☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
2021
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
☐
Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
Non-accelerated filer | ☒ | Smaller reporting company | ☐ | |||
Emerging growth company | ☐ |
Page 11. 3 4 5 5 6 6 7 7 8 9 11 10 1322. 25 3533. 43 5644. 43 57Item 1 58 1A1. 44 5844 22. 92 11833. 92 11992 45. 92 11956. 119Item 612093 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTSThis Quarterly Report on Form 10-Q contains forward-looking statements within the meaningthe impact of the ongoing COVID-19 pandemic, including on our and our customers’, vendors’, and partners’ respective businesses and the markets in which we and our customers, vendors, and partners operate; andthe increased expenses associated with being a public company.We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q.You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations, and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, and other factors, including those described in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time and it is not possible for us to predict all risks and uncertainties that could have an impact on any forward-looking statements contained in this Quarterly Report on Form 10-Q. We cannot assure you that the results, events, and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events, or circumstances could differ materially from those described in such forward-looking statements.Neither we nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. Moreover, the forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, restructurings, joint ventures, partnerships, or investments we may make.In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.
As of September 30, | As of December 31, | |||||||
2020 | 2019 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 1,800,190 | $ | 1,079,154 | ||||
Restricted cash | 43,800 | 52,099 | ||||||
Accounts receivable | 162,269 | 50,315 | ||||||
Prepaid expenses and other current assets | 388,165 | 32,585 | ||||||
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Total current assets | 2,394,424 | 1,214,153 | ||||||
Property and equipment, net | 29,369 | 31,589 | ||||||
Restricted cash, noncurrent | 86,343 | 270,709 | ||||||
Other assets | 93,576 | 77,574 | ||||||
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Total assets | $ | 2,603,712 | $ | 1,594,025 | ||||
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Liabilities, Redeemable Convertible and Convertible Preferred Stock, and Stockholders’ Equity (Deficit) |
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Current liabilities: | ||||||||
Accounts payable | $ | 22,221 | $ | 51,735 | ||||
Accrued liabilities | 466,999 | 126,620 | ||||||
Deferred revenue(1) | 172,066 | 186,105 | ||||||
Customer deposits | 280,901 | 364,138 | ||||||
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Total current liabilities | 942,187 | 728,598 | ||||||
Deferred revenue, noncurrent(1) | 67,064 | 77,030 | ||||||
Customer deposits, noncurrent | 102,231 | 167,538 | ||||||
Debt, noncurrent, net | 197,753 | 396,065 | ||||||
Other noncurrent liabilities | 42,724 | 78,205 | ||||||
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Total liabilities | 1,351,959 | 1,447,436 | ||||||
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Commitments and Contingencies (Note 8) | ||||||||
Redeemable convertible preferred stock, $0.001 par value: 0 and 35,002,700 shares authorized as of September 30, 2020 and December 31, 2019, respectively; 0 and 4,017,378 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively; aggregate liquidation preference of $0 and $14,101 as of September 30, 2020 and December 31, 2019, respectively | — | 33,569 | ||||||
Convertible preferred stock, $0.001 par value: 0 and 877,442,966 shares authorized as of September 30, 2020 and December 31, 2019, respectively; 0 and 742,839,990 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively; aggregate liquidation preference of $0 and $2,102,556 as of September 30, 2020 and December 31, 2019, respectively | — | 2,093,662 | ||||||
Stockholders’ equity (deficit): | ||||||||
Preferred stock, par value $0.001: 2,000,000,000 and 0 shares authorized as of September 30, 2020 and December 31, 2019, respectively; 0 shares issued and outstanding as of September 30, 2020 and December 31, 2019 | — | — | ||||||
Common stock, $0.001 par value: 20,000,000,000 and 2,200,000,000 Class A shares authorized as of September 30, 2020 and December 31, 2019, respectively; 1,320,584,721 shares issued and outstanding as of September 30, 2020, and 315,615,753 shares issued and 309,223,182 shares outstanding as of December 31, 2019; 2,700,000,000 and 1,800,000,000 Class B shares authorized as of September 30, 2020 and December 31, 2019, respectively; 405,096,034 and 272,273,934 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively; and 1,005,000 Class F shares authorized, issued, and outstanding as of September 30, 2020, and 0 Class F shares authorized, issued and outstanding as of December 31, 2019 | 1,727 | 588 | ||||||
Additional paid-in capital | 6,065,869 | 1,857,331 | ||||||
Treasury stock, at cost: 0 and 6,392,571 shares held as of September 30, 2020 and December 31, 2019, respectively | — | (38,895 | ) | |||||
Accumulated other comprehensive income (loss) | 1,168 | (703 | ) | |||||
Accumulated deficit | (4,817,011 | ) | (3,798,963 | ) | ||||
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Total stockholders’ equity (deficit) | 1,251,753 | (1,980,642 | ) | |||||
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Total liabilities, redeemable convertible and convertible preferred stock, and stockholders’ equity (deficit) | $ | 2,603,712 | $ | 1,594,025 | ||||
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As of June 30, | As of December 31, | |||||||
2021 | 2020 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 2,341,156 | $ | 2,011,323 | ||||
Restricted cash | 36,750 | 37,285 | ||||||
A counts receivablec | 242,998 | 156,932 | ||||||
Prepaid expenses and other current assets | 41,648 | 51,889 | ||||||
Total current assets | 2,662,552 | 2,257,429 | ||||||
Property and equipment, net | 24,824 | 29,541 | ||||||
61,914 | 79,538 | |||||||
right-of-use assets | 209,243 | 217,075 | ||||||
117,135 | 106,921 | |||||||
$ | 3,075,668 | $ | 2,690,504 | |||||
Accounts payable | $ | 30,914 | $ | 16,358 | ||||
Accrued liabilities | 166,252 | 158,546 | ||||||
Deferred revenue (1) | 194,511 | 189,520 | ||||||
Customer deposits | 257,747 | 210,320 | ||||||
Operating lease liabilities | 33,162 | 29,079 | ||||||
Total current liabilities | 682,586 | 603,823 | ||||||
Deferred revenue, noncurrent (1) | 40,518 | 50,525 | ||||||
62,732 | 81,513 | |||||||
— | 197,977 | |||||||
216,630 | 229,800 | |||||||
4,239 | 4,316 | |||||||
1,006,705 | 1,167,954 | |||||||
0 | 0 | |||||||
Preferred stock, par value $0.001: 2,000,000 shares authorized and 0 issued and outstanding as of June 30, 2021 and December 31, 2020 | 0 | 0 | ||||||
Common stock, $0.001 par value: 20,000,000 Class A shares authorized as of June 30, 2021 and December 31, 2020; 1,855,143 shares issued and outstanding as of June 30, 2021, and 1,542,058 shares issued and outstanding as of December 31, 2020; 2,700,000 Class B shares authorized as of June 30, 2021 and December 31, 2020; 80,430 shares issued and outstanding as of June 30, and 249,077 shares issued and outstanding as of December 31, 2020; and 1,005 Class F shares authorized, issued, and outstanding as of June 30, 2021 and December 31, 2020 | 1,937 | 1,792 | ||||||
Additional paid-in capital | 7,294,369 | 6,488,857 | ||||||
Accumulated other comprehensive income (loss) | 65 | (2,745) | ||||||
Accumulated deficit | (5,227,408) | (4,965,354) | ||||||
2,068,963 | 1,522,550 | |||||||
$ | 3,075,668 | $ | 2,690,504 | |||||
Inc.
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Revenue | $ | 289,366 | $ | 190,541 | $ | 770,582 | $ | 513,197 | ||||||||
Cost of revenue | 149,340 | 65,073 | 282,044 | 166,471 | ||||||||||||
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Gross profit | 140,026 | 125,468 | 488,538 | 346,726 | ||||||||||||
Operating expenses: | ||||||||||||||||
Sales and marketing | 334,911 | 119,666 | 536,082 | 337,255 | ||||||||||||
Research and development | 313,915 | 75,880 | 466,530 | 229,728 | ||||||||||||
General and administrative | 338,977 | 74,062 | 503,033 | 208,736 | ||||||||||||
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Total operating expenses | 987,803 | 269,608 | 1,505,645 | 775,719 | ||||||||||||
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Loss from operations | (847,777 | ) | (144,140 | ) | (1,017,107 | ) | (428,993 | ) | ||||||||
Interest income | 494 | 3,390 | 4,312 | 12,953 | ||||||||||||
Interest expense | (2,085 | ) | (173 | ) | (12,325 | ) | (395 | ) | ||||||||
Change in fair value of warrants | (9,201 | ) | 784 | 811 | 2,743 | |||||||||||
Other income (expense), net | (3,293 | ) | 2,305 | 1,218 | 1,858 | |||||||||||
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Loss before provision (benefit) for income taxes | (861,862 | ) | (137,834 | ) | (1,023,091 | ) | (411,834 | ) | ||||||||
Provision (benefit) for income taxes | (8,543 | ) | 2,026 | (5,043 | ) | 8,485 | ||||||||||
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Net loss | $ | (853,319 | ) | $ | (139,860 | ) | $ | (1,018,048 | ) | $ | (420,319 | ) | ||||
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Net loss per share attributable to common stockholders, basic | $ | (0.94 | ) | $ | (0.24 | ) | $ | (1.43 | ) | $ | (0.73 | ) | ||||
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Net loss per share attributable to common stockholders, diluted | $ | (0.94 | ) | $ | (0.24 | ) | $ | (1.43 | ) | $ | (0.73 | ) | ||||
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Weighted-average shares of common stock outstanding used in computing net loss per share attributable to common stockholders, basic | 905,462,010 | 580,104,846 | 713,879,104 | 574,342,061 | ||||||||||||
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Weighted-average shares of common stock outstanding used in computing net loss per share attributable to common stockholders, diluted | 905,462,010 | 580,104,846 | 716,027,459 | 574,342,061 | ||||||||||||
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Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
$ | 375,642 | $ | 251,889 | $ | 716,876 | $ | 481,216 | |||||||||
Cost of revenue | 90,926 | 68,410 | 165,037 | 132,704 | ||||||||||||
Gross profit | 284,716 | 183,479 | 551,839 | 348,512 | ||||||||||||
Sales and marketing | 162,379 | 102,518 | 298,476 | 201,171 | ||||||||||||
Research and development | 110,524 | 86,815 | 208,995 | 152,615 | ||||||||||||
General and administrative | 157,961 | 93,291 | 304,530 | 164,056 | ||||||||||||
Total operating expenses | 430,864 | 282,624 | 812,001 | 517,842 | ||||||||||||
Loss from operations | (146,148 | ) | (99,145 | ) | (260,162 | ) | (169,330 | ) | ||||||||
Interest income | 372 | 551 | 748 | 3,818 | ||||||||||||
Interest expense | (590 | ) | (5,646 | ) | (2,430 | ) | (10,240 | ) | ||||||||
Change in fair value of warrants | — | (3,683 | ) | — | 10,012 | |||||||||||
Other income (expense), net | 2,125 | (1,589 | ) | (2,769 | ) | 4,511 | ||||||||||
Loss before provision (benefit) for income taxes | (144,241 | ) | (109,512 | ) | (264,613 | ) | (161,229 | ) | ||||||||
Provision (benefit) for income taxes | (5,661 | ) | 943 | (2,559 | ) | 3,500 | ||||||||||
Net loss | $ | (138,580 | ) | $ | (110,455 | ) | $ | (262,054 | ) | $ | (164,729 | ) | ||||
Net loss per share attributable to common stockholders, basic | $ | (0.07 | ) | $ | (0.17 | ) | $ | (0.14 | ) | $ | (0.27 | ) | ||||
Net loss per share attributable to common stockholders, diluted | $ | (0.07 | ) | $ | (0.17 | ) | $ | (0.14 | ) | $ | (0.28 | ) | ||||
Weighted-average shares of common stock outstanding used in computing net loss per share attributable to common stockholders, basic | 1,894,606 | 640,450 | 1,858,085 | 616,150 | ||||||||||||
Weighted-average shares of common stock outstanding used in computing net loss per share attributable to common stockholders, diluted | 1,894,606 | 640,669 | 1,858,085 | 618,635 |
Three Months Ended September 30, | Nine Months Ended September 30, 2020 | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Net loss | $ | (853,319 | ) | $ | (139,860 | ) | $ | (1,018,048 | ) | $ | (420,319 | ) | ||||
Other comprehensive income (loss): | ||||||||||||||||
Foreign currency translation adjustments | 268 | (5,133 | ) | 1,871 | (470 | ) | ||||||||||
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Comprehensive loss | $ | (853,051 | ) | $ | (144,993 | ) | $ | (1,016,177 | ) | $ | (420,789 | ) | ||||
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Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Net loss | (138,580 | ) | (110,455 | ) | (262,054 | ) | (164,729 | ) | ||||||||
Other comprehensive income: | ||||||||||||||||
Foreign currency translation adjustments | (800 | ) | 577 | 2,810 | 1,603 | |||||||||||
Comprehensive loss | $ | (139,380 | ) | $ | (109,878 | ) | $ | (259,244 | ) | $ | (163,126 | ) | ||||
thousands)
Redeemable Convertible Preferred Stock | Convertible Preferred Stock | Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Income | Accumulated Deficit | Total Stockholders’ Equity (Deficit) | ||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||||
Balance as of June 30, 2020 | 4,017,378 | $ | 33,569 | 742,932,765 | $ | 2,094,509 | 736,634,601 | $ | 737 | $ | 2,563,354 | $ | 900 | $ | (3,963,692 | ) | $ | (1,398,701 | ) | |||||||||||||||||||||||||
Issuance of Series D preferred stock upon net exercise of Series D preferred stock warrants | — | — | 2,380,034 | 10,810 | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||
Issuance of common stock upon net exercise of common stock warrants | — | — | — | — | 7,631,329 | 8 | (8 | ) | — | — | — | |||||||||||||||||||||||||||||||||
Issuance of common stock, net of issuance costs | — | — | — | — | 88,279,569 | 88 | 404,591 | — | — | 404,679 | ||||||||||||||||||||||||||||||||||
Conversion of redeemable convertible preferred stock to common stock | (4,017,378 | ) | (33,569 | ) | — | — | 4,017,378 | 4 | 33,565 | — | — | 33,569 | ||||||||||||||||||||||||||||||||
Conversion of convertible preferred stock to common stock | — | — | (745,312,799 | ) | (2,105,319 | ) | 793,725,807 | 794 | 2,104,525 | — | — | 2,105,319 | ||||||||||||||||||||||||||||||||
Conversion of preferred stock warrants to common stock warrants | — | — | — | — | — | — | 31,007 | — | — | 31,007 | ||||||||||||||||||||||||||||||||||
Issuance of common stock from the exercise of stock options | — | — | — | — | 31,747,857 | 32 | 87,175 | — | — | 87,207 | ||||||||||||||||||||||||||||||||||
Issuance of common stock upon vesting of restricted stock units (“RSUs”) | — | — | — | — | 68,149,214 | 68 | (68 | ) | — | — | — | |||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | — | — | — | — | 841,929 | — | — | 841,929 | ||||||||||||||||||||||||||||||||||
Settlement of employee loan accounted for as a modification to stock option | — | — | — | — | (3,500,000 | ) | (4 | ) | (201 | ) | — | — | (205 | ) | ||||||||||||||||||||||||||||||
Other comprehensive income | — | — | — | — | — | — | — | 268 | — | 268 | ||||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | — | — | (853,319 | ) | (853,319 | ) | ||||||||||||||||||||||||||||||||
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Balance as of September 30, 2020 | — | $ | — | — | $ | — | 1,726,685,755 | $ | 1,727 | $ | 6,065,869 | $ | 1,168 | $ | (4,817,011 | ) | $ | 1,251,753 | ||||||||||||||||||||||||||
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Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Income (Loss) | Accumulated Deficit | Total Stockholders’ Equity | ||||||||||||||||||||
Shares | Amount | |||||||||||||||||||||||
Balance as of March 31, 2021 | 1,860,607 | $ | 1,860 | $ | 6,892,046 | $ | 865 | $ | (5,088,828 | ) | $ | 1,805,943 | ||||||||||||
Issuance of common stock from the exercise of stock options | 59,171 | 59 | 167,769 | — | — | 167,828 | ||||||||||||||||||
Issuance of common stock upon vesting of restricted stock units (“RSUs”) | 12,872 | 13 | (13 | ) | — | — | — | |||||||||||||||||
Issuance of common stock upon net exercise of common stock warrants and other | 3,928 | 5 | 1,707 | — | — | 1,712 | ||||||||||||||||||
Stock-based compensation | — | — | 232,860 | — | — | 232,860 | ||||||||||||||||||
Other comprehensive loss | — | — | — | (800 | ) | — | (800 | ) | ||||||||||||||||
— | — | — | — | (138,580 | ) | (138,580 | ) | |||||||||||||||||
Balance as of June 30, 2021 | 1,936,578 | $ | $ | 7,294,369 | $ | 65 | $ | (5,227,408 | ) | $ | 2,068,963 | |||||||||||||
Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Income (Loss) | Accumulated Deficit | Total Stockholders’ Equity | ||||||||||||||||||||
Shares | Amount | |||||||||||||||||||||||
Balance as of December 31, 2020 | 1,792,140 | $ | 1,792 | $ | 6,488,857 | $ | (2,745 | ) | $ | (4,965,354 | ) | $ | 1,522,550 | |||||||||||
Issuance of common stock from the exercise of stock options | 114,471 | 114 | 376,574 | — | 0 | 376,688 | ||||||||||||||||||
Issuance of common stock upon vesting of RSUs | 23,832 | 24 | (24 | ) | — | — | — | |||||||||||||||||
Issuance of common stock upon vesting of growth units | 1,471 | 1 | (1 | ) | — | — | — | |||||||||||||||||
Issuance of common stock upon net exercise of common stock warrants and other | 4,664 | 6 | 1,706 | — | — | 1,712 | ||||||||||||||||||
Stock-based compensation | — | — | 427,257 | — | — | 427,257 | ||||||||||||||||||
Other comprehensive income | — | — | — | 2,810 | — | 2,810 | ||||||||||||||||||
— | — | — | — | (262,054 | ) | (262,054 | ) | |||||||||||||||||
Balance as of June 30, 2021 | 1,936,578 | $ | 1,937 | $ | 7,294,369 | $ | 65 | $ | (5,227,408 | ) | $ | 2,068,963 |
thousands)
Redeemable Convertible Preferred Stock | Convertible Preferred Stock | Common Stock | Additional Paid-in Capital | Treasury Stock | Accumulated Other Comprehensive Income (Loss) | Accumulated Deficit | Total Stockholders’ Equity (Deficit) | |||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||
Balance as of December 31, 2019 | 4,017,378 | $ | 33,569 | 742,839,990 | $ | 2,093,662 | 581,497,116 | $ | 588 | $ | 1,857,331 | 6,392,571 | $ | (38,895 | ) | $ | (703 | ) | $ | (3,798,963 | ) | $ | (1,980,642 | ) | ||||||||||||||||||||||||||
Conversion of Series H-1 convertible preferred stock to common stock | — | — | (28,490 | ) | (100 | ) | 28,490 | — | 100 | — | — | — | — | 100 | ||||||||||||||||||||||||||||||||||||
Issuance of Series K convertible preferred stock | — | — | 121,265 | 947 | — | —�� | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
Issuance of Series D preferred stock upon net exercise of Series D preferred stock warrants | — | — | 2,380,034 | 10,810 | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
Repurchase of common stock, held in treasury | — | — | — | — | (808,201 | ) | — | — | 808,201 | (3,777 | ) | — | — | (3,777 | ) | |||||||||||||||||||||||||||||||||||
Retirement of treasury stock | — | — | — | — | — | (7 | ) | (42,665 | ) | (7,200,772 | ) | 42,672 | — | — | — | |||||||||||||||||||||||||||||||||||
Issuance of common stock upon net exercise of common stock warrants | — | — | — | — | 7,631,329 | 8 | (8 | ) | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||
Issuance of common stock, net of issuance costs | — | — | — | — | 206,500,523 | 207 | 942,322 | — | — | — | — | 942,529 | ||||||||||||||||||||||||||||||||||||||
Conversion of redeemable convertible preferred stock to common stock | (4,017,378 | ) | (33,569 | ) | — | — | 4,017,378 | 4 | 33,565 | — | — | — | — | 33,569 | ||||||||||||||||||||||||||||||||||||
Conversion of convertible preferred stock to common stock | — | — | (745,312,799 | ) | (2,105,319 | ) | 793,725,807 | 794 | 2,104,525 | — | — | ��� | — | 2,105,319 | ||||||||||||||||||||||||||||||||||||
Conversion of preferred stock warrants to common stock warrants | — | — | — | — | — | — | 31,007 | — | — | — | — | 31,007 | ||||||||||||||||||||||||||||||||||||||
Issuance of common stock from the exercise of stock options | — | — | — | — | 69,444,099 | 69 | 115,961 | — | — | — | — | 116,030 | ||||||||||||||||||||||||||||||||||||||
Issuance of common stock upon vesting of RSUs | — | — | — | — | 68,149,214 | 68 | (68 | ) | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | — | — | — | — | 1,024,000 | — | — | — | — | 1,024,000 | ||||||||||||||||||||||||||||||||||||||
Settlement of employee loan accounted for as a modification to stock option | — | — | — | — | (3,500,000 | ) | (4 | ) | (201 | ) | — | — | — | — | (205 | ) | ||||||||||||||||||||||||||||||||||
Other comprehensive income | — | — | — | — | — | — | — | — | — | 1,871 | — | 1,871 | ||||||||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | — | — | — | — | (1,018,048 | ) | (1,018,048 | ) | ||||||||||||||||||||||||||||||||||||
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Balance as of September 30, 2020 | — | $ | — | — | $ | — | 1,726,685,755 | $ | 1,727 | $ | 6,065,869 | — | $ | — | $ | 1,168 | $ | (4,817,011 | ) | $ | 1,251,753 | |||||||||||||||||||||||||||||
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Palantir Technologies Inc.
