PROCORE TECHNOLOGIES, INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our condensed consolidated financial statements and the related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and notes thereto and the related Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K datedMarch 4, 2022 . You should review the disclosure under "Part II, Item 1A - Risk Factors" in this Quarterly Report on Form 10-Q for a discussion of forward-looking statements and important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. These statements, like all statements in this report, speak only as of their date (unless another date is indicated), and we undertake no obligation to update or revise these statements in light of future developments. Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q to the "Company", "Procore ," "we," "us" and "our" refer toProcore Technologies, Inc. and its consolidated subsidiaries. Overview
Our mission is to connect everyone in construction on a global platform.
We are a leading provider of cloud-based construction management software, and are helping transform one of the oldest, largest, and least digitized industries in the world. We focus exclusively on construction, connecting and empowering the industry's key stakeholders, such as owners, general contractors, specialty contractors, architects, and engineers, to collaborate from any location, on any internet-connected device. Our platform is modernizing and digitizing construction management by enabling real-time access to critical project information, simplifying complex workflows, and facilitating seamless communication among key stakeholders, all of which we believe positions us to serve as the system of record for the construction industry. Adoption of our platform helps customers increase productivity and efficiency, reduce rework and costly delays, improve safety and compliance, and enhance financial transparency and accountability.
In short, we build the software for the people that build the world.
We serve customers ranging from small businesses managing a couple million
dollars of annual construction volume to global enterprises managing billions of
dollars of annual construction volume. Our core customers are owners, general
contractors, and specialty contractors operating across the commercial,
residential, industrial, and infrastructure segments of the construction
industry. We primarily sell subscriptions to access our products through our
direct sales team, which is specialized by stakeholder, region, size, and type.
Our products are offered on our cloud-based platform and are designed to be easy
to configure and deploy. Our users can access our products on computers,
smartphones, and tablets through any web browser or from our mobile application
available for both the iOS and Android platforms.
We generate substantially all of our revenue from subscriptions to access our
products and have an unlimited user model that is designed to facilitate
adoption and maximize usage of our platform by all project stakeholders. We sell
our products on a subscription basis for a fixed fee with pricing generally
based on the number and mix of products and the annual construction volume
contracted to run on our platform. As our customers subscribe to additional
products, or increase the annual construction volume contracted to run on our
platform, we generate more revenue. We do not provide refunds for unused
construction volume, or charge customers based on consumption or on a per
project basis. Subscriptions to access our products include customer support and
allow for unlimited users as we do not charge a per-seat or per-user fee.
Customers can invite all project participants to engage with our platform as
part of a project team. This includes the customer's employees and its
collaborators, who are other project participants who engage with our platform
but do not pay us for such use. Further, multiple stakeholders can be customers
on the same project and retain access to project information for the duration of
their subscription.
Certain Factors Affecting Our Performance
Acquiring New Customers and Retaining and Expanding Existing Customers’ Use of Our Platform
We are highly focused on continuing to acquire new customers to support our long-term growth. We intend to efficiently drive new customer acquisitions by continuing to invest across our sales and marketing engine to engage our prospective customers, increase brand awareness, and drive adoption of our products and platform. We added 594 net new customers in the second quarter of 2022. The number of customers on our platform has increased from 11,149 as ofJune 30, 2021 to 13,403 as ofJune 30, 2022 , reflecting a year-over-year growth rate of 20%. All customer counts aforementioned exclude the customers acquired from Levelset, LaborChart, andEsticom, Inc. ("Esticom"), as they are on non-standard legacy contracts. 20 -------------------------------------------------------------------------------- Levelset, LaborChart, and Esticom customers will be included in our customer metrics when they are renewed onto standardProcore annual contracts or upon integration of the sales process. Levelset has more than 3,000 customers as ofJune 30, 2022 . Our ability to continue to grow our business and serve the broader needs of the construction industry depends on acquiring new customers, customers purchasing new products, renewing and expanding their use of existing products, and maintaining or increasing the price of our existing products.
Continued Technology Innovation and Expansion of Our Platform
We plan to continue to invest in technology innovation and product development to enhance the capabilities of our platform. Additional features and products will also enable customers and collaborators to manage new workflows on our platform and allow us to attract a broader set of stakeholders. We have introduced new products developed in-house and through our acquisitions ofZimfly, Inc. ,Honest Buildings, Inc. ,Construction BI, LLC , Esticom, LaborChart, and Levelset. In connection with our acquisition of Levelset, we assumed, and continue to develop, a materials financing program for our customers. Purchasers of construction materials, typically specialty contractors, generally pay their materials suppliers on 30-day payment terms but typically do not recoup their costs for such materials for 60 to 120 days after they submit invoices for those materials to the general contractors. This disconnect between payment terms set by suppliers and when specialty contractors receive payment for those materials can pose risk and uncertainty to specialty contractors and their ability to manage their cash flow. Our materials financing program facilitates the purchase of construction materials from fulfillment partners (our suppliers) on behalf of our customers, allowing such customers to pay us for the materials on deferred payment terms. We typically charge an origination fee upon purchase of the materials and a weekly finance charge until receipt of deferred payment in full. We use internal data where available on the performance and payment history of other project participants (like the property owner and general contractor) who are involved in the construction project to help determine whether to provide materials financing for such project, and we secure such financing with mechanic's lien rights. In circumstances of customer non-payment, our lien rights help enforce payment collections from property owners, lenders, and general contractors who are involved in such project, which in turn strengthens the collectability of amounts we finance for our customers. We are currently using capital from our balance sheet for our materials financing program. Ultimately, we anticipate partnering with a capital provider at the appropriate time to dedicate the financing needed to scale this program. Until that time, we may use up to approximately 10% of our current cash position to support the program. We intend to continue to invest in building additional products, financial offerings, features, and functionality that expand our capabilities and facilitate the extension of our platform. We also intend to continue to evaluate strategic acquisitions and investments in businesses and technologies to drive product and market expansion. Our acquisitions of LaborChart and Levelset closed in the fourth fiscal quarter of 2021, and, as such, we expect that expenses, both in dollars and as a percentage of total revenues, may increase from the current or historical periods. Our future success is dependent on our ability to successfully develop or acquire, market, and sell existing and new products to both new and existing customers.
