424B4 1 d564161d424b4.htm 424B4 424B4
Table of Contents

Filed pursuant to Rule 424(b)(4)
Registration No. 333-236789

 

9,470,000 Shares

 

LOGO

Common Stock

 

 

This is an initial public offering of shares of common stock of Procore Technologies, Inc.

Prior to this offering, there has been no public market for our common stock. The initial public offering price per share is $67.00. Our common stock has been approved for listing on the New York Stock Exchange, or the NYSE, under the symbol “PCOR.”

We are an “emerging growth company” as defined under the federal securities laws, and as such, we have elected to comply with certain reduced reporting requirements for this prospectus and may elect to do so in future filings.

 

 

See “Risk Factors“ beginning on page 18 to read about factors you should consider before buying shares of our common stock.

 

 

Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

 

 

 

     Per Share      Total  

Initial public offering price

   $ 67.00      $ 634,490,000  

Underwriting discount(1)

   $ 3.2616      $ 30,887,352  

Proceeds, before expenses, to us

   $ 63.7384      $ 603,602,648  

 

(1)

See the section titled “Underwriting” for additional information regarding compensation payable to the underwriters.

To the extent that the underwriters sell more than 9,470,000 shares of common stock, the underwriters have the option to purchase up to an additional 940,000 shares of common stock from us at the initial public offering price less the underwriting discount.

At our request, the underwriters have reserved up to 5% of the shares of common stock offered by this prospectus for sale, at the initial public offering price, to certain persons with whom we have a business relationship, our directors, and friends and family of certain of our employees and directors. See the section titled “Underwriting—Directed Share Program.”

 

 

The underwriters expect to deliver the shares against payment in New York, New York on May 24, 2021.

 

 

 

Goldman Sachs & Co. LLC   J.P. Morgan   Barclays   Jefferies

 

 

 

Canaccord Genuity   KeyBanc Capital Markets   Oppenheimer & Co.   Piper Sandler   Stifel   William Blair

 

 

Prospectus dated May 19, 2021


Table of Contents

LOGO

 

Connecting everyone in construction on a global platform.


Table of Contents

LOGO

 

The Construction Management Platform $880B+ 55M+ 965K+ Construction volume Inspection items uploaded 61M+ run on Procore2 or created by customers3 Projects created Documents uploaded or on Procore2 created by customers3 3K+ OWNER 80M+ Terabytes of data generated GENERAL CONTRACTOR SPECIALTY CONTRACTOR Photos uploaded or created by user activity1 by customers3 ARCHITECT ENGINEER PRECONSTRUCTION PROJECT MANAGEMENT RESOURCE MANAGEMENT FINANCIAL MANAGEMENT PROCORE APP MARKETPLACE PROCORE ANALYTICS PROCORE PLATFORM UI CUS TOMIZA APIs TION BUSINESS LOGIC DATA SECURE & TRUSTED MULTI ZONE CLOUD INFRASTRUCTURE DIGITIZE STREAMLINE MANAGE CREATE A SINGLE PROMOTE DOCUMENTS COMMUNICATION WORKFLOWS SOURCE OF TRUTH SAFETY (1) User activity generated over 3,000 terabytes of data as of December 31, 2019. (2) Total volume and projects data generated since January 1, 2014, as of December 31, 2019. (3) Represents user activity during Fiscal 2019.


Table of Contents

LOGO

 

$400M Revenue 38% Revenue Growth 82% GAAP Gross Margin CUSTOMER GROWTH 6,095 8,506 10,166 800+ Customers > $100K ARR 60% Customers Subscribe to 3+ Products 1.6M+ Total Users 125+ Countries with Active Projects on Procore $22M Cash Provided by Operating Activities ($96M) Net Loss 2018 2019 2020 Note: Customer counts as of December 31, 2018, 2019, and 2020, respectively. All other figures are as of, or for the period ending, December 31, 2020.


Table of Contents

LOGO

 

“Innovation is essential for our future success and Procore enables our teams to scale with the needs of our clients. We selected Procore to connect our people, applications, and devices through a unified platform to help manage risk and deliver maximum value throughout the project lifecycle.” KASEY BEVANS CHIEF INFORMATION OFFICER, BALFOUR BEATTY IN THE UNITED STATES “Procore is the only platform that we’ve come across that is built for owners. I believe that it should be used by every leader in the industry, by every major real estate company around the world.” MICHAEL TURNER PRESIDENT, OXFORD PROPERTIES GROUP “The relationship we have with Procore is making our success easier and more achievable. Today the world demands instantaneous access to information, and using Procore is part of what makes us successful.” HANK HINTZE ACCOUNT EXECUTIVE, J.T. MAGEN “We provide our project teams with best-in-class solutions and partner with innovative companies like Procore to leverage technology to drive value to our customers. Working with Procore has exceeded our expectations in many ways.” MARK SHERRY SENIOR VICE PRESIDENT, MORTENSON “Procore is a life saver as we adapt to changing COVID-19 workplace requirements. From communications to new safety plans and compliance mandates, Procore is the glue that keeps us moving forward together.” ED MOORE DIVISION MANAGER, MONTEREY MECHANICAL


Table of Contents

TABLE OF CONTENTS

 

 

 

 

Through and including June 13, 2021 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.

 

 

We have not authorized anyone to provide you with any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses we have prepared. We and the underwriters take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. We are offering to sell, and seeking offers to buy, shares of our common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of our common stock. Our business, financial condition, results of operations, and future growth prospects may have changed since that date.

For investors outside the United States: Neither we nor any of the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside of the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the shares of our common stock and the distribution of this prospectus outside of the United States.


Table of Contents

PROSPECTUS SUMMARY

This summary highlights selected information contained elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in our common stock. You should read this entire prospectus carefully, including the sections titled “Risk Factors,” “Special Note Regarding Forward-Looking Statements,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our consolidated financial statements and the related notes included elsewhere in this prospectus, before making an investment decision. Unless the context otherwise requires, all references in this prospectus to “we,” “us,” “our,” “our company,” and “Procore” refer to Procore Technologies, Inc.

PROCORE TECHNOLOGIES, INC.

Overview

Our mission is to connect everyone in construction on a global platform.

We are a leading provider of cloud-based construction management software, and are helping transform one of the oldest, largest, and least digitized industries in the world. We focus exclusively on construction, connecting and empowering the industry’s key stakeholders, such as owners, general contractors, specialty contractors, architects, and engineers, to collaborate from any location, on any internet-connected device. Our platform is modernizing and digitizing construction management by enabling real-time access to critical project information, simplifying complex workflows, and facilitating seamless communication among key stakeholders, all of which we believe positions us to serve as the system of record for the construction industry. Adoption of our platform helps customers increase productivity and efficiency, reduce rework and costly delays, improve safety and compliance, and enhance financial transparency and accountability.

In short, we build software that helps build the world.

Construction is critical to the global economy but is urgently in need of digitization. The construction industry represented approximately 13% of global gross domestic product, or GDP, and employed 7% of the global workforce in 2017. The adoption of technology by the industry, especially at the jobsite, has historically been constrained by the lack of internet, Wi-Fi, and mobile connectivity. Much of the industry still relies on legacy methods of project management, such as paper, email, fax, and on-premise software. These tools were not designed to address the unique, real-time, and often remote collaboration needs of the industry. As a result, project delays, rework, safety and compliance issues and cost overruns are common.

The lack of modern collaboration tools has contributed to a lower rate of labor productivity growth in the construction sector, approximately one-third that of the global rate over the last two decades. According to a Deloitte report, the construction industry spends half as much on information technology, or IT, compared to the average across all industries. A June 2020 McKinsey report estimates that construction industry spending on software and infrastructure could double as the construction industry starts to catch up with the manufacturing industry in terms of IT spending as a share of revenue. Correcting work that was incorrectly done, or rework, as it is referred to within the construction industry, cost over $500 billion in 2018, or approximately 5% of overall construction costs, according to a 2018 study conducted by FMI, or the 2018 FMI Report. On average, 52% of that rework was caused by poor project data and communication.



 

1


Table of Contents

Construction is also among the most dangerous industries, with 22% of U.S. private industry worker deaths in 2019 linked to construction. Additionally, the industry faces an extremely challenging labor dynamic, with 83% of contractors indicating that they are facing difficulties finding skilled workers. The COVID-19 pandemic has made this labor dynamic even tougher, with over 40% of construction firms reporting higher costs and slower project completion due to labor shortages.

Innovations in technology, in particular the proliferation of the internet, Wi-Fi, and mobile devices, combined with the limitations of legacy solutions and labor constraints in the construction market, provide us with the opportunity to leverage our market leadership position to help drive digital transformation in the construction industry on a global basis. According to a May 2020 McKinsey survey of 100 C-level construction executives, or the May 2020 McKinsey Survey, nearly two-thirds of respondents believe that the COVID-19 pandemic will accelerate industry transformation.

We have established our market leadership through an approach focused on serving the unique needs of the construction industry. We work directly with stakeholders to develop the products they need and provide high-quality support, available to all users at no additional charge. Our four product categories, Preconstruction, Project Management, Resource Management, and Financial Management, automate workflows, provide real-time visibility, offer advanced analytics, and support collaboration across key stages of the construction project lifecycle. Each of our products can be accessed from the office or the jobsite on computers, smartphones, and tablets, enabling users to work wherever the job requires. Our open application programming interfaces, or APIs, and our application marketplace, or App Marketplace, allow customers to integrate our products with their internal systems and over 250 third-party applications, including accounting, document management, and scheduling software, providing our users with choice and flexibility, and demonstrably increasing the stickiness of our platform as we aim to become the construction industry’s system of record.

Our customers range from small businesses managing a couple million dollars of annual construction volume to global enterprises managing billions of dollars of annual construction volume. Our core customers are owners, general contractors, and specialty contractors operating across the commercial, residential, industrial, and infrastructure segments of the construction industry. We generate substantially all of our revenue from subscriptions to access our products. We sell our products on a subscription basis for a fixed fee with pricing generally based on the number and mix of products a customer subscribes to and the fixed aggregate dollar volume of construction work contracted to run on our platform annually, which we refer to as annual construction volume. As our customers subscribe to additional products, or increase the annual construction volume contracted to run on our platform, we generate more revenue. We do not provide refunds for unused construction volume, or charge customers based on consumption or on a per project basis. Our customers rely on our platform to help run their businesses more efficiently. This is evidenced by our customers using our platform to create an aggregate of more than 1 million projects representing over $1 trillion of construction volume since January 1, 2014, and these customers have reported that project teams are able to manage an average of 29% more construction volume per person by using Procore, according to the survey we conducted of our customers’ employees in December 2020 and published in February 2021, or the 2021 Procore ROI Survey. In 2020, the average duration of an active project in Procore was approximately 22 months.

Our business model is designed to encourage rapid, widespread adoption of our products by allowing for unlimited users, meaning we do not charge a per-seat or per-user fee. Customers can invite all project participants to engage with our platform as part of a project team. In 2020, on average, each customer invited over 160 project participants. This includes the customer’s employees and its collaborators, who are other project participants who engage with our platform but do not pay us for such use. Collaborators have access to relevant project information and product features for the duration of



 

2


Table of Contents

their involvement in a project and are incentivized to become customers, as collaborators do not control what information they get access to, they may not be able to access project information after a job is complete, and cannot run their complete portfolio of projects on our platform. In 2020 we had over 1.6 million users, which we define as our customers’ employees and their collaborators who have logged in to our platform, of which more than 60% were collaborators. Once collaborators have used our platform, they may potentially become customers and evangelize Procore on future projects. We believe our business model creates a flywheel effect that has helped increase our customer count from 6,095 as of December 31, 2018, to 8,506 as of December 31, 2019, to 10,166 as of December 31, 2020, reflecting year-over-year growth rates of 40% in 2019 and 20% in 2020. We have also seen an increase in the number of customers that contributed more than $100,000 of annual recurring revenue, or ARR, which grew from 412 as of December 31, 2018, to 655 as of December 31, 2019, to 843 as of December 31, 2020, reflecting year-over-year growth rates of 59% in 2019 and 29% in 2020.

Our success in building our customer base, expanding usage for existing customers, and helping digitize the industry has allowed us to achieve significant growth. We generated revenue of $186.4 million in 2018, $289.2 million in 2019, and $400.3 million in 2020, representing year-over-year growth of 55% in 2019 and 38% in 2020. We had net losses of $56.7 million in 2018, $83.1 million in 2019, and $96.2 million in 2020.

Our Industry

Despite being one of the largest industries in the world, construction has been slower to adopt innovations in process and technology, and is in the early stages of digitization. Given growing pressures on the industry, key stakeholders face an increasing imperative to adopt modern technology or jeopardize future business success. In fact, 80% of contractors surveyed in a 2019 USG Corporation and U.S. Chamber of Commerce survey believe that they will use some newer technology by 2022.

Construction represents one of the largest industries in the world and is in the early stages of digitization.

Annual worldwide construction spend, which consists of new construction and ongoing maintenance and modifications, is expected to grow from approximately $10 trillion in 2017 to approximately $14 trillion by 2025, according to McKinsey. Despite the industry’s large scale, it has historically lagged behind nearly every other industry in digitization. According to McKinsey’s Industry Digitization Index, construction ranks second from last in digitization across all major sectors, ahead of only agriculture and hunting. We believe that a principal reason for this is that, prior to the proliferation of the internet, Wi-Fi, and mobile devices, this field-based industry faced technology adoption barriers that other industries did not have to overcome.

The growth outlook for the construction industry is strong and favorable, driven by population growth, greater mobility, and the need for ongoing maintenance.

 

   

Global population growth coupled with greater mobility is driving the need for more construction.

 

   

Ongoing maintenance and repairs require billions of dollars of annual construction.

The construction ecosystem is highly fragmented and specialized.

The construction process relies on coordination among highly fragmented and specialized groups, including key stakeholders such as owners, general contractors, specialty contractors, architects, and



 

3


Table of Contents

engineers. These stakeholders engage in financing, budgeting, designing, building, and maintaining commercial, residential, industrial, and infrastructure projects while navigating varying responsibilities, risk profiles, and motives. Completing a project safely, on time, and within budget requires effective collaboration between stakeholders across work streams, sharing information in a timely and effective manner, and navigating increasing contractual and regulatory complexity.

Key stakeholders in the construction ecosystem are:

 

   

Owners.    Owners initiate construction projects, secure financing, work with architects, engineers, and consultants on building design, hire general contractors to manage the construction process, and are the ultimate decision-makers throughout a project. Owners include corporations, universities, government entities, and commercial and residential real estate developers.

 

   

General contractors.    General contractors coordinate the construction project and fulfill the demands of owners while simultaneously maintaining oversight and responsibility for specialty contractors and other vendors.

 

   

Specialty contractors.    Specialty contractors, commonly referred to as subcontractors, are hired by general contractors for their specialized skills, such as mechanical, electrical, plumbing, roofing, or concrete trades, and perform the vast majority of construction work.

 

   

Architects and engineers.    Architects and engineers work together to develop building plans and designs, collaborating directly with owners and general contractors. Typically architects are responsible for designing the aesthetic look and feel of a structure, while engineers focus on safety and functionality, materials, and structural design.

The construction industry has four defining characteristics.

 

   

Construction is a custom business.    Construction projects are typically custom and each project has a distinctive combination of dynamic variables, including unique project teams, design, materials, terrain, regulations, and schedules.

 

   

The workforce is mobile and decentralized.    Construction happens on the jobsite, not at the office, which increases the importance of mobile access to project data. Construction workers often operate with out-of-date or incomplete project information and struggle to collaborate effectively with other stakeholders, leading to mistakes that may translate to costly rework and extended project timelines. Given mistakes not only impact the progress of the project but also expose workers to safety risks, the need for mobile collaboration solutions and real-time access to instructions, designs, documentation, and reporting is becoming increasingly critical for managing and optimizing a dispersed workforce.

 

   

Stakeholder dynamics are complex.    Construction projects require collaboration across a wide range of stakeholders who often have a different set of interests and lack familiarity and trust with one another, yet all are interdependent and ultimately share project risks. Similarly, all project participants are adversely impacted when a project is delayed, runs over budget, or does not meet quality or safety requirements. In order to avoid related financial losses, stakeholders are often quick to redirect responsibility to other participants on a project and seek to resolve disputes in court.

 

   

Change is constant.    Construction project designs, schedules, and budgets are modified frequently. Construction teams typically run into unforeseen issues requiring a workaround, or the owner may decide to make a modification to the project. As a result, the design that teams set out to build rarely matches the finished product. An event as small as a delayed inspection



 

4


Table of Contents
 

that adjusts worker schedules, or as significant as discovering an unexpected boulder during excavation that requires special equipment to remove, can trigger costly changes to a project’s schedule and require timely communication to teams on the ground to minimize or avoid mistakes.

Legacy approaches to managing project workflows, financials, and risks were not designed for a field-driven workforce and contribute to project inefficiencies and material waste.

Historically, construction industry participants regularly stored physical copies of project documents in binders and boxes. Legacy software solutions were often not user-friendly or lacked collaboration and integration capabilities. Further, software was not easily accessible on a computer, smartphone, and tablet, at both the construction site and the office, and by the wide range of stakeholders on a construction project. The 2018 FMI Report estimates that employees at construction companies spend 35% of their time on “non-optimal” tasks. Time spent on non-optimal activities such as dealing with mistakes and rework, looking for project data, and handling conflict resolution cost the U.S. construction industry an estimated $177.5 billion in labor costs in 2018. In fact, according to McKinsey, large non-residential construction projects typically run up to 80% over budget and 20 months behind schedule. In addition, the European Commission estimates that construction and demolition waste accounts for approximately 25%–30% of all waste generated in the European Union, which we believe is generally representative of the construction industry’s contribution to global waste levels.

Multiple catalysts have emerged to bring construction into the digital age.

Recent advancements of key technologies such as cloud computing, mobile networks, and smart devices are disrupting legacy approaches by making technology adoption significantly easier in the construction industry. Simultaneously, additional drivers such as labor shortages and general shifts in the labor market, mounting technical and regulatory complexity of construction projects, and the growing importance of data to aid in decision-making are increasingly compelling stakeholders to change their historic practices. Stakeholders that fail to digitize their business models sacrifice efficiency, productivity, and safety, and risk being outpaced by their competitors as the use of technology solutions increasingly becomes the industry standard.

The construction industry needs an end-to-end, cloud-based software platform.

The construction industry is experiencing a transformation driven by innovations in technology and rising pressures on stakeholders, ranging from labor shortages to increasing project complexity. We believe that in order to truly improve the lives of everyone in construction, it is essential that modern construction management software is accessible by all project team members from any location and on any internet-connected device. The solution needs to address the specific workflows of all key stakeholders on a project, while providing a platform that both integrates with other solutions in the market and provides a single, centralized system of record on every project across the entire project lifecycle.

Our Opportunity

We believe that the current total addressable market, or TAM, for construction software is large and significantly underpenetrated. McKinsey estimates that annual worldwide construction revenue in 2017 was approximately $10 trillion. Separately, Deloitte estimates that in 2018, approximately 1.7% of worldwide construction and infrastructure revenue was spent on IT solutions. Furthermore, Gartner estimates that in 2020, application software spending represented 7.3% of total IT spend, calculated as



 

5


Table of Contents

enterprise application software revenue divided by total IT spend across all industries. We therefore estimate that the construction industry spends approximately $12.4 billion worldwide annually on application software.

Based on our experience with customers, however, we believe we address a greater opportunity not yet quantified by this estimate because we are digitizing analog and manual processes which are not captured in Deloitte’s estimate of construction IT spend. Given that globally, on average, other industries spend over 3% annually on IT as a percentage of revenue, compared to 1.7% in the construction industry, we believe that IT spend and application software spend in the construction industry as a percentage of revenue may increase as the industry continues to digitize. Additionally, we believe the $12.4 billion figure understates our total addressable market, as it does not account for our ability to sell our products to multiple stakeholders who participate in the same construction project, therefore allowing us to monetize the same dollar of construction volume multiple times.

