Palantir Technologies Inc. (PLTR)

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the accompanying notes thereto included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements based upon current plans, expectations, and beliefs, involving risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements. You should review the section titled “Special Note Regarding Forward-Looking Statements” for a discussion of forward-looking statements and the section titled “Risk Factors” for a discussion of factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis and elsewhere in this Annual Report on Form 10-K. Our historical results are not necessarily indicative of the results that may be expected for any period in the future.

This section of this Annual Report on Form 10-K generally discusses fiscal years 2024 and 2023 items and year-to-year comparisons between fiscal years 2024 and 2023. Discussions of fiscal year 2023 items and year-to-year comparisons between fiscal years 2023 and 2022 that are not included in this Annual Report on Form 10-K can be found in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, which was filed with the SEC on February 20, 2024 and is incorporated herein by reference.

Overview

We build software that empowers organizations to effectively integrate their data, decisions, and operations at scale.

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We were founded in 2003 and started building software for the intelligence community in the United States to assist in counterterrorism investigations and operations. We later began working with commercial enterprises, who often faced fundamentally similar challenges in working with data.

We have built four principal software platforms, Gotham, Foundry, Apollo, and our Artificial Intelligence Platform (“AIP”). Gotham and Foundry enable institutions to transform massive amounts of information into an integrated data asset that reflects their operations, and AIP leverages the power of our existing machine learning technologies alongside generative AI models, including large language models (“LLMs”), directly within Gotham and/or Foundry to help operationalize AI on enterprise data.

For over a decade, Gotham has surfaced insights for global defense agencies, the intelligence community, disaster relief organizations and beyond. Foundry is becoming a central operating system not only for individual institutions but also for entire industries. Apollo, which we began offering as a commercial solution in 2021, is a cloud-agnostic, single control layer that coordinates ongoing delivery of new features, security updates, and platform configurations, helping to ensure the continuous operation of critical systems. Apollo allows our customers to run their software in virtually any environment.

In 2023, we began deploying our newest offering, AIP, which is designed for customers across the commercial and government sectors, enabling them to derive value from recent breakthroughs in artificial intelligence via the combination of our existing software platforms with generative AI models, including LLMs. We believe AIP uniquely allows users to connect LLMs and other AI with their data and operations to facilitate decision-making within the legal, ethical, and security constraints that they require.

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

We believe that every institution faces challenges that our platforms and products were designed to address. Our approach with all our clients is to establish a partnership that transforms the way they use data in pursuit of their goals.

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

Our Business

Our customers pay us to use the software platforms we have built. While we generally offer contract terms of one to five years in length, our customers sometimes enter into shorter-term contracts. Revenue is generally recognized ratably over the contract term. Many of our customer contracts contain termination for convenience provisions.

For the year ended December 31, 2024, we generated $2.9 billion in revenue, reflecting a 29% growth rate from the year ended December 31, 2023, when we generated $2.2 billion in revenue.

In the year ended December 31, 2024, we generated income from operations of $310.4 million, or adjusted income from operations of $1.1 billion when excluding stock-based compensation and related employer payroll taxes. In the year ended December 31, 2023, we generated income from operations of $120.0 million, or adjusted income from operations of $632.8 million when excluding stock-based compensation and related employer payroll taxes.

In the year ended December 31, 2024, our gross profit was $2.3 billion, reflecting a gross margin of 80%, or 83% when excluding stock-based compensation. In the year ended December 31, 2023, our gross profit was $1.8 billion, reflecting a gross margin of 81%, or 82% when excluding stock-based compensation.

For more information about our adjusted income from operations, which excludes stock-based compensation and related employer payroll taxes; and gross profit and gross margin, when excluding stock-based compensation; as well as reconciliations from income (loss) from operations and gross profit, see the section titled “Non-GAAP Reconciliations” below.

Our Customers

We define a customer as an organization from which we have recognized revenue during the trailing twelve-month period. During the period ended December 31, 2024, we had 711 customers, including companies in various commercial sectors and government agencies around the world. During the period ended December 31, 2023, we had 497 customers.

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For large government agencies, where a single institution has multiple divisions, units, or subsidiary agencies, each such division, unit, or subsidiary agency that enters into a separate contract with us and is invoiced as a separate entity is treated as a separate customer. For example, while the U.S. Food and Drug Administration, Centers for Disease Control and Prevention, and National Institutes of Health are subsidiary agencies of the U.S. Department of Health and Human Services, we treat each of those agencies as a separate customer given that the governing structures and procurement processes of each agency are independent.

We have built lasting and significant customer relationships and partnerships with some of the world’s leading government institutions and companies. As of December 31, 2024, we expect to generate revenue from contracts closed during the three months and year ended December 31, 2024 for an additional 4.7 and 3.6 years, respectively, on a dollar-weighted average contract duration basis. Dollar-weighted average contract duration represents the length of time we expect to generate revenue on average, based on the total potential lifetime length and value of contracts entered into with, or awarded by, our customers at the time of contract execution, presuming that our customers will exercise all of the contractual options available to them and no termination of contracts, although many of our contracts are subject to termination provisions, including for convenience, and there can be no guarantee that contracts are not terminated or that contract options will be exercised. We calculate this duration on a dollar-weighted basis to adjust for smaller deals. The timing of our customer billings and receipt of payments varies from contract to contract. Our average revenue for the top twenty customers during the trailing twelve months ended December 31, 2024 was $64.6 million, which grew 18% from an average of $54.6 million in revenue from the top twenty customers during the trailing twelve months ended December 31, 2023, demonstrating our expanding relationships with existing customers.

Organizations in the commercial and government sectors face similar challenges when it comes to managing data, and we intend to expand our reach in both markets moving forward. Our decisions about which customer relationships require further investment may change over time, based on our assessment of the potential long-term value that our software can generate for them. We conduct pilots and bootcamps with customers, generally at our own expense and without a guarantee of future returns, in order to access a unique set of opportunities that others may pass over for lack of resources and shorter investment horizons. We manage customers at the account level, not by industry or sector, so that we can optimize on the specific growth opportunities for each customer. In the year ended December 31, 2024, 55% of our revenue came from government customers and 45% came from commercial customers.

Our U.S. customers have been a meaningful source of revenue growth for our business. In the year ended December 31, 2024, we generated 66% of our revenue from customers in the United States and the remaining 34% from non-U.S. customers. Revenue from our U.S. customers during the trailing twelve months ended December 31, 2024 was $1.9 billion, which grew 38% from the prior twelve-month period. We expect that U.S. customers will continue to be a source of significant revenue growth for us.

We continue to believe that our government customers remain a meaningful source of revenue for our business, particularly during periods of economic uncertainty. However, large government customers in particular are generally subject to a number of uncertainties regarding budgets and spending levels, changes in timing and spending priorities, and regulatory and policy changes, which can make it difficult to predict when, or if, we will make sales to such customers or the size and scope of any contract awards. See also the discussion of “Risks Related to Relationships and Business with the Public Sector” within “Item 1A. Risk Factors” included in this Annual Report on Form 10-K.

Expansion of Access to Platforms

The speed with which our platforms can be deployed has significantly expanded the range of potential customers with which we plan on partnering over the long term. We anticipate that our reach among an increasingly broad set of customers, in both the commercial and government sectors, will accelerate moving forward. We believe that, as these new partners grow, we will grow with them.

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

Total Remaining Deal Value

We are focused on building strategic relationships with, and delivering significant outcomes for, our customers over the long term. Our contracts with our customers reflect that long-term orientation, often lasting for multiple years at a time.

Total remaining deal value is the total remaining value, as of the end of the reporting period, of contracts that have been entered into with, or awarded by, our customers. Total remaining deal value presumes the exercise of all contract options available to our customers and no termination of contracts. However, many of our contracts are subject to termination provisions, including

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for convenience, and there can be no guarantee that contracts are not terminated or that contract options will be exercised. Further, total remaining deal value may exclude all or some portion of the value of certain commercial contracts as a result of our ongoing assessments of customers’ financial condition, including the consideration of such customers’ ability and intention to pay, and whether such contracts continue to meet the criteria for revenue recognition, among other factors.

As of December 31, 2024, the total remaining deal value of the contracts, as defined above, was $5.4 billion, up 40% from December 31, 2023, when our total remaining deal value of such contracts was $3.9 billion.

Of our total remaining deal value, as of December 31, 2024, the total remaining deal value of the contracts that we entered into with commercial customers, including existing contractual obligations and available contractual options, as defined above, was $3.1 billion, up 47% from December 31, 2023, when the total remaining deal value of such contracts was $2.1 billion.

As of December 31, 2024, the total remaining deal value of the contracts that we had been awarded by government agencies in the United States and allied countries around the world, including existing contractual obligations and contractual options available to those government agencies, was $2.3 billion, up 30% from December 31, 2023, when the total value of such contracts was $1.8 billion.

When calculating the total remaining deal value of government contracts, we do not include government contracts known as IDIQ contracts, totaling $3.7 billion, as of December 31, 2024, that we have also been awarded, but where the funding of such contracts has not yet been determined or guaranteed.

Many of our government and commercial contracts are subject to termination for convenience provisions. Additionally, the U.S. federal government is prohibited from exercising contract options more than one year in advance. As a result, there can be no guarantee that our customer contracts will not be terminated or that contract options will be exercised.

Macroeconomic Trends

As a corporation with an international presence, we are subject to risks and uncertainties caused by significant events with macroeconomic impacts, including, but not limited to, geopolitical tensions, heightened interest rates, monetary policy changes, and foreign currency fluctuations. Additionally, these macroeconomic impacts have disrupted, and may continue to disrupt, the operations of our customers and prospective customers. We continuously monitor the direct and indirect impacts of these circumstances on our business and financial results, as well as the overall global economy and geopolitical landscape.

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

Geopolitical Tensions

Our business operations are subject to interruption by events that are beyond our control, including geopolitical tensions. We continue to closely monitor the impact of various geopolitical tensions and their global impacts on our business. While the ongoing Russia-Ukraine and Israel conflicts are still evolving and the outcomes remain highly uncertain, we do not expect that the resulting challenging macroeconomic conditions will have a material impact on our business or results of operations.

We do not currently have office locations in Russia or Palestinian territories and none of our revenues came from sales to entities headquartered in those countries or territories. In 2023, we announced partnerships with Ukraine to support its defense and reconstruction efforts and investigations of potential war crimes, among other activities. In 2024, we agreed to a strategic partnership with the Israeli Defense Ministry to supply technology to Israel to assist in the ongoing war. However, our current operations related to Ukraine and Israel are not material to our financial position or results of operations. If the respective conflicts continue or worsen, leading to greater disruptions and uncertainty within the technology industry or global economy, our business and results of operations could be negatively impacted.

Foreign Currency Exchange Rates

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

Our contracts with customers and vendors are primarily denominated in U.S. dollars. However, when the U.S. dollar strengthens compared to other currencies (primarily the Euro and GBP), it has had, and could in the future have, an unfavorable impact on our revenues and expenses from certain non-U.S. customers or vendors whose contracts are denominated in currencies other than the U.S. dollar. Additionally, certain of our U.S. and non-U.S. subsidiaries may hold monetary assets and

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liabilities in currencies other than their functional currency (primarily the JPY, Euro, and GBP), which could subject our results of operations and cash flows to adverse fluctuations due to changes in such foreign currency exchange rates as compared to the U.S. dollar. For the year ended December 31, 2024, such impacts were not material to our financial position or results of operations.

Customer Impacts

Current macroeconomic conditions have impacted, and may continue to adversely impact, our customers’ businesses, particularly our early- and growth-stage customers. Relationships with early- or growth-stage customers carry inherent risks because, among other things, such customers may be unable to generate sufficient revenues or profitability or to access any necessary financing or funding in a timely manner or on favorable terms to them in the current macroeconomic environment, which has impacted, and may continue to impact, our expected revenue and collections. As a result, current macroeconomic conditions have impacted, and may continue to impact, our ability to realize the full value of our commercial contracts with such early- or growth-stage customers.

Key Business Measure

In addition to the measures presented in our consolidated financial statements, we use the following key non-GAAP business measure to help us evaluate our business, identify trends affecting our business, formulate business plans and financial projections, and make strategic decisions.

Contribution Margin

We believe that the revenue we generate relative to the costs we incur in order to generate such revenue is an important measure of the efficiency of our business. We define contribution margin as revenue less our cost of revenue and sales and marketing expenses, excluding stock-based compensation, divided by revenue.

Revenue is allocated to each customer account directly. The cost of revenue and sales and marketing costs include both the costs associated with the deployment and operation of our software as well as expenses associated with identifying new customers and expanding partnerships with existing ones. Our software engineers working with existing customers often manage the deployment and operation of our platforms as well as identify new ways that those platforms can be used. To calculate the contribution by segment, we allocate cost of revenue and sales and marketing expenses, excluding stock-based compensation, to an account pro rata based on headcount and time spent on the account during the period. To the extent certain costs or personnel are not directly assigned to a specific account, they are allocated pro rata based on total headcount staffed during such period. Direct costs, such as third-party cloud hosting services, are directly allocated to the account to which they relate. Allocated revenues and expenses are then aggregated into a segment based upon the customer account to which they relate.

Contribution margin, both across our business and segments, is intended to capture how much we have earned from customers after accounting for the costs associated with deploying and operating our software, as well as any sales and marketing expenses involved in acquiring and expanding our partnerships with customers or potential customers, including allocated overhead. We exclude stock-based compensation as it is a noncash expense.

We believe that our contribution margin provides an important measure of the efficiency of our operations over time. We have included contribution margin because it is a key measure used by our management to evaluate our performance, and we believe that it also provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management team. Our calculation of contribution margin may differ from similarly titled measures, if any, reported by other companies. Contribution margin should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP.

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

Non-GAAP Reconciliations

We use the non-GAAP measures contribution margin; gross profit and gross margin, excluding stock-based compensation; and adjusted income from operations, which excludes stock-based compensation and related employer payroll taxes, to help us evaluate our business, identify trends affecting our business, formulate business plans and financial projections, and make strategic decisions. We exclude stock-based compensation, which is a noncash expense, from these non-GAAP financial measures because we believe that excluding this item provides meaningful supplemental information regarding operational performance and provides useful information to investors and others in understanding and evaluating our operating results in

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

Our definitions may differ from the definitions used by other companies and therefore comparability may be limited. In addition, other companies may not publish these or similar metrics. Further, these metrics have certain limitations, as they do not include the impact of certain expenses that are reflected in our consolidated statements of operations. Thus, our non-GAAP contribution margin; gross profit and gross margin, excluding stock-based compensation; and adjusted income from operations should be considered in addition to, not as a substitute for, or in isolation from, measures prepared in accordance with GAAP.