International Growth
We see international expansion as a major, and largely greenfield, opportunity for growth as we look to capture a larger part of the worldwide construction market. We have started to grow our presence internationally with the opening of sales and marketing offices inSydney, Australia andVancouver andToronto, Canada in 2017;London, England in 2018;Mexico City, Mexico in 2019; andSingapore ,Republic of Singapore ;Paris, France ;Dublin, Ireland ; andDubai, United Arab Emirates in 2022. We have also developed focused sales and marketing efforts inGermany , where we do not yet maintain an office location. As a result of our international efforts, we support multiple languages and currencies. Furthermore, we believe global demand for our products will continue to increase as we expand our international sales and marketing efforts, and the awareness of our products and platform grows. However, our ability to conduct our operations internationally will require considerable management attention and resources and is subject to the particular challenges of supporting a rapidly growing business in an environment of multiple languages, cultures, customs, legal, tax and regulatory systems, alternative dispute systems, and commercial markets. We have made, and plan to continue to make, significant investments in existing and select additional international markets. While these investments may adversely affect our operating results in the near term, we believe they will contribute to our long-term growth. COVID-19 Update The ongoing COVID-19 pandemic has caused general business disruption worldwide beginning inJanuary 2020 . Some local governments temporarily closed construction jobsites or imposed restrictions on construction activity, such as limiting the 21 -------------------------------------------------------------------------------- number of workers allowed on site. Construction teams had to learn to navigate pandemic safety protocols on jobsites and coordinate already complex construction processes with increasingly distributed workforces. Owners had to reconfigure existing buildings to improve safety and consider new distancing requirements in project designs, all amid increased materials and labor costs. We believe that the COVID-19 pandemic has helped bring to light the need for construction stakeholders to digitize their operations and adopt technological solutions that enable distanced, distributed workforces. The impact of the COVID-19 pandemic and its effects on the construction industry continue to evolve, and the impact on our financial condition and results of operations remains uncertain. Furthermore, the COVID-19 pandemic has spurred changes in the way we work as we move to a more hybrid workforce. Some of our employees have begun to return to in-person offices in 2022; however, that may change if the number of COVID-19 cases rises where our offices are located or if there is an increase in new variants, and we may take further actions as may be required by government authorities or that we determine are in the best interests of our employees, customers, and business partners. The full extent to which the COVID-19 pandemic, including any new variants, may directly or indirectly impact our business, results of operations, and financial condition will depend on future developments that are highly uncertain and cannot be accurately predicted. See the section titled "Risk Factors" for further discussion of the possible impact of the COVID-19 pandemic on our business and financial results. Components of Results of Operations
Revenue
We generate substantially all of our revenue from subscriptions to access our products and related support. Subscriptions are sold for a fixed fee and revenue is recognized ratably over the term of the subscription. Our subscriptions generally have annual or multi-year terms, are typically subject to renewal at the end of the subscription term, and are non-cancelable. To the extent we invoice our customers in advance of revenue recognition, we record deferred revenue. Consequently, a portion of the revenue that we report each period is attributable to the recognition of revenue previously deferred related to subscriptions that we entered into during previous periods.
Cost of Revenue
Cost of revenue primarily consists of customer support personnel-related
compensation expenses, including salaries, stock-based compensation, benefits,
payroll taxes, commissions, and bonuses, third-party hosting costs, software
license fees, amortization of acquired technology intangible assets,
amortization of capitalized software development costs, and allocated overhead.
We expect our cost of revenue to increase on an absolute dollar basis as our
revenue and acquisition activities increase. We intend to continue to invest
additional resources in platform hosting, customer support, and software
development as we grow our business and to ensure that our customers are
realizing the full benefit of our products. The level and timing of investment
in these areas could affect our cost of revenue in the future.
Costs related to the development of internal-use software for new products and
major platform enhancements are capitalized until the software is substantially
complete and ready for its intended use. Capitalized software development costs
are amortized on a straight-line basis over the developed software's estimated
useful life of two years and the amortization is recorded in cost of revenue.
Subsequent to our IPO in 2021, we have incurred higher cost of revenue expenses
as a result of stock-based compensation expense associated with restricted stock
units ("RSUs") where the performance condition was satisfied upon the effective
date of the registration statement for our IPO, and higher employer payroll
taxes related to employee stock transactions. We anticipate additional
stock-based compensation expense and employer payroll tax related to employee
stock transactions going forward. In addition, we recorded and will continue to
record significant amortization of acquired developed technology intangible
assets as a result of our acquisitions of Levelset and LaborChart in the fourth
quarter of 2021.
