Palantir Technologies Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparative period is Q1 2022. Palantir develops and deploys software platforms, including Gotham, Foundry, and Apollo, and was developing components of its Artificial Intelligence Platform (AIP). Financial statements are unaudited.
Financial performance and liquidity
| Metric | Q1 2023 | Q1 2022 | Change / context |
|---|---|---|---|
| Revenue | $525.2 million | $446.4 million | Up 18% |
| Gross profit / margin | $417.5 million / 80% | $352.0 million / 79% | Gross margin increased 1 percentage point |
| Operating income (loss) | $4.1 million | $(39.4) million | GAAP operating margin was approximately 1%; adjusted operating income was $125.1 million, excluding stock-based compensation and related employer payroll taxes |
| Net income (loss) | $19.2 million | $(101.4) million | Income attributable to common stockholders was $16.8 million, or $0.01 per diluted share, versus a $101.4 million loss, or $(0.05) per share |
| Operating cash flow | $187.4 million | $35.5 million | Increase was primarily attributed to the timing of customer receipts and vendor payments |
| Cash, cash equivalents and marketable securities | $2.9 billion | — | At March 31, 2023; cash and cash equivalents alone were $1.26 billion |
| Debt and credit availability | No debt outstanding | — | $950 million of revolving and delayed-draw commitments undrawn; facility matures March 2027 |
Net cash used in investing was $1.55 billion, principally reflecting purchases of U.S. Treasury securities; this should be distinguished from operating cash generation. Stock-based compensation was $114.7 million, down 23% from $149.3 million in Q1 2022. Cash, cash equivalents and restricted cash totaled $1.29 billion at quarter-end. The company reported $879.9 million of total liabilities and $2.80 billion of total equity.
Business trends and comparison with prior period
- Government revenue grew 20% to $289.1 million; commercial revenue grew 15% to $236.1 million. Government and commercial represented 55% and 45% of Q1 revenue, respectively.
- U.S. revenue was $336.8 million, or 64% of total, compared with $272.9 million, or 61%, in Q1 2022. One government customer represented 10% of Q1 revenue; one customer represented 13% of accounts receivable at March 31.
- Palantir reported 391 customers, compared with 277 a year earlier. Average trailing-twelve-month revenue from its top 20 customers was $50.9 million, up 14% year over year.
- Segment contribution rose to $279.2 million from $252.4 million, while contribution margin declined to 53% from 57%. These are management-defined non-GAAP measures.
- Interest income increased to $20.9 million from $0.5 million, primarily due to higher interest rates and Treasury investments. Other expense improved to $2.9 million from $59.9 million of expense, primarily because of lower losses on publicly traded equity investments; Q1 2023 included $8.2 million of unrealized losses on such holdings.
Outlook, commentary, risks and contingencies
- The filing gives no specific numerical revenue or earnings guidance. Management said available liquidity, operating cash flows and financing access should cover anticipated operating cash needs for at least the next 12 months, while noting that cash-flow projections are uncertain.
- Management expects cost of revenue, sales and marketing, research and development, and general and administrative expenses to increase in absolute dollars as the business grows and invests. AIP was being developed for government and commercial customers; the filing does not quantify its expected financial contribution.
- Remaining performance obligations were $936.0 million at March 31, 2023; the company expected to recognize approximately 57% over the next 12 months and 36% over the subsequent 13–36 months. Many contracts can be terminated for convenience, and this measure excludes cancellable contracted revenue and certain short-term contracts.
- The company identified customer concentration, long and uncertain sales cycles, contract termination and renewal risk, government budget and procurement uncertainty, competition, cybersecurity and data-protection exposure, and macroeconomic and foreign-currency risks. It also cautioned that quarterly results can fluctuate and that first-quarter sales have historically been relatively lower.
- Early-stage investee customers may be unable to pay or perform. Strategic Commercial Contracts with investees or related entities had a stated value of $390.3 million, including $43.7 million in options; the company excluded an aggregate $102.4 million of contract value from its comparison with December 2022 after reassessing collectability and revenue-recognition criteria.
- A minimum cloud-hosting purchase commitment totals at least $1.49 billion over six contract years. For contract year three, ending September 30, 2023, $82.3 million of a $199.0 million commitment had been satisfied by March 31.
- Putative securities class actions and shareholder derivative actions were pending. Because they were at an early stage, the company could not estimate a reasonably possible loss or range of loss; it said it was not aware of pending matters expected to have a material adverse impact on the financial statements.
- The company maintained a full valuation allowance on U.S. and U.K. deferred tax assets, citing its history of net operating losses in those jurisdictions. Management reported disclosure controls and procedures were effective at a reasonable assurance level.
Important facts for investors to verify
- Whether revenue growth and customer expansion continue, particularly in U.S. government and commercial accounts, and how customer concentration evolves.
- Whether GAAP profitability and operating cash flow are sustained; assess stock-based compensation and share-count dilution alongside management’s adjusted measures.
- How much of the $936.0 million in remaining performance obligations converts to revenue, given termination rights, options and customer payment risks.
- Whether investee-related contract values remain collectible and whether losses or volatility in equity investments affect future results.
- Progress and costs for AIP, and any future quantified guidance or evidence of customer adoption.
- Developments in the securities and derivative litigation, cloud-hosting commitments, government contract awards, and any changes in liquidity or credit-facility availability.