We compensate for these limitations by providing reconciliations of these non-GAAP measures to the most comparable GAAP measures. We encourage investors and others to review our business, results of operations, and financial information in their entirety, not to rely on any single financial measure, and to view these non-GAAP measures in conjunction with the most directly comparable GAAP financial measures.

Contribution Margin

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

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(1) Excludes stock-based compensation.

Gross Profit and Gross Margin, Excluding Stock-Based Compensation

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

Adjusted Income from Operations

The following table provides a reconciliation of adjusted income from operations, which excludes stock-based compensation and related employer payroll taxes for the years ended December 31, 2024 and 2023 (in thousands):

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Components of Results of Operations

Revenue

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

Palantir Cloud

Our Palantir Cloud subscriptions grant customers the right to access the software functionality in a hosted environment controlled by Palantir and are sold together with stand-ready O&M services, as further described below. We agree to provide continuous access to our hosted software throughout the contract term. Revenue associated with Palantir Cloud subscriptions is generally recognized over the contract term on a ratable basis, which is consistent with the transfer of control of the Palantir services to the customer.

On-Premises Software

Sales of our software licenses, primarily term licenses, grant customers the right to use functional intellectual property, either on their internal hardware infrastructure or on their own cloud instance, over the contractual term and are also sold together with stand-ready O&M services. O&M services include critical updates and support and maintenance services required to operate the software and, as such, are necessary for the software to maintain its intended utility over the contractual term. Because of this requirement, we have concluded that the software licenses and O&M services, which together we refer to as our On-Premises Software, are highly interdependent and interrelated and represent a single distinct performance obligation within the context of the contract. Revenue is generally recognized over the contract term on a ratable basis.

Professional Services

Our professional services support the customers’ use of the software and include, as needed, on-demand user support, user-interface configuration, training, and ongoing ontology and data modeling support. Professional services contracts typically include the provision of on-demand professional services for the duration of the contractual term, which may be coterminous or non-coterminous with a Palantir Cloud subscription or the On-Premises Software. Professional services are on-demand, whereby we perform services throughout the service period; therefore, the revenue is recognized over the related term.

Cost of Revenue

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

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

Sales and Marketing

Our sales and marketing efforts span all stages of our sales cycle, including personnel involved with sales functions, and executing pilots at new or existing customers. Sales and marketing costs primarily include salaries, stock-based compensation expense, variable compensation, including commissions, and benefits for our sales force and personnel involved in sales functions, executing on pilots, including bootcamps, and customer growth activities; as well as third-party cloud hosting services for our pilots, marketing and sales event-related costs, travel costs, and allocated overhead. Sales and marketing costs are generally expensed as incurred.

We expect that sales and marketing expenses will increase in absolute dollars as we continue to invest in our potential and current customers, in growing our business, in our sales force, and in enhancing our brand awareness.

Research and Development

Our research and development efforts are aimed at continuing to develop and refine our offerings, including adding new platforms, features, and modules, increasing their functionality, and enhancing the usability of our platforms. Research and development costs primarily include salaries, stock-based compensation expense, and benefits for personnel involved in performing the activities to develop and refine our platforms and products, as well as third-party cloud hosting services and other IT-related costs, travel costs, and allocated overhead. Research and development costs are expensed as incurred.

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We plan to continue to invest in personnel to support our research and development efforts. As a result, we expect that research and development expenses will increase in absolute dollars for the foreseeable future as we continue to invest to support these activities.

General and Administrative

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

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

Interest Income

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

Other Income (Expense), Net

Other income (expense), net consists primarily of realized and unrealized losses from equity securities and foreign currency exchange gains and losses. The year ended December 31, 2022 also included a gain from a step acquisition.

Provision for Income Taxes

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

Net Income Attributable to Noncontrolling Interests

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

Segments

We have two operating segments, commercial and government, which were determined based on the manner in which the chief operating decision maker, who is our Chief Executive Officer, manages our operations for purposes of allocating resources and evaluating performance. Various factors, including our organizational and management reporting structure and customer type, were considered in determining these operating segments.

Our operating segments are described below:

•Commercial: This segment primarily serves customers working in non-government industries.

•Government: This segment primarily serves customers that are U.S. government and non-U.S. government agencies.

Segment profitability is evaluated based on contribution and contribution margin. Contribution is segment revenue less the related costs of revenue and sales and marketing expenses, excluding stock-based compensation expense. Contribution margin is contribution divided by revenue. To the extent costs of revenue or sales and marketing expenses are not directly attributable to a particular segment, they are allocated based upon headcount at each operating segment during the period. We use it, in part, to evaluate the performance of, and allocate resources to, each of our operating segments, which excludes certain operating expenses that are not allocated to operating segments because they are separately managed at the consolidated corporate level, or are noncash costs. These noncash or unallocated costs include stock-based compensation expense, research and development costs, and general and administrative costs.

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Results of Operations

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

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

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Comparison of the Years Ended December 31, 2024 and 2023

Revenue

Revenue increased by $640.5 million, or 29%, for the year ended December 31, 2024 compared to 2023. Revenue from government customers increased by $347.4 million, or 28%, for the year ended December 31, 2024 compared to 2023. Of the increase, $280.7 million was from government customers existing as of December 31, 2023. Revenue from U.S. government customers was $1.2 billion for the year ended December 31, 2024 compared to $921.2 million for the same period in 2023. Revenue from commercial customers increased by $293.1 million, or 29%, for the year ended December 31, 2024 compared to 2023. Of the increase, $190.7 million was from commercial customers existing as of December 31, 2023, including a decrease of $35.0 million of revenue from Strategic Commercial Contracts. Revenue from U.S. commercial customers was $702.3 million for the year ended December 31, 2024 compared to $457.1 million for the same period in 2023, a 54% increase.

Generally, increases in revenue from our existing customers are related to the increased adoption of our products and services within their organizations. For additional information on Strategic Commercial Contracts, see Note 4. Investments and Fair Value Measurements in our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Cost of Revenue and Gross Profit

Cost of revenue for the year ended December 31, 2024 increased by $134.9 million, or 31%, compared to 2023. The increase was primarily due to increases of $56.6 million in subcontractor expenses, $42.3 million in stock-based compensation expense and related expenses, and $37.4 million in third-party cloud hosting services.

Our gross margin for the year ended December 31, 2024 decreased from 81% for the same period in 2023 to 80% as a result of the growth of cost of revenue slightly outpacing revenue growth.

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

Operating Expenses

Sales and Marketing

Sales and marketing expenses increased by $142.8 million, or 19%, for the year ended December 31, 2024 compared to 2023. The increase was primarily due to increases of $111.4 million in stock-based compensation expense and related expenses, $13.9 million in third-party cloud hosting services, and $12.9 million in payroll and other payroll-related costs.

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

Research and Development

Research and development expenses increased by $103.3 million, or 26%, for the year ended December 31, 2024 compared to 2023. The increase was primarily due to increases of $87.4 million in stock-based compensation expense and related expenses and $17.5 million in third-party cloud hosting services.

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

General and Administrative

General and administrative expenses increased by $69.2 million, or 13%, for the year ended December 31, 2024 compared to 2023. The increase was primarily due to increases of $63.7 million in stock-based compensation expense and related expenses and $11.6 million in travel costs.

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

Stock-Based Compensation

Stock-based compensation expenses increased by $215.7 million, or 45%, for the year ended December 31, 2024 compared to 2023. The increase was primarily driven by the acceleration of $115.8 million of expense for Market-Vesting SARs upon achieving the applicable market condition, as well as expense from new equity grants awarded since December 31, 2023, including grants for RSUs, P-RSUs, and SARs. These were partially offset by a reduction in expense from equity awards that became fully vested, forfeitures, and lower expense under the accelerated attribution method for RSUs granted prior to September 30, 2020, the date we completed the direct listing of our Class A common stock on the NYSE.

Interest Income

Interest income increased by $64.2 million for the year ended December 31, 2024 compared to 2023 primarily due to an increase in our interest-bearing cash, cash equivalents, and investments in short-term U.S. Treasury securities.

Other Income (Expense), Net

Other income (expense), net changed by $2.6 million for the year ended December 31, 2024 compared to 2023 primarily due to an increase in net realized and unrealized losses from our shares held in equity securities.

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Provision for Income Taxes

Provision for income taxes increased by $1.5 million for the year ended December 31, 2024 compared to 2023 primarily due to the increased foreign tax expense as the result of higher foreign taxable income and withholding taxes. For additional information see Note 11. Income Taxes in our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Liquidity and Capital Resources

We generated positive cash flow from operations for the year ended December 31, 2024. We had cash, cash equivalents, and short-term U.S. Treasury securities totaling $5.2 billion available as of December 31, 2024. We believe that cash flows generated from operations, available funds, and access to financing sources, including our undrawn credit facility, will be sufficient to meet our anticipated operating cash needs for at least the next twelve months. However, any projections of future cash needs and cash flows are subject to substantial uncertainty. While we have generated income from operations and positive cash flows from operations in the year ended December 31, 2024, the amounts may fluctuate for the foreseeable future.

As of December 31, 2024, our accumulated deficit balance was $5.2 billion, and our principal sources of liquidity were cash, cash equivalents, and short-term U.S. Treasury securities totaling $5.2 billion.

As of December 31, 2024, we had no outstanding debt balances and additional available and undrawn revolving commitments of $500.0 million under our credit facility. For more information, see Note 6. Debt in our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

During the year ended December 31, 2024, the Company repurchased and subsequently retired 2.1 million shares of its Class A common stock for an aggregate amount, including commissions, of $64.2 million under our Share Repurchase Program. As of December 31, 2024, approximately $935.8 million of the originally authorized amount under our Share Repurchase Program remained available for future repurchases.

Our future capital requirements will depend on many factors, including, but not limited to, the rate of our growth, our ability to attract and retain customers and their willingness and ability to pay for our products and services, and the timing and extent of spending to support our efforts to market and develop our products. Further, we may enter into future arrangements to acquire or invest in businesses, products, services, strategic partnerships, and technologies; additionally, we have, and may in the future, repurchase shares of our Class A common stock from time to time under our Share Repurchase Program. As such, we may seek additional equity or debt financing on an as needed or opportunistic basis. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. If additional funds are not available to us on acceptable terms, or at all, our business, financial condition, and results of operations could be adversely affected. For additional information on our Share Repurchase Program, see Note 9. Stockholders’ Equity in our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

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

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Operating Activities

Net cash provided by operating activities was $1.2 billion and $712.2 million for the year ended December 31, 2024 and 2023, respectively. The increase was primarily driven by the growth of our business and timing of payments to vendors.

Investing Activities

Net cash used in investing activities was $340.7 million and $2.7 billion for the year ended December 31, 2024 and 2023, respectively. The decrease in cash used in investing activities was primarily due to increased proceeds from maturities of short-term U.S. Treasury securities compared to the prior year.

Financing Activities

Net cash provided by financing activities was $463.4 million and $218.8 million for the year ended December 31, 2024 and 2023, respectively, each of which primarily consisted of proceeds from the exercise of common stock options. During the year ended December 31, 2024, these were partially offset by taxes paid related to the net settlement of SARs and repurchases of Class A common stock.

Contractual Obligations and Commitments

The following table summarizes our contractual obligations and commitments as of December 31, 2024 (in thousands):

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(1) Noncancelable purchase commitments primarily relate to purchase commitments for third-party cloud hosting services and represents only contracts which are enforceable and legally binding. Obligations under contracts that we can cancel without a significant penalty are not included in the table above. Refer to Note 8. Commitments and Contingencies in our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information.

(2) The contractual commitment amounts under operating leases in the table above are primarily related to facility and equipment leases. Operating lease commitments are reflected net of $86.2 million of sublease income from tenants in certain of our leased facilities and $68.8 million of imputed interest. Refer to Note 7. Leases in our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information.

The contractual obligations and commitments in the table above are associated with agreements that are enforceable and legally binding.

Contract Liabilities

Our contract liabilities consist of deferred revenue and customer deposits.

Deferred revenue represents billings under noncancelable contracts before the related product or service is transferred to the customer. The portion of deferred revenue that is anticipated to be recognized as revenue during the succeeding twelve-month period is recorded as deferred revenue and the remaining portion is recorded as deferred revenue, noncurrent.

Customer deposits consist of amounts billed and/or paid for anticipated revenue generating activities in advance of the start of the contractual term or for the portion of a contract term that is subject to cancellation by our customers. The portion of customer deposits that is anticipated to be recognized as revenue during the succeeding twelve-month period is recorded as customer deposits and the remaining portion is recorded as customer deposits, noncurrent.

Our deferred revenue and deferred revenue, noncurrent as of December 31, 2024 were $259.6 million and $39.9 million, respectively. Our customer deposits and customer deposits, noncurrent as of December 31, 2024 were $265.3 million and $1.7 million, respectively. Our deferred revenue and deferred revenue, noncurrent as of December 31, 2023 were $246.9 million and $28.0 million, respectively. Our customer deposits and customer deposits, noncurrent as of December 31, 2023 were $209.8 million and $1.5 million, respectively.

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Critical Accounting Policies and Estimates

Our consolidated financial statements and the accompanying notes thereto included elsewhere in this Annual Report on Form 10-K are prepared in accordance with GAAP. The preparation of consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from our estimates. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations, and cash flows will be affected.

We believe that the accounting policies described below involve a significant degree of judgment and complexity. Accordingly, we believe these are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of operations. For further information, see Note 2. Significant Accounting Policies in our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Revenue Recognition

We generate revenue from the sale of subscriptions to access our software platforms via Palantir Cloud and On-Premises Software, with ongoing O&M services and professional services.

In accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, we recognized revenue upon the transfer of promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for promised goods or services. We apply the following five-step revenue recognition model in accounting for our revenue arrangements:

•identification of the contract(s) with the customer, including whether collectability of the consideration is probable by considering the customers’ ability and intention to pay;

•identification of the performance obligations in the contract;

•determination of the transaction price;

•allocation of the transaction price to the performance obligations in the contract; and

•recognition of revenue when, or as, we satisfy a performance obligation.