Operating Expenses
Our operating expenses consist of sales and marketing, research and development,
and general and administrative expenses. For each of these categories of
expense, personnel-related compensation expenses are the most significant
component, which include salaries, stock-based compensation, commissions,
benefits, payroll taxes, and bonuses. To support the growth of our business, we
also increased our headcount in each of these categories, including, to a
limited extent, through our acquisitions.
Subsequent to our IPO in 2021, we have incurred higher operating expenses as a result of stock-based compensation
22 -------------------------------------------------------------------------------- expense associated with RSUs where the performance condition was satisfied upon the effective date of the registration statement for our IPO, and higher employer payroll taxes related to employee stock transactions. We anticipate additional stock-based compensation expense and employer payroll tax related to employee stock transactions going forward.
Sales and Marketing
Sales and marketing expenses primarily consist of personnel-related compensation expenses for our sales and marketing organizations, advertising costs, marketing events, travel, trade shows and other marketing activities, contractor costs to supplement our staff levels, consulting services, amortization of acquired customer relationship intangible assets, and allocated overhead. We expense advertising and other promotional expenditures as incurred. We expect sales and marketing expenses to increase on an absolute dollar basis and vary from period to period as a percentage of revenue, as we increase our investment in sales and marketing efforts over the foreseeable future, primarily from increased headcount in sales and marketing as well as investment in marketing to drive customer growth. Research and Development Research and development expenses primarily consist of personnel-related compensation expenses for our engineering, product, and design teams, contractor costs to supplement our staff levels, consulting services, amortization of certain acquired intangible assets used in research and development activities, and allocated overhead. We expect research and development expenses to increase on an absolute dollar basis and vary from period to period as a percentage of revenue for the foreseeable future as we continue to invest in headcount to build, enhance, maintain, and scale our products and platform.
General and Administrative
General and administrative expenses primarily consist of personnel-related compensation expenses for our finance, executive, information technology, legal, human resources, and other administrative functions. Additionally, general and administrative expenses include non-personnel-related expenses, such as professional fees for audit, legal, tax, and other external consulting services, including acquisition-related transaction expenses, costs associated with operating as a public company, including insurance costs, professional services, investor relations, and other compliance costs, property and use taxes, licenses, travel and entertainment costs, and allocated overhead. We expect to increase the size of our general and administrative functions to support the growth of our business, including our international expansion.
Interest Income (Expense), Net
Interest income (expense), net consists primarily of interest income from money market funds, and is partially offset by interest expense associated with our finance leases and undrawn fees associated with our former credit agreement (the "Credit Facility"), terminated as ofApril 29, 2022 , which was provided bySilicon Valley Bank .
Other Expense, Net
Other expense, net primarily consists of gains or losses on foreign currency transactions and miscellaneous other income and expenses.
Provision for Income Taxes
Provision for income taxes consists primarily of income taxes ofU.S. state franchise taxes and certain foreign jurisdictions in which we conduct business, net of the release of valuation allowance as a result of deferred tax liabilities from acquisitions that are an available source of income to realize our deferred tax assets. As we expand our international operations, we expect to incur increased foreign tax expenses. We have a full valuation allowance for netU.S. andU.K. deferred tax assets. TheU.S. valuation allowance includes net operating loss ("NOL") carryforwards, and tax credits related primarily to research and development for our operations inthe United States . TheU.K. valuation allowance is primarily comprised of NOL carryforwards. We expect to maintain this full valuation allowance for our netU.S. andU.K. deferred tax assets for the foreseeable future. 23 -------------------------------------------------------------------------------- Results of Operations
The following tables set forth our condensed consolidated statements of operations data and such data as a percentage of revenue for each of the periods indicated. Certain percentages below may not sum due to rounding.
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
(in thousands)
Revenue $ 172,205 $ 122,790 $ 331,721 $ 236,728
Cost of revenue (1)(2)(3) 36,735 25,493 70,067 45,852
Gross profit 135,470 97,297 261,654 190,876
Operating expenses:
Sales and marketing (1)(2)(3)(4) 103,283 99,905 197,198 153,870
Research and development (1)(2)(3)(4) 63,822 88,627 124,076 123,172
General and administrative (1)(3)(4) 40,667 57,827 83,819 75,754
Total operating expenses 207,772 246,359 405,093 352,796
Loss from operations (72,302 ) (149,062 ) (143,439 ) (161,920 )
Interest income (expense), net 111 (576 ) (380 ) (1,138 )
Other expense, net (890 ) (44 ) (347 ) (227 )
Loss before provision for income taxes (73,081 ) (149,682 ) (144,166 ) (163,285 )
Provision for income taxes 42 37 376 166
Net loss $ (73,123 ) $ (149,719 ) $ (144,542 ) $ (163,451 )
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
(as a percentage of revenue)
Revenue 100 % 100 % 100 % 100 %
Cost of revenue (1)(2)(3) 21 % 21 % 21 % 19 %
Gross profit 79 % 79 % 79 % 81 %
Operating expenses:
Sales and marketing (1)(2)(3)(4) 60 % 81 % 59 % 65 %
Research and development (1)(2)(3)(4) 37 % 72 % 37 % 52 %
General and administrative (1)(3)(4) 24 % 47 % 25 % 32 %
Total operating expenses 121 % 201 % 122 % 149 %
