Procore Technologies, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Procore provides cloud-based construction management software, primarily through subscriptions. The company completed its IPO in May 2021.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $132.0 million | $101.9 million | $368.7 million | $290.8 million |
| Gross profit | $109.3 million | $83.8 million | $300.2 million | $238.2 million |
| Gross margin | 83% | 82% | 81% | 82% |
| Operating loss | $49.6 million | $16.4 million | $211.5 million | $36.9 million |
| Net loss | $50.7 million | $16.0 million | $214.2 million | $48.7 million |
| Operating cash flow | Not separately stated for the quarter | Not separately stated for the quarter | $40.3 million | $10.1 million used |
Q3 revenue increased 30% year over year; nine-month revenue rose 27%. Management attributed growth mainly to new customers and expansion within existing accounts, including additional products, contracted construction volume, and price increases. The nine-month operating cash flow improvement reflected noncash adjustments—particularly stock-based compensation—and cash inflows from accrued liabilities and deferred revenue.
At September 30, cash and cash equivalents were $1.072 billion, versus $379.9 million at December 31, 2020. Current assets were $1.186 billion and current liabilities $317.5 million. No amounts were drawn under the $75 million Silicon Valley Bank credit facility; $6.4 million of letters of credit reduced availability. Finance and operating lease liabilities were $47.7 million and $41.9 million, respectively, on a non-current basis.
Material changes and unusual items
- Operating expenses rose sharply: Q3 sales and marketing increased 48%, research and development 55%, and general and administrative 91%. The company reported $158.9 million of Q3 operating expenses, compared with $100.2 million a year earlier.
- The May IPO triggered recognition of $115.3 million of cumulative stock-based compensation for RSUs whose performance condition was met upon IPO registration effectiveness. Nine-month stock-based compensation expense was $185.9 million, versus $22.3 million in 2020. This was a significant contributor to the increased losses.
- IPO proceeds were $665.1 million net of underwriting discounts and commissions. Preferred shares converted into common stock at the IPO; common shares outstanding were approximately 132.0 million as of October 29, 2021.
- Q3 gross margin improved to 83% from 82%; nine-month gross margin declined to 81% from 82%. Nine-month GAAP operating margin was negative 57%; the company’s non-GAAP operating margin was negative 3% for the period.
- Indus.ai was acquired in May for preliminary consideration of approximately $24.3 million in cash, including a $4.1 million holdback. The acquisition added $11.5 million of goodwill.
Outlook, risks, and contingencies
- No specific revenue or earnings guidance is provided in the supplied filing text. Management expects continued investment in sales and marketing, research and development, and international expansion, and says expenses may increase following the acquisitions completed after quarter-end.
- At September 30, remaining performance obligations were $497.3 million; approximately 72% was expected to be recognized as revenue in the next 12 months, with substantially all of the remainder over the following 12–36 months.
- Management stated that cash on hand was expected to fund needs for at least 12 months, while noting that this assessment depends on growth, spending, acquisitions, and COVID-19 impacts. After quarter-end, Procore completed the LaborChart acquisition on October 21 for approximately $85 million in cash and the Levelset acquisition on November 2 for approximately $500 million: approximately $425 million cash and $75 million in Procore shares. The filing does not provide a clear post-acquisition cash balance.
- Management said COVID-19 disrupted construction activity and reduced new customer additions, while potentially accelerating industry digitization. The duration and financial effects remained uncertain.
- Key risks include sustained losses and expense growth, construction-industry and macroeconomic sensitivity, competition, customer adoption and retention, cybersecurity and service availability, international expansion, and successful integration of acquisitions. Levelset’s lien-rights services carry potential unauthorized-practice-of-law regulatory exposure; its materials-finance business adds customer credit and liquidity risk.
- The company reported no material pending legal proceedings and no material off-balance-sheet arrangements. Indemnification obligations were not accrued because payment was not considered probable or reasonably estimable. Disclosure controls were assessed as effective; management reported no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- How much of the reported loss reflects IPO-related RSU compensation and other stock-based compensation, and how those expenses may evolve.
- Post-acquisition cash, purchase-price adjustments, integration costs, and the eventual purchase accounting for LaborChart and Levelset.
- Whether revenue growth, renewals, and customer expansion continue, including the conversion of remaining performance obligations into revenue.
- Cash burn and the path toward profitability, given substantial operating losses and planned investment.
- Potential credit, legal, and regulatory exposure from Levelset’s materials-finance and lien-rights operations, as well as cybersecurity and COVID-19 risks.