Condensed Consolidated Statements of Redeemable Convertible and Convertible Preferred Stock and Stockholders’ Equity (Deficit)
(in thousands, except share amounts)
(unaudited)
Redeemable Convertible Preferred Stock | Convertible Preferred Stock | Common Stock | Additional Paid-in Capital | Treasury Stock | Accumulated Other Comprehensive Income | Accumulated Deficit | Total Stockholders’ Deficit | |||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||
Balance as of June 30, 2019 | 23,931,624 | $ | — | 745,886,186 | $ | 2,099,054 | 571,702,167 | $ | 577 | $ | 1,727,804 | 5,435,072 | $ | (34,439 | ) | $ | 5,425 | $ | (3,499,776 | ) | $ | (1,800,409 | ) | |||||||||||||||||||||||||||
Issuance of Series H redeemable convertible preferred stock upon exercise of warrants | 2,949,002 | 26,069 | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
Redemption of Series H redeemable convertible preferred stock previously accrued for | (23,931,624 | ) | — | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||
Sale of Series H redeemable convertible preferred stock | 1,068,376 | 7,500 | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
Repurchase of common stock, held in treasury | — | — | — | — | (66,666 | ) | — | — | 66,666 | (327 | ) | — | — | (327 | ) | |||||||||||||||||||||||||||||||||||
Issuance of common stock from the exercise of stock options | — | — | — | — | 1,799,680 | 2 | 1,374 | — | — | — | — | 1,376 | ||||||||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | — | — | — | — | 51,763 | — | — | — | — | 51,763 | ||||||||||||||||||||||||||||||||||||||
Other comprehensive loss | — | — | — | — | — | — | — | — | — | (5,133 | ) | — | (5,133 | ) | ||||||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | — | — | — | — | (139,860 | ) | (139,860 | ) | ||||||||||||||||||||||||||||||||||||
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Balance as of September 30, 2019 | 4,017,378 | $ | 33,569 | 745,886,186 | $ | 2,099,054 | 573,435,181 | $ | 579 | $ | 1,780,941 | 5,501,738 | $ | (34,766 | ) | $ | 292 | $ | (3,639,636 | ) | $ | (1,892,590 | ) | |||||||||||||||||||||||||||
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Redeemable Convertible Preferred Stock | Convertible Preferred Stock | Common Stock | Additional Paid-in Capital | Treasury Stock | Accumulated Other Comprehensive Income | Accumulated Deficit | Total Stockholders’ Deficit | |||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||
Balance as of December 31, 2018 | 25,947,422 | $ | 172,163 | 742,813,372 | $ | 2,087,560 | 549,367,691 | $ | 570 | $ | 1,627,737 | 20,636,798 | $ | (148,621 | ) | $ | 762 | $ | (3,231,876 | ) | $ | (1,751,428 | ) | |||||||||||||||||||||||||||
Cumulative effect of accounting changes | — | — | — | — | — | — | (34 | ) | — | — | — | 12,559 | 12,525 | |||||||||||||||||||||||||||||||||||||
Issuance of Series H redeemable convertible preferred stock upon exercise of warrants | 2,949,002 | 26,069 | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
Redemption of Series H redeemable convertible preferred stock | (23,931,624 | ) | (168,000 | ) | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Sale of Series H redeemable convertible preferred stock | 1,068,376 | 7,500 | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
Reclassification of Series H redeemable convertible preferred stock into convertible preferred stock upon expiration of redemption option | (2,015,798 | ) | (4,163 | ) | 2,015,798 | 4,163 | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Conversion of Series F convertible stock to common stock | — | — | (10,078 | ) | (20 | ) | 10,078 | — | 20 | — | — | — | — | 20 | ||||||||||||||||||||||||||||||||||||
Issuance of Series D convertible preferred stock upon exercise of warrants | — | — | 1,097,094 | 7,375 | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
Conversion of Series D convertible stock to common stock | — | — | (30,000 | ) | (24 | ) | 30,000 | — | 24 | — | — | — | — | 24 | ||||||||||||||||||||||||||||||||||||
Sale of common stock, held in treasury | — | — | — | — | 16,583,747 | — | (20,928 | ) | (16,583,747 | ) | 120,928 | — | — | 100,000 | ||||||||||||||||||||||||||||||||||||
Repurchase of common stock, held in treasury | — | — | — | — | (1,448,687 | ) | — | — | 1,448,687 | (7,073 | ) | — | — | (7,073 | ) | |||||||||||||||||||||||||||||||||||
Issuance of common stock from the exercise of stock options | — | — | — | — | 8,892,352 | 9 | 9,328 | — | — | — | — | 9,337 | ||||||||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | — | — | — | — | 164,794 | — | — | — | — | 164,794 | ||||||||||||||||||||||||||||||||||||||
Other comprehensive loss | — | — | — | — | — | — | — | — | — | (470 | ) | — | (470 | ) | ||||||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | — | — | — | — | (420,319 | ) | (420,319 | ) | ||||||||||||||||||||||||||||||||||||
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Balance as of September 30, 2019 | 4,017,378 | $ | 33,569 | 745,886,186 | $ | 2,099,054 | 573,435,181 | $ | 579 | $ | 1,780,941 | 5,501,738 | $ | (34,766 | ) | $ | 292 | $ | (3,639,636 | ) | $ | (1,892,590 | ) | |||||||||||||||||||||||||||
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Preferred Stock
Stock
Capital
Other
Comprehensive
Income
Deficit
Stockholders’
Deficit 4,017 $ 33,569 742,812 $ 2,093,562 588,033 $ 595 $ 1,918,372 7,201 $ (42,672 ) $ 323 $ (3,853,237 ) $ (1,976,619 ) Issuance of Series K convertible preferred stock — — 121 947 — — — — — — — — Issuance of common stock from the exercise of stock options — — — — 30,381 31 22,083 — — — — 22,114 Issuance of common stock, net of issuance costs — — — — 118,221 118 537,731 — — — — 537,849 Retirement of treasury stock — — — — — (7 ) (42,665 ) (7,201 ) 42,672 — — — — — — — — — 127,833 — — — — 127,833 Other comprehensive income — — — — — — — — — 577 — 577 Net loss — — — — — — — — — — (110,455 ) (110,455 ) 4,017 $ 33,569 742,933 $ 2,094,509 736,635 $ 737 $ 2,563,354 — $ — $ 900 $ (3,963,692 ) $ (1,398,701 )
Preferred Stock
Stock
Capital
Other
Comprehensive
Income (Loss)
Deficit
Stockholders’
Deficit 4,017 $ 33,569 742,840 $ 2,093,662 581,497 $ 588 $ 1,857,331 6,393 $ (38,895 ) $ (703 ) $ (3,798,963 ) $ (1,980,642 ) — — (28 ) (100 ) 28 — 100 — — — — 100 Issuance of Series K convertible preferred stock — — 121 947 — — — — — — — — Repurchase of common stock, held in treasury — — — — (808 ) — — 808 (3,777 ) — — (3,777 ) Issuance of common stock from the exercise of stock options — — — — 37,697 38 28,786 — — — — 28,824 Issuance of common stock, net of issuance costs — — — — 118,221 118 537,731 — — — — 537,849 Retirement of treasury stock — — — — — (7 ) (42,665 ) (7,201 ) 42,672 — — — Stock-based compensation — — — — — — 182,071 — — — — 182,071 Other comprehensive income — — — — — — — — — 1,603 — 1,603 Net loss — — — — — — — — — — (164,729 ) (164,729 ) 4,017 $ 33,569 742,933 $ 2,094,509 736,635 $ 737 $ 2,563,354 — $ — $ 900 $ (3,963,692 ) $ (1,398,701 )
Nine Months Ended September 30, | ||||||||
2020 | 2019 | |||||||
Operating activities | ||||||||
Net loss | $ | (1,018,048 | ) | $ | (420,319 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation and amortization | 10,308 | 9,450 | ||||||
Stock-based compensation | 1,028,914 | 164,650 | ||||||
Amortization of debt issuance costs | 2,319 | 87 | ||||||
Change in fair value of warrants | (811 | ) | (2,743 | ) | ||||
Loss from equity method investments | 1,439 | — | ||||||
Impairment of assets | 674 | — | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | (112,723 | ) | (96,142 | ) | ||||
Prepaid expenses and other current assets | (16,434 | ) | (8,045 | ) | ||||
Other assets | (14,192 | ) | (6,393 | ) | ||||
Accounts payable | (29,372 | ) | (21,133 | ) | ||||
Accrued liabilities | 33,634 | 12,105 | ||||||
Deferred revenue, current and noncurrent | (30,937 | ) | (226,829 | ) | ||||
Customer deposits, current and noncurrent | (140,162 | ) | 102,100 | |||||
Other noncurrent liabilities | 7,071 | (6,836 | ) | |||||
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Net cash used in operating activities | (278,320 | ) | (500,048 | ) | ||||
Investing activities | ||||||||
Purchases of property and equipment | (7,475 | ) | (10,947 | ) | ||||
Purchase of equity method investment | (2,500 | ) | — | |||||
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Net cash used in investing activities | (9,975 | ) | (10,947 | ) | ||||
Financing activities | ||||||||
Proceeds from the issuance of common stock, net of issuance costs | 942,529 | 100,000 | ||||||
Proceeds from issuance of debt, net of issuance costs | 199,369 | — | ||||||
Principal payments on borrowings | (400,000 | ) | — | |||||
Proceeds from the exercise of common stock options | 79,473 | 9,337 | ||||||
Repurchase of common stock | (3,777 | ) | (7,073 | ) | ||||
Proceeds from the sale of redeemable convertible preferred stock | — | 7,500 | ||||||
Redemption of redeemable convertible preferred stock | — | (168,000 | ) | |||||
Other financing activities | (250 | ) | (1,198 | ) | ||||
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Net cash provided by (used in) financing activities | 817,344 | (59,434 | ) | |||||
Effect of foreign exchange on cash, cash equivalents, and restricted cash | (678 | ) | (2,992 | ) | ||||
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Net increase (decrease) in cash, cash equivalents, and restricted cash | 528,371 | (573,421 | ) | |||||
Cash, cash equivalents, and restricted cash - beginning of period | 1,401,962 | 1,266,835 | ||||||
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Cash, cash equivalents, and restricted cash - end of period | $ | 1,930,333 | $ | 693,414 | ||||
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Palantir Technologies Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Nine Months Ended September 30, | ||||||||
2020 | 2019 | |||||||
Supplemental disclosures of cash flow information: | ||||||||
Cash paid for income taxes | $ | 9,143 | $ | 1,981 | ||||
Cash paid for interest | 9,737 | — | ||||||
Supplemental disclosures of non-cash investing and financing information: | ||||||||
Conversion of redeemable convertible and convertible preferred stock to common stock | $ | 2,138,988 | $ | — | ||||
Receivable from the exercise of common stock options included in prepaid expenses and other current assets | 36,557 | — | ||||||
Conversion of convertible preferred stock warrants to common stock warrants | 31,007 | — | ||||||
Cashless net exercise of warrants for convertible preferred stock | 10,810 | 7,375 | ||||||
Cashless net exercise of warrants for redeemable convertible preferred stock | — | 26,069 | ||||||
Reclassification of redeemable convertible preferred stock into convertible preferred stock upon expiration of redemption option | — | 4,163 | ||||||
Accrued purchase of property and equipment | 461 | — |
Six Months Ended June 30, | ||||||||
2021 | 2020 | |||||||
Operating activities | ||||||||
Net loss | $ | (262,054 | ) | $ | (164,729 | ) | ||
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||
7,999 | 7,793 | |||||||
Stock-based compensation | 426,473 | 181,955 | ||||||
Change in fair value of warrants | 0 | (10,012 | ) | |||||
Non-cash operating lease expense | 14,435 | 19,831 | ||||||
Other operating activities | 560 | 3,633 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | (83,883 | ) | (56,583 | ) | ||||
Prepaid expenses and other current assets | 12,770 | (3,220 | ) | |||||
Other assets | (9,522 | ) | (9,937 | ) | ||||
Accounts payable | 14,589 | (35,012 | ) | |||||
Accrued liabilities | 9,070 | (30,366 | ) | |||||
Deferred revenue, current and noncurrent | (3,679 | ) | 19,645 | |||||
Customer deposits, current and noncurrent | 28,668 | (124,434 | ) | |||||
Operating lease liabilities, current and noncurrent | (15,795 | ) | (25,815 | ) | ||||
Other noncurrent liabilities | 0 | 921 | ||||||
Net cash provided by (used in) operating activities | 139,631 | (226,330 | ) | |||||
Investing activities | ||||||||
Purchases of property and equipment | (1,405 | ) | (5,945 | ) | ||||
Proceeds from the sale of assets held for sale | 0 | 250 | ||||||
Net cash used in investing activities | (1,405 | ) | (5,695 | ) | ||||
Financing activities | ||||||||
Proceeds from the issuance of common stock, net of issuance costs | 0 | 542,922 | ||||||
Proceeds from issuance of debt, net of issuance costs | 0 | 149,683 | ||||||
Principal payments on borrowings | (200,000 | ) | (250,000 | ) | ||||
Proceeds from the exercise of common stock options | 376,688 | 28,824 | ||||||
Repurchase of common stock | 0 | (3,777 | ) | |||||
Other financing activities | (1,744 | ) | (377 | ) | ||||
Net cash provided by financing activities | 174,944 | 467,275 | ||||||
Effect of foreign exchange on cash, cash equivalents, and restricted cash | (1,496 | ) | (197 | ) | ||||
Net increase in cash, cash equivalents, and restricted cash | 311,674 | 235,053 | ||||||
Cash, cash equivalents, and restricted cash - beginning of period | 2,128,146 | 1,401,962 | ||||||
Cash, cash equivalents, and restricted cash - end of period | $ | 2,439,820 | $ | 1,637,015 | ||||
Supplemental disclosures of cash flow information: | ||||||||
Cash paid for income taxes | $ | 3,425 | $ | 8,144 | ||||
Cash paid for interest | 2,381 | 5,644 | ||||||
Supplemental disclosures of non-cash investing and financing information: | ||||||||
Common stock issuance costs included in accounts payable and accrued liabilities | $ | 0 | $ | 5,072 |
Direct Listing
On September 30, 2020, the Company completed a direct listing of its Class A common stock (the “Direct Listing”) on the New York Stock Exchange (“NYSE”).
In connection with the Direct Listing, on September 22, 2020, the Company filed an amended and restated certificate of incorporation, which became effective on that date. The amended and restated certificate of incorporation authorized the issuance of a total of 20,000,000,000 shares of Class A common stock and 2,700,000,000 shares of Class B common stock, authorized 1,005,000 shares of a new class of common stock (“Class F common stock”) and 2,000,000,000 shares of undesignated preferred stock. In connection with the Direct Listing, Alexander Karp, Stephen Cohen, and Peter Thiel (the “Founders”) each transferred 335,000 shares of their Class B common stock to a voting trust, which were then exchanged for an equivalent number of shares of Class F common stock.
Immediately prior to the filing of the amended and restated certificate of incorporation, all outstanding shares of redeemable convertible preferred stock and convertible preferred stock were converted into 797,743,185 shares of the Company’s Class B common stock, and all of the Company’s outstanding preferred stock warrants were converted into common stock warrants, which resulted in the reclassification of the warrants liability to additional paid-in capital. Subsequent to the filing of the amended and restated certificate of incorporation, there were no shares of redeemable convertible preferred stock or convertible preferred stock outstanding.
Furthermore, upon the occurrence of the Direct Listing, the Company determined that the performance-based vesting condition was satisfied for 68,149,214 restricted stock units (“RSUs”), which resulted in the issuance of an equivalent number of shares of Class A common stock. See further discussion in Note 11. Stock-Based Compensation regarding the cumulative stock-based compensation charge recognized upon the Direct Listing.
Palantir Technologies Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
certain notes required by GAAP on an annual reporting basis. In management’s opinion, the unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the balance sheets and statements of operations, comprehensive loss, stockholders’ equity (deficit), and cash flows for the interim periods, but are not necessarily indicative of the results of operations to be anticipated for the full fiscal year or any future period.
February 26, 2021.
2021.
Palantir Technologies Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
As of September 30, | ||||||||
2020 | 2019 | |||||||
Cash and cash equivalents | $ | 1,800,190 | $ | 507,319 | ||||
Restricted cash | 43,800 | 72,219 | ||||||
Restricted cash, noncurrent | 86,343 | 113,876 | ||||||
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Total cash, cash equivalents, and restricted cash | $ | 1,930,333 | $ | 693,414 | ||||
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As of June 30, | ||||||||
2021 | 2020 | |||||||
Cash and cash equivalents | $ | 2,341,156 | $ | 1,497,591 | ||||
Restricted cash | 36,750 | 37,069 | ||||||
Restricted cash, noncurrent | 61,914 | 102,355 | ||||||
Total cash, cash equivalents, and restricted cash | $ | 2,439,820 | $ | 1,637,015 | ||||
2020.
As of September 30, 2020, the Company qualified as an emerging growth company (“EGC”) under the Jumpstart Our Business Startups Act (“JOBS Act”) which permits the Company an extended transition period for complying with new or revised accounting standards affecting public companies.
Palantir Technologies Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
The Company adopted the following accounting standard during the nine months ended September 30, 2020:
Accounting Standard Update (“ASU”) 2018-13,Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. This standard update modified the disclosure requirements on fair value measurements by removing, modifying, or adding certain disclosures. The ASU eliminated such disclosures as the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy and valuation processes for Level 3 fair value measurements. The ASU adds new disclosure requirements for Level 3 measurements. The Company adopted ASU 2018-13 as of January 1, 2020. The Company’s disclosures related to its Level 3 financial instruments did not materially change for the periods presented. See Note 4. Fair Value Measurements for more information.
Recently Issued Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, Leases (Topic 842), which requires lessees to recognize a right-of-use (“ROU”) asset and lease liability on its condensed consolidated balances sheet for all leases with a term longer than twelve months. Leases will be classified as finance or operating leases, with classification affecting the pattern and classification of expense recognition in the condensed consolidated statements of operation. If the Company loses its EGC status as of December 31, 2020, the new standard will be effective for the Company for its fiscal year beginning January 1, 2020. The Company is currently evaluating the impact of the new standard on its condensed consolidated financial statements and related disclosures; however, the Company believes that, upon adopting the new standard, it will recognize material right-of-use assets and lease liabilities on its condensed consolidated balance sheets associated primarily with real estate related operating leases. The Company intends to adopt the standard using an optional transition method and will not restate comparative periods. The Company does not believe this standard will have a material impact on its condensed consolidated statements of operations.
In June 2016, the FASB amended guidance related to impairment of financial instruments as part of ASU 2016-13,Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which replaces the incurred loss impairment methodology with an expected credit loss model for which a company recognizes an allowance based on the estimate of expected credit loss. If the Company loses its EGC status as of December 31, 2020, the new standard will be effective for the Company for its fiscal year beginning January 1, 2020. The Company is currently evaluating the impact of the new standard on its condensed consolidated financial statements and related disclosures.
In August 2018, the FASB issued ASU 2018-15,Intangibles – Goodwill and Other – Internal-Use Software – (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which requires a customer in a hosting arrangement that is a service contract to follow the internal-use software guidance in ASC 350-40 to determine which implementation costs to capitalize as assets or expense as incurred. If the Company loses its EGC status as of December 31, 2020, the new standard will be effective for the Company for its fiscal year beginning January 1, 2020. The amendments in this ASU can be applied either retrospectively or prospectively to all implementation costs after the date of adoption. The Company is currently evaluating the impact of the new standard on its condensed consolidated financial statements and related disclosures.
In
Palantir Technologies Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
3. Revenue Recognition
LiabilitiesBalances
Nine Months Ended September 30, 2020 | ||||
Balance, beginning of period | $ | 794,811 | ||
Billings and other (1) | 608,033 | |||
Revenue recognized | (770,582 | ) | ||
Refunds accrued or paid to customers | (10,000 | ) | ||
|
|
| ||
Balance, end of period | $ | 622,262 | ||
|
|
| ||
| ||||
(1) Other primarily includes the impact of foreign currency translation. |
|
of
Palantir Technologies Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
The following table presents the Company’s assets and liabilities that are measured at fair value on a recurring and nonrecurring basis and indicates the fair value hierarchy of the valuation (in thousands):
As of September 30, 2020 | ||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
Assets: | ||||||||||||||||
Cash equivalents: | ||||||||||||||||
Money market funds | $ | 980,254 | $ | 980,254 | $ | — | $ | — | ||||||||
Restricted cash: | ||||||||||||||||
Certificates of deposit | 80,912 | — | 80,912 | — | ||||||||||||
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| |||||
Total | $ | 1,061,166 | $ | 980,254 | $ | 80,912 | $ | — | ||||||||
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| |||||
As of December 31, 2019 | ||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
Assets: | ||||||||||||||||
Cash equivalents: | ||||||||||||||||
Money market funds | $ | 650,498 | $ | 650,498 | $ | — | �� | $ | — | |||||||
Restricted cash: | ||||||||||||||||
Certificates of deposit | 102,904 | — | 102,904 | — | ||||||||||||
Prepaid expenses and other current assets: | ||||||||||||||||
Assets held for sale | 980 | — | — | 980 | ||||||||||||
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|
|
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|
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| |||||
Total | $ | 754,382 | $ | 650,498 | $ | 102,904 | $ | 980 | ||||||||
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| |||||
Liabilities: | ||||||||||||||||
Warrants liability | $ | 42,628 | $ | — | $ | — | $ | 42,628 | ||||||||
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| |||||
Total | $ | 42,628 | $ | — | $ | — | $ | 42,628 | ||||||||
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|
|
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|
|
|
|
As of June 30, 2021 | ||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
Assets: | ||||||||||||||||
Money market funds | $ | 963,873 | $ | 963,873 | $ | 0 | $ | 0 | ||||||||
Certificates of deposit | 65,477 | 0 | 65,477 | 0 | ||||||||||||
Total | $ | 1,029,350 | $ | 963,873 | $ | 65,477 | $ | 0 | ||||||||
As of December 31, 2020 | ||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
Assets: | ||||||||||||||||
Money market funds | $ | 1,075,783 | $ | 1,075,783 | $ | 0 | $ | 0 | ||||||||
Certificates of deposit | 74,097 | 0 | 74,097 | 0 | ||||||||||||
Total | $ | 1,149,880 | $ | 1,075,783 | $ | 74,097 | $ | 0 | ||||||||
Warrants Liability
In connection with the completion of the Company’s Direct Listing, all of the outstanding warrants to purchase shares of redeemable convertible and convertible preferred stock converted into warrants to purchase shares of Class B common stock. As a result, the Company reclassified the warrants liability to additional paid-in capital.
Palantir Technologies Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
Immediately prior to the Direct Listing and the reclassification to additional paid-in capital, the fair value of the warrants liability was estimated using a Black Scholes model and considered the closing price of the Company’s common stock on the first day of trading, the strike price of the warrants, the remaining term of the warrants, a risk-free interest rate that corresponds to the remaining term, and the volatility of comparable companies.
For the year ended December 31, 2019, the warrants liability was included in other noncurrent liabilities in the condensed consolidated balance sheet and the fair value of the warrant liability was estimated using a combination of an option-pricing model and a Monte Carlo simulation model with equal weighting applied to both models in determining the fair values. These models consider many assumptions, including the likelihood of various potential liquidity events, the nature and timing of such potential events, actions taken with regard to the warrants at expiration, as well as discounts for lack of marketability of the underlying securities and warrants.
The assumptions used to calculate the warrants liability as of September 29, 2020, the date immediately before the Direct Listing, and December 31, 2019 were as follows:
September 29, 2020 | December 31, 2019 | |||
Discounts for lack of marketability | — | 20.0% - 28.0% | ||
Fair value of underlying securities | $9.50 | $6.81 - $8.04 | ||
Expected volatility | 66.0% | 66.0% | ||
Dividend rate | — | — | ||
Risk-free interest rate | 0.1% | 1.3% |
The following table sets forth a summary of the changes in the estimated fair value of the Company’s warrants liability (in thousands):
Balance as of December 31, 2019 | $ | 42,628 | ||
Net exercises in the period | (10,810 | ) | ||
Change in fair value of warrants | (811 | ) | ||
Reclassification to additional paid-in capital as a result of conversion of preferred stock warrants to common stock warrants | (31,007 | ) | ||
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|
| ||
Balance as of September 30, 2020 | $ | — | ||
|
|
|
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following (in thousands):
As of September 30, 2020 | As of December 31, 2019 | |||||||
Equity related withholding tax and exercise proceeds receivable | $ | 339,409 | $ | — | ||||
Other prepaid expenses and current assets | 48,756 | 32,585 | ||||||
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|
| |||
Total prepaid expenses and other current assets | $ | 388,165 | $ | 32,585 | ||||
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|
|
|
Palantir Technologies Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
As of September 30, 2020 | As of December 31, 2019 | |||||||
Leasehold improvements | $ | 88,198 | $ | 93,530 | ||||
Computer equipment, software, and other | 18,722 | 32,757 | ||||||
Furniture and fixtures | 9,596 | 10,753 | ||||||
Construction in progress | 5,817 | 3,161 | ||||||
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|
|
|
|
| |||
Total property and equipment, gross | 122,333 | 140,201 | ||||||
Less: accumulated depreciation and amortization | (92,964 | ) | (108,612 | ) | ||||
|
|
|
|
|
| |||
Total property and equipment, net | $ | 29,369 | $ | 31,589 | ||||
|
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|
|
|
As of June 30, 2021 | As of December 31, 2020 | |||||||
Leasehold improvements | $ | 81,057 | $ | 85,196 | ||||
Computer equipment, software, and other | 23,199 | 22,275 | ||||||
Furniture and fixtures | 10,069 | 9,976 | ||||||
Construction in progress | 442 | 493 | ||||||
Total property and equipment, gross | 114,767 | 117,940 | ||||||
Less: accumulated depreciation and amortization | (89,943) | (88,399) | ||||||
Total property and equipment, net | $ | 24,824 | $ | 29,541 | ||||
As of September 30, 2020 | As of December 31, 2019 | |||||||
Accrued payroll and related expenses(1) | $ | 342,191 | $ | 31,355 | ||||
Accrued other liabilities | 124,808 | 95,265 | ||||||
|
|
|
|
|
| |||
Total accrued liabilities | $ | 466,999 | $ | 126,620 | ||||
|
|
|
|
|
| |||
| ||||||||
(1) Includes $302.9 million owed by the Company for equity related employee withholding taxes related to the Direct Listing. |
|
As of June 30, 2021 | As of December 31, 2020 | |||||||
Accrued payroll and related expenses | $ | 95,574 | $ | 85,466 | ||||
Accrued other liabilities | 70,678 | 73,080 | ||||||
Total accrued liabilitie s | $ | 166,252 | $ | 158,546 | ||||
Concurrently with the formation of Palantir Japan, the Company entered into a ten-year license and services agreement with Palantir Japan for a limited non-transferable right to resell the Company’s platforms and use certain of the Company’s trademarks in exchange for $25.0 million and future quarterly royalty payments to be paid based on Palantir Japan’s net revenue. In addition, the Company received a prepayment of $50.0 million to be used toward future services provided by the Company to support the business operations and future deployments of the Company’s platforms by Palantir Japan (“service credit”).
In connection with the license rights sold to Palantir Japan, the Company recorded the receipt of the $25.0 million in deferred revenue which will be recognized over the term of the agreement. The Company recorded the $50.0 million service credit in deferred revenue, which will be utilized on an as-needed basis and expires after five years. In the event there was a dissolution of Palantir Japan in the first five years following its formation, any remaining service credit would be refunded by the Company to Palantir Japan. As of December 31, 2019, Palantir Japan did not utilize any of the outstanding services credit. For the three and nine months ended September 30, 2020, Palantir Japan utilized $0.9 million and $1.9 million, respectively, of the services credit.
