Palantir Technologies Inc. — Q2 2021 Form 10-Q
Business context and period. This unaudited filing covers the three and six months ended June 30, 2021. Palantir sells its Gotham and Foundry software platforms and related services to government and commercial customers.
Financial performance
Amounts below are in millions of dollars unless otherwise indicated.
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $375.6 | $251.9 | $716.9 | $481.2 |
| Gross profit | $284.7 | $183.5 | $551.8 | $348.5 |
| GAAP gross margin | 76% | 73% | 77% | 72% |
| Operating loss | $(146.1) | $(99.1) | $(260.2) | $(169.3) |
| Net loss | $(138.6) | $(110.5) | $(262.1) | $(164.7) |
| Operating cash flow | Not stated separately | Not stated separately | $139.6 | $(226.3) |
- Revenue grew 49% year over year in both Q2 and the first half. Q2 government revenue rose 66% to $232.1 million; commercial revenue rose 28% to $143.5 million. For the first half, government revenue increased 71% and commercial revenue 24%.
- Q2 GAAP gross margin improved 3 percentage points; first-half margin improved 5 points. Excluding stock-based compensation, gross margin was 82% in Q2 and 83% for the first half, versus 80% and 78%, respectively, in 2020.
- Operating expenses increased 52% in Q2 and 57% for the first half. Stock-based compensation was $232.7 million in Q2 and $426.5 million in the first half, contributing significantly to GAAP losses.
- Management reported non-GAAP adjusted operating income of $116.7 million for Q2 and $233.3 million for the first half, excluding stock-based compensation and related employer payroll taxes. These measures are not GAAP results.
- First-half operating cash flow was positive despite the net loss, principally reflecting noncash charges including $426.5 million of stock-based compensation. Cash flow also reflected higher accounts receivable.
Liquidity, debt and contractual commitments
- At June 30, 2021, cash and cash equivalents were $2.34 billion; restricted cash was $98.7 million, for total cash, cash equivalents and restricted cash of $2.44 billion. Total assets were $3.08 billion and total liabilities were $1.01 billion.
- Palantir repaid $200 million of term loans in April and had no debt outstanding at quarter-end. Its amended credit facility provided $400 million of undrawn revolving capacity, subject to covenants; the company reported compliance with those covenants.
- Management said existing cash and cash equivalents and operating cash flows should meet working capital and capital expenditure needs, and contractual obligations and commitments, for at least the next 12 months.
- Remaining performance obligations were $671.9 million at June 30; approximately 49% was expected to be recognized over the next 12 months. Many customer contracts permit termination, and the company generally excludes cancelable amounts from this measure.
- Cloud-hosting commitments included at least $1.49 billion over six contract years under one agreement. Palantir said it met the $126 million commitment for the year ended June 30, 2021; the commitment for the year ending June 30, 2022 was $167 million.
Material changes and management commentary
- Revenue growth was driven mainly by expansion among existing customers. Palantir reported 169 customers, up from 137 a year earlier; trailing-12-month average revenue per customer increased 19% to $7.9 million.
- Management attributed gross-margin improvement to deployment efficiencies and lower hardware costs, partly offset by stock-based compensation and cloud-hosting costs. It expects cost of revenue, sales and marketing, research and development, and general and administrative expenses to rise in absolute dollars as the business grows.
- Management said COVID-19 had not materially adversely affected results to date and that platform operations experienced minimal disruption. It noted that travel and office expenses could rise as restrictions ease, though it did not expect them to return to pre-pandemic levels.
- No specific financial guidance for future periods is provided in the supplied filing text. The company cautions that quarterly results can fluctuate and that historical growth is not necessarily indicative of future performance.
Unusual items, risks and contingencies
- Stock-based compensation remained substantial: $426.5 million in the first half, compared with $182.0 million in the prior-year period. At June 30, unrecognized compensation was $1.0 billion for outstanding options and $815 million for outstanding RSUs. Option exercises generated $376.7 million of first-half financing cash flow.
- At June 30, Palantir had $250 million of investment commitments for 25 million shares, many contingent on proposed business combinations. Related commercial contracts had up to $428 million of potential revenue, including options; $3.0 million was recognized in the first half. Subsequent to quarter-end, the company disclosed a further $60 million of investment commitments and $53 million of investments purchased, and an August purchase of $50.7 million in gold bars.
- The company identified ongoing risks from customer concentration and termination rights, lengthy sales cycles, dependence on government spending, competition, cybersecurity and privacy requirements, third-party cloud providers, and its ability to sustain growth and achieve GAAP profitability. One customer represented 24% of accounts receivable at June 30; no customer exceeded 10% of first-half revenue.
- Palantir described the KT4 Partners lawsuit as being vigorously defended and said it could not estimate a range of possible losses. It reported no pending legal matter expected to have a material adverse impact on the financial statements. Standby letters of credit and guarantees totaled $98.7 million and were fully collateralized.
- The company reported effective disclosure controls at a reasonable assurance level and no material changes in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Whether 49% revenue growth can be sustained, particularly given the faster government growth and contract termination and renewal risks.
- How stock-based compensation, related payroll taxes, and outstanding equity awards affect GAAP profitability and shareholder dilution.
- Whether positive operating cash flow persists after considering working-capital movements, especially accounts receivable and customer deposits.
- The status and potential cash requirements of the $250 million investment commitments and subsequent investments, and whether related commercial contracts convert into durable revenue.
- Whether cloud-hosting commitments, customer concentration, and legal or regulatory contingencies change materially in subsequent filings.