Palantir Technologies Inc. — Q3 2023 Form 10-Q
Business context and reporting period. Palantir builds software platforms, including Gotham, Foundry, Apollo and its newer Artificial Intelligence Platform (AIP), for government and commercial customers. This unaudited filing covers the quarter and nine months ended September 30, 2023; comparisons are with the same 2022 periods.
Financial results and liquidity
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $558.2m | $477.9m | $1,616.7m | $1,397.2m |
| Gross profit / margin | $450.2m / 81% | $370.3m / 77% | $1,294.2m / 80% | $1,093.0m / 78% |
| Operating income (loss) | $40.0m | $(62.2)m | $54.2m | $(143.4)m |
| Net income (loss) attributable to common stockholders | $71.5m | $(123.9)m | $116.4m | $(404.6)m |
| Diluted earnings (loss) per share | $0.03 | $(0.06) | $0.05 | $(0.20) |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $411.0m | $145.0m |
- Q3 revenue rose 17% year over year; nine-month revenue rose 16%. Q3 government revenue grew 12% and commercial revenue 23%; nine-month growth was 15% and 16%, respectively.
- GAAP operating margin was 7% in Q3 2023 versus negative 13% in Q3 2022; for the nine-month periods it was 3% versus negative 10%. Management also reported non-GAAP adjusted operating income of $163.3m for Q3 and $423.4m for nine months, excluding stock-based compensation and related employer payroll taxes.
- Stock-based compensation was $114.4m in Q3 and $343.3m for nine months, down 18% and 21%, respectively, year over year. The filing’s non-GAAP gross margins, excluding stock-based compensation, were 82% for Q3 and 82% for nine months.
- At September 30, cash and cash equivalents were $1.04bn and marketable securities were $2.24bn, or $3.28bn combined. Total current assets were $3.81bn and current liabilities $688.9m. The balance sheet showed no outstanding debt; a $500m revolving facility was undrawn and matures in March 2027.
- Nine-month investing cash outflow was $2.14bn, primarily reflecting purchases of marketable securities, partly offset by sales and maturities. Cash, cash equivalents and restricted cash ended the period at $1.06bn, down $1.57bn from year-end 2022; the filing attributes the investing outflow largely to purchases of securities.
Material changes and management commentary
- Revenue growth was led by commercial customers in Q3, while government revenue remained the larger segment for the first nine months: 56% of revenue was government and 44% commercial.
- Operating results improved to GAAP operating and net income from losses in the 2022 comparable periods. The comparison also reflects substantially lower equity-security losses: other income (expense), net was $3.9m in Q3 2023 versus $(65.0)m in Q3 2022, and $(8.0)m for nine months versus $(260.7)m. Management attributed the change primarily to lower losses on equity securities.
- Interest income increased to $36.9m in Q3 and $88.0m for nine months, primarily due to higher interest rates and more interest-bearing cash and Treasury securities.
- Management said existing cash, securities, operating cash generation and financing access should cover anticipated operating cash needs for at least the next 12 months, while noting that future cash needs and flows remain uncertain. It expects cost of revenue, sales and marketing, research and development, and general and administrative expenses to increase in absolute dollars over time. The filing provides no clear numeric revenue or earnings guidance.
- AIP had been deployed to select customers, with further customer onboarding and product development underway. Remaining performance obligations were $987.7m, with approximately 57% expected to be recognized over the next 12 months; many contracts nevertheless permit termination for convenience.
Risks, contingencies and unusual items
- In September 2023, Palantir amended a cloud-hosting agreement, committing to spend at least $1.95bn over ten contract years through September 2033, plus certain additional minimum usage commitments. The minimum for the contract year beginning October 1, 2023 was $154m.
- Accounts receivable were $430.3m, up from $258.3m at year-end 2022. Two customers represented 22% and 12% of receivables at September 30; no customer exceeded 10% of revenue in the reported periods.
- Palantir disclosed consolidated securities class-action litigation and several stockholder derivative actions related to allegations about company statements. The cases were at an early stage; the company said it could not estimate a reasonably possible loss and was not aware of pending matters expected to materially adversely affect the financial statements.
- Available-for-sale Treasuries included $1.4bn in unrealized loss positions, primarily due to interest-rate changes. The company reported no credit impairment and said the securities were expected to be held until maturity or recovery.
- The board authorized a share repurchase program of up to $1bn in August 2023; no shares were repurchased in Q3. Other disclosed risks include customer contract termination rights, government budget and procurement uncertainty, competition, cybersecurity and data-privacy exposure, evolving AI regulation, and volatility in investment values. Management reported disclosure controls were effective at a reasonable assurance level.
Important facts for investors to verify
- Whether commercial growth and AIP adoption continue, and how much revenue growth comes from customers excluding Strategic Commercial Contracts.
- Whether GAAP profitability and operating cash generation persist, while tracking stock-based compensation and share-count dilution.
- Customer collection trends and receivables concentration, as well as the collectability and recognition of contract liabilities and remaining performance obligations.
- The cash-flow and margin implications of the $1.95bn cloud-hosting commitment, including additional usage commitments.
- Developments in the securities and derivative litigation, government procurement and budget conditions, and risks associated with AI, cybersecurity and customer contract cancellations.
- Execution and capital-allocation decisions under the $1bn repurchase authorization; the program does not require the company to repurchase shares.