In December 2019, The 2014 Credit Facility, as amended, matures on June 4, 2023.
In June 2020, the Company amended the 2014 Credit Facility to include a $150.0 million term loan, extend the maturity date to June 4, 2023, and add an additional lender. Additionally, this amendment increased the requirement to maintain minimum liquidity to $50.0 million, and provided the Company with an option to increase the total commitments by up to an additional $200.0 million, subject to the lenders’ approval. All other terms and conditions remained substantially the same upon the effectiveness of the amendment. Upon entering into this amendment, the Company drew down the total available term loan commitment of $150.0 million.
In July 2020, the Company entered into another amendment to the 2014 Credit Facility, which added an additional lender and provided for an increase of $50.0$200.0 million to the revolving credit facility and a $50.0 million term loan. The incremental commitments were provided under the same terms asof the existing commitmentslenders under the 2014 Credit Facility. During July 2020,Facility, for total revolving commitments of $400.0 million, and which also provided for an incremental loan facility for additional loans in an agg
$200.0 million. As of SeptemberJune 30, 2020,2021, the Company had a $200.0 million term loan0 amounts outstanding under the 2014 Credit Facility and an additional $200.0a $400.0 million undrawn revolving credit facility available.
Palantir Technologies Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
2019 Credit Facility
On December 31, 2019, the Company entered into a senior secured revolving credit facility (the “2019 Credit Facility”) with a second lender. The 2019 Credit Facility allowed for the drawdown of up to $250.0 million. Amounts outstanding under the 2019 Credit Facility incurred interest at LIBOR plus a margin of 2.0% per annum, subject to certain adjustments. Interest was payable at the end of an interest period or at each three-month interval if the interest period was longer than three months. The 2019 Credit Facility also required the Company to maintain 50% of the aggregate revolving commitment in a specified collateral account, which was reported in restricted cash, noncurrent on the condensed consolidated balance sheets.
As of December 31, 2019, the Company had $250.0 million outstanding and elected to incur interest at three-month LIBOR plus 2.0%. During June 2020, the outstanding balance was fully repaid and the 2019 Credit Facility was terminated, which released all restrictions on the cash collateral.
The Company’s outstanding debt consisted of the following as of September 30, 2020 and December 31, 2019 (in thousands):
As of September 30, 2020 | As of December 31, 2019 | |||||||
Principal amount | $ | 200,000 | $ | 400,000 | ||||
Unamortized discount | (2,247 | ) | (3,935 | ) | ||||
|
|
|
|
|
| |||
Carrying value of debt | $ | 197,753 | $ | 396,065 | ||||
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|
|
|
|
|
2021.
Lease Commitments
As of September 30, 2020, the majority of the Company’s leases were classified as operating. The Company leases office space under noncancelable operating leases with various expiration dates through March 2032. Certain of the Company’s operating leases contain renewal options and rent acceleration clauses. During the three months ended September 30, 2020 and 2019, net rent expense was $8.3 million and $10.4 million, respectively, which includes sublease income of $4.5 million and $3.7 million, respectively. During the nine months ended September 30, 2020 and 2019, net rent expense was $26.8 million and $26.0 million, respectively, and sublease income was $13.9 million and $10.5 million, respectively.
Palantir Technologies Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
Future annual minimum payments under noncancelable operating leases as of September 30, 2020 were as follows (in thousands):
Operating Lease Commitments | Less: Sublease Income | Net Operating Lease Commitments | ||||||||||
Remainder 2020 | $ | 11,846 | $ | 4,352 | $ | 7,494 | ||||||
2021 | 46,209 | 17,582 | 28,627 | |||||||||
2022 | 44,753 | 18,393 | 26,360 | |||||||||
2023 | 44,015 | 18,288 | 25,727 | |||||||||
2024 | 41,068 | 16,407 | 24,661 | |||||||||
Thereafter | 169,543 | 85,612 | 83,931 | |||||||||
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|
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|
| ||||
Total minimum lease payments | $ | 357,434 | $ | 160,634 | $ | 196,800 | ||||||
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|
|
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|
|
|
|
Letters of Credit and Guarantees
The Company had irrevocable standby letters of credit and guarantees, including bank guarantees, outstanding in the amounts of $130.1 million and $322.8 million as of September 30, 2020 and December 31, 2019, respectively, which were fully collateralized. The Company is required to maintain these letters of credit and guarantees primarily for the 2019 Credit Facility, operating lease agreements, certain customer contracts, and other guarantees and financing arrangements. As a result of the 2019 Credit Facility being terminated during June 2020, as described in Note 7. Debt, the restricted cash collateral previously required was released. These letters of credit and guarantees had expiration dates through August 2028 as of September 30, 2020 and December 31, 2019.
Entity | Investment Agreement Date | Committed Share Amount | Committed Investment Amount | |||||||||
Lilium | March 30, 2021 | 4,100 | $ | 41,000 | ||||||||
Sarcos Robotics (1) | April 5, 2021 | 2,100 | 21,000 | |||||||||
Roivant Sciences | May 1, 2021 | 3,000 | 30,000 | |||||||||
Celularity (1)(2) | May 5, 2021 | 2,000 | 20,000 | |||||||||
Mobility company | May 11, 2021 | 2,000 | 20,000 | |||||||||
Wejo | May 28, 2021 | 3,500 | 35,000 | |||||||||
Babylon Health (1) | June 3, 2021 | 3,500 | 35,000 | |||||||||
Boxed (1) | June 13, 2021 | 2,000 | 20,000 | |||||||||
Pear Therapeutics | June 21, 2021 | 1,000 | 10,000 | |||||||||
Autonomous vehicle company (1) | June 22, 2021 | 1,800 | 18,000 | |||||||||
Total | 25,000 | $ | 250,000 | |||||||||
(1) | Commercial contract contains termination for convenience clauses in the event the proposed business combination and/or the Company’s proposed investment is not completed. |
(2) | The Company’s investment closed during July 2021. |
liability
On August 30, 2019, BTIG, LLC (the “BTIG Plaintiff”), the alleged brokercosts
Unaudited Condensed Consolidated Financial Statements
Palantir Technologies Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
are generally warranted to be performed in a professional manner and by an adequate staff with knowledge about the products. In the event there is a failure of such warranties, the Company generally is obligated to correct the product or service to conform to the warranty provision, as set forth in the applicable SLA, or, if the Company is unable to do so, the customer is entitled to seek a refund of the purchase price of the product and service (generally prorated over the contract term). Due to the absence of historical warranty claims, the Company’s expectations of future claims related to products under warranty continue to be insignificant. The Company has not recorded warranty expense or related accruals as of SeptemberJune 30, 20202021 and December 31, 2019.
2020.
2020.
Contingent Compensation
During 2008, the Company formed a retention plan for certain employees and other service providers that were previously focused on the development of certain products of the Company relating to the financial industry (“Retention Plan”)Incorporation
During September 2020, the Company filed an amended and restated certificate of incorporation, which became effective on the date of its filing. The amended and restated certificate of incorporation authorized the issuance of a total of 20,000,000,000 shares of Class A common stock, 2,700,000,000 shares of Class B common stock, 1,005,000 shares of Class F common stock, and 2,000,000,000 shares of undesignated preferred stock. Substantially concurrently with the filing and acceptance of the amended and restated certificate of incorporation in connection with the Direct Listing, each of the Founders exchanged 335,000 shares of their Class B common stock for an equivalent number of shares of Class F common stock.
Palantir Technologies Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
ability to control up to 49.999999% of the total voting power of the Company’s capital stock, so long as the Founders and certain of their affiliates collectively meet a minimum ownership threshold, which was 100.0 million of the Company’s equity securities as of SeptemberJune 30, 2020.
2021.
During2021.
In connection with the New York Stock Exchange (“Direct ListingListing”) in September 2020, all outstanding shares of redeemable convertible preferred stock and convertible preferred stock were converted into 4,017,378 and 793,725,807 shares of Class B common stock, respectively, and 1,005,000 shares of Class B common stock held by the Founders were exchanged for an equal number of shares of
As of September 30, 2020 | As of December 31, 2019 | |||||||||||||||||||||||
Authorized | Issued | Outstanding | Authorized | Issued | Outstanding | |||||||||||||||||||
Common stock: |
| |||||||||||||||||||||||
Class A | 20,000,000,000 | 1,320,584,721 | 1,320,584,721 | 2,200,000,000 | 315,615,753 | 309,223,182 | ||||||||||||||||||
Class B | 2,700,000,000 | 405,096,034 | 405,096,034 | 1,800,000,000 | 272,273,934 | 272,273,934 | ||||||||||||||||||
Class F | 1,005,000 | 1,005,000 | 1,005,000 | — | — | — | ||||||||||||||||||
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|
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|
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|
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| |||||||
Total | 22,701,005,000 | 1,726,685,755 | 1,726,685,755 | 4,000,000,000 | 587,889,687 | 581,497,116 | ||||||||||||||||||
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Treasury Stock
On April 30, 2020, the Board of Directors approved the retirement of all shares of treasury stock. Retirement of treasury stock was recorded as a reduction of common stock and additional paid-in capital. As of September 30, 2020, the Company held no shares as treasury stock.
(in thousands):
As of June 30, 2021 | As of December 31, 2020 | |||||||||||||||
Authorized | Issued and Outstanding | Authorized | Issued and Outstanding | |||||||||||||
Common stock: | ||||||||||||||||
Class A | 20,000,000 | 1,855,143 | 20,000,000 | 1,542,058 | ||||||||||||
Class B | 2,700,000 | 80,430 | 2,700,000 | 249,077 | ||||||||||||
Class F | 1,005 | 1,005 | 1,005 | 1,005 | ||||||||||||
Total | 22,701,005 | 1,936,578 | 22,701,005 | 1,792,140 | ||||||||||||
During the three months ended September 30, 2020, a warrant for 2,586,208 shares of Series D preferred stock with a strike price of $0.7406 was cashless exercised and net settled into 2,380,034 shares of Series D convertible preferred stock. Additionally, a warrant for 7,632,154 shares of Class B common stock with a strike price of $0.001 was cashless exercised and net settled into 7,631,329 shares of Class B common stock.
Upon the effectiveness of the amended and restated certificate of incorporation filed in connection with the Direct Listing, all of the outstanding preferred stock warrants were converted into common stock warrants. As a result of the conversion, the warrants became equity-classified and the warrants liability was reclassified to additional paid-in capital.
Palantir Technologies Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
As of September 30, 2020, warrants outstanding include warrants to purchase 5,211,093 shares of Class B common stock with a strike price of $6.13 per share, and warrants to purchase 814,666 shares of Class B common stock with a strike price of $3.51 per share. The warrants expire in between December 2021 to January 2025.
In addition, the Company has warrants outstanding to purchase up to 13,042,415 shares of Class B common stock that will be automatically net exercised upon a Qualifying IPO, which did not include the Company’s Direct Listing, and only if the valuation of the Company immediately prior to such IPO (“IPO Valuation”) is less than $12.9 billion. These warrants expire in November 2023 and, as of September 30, 2020, were considered not probable of vesting.
11. Stock-Based Compensation
2010 Equity Incentive Plan
In 2010, the Company adopted the 2010 Equity Incentive Plan, as amended from time to time (“Amended 2010 Equity Incentive Plan”, or “2010 Plan”). The 2010 Plan permitted the granting of incentive stock options (“ISOs”), non-statutory stock options (“NSOs”), stock appreciation rights (“SARs”), restricted stock, RSUs, and growth units to eligible participants. Under the 2010 Plan, the exercise price of options granted generally was at least equal to the fair market value of the applicable class of the Company’s common stock on the date of grant. Options and other equity awards become vested and, if applicable, exercisable based on terms determined by the Board of Directors or other plan administrator on the date of grant (or per later modification), which was typically five years for new employees and varies for subsequent grants. Under the 2010 Plan, unless provided otherwise for an applicable award, the vesting and exercisability of awards accelerates by 25% on a change in control, if the award holder remains a service provider as of or immediately prior to such event.
The 2010 Plan was terminated prior to the Company’s Direct Listing, and no additional awards will be granted under the 2010 Plan. However, the 2010 Plan will continue to govern the terms and conditions of the outstanding awards previously granted under the 2010 Plan.
2020 Executive Equity Incentive Plan
In August 2020, the Company’s Board of Directors approved the 2020 Executive Equity Incentive Plan (the “Executive Equity Plan”). The Executive Equity Plan permitted the granting NSOs and RSUs to the Company’s employees, consultants, and directors. A total of 165,900,000 shares of the Company’s Class B common stock were reserved for issuance under the Executive Equity Plan. During August 2020, options to purchase 162,000,000 shares of Class B common stock and restricted stock units covering 3,900,000 shares of the Company’s Class B common stock were granted to certain officers and all were outstanding as of September 30, 2020.
The Executive Equity Plan was terminated prior to the Company’s Direct Listing, and no additional awards will be granted under the Executive Equity Plan. However, the Executive Equity Plan will continue to govern the terms and conditions of the outstanding awards previously granted under the Executive Equity Plan.
2020 Equity Incentive Plan
In September 2020, prior to the Direct Listing, the Company’s Board of Directors approved the 2020 Equity Incentive Plan (“2020 Plan”). The 2020 Plan provides for the grant of ISOs, NSOs, restricted stock, RSUs, SARs, and performance awards to the Company’s employees, directors, and consultants. A total of 150,000,000 shares
Palantir Technologies Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
of the Company’s Class A common stock are reserved for issuance pursuant to the 2020 Plan. In addition, the number of shares of Class A common stock reserved for issuance under the 2020 Plan includes the number of shares of Class A common stock or Class B common stock subject to awards under the Company’s Amended 2010 Equity Incentive Plan and Executive Equity Plan. Shares of Class B common stock added to the 2020 Plan from the 2010 Plan or Executive Equity Plan are reserved for issuance under the Company’s 2020 Plan as Class A common stock. The number of shares of Class A common stock available for issuance under the 2020 Plan will also include an annual increase on the first day of each fiscal year beginning on January 1, 2022, equal to the least of:
250,000,000 shares of the Company’s Class A common stock;
Five percent (5%) of the outstanding shares of the Company’s common stock as of the last day of the immediately preceding fiscal year; or
such other amount as the administrator of the 2020 Plan determines.
Under the 2020 Plan, the exercise price of options granted is generally at least equal to the fair market value of the Company’s Class A common stock on the date of grant. The term of an ISO generally may not exceed ten years. Additionally, the exercise price of any ISO granted to a 10% stockholder shall not be less than 110% of the estimated fair value of the common stock on the date of grant, and the term of such option grant shall not exceed five years. Options and other equity awards become vested and, if applicable, exercisable based on terms determined by the Board of Directors or an other plan administrator on the date of grant, which is typically five years for new employees and varies for subsequent grants.
Stock Options
Options Outstanding | Weighted- Average Exercise Price Per Share | Weighted- Average Remaining Contractual Life (years) | Aggregate Intrinsic Value | |||||||||||||
Balance as of December 31, 2019 | 497,441,159 | $ | 4.10 | 5.81 | $ | 975,798 | ||||||||||
Options granted(1) | 397,885,337 | 7.43 | ||||||||||||||
Options exercised | (69,444,099 | ) | 1.67 | |||||||||||||
Options canceled and forfeited(1) | (238,005,542 | ) | 5.95 | |||||||||||||
|
|
| ||||||||||||||
Balance as of September 30, 2020 | 587,876,855 | $ | 5.89 | 7.99 | $ | 2,120,561 | ||||||||||
|
|
| ||||||||||||||
Options vested and exercisable as of September 30, 2020 | 344,033,233 | $ | 3.64 | 5.90 | $ | 2,014,537 | ||||||||||
|
|
|
|
Options Outstanding | Weighted- Average Exercise Price Per Share | Weighted- Average Remaining Contractual Life (years) | Aggregate Intrinsic Value | |||||||||||||
Balance as of December 31, 2020 | 535,767 | $ | 6.12 | 7.99 | $ | 9,340,245 | ||||||||||
Options exercised | (114,471 | ) | 3.29 | |||||||||||||
Options canceled and forfeited | (3,622 | ) | 5.17 | |||||||||||||
Balance as of June 30, 2021 | 417,674 | $ | 6.90 | 8.49 | $ | 8,128,222 | ||||||||||
Options vested and exercisable as of June 30, 2021 | 213,423 | $ | 3.92 | 6.41 | $ | 4,788,520 | ||||||||||
Additionally, as of September 30, 2020, there were 100,000 cash-settled SARs outstanding and exercisable at an exercise price of $2.70 per share. No SARs were granted during the nine months ended September 30, 2020.
Palantir Technologies Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
Stock Option Modifications
During the nine months ended September 30, 2020, the Company modified 37,451,458 fully vested and outstanding options that were approaching expiration. The extension of the original options was recorded as a stock option modification whereby the incremental fair value of each option was determined at the date of the modification and $9.4 million was immediately recognized related to vested options. The weighted average extended term for the modified options was approximately 0.46 years.
In June 2020, the Company repriced 235,885,337 stock options. As part of the repricing, the original options were canceled and new options were granted with an exercise price of $4.72 per share and a remaining contractual term of ten years. The new options were generally subject to the same service-based vesting schedule as the original options. The repricing was recorded as a stock option modification whereby the incremental fair value of each option was determined at the date of the modification and $74.0 million was immediately recognized related to vested options in June 2020 and an additional $4.5 million was recognized during the three months ended September 30, 2020. As of September 30, 2020, there was remaining incremental fair value of $27.0 million which will be recognized over the remaining requisite service period.