We estimate that the annual potential market opportunity for our current products is approximately $9.4 billion. We calculate this figure by multiplying an estimate of the number of total owner, general contractor, and specialty contractor companies in our addressable geographies, as reported in a February 2021 Frost & Sullivan study that we commissioned, by our median ARR as of December 31, 2020, for each company size (categorized by enterprise, mid-market, and small business). While the COVID-19 pandemic impacted the construction industry in 2020, available data indicates that the industry has already begun to recover from the pandemic, and we believe that the overall size of our market opportunity remains substantially unchanged from its pre-COVID-19 size. We limited our addressable geographies to only those geographies where we currently have focused sales and marketing efforts—the United States, Canada, Mexico, the United Kingdom, Ireland, Australia, New Zealand, Singapore, and the United Arab Emirates. We also exclude general contractors and specialty contractors with annual revenues of less than $2.5 million and owners with less than $2.5 million in annual construction spend from our addressable market estimates given we do not actively market to those organizations.

We believe there is further potential to expand our market opportunity because the median ARR is based on the current number of products purchased by our customers, which we believe will continue to gradually increase as we further penetrate our existing customer base and release additional products. Many of our products are new, given that for the majority of our history we only offered one product. We have recently rapidly grown our product offering from four products in 2017 to 13 products today. Despite how recent these new product releases were, as of December 31, 2020, 60% of our customers subscribed to three or more of our products. However, as of December 31, 2020, only 43% of our customers subscribed to four or more of our products, and we believe this percentage will increase over time as we see increased customer adoption of our newer products and as we continue to successfully introduce products that meet the needs of our customers and the construction ecosystem. Additionally, our estimates only contemplate international markets where we currently have focused sales and marketing efforts. While we have historically focused on North America, we believe our international opportunity is many times larger, with similar industry dynamics across the globe. As our international footprint continues to expand, we believe our potential market opportunity will increase.

Our Approach

We believe we are well positioned to extend our market leadership, not only through promoting the rapid adoption of our construction management platform, but also through our dedicated efforts to invest in and positively impact the future success of the construction community. We believe that our



 

6


Table of Contents

success is driven by the quality of our platform and our strong relationships with our customers and the broader construction industry. Our approach is based on two key elements:

 

   

We live and breathe construction.    Our platform and products are focused on the construction industry, and we build our products for the requirements of industry stakeholders. We have deep domain expertise and an understanding of the construction industry’s complex workflows, incentive structures, and the risks each stakeholder faces on a project. We also partner with the industry beyond providing software. Several of our initiatives, including
”Jobsite,” our industry-focused blog site, Procore Community, our online user community forum, and Groundbreak, our annual construction industry conference, are designed to grow community engagement across our platform. We also offer additional resources to the construction community, including certified continuing education courses, training programs, online content libraries, and free software to universities, schools, trade unions, and non-profits through our in-house social impact team, Procore.org. We offer over 170 on-demand online courses, as well as training and networking events. Someone earns a Procore certification on average every five minutes and we have issued over 295,000 certifications to date. In addition, 85% of accredited U.S. construction management programs teach students about the Procore platform. Collectively, these initiatives are designed to help us strengthen our credibility and affirm our value as a strategic partner to stakeholders in the construction sector.

 

   

We put our customers first.    We make our platform intuitive and easy-to-use, whether from a computer, smartphone, or tablet in the field or in the back office, so that everyone can adopt and benefit from the power of our platform. A core part of our strategy is our user-centric development culture. We have also built a customer success organization focused on helping our customers implement our products quickly and efficiently. Our customer support team provides live support to all users at no additional cost, as well as numerous online resources, because we believe that if all users are successful, then our customers will be successful. As of December 31, 2020, we had published over 5,800 publicly available tutorials and FAQs to our website. We also believe time-to-resolution is critical, which is why in 2020 our average support response time to a user support request via online chat or phone was under 60 seconds and we had a positive customer support satisfaction rating of over 90%.

Our Platform

We are helping revolutionize the construction industry by changing the way construction projects are managed, providing online and offline access to critical project information, simplifying complex workflows, and enabling collaboration among all project stakeholders.

We have built our platform to be modern, intuitive, and open with a modular and extensible architecture that not only includes the breadth and depth of functionality of our own products but also integrates with third-party applications and our customers’ own customized applications. While we offer a broad set of products that we monetize through subscriptions, our platform also includes a wide range of technical services that are shared across our products and open APIs that enable us to extend the capabilities of our platform to the broader ecosystem of software that our customers use.

Our construction management platform offers our customers and collaborators capabilities that address a range of evolving needs throughout a project’s lifecycle, including bidding, scheduling, building information modeling, or BIM, labor tracking, financial management, and more. Our platform streamlines communication and facilitates compliance with safety and other regulatory standards, which helps increase productivity and efficiency, reduces rework and costly delays, improves safety and compliance, and enhances collaboration and accountability among key stakeholders.



 

7


Table of Contents

We offer these industry-transforming capabilities through an integrated, user-centric platform that features four product categories, our extensive App Marketplace, our proprietary data and analytics layer, and a powerful range of shared technical services leveraged across our products.

Product Categories

 

   

Preconstruction.    Our Preconstruction products facilitate collaboration between internal and external stakeholders during the planning, budgeting, estimating, bidding, and partner selection phase of a construction project.

 

   

Project Management.    Our Project Management products connect entire construction project teams by ensuring project information is aggregated in a cloud-based platform, available to all project participants, and accurate so that work on the jobsite is completed correctly.

 

   

Resource Management.    Our Resource Management product helps customers track labor productivity and manage profitability on construction projects.

 

   

Financial Management.    Our Financial Management products provide customers with visibility into the financial health of their individual construction projects and portfolios and facilitate untethered access to financial data, linking the field and the office in real-time.

Our Business Model

We generate substantially all of our revenue from subscriptions to access our products and have an unlimited user model that is designed to facilitate adoption and maximize usage of our platform by all project stakeholders. We sell our products on a subscription basis for a fixed fee with pricing generally based on the number and mix of products and the annual construction volume contracted to run on our platform. As our customers subscribe to additional products, or increase the annual construction volume contracted to run on our platform, we generate more revenue.

Why We Win

We have a number of distinct competitive advantages that result from our deep domain expertise, singular focus on construction, user-centric approach, and broad and extensible platform:

 

   

We are positioned to be the construction industry’s system of record.    Our platform allows our customers to manage their construction projects and leverage their data across multiple workflows, all from a centralized platform, creating a system of record. Our products and robust App Marketplace integrations with third-party applications are designed to allow our customers to access data provided by other stakeholders on their projects and from third-party sources. Our unlimited user model enables rapid, widespread adoption of our platform and ensures project information is captured. We believe our scale, market position, and unlimited user model will help us attract more customers, collaborators, data, and third-party developers, reducing barriers to adoption and affording us the ability to serve as the system of record for the construction industry. This means that our customers are incentivized to continue to subscribe to our products even after the end of a construction project in order to leverage the benefits of Procore as a system of record.

 

   

We offer a comprehensive and integrated platform.    We provide a cloud-based construction management platform with a comprehensive set of products spanning the construction lifecycle, from preconstruction to project completion. One of the core benefits of our platform approach is that our products are deeply integrated, providing a streamlined user experience and centralized access to project information.



 

8


Table of Contents
   

We provide our users with an easy-to-use mobile application.    Our mobile application allows customers and collaborators to access project data from the office or the jobsite. Our user-centric mobile products are intuitive and easy-to-use, enabling all users to quickly adopt and benefit from the power of our products.

 

   

Procore is a trusted technology brand in the construction industry.    We live and breathe construction and put our customers first. Our vision is to improve the lives of everyone in construction and we want our customers to see us as a trusted strategic partner. We believe that we have brought a new level of transparency and collaboration to an industry traditionally characterized by complex stakeholder dynamics, asymmetric risks and rewards, and conflicting interests. This is evidenced by the 2021 Procore ROI Survey, which concluded that 84% and 87% of individual respondents achieved better project visibility and improved standardization, respectively, from using Procore. See the section titled “Market and Industry Data” for additional information on the 2021 Procore ROI Survey.

 

   

We offer excellent customer success and support, driving ease-of-use and fast time to value.    Our customer support team provides live support to all users on our platform at no additional cost, as well as numerous online resources, because we believe that if all users are successful, then our customers will be successful.

Our Growth Strategy

We intend to leverage our existing products and industry presence to establish our platform and products as the industry standard in construction, both domestically and internationally. The key elements of our strategy to accomplish these objectives are as follows:

 

 

   

maintain and advance our technology leadership;

 

   

acquire new customers;

 

   

increase spend within our customer base;

 

   

expand internationally;

 

   

extend our industry connectivity and our position as a trusted brand; and

 

   

pursue targeted acquisitions.

Risk Factors Summary

Investing in our common stock involves numerous risks, including the risks described in the section titled “Risk Factors” and elsewhere in this prospectus. You should carefully consider these risks before making an investment. The following are some of these risks, any one of which could materially adversely affect our business, financial condition, results of operations, and prospects:

 

   

we have experienced rapid growth in recent periods, and such growth may not be indicative of our future growth. If we fail to properly manage future growth, our business, financial condition, results of operations, and prospects could be materially adversely affected;

 

   

we have a history of losses and may not be able to achieve or sustain profitability in the future;

 

   

our business may be significantly impacted by changes in the economy and related reductions in spend across the construction industry;

 

   

the construction management software industry is evolving and may not develop in ways we expect;



 

9


Table of Contents
   

our current and future products and features may not be widely accepted by our customers, and we may not be able to respond to technological changes, changes in customer demands and preferences, or develop new products and functionality;

 

   

we are continuing to expand our operations outside the United States, where we may be subject to increased business, regulatory, and economic risks that could materially adversely affect our business, financial condition, results of operations, and prospects;

 

   

our business depends on a strong brand, and if we are not be able to maintain and enhance our brand, our ability to maintain and expand our customer base will be impaired;

 

   

our ability to increase our customer base and achieve broader market acceptance of our products will significantly depend on our ability to develop and expand our sales and marketing capabilities;

 

   

we operate in a competitive market, and we must continue to compete effectively;

 

   

our results of operations may fluctuate significantly, which could make our future results difficult to predict and could cause our results of operations to fall below expectations;

 

   

the COVID-19 pandemic has had and could continue to have an adverse impact on our business, operations, and the markets and communities in which we, our partners, and our customers operate;

 

   

if we lose key management personnel or if we are unable to retain or hire additional qualified personnel, we may not be able to achieve our strategic objectives; and

 

   

our market opportunity estimates and growth forecasts included in this prospectus could prove to be inaccurate.

Corporate Information

We were incorporated as Butterfly Lane, Inc. in California in January 2002, and changed our name to Procore Technologies, Inc. in May 2002. We reincorporated in Delaware in June 2014. Our principal executive offices are located at 6309 Carpinteria Avenue, Carpinteria, CA 93013. Our telephone number is (866) 477-6267. Our website address is https://www.procore.com. Information contained on, or that can be accessed through, our website is not incorporated by reference into this prospectus, and you should not consider information on our website to be part of this prospectus.

The Procore design logo, “Procore,” “Procore Technologies,” and our other registered or common law trademarks, service marks, or trade names appearing in this prospectus are the property of Procore Technologies, Inc. Other trade names, trademarks, and service marks used in this prospectus are the property of their respective owners.

Implications of Being an Emerging Growth Company

As a company with less than $1.07 billion in revenues during our last fiscal year, we qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act, or JOBS Act, enacted in April 2012. An emerging growth company may take advantage of reduced reporting requirements that are otherwise applicable to public companies. These provisions include, but are not limited to:

 

   

not being required to comply for a certain period of time with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended, or the Sarbanes-Oxley Act;



 

10


Table of Contents
   

reduced disclosure obligations regarding executive compensation in our periodic reports, proxy statements, and registration statements;

 

   

exemptions from the requirements of holding a stockholder advisory vote on executive compensation and any golden parachute payments not previously approved; and

 

   

an exemption from compliance with the requirement of the Public Company Accounting Oversight Board regarding the communication of critical audit matters in the auditor’s report on the financial statements.

We may take advantage of these provisions until the last day of our fiscal year following the fifth anniversary of the date of the first sale of our common stock in this offering. However, if certain events occur prior to the end of such five-year period, including if (i) we become a “large accelerated filer,” with at least $700 million of equity securities held by non-affiliates; (ii) our annual gross revenues exceed $1.07 billion; or (iii) we issue more than $1.0 billion of non-convertible debt in any three-year period, we will cease to be an emerging growth company prior to the end of such five-year period.

We have elected to take advantage of certain of the reduced disclosure obligations in the registration statement of which this prospectus is a part and may elect to take advantage of other reduced reporting requirements in future filings. As a result, the information that we provide to our stockholders may be different than you might receive from other public reporting companies in which you hold equity interests.

In addition, the JOBS Act provides that an “emerging growth company” can take advantage of an extended transition period for complying with new or revised accounting standards. This provision allows an emerging growth company to delay the adoption of some accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this exemption, and therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.



 

11


Table of Contents

THE OFFERING

 

Common stock offered by us

   9,470,000 shares

Common stock to be outstanding after this offering

  


128,134,774 shares

Option to purchase additional shares of common stock offered in this offering

  


940,000 shares

Use of proceeds

  

We estimate that our net proceeds from the sale of our common stock in this offering will be approximately $596.6 million (or approximately $656.5 million if the underwriters’ option to purchase additional shares is exercised in full), based on the initial public offering price of $67.00 per share, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

 

We currently intend to use the net proceeds we receive from this offering for general corporate purposes, including working capital, operating expenses, and capital expenditures. We may also use a portion of the net proceeds for acquisitions or strategic investments in complementary businesses, products, services, or technologies, although we do not currently have any plans or commitments for any such acquisitions or investments. See the section titled “Use of Proceeds” for additional information.

Common stock held by executive officers, directors, and five percent stockholders after this offering

  



Upon the completion of this offering, our executive officers, directors, each of our stockholders that will own more than five percent of our outstanding capital stock, and their respective affiliates will hold, in aggregate 69.9% of the voting power of our outstanding capital stock.

Directed share program

   At our request, the underwriters have reserved up to 473,500 shares of common stock, or 5% of the shares offered by us pursuant to this prospectus for sale, at the initial public offering price, to persons with whom we have a business
   relationship, our directors, and friends and family of certain of our employees and directors through a directed share program. Any reserved shares of common stock that are not so purchased will


 

12


Table of Contents
   be offered by the underwriters to the general public on the same terms as the other shares of our common stock offered by this prospectus. See the section titled “Underwriting—Directed Share Program.” If purchased by these persons, these shares will not be subject to a 180-day lock-up restriction, except to the extent that the purchasers of such shares are otherwise subject to lock-up or market stand-off agreements as a result of their relationships with us. The number of shares of common stock available for sale to the general public will be reduced by the number of reserved shares sold to these persons and entities.

Risk factors

   See the section titled “Risk Factors” and the other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in our common stock.

NYSE trading symbol

   “PCOR”

The number of shares of our common stock that will be outstanding after this offering is based on 118,664,774 shares of our common stock outstanding as of March 31, 2021, which includes shares of our redeemable convertible preferred stock and shares of our redeemable convertible preferred stock subject to restricted stock awards, or RSAs, on an as converted basis, and shares resulting from the vesting of 1,361,899 RSUs, for which the service-based condition was satisfied as of March 31, 2021 and for which the performance-based vesting condition was satisfied upon the effective date of the registration statement of which this prospectus is a part, and excludes:

 

   

10,871,090 shares of our common stock issuable upon the exercise of options to purchase shares of our common stock outstanding as of March 31, 2021, with a weighted-average exercise price of $12.78 per share;

 

   

5,867,484 shares of our common stock subject to restricted stock units, or RSUs, outstanding as of March 31, 2021 that would not have satisfied the service-based vesting condition as of March 31, 2021;

 

   

537,248 shares of our common stock subject to RSUs granted between April 1, 2021 and May 10, 2021;

 

   

13,000,000 shares of our common stock reserved for future issuance under our 2021 Equity Incentive Plan, or our 2021 Plan; and

 

   

2,600,000 shares of our common stock reserved for future issuance under our 2021 Employee Stock Purchase Plan, or our ESPP.

Our 2021 Plan provides for annual automatic increases in the number of shares reserved thereunder, and our 2021 Plan also provides for increases to the number of shares that may be granted thereunder based on shares under our 2014 Equity Incentive Plan, or 2014 Plan, that expire, terminate, are forfeited, or are repurchased by us. See the section titled “Executive Compensation—Employee Benefit and Stock Plans” for additional information.



 

13


Table of Contents

Unless otherwise indicated, the information in this prospectus assumes:

 

   

the filing of our amended and restated certificate of incorporation and the effectiveness of our amended and restated bylaws, each of which will occur immediately prior to the completion of this offering;

 

   

the automatic conversion of 85,331,278 shares of our redeemable convertible preferred stock and redeemable convertible preferred stock subject to RSAs outstanding as of March 31, 2021 into an equal number of shares of our common stock immediately prior to the completion of this offering;

 

   

that our customer metrics do not include customers from our recent acquisition of Esticom Inc., or Esticom, as they are on non-standard legacy Esticom contracts that do not align with our standard contract terms. Esticom customers will be included in our customer, ARR, and retention metrics when they are renewed onto standard Procore annual contracts;

 

   

no exercise of the outstanding options or settlement of the RSUs described above subsequent to March 31, 2021, other than the vesting of 1,361,899 RSUs, for which the service-based condition was satisfied as of March 31, 2021 and for which the performance-based vesting condition was satisfied upon the effective date of the registration statement of which this prospectus is a part; and

 

   

no exercise by the underwriters of their option to purchase up to an additional 940,000 shares of our common stock in this offering.



 

14


Table of Contents

SUMMARY CONSOLIDATED FINANCIAL DATA

The following tables summarize our consolidated financial data. The summary consolidated statements of operations data for the years ended December 31, 2018, 2019, and 2020 and the summary consolidated balance sheet data as of December 31, 2020, have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The summary consolidated statements of operations data for the three months ended March 31, 2020 and 2021 and the summary consolidated balance sheet data as of March 31, 2021 have been derived from our unaudited interim condensed consolidated financial statements included elsewhere in this prospectus. In our opinion, the unaudited interim condensed consolidated financial statements have been prepared on a basis consistent with our audited consolidated financial statements and contain all adjustments, consisting only of normal and recurring adjustments, necessary for a fair statement of such interim financial statements.

You should read the following summary consolidated financial data together with the sections titled “Selected Consolidated Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited consolidated financial statements, unaudited interim condensed consolidated financial statements, and the related notes included elsewhere in this prospectus. The summary consolidated financial data in this section is not intended to replace our audited consolidated financial statements, unaudited interim condensed consolidated financial statements, and the related notes, and are qualified in their entirety by our audited consolidated financial statements, unaudited interim condensed consolidated financial statements, and the related notes included elsewhere in this prospectus. Our historical results are not necessarily indicative of our results in any future period, and our operating results for the three months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021 or any other interim periods or any future year or period.

