Procore Technologies, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Procore provides cloud-based construction management software, primarily through subscriptions. Unless noted otherwise, amounts are in U.S. dollars; financial statement amounts below are in millions.
Financial performance and liquidity
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $122.8 | $96.6 | $236.7 | $188.9 |
| Gross profit / GAAP gross margin | $97.3 / 79% | $79.5 / 82% | $190.9 / 81% | $154.4 / 82% |
| Operating loss | $(149.1) | $(3.1) | $(161.9) | $(20.5) |
| Net loss | $(149.7) | $(13.7) | $(163.5) | $(32.8) |
| Basic and diluted loss per share | $(2.04) | $(0.50) | $(3.11) | $(1.22) |
- Q2 revenue grew 27% year over year; first-half revenue grew 25%. Management attributed growth mainly to customer expansion, added products or construction volume, price increases, and new customers.
- Q2 GAAP gross margin declined to 79% from 82%; first-half margin was 81% versus 82%. Q2 non-GAAP gross margin, which excludes specified stock-based compensation, acquired-intangible amortization, and employee-stock payroll taxes, was 84% versus 83%.
- Q2 operating expenses were $246.4 million, up from $82.6 million. First-half expenses were $352.8 million, versus $174.9 million. Much of the increase reflected IPO-triggered stock-based compensation.
- Stock-based compensation expense was $137.4 million in Q2 and $147.7 million in the first half, including a $115.3 million cumulative catch-up expense recognized when IPO RSU performance conditions were met. Management said it expects additional stock-based compensation and related payroll taxes.
- First-half operating cash flow was positive $25.2 million, compared with a $1.0 million use in the prior-year period. Investing activities used $33.3 million; financing provided $689.5 million, chiefly from the IPO.
- At June 30, cash and cash equivalents were $1,060.5 million; cash, cash equivalents, and restricted cash totaled $1,063.9 million. Total current assets were $1,165.9 million and current liabilities were $287.6 million.
- No amounts were drawn on the $75 million Silicon Valley Bank credit facility. After $6.9 million of outstanding letters of credit, $68.1 million was available. Finance and operating lease liabilities were reported separately; the filing reports no drawn credit-facility debt.
Material changes and significant events
- Procore completed its IPO on May 24, 2021, selling 10.41 million shares at $67 per share and receiving $665.1 million in net proceeds after underwriting discounts and commissions. Outstanding preferred stock converted into 85.3 million common shares.
- Common shares outstanding increased to 131.1 million at June 30, 2021; 131.1 million were reported outstanding as of July 30.
- The Indus.ai acquisition closed May 3 for preliminary consideration of approximately $24.3 million. About $4.1 million was held back for indemnification obligations and is payable in 2022. The acquisition added $14.8 million of developed technology and approximately $11.5 million of goodwill.
- Remaining performance obligations were $478.4 million at June 30; approximately 72% was expected to be recognized as revenue over the next 12 months, with substantially all of the balance between 12 and 36 months.
- Customers on the platform numbered 11,149 at June 30, compared with 10,166 at December 31, 2020.
Outlook, risks, and other disclosures
- No specific revenue, earnings, or margin guidance was provided. Management expects to continue investing in sales and marketing, product development, infrastructure, and international expansion; these investments may pressure near-term operating results.
- Management said existing cash and cash equivalents should fund needs for at least 12 months. Future capital requirements depend on growth, customer acquisition and renewals, spending plans, and COVID-19 effects.
- Management reported that COVID-19 negatively affected new customer additions in 2020 and the first half of 2021, while expressing the view that the pandemic may accelerate construction-industry digitization. Its duration and financial effects remain uncertain.
- Principal risks include persistent losses and uncertain profitability; dependence on construction-industry spending and customer adoption; competition and execution of product development; international expansion; cybersecurity, privacy, and third-party cloud hosting; and attracting and retaining personnel. The filing also highlights potential stock-price volatility and share-sale overhang following the IPO.
- The company reported no material pending legal proceedings and no material change in contractual commitments. It stated disclosure controls were effective at a reasonable assurance level and that there was no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- How much of the reported loss and margin deterioration reflects IPO-related stock compensation, and how recurring compensation and dilution may affect future results.
- Whether revenue growth, customer additions, renewals, and expansion continue, and how the $478.4 million of remaining performance obligations converts to recognized revenue.
- Whether operating cash flow remains positive as growth investments and losses continue, and how management deploys IPO proceeds.
- The integration, product contribution, and eventual purchase-accounting adjustments associated with Indus.ai.
- Potential share supply from equity awards and post-IPO lock-up releases, alongside the effect of the preferred-stock conversion and new equity plans.
- Whether construction-market conditions, COVID-19 effects, international growth, and cloud-service or cybersecurity risks materially change operating performance.