Loss from operations (42 %) (121 %) (43 %) (68 %)
Interest income (expense), net 0 % (0 %) (0 %) (0 %)
Other expense, net (1 %) (0 %) (0 %) (0 %)
Loss before provision for income taxes (42 %) (122 %) (43 %) (69 %)
Provision for income taxes 0 % 0 % 0 % 0 %
Net loss (42 %) (122 %) (44 %) (69 %)
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(1) Includes stock-based compensation expense as follows:
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
(in thousands)
Cost of revenue $ 2,046 $ 4,918 $ 3,504 $ 6,079
Sales and marketing 12,572 42,855 22,868 46,107
Research and development 13,144 51,317 26,152 54,563
General and administrative 6,133 38,353 18,580 40,997
Total stock-based compensation expense
(2) Includes amortization of acquired intangible assets as follows:
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
(in thousands)
Cost of revenue $ 5,654 $ 1,086 $ 11,308 $ 2,172
Sales and marketing 3,106 466 6,212 945
Research and development 895 680 1,797 863
Total amortization of acquired
intangible assets $ 9,655 $ 2,232 $ 19,317 $ 3,980
(3) Includes employer payroll tax on employee stock transactions as follows:
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
(in thousands)
Cost of revenue $ 68 $ 330 $ 149 $ 334
Sales and marketing 317 1,215 925 1,357
Research and development 523 1,748 1,550 1,822
General and administrative 182 635 727 715
Total employer payroll tax on employee stock
transactions$ 1,090 $ 3,928 $ 3,351 $ 4,228 (4) Includes acquisition-related expenses as follows: Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 (in thousands) Sales and marketing $ 208$ 110 $ 415$ 110 Research and development 1,090 191 2,191 191 General and administrative 1,081 442 2,119 442
Total acquisition-related expenses $ 2,379
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Comparison of the Three Months Ended
Revenue
Three Months Ended June 30, Change
2022 2021 Dollar Percent
(dollars in thousands)
Revenue $ 172,205 $ 122,790 $ 49,415 40 %
During the three months ended June 30, 2022 , our revenue increased by $49.4
million , or 40%, compared to the three months ended June 30, 2021 , which is
primarily due to expansion within our existing customers and revenue from new
customers added during the year. The acquisition of Levelset in November 2021
contributed $7.3 million in revenue in the second quarter of 2022. Revenue from
our other acquisitions in 2021 was not material in the second quarter of 2022.
The increase in revenue from existing customers includes the net benefit of a
full quarter of subscription revenue in the second quarter of 2022 from
customers that were newly acquired in the first quarter of 2022 and continued
their subscriptions in the second quarter of 2022, and customers that expanded
their subscriptions in the second quarter of 2022 through the purchase of
additional construction volume or products.
Cost of Revenue, Gross Profit, and Gross Margin
Three Months Ended June 30, Change
2022 2021 Dollar Percent
(dollars in thousands)
Cost of revenue $ 36,735 $ 25,493 $ 11,242 44 %
Gross profit 135,470 97,297 38,173 39 %
Gross margin 79 % 79 %
The increase in cost of revenue during the three months ended June 30, 2022 was
primarily attributable to increases of $4.6 million in amortization of acquired
developed technology intangible assets related to recent acquisitions, and $3.1
million in third-party cloud hosting and related services as we grow our
customer base. The increase in cost of revenue was also attributable to a $1.6
million increase in personnel-related expenses, including an increase of $4.8
million in salaries and wages driven by headcount and merit increases, partially
offset by a decrease of $2.9 million in stock-based compensation expense.
Stock-based compensation expense was higher in the second quarter of 2021
primarily due to RSUs where the performance condition was satisfied upon the
effectiveness date of the registration statement for the IPO in May 2021 . We
increased our cost of revenue headcount by 47% since June 30, 2021 in order to
continue to support the growth of our business.
Operating Expenses
Three Months Ended June 30, Change
2022 2021 Dollar Percent
(dollars in thousands)
Sales and marketing $ 103,283 $ 99,905 $ 3,378 3 %
The increase in sales and marketing expenses during the three months ended June
30, 2022 was primarily attributable to increases of $3.1 million in
travel-related costs, $2.7 million in marketing events and expenses, and $2.6
million in amortization of acquired customer relationship intangible assets
related to recent acquisitions. The increase in sales and marketing expenses was
partially offset by a $9.4 million decrease in personnel-related expenses,
including a decrease in stock-based compensation expense of $30.3 million ,
offset by increases of $16.9 million in salaries and wages driven by headcount
and merit increases and $4.9 million in commissions. Stock-based compensation
expense was higher in the second quarter of 2021 primarily due to RSUs where the
performance condition was satisfied upon the effectiveness date of the
registration statement for the IPO in May 2021 . We increased our sales and
marketing headcount by 49% since June 30, 2021 in order to continue to drive
customer growth.
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Three Months Ended June 30, Change
2022 2021 Dollar Percent
(dollars in thousands)
Research and development $ 63,822 $ 88,627 $ (24,805 ) (28 %)
The decrease in research and development expenses during the three months ended
June 30, 2022 was primarily attributable to a decrease of $28.5 million in
personnel-related expenses, including a decrease of $38.2 million in stock-based
compensation expense, partially offset by an increase of $10.9 million in
salaries and wages driven by headcount and merit increases. Stock-based
compensation expense was higher in the second quarter of 2021 primarily due to
RSUs where the performance condition was satisfied upon the effectiveness date
of the registration statement for the IPO in May 2021 . The decrease in research
and development expenses was partially offset by an increase of $1.6 million in
professional fees primarily for contractors to supplement our staff levels. We
increased our research and development headcount by 41% since June 30, 2021 in
order to continue to build, enhance, maintain, and scale our products and
platform.