 

    Year Ended December 31,     Three Months Ended
March 31,
 
    2018     2019     2020     2020     2021  
    (in thousands, except share and per share data)  

Consolidated Statements of Operations Data:

         

Revenue

  $ 186,396     $ 289,194     $ 400,291     $ 92,337     $ 113,938  

Cost of revenue

    37,401       53,166       71,663       17,457       20,359  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    148,995       236,028       328,628       74,880       93,579  

Operating expenses:

         

Sales and marketing

    112,723       173,472       189,032       48,062       53,965  

Research and development

    55,950       87,022       124,661       28,233       34,545  

General and administrative

    35,365       58,158       73,465       15,983       17,927  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    204,038       318,652       387,158       92,278       106,437  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

    (55,043     (82,624     (58,530     (17,398     (12,858

Interest expense, net

    (1,394     (930     (2,060     (382     (562

Change in fair value of Series I redeemable convertible preferred stock warrant liability

                (36,990            

Other income (expense), net

    16       518       420       (1,218     (183
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before provision for (benefit from) income taxes

    (56,421     (83,036     (97,160     (18,998     (13,603

Provision for (benefit from) income taxes

    250       71       (993     36       129  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

    (56,671     (83,107     (96,167     (19,034     (13,732


 

15


Table of Contents
    Year Ended December 31,     Three Months Ended
March 31,
 
    2018     2019     2020     2020     2021  
    (in thousands, except share and per share data)  

Less: Recognition of beneficial conversion feature on preferred stock as a deemed dividend

                (3,024            
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to common stockholders

  $ (56,671   $ (83,107   $ (99,191   $ (19,034   $ (13,732
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per share attributable to common stockholders, basic and diluted

  $ (2.77   $ (3.41   $ (3.56   $ (0.72   $ (0.44
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted

    20,430,502       24,361,173       27,895,546       26,440,615       31,357,060  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma net loss per share, basic and diluted (unaudited)(1)

      $ (1.16     $ (0.29
     

 

 

     

 

 

 

Weighted-average shares used in computing pro forma net loss per share, basic and diluted (unaudited)(1)

        111,650,157         117,731,615  
     

 

 

     

 

 

 
    Year Ended December 31,     Three Months Ended
March 31,
 
    2018     2019     2020     2020     2021  
    (dollars in thousands)  

Other Financial Data:

         

Gross margin(2)

    80     82     82     81     82

Operating margin(3)

    (30 )%      (29 )%      (15 )%      (19 )%      (11 )% 

Non-GAAP gross profit(4)

  $ 149,749     $ 238,766     $ 333,792     $ 75,908     $ 95,826  

Non-GAAP gross margin(4)

    80     83     83     82     84

Non-GAAP loss from operations(4)

  $ (47,339   $ (61,015   $ (4,373   $ (10,411   $ (807

Non-GAAP operating margin(4)

    (25 )%      (21 )%      (1 )%      (11 )%      (1 )% 

 

(1)

See Notes 2 and 14 to our audited consolidated financial statements included elsewhere in this prospectus for more information regarding pro forma net loss per share, basic and diluted, for the year ended December 31, 2020. See Notes 2 and 9 to our unaudited interim condensed consolidated financial statements included elsewhere in this prospectus for more information regarding pro forma net loss per share, basic and diluted, for the three months ended March 31, 2021.

(2)

Gross margin reflects our gross profit as a percentage of revenue.

(3)

Operating margin reflects our loss from operations as a percentage of revenue.

(4)

Non-GAAP gross profit, non-GAAP gross margin, non-GAAP loss from operations and non-GAAP operating margin are financial measures that are not calculated in accordance with GAAP. See the section titled “Selected Consolidated Financial Data—Non-GAAP Financial Measures.”



 

16


Table of Contents
     As of March 31, 2021  
     Actual     Pro Forma(1)      Pro Forma
As Adjusted(2)
 
     (in thousands)  

Consolidated Balance Sheet Data:

       

Cash and cash equivalents

   $ 413,761     $ 413,761      $ 1,014,218        

Right of use assets—finance leases

     41,439       41,439                41,439          

Total assets

     835,274       835,274        1,429,734          

Deferred revenue, current and non-current

     226,470       226,470        226,470          

Finance lease liabilities, current and non-current

     50,025       50,025        50,025          

Redeemable convertible preferred stock

     728,150              —          

Total stockholders’ (deficit) equity

     (265,110     463,040        1,059,613          

 

(1)

The pro forma column in the balance sheet data above reflects (i) the automatic conversion of an aggregate of 85,331,278 shares of our outstanding redeemable convertible preferred stock outstanding as of March 31, 2021 into an equivalent number of shares of common stock immediately prior to the completion of this offering; (ii) stock-based compensation expense of approximately $91.0 million associated with RSUs subject to service- and performance-based vesting conditions, as further described in Note 2 to our unaudited interim condensed consolidated financial statements included elsewhere in this prospectus; and (iii) the filing and effectiveness of our amended and restated certificate of incorporation that will be in effect immediately prior to the completion of this offering.

(2)

The pro forma as adjusted column further reflects the receipt of $596.6 million in net proceeds from our sale of 9,470,000 shares of common stock in this offering at the initial public offering price of $67.00 per share, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.



 

17


Table of Contents

RISK FACTORS

Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information contained in this prospectus, including our consolidated financial statements and the related notes thereto, before making a decision to invest in our common stock. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that affect us. If any of the following risks occur, our business, financial condition, results of operations, and prospects could be materially and adversely affected. In that event, the price of our common stock could decline, and you could lose part or all of your investment.

Risks Related to Our Business and Industry

We have experienced rapid growth in recent periods, and such growth may not be indicative of our future growth. If we fail to properly manage future growth, our business, financial condition, results of operations, and prospects could be materially adversely affected.

We have experienced rapid growth in recent periods. Our revenue was $186.4 million in 2018, $289.2 million in 2019, and $400.3 million in 2020. Even if our revenue continues to increase, we expect that our revenue growth rate will decline in the future as a result of a variety of factors, including the maturation of our business. Our overall revenue growth depends on a number of factors, including our ability to:

 

   

attract new customers and expand sales of subscriptions to our existing customers;

 

   

increase sales to owners and specialty contractors, as well as monetize additional new stakeholders;

 

   

develop new products, further improve our existing products, and expand our App Marketplace with additional third-party applications;

 

   

provide our customers and collaborators with support that meets their needs;

 

   

invest financial and operational resources to support future growth in our customer, collaborator, and third-party relationships;

 

   

expand our operations domestically and internationally;

 

   

retain and motivate existing personnel, and attract, integrate, and retain new personnel, particularly to our sales and marketing and engineering and product development teams;

 

   

successfully identify, acquire, and integrate businesses, products, or technologies that we believe could complement or expand our platform;

 

   

effectively plan for and model future growth; and

 

   

compete with other providers of construction management software.

If we are not able to maintain revenue growth or accurately forecast future growth, we may not meet analyst expectations, which would likely cause a decline in our stock price. You should not rely on the revenue growth of any prior quarterly or annual period as an indication of our future performance.

Our opportunity for future growth also depends on changes in our customers’ budgetary constraints, regulatory and macroeconomic conditions, and economic conditions and business practices within the construction industry. To the extent we do not effectively address these risks, some of which are out of our control, our business, financial condition, results of operations, and prospects could be materially adversely affected.

 

18


Table of Contents

We have a history of losses and may not be able to achieve or sustain profitability in the future.

We have a history of losses, and we may not achieve or maintain profitability in the future. We incurred net losses of $56.7 million in 2018, $83.1 million in 2019, and $96.2 million in 2020. As of December 31, 2020, we had an accumulated deficit of $397.0 million. We are not certain whether or when we will be able to achieve or sustain profitability in the future. We also expect our expenses to increase in future periods as we continue to invest in growth, which could negatively affect our future results of operations if our revenue does not increase. In particular, we intend to continue to expend substantial financial and other resources on:

 

   

expanding our sales and marketing and customer success teams to drive new subscriptions, increase the use of our products and platform by existing customers, and support our international expansion;

 

   

our technology infrastructure, including systems architecture, scalability, availability, performance, and security;

 

   

investments in our engineering and product development teams and the development of new products and platform functionality;

 

   

acquisitions, joint ventures, or strategic investments; and

 

   

general administration, including increased legal and accounting expenses associated with being a public company.

These investments may not result in increased revenue or profitable growth. Any failure to increase our revenue as we invest in our business, or to manage our costs, could prevent us from achieving or maintaining profitability or positive cash flow. We may also incur significant losses in the future for a number of reasons, including the other risks described in this prospectus, and unforeseen expenses, difficulties, complications, delays, and other unknown events. If we are unable to successfully address these risks and challenges, our business, financial condition, results of operations, and prospects could be materially adversely affected.

Our business may be significantly impacted by changes in the economy and related reductions in spend across the construction industry.

Our business may be affected by changes in the economy. The construction industry in particular is impacted by economic slowdowns, tightening of economic policies, tariffs on imported goods, commodity prices, and policies that reduce government spending. Unfavorable or deteriorating market conditions, reductions in the rate of construction growth, decreases in lending activity, reductions in government spending and funding of infrastructure or other construction projects, government shutdowns, delays in the sale of voter-approved bonds, credit rating downgrades, reduced demand for public projects, and any resulting effects on spending by our customers or prospective customers, could have an adverse impact on our business. Our revenue may decrease because customers may generally choose to purchase less construction software in times of unfavorable economic conditions. Furthermore, if the construction industry experiences a decrease in overall construction volume, the amount our customers pay for our products could be reduced as we generally price our products based on a customer’s annual construction volume, which is the fixed aggregate dollar volume of construction work contracted to run on our platform annually. To the extent we do not effectively address these risks and challenges, our business, financial condition, results of operations, and prospects could be materially adversely affected.

The construction management software industry is evolving and may not develop in ways we expect.

The construction management software industry is evolving. Widespread acceptance and use of construction management technology in general, and our platform in particular, is critical to our future

 

19


Table of Contents

growth and success. While we believe that our construction management software addresses a significant market opportunity, a viable market for it may never develop or it may develop more slowly than we expect. If a viable market for construction management software does not develop further or develops more slowly than we expect, our business, financial condition, results of operations, and prospects could be materially adversely affected. Demand for construction management software in general, and our products in particular, is affected by a number of factors, many of which are beyond our control. Some of these potential factors include:

 

   

general awareness of construction management software;

 

   

availability, functionality, and pricing of products and services that compete with ours;

 

   

new construction methods that may be developed or become more prevalent in the future, including greater use of prefabrication methods;

 

   

government funding;

 

   

ease of adoption and use;

 

   

features and platform experience;

 

   

the reliability, performance, or perceived performance of our products and platform, including interruptions to the use of our products and platform;

 

   

the development and awareness of our brand; and

 

   

security or data privacy breaches of our products or platform.

If we are unable to successfully address these potential factors, our business, financial condition, results of operations, and prospects could be materially adversely affected.

Our current and future products and features may not be widely accepted by our customers, and we may not be able to respond to technological changes, changes in customer demands and preferences, or develop new products and functionality.

Our ability to grow our customer base and increase revenue from customers will depend heavily on our ability to enhance and improve our platform, respond to changes in customer demands and preferences, introduce new products, and interoperate across an increasing range of devices, operating systems, and third-party applications. We may introduce significant changes to our existing products or develop and introduce new and unproven products, including technologies with which we have little or no prior development or operating experience. Our customers may also demand features and capabilities that our current products do not have, or that our current platform cannot support, and we may need to invest significantly in research and development to build these features and capabilities. Any new products and features may fail to engage, retain, and increase our customer base or may suffer a lag in customer adoption. New products may initially suffer from performance and quality issues that may negatively impact our ability to market and sell such products to new and existing customers. Competitors may also develop and introduce new products or entirely new technologies to replace our existing products, which could make our platform obsolete or adversely affect our business. There is no assurance that any enhancements to our platform or new products, features, or capabilities will be compelling to our customers or gain market acceptance. Additionally, we may experience difficulties with software development, design, or marketing that could delay or prevent our development, introduction, or implementation of new products, features, or capabilities. We have in the past experienced delays in our internally planned release dates of new products, features, and capabilities, and there can be no assurance that new products, features, or capabilities will be released according to schedule. Any delays could result in adverse publicity, loss of revenue or market acceptance, or claims by customers brought against us, all of which could harm our business. If our research and development investments do not accurately anticipate user demand, or if we fail to

 

20


Table of Contents

develop our products, features, or capabilities in a manner that satisfies customer needs in a timely and cost-effective manner, we may fail to retain our existing customers or increase demand for our products, which could materially adversely affect our business, financial condition, results of operations, and prospects.

We are continuing to expand our operations outside the United States, where we may be subject to increased business, regulatory, and economic risks that could materially adversely affect our business, financial condition, results of operations, and prospects.

We have customers running projects in over 125 countries, and 12.2% of our revenue in 2020 was generated from customers outside the United States. As of December 31, 2020, we have established offices in Australia, Canada, England, and Mexico to support our sales and marketing efforts in the surrounding regions. We expect to continue to expand our international operations, which may include opening offices in new jurisdictions and providing our products in additional languages. Any new markets or countries into which we attempt to sell subscriptions to access our products may not be receptive to our efforts. For example, we may not be able to expand further in some markets if we are not able to adapt our products to fit the needs of prospective customers in those markets or if we are unable to satisfy certain government- and industry-specific laws or regulations. In addition, future international expansion will also require considerable management attention and the investment of significant resources while subjecting us to new risks and increasing certain risks that we already face, including risks associated with:

 

   

recruiting and retaining talented and capable employees outside the United States, including employees who speak multiple languages and come from a wide variety of different cultural backgrounds and customs;

 

   

maintaining our company culture across all of our global offices;

 

   

providing our products and platform in different languages and customizing them to support local requirements;

 

   

compliance with applicable international laws and regulations, including laws and regulations with respect to employment, construction, privacy, data protection, consumer protection, and unsolicited email, and the risk of penalties and fines against us and individual members of management or employees if our practices are deemed to be out of compliance;

 

   

managing an employee base in jurisdictions with differing employment regulations;

 

   

operating in jurisdictions that do not protect intellectual property rights to the same extent as the United States and navigating the practical enforcement of such intellectual property rights outside of the United States;

 

   

the risk of changes in foreign laws that could restrict our ability to use our intellectual property outside of the foreign jurisdiction in which we developed it;

 

   

compliance by us and our partners with anti-corruption laws, competition laws, import and export control laws, tariffs, trade barriers, economic sanctions, and other regulatory limitations on our ability to provide our products or platform in certain international markets;

 

   

foreign exchange controls that might require significant lead time in setting up operations in certain geographic territories and might prevent us from repatriating cash earned outside the United States;

 

   

political and economic instability (including as a result of COVID-19);

 

   

COVID-19 or any other pandemics or epidemics that could result in decreased economic activity in certain markets, decreased use of our products and services, or in our decreased ability to sell our products and services to existing or new customers in international markets;

 

21


Table of Contents
   

generally longer payment cycles and greater difficulty in collecting accounts receivable;

 

   

double taxation of our international earnings and potentially adverse tax consequences due to changes in the income and other tax laws of the United States or the international jurisdictions in which we operate; and

 

   

higher costs of doing business internationally, including increased accounting, tax, travel, infrastructure, and legal compliance costs.

Compliance with laws and regulations applicable to our global operations substantially increases our cost of doing business. We may be unable to keep current with changes in laws and regulations as they occur. Although we have implemented policies and procedures designed to support compliance with these laws and regulations, there can be no assurance that we will always maintain compliance or that all of our employees, contractors, partners, and agents will comply. Any violations could result in enforcement actions, fines, civil and criminal penalties, damages, injunctions, or reputational harm. If we are unable to comply with these laws and regulations or manage the complexity of our global operations successfully, we may need to relocate or cease operations in certain foreign jurisdictions, which could materially adversely impact our business, financial condition, results of operations, and prospects.

Our business depends on a strong brand, and if we are not able to maintain and enhance our brand, our ability to maintain and expand our customer base will be impaired, and our business will be harmed.

We believe that the Procore brand identity and awareness is critical to our sales and marketing efforts. We also believe that maintaining and enhancing the Procore brand is critical to maintaining and expanding our customer base and, in particular, conveying to customers and collaborators that our platform offers capabilities that address the needs of the construction ecosystem throughout the project lifecycle. We anticipate that, as our market becomes increasingly competitive, maintaining and enhancing our brand may become increasingly difficult and expensive. Any unfavorable publicity or perception of our products or platform or the providers of construction management software generally, could adversely affect our reputation and our ability to attract and retain customers. If we fail to promote and maintain the Procore brand, or if we incur increased expenses in this effort, our business, financial condition, results of operations, and prospects could be materially adversely affected.

Our ability to increase our customer base and achieve broader market acceptance of our products will significantly depend on our ability to develop and expand our sales and marketing capabilities, the failure of which could materially adversely impact our business, financial condition, results of operations, and prospects.

Sales of subscriptions to access our products will depend to a significant extent on our ability to expand our sales and marketing capabilities. It is difficult to predict customer demand, customer retention and expansion rates, the size and growth rate of the market, the entry of competitive products, or the success of existing competitive products. Our sales efforts involve educating prospective customers about the uses and benefits of our products and platform. We expect that we will continue to need intensive sales efforts to educate prospective customers about the uses and benefits of our construction management software, and we may have difficulty convincing prospective customers of the value of adopting our products. We plan to continue expanding our salesforce, both domestically and internationally. Identifying, recruiting, and training qualified sales representatives is time-consuming and resource-intensive, and they may not be fully-trained and productive for a significant amount of time following their hiring, if ever. In addition, the cost to acquire customers is high due to these considerable sales and marketing efforts. Our business will be harmed if our efforts do not generate a correspondingly significant increase in revenue. Even if we are successful in

 

22


Table of Contents

convincing prospective customers of the value of our products, they may decide not to purchase our products for a variety of reasons, some of which are out of our control. We spend substantial time and resources on our sales efforts without any assurance that our efforts will result in a sale. The failure of our efforts to secure sales after investing resources in a lengthy sales process could materially adversely affect our business, financial condition, results of operations, and prospects.

We operate in a competitive market, and we must continue to compete effectively.

The market for our products is highly competitive and rapidly changing. Certain features of our current platform compete with:

 

   

aggregated construction management products, including those offered by Oracle (including through its acquisitions of Primavera Systems, Aconex, and Textura), Autodesk (including through its acquisitions of PlanGrid, Assemble Systems, BuildingConnected, and Pype), and Trimble (including through its acquisitions of Viewpoint and e-Builder);

 

   

accounting software vendors, such as ComputerEase Software, Foundation Software, and Jonas Software;

 

   

point solution software vendors in various categories, including analytics, bidding, BIM, compliance, and scheduling, among others; and

 

   

in-house specialized tools or processes built by or for existing or prospective customers.

With the introduction of new products, technologies, and market entrants in the construction management software industry, we expect competition to intensify in the future. Further, many of our actual and potential competitors benefit from competitive advantages over us, such as better name recognition, longer operating histories, larger marketing budgets, existing or more established relationships, greater third-party integration, access to larger customer bases, and greater financial, technical, pricing and marketing strategies, and other resources. Some of our competitors may make acquisitions or enter into strategic relationships with third parties to offer a broader range of products than we do. These combinations may make it more difficult for us to effectively compete. We expect these competitive dynamics to continue as competitors attempt to strengthen or maintain their market positions.

Many factors, including our marketing, user acquisition and technology costs, and our current and future competitors’ pricing and marketing strategies, can significantly affect our pricing strategies. We currently sell our products at a premium as compared to some of our competitors. Certain competitors offer, or may in the future offer, lower-priced or free products or services that compete with our products or may bundle and offer a broader range of products or services. We may not be able to compete at such lower price points or with such product configurations. Similarly, competitors may use marketing strategies that enable them to acquire customers at a lower cost than we can. There can be no assurance that we will not be forced to engage in price-cutting initiatives or other discounts or to increase our marketing and other expenses, to attract and retain customers in response to competitive pressures, any of which could materially adversely affect our business, financial condition, results of operations, and prospects.

Our results of operations may fluctuate significantly, which could make our future results difficult to predict and could cause our results of operations to fall below expectations.