Unvested and outstanding as of December 31, 2019 RSUs granted RSUs vested RSUs canceled Unvested and outstanding at September 30, 2020 $1.2 million. Cost of revenue Sales and marketing Research and development General and administrative Total stock-based compensation expense 25% and will be effective April 1, 2023. Numerator Net loss attributable to common stockholders Less: Change in fair value attributable to participating securities Net loss attributable to common stockholders, for diluted net loss per share Denominator Weighted-average shares used in computing net loss per share, basic Weighted-average shares used in computing net loss per share, diluted Net loss per share Net loss per share attributable to common stockholders, basic Net loss per share attributable to common stockholders, diluted Redeemable convertible preferred stock Convertible preferred stock Warrants to purchase redeemable convertible and convertible preferred stock Warrants to purchase common stock Options and SARs issued and outstanding RSUs outstanding Growth units outstanding Total Revenue: Government Commercial Total revenue Contribution: Government Commercial Total segment contribution Loss from operations Research and development expenses(1) General and administrative expenses(1) Stock-based compensation expense Segment contribution Revenue: United States United Kingdom France Rest of world(1) Total revenue Revenue: United States United Kingdom France Rest of world(1) Total revenue 2021, commercial customers accounted for 39% of our revenue while government agencies accounted for 61%. In the six months ended June 30, 2021, we generated 56% of our revenue from customers in the United States and the remaining 44% from customers abroad. As local situations permit, we have opened our offices in at least a limited capacity and are allowing business travel to resume, while continuing to closely monitor the pandemic. customers are increasingly adopting our software, which can be ready in days, over internal software development efforts, which may take months or years. revenue in 2020. Loss from operations Add: Research and development expenses (1) General and administrative expenses (1) Stock-based compensation Contribution Contribution margin Gross profit Add: stock-based compensation Gross profit, excluding stock-based compensation Gross margin, excluding stock-based compensation Loss from operations Add: stock-based compensation Income (loss) from operations, excluding stock- based compensation services required to operate the software and, as such, are necessary for the software to maintain its intended utility over the contractual term. Because of this requirement, we have concluded that the software subscriptions and O&M services, which together we refer to as our business and withholding taxes. unallocated costs include stock-based compensation expense, research and development costs, and general and administrative costs, such as legal and accounting. Revenue Cost of revenue(1) Gross profit Operating expenses: Sales and marketing(1) Research and development(1) General and administrative(1) Total operating expenses Loss from operations Interest income Interest expense Change in fair value of warrants Other income (expense), net Loss before provision (benefit) for income taxes Provision (benefit) for income taxes Net loss Cost of revenue Sales and marketing Research and development General and administrative Total stock-based compensation expense (i) (ii) Revenue Cost of revenue Gross profit Operating expenses: Sales and marketing Research and development General and administrative Total operating expenses Loss from operations Interest income Interest expense Change in fair value of warrants Other income (expense), net Loss before provision (benefit) for income taxes Provision (benefit) for income taxes Net loss 2020 Revenue: Government Commercial Total revenue Cost of revenue Gross profit Gross margin Sales and marketing Research and development General and administrative Total operating expenses costs. Interest income Interest expense Change in fair value of warrants 2021, there were no outstanding liability classified warrants. 2020 Other income (expense), net Provision (benefit) for income taxesninesix months ended SeptemberJune 30, 2020: RSUs
Outstanding Weighted Average
Grant Date Fair
Value per Share 179,494,619 $ 6.03 96,707,758 7.49 (68,149,214 ) 6.18 (8,397,930 ) 6.02 199,655,233 $ 6.69 The performance-based vesting condition for all RSUs was satisfied upon the Company’s Direct Listing, September 30, 2020. Upon such satisfaction, 68,149,214 RSUs, for which the service-based vesting condition was met as of such date, vested and converted into an equivalent number of shares of Class A common stock. As a result, the Company recognized $769.5 million in cumulative stock-based compensation expense using the accelerated attribution method from the grant date. 2021 (in thousands, except per share amounts):
Outstanding
Grant Date Fair
Value per Share 184,870 $ 6.97 10,131 27.25 (23,832 ) 8.41 (4,447 ) 7.21 166,722 $ 7.98 SeptemberJune 30, 2020,2021, the total unrecognized stock-based compensation expense related to the RSUs outstanding was $1.0 billion,$815.0 million, which the Company expects to recognize over 3.133.20 years.condition. Growthcondition, which was satisfied in March 2021. In March 2021, the 3.6 million outstanding growth units have avested and, per the formula usedapplicable to calculate the number ofawards, converted into 1.5 million shares of common stock. During the Company’s common stock that would be earned by the holder upon the satisfaction of all vesting criteria.Upon the Direct Listing,three months ended March 31, 2021, the Company recognized $8.4 million in cumulative stock-based compensation expense using the accelerated attribution method from the service start date through the effective date of the DirectPalantir Technologies Inc.Notes to Unaudited Condensed Consolidated Financial Statements (continued)Listing. As of September 30, 2020, the total unrecognizedremaining stock-based compensation expense related to the 3,582,674 growth units outstanding was $2.4 million, which the Company expects to recognize over the remainder of the 180-day service period following the Direct Listing. Upon satisfaction of the 180-day service period, the outstanding growth units will fully vest and convert into 1.5 million shares of common stock. Three Months Ended
September 30, Nine Months Ended
September 30, 2020 2019 2020 2019 $ 94,385 $ 7,183 $ 120,285 $ 16,520 263,958 15,898 322,353 56,242 256,769 15,031 309,698 49,137 231,847 13,651 276,578 42,751 $ 846,959 $ 51,763 $ 1,028,914 $ 164,650 Related Party Non-Recourse NoteIn November 2016, the Company entered into a non-recourse promissory note to lend an employee director $25.9 million, which was secured by 10,500,000 shares of the Company common stock held by the employee director (“pledged collateral”). Such arrangement was accounted for as a stock option issued to the employee, and the Company recorded the related stock-based compensation expense upon the issuance of the note. The promissory note accrued interest at a rate of 1.5% per annum, compounded semi-annually.In August 2020, the Company received a payment of $26.6 million for a portion of the principal and accrued interest on the outstanding non-recourse promissory note in the form of 3,500,000 shares of common stock based on the fair market value of the common stock on the date of repayment. The Company forgave the remaining $0.8 million owed under the note, guaranteed the employee director a tax neutrality payment to cover his additional tax liability associated with the transaction, and terminated its security interest in the remaining shares of common stock that were originally pledged as collateral. The forgiveness of the remaining debt and the provision of the tax neutrality payment was accounted for as a modification to the original stock option, and the Company recorded additional stock-based compensation expense of $4.5 million during the three months ended September 30, 2020. As of September 30, 2020, the Company paid $0.8 million in tax neutrality payments and accrued a $4.0 million liability for its estimate of the remaining amount to be paid to the employee director.12. $ 24,029 $ 17,832 $ 40,006 $ 25,900 72,008 39,932 129,294 58,395 50,630 37,897 88,504 52,929 86,075 32,187 168,669 44,731 $ $ $ $ fromfor income taxes of $8.5(benefit) for income taxes $2.0 of $0.9 SeptemberJune 30, 20202021 and 2019,2020, respectively, and a benefit fromfor income taxes of $5.0 (benefit) for income taxes of $8.5 ninesix months ended SeptemberJune 30, 20202021 and 2019,2020, respectively. The Company is subject to income tax in the U.S. as well as other tax jurisdictions in which it conducts business. The change in provision (benefit) for income taxes wasCompany’s effective rate differs from the U.S. statutory rate primarily due to decreases in profitsthe valuation allowance recorded on its losses from the Company’s international operations, benefits fromU.S. and other jurisdictions, foreign income taxed at different rates, non-deductible of stock-based compensation windfalls, and the revaluation of its United Kingdom (“UK”) deferred tax assets as a result of a change in the UK corporate tax rate enacted during the current quarter.quarter, which increasePalantir Technologies Inc.Notes the rate from 19% to Unaudited Condensed Consolidated Financial Statements (continued)DueFor example, due to the weight of objectively verifiable negative evidence, including its history of losses in certain jurisdictions, the Company believes that it is more likely than not that its U.S. federal and state deferred tax assets will not be fully realized. Accordingly, the Company has maintained a valuation The Company’s effective rate differs from the U.S. statutory rate primarily duethe valuation allowance recorded on its U.S. federal losses, foreign income taxed at different rates, non-deductible of stock-based compensation, and withholding tax expense.The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted on March 27, 2020 in the United States. The CARES Act and related notices include several significant provisions, including delaying certain payroll tax payments, mandatory transition tax payments under the Tax Cut and Jobs Act, and estimated income tax payments that the Company is deferring to future periods. The CARES Act did not have a material impact on the Company’s financial results, including on its annual estimated effective tax rate or on its liquidity. The Company will continue to monitor and assess the impact the CARES Act and similar legislation in other countries may have on its business and financial results.13.Unaudited Condensed Consolidated Financial Statementsshare and per share amounts): Three Months Ended
September 30, Nine Months Ended
September 30, 2020 2019 2020 2019 $ (853,319 ) $ (139,860 ) $ (1,018,048 ) $ (420,319 ) — — (5,483 ) — $ (853,319 ) $ (139,860 ) $ (1,023,531 ) $ (420,319 ) 905,462,010 580,104,846 713,879,104 574,342,061 905,462,010 580,104,846 716,027,459 574,342,061 $ (0.94 ) $ (0.24 ) $ (1.43 ) $ (0.73 ) $ (0.94 ) $ (0.24 ) $ (1.43 ) $ (0.73 ) Palantir Technologies Inc.Notes to Unaudited Condensed Consolidated Financial Statements (continued)
June 30,
June 30, $ (138,580 ) $ (110,455 ) $ (262,054 ) $ (164,729 ) — (171 ) — (7,479 ) $ (138,580 ) $ (110,626 ) $ (262,054 ) $ (172,208 ) 1,894,606 640,450 1,858,085 616,150 1,894,606 640,669 1,858,085 618,635 $ (0.07 ) $ (0.17 ) $ (0.14 ) $ (0.27 ) $ (0.07 ) $ (0.17 ) $ (0.14 ) $ (0.28 ) effect: As of September 30, 2020 2019 — 4,017,378 — 794,336,186 — 21,831,545 19,068,174 993,266 587,976,855 470,352,024 199,655,233 — 3,582,674 22,377,040 810,282,936 1,313,907,439 14.effect (in thousands): — 4,017 — 4,017 — 791,346 — 791,346 — 20,839 — 18,253 13,042 — 13,042 — 417,699 459,239 417,699 459,239 166,722 178,685 166,722 178,685 — 3,583 — 3,583 597,463 1,457,709 597,463 1,455,123 reporting segment tables reflect the results of the Company’s reportable operating segments consistent with the manner in which the chief operating decision maker (“CODM”) evaluates the performance of each segment and allocates the Company’s resources. The CODM does not evaluate the performance of the Company’s assets on a segment basis for internal management reporting and, therefore, such information is not presented.SegmentA segment’s contribution is calculated as segment revenue less the related costs of revenue and sales and marketing expenses. It excludes certain operating expenses that are not allocated to segments because they are separately managed at the consolidated corporate level. These unallocated costs include stock-based compensation expense, research and development expenses, and general and administrative expenses. (continued) Three Months Ended
September 30, Nine Months Ended
September 30, 2020 2019 2020 2019 $ 162,561 $ 96,801 $ 420,257 $ 242,843 126,805 93,740 350,325 270,354 $ 289,366 $ 190,541 $ 770,582 $ 513,197 Three Months Ended
September 30, Nine Months Ended
September 30, 2020 2019 2020 2019 $ 93,962 $ 23,934 $ 226,186 $ 46,614 69,496 4,949 168,908 35,619 $ 163,458 $ 28,883 $ 395,094 $ 82,233 $ 232,119 $ 139,569 $ 440,539 $ 257,696 143,523 112,320 276,337 223,520 $ 375,642 $ 251,889 $ 716,876 $ 481,216 $ 143,253 $ 80,327 $ 274,999 $ 132,224 75,121 58,398 147,664 99,412 $ 218,374 $ 138,725 $ 422,663 $ 231,636 segment financial informationcontribution to loss from operations is as follows (in thousands): Three Months Ended
September 30, Nine Months Ended
September 30, 2020 2019 2020 2019 $ (847,777 ) $ (144,140 ) $ (1,017,107 ) $ (428,993 ) 57,146 60,849 156,832 180,591 107,130 60,411 226,455 165,985 846,959 51,763 1,028,914 164,650 $ 163,458 $ 28,883 $ 395,094 $ 82,233 (1)Excludes stock-based compensation expense. $ (146,148 ) $ (99,145 ) $ (260,162 ) $ (169,330 ) 59,894 48,918 120,491 99,686 71,886 61,104 135,861 119,325 232,742 127,848 426,473 181,955 $ 218,374 $ 138,725 $ 422,663 $ 231,636 Three Months Ended September 30, 2020 2019 Amount % Amount % $ 156,336 54 % $ 79,185 42 % 35,432 12 % 29,765 16 % 23,214 8 % 16,930 9 % 74,384 26 % 64,661 33 % $ 289,366 100 % $ 190,541 100 % (1)No other country represents 10% or more of total revenue for the three months ended September 30, 2020 or 2019. $ 199,930 53 % 124,993 50 % 39,935 11 % 30,033 12 % 19,088 5 % 29,629 12 % 116,689 31 % 67,234 26 % $ 375,642 % 251,889 100 % (continued) Nine Months Ended September 30, 2020 2019 Amount % Amount % $ 391,106 51 % $ 197,351 38 % 94,440 12 % 89,384 17 % 78,572 10 % 50,222 10 % 206,464 27 % 176,240 35 % $ 770,582 100 % $ 513,197 100 % (1)No other country represents 10% or more of total revenue for the nine months ended September 30, 2020 or 2019. $ 398,377 56% $ 234,770 49% 74,320 10% 59,008 12% 40,178 6% 55,359 12% 204,001 28% 132,079 27% $ 716,876 100% $ 481,216 100%
Date
Share Amount
Investment Amount July 18, 2021 2,000 $ 20,000 July 27, 2021 1,500 15,000 August 2, 2021 1,000 10,000 2,000 $ 20,000 2,500 25,000 3,000 3,000 1,518 5,000 10-Q and the consolidated financial statements and the accompanying notes thereto included in our final prospectus (the “Prospectus”) filed with the Securities and Exchange Commission (the “SEC”) pursuant to Rule 424(b) under the Securities Act of 1933, as amended (the “Securities Act”) on September 30, 2020. companyCompany in 2003 to build software for use in counterterrorism operations.Direct ListingOn September 30, 2020, we completed a direct listing of our Class A common stock (the “Direct Listing”), on the New York Stock Exchange (the “NYSE”). Immediately prior to the direct listing and the filing of our amended and restated certificate of incorporation, all outstanding shares of redeemable convertible preferred stock and convertible preferred stock were converted into 797,743,185 shares of our Class B common stock, and all of our outstanding preferred stock warrants were converted into common stock warrants, which resulted in the reclassification of the warrants liability to additional paid-in capital. Additionally, our restricted stock units(“RSUs”) had a performance vesting condition that was satisfied upon the completion of the Direct Listing. Accordingly, the Direct Listing resulted in the vesting and settlement of RSUs covering 68,149,214 shares of Class A common stock and as a result we recorded cumulative stock-based compensation of $769.5 million on September 30, 2020.In addition, we incurred fees related to financial advisory, accounting, legal and other professional services related to the Direct Listing and public company readiness initiatives and recorded $53.7 million and $56.2 million primarily in general and administrative expense for the three and nine months ended September 30, 2020, respectively.SeptemberJune 30, 2020,2021, we generated $289.4$375.6 million in revenue, reflecting a 52%49% growth rate from the three months ended SeptemberJune 30, 2019,2020, when we generated $190.5$251.9 million in revenue. In the ninesix months ended SeptemberJune 30, 2020,2021, we generated $770.6$716.9 million in revenue, reflecting a 50%49% growth rate from the ninesix months ended SeptemberJune 30, 2019,2020, when we generated $513.2$481.2 million in revenue.AsSeptember$146.1 million, or adjusted income from operations of $116.7 million when excluding stock-based compensation and related employer payroll taxes. In the three months ended June 30, 2020, our losses from operations were $99.1 million, or adjusted income from operations of $28.7 million when excluding stock-based compensation. In the six months ended June 30, 2021, we incurred losses from operations of $260.2 million, or adjusted income from operations of $233.3 million when excluding stock-based compensation and related employer payroll taxes. In the six months ended June 30, 2020, our losses from operations were $169.3 million, or adjusted income from operations of $12.6 million when excluding stock-based compensation.132169 customers, including leading companies in various commercial sectors as well as government agencies around the world.We define a customer as an organization from which During the period ended June 30, 2020, we have recognized revenue in a reporting period. had 137 customers.induring the ninetrailing twelve months ended SeptemberJune 30, 20202021 was $5.8$7.9 million, which grew 38%19% from $4.2$6.6 million per customer induring the ninetrailing twelve months ended SeptemberJune 30, 2019.2020. Our average revenue for the top twenty customers based on our revenue induring the ninetrailing twelve months ended SeptemberJune 30, 2020, generated $471.12021 was $39.0 million, in revenue, or 61% of our total revenue in that period. From those top twenty customers, we generated an average revenue per customer of $23.6 million during the nine months ended September 30, 2020, which grew 36% from $17.4an average of $28.6 million per customerfrom the top twenty customers during the trailing twelve months ended June 30, 2020.ninecommercial and government sectors face similar challenges when it comes to managing data, and we intend to expand our reach in both markets moving forward. In the six months ended SeptemberJune 30, 2019.have takencontinue to take precautionary measures in order to minimize the risk of the virus to our employees, our customers, and the communities in which we operate, includingwhich included the suspension of allcurrently worksworked remotely, there has beenwas minimal disruption in our ability to ensure the effective operation of our software platforms. in the first nine months of this year has also been driven by the expansion of existing customer accounts, improved sales efficiency, and the increasing deployment of centralized hosting and other software deployment infrastructure.onceas we reopenbegin to open our offices, we do not expect such expenditures to return to theirour final ProspectusAnnual Report on FormExpansion & GrowthWe expanded into the commercial sector in recent years. In the three months ended September 30, 2020, 44% of our revenue came from commercial customers and 56% came from government agencies. In the nine months ended September 30, 2020, 45% of our revenue came from commercial customers and 55% came from government agencies.Large organizations in the commercial and government sectors face similar challenges when it comes to managing data, and we intend to expand our reach in both markets moving forward.We have also expanded significantly outside the United States. In the three months ended September 30, 2020, we generated 54% of our revenue from customers in the United States and the remaining 46% from customers abroad. In the nine months ended September 30, 2020, we generated 51% of our revenue from customers in the United States and the remaining 49% from customers abroad.Our operating results have improved significantly in recent years when excluding stock-based compensation. In the three and nine months ended September 30, 2020, we incurred losses from operations of $847.8 million and $1.0 billion, respectively, or losses from operations of $0.8 million and income from operations of $11.8 million, respectively, when excluding stock-based compensation. In the three and nine months ended September 30, 2019, our losses from operations were $144.1 million and $429.0 million, respectively, or $92.4 million and $264.3 million, respectively, when excluding stock-based compensation.In the nine months ended September 30, 2020, our gross profit was $488.5 million, reflecting a gross margin of 63%, or 79% when excluding stock-based compensation. In the nine months ended September 30, 2019, our gross profit was $346.7 million, reflecting a gross margin of 68%, or 71% when excluding stock-based compensation. In the three months ended September 30, 2020, our gross profit was $140.0 million, reflecting a gross margin of 48%, or 81% when excluding stock-based compensation. In the three months ended September 30, 2019, our gross profit was $125.5 million, reflecting a gross margin of 66%, or 70% when excluding stock-based compensation.As of September 30, 2020, we expect to generate revenue under our existing customer contracts for an additional 3.6 years on average, including existing contractual obligations and assuming that our customers exercise all of the contractual options available to them, although this may change as we enter into new contracts or ifcustomers terminate for convenience. We calculate this duration on a dollar-weighted basis to adjust for small deals. The timing of our customer billings and receipt of payments varies from contract to contract. Revenue is generally recognized over the contract term. Our contracts generally include terms that allow the customer to terminate the contract for convenience.2019,2020, we generated a total of $742.6$1,092.7 million in revenue. Acquire phase customers cohorted as of December 31, 2020 generated $0.3 million in revenue of which $0.6 million came from customers in the Acquire phase, $176.3 million came from customers in the2020. Expand phase and $565.7customers cohorted as of December 31, 2020 generated $20.3 million came fromin revenue in 2020. Scale phase customers cohorted as of December 31, 2020 generated $1,072.1 million in the Scale phase.ninesix months ended SeptemberJune 30, 2020, those same2021, customers from 2019cohorted as of December 31, 2020 generated a total of $747.7$708.0 million in revenue.ninesix months ended SeptemberJune 30, 20202021 generated an additional $22.8$8.9 million in revenue and will be assigned a cohort as of December 31, 2020.2021. A more detailed discussion of the three phases, for purposes of illustration of how we manage accounts across the business, follows below.2019,2020, we generated $0.6$0.3 million in revenue from customers in the Acquire phase, which yielded a contribution loss of $65.4$36.8 million. In the ninesix months ended SeptemberJune 30, 2020,2021, those same customers generated $41.1$8.0 million in revenue, which yielded a contribution loss of $4.2$7.5 million.2019,2020, we generated $176.3$20.3 million in revenue from customers that were in the Expand phase as of the end of that year, with a contribution margin of (43)(159)%. In the ninesix months ended SeptemberJune 30, 2020,2021, those same customers generated $254.4$48.9 million in revenue with a contribution margin of 41%52%.2019,2020, we generated $565.7$1,072.1 million in revenue from customers in the Scale phase, with a contribution margin of 55%63%. In the ninesix months ended SeptemberJune 30, 2020,2021, those same customers generated $452.2$651.1 million in revenue with a contribution margin of 69%64%.Government ContractsOur partnerships with government agencies in the United States and abroad have had and will continue to have a significant impact on our business.As of September 30, 2020, the total remaining deal value of the contracts that we had been awarded by government agencies in the United States and allied countries around the world, including existing contractual obligations and contractual options available to those government agencies, was $1.3 billion, up 14% from December 31, 2019, when the total value of such contracts was $1.1 billion.When calculating the total value of such contracts, we do not include government contracts totaling $2.6 billion, as of September 30, 2020, that we have been awarded where the funding of such contracts — also known as indefinite delivery, indefinite quantity (“IDIQ”) contracts — has not yet been determined. Funding of such contracts is not guaranteed. The majority of our government contracts are subject to termination for convenience provisions, and the U.S. federal government is prohibited from exercising contract options more than one year in advance. As a result, there can be no guarantee that our contracts with government customers will not be terminated or that contract options will be exercised.“— “ (loss) from operations, excludingwhich excludes stock-based compensation and related employer payroll taxes to help us evaluate our business, identify trends affecting our business, formulate business plans and financial projections, and make strategic decisions. We exclude stock-based compensation, which is aninesix months ended SeptemberJune 30, 20202021 and 20192020 (in thousands, except percentages): Three Months Ended
September 30, Nine Months Ended
September 30, 2020 2019 2020 2019 $ (847,777 ) $ (144,140 ) $ (1,017,107 ) $ (428,993 ) 57,146 60,849 156,832 180,591 107,130 60,411 226,455 165,985 846,959 51,763 1,028,914 164,650 $ 163,458 $ 28,883 $ 395,094 $ 82,233 56 % 15 % 51 % 16 % (1)Excludes stock-based compensation. $ (146,148) $ (99,145) $ (260,162) $ (169,330) 59,894 48,918 120,491 99,686 71,886 61,104 135,861 119,325 232,742 127,848 426,473 181,955 $ 218,374 $ 138,725 $ 422,663 $ 231,636 58% 55% 59% 48% ninesix months ended SeptemberJune 30, 20202021 and 20192020 (in thousands, except percentages): Three Months Ended
September 30, Nine Months Ended
September 30, 2020 2019 2020 2019 $ 140,026 $ 125,468 $ 488,538 $ 346,726 94,385 7,183 120,285 16,520 $ 234,411 $ 132,651 $ 608,823 $ 363,246 81 % 70 % 79 % 71 % $ 284,716 $ 183,479 $ 551,839 $ 348,512 24,029 17,832 40,006 25,900 $ 308,745 $ 201,311 $ 591,845 $ 374,412 82% 80% 83% 78% (Loss) from Operations Excluding Stock-Based Compensation (loss) from operations, excludingwhich excludes stock-based compensation and related employer payroll taxes, for the three and ninesix months ended SeptemberJune 30, 20202021 and 20192020 (in thousands): Three Months Ended
September 30, Nine Months Ended
September 30, 2020 2019 2020 2019 $ (847,777 ) $ (144,140 ) $ (1,017,107 ) $ (428,993 ) 846,959 51,763 1,028,914 164,650 $ (818 ) $ (92,377 ) $ 11,807 $ (264,343 ) $ (146,148) $ (99,145) $ (260,162) $ (169,330) 232,742 127,848 426,473 181,955 30,133 — 66,999 — Adjusted income from operations $ 116,727 $ 28,703 $ 233,310 $ 12,625 InDuring September 2020, in connection with the direct listing of our Class A common stock on the New York Stock Exchange (“NYSE”) (“Direct Listing,Listing”), all of the Company’s outstanding preferred stock warrants were converted into common stock warrants, which resulted in the reclassification of the warrants liability to additionalbusiness.•Commercial: This segment primarily serves customers working in non-government industries.•Government: This segment primarily serves customers that are agencies in the U.S. federal government and non-U.S. governments.margin, whichmargin. Contribution is segment revenue less the related costs of revenue and sales and marketing expenses, excluding stock-based compensation expense. Contribution margin is contribution divided by revenue. To the extent costs of revenue or sales and marketing expenses are not directly attributable to a particular segment, they are allocated based upon headcount at each operating segment during the period. We use it, in part, to evaluate the performance of, and allocate resources to, each of our segments. Itoperating segments, which excludes certain operating expenses that are not allocated to operating segments because they are separately managed at the consolidated corporate level. These Contribution margin is segment contribution divided by revenue. Three Months Ended
September 30, Nine Months Ended
September 30, 2020 2019 2020 2019 $ 289,366 $ 190,541 $ 770,582 $ 513,197 149,340 65,073 282,044 166,471 140,026 125,468 488,538 346,726 334,911 119,666 536,082 337,255 313,915 75,880 466,530 229,728 338,977 74,062 503,033 208,736 987,803 269,608 1,505,645 775,719 (847,777 ) (144,140 ) (1,017,107 ) (428,993 ) 494 3,390 4,312 12,953 (2,085 ) (173 ) (12,325 ) (395 ) (9,201 ) 784 811 2,743 (3,293 ) 2,305 1,218 1,858 (861,862 ) (137,834 ) (1,023,091 ) (411,834 ) (8,543 ) 2,026 (5,043 ) 8,485 $ (853,319 ) $ (139,860 ) $ (1,018,048 ) $ (420,319 ) (1)Includes stock-based compensation expense as follows (in thousands): Three Months Ended
September 30, Nine Months Ended
September 30, 2020 2019 2020 2019 $ 94,385 $ 7,183 $ 120,285 $ 16,520 263,958 15,898 322,353 56,242 256,769 15,031 309,698 49,137 231,847 13,651 276,578 42,751 $ 846,959 $ 51,763 $ 1,028,914 $ 164,650 (i)On September 30, 2020, in connection with the Direct Listing, we incurred $769.5 million and $8.4 million of stock-based compensation using the accelerated attribution method related to the satisfaction of the performance-based vesting condition for RSUs and growth units, respectively, that had satisfied the service-based vesting condition as of such date.(ii)During the three months ended September 30, 2020 and 2019, we incurred modification charges of $7.8 million, and $4.6 million, respectively, related to the repricing of certain options held by our employees. During the nine months ended September 30, 2020 and 2019, we incurred modification charges of $89.5 million, and $14.2 million, respectively, related to the repricing of certain options held by our employees. $ 375,642 $ 251,889 $ 716,876 $ 481,216 90,926 68,410 165,037 132,704 284,716 183,479 551,839 348,512 162,379 102,518 298,476 201,171 110,524 86,815 208,995 152,615 157,961 93,291 304,530 164,056 430,864 282,624 812,001 517,842 (146,148) (99,145) (260,162) (169,330) 372 551 748 3,818 (590) (5,646) (2,430) (10,240) — (3,683) — 10,012 2,125 (1,589) (2,769) 4,511 (144,241) (109,512) (264,613) (161,229) (5,661) 943 (2,559) 3,500 $ (138,580) $ (110,455) $ (262,054) $ (164,729) $ 24,029 $ 17,832 $ 40,006 $ 25,900 72,008 39,932 129,294 58,395 50,630 37,897 88,504 52,929 86,075 32,187 168,669 44,731 $ 232,742 $ 127,848 $ 426,473 $ 181,955 Three Months Ended
September 30, Nine Months Ended
September 30, 2020 2019 2020 2019 100 % 100 % 100 % 100 % 52 34 37 32 48 66 63 68 116 63 70 66 108 40 61 45 117 39 64 41 341 142 195 152 (293 ) (76 ) (132 ) (84 ) — 2 1 3 (1 ) — (2 ) — (3 ) 1 — 1 (1 ) 1 — — (298 ) (72 ) (133 ) (80 ) (3 ) 1 (1 ) 2 (295 )% (73 )% (132 )% (82 )% 100% 100% 100% 100% 24 27 23 28 76 73 77 72 43 41 42 42 30 34 29 32 42 37 42 33 115 112 113 107 (39) (39) (36) (35) — — — 1 — (2) (1) (2) — (1) — 2 1 (1) — 1 (38) (43) (37) (33) (1) 1 — 1 (37)% (44)% (37)% (34)% SeptemberJune 30, 20202021 and 2019 Three Months Ended
September 30, Change 2020 2019 Amount % $ 162,561 $ 96,801 $ 65,760 68 % 126,805 93,740 33,065 35 % $ 289,366 $ 190,541 $ 98,825 52 % $ 232,119 $ 139,569 $ 92,550 66% 143,523 112,320 31,203 28% $ 375,642 $ 251,889 $ 123,753 49% $98.8$123.8 million, or 52%49%, for the three months ended SeptemberJune 30, 20202021 compared to the three months ended SeptemberJune 30, 2019.2020. Revenue from government customers increased by $65.8$92.6 million, or 68%66%, for the three months ended SeptemberJune 30, 20202021 compared to the three months ended SeptemberJune 30, 2019,2020, primarily from customers in the United States. Of the increase, $46.7$92.3 million was from government customers existing as of December 31, 2019.2020. Revenue from commercial customers increased by $33.1$31.2 million, or 35%28%, for the three months ended SeptemberJune 30, 20202021 compared to the three months ended SeptemberJune 30, 2019.2020. The increase is primarily due to an increase of $24.3$20.3 million from customers existing as of December 31, 2019.2020. Generally, increases in revenue from our existing customers are related to increased adoption of our products and services within their organizations. Three Months Ended