Each of our significant performance obligations and our application of ASC 606 to our revenue arrangements is discussed in further detail below.

Palantir Cloud

Our Palantir Cloud subscriptions grant customers the right to access the software functionality in a hosted environment controlled by Palantir and are also sold together with stand-ready O&M services. We agree to provide continuous access to our hosted software platforms throughout the contract term. Revenue associated with Palantir Cloud subscriptions is generally recognized over the contract term on a ratable basis, which is consistent with the transfer of control of the Palantir Cloud services to the customer.

On-Premises Software

Sales of our software licenses, primarily term licenses, grant customers the right to use functional intellectual property, either on their internal hardware infrastructure or on their own cloud instance, over the contractual term and are also sold together with stand-ready O&M services. The O&M services include critical updates, support, and maintenance services required to operate our software and, as such, are necessary for our software to maintain its intended utility over the contractual term. Because of this requirement, we have concluded that the software licenses and O&M services, which together we refer to as our On-Premises Software, are highly interdependent and interrelated and represent a single distinct performance obligation within the context of the contract. Revenue is generally recognized over the contract term on a ratable basis.

Professional Services

Our professional services support the customers’ use of the software platforms and include, as needed, on-demand user support, user-interface configuration, training, and ongoing ontology and data modeling support. Professional services contracts typically include the provision of on-demand professional services for the duration of the contractual term, which may be coterminous or non-coterminous with a Palantir Cloud subscription or the On-Premises Software. Professional services are on-demand, whereby we perform services throughout the service period; therefore, the revenue is recognized over the related term.

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Areas of Judgment and Estimation

Our contracts with customers can include multiple promises to transfer goods or services to the customer. Determining whether promises are distinct performance obligations that should be accounted for separately – or not distinct within the context of the contract and, thus, accounted for together – requires significant judgment. We concluded that the promise to provide a software license is highly interdependent and interrelated with the promise to provide O&M services and such promises are not distinct within the context of our contracts and are accounted for as a single performance obligation for our On-Premises Software.

Recent Accounting Pronouncements

For information on recently issued accounting pronouncements, if any, refer to Note 2. Significant Accounting Policies in our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the accompanying notes thereto included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements based upon current plans, expectations, and beliefs, involving risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements. You should review the section titled “Special Note Regarding Forward-Looking Statements” for a discussion of forward-looking statements and the section titled “Risk Factors” for a discussion of factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis and elsewhere in this Annual Report on Form 10-K. Our historical results are not necessarily indicative of the results that may be expected for any period in the future.

This section of this Annual Report on Form 10-K generally discusses fiscal years 2023 and 2022 items and year-to-year comparisons between fiscal years 2023 and 2022. Discussions of fiscal year 2022 items and year-to-year comparisons between fiscal years 2022 and 2021 that are not included in this Annual Report on Form 10-K can be found in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, which was filed with the SEC on February 21, 2023 and is incorporated herein by reference.

Overview

We build software that empowers organizations to effectively integrate their data, decisions, and operations at scale.

We were founded in 2003 and started building software for the intelligence community in the United States to assist in counterterrorism investigations and operations. We later began working with commercial enterprises, who often faced fundamentally similar challenges in working with data.

We have built four principal software platforms, Gotham, Foundry, Apollo, and our Artificial Intelligence Platform (“AIP”). Gotham and Foundry enable institutions to transform massive amounts of information into an integrated data asset that reflects their operations, and AIP leverages the power of our existing machine learning technologies alongside large language models (“LLMs”) directly within Gotham and/or Foundry to help connect AI to enterprise data. For over a decade, Gotham has surfaced insights for global defense agencies, the intelligence community, disaster relief organizations and beyond. Foundry is

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becoming a central operating system not only for individual institutions but also for entire industries. Apollo, which we began offering as a commercial solution in 2021, is a cloud-agnostic, single control layer that coordinates ongoing delivery of new features, security updates, and platform configurations, helping to ensure the continuous operation of critical systems. Apollo allows our customers to run their software in virtually any environment.

In 2023, we began deploying our newest offering, AIP, which is designed for customers across the commercial and government sectors, enabling them to derive value from recent breakthroughs in artificial intelligence via the combination of our existing software platforms with LLMs. We believe AIP uniquely allows users to connect LLMs and other AI with their data and operations to facilitate decision-making within the legal, ethical, and security constraints that they require.

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

We believe that every institution faces challenges that our platforms and products were designed to address. Our approach with all our clients is to establish a partnership that transforms the way they use data in pursuit of their goals.

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

Our Business

Our customers pay us to use the software platforms we have built. While we generally offer contract terms of one to five years in length, our customers sometimes enter into shorter-term contracts. Revenue is generally recognized ratably over the contract term. Many of our customer contracts contain termination for convenience provisions.

For the year ended December 31, 2023, we generated $2.2 billion in revenue, reflecting a 17% growth rate from the year ended December 31, 2022, when we generated $1.9 billion in revenue.

In the year ended December 31, 2023, we generated income from operations of $120.0 million, or adjusted income from operations of $632.8 million when excluding stock-based compensation and related employer payroll taxes. In the year ended December 31, 2022, our losses from operations were $161.2 million, or adjusted income from operations of $420.8 million when excluding stock-based compensation and related employer payroll taxes.

In the year ended December 31, 2023, our gross profit was $1.8 billion, reflecting a gross margin of 81%, or 82% when excluding stock-based compensation. In the year ended December 31, 2022, our gross profit was $1.5 billion, reflecting a gross margin of 79%, or 81% when excluding stock-based compensation.

For more information about our adjusted income from operations, which excludes stock-based compensation and related employer payroll taxes; and gross profit and gross margin, when excluding stock-based compensation; as well as reconciliations from income (loss) from operations and gross profit, see the section titled “Non-GAAP Reconciliations” below.

Our Customers

We define a customer as an organization from which we have recognized revenue during the trailing twelve-month period. During the period ended December 31, 2023, we had 497 customers, including companies in various commercial sectors and government agencies around the world. During the period ended December 31, 2022, we had 367 customers.

For large government agencies, where a single institution has multiple divisions, units, or subsidiary agencies, each such division, unit, or subsidiary agency that enters into a separate contract with us and is invoiced as a separate entity is treated as a separate customer. For example, while the U.S. Food and Drug Administration, Centers for Disease Control and Prevention, and National Institutes of Health are subsidiary agencies of the U.S. Department of Health and Human Services, we treat each of those agencies as a separate customer given that the governing structures and procurement processes of each agency are independent.

We have built lasting and significant customer relationships and partnerships with some of the world’s leading government institutions and companies. As of December 31, 2023, we expect to generate revenue from contracts closed during the year ended December 31, 2023 for an additional 3.4 years on a dollar-weighted average contract duration basis. Dollar-weighted average contract duration represents the length of time we expect to generate revenue on average, based on the total potential lifetime length and value of contracts entered into with, or awarded by, our customers at the time of contract execution, presuming that our customers will exercise all of the contractual options available to them and no termination of contracts,

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although the majority of our contracts are subject to termination provisions, including for convenience, and there can be no guarantee that contracts are not terminated or that contract options will be exercised. We calculate this duration on a dollar-weighted basis to adjust for smaller deals. The timing of our customer billings and receipt of payments varies from contract to contract. Our average revenue for the top twenty customers during the trailing twelve months ended December 31, 2023 was $54.6 million, which grew 11% from an average of $49.4 million in revenue from the top twenty customers during the trailing twelve months ended December 31, 2022, demonstrating our expanding relationships with existing customers.

Organizations in the commercial and government sectors face similar challenges when it comes to managing data, and we intend to expand our reach in both markets moving forward. Our decisions about which customer relationships require further investment may change over time, based on our assessment of the potential long-term value that our software can generate for them. We conduct pilots and bootcamps with customers, generally at our own expense and without a guarantee of future returns, in order to access a unique set of opportunities that others may pass over for lack of resources and shorter investment horizons. We manage customers at the account level, not by industry or sector, so that we can optimize on the specific growth opportunities for each customer. In the year ended December 31, 2023, 55% of our revenue came from government customers and 45% came from commercial customers.

Our U.S. customers have been a meaningful source of revenue growth for our business. In the year ended December 31, 2023, we generated 62% of our revenue from customers 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 December 31, 2023 was $1.4 billion, which grew 19% from the prior twelve-month period. We expect that U.S. customers will continue to be a source of significant revenue growth for us.

We continue to believe that our government customers remain a meaningful and resilient source of revenue for our business, particularly during periods of economic uncertainty. However, large government customers in particular are generally subject to a number of uncertainties regarding budgets and spending levels, changes in timing and spending priorities, and regulatory and policy changes, which can make it difficult to predict when, or if, we will make sales to such customers or the size and scope of any contract awards. See also the discussion of “Risks Related to Relationships and Business with the Public Sector” within “Item 1A. Risk Factors” included in this Annual Report on Form 10-K.

Expansion of Access to Platforms

The speed with which our platforms can be deployed has significantly expanded the range of potential customers with which we plan on partnering over the long term. We anticipate that our reach among an increasingly broad set of customers, in both the commercial and government sectors, will accelerate moving forward. We believe that, as these new partners grow, we will grow with them.

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

Total Remaining Deal Value

We are focused on building strategic relationships with, and delivering significant outcomes for, our customers over the long term. Our contracts with our customers reflect that long-term orientation, often lasting for multiple years at a time.

Total remaining deal value is the total remaining value of contracts that have been entered into with, or awarded by, our customers as of the end of the reporting period. Total remaining deal value presumes the exercise of all contract options available to our customers and no termination of contracts. However, the majority of our contracts are subject to termination provisions, including for convenience, and there can be no guarantee that contracts are not terminated or that contract options will be exercised. Further, total remaining deal value may exclude all or some portion of the value of certain commercial contracts as a result of our ongoing assessments of customers’ financial condition, including the consideration of such customers’ ability and intention to pay, and whether such contracts continue to meet the criteria for revenue recognition, among other factors.

As of December 31, 2023, the total remaining deal value of the contracts, as defined above, was $3.9 billion, up 5% from December 31, 2022, when our total remaining deal value of such contracts was $3.7 billion.

Of our total remaining deal value, as of December 31, 2023, the total remaining deal value of the contracts that we entered into with commercial customers, including existing contractual obligations and available contractual options, as defined above, was $2.1 billion, up 7% from December 31, 2022, when the total remaining deal value of such contracts was $2.0 billion.

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As of December 31, 2023, 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 $1.8 billion, up 4% from December 31, 2022, when the total value of such contracts was $1.7 billion.

When calculating the total remaining deal value of government contracts, we do not include government contracts known as IDIQ contracts, totaling $4.1 billion, as of December 31, 2023, that we have been awarded, but where the funding of such contracts has not yet been determined. The funding of these contracts is not guaranteed.

Many of our government and commercial contracts are subject to termination for convenience provisions. Additionally, the U.S. federal government is prohibited from exercising contract options more than one year in advance. As a result, there can be no guarantee that our customer contracts will not be terminated or that contract options will be exercised.

Macroeconomic Trends

As a corporation with an international presence, we are subject to risks and uncertainties caused by significant events with macroeconomic impacts, including, but not limited to, geopolitical tensions, heightened interest rates, monetary policy changes, and foreign currency fluctuations. Additionally, these macroeconomic impacts have disrupted, and may continue to disrupt, the operations of our customers and prospective customers. We continuously monitor the direct and indirect impacts of these circumstances on our business and financial results, as well as the overall global economy and geopolitical landscape.

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

Geopolitical Tensions

Our business operations are subject to interruption by events that are beyond our control, including geopolitical tensions. We continue to closely monitor the impact of various geopolitical tensions and their global impacts on our business. While the ongoing Russia-Ukraine and Israel conflicts are still evolving and the outcomes remain highly uncertain, we do not expect that resulting challenging macroeconomic conditions will have a material impact on our business or results of operations.

We do not currently have office locations in Russia or Palestinian territories and none of our revenues came from sales to entities headquartered in those countries or territories. In 2023, we announced partnerships with Ukraine to support its defense and reconstruction efforts and investigations of potential war crimes, among other activities. In 2024, we agreed to a strategic partnership with the Israeli Defense Ministry to supply technology to Israel to assist in the ongoing war. However, our current operations related to Ukraine and Israel are not material to our financial position or results of operations. If the respective conflicts continue or worsen, leading to greater disruptions and uncertainty within the technology industry or global economy, our business and results of operations could be negatively impacted.

Foreign Currency Exchange Rates

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

Our contracts with customers and vendors are primarily denominated in U.S. dollars. However, the general strengthening of the U.S. dollar relative to other major foreign currencies (primarily the Euro and GBP) has had, and could in the future have, an unfavorable impact on our revenues and expenses from certain non-U.S. customers or vendors whose contracts are denominated in currencies other than U.S. dollars. Additionally, certain of our U.S. and non-U.S. subsidiaries may hold monetary assets and liabilities in currencies other than their functional currency (primarily the JPY, Euro, and GBP), which could subject our results of operations and cash flows to adverse fluctuations due to changes in such foreign currency exchange rates as compared to the U.S. dollar. For the year ended December 31, 2023, such impacts were not material to our financial position or results of operations.

Customer Impacts

Current macroeconomic conditions have impacted, and may continue to adversely impact, our customers’ businesses, particularly our early- and growth-stage customers. Relationships with early- or growth-stage customers carry inherent risks because, among other things, such customers may be unable to generate sufficient revenues or profitability or to access any necessary financing or funding in a timely manner or on favorable terms to them in the current macroeconomic environment, which has impacted, and may continue to impact, our expected revenue and collections. As a result, current macroeconomic conditions have impacted, and may continue to impact, our ability to realize the full value of our commercial contracts with

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such early- or growth-stage customers. For additional information, see Note 4. Investments and Fair Value Measurements in the consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Key Business Measure

In addition to the measures presented in our consolidated financial statements, we use the following key non-GAAP business measure to help us evaluate our business, identify trends affecting our business, formulate business plans and financial projections, and make strategic decisions.

Contribution Margin

We believe that the revenue we generate relative to the costs we incur in order to generate such revenue is an important measure of the efficiency of our business. We define contribution margin as revenue less our cost of revenue and sales and marketing expenses, excluding stock-based compensation, divided by revenue.

