolved in our favor; moreover, whether or not it is resolved in our favor, such disputes or litigation could result in significant expense and divert the efforts of our technical and management personnel. These proceedings could adversely affect our reputation and relationship with government customers and could also result in negative publicity, which could harm customer and public perception of our business. The enforcement of FASA has resulted in a significant increase in our business with the U.S. federal government. Any change in or repeal of FASA, or a contrary interpretation of FASA by a court of competent jurisdiction, would adversely affect our competitive position for U.S. federal government contracts.
A decline in the U.S. and other government budgets, changes in spending or budgetary priorities, or delays in contract awards may significantly and adversely affect our future revenue and limit our growth prospects.
Because we generate a substantial portion of our revenue from contracts with governments and government agencies, and in particular from contracts with the U.S. government and government agencies, our results of operations could be adversely affected by government spending caps or changes in government budgetary priorities, as well as by delays in the government budget process, program starts, or the award of contracts or orders under existing contract vehicles. Current U.S. government spending levels for defense-related and other programs may not be sustained beyond government fiscal year 2021. Future spending and program authorizations
may not increase or may decrease or shift to programs in areas in which we do not provide services or are less likely to be awarded contracts. Such changes in spending authorizations and budgetary priorities may occur as a result of shifts in spending priorities from defense-related and other programs as a result of competing demands for federal funds and the number and intensity of military conflicts or other factors.
When the United States Congress does not complete a budget before the end of the fiscal year, government operations typically are funded through one or more continuing resolutions that authorize agencies of the U.S. government to continue to operate consistent with funding levels from the prior year’s appropriated amounts, but do not authorize new spending initiatives. When the U.S. government operates under a continuing resolution, contract awards may be delayed, canceled, or funded at lower levels, which could adversely impact our business, financial condition, and results of operations. There is a possibility that post-election political decisions, the 2020 presidential and congressional campaigns, or an impasse on policy issues could threaten continuous government funding past September 30, 2020. While the federal government is currently funded in full through the end of government fiscal year 2020, there is a strong possibility that government fiscal year 2021 will begin under a continuing resolution, which has occurred regularly in recent election year appropriations cycles. If appropriations or continuing resolutions for the U.S. government departments and agencies with which we work or have prospective business are not made by September 30, 2020, the lapse in appropriations may also have negative impacts on our ability to continue work and to recognize revenue from those customers, for so long as the lapse continues. In addition, our business may be impacted due to shifts in the political environment and changes in the government and agency leadership positions in connection with the 2020 presidential election as well as future election cycles.
The U.S. government also conducts periodic reviews of U.S. defense strategies and priorities which may shift Department of Defense budgetary priorities, reduce overall spending, or delay contract or task order awards for defense-related programs from which we would otherwise expect to derive a significant portion of our future revenue. A significant decline in overall U.S. government spending, a significant shift in spending priorities, the substantial reduction or elimination of particular defense-related programs, or significant budget-related delays in contract or task order awards for large programs could adversely affect our future revenue and limit our growth prospects.
Adverse economic conditions or reduced technology spending may adversely impact our business.
Our business depends on the economic health of our current and prospective customers and overall demand for technology. In addition, the purchase of our platforms and services is often discretionary and typically involves a significant commitment of capital and other resources. A further downturn in economic conditions, global political and economic uncertainty, a lack of availability of credit, a reduction in business confidence and activity, the curtailment of government or corporate spending, public health concerns or emergencies, financial market volatility, and other factors have in the past and may in the future affect the industries to which we sell our platforms and services. Our customers may suffer from reduced operating budgets, which could cause them to defer or forego purchases of our platforms or services. Moreover, competitors may respond to market conditions by lowering prices and attempting to lure away our customers, and the increased pace of consolidation in certain industries may result in reduced overall spending on our offerings. Uncertainty about global and regional economic conditions, a downturn in the technology sector or any sectors in which our customers operate, or a reduction in information technology spending even if economic conditions are stable, could adversely impact our business, financial condition, and results of operations in a number of ways, including longer sales cycles, lower prices for our platforms and services, material default rates among our customers, reduced sales of our platforms or services, and lower or no growth.
We cannot predict the timing, strength, or duration of any crises, economic slowdown or any subsequent recovery generally, or for any industry in particular. Although certain aspects of the effects of a crisis or an economic slowdown may provide potential new opportunities for our business, we cannot guarantee that the net impact of any such events will not be materially negative. Accordingly, if the conditions in the general economy
and the markets in which we operate worsen from present levels, our business, financial condition, and results of operations could be adversely affected.
If the market for our platforms and services develops more slowly than we expect, our growth may slow or stall, and our business, financial condition, and results of operations could be harmed.
information and technology. Despite our efforts, third parties may attempt to disclose, obtain, copy, or use our intellectual property or other proprietary information or technology without our authorization, and our efforts to protect our intellectual property and other proprietary rights may not prevent such unauthorized disclosure or use, misappropriation, infringement, reverse engineering or other violation of our intellectual property or other proprietary rights. Effective protection of our rights may not be available to us in every country in which our technology platforms or services are available. The laws of some countries may not be as protective of intellectual property and other proprietary rights as those in the United States, and mechanisms for enforcement of intellectual property and other proprietary rights may be inadequate.
Also, our involvement in standard setting activity or the need to obtain licenses from others may require us to license our intellectual property. Accordingly, despite our efforts, we may be unable to prevent third parties from using our intellectual property or other proprietary information or technology.
Even if our patents issue in a form that covers our technology, enforcing patents against suspected infringers is time consuming, expensive, and involves risks associated with litigation, including the risk the suspected infringers file counterclaims against us.
establish the validity of our intellectual property or other proprietary rights. Any such litigation, whether or not it is resolved in our favor, could be time-consuming, result in significant expense to us and divert the efforts of our technical and management personnel. Furthermore, attempts to enforce our intellectual property rights against third parties could also provoke these third parties to assert their own intellectual property or other rights against us, or result in a holding that invalidates or narrows the scope of our rights, in whole or in part.
obligations. Large indemnity payments could harm our business, financial condition, and results of operations. Any dispute with a customer with respect to such obligations could have adverse effects on our relationship with that customer and other existing customers and new customers and harm our business and results of operations.
We are currently,
Real or perceived errors, failures, defects or bugs in our platforms could adversely affect our results of operations and growth prospects.
Because we offer very complex platforms, undetected errors, defects, failures or bugs may occur, especially when platforms or capabilities are first introduced or when new versions or other product or infrastructure updates are released. Our platforms are often installed and used in large-scale computing environments with different operating systems, software products and equipment, and data source and network configurations, which may cause errors or failures in our platforms or may expose undetected errors, failures, or bugs in our platforms. Despite testing by us, errors, failures, or bugs may not be found in new software or releases until after commencement of commercial shipments. In the past, errors have affected the performance of our platforms and can also delay the development or release of new platforms or capabilities or new versions of platforms, adversely affect our reputation and our customers’ willingness to buy platforms from us, and adversely affect market acceptance or perception of our platforms. Many of our customers use our platforms in applications that
are critical to their businesses or missions and may have a lower risk tolerance to defects in our platforms than to defects in other, less critical, software products. Any errors or delays in releasing new software or new versions of platforms or allegations of unsatisfactory performance or errors, defects or failures in released software could cause us to lose revenue or market share, increase our service costs, cause us to incur substantial costs in redesigning the software, cause us to lose significant customers, subject us to liability for damages and divert our resources from other tasks, any one of which could materially and adversely affect our business, results of operations and financial condition. In addition, our platforms could be perceived to be ineffective for a variety of reasons outside of our control. Hackers or other malicious parties could circumvent our or our customers’ security measures, and customers may misuse our platforms resulting in a security breach or perceived product failure.
