Procore Technologies, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparisons are with Q1 2022 unless noted. Procore provides cloud-based construction management software and earns substantially all revenue from subscriptions.
Financial performance
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Revenue | $213.5 million | $159.5 million | +34% |
| Gross profit / margin | $173.3 million / 81% | $126.2 million / 79% | Margin +2 percentage points |
| Operating expenses | $242.6 million | $197.3 million | +23% |
| Operating loss | $(69.3) million | $(71.1) million | Loss narrowed |
| Net loss / diluted loss per share | $(63.4) million / $(0.45) | $(71.4) million / $(0.53) | Loss narrowed |
| Operating cash flow | $29.3 million | $10.3 million | Increased |
| Investing cash flow | $(0.1) million | $(16.2) million | Lower outflow |
| Financing cash flow | $3.3 million | $6.5 million | Lower inflow |
Revenue growth was driven primarily by existing customers: approximately 89% of the year-over-year increase came from existing customers and 11% from new customers. The company reported 15,089 customers, up 18% year over year; the count excludes certain unrenewed Levelset and Esticom legacy customers. U.S. revenue was $183.9 million (86%); revenue outside the U.S. was $29.6 million (14%).
Balance sheet, liquidity, and cash flow
- Cash and cash equivalents were $329.0 million and marketable securities were $273.8 million at March 31, 2023, totaling $602.8 million. Including restricted cash, cash, cash equivalents, and marketable securities were $605.9 million.
- Current assets were $775.0 million and current liabilities were $514.7 million. Total liabilities were $606.8 million; stockholders’ equity was $1.104 billion.
- The filing reports no conventional borrowings; it does report finance lease liabilities of $45.1 million non-current. A current finance-lease amount is not separately clear in the presented balance sheet.
- Operating cash flow benefited from a $42.9 million decrease in accounts receivable and a $6.5 million increase in deferred revenue, partly offset by a $28.2 million decrease in accrued expenses and other liabilities.
- Management said existing cash, cash equivalents, and marketable securities should be sufficient for at least 12 months, while noting the company may not achieve profitability in the foreseeable future.
Material changes and notable items
- Gross margin improved to 81% from 79%; GAAP operating margin improved to negative 32% from negative 45%. Non-GAAP operating loss was $4.0 million, versus $19.7 million, and non-GAAP operating margin was negative 2% versus negative 12%. These non-GAAP measures exclude specified items, including stock-based compensation.
- Interest income rose to $4.9 million from $0.1 million, and net accretion income was $1.6 million, reflecting the company’s cash and marketable securities portfolio and higher rates.
- Stock-based compensation expense was $44.9 million. The filing also cites $5.3 million of accelerated stock compensation and $3.4 million of accelerated cash retention expense related to departures of certain employees from prior acquisitions.
- Remaining performance obligations were $805.5 million; approximately 73% was expected to be recognized as revenue in the next 12 months, with substantially all of the remainder over the following 12 to 36 months.
- Materials financing receivables were $13.5 million net of allowance. The program is funded from company cash; Procore said it may use up to approximately 10% of its cash, cash equivalents, and marketable securities to support the program until it secures a capital provider.
Outlook, risks, and contingencies
- The filing provides no specific quarterly or full-year revenue or earnings guidance. Management expects continued investment in sales and marketing, research and development, and international expansion; expenses may rise, and profitability is not assured.
- Management said macroeconomic factors, including inflation, higher interest rates, market volatility, bank failures, and foreign-exchange movements, had not materially affected the business to date, but could affect customer spending, costs, and cash flows.
- Following Silicon Valley Bank’s closure, the company reported no material effect on day-to-day operations or liquidity requirements. Less than 1% of cash, cash equivalents, and marketable securities were held in deposit accounts at First Citizens Bank; other amounts there were in money market funds.
- Procore renewed a hosting-services agreement with a total commitment of $45.0 million payable from 2023 through 2025.
- Key risks include construction-industry and macroeconomic sensitivity, competition, customer acquisition and retention, service availability and cybersecurity, data privacy regulation, international expansion and currency exposure, and credit, liquidity, and regulatory risks in materials financing. The filing says no pending legal matter was expected to have a material adverse effect; indemnification exposure is not quantifiable.
- Management concluded disclosure controls were effective at a reasonable assurance level and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether revenue growth and customer expansion persist, particularly given the concentration of growth in existing customers and the construction-market outlook.
- Whether margin improvement continues as operating expenses grow, and how recurring stock-based compensation affects dilution and the path to profitability.
- Whether operating cash generation is sustainable beyond favorable billing, collection, and accrual timing effects.
- How materials financing receivables, credit losses, cash usage, and potential third-party funding develop as the program scales.
- Whether the $805.5 million remaining performance obligation converts to revenue as expected, and whether liquidity remains adequate amid planned investment and contractual commitments.