Prospectus Summary
PROSPECTUS SUMMARY This summary highlights selected information that is presented in greater detail elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in our Class A common stock. You should read this entire prospectus carefully, including the sections titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the accompanying notes included elsewhere in this prospectus before making an investment decision. Unless the context otherwise requires, the terms “Palantir,” “the company,” “we,” “us” and “our” in this prospectus refer to Palantir Technologies Inc. and its consolidated subsidiaries.PALANTIR TECHNOLOGIES INC.
We build software platforms for large institutions whose work is essential to our way of life. Those institutions must be able to function in times of stability as well as crisis and uncertainty. To do so, they need software that works.
We were founded in 2003 and started building software for the intelligence community in the United States to assist in counterterrorism investigations and operations. We later began working with commercial enterprises.
We have built two principal software platforms, Palantir Gotham (“Gotham”) and Palantir Foundry (“Foundry”). Gotham, our first software platform, was constructed for analysts at defense and intelligence agencies. They were hunting for needles not in one, but in thousands of haystacks. And they did not have the software they needed to do their jobs. In Afghanistan and Iraq, soldiers were mapping networks of insurgents and makers of roadside bombs by hand.
Gotham enables users to identify patterns hidden deep within datasets, ranging from signals intelligence sources to reports from confidential informants, and helps U.S. and allied military personnel find what they are looking for. We later found that the challenges faced by commercial institutions when it came to working with data were fundamentally similar. Companies routinely struggle to manage let alone make sense of the data involved in large projects. Foundry was built for them. The platform transforms the ways in which organizations interact with information by creating a central operating system for their data.
Our software is on the front lines, sometimes literally, and that means so are we. Gotham’s use has now extended beyond intelligence analysis into defense operations and mission planning. And Foundry is becoming the central operating system not only for individual institutions but for entire industries.
The stakes are high. The challenges our platforms address are a matter of survival, both for the institutions we serve and the individuals who depend on them. We have the privilege of partnering with some of the world’s most important government and commercial organizations. And we believe that the work of those organizations is essential to our security and the lives that we lead.
We are committed to ensuring that our software is as effective as possible without ever compromising our values. Our platforms were built from the start to protect individual privacy and prevent the misuse of information. We are not in the business of collecting, mining, or selling data. We build software platforms that enable our customers to integrate their own data — data that they already have.
The same technology that makes our software so analytically powerful — its ability to construct a model of the real world from countless data points — is what allows our customers to monitor, properly secure, and control access to that data and its use. It is also why customers, including governments around the world, trust our platforms to safeguard their data, including their most sensitive information.
In H1 2020, our platforms were used by 125 customers, including some of the largest and most significant institutions in the world. Gotham and Foundry enable these institutions to transform massive amounts of information into an integrated data asset that reflects their operations. Users can build on top of this asset to make data accessible and actionable. Our platforms enable people, whether they are workers on an assembly line or soldiers in the field, to work with data, even if they have never written a line of code.
Our software is used by customers across 36 industries and in more than 150 countries. Our government work is central to defense and intelligence operations in the United States and its allies abroad. On the commercial front, we work with some of the world’s most durable and important companies across industries, including in the energy, transportation, financial services, and healthcare sectors. And our market opportunity is significant. We estimate our total addressable market to be approximately $119 billion across the commercial and government sectors.
We generated $742.6 million in revenue in 2019, reflecting an increase of 25% from our revenue in 2018, which was $595.4 million. In the first half of this year alone, during a period of significant geopolitical instability and economic contraction, we generated $481.2 million in revenue, reflecting a growth rate of 49% over the same period last year.
The scale of our partnerships with customers, in revenue terms, has also grown over time. In 2019, our average revenue per customer was $5.6 million, and the average revenue for our top twenty customers, by revenue generated in 2019, was $24.8 million.