Real or perceived errors, failures, or bugs in our platforms and services, or dissatisfaction with our services and outcomes, could result in customer terminations and/or claims by customers for losses sustained by them. In such an event, we may be required, or we may choose, for customer relations or other reasons, to expend additional resources in order to help correct any such errors, failures, or bugs. Although we have limitation of liability provisions in our standard software licensing and service agreement terms and conditions, these provisions may not be enforceable in some circumstances, may vary in levels of protection across our agreements, or may not fully or effectively protect us from such claims and related liabilities and costs. We generally provide a warranty for our software products and services and a SLA for our performance of software operations via our O&M services to customers. In the event that there is a failure of warranties in such agreements, we are generally obligated to correct the product or service to conform to the warranty provision as set forth in the applicable SLA, or, if we are unable to do so, the customer is entitled to seek a refund of the purchase price of the product and service (generally prorated over the contract term). The sale and support of our products also entail the risk of product liability claims. We maintain insurance to protect against certain claims associated with the use of our products, but our insurance coverage may not adequately cover any claim asserted against us. In addition, even claims that ultimately are unsuccessful could result in our expenditure of funds in litigation and divert management’s time and other resources.
In addition, our platforms integrate a wide variety of other elements, and our platforms must successfully interoperate with products from other vendors and our customers’ internally developed software. As a result, when problems occur for a customer using our platforms, it may be difficult to identify the sources of these problems, and we may receive blame for a security, access control, or other compliance breach that was the result of the failure of one of other elements in a customer’s or another vendor’s IT, security, or compliance infrastructure. The occurrence of software or errors in data, whether or not caused by our platforms, could delay or reduce market acceptance of our platforms and have an adverse effect on our business and financial performance, and any necessary revisions may cause us to incur significant expenses. The occurrence of any such problems could harm our business, financial condition, and results of operations. If an actual or perceived breach of information correctness, auditability, integrity, or availability occurs in one of our customers’ systems, regardless of whether the breach is attributable to our platforms, the market perception of the effectiveness of our platforms could be harmed. Alleviating any of these problems could require additional significant expenditures of our capital and other resources and could cause interruptions, delays, or cessation of our product licensing, which could cause us to lose existing or potential customers and could adversely affect our business, financial condition, results of operations, and growth prospects.
We rely on the availability of licenses to third-party technology that may be difficult to replace or that may cause errors or delay implementation of our platforms and services should we not be able to continue or obtain a commercially reasonable license to such technology.
Our platforms include software or other intellectual property licensed from third parties. It may be necessary in the future to renew licenses relating to various aspects of these platforms or to seek new licenses for existing or new platforms or other products. There can be no assurance that the necessary licenses would be available on commercially acceptable terms, if at all. Third parties may terminate their licenses with us for a variety of
reasons, including actual or perceived failures or breaches of security or privacy, or reputational concerns, or they may choose not to renew their licenses with us. In addition, we may be subject to liability if third-party software that we license is found to infringe, misappropriate, or otherwise violate intellectual property or privacy rights of others. The loss of, or inability to obtain, certain third-party licenses or other rights or to obtain such licenses or rights on favorable terms, or the need to engage in litigation regarding these matters, could result in product roll-backs, delays in product releases until equivalent technology can be identified, licensed or developed, if at all, and integrated into our platforms, and may have a material adverse effect on our business, financial condition, and results of operations. Moreover, the inclusion in our platforms of software or other intellectual property licensed from third parties on a nonexclusive basis could limit our ability to differentiate our platforms from products of our competitors and could inhibit our ability to provide the current level of service to existing customers.
In addition, any data that we license from third parties for potential use in our platforms may contain errors or defects, which could negatively impact the analytics that our customers perform on or with such data. This may have a negative impact on how our platforms are perceived by our current and potential customers and could materially damage our reputation and brand.
Changes in or the loss of third-party licenses could lead to our platforms becoming inoperable or the performance of our platforms being materially reduced resulting in our potentially needing to incur additional research and development costs to ensure continued performance of our platforms or a material increase in the costs of licensing, and we may experience decreased demand for our platforms.
Our platforms contain “open source” software, and any failure to comply with the terms of one or more of these open source licenses could negatively affect our business.
Our platforms are distributed with software licensed by its authors or other third parties under “open source” licenses. Some of these licenses contain requirements that we make available source code for modifications or derivative works we create based upon the open source software, and that we license these modifications or derivative works under the terms of a particular open source license or other license granting third-parties certain rights of further use. If we combine our proprietary software with open source software in a certain manner, we could, under certain provisions of the open source licenses, be required to release the source code of our proprietary software. In addition to risks related to license requirements, usage of open source software can lead to greater risks than use of third-party commercial software, as open source licensors generally do not provide updates, warranties, support, indemnities, assurances of title, or controls on origin of the software. Likewise, some open source projects have known security and other vulnerabilities and architectural instabilities, or are otherwise subject to security attacks due to their wide availability, and are provided on an “as-is” basis. We have established processes to help alleviate these risks, including a review process for screening requests from our development organization for the use of open source software, and the use of software tools to review our source code for open source software, but we cannot be sure that all open source software is submitted for approval prior to use in our platforms or that such software tools will be effective. In addition, open source license terms may be ambiguous and many of the risks associated with usage of open source software cannot be eliminated, and could, if not properly addressed, negatively affect our business. If we were found to have inappropriately used open source software, we may be required to re-engineer our platforms, to release proprietary source code, to discontinue the sale of our platforms in the event re-engineering could not be accomplished on a timely basis, or to take other remedial action that may divert resources away from our development efforts, any of which could adversely affect our business, results of operations, financial condition, and growth prospects. In addition, if the open source software we use is no longer maintained by the relevant open source community, then it may be more difficult to make the necessary revisions to our software, including modifications to address security vulnerabilities, which could impact our ability to mitigate cybersecurity risks or fulfill our contractual obligations to our customers. We may also face claims from others seeking to enforce the terms of an open source license, including by demanding release of the open source software, derivative works or our proprietary source code that was developed using such software. Such claims, with or without merit, could result in litigation, could be time-consuming and expensive to settle or litigation, could divert
our management’s attention and other resources, could require us to lease some of our proprietary code, or could require us to devote additional research and development resources to change our software, any of which could adversely affect our business.