Three Months Ended June 30, Change
2022 2021 Dollar Percent
(dollars in thousands)
General and administrative
The decrease in general and administrative expenses during the three months endedJune 30, 2022 was primarily attributable to a decrease of$23.6 million in personnel-related expenses, including a decrease of$32.2 million in stock-based compensation expense, partially offset by an increase of$9.1 million in salaries and wages driven by headcount and merit increases. Stock-based compensation expense was higher in the second quarter of 2021 primarily due to RSUs where the performance condition was satisfied upon the effectiveness date of the registration statement for the IPO inMay 2021 . The decrease in general and administrative expenses was partially offset by an increase of$2.7 million in professional fees, primarily for contractors and consultants to supplement our staff levels. We increased our general and administrative headcount by 66% sinceJune 30, 2021 in order to continue to support the growth of our business. Interest Income (Expense), Net, Other Expense, Net, and Provision for Income Taxes Three Months Ended June 30, Change 2022 2021 Dollar Percent (dollars in thousands) Interest income (expense), net$ 111 $ (576 )$ 687 * Other expense, net 890 44 846 * Provision for income taxes 42 37 5 14 %
* Percentage not meaningful
The change in other expense, net during the three months endedJune 30, 2022 was primarily due to foreign currency losses related to changes in Australian and Canadian dollar exchange rates. The change in interest expense, net during the three months endedJune 30, 2022 was primarily due to an increase in interest income from money market funds.
Comparison of the Six Months Ended
Revenue
Six Months Ended June 30, Change
2022 2021 Dollar Percent
(dollars in thousands)
Revenue $ 331,721 $ 236,728 $ 94,993 40 %
During the six months ended June 30, 2022 , our revenue increased by $95.0
million , or 40%, compared to the six months ended June 30, 2021 , which is
primarily due to expansion within our existing customers and revenue from new
customers added during the year. The acquisition of Levelset in November 2021
contributed $14.2 million in revenue in the first half of
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2022. Revenue from our other acquisitions in 2021 was not material in the first
half of 2022. The increase in revenue from existing customers includes the net
benefit of a full six months of subscription revenue in 2022 from customers that
were newly acquired in 2021 and continued their subscriptions in the first half
of 2022, and customers that expanded their subscriptions in 2022 through the
purchase of additional construction volume or products.
Cost of Revenue, Gross Profit, and Gross Margin
Six Months Ended June 30, Change
2022 2021 Dollar Percent
(dollars in thousands)
Cost of revenue $ 70,067 $ 45,852 $ 24,215 53 %
Gross profit 261,654 190,876 70,778 37 %
Gross margin 79 % 81 %
The increase in cost of revenue during the six months ended June 30, 2022 was
primarily attributable to increases of $9.1 million in amortization of acquired
developed technology intangible assets related to recent acquisitions and $6.2
million in personnel-related expenses, including an $8.9 million increase in
salaries and wages driven by headcount and merit increases, partially offset by
a $2.6 million decrease in stock-based compensation expense. Stock-based
compensation expense was higher in the first half of 2021 primarily due to RSUs
where the performance condition was satisfied upon the effectiveness date of the
registration statement for the IPO in May 2021 . The increase in cost of revenue
was also attributable to an increase of $5.4 million in third-party cloud
hosting and related services as we grow our customer base. We increased our cost
of revenue headcount by 47% since June 30, 2021 in order to continue to support
the growth of our business.
Operating Expenses
Six Months Ended June 30, Change
2022 2021 Dollar Percent
(dollars in thousands)
Sales and marketing $ 197,198 $ 153,870 $ 43,328 28 %
The increase in sales and marketing expenses during the six months ended June
30, 2022 was primarily attributable to an increase of $18.9 million in
personnel-related expenses, including increases of $33.4 million in salaries and
wages driven by headcount and merit increases and $9.2 million in commissions,
partially offset by a decrease of $23.2 million in stock-based compensation
expense. Stock-based compensation expense was higher in the first half of 2021
primarily due to RSUs where the performance condition was satisfied upon the
effectiveness date of the registration statement for the IPO in May 2021 . The
increase in sales and marketing expenses was also attributable to a $5.3 million
increase in amortization of acquired customer relationship intangible assets
related to recent acquisitions, a $5.0 million increase in marketing events and
expenses, a $5.0 million increase in travel-related costs, and a $3.0 million
increase in professional fees primarily for contractors to supplement our staff
levels. We increased our sales and marketing headcount by 49% since June 30,
2021 in order to continue to drive customer growth.
Six Months Ended June 30, Change
2022 2021 Dollar Percent
(dollars in thousands)
Research and development $ 124,076 $ 123,172 $ 904 1 %
The increase in research and development expenses during the six months ended
June 30, 2022 was primarily attributable to increases of $2.3 million in
professional fees primarily for contractors to supplement our staff levels, $1.6
million in computer software expenses, $1.1 million in travel-related costs, and
$1.0 million in amortization of acquired developed technology intangible assets.