Our operating results have improved significantly in recent years. In 2019, we incurred a net loss of $579.6 million, or a net loss of $337.7 million when excluding stock-based compensation. In H1 2020, our net loss decreased to $164.7 million, or net income of $17.2 million when excluding stock-based compensation, down from a loss of $280.5 million in H1 2019, or a loss of $167.6 million when excluding stock-based compensation.
The improvements in our operating results have principally been driven by increasing revenue and a significant decrease in the time and number of software engineers required to install and deploy our software platforms.
In particular, the time required to install our software and begin working with a customer has decreased more than five-fold since Q2 2019 to an average of 14 days in Q2 2020. In some cases, our customers can now be up and running in six hours. We have also invested heavily in developing the infrastructure used to deliver software updates to our customers. As a result, the number of upgrades our engineers can manage across installations more than doubled from an average of 20,000 per week in Q2 2019 to more than 41,000 per week in Q2 2020.
The broader momentum of our business is the result of the strength of our software platforms. And the need for software that works has never been greater.
The systemic failures of government institutions to provide for the public — fractured healthcare systems, erosions of data privacy, strained criminal justice systems, and outmoded ways of fighting wars — will continue to require both the public and private sectors to transform themselves. We believe that the underperformance and loss of legitimacy of many of these institutions will only increase the speed with which they are required to change.
Other software companies have incorrectly assumed that the future will look like the past, forming their strategies based on assumptions about a world that no longer exists. A focus on targeted analytical tools and optimizing specific functions within complex organizations is insufficient. We believe that software must connect the entire enterprise. Our most critical institutions cannot wait a year or longer for a promised application or bespoke solution to be developed. Those options are often obsolete before they are even delivered.
Our partners need solutions now. And we have built them.
Industry Trends
We believe that the following three trends are among the most significant that are currently shaping the enterprise software industry.
Alpha vs. Beta
Most software makes companies more similar, not different. Packaged software tends to be designed to meet standardized needs. But commoditized solutions are only sufficient when keeping up with the market — that is, beta — is the goal. When it is time to generate differentiated value — that is, alpha — we believe that typical packaged software falls short. A company seeking to capitalize on its unique resources or to uncover a need unmet by its competitors requires more than software that simply conforms to well-defined best practices.
Buy or Build
In the search for differentiation, institutions often resort to a default approach: attempting to coordinate the construction of a custom solution themselves. They enlist the help of consultants, IT services companies, packaged and open source software, and sizable internal IT resources.
Some custom IT and software efforts reach completion. But even in these cases, finishing a project on time does not guarantee enduring value. Such projects typically entail stitching together individual solutions with custom code and forcing them to interoperate. Every new piece of the patchwork opens new avenues for failure down the road.
Embrace Complexity or Resist It
The largest and most complex undertakings when it comes to data integration and analysis, where the risk of failure is highest, also offer the greatest potential return. Across industries, institutions with decades of experience are competing to overcome decades of fragmented IT investments. We have repeatedly seen that institutions that use data to transform their core operations are the ones that win.
Challenges
Building and deploying enterprise software are among the most significant challenges our customers face.
Most Data Integration and Analytical Projects Fall Short
Organizations frequently attempt to build their own data platforms before turning to buy ours. Government agencies and commercial enterprises often experiment with single-purpose tools and custom software solutions for specific workflows such as customer relationship management and financial planning. Each new tool or application creates a new silo within an already fragmented data landscape.
When it comes to making operational decisions, institutions are left to invest significant time and resources in attempting to unify their data.
By the time a question is answered, the underlying data may be stale. When a new question arises, the process begins again.
Fixing a Legacy System Can Be as Expensive as Building One from Scratch
As organizations grow and change, their legacy technology often fails to keep up. Each pivot requires flexibility, and some systems simply lack it. Institutions often have to start over as each aging system becomes obsolete.
Instead of Enabling Collaboration, Many Software Security Models Preclude It Altogether
When an institution’s data systems are fragmented, deploying a security model that functions effectively can be costly, if not prohibitively expensive. In order for an enterprise data platform to effectively power an institution’s operations, security systems must be built in from the start. Security features should always follow a piece of data from its source system to final state. The workarounds — such as manually pulling data from silos and emailing it around — create room for human error and impede oversight.