Additionally, we have intentionally made certain proprietary software available on an open source basis, both by contributing modifications back to existing open source projects, and by making certain internally developed tools available pursuant to open source licenses, and we plan to continue to do so in the future. While we have established procedures, including a review process for any such contributions, which is designed to protect any code that may be competitively sensitive, we cannot guarantee that this process has always been applied consistently. Even when applied, because any software source code we contribute to open source projects is publicly available, our ability to protect our intellectual property rights with respect to such software source code may be limited or lost entirely, and we may be unable to prevent our competitors or others from using such contributed software source code for competitive purposes, or for commercial or other purposes beyond what we intended.
Many of these risks associated with usage of open source software could be difficult to eliminate or manage, and could, if not properly addressed, negatively affect the performance of our offerings and our business.
Changes in tax laws or tax rulings, including uncertainties in the interpretation and application of the 2017 Tax Cuts and Jobs Act, could potentially materially affect our tax obligations, financial condition, results of operations, and cash flows.
The U.S. and various foreign tax regimes we are subject to or operate under, including income and non-income taxes, are unsettled and may be subject to significant change. Determining our provision for income taxes requires significant management judgment. In addition, our provision for income taxes is subject to volatility and could be adversely affected by many factors, including, among other things, changes to our operating or holding structure, changes in the amounts of earnings in jurisdictions with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, and changes in U.S. and foreign tax laws.
We could be subject to tax examinations in various U.S. and foreign jurisdictions. Tax authorities in the United States and various foreign jurisdictions may disagree with our use of research and development tax credits, cross-jurisdictional transfer pricing, or other matters and assess additional taxes. While we regularly assess the likely outcomes of these examinations to determine the adequacy of our provision for income taxes and we believe that our financial statements reflect adequate reserves to cover any such contingencies, there can be no assurance that the outcomes of such examinations will not have a material impact on our results of operations and cash flows. Changes in tax laws or tax rulings in the United States and various foreign jurisdictions, or changes in interpretations of existing laws, could materially affect our financial condition, results of operations, and cash flows. For example, the Tax Cuts and Jobs Act (“Tax Act”) was enacted on December 22, 2017 and changed how the United States imposes income tax on multinational corporations. The United States Department of Treasury has broad authority to issue regulations and interpretative guidance that may significantly impact how we will apply the law, which may impact our results of operations in the current period and future periods. Further, we are, and expect to continue to be, subject to regular review and audit by the IRS and other tax authorities in the United States and various foreign jurisdictions. As a result, we have received, and may in the future receive, assessments in multiple jurisdictions on various tax-related assertions, and these assessments can require considerable estimates and judgments. There can be no assurance that our global tax positions and methodologies or calculations are accurate or that the outcomes of future tax examinations will not have an adverse effect on our business, financial condition, and results of operations. Moreover, as a multinational business, we have multiple subsidiaries and branches that engage in many intercompany transactions in a variety of tax jurisdictions where the ultimate tax determination is complex and uncertain. Our existing corporate structure and intercompany arrangements have been implemented in a manner we believe is in compliance with the current prevailing tax laws in each of the jurisdictions in which we operate. However, the tax authorities of those jurisdictions may challenge our methodologies for intercompany arrangements, which could impact our worldwide effective tax rate and harm our business, financial condition, and results of operations.
We are also subject to non-income taxes, such as payroll, sales, use, value-added, net worth, property, and goods and services taxes in the United States and various foreign jurisdictions. We are periodically reviewed and audited by U.S. and foreign tax authorities with respect to income and non-income taxes. Tax authorities may disagree with certain positions we have taken, and we may have exposure to additional income and non-income tax liabilities which could have an adverse effect on our business, financial condition, and results of operations. In addition, our future effective tax rates could be favorably or unfavorably affected by changes in tax rates, changes in the valuation of our deferred tax assets or liabilities, the effectiveness of our tax planning strategies, or changes in tax laws or their interpretation. Such changes could have an adverse impact on our financial condition.
Our employee equity incentive plan is currently administered in several foreign jurisdictions, many of which have increasingly complex securities and tax laws, the application of which can be uncertain. Foreign tax authorities could audit our equity plan, including past and future issuances thereunder, and may disagree with the manner in which we administer our equity plan locally, including our tax withholding methodologies. Should foreign authorities determine that we have failed to comply with local laws and regulations and assess additional taxes, interest, and penalties on income derived from our equity plans, we may be obligated to carry the financial burden, which could adversely impact our business, financial condition, and results of operations.
In addition, many countries in Europe, as well as a number of other countries and organizations, have recently proposed or recommended changes to existing tax laws or have enacted new laws that could significantly increase our tax obligations in many countries where we do business or require us to change the manner in which we operate our business. Similarly, in 2018, the European Commission issued proposals that would change various aspects of the current tax framework under which we are taxed. These proposals include changes to the existing framework to calculate income tax, as well as proposals to change or impose new types of non-income taxes, including taxes based on a percentage of revenue.
The enactment of legislation implementing changes in the United States of taxation of non-U.S. business activities or the adoption of other tax reform policies could materially impact our financial condition and results of operations.
Recent changes to U.S. tax laws, including limitations on the ability of taxpayers to claim and utilize foreign tax credits and the deferral of certain tax deductions until earnings outside of the United States are repatriated to the United States, as well as changes to U.S. tax laws that may be enacted in the future, could impact the tax treatment of our foreign earnings. Due to expansion of our non-U.S. business activities, any changes in the U.S. taxation of such activities may increase our worldwide effective tax rate and adversely affect our business, financial condition, and results of operations.
Our results of operations may be harmed if we are required to collect sales or other related taxes for our license arrangements in jurisdictions where we have not historically done so.
States and some local taxing jurisdictions have differing rules and regulations governing sales and use taxes, and these rules and regulations are subject to varying interpretations that may change over time. We collect and remit U.S. sales and use tax, value-added tax (“VAT”), and goods and services tax (“GST”) in a number of jurisdictions. It is possible, however, that we could face sales tax, VAT, or GST audits and that our liability for these taxes could exceed our estimates as state tax authorities could still assert that we are obligated to collect additional tax amounts from our customers and remit those taxes to those authorities. We could also be subject to audits in states and non-U.S. jurisdictions for which we have not accrued tax liabilities. One or more states or countries may seek to impose incremental or new sales, use, or other tax collection obligations on us or may determine that such taxes should have, but have not been, paid by us. Furthermore, on June 21, 2018, the Supreme Court held in South Dakota v. Wayfair, Inc. that states could impose sales tax collection obligations on out-of-state retailers even if those retailers lack any physical presence within the states imposing the sales taxes. Under Wayfair, a person requires only a “substantial nexus” with the taxing state before the state may subject the person to sales tax collection obligations therein. An increasing number of states (both before and after the
publication of Wayfair) have considered or adopted laws that attempt to impose sales tax collection obligations on out-of-state retailers. The Supreme Court’s Wayfair decision has removed a significant impediment to the enactment and enforcement of these laws, and it is possible that states may seek to tax out-of-state retailers on sales that occurred in prior tax years. A successful assertion by a state, country, or other jurisdiction that we should have been or should be collecting additional sales, use, or other taxes could, among other things, result in substantial tax payments, including substantial interest and penalty charges, create significant administrative burdens for us, discourage potential customers from entering into license arrangements for our platforms due to the incremental cost of any such sales or other related taxes, or otherwise harm our business.