Our results of operations may vary significantly from period to period, which could materially adversely affect our business, financial condition, results of operations, and prospects. We expect that

 

23


Table of Contents

our results of operations will vary as a result of a number of factors, many of which are outside of our control and may be difficult to predict, including:

 

   

our ability to increase the number of new customers and expand our existing customers’ use of our products;

 

   

the timing and success of new products introduced by us or our competitors;

 

   

the budgeting cycles, government funding of projects, and purchasing practices of customers;

 

   

general economic conditions, both domestically and in foreign markets;

 

   

reduction in construction spending in the public or private sectors;

 

   

changes in customer or collaborator requirements or market needs;

 

   

changes in the way we organize and compensate our employees;

 

   

whether the construction management software industry develops at all or develops more slowly than we expect;

 

   

our ability to successfully expand our business domestically and internationally;

 

   

the timing and length of our sales cycles;

 

   

our ability to attract, develop, motivate, and retain management and other skilled personnel;

 

   

the amount and timing of operating costs and capital expenditures related to the expansion of our business;

 

   

changes in the competitive landscape of our market, including consolidation among competitors or customers;

 

   

changes in our pricing policies or those of our competitors;

 

   

insolvency or credit difficulties affecting our customers’ ability to purchase or pay for our products;

 

   

significant security breaches of, technical difficulties with, or interruptions to, the use of our products or platform;

 

   

unusual expenses such as litigation or other dispute-related settlement payments or outcomes;

 

   

health epidemics or pandemics, such as COVID-19;

 

   

future accounting pronouncements or changes in our accounting policies or practices; and

 

   

increases or decreases in our results caused by fluctuations in foreign currency exchange rates.

The COVID-19 pandemic has had and could continue to have an adverse impact on our business, operations, and the markets and communities in which we, our partners, and our customers operate.

The COVID-19 pandemic has caused general business disruption worldwide beginning in January 2020. The potential impact and duration of the COVID-19 pandemic on the global economy and our business are difficult to assess or predict. Potential impacts include:

 

   

our customer prospects and our existing customers may experience slowdowns in their businesses, which in turn may result in reduced demand for our platform, lengthening of sales cycles, loss of customers, and difficulties in collections;

 

   

our employees are working from home much more frequently than they have historically, which may result in decreased employee productivity and morale, increased unwanted employee attrition, and increased risk of a cyberattack;

 

24


Table of Contents
   

we continue to incur fixed costs, particularly for real estate, and may derive reduced or no benefit from those costs;

 

   

we may continue to experience disruptions to our growth planning, such as for facilities and international expansion;

 

   

we anticipate incurring costs in returning to work from our facilities around the world, including changes to the workplace, such as space planning, food service, and amenities;

 

   

we may be subject to legal liability for safe workplace claims;

 

   

our critical vendors or third-party partners could go out of business; and

 

   

in-person marketing events, including industry conferences, have been canceled and we may

continue to experience prolonged delays in our ability to reschedule or conduct in-person marketing events and other sales and marketing activities.

The impact of any of the foregoing, individually or collectively, could adversely affect our business, financial condition, results of operations, and prospects.

As a result of the COVID-19 pandemic, we temporarily closed our headquarters and other offices,

required our employees and contractors to work remotely, and implemented travel restrictions, all of

which represented a significant change in how we operate our business. The operations of our partners and customers have likewise been altered. As a result of global business disruption, the COVID-19 pandemic had an adverse impact on our ability to close new and additional business agreements. While the duration and extent of the COVID-19 pandemic depends on future developments that cannot be accurately predicted at this time, such as the extent and effectiveness of containment actions, it has already had an adverse effect on the global economy and the ultimate societal and economic impact of the COVID-19 pandemic remains unknown. In particular, the conditions caused by this pandemic are likely to affect the rate of global construction spending and, despite the measures we have taken to limit or mitigate the impact, it could continue to have an adverse effect on the demand for our platform, lengthen our sales cycles, reduce the value or duration of subscriptions, reduce the level of subscription renewals, negatively impact collections of accounts receivable, reduce expected spending from new customers, cause some of our customers to go out of business, limit the ability of our direct sales force to travel to customers and potential customers, and affect contraction or attrition rates of our customers, all of which could adversely affect our business, results of operations, financial condition, and prospects in 2021 and future periods.

Moreover, to the extent the COVID-19 pandemic continues to adversely affect our business, financial condition, results of operations, and prospects, it may also have the effect of heightening many of the other risks described in this “Risk Factors” section, including but not limited to, those related to our ability to increase sales to existing and new customers, develop and deploy new offerings and applications, and maintain effective marketing and sales capabilities.

If we lose key management personnel or if we are unable to retain or hire additional qualified personnel, we may not be able to achieve our strategic objectives and our business, financial condition, results of operations, and prospects could be materially adversely affected.

Our future success is substantially dependent on our ability to attract, retain, and motivate the members of our management team and other key personnel throughout our organization. In particular, we are highly dependent on the services of Mr. Courtemanche, our founder, President, and Chief Executive Officer, who is critical to our ability to achieve our vision and strategic priorities. We rely on our management team in the areas of operations, security, research and development, sales and marketing, support, and general and administrative functions. Although we have entered into offer

 

25


Table of Contents

letters with our key personnel, our employees, including our executive officers, work for us on an “at-will” basis, which means they may terminate their employment with us at any time. If Mr. Courtemanche or one or more of our key personnel or members of our management team resigns or otherwise ceases to provide us with their services, our business, financial condition, results of operations, and prospects could be materially adversely affected.

Our continued success is also dependent on our ability to attract and retain other qualified personnel possessing a broad range of skills and expertise. There is significant competition for personnel with the skills and technical knowledge that we require across our product and platform development, sales, customer success, and general and administrative functions. In particular, to continue to enhance our products, develop new products, and add new and innovative functionality, it will be critical for us to continue to grow our research and development teams, including hiring highly skilled engineers, product managers, and designers with experience in designing, developing, and testing cloud-based software. We may need to offer higher compensation and other benefits to attract and retain key personnel in the future, and to attract top talent, we must offer competitive compensation packages before we have the opportunity to validate the productivity and effectiveness of new personnel. Many of the companies with which we compete for experienced personnel have greater name recognition and financial resources. If we hire employees from competitors or other companies, their former employers may attempt to assert that we or these employees have breached the employee’s legal obligations, resulting in a diversion of our time and resources. In addition, our headquarters are located near Santa Barbara, California, which is not a prominent commercial center or hub for technology companies. As a result, we may have difficulty hiring and retaining suitably skilled personnel with the qualifications and motivation to expand our business. Additionally, we may not be able to hire new personnel quickly enough to meet our needs. If we fail to meet our hiring needs or successfully integrate our new hires, our efficiency and ability to meet our forecasts and our employee morale, productivity, and retention could all suffer. Any of these factors could materially adversely affect our business, financial condition, operating results, and prospects.

Our market opportunity estimates and growth forecasts included in this prospectus could prove to be inaccurate, and any real or perceived inaccuracies may harm our reputation and could materially adversely affect our business, financial condition, results of operations, and prospects.

This prospectus includes our internal estimates of the addressable market for our construction management software products. Market opportunity estimates and growth forecasts, whether obtained from third-party sources or developed internally, are subject to significant uncertainty and are based on assumptions and estimates that may not prove to be accurate. In particular, our internal estimates regarding our current and projected market opportunity, including our expectations with respect to new international markets, new products, features, and capabilities, and adoption by owners, general contractors, and specialty contractors, are difficult to predict. In addition, our internal estimates of the addressable market for our products include the potential spend of substantially all owners, general contractors, and specialty contractors in the market, and we cannot predict with precision our ability to address this demand or the extent of market adoption of our platform by each of these types of stakeholders. Furthermore, the construction industry has been slow to digitize. As a result, the estimates for our addressable market may not materialize for many years, if ever, and even if the markets in which we compete meet the size estimates and growth forecasted in this prospectus, our business could fail to grow at similar rates, or at all. Accordingly, the forecasts of market growth included in this prospectus should not be taken as indicative of our future growth.

 

26


Table of Contents

Our business is subject to data security risks, and our data security measures may be inadequate to address these risks, making our systems susceptible to compromise, which could materially adversely affect our business, financial condition, results of operations, and prospects.

We, or our third-party vendors on our behalf, collect, process, store, and transmit substantial amounts of data and information, including customer data. Security incidents may occur in the future, causing unauthorized access to, loss of, or unauthorized disclosure of such information, resulting in regulatory enforcement actions, litigation, indemnification obligations, and other potential liabilities, as well as negative publicity, which could materially adversely affect our business, reputation, financial condition, results of operations, and prospects. Cyberattacks, computer malware, and other compromises of information security measures or malicious internet-based activity continue to increase, and cloud-based platform providers of products and services have been targeted, resulting in breaches of their information security, and are expected to continue to be targeted. We and our third-party vendors are at risk of suffering from similar attacks and breaches. Our products may also be subject to fraudulent usage and schemes, including third parties accessing customer accounts or viewing data from our platform. These fraudulent activities can result in unauthorized access to customer accounts and data and unauthorized use of our products. While we undertake significant efforts to protect the security and integrity of the information we collect, process, store, and transmit, we cannot entirely mitigate these risks, and there is no guarantee that inadvertent or unauthorized use or disclosure of such information will not occur or that third-parties will not gain unauthorized access to such information despite our efforts. In addition, we rely on our third-party vendors to take appropriate measures to protect the security and integrity of the information on their information systems. We may not be able to anticipate or prevent all techniques that could be used to obtain unauthorized access or to compromise our systems because such techniques change frequently and are generally not detected until after an incident has occurred. Additionally, we cannot be certain that we will be able to address any vulnerabilities in our software that we may become aware of in the future. We expect similar issues to arise in the future as we continue to expand the features and functionality of our products and platform and introduce new products, and we expect to expend significant resources in an effort to protect against security incidents. In addition, any actual or suspected cybersecurity incident or other compromise of our security measures, or those of our third-party vendors, whether as a result of hacking efforts, denial-of-service attacks, viruses, malicious software, break-ins, phishing attacks, social engineering, or otherwise, could result in harm to our business, damage to our brand and reputation, significant costs for remediating the effects of such an incident and preventing future incidents, lost revenue due to network downtime, and a decrease in customer and user trust. Concerns regarding privacy, data protection, and information security may also cause some of our customers to stop using our products and platform and decline to renew their subscriptions, and make it harder to acquire new customers. To the extent we do not effectively address these risks, our business, financial condition, results of operations, and prospects could be materially adversely affected.

Many governments have enacted laws requiring companies to provide notice of data security incidents involving certain types of personal data. We are also contractually required to notify certain customers of certain data security breaches. In addition, our customers store sensitive and confidential information on our platform, such as building plans and other information related to government works, or projects for regulated industries, such as banks and casinos. Security incidents experienced by us, or by others, such as our competitors or customers, may lead to public disclosures and widespread negative publicity for us, our customers, or the construction software industry generally.

There can be no assurance that any limitations of liability provisions in our subscriptions with customers would be enforceable or adequate or would otherwise protect us from any such liabilities or damages with respect to any particular claim. We also cannot be sure that our existing general liability insurance coverage and coverage for cyber liability or errors or omissions will continue to be available

 

27


Table of Contents

on acceptable terms, or will be available in sufficient amounts to cover one or more large claims, or that the insurer will not deny coverage as to any future claim. The successful assertion of one or more large claims against us that exceed available insurance coverage, or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could materially adversely affect our business, financial condition, results of operations, and prospects.

Any failure to offer high quality support for our customers and collaborators may harm our relationships with our customers and, consequently, our business.

While we have designed our products to be easy to adopt with minimal support, our customers depend on our customer success teams to provide implementation, training, and support services. Due to the COVID-19 pandemic and local government shelter in place requirements, our in the field customer support capabilities have diminished as we have required substantially all of our employees to work remotely to minimize their and our customers’ risk of exposure to COVID-19. If we do not provide effective ongoing support (both virtually and in the field), our ability to sell additional products to existing customers could be adversely affected, and our reputation with prospective customers or the industry could be damaged. If we experience increased customer and collaborator demand for support, we may face increased costs that may harm our results of operations. The number of our customers and collaborators has grown significantly, which has put additional pressure on our customer success teams. If we are unable to provide efficient support services or if we need to hire additional support resources, potentially through third parties, our business, financial condition, results of operations, and prospects could be adversely affected. Additionally, our ability to acquire new customers is highly dependent on our business reputation and on positive recommendations from existing customers. Any failure to maintain high quality support, or a market perception that we do not maintain high quality support, for our customers and collaborators could materially adversely affect our business, financial condition, results of operations, and prospects.

If we fail to maintain an effective system of disclosure controls and internal control over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable regulations could be impaired and our business, financial condition, results of operations, and prospects could be adversely materially affected.

As a public company, we will be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, the Sarbanes-Oxley Act and the rules and regulations of the applicable listing standards of the New York Stock Exchange, or the NYSE. We expect that the requirements of these rules and regulations will continue to increase our legal, accounting, and financial compliance costs, make some activities more complex, time-consuming, and, costly and place significant strain on our personnel, systems, and resources.

The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. We are continuing to develop and refine our disclosure controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we will file with the SEC is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms and that information required to be disclosed in reports under the Exchange Act is accumulated and communicated to our principal executive and financial officers. We are also continuing to improve our internal control over financial reporting. In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting, we have expended, and anticipate that we will continue to expend, significant resources, including accounting-related costs and significant management oversight.

 

28


Table of Contents

Our current controls and any new controls that we develop may become inadequate because of changes in conditions in our business. In addition, changes in accounting principles or interpretations could also challenge our internal controls and require that we establish new business processes, systems, and controls to accommodate such changes. We have limited experience with implementing the systems and controls that will be necessary to operate as a public company, as well as adopting changes in accounting principles or interpretations mandated by the relevant regulatory bodies. Additionally, if these new systems or controls, and the associated process changes do not give rise to the benefits that we expect or do not operate as intended, it could adversely affect our financial reporting systems and processes, our ability to produce timely and accurate financial reports, or the effectiveness of internal control over financial reporting. Moreover, our business may be harmed if we experience problems with any new systems and controls that result in delays in their implementation or increased costs to correct any post-implementation issues that may arise.

Further, weaknesses in our disclosure controls and internal control over financial reporting may be discovered in the future. Any failure to develop or maintain effective controls or any difficulties encountered in their implementation or improvement could harm our business or cause us to fail to meet our reporting obligations and may result in a restatement of our financial statements for prior periods. Any failure to implement and maintain effective internal control over financial reporting also could adversely affect the results of periodic management evaluations and annual independent registered public accounting firm attestation reports regarding the effectiveness of our internal control over financial reporting that we may eventually be required to include in our periodic reports that will be filed with the SEC. Ineffective disclosure controls and procedures and internal control over financial reporting could also cause investors to lose confidence in our reported financial and other information, which would likely have a negative effect on our stock price. In addition, if we are unable to continue to meet these requirements, we may not be able to remain listed on the NYSE. We are not currently required to comply with the SEC rules that implement Section 404 of the Sarbanes-Oxley Act and are therefore not required to make a formal assessment of the effectiveness of our internal control over financial reporting for that purpose. As a public company, we will be required to provide an annual management report on the effectiveness of our internal control over financial reporting commencing with our second annual report on Form 10-K.

Our independent registered public accounting firm is not required to formally attest to the effectiveness of our internal control over financial reporting until after we are no longer an “emerging growth company” as defined in the Jobs Act. At such time, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our internal control over financial reporting is documented, designed, or operating. Any failure to maintain effective disclosure controls and internal control over financial reporting could cause a decline in our stock price or materially adversely affect our business, financial condition, results of operations, and prospects.

We license technology from third parties and our inability to maintain those licenses could materially adversely affect our business, financial condition, results of operations, and prospects.

We currently incorporate, and will in the future incorporate, technology that we license from third parties into our products and platform. We cannot be certain that our licensors do not or will not infringe on the intellectual property rights of third parties or that our licensors have or will have sufficient rights to the licensed intellectual property in all jurisdictions where we may sell our platform. Some of our agreements with our licensors may be terminated by them for convenience, or otherwise provide for a limited term. If we are unable to continue to license technology because of intellectual property infringement claims brought by third parties against our licensors or against us, or if we are unable to continue our license agreements or enter into new licenses on commercially reasonable terms, our

 

29


Table of Contents

ability to develop and sell products containing that technology would be limited, and our business could be harmed. Additionally, if we are unable to license or continue to license technology from third parties, such as technology that helps enable our products, we may be forced to acquire or develop alternative technology, which we may be unable to do in a commercially feasible manner or at all, and may require us to use alternative technology of lower quality or performance standards. This could limit or delay our ability to offer certain existing, new, or competitive products and may increase our costs. As a result, our business, financial condition, and results of operations could be materially adversely affected.

Our failure to protect our intellectual property rights and proprietary information could diminish our brand and other intangible assets.

We primarily rely and expect to continue to rely on a combination of patent, copyright, trademark, and trade secret laws, as well as confidentiality procedures, licenses and contractual restrictions with our employees, consultants, and third parties, to establish and protect our intellectual property and proprietary rights, all of which provide only limited protection. As of December 31, 2020, we had six issued patents, 28 pending, non-provisional patent applications in the United States, and ten Patent Cooperation Treaty international patent applications. Two of our issued patents in the United States will expire in 2035, and the other four of our issued patents will expire in 2039. We continually review our development efforts to assess the existence and patentability of new intellectual property. We make business decisions about when to seek patent protection for a particular technology and when to rely upon copyright or trade secret protection, and the approach we select may ultimately prove to be inadequate. Even when we seek patent protection, there is no assurance that the resulting patents will effectively protect every significant feature of our products or platform. In addition, we believe that the protection of our trademark rights is an important factor in product recognition, protecting our brand, and maintaining goodwill. If we do not adequately protect our rights in our trademarks from infringement, misappropriation and unauthorized use, any goodwill that we have developed in those trademarks could be lost or impaired, which could harm our brand and our business. Third parties may knowingly or unknowingly infringe our proprietary rights, or may challenge our proprietary rights, and we may not be able to prevent infringement without incurring substantial expense. Additionally, pending and future patent, trademark, and copyright applications may not be approved, and our issued patents may be contested, circumvented, found unenforceable, or invalidated. We have also devoted substantial resources to the development of our proprietary technologies and related processes. In order to protect our proprietary technologies and processes, we rely in part on trade secret laws and confidentiality agreements with our employees, consultants, and third parties. These agreements may not effectively prevent disclosure of confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of such information. In addition, others may independently discover our trade secrets, in which case we would not be able to assert trade secret rights, or develop similar technologies and processes. Further, laws in certain jurisdictions may afford little or no trade secret protection, and any changes in, or unexpected interpretations of, the intellectual property laws in any country in which we operate may compromise our ability to enforce our intellectual property rights. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights. If the protection of our proprietary rights is inadequate to prevent use or appropriation by third parties, the value of our products, platform, brand, and other intangible assets may be diminished, and competitors may be able to more effectively replicate our platform and its features. Any of these events could materially adversely affect our business, financial condition, results of operations, and prospects.

We may become involved in litigation that could materially adversely affect our business, financial condition, results of operations, and prospects.

