Palantir Technologies Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Unaudited results compared with the three months ended March 31, 2021. Palantir builds and deploys software platforms, including Gotham, Foundry, and Apollo, for government and commercial customers.
Financial performance
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Revenue | $446.4 million | $341.2 million | Up 31% |
| Gross profit / margin | $352.0 million / 79% | $267.1 million / 78% | Margin up 1 percentage point |
| Operating expenses | $391.4 million | $381.1 million | Up 3% |
| Loss from operations | $(39.4) million | $(114.0) million | Loss narrowed |
| Net loss | $(101.4) million | $(123.5) million | Loss narrowed |
| Operating cash flow | $35.5 million | $116.9 million | Down $81.4 million |
Commercial revenue rose 54% to $204.6 million; government revenue rose 16% to $241.8 million. The company reported 277 customers for the trailing twelve months, compared with 149 a year earlier. Revenue from customers with concurrent investment agreements contributed $26.8 million of the increase in commercial revenue from existing customers.
GAAP gross margin improved to 79%, while gross margin excluding stock-based compensation declined to 81% from 83%. Contribution margin, a company-defined non-GAAP measure, was 57% versus 60%. Adjusted income from operations, excluding stock-based compensation and related employer payroll taxes, was $117.4 million versus $116.6 million. Stock-based compensation expense was $149.3 million, down from $193.7 million.
Other expense, net was $59.9 million, primarily reflecting losses on investments in marketable securities. Palantir recorded $51.9 million of unrealized losses and $10.9 million of realized losses on those securities. Basic and diluted net loss per share was $0.05, compared with $0.07.
Balance sheet, liquidity, and commitments
At March 31, 2022, cash and cash equivalents were $2.269 billion and marketable securities were $252.6 million. Total current assets were $2.927 billion and current liabilities were $669.1 million. The company had no outstanding debt and had $500 million of undrawn revolving credit commitments; the facility matures in March 2027. Palantir said available liquidity and expected cash flows should cover anticipated operating cash needs for at least the next 12 months.
Operating cash flow was $35.5 million; investing activities used $96.5 million, including $89.5 million of marketable-security purchases and $15.2 million of property and equipment purchases. Cash, cash equivalents, and restricted cash declined by $34.5 million during the quarter.
Remaining performance obligations were $1.2 billion, with approximately 42% expected to be recognized over the next 12 months and 41% over the following 13 to 36 months. Contract liabilities, comprising deferred revenue and customer deposits, totaled $506.9 million. The company also had a $1.49 billion minimum cloud-hosting purchase commitment over six contract years; it had met $115.2 million of the $167.0 million commitment for the contract year ending June 30, 2022.
Changes, outlook, and notable items
- Revenue growth was driven by expansion among existing customers, particularly commercial customers. Gross margin improved modestly, while contribution margin declined.
- Operating cash flow was substantially lower year over year, which management attributed primarily to the timing of customer receipts and vendor payments.
- Management provided no specific revenue or earnings guidance in the supplied filing text. It expects sales and marketing, research and development, and general and administrative expenses to rise in absolute dollars as the business expands.
- Management said travel and office expenses are expected to increase as offices reopen and travel resumes, though it does not expect them to return to pre-pandemic levels. It reported no material adverse effect from COVID-19 to date, but noted continuing uncertainty.
- Investment-related commercial contracts had a stated total value of $754.9 million, including $116.2 million of options; terms range from three to ten years, and many contracts have termination provisions. Related revenue was $39.2 million in Q1. The company had a further $35 million investment commitment contingent on a proposed business combination.
- Key risks include contract termination or non-renewal, long and unpredictable sales cycles, customer concentration, government procurement and budget changes, competition, cybersecurity and privacy issues, and volatility in investment values. The filing also cites potential effects from inflation, COVID-19, and the Russian invasion of Ukraine.
- A Delaware lawsuit brought by KT4 Plaintiffs remains pending. Palantir says it is defending the matter and cannot estimate a range of possible losses; it reported no currently pending legal matter expected to have a material adverse impact on the financial statements.
- Management concluded disclosure controls and procedures were effective at a reasonable assurance level, and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether commercial growth and customer expansion persist, and how much reported growth is associated with investment-linked commercial agreements.
- Whether operating cash flow recovers from the year-over-year decline and how collections, customer deposits, and payment timing develop.
- How stock-based compensation affects GAAP profitability, share dilution, and comparisons with the company’s non-GAAP measures.
- Whether the $1.2 billion of remaining performance obligations and investment-related contract values convert to recognized revenue, given termination rights and customer options.
- The performance and valuation of marketable-securities investments, including the potential for further earnings volatility or losses.
- Developments in the KT4 litigation and other legal, regulatory, cybersecurity, privacy, and government-contract risks.