We may not be able to utilize a significant portion of our net operating loss carry-forwards and research and development credits, which could adversely affect our results of operations.
Due to prior period losses, we have generated significant federal and state net operating loss carry-forwards that start or already began to expire beginning in 2024 and 2016, respectively. Additionally, Palantir has certain federal and state research and development credits. The federal credits have expiration dates between 2024 and 2037, and the California credits have no expiration date. Utilization of the net operating losses and research credit carry-forwards may be subject to an annual limitation due to the ownership percentage change limitations provided by the United States Internal Revenue Code of 1986, as amended, or the Code, or state law. Under Section 382 of the Code, if a corporation undergoes an “ownership change,” generally defined as a greater than 50 percentage point change (by value) in its equity ownership over a three-year period, the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes, such as research tax credits, to offset its post-change taxable income or tax liability may be limited. We have experienced ownership changes in the past and any such ownership change could result in increased future tax liability. In addition, we may experience ownership changes in the future as a result of subsequent shifts in our stock ownership. As a result, significant shifts in our stock ownership may result in the limitation or expiration of our net operating losses and research credit carry-forwards before utilization, which may limit our ability to offset future income tax liabilities and adversely affect our financial condition and results of operations. In addition, under the Tax Act, as amended by the Coronavirus Aid, Relief, and Economic Security (“CARES Act”), net operating losses arising in taxable years beginning after December 31, 2017 and before January 1, 2021 may be carried back to each of the five taxable years preceding the tax year of such loss, but net operating losses arising in taxable years beginning after December 31, 2020 may not be carried back. Under the Tax Act, as modified by the CARES Act, net operating losses from tax years that began after December 31, 2017 may offset no more than 80% of current taxable income annually for taxable years beginning after December 31, 2020. Accordingly, if we generate net operating losses after the tax year ended December 31, 2017, we might have to pay more federal income taxes in a subsequent year as a result of the 80% taxable income limitation than we would have had to pay under the law in effect before the Tax Act as modified by the CARES Act.
There is also a risk that due to regulatory changes, such as suspensions on the use of net operating losses or tax credits, and in light of the needs of various jurisdictions including especially the need for some states to raise additional revenue to help counter the fiscal impact from the COVID-19 pandemic, possibly with retroactive effect, or for other unforeseen reasons, our existing net operating losses or tax credits could expire or otherwise be unavailable to offset future income tax liabilities. A temporary suspension of the use of certain net operating losses and tax credits is expected to be enacted in California, and other states may enact suspensions as well.
Failure to comply with anti-bribery and anti-corruption laws could subject us to penalties and other adverse consequences.
We have operations, deal with and make sales to governmental or quasi-governmental entities in the United States and in non-U.S. countries, including those known to experience corruption, particularly certain emerging countries in East Asia, Eastern Europe, Africa, South America, and the Middle East, and further expansion of our non-U.S. sales efforts may involve additional regions.
required export authorizations or export to countries, governments, and persons targeted by applicable sanctions. We take precautions to prevent our offerings from being exported in violation of these laws, including: (i) seeking to proactively classify our platforms and obtain authorizations for the export and/or import of our platforms where appropriate, (ii) implementing certain technical controls and screening practices to reduce the risk of violations, and (iii) requiring compliance with U.S. export control and sanctions obligations in customer and vendor contracts. However, we cannot guarantee the precautions we take will prevent violations of export control and sanctions laws.
In the future, we may not be able to secure the financing necessary to operate and grow our business as planned, or to make acquisitions.
In the future, we may seek to raise or borrow additional funds to expand our product or business development efforts, make acquisitions or otherwise fund or grow our business and operations. For example, during June 2020, we restructured our existing credit facilities. As
Historically, we have funded our operations and capital expenditures primarily through equity issuances, debt, and cash received from our customers. Although we currently anticipate that our existing cash and cash equivalents will be sufficient to meet our cash needs for the next twelve months, we may require additional financing, and we may not be able to obtain debt or equity financing on favorable terms, if at all. If we raise equity financing to fund operations or on an opportunistic basis, our stockholders may experience significant dilution of their ownership interests. If adequate funds are not available on acceptable terms, or at all, we may be unable to, among other things:
Develop new products, features, capabilities, and enhancements;
Continue to expand our product development, sales, and marketing organizations;
Hire, train, and retain employees;
Respond to competitive pressures or unanticipated working capital requirements; or
Pursue acquisition or other growth opportunities.
Our inability to take any of these actions because adequate funds are not available on acceptable terms could have an adverse impact on our business, financial condition, results of operations, and growth prospects.
Our ability to generate the amount of cash needed to pay interest and principal on our secured credit facility and our ability to refinance all or a portion of our indebtedness or obtain additional financing depends on many factors beyond our control.
Our ability to make scheduled payments on, or to refinance our obligations under, our secured credit facility depends on our financial and operating performance and prevailing economic and competitive conditions. Certain of these financial and business factors, many of which may be beyond our control, are described above.
If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures, sell assets, raise additional equity capital, or restructure our debt. However, there is no assurance that such alternative measures may be successful or permitted under the agreements governing our indebtedness and, as a result, we may not be able to meet our scheduled debt service obligations. In the absence of such results of operations and resources, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our debt service and other obligations, which could harm our business, financial condition, and results of operations.
Our outstanding debt matures in June 2023. We cannot guarantee that we will be able to refinance our indebtedness or obtain additional financing on satisfactory terms or at all, including due to existing guarantees on our assets or our level of indebtedness and the debt incurrence restrictions imposed by the agreements governing our indebtedness. Further, the cost and availability of credit are subject to changes in the economic and business environment. If conditions in major credit markets deteriorate, our ability to refinance our indebtedness or obtain additional financing on satisfactory terms, or at all, may be negatively affected.
Our debt agreements contain restrictions that may limit our flexibility in operating our business.
Our credit agreement and related documents, including our pledge and security agreements, contain, and instruments governing any future indebtedness of ours would likely contain, a number of covenants that will impose significant operating and financial restrictions on us, including restrictions on our ability to, among other things:
Create liens on certain assets;
Incur additional debt;
Consolidate, merge, sell or otherwise dispose of all or substantially all of our assets;
Sell certain assets;
Pay dividends on or make distributions in respect of our capital stock;
Place restrictions on certain activities of subsidiaries;
Transact with our affiliates; and
Use a portion of our cash resources.
Any of these restrictions could limit our ability to plan for or react to market conditions and could otherwise restrict corporate activities. Any failure to comply with these covenants could result in a default under our secured credit facility or instruments governing any future indebtedness of ours. Additionally, our credit facility is secured by substantially all of our assets. Upon a default, unless waived, the lenders under our secured credit facility could elect to terminate their commitments, cease making further loans, foreclose on our assets pledged to such lenders to secure our obligations under our credit agreement and force us into bankruptcy or liquidation. In addition, a default under our secured credit security could trigger a cross default under agreements governing any future indebtedness. Our results of operations may not be sufficient to service our indebtedness and to fund our other expenditures, and we may not be able to obtain financing to meet these requirements. If we experience a default under our secured credit facility or instruments governing our future indebtedness, our business, financial condition, and results of operations may be adversely impacted.