The increases were partially offset by a decrease in personnel-related expenses
of $6.6 million , including a decrease of $28.4 million in stock-based
compensation expense and an increase of $22.2 million in salaries and wages
driven by headcount and merit increases. Stock-based compensation expense was
higher in the first half of 2021 primarily due to RSUs where the performance
condition was satisfied upon the effectiveness date of the registration
statement for the IPO in May 2021 . We increased our research and development
headcount by 41% since June 30, 2021 in order to continue to build, enhance,
maintain, and scale our products and platform.
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Six Months Ended June 30, Change
2022 2021 Dollar Percent
(dollars in thousands)
General and administrative
11%
The increase in general and administrative expenses during the six months endedJune 30, 2022 was primarily due to increases of$6.0 million in professional fees primarily for contractors and consultants to supplement our staff levels,$1.8 million in travel-related costs, and$1.6 million in insurance-related expenses. The increase in general and administrative expenses was partially offset by a decrease of$5.7 million in personnel-related expenses, including a decrease of$22.4 million in stock-based compensation expense, partially offset by an increase of$16.7 million in salaries and wages driven by headcount and merit increases. Stock-based compensation expense was higher in the first half of 2021 primarily due to RSUs where the performance condition was satisfied upon the effectiveness date of the registration statement for the IPO inMay 2021 . We increased our general and administrative headcount by 66% sinceJune 30, 2021 in order to continue to support the growth of our business.
Interest Expense, Net, Other Expense, Net, and Provision for Income Taxes
Six Months Ended June 30, Change
2022 2021 Dollar Percent
(dollars in thousands)
Interest expense, net $ 380 $ 1,138 $ (758 ) (67 %)
Other expense, net 347 227 120 53 %
Provision for income taxes 376 166 210 127 %
The change in interest expense, net during the six months ended
was primarily due to an increase in interest income from money market funds.
Non-GAAP Financial Measures
In addition to our results determined in accordance with accounting principles generally accepted inthe United States of America ("GAAP"), we believe certain non-GAAP measures, as described below, are useful in evaluating our operating performance. We use this non-GAAP financial information, collectively, to evaluate our ongoing operations as well as for internal planning and forecasting purposes. We believe that non-GAAP financial information, when taken collectively, is helpful to investors because it provides consistency and comparability with past financial performance, and may assist in comparisons with other companies, some of which use similar non-GAAP financial information to supplement their GAAP results. The non-GAAP financial information is presented for supplemental informational purposes only, and should not be considered a substitute for financial information presented in accordance with GAAP, and may be different from similarly-titled non-GAAP measures used by other companies. A reconciliation is provided below for each non-GAAP financial measure to the most directly comparable financial measure stated in accordance with GAAP. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures.
Non-GAAP Gross Profit, Non-GAAP Gross Margin, Non-GAAP Operating Expenses, Non-GAAP Loss from Operations, and Non-GAAP Operating Margin
We define these non-GAAP financial measures as the respective GAAP measures,
excluding stock-based compensation expense, amortization of acquired intangible
assets, employer payroll tax related to employee stock transactions, and
acquisition-related expenses. Acquisition-related expenses include external and
incremental transaction costs, such as legal and due diligence costs, and
retention payments. These expenses are unpredictable, and generally would not
have otherwise been incurred in the periods presented as part of our continuing
operations. In addition, the size and complexity of an acquisition, which often
drives the magnitude of acquisition-related expenses, may not be indicative of
such future costs. We believe excluding acquisition-related expenses facilitates
the comparison of our financial results to the Company's historical operating
results and to other companies in our industry.
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The following tables present reconciliations of our GAAP financial measures to our non-GAAP financial measures for the periods presented:
Reconciliation of gross profit and gross margin to non-GAAP gross profit and non-GAAP gross margin:
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
(dollars in thousands)
Revenue $ 172,205 $ 122,790 $ 331,721 $ 236,728
Gross profit 135,470 97,297 261,654 190,876
Stock-based compensation expense 2,046 4,918 3,504 6,079
Amortization of acquired technology
intangible assets 5,654 1,086 11,308 2,172
Employer payroll tax on employee stock
transactions 68 330 149 334
Non-GAAP gross profit $ 143,238 $ 103,631 $ 276,615 $ 199,461
Gross margin 79 % 79 % 79 % 81 %
Non-GAAP gross margin 83 % 84 % 83 % 84 %
Reconciliation of operating expenses to non-GAAP operating expenses:
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
(dollars in thousands)
Revenue $ 172,205 $ 122,790 $ 331,721 $ 236,728
GAAP sales and marketing 103,283 99,905 197,198 153,870
Stock-based compensation expense (12,572 ) (42,855 ) (22,868 ) (46,107 )
Amortization of acquired intangible
assets (3,106 ) (466 ) (6,212 ) (945 )
Employer payroll tax on employee stock
transactions (317 ) (1,215 ) (925 ) (1,357 )
Acquisition-related expenses (208 ) (110 ) (415 ) (110 )
Non-GAAP sales and marketing $ 87,080 $ 55,259 $ 166,778 $ 105,351
GAAP sales and marketing as a percentage
of revenue 60 % 81 % 59 % 65 %
Non-GAAP sales and marketing as a
percentage
of revenue 51 % 45 % 50 % 45 %
GAAP research and development $ 63,822 $ 88,627 $ 124,076 $ 123,172
Stock-based compensation expense (13,144 ) (51,317 ) (26,152 ) (54,563 )
Amortization of acquired intangible
assets (895 ) (680 ) (1,797 ) (863 )