September 30, Change 2020 2019 Amount % $ 149,340 $ 65,073 $ 84,267 129 % 140,026 125,468 14,558 12 % 48 % 66 % (18 )% $ 90,926 $ 68,410 $ 22,516 33% 284,716 183,479 101,237 55% 76% 73% 3% SeptemberJune 30, 20202021 increased by $84.3$22.5 million, or 129%33%, compared to the three months ended SeptemberJune 30, 2019.2020. The increase was primarily due to increases in personnel costs of $89.0$9.5 million, which included an increase of $87.2$6.2 million in stock-based compensation expense primarily due to the recognition of cumulative stock-based compensation expense upon the Direct Listing related to the Company’s RSUs in the current period and there was no such expense in the prior period; $1.7 million in employer payroll taxes primarily related to income from share-based payments; $0.5 million in travel expenses due to the relaxing of COVID travel restrictions; and $1.1 million in payroll and payroll-related costs driven by an increase in cost per head and various incentive programs.vesting of stock options,reductions in hardware costs for customers. This was partly offset by increases in stock-based compensation expense and anthird-party cloud hosting services. For the three months ended June 30, 2021 and 2020, gross margin, excluding stock-based compensation, would have increased by 2% to 82%. $ 162,379 $ 102,518 $ 59,861 58% 110,524 86,815 23,709 27% 157,961 93,291 64,670 69% $ 430,864 $ 282,624 $ 148,240 52% of $4.3 millionwas primarily driven by increases in personnel costs of $53.7 million, which included increases of $32.1 million in stock-based compensation expense primarily due to the recognition of stock-based compensation expense related to the Company’s RSUs; $12.5 million in employer payroll taxes primarily related to income from share-based payments; $5.7 million in payroll due to an increase in headcount attributable to our sales and marketing functions and various incentive programs; $2.6 million in travel expenses due to the lifting of COVID travel restrictions; and $0.7 million in payroll and payroll-related costs driven by an increase in cost per head and various incentive programs. Additionally, there were increases of $3.4 million in marketing costs and $2.7 million in external sales commissions. $ 372 $ 551 $ (179) $ (590 ) $ (5,646 ) $ 5,056 $ — $ (3,683 ) $ 3,683 $ 2,125 $ (1,589 ) $ 3,714 $ (5,661 ) $ 943 $ (6,604 ) $ 440,539 $ 257,696 $ 182,843 71 % 276,337 223,520 52,817 24 % $ 716,876 $ 481,216 $ 235,660 49 % $ 165,037 $ 132,704 $ 32,333 24% 551,839 348,512 203,327 58% 77% 72% 5% functionsfor the six months ended June 30, 2021 increased by $32.3 million, or 24%, compared to support newthe six months ended June 30, 2020. The increase was primarily due to increases in personnel costs of $15.5 million, which included an increase of $14.1 million in stock-based compensation expense primarily due to the recognition of stock-based compensation expense related to the Company’s RSUs in the current period and existing customers.there was no such expense in the prior period; and $4.9 million in employer payroll taxes primarily related to income from share-based payments. These increases in personnel costs were partially offset by a decreasedecreases in travel-related expenses and other personnel costs of $2.5$2.8 million as a result of COVID-related travel restrictions and company-wide initiatives to decrease overall travel, and $0.7 million in payroll and payroll-related costs driven by a decrease of headcount attributable to cost of revenue functions partially offset by an increase in various incentive programs. Additionally, there were increases of $14.6 million related to third-party cloud hosting services and $7.3 million related to other direct deployment costs and increased usage of field service representatives. These increases to cost of revenue were offset by decreases of $4.4 million from office related expenses and other allocated costs and $0.7 million related to reductions in server shipments. $ 298,476 $ 201,171 $ 97,305 48% 208,995 152,615 56,380 37% 304,530 164,056 140,474 86% $ 812,001 $ 517,842 $ 294,159 57% was an increasewere increases of $2.1$1.7 million related to other direct deploymentin third-party cloud based hosting services, $1.1 million in marketing costs, and $0.7 million in external sales commissions; offset by decreasesa decrease of $3.4$4.6 million related to third-party cloud hosting services and $3.4 million related to allocated overhead, includingfrom office related expenses.Our gross marginexpenses and other allocated costs.threesix months ended SeptemberJune 30, 2020 decreased by 18%2021 compared to the threesix months ended SeptemberJune 30, 2019. Gross margin decreased primarily as a result of cumulative stock-based compensation expense related to the Company’s RSUs recognized upon the Direct Listing. For the three months ended September 30, 2020 and 2019, gross margin, excluding stock-based compensation would have increased by 11% to 81%.Operating Expenses Three Months Ended
September 30, Change 2020 2019 Amount % $ 334,911 $ 119,666 $ 215,245 180 % 313,915 75,880 238,035 314 % 338,977 74,062 264,915 358 % $ 987,803 $ 269,608 $ 718,195 266 % Sales and MarketingSales and marketing expenses increased by $215.2 million, or 180%, for the three months ended September 30, 2020 compared to the three months ended September 30, 2019.2020. The increase was primarily driven by increases in personnel costs of $230.2$58.4 million, which included an increase of $248.1$35.6 million in stock-based compensation expense primarily due to the recognition of cumulative stock-based compensation expense upon the Direct Listing related to the Company’s RSUsRSUs; $16.5 million related to increase in payroll taxes primarily related to income from share-based payments; and growth units, as well as vesting of stock options; and an increase of $8.0$9.1 million in payroll related to an increase in headcount attributable to our salesresearch and marketingdevelopment functions. These increases in personnel costs were partially offset by a decrease of $25.9$1.6 million in travel-related expenses and other personnel costs as a result of COVID-related travel restrictions and company-wide initiatives to decrease overall travel and $1.2 million from other payroll-related costs. Additionally, there was an increase of $1.4 million in third-party cloud hosting services and other IT; offset by decreases of $3.5 million from office related expenses and other allocated costs.$15.0$1.8 million related to allocated overhead, includingfrom office related expenses.Research and DevelopmentResearch and development expenses increased by $238.0 million, or 314%, for the three months ended September 30, 2020 compared to the three months ended September 30, 2019. The increase was primarily driven by increases in personnel costs of $244.0 million, which included an increase of $241.7 million in stock-based compensation expense primarily due to the recognition of cumulative stock-based compensation expense upon the Direct Listing related to the Company’s RSUs as well as vesting of stock options, and an increase of $5.1 million related to an increase in headcount attributable to our research and development functions. These costs were partially offset by a decrease of $2.8 million in travel-related expenses and other personnel costs as a result of COVID-related travel restrictions and company-wide initiatives to decrease overall travel. Additionally, there was a decrease of $6.0 million in third-party cloud hosting services generally as a result of volume-based discounts.General and AdministrativeGeneral and administrative expenses increased by $264.9 million, or 358%, for the three months ended September 30, 2020 compared to the three months ended September 30, 2019. The increase in expenses was primarily driven by increases in personnel costs of $220.7 million, which included an increase of $218.2 million in stock-based compensation expense primarily due to the recognition of cumulative stock-based compensation expense upon the Direct Listing related to the Company’s RSUs and growth units, as well as vesting of stock options; and an increase of $3.2 million related to an increase in headcount attributable to our general and administrative functions; These costs partially offset by a decrease of $0.7 million in travel-related expenses and other personnel costs primarily as a result of COVID-related travel restrictions and company-wide initiatives to decrease overall travel. Additionally, there were increases of $42.7 million in legal professional services primarily related to the Direct Listing and $8.0 million for other professional services related to the Direct Listing and corporate IT and consulting functions to support initiatives for becoming a public company and the overall growth of our operations, which were offset by a decrease of $6.5 million related to allocated overhead, including office related expenses. Three Months Ended
September 30, Change 2020 2019 Amount $ 494 $ 3,390 $ (2,896 ) $ 748 $ 3,818 $ (3,070 ) $2.9$3.1 million for the threesix months ended SeptemberJune 30, 20202021 compared to the threesix months ended SeptemberJune 30, 20192020 primarily due to a reduction in U.S. interest rates on interest earned from our cash, cash equivalents, and restricted cash. Three Months Ended
September 30, Change 2020 2019 Amount $ (2,085 ) $ (173) $ (1,912 ) $ (2,430 ) $ (10,240 ) $ 7,810 increaseddecreased by $1.9$7.8 million for the threesix months ended SeptemberJune 30, 20202021 compared to the threesix months ended SeptemberJune 30, 2019.2020. The increasedecrease was primarily due to the absencefull repayment of the outstanding debt balance during the threesix months ended SeptemberJune 30, 2019.2021. Three Months Ended
September 30, Change 2020 2019 Amount $ (9,201 ) $ 784 $ (9,985 ) The $ — $ 10,012 $ (10,012) onfrom the change in fair value of warrants decreased by $10.0 million for the three months ended September 30, 2020 compared to the three months ended September 30, 2019. The change was primarily due to adjustments todriven by the fair value of the warrants immediately before reclassifying them from a liability to equity, partially offset by an increasedecrease in the fair value of the securities underlying certain warrantsour stock during the threeperiod. During the six months ended SeptemberJune 30, 2020 as compared to the changes in the fair value of the underlying securities during the three months ended September 30, 2019. Three Months Ended
September 30, Change 2019 Amount $ (3,293 ) $ 2,305 $ (5,598 ) $ (2,769 ) $ 4,511 $ (7,280) decreasedchanged by $5.6$7.3 million for the threesix months ended SeptemberJune 30, 20202021 compared to the threesix months ended SeptemberJune 30, 20192020 primarily due to changes in net realized and unrealized gains from foreign exchange transactions. Three Months Ended
September 30, Change 2020 2019 Amount $ (8,543 ) $ 2,026 $ (10,569 ) Provision (benefit) $ (2,559 ) $ 3,500 $ (6,059 ) decreased by $10.6of $2.6 million for the threesix months ended SeptemberJune 30, 20202021 compared to the three months ended September 30, 2019. The change ina provision (benefit) for income taxes of $3.5 million for the six months ended June 30, 2020. The change was primarily due to decreases in profits from our international operations, benefits from stock-based compensation windfalls, and the revaluation of our UK deferred tax assets as a result of a change in the UK corporate tax rate enacted during the current quarter.Comparisonquarter, which increased the rate from 19% to 25% and will be effective April 1, 2023.
Revenue increased by $257.4 million, or 50%, for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019. Revenue from government customers increased by $177.4 million, or 73%, for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, primarily in the United States. Of the increase, $148.5 million was from customers existing as of December 31, 2019. Revenue from commercial customers increased by $80.0 million, or 30%, for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019. The increase was primarily due to an increase of $67.1 million from customers existing as of December 31, 2019.
Cost of Revenue and Gross Profit
Nine Months Ended September 30, | Change | |||||||||||||||
2020 | 2019 | Amount | % | |||||||||||||
Cost of revenue | $ | 282,044 | $ | 166,471 | $ | 115,573 | 69 | % | ||||||||
Gross profit | 488,538 | 346,726 | 141,812 | 41 | % | |||||||||||
Gross margin | 63 | % | 68 | % | (5 | )% |
Cost of revenue increased by $115.6 million, or 69%, for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019. The increase was primarily due to increases in personnel costs of $123.3 million, which included an increase of $103.8 million in stock-based compensation expense primarily due to the recognition of cumulative stock-based compensation expense upon the Direct Listing related to the Company’s RSUs and vesting of stock options, as well as the incremental charge from the repricing of certain options; and an increase of $23.2 million primarily driven by an increase in headcount attributable to cost of revenue functions to support new and existing customers. These costs were partially offset by a decrease in travel-related expenses and other personnel costs of $3.7 million as a result of COVID-related travel restrictions and company-wide initiatives to decrease overall travel. Such increases to cost of revenue were also offset by decreases of $6.1 million related to third-party cloud hosting services generally as a result of volume-based discounts and $2.6 million related to other direct deployment costs.
Our gross margin for the nine months ended September 30, 2020 decreased by 5% compared to the nine months ended September 30, 2019. Gross margin decreased primarily as a result of cumulative stock-based compensation expense related to the Company’s RSUs recognized upon the Direct Listing. For the nine months ended September 30, 2020, gross margin, excluding stock-based compensation would have increased by 8% to 79% compared to the nine months ended September 30, 2019.
Operating Expenses
Nine Months Ended September 30, | Change | |||||||||||||||
2020 | 2019 | Amount | % | |||||||||||||
Sales and marketing | $ | 536,082 | $ | 337,255 | $ | 198,827 | 59 | % | ||||||||
Research and development | 466,530 | 229,728 | 236,802 | 103 | % | |||||||||||
General and administrative | 503,033 | 208,736 | 294,297 | 141 | % | |||||||||||
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Total operating expenses | $ | 1,505,645 | $ | 775,719 | $ | 729,926 | 94 | % | ||||||||
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Sales and Marketing
Sales and marketing expenses increased by $198.8 million, or 59%, for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019. The increase was primarily due to increases in personnel costs of $215.9 million, which included an increase of $266.1 million in stock-based compensation expense primarily due to the recognition of cumulative stock-based compensation expense upon the Direct
Listing related to the Company’s RSUs and growth units, and vesting of stock options, as well as the incremental charge from the repricing of certain options. Such increase was partially offset by decreases of $49.8 million in travel-related expenses and other personnel costs as a result of COVID-related travel restrictions and company-wide initiatives to decrease overall travel and $17.1 million related to allocated overhead, including office related expenses.
Research and Development
Research and development expenses increased by $236.8 million, or 103%, for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019. The increase was primarily due to increases in personnel costs of $250.0 million, which included an increase of $260.6 million in stock-based compensation expense primarily due to the recognition of cumulative stock-based compensation expense upon the Direct Listing related to the Company’s RSUs and vesting of stock options, as well as the incremental charge from the repricing of certain options. Such increase was partially offset by a decrease of $10.5 million in travel-related expenses and other personnel costs as a result of COVID-related travel restrictions and company-wide initiatives to decrease overall travel, as well as a decrease of $11.8 million in third-party cloud hosting services generally as a result of volume-based discounts.
General and Administrative
General and administrative expenses increased by $294.3 million, or 141%, for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019. The increase in expenses was primarily driven by increases in personnel costs of $231.9 million which included an increase of $233.8 million in stock-based compensation expense primarily due to the recognition of cumulative stock-based compensation expense upon the Direct Listing related to the Company’s RSUs and growth units, and vesting of stock options, as well as the incremental charge from the repricing of certain options; an increase of $4.1 million primarily driven by an increase in headcount attributable to general and administrative functions, $51.3 million in legal professional services primarily related to the Direct Listing and $17.9 million for other professional services related to the Direct Listing and corporate IT and consulting functions to support initiatives for becoming a public company and the overall growth of our operations. These costs were partially offset by decreases of $6.0 million in travel-related expenses and other personnel costs primarily as a result of COVID-related travel restrictions and company-wide initiatives to decrease overall travel, and $6.8 million in allocated overhead, including office related expenses.
Interest Income
Nine Months Ended September 30, | Change | |||||||||||
2020 | 2019 | Amount | ||||||||||
Interest income | $ | 4,312 | $ | 12,953 | $ | (8,641) |
Interest income decreased by $8.6 million for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 primarily due to a reduction in U.S. interest rates on interest earned from our cash, cash equivalents, and restricted cash during the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019.
Interest Expense
Nine Months Ended September 30, | Change | |||||||||||
2020 | 2019 | Amount | ||||||||||
Interest expense | $ | (12,325) | $ | (395) | $ | (11,930 | ) |
Interest expense increased by $11.9 million for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019. The increase was primarily due to the absence of outstanding debt during the nine months ended September 30, 2019.
Change in Fair Value of Warrants
Nine Months Ended September 30, | Change | |||||||||||
2020 | 2019 | Amount | ||||||||||
Change in fair value of warrants | $ | 811 | $ | 2,743 | $ | (1,932) |
The gain on the change in fair value of warrants decreased by $1.9 million for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019. The change was primarily due to adjustments to the fair value of the warrants immediately before reclassifying them from a liability to equity, partially offset by an increase in the fair value of the securities underlying certain warrants during the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019.
Other Income (Expense), Net
Nine Months Ended September 30, | Change | |||||||||||
2020 | 2019 | Amount | ||||||||||
Other income (expense), net | $ | 1,218 | $ | 1,858 | $ | (640) |
Other income (expense), net decreased by $0.6 million for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 primarily due to changes in net realized and unrealized gains from foreign exchange transactions.
Provision (Benefit) for Income Taxes
Nine Months Ended September 30, | Change | |||||||||||
2020 | 2019 | Amount | ||||||||||
Provision (benefit) for income taxes | $ | (5,043 | ) | $ | 8,485 | $ | (13,528 | ) |
Provision (benefit) for income taxes decreased by $13.5 million for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019. The change in provision (benefit) for income taxes was primarily due to decreases in profits from our international operations, benefits from stock-based compensation windfalls, and the revaluation of our UK deferred tax assets as a result of a change in the UK corporate tax rate enacted during the current quarter.
Since our inception,
twelve months, as well as our short-term and long-term contractual obligations and commitments primarily consisting of operating lease commitments and
Cash and cash equivalents consist primarily of cash on deposit with banks as well as institutional money market funds. Restricted cash primarily consists of cash and certificates of deposit that are held as collateral against letters of credit and guarantees we are required to maintain for various purposes.
Additionally, during
operations could be adversely affected.
Nine Months Ended September 30, | ||||||||
2020 | 2019 | |||||||
Net cash (used in) provided by: | ||||||||
Operating activities | $ | (278,320 | ) | $ | (500,048 | ) | ||
Investing activities | (9,975 | ) | (10,947 | ) | ||||
Financing activities | 817,344 | (59,434 | ) | |||||
Effect of foreign exchange on cash, cash equivalents, and restricted cash | (678 | ) | (2,992 | ) | ||||
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Net increase (decrease) in cash, cash equivalents, and restricted cash | $ | 528,371 | $ | (573,421 | ) | |||
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Six Months Ended June 30, | ||||||||
2021 | 2020 | |||||||
Net cash provided by (used in): | ||||||||
Operating activities | $ | 139,631 | $ | (226,330 | ) | |||
Investing activities | (1,405 | ) | (5,695 | ) | ||||
Financing activities | 174,944 | 467,275 | ||||||
Effect of foreign exchange on cash, cash equivalents, and restricted cash | (1,496 | ) | (197 | ) | ||||
Net increase in cash, cash equivalents, and restricted cash | $ | 311,674 | $ | 235,053 | ||||
Net cash used in investing activities was $10.9 million for the nine months ended September 30, 2019, which consisted of purchases of property and equipment.
payments on term loans.
In December 2019, we entered into an amendment to theThe 2014 Credit Facility to include an additional $150.0 million term loan andis secured the credit facility with substantially all of our assets. Upon entering into this amendment, we drew down the $150.0 million term loan and $150.0 million under the existing revolving credit facility. The term loan portion of the 2014 Credit Facility was fully repaid and terminated as of December 31, 2019.
In June 2020,
In July 2020, we entered into another amendment to the 2014 Credit Facility, which added an additional lender and provided for an increase of $50.0 million to theundrawn revolving credit facility and a $50.0 million term loan. The incremental commitments were provided under the same terms as the existing commitments under the 2014 Credit Facility. During July 2020, we drew down the additional available term loan of $50.0to be $400.0 million and which also provides for an incremental loan facility for additional loans in an aggregate principal amount of up to $100.0 million with one or more existing or new lenders upon mutual agreement between us and such lenders. Upon amending the facility, we repaid the $150.0 million outstanding revolving credit facility.
As of September 30, 2020, we had a $200.0 million term loanloans. As of June 30, 2021, there were no amounts outstanding under the 2014 Credit Facility and an additional $200.0 million undrawn revolving credit facility available.
Facility.
information, refer to There2019.2020. See our ProspectusAnnual Report on Form
Prior to our Direct Listing, our common stock was not publicly traded; therefore we estimated the fair value of our common stock as discussed in the Prospectus. Following our Direct Listing, the closing sale price per share of our common stock as reportedSEC on the NYSE on the date of grant is used to determine the fair value of our common stock. Our significant accounting policies are discussed in “Notes to Consolidated Financial Statements —Note 2. Significant Accounting Policies” in the Prospectus.
JOBS Act Accounting Election
We are an emerging growth company, as defined in the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until those standards apply to private companies. We have elected to use this extended transition period for complying with certain new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our condensed consolidated financial statements may or may not be comparable to companies that comply with new or revised accounting pronouncements as of public companies’ effective dates.
February 26, 2021.
As of SeptemberJune 30, 2020,2021, we had a $200.0 million variable rate term loan outstanding that is scheduled to mature in June 2023. An immediate 10% change in LIBOR would not have a material impact on our debt-related obligations, financial position or results of operations.
no debt outstanding.
ITEM 1. | LEGAL PROCEEDINGS |
ITEM 1A. | RISK FACTORS |
evaluating the specific organizational needs of our potential customers and educating these potential customers about the technical capabilities and value of our platforms and services. We often also provide our platforms to potential customers at no or low cost initially to them for evaluation purposes through short-term pilot deployments of our platforms in the Acquire phase of our business model, and there is no guarantee that we will be able to move customers from the Acquire phase into later phases. In addition, we currently have a limited direct sales force, and our sales efforts have historically depended on the significant involvement of our senior management team. The length of our sales cycle, from initial demonstration of our platforms to sale of our platforms and services, tends to be long and varies substantially from customer to customer. Our sales cycle often lasts six to nine months but can extend to a year or more for some customers. Because decisions to purchase our platforms involve significant financial commitments, potential customers generally evaluate our platforms at multiple levels within their organization, each of which often have specific requirements, and typically involve their senior management.
generally three to six months. If one or more of our customers terminate their contracts with us, whether for convenience, for default in the event of a breach by us, or for other reasons specified in our contracts, as applicable; if our customers elect not to renew their contracts with us; if our customers renew their contractual arrangements with us for shorter contract lengths;lengths or for a reduced scope; or if our customers otherwise seek to renegotiate terms of their existing agreements on terms less favorable to us, our business and results of operations could be adversely affected. This adverse impact would be even more pronounced for customers that represent a material portion of our revenue or business operations.
revenue or other key metrics for a particular period. If we fail to meet or exceed such expectations for these or any other reasons, the trading price of our Class A common stock could fall, and we could face costly lawsuits, including securities class action suits.
platforms for a customer’s unique environment. Inability to meet the unique needs of our customers may result in customer dissatisfaction and/or damage to our reputation, which could materially harm our business. Further, the proper use of our platforms requiresmay require training of the customer and the initial or ongoing services of our technical personnel as well as O&M services over the contract term. If training and/or ongoing services require more of our expenditures than we originally estimated, our margins will be lower than projected.
If any of the systems of any third parties upon which we rely, our customers’ cloud or on-premises environments, or our internal systems, are breached or if unauthorized access to customer or third-party data is otherwise obtained, public perception
Our success depends in part on ourtheir ability to provide effective data security protection in connectionoperate with our platformsthird-party products and services, and if we rely on information technology networksare not successful in maintaining and systems to securely store, transmit, index, and otherwise process electronic information. Becauseexpanding the compatibility of our platforms and services are used to store, transmit, index, or otherwise process and analyze large data sets that often contain proprietary, confidential, and/or sensitive information (including in some instances personal or identifying information and personal health information), we are perceived as an attractive target for attacks by computer hackers or others seeking unauthorized access, and we face threats of unintended exposure, exfiltration, alteration, deletion, or loss of data. Additionally, because many of our customers use our platforms to store, transmit, and otherwise process proprietary, confidential, or sensitive information, and complete mission critical tasks, they have a lower risk tolerance for security vulnerabilities in our platforms and services than for vulnerabilities in other, less critical, softwarewith such third-party products and services.
We, and the third-party vendors upon which we rely, have experienced, and may in the future experience, cybersecurity threats, including threats or attempts to disrupt our information technology infrastructure and unauthorized attempts to gain access to sensitive or confidential information. Our and our third-party vendors’ technology systems may be damaged or compromised by malicious events, such as cyberattacks (including
computer viruses, malicious and destructive code, phishing attacks, and denial of service attacks), physical or electronic security breaches, natural disasters, fire, power loss, telecommunications failures, personnel misconduct, and human error. Such attacks or security breaches may be perpetrated by internal bad actors, such as employees or contractors, or by third parties (including traditional computer hackers, persons involved with organized crime, or foreign state or foreign state-supported actors). Cybersecurity threats can employ a wide variety of methods and techniques, which may include the use of social engineering techniques, are constantly evolving, and have become increasingly complex and sophisticated; all of which increase the difficulty of detecting and successfully defending against them. Furthermore, because the techniques used to obtain unauthorized access or sabotage systems change frequently and generally are not identified until after they are launched against a target, we and our third-party vendors may be unable to anticipate these techniques or implement adequate preventative measures. Although prior cyberattacks directed at us have not had a material impact on our financial results, and we are continuing to bolster our threat detection and mitigation processes and procedures, we cannot guarantee that future cyberattacks, if successful, will not have a material impact on our business or financial results. While we have security measures in place to protect our information and our customers’ information and to prevent data loss and other security breaches, we have not always been able to do so and there can be no assurance that in the future we will be able to anticipate or prevent security breaches or unauthorized access of our information technology systems or the information technology systems of the third-party vendors upon which we rely. Despite our implementation of network security measures and internal information security policies, data stored on personnel computer systems is also vulnerable to similar security breaches, unauthorized tampering or human error.
Many governments have enacted laws requiring companies to provide notice of data security incidents involving certain types of data, including personal data. In addition, most of our customers, including U.S. government customers, contractually require us to notify them of data security breaches. If an actual or perceived breach of security measures, unauthorized access to our system or the systems of the third-party vendors that we rely upon, or any other cybersecurity threat occurs, we may face direct or indirect liability, costs, or damages, contract termination, our reputation in the industry and with current and potential customers may be compromised, our ability to attract new customers could be negatively affected, andservices, our business, financial condition, and results of operations could be materiallyadversely impacted.