Revenue is allocated to each customer account directly. The cost of revenue and sales and marketing costs include both the costs associated with the deployment and operation of our software as well as expenses associated with identifying new customers and expanding partnerships with existing ones. Our software engineers working with existing customers often manage the deployment and operation of our platforms as well as identify new ways that those platforms can be used. To calculate the contribution by segment, we allocate cost of revenue and sales and marketing expenses, excluding stock-based compensation, to an account pro rata based on headcount and time spent on the account during the period. To the extent certain costs or personnel are not directly assigned to a specific account, they are allocated pro rata based on total headcount staffed during such period. Direct costs, such as third-party cloud hosting services, are directly allocated to the account to which they relate. Allocated revenues and expenses are then aggregated into a segment based upon the customer account to which they relate.

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

We believe that our contribution margin provides an important measure of the efficiency of our operations over time. We have included contribution margin because it is a key measure used by our management to evaluate our performance, and we believe that it also provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management team. Our calculation of contribution margin may differ from similarly titled measures, if any, reported by other companies. Contribution margin should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP.

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

Non-GAAP Reconciliations

We use the non-GAAP measures contribution margin; gross profit and gross margin, excluding stock-based compensation; and adjusted income from operations, which excludes stock-based compensation and related employer payroll taxes, to help us evaluate our business, identify trends affecting our business, formulate business plans and financial projections, and make strategic decisions. We exclude stock-based compensation, which is a noncash expense, from these non-GAAP financial measures because we believe that excluding this item provides meaningful supplemental information regarding operational performance and provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management team. Additionally, we exclude employer payroll taxes related to stock-based compensation as it is difficult to predict and outside of our control.

Our definitions may differ from the definitions used by other companies and therefore comparability may be limited. In addition, other companies may not publish these or similar metrics. Further, these metrics have certain limitations, as they do not include the impact of certain expenses that are reflected in our consolidated statements of operations. Thus, our non-GAAP contribution margin; gross profit and gross margin, excluding stock-based compensation; and adjusted income from operations should be considered in addition to, not as a substitute for, or in isolation from, measures prepared in accordance with GAAP.

We compensate for these limitations by providing reconciliations of these non-GAAP measures to the most comparable GAAP measures. We encourage investors and others to review our business, results of operations, and financial information in their

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entirety, not to rely on any single financial measure, and to view these non-GAAP measures in conjunction with the most directly comparable GAAP financial measures.

Contribution Margin

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

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(1) Excludes stock-based compensation.

Gross Profit and Gross Margin, Excluding Stock-Based Compensation

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

Adjusted Income from Operations

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

Components of Results of Operations

Revenue

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

Palantir Cloud

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

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continuous access to our hosted software throughout the contract term. Revenue associated with Palantir Cloud subscriptions is generally recognized over the contract term on a ratable basis, which is consistent with the transfer of control of the Palantir services to the customer.

On-Premises Software

Sales of our software subscriptions grant customers the right to use functional intellectual property, either on their internal hardware infrastructure or on their own cloud instance, over the contractual term and are also sold together with stand-ready O&M services. O&M services include critical updates and support and maintenance services required to operate the software and, as such, are necessary for the software to maintain its intended utility over the contractual term. Because of this requirement, we have concluded that the software 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.

Professional Services

Our professional services support the customers’ use of the software and include, as needed, on-demand user support, user-interface configuration, training, and ongoing ontology and data modeling support. Professional services contracts typically include the provision of on-demand professional services for the duration of the contractual term. These services are typically coterminous with a Palantir Cloud or On-Premises Software subscriptions. Professional services are on-demand, whereby we perform services throughout the contract period; therefore, the revenue is recognized over the contractual term.

Cost of Revenue

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

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

Sales and Marketing

Our sales and marketing efforts span all stages of our sales cycle, including personnel involved with sales functions, and executing pilots at new or existing customers. Sales and marketing costs primarily include salaries, stock-based compensation expense, commissions, and benefits for our sales force and personnel involved in sales functions, executing on pilots, including bootcamps, and customer growth activities; as well as third-party cloud hosting services for our pilots, marketing and sales event-related costs, travel costs, and allocated overhead. Sales and marketing costs are generally expensed as incurred.

We expect that sales and marketing expenses will increase in absolute dollars as we continue to invest in our potential and current customers, in growing our business, in our sales force, and in enhancing our brand awareness.

Research and Development

Our research and development efforts are aimed at continuing to develop and refine our offerings, including adding new platforms, features, and modules, increasing their functionality, and enhancing the usability of our platforms. Research and development costs primarily include salaries, stock-based compensation expense, and benefits for personnel involved in performing the activities to develop and refine our platforms and products, as well as third-party cloud hosting services and other IT-related costs, travel costs, and allocated overhead. Research and development costs are expensed as incurred.

We plan to continue to invest in personnel to support our research and development efforts. As a result, we expect that research and development expenses will increase in absolute dollars for the foreseeable future as we continue to invest to support these activities.

General and Administrative

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

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

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Interest Income

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

Interest Expense

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

Other Income (Expense), Net

Other income (expense), net consists primarily of foreign currency exchange gains and losses and realized and unrealized losses from equity securities. The year ended December 31, 2022 also included a gain from a step acquisition.

Provision for Income Taxes

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

Net Income (Loss) Attributable to Noncontrolling Interests

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

Segments

We have two operating segments, commercial and government, which were determined based on the manner in which the chief operating decision maker, who is our Chief Executive Officer, manages our operations for purposes of allocating resources and evaluating performance. Various factors, including our organizational and management reporting structure and customer type, were considered in determining these operating segments.

Our operating segments are described below:

•Commercial: This segment primarily serves customers working in non-government industries.

•Government: This segment primarily serves customers that are U.S. government and non-U.S. government agencies.

Segment profitability is evaluated based on contribution and contribution margin. Contribution is segment revenue less the related costs of revenue and sales and marketing expenses, excluding stock-based compensation expense. Contribution margin is contribution divided by revenue. To the extent costs of revenue or sales and marketing expenses are not directly attributable to a particular segment, they are allocated based upon headcount at each operating segment during the period. We use it, in part, to evaluate the performance of, and allocate resources to, each of our operating segments, which excludes certain operating expenses that are not allocated to operating segments because they are separately managed at the consolidated corporate level, or are noncash costs. These unallocated or noncash costs include stock-based compensation expense, research and development costs, and general and administrative costs, such as legal and accounting costs.

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Results of Operations

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

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

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Comparison of the Years Ended December 31, 2023 and 2022

Revenue

Revenue increased by $319.1 million, or 17%, for the year ended December 31, 2023 compared to 2022. Revenue from government customers increased by $150.4 million, or 14%, for the year ended December 31, 2023 compared to 2022. Of the increase, $129.4 million was from existing government customers as of December 31, 2022. Generally, increases in revenue from our existing customers are a result of expanded use of our products and services within their organizations. Revenue from U.S. government customers was $921.2 million for the year ended December 31, 2023 compared to $826.3 million for the same period in 2022. Revenue from commercial customers increased by $168.7 million, or 20%, for the year ended December 31, 2023 compared to 2022. Of the increase, $79.6 million was from existing customers as of December 31, 2022, which included an offsetting decrease of $31.1 million of revenue from Strategic Commercial Contracts. See Note 4. Investments and Fair Value Measurements in our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information. Revenue from U.S. commercial customers was $457.1 million for the year ended December 31, 2023 compared to $335.1 million for the same period in 2022.

Cost of Revenue and Gross Profit

Cost of revenue for the year ended December 31, 2023 increased by $22.6 million, or 6%, compared to 2022. The increase was primarily due to increases of $12.2 million in third-party cloud hosting services and other IT costs driven by usage from customer growth and expansion, $9.4 million in payroll and other payroll-related costs as a result of higher average headcount during the year, and $7.5 million in field service representatives, hardware, and other direct costs generally related to new or expanded projects. The increases were partially offset by a decrease of $5.9 million in stock-based compensation expense and related expenses, net. For additional information, see the section titled “Stock-Based Compensation” below.

Our gross margin for the year ended December 31, 2023 increased by 2% compared to 2022, as revenue growth outpaced costs of revenue. The primary cause of this growth rate variation was the decrease in stock-based compensation expense and related expenses, net in cost of revenue and smaller growth in field service representatives and other direct costs relative to revenue growth as compared to the prior year.

Operating Expenses

Sales and Marketing

Sales and marketing expenses increased by $42.5 million, or 6%, for the year ended December 31, 2023 compared to 2022. The increase was primarily due to increases of $53.6 million in payroll and other payroll-related costs driven by higher average headcount, $20.2 million in travel and office-related costs, and $10.2 million in professional services. The increases were

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partially offset by a decrease of $26.2 million in stock-based compensation expense and related expenses, net. For additional information, see the section titled “Stock-Based Compensation” below.

Research and Development

Research and development expenses increased by $44.9 million, or 12%, for the year ended December 31, 2023 compared to 2022. The increase was primarily due to increases of $17.2 million in payroll and other payroll-related costs driven by higher average headcount, $9.6 million in third-party cloud hosting services and other IT costs, and $9.2 million in stock-based compensation expense and related expenses. For additional information, see the section titled “Stock-Based Compensation” below.

General and Administrative

General and administrative expenses decreased by $72.0 million, or 12%, for the year ended December 31, 2023 compared to 2022. The decrease was primarily due to decreases of $46.2 million in stock-based compensation expense and related expenses, net, $17.9 million in professional services, and $11.3 million in travel costs. This decrease was partially offset by an increase of $15.0 million in payroll and other payroll-related costs driven by higher average headcount. For additional information see the section titled “Stock-Based Compensation” below.

Stock-Based Compensation

Stock-based compensation expenses decreased by $88.9 million, or 16%, for the year ended December 31, 2023 compared to 2022. The decrease was primarily driven by lower expense under the accelerated attribution method for RSUs granted prior to our Direct Listing, during the year ended December 31, 2023 compared to the same period in 2022. Additionally, stock-based compensation expenses decreased due to the cancellation and vesting of options and RSUs during the year.

Interest Income

Interest income increased by $112.3 million for the year ended December 31, 2023 compared to 2022 primarily due to higher U.S. interest rates and increases in our interest-bearing cash and cash equivalents, and our investments in short-term U.S. treasury securities.

Interest Expense

There was no material change in interest expense for the year ended December 31, 2023 compared to 2022.

Other Income (Expense), Net

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Other income (expense), net changed by $204.1 million for the year ended December 31, 2023 compared to 2022 primarily due to the net decrease in unrealized losses from our shares held in equity securities, partially offset by an increase in net realized losses from sales of publicly-traded equity securities, and $44.3 million gain from a “step acquisition” (as defined by U.S. GAAP) that was reported in 2022. For additional information see Note 4. Investments and Fair Value Measurements and Note 14. Business Combinations in our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Provision for Income Taxes

Provision for income taxes increased by $9.6 million for the year ended December 31, 2023 compared to 2022 primarily due to the increase in foreign income taxes as the result of higher foreign taxable income and higher foreign withholding taxes in the current year. The Company maintains a full valuation allowance against its U.S. federal and state, and certain foreign deferred tax assets. For additional information see Note 11. Income Taxes in our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Liquidity and Capital Resources

We generated positive cash flow from operations for the year ended December 31, 2023. We had cash, cash equivalents, and short-term U.S. treasury securities totaling $3.7 billion available as of December 31, 2023. We believe that cash flows generated from operations, cash, cash equivalents, marketable securities, available funds, and access to financing sources, including our credit facility, will be sufficient to meet our anticipated operating cash needs for at least the next twelve months. However, any projections of future cash needs and cash flows are subject to substantial uncertainty. We have historically generated significant losses from our operations as reflected in our consolidated balance sheets and while we have generated income from operations and positive cash flows from operations in the year ended December 31, 2023, the amounts may fluctuate for the foreseeable future.

As of December 31, 2023, our accumulated deficit balance was $5.6 billion, and our principal sources of liquidity were cash, cash equivalents, and short-term U.S. treasury securities totaling $3.7 billion.

As of December 31, 2023, we had no outstanding debt balances and additional available and undrawn revolving commitments of $500.0 million under our credit facility. For more information, see Note 6. Debt in our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Our future capital requirements will depend on many factors, including, but not limited to, the rate of our growth, our ability to attract and retain customers and their willingness and ability to pay for our products and services, and the timing and extent of spending to support our efforts to market and develop our products. Further, we may enter into future arrangements to acquire or invest in businesses, products, services, strategic partnerships, and technologies; additionally, we may repurchase shares of our Class A common stock from time to time under our Share Repurchase Program. 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 all. If additional funds are not available to us on acceptable terms, or at all, our business, financial condition, and results of operations could be adversely affected. For additional information on our Share Repurchase Program, see Note 9. Stockholders’ Equity in our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

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

Operating Activities

Net cash provided by operating activities was $712.2 million and $223.7 million for the year ended December 31, 2023 and 2022, respectively. The increase was primarily driven by timing of payments to vendors and timing of the receipt of payments from our customers, as well as an increase in interest income.

Investing Activities

Net cash used in investing activities was $2.7 billion and $45.4 million for the year ended December 31, 2023 and 2022, respectively. The increase in cash used in investing activities was primarily due to purchases of marketable securities, primarily comprised of short-term U.S. treasury securities, offset by proceeds from sales and redemptions of marketable securities.

Financing Activities

Net cash provided by financing activities was $218.8 million and $86.0 million for the year ended December 31, 2023 and 2022, respectively, each of which primarily consisted of proceeds from the exercise of common stock options.

Contractual Obligations and Commitments

The following table summarizes our contractual obligations and commitments as of December 31, 2023 (in thousands):

—————

(1) Noncancelable purchase commitments primarily relate to purchase commitments for third-party cloud hosting services and represents only contracts which are enforceable and legally binding. Obligations under contracts that we can cancel without a significant penalty are not included in the table above. Refer to Note 8. Commitments and Contingencies in our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information.

(2) The contractual commitment amounts under operating leases in the table above are primarily related to facility and equipment leases. Operating lease commitments are reflected net of $102.4 million of sublease income from tenants in certain of our leased facilities. Refer to Note 7. Leases in our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information.

The contractual obligations and commitments in the table above are associated with agreements that are enforceable and legally binding.

Contract Liabilities

Our contract liabilities consist of deferred revenue and customer deposits.