In addition, a material portion of our cash is pledged as cash collateral for letters of credit and bank guarantees which support certain of our real estate leases, customer contracts, and other obligations. While these obligations remain outstanding and are cash collateralized, we do not have access to and cannot use the pledged cash for our operations or to repay our other indebtedness. As of September 30, 2020, we were in compliance with all covenants and restrictions associated with our secured credit facility.
Variable rate indebtedness that we have incurred or may incur under our secured credit facility will subject us to interest rate risk, which could cause our debt service obligations to increase significantly.
As of September 30, 2020, we had an aggregate of $200.0 million of term indebtedness outstanding under our secured credit facility. Borrowings under the secured credit facility bear interest at variable rates, which exposes us to interest rate risk. Our loans under our secured credit facility bear interest at LIBOR (or any successor rate) plus 2.75% or a base rate plus 1.75% and are payable quarterly or more or less frequently in certain circumstances.
We may acquire or invest in companies and technologies, which may divert our management’s attention, and result in additional dilution to our stockholders. We may be unable to integrate acquired businesses and technologies successfully or achieve the expected benefits of such acquisitions or investments.
As part of our business strategy, we have engaged in strategic transactions in the past and expect to evaluate and consider potential strategic transactions, including acquisitions of, or investments in, businesses, technologies, services, products and other assets in the future. We also may enter into relationships with other businesses to expand our products or our ability to provide services. An acquisition, investment or business relationship may result in unforeseen risks, operating difficulties and expenditures, including the following:
An acquisition may negatively affect our financial results because it may require us to incur charges or assume substantial debt or other liabilities, may cause adverse tax consequences or unfavorable accounting treatment, may expose us to claims and disputes by third parties, including intellectual property claims and disputes, or may not generate sufficient financial return to offset additional costs and expenses related to the acquisition;
Potential goodwill impairment charges related to acquisitions;
Costs and potential difficulties associated with the requirement to test and assimilate the internal control processes of the acquired business;
We may encounter difficulties or unforeseen expenditures assimilating or integrating the businesses, technologies, infrastructure, products, personnel, or operations of the acquired companies, particularly if the key personnel of the acquired company choose not to work for us or if we are unable to retain key personnel, if their technology is not easily adapted to work with ours, or if we have difficulty retaining the customers of any acquired business due to changes in ownership, management, or otherwise;
We may not realize the expected benefits of the acquisition;
An acquisition may disrupt our ongoing business, divert resources, increase our expenses, and distract our management;
An acquisition may result in a delay or reduction of customer purchases for both us and the company acquired due to customer uncertainty about continuity and effectiveness of service from either company;
The potential impact on relationships with existing customers, vendors, and distributors as business partners as a result of acquiring another company or business that competes with or otherwise is incompatible with those existing relationships;
The potential that our due diligence of the acquired company or business does not identify significant problems or liabilities, or that we underestimate the costs and effects of identified liabilities;
Exposure to litigation or other claims in connection with, or inheritance of claims or litigation risk as a result of, an acquisition, including but not limited to claims from former employees, customers, or other third parties, which may differ from or be more significant than the risks our business faces;
We may encounter difficulties in, or may be unable to, successfully sell any acquired products;
An acquisition may involve the entry into geographic or business markets in which we have little or no prior experience or where competitors have stronger market positions;
An acquisition may require us to comply with additional laws and regulations, or to engage in substantial remediation efforts to cause the acquired company to comply with applicable laws or regulations, or result in liabilities resulting from the acquired company’s failure to comply with applicable laws or regulations;
Our use of cash to pay for an acquisition would limit other potential uses for our cash;
If we incur debt to fund such acquisition, such debt may subject us to material restrictions on our ability to conduct our business as well as financial maintenance covenants; and
To the extent that we issue a significant amount of equity securities in connection with future acquisitions, existing stockholders may be diluted and earnings per share may decrease.
The occurrence of any of these risks could have a material adverse effect on our business, results of operations, and financial condition. Moreover, we cannot assure you that we would not be exposed to unknown liabilities.
Changes in accounting principles or their application to us could result in unfavorable accounting charges or effects, which could adversely affect our results of operations and growth prospects.
adverse effect on our financial results.be materially adversely affected. A change in any of these principles or guidance, or in their interpretations or application to us, may have a significant effect on our reported results, as well as our processes and related controls, and may retroactively affect previously reported results or our forecasts, which may negatively impact our financial statements.
For example, recent new standards issued by the Financial Accounting Standards Board could materially impact our financial statements, including Accounting Standards Codification Topic 842 (“Topic 842”), Leases. The adoption of these new standards may potentially require enhancements or changes in our processes or systems and may require significant time and cost on behalf of our financial management. This may in turn adversely affect our results of operations and growth prospects. Additionally, if we lose our “emerging growth company” status during the year ending December 31, 2020, we will be required to retroactively adopt Topic 842 for the full year.
If we fail to maintain an effective system of internal controls, our ability to produce timely and accurate financial statements or comply with applicable regulations
As a public company,subject to additional tax liabilities.
controls and related procedures, including complying with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act that we will eventually be required to include in our annual reports filed with the SEC. We will need to hire and successfully integrate additional accounting and financial staff with appropriate company experience and technical accounting knowledge, as well as implement and integrate new technological systems. In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting, we have expended, and anticipate that we will continue to expend, significant resources, including accounting-related costs and significant management oversight.
Our current controls and any new controls that we develop may become inadequate because of changes in conditions in our business. Further, we have identified in the past, and may identify in the future, deficiencies in our controls. Any failure to develop or maintain effective controls or any difficulties encountered in their implementation or improvement could harm our results of operations and cash flows. If U.S. or cause usother foreign tax authorities change applicable tax laws, our overall taxes could increase, and our financial condition or results of operations may be adversely impacted.
Our independent registered public accounting firm is not required to attest to the effectiveness of our internal control over financial reporting until after we are no longer an “emerging growth company” as definedplatforms and services in the JOBS Act. At such time, our independent registered public accounting firm may issue a report that is adverse infuture, reduce the event it is not satisfied with the level at which our internal control over financial reporting is documented, designed,size or operating. Any failure to maintain effective disclosure controls and internal control over financial reporting couldpayment amounts of purchases from existing or new government customers, or otherwise have a material andan adverse effect on our business, and results of operations, financial condition, and could cause a decline in the pricegrowth prospects.
business.
As
In addition, changing laws, regulations, and standards relatinggovernment were to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs, and making some activities more time-consuming. These laws, regulations, and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to invest substantial resources to complysuspend or debar us from doing business with evolving laws, regulations, and standards, and this investment may result in increased general and administrative expenses and a diversion of management’s time and attention from business operations to compliance activities. If our efforts to comply with new laws, regulations, and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings against us and our business may be harmed.
