Palantir Technologies Inc. — FY2020 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2020; “2020 Q4” is not a separate filing period. Palantir sells Gotham and Foundry software platforms, with related operations and maintenance and professional services, to government and commercial institutions. It completed a direct listing on September 30, 2020.
Financial performance and liquidity
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $1.093 billion | $742.6 million |
| Gross profit / GAAP gross margin | $740.1 million / 68% | $500.2 million / 67% |
| Operating loss | $1.174 billion | $576.4 million |
| Net loss | $1.166 billion | $579.6 million |
| Operating cash flow | $(296.6) million | $(165.2) million |
- FY2020 revenue grew 47%. Government revenue rose 77% to $610.2 million; commercial revenue rose 22% to $482.5 million. Revenue mix was 56% government and 44% commercial.
- Management reported non-GAAP gross margin of 81% and contribution margin of 54%, versus 71% and 21%, respectively, in 2019. Management’s adjusted operating income was $189.9 million, excluding stock-based compensation, related employer payroll taxes, and direct-listing charges; GAAP operating loss remained $1.174 billion.
- Stock-based compensation was $1.271 billion, including $769.5 million recognized when the direct listing satisfied RSU performance conditions. The filing’s adjusted metrics exclude specified costs and are not GAAP measures.
- Q4 2020: Revenue was $322.1 million, compared with $229.4 million in Q4 2019. Net loss was $148.3 million, versus $159.3 million. Q4 gross profit was $251.6 million (78% margin); operating loss was $156.6 million. Q3 2020 results included unusually high stock compensation related to the listing.
- At year-end, cash and cash equivalents were $2.011 billion; restricted cash was $116.8 million. Current assets were $2.257 billion and current liabilities $603.8 million. Total assets were $2.691 billion, total liabilities $1.168 billion, and stockholders’ equity $1.523 billion.
- Debt was $200 million, due June 2023, with a further $200 million revolving commitment undrawn. The facility is secured by substantially all assets; Palantir reported covenant compliance. Management said existing cash was expected to cover needs for at least the next 12 months.
- Financing cash flow was positive $1.036 billion, principally reflecting $942.5 million net proceeds from common-stock issuance and $298.8 million from option exercises, partly offset by $400 million of debt repayments. Cash generation should be assessed separately from this equity and financing activity.
Material changes versus the prior comparable period
- Revenue growth accelerated, with government sales the main driver. Average revenue per customer increased to $7.9 million from $5.6 million.
- GAAP losses widened substantially, largely reflecting the direct-listing-related equity compensation charge and higher operating expenses. Total operating expenses rose 78% to $1.914 billion.
- Operating cash use increased to $296.6 million from $165.2 million. Management cited lower deferred revenue and customer deposits and higher accounts receivable among the cash-flow drivers.
- Cash and cash equivalents increased from $1.079 billion to $2.011 billion; debt declined from $400 million to $200 million. Stockholders’ equity moved from a $1.981 billion deficit to $1.523 billion of positive equity, following the listing and preferred-stock conversion.
- Commercial remaining deal value rose 45% to $1.5 billion; government remaining deal value rose 14% to $1.3 billion. These include customer options and are not guaranteed revenue.
Outlook, commentary, risks and unusual items
- The filing provides no formal numerical revenue or earnings guidance. Management described plans to expand commercial sales, grow within existing accounts, broaden government work and use industry and channel partnerships. It expected continued investment in R&D, sales, and public-company infrastructure.
- Management said COVID-19 had not materially adversely affected results to date and that remote deployment and lower travel costs helped operations; the ultimate effect remained uncertain. Travel and office costs were expected to rise as offices reopened, though not necessarily to pre-pandemic levels.
- Customer concentration and contract risk are material: the top three customers generated 25% of 2020 revenue and the top 20 generated 61%. Most contracts may be terminated for convenience; options may not be exercised. The reported $2.8 billion remaining deal value includes options, while $2.7 billion of unfunded IDIQ awards was excluded.
- Palantir committed to at least $1.49 billion of cloud-hosting purchases over the agreement term, subject to amended timing and shortfall provisions; total noncancelable purchase commitments were reported at $1.450 billion.
- Other key risks include sustained unprofitability, long and costly sales cycles, competition, reliance on government budgets and procurement rules, cybersecurity and privacy regulation, third-party cloud providers, and international operations. The multi-class structure and founder voting arrangements concentrate voting power.
- The direct listing triggered a large, non-cash stock-compensation charge. The filing also notes potential share supply and dilution from outstanding options and RSUs, including CEO options expected to be exercised before their December 2021 expiration.
- An unresolved KT4 Partners lawsuit remained; Palantir said it was defending the case and could not estimate a loss range. It stated that no pending legal matter was expected to have a material adverse impact on the financial statements. The auditor issued an unqualified opinion on the financial statements; it did not audit internal-control effectiveness.
Most important facts for investors to verify
- Whether revenue growth and customer expansion continue, particularly in commercial accounts, and whether customer concentration declines.
- Whether contribution-margin and adjusted operating results translate into durable GAAP profitability after stock-based compensation and other excluded items.
- Cash conversion, receivables collection, customer deposits, and the effect of billing changes on operating cash flow.
- How much of remaining deal value and IDIQ awards becomes funded, recognized revenue, and cash—and how much may be terminated or not exercised.
- Cloud-hosting purchase commitments, their utilization, and any potential shortfall payments.
- Future equity compensation, option exercises, share issuance, dilution, and founder voting control.
- Developments in the KT4 litigation, privacy and regulatory matters, cybersecurity, and government procurement or budget conditions.