Deferred revenue represents billings under noncancelable contracts before the related product or service is transferred to the customer. The portion of deferred revenue that is anticipated to be recognized as revenue during the succeeding twelve-month period is recorded as deferred revenue and the remaining portion is recorded as deferred revenue, noncurrent.

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Customer deposits consist of amounts billed and/or paid for anticipated revenue generating activities in advance of the start of the contractual term or for the portion of a contract term that is subject to cancellation by our customers. The portion of customer deposits that is anticipated to be recognized as revenue during the succeeding twelve-month period is recorded as customer deposits and the remaining portion is recorded as customer deposits, noncurrent.

Our deferred revenue and deferred revenue, noncurrent as of December 31, 2023 were $246.9 million and $28.0 million, respectively. Our customer deposits and customer deposits, noncurrent as of December 31, 2023 were $209.8 million and $1.5 million, respectively. Our deferred revenue and deferred revenue, noncurrent as of December 31, 2022 were $183.4 million and $10.0 million, respectively. Our customer deposits and customer deposits, noncurrent as of December 31, 2022 were $142.0 million and $3.9 million, respectively.

Critical Accounting Policies and Estimates

Our consolidated financial statements and the accompanying notes thereto included elsewhere in this Annual Report on Form 10-K are prepared in accordance with GAAP. The preparation of consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from our estimates. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations, and cash flows will be affected.

We believe that the accounting policies described below involve a significant degree of judgment and complexity. Accordingly, we believe these are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of operations. For further information, see Note 2. Significant Accounting Policies in our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Revenue Recognition

We generate revenue from the sale of subscriptions to access our software platforms via Palantir Cloud and On-Premises Software, with ongoing O&M services and professional services.

In accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, we recognized revenue upon the transfer of promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for promised goods or services. We apply the following five-step revenue recognition model in accounting for our revenue arrangements:

•identification of the contract(s) with the customer, including whether collectability of the consideration is probable by considering the customers’ ability and intention to pay;

•identification of the performance obligations in the contract;

•determination of the transaction price;

•allocation of the transaction price to the performance obligations in the contract; and

•recognition of revenue when, or as, we satisfy a performance obligation.

Each of our significant performance obligations and our application of ASC 606 to our revenue arrangements is discussed in further detail below.

Palantir Cloud

Our Palantir Cloud subscriptions grant customers the right to access the software functionality in a hosted environment controlled by Palantir and are also sold together with stand-ready O&M services. We agree to provide continuous access to our hosted software platforms throughout the contract term. Revenue associated with Palantir Cloud subscriptions is generally recognized over the contract term on a ratable basis, which is consistent with the transfer of control of the Palantir Cloud services to the customer.

On-Premises Software

Sales of our software subscriptions grant customers the right to use functional intellectual property, either on their internal hardware infrastructure or on their own cloud instance, over the contractual term and are sold together with stand-ready O&M services. The O&M services include critical updates, support, and maintenance services required to operate our software and, as such, are necessary for our software to maintain its intended utility over the contractual term. Because of this requirement, we

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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.

Professional Services

Our professional services support the customers’ use of the software platforms and include, as needed, on-demand user support, user-interface configuration, training, and ongoing ontology and data modeling support. Professional services contracts typically include the provision of on-demand professional services for the duration of the contractual term. These services are typically coterminous with a Palantir Cloud subscription or the On-Premises Software. Professional services are on-demand, whereby we perform services throughout the contract period; therefore, the revenue is recognized over the contractual term.

Contract Liabilities

The timing of customer billings and payments relative to the start of the service period varies from contract to contract; however, we bill many of our customers in advance of the provision of services under our contracts, resulting in contract liabilities consisting of either deferred revenue or customer deposits. Deferred revenue represents billings under noncancelable contracts before the related product or service is transferred to the customer. Customer deposits consist of amounts billed and/or paid in advance of the start of the contractual term or for anticipated revenue generating activities for the portion of a contract term that is subject to cancellation by our customers. Many of our arrangements include terms that allow the customer to terminate the contract for convenience and receive 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. In these arrangements, we concluded there are no enforceable rights and obligations after such notice period and therefore the consideration received or due from the customer that is subject to termination for convenience is recorded as customer deposits.

The payment terms and conditions vary by contract; however, our terms generally require payment within 30 to 60 days from the invoice date. In instances where the timing of revenue recognition differs from the timing of payment, we elected to apply the practical expedient in accordance with ASC 606 to not adjust contract consideration for the effects of a significant financing component as we expect, at contract inception, that the period between when promised goods and services are transferred to the customer and when the customer pays for those goods and services will be one year or less. As such, we determined our contracts do not generally contain a significant financing component.

Areas of Judgment and Estimation

Our contracts with customers can include multiple promises to transfer goods or services to the customer. Determining whether promises are distinct performance obligations that should be accounted for separately – or not distinct within the context of the contract and, thus, accounted for together – requires significant judgment. We concluded that the promise to provide a software subscription is highly interdependent and interrelated with the promise to provide O&M services and such promises are not distinct within the context of our contracts and are accounted for as a single performance obligation for our On-Premises Software.

Recent Accounting Pronouncements

For information on recently issued accounting pronouncements, if any, refer to Note 2. Significant Accounting Policies in our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the accompanying notes thereto included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements based upon current plans, expectations, and beliefs, involving risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements. You should review the section titled “Special Note Regarding Forward-Looking Statements” for a discussion of forward-looking statements and the section titled “Risk Factors” for a discussion of factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis and elsewhere in this Annual Report on Form 10-K. Our historical results are not necessarily indicative of the results that may be expected for any period in the future.

This section of this Annual Report on Form 10-K generally discusses fiscal years 2022 and 2021 items and year-to-year comparisons between fiscal years 2022 and 2021. Discussions of fiscal year 2021 items and year-to-year comparisons between fiscal years 2021 and 2020 that are not included in this Annual Report on Form 10-K can be found in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, which was filed with the SEC on February 24, 2022 and is incorporated herein by reference.

Overview

We build software that empowers organizations to effectively integrate their data, decisions, and operations at scale.

We were founded in 2003 and started building software for the intelligence community in the United States to assist in counterterrorism investigations and operations. We later began working with commercial enterprises, who often faced fundamentally similar challenges in working with data.

We have built three principal software platforms, Gotham, Foundry, and Apollo. Gotham and Foundry enable institutions to transform massive amounts of information into an integrated data asset that reflects their operations. For over a decade, Gotham

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has surfaced insights for global defense agencies, the intelligence community, disaster relief organizations and beyond. Foundry is becoming a central operating system not only for individual institutions but also for entire industries. Apollo, which we began offering as a commercial solution in 2021, is a cloud-agnostic, single control layer that coordinates ongoing delivery of new features, security updates, and platform configurations, helping to ensure the continuous operation of critical systems. Apollo allows our customers to run their software in virtually any environment.

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

We believe that every institution faces challenges that our platforms and products were designed to address. Our approach with all our clients is to establish a partnership that transforms the way they use data in pursuit of their goals.

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

Our Business

Our customers pay us to use the software platforms we have built. While we generally offer contract terms of one to five years in length, our customers sometimes enter into shorter-term contracts. Revenue is generally recognized ratably over the contract term. Many of our customer contracts contain termination for convenience provisions.

For the year ended December 31, 2022, we generated $1.9 billion in revenue, reflecting a 24% growth rate from the year ended December 31, 2021, when we generated $1.5 billion in revenue.

In the year ended December 31, 2022, we incurred losses from operations of $161.2 million, or adjusted income from operations of $420.8 million when excluding stock-based compensation and related employer payroll taxes. In the year ended December 31, 2021, our losses from operations were $411.0 million, or adjusted income from operations of $473.5 million when excluding stock-based compensation and related employer payroll taxes.

In the year ended December 31, 2022, our gross profit was $1.5 billion, reflecting a gross margin of 79%, or 81% when excluding stock-based compensation. In the year ended December 31, 2021, our gross profit was $1.2 billion, reflecting a gross margin of 78%, or 82% when excluding stock-based compensation.

For more information about our adjusted income from operations, which excludes stock-based compensation and related employer payroll taxes; and gross profit and gross margin, when excluding stock-based compensation; as well as reconciliations from loss from operations and gross profit, see the section titled “Non-GAAP Reconciliations” below.

Our Customers

We define a customer as an organization from which we have recognized revenue during the trailing twelve-month period. During the period ended December 31, 2022, we had 367 customers, including companies in various commercial sectors and government agencies around the world. During the period ended December 31, 2021, we had 237 customers.

For large government agencies, where a single institution has multiple divisions, units, or subsidiary agencies, each such division, unit, or subsidiary agency that enters into a separate contract with us and is invoiced as a separate entity is treated as a separate customer. For example, while the U.S. Food and Drug Administration, Centers for Disease Control and Prevention, and National Institutes of Health are subsidiary agencies of the U.S. Department of Health and Human Services, we treat each of those agencies as a separate customer given that the governing structures and procurement processes of each agency are independent.

We have built lasting and significant customer relationships and partnerships with some of the world’s leading government institutions and companies. As of December 31, 2022, we expect to generate revenue under our existing customer contracts for an additional 2.8 years on a dollar-weighted average contract duration basis. Dollar-weighted average contract duration represents the length of time we expect to generate revenue on average, including existing contractual obligations and assuming that our customers will exercise all of the contractual options available to them, and is subject to 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 smaller deals. The timing of our customer billings and receipt of payments varies from contract to contract. Our average revenue for the top twenty customers during the trailing twelve months ended December 31, 2022 was $49.4 million, which grew 13% from an average of $43.6 million in revenue from the top twenty customers during the trailing twelve months ended December 31, 2021, demonstrating our expanding relationships with existing customers.

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Organizations in the commercial and government sectors face similar challenges when it comes to managing data, and we intend to expand our reach in both markets moving forward. Our decisions about which customer relationships require further investment may change over time, based on our assessment of the potential long-term value that our software can generate for them. We enter into initial pilots with customers, generally at our own expense and without a guarantee of future returns, in order to access a unique set of opportunities that others may pass over for lack of resources and shorter investment horizons. We manage customers at the account level, not by industry or sector, so that we can optimize on the specific growth opportunities for each customer. In the year ended December 31, 2022, 56% of our revenue came from government customers and 44% came from commercial customers.

Our U.S. customers have been a meaningful source of revenue growth for our business. In the year ended December 31, 2022, we generated 61% of our revenue from customers in the United States and the remaining 39% from non-U.S. customers. Revenue from our U.S. customers during the trailing twelve months ended December 31, 2022 was $1.2 billion, which grew 32% from the prior twelve-month period. We expect that U.S. customers will continue to be a source of significant revenue growth for us.

We continue to believe that our government customers remain a meaningful and resilient source of revenue for our business, particularly during periods of economic uncertainty. However, large government customers, in particular, are generally subject to a number of uncertainties regarding budgets and spending levels, changes in timing and spending priorities, and regulatory and policy changes, which can make it difficult to predict when, or if, we will make sales to such customers or the size and scope of any contract awards. See also the discussion of “Risks Related to Relationships and Business with the Public Sector” within Item 1A. Risk Factors included in this Annual Report on Form 10-K.

Expansion of Access to Platforms

The speed with which our platforms can be deployed has significantly expanded the range of potential customers with which we plan on partnering over the long term. We anticipate that our reach among an increasingly broad set of customers, in both the commercial and government sectors, will accelerate moving forward. We believe that, as these new partners grow, we will grow with them.

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

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

Total Remaining Deal Value

We are focused on building strategic relationships with, and delivering significant outcomes for, our customers over the long term. Our contracts with our customers reflect that long-term orientation, often lasting for multiple years at a time.

Total remaining deal value is the total remaining value of contracts that have been awarded by our government and commercial customers and includes existing contractual obligations and unexercised contract options available to those customers. Total remaining deal value presumes the exercise of all contract options and no termination of contracts; however, the majority of our contracts are subject to termination provisions, including for convenience, and there can be no guarantee that contracts are not terminated or that contract options will be exercised. Total remaining deal value also includes remaining contract value from Strategic Commercial Contracts, which are subject to termination for cause provisions. Total remaining deal value excludes all or some portion of the value of certain commercial contracts as a result of our ongoing assessments of customers’ financial condition, including the consideration of such customers’ ability and intention to pay, and whether such contracts continue to meet the criteria for revenue recognition, among other factors.

As of December 31, 2022, the total remaining deal value of the contracts, as defined above, was $3.7 billion, down 3% from December 31, 2021, when our total remaining deal value of such contracts was $3.8 billion.

Of our total remaining deal value, as of December 31, 2022, the total remaining deal value of the contracts that we entered into with commercial customers, including existing contractual obligations and available contractual options, as defined above, was $2.0 billion, down 23% from December 31, 2021, when the total remaining deal value of such contracts was $2.6 billion. The decrease was due to the exclusion of certain contracts, as described above, as well as decreases resulting from the recognition of revenue and renegotiation of a commercial contract.

As of December 31, 2022, 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

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available to those government agencies, was $1.7 billion, up 37% from December 31, 2021, when the total value of such contracts was $1.2 billion.

When calculating the total remaining deal value of government contracts, we do not include government contracts known as IDIQ contracts, totaling $2.8 billion, as of December 31, 2022, that we have been awarded, but where the funding of such contracts has not yet been determined. The funding of these contracts is not guaranteed.

Many of our government and commercial contracts are subject to termination for convenience provisions. Additionally, the U.S. federal government is prohibited from exercising contract options more than one year in advance. As a result, there can be no guarantee that our customer contracts will not be terminated or that contract options will be exercised.

Macroeconomic Trends

As a corporation with an international presence, we are subject to risks and uncertainties caused by significant events with macroeconomic impacts, including, but not limited to, the ongoing COVID-19 pandemic, the impact of the ongoing Russia-Ukraine conflict, rising inflation and interest rates, monetary policy changes, and foreign currency fluctuations. Additionally, these macroeconomic impacts have generally disrupted the operations of our customers and prospective customers. We continuously monitor the direct and indirect impacts of these circumstances on our business and financial results, as well as the overall global economy and geopolitical landscape.

