Procore Technologies, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; unaudited. Procore provides cloud-based construction management software, primarily through subscriptions. Unless stated otherwise, financial amounts below are in U.S. dollars.
Financial performance
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $159.5 million | $113.9 million |
| Gross profit / margin | $126.2 million / 79% | $93.6 million / 82% |
| Operating expenses | $197.3 million | $106.4 million |
| Operating loss / margin | $71.1 million / (45%) | $12.9 million / (11%) |
| Net loss | $71.4 million | $13.7 million |
| Net loss per share, diluted | $0.53 | $0.44 |
| Cash provided by operations | $10.3 million | $28.3 million |
| Cash used in investing activities | $16.2 million | $4.6 million |
Gross margin and operating margin are GAAP measures. The company reported non-GAAP operating loss of $19.7 million and non-GAAP operating margin of (12%) in Q1 2022, versus a $0.5 million loss and approximately breakeven margin in Q1 2021. These non-GAAP measures exclude specified stock-based compensation, acquired-intangible amortization, employee-stock payroll taxes, and acquisition-related expenses.
Liquidity, balance sheet, and obligations
- Cash and cash equivalents were $586.9 million at March 31, 2022; cash, cash equivalents, and restricted cash totaled $590.0 million.
- Total assets were $1.67 billion, total liabilities $507.9 million, and accumulated deficit $733.6 million. Current liabilities included $310.0 million of deferred revenue.
- No amounts were drawn under the $75 million credit facility at quarter-end. Procore terminated it on April 29, 2022, before its May 7 maturity; $6.5 million of letters of credit remained outstanding unsecured.
- Management stated existing cash and cash equivalents were expected to cover needs for at least the next 12 months. The company cautioned it may not achieve profitability in the foreseeable future and could seek additional capital.
- Remaining performance obligations were $626.7 million; approximately 71% was expected to be recognized as revenue within 12 months, with substantially all of the balance in the following 12 to 36 months.
Changes versus the prior-year quarter
- Revenue rose 40% ($45.6 million), primarily from expansion among existing customers and new customers. Levelset contributed $6.9 million; revenue from other 2021 acquisitions was not material to the quarter.
- Customer count increased 20% year over year to 12,809, excluding customers acquired through Levelset, LaborChart, and Esticom because they were on non-standard legacy contracts. Levelset had more than 3,000 customers.
- Gross margin fell three percentage points. The filing attributes higher cost of revenue chiefly to acquired-technology amortization, personnel costs, and cloud hosting.
- Operating expenses increased 85% to $197.3 million, with higher personnel and stock-based compensation among the principal factors. Stock-based compensation expense rose to $37.2 million from $10.3 million.
- Net loss widened to $71.4 million from $13.7 million, while operating cash flow declined to $10.3 million from $28.3 million. Q1 2022 cash flow benefited from a $34.1 million decrease in receivables and an $8.8 million increase in deferred revenue.
Outlook, commentary, risks, and unusual items
- The filing provides no specific revenue, margin, or earnings guidance. Management expects continued investment in sales and marketing, research and development, international expansion, and product development; these investments may weigh on near-term results.
- Management described international expansion as a growth opportunity, while noting it requires substantial resources. Rest-of-world revenue was 15% of Q1 2022 revenue, compared with 13% a year earlier.
- Key disclosed risks include persistent losses, construction-sector and macroeconomic weakness, inflation, supply-chain and labor constraints, competition, customer adoption and retention, cybersecurity and privacy, international regulatory complexity, and acquisition integration.
- Levelset’s lien-rights services may face unauthorized-practice-of-law scrutiny. Its materials-finance business was immaterial in Q1, but management expects it to grow; deferred-payment receivables create credit and liquidity risk. Procore also had a contractual obligation to provide up to $4.9 million of additional investment funding at investees’ option.
- COVID-19’s future effect remained uncertain. Management said inflation had not materially affected results to date, but warned it could raise costs that may not be fully offset.
- The company reported no material pending legal proceedings known to have a material adverse effect. Potential future indemnification payments were described as indeterminable and were not accrued because payment was not considered probable or reasonably estimable.
- Management concluded disclosure controls were effective at a reasonable-assurance level. It continued integrating Levelset controls; no material change in internal control over financial reporting was reported for the quarter.
Important facts for investors to verify
- Whether revenue growth and customer expansion continue, including how acquired customers and products perform when renewed on standard Procore contracts.
- Whether gross-margin pressure, elevated operating expenses, and stock-based compensation moderate, and how progress toward profitability is measured.
- Whether operating cash flow can be sustained as losses continue and as investment, acquisition, and materials-finance activity develops.
- Whether Levelset and LaborChart integration delivers expected benefits, and whether Levelset’s legal, credit, and liquidity exposures change.
- Whether the $626.7 million of remaining performance obligations converts to revenue on the expected schedule and whether macroeconomic or construction-market conditions affect renewals and customer spending.