Further, unauthorized accessservices of third parties, software services, and infrastructure, including but not limited to, in connection with our joint ventures, channel sales relationships, platform partnerships, strategic alliances, and other similar arrangements where applicable. As such, we must continuously modify and enhance our platforms to adapt to changes in, or our third-party vendors’ informationto be integrated or otherwise compatible with, hardware, software, networking, browser, and database technologies. In the future, one or more technology systems or data or other security breaches could result in the loss of information; significant remediation costs; litigation, disputes, regulatory action, or investigations that could result in damages, material fines, and penalties; indemnity obligations; interruptions incompanies may choose not to support the operation of their hardware, software, or infrastructure, or our platforms may not support the capabilities needed to operate with such hardware, software, or infrastructure. In addition, to the extent that a third-party were to develop software or services that compete with ours, that provider may choose not to support one or more of our platforms. We intend to facilitate the compatibility of our platforms with various third-party hardware, software, and infrastructure by maintaining and expanding our business includingand technical relationships. If we are not successful in achieving this goal, our ability to provide new product features, new platforms, or services to our customers; damage to our operation technology networksbusiness, financial condition, and information technology systems; and other liabilities. Moreover, our remediation efforts may not be successful. Any or all of these issues, or the perception that any of them have occurred, could negatively affect our ability to attract new customers, cause existing customers to terminate or not renew their agreements, hinder our ability to obtain and maintain required or desirable cybersecurity certifications, and result in reputational damage, any of which could materially adversely affect our results of operations financial condition, and future prospects. There cancould be no assurance that any limitations of liability provisions in our license arrangements with customers or in our agreements with vendors, partners, or others would be enforceable, applicable, or adequate or would otherwise protect us from any such liabilities or damages with respect to any particular claim.
We maintain cybersecurity insurance and other types of insurance, subject to applicable deductibles and policy limits, but our insurance may not be sufficient to cover all costs associated with a potential data security incident. We also cannot be sure that our existing general liability insurance coverage and coverage for cyber liability or errors or omissions will continue to be available on acceptable terms or will be available in sufficient amounts to cover one or more large claims or that the insurer will not deny coverage as to any future claim. The successful assertion of one or more large claims against us that exceed available insurance coverage, or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could harm our financial condition.
local employers in these regions for talent. If we fail to attract new personnel or fail to retain and motivate our current personnel who are capable of meeting our growing technical, operational, and managerial requirements on a timely basis or at all, our business may be harmed.
enterprise and government customers require higher levels of services than smaller customers. If we fail to meet the requirements of the larger customers, it may be more difficult to execute on our strategy to increase our penetration with larger customers. As a result, our failure to maintain high quality services may have a material adverse effect on our business, financial condition, results of operations, and growth prospects.
provider rather than a new provider regardless of platform performance or features. As a result, even if the features of our platforms offer advantages that others do not, customers may not purchase our platforms. These larger competitors often have broader product lines and market focus or greater resources and may therefore not be as susceptible to economic downturns or other significant reductions in capital spending by customers. If we are unable to sufficiently differentiate our platforms from the integrated or bundled products of our competitors, such as by offering enhanced functionality, performance, or value, we may see a decrease in demand for those platforms, which could adversely affect our business, financial condition, and results of operations.
Our business is subject to complex and evolving U.S. and non-U.S. laws and regulations regarding privacy, data protection and security, technology protection, and other matters. Many of these laws and regulations are subject to change and uncertain interpretation, and could result in claims, changes to our business practices, monetary penalties, increased cost of operations, or otherwise harm our business.
We are subject to a variety of local, state, national, and international laws and directives and regulations in the United States and abroad that involve matters central to our business, including privacy and data protection, data security, data storage, retention, transfer and deletion, technology protection, and personal information. Foreign data protection, data security, privacy, and other laws and regulations can impose different obligations or be more restrictive than those in the United States. These U.S. federal and state and foreign laws and regulations, which, depending on the regime, may be enforced by private parties or government entities, are constantly evolving and can be subject to significant change, and they are likely to remain uncertain for the foreseeable future. In addition, the application, interpretation, and enforcement of these laws and regulations are often uncertain, particularly in the new and rapidly evolving software and technology industry in which we operate, and may be interpreted and applied inconsistently from country to country and inconsistently with our current policies and practices. A number of proposals are pending before U.S. federal, state, and foreign legislative and regulatory bodies that could significantly affect our business. For example, ongoing legal challenges in Europe to the mechanisms allowing companies to transfer personal data from the European Economic Area to certain other jurisdictions, including the United States, could result in further limitations on the ability to transfer data across borders, particularly if governments are unable or unwilling to reach new or maintain existing agreements that
permit cross-border data transfers. The California state legislature passed the California Consumer Privacy Act (“CCPA”) in 2018 which regulates the processing of personal information of California residents and increases the privacy and security obligations of entities handling certain personal information of California residents, including requiring covered companies to provide new disclosures to California consumers, and affords such consumers new abilities to opt-out of certain sales of personal information. The CCPA came into effect on January 1, 2020, and the California Attorney General may bring enforcement actions, with penalties for violations of the CCPA, commencing on July 1, 2020. While aspects of the CCPA and its interpretation remain to be determined in practice, we are committed to comply with its obligations. We cannot yet fully predict the impact of the CCPA on our business or operations, but developments regarding the CCPA and all privacy and data protection laws and regulations around the world may require us to modify our data processing practices and policies and to incur substantial costs and expenses in an effort to maintain compliance on an ongoing basis. Moreover, a new privacy law, the California Privacy Rights Act was recently approved by California voters, which significantly modifies the CCPA, potentially resulting in further uncertainty and requiring us to incur additional costs and expenses in an effort to comply.
Outside of the United States, virtually every jurisdiction in which we operate has established its own legal framework relating to privacy, data protection, and information security matters with which we and/or our customers must comply. Laws and regulations in these jurisdictions apply broadly to the collection, use, storage, retention, disclosure, security, transfer, and other processing of data that identifies or may be used to identify or locate an individual. Some countries and regions, including the European Union, are considering or have passed legislation that imposes significant obligations in connection with privacy, data protection, and information security that could increase the cost and complexity of delivering our platforms and services, including the European General Data Protection Regulation (“GDPR”) which took effect in May 2018. Complying with the GDPR or other data protection laws and regulations as they emerge may cause us to incur substantial operational costs or require us to modify our data handling practices on an ongoing basis. Non-compliance with the GDPR specifically may result in administrative fines or monetary penalties of up to 4% of worldwide annual revenue in the preceding financial year or €20 million (whichever is higher) for the most serious infringements, and could result in proceedings against us by governmental entities or other related parties and may otherwise adversely impact our business, financial condition, and results of operations.
The overarching complexity of privacy and data protection laws and regulations around the world pose a compliance challenge that could manifest in costs, damages, or liability in other forms as a result of failure to implement proper programmatic controls, failure to adhere to those controls, or the malicious or inadvertent breach of applicable privacy and data protection requirements by us, our employees, our business partners, or our customers.
In addition to government regulation, self-regulatory standards and other industry standards may legally or contractually apply to us, be argued to apply to us, or we may elect to comply with such standards or to facilitate our customers’ compliance with such standards. Because privacy, data protection, and information security are critical competitive factors in our industry, we may make statements on our website, in marketing materials, or in other settings about our data security measures and our compliance with, or our ability to facilitate our customers’ compliance with, these standards. We also expect that there will continue to be new proposed laws and regulations concerning privacy, data protection, and information security, and we cannot yet determine the impact such future laws, regulations and standards, or amendments to or re-interpretations of existing laws and regulations, industry standards, or other obligations may have on our business. New laws, amendments to or re-interpretations of existing laws and regulations, industry standards, and contractual and other obligations may require us to incur additional costs and restrict our business operations. As these legal regimes relating to privacy, data protection, and information security continue to evolve, they may result in ever-increasing public scrutiny and escalating levels of enforcement and sanctions. Furthermore, because the interpretation and application of laws, standards, contractual obligations and other obligations relating to privacy, data protection, and information security are uncertain, these laws, standards, and contractual and other obligations may be interpreted and applied in a manner that is, or is alleged to be, inconsistent with our data management practices,
our policies or procedures, or the features of our platforms. If so, in addition to the possibility of fines, lawsuits, and other claims, we could be required to fundamentally change our business activities and practices or modify our platforms, which could have an adverse effect on our business. We may be unable to make such changes and modifications in a commercially reasonable manner or at all, and our ability to fulfill existing obligations, make enhancements, or develop new platforms and features could be limited. Furthermore, the costs of compliance with, and other burdens imposed by, the laws, regulations, and policies that are applicable to the businesses of our customers may limit the use and adoption of, and reduce the overall demand for, our platforms.
These existing and proposed laws and regulations can be costly to comply with and can make our platforms and services less effective or valuable, delay or impede the development of new products, result in negative publicity, increase our operating costs, require us to modify our data handling practices, limit our operations, impose substantial fines and penalties, require significant management time and attention, or put our data or technology at risk. Any failure or perceived failure by us or our platforms to comply with U.S., European Union, or other foreign laws, regulations, directives, policies, industry standards, or legal obligations relating to privacy, data protection, or information security, or any security incident that results in loss of or the unauthorized access to, or acquisition, use, release, or transfer of, personal information, personal data, or other customer or sensitive data sensitive data or information may result in governmental investigations, inquiries, enforcement actions and prosecutions, private claims and litigation, indemnification or other contractual obligations, other remedies, including fines or demands that we modify or cease existing business practices, or adverse publicity, and related costs and liabilities, which could significantly and adversely affect our business and results of operations.
Our policies regarding customer confidential information and support for individual privacy and civil liberties could cause us to experience adverse business and reputational consequences.
We strive to protect our customers’ confidential information and individuals’ privacy consistent with applicable laws, directives, and regulations. Consequently, we do not provide information about our customers to third parties without legal process. From time to time, government entities may seek our assistance with obtaining information about our customers or could request that we modify our platforms in a manner to permit access or monitoring. In light of our confidentiality and privacy commitments, we may legally challenge law enforcement or other government requests to provide information, to obtain encryption keys, or to modify or weaken encryption. To the extent that we do not provide assistance to or comply with requests from government entities, or if we challenge those requests publicly or in court, we may experience adverse political, business, and reputational consequences among certain customers or portions of the public. Conversely, to the extent that we do provide such assistance, or do not challenge those requests publicly in court, we may experience adverse political, business, and reputational consequences from other customers or portions of the public arising from concerns over privacy or the government’s activities.
A significant portion of our business depends on sales to the public sector, and our failure to receive and maintain government contracts or changes in the contracting or fiscal policies of the public sector could have a material adverse effect on our business.
We derive a significant portion of our revenue from contracts with federal, state, local, and foreign governments and government agencies, and we believe that the success and growth of our business will continue to depend on our successful procurement of government contracts. For example, we have historically derived, and expect to continue to derive, a significant portion of our revenue from sales to agencies of the U.S. federal government, either directly by us or through other government contractors. Our perceived relationship with the U.S. government could adversely affect our business prospects in certain non-U.S. geographies or with certain non-U.S. governments.
Sales to such government agencies are subject to a number of challenges and risks. Selling to government agencies can be highly competitive, expensive, and time-consuming, often requiring significant upfront time and expense without any assurance that these efforts will generate a sale. We also must comply with laws and
regulations relating to the formation, administration, and performance of contracts, which provide public sector customers rights, many of which are not typically found in commercial contracts.
Accordingly, our business, financial condition, results of operations, and growth prospects may be adversely affected by certain events or activities, including, but not limited to:
Changes in fiscal or contracting policies or decreases in available government funding;
Changes in government programs or applicable requirements;
Restrictions in the grant of personnel security clearances to our employees;
Ability to maintain facility clearances required to perform on classified contracts for U.S. federal government agencies;
Changes in the political environment, including before or after a change to the leadership within the government administration, and any resulting uncertainty or changes in policy or priorities and resultant funding;
Changes in the government’s attitude towards the capabilities that we offer, especially in the areas of national defense, cybersecurity, and critical infrastructure, including the financial, energy, telecommunications, and healthcare sectors;
Changes in the government’s attitude towards us as a company or our platforms as viable or acceptable software solutions;
Appeals, disputes, or litigation relating to government procurement, including but not limited to bid protests by unsuccessful bidders on potential or actual awards of contracts to us or our partners by the government;
The adoption of new laws or regulations or changes to existing laws or regulations;
Budgetary constraints, including automatic reductions as a result of “sequestration” or similar measures and constraints imposed by any lapses in appropriations for the federal government or certain of its departments and agencies;
Influence by, or competition from, third parties with respect to pending, new, or existing contracts with government customers;
Changes in political or social attitudes with respect to security or data privacy issues;
Potential delays or changes in the government appropriations or procurement processes, including as a result of events such as war, incidents of terrorism, natural disasters, and public health concerns or epidemics, such as the recent coronavirus outbreak; and
Increased or unexpected costs or unanticipated delays caused by other factors outside of our control, such as performance failures of our subcontractors.
Any such event or activity, among others, could cause governments and governmental agencies to delay or refrain from purchasing our platforms and services in the future, reduce the size or payment amounts of purchases from existing or new government customers, or otherwise have an adverse effect on our business, results of operations, financial condition, and growth prospects.
Issues in the use of artificial intelligence (“AI”), (including machine learning) in our platforms may result in reputational harm or liability.
AI is enabled by or integrated into some of our platforms and is a significant and potentially growing element of our business. As with many developing technologies, AI presents risks and challenges that could affect its further development, adoption, and use, and therefore our business. AI algorithms may be flawed. Datasets may be
insufficient, of poor quality, or contain biased information. Inappropriate or controversial data practices by data scientists, engineers, and end-users of our systems could impair the acceptance of AI solutions. If the recommendations, forecasts, or analyses that AI applications assist in producing are deficient or inaccurate, we could be subjected to competitive harm, potential legal liability, and brand or reputational harm. Some AI scenarios present ethical issues. Though our technologies and business practices are designed to mitigate many of these risks, if we enable or offer AI solutions that are controversial because of their purported or real impact on human rights, privacy, employment, or other social issues, we may experience brand or reputational harm.
Our culture emphasizes rapid innovation and advancement of successful hires who may notin some cases have limited prior industry expertise and prioritizes customer satisfactionoutcomes over short-term financial results, and if we cannot maintain or properly manage our culture as we grow, our business may be harmed.
maintaining our relationships with these partners, our ability to compete in a given marketplace or to grow our revenue would be impaired, and our results of operations may suffer. Even if we are successful in establishing and maintaining these relationships with our partners, we cannot assure you that these relationships will result in increased customer usage of our platforms or increased revenue.
Additionally, if our partners’ brand, reputation, or products are negatively impacted in any way, that could impact our expected outcomes in those markets.
require additional investment of time and human resources to train the third parties and allow third parties (who may be building competitive projects or engaging in other competitive activities) to influence our customers’ perception of our platforms. All these factors can add further risk to business conducted with these customers. If sales expected from a large customer for a particular quarter are not realized in that quarter or at all, our business, financial condition, results of operations, and growth prospects could be materially and adversely affected.
The outbreak of the novel coronavirus and the COVID-19 disease that it causes has evolved into a global pandemic.
More generally, theis expected tomay decrease technology spending generally and could adversely affect demand for our platforms and services. It is not possible at this time to estimate the full impact that
providers which are responsible for the liability.
performance problems, or failure of our infrastructure, technology, or platforms, which may adversely impact our business. In addition, our ability to conduct normal business operations could be severely affected. In the event of significant physical damage to one of these facilities, it may take a significant period of time to achieve full resumption of our services, and our disaster recovery planning may not account for all eventualities. In addition, any negative publicity arising from these disruptions could harm our reputation and brand and adversely affect our business.
The competitive position
The competitive position of our platforms depends in part on their ability to operate with products and services of third parties, software services, and infrastructure. As such, we must continuously modify and enhance our platforms to adapt to changes in hardware, software, networking, browser, and database technologies. In the future, one or more technology companies may choose not to support the operation of their hardware, software, or infrastructure, or our platforms may not support the capabilities needed to operate with such hardware, software, or infrastructure. In addition, to the extent that a third-party were to develop software or services that compete with ours, that provider may choose not to support one or more of our platforms. We intend to facilitate the compatibility of our platforms with various third-party hardware, software, and infrastructure by maintaining and expanding our business and technical relationships. If we are not successful in achieving this goal, our business, financial condition, and results of operations could be adversely impacted.
Our non-U.S. sales and operations subject us to additional risks and regulations that can adversely affect our results of operations.
Our successes to date have primarily come from customers in relatively stable and developed countries, but we are in the process of entering new and emerging markets in non-U.S. countries, including with COVID-19 response efforts and defense,legally challenge law enforcement national security, andor other government agencies, as part of our growth strategy. These new and emerging markets may involve uncertain business, technology, and economic risks and may be difficultrequests to provide information, to obtain encryption keys, or impossible for us to penetrate, even if we were to commit significant resources to do so.
We currently have sales personnel and sales and services operations in the United States and certain countries around the world.modify or weaken encryption. To the extent that we experience difficultiesdo not provide assistance to or comply with requests from government entities, or if we challenge those requests publicly or in recruiting, training, managing, or retaining non-U.S. staff, and specifically sales management and sales personnel staff,court, we may experience difficulties in sales productivity in, or market penetration of, non-U.S. markets. Our ability to convince customers to expand their use of our platforms or renew their subscription, license, or maintenance and service agreements with us is correlated to, among other things, our direct engagement with the customer. To the extent we are restricted or unable to engage with non-U.S. customers effectively with our limited sales force and services capacity, we may be unable to grow sales to existing customers to the same degree we have experienced in the United States.
Our non-U.S. operations subject us to a variety of risks and challenges, including:
Increased management, travel, infrastructure, and legal and financial compliance costs and time associated with having multiple non-U.S. operations, including but not limited to compliance with local employment laws and other applicable laws and regulations;
Longer payment cycles, greater difficulty in enforcing contracts, difficulties in collecting accounts receivable, especially in emerging markets, and the likelihood that revenue from non-U.S. system integrators, government contractors, and customers may need to be recognized when cash is received, at least until satisfactory payment history has been established, or upon confirmation of certain acceptance criteria or milestones;
The need to adapt our platforms for non-U.S. customers whether to accommodate customer preferences or local law;
Differing regulatory and legal requirements and possible enactment of additional regulations or restrictions on the use, import, or re-export of our platforms or the provision of services, which could delay, restrict, or prevent the sale or use of our platforms and services in some jurisdictions;
Compliance with multiple and changing foreign laws and regulations, including those governing employment, privacy, data protection, information security, data transfer, and the risks and costs of non-compliance with such laws and regulations;
New and different sources of competition not present in the United States;
Heightened risks of unfair or corrupt business practices in certain geographies and of improper or fraudulent sales arrangements that may cause us to withdraw from particular markets, or impact financial results and result in restatements of financial statements and irregularities in financial statements;
Volatility in non-U.S.adverse political, and economic environments, including by way of examples, the potential effects of COVID-19 and the United Kingdom’s departure from the European Union;
Weaker protection of intellectual property rights in some countries and the risk of potential theft, copying, or other compromises of our technology, data, or intellectual property in connection with our non-U.S. operations, whether by state-sponsored malfeasance or other foreign entities or individuals;
Volatility and fluctuations in currency exchange rates, including that, because many of our non-U.S. contracts are denominated in U.S. dollars, an increase in the strength of the U.S. dollar may make doing business with us less appealing to a non-U.S. dollar denominated customer;
Management and employee communication and integration problems resulting from language differences, cultural differences, and geographic dispersion;
Difficulties in repatriating or transferring funds from, or converting currencies in, certain countries;
Potentially adverse tax consequences, including multiple and possibly overlapping tax regimes, the complexities of foreign value-added tax systems, and changes in tax rates;
Lack of familiarity with local laws, customs, and practices, and laws and business practices favoring local competitors or partners; and
Interruptions to our business operations and our customers’ business operations subject to events such as war, incidents of terrorism, natural disasters, public health concerns or epidemics (such as the recent COVID-19 outbreak), shortages or failures of power, internet, telecommunications, or hosting service providers, cyberattacks or malicious acts, or responses to these events.
In addition to the factors above, foreign governments may take administrative, legislative, or regulatory action that could materially interfere with our ability to sell our platforms in certain countries. For example, foreign governments may require a percentage of prime contracts be fulfilled by local contractors or provide special incentives to government-backed local customers to buy from local competitors, even if their products are inferior to ours. Moreover, both the U.S. government and foreign governments may regulate the acquisition of or import of our technologies or our entry into certain foreign markets or partnership with foreign third parties through investment screening or other regulations. Such regulations may apply to certain non-U.S. joint ventures, platform partnerships and strategic alliances that may be integral to our long-term business strategy.
Compliance with laws and regulations applicable to our non-U.S. operations increases our cost of doing business in foreign jurisdictions. We may be unable to keep current with changes in foreign government requirements and laws as they change from time to time. Failure to comply with these regulations could subject us to investigations, sanctions, enforcement actions, disgorgement of profits, fines, damages, civil and criminal penalties, injunctions, or other collateral consequences. In many foreign countries, it is common for others to engage in business practices that are prohibited by our internal policies and procedures or U.S. regulations applicable to us. In addition, although we have implemented policies and procedures designed to ensure compliance with these laws and policies, there can be no assurance that all of our employees, contractors, partners, and agents will comply with these laws and policies. Violations of laws or key control policies by our employees, contractors, partners, or agents could result in delays in revenue recognition, financial reporting misstatements, governmental sanctions, fines, penalties, or the prohibition of the importation or exportation of our platforms. In addition, responding to any action may result in a significant diversion of management’s attention and resources and an increase in professional fees. Enforcement actions and sanctions or failure to prevail in any possible civil or criminal litigation could harm our business, reputation, financial condition, and results of operations.
Also, we are expanding operations, including our work with existing commercial customers, into countries in Asia, Europe, the Middle East, and elsewhere, which may place restrictions on the transfer of data and potentially the import and use of foreign encryption technology. Any of these risks could harm our non-U.S. operations and reduce our non-U.S. sales, adversely affecting our business, results of operations, financial condition, and growth prospects.
Some of our business partners also have non-U.S. operations and are subject to the risks described above. Even if we are able to successfully manage the risks of our own non-U.S. operations, our business may be adversely affected if our business partners are not able to successfully manage these risks.
Failure to comply with governmental laws and regulations could harm our business, and we have been, and expect to be, the subject of legal and regulatory inquiries, which may result in monetary payments or may otherwise negatively impact our reputation, business, and results of operations.
Our business is subject to regulation by various federal, state, local, and foreign governments in which we operate. In certain jurisdictions, the regulatory requirements imposed by foreign governments may be more stringent than those in the United States. Noncompliance with applicable regulations or requirements could subject us to investigations, administrative proceedings, sanctions, enforcement actions, disgorgement of profits, fines, damages, litigation, civil and criminal penalties, termination of contracts, exclusion from sales channels or sales opportunities, injunctions, or other consequences. Such matters may include, but are not limited to, claims, disputes, allegations, or investigations related to alleged violations of laws or regulations relating to anticorruption requirements, lobbying or conflict-of-interest requirements, export or other trade controls, data privacy or data protection requirements, or laws or regulations relating to employment, procurement, cybersecurity, securities, or antitrust/competition requirements. The effects of recently imposed and proposed actions are uncertain because of the dynamic nature of governmental action and responses. We may be subject to government inquiries that drain our time and resources, tarnish our brandreputational consequences among customers and potential customers, prevent us from doing business with certain customers or markets, including government customers, affect our ability to hire, attract and maintain qualified employees, or require us to take remedial action or pay penalties. From time to time, we receive formal and informal inquiries from governmental agencies and regulators regarding our compliance with laws and regulations or otherwise relating to our business or transactions. Any negative outcome from such inquiries or investigations or failure to prevail in any possible civil or criminal litigation could adversely affect our business, reputation, financial condition, results of operations, and growth prospects.
We have contracts with governments that involve classified programs, which may limit investor insight into portions of our business.
We derive a portion of our revenue from programs with governments and government agenciesthe public. Conversely, to the extent that are subject to security restrictions (e.g., contracts involving classified information, classified contracts, and classified programs), which preclude the dissemination of information and technology that is classified for national security purposes under applicable law and regulation. In general, access to classified information, technology, facilities,we do provide such assistance, or programs requires appropriate personnel security clearances, is subject to additional contract oversight and potential liability, and may also require appropriate facility clearances and other specialized infrastructure. In the event of a security incident involving classified information, technology, facilities, or programs or personnel holding clearances,do not challenge those requests publicly in court, we may be subject to legal, financial, operational,experience adverse political, business, and reputational harm. We are limited in our ability to provide specific information about these classified programs, their risks,consequences from other customers or any disputes or claims relating to such programs. As a result, investors have less insight into our classified programs than our other businesses and therefore less ability to fully evaluate the risks related to our classified business or our business overall. However, historically the business risks associated with our work on classified programs have not differed materially from those of our other government contracts.