Employer payroll tax on employee stock
transactions (523 ) (1,748 ) (1,550 ) (1,822 )
Acquisition-related expenses (1,090 ) (191 ) (2,191 ) (191 )
Non-GAAP research and development $ 48,170 $ 34,691 $ 92,386 $ 65,733
GAAP research and development as a
percentage of
revenue 37 % 72 % 37 % 52 %
Non-GAAP research and development as a
percentage of revenue 28 % 28 % 28 % 28 %
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-------------------------------------------------------------------------------- GAAP general and administrative$ 40,667 $ 57,827 $ 83,819 $ 75,754 Stock-based compensation expense (6,133 ) (38,353 ) (18,580 ) (40,997 ) Employer payroll tax on employee stock transactions (182 ) (635 ) (727 ) (715 ) Acquisition-related expenses (1,081 ) (442 ) (2,119 ) (442 ) Non-GAAP general and administrative$ 33,271 $ 18,397 $ 62,393 $ 33,600 GAAP general and administrative as a percentage of revenue 24 % 47 % 25 % 32 % Non-GAAP general and administrative as a percentage of revenue 19 % 15 %
19% 14%
Reconciliation of loss from operations and operating margin to non-GAAP loss from operations and non-GAAP operating margin:
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
(dollars in thousands)
Revenue $ 172,205 $ 122,790 $ 331,721 $ 236,728
Loss from operations (72,302 ) (149,062 ) (143,439 ) (161,920 )
Stock-based compensation expense 33,895 137,443 71,104 147,746
Amortization of acquired intangible
assets 9,655 2,232 19,317 3,980
Employer payroll tax on employee stock
transactions 1,090 3,928 3,351 4,228
Acquisition-related expenses 2,379 743 4,725 743
Non-GAAP loss from operations $ (25,283 ) $ (4,716 ) $ (44,942 ) $ (5,223 )
Operating margin (42 %) (121 %) (43 %) (68 %)
Non-GAAP operating margin (15 %) (4 %) (14 %) (2 %)
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Liquidity and Capital Resources
Prior to our IPO, we financed our operations principally through private placements of our equity securities. In
As ofJune 30, 2022 , our principal sources of liquidity are cash and cash equivalents of$563.2 million , which were held in checking accounts, savings accounts, and highly liquid money market funds. OnApril 29, 2022 , we terminated our Credit Facility. Upon termination of the Credit Facility, our outstanding letters of credit, issued bySilicon Valley Bank , remain outstanding on an unsecured basis, without any requirement to set aside restricted cash. We also have a materials financing program that finances our customers' purchases of construction materials on deferred payment terms. As ofJune 30, 2022 , we had receivables for amounts financed for customers of$12.0 million on our condensed consolidated balance sheet. The related allowance recorded on our materials financing receivables is primarily based on expectations of credit losses based on historical loss data as well as macroeconomic factors and was immaterial as ofJune 30, 2022 . We expect this business to grow in the future, which may impact our liquidity. We believe our existing cash and cash equivalents will be sufficient to meet our needs for at least the next 12 months. We have generated operating losses and negative cash flows from operations in certain periods as reflected in our accumulated deficit and condensed consolidated statements of cash flows. We may not achieve profitability in the foreseeable future and may require additional capital resources to execute strategic initiatives to grow our business. This assessment is a forward-looking statement and involves risks and uncertainties. Our additional future capital requirements will depend on many factors, including our revenue growth rate, new customer acquisition and subscription renewal activity, timing of billing activities, our ability to integrate the companies or technologies we acquire and realize strategic and financial benefits from our investments and acquisitions, other strategic transactions or investments we may enter into, the timing and extent of spending to support further sales and marketing and research and development efforts, general and administrative expenses to support our growth, including international expansion, the timing and extent of amounts financed and customer repayments under our materials financing program, and the ongoing impact of the COVID-19 pandemic. We may in the future enter into arrangements to acquire or invest in complementary businesses, services, and technologies, including intellectual property rights. We may be required to seek additional equity or debt financing to fund these activities. If we are unable to raise additional capital when desired, or on acceptable terms, our business, results of operations, and financial condition could be materially adversely affected. There have been no material changes to our contractual obligations from those discussed in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K datedMarch 4, 2022 . Further, as ofJune 30, 2022 , we did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities, that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
The following table summarizes our cash flows for the periods presented:
Six Months EndedJune 30, 2022 2021 (in thousands)
Net cash (used in) provided by operating activities
25.167
Net cash used in investing activities (30,410 ) (33,342 )
Net cash provided by financing activities 25,003 689,511
Operating Activities
Our largest source of cash from operating activities is collections from the
sales of subscriptions to our customers. Our primary uses of cash from operating
activities are for personnel expenses, marketing expenses, hosting and software
license expenses, and overhead.
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Net cash used in operating activities was $16.7 million during the six months
ended June 30, 2022 which resulted from a net loss of $144.5 million , adjusted
for non-cash charges of $107.1 million and a net cash inflow of $20.8 million
from changes in operating expenses and liabilities. The $20.8 million of net
cash inflows provided as a result of changes in our operating assets and
liabilities primarily reflected the following:
• a
billings and cash receipts from customers;
• a
of our business and timing of billings; and
• a
cash payments to our vendors.