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

COVID-19 Impact

The COVID-19 pandemic continues to impact the global economy. The extent to which COVID-19 may impact our financial conditions or results of operations in future periods remains uncertain, but to date has not had a material adverse impact on our results of operations. We continue to prioritize the health and safety of our employees, our customers, and the communities in which we operate. We have reopened our offices and have allowed business travel and in-person events to resume, while continuing to closely monitor developments around the evolving nature of the pandemic. As such, our travel and office-related expenditures have increased, and may continue to increase moving forward. However, we expect that some of our employees will continue to work remotely. The economic effects of the pandemic and resulting societal changes are currently not predictable.

The COVID-19 pandemic has made clear to many of our customers that accommodating the extended timelines ordinarily required to realize results from implementing new software solutions is not an option during a crisis. As a result, customers are increasingly adopting our software, which can be ready in days, over internal software development efforts, which may take months or years.

Russia-Ukraine Conflict

We continue to closely monitor the impact of the ongoing Russia-Ukraine conflict and its global impacts on our business. While the conflict is still evolving and the outcome remains highly uncertain, we do not expect that the Russian invasion will have a material impact on our business and results of operations. We do not currently have office locations in Russia and none of our revenues came from sales to entities headquartered in Russia. In June 2022, our Chief Executive Officer, Alexander Karp, met with the President of Ukraine and other senior officials to discuss opening an office in Ukraine and providing ongoing support. 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.

Foreign Currency Exchange Rates

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

Our contracts with customers are primarily denominated in U.S. dollars. As a result, the general strengthening of the U.S. dollar relative to other major foreign currencies (primarily the Euro and GBP) had an unfavorable impact on our revenues from certain non-U.S. customers; however, that impact for the year ended December 31, 2022 was not material to our financial position or results of operations.

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Customer Impacts

Current macroeconomic conditions may also adversely impact our customers’ business, particularly our early- and growth-stage customers. Relationships with early- or growth-stage customers carry inherent risks because, among other things, such customers may be unable to generate sufficient revenues or profitability or to access any necessary financing or funding in a timely manner or on favorable terms to them in the current macroeconomic environment, which has impacted, and may continue to impact, our expected revenue and collections. As a result, current macroeconomic conditions may continue to impact our ability to realize the full value of our commercial contracts with such early- or growth-stage customers. For additional information see Note 4. Investments and Fair Value Measurements in the consolidated financials statements included elsewhere in this Annual Report on Form 10-K.

Key Business Measure

In addition to the measures presented in our consolidated financial statements, we use the following key non-GAAP business measure to help us evaluate our business, identify trends affecting our business, formulate business plans and financial projections, and make strategic decisions.

Contribution Margin

We believe that the revenue we generate relative to the costs we incur in order to generate such revenue is an important measure of the efficiency of our business. We define contribution margin as revenue less our cost of revenue and sales and marketing expenses, excluding stock-based compensation, divided by revenue.

Revenue is allocated to each customer account directly. The cost of revenue and sales and marketing costs include both the costs associated with the deployment and operation of our software as well as expenses associated with identifying new customers and expanding partnerships with existing ones. Our software engineers working with existing customers often manage the deployment and operation of our platforms as well as identify new ways that those platforms can be used. To calculate the contribution by segment, we allocate cost of revenue and sales and marketing expenses, excluding stock-based compensation, to an account pro rata based on headcount and time spent on the account during the period. To the extent certain costs or personnel are not directly assigned to a specific account, they are allocated pro rata based on total headcount staffed during such period. Direct costs, such as third-party cloud hosting services, are directly allocated to the account to which they relate. Allocated revenues and expenses are then aggregated into a segment based upon the customer account to which they relate.

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

We believe that our contribution margin provides an important measure of the efficiency of our operations over time. We have included contribution margin because it is a key measure used by our management to evaluate our performance, and we believe that it also provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management team. Our calculation of contribution margin may differ from similarly titled measures, if any, reported by other companies. Contribution margin should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP.

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

Non-GAAP Reconciliations

We use the non-GAAP measures contribution margin; gross profit and gross margin, excluding stock-based compensation; and adjusted income from operations, which excludes stock-based compensation and related employer payroll taxes to help us evaluate our business, identify trends affecting our business, formulate business plans and financial projections, and make strategic decisions. We exclude stock-based compensation, which is a non-cash expense, from these non-GAAP financial measures because we believe that excluding this item provides meaningful supplemental information regarding operational performance and provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management team. Additionally, we exclude employer payroll taxes related to stock-based compensation as it is difficult to predict and outside of our control.

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Our definitions may differ from the definitions used by other companies and therefore comparability may be limited. In addition, other companies may not publish these or similar metrics. Further, these metrics have certain limitations, as they do not include the impact of certain expenses that are reflected in our consolidated statement of operations. Thus, our non-GAAP contribution margin; gross profit and gross margin, excluding stock-based compensation; and adjusted income from operations should be considered in addition to, not as a substitute for, or in isolation from, measures prepared in accordance with GAAP.

We compensate for these limitations by providing reconciliations of these non-GAAP measures to the most comparable GAAP measures. We encourage investors and others to review our business, results of operations, and financial information in its entirety, not to rely on any single financial measure, and to view these non-GAAP measures in conjunction with the most directly comparable GAAP financial measures.

Contribution Margin

The following table provides a reconciliation of contribution margin for the years ended December 31, 2022 and 2021 (in thousands, except percentages):

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(1) Excludes stock-based compensation.

Gross Profit and Gross Margin, Excluding Stock-Based Compensation

The following table provides a reconciliation of gross profit and gross margin, excluding stock-based compensation for the years ended December 31, 2022 and 2021 (in thousands, except percentages):

Adjusted Income from Operations

The following table provides a reconciliation of adjusted income from operations, which excludes stock-based compensation and related employer payroll taxes for the years ended December 31, 2022 and 2021 (in thousands):

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Components of Results of Operations

Revenue

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

Palantir Cloud

Our Palantir Cloud subscriptions grant customers the right to access the software functionality in a hosted environment controlled by Palantir and are sold together with stand-ready O&M services, as further described below. We promise to provide continuous access to the hosted software throughout the contract term. Revenue associated with Palantir Cloud subscriptions is generally recognized over the contract term on a ratable basis, which is consistent with the transfer of control of the Palantir services to the customer.

On-Premises Software

Sales of our software subscriptions grant customers the right to use functional intellectual property, either on their internal hardware infrastructure or on their own cloud instance, over the contractual term and are also sold together with stand-ready O&M services. O&M services include critical updates and support and maintenance services required to operate the software and, as such, are necessary for the software to maintain its intended utility over the contractual term. Because of this requirement, we have concluded that the software 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.

Professional Services

Our professional services support the customers’ use of the software and include, as needed, on-demand user support, user-interface configuration, training, and ongoing ontology and data modeling support. Professional services contracts typically include the provision of on-demand professional services for the duration of the contractual term. These services are typically coterminous with a Palantir Cloud or On-Premises Software subscriptions. Professional services are on-demand, whereby we perform services throughout the contract period; therefore, the revenue is recognized over the contractual term.

Cost of Revenue

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

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

Sales and Marketing

Our sales and marketing efforts span all stages of our sales cycle, including personnel involved with sales functions, and executing pilots at new or existing customers. Sales and marketing costs primarily include salaries, stock-based compensation expense, and benefits for our sales force and personnel involved in sales functions, executing on pilots and customer growth activities; as well as third-party cloud hosting services for our pilots, marketing and sales event-related costs, travel costs, and allocated overhead. Sales and marketing costs are generally expensed as incurred.

We expect that sales and marketing expenses will increase in absolute dollars as we continue to invest in our potential and current customers, in growing our business, sales force, and enhancing our brand awareness.

Research and Development

Our research and development efforts are aimed at continuing to develop and refine our platforms, including adding new features and modules, increasing their functionality, and enhancing the usability of our platforms. Research and development costs primarily include salaries, stock-based compensation expense, and benefits for personnel involved in performing the activities to develop and refine our platforms, internal use third-party cloud hosting services and other IT-related costs, travel costs, and allocated overhead. Research and development costs are expensed as incurred.

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We plan to continue to invest in personnel to support our research and development efforts. As a result, we expect that research and development expenses will increase in absolute dollars for the foreseeable future as we continue to invest to support these activities.

General and Administrative

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

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

Interest Income

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

Interest Expense

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

Other Income (Expense), Net

Other income (expense), net consists primarily of foreign currency exchange gains and losses, realized and unrealized losses from Investments, and our share of income and losses from our equity method investments. The year ended December 31, 2022 also included a gain from a step acquisition.

Provision for (Benefit from) Income Taxes

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

Net Income (Loss) Attributable to Noncontrolling Interests

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

Segments

We have two operating segments, commercial and government, which were determined based on the manner in which the chief operating decision maker (“CODM”), who is our chief executive officer, manages our operations for purposes of allocating resources and evaluating performance. Various factors, including our organizational and management reporting structure and customer type, were considered in determining these operating segments.

Our operating segments are described below:

•Commercial: This segment primarily serves customers working in non-government industries.

•Government: This segment primarily serves customers that are U.S. government and non-U.S. government agencies.

Segment profitability is evaluated based on contribution and contribution margin. Contribution is segment revenue less the related costs of revenue and sales and marketing expenses, excluding stock-based compensation expense. Contribution margin is contribution divided by revenue. To the extent costs of revenue or sales and marketing expenses are not directly attributable to a particular segment, they are allocated based upon headcount at each operating segment during the period. We use it, in part, to evaluate the performance of, and allocate resources to, each of our operating segments, which excludes certain operating expenses that are not allocated to operating segments because they are separately managed at the consolidated corporate level. These unallocated costs include stock-based compensation expense, research and development costs, and general and administrative costs, such as legal and accounting.

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Results of Operations

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

————

(1) Includes stock-based compensation expense as follows (in thousands):

————

(i) On September 30, 2020, in connection with our Direct Listing, we incurred $769.5 million and $8.4 million of stock-based compensation using the accelerated attribution method related to the satisfaction of the performance-based vesting condition for RSUs and growth units, respectively, that had satisfied the service-based vesting condition as of such date.

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

Comparison of the Years Ended December 31, 2022 and 2021

Revenue

Revenue increased by $364.0 million, or 24%, for the year ended December 31, 2022 compared to 2021. Revenue from government customers increased by $174.4 million, or 19%, for the year ended December 31, 2022 compared to 2021, primarily from customers in the United States. Revenue growth slowed compared to the prior year as a result of increased delays in the completion of the U.S. government budgeting process when compared to their budgeting process in the prior year. Of the increase, $151.1 million was from government customers existing as of December 31, 2021. Generally, increases in revenue from our existing customers are a result of expanded use of our products and services within their organizations. Revenue from U.S. government customers was $826.3 million for the year ended December 31, 2022 compared to $678.2 million for the same period in 2021. Revenue from commercial customers increased by $189.6 million, or 29%, for the year ended December 31, 2022 compared to 2021. Of the increase, $96.8 million was from new customers as of December 31, 2021, of which $27.0 million was revenue from customers with which we had entered into concurrent Investment Agreements. See Note 4. Investments and Fair Value Measurements in our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information.

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Cost of Revenue and Gross Profit

Cost of revenue for the year ended December 31, 2022 increased by $69.1 million, or 20%, compared to 2021. The increase was primarily due to increases of $33.0 million in third-party cloud hosting services driven by increased usage from customer growth and expansion, $29.4 million in field service representatives mainly related to new projects, $18.1 million in payroll and other payroll-related costs as a result of increased headcount attributable to our cost of revenue function, and $11.9 million in travel and office-related costs. The increases were partially offset by a decrease of $31.0 million in stock-based compensation expense and related expenses. For additional information, see the section titled “Stock-Based Compensation” below.

Our gross margin for the year ended December 31, 2022 increased by 1% compared to 2021. Gross margin increased as a result of revenue growth outpacing costs of revenue. The primary cause of this growth rate variation was the decrease in stock-based compensation expense and related expenses in cost of revenue relative to total expense growth as compared to the prior year.

Operating Expenses

Sales and Marketing

Sales and marketing expenses increased by $88.0 million, or 14%, for the year ended December 31, 2022 compared to 2021. The increase was primarily due to increases of $93.1 million in payroll and other payroll-related costs driven by increased headcount attributable to our sales and marketing function, $36.3 million in travel and office-related costs, and $23.5 million in marketing and advertising expenses. The increases were partially offset by a decrease of $81.3 million in stock-based compensation expense and related expenses. For additional information, see the section titled “Stock-Based Compensation” below.

Research and Development

Research and development expenses decreased by $27.8 million, or 7%, for the year ended December 31, 2022 compared to 2021. The decrease was primarily due to a decrease of $75.1 million in stock-based compensation expense and related expenses. For additional information, see the section titled “Stock-Based Compensation” below. The decrease was partially offset by increases of $22.8 million in payroll and other payroll-related costs driven by increased headcount attributable to our research and development function, $12.0 million in travel and office-related costs, and $11.6 million in third-party cloud hosting services and other IT costs driven by increased usage to support customer growth and expansion, as well as other IT costs to support company growth.

General and Administrative

General and administrative expenses decreased by $15.2 million, or 2%, for the year ended December 31, 2022 compared to 2021. The decrease was primarily due to a decrease of $113.0 million in stock-based compensation expense and related expenses. For additional information see the section titled “Stock-Based Compensation” below. This decrease was partially offset by increases of $34.1 million in travel and office-related costs, $28.9 million in payroll and other payroll-related costs driven by increased headcount attributable to our general and administrative functions, $15.0 million in professional service fees mainly related to legal and financial services, and a $10.1 million allowance for credit losses.

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Stock-Based Compensation

Stock-based compensation expenses decreased by $213.4 million, or 27%, for the year ended December 31, 2022 compared to 2021. The decrease was primarily driven by forfeitures and lower expense under the accelerated attribution method for RSUs granted prior to September 30, 2020, the date of our Direct Listing, during the year ended December 31, 2022 compared to the same period in 2021, partially offset by an increase related to awards granted after December 31, 2021.

Interest Income

Interest income increased by $18.7 million for the year ended December 31, 2022 compared to 2021 primarily due to an increase in U.S. interest rates on interest earned from our cash, cash equivalents, and restricted cash.

Interest Expense

Interest expense increased by $0.4 million for the year ended December 31, 2022 compared to 2021 driven by the amendments to our credit facility during the year.

