Palantir Signals It May Never be Profitable, Posts First Ever Positive Free Cash Flow

Secretive software firm’s economic performance improves as accounting results lag.

February 24, 2022

Palantir Technologies (PLTR), a provider of software used by government intelligence agencies, is subtly signaling it may never be profitable. The company has generated an operating loss three consecutive years totaling $2.16 billion. In its latest 10-K, Palantir seems to suggest it may never be profitable enough to use all of the tax deferred assets (DTAs) created by its past losses:

“Because of our history of U.S. and U.K. net operating tax losses, we have established a full valuation allowance against potential future benefits for U.S. federal, state and U.K. deferred tax assets. We expect to maintain this full valuation allowance for the foreseeable future as it is more likely than not that some or all of those deferred tax assets may not be realized based on our history of losses.”

In the U.S. net operating losses (NOLs) can be carried forward indefinitely. Though Palantir’s disclosure might alarm investors focused solely on accounting results, the company’s economic results may be turning a corner.

After two consecutive years of negative free cash flow— Palantir burnt $436.6 million in 2019 and 2020— the company generated positive free cash flow of $321.2 million in 2021. Free cash flow is defined as operating cash flows less property and equipment.

Palantir is expanding its customer base beyond large government agencies to early and growth stage companies. This explains the 18% decline in average revenue per customer (ARPU) in 2021, while ARPU for Palantir’s top 20 customers increased 31% to $43.6 million.

Related: TYL, SPLK, SNOW, VRNT, CTSH

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