These changes in our operating assets and liabilities were partially offset by the following:
• an
primarily due to timing of payroll, 2021 corporate bonus payout to our
employees in the first quarter of 2022, cash payments to our vendors, and
employee payroll contributions used to purchase shares in connection with
our employee stock purchase plan ("ESPP");
• a $7.4 million increase in deferred contract cost assets related to
commissions as a result of additional customer contracts closed during the
period;
• a
to timing of cash payments to our vendors; and
• a
payments.
Net cash provided by operating activities was$25.2 million during the six months endedJune 30, 2021 , which resulted from a net loss of$163.5 million , adjusted for non-cash charges of$167.8 million and net cash inflow of$20.9 million from changes in operating assets and liabilities. The$20.9 million of net cash inflows provided as a result of changes in our operating assets and liabilities primarily reflected the following:
• an
of billings and cash receipts from customers;
• a
primarily due to timing of payroll and cash payments to our vendors; and
• a
of our business and timing of billings.
These changes in our operating assets and liabilities were partially offset by the following:
• a
to timing of cash payments to our vendors; • a$5.1 million increase in deferred contract cost assets; and
• a
cash payments to our vendors.
Investing Activities
Net cash used in investing activities of$30.4 million during the six months endedJune 30, 2022 consisted of capitalized software development costs of$16.3 million , purchases of property and equipment of$9.4 million primarily related to improvements to our leased office spaces and computer equipment purchases,$9.3 million of originations for materials financing, and strategic investments of$3.0 million , partially offset by$6.3 million of customer repayments for materials financing and$1.3 million in cash receipts from post-close working capital adjustments related to our acquisitions of Levelset and LaborChart in the fourth quarter of 2021. Net cash used in investing activities of$33.3 million during the six months endedJune 30, 2021 consisted of the acquisition of Indus.ai Inc., net of cash acquired, of$20.0 million , capitalized software development costs of$5.7 million , purchases of property and equipment of$4.2 million primarily related to computer equipment purchases, and$3.5 million in strategic investments.
Financing Activities
Net cash provided by financing activities of$25.0 million during the six months endedJune 30, 2022 consisted of$14.6 million in proceeds from stock option exercises and$11.5 million in proceeds from our ESPP, partially offset by$0.8 million in payments on our finance lease obligations. 33 -------------------------------------------------------------------------------- Net cash provided by financing activities of$689.5 million during the six months endedJune 30, 2021 primarily consisted of proceeds from issuance of common stock in IPO, net of underwriting discounts and commissions, of$665.1 million , proceeds from stock option exercises of$29.1 million , partially offset by payments of deferred offering costs of$3.5 million . Credit Facility Our Credit Facility provided for debt financing of up to$75.0 million to be used for general corporate purposes, including the financing of working capital requirements, and was secured by a blanket lien on our assets, until it was terminated onApril 29, 2022 , prior to its maturity date onMay 7, 2022 . As ofJune 30, 2022 , we had issued letters of credit totaling$6.5 million to secure variousU.S. andAustralia leased office facilities. Upon termination of the Credit Facility, our current letters of credit, issued bySilicon Valley Bank , remain outstanding on an unsecured basis, without any requirement to set aside restricted cash. Remaining Performance Obligations Our subscriptions typically have a term of one to three years. The transaction price allocated to remaining performance obligations under our subscriptions represents the contracted transaction price that has not yet been recognized as revenue, which includes deferred revenue and amounts under non-cancelable subscriptions that will be invoiced and recognized as revenue in future periods. As ofJune 30, 2022 , the aggregate amount of the transaction price allocated to remaining performance obligations was$653.9 million , 72% of which is expected to be recognized as revenue in the next 12 months and substantially all of the remainder between 12 and 36 months thereafter. We expect remaining performance obligations to change from period to period primarily due to the size, timing and duration of new customer contracts and customer renewals. Critical Accounting Policies and Estimates Critical accounting policies and estimates are those accounting policies and estimates that are both the most important to the portrayal of our net assets and results of operations and require the most difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. These estimates are developed based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Critical accounting estimates are accounting estimates where the nature of the estimates are material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change and the impact of the estimates on financial condition or operating performance is material. Our significant accounting policies are more fully described in Note 2 of our condensed consolidated financial statements. Our critical accounting policies and more significant judgments and estimates used in the preparation of our financial statements are discussed in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K datedMarch 4, 2022 . There have been no significant changes to these policies for the six months endedJune 30, 2022 . JOBS Act Accounting Election and Emerging Growth Company Status The Jumpstart Our Business Startups Act of 2012 (the "JOBS Act") permits an "emerging growth company" such as us to delay the adoption of new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards, and therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. We intend to rely on other exemptions provided by the JOBS Act, including not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act. We will remain an emerging growth company until the earliest to occur of: (1) the last day of our first fiscal year in which we have total annual revenues of more than$1.07 billion ; (2) the date we qualify as a "large accelerated filer," with at least$700 million of equity securities held by non-affiliates; (3) the date on which we have issued more than$1.0 billion in non-convertible debt securities during the prior three-year period; and (4) the last day of the fiscal year ending after the fifth anniversary of our IPO. Based on the market value of our common stock held by non-affiliates as of the last business day of our fiscal second quarter endedJune 30, 2022 , we will cease to be an emerging growth company as ofDecember 31, 2022 . Recent Accounting Pronouncements
See “Summary of Significant Accounting Policies” in Note 2 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for a description of recently issued accounting pronouncements.
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