Procore Technologies, Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023; financial statements are unaudited. Procore provides cloud-based construction management software, generating substantially all revenue from subscriptions.
Key financial metrics
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $247.9 million | $186.4 million | $690.0 million | $518.2 million |
| Gross profit / margin | $203.8 million / 82% | $148.7 million / 80% | $563.3 million / 82% | $410.3 million / 79% |
| Operating loss | $50.4 million | $71.8 million | $178.3 million | $215.3 million |
| Net loss | $43.8 million | $71.2 million | $160.2 million | $215.7 million |
| Net loss per share, diluted | $0.31 | $0.52 | $1.13 | $1.59 |
- Growth and retention: Revenue increased 33% year over year in both the quarter and nine-month period. Management attributed about 93% of Q3 revenue growth to existing customers and 7% to new customers; for the nine months, the respective contributions were 75% and 25%. Customer count was 16,067, up 14% year over year, and gross retention was 95% in both periods.
- Operating performance: GAAP gross margin improved to 82% in Q3 from 80%, and to 82% for nine months from 79%. GAAP operating expenses rose 15% in Q3 and 19% for nine months. Non-GAAP operating income was $7.7 million in Q3 versus a $13.4 million loss; for nine months it was $0.6 million versus a $58.3 million loss. These non-GAAP measures exclude, among other items, stock-based compensation and acquired-intangible amortization.
- Cash flow: Nine-month operating cash flow was positive $51.3 million, compared with negative $10.1 million in 2022. Net loss was adjusted for noncash charges and working-capital movements, including a $29.1 million increase in deferred revenue. Investing cash outflow was $58.5 million; financing cash inflow was $26.7 million.
- Liquidity and obligations: Cash, cash equivalents and marketable securities totaled $626.5 million at September 30, 2023. Current assets were $841.9 million and current liabilities $561.6 million. Total liabilities were $659.3 million. The filing does not disclose conventional borrowings; it reports finance and operating lease liabilities. Management said available cash and securities should meet needs for at least 12 months.
- Other indicators: Current remaining performance obligations were $635.0 million, up 27% year over year; total RPO was $890.4 million, up 25%. Accumulated deficit was $1.1 billion. Stock-based compensation expense was $44.8 million in Q3 and $132.2 million for nine months.
Material changes versus the prior comparable period
- Revenue growth was accompanied by improved gross margins and narrower GAAP operating and net losses.
- Operating cash flow turned positive, while investing outflow declined substantially from $338.6 million to $58.5 million, partly reflecting marketable-security maturities and sales.
- Interest income and accretion income increased as a result of higher rates and the company’s marketable-securities portfolio.
- General and administrative expense included higher bad-debt expense related to materials-financing receivables: management cited a $2.9 million Q3 increase and a $6.0 million nine-month increase.
Outlook, commentary, risks and unusual items
- Outlook: The filing provides no specific revenue or earnings guidance. Management expects to continue investing in product development, sales and marketing, and international expansion; it cautions that such investment may weigh on near-term results and that sustainable profitability is not assured.
- Materials financing: Procore ceased new originations under the program in October 2023. At September 30, net customer receivables were $8.0 million; the allowance for expected credit losses on gross materials-financing receivables was $4.4 million. Collection, credit, liquidity, and regulatory risks remain relevant as existing balances run off.
- Acquisition: Procore acquired Unearth Technologies on September 15, 2023, accounting for it as an asset acquisition. Acquired developed technology was valued at $9.2 million, with a five-year estimated useful life.
- Commitments and contingencies: Outstanding minimum hosting-service purchase commitments were $34.2 million at September 30, under a $45.0 million renewal agreement. The company reported no pending legal matters expected to have a material adverse effect. Potential payments under certain indemnifications are indeterminable; no liability was accrued.
- Principal risks highlighted: Construction-industry spending and macroeconomic conditions; competition and execution of growth plans; international expansion and foreign-exchange exposure; cybersecurity, privacy and service availability; materials-financing credit losses; regulatory compliance; and the company’s history of losses. Management reported disclosure controls effective at a reasonable-assurance level and no material quarterly change in internal control over financial reporting.
Most important facts for investors to verify
- Whether 33% revenue growth, 95% gross retention, and 27% cRPO growth persist, and how much growth continues to come from existing-customer expansion.
- Whether positive operating cash flow is sustainable and how billing timing and deferred-revenue growth affect cash generation.
- How quickly the materials-financing portfolio runs off, actual collections versus reserves, and any additional credit losses after originations ceased.
- Whether margin improvement continues after considering recurring stock-based compensation and other items excluded from non-GAAP results.
- Cash and securities availability, lease and purchase commitments, and the company’s progress toward sustainable profitability.