We also expect these rules and regulations to make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to maintain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified individuals to serve on our Board of Directors or as our executive officers.
As a result of disclosure of information in this Quarterly Report on Form 10-Q and in filings required of a public company, our business and financial condition will become more visible, which may result in an increased risk of threatened or actual litigation, including by competitors and other third parties. If such claims are successful,government, our business, financial condition, and results of operations would be materially harmed.
Natural disasters
Natural disasters or other catastrophic events may cause damage or disruptioncustomers, often award large developmental item and service contracts to our operations, non-U.S. commercebuild custom software rather than firm fixed-price contracts for commercial products. We sell commercial items and services and do not contract for non-commercial developmental services. The U.S. government is required to procure commercial items and services to the maximum extent practicable in accordance with FASA, 10 U.S.C. § 2377; 41 U.S.C. § 3307, and the global economy,U.S. government may instead decide to procure non-commercial developmental items and thus could haveservices if commercial items and services are not practicable. In order to challenge a negative effect on us. Our business operations are subjectgovernment decision to interruption by natural disasters, earthquakes, flooding, fire, power shortages, pandemics such asprocure developmental items and services instead of commercial items and services, we would be required to file a bid protest at the recent spreadagency level and/or with the Government Accountability Office. This can result in contentious communications with government agency legal and contracting offices, and may escalate to litigation in federal court. The results of COVID-19, terrorism, political unrest, telecommunications failure, vandalism, cyberattacks, geopolitical instability, war,any future challenges or potential litigation cannot be predicted with certainty, however, and any dispute or litigation with the effects of climate change (such as drought, wildfires, increased storm severity, and sea level rise), and other events beyond our control. Although we maintain crisis management and disaster response plans, such events could make it difficult or impossible for us to deliver our services to our customers, could decrease demand for our services, could make existing customers unable or unwilling to fulfill their contractual requirements to us, including their payment obligations, and could cause us to incur substantial expense, including expenses or liabilities arising from potential litigation. Our insuranceU.S. government may not be sufficientresolved in our favor; moreover, whether or not it is resolved in our favor, such disputes or litigation could result in significant expense and divert the efforts of our technical and management personnel. These proceedings could adversely affect our reputation and relationship with government customers and could also result in negative publicity, which could harm customer and public perception of our business. The enforcement of FASA has resulted in a significant increase in our business with the U.S. federal government. Any change in or repeal of FASA, or a contrary interpretation of FASA by a court of competent jurisdiction, would adversely affect our competitive position for U.S. federal government contracts.
We may face exposuredecrease or shift to foreign currency exchange rate fluctuations.
Our results of operations and cash flowsprograms in areas in which we do not provide services or are subjectless likely to fluctuations due tobe awarded contracts. Such changes in foreign currency exchange rates, particularly changesspending authorizations and budgetary priorities may occur as a result of shifts in spending priorities from defense-related and other programs as a result of competing demands for federal funds and the Euronumber and GBP. Weintensity of military conflicts or other factors.
Risks Related to Ownership of Our Class A Common Stock
The•the number of shares of our Class A common stock publicly owned and available for trading;
Price•price and volume fluctuations in the overall stock market from time to time;
Volatility•volatility in the trading prices and trading volumes of technology stocks;
Changes•the inclusion, exclusion, or deletion of our Class A common stock from any major trading indices, such as the S&P 500 Index;
Sales•sales or expected sales of shares of our Class A common stock by us or our stockholders, including in connection with the expirationstockholders;
Short-selling•short-selling of our Class A common stock or related derivative securities;
Failure•failure of securities analysts to maintain coverage of us, changes in financial estimates by securities analysts who follow our company or our failure to meet these estimates or the expectations of investors;
Any•any financial projections we may provide to the public, any changes in those projections or our failure to meet those projections;
Announcements•announcements by us or our competitors of new platforms, products, services, or platform features;
The•the public’s reaction to our press releases, other public announcements, and filings with the SEC;
Rumors•rumors and market speculation involving us or other companies in our industry;
Actual•actual or anticipated changes in our results of operations or fluctuations in our results of operations;
Actual•actual or anticipated developments in our business, our competitors’ businesses, or the competitive landscape generally;
Litigation•litigation involving us, our industry or both, or investigations by regulators into our operations or those of our competitors;
Actual•actual or perceived privacy or security breaches or other incidents;
Developments•developments or disputes concerning our intellectual property or other proprietary rights;
Announced•announced or completed acquisitions of businesses, services or technologies by us or our competitors;
Changes•changes in our management, including any departures of one of our Founders;
New
Changes•changes in accounting standards, policies, guidelines, interpretations, or principles;
Any•any significant change in our management;
Other•other events or factors, including those resulting from war, including the ongoing Russia-Ukraine conflict, incidents of terrorism, such as Hamas’ recent attack against Israel, pandemics, including the COVID-19 pandemic, or responses to these events; and
General economic•general macroeconomic conditions, such as rising inflation and interest rates and slow or negative growth of our markets.
Further, in the future, we may be the target of additional litigation of this type.
Our executive officers, directors, and record holders representing over 99% of our capital stock and securities convertible into or exchangeable for our capital stock are subject to market standoff or lock-up agreements with us under which they cannot sell, offer, contract to sell, pledge, grant any option to purchase, lend, or otherwise dispose of shares of our capital stock, or enter into any hedging or similar transaction or arrangement that is designed to or could reasonably be expected to lead to or result in a sale or disposition or transfer of any of the economic consequences of ownership of shares of our capital stock, until the start of the third trading day following the date of public disclosure of our financial results for the year ending December 31, 2020 (the “lock-up period”), except as described below and subject to certain other exceptions.
An aggregate of approximately 1,836.0 million shares, including shares issuable upon exercise of outstanding stock options, will be able to be sold after the expiration of the lock-up period related to our listing on the NYSE, subject to applicable securities laws and our insider trading policy. In addition, certain record holders subject to market standoff agreements with us have not signed the lock-up agreement and are therefore not permitted to sell any shares during the lock-up period. An aggregate of 89,007,617 shares held by our Founders and their affiliates have been registered by us for resale and are permitted to be sold under the Founders’ lock-up agreements during the lock-up period, subject to applicable securities laws and our insider trading policy. We reasonably expect that our Founders and their affiliates may sell all or a significant portion of such registered shares. Following the expiration of their lock-up agreements, our Founders will be free to sell all of their remaining shares pursuant to Rule 144 (subject to volume limitations) at such times and in such amounts as they determine.
Our lock-up agreements are with record holders of our securities. Holders of beneficial interests of our securities that are not record holders and that are not otherwise bound by lock-up agreements could enter into transactions with respect to those beneficial interests that negatively impact our stock price. In addition, an equityholder who is not subject to a lock-up agreement with us may be able to sell, short sell, transfer, hedge, pledge, or otherwise dispose of or attempt to sell, short sell, transfer, hedge, pledge, or otherwise dispose of, their equity interests at any time after our listing on the NYSE.