Other Income (Expense), Net

Other income (expense), net changed by $140.7 million for the year ended December 31, 2022 compared to 2021 primarily due to $272.1 million of net unrealized and realized losses from our investments in marketable securities, partially offset by a $44.3 million gain from a “step acquisition” (as defined by U.S. GAAP). For additional information see Note 4. Investments and Fair Value Measurements and Note 14. Business Combinations in our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Provision for Income Taxes

Provision for income taxes decreased by $21.8 million for the year ended December 31, 2022 compared to 2021 primarily due to the prior year establishment of a full valuation allowance against its U.K. deferred tax assets during the fourth quarter of 2021 partially offset by permanent differences associated with U.S. Base Erosion and Anti Abuse Tax elections. The Company maintains a full valuation allowance against its U.S. federal and state and U.K. deferred tax assets. For additional information see Note 11. Income Taxes in our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

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Liquidity and Capital Resources

We generated positive cash flow from operations for the year ended December 31, 2022 and had $2.6 billion in cash and cash equivalents available as of December 31, 2022. We believe that cash flows generated from operations, cash, cash equivalents, available funds and access to financing sources, including our credit facility, will be sufficient to meet our anticipated operating cash needs for at least the next twelve months. However, any projections of future cash needs and cash flows are subject to substantial uncertainty. We have generated significant losses from our operations as reflected in our consolidated balance sheets and we expect cash flow from operations may fluctuate for the foreseeable future. Historically, we have financed our operations primarily through the sale of our equity securities, including proceeds from option exercises, and payments received from our customers.

As of December 31, 2022, our accumulated deficit balance was $5.9 billion, and our principal sources of liquidity were $2.6 billion of cash and cash equivalents.

During April 2021, we repaid our outstanding term loans of $200.0 million. As of December 31, 2022, we had no outstanding debt balances and additional available and undrawn revolving and DDTL commitments of $950.0 million under our credit agreement to fund working capital and general corporate expenditures. No amounts were drawn as of the date of this Annual Report on Form 10-K. For more information, see Note 6. Debt in our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Our future capital requirements will depend on many factors, including, but not limited to the rate of our growth, our ability to attract and retain customers and their willingness and ability to pay for our products and services, and the timing and extent of spending to support our efforts to market and develop our products. Further, we may enter into future arrangements to acquire or invest in businesses, products, services, strategic partnerships, and technologies. 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 all. If additional funds are not available to us on acceptable terms, or at all, our business, financial condition, and results of operations could be adversely affected.

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

Operating Activities

Net cash provided by operating activities was $223.7 million and $333.9 million for the year ended December 31, 2022 and 2021, respectively. The decrease was primarily driven by timing of payments to vendors and timing of the receipt of payments from our customers.

Investing Activities

Net cash used in investing activities was $45.4 million and $397.9 million for the year ended December 31, 2022 and 2021, respectively. The decrease in cash used in investing activities was primarily due to a reduction of our purchases of alternative investments and marketable securities, as well as increases from cash acquired from business combinations and sales or redemption of certain marketable securities.

Financing Activities

Net cash provided by financing activities was $86.0 million and $306.7 million for the year ended December 31, 2022 and 2021, respectively. The decrease in cash provided by financing activities was driven by a decrease in proceeds from the exercise of common stock options, partially offset by the principal repayments on borrowings of $200.0 million made during the year ended December 31, 2021.

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Contractual Obligations and Commitments

The following table summarizes our contractual obligations and commitments as of December 31, 2022 (in thousands):

—————

(1) Noncancelable purchase commitments primarily relate to purchase commitments for third-party cloud hosting services and represents only contracts which are enforceable and legally binding. Obligations under contracts that we can cancel without a significant penalty are not included in the table above. Refer to Note 8. Commitments and Contingencies in our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information.

(2) The contractual commitment amounts under operating leases in the table above are primarily related to facility and equipment leases. Operating lease commitments are reflected net of $120.8 million of sublease income from tenants in certain of our leased facilities. Refer to Note 7. Leases in our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information.

The contractual obligations and commitments in the table above are associated with agreements that are enforceable and legally binding.

Contract Liabilities

Our contract liabilities consist of deferred revenue and customer deposits.

Deferred revenue represents billings under noncancelable contracts before the related product or service is transferred to the customer. The portion of deferred revenue that is anticipated to be recognized as revenue during the succeeding twelve-month period is recorded as deferred revenue and the remaining portion is recorded as deferred revenue, noncurrent.

Customer deposits consist of amounts billed and/or paid for anticipated revenue generating activities in advance of the start of the contractual term or for the portion of a contract term that is subject to cancellation by our customers. The portion of customer deposits that is anticipated to be recognized as revenue during the succeeding twelve-month period is recorded as customer deposits and the remaining portion is recorded as customer deposits, noncurrent.

Our deferred revenue and deferred revenue, noncurrent as of December 31, 2022 were $183.4 million and $10.0 million, respectively. Our customer deposits and customer deposits, noncurrent as of December 31, 2022 were $142.0 million and $3.9 million, respectively. Our deferred revenue and deferred revenue, noncurrent as of December 31, 2021 were $227.8 million and $40.2 million, respectively. Our customer deposits and customer deposits, noncurrent as of December 31, 2021 were $161.6 million and $33.7 million, respectively.

Critical Accounting Policies and Estimates

Our consolidated financial statements and the accompanying notes thereto included elsewhere in this Annual Report on Form 10-K are prepared in accordance with GAAP. The preparation of consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from our estimates. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations, and cash flows will be affected.

We believe that the accounting policies described below involve a significant degree of judgment and complexity. Accordingly, we believe these are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of operations. For further information, see Note 2. Significant Accounting Policies in our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

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Revenue Recognition

We generate revenue from the sale of subscriptions to access our software Palantir Cloud and On-Premises Software, with ongoing O&M services and professional services.

In accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, we recognized revenue upon the transfer of promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for promised goods or services. We apply the following five-step revenue recognition model in accounting for our revenue arrangements:

•identification of the contract(s) with the customer, including whether collectability of the consideration is probable by considering the customers’ ability and intention to pay;

•identification of the performance obligations in the contract;

•determination of the transaction price;

•allocation of the transaction price to the performance obligations in the contract; and

•recognition of revenue when, or as, we satisfy a performance obligation.

Each of our significant performance obligations and our application of ASC 606 to our revenue arrangements is discussed in further detail below.

Palantir Cloud

Our Palantir Cloud subscriptions grant customers the right to access the software functionality in a hosted environment controlled by Palantir and are also sold together with stand-ready O&M services. We promise to provide continuous access to the hosted software throughout the contract term. Revenue associated with Palantir Cloud subscriptions is generally recognized over the contract term on a ratable basis, which is consistent with the transfer of control of the Palantir Cloud services to the customer.

On-Premises Software

Sales of our software subscriptions grant customers the right to use functional intellectual property, either on their internal hardware infrastructure or on their own cloud instance, over the contractual term and are sold together with stand-ready O&M services. The O&M services include critical updates, support, and maintenance services required to operate our software and, as such, are necessary for our software to maintain its intended utility over the contractual term. Because of this requirement, we have concluded that the software 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.

Professional Services

Our professional services support the customers’ use of the software and include, as needed, on-demand user support, user-interface configuration, training, and ongoing ontology and data modeling support. Professional services contracts typically include the provision of on-demand professional services for the duration of the contractual term. These services are typically coterminous with a Palantir Cloud subscription or the On-Premises Software. Professional services are on-demand, whereby we perform services throughout the contract period; therefore, the revenue is recognized over the contractual term.

Contract Liabilities

The timing of customer billing and payment relative to the start of the service period varies from contract to contract; however, we bill many of our customers in advance of the provision of services under our contracts, resulting in contract liabilities consisting of either deferred revenue or customer deposits. Deferred revenue represents billings under noncancelable contracts before the related product or service is transferred to the customer. Customer deposits consist of amounts billed and/or paid in advance of the start of the contractual term or for anticipated revenue generating activities for the portion of a contract term that is subject to cancellation by our customers. Many of our arrangements include terms that allow the customer to terminate the contract for convenience and receive 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. In these arrangements, we concluded there are no enforceable rights and obligations after such notice period and therefore the consideration received or due from the customer that is subject to termination for convenience is recorded as customer deposits.

The payment terms and conditions vary by contract; however, our terms generally require payment within 30 to 60 days from the invoice date. In instances where the timing of revenue recognition differs from the timing of payment, we elected to apply

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the practical expedient in accordance with ASC 606 to not adjust contract consideration for the effects of a significant financing component as we expect, at contract inception, that the period between when promised goods and services are transferred to the customer and when the customer pays for those goods and services will be one year or less. As such, we determined our contracts do not generally contain a significant financing component.

Areas of Judgment and Estimation

Our contracts with customers can include multiple promises to transfer goods or services to the customer. Determining whether promises are distinct performance obligations that should be accounted for separately – or not distinct within the context of the contract and, thus, accounted for together – requires significant judgment. We concluded that the promise to provide a software subscription is highly interdependent and interrelated with the promise to provide O&M services and such promises are not distinct within the context of our contracts and are accounted for as a single performance obligation for our On-Premises Software.

Additionally, the pricing of our contracts is generally fixed; however, it is possible for contracts to include variable consideration, which can be based on subjective or objective criteria. We include the estimated amount of variable consideration that we expect to receive to the extent it is probable that a significant revenue reversal will not occur. Variable consideration received was not material in the periods presented.

Significant estimates and assumptions are used in the identification of performance obligations in customer contracts and collectability of contract consideration, including accounts receivable. Estimates and judgments are based on historical experience, forecasted events, and various other assumptions that management believes to be reasonable under the circumstances. Actual results could differ from those estimates and such differences could affect our financial position and results of operations.

Recent Accounting Pronouncements

For information on recently issued accounting pronouncements, if any, refer to Note 2. Significant Accounting Policies in our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the accompanying notes thereto included elsewhere in this Annual Report on Form
10-K.
This discussion contains forward-looking statements based upon current plans, expectations, and beliefs, involving risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements. You should review the section titled “Special Note Regarding Forward-Looking Statements” for a discussion of forward-looking statements and the section titled “Risk Factors” for a discussion of factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis and elsewhere in this Annual Report on Form
10-K.
Our historical results are not necessarily indicative of the results that may be expected for any period in the future.

This section of this Annual Report on Form
10-K
generally discusses fiscal years 2021 and 2020 items and

year-to-year

comparisons between fiscal years 2021 and 2020. Discussions of fiscal year 2020 items and

year-to-year

comparisons between fiscal years 2020 and 2019 that are not included in this Annual Report on Form
10-K
can be found in Part II, Item 7 of our Annual Report on Form
10-K
for the fiscal year ended December 31, 2020, which was filed with the SEC on February 26, 2021.

Overview

We build software that empowers organizations to effectively integrate their data, decisions, and operations at scale.

We were founded in 2003 and started building software for the intelligence community in the United States to assist in counterterrorism investigations and operations. We later began working with commercial enterprises, who often faced fundamentally similar challenges in working with data.

We have built three principal software platforms, Gotham, Foundry, and Apollo. Gotham and Foundry enable institutions to transform massive amounts of information into an integrated data asset that reflects their operations. For over a decade, Gotham has surfaced insights for global defense agencies, the intelligence community, disaster relief organizations and beyond. Foundry is becoming a central operating system not only for individual institutions but also for entire industries. Apollo, which we began offering as a commercial solution in 2021, is a cloud-agnostic, single control layer that coordinates ongoing delivery of new features, security updates, and platform configurations, helping to ensure the continuous operation of critical systems. Apollo allows our customers to run their software in virtually any environment.

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

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

We regularly evaluate partnerships and investment opportunities in complementary businesses, employee teams, technologies, and intellectual property rights in an effort to expand our product and service offerings. For example, we have approved and entered into Investment Agreements to purchase, or commit to purchase

shares of various entities, including special purpose acquisition companies and/or other privately-held or publicly-traded

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entities. See further discussion in

Note 4. Investments and Fair Value Measurements

and

Note 9. Commitments and Contingencies—Investment Commitments.

Our Business

For the year ended December 31, 2021, we generated $1.5 billion in revenue, reflecting a 41% growth rate from the year ended December 31, 2020, when we generated $1.1 billion in revenue.

Our operating results continued to improve, including when adjusting for stock-based compensation. In the year ended December 31, 2021, we incurred losses from operations of $411.0 million, or adjusted income from operations of $473.5 million when excluding stock-based compensation and related employer payroll taxes. In the year ended December 31, 2020, our losses from operations were $1.2 billion, or adjusted income from operations of $189.9 million when excluding stock-based compensation, related employer payroll taxes, and
non-recurring
Direct Listing charges.

In the year ended December 31, 2021, our gross profit was $1.2 billion, reflecting a gross margin of 78%, or 82% when excluding stock-based compensation. In the year ended December 31, 2020, our gross profit was $740.1 million, reflecting a gross margin of 68%, or 81% when excluding stock-based compensation.

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

Non-GAAP
Reconciliations

” below.

Our Customers

We define a customer as an organization from which we have recognized revenue during the trailing twelve-month period. During the period ended December 31, 2021, we had 237 customers, including companies in various commercial sectors as well as government agencies around the world. During the period ended December 31, 2020, we had 139 customers.

For large government agencies, where a single institution has multiple divisions, units, or subsidiary agencies, each such division, unit, or subsidiary agency that enters into a separate contract with us and is invoiced as a separate entity is treated as a separate customer. For example, while the U.S. Food and Drug Administration, Centers for Disease Control and Prevention, and National Institutes of Health are subsidiary agencies of the U.S. Department of Health and Human Services, we treat each of those agencies as a separate customer given that the governing structures and procurement processes of each agency are independent.

We have built lasting and significant customer relationships with some of the world’s leading government institutions and companies, and are expanding our partnerships with early- and growth-stage companies. Our average revenue per customer during the trailing twelve months ended December 31, 2021 was $6.5 million, which decreased 18% from an average of $7.9 million in revenue per customer in the year ended December 31, 2020, reflecting our continued acceleration in customer acquisition. Our average revenue for the top twenty customers during the trailing twelve months ended December 31, 2021 was $43.6 million, which grew 31% from an average of $33.2 million in revenue from the top twenty customers during the trailing twelve months ended December 31, 2020, demonstrating our expanding relationships with existing customers.

Organizations in the commercial and government sectors face similar challenges when it comes to managing data, and we intend to expand our reach in both markets moving forward. In the year ended December 31, 2021, 58% of our revenue came from government customers and 42% came from commercial agencies. In the year ended December 31, 2021, we generated 57% of our revenue from customers in the United States and the remaining 43% from customers abroad.