As we face increasing competition and gain an increasingly higher profile, the possibility of intellectual property rights claims, commercial claims, or other claims or lawsuits being asserted

 

30


Table of Contents

against us grows. In the future, we may become a party to litigation and disputes related to our intellectual property, business practices, products, or platform. While we intend to vigorously defend these lawsuits, litigation can be costly and time-consuming, divert the attention of management and key personnel from our business operations, and dissuade prospective customers from subscribing to our products. We may need to settle litigation and disputes on terms that are unfavorable to us, or we may be subject to an unfavorable judgment that may not be reversible upon appeal. The terms of any settlement or judgment may require us to cease some or all of our operations or pay substantial amounts to the other party. In addition, our customer agreements include provisions requiring us to indemnify our customers against liabilities if our products infringe a third-party’s intellectual property rights, and we have negotiated other specific indemnities with certain of our customers, in each case, which could require us to make payments to such customers. During the course of any litigation or dispute, we may make announcements regarding the results of hearings and motions and other interim developments. If securities analysts and investors consider these announcements negative, our stock price may decline. With respect to any intellectual property rights claim, we may have to seek a license to continue practices found to be in violation of third-party rights, which may not be available on reasonable terms and may significantly increase our operating expenses. A license to continue such practices may not be available to us, and we may be required to develop alternative non-infringing technology or practices or discontinue our practices. The development of alternative, non-infringing technology or practices could require significant effort and expense. Any of the above could materially adversely affect our business, financial condition, results of operations, and prospects.

If we cannot maintain our company culture as we grow, we could lose the innovation, teamwork, passion, and focus on execution that we believe contribute to our success.

We believe our corporate culture fosters innovation, teamwork, passion, and focus on execution and has contributed to our success. As we grow and develop our infrastructure as a public company and expand our operations, we may find it difficult to maintain our corporate culture. Any failure to preserve our culture could harm our future success, including our ability to recruit and retain qualified personnel, innovate and operate effectively, and execute on our business strategies. In addition, in response to the COVID-19 pandemic and local shelter in place government regulations, we are requiring or have required substantially all of our employees to work remotely to minimize the risk of exposure to the virus to our employees and the communities in which we operate. We may take further actions as may be required by government authorities or that we determine are in the best interests of our employees, customers, and business partners. There is no guarantee that we will be as effective while working remotely or that we will be able to maintain our corporate culture because our team is dispersed and because our employees may have less capacity to work due to increased personal obligations (such as childcare, eldercare, or caring for family members who become sick), may become sick themselves and be unable to work, or may be otherwise negatively affected, mentally or physically, by the COVID-19 pandemic and prolonged social distancing. If we experience any of these risks in connection with future growth, it could impair our ability to attract new customers and retain existing customers and expand their use of our platform, all of which could materially adversely affect our business, financial condition, results of operations, and prospects.

We may be unsuccessful in making, integrating, and maintaining acquisitions, joint ventures, and strategic investments.

We expect to evaluate and consider a wide array of potential strategic transactions, including acquisitions of businesses, joint ventures, new technologies, services, products, and other assets, and making strategic investments. However, we may not be able to find suitable acquisition, joint venture, and strategic investment candidates, and we may not be able to complete these transactions on favorable terms, or at all. Even if we are able to complete these transactions, they may not ultimately strengthen our competitive position or achieve our strategic goals and could be viewed negatively by

 

31


Table of Contents

existing or prospective customers, collaborators, third-party developers, regulators, investors, or others. Any of these transactions could be material to our business, financial condition, and operating results.

We may not realize the anticipated benefits of any or all of our acquisitions, joint ventures, or strategic investments in the time frame expected or at all. Valuations supporting our acquisitions and strategic investments could change rapidly. Following any such transaction, we could determine that such valuations have experienced impairments or other-than-temporary declines in fair value which could materially adversely affect our business, financial condition and operating results through the write-off of goodwill and other impairment charges.

We may have to pay cash, incur debt, or issue securities, including equity-based securities, to pay for acquisitions, joint ventures, or strategic investments, each of which could affect our financial condition or the value of our capital stock. The sale of equity to finance any such transaction could result in dilution to our stockholders. If we incur debt in connection with such a transaction, it would result in increased fixed obligations and could also subject us to covenants or other restrictions that would impede our ability to flexibly operate our business. Any of these factors could materially adversely affect our ability to consummate a transaction, our business, financial condition, results of operations, and prospects.

Our actual or perceived failure to comply with privacy, data protection, or information security laws, regulations, or obligations, or the expansion of current or the enactment of new privacy, data protection, or information security laws, regulations, or obligations, could materially adversely affect our business, financial condition, results of operations, and prospects.

There are numerous federal, state, local, and international laws and regulations regarding privacy, data protection, and information security that govern the collection, use, storage, retention, sharing, processing, transfer, disclosure, and protection of personal information and other information. The scope of these laws and regulations is expanding and evolving, subject to differing interpretations, may be inconsistent among jurisdictions, or conflict with other rules. We are also subject to the terms of our privacy policies and obligations to third parties related to privacy, data protection, and information security. We strive to comply with any and all applicable laws, regulations, policies, and other legal obligations relating to privacy, data protection, and information security to the extent possible. However, the regulatory framework for privacy, data protection, and information security worldwide is, and is likely to remain, uncertain for the foreseeable future, and it is possible that these or other actual or alleged obligations may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another and may conflict with other rules or our practices. As a result, we cannot guarantee that our practices have complied, comply, or will comply fully with all such laws, regulations, and obligations.

We also expect that there will continue to be new laws, regulations, and industry standards concerning privacy, data protection, and information security proposed and enacted in various jurisdictions. For example, in May 2018, the General Data Protection Regulation, or GDPR, went into effect in the European Union, or EU. The GDPR has imposed more stringent data protection requirements, and provides greater penalties for noncompliance, than previous data protection laws, including potential penalties of up to 20 million or 4% of annual global revenues. Further, following a referendum in June 2016 in which voters in the United Kingdom approved an exit from the EU, the United Kingdom government initiated a process to leave the EU, known as Brexit. Brexit has created uncertainty with regard to the regulation of data protection in the United Kingdom. In particular, although the United Kingdom enacted a Data Protection Act in May 2018 that is designed to be consistent with the GDPR, uncertainty remains regarding how data transfers to and from the United Kingdom will be regulated. The State of California also enacted the California Consumer Privacy Act of

 

32


Table of Contents

2018, or the CCPA, that went into effect on January 1, 2020, which affords consumers expanded privacy protections. The CCPA has since been amended, and it is possible that it will be amended again. The potential effects of this legislation are far-reaching and may require us to modify our data processing practices and policies and to incur substantial expenses in an effort to comply. For example, the CCPA gives California residents expanded rights to access and require deletion of their personal information, opt out of certain personal information sharing, and receive detailed information about how their personal information is used. The CCPA also provides for civil penalties for violations, as well as a private right of action for data breaches that may increase data breach litigation.

Additionally, if third parties we work with, such as vendors or developers, violate applicable laws or regulations or our policies, such violations may also put our users’ information at risk and could materially adversely affect our business, financial condition, results of operations, and prospects. Any significant change to applicable laws, regulations, or industry practices regarding the collection, use, retention, security, or disclosure of our users’ content, or regarding the manner in which the express or implied consent of users for the collection, use, retention, or disclosure of such content is obtained, could increase our costs and require us to modify our services and features, possibly in a material manner, which we may be unable to complete and may limit our ability to store and process user data or develop new products and features.

Any failure or perceived failure by us to comply with our privacy policies, privacy-, data protection- or information security-related laws, regulations, or obligations applicable to us, or other legal obligations relating to privacy, data protection, or information security, may result in governmental investigations or enforcement actions, litigation, claims, or public statements against us by consumer advocacy groups or others, and could result in significant liability or cause our users to lose trust in us, which could materially adversely affect our business, financial condition, results of operations, and prospects.

Our business is subject to a wide range of laws and regulations, many of which are evolving, and failure to comply with such laws and regulations could materially adversely affect our business, financial condition, results of operations, and prospects.

We are subject to a number of laws and regulations that apply generally to businesses, including laws and regulations governing the internet and the marketing, sale, and delivery of goods and services over the internet. These laws and regulations, which continue to evolve, cover, among other things, taxation, tariffs, privacy and data protection, data security, pricing, content, copyrights, distribution, mobile and other communications, advertising practices, electronic contracts, sales procedures, automatic subscription renewals, credit card processing procedures, consumer protection, the provision of online payment services, the design and operation of websites, and the characteristics and quality of products that are offered online. We cannot guarantee that we have been or will in the future be fully compliant with such laws and regulations in every jurisdiction, as it is not entirely clear in every jurisdiction how existing laws and regulations governing such areas apply or will be enforced. Moreover, as the regulatory landscape continues to evolve, increasing regulation and enforcement efforts by federal, state, and foreign authorities, and the prospects for private litigation claims, become more likely. In addition, the adoption of new laws or regulations, or the imposition of other legal requirements, that adversely affect our ability to market or sell our products could harm our ability to offer, or customer demand for, our products, which could impact our revenue, impair our ability to expand our product offerings, and make us more vulnerable to competition. Future regulations, or changes in laws and regulations or their existing interpretations or applications, could also require us to change our business practices and raise compliance costs or other costs of doing business. In particular, the re-adoption of “network neutrality” rules in the United States by the Federal Communications Commission, or the FCC, which the current president of the United States supported during his campaign and which is supported by the current Democratic FCC commissioners, could

 

33


Table of Contents

affect the services we and our customers use by restricting the offerings made by internet service providers or reducing their incentives to invest in their networks. In addition, after a federal court judge denied a request for an injunction against California’s state-specific network neutrality law, California began enforcing that law on March 25, 2021, and other states could begin to enforce existing laws or adopt new network neutrality requirements.

Additionally, various federal, state, and foreign labor laws govern our relationships with our employees and affect operating costs. These laws include employee classifications as exempt or non-exempt, minimum wage requirements, unemployment tax rates, workers’ compensation rates, overtime, family leave, workplace health and safety standards, payroll taxes, citizenship requirements, and other laws and regulations.

Significant additional laws or regulations, or our failure to comply with any laws and regulations that now, or could in the future, apply to our business could materially adversely affect our business, financial condition, operating results, and prospects.

We may need to raise additional capital to grow our business, and such capital may not be available on terms acceptable to us, or at all, which could reduce our ability to compete and could materially adversely affect our business, financial condition, results of operations, and prospects.

We expect that our existing cash and cash equivalents will be sufficient to meet our anticipated cash needs for working capital and capital expenditures for at least the next 12 months. To support our business and operations, we will need sufficient capital to continue to make significant investments, and we may need to raise additional capital through equity or debt financings to fund such efforts. Additionally, the current COVID-19 pandemic has caused a disruption in the global financial markets, which may reduce our ability to access capital and negatively affect our liquidity in the future. If such financing is not available to us on acceptable terms, or at all, we may be unable to fund our growth or develop new business at the rate desired, and our operating results may suffer. Debt financing increases expenses, may contain covenants that restrict the operation of our business, and must be repaid regardless of operating results. For example, covenants contained in our existing credit facility with Silicon Valley Bank, as amended and restated on May 7, 2020, or the Credit Facility, limit our ability to pay dividends, to create, incur, or assume indebtedness or liens, to consummate certain strategic transactions, to engage in transactions with affiliates, and to make certain investments. Equity financing, or debt financing that is convertible into equity, could result in dilution to our existing stockholders and a decline in our stock price.

Our inability to obtain adequate capital resources, whether in the form of equity or debt, to fund our future growth may require us to delay, scale back, or eliminate some or all of our operations or the expansion of our business, which could materially adversely affect our business, financial condition, operating results, and prospects.

We rely on third-party data centers, such as AWS, to host and operate our platform, and any disruption of or interference with our use of these resources may negatively affect our ability to maintain the performance and reliability of our platform, which could cause our business to suffer.

Our customers depend on the continuous availability of our platform. We currently host our platform and serve our customers primarily using Amazon Web Services, or AWS. Consequently, we may be subject to service disruptions as well as failures to provide adequate support for reasons that are outside of our control, including:

 

   

the performance and availability of AWS and other third-party providers of cloud infrastructure services with the necessary speed, data capacity, and security for providing reliable services;

 

   

decisions by AWS and other owners and operators of the data centers where our cloud infrastructure is deployed to terminate our subscriptions, discontinue services to us, shut down

 

34


Table of Contents
 

operations or facilities, increase prices, change service levels, limit bandwidth, declare bankruptcy, or prioritize the traffic of other parties;

 

   

physical break-ins, acts of war or terrorism, human error or interference, including by disgruntled employees, former employees, or contractors, and other catastrophic events; and

 

   

cyberattacks, including denial of service attacks, targeted at us, our data centers, or the infrastructure of the internet.

The adverse effects of any service interruptions on our reputation, results of operations, and financial condition may be disproportionately heightened due to the nature of our business and the fact that our customers have a low tolerance for interruptions of any duration.

To meet the performance and other requirements of our customers, we intend to continue to make significant investments to increase capacity and to develop and implement new technologies in our cloud infrastructure operations. Any renegotiation or renewal of our agreement with AWS, or a new agreement with another provider of cloud-based services, may be on terms that are significantly less favorable to us than our current agreement. Additionally, these new technologies, which include databases, application and server optimizations, network strategies, and automation, are often advanced, complex, new, and untested, and we may not be successful in developing or implementing these technologies. It takes a significant amount of time to plan, develop, and test improvements to our technologies and cloud infrastructure, and we may not be able to accurately forecast demand or predict the results we will realize from such improvements. To the extent that we do not effectively scale our infrastructure to meet the needs of our growing customer base and maintain performance as our customers expand their use of our products, or if our cloud-based server costs were to increase, our business, financial condition, results of operations, and prospects could be materially adversely affected.

The experience of our users depends upon the interoperability of our platform across devices, operating systems, and third-party applications that we do not control.

One of the most important features of our platform is its broad interoperability with a range of devices, web browsers, operating systems, and third-party applications. Our App Marketplace enables customers to connect other software, applications, and data to our platform. As of December 31, 2020, our products integrated with over 250 third-party applications in our App Marketplace, including accounting, analytics, bidding, and other business-critical software solutions. Accordingly, we are dependent on the accessibility of our platform across web browsers, operating systems, and the third-party applications that we oftentimes do not control. Third-party applications and products are constantly evolving, and we may not be able to modify our platform to assure its compatibility with that of other third parties following development changes. In addition, some of our competitors may be able to disrupt the operations or compatibility of our platform with their applications that some of our customers may rely upon. If our platform has integration or operability failures with these operating systems or third-party applications, customers may not adopt our platform, and our App Marketplace may not be useful to customers, which could materially adversely affect our business, financial conditions, results of operations, and prospects.

Interruptions or performance issues associated with our products and platform could materially adversely affect our business, financial condition, results of operations, and prospects.

We have experienced, and may in the future experience, service interruptions and other performance issues due to a variety of factors. Our future growth depends in part on the ability of our existing and prospective customers to access our products and platform reliably and at any time. Certain of our customer agreements contain service level commitments, which contain specifications

 

35


Table of Contents

regarding the availability and performance of our platform. If we are unable to meet our stated service level commitments or if we suffer extended periods of poor performance or unavailability of our platform, we may be contractually obligated to provide affected customers with service credits against existing subscriptions or, in certain cases, refunds. Any service interruptions or other performance issues could negatively impact our renewal rates and harm our ability to attract new customers, and as a result could materially adversely affect our business, financial condition, results of operations, and prospects.

Additionally, our products and platform are inherently complex and may, from time to time, contain material defects or errors, particularly when new products or new features or capabilities are released. We have in the past found defects or errors in our products and platform and we may detect new defects or errors in the future. Any real or perceived errors, failures, vulnerabilities, or bugs in our products or platform could result in negative publicity or lead to data security, access, retention, or performance issues, all of which could harm our business and reputation. In addition, the costs incurred in correcting such defects or errors may be substantial. Any of these risks could materially adversely affect our business, financial condition, results of operations, and prospects.

Failures in internet infrastructure or interference with internet or Wi-Fi access could cause existing or prospective users to believe that our systems are unreliable, potentially leading our customers to decline to renew their subscriptions.

Our platform depends on our users’ internet access. Increasing numbers of users on our platform and increasing bandwidth requirements may degrade the performance of our products or platform due to capacity constraints and other internet infrastructure limitations. If internet service providers and other third parties providing internet services have outages or deteriorations in their quality of service, our users may not have access to our platform or may experience a decrease in the quality of our products. Furthermore, as the rate of adoption of new technologies increases, the networks our platform relies on may not be able to sufficiently adapt to any increased demand for our products. Frequent or persistent interruptions, including those from increased usage stemming from the COVID-19 pandemic, could cause existing or prospective users to believe that our platform is unreliable, leading them to switch to our competitors, which could materially adversely affect our business, financial condition, results of operations, and prospects.

In addition, users who access our platform through mobile devices, such as smartphones and tablets, must have an internet or Wi-Fi connection to use our products. Currently, this access is provided by a limited number of companies. These providers could take measures that degrade, disrupt, or increase the cost of user access to third-party services, including our platform, by charging increased fees to third parties or the users of third-party services, any of which would make our platform less attractive to customers and reduce our revenue.

Increased government scrutiny of the technology industry could negatively affect our business.

The technology industry is subject to intense media, political, and regulatory scrutiny, which exposes us to government investigations, legal actions, and penalties. Various regulatory agencies, including competition, consumer protection, and privacy authorities, have active proceedings and investigations concerning multiple technology companies, some of which have offerings, like app marketplaces and collaboration tools, that are similar to services and features we offer. Although we are not currently subject to any such proceedings or investigations, if proceedings or investigations targeted at other companies result in determinations that practices we follow are unlawful, we could be required to change our products and services or alter our business operations, which could harm our business. Legislators and regulators also have proposed new laws and regulations intended to restrain the activities of technology companies. If such laws or regulations are enacted, they could adversely

 

36


Table of Contents

impact us, even if they are not intended to affect our company. In addition, the introduction of new products, expansion of our activities in certain jurisdictions, or other actions that we may take may subject us to additional laws, regulations, or other government scrutiny. The increased scrutiny of certain acquisitions in the technology industry also could affect our ability to enter into strategic transactions or to acquire other businesses. Compliance with new or modified laws and regulations could increase the cost of conducting the business, limit the opportunities to increase our revenues, or prevent us from offering products or services.

Our liability for third-party content on our platform, such as content posted by customers and other users, currently is limited by Section 230 of the Communications Decency Act. There have been various Congressional and executive branch efforts to eliminate or modify Section 230, which limits the liability of internet platforms for third-party content that is transmitted via those platforms and for good-faith moderation of offensive content. The current president of the United States and many members of Congress from both parties have expressed support for the reform or repeal of Section 230, so the possibility of Congressional action remains. In addition, the FCC is considering a petition, filed by the former administration, to adopt rules interpreting Section 230. If the FCC adopts rules, the scope of the protection offered by Section 230 could be narrowed considerably. The FCC has not released any document describing the rules that would be proposed and no date has been set for a vote on any such proposal. The Democratic Commissioners of the FCC have indicated that they are opposed to the petition and now control the agenda of the FCC. We cannot predict whether there will be any changes to Section 230 or if regulatory action will interpret it in such a way as to limit the protection it affords. If the protections contained in Section 230 are repealed or limited, we could be subjected to liability for our customers’ or other users’ activities, or we could be required to pay fines or penalties, redesign our business methods, or otherwise expend resources to remedy any damages caused by such actions and to avoid future liability. Even if claims asserted against us do not result in liability, we may incur substantial costs in investigating and defending such claims.

We also could be harmed by government investigations, litigation, or changes in laws and regulations directed at our business partners, or suppliers in the technology industry that have the effect of limiting our ability to do business with those entities. For example, the U.S. government recently has taken action against companies operating in China intended to limit their ability to do business in the U.S. or with U.S. companies. There can be no assurance that our business will not be materially adversely affected, individually or in the aggregate, by the outcomes of such investigations, litigation, or changes to laws and regulations in the future.

We are subject to governmental export and import controls that could impair our ability to compete in international markets and subject us to liability if we are not in compliance with applicable laws.