Further, as of September 30, 2020,2023, there were outstanding options to purchase an aggregate of 290,365,084106,164,915 shares of our Class A common stock and 297,553,266183,572,447 shares of our Class B common stock, 139,655,233and 50,838,381 shares of our Class A common stock and 60,000,00041,775,000 shares of Class B common stock subject to RSUs and 1,470,781 shares of our Class A common stock subject to growth units.RSUs. All shares of our common stock issuable upon the exercise of outstanding stock options and reserved for future issuance under our equity compensation plans have been registered for public resalesale under the Securities Act. Subject to the satisfaction of applicable exercise periods and compliance by affiliates with Rule 144 or the availability of an alternative exemption, the shares issued upon exercise of outstanding stock options or upon settlement of outstanding RSUs and growth units will be available for immediate resale in the United States in the open market.
We estimate that stockholders owning an aggregate of up to 656,018,583 shares
Wefund working capital, capital expenditures, capital preserving investments, strategic acquisitions or business opportunities, and other general corporate purposes, and there are an “emerging growth company”no guarantees that the Share Repurchase Program will result in increased shareholder value. Furthermore, the timing and have the option to utilize certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, election to defer the adoption of recently issued accounting standards, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approvalamount of any golden parachute payments not previously approved. We may take advantage of these reporting exemptions until we are no longer an “emerging growth company.” We will remain an “emerging growth company” until the earlier of (i) the last day of the fiscal year (A) following the fifth anniversary of the listing of our Class A common stock on the NYSE, (B) in which we have total annual revenue of at least $1.07 billion, or (C) in which we are deemed to be a large accelerated filer, with at least $700 million of equity securities held by non-affiliates as of the prior June 30th, and (ii) the date on which we have issued more than $1 billion in non-convertible debt during the prior three-year period.
Under the JOBS Act, “emerging growth companies” can also delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have elected to use this extended transition period for complying with certain new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date we (i) are no longer an “emerging growth company” or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our consolidated financial statements may or may not be comparable to companies that comply with new or revised accounting pronouncements as of public companies’ effective dates. Further, we may take advantage of some of the other reduced regulatory and reporting requirements thatrepurchases, if any, will be availablesubject to us so long as we qualify as an “emerging growth company.”
Amongliquidity, market and economic conditions, compliance with applicable legal requirements and other things, this means that our independent registered public accounting firm will not be required to provide an attestation report on the effectivenessrelevant factors.
certain information regarding compensation of our executive officers, that we would otherwise have been required to provide in filings we make with the SEC, which may make it more difficult for investors and securities analysts to evaluate our company. As a result, investor confidence in our company and the trading price of our Class A common stock may be adversely affected. Further, we cannot predict if investors will find our Class A common stock less attractive because we will rely on these exemptions. If some investors find our Class A common stock less attractive as a result, there may be a less active trading market for our Class A common stock and our trading price may be more volatile.
Provisions in our amended and restated certificate of incorporation and amended and restated bylaws are intended tomay discourage certain types of transactions that may involve an actual or threatened acquisition of the company,Company, which will likely depress the trading price of our Class A common stock.
Our•our multi-class common stock structure, which provides our Founders and their affiliates with the ability to effectively control the outcome of matters requiring stockholder approval, even if they own significantly less than a majority of the shares of our outstanding common stock;
Prior•prior to the conversion of all of our shares ofFinal Class F common stock into sharesConversion Date (as defined in our amended and restated certificate of Class B common stock,incorporation), the holders of our common stock will only be able to take action by written consent if the action also receives the affirmative consent of a majority of the outstanding shares of our Class F common stock, and after such point the holders of our common stock will only be able to take action at a meeting of the stockholders and will not be able to take action by written consent for any matter;
From•from and after the conversion of all of our shares ofFinal Class F common stock into shares of Class B common stock,Conversion Date, our Board of Directors will be classified into three classes of directors with staggered three-year terms;
Our•our amended and restated certificate of incorporation does not provide for cumulative voting;
Vacancies•certain transactions, other than restructuring transactions or transactions that otherwise do not involve a Change of Control (as defined in our amended and restated certificate of incorporation), which transactions require, pursuant to Section 251(c) or Section 271(a) of the Delaware General Corporation Law, the approval of the holders of a majority of the voting power of all of the outstanding shares of our capital stock entitled to vote thereon, will require approval by the holders of at least 55.0% of the voting power of all of the outstanding shares of our capital stock entitled to vote thereon if the record date for determining the stockholders entitled to vote to approve such transaction occurs prior to the Final Class F Conversion Date;
Our•our directors may only be removed as provided in the Delaware General Corporation Law;
A•a special meeting of our stockholders may only be called by the chairperson of our Board of Directors, our Chief Executive Officer, our President, or our Board of Directors pursuant to a resolution adopted by a majority of our Boardthe total number of Directors;
Our•our amended and restated certificate of incorporation authorizes undesignated preferred stock, the terms of which may be established and shares of which may be issued without further action by our stockholders, except that any designation and issuance of preferred stock must receive the affirmative vote of a majority of the outstanding shares of our Class F common stock; and
Advance•advance notice procedures apply for stockholders to nominate candidates for election as directors or to bring matters before an annual meeting of stockholders.
Risks Related to the Multiple Class Structure of our Common Stock, the Founder Voting Trust Agreement, and the Founder Voting Agreement
Our Founders and their affiliates also hold the substantial majority of our outstanding Class B common stock. Because of the ten-to-one voting ratio between our Class B and Class A common stock, even without regard to the voting power of the Class F common stock, our Founders and their affiliates collectively control a significant portion of the voting power of our capital stock based on their current ownership and may significantly increase their ownership of Class B common stock in the future due to the exercise of currently outstanding warrants and stock options or the settlement of RSUs.
In such cases, the voting power of our outstanding capital stock will be further concentrated among the remaining Founders, which may be as few as one. Further, if there are only two Founders who are party to the Founder Voting Agreement, one Founder will be able to effectively defeat any shareholderstockholder action, except for the election of directors underor other matters that are decided by a plurality standard,of votes, if his instruction to vote the shares of Class F common stock differs from the other Founder. The Founders who are then party to the Founder Voting Agreement will retain the right to direct the voting of the Class F common stock without regard to their employment status with us.
Voting Agreement will control any vote that requires the affirmative vote of the holders of a majority of our Class F common stock, including action of our stockholders by written consent, the designation or issuance by us of shares of preferred stock, and certain amendments to our amended and restated certificate of incorporation relating to our preferred stock.
Our amended and restated certificate of incorporation does not prevent our Founders and their affiliates from having more than 49.999999% ofVoting Power.
October 26, 2023.
suchwithdrawing Founder votes suchhis shares in the same manner as the shares of Class F common stock are voted pursuant to the Founder Voting Trust Agreement, then our Founders and their affiliates, in the aggregate, would vote up to 59.999999%could exercise 49.999999% of the Voting Power of our capital stock plus the voting power of shares held by the withdrawing Founder (which would no longer represent a subset of the 49.999999% of the Voting Power of our capital stock in such manner.