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Expansion of Access to Platforms

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

The speed with which our platforms can be deployed has significantly expanded the range of potential customers with which we plan on partnering over the long term. We anticipate that our reach among an increasingly broad set of customers, in both the commercial and government sectors, will accelerate moving forward. We believe that, as these new partners grow, we will grow with them.

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

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

COVID-19
Impact

As a result of
COVID-19,
we continue to take precautionary measures in order to minimize the risk of the virus to our employees, our customers, and the communities in which we operate, which included the suspension of all
non-essential
business travel of employees and the temporary closure of all of our major offices. Although the majority of our workforce worked remotely, there was minimal disruption in our ability to ensure the effective operation of our software platforms. As local situations permit, we continue to reopen our offices, in at least a limited capacity, and are allowing business travel to resume, while continuing to closely monitor the pandemic.

The economic consequences of the
COVID-19
pandemic have been challenging for certain of our customers and prospective customers. While the broader implications of the
COVID-19
pandemic on our results of operations and overall financial performance remain uncertain, the
COVID-19
pandemic has, to date, not had a material adverse impact on our results of operations. The economic effects of the pandemic and resulting societal changes are currently not predictable.

The
COVID-19
pandemic has made clear to many of our customers that accommodating the extended timelines ordinarily required to realize results from implementing new software solutions is not an option during a crisis. As a result, customers are increasingly adopting our software, which can be ready in days, over internal software development efforts, which may take months or years.

We saw decreases in our travel and office-related expenditures, including during the temporary closures of our offices globally and reductions in related operating expenses, related to the ongoing
COVID-19
pandemic. However, improvement of our contribution metric 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 as we continue to 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 Annual Report on Form
10-K
for further discussion of the possible impact of the
COVID-19
pandemic on our business.

Our Business Model

Our customers pay us to use the software platforms we have built. As of December 31, 2021, we expect to generate revenue under our existing customer contracts for an additional 3.5 years on a dollar-weighted average contract duration basis. Dollar-weighted average contract duration represents the length of time we expect to generate revenue on average, including existing contractual obligations and assuming that our customers will exercise all of the contractual options available to them, and is subject to change as we enter into new contracts

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or if customers terminate for convenience. We calculate this duration on a dollar-weighted basis to adjust for smaller deals. The timing of our customer billings and receipt of payments varies from contract to contract. 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 2020, we generated a total of $1.1 billion in revenue. Acquire phase customers cohorted as of December 31, 2020 generated $0.3 million in revenue in 2020. Expand phase customers cohorted as of December 31, 2020 generated $20.3 million in revenue in 2020. Scale phase customers cohorted as of December 31, 2020 generated $1.1 billion in revenue in 2020.

In 2021, customers cohorted as of December 31, 2020 generated a total of $1.5 billion in revenue. New customers acquired during the year ended December 31, 2021 generated an additional $83.9 million in revenue and were assigned a cohort as of December 31, 2021. 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 deployments of our software platforms at no or low cost to them. We believe in proving the value of our platforms to our customers. During these short-term pilots, we operate the accounts at a loss. We believe that our investments during this phase will drive future revenue growth.

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 2020, we generated $0.3 million in revenue from customers in the Acquire phase, which yielded a contribution loss of $36.8 million. In 2021, those same customers generated $45.1 million in revenue which yielded a contribution profit of $7.2 million.

Expand

Our investment in this second phase is often significant as we seek to understand the principal challenges faced by our customers and ensure that our software delivers value and results.

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We define a customer in the Expand phase as any customer from which we have recognized more than $100,000 in revenue in a calendar year and whose account had a negative contribution margin during the year at issue, as determined as of the end of the year. In this phase, we operate at a loss, as measured by contribution margin, in order to drive future revenue growth and margin expansion.

In 2020, we generated $20.3 million in revenue from customers that were in the Expand phase as of the end of that year, with a contribution margin of (159)%. In 2021, those same customers generated $83.3 million in revenue, with a contribution margin of 45%.

Scale

As customer accounts mature, our investment costs relative to revenue generally decrease, while the value our software provides to our customer increases, often significantly, as usage 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 use of our platforms, including developing software and applications that run on top of our platforms, while still continuing to benefit from the support of our O&M services.

We define a customer in the Scale phase as any customer from which we recognized more than $100,000 in revenue in a calendar year and whose account had a positive contribution margin during the year at issue, as determined as of the end of the year.

It is in the Scale phase of our partnerships with customers that we generally see contribution margin on particular accounts improve. In 2020, we generated $1.1 billion in revenue from customers in the Scale phase, with a contribution margin of 63%. In 2021, those same customers generated $1.3 billion in revenue with a contribution margin of 63%.

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.

Total Remaining Deal Value

We are focused on building strategic relationships with, and delivering significant outcomes for, our customers over the long term. Our contracts with our customers reflect that long-term orientation, often lasting for multiple years at a time.

Total remaining deal value is the total remaining value of contracts that have been awarded by our government and commercial customers and includes existing contractual obligations and unexercised contract options available to those customers. Total remaining deal value presumes the exercise of all contract options and no termination of contracts; however, the majority of our contracts are subject to termination provisions, including for convenience, and there can be no guarantee that contracts are not terminated or that contract options will be exercised. Also included within total remaining deal value is remaining contract value from commercial contracts entered into in connection with our strategic investments, many of which are subject to termination, including for convenience in the event the proposed business combination is not completed.

As of December 31, 2021, the total remaining deal value of the contracts that we have been awarded by, or entered into with, government and commercial customers, including existing contractual obligations and contractual options available to those customers, was $3.8 billion, up 35% from December 31, 2020, when our total remaining deal value of such contracts was $2.8 billion.

Of our total remaining deal value, as of December 31, 2021, the total remaining deal value of the contracts that we entered into with commercial customers, including existing contractual obligations and available contractual options, was $2.6 billion, up 71% from December 31, 2020, when the total remaining deal value of such contracts was $1.5 billion.

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As of December 31, 2021, 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 $1.2 billion, down 6% from December 31, 2020, when the total value of such contracts was $1.3 billion.

When calculating the total remaining deal value of government contracts, we do not include government contracts — also known as indefinite delivery, indefinite quantity (“IDIQ”) contracts — totaling $2.8 billion, as of December 31, 2021, that we have been awarded, but where the funding of such contracts has not yet been determined. The funding of these contracts is not guaranteed.

Many of our government and commercial contracts are subject to termination for convenience provisions. Additionally, the U.S. federal government is prohibited from exercising contract options more than one year in advance. As a result, there can be no guarantee that our customer contracts will not be terminated or that contract options will be exercised.

Key Business Measure

In addition to the measures presented in our consolidated financial statements, we use the following key
non-GAAP
business measure to help us evaluate our business, identify trends affecting our business, formulate business plans and financial projections, and make strategic decisions.

Contribution Margin

We believe that the revenue we generate relative to the costs we incur in order to generate such revenue is an important measure of the efficiency of our business. We define contribution margin as revenue less our cost of revenue and sales and marketing expenses, excluding stock-based compensation, divided by revenue. At the end of each year, we categorize each customer account into one of the three phases based on its revenue and contribution margin for that year.

Revenue is allocated to each customer account directly. The cost of revenue and sales and marketing costs include both the costs associated with the deployment and operation of our software as well as expenses associated with identifying new customers and expanding partnerships with existing ones. Our software engineers working with existing customers often manage the deployment and operation of our platforms as well as identify new ways that those platforms can be used. To calculate the contribution by customer, we allocate cost of revenue and sales and marketing expenses, excluding stock-based compensation, to an account pro rata based on headcount and time spent on the account during the period. To the extent certain costs or personnel are not directly assigned to a specific account, they are allocated pro rata based on total headcount staffed during such period. Direct costs, such as third-party cloud hosting services, are directly allocated to the account to which they relate.

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

We believe that our contribution margin across the business and on specific customer accounts provides an important measure of the efficiency of our operations over time. We have included contribution margin because it is a key measure used by our management to evaluate our performance, and we believe that it also provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management team. Our calculation of contribution margin may differ from similarly titled

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measures, if any, reported by other companies. Contribution margin should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP.

For more information about contribution margin, including the limitations of this measure, and a reconciliation to loss from operations, see the section titled “

Non-GAAP
Reconciliations

” below.

Non-GAAP
Reconciliations

We use the
non-GAAP
measures contribution margin; gross profit and gross margin, excluding stock-based compensation; and adjusted income from operations, which excludes stock-based compensation, related employer payroll taxes, and
non-recurring
Direct Listing charges to help us evaluate our business, identify trends affecting our business, formulate business plans and financial projections, and make strategic decisions. We exclude stock-based compensation, which is a
non-cash
expense, from these
non-GAAP
financial measures because we believe that excluding this item provides meaningful supplemental information regarding operational performance and provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management team. Additionally, we exclude expenses primarily related to our Direct Listing during the quarter ended September 30, 2020 as they are a
one-time

non-recurring
charge, and employer payroll taxes related to stock-based compensation as it is difficult to predict and outside of our control.

Our definitions may differ from the definitions used by other companies and therefore comparability may be limited. In addition, other companies may not publish these or similar metrics. Further, these metrics have certain limitations, as they do not include the impact of certain expenses that are reflected in our consolidated statement of operations. Thus, our
non-GAAP
contribution margin; gross profit and gross margin, excluding stock-based compensation; and adjusted income from operations should be considered in addition to, not as a substitute for, or in isolation from, measures prepared in accordance with GAAP.

We compensate for these limitations by providing reconciliations of these
non-GAAP
measures to the most comparable GAAP measures. We encourage investors and others to review our business, results of operations, and financial information in its entirety, not to rely on any single financial measure, and to view these
non-GAAP
measures in conjunction with the most directly comparable GAAP financial measures.

Contribution Margin

The following table provides a reconciliation of contribution margin for the years ended December 31, 2021 and 2020 (in thousands, except percentages):

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Gross Profit and Gross Margin, Excluding Stock-Based Compensation

The following table provides a reconciliation of gross profit and gross margin, excluding stock-based compensation for the years ended December 31, 2021 and 2020 (in thousands, except percentages):

Adjusted Income from Operations

The following table provides a reconciliation of adjusted income from operations, which excludes stock-based compensation, related employer payroll taxes, and
non-recurring
Direct Listing charges for the years ended December 31, 2021 and 2020 (in thousands):

Components of Results of Operations

Revenue

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

Palantir Cloud

Our Palantir Cloud subscriptions grant customers the right to access the software functionality in a hosted environment controlled by Palantir and are sold together with stand-ready O&M services, as further described below. We promise to provide continuous access to the hosted software throughout the contract term. Revenue associated with Palantir Cloud subscriptions is generally recognized over the contract term on a ratable basis, which is consistent with the transfer of control of the Palantir services to the customer.

On-Premises
Software

Sales of our software subscriptions grant customers the right to use functional intellectual property, either on their internal hardware infrastructure or on their own cloud instance, over the contractual term and are also sold together with stand-ready O&M services. O&M services include critical updates and support and maintenance services required to operate the software and, as such, are necessary for the software to maintain its intended utility over the contractual term. Because of this requirement, we have concluded that the software subscriptions

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and O&M services, which together we refer to as our
On-Premises
Software, are highly interdependent and interrelated and represent a single distinct performance obligation within the context of the contract. Revenue is generally recognized over the contract term on a ratable basis.

Professional Services

Our professional services support the customers’ use of the software and include, as needed,
on-demand
user support, user-interface configuration, training, and ongoing ontology and data modeling support. Professional services contracts typically include the provision of
on-demand
professional services for the duration of the contractual term. These services are typically coterminous with a Palantir Cloud or
On-Premises
Software subscriptions. Professional services are
on-demand,
whereby we perform services throughout the contract period; therefore, the revenue is recognized over the contractual term.

Cost of Revenue

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

We expect that cost of revenue will increase in absolute dollars as our revenue grows and will vary from

period-to-period

as a percentage of revenue.

Sales and Marketing

Our sales and marketing efforts span all stages of our sales cycle, including personnel involved with sales functions, and executing pilots at new or existing customers. Sales and marketing costs primarily include salaries, stock-based compensation expense, and benefits for our sales force and personnel involved in sales functions, executing on pilots and customer growth activities; as well as third-party cloud hosting services for our pilots, marketing and sales event-related costs, and allocated overhead. Sales and marketing costs are generally expensed as incurred.

We expect that sales and marketing expenses will increase in absolute dollars as we continue to invest in our potential and current customers, in growing our business, sales force, and enhancing our brand awareness.

Research and Development

Our research and development efforts are aimed at continuing to develop and refine our platforms, including adding new features and modules, increasing their functionality, and enhancing the usability of our platforms. Research and development costs primarily include salaries, stock-based compensation expense, and benefits for personnel involved in performing the activities to develop and refine our platforms, internal use third-party cloud hosting services and other
IT-related
costs, and allocated overhead. Research and development costs are expensed as incurred.

We plan to continue to invest in personnel to support our research and development efforts. As a result, we expect that research and development expenses will increase in absolute dollars for the foreseeable future as we continue to invest to support these activities.

General and Administrative

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

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

Interest Income

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

Interest Expense

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

Other Income (Expense), Net

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

Provision for (Benefit from) Income Taxes

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

Segments

We have two operating segments, commercial and government, which were determined based on the manner in which the chief operating decision maker (“CODM”), who is our chief executive officer, manages our operations for purposes of allocating resources and evaluating performance. Various factors, including our organizational and management reporting structure and customer type, were considered in determining these operating segments.

Our operating segments are described below:

Segment profitability is evaluated based on contribution and contribution margin. Contribution is segment revenue less the related costs of revenue and sales and marketing expenses, excluding stock-based compensation expense. Contribution margin is contribution divided by revenue. To the extent costs of revenue or sales and marketing expenses are not directly attributable to a particular segment, they are allocated based upon headcount at each operating segment during the period. We use it, in part, to evaluate the performance of, and allocate resources to, each of our operating segments, which excludes certain operating expenses that are not allocated to operating segments because they are separately managed at the consolidated corporate level. These unallocated costs include stock-based compensation expense, research and development costs, and general and administrative costs, such as legal and accounting.

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Results of Operations

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

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

Comparison of the Years Ended December 31, 2021 and 2020

Revenue