Our products and platform are subject to various restrictions under U.S. export control and sanctions laws and regulations, including the U.S. Department of Commerce’s Export Administration Regulations, and various economic and trade sanctions regulations administered by the U.S. Department of the Treasury’s Office of Foreign Assets Control. The U.S. export control laws and U.S. economic sanctions laws include restrictions or prohibitions on the sale or supply of certain products and services to embargoed or sanctioned countries, governments, persons, and entities, identified by the United States, and also require authorization for the export of certain encryption items. Furthermore, U.S. export control laws and economic sanctions prohibit the shipment of certain cloud-based solutions to countries, governments, and persons targeted by U.S. sanctions. In addition, various countries regulate the import of certain encryption technology, including through import permitting and licensing requirements, and have enacted or could enact laws that could limit our ability to distribute our platform or limit our ability to implement our platform in those countries. While we have implemented certain procedures to facilitate compliance with applicable laws and regulations in

 

37


Table of Contents

connection with the collection of this information, we cannot assure you that these procedures have been effective or that we, or third parties, many of whom we do not control, have complied with all laws or regulations in this regard. Failure by our employees, representatives, contractors, partners, agents, intermediaries, or other third parties to comply with applicable laws and regulations in the collection of this information also could have negative consequences to us, including reputational harm, government investigations, and penalties.

Although we take precautions to prevent our information collection practices from being in violation of such laws, our information collection practices may have been in the past, and could in the future be, in violation of such laws. If we or our employees, representatives, contractors, partners, agents, intermediaries, or other third parties fail to comply with these laws and regulations, we could be subject to civil or criminal penalties, including the possible loss of export privileges and fines and penalties. We may also be adversely affected through other penalties, reputational harm, loss of access to certain markets, or otherwise. Obtaining the necessary authorizations, including any required license, for a particular transaction may be time-consuming, is not guaranteed and may result in the delay or loss of sales opportunities. While we are working to implement additional controls designed to prevent similar activity from occurring in the future, these controls may not be fully effective.

Changes in our platform, or changes in sanctions and import and export laws, may delay the introduction and sale of subscriptions to access our products in international markets, prevent our customers with international operations from using our platform, or in some cases, prevent the access or use of our platform to and from certain countries, governments, persons, or entities altogether. Further, any change in export or import regulations, economic sanctions or related laws, shift in the enforcement or scope of existing regulations, or change in the countries, governments, persons, or technologies targeted by such regulations could result in decreased use of our platform or in our decreased ability to export or sell our platform to existing or prospective customers with international operations. Any decreased use of our platform or limitation on our ability to export or sell our platform could materially adversely affect our business, financial condition, results of operations, and prospects.

We are also subject to the U.S. Foreign Corrupt Practices Act of 1977, or FCPA, the UK Bribery Act 2010, or Bribery Act, and other anti-corruption, sanctions, anti-bribery, anti-money laundering, and similar laws in the United States and other countries in which we conduct activities. Anti-corruption and anti-bribery laws, which have been enforced aggressively and are interpreted broadly, prohibit companies and their employees, agents, intermediaries, and other third parties from promising, authorizing, making, or offering improper payments or other benefits to government officials and others in the private sector. In the future, we may leverage third parties, including intermediaries, agents, and partners, to conduct our business in the United States and abroad, to sell subscriptions. We and these third-parties may have direct or indirect interactions with officials and employees of government agencies or state-owned or affiliated entities, and we may be held liable for the corrupt or other illegal activities of these third-party partners and intermediaries, our employees, representatives, contractors, partners, agents, intermediaries, and other third parties, even if we do not explicitly authorize such activities. While we have policies and procedures to address compliance with FCPA, Bribery Act, and other anti-corruption, sanctions, anti-bribery, anti-money laundering, and similar laws, we cannot assure you that they will be effective, or that all of our employees, representatives, contractors, partners, agents, intermediaries, or other third parties have taken, or will not take actions, in violation of our policies and applicable law, for which we may be ultimately held responsible. As we increase our international sales and business, our risks under these laws may increase. Noncompliance with these laws could subject us to investigations, severe criminal or civil sanctions, settlements, prosecution, loss of export privileges, suspension or debarment from U.S. government contracts, other enforcement actions, disgorgement of profits, significant fines, damages, other civil and criminal penalties or injunctions, whistleblower complaints, adverse media coverage, and other consequences. Any investigations, actions, or sanctions could materially adversely affect our business, financial condition, results of operations, and prospects.

 

38


Table of Contents

Our use of third-party open source software could negatively affect our ability to sell subscriptions to access our products and subject us to possible litigation.

We use third-party open source software. From time to time, companies that use third-party open source software have faced claims challenging the use of such open source software and compliance with the open source software license terms. Accordingly, we may be subject to suits by parties claiming ownership of what we believe to be open source software or claiming non-compliance with the applicable open source licensing terms. Some open source software licenses require end-users, who distribute or make available across a network software and services that include open source software, to make publicly available or to license all or part of such software (which in some circumstances could include valuable proprietary code, such as modifications or derivative works created, based upon, incorporating, or using the open source software) under the terms of the particular open source license. While we employ practices designed to monitor our compliance with the licenses of third-party open source software and protect our valuable proprietary source code, we may inadvertently use third-party open source software in a manner that exposes us to claims of non-compliance with the terms of the applicable license, including claims of intellectual property rights infringement or for breach of contract. Furthermore, there exists today an increasing number of types of open source software licenses, almost none of which have been tested in courts of law to provide clarity on their proper legal interpretation. If we were to receive a claim of non-compliance with the terms of any of these open source licenses, we may be required to publicly release certain portions of our proprietary source code. We could also be required to expend substantial time and resources to re-engineer some or all of our software. Any of the foregoing could materially adversely affect our business, financial condition, results of operations, and prospects.

In addition, the use of third-party open source software typically exposes us to greater risks than the use of third-party commercial software because open source licensors generally do not provide warranties or controls on the functionality or origin of the software. Use of open source software may also present additional security risks because the public availability of such software may make it easier for hackers and other third parties to determine how to compromise our platform. Any of the foregoing could materially adversely affect our business, financial condition, results of operations, and prospects and could help our competitors develop products and services that are similar to or better than ours.

Our customers’ and other users’ violation of our policies or other misuse of our platform to transmit unauthorized, offensive, or illegal messages, spam, phishing scams, and website links to harmful applications or for other fraudulent or illegal activity could damage our reputation, and we may face a risk of litigation and liability for illegal activities on our platform and unauthorized, inaccurate, or fraudulent information distributed via our platform.

Despite our ongoing and substantial efforts to limit such use, certain customers or other users may use our platform to transmit unauthorized, offensive, or illegal messages, calls, spam, phishing scams, and website links to harmful applications, reproduce and distribute copyrighted material or the trademarks of others without permission, and report inaccurate or fraudulent data or information. These actions are in violation of our policies. However, our efforts to defeat spamming attacks, illegal robocalls, and other fraudulent activity will not prevent all such attacks and activity. Such use of our platform could damage our reputation and we could face claims for damages, regulatory enforcement, copyright or trademark infringement, defamation, negligence, or fraud. Moreover, our customers’ and other users’ promotion of their products and services through our platform might not comply with federal, state, and foreign laws. We rely on contractual representations made to us by our customers that their use of our platform will comply with our policies and applicable law. Although we retain the right to verify that customers and other users are abiding by our policies, our customers and other users are ultimately responsible for compliance with our policies, and we do not systematically audit

 

39


Table of Contents

our customers or other users to confirm compliance with our policies. Although Section 230 of the Communications Decency Act currently limits liability for third-party content posted on internet platforms, we cannot predict whether that protection will remain in effect. See the risk factor titled “Increased government scrutiny of the technology industry could negatively affect our business.”

Because we recognize revenue from subscriptions to access our products over the term of the subscription, downturns or upturns in new business will not be immediately reflected in our results of operations.

We generate substantially all of our revenue from subscriptions to access our products. We recognize revenue ratably over the term of the subscription, beginning on the date that access to our products is made available to our customer. Our subscriptions generally have annual or multi-year terms. As a result, the significant majority of our revenue is generated from subscriptions entered into during previous periods. Consequently, a decline in new or renewed subscriptions in any one quarter may not significantly reduce our revenue for that quarter but could negatively affect our revenue in future periods. Accordingly, the effect of downturns or upturns in new sales and potential changes in our rate of renewals may not be fully reflected in our results of operations until future periods. Our revenue recognition model also makes it difficult for us to rapidly increase our revenue through new subscriptions in any period.

Our ability to recognize revenue may also be affected by the length and unpredictability of the sales cycle for our products, especially with respect to larger enterprises and owners. Such customers typically undertake a significant evaluation and negotiation process due to their leverage, size, organizational structure, and approval requirements, all of which can lengthen our sales cycle. We may spend substantial time, effort, and money on sales efforts to such customers without any assurance that our efforts will produce any sales or that these customers will deploy our platform widely enough across their business to justify our substantial upfront investment. As a result, we anticipate increased sales to large enterprises will lead to higher upfront sales costs and greater unpredictability, which could materially adversely affect our business, results of operations, financial condition, and prospects.

In addition, as required by the recent revenue recognition standard under Accounting Standards Codification Topic 606, Revenue from Contracts with Customers, we disclose the transaction price allocated to remaining performance obligations. It is possible that analysts and investors could misinterpret our disclosure or that the terms of our customer subscriptions or other circumstances could cause our methods for calculating this disclosure to differ significantly from others, which could lead to inaccurate or unfavorable forecasts by analysts and investors.

Our business is subject to the risks of earthquakes, fire, floods, and other natural catastrophic events.

Our corporate headquarters are located near Santa Barbara, California, a region known for seismic activity and severe fires, and our insurance coverage may not compensate us for losses that may occur in the event of an earthquake or other significant natural disaster, such as a fire, mudslide, flood, or significant power outage. A significant natural disaster could materially adversely affect our business, results of operations, financial condition, and prospects. In addition, climate change could result in an increase in the frequency or severity of natural disasters and cause performance problems with our technology infrastructure.

Although we maintain incident management and disaster response plans, in the event of a major disruption caused by a natural disaster or man-made problem, or outbreaks of pandemic diseases, including COVID-19, we may be unable to continue our operations and may experience system interruptions and reputational harm. Acts of terrorism and other geo-political unrest could also cause

 

40


Table of Contents

disruptions in our business or the business of our customers, partners, vendors, or the economy as a whole. All of the aforementioned risks may be further increased if our disaster recovery plans prove to be inadequate.

If we experience excessive fraudulent activity or cannot meet evolving credit card association merchant standards, we could incur substantial costs and lose the right to accept credit cards for payment, which could cause our customer base to decline significantly and could materially adversely affect our business, financial condition, results of operations, and prospects.

A portion of our customers authorize us to bill their credit card accounts directly for our products. If customers pay for their subscriptions with unauthorized credit cards, we could incur substantial third-party vendor costs for which we may not be reimbursed. Further, our customers provide us with credit card billing information online or over the phone, and we do not review the physical credit cards used in these transactions, which increases our risk of exposure to fraudulent activity. We have also incurred charges, which we refer to as chargebacks, from the credit card companies for claims that the customer did not authorize the credit card transaction for our products. If the number of claims of unauthorized credit card transactions becomes excessive, we could be assessed substantial fines for excess chargebacks, and we could lose the right to accept credit cards for payment. In addition, credit card issuers may change merchant standards, including data protection and documentation standards, required to utilize their services from time to time. If we fail to maintain compliance with current merchant standards or fail to meet new standards, the credit card associations could fine us or terminate their agreements with us, and we would be unable to accept credit cards as payment for our products. We may be required to pay for unauthorized credit charges and expenses with no reimbursement from the customer. Although we implement multiple fraud prevention and detection controls, we cannot assure you that these controls will be adequate to protect against fraud. Substantial losses due to fraud or our inability to accept credit card payments could cause our customer base to significantly decrease and would harm our business.

Our results of operations, which are reported in U.S. dollars, could be adversely affected if currency exchange rates fluctuate substantially in the future.

We sell subscriptions to access our products to customers globally and have offices in Australia, Canada, England, and Mexico. As we continue to expand our international operations, we will become more exposed to the effects of fluctuations in currency exchange rates. Although the majority of our cash generated from sales is denominated in U.S. dollars, a small amount is denominated in foreign currencies, and our expenses are generally denominated in the currencies of the jurisdictions in which we conduct our operations. Because we conduct business in currencies other than U.S. dollars but report our results of operations in U.S. dollars, we also face remeasurement exposure to fluctuations in currency exchange rates. Any of these risks could hinder our ability to predict our future results and earnings. In addition, we do not currently maintain a program to hedge exposures to non-U.S. dollar currencies.

Tax authorities may successfully assert that we should have collected, or in the future should collect, sales and use, value added or similar taxes, and we could be subject to substantial liabilities with respect to past or future sales, which could materially adversely affect our business, financial condition, results of operations, and prospects.

We currently collect and remit applicable sales taxes and other applicable transfer taxes in jurisdictions where we, through our employees or economic activity, have a presence and where we have determined, based on applicable legal precedents, that sales of subscriptions to access our products and platform are classified as taxable. We do not currently collect and remit state and local excise, utility user, or ad valorem taxes, fees, or surcharges in jurisdictions where we believe we do not

 

41


Table of Contents

have sufficient “nexus.” There is uncertainty as to what constitutes sufficient nexus for a state or local jurisdiction to levy taxes, fees, and surcharges on sales made over the internet, and there is also uncertainty as to whether our characterization of our products and platform as not taxable in certain jurisdictions will be accepted by state and local tax authorities.

Tax authorities may challenge our position that we do not have sufficient nexus in a taxing jurisdiction or that our products and platform are not taxable in such jurisdiction and may decide to audit our business and operations with respect to sales, use, value added, goods and services, and other taxes, which could result in significant tax liabilities (including related penalties and interest) for us or our customers, which could materially adversely affect our business, financial condition, results of operation, and prospects.

The application of indirect taxes, such as sales and use, value added, goods and services, business, and gross receipts taxes, to businesses that transact online, such as ours, is a complex and evolving area. Following the U.S. Supreme Court decision in South Dakota v. Wayfair, Inc., states and local jurisdictions in certain circumstances may levy sales and use taxes on sales of goods and services based on “economic nexus,” regardless of whether the seller has a physical presence in such jurisdiction. A number of states have already begun, or have positioned themselves to begin, requiring collection of sales and use taxes by online sellers. The details and effective dates of these collection requirements vary from state to state. As a result, it may be necessary for us to reevaluate whether our activities give rise to sales, use, and other indirect taxes as a result of any nexus in those states in which we are not currently registered to collect and remit taxes. Additionally, we may need to assess our potential tax collection and remittance obligations based on the requirements of existing or future economic nexus laws. There have been, and will continue to be, substantial ongoing costs associated with complying with the various indirect tax requirements in the numerous markets in which we conduct or may conduct business. If we are unsuccessful in collecting such taxes from our customers, we could be held liable for such obligations. The application of existing, or future indirect tax laws, whether in the United States or internationally, or the failure to collect and remit such taxes, could materially adversely affect our business, financial condition, results of operations, and prospects.

Our corporate structure and intercompany arrangements cause us to be subject to the tax laws of various jurisdictions, and we could be obligated to pay additional taxes, which could materially adversely affect our business, financial condition, results of operations, and prospects.

We are expanding our international operations and personnel to support our business in international markets. We generally conduct our international operations through wholly-owned subsidiaries and are or may be required to report our taxable income in various jurisdictions worldwide based upon our business operations in those jurisdictions. Our intercompany relationships are subject to complex transfer pricing regulations administered by tax authorities in various jurisdictions. The amount of taxes we pay in different jurisdictions may depend on the application of the tax laws of such jurisdictions, including the United States, to our international business activities, changes in tax rates, new or revised tax laws, or interpretations of existing tax laws and policies, and our ability to operate our business in a manner consistent with our corporate structure and intercompany arrangements. The relevant tax authorities may disagree with our determinations as to the income and expenses attributable to specific jurisdictions. If such a disagreement were to occur, and our position was not sustained, we could be required to pay additional taxes, interest, and penalties, which could result in one-time tax charges, higher effective tax rates, reduced cash flows, and lower overall profitability of our operations.

We are subject to federal, state, and local income, sales, and other taxes in the United States and income, withholding, transaction, and other taxes in numerous foreign jurisdictions. Evaluating our tax

 

42


Table of Contents

positions and our worldwide provision for taxes is complicated and requires the exercise of significant judgment. During the ordinary course of business, there are many activities and transactions for which the ultimate tax determination is uncertain. In addition, our tax obligations and effective tax rates could be adversely affected by changes in the relevant tax, accounting, and other laws, regulations, principles, and interpretations, including those relating to income tax nexus, by recognizing tax losses or lower than anticipated earnings in jurisdictions where we have lower statutory rates, or higher than anticipated earnings in jurisdictions where we have higher statutory rates, by changes in foreign currency exchange rates, or by changes in the valuation of our deferred tax assets and liabilities. We may be audited in various jurisdictions, and such jurisdictions may assess additional taxes (including income taxes, sales taxes, and value added taxes) against us. Although we believe our tax estimates are reasonable, the final determination of any tax audits or litigation could differ materially from our historical tax provisions and accruals, which could have an adverse effect on our results of operations or cash flows in the period or periods for which a determination is made.

Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.

As of December 31, 2020, we had $392.1 million of U.S. federal and $260.1 million of state net operating loss carryforwards available to reduce taxable income that we may have in the future. It is possible that we will not generate taxable income sufficient to use certain of these net operating loss carryforwards. Under legislative changes made by the December 2017 Tax Cuts and Jobs Act, or the TCJA, as modifed by the Coronavirus Aid, Relief and Economic Security Act, or the CARES Act, U.S. federal net operating losses incurred in 2018 and in future years may be carried forward indefinitely, but the ability to utilize such federal net operating losses to offset taxable income in taxable years beginning after 2020 is limited to 80% of the current-year taxable income. It is uncertain if and to what extent various states will conform to the TCJA. In addition, federal net operating loss carryforwards and certain tax credits may be subject to significant limitations under Section 382 and Section 383 of the Internal Revenue Code, or the Code, respectively. Under those sections of the Code, if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change attributes, such as research tax credits, to offset its post-change income or tax may be limited. In general, an “ownership change” will occur if there is a cumulative change in our ownership by “5-percent shareholders” that exceeds 50 percentage points over a rolling three-year period. We performed a study to determine whether net operating loss and credit carryover limitations existed under Section 382 as of December 31, 2020, and determined that a portion of the net operating losses and credit carryovers are subject to Section 382 annual limitations. We have determined that we should be able to fully utilize these net operating losses and credit carryovers before they expire, provided we generate sufficient taxable income. However, we may experience ownership changes as a result of this offering or in the future as a result of subsequent shifts in our stock ownership, some of which may be outside of our control. State net operating loss carryforwards and other state tax credits may be subject to similar limitations under state tax laws, and there may be periods during which the use of state net operating losses is suspended or otherwise limited, which could accelerate or permanently increase state taxes owed. For example, California recently imposed limits on the usability of California state net operating losses to offset California taxable income in tax years beginning after 2019 and before 2023. If an ownership change occurs and our ability to use our net operating loss carryforwards and tax credits is limited, or if our ability to utilize net operating losses carryforwards and certain tax credits is otherwise restricted by law, our business, financial condition, results of operations, and prospects could be materially adversely affected.

 

43


Table of Contents

Risks Related to the Offering and Ownership of Our Common Stock

No public market for our common stock currently exists, and an active public trading market may not develop or be sustained following this offering.

Prior to this offering, there has been no public market for our common stock. Our common stock has been approved for listing on the NYSE; however, an active trading market may not develop following the completion of this offering or, if developed, may not be sustained. The lack of an active market may impair your ability to sell your shares at the time you wish to sell them or at a price that you consider reasonable. The lack of an active market may also reduce the market price of your shares of common stock. An inactive market may also impair our ability to raise capital by selling shares and may impair our ability to acquire other companies or technologies by using our shares as consideration.