Similarly, the calculation of the voting power of the Class F common stock may not take into account all sharesvoted by those Founders that are deemedremain party to be beneficially owned by any Founder or his affiliates, including certain shares for which a proxy has not been granted under the Founder Voting Agreement pursuant to its terms or by an amendment thereof, in particular if certain shares are withdrawn from such proxy.
Agreement).
For example, 89,007,617 shares held by our Founders and their affiliates are permitted to be sold immediately under the lock-up agreements and were registered for resale pursuant to the registration statement relating to our direct listing on the NYSE. We reasonably expect that our Founders and their affiliates may sell all or a significant portion of such registered shares. Following the expiration of their lock-up agreements, our Founders will be free to sell all of their remaining shares pursuant to Rule 144 (subject to volume limitations) at such times and in such amounts as they determine. The total voting power that will be exercised in accordance with the decision of a majority in number of the Founders who are then party to the Founder Voting Agreement will not be diminished as a result of these sales, so long as such Founders and certain of their affiliates collectively meet the Ownership Threshold on the applicable record date.
Furthermore, meeting the Ownership Threshold on the applicable record date will not ensure that the Founders and their affiliates do not or will not have differing economic interests from the interests of holders of the Class A common stock. For example, the Founder Voting Agreement does not prohibit a Founder from hedging his economic exposure to our common stock; however, we have implemented a policy that will prohibit hedging by our directors, officers and employees, which currently includes the Founders. In addition, the trustee will vote shares of Class F common stock in accordance with the
We have also
outstanding capital stock, as a comparison, there were 1,726,685,7552,175,240,837 shares of our common stock outstanding as of September 30, 2020.2023. Except for certain equitable adjustments as provided in our amended and restated certificate of incorporation, future issuances of Corporation Equity Securities by us will not increase the Ownership Threshold that must be met on any applicable record date and, accordingly, will decrease the percentage of outstanding Corporation Equity Securities represented by the Ownership Threshold.
The multi-class structure of our common stock, the Founder Voting Trust Agreement and the Founder Voting Agreement by which our Founders exercise effective control over all matters submitted to a vote of our stockholders will exist for the foreseeable future.
Future issuances of our Class A common stock will dilute the voting power of our Class A common stockholders but may not result in further dilution of the voting power of our Founders who are then party to the Founder Voting Agreement.
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Saleplatforms or services, and lower or no growth.
any crises, economic slowdown or any subsequent recovery generally, or for any industry in particular. Although certain aspects of the effects of a crisis or an economic slowdown may provide potential new opportunities for our business, we cannot guarantee that the net impact of any such events will not be materially negative. Accordingly, if the conditions in the general economy and the markets in which we operate worsen from present levels, our business, financial condition, and results of operations could be adversely affected.
Plan-Related Issuances
From July 1, 2020 through September 22, 2020 (the datecontinue to meet these requirements, we may not be able to remain listed on the NYSE. We are required to annually comply with the SEC rules that implement Section 404 of the filingSarbanes-Oxley Act and are therefore required to make a formal assessment of the effectiveness of our registration statement on Form S-8), we issued and soldinternal control over financial reporting for that purpose.
From July 1, 2020 through September 22, 2020, we issued and sold to our employees, consultants, and other service providers an aggregate of 472,780 shares of Class B common stock upon the exercise of options under our 2006 Stock Plan (“2006 Plan”), at exercise prices ranging from $0.50 to $0.52 per share, for a weighted-average exercise price of $0.51.
From July 1, 2020 through September 22, 2020, we issued and sold to our employees, consultants, and other service providers an aggregate of 9,588,191 shares of Class A common stock upon the exercise of options under our 2010 Plan, at exercise prices ranging from $1.10 to $7.40 per share, for a weighted-average exercise price of $3.81.
From July 1, 2020 through September 22, 2020, we granted to our employees, consultants, and other service providers options to purchase an aggregate of 162,000,000 shareseffectiveness of our Class B common stock underinternal control over financial reporting annually. Any failure to maintain effective disclosure controls and internal control over financial reporting could have an adverse effect on our 2010 Planbusiness, financial condition and our 2020 Executive Plan.
From July 1, 2020 through September 22, 2020, we granted to our employees, consultants,results of operations and other service providers RSUs representing an aggregate of 60,000,000 shares of our Class B common stock under our 2010 Plan and our 2020 Executive Plan.
From July 1, 2020 through September 22, 2020, we granted to our employees, consultants, and other service providers RSUs representing an aggregate of 30,789,357 sharescould cause a decline in the market price of our Class A common stock understock.
Warrant-Related Issuances
In September 2020, we issued an aggregate of 7,631,329 shares of Class B common stockbusiness may be harmed.
In September 2020, we issued an aggregate of 2,380,034 shares of Series D convertible preferred stock to three accredited investors upon the net exercise of warrants.
We believe the foregoing transactions were exempt from registration under the Securities Act in reliance upon Section 4(a)(2) of the Securities Act, Regulation D under the Securities Act, Regulation S under the Securities Act, or Rule 701 promulgated under the Securities Act as transactions by an issuer not involving any public offering or pursuant to benefit plans and contracts relating to compensation as provided under Rule 701. The recipients of the securities in each of these transactions represented their intentions to acquire the securitiesmake it more expensive for investment only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends were placed upon the stock certificates issued in these transactions.
None of the foregoing transactions involved any underwriters, underwriting discounts or commissions or any public offering. All recipients had adequate access, through their relationships with us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to maintain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified individuals to serve on our Board of Directors or as our executive officers.
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ITEM 5. OTHER INFORMATION |
Not applicable.
ITEM 6. EXHIBITS |
Incorporated by Reference | |||||||||||||||||||||||||
Exhibit | Description |
| File No. |
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| Filing | ||||||||||||||||||
| 31.2* | |||||||||||||||||||||||||
| 32.1*† | |||||||||||||||||||||||||
| 101.INS* | Inline XBRL Instance Document. | ||||||||||||||||||||||||
| 101.SCH* | Inline XBRL Taxonomy Extension Schema Document. | ||||||||||||||||||||||||
| 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | ||||||||||||||||||||||||
| 101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document. | ||||||||||||||||||||||||
| 101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document. | ||||||||||||||||||||||||
| 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | ||||||||||||||||||||||||
| 104.1* | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | ||||||||||||||||||||||||
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*Filed Herewith
| PALANTIR TECHNOLOGIES INC. | ||||||||||||||
| Date: November | By: | /s/ Alexander C. Karp | ||||||||||||
| Alexander C. Karp | ||||||||||||||
| Chief Executive Officer | ||||||||||||||
(Principal Executive Officer) | ||||||||||||||
| Date: November | By: | /s/ David Glazer | ||||||||||||
| David Glazer | ||||||||||||||
| Chief Financial Officer | ||||||||||||||
(Principal Financial Officer) | ||||||||||||||
| Date: November | By: | /s/ | ||||||||||||
| Chief Accounting Officer | ||||||||||||||
(Principal Accounting Officer) | ||||||||||||||
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