Our business could be adversely affected if our employees cannot obtain and maintain required personnel security clearances or we cannot establish and maintain a required facility security clearance.
Certain U.S. government contracts may require our employees to maintain various levels of security clearances and may require us to maintain a facility security clearance to comply with Department of Defense and other U.S. government agency requirements. The government has strict security clearance requirements for personnel who perform work in support of classified programs. Obtaining and maintaining security clearances for employees involves a lengthy process, and it is difficult to identify, recruit, and retain employees who already hold security clearances. If our employees are unable to obtain security clearances in a timely manner, or at all, or if our employees who hold security clearances are unable to maintain their clearances or terminate employment with us, then we may be unable to comply with Department of Defense and other U.S. government agency requirements, or our customers requiring classified work could choose to terminate or decide not to
renew one or more contracts requiring employees to obtain or maintain security clearances upon expiration. To the extent we are not able to obtain or maintain a facility security clearance, we may not be able to bid on or win new classified contracts, and existing contracts requiring a facility security clearance could be terminated, either of which would have an adverse impact on our business, financial condition, and results of operations.
The majority of our customer contracts may be terminated by the customer at any time for convenience and may contain other provisions permitting the customer to discontinue contract performance, and if terminated contracts are not replaced, our results of operations may differ materially and adversely from those anticipated. In addition, our contracts with government customers often contain provisions with additional rights and remedies favorable to such customers that are not typically found in commercial contracts.
The majority of our contracts, including our government contracts, contain termination for convenience provisions. Customers that terminate such contracts may also be entitled to a pro rata refundportions of the amount of the customer deposit for the period of time remaining in the contract term after the applicable termination notice period expires. Government contracts often contain provisions and are subject to laws and regulations that provide government customers with additional rights and remedies not typically found in commercial contracts. These rights and remedies allow government customers, among other things, to:
Terminate existing contracts for convenience with short notice;
Reduce orders under or otherwise modify contracts;
For contracts subject to the Truth in Negotiations Act, reduce the contract price or cost where it was increased because a contractor or subcontractor furnished cost or pricing data during negotiations that was not complete, accurate, and current;
For some contracts, (i) demand a refund, make a forward price adjustment, or terminate a contract for default if a contractor provided inaccurate or incomplete data during the contract negotiation process and (ii) reduce the contract price under triggering circumstances, including the revision of price lists or other documents upon which the contract award was predicated;
Cancel multi-year contracts and related orders if funds for contract performance for any subsequent year become unavailable;
Decline to exercise an option to renew a multi-year contract or issue task orders in connection with indefinite delivery/indefinite quantity (“IDIQ”) contracts;
Claim rights in solutions, systems, or technology produced by us, appropriate such work-product for their continued use without continuing to contract for our services, and disclose such work-product to third parties, including other government agencies and our competitors, which could harm our competitive position;
Prohibit future procurement awards with a particular agency due to a finding of organizational conflicts of interest based upon prior related work performed for the agency that would give a contractor an unfair advantagepublic arising from concerns over competing contractors,privacy or the existence of conflicting roles that might bias a contractor’s judgment;
Subject the award of contracts to protest by competitors, which may require the contracting federal agency or department to suspend our performance pending the outcome of the protest and may also result in a requirement to resubmit offers for the contract or in the termination, reduction, or modification of the awarded contract;
Suspend or debar us from doing business with the applicable government; and
Control or prohibit the export of our services.
If a customer were to unexpectedly terminate, cancel, or decline to exercise an option to renew with respect to one or more of our significant contracts, or if a government were to suspend or debar us from doing business with such government, our business, financial condition, and results of operations would be materially harmed.
We may not realize the full deal value of our government contracts, which may result in lower than expected revenue.
As of September 30, 2020, the total remaining deal value of the contracts that we had been awarded by government agencies in the United States and allied countries around the world, including existing contractual obligations and contractual options available to those government agencies, was $1.3 billion. The majority of these contracts are subject to termination for convenience provisions, and the U.S. federal government is prohibited from exercising contract options more than one year in advance. As a result, there can be no guarantee that our contracts with government customers will not be terminated or that contract options will be exercised.
We historically have not realized all of the revenue from the full deal value of our government contracts, and we may not do so in the future. This is because the actual timing and amount of revenue under contracts included are subject to various contingencies, including exercise of contractual options, customers not terminating their contracts, and renegotiations of contracts. In addition, delays in the completion of the U.S. government’s budgeting process, the use of continuing resolutions, and a potential lapse in appropriations could adversely affect our ability to timely recognize revenue under certain government contracts.
Failure to comply with laws, regulations, or contractual provisions applicable to our business could cause us to lose government customers or our ability to contract with the U.S. and other governments.
As a government contractor, we must comply with laws, regulations, and contractual provisions relating to the formation, administration, and performance of government contracts and inclusion on government contract vehicles, which affect how we and our partners do business with government agencies. As a result of actual or perceived noncompliance with government contracting laws, regulations, or contractual provisions, we may be subject to audits and internal investigations which may prove costly to our business financially, divert management time, or limit our ability to continue selling our platforms and services to our government customers. These laws and regulations may impose other added costs on our business, and failure to comply with these or other applicable regulations and requirements, including non-compliance in the past, could lead to claims for damages from our channel partners, penalties, and termination of contracts and suspension or debarment from government contracting for a period of time with government agencies. Any such damages, penalties, disruption, or limitation in our ability to do business with a government could adversely impact, and could have a material adverse effect on, our business, results of operations, financial condition, public perception, and growth prospects.
Evolving government procurement policies and increased emphasis on cost over performance could adversely affect our business.
Federal, state, local, and foreign governments and government agencies could implement procurement policies that negatively impact our profitability. Changes in procurement policy favoring more non-commercial purchases, different pricing, or evaluation criteria or government contract negotiation offers based upon the customer’s view of what our pricing should be may affect the predictability of our margins on such contracts or make it more difficult to compete on certain types of programs.
Governments and government agencies are continually evaluating their contract pricing and financing practices, and we have no assurance regarding the full scope and recurrence of any study and what changes will be proposed, if any, and their impact on our financial position, cash flows, or results of operations.
Increased competition and bid protests in a budget-constrained environment may make it more difficult to maintain our financial performance and customer relationships.
A substantial portion of our business is awarded through competitive bidding. Even if we are successful in obtaining an award, we may encounter bid protests from unsuccessful bidders on any specific award. Bid protests
could result, among other things, in significant expenses to us, contract modifications, or even loss of the contract award. Even where a bid protest does not result in the loss of a contract award, the resolution can extend the time until contract activity can begin and, as a result, delay the recognition of revenue. We also may not be successful in our efforts to protest or challenge any bids for contracts that were not awarded to us, and we would be required to incur significant time and expense in such efforts.
In addition, governments and agencies increasingly have relied on competitive contract award types, including IDIQ and other multi-award contracts, which have the potential to create pricing pressure and to increase our costs by requiring us to submit multiple bids and proposals. Multi-award contracts require us to make sustained efforts to obtain orders under the contract. The competitive bidding process entails substantial costs and managerial time to prepare bids and proposals for contracts that may not be awarded to us or may be split among competitors.
We are experiencing increased competition while, at the same time, many of our customers are facing budget pressures, cutting costs, identifying more affordable solutions, performing certain work internally rather than hiring contractors, and reducing product development cycles. To remain competitive, we must maintain consistently strong customer relationships, seek to understand customer priorities, and provide superior performance, advanced technology solutions, and service at an affordable cost with the agility that our customers require to satisfy their objectives in an increasingly price competitive environment. Failure to do so could have an adverse impact on our business, financial condition, and results of operations.
The U.S. government may procure non-commercial developmental services rather than commercial products, which could materially impact our future U.S. government business and revenue.
U.S. government agencies, including our customers, often award large developmental item and service contracts to build custom software rather than firm fixed-price contracts for commercial products. We sell commercial items and services and do not contract for non-commercial developmental services. The U.S. government is required to procure commercial items and services to the maximum extent practicable in accordance with FASA, 10 U.S.C. § 2377; 41 U.S.C. § 3307, and the U.S. government may instead decide to procure non-commercial developmental items and services if commercial items and services are not practicable. In order to challenge a government decision to procure developmental items and services instead of commercial items and services, we would be required to file a bid protest at the agency level and/or with the Government Accountability Office. This can result in contentious communications with government agency legal and contracting offices, and may escalate to litigation in federal court. The results of any future challenges or potential litigation cannot be predicted with certainty, however, and any dispute or litigation with the U.S. government may not be resolved in our favor; moreover, whether or not it is resolved in our favor, such disputes or litigation could result in significant expense and divert the efforts of our technical and management personnel. These proceedings could adversely affect our reputation and relationship with government customers and could also result in negative publicity, which could harm customer and public perception of our business. The enforcement of FASA has resulted in a significant increase in our business with the U.S. federal government. Any change in or repeal of FASA, or a contrary interpretation of FASA by a court of competent jurisdiction, would adversely affect our competitive position for U.S. federal government contracts.
A decline in the U.S. and other government budgets, changes in spending or budgetary priorities, or delays in contract awards may significantly and adversely affect our future revenue and limit our growth prospects.
Because we generate a substantial portion of our revenue from contracts with governments and government agencies, and in particular from contracts with the U.S. government and government agencies, our results of operations could be adversely affected by government spending caps or changes in government budgetary priorities, as well as by delays in the government budget process, program starts, or the award of contracts or orders under existing contract vehicles. Current U.S. government spending levels for defense-related and other programs may not be sustained beyond government fiscal year 2021. Future spending and program authorizations
may not increase or may decrease or shift to programs in areas in which we do not provide services or are less likely to be awarded contracts. Such changes in spending authorizations and budgetary priorities may occur as a result of shifts in spending priorities from defense-related and other programs as a result of competing demands for federal funds and the number and intensity of military conflicts or other factors.
When the United States Congress does not complete a budget before the end of the fiscal year, government operations typically are funded through one or more continuing resolutions that authorize agencies of the U.S. government to continue to operate consistent with funding levels from the prior year’s appropriated amounts, but do not authorize new spending initiatives. When the U.S. government operates under a continuing resolution, contract awards may be delayed, canceled, or funded at lower levels, which could adversely impact our business, financial condition, and results of operations. There is a possibility that post-election political decisions, the 2020 presidential and congressional campaigns, or an impasse on policy issues could threaten continuous government funding past September 30, 2020. While the federal government is currently funded in full through the end of government fiscal year 2020, there is a strong possibility that government fiscal year 2021 will begin under a continuing resolution, which has occurred regularly in recent election year appropriations cycles. If appropriations or continuing resolutions for the U.S. government departments and agencies with which we work or have prospective business are not made by September 30, 2020, the lapse in appropriations may also have negative impacts on our ability to continue work and to recognize revenue from those customers, for so long as the lapse continues. In addition, our business may be impacted due to shifts in the political environment and changes in the government and agency leadership positions in connection with the 2020 presidential election as well as future election cycles.
The U.S. government also conducts periodic reviews of U.S. defense strategies and priorities which may shift Department of Defense budgetary priorities, reduce overall spending, or delay contract or task order awards for defense-related programs from which we would otherwise expect to derive a significant portion of our future revenue. A significant decline in overall U.S. government spending, a significant shift in spending priorities, the substantial reduction or elimination of particular defense-related programs, or significant budget-related delays in contract or task order awards for large programs could adversely affect our future revenue and limit our growth prospects.
Adverse economic conditions or reduced technology spending may adversely impact our business.
Our business depends on the economic health of our current and prospective customers and overall demand for technology. In addition, the purchase of our platforms and services is often discretionary and typically involves a significant commitment of capital and other resources. A further downturn in economic conditions, global political and economic uncertainty, a lack of availability of credit, a reduction in business confidence and activity, the curtailment of government or corporate spending, public health concerns or emergencies, financial market volatility, and other factors have in the past and may in the future affect the industries to which we sell our platforms and services. Our customers may suffer from reduced operating budgets, which could cause them to defer or forego purchases of our platforms or services. Moreover, competitors may respond to market conditions by lowering prices and attempting to lure away our customers, and the increased pace of consolidation in certain industries may result in reduced overall spending on our offerings. Uncertainty about global and regional economic conditions, a downturn in the technology sector or any sectors in which our customers operate, or a reduction in information technology spending even if economic conditions are stable, could adversely impact our business, financial condition, and results of operations in a number of ways, including longer sales cycles, lower prices for our platforms and services, material default rates among our customers, reduced sales of our platforms or services, and lower or no growth.
We cannot predict the timing, strength, or duration of any crises, economic slowdown or any subsequent recovery generally, or for any industry in particular. Although certain aspects of the effects of a crisis or an economic slowdown may provide potential new opportunities for our business, we cannot guarantee that the net impact of any such events will not be materially negative. Accordingly, if the conditions in the general economy
and the markets in which we operate worsen from present levels, our business, financial condition, and results of operations could be adversely affected.
If the market for our platforms and services develops more slowly than we expect, our growth may slow or stall, and our business, financial condition, and results of operations could be harmed.
The market for our platforms is rapidly evolving. Our future success will depend in large part on the growth and expansion of this market, which is difficult to predict and relies on a number of factors, including customer adoption, customer demand, changing customer needs, the entry of competitive products, the success of existing competitive products, potential customers’ willingness to adopt an alternative approach to data collection, storage, and processing and their willingness to invest in new software after significant prior investments in legacy data collection, storage, and processing software. The estimates and assumptions that are used to calculate our market opportunity are subject to change over time, and there is no guarantee that any particular number or percentage of the organizations covered by our market opportunity estimates will pay for our platforms and services at all or generate any particular level of revenue for us. Even if the market in which we compete meets the size estimates and growth forecasts, our business could fail to grow at the levels we expect or at all for a variety of reasons outside our control, including competition in our industry. Further, if we or other data management and analytics providers experience security incidents, loss of or unauthorized access to customer data, disruptions in delivery, or other problems, this market as a whole, including our platforms, may be negatively affected. If software for the challenges that we address does not achieve widespread adoption, or there is a reduction in demand caused by a lack of customer acceptance, technological challenges, weakening economic conditions (including due to the COVID-19 pandemic), security or privacy concerns, competing technologies and products, decreases in corporate spending, or otherwise, or, alternatively, if the market develops but we are unable to continue to penetrate it due to the cost, performance, and perceived value associated with our platforms, or other factors, it could result in decreased revenue and our business, financial condition, and results of operations could be adversely affected.
We will face risks associated with the growth of our business in new commercial markets and with new customer verticals, and we may neither be able to continue our organic growth nor have the necessary resources to dedicate to the overall growth of our business.
We plan to expand our operations in new commercial markets, including those where we may have limited operating experience, and may be subject to increased business, technology and economic risks that could affect our financial results. In recent periods, we have increased our focus on commercial customers. In the future, we may increasingly focus on such customers, including in the banking, financial services, healthcare, pharmaceutical, manufacturing, telecommunication, automotive, airlines and aerospace, consumer packaged goods, insurance, retail, transportation, shipping and logistics, and energy industries. Entering new verticals and expanding in the verticals in which we are already operating will continue to require significant resources and there is no guarantee that such efforts will be successful or beneficial to us. Historically, sales to new customers have often led to additional sales to the same customers or similarly situated customers. As we expand into and within new and emerging markets and heavily-regulated industry verticals, we will likely face additional regulatory scrutiny, risks, and burdens from the governments and agencies which regulate those markets and industries. While this approach to expansion within new commercial markets and verticals has proven successful in the past, it is uncertain we will achieve the same penetration and organic growth in the future and our reputation, business, financial condition, and results of operations could be negatively impacted.
information and technology. Despite our efforts, third parties may attempt to disclose, obtain, copy, or use our intellectual property or other proprietary information or technology without our authorization, and our efforts to protect our intellectual property and other proprietary rights may not prevent such unauthorized disclosure or use, misappropriation, infringement, reverse engineering or other violation of our intellectual property or other proprietary rights. Effective protection of our rights may not be available to us in every country in which our technology platforms or services are available. The laws of some countries may not be as protective of intellectual property and other proprietary rights as those in the United States, and mechanisms for enforcement of intellectual property and other proprietary rights may be inadequate.
Also, our involvement in standard setting activity or the need to obtain licenses from others may require us to license our intellectual property. Accordingly, despite our efforts, we may be unable to prevent third parties from using our intellectual property or other proprietary information or technology.
Even if our patents issue in a form that covers our technology, enforcing patents against suspected infringers is time consuming, expensive and involves risks associated with litigation, including the risk the suspected infringers file counterclaims against us.
establish the validity of our intellectual property or other proprietary rights. Any such litigation, whether or not it is resolved in our favor, could be time-consuming, result in significant expense to us and divert the efforts of our technical and management personnel. Furthermore, attempts to enforce our intellectual property rights against third parties could also provoke these third parties to assert their own intellectual property or other rights against us, or result in a holding that invalidates or narrows the scope of our rights, in whole or in part.
obligations. Large indemnity payments could harm our business, financial condition, and results of operations. Any dispute with a customer with respect to such obligations could have adverse effects on our relationship with that customer and other existing customers and new customers and harm our business and results of operations.
We are currently, and may in the future become, involved in a number of legal, regulatory, and administrative inquiries and proceedings, and unfavorable outcomes in litigation or other of these matters could negatively impact our business, financial conditions, and results of operations.
We are currently, and may, from time to time, be involved in and subject to litigation or proceedings for a variety of claims or disputes, and we may have in the past, and may in the future, be subject to regulatory inquiries. These claims, lawsuits, and proceedings could involve labor and employment, discrimination and harassment, commercial disputes, intellectual property rights (including patent, trademark, copyright, trade secret, and other proprietary rights), class actions, general contract, tort, defamation, data privacy rights, antitrust, common law fraud, government regulation, or compliance, alleged federal and state securities and “blue sky” law violations or other investor claims, and other matters. Derivative claims, lawsuits, and proceedings, which may, from time to time, be asserted against our directors by our stockholders, could involve breach of fiduciary duty, failure of oversight, corporate waste claims, and other matters. One of our stockholders with respect to whom we are currently engaged in litigation as described in the notes to our consolidated financial statements has threatened to bring various of these claims. In addition, our business and results may be adversely affected by the outcome of currently pending and any future legal, regulatory, and/or administrative claims or proceedings, including through monetary damages or injunctive relief.
The number and significance of our legal disputes and inquiries may increase as we continue to grow larger, as our business has expanded in employee headcount, scope, and geographic reach, and as our platforms and services have become more complex. Additionally, if customers fail to pay us under the terms of our agreements, we may be adversely affected due to the cost of enforcing the terms of our contracts through litigation. Litigation or other proceedings can be expensive and time consuming and can divert our resources and leadership’s attention from our primary business operations. The results of our litigation also cannot be predicted with certainty. If we are unable to prevail in litigation, we could incur payments of substantial monetary damages or fines, or undesirable changes to our platforms or business practices, and accordingly, our business, financial condition, or results of operations could be materially and adversely affected. Furthermore, if we accrue a loss contingency for pending litigation and determine that it is probable, any disclosures, estimates, and reserves we reflect in our financial statements with regard to these matters may not reflect the ultimate disposition or financial impact of litigation or other such matters. These proceedings could also result in negative publicity, which could harm customer and public perception of our business, regardless of whether the allegations are valid or whether we are ultimately found liable. Additional information regarding certain of the lawsuits we are involved in is described further in Note 8 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
are critical to their businesses or missions and may have a lower risk tolerance to defects in our platforms than to defects in other, less critical, software products. Any errors or delays in releasing new software or new versions of platforms or allegations of unsatisfactory performance, or errors, defects, or failures in released software could cause us to lose revenue or market share, increase our service costs, cause us to incur substantial costs in redesigning the software, cause us to lose significant customers, subject us to liability for damages and divert our resources from other tasks, any one of which could materially and adversely affect our business, results of operations and financial condition. In addition, our platforms could be perceived to be ineffective for a variety of reasons outside of our control. Hackers or other malicious parties could circumvent our or our customers’ security measures, and customers may misuse our platforms resulting in a security breach or perceived product failure.
reasons, including actual or perceived failures or breaches of security or privacy, or reputational concerns, or they may choose not to renew their licenses with us. In addition, we may be subject to liability if third-party software that we license is found to infringe, misappropriate, or otherwise violate intellectual property or privacy rights of others. The loss of, or inability to obtain, certain third-party licenses or other rights or to obtain such licenses or rights on favorable terms, or the need to engage in litigation regarding these matters, could result in product roll-backs, delays in product releases until equivalent technology can be identified, licensed or developed, if at all, and integrated into our platforms, and may have a material adverse effect on our business, financial condition, and results of operations. Moreover, the inclusion in our platforms of software or other intellectual property licensed from third parties on a nonexclusive basis could limit our ability to differentiate our platforms from products of our competitors and could inhibit our ability to provide the current level of service to existing customers.
our management’s attention and other resources, could require us to lease some of our proprietary code, or could require us to devote additional research and development resources to change our software, any of which could adversely affect our business.
Changes in tax laws or tax rulings, including uncertainties in the interpretation
Theevolving U.S. and various foreign tax regimes we
otherwise harm our business.
We are also subject to non-income taxes, such as payroll, sales, use, value-added, net worth, property, and goodsplatforms and services, taxesincluding the European General Data Protection Regulation (“GDPR”) which took effect in the United States and various foreign jurisdictions. We are periodically reviewed and audited by U.S. and foreign tax authorities with respect to income and non-income taxes. Tax authorities may disagree with certain positions we have taken, and we may have exposure to additional income and non-income tax liabilities which could have an adverse effect on our business, financial condition, and results of operations. In addition, our future effective tax rates could be favorably or unfavorably affected by changes in tax rates, changes in the valuation of our deferred tax assets or liabilities, the effectiveness of our tax planning strategies, or changes in tax laws or their interpretation. Such changes could have an adverse impact on our financial condition.
Our employee equity incentive plan is currently administered in several foreign jurisdictions, many of which have increasingly complex securities and tax laws, the application of which can be uncertain. Foreign tax authorities could audit our equity plan, including past and future issuances thereunder, and may disagreeMay 2018. Complying with the manner in which we administer our equity plan locally, including our tax withholding methodologies. Should foreign authorities determine that we have failed to comply with localGDPR or other data protection laws and regulations as they emerge may cause us to incur substantial operational costs or require us to modify our data handling practices on an ongoing basis.
The enactment of legislation implementing changesdo so.
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Recent changes to U.S. tax laws,
Our
States and some local taxing jurisdictions have differing rules and regulations governing sales and use taxes, and these rules and regulationsbusiness, regardless of whether the allegations are subject to varying interpretations that may change over time. We collect and remit U.S. sales and use tax, value-added tax (“VAT”), and goods and services tax (“GST”) in a number of jurisdictions. It is possible, however, that we could face sales tax, VAT,valid or GST audits and that our liability for these taxes could exceed our estimates as state tax authorities could still assert thatwhether we are obligated to collect additional tax amounts from our customers and remit those taxes to those authorities. We could also be subject to audits in states and non-U.S. jurisdictions for which we have not accrued tax liabilities. One or more states or countries may seek to impose incremental or new sales, use, or other tax collection obligations on us or may determine that such taxes should have, but have not been, paid by us. Furthermore, on June 21, 2018, the Supreme Court held in South Dakota v. Wayfair, Inc. that states could impose sales tax collection obligations on out-of-state retailers even if those retailers lack any physical presence within the states imposing the sales taxes. Under Wayfair, a person requires only a “substantial nexus” with the taxing state before the state may subject the person to sales tax collection obligations therein. An increasing number of states (both before and after the
publication of Wayfair) have considered or adopted laws that attempt to impose sales tax collection obligations on out-of-state retailers. The Supreme Court’s Wayfair decision has removed a significant impediment to the enactment and enforcement of these laws, and it is possible that states may seek to tax out-of-state retailers on sales that occurred in prior tax years. A successful assertion by a state, country, or other jurisdiction that we should have been or should be collecting additional sales, use, or other taxes could, among other things, result in substantial tax payments, including substantial interest and penalty charges, create significant administrative burdens for us, discourage potential customers from entering into license arrangements for our platforms due to the incremental cost of any such sales or other related taxes, or otherwise harm our business.
We may not be able to utilize a significant portion of our net operating loss carry-forwards and research and development credits, which could adversely affect our results of operations.