The market price of our common stock may be volatile, and you could lose all or part of your investment.

We cannot predict the prices at which our common stock will trade. The initial public offering price of our common stock was determined by negotiations between us and the underwriters and may not bear any relationship to the market price at which our common stock will trade after this offering or to any other established criteria of the value of our business and prospects, and the market price of our common stock following this offering may fluctuate substantially and may be lower than the initial public offering price. The market price of our common stock following this offering will depend on a number of factors, including those described in this “Risk Factors” section, many of which are beyond our control and may not be related to our operating performance. In addition, the limited public float of our common stock following this offering will tend to increase the volatility of the trading price of our common stock. These fluctuations could cause you to lose all or part of your investment in our common stock, since you might not be able to sell your shares at or above the price you paid in this offering. Factors that could cause fluctuations in the market price of our common stock include, but are not limited to, the following:

 

   

actual or anticipated changes or fluctuations in our results of operations;

 

   

the financial projections we may provide to the public, any changes in these projections, or our failure to meet these projections;

 

   

announcements by us or our competitors of new products or new or terminated significant contracts, commercial relationships, or capital commitments;

 

   

industry or financial analyst or investor reaction to our press releases, other public announcements, and filings with the SEC;

 

   

rumors and market speculation involving us or other companies in our industry;

 

   

price and volume fluctuations in the overall stock market from time to time;

 

   

changes in operating performance and stock market valuations of other technology companies generally, or those in our industry in particular;

 

   

the expiration of market stand-off or contractual lock-up agreements and sales of shares of our common stock by us or our stockholders;

 

   

failure of industry or financial analysts to maintain coverage of us, changes in financial estimates by any analysts who follow our company, or our failure to meet these estimates or the expectations of investors;

 

   

actual or anticipated developments in our business, or our competitors’ businesses, or the competitive landscape generally;

 

44


Table of Contents
   

litigation involving us, our industry, or both, or investigations by regulators into our operations or those of our competitors;

 

   

developments or disputes concerning our intellectual property rights, our products, or third-party proprietary rights;

 

   

announced or completed acquisitions of businesses or technologies by us or our competitors;

 

   

new laws or regulations or new interpretations of existing laws or regulations applicable to our business;

 

   

any major changes in our management or our board of directors, particularly with respect to Mr. Courtemanche;

 

   

general economic conditions and slow or negative growth of our markets; and

 

   

other events or factors, including those resulting from war, incidents of terrorism, health epidemics or pandemics, such as the ongoing COVID-19 pandemic, or responses to these events.

In addition, the stock market in general, and the market for technology companies in particular, has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. Broad market and industry factors may seriously affect the market price of our common stock, regardless of our actual operating performance. In addition, in the past, following periods of volatility in the overall market and the market prices of a particular company’s securities, securities class action litigation has often been instituted against that company. Securities litigation, if instituted against us, could result in substantial costs and divert our management’s attention and resources from our business. This could materially adversely affect our business, financial condition, results of operations, and prospects.

We have broad discretion to determine how to use the funds raised in this offering, and we may use them in ways that may not enhance our results of operations or the price of our common stock.

The principal purposes of this offering are to increase our capitalization and financial flexibility to create a public market for our stock. We currently intend to use the net proceeds from this offering for general corporate purposes, including for any of the purposes described in the section titled “Use of Proceeds.” However, we do not currently have any specific or preliminary plans for the net proceeds from this offering and will have broad discretion in how we use the net proceeds of this offering. We could spend the proceeds from this offering in ways that our stockholders may not agree with or that do not yield a favorable return. You will not have the opportunity as part of your investment decision to assess whether the net proceeds are being used appropriately. Investors in this offering will need to rely upon the judgment of our management with respect to the use of proceeds. If we do not use the net proceeds that we receive in this offering effectively, our business, financial condition, results of operations, and prospects could be materially adversely affected, and the market price of our common stock could decline.

Concentration of ownership of our common stock among our existing executive officers, directors, and principal stockholders may prevent new investors from influencing significant corporate decisions, including mergers, consolidations, or the sale of us or all or substantially all of our assets.

Upon the completion of this offering, our executive officers, directors, each of our stockholders that will own more than five percent of our outstanding capital stock, and their respective affiliates will hold, in aggregate, 69.9% of the voting power of our outstanding capital stock. Furthermore, ICONIQ

 

45


Table of Contents

Strategic Partners, one of our current stockholders and their affiliates will hold, in aggregate, 36.6% of the voting power of our outstanding capital stock. For more information, see “Principal Stockholders.” As a result, these stockholders, acting together, will have control over most matters that require approval by our stockholders, including the election of directors and approval of significant corporate transactions. They may also have interests that differ from yours and may vote in a way you disagree with and may be adverse to your interests. Corporate action might be taken even if other stockholders, including those who purchase shares in this offering, oppose them. This concentration of ownership may have the effect of delaying, preventing, or deterring a change of control or other liquidity event of our company, could deprive our stockholders of an opportunity to receive a premium for their shares of common stock as part of a sale or other liquidity event, and might ultimately affect the market price of our common stock.

A substantial portion of the outstanding shares of our common stock after this offering will be restricted from immediate resale, but may be sold on a stock exchange in the near future. The large number of shares of our common stock eligible for public sale or subject to rights requiring us to register them for public sale could depress the market price of our common stock.

The market price of our common stock could decline as a result of sales of a large number of shares of our common stock in the market after this offering, and the perception that these sales could occur may also depress the market price of our common stock. Our executive officers, directors and the holders of substantially all of our common stock and securities convertible into or exchangeable for shares of our common stock have entered into market standoff agreements with us or have entered into lock-up agreements with Goldman Sachs & Co. LLC and J.P. Morgan Securities LLC under which they have agreed, subject to certain exceptions, not to sell any of our stock for 180 days following the date of this prospectus; provided that:

 

Date Available for Sale in the
Public Market

  

Condition

  

Number of Shares of Common Stock

The first day after the date of this prospectus (First Release).    The lock-up party was a service provider or former service provider of the Company (excluding any director and any officer within the meaning of Section 16(a) of the Exchange Act or any employee designated as an “Executive Officer” in the Management section of this prospectus).    A number of shares of Common Stock not in excess of 25% of the lock-up party’s aggregate number of outstanding shares and equity awards (on an as-converted basis) held as of the date of the preliminary prospectus, and that have vested as of such date.
The later of (x) following the closing of trading on the second trading day following the release of our first public release of quarterly financial results following the date of this prospectus and (y) immediately following the 90th day following the date of this prospectus (Second Release).    The lock-up party was a service provider or former service provider of the Company (excluding any director and any officer within the meaning of Section 16(a) of the Exchange Act or any employee designated as an “Executive Officer” in the Management section of this prospectus).    A number of shares of Common Stock not in excess of an additional 15% of the lock-up party’s aggregate number of outstanding shares and equity awards (on an as-converted basis) held as of the date of the preliminary prospectus, and that have (i) vested as of such date, or (ii) only if the lock-up party did not have any shares of Common Stock eligible to sell as of the First Release, have

 

46


Table of Contents

Date Available for Sale in the
Public Market

  

Condition

  

Number of Shares of Common Stock

      vested on or before the date that is 5 days before the release of our first public release of quarterly financial results following the date of this prospectus; provided, however, that the lock-up party may only sell shares of Common Stock pursuant to this Second Release if the last reported closing price of the Common Stock on the New York Stock Exchange is at least 25% greater than the initial public offering price per share set forth on the cover page of the prospectus for at least 10 trading days out of the 15 consecutive trading day period ending as of the Second Release.
The later of (x) following the closing of trading on the second trading day following the release of our first public release of quarterly financial results following the date of this prospectus and (y) immediately following the 90th day following the date of this prospectus (Third Release).    The lock-up party was not a service provider or former service provider of the Company permitted to sell pursuant to the First Release or Second Release, and if the lock-up party was a director of the Company named in this prospectus, an officer or other Company stockholder.    A number of shares of Common Stock not in excess of 40% of the lock-up party’s aggregate number of outstanding shares and equity awards (on an as-converted basis) held by the lock-up party that vested as of the date that is 5 days before the release of our first public release of quarterly financial results following the date of this prospectus; provided, however, that the lock-up party may only sell shares of Common Stock pursuant to this Third Release if the last reported closing price of the Common Stock on the New York Stock Exchange is at least 25% greater than the initial public offering price per share set forth on the cover page of the prospectus for at least 10 trading days out of the 15 consecutive trading day period ending as of the Third Release.

 

47


Table of Contents

Date Available for Sale in the
Public Market

  

Condition

  

Number of Shares of Common Stock

Following the earlier of (i) closing of trading on the second trading day following the release of our second public release of quarterly financial results following the date of this prospectus, and (ii) 180 days following the date of this prospectus.    All stockholders.    All remaining shares held by our stockholders not previously eligible for sale.

We refer to such period as the lock-up period. Goldman Sachs & Co. LLC and J.P. Morgan Securities LLC, in their sole discretion, may release certain stockholders from the market standoff agreements or lock-up agreements prior to the end of the lock-up period. Additionally, record holders of our securities are typically the parties to the lock-up agreements with the underwriters and to the market standoff agreements with us referred to above, while holders of beneficial interests in our shares who are not also holders in respect of such shares are not typically subject to any such agreements or other similar restrictions. Accordingly, we believe that holders of beneficial interests who are not holders and are not bound by market standoff or lock-up agreements could enter into transactions with respect to those beneficial interests that negatively impact our stock price. In addition, an equity holder who is neither subject to a market standoff agreement with us nor a lock-up agreement with the underwriters may be able to sell, short sell, transfer, hedge, pledge, or otherwise dispose of or attempt to sell, short sell, transfer, hedge, pledge, or otherwise dispose of, their equity interests at any time after the closing of this offering. Any such transaction described above involving shares of our common stock, or any perception by the market that such transaction may occur, could cause our stock price to decline.

As a result of these agreements and the provisions of our investors’ rights agreement, or IRA, described further in the section titled “Certain Relationships and Related Party Transactions—Investors’ Rights Agreement,” and subject to the provisions of Rule 144 and Rule 701, shares of our common stock, as well as shares underlying outstanding equity awards, will be available for sale in the public market as follows:

 

   

beginning on the date of this prospectus, all shares of our common stock sold in this offering will be immediately available for sale in the public market;

 

   

beginning on the date of this prospectus, an aggregate of 7,236,004 shares of our common stock, based on the number of options outstanding and exercisable as of March 31, 2021 and the initial public offering price of $67.00 per share, may be eligible for sale in the public market in order to satisfy the tax withholding obligations of stock option holders resulting from the exercise of outstanding options;

 

   

as of the date of this prospectus, an aggregate of approximately 500,000 shares of our common stock may be eligible for sale in the public market in order to satisfy the tax withholding obligations of holders of RSUs resulting from the settlement of the RSUs outstanding as of March 31, 2021 that fully vest in connection with this offering and an aggregate of 324,977 shares of our common stock may be eligible for sale in the public market in order to satisfy the tax withholding obligations of holders of RSUs resulting from the settlement of the RSUs outstanding as of March 31, 2021 that vest after this offering and through the closing of trading on the second trading day following the release of our second public release of quarterly financial results following the date of this prospectus; and

 

   

on the earlier of (i) the closing of trading on the second trading day immediately following our release of earnings for the quarter ending September 30, 2021 and (ii) the 181st day after the date of this prospectus (subject to the terms of the lock-up agreements and market standoff

 

48


Table of Contents
 

agreements described below), the remainder of the shares of our common stock will be eligible for sale in the public market from time to time thereafter.

The price of our shares of common stock that may be available in the public market after the date of this prospectus could be higher or lower depending on the price of shares of our common stock and the actual numbers of RSUs that are fully-vested on the applicable settlement date and on the number of stock options exercised. In addition, after this offering, up to 18,100,473 shares of our common stock may be issued upon exercise of outstanding stock options or upon settlement of outstanding RSUs as of March 31, 2021 (including those outstanding options and RSUs that may be eligible for sale in the public market in order to satisfy tax withholding obligations), 13,000,000 shares of our common stock are available for future issuance under our 2021 Plan, and 2,600,000 shares of our common stock are available for future issuance under our ESPP, as the case may be. We filed a registration statement to register shares reserved for future issuance under our equity compensation plans. Subject to the satisfaction of applicable exercise periods and the expiration or waiver of the market standoff agreements and lock-up agreements referred to above, the shares issued upon exercise of outstanding stock options or upon settlement of outstanding RSU awards will be available for immediate resale in the United States in the open market.

Sales of our shares of common stock as restrictions end or pursuant to registration rights may make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate. These sales also could cause the trading price of our common stock to fall and make it more difficult for you to sell shares of our common stock.

Sales of substantial amounts of our common stock in the public markets, or the perception that they might occur, could reduce the price that our common stock might otherwise attain and may dilute your voting power and your ownership interest in us.

Sales of a substantial number of shares of our common stock in the public market after this offering, particularly sales by our directors, executive officers, and significant stockholders, or the perception that these sales could occur, could adversely affect the market price of our common stock and may make it more difficult for you to sell your common stock at a time and price that you deem appropriate. Based on the total number of shares outstanding as of March 31, 2021, upon completion of this offering, we will have 128,134,774 shares of common stock outstanding, assuming no exercise by the underwriters’ option to purchase additional shares of common stock offered in this offering.

All of the shares of common stock sold in this offering will be freely tradable without restrictions or further registration under the Securities Act of 1933, as amended, or the Securities Act, except for any shares held by our affiliates as defined in Rule 144 under the Securities Act. See “—A substantial portion of the outstanding shares of our common stock after this offering will be restricted from immediate resale, but may be sold on a stock exchange in the near future. The large number of shares of our common stock eligible for public sale or subject to rights requiring us to register them for public sale could depress the market price of our common stock.”

We also intend to register the offer and sale of all shares of common stock that we may issue under our equity compensation plans. We may also issue shares of our common stock or securities convertible into shares of our common stock from time to time in connection with a financing, acquisition, investments, or otherwise. Any such issuance could result in substantial dilution to our existing stockholders and cause our stock price to decline.

 

49


Table of Contents

If you purchase shares of our common stock in this offering, you will experience substantial and immediate dilution.

The initial public offering price of $67.00 is substantially higher than the pro forma as adjusted net tangible book value per share of our common stock outstanding immediately following this offering, based on the total value of our pro forma as adjusted tangible assets less our total liabilities. If you purchase shares of our common stock in this offering, you will experience substantial and immediate dilution in the pro forma as adjusted net tangible book value per share of $60.20 per share as of March 31, 2021, based on the initial public offering price of $67.00 per share. Furthermore, if the underwriters exercise their option to purchase additional shares in full, outstanding options are exercised, we issue awards to our employees under our equity incentive plans, or we otherwise issue additional shares of our common stock, you could experience further dilution. Furthermore, subject to compliance with applicable rules and regulations, we may issue shares of common stock or securities convertible into shares of our common stock from time to time in connection with a financing, acquisition, investment, our stock incentive plans, or otherwise. Any such issuance could result in substantial dilution to our existing stockholders and cause our stock price to decline.

We are an “emerging growth company,” and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common stock less attractive to investors.

For so long as we remain an “emerging growth company” as defined in the Jobs Act, we may take advantage of certain exemptions from various requirements that are applicable to public companies that are not “emerging growth companies,” including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, exemptions from the requirements of holding a nonbinding advisory vote on executive compensation, and stockholder approval of any golden parachute payments not previously approved. We may take advantage of these exemptions until we are no longer an emerging growth company. We would cease to be an emerging growth company upon the earliest to occur of: (i) the first fiscal year following the fifth anniversary of our initial public offering; (ii) the first fiscal year after our annual gross revenue is $1.07 billion or more; (iii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt securities; or (iv) we become a “large accelerated filer” with at least $700 million of equity securities held by non-affiliates. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock, and our stock price may be more volatile.

Certain provisions in our charter documents and under Delaware law could make an acquisition of our company more difficult, limit attempts by our stockholders to replace or remove members of our board of directors or current management, and may adversely affect our stock price.

Our amended and restated certificate of incorporation and amended and restated bylaws that will be in effect upon completion of this offering contain provisions that could delay or prevent a change in control of our company. These provisions could also make it difficult for stockholders to elect directors that are not nominated by the current members of our board of directors or take other corporate actions, including effecting changes in our management. These provisions include:

 

   

a classified board of directors with three-year staggered terms, which could delay the ability of stockholders to change the membership of a majority of our board of directors;

 

   

the denial of any right of our stockholders to remove members of our board of directors except for cause and, in addition to any other vote required by law, upon the approval of not less than two thirds of the total voting power of all our outstanding voting stock then entitled to vote in the election of directors;

 

50


Table of Contents
   

the ability of our board of directors to issue shares of preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer;

 

   

the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of our board of directors or the resignation, death, or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors;

 

   

a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders;

 

   

the requirement that a special meeting of stockholders may be called only by the chairperson of our board of directors, chief executive officer, or by the board of directors acting pursuant to a resolution adopted by a majority of our board of directors, which could delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors;

 

   

certain amendments to our amended and restated certificate of incorporation will require the approval of two-thirds of the then-outstanding voting power of our capital stock; and

 

   

advance notice procedures with which stockholders must comply to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of us.

These provisions may prohibit large stockholders, in particular those owning 15% or more of our outstanding voting stock, from merging or combining with us for a certain period of time. See the section titled “Description of Capital Stock—Anti-Takeover Effects of Delaware Law and Our Certificate of Incorporation and Bylaws.”

Our amended and restated certificate of incorporation will designate the Court of Chancery of the State of Delaware and, to the extent enforceable, the federal district courts of the United States as the exclusive forums for certain disputes between us and our stockholders, which could limit our stockholders’ ability to choose the judicial forum for disputes with us or our directors, officers, or employees.

Our amended and restated certificate of incorporation which will become effective upon the completion of this offering will provide that the Court of Chancery of the State of Delaware is, unless we consent in writing to the selection of an alternative forum, the sole and exclusive forum for the following types of actions or proceedings under Delaware statutory or common law: (1) any derivative action or proceeding brought on our behalf, (2) any action asserting a claim of breach of a fiduciary duty or other wrongdoing by any of our directors, officers, employees, or agents to us or our stockholders, (3) any action asserting a claim against us arising pursuant to any provision of the Delaware General Corporation Law, or the amended and restated certificate of incorporation or the amended and restated bylaws, (4) any action to interpret, apply, enforce, or determine the validity of our amended and restated certificate of incorporation or amended and restated bylaws, or (5) any action asserting a claim that is governed by the internal affairs doctrine (or, if the Court of Chancery does not have jurisdiction, the federal district court for the District of Delaware), in all cases subject to the court having jurisdiction over indispensable parties named as defendants. This provision would not apply to suits brought to enforce a duty or liability created by the Exchange Act. In addition, to prevent having to litigate claims in multiple jurisdictions and the threat of inconsistent or contrary rulings by different courts, among other considerations, our amended and restated certificate of incorporation will further provide that the U.S. federal district courts will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act. However, as Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act, and an investor cannot waive compliance

 

51


Table of Contents

with the federal securities laws and the rules and regulations thereunder, there is uncertainty as to whether a court would enforce such a provision. While the Delaware courts have determined that such choice of forum provisions are facially valid, a stockholder may nevertheless seek to bring a claim in a venue other than those designated in the exclusive forum provisions. In such instance, we would expect to vigorously assert the validity and enforceability of the exclusive forum provisions of our amended and restated certificate of incorporation. This may require significant additional costs associated with resolving such action in other jurisdictions and there can be no assurance that the provisions will be enforced by a court in those other jurisdictions.

These exclusive forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, or other employees, which may discourage lawsuits against us and our directors, officers, and other employees. If a court were to find either exclusive forum provision in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur further significant additional costs associated with resolving the dispute in other jurisdictions, all of which could seriously harm our business.