Our Approach
We do not sell features, tools, or one-off custom applications. When it comes to working with data, those approaches generally work only briefly, if at all.
Some companies throw people at the problem. Others build dashboards. We build software platforms that become part of the institutions we serve. And we believe that every large institution in the world has a problem that our platforms are designed to address.
Our Software Creates a Central Operating System for Data
Our platforms, Gotham and Foundry, allow organizations to recast their siloed systems as contributors to a unified data asset. Our software enables our customers to transform massive amounts of information into knowledge that reflects their world. Data is represented not as cells in a spreadsheet, or exports from a single system, but as entities, events, relationships, consequences, and decisions in context.
Our Software Does Not Displace Existing Systems, It Augments Them
Flexibility and openness are core tenets of our software. By integrating their existing solutions into our central operating system, organizations can choose to maintain key historic investments without having to rebuild their entire data infrastructure. As the world changes and technology evolves, institutions can adjust their data model and integrate new systems, instead of rebuilding everything from scratch.
Our Approach to Security Enables Collaboration Instead of Inhibiting It
Our early days with the U.S. intelligence community informed our development approach. Security is always our first priority. We designed our software to embrace the complexity of security clearances, institutional boundaries, and varying data sensitivity levels. The same technology that allows our platforms to construct a model of the real world from individual data points allows our customers to secure each of those pieces of information. Security need not come at the expense of collaboration. Our software enables both.
Our Technology
We build and deploy software platforms that serve as the central operating system for our customers.
First Principles
Building on First Principles
Our Platforms
We have built two principal software platforms: Palantir Gotham and Palantir Foundry. Our software platforms provide the critical infrastructure needed to integrate our customers’ data and operations.
Each of our platforms are vertically integrated software solutions that cover the entire data lifecycle, from raw data in a source system to decisions made at the highest levels of an organization. The vertically integrated nature of Gotham and Foundry allows users of varying technical abilities to collaborate effectively in our platforms.
Each platform is comprised of user-facing applications that are targeted to the specific industries and sectors in which they are used. Despite their differences, Gotham and Foundry both serve as central operating systems for our customers. Where they vary in specific functionality, they align in approach. Both platforms can be deployed in almost any environment.
Market Opportunity
We estimate the total addressable market (“TAM”) for our software across the commercial and government sectors around the world to be approximately $119 billion. For purposes of estimating the TAM in the commercial and government sectors, we exclude institutions in countries or regions where we have chosen not to sell our software. For more information regarding our TAM, see the section titled “Business—Market Opportunity.”
Competitive Strengths
We believe our competitive strengths set us apart from the rest of the industry.
Growth Strategies
We are pursuing a number of strategies to continue to grow the company, in both our commercial and government business segments in the United States and abroad.
buys software, not just the military. We are working towards becoming the default operating system across the U.S. government. Our victory in federal court now makes that possible.
Our Capital Structure
We have two classes of common stock, Class A common stock and Class B common stock and, subject to stockholder approval, we intend to authorize a third class of common stock, Class F common stock. Each share of our Class A common stock is entitled to one vote and each share of our Class B common stock is entitled to 10 votes. Each share of our Class F common stock is entitled to a variable number of votes, as described further in this prospectus. All shares of our Class F common stock will be held by a voting trust established by our Founders pursuant to the Founder Voting Trust Agreement. Our Founders will also be party to the Founder Voting Agreement. So long as our Founders who are then party to the Founder Voting Agreement and certain of their affiliates collectively meet a minimum ownership threshold (initially, 100 million Corporation Equity Securities (as defined in our amended and restated certificate of incorporation), subject to reduction if a Founder withdraws from the Founder Voting Agreement) on the applicable record date for a vote of the stockholders, the Class F common stock, together with the Founder Voting Trust Agreement and the Founder Voting Agreement, will give these Founders the ability to control up to 49.999999% of the total voting power of our capital stock. This means that, for the foreseeable future, the control of our company will be concentrated with our Founders through our Class F common stock, notwithstanding the number of outstanding shares of Class A common stock and Class B common stock. See the section titled “Description of Capital Stock — Multi-Class Common Stock” for additional information.