Due to prior period losses, we have generated significant federal and state net operating loss carry-forwards that start or already began to expire beginning in 2024 and 2016, respectively. Additionally, Palantir hasultimately found liable. Additional information regarding certain federal and state research and development credits. The federal credits have expiration dates between 2024 and 2037, and the California credits have no expiration date. Utilization of the net operating losseslawsuits we are involved in is described further in
There is also a risk that due to regulatory changes, such as suspensionsthis Quarterly Report on the use of net operating losses or tax credits, and in light of the needs of various jurisdictions including especially the need for some states to raise additional revenue to help counter the fiscal impact from the COVID-19 pandemic, possibly with retroactive effect, or for other unforeseen reasons, our existing net operating losses or tax credits could expire or otherwise be unavailable to offset future income tax liabilities. A temporary suspension of the use of certain net operating losses and tax credits is expected to be enacted in California, and other states may enact suspensions as well.
Form
We have operations, deal with and make sales to governmental or quasi-governmental entities in the United States and in
required export authorizations or export to countries, governments, and persons targeted by applicable sanctions. We take precautions to prevent our offerings from being exported in violation of these laws, including: (i) seeking to proactively classify our platforms and obtain authorizations for the export and/or import of our platforms where appropriate, (ii) implementing certain technical controls and screening practices to reduce the risk of violations, and (iii) requiring compliance with U.S. export control and sanctions obligations in customer and vendor contracts. However, we cannot guarantee the precautions we take will prevent violations of export control and sanctions laws.
In the future, we may not be able to secure the financing necessary to operate and grow our business as planned, or to make acquisitions.
In the future, we may seek to raise or borrow additional funds to expand our product or business development efforts, make acquisitions or otherwise fund or grow our business and operations. For example, during June 2020, we restructured our existing credit facilities. As of September 30, 2020, we had a $200.0 million term loan outstanding and an additional $200.0 million of undrawn revolving commitments available under our secured credit facility. The principal amounts outstanding under this loan will be due and payable in June 2023, and interest payments are due and payable quarterly or more or less frequently in certain circumstances. Additional equity or debt financing may not be available on favorable terms, or at all.
Historically, we have funded our operations and capital expenditures primarily through equity issuances, debt, and cash received from our customers. Although we currently anticipate that our existing cash and cash equivalents will be sufficient to meet our cash needs for the next twelve months, we may require additional financing, and we may not be able to obtain debt or equity financing on favorable terms, if at all. If we raise equity financing to fund operations or on an opportunistic basis, our stockholders may experience significant dilution of their ownership interests. If adequate funds are not available on acceptable terms, or at all, we may be unable to, among other things:
Develop new products, features, capabilities, and enhancements;
Continue to expand our product development, sales, and marketing organizations;
Hire, train, and retain employees;
Respond to competitive pressures or unanticipated working capital requirements; or
Pursue acquisition or other growth opportunities.
Our inability to take any of these actions because adequate funds are not available on acceptable terms could have an adverse impact on our business, financial condition, results of operations, and growth prospects.
Our ability to generate the amount of cash needed to pay interest and principal on our secured credit facility and our ability to refinance all or a portion of our indebtedness or obtain additional financing depends on many factors beyond our control.
Our ability to make scheduled payments on, or to refinance our obligations under, our secured credit facility depends on our financial and operating performance and prevailing economic and competitive conditions. Certain of these financial and business factors, many of which may be beyond our control, are described above.
If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures, sell assets, raise additional equity capital, or restructure our debt. However, there is no assurance that such alternative measures may be successful or permitted under the agreements governing our indebtedness and, as a result, we may not be able to meet our scheduled debt service obligations. In the absence of such results of operations and resources, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our debt service and other obligations, which could harm our business, financial condition, and results of operations.
Our outstanding debt matures in June 2023. We cannot guarantee that we will be able to refinance our indebtedness or obtain additional financing on satisfactory terms or at all, including due to existing guarantees on our assets or our level of indebtedness and the debt incurrence restrictions imposed by the agreements governing our indebtedness. Further, the cost and availability of credit are subject to changes in the economic and business environment. If conditions in major credit markets deteriorate, our ability to refinance our indebtedness or obtain additional financing on satisfactory terms, or at all, may be negatively affected.
Our debt agreements contain restrictions that may limit our flexibility in operating our business.
Our credit agreement and related documents, including our pledge and security agreements, contain, and instruments governing any future indebtedness of ours would likely contain, a number of covenants that will impose significant operating and financial restrictions on us, including restrictions on our ability to, among other things:
Create liens on certain assets;
Incur additional debt;
Consolidate, merge, sell or otherwise dispose of all or substantially all of our assets;
Sell certain assets;
Pay dividends on or make distributions in respect of our capital stock;
Place restrictions on certain activities of subsidiaries;
Transact with our affiliates; and
Use a portion of our cash resources.
Any of these restrictions could limit our ability to plan for or react to market conditions and could otherwise restrict corporate activities. Any failure to comply with these covenants could result in a default under our secured credit facility or instruments governing any future indebtedness of ours. Additionally, our credit facility is secured by substantially all of our assets. Upon a default, unless waived, the lenders under our secured credit facility could elect to terminate their commitments, cease making further loans, foreclose on our assets pledged to such lenders to secure our obligations under our credit agreement and force us into bankruptcy or liquidation. In addition, a default under our secured credit security could trigger a cross default under agreements governing any future indebtedness. Our results of operations may not be sufficient to service our indebtedness and to fund our other expenditures, and we may not be able to obtain financing to meet these requirements. If we experience a default under our secured credit facility or instruments governing our future indebtedness, our business, financial condition, and results of operations may be adversely impacted.
In addition, a material portion of our cash is pledged as cash collateral for letters of credit and bank guarantees which support certain of our real estate leases, customer contracts, and other obligations. While these obligations remain outstanding and are cash collateralized, we do not have access to and cannot use the pledged cash for our operations or to repay our other indebtedness. As of September 30, 2020, we were in compliance with all covenants and restrictions associated with our secured credit facility.
Variable rate indebtedness that we have incurred or may incur under our secured credit facility will subject us to interest rate risk, which could cause our debt service obligations to increase significantly.
As of September 30, 2020, we had an aggregate of $200.0 million of term indebtedness outstanding under our secured credit facility. Borrowings under the secured credit facility bear interest at variable rates, which exposes us to interest rate risk. Our loans under our secured credit facility bear interest at LIBOR (or any successor rate) plus 2.75% or a base rate plus 1.75% and are payable quarterly or more or less frequently in certain circumstances.
We may acquire or invest in companies and technologies, which may divert our management’s attention, and result in additional dilution to our stockholders. We may be unable to integrate acquired businesses and technologies successfully or achieve the expected benefits of such acquisitions or investments.
As part of our business strategy, we have engaged in strategic transactions in the past and expect to evaluate and consider potential strategic transactions, including acquisitions of, or investments in, businesses, technologies, services, products and other assets in the future. We also may enter into relationships with other businesses to expand our products or our ability to provide services. An acquisition, investment or business relationship may result in unforeseen risks, operating difficulties and expenditures, including the following:
An acquisition may negatively affect our financial results because it may require us to incur charges or assume substantial debt or other liabilities, may cause adverse tax consequences or unfavorable accounting treatment, may expose us to claims and disputes by third parties, including intellectual property claims and disputes, or may not generate sufficient financial return to offset additional costs and expenses related to the acquisition;
Potential goodwill impairment charges related to acquisitions;
Costs and potential difficulties associated with the requirement to test and assimilate the internal control processes of the acquired business;
We may encounter difficulties or unforeseen expenditures assimilating or integrating the businesses, technologies, infrastructure, products, personnel, or operations of the acquired companies, particularly if the key personnel of the acquired company choose not to work for us or if we are unable to retain key personnel, if their technology is not easily adapted to work with ours, or if we have difficulty retaining the customers of any acquired business due to changes in ownership, management, or otherwise;
We may not realize the expected benefits of the acquisition;
An acquisition may disrupt our ongoing business, divert resources, increase our expenses, and distract our management;
An acquisition may result in a delay or reduction of customer purchases for both us and the company acquired due to customer uncertainty about continuity and effectiveness of service from either company;
The potential impact on relationships with existing customers, vendors, and distributors as business partners as a result of acquiring another company or business that competes with or otherwise is incompatible with those existing relationships;
The potential that our due diligence of the acquired company or business does not identify significant problems or liabilities, or that we underestimate the costs and effects of identified liabilities;
Exposure to litigation or other claims in connection with, or inheritance of claims or litigation risk as a result of, an acquisition, including but not limited to claims from former employees, customers, or other third parties, which may differ from or be more significant than the risks our business faces;
We may encounter difficulties in, or may be unable to, successfully sell any acquired products;
An acquisition may involve the entry into geographic or business markets in which we have little or no prior experience or where competitors have stronger market positions;
An acquisition may require us to comply with additional laws and regulations, or to engage in substantial remediation efforts to cause the acquired company to comply with applicable laws or regulations, or result in liabilities resulting from the acquired company’s failure to comply with applicable laws or regulations;
Our use of cash to pay for an acquisition would limit other potential uses for our cash;
If we incur debt to fund such acquisition, such debt may subject us to material restrictions on our ability to conduct our business as well as financial maintenance covenants; and
To the extent that we issue a significant amount of equity securities in connection with future acquisitions, existing stockholders may be diluted and earnings per share may decrease.
The occurrence of any of these risks could have a material adverse effect on our business, results of operations, and financial condition. Moreover, we cannot assure you that we would not be exposed to unknown liabilities.
Changes in accounting principles or their application to us could result in unfavorable accounting charges or effects, which could adversely affect our results of operations and growth prospects.
adverse effect on our financial results.be materially adversely affected. A change in any of these principles or guidance, or in their interpretations or application to us, may have a significant effect on our reported results, as well as our processes and related controls, and may retroactively affect previously reported results or our forecasts, which may negatively impact our financial statements.
For example, recent new standards issued by the Financial Accounting Standards Board could materially impact our financial statements, including Accounting Standards Codification Topic 842 (“Topic 842”), Leases. The adoption of these new standards may potentially require enhancements or changes in our processes or systems and may require significant time and cost on behalf of our financial management. This may in turn adversely affect our results of operations and growth prospects. Additionally, if we lose our “emerging growth company” status during the year ending December 31, 2020, we will be required to retroactively adopt Topic 842 for the full year.
If we fail to maintain an effective system of internal controls, our ability to produce timely and accurate financial statements or comply with applicable regulationscompensation.
As a public company, wesubject to additional tax liabilities.
controls and related procedures, including complying with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act that we will eventually be required to include in our annual reports filed with the SEC. We will need to hire and successfully integrate additional accounting and financial staff with appropriate company experience and technical accounting knowledge, as well as implement and integrate new technological systems. In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting, we have expended, and anticipate that we will continue to expend, significant resources, including accounting-related costs and significant management oversight.
Our current controls and any new controls that we develop may become inadequate because of changes in conditions in our business. Further, we have identified in the past, and may identify in the future, deficiencies in our controls. Any failure to develop or maintain effective controls or any difficulties encountered in their implementation or improvement could harma material impact on our results of operations and cash flows. If U.S. or cause usother foreign tax authorities change applicable tax laws, our overall taxes could increase, and our financial condition or results of operations may be adversely impacted.
Our independent registered public accounting firm is not required to attest to the effectiveness of our internal control over financial reporting until after we are no longer an “emerging growth company” as defined in the JOBS Act. At such time, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our internal control over financial reporting is documented, designed, or operating. Any failure to maintain effective disclosure controls and internal control over financial reportingsector could have a material adverse effect on our business.
business.
As
In addition, changing laws, regulations, and standards relatinggovernment were to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs, and making some activities more time-consuming. These laws, regulations, and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to invest substantial resources to complysuspend or debar us from doing business with evolving laws, regulations, and standards, and this investment may result in increased general and administrative expenses and a diversion of management’s time and attention from business operations to compliance activities. If our efforts to comply with new laws, regulations, and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings against us and our business may be harmed.
We also expect these rules and regulations to make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to maintain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified individuals to serve on our Board of Directors or as our executive officers.
As a result of disclosure of information in this Quarterly Report on Form 10-Q and in filings required of a public company, our business and financial condition will become more visible, which may result in an increased risk of threatened or actual litigation, including by competitors and other third parties. If such claims are successful,government, our business, financial condition, and results of operations would be materially harmed.
Natural disasters
Natural disasters or other catastrophic events may cause damage or disruptioncustomers, often award large developmental item and service contracts to our operations, non-U.S. commercebuild custom software rather than firm fixed-price contracts for commercial products. We sell commercial items and services and do not contract for
We may face exposuredecrease or shift to foreign currency exchange rate fluctuations.
Our results of operations and cash flowsprograms in areas in which we do not provide services or are subjectless likely to fluctuations due tobe awarded contracts. Such changes in foreign currency exchange rates, particularly changesspending authorizations and budgetary priorities may occur as a result of shifts in spending priorities from defense-related and other programs as a result of competing demands for federal funds and the Euronumber and GBP. Weintensity of military conflicts or other factors.
Our executive officers, directors, and record holders representing over 99% of our capital stock and securities convertible into or exchangeable for our capital stock are subject to market standoff or lock-up agreements with us under which they cannot sell, offer, contract to sell, pledge, grant any option to purchase, lend, or otherwise dispose of shares of our capital stock, or enter into any hedging or similar transaction or arrangement that is designed to or could reasonably be expected to lead to or result in a sale or disposition or transfer of any of the economic consequences of ownership of shares of our capital stock, until the start of the third trading day following the date of public disclosure of our financial results for the year ending December 31, 2020 (the “lock-up period”), except as described below and subject to certain other exceptions.
An aggregate of approximately 1,836.0 million shares, including shares issuable upon exercise of outstanding stock options, will be able to be sold after the expiration of the lock-up period related to our listing on the NYSE, subject to applicable securities laws and our insider trading policy. In addition, certain record holders subject to market standoff agreements with us have not signed the lock-up agreement and are therefore not permitted to sell any shares during the lock-up period. An aggregate of 89,007,617 shares held by our Founders and their affiliates have been registered by us for resale and are permitted to be sold under the Founders’ lock-up agreements during the lock-up period, subject to applicable securities laws and our insider trading policy. We reasonably expect that our Founders and their affiliates may sell all or a significant portion of such registered shares. Following the expiration of their lock-up agreements, our Founders will be free to sell all of their remaining shares pursuant to Rule 144 (subject to volume limitations) at such times and in such amounts as they determine.
Our lock-up agreements are with record holders of our securities. Holders of beneficial interests of our securities that are not record holders and that are not otherwise bound by lock-up agreements could enter into transactions with respect to those beneficial interests that negatively impact our stock price. In addition, an equityholder who is not subject to a lock-up agreement with us may be able to sell, short sell, transfer, hedge, pledge, or otherwise dispose of or attempt to sell, short sell, transfer, hedge, pledge, or otherwise dispose of, their equity interests at any time after our listing on the NYSE.
We estimate that stockholders owning an aggregate
We are an “emerging growth company,” and we cannot be certain if the reduced disclosure requirements applicable to “emerging growth companies” will make our Class A common stock less attractive to investors.
We are an “emerging growth company” and have the option to utilize certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, election to defer the adoption of recently issued accounting standards, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We may take advantage of these reporting exemptions until we are no longer an “emerging growth company.” We will remain an “emerging growth company” until the earlier of (i) the last day of the fiscal year (A) following the fifth anniversary of the listing of our Class A common stock on the NYSE, (B) in which we have total annual revenue of at least $1.07 billion, or (C) in which we are deemed to be a large accelerated filer, with at least $700 million of equity securities held by non-affiliates as of the prior June 30th, and (ii) the date on which we have issued more than $1 billion in non-convertible debt during the prior three-year period.
Under the JOBS Act, “emerging growth companies” can also delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have elected to use this extended transition period for complying with certain new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date we (i) are no longer an “emerging growth company” or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our consolidated financial statements may or may not be comparable to companies that comply with new or revised accounting pronouncements as of public companies’ effective dates. Further, we may take advantage of some of the other reduced regulatory and reporting requirements that will be available to us so long as we qualify as an “emerging growth company.”
Among other things, this means that our independent registered public accounting firm will not be required to provide an attestation report on the effectiveness of our internal control over financial reporting so long as we qualify as an “emerging growth company,” which may increase the risk that weaknesses or deficiencies in our internal control over financial reporting go undetected. Likewise, so long as we qualify as an “emerging growth company,” we may elect not to provide you with certain information, including certain financial information and
certain information regarding compensation of our executive officers, that we would otherwise have been required to provide in filings we make with the SEC, which may make it more difficult for investors and securities analysts to evaluate our company. As a result, investor confidence in our company and the trading price of our Class A common stock may be adversely affected. Further, we cannot predict if investors will find our Class A common stock less attractive because we will rely on these exemptions. If some investors find our Class A common stock less attractive as a result, there may be a less active trading market for our Class A common stock and our trading price may be more volatile.
are intended tomay discourage certain types of transactions that may involve an actual or threatened acquisition of the company,Company, which will likely depress the trading price of our Class A common stock.
Our Founders and their affiliates also hold the substantial majority of our outstanding Class B common stock. Because of the
In such cases, the voting power of our outstanding capital stock will be further concentrated among the remaining Founders, which may be as few as one. Further, if there are only two Founders who are party to the Founder Voting Agreement, one Founder will be able to effectively defeat any shareholderstockholder action, except for the election of directors underor other matters that are decided by a plurality standard,of votes, if his instruction to vote the shares of Class F common stock differs from the other Founder. The Founders who are then party to the Founder Voting Agreement will retain the right to direct the voting of the Class F common stock without regard to their employment status with us.
Voting Agreement will control any vote that requires the affirmative vote of the holders of a majority of our Class F common stock, including action of our stockholders by written consent, the designation or issuance by us of shares of preferred stock, and certain amendments to our amended and restated certificate of incorporation relating to our preferred stock.
Our amended and restated certificate of incorporation does not prevent our Founders and their affiliates from having more than 49.999999% ofVoting Power.
August 5, 2021.
suchwithdrawing Founder votes suchhis shares in the same manner as the shares of Class F common stock are voted pursuant to the Founder Voting Trust Agreement, then our Founders and their affiliates, in the aggregate, would vote up to 59.999999%could exercise 49.999999% of the Voting Power of our capital stock plus the voting power of shares held by the withdrawing Founder (which would no longer represent a subset of the 49.999999% of the Voting Power of our capital stock in such manner.
Similarly, the calculation of the voting power of the Class F common stock may not take into account all sharesvoted by those Founders that are deemedremain party to be beneficially owned by any Founder or his affiliates, including certain shares for which a proxy has not been granted under the Founder Voting Agreement pursuant to its terms or by an amendment thereof, in particular if certain shares are withdrawn from such proxy.
Agreement).
For example, 89,007,617 shares held by our Founders and their affiliates are permitted to be sold immediately under the lock-up agreements and were registered for resale pursuant to the registration statement relating to our direct listing on the NYSE. We reasonably expect that our Founders and their affiliates may sell all or a significant portion of such registered shares. Following the expiration of their lock-up agreements, our Founders will be free to sell all of their remaining shares pursuant to Rule 144 (subject to volume limitations) at such times and in such amounts as they determine. The total voting power that will be exercised in accordance with the decision of a majority in number of the Founders who are then party to the Founder Voting Agreement will not be diminished as a result of these sales, so long as such Founders and certain of their affiliates collectively meet the Ownership Threshold on the applicable record date.
We have also
outstanding capital stock, as a comparison, there were 1,726,685,7551,936,577,854 shares of our common stock outstanding as of SeptemberJune 30, 2020.2021. Except for certain equitable adjustments as provided in our amended and restated certificate of incorporation, future issuances of Corporation Equity Securities by us will not increase the Ownership Threshold that must be met on any applicable record date and, accordingly, will decrease the percentage of outstanding Corporation Equity Securities represented by the Ownership Threshold.
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Salefinancial statement and disclosure controls and procedures and internal control over financial reporting, we have expended, and anticipate that we will continue to expend, significant resources, including accounting-related costs and significant management oversight.
In July 2020,changes in conditions in our business. Further, we sold 88.3 million shareshave identified in the past, and may identify in the future, deficiencies in our controls. Any failure to develop or maintain effective controls or any difficulties encountered in their implementation or improvement could harm our results of operations or cause us to fail to meet our reporting obligations and may result in a restatement of our financial statements for prior periods. Any failure to implement and maintain effective internal control over financial reporting also could adversely affect the results of periodic management evaluations and annual independent registered public accounting firm attestation reports. Ineffective disclosure controls and procedures and internal control over financial reporting could also cause investors to lose confidence in our reported financial and other information, which could have a negative effect on the trading price of our Class A common stock at a pricestock. In addition, if we are unable to continue to meet these requirements, we may not be able to remain listed on the NYSE. As of $4.65 per share, of which 88.2 million sharesDecember 31, 2020 we were soldnot required to SOMPO, a partner investor in our equity method investee, Palantir Japan.
Plan-Related Issuances
From July 1, 2020 through September 22, 2020 (the datecomply with the SEC rules that implement Section 404 of the filingSarbanes-Oxley Act and are therefore not required to make a formal assessment of the effectiveness of our registration statementinternal control over financial reporting for that purpose. We will be required to provide an annual management report on Form S-8), we issued and sold to our employees, consultants, and other service providers an aggregate of 11,393,489 shares of Class B common stock upon the exercise of options under our Amended 2010 Equity Incentive Plan (“2010 Plan”), at exercise prices ranging from $0.85 to $4.75 per share, for a weighted-average exercise price of $1.23.
From July 1, 2020 through September 22, 2020, we issued and sold to our employees, consultants, and other service providers an aggregate of 472,780 shares of Class B common stock upon the exercise of options under our 2006 Stock Plan (“2006 Plan”), at exercise prices ranging from $0.50 to $0.52 per share, for a weighted-average exercise price of $0.51.
From July 1, 2020 through September 22, 2020, we issued and sold to our employees, consultants, and other service providers an aggregate of 9,588,191 shares of Class A common stock upon the exercise of options under our 2010 Plan, at exercise prices ranging from $1.10 to $7.40 per share, for a weighted-average exercise price of $3.81.
From July 1, 2020 through September 22, 2020, we granted to our employees, consultants, and other service providers options to purchase an aggregate of 162,000,000 shareseffectiveness of our Class B common stock underinternal control over financial reporting as of December 31, 2021, with our 2010 Plan andsecond Annual Report on Form
From July 1, 2020 through September 22, 2020, we grantedindependent registered public accounting firm will be required to our employees, consultants, and other service providers RSUs representing an aggregate of 60,000,000 sharesformally attest to the effectiveness of our Class B common stock underinternal control over financial reporting commencing with our 2010 PlanAnnual Report on Form
From July 1, 2020 through September 22, 2020, we granted to our employees, consultants,business, financial condition and other service providers RSUs representing an aggregateresults of 30,789,357 sharesoperations and could cause a decline in the market price of our Class A common stock understock.
business may be harmed.
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES |
In September 2020,
In September 2020,
The Shares are convertible into shares of the Company’s Class A Common Stock in accordance with the Company’s Amended and Restated Certificate of Incorporation.
ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
ITEM 4. | MINE SAFETY DISCLOSURES |
ITEM 5. | OTHER INFORMATION |
ITEM 6. | EXHIBITS |
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Incorporated by Reference | ||||||||||||||||||
Exhibit Number | Description | Form | File No. | Exhibit | Filing Date | |||||||||||||
10.1 | 8-K | 001-39540 | 10.1 | April 2, 2021 | ||||||||||||||
31.1* | ||||||||||||||||||
31.2* | ||||||||||||||||||
32.1† | ||||||||||||||||||
101.INS* | XBRL Instance Document. | |||||||||||||||||
101.SCH* | XBRL Taxonomy Extension Schema Document. | |||||||||||||||||
101.CAL* | XBRL Taxonomy Extension Calculation Linkbase Document. | |||||||||||||||||
101.DEF* | XBRL Taxonomy Extension Definition Linkbase Document. | |||||||||||||||||
101.LAB* | XBRL Taxonomy Extension Label Linkbase Document. | |||||||||||||||||
101.PRE* | XBRL Taxonomy Extension Presentation Linkbase Document. |
* | Filed Herewith |
† | The certifications attached as Exhibit 32.1 that accompany this Quarterly Report on Form 10-Q are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of the Registrant under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Quarterly Report on Form10-Q, irrespective of any general incorporation language contained in such filing. |
PALANTIR TECHNOLOGIES INC. | ||||||
Date: | By: | /s/ Alexander C. Karp | ||||
Alexander C. Karp | ||||||
Chief Executive Officer | ||||||
( Principal Executive Officer | ||||||
Date: | By: | /s/ David Glazer | ||||
David Glazer | ||||||
Chief Financial Officer | ||||||
( Principal Financial Officer | ||||||
Date: | By: | /s/ Jeffrey Buckley | ||||
Jeffrey Buckley | ||||||
Chief Accounting Officer | ||||||
( Principal Accounting Officer |
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