PROCORE TECHNOLOGIES, INC. quarterly report, Q2 FY2023

Procore Technologies, Inc. — Q2 2023 Form 10-Q

Reporting period: Three and six months ended June 30, 2023; financial statements are unaudited. Procore provides cloud-based construction management software and related services. Revenue is primarily subscription-based. Unless indicated otherwise, amounts below are in U.S. dollars.

Key financial results

Metric	Q2 2023	Q2 2022	Six months 2023	Six months 2022
Revenue	$228.5 million	$172.2 million	$442.1 million	$331.7 million
Gross profit / margin	$186.2 million / 81%	$135.5 million / 79%	$359.6 million / 81%	$261.7 million / 79%
Operating loss	$58.7 million	$72.3 million	$128.0 million	$143.4 million
Net loss	$52.9 million	$73.1 million	$116.3 million	$144.5 million
Net loss per share, diluted	$0.37	$0.54	$0.83	$1.07

Revenue increased 33% year over year in both the quarter and first half. Management attributed about 92% of Q2 growth and 82% of first-half growth to existing customers, including subscription expansion.
GAAP gross margin improved by 2 percentage points to 81% in both comparison periods. Q2 operating expenses rose 18% to $245.0 million, below revenue growth; the company remained loss-making.
Management’s non-GAAP operating loss was $3.0 million in Q2 2023 versus $25.3 million in Q2 2022, and $7.1 million for the first half versus $44.9 million. These measures exclude, among other items, stock-based compensation and acquired-intangible amortization; they are not GAAP results.
Stock-based compensation expense was $42.5 million in Q2 and $87.4 million in the first half. Unrecognized compensation cost for outstanding RSUs was $451.9 million, expected to be recognized over a weighted-average 2.7 years.

Cash, liquidity and obligations

At June 30, 2023, cash and cash equivalents were $312.5 million and short-term marketable securities were $290.4 million, totaling approximately $603.0 million. Total assets were $1.73 billion and stockholders’ equity was $1.12 billion.
First-half operating cash flow was positive $17.6 million, compared with cash used of $16.7 million in the prior-year period. Net loss was $116.3 million; operating cash flow benefited from non-cash charges and working-capital movements, including higher deferred revenue.
First-half investing cash outflow was $27.6 million, including $17.4 million of capitalized software development and $17.0 million of materials-financing originations, partly offset by customer repayments and marketable-security maturities. Financing cash inflow was $23.0 million, primarily employee stock-plan proceeds.
The filing reports no conventional borrowings. Balance-sheet finance lease liabilities were $44.6 million non-current; operating lease liabilities were $35.6 million non-current. Current lease balances are not separately identified in the cited figures.
Management said available cash, cash equivalents and marketable securities should cover needs for at least 12 months, while noting continuing operating losses and the possibility of needing additional capital for strategic initiatives.

Material changes and operating indicators

Customer count was 15,704 at June 30, 2023, up 17% year over year; the count excludes certain legacy Levelset and Esticom customers not yet converted to standard Procore contracts. Gross retention rate was 94%, down from 95% a year earlier.
Remaining performance obligations were $849.5 million, up 30% year over year. The company expected to recognize $622.6 million, or 73%, in the next 12 months; current RPO grew 33% to $622.6 million.
U.S. customers generated 86% of revenue; the rest of the world generated 14%, versus 85% and 15%, respectively, a year earlier.
Revenue growth was accompanied by increased investment and staffing: year-over-year headcount growth was 23% in sales and marketing, 7% in R&D, 12% in G&A and 18% in cost of revenue.
Accrued expenses fell to $60.1 million from $99.2 million at year-end 2022, largely reflecting the timing of accrued bonuses, commissions, payroll and related payments.

Outlook, risks and unusual items

The filing provides no quantified revenue or earnings guidance. Management expects continued investment in product development, sales and marketing, customer support and international expansion; those investments may pressure near-term results.
Procore launched Procore Risk Advisors in March 2023. Management also intends to develop its materials-financing offering and anticipates eventually partnering with a capital provider to support its scale. Until then, it may use up to approximately 10% of its cash, cash equivalents and marketable securities for the program.
Materials-financing receivables were $12.8 million net of allowances at June 30; the related allowance for expected credit losses was $3.9 million, up from $2.1 million at year-end 2022. The program creates credit, collection and liquidity exposure; gross customer receivables were $16.7 million.
The company recorded $5.3 million of stock-based compensation related to accelerated vesting of acquisition-related restricted awards and $3.4 million of accelerated cash-retention expense in the first half following certain employee departures.
A hosting-services renewal carried a $45.0 million minimum commitment, with $40.1 million outstanding at June 30, payable through February 2025. The company also had $5.8 million of unsecured letters of credit supporting leased offices.
Management said the Silicon Valley Bank resolution did not materially affect operations or liquidity. Principal disclosed risks include construction-industry and macroeconomic weakness, persistent losses, competition, international and currency exposure, platform availability and cybersecurity, privacy regulation, acquisition integration, and legal or regulatory uncertainty around materials financing and lien services.
No pending legal matter was identified as reasonably expected to have a material adverse effect. Disclosure controls were concluded effective at a reasonable-assurance level, with no material quarterly change in internal control over financial reporting reported.

Most important facts for investors to verify

Whether 33% revenue growth and RPO growth convert into durable growth, while gross retention remains near 94%.
Whether operating losses and cash generation improve after accounting for substantial stock-based compensation and capitalized software costs.
How materials-financing defaults, credit-loss allowances, originations and repayments develop, and whether third-party funding becomes available before the program expands materially.
Whether the $603.0 million liquidity position remains adequate alongside lease obligations, the $40.1 million hosting commitment and continued investment needs.
How customer and employee share issuance affects dilution: common shares outstanding increased to 142.2 million from 139.2 million at December 31, 2022.
Whether risks tied to construction spending, cybersecurity, privacy compliance, international expansion and regulatory treatment of financing and lien services change materially.