The multi-class structure of our common stock is intended to preserve our existing founder control structure after completion of our listing on the NYSE, to facilitate our continued product innovation and the risk-taking that it requires, to permit us to continue to prioritize our long-term goals rather than short-term results, to enhance the likelihood of continued stability in the composition of our Board of Directors and its policies, and to discourage certain types of transactions that may involve an actual or threatened acquisition of the company.
So long as our Founders who are then party to the Founder Voting Agreement and certain of their affiliates collectively meet a minimum ownership threshold on the applicable record date for a vote of the stockholders (which ownership threshold will be reduced in the event that one or two Founders withdraw from the Founder Voting Agreement), these Founders will effectively control all matters submitted to a vote of the stockholders for the foreseeable future. This could delay, defer, or prevent a change of control, merger, consolidation, or sale of all or substantially all of our assets that our other stockholders support. Conversely, this concentrated control could allow our Founders to consummate a transaction that our other stockholders do not support. Moreover, our Founders may support, and may cause the election of directors who support, long-term strategic investment decisions and risks that may not be successful and may seriously harm our business. See the section titled “Risk Factors — Risks Related to Ownership of Our Class A Common Stock” for additional information.
Risk Factors Summary
Our business is subject to numerous risks and uncertainties, including those highlighted in the section titled “Risk Factors” immediately following this prospectus summary. These risks include, but are not limited to, the following:
Channels for Disclosure of Information
Investors, the media, and others should note that, following the effectiveness of the registration statement of which this prospectus forms a part, we intend to announce material information to the public through filings with the SEC, the investor relations page on our website, press releases, public conference calls, webcasts, our twitter account (@PalantirTech), and blog posts on our corporate website at www.palantir.com.
The information disclosed by the foregoing channels could be deemed to be material information. However, information disclosed through these channels does not constitute part of this prospectus and is not incorporated by reference herein.
Any updates to the list of disclosure channels through which we will announce information will be posted on the investor relations page on our website.
Corporate Information
We were incorporated in Delaware in 2003. Our principal executive offices are located at 1555 Blake Street, Suite 250, Denver, Colorado 80202, and our telephone number is (720) 358-3679. Our website address is www.palantir.com. Information contained on, or that is referenced or can be accessed through, our website does not constitute part of this prospectus and inclusions of our website address in this prospectus are inactive textual references only.
“Palantir,” our logo, and our other registered or common law trademarks, service marks, or trade names appearing in this prospectus are the property of Palantir Technologies Inc. Other trademarks and trade names referred to in this prospectus are the property of their respective owners. We are in no way affiliated with, or endorsed or sponsored by, The Saul Zaentz Company d.b.a. Tolkien Enterprises or the Estate of J.R.R. Tolkien.
Emerging Growth Company
We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”). An emerging growth company may take advantage of specified reduced reporting requirements that are otherwise generally applicable to public companies. These reduced reporting requirements include:
We may take advantage of these provisions until we are no longer an emerging growth company. We would cease to be an emerging growth company upon the earliest to occur of: (i) the last day of the fiscal year in which we have more than $1.07 billion in annual revenue; (ii) the date we qualify as a large accelerated filer, which would occur as of the last day of the fiscal year in which we have been subject to SEC reporting requirements for at least 12 months, we have filed at least one Annual Report on Form 10-K, and we have at least $700 million of equity securities held by non-affiliates as of the end of the second quarter of that fiscal year; (iii) the date on which we have, in any three-year period, issued more than $1.0 billion in non-convertible debt securities; and (iv) the last day of the fiscal year ending after the fifth anniversary of the listing of our Class A common stock on the NYSE. We may choose to take advantage of some but not all of these reduced reporting burdens. We have taken advantage of certain reduced reporting burdens in this prospectus. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold stock.