If industry or financial analysts do not publish research or reports about our business, or if they issue inaccurate or unfavorable research regarding our common stock, our stock price and trading volume could decline.

The trading market for our common stock will be influenced by the research and reports that industry or financial analysts publish about us or our business. We do not control these analysts or the content and opinions included in their reports. As a new public company, we may be slow to attract research coverage and the analysts who publish information about our common stock will have had relatively little experience with our company, which could affect their ability to accurately forecast our results and make it more likely that we fail to meet their estimates. In the event we obtain industry or financial analyst coverage, if any of the analysts who cover us issues an inaccurate or unfavorable opinion regarding our stock price, our stock price would likely decline. In addition, the stock prices of many companies in the technology industry have declined significantly after those companies have failed to meet or exceed, or even significantly exceed, the financial guidance publicly announced by the companies or the expectations of analysts. If our financial results fail to meet or exceed, or even significantly exceed, our announced guidance or the expectations of analysts or public investors, analysts could downgrade our common stock or publish unfavorable research about us. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, our visibility in the financial markets could decrease, which in turn could cause our stock price or trading volume to decline.

We will incur costs and demands upon management as a result of complying with the laws and regulations affecting public companies in the United States, which could materially adversely affect our business, financial condition, results of operations, and prospects.

As a public company listed in the United States, we will incur significant additional legal, accounting, and other expenses. In addition, changing laws, regulations, and standards relating to corporate governance and public disclosure, including regulations implemented by the SEC and the NYSE, may increase legal and financial compliance costs and make some activities more time consuming. These laws, regulations, and standards are subject to varying interpretations, and as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. We intend to invest resources to comply with evolving laws, regulations, and standards, and this investment may result in increased general and administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities. Although we have already hired additional employees and have engaged outside consultants to assist us in complying with these requirements, we may need to hire more employees in the future or engage additional outside consultants, which will increase our operating expenses. If,

 

52


Table of Contents

notwithstanding our efforts, we fail to comply with new laws, regulations, and standards, regulatory authorities may initiate legal proceedings against us, which could materially adversely affect our business, financial condition, results of operations, and prospects.

Failure to comply with these rules might also make it more difficult for us to obtain certain types of insurance, including director and officer liability insurance, and we might be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these events would also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, on committees of our board of directors, or as members of senior management.

As a result of disclosure of information in our filings with the SEC, our business and financial condition have become more visible, which we believe may result in threatened or actual litigation, including by competitors and other third parties. If such claims are successful, our business and results of operations could be adversely affected, and even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and materially adversely affect our business, financial condition, results of operations, and prospects.

Finally, most members of our management team have limited experience managing a publicly-traded company, interacting with public company investors, and complying with the complex laws pertaining to public companies. Our management team may not successfully or efficiently manage our transition to being a public company that is subject to significant regulatory oversight and reporting obligations under the federal securities laws and the continuous scrutiny of securities analysts and investors. These new obligations and constituents will require significant attention from our senior management and could divert their attention away from the day-to-day management of our business, which could materially adversely affect our business, financial condition, results of operations, and prospects.

We do not intend to pay dividends in the foreseeable future. As a result, your ability to achieve a return on your investment will depend on appreciation in the price of our common stock.

We have never declared or paid any cash dividends on our capital stock. We currently intend to retain all available funds and any future earnings for use in the operation of our business and do not anticipate paying any dividends in the foreseeable future. Any determination to pay dividends in the future will be at the discretion of our board of directors. Additionally, our ability to pay dividends or make distributions is limited under the terms of our Credit Facility. Accordingly, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investments.

 

53


Table of Contents

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements about us and our industry that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this prospectus, including statements regarding our future results of operations or financial condition, business strategy and plans, and objectives of management for future operations are forward-looking statements. In some cases, you can identify forward-looking statements because they contain words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will,” or “would,” or the negative of these words or other similar terms or expressions. These forward-looking statements include, but are not limited to, statements concerning the following:

 

   

our expectations regarding our financial performance, including revenues, expenses, and margins, and our ability to achieve or maintain future profitability;

 

   

our ability to effectively manage our growth;

 

   

anticipated trends, growth rates, and challenges in our business and in the markets in which we operate;

 

   

economic and industry trends, in particular the rate of adoption of construction management software and digitization of the construction industry;

 

   

our ability to attract new customers and retain and increase sales to existing customers;

 

   

our ability to expand internationally;

 

   

the effects of increased competition in our markets and our ability to compete effectively;

 

   

our estimated total addressable market;

 

   

our ability to develop new products and features, and whether our customers and prospective customers will adopt these new products and features;

 

   

our ability to maintain, protect, and enhance our brand;

 

   

the sufficiency of our cash to meet our cash needs for at least the next 12 months;

 

   

future acquisitions, joint ventures, or investments;

 

   

our ability to comply or remain in compliance with laws and regulations that currently apply or become applicable to our business in the United States and internationally;

 

   

the effects of COVID-19 pandemic or other public health crises;

 

   

our reliance on key personnel and our ability to attract, maintain, and retain management and skilled personnel;

 

   

the future trading prices of our common stock; and

 

   

our anticipated use of the net proceeds from this offering.

You should not rely on forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this prospectus primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, and operating results. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, and other factors described in the section titled “Risk Factors” and elsewhere in this prospectus. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this prospectus. The results, events, and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events, or circumstances could differ materially from those described in the forward-looking statements.

 

54


Table of Contents

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to us as of the date of this prospectus. While we believe such information provides a reasonable basis for these statements, such information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely on these statements.

The forward-looking statements made in this prospectus relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this prospectus to reflect events or circumstances after the date of this prospectus or to reflect new information, actual results, revised expectations, or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments.

 

55


Table of Contents

MARKET AND INDUSTRY DATA

This prospectus contains estimates and information concerning our industry, including market size and growth rates of the markets in which we participate, that are based on industry publications and reports. This information involves a number of assumptions and limitations, and you are cautioned not to give undue weight to these estimates. We have not independently verified the accuracy or completeness of the data contained in these industry publications and reports. The industry in which we operate is subject to a high degree of uncertainty and risk due to a variety of factors, including those described in the section titled “Risk Factors.” These and other factors could cause results to differ materially from those expressed in these publications and reports.

The source of certain statistical data, estimates, and forecasts contained in this prospectus is the following independent industry report:

 

   

Gartner, Forecast: Enterprise IT Spending by Vertical Industry Market, Worldwide, 2019-2025, 1Q21 Update, March 2021. Used to obtain total IT spend across all industries.

 

   

Gartner, Forecast: Enterprise Application Software, Worldwide, 2019-2025, 1Q21 Update, March 2021. Used to obtain enterprise application software revenue.

Calculations were performed by Procore based on Gartner research.

The Gartner content described herein, or the Gartner Content, represents research opinion or viewpoints published, as part of a syndicated subscription service by Gartner, Inc., or Gartner, and are not representations of fact. Gartner Content speaks as of its original publication date (and not as of the date of this prospectus) and the opinions expressed in the Gartner Content are subject to change without notice.

Certain statistical information in this prospectus is based on the following publicly available sources:

 

   

American Institute of Architects, ABI April 2020: Business conditions at architecture firms weaken even further, May 2020.

 

   

American Institute of Architects, ABI December 2020: Architecture firm billings end the year on a sour note, January 2021.

 

   

Associated General Contractors of America, 2020 Construction Outlook Survey Results, December 2019.

 

   

Associated General Contractors of America, AGC Coronavirus Survey National Results, October 2020.

 

   

Deloitte Insights, CIO Insider, Reinventing Tech Finance: The Evolution from IT Budgets to Technology Investments, January 2020.

 

   

Dodge Data & Analytics, Construction Starts End 2020 on a Sour Note, January 2021.

 

   

A study conducted by FMI, 2018 Industry Report—Construction Disconnected, 2018.

 

   

A study conducted by FMI, Big Data = Big Questions for the Engineering and Construction Industry, November 12, 2018.

 

   

JBKnowledge, 2018 Construction Technology Report, 2018.

 

   

McKinsey & Company, Imagining construction’s digital future, June 2016.

 

56


Table of Contents
   

McKinsey & Company, Money isn’t everything (but we need $57 trillion for infrastructure), December 2014.

 

   

McKinsey & Company, Strategy in the face of disruption: A way forward for the North American building-products industry, February 2019.

 

   

McKinsey & Company, The Next Normal in Construction: How Disruption is Reshaping the World’s Largest Ecosystem, June 2020.

 

   

McKinsey Global Institute, Reinventing Construction: A Route to Higher Productivity, February 2017.

 

   

USG Corporation and U.S. Chamber of Commerce, Commercial Construction Index, Q4 2019.

 

   

U.S. Chamber of Commerce, Commercial Construction Index, Q4 2020.

All references to McKinsey & Company or McKinsey throughout this prospectus refer to the publicly available sources listed above. All of the McKinsey sources cited herein, including all statistics and other information referenced or derived therefrom, have been sourced from publicly available sources.

Certain statistical information in this prospectus is based on the following research report, which we commissioned:

 

   

Frost & Sullivan, Construction Management Software Solutions Markets—Procore Market Positioning, February 2021.

Certain statistical information in this prospectus is also based on a December 2020 survey of our customers’ employees, which we published in February 2021 and refer to as the 2021 Procore ROI Survey. The number of individuals who responded to each survey question cited in this prospectus ranged from approximately 290 to 4,780. We distributed the 2021 ROI Procore Survey to over 7,000 customers, which represented over 70% of our customers as of December 31, 2020.

 

57


Table of Contents

USE OF PROCEEDS

We estimate that we will receive net proceeds from this offering of approximately $596.6 million (or approximately $656.5 million if the underwriters option to purchase additional shares is exercised in full) based on the initial public offering price of $67.00 per share of common stock, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

The principal purposes of this offering are to increase our capitalization and financial flexibility, and create a public market for our common stock. We currently intend to use the net proceeds we receive from this offering for general corporate purposes, including working capital, operating expenses, and capital expenditures. We cannot specify with certainty all of the particular uses for the remaining net proceeds to us from this offering. We may also use a portion of the net proceeds for acquisitions or strategic investments in complementary businesses, products, services, or technologies. However, we do not have agreements or commitments to enter into any such acquisitions or investments at this time. We will have broad discretion over how we use the net proceeds from this offering. We intend to invest the net proceeds from the offering that are not used as described above in investment-grade, interest-bearing instruments.

 

58


Table of Contents

DIVIDEND POLICY

We have never declared or paid cash dividends on our capital stock. We currently intend to retain all available funds and future earnings, if any, to fund the development and expansion of our business, and we do not anticipate paying any cash dividends in the foreseeable future. Any future determination regarding the declaration and payment of dividends, if any, will be at the discretion of our board of directors and will depend on then-existing conditions, including our financial condition, operating results, contractual restrictions, capital requirements, business prospects, and other factors our board of directors may deem relevant. In addition, our ability to pay dividends is also restricted by the terms of our Credit Facility and may be restricted by any agreements we may enter into in the future.

 

59


Table of Contents

CAPITALIZATION

The following table sets forth our cash and cash equivalents, and our capitalization as of March 31, 2021 as follows:

 

   

on an actual basis;

 

   

on a pro forma basis to reflect (i) the automatic conversion of 85,331,278 shares of our redeemable convertible preferred stock outstanding as of March 31, 2021 into an equal number of shares of common stock immediately prior to the completion of this offering; (ii) stock-based compensation expense of approximately $91.0 million associated with RSUs subject to service- and performance-based vesting conditions, as further described in Note 2 to our unaudited interim condensed consolidated financial statements included elsewhere in this prospectus; (iii) the vesting of 1,361,899 RSUs for which the service-based condition was satisfied as of March 31, 2021 and for which the performance-based vesting condition was satisfied upon the effective date of the registration statement of which this prospectus is a part; and (iv) the filing of our amended and restated certificate of incorporation immediately prior to the completion of this offering; and

 

   

on a pro forma as adjusted basis to give effect to (i) the pro forma adjustments set forth above and (ii) our issuance and sale of 9,470,000 shares of common stock in this offering at the initial public offering price of $67.00 per share, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.

You should read this information together with our consolidated financial statements and the related notes included in this prospectus and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section and other financial information contained in this prospectus.

 

     As of March 31, 2021  
         Actual              Pro Forma          Pro Forma
As Adjusted
 
     (in thousands, except share and per share)  

Cash and cash equivalents

   $ 413,761      $     413,761      $ 1,014,218  
  

 

 

    

 

 

    

 

 

 

Finance lease liabilities, current and non-current

   $ 50,025      $ 50,025      $ 50,025  
  

 

 

    

 

 

    

 

 

 

Redeemable convertible preferred stock, $0.0001 par value per share; 85,734,623 shares authorized; 85,331,278 shares issued and outstanding, actual; no shares authorized, issued and outstanding, pro forma and pro forma as adjusted

     728,150                

Stockholders’ (deficit) equity:

        

Preferred stock, $0.0001 par value per share: no shares authorized, issued or outstanding, actual; 100,000,000 shares authorized and no shares issued or outstanding, pro forma and pro forma as adjusted

                    

Common stock, $0.0001 par value per share; 138,490,810 shares authorized, 31,971,597 shares issued and outstanding, actual; 1,000,000,000 shares authorized, 118,664,774 shares issued and outstanding, pro forma; 1,000,000,000 shares authorized, 128,134,774 shares issued and outstanding, pro forma as adjusted

     3        12        13  

 

60


Table of Contents
     As of March 31, 2021  
         Actual             Pro Forma         Pro Forma
As Adjusted
 
     (in thousands, except share and per share)  

Additional paid-in capital

     145,503       964,657       1,561,229  

Accumulated other comprehensive loss

     163       163       163  

Accumulated deficit

     (410,779     (501,792     (501,792
  

 

 

   

 

 

   

 

 

 

Total stockholders’ (deficit) equity

     (265,110     463,040       1,059,613  
  

 

 

   

 

 

   

 

 

 

Total capitalization

   $ 513,065     $ 513,065     $ 1,109,638  
  

 

 

   

 

 

   

 

 

 

The number of shares of our common stock that will be outstanding after this offering is based on 118,664,774 shares of our common stock outstanding as of March 31, 2021, which includes shares of our redeemable convertible preferred stock and shares of our redeemable convertible preferred stock subject to RSAs on an as converted basis, and shares resulting from the vesting of 1,361,899 RSUs, for which the service-based condition was satisfied as of March 31, 2021 and for which the performance-based vesting condition was satisfied upon the effective date of the registration statement of which this prospectus is a part, and excludes:

 

   

10,871,090 shares of our common stock issuable upon the exercise of options to purchase shares of our common stock outstanding as of March 31, 2021, with a weighted-average exercise price of $12.78 per share;

 

   

5,867,484 shares of our common stock subject to RSUs outstanding as of March 31, 2021 that would not have satisfied the service-based vesting condition as of March 31, 2021;

 

   

537,248 shares of our common stock subject to RSUs granted between April 1, 2021 and May 10, 2021;

 

   

13,000,000 shares of our common stock reserved for future issuance under our 2021 Plan; and

 

   

2,600,000 shares of our common stock reserved for future issuance under our ESPP.

Our 2021 Plan provides for annual automatic increases in the number of shares reserved thereunder, and increases to the number of shares that may be granted thereunder based on shares under our 2014 Plan that expire, terminate, are forfeited, or are repurchased by us. See the section titled “Executive Compensation—Employee Benefit and Stock Plans” for additional information.

 

61


Table of Contents

DILUTION

If you invest in our common stock in this offering, your ownership interest will be immediately diluted to the extent of the difference between the initial public offering price per share of common stock and the pro forma as adjusted net tangible book value per share of our common stock immediately after this offering.

As of March 31, 2021, we had a pro forma net tangible book value of $268.3 million, or $2.26 per share. Pro forma net tangible book value per share represents the amount of our total tangible assets less our total liabilities, excluding contract cost assets and operating lease right of use assets and liabilities, divided by the number of shares of our common stock outstanding as of March 31, 2021, after giving effect to (i) the automatic conversion of 85,331,278 shares of our redeemable convertible preferred stock as of March 31, 2021 into an equal number of shares of common stock immediately prior to the completion of this offering; (ii) the vesting of 1,361,899 RSUs for which the service-based condition was satisfied as of March 31, 2021 and for which the performance-based vesting condition was satisfied upon the effective date of the registration statement of which this prospectus is a part; and (iii) the filing of our amended and restated certificate of incorporation immediately prior to the completion of this offering.

After giving further effect to the sale of 9,470,000 shares of common stock that we are offering at the initial public offering price of $67.00 per share, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of March 31, 2021 would have been approximately $870.9 million, or approximately $6.80 per share of common stock. This amount represents an immediate increase in pro forma net tangible book value of $4.54 per share to our existing stockholders and an immediate dilution in pro forma as adjusted net tangible book value of approximately $60.20 per share to new investors purchasing shares of common stock in this offering.

Dilution per share to new investors is determined by subtracting pro forma as adjusted net tangible book value per share after this offering from the initial public offering price per share paid by new investors. The following table illustrates this dilution (without giving effect to any exercise by the underwriters of their option to purchase additional shares):

 

Initial public offering price per share

      $ 67.00  

Pro forma net tangible book value per share as of March 31, 2021

   $ 2.26     

Increase in pro forma net tangible book value per share attributable to investors purchasing shares in this offering

     4.54     
  

 

 

    

Pro forma as adjusted net tangible book value per share after this offering

        6.80  
     

 

 

 

Dilution in pro forma as adjusted net tangible book value per share to new investors in this offering

      $ 60.20  
     

 

 

 

 

If the underwriters exercise their option to purchase additional shares in full, the pro forma as adjusted net tangible book value after the offering would be $7.21 per share, the increase in pro forma net tangible book value per share to existing stockholders would be $4.95 per share and the dilution per share to new investors would be $59.79 per share, in each case based on the initial public offering price of $67.00 per share.

The following table summarizes the pro forma as adjusted basis described above, as of March 31, 2021, the differences between the number of shares of common stock purchased from us by our existing stockholders and by new investors purchasing shares in this offering, the total

 

62


Table of Contents

consideration paid to us in cash and the average price per share paid by existing stockholders for shares of common stock issued prior to this offering, and the price to be paid by new investors for shares of common stock in this offering. The calculation below is based on the initial public offering price of $67.00 per share, before deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

     Shares Purchased     Total Consideration     Average
Price Per
Share
 
   Number      Percent     Amount
(Dollars in
millions)
     Percent  

Existing stockholders

     118,664,774        92.6   $ 748.8        54.1   $ 6.31  

New investors

     9,470,000        7.4     634.5        45.9%     $ 67.00  
  

 

 

    

 

 

   

 

 

    

 

 

   

Total

     128,134,774        100   $ 1,383.3        100  
  

 

 

    

 

 

   

 

 

    

 

 

   

The number of shares of our common stock that will be outstanding after this offering is based on 118,664,774 shares of our common stock outstanding as of March 31, 2021, which includes shares of our redeemable convertible preferred stock and shares of our redeemable convertible preferred stock subject to RSAs on an as converted basis, and shares resulting from the vesting of 1,361,899 RSUs, for which the service-based condition was satisfied as of March 31, 2021 and for which the performance-based vesting condition was satisfied upon the effective date of the registration statement of which this prospectus is a part, and excludes:

 

   

10,871,090 shares of our common stock issuable upon the exercise of options to purchase shares of our common stock outstanding as of March 31, 2021, with a weighted-average exercise price of $12.78 per share;

 

   

5,867,484 shares of our common stock subject to RSUs outstanding as of March 31, 2021 that would not have satisfied the service-based vesting condition as of March 31, 2021;

 

   

537,248 shares of our common stock subject to RSUs granted between April 1, 2021 and May 10, 2021;

 

   

13,000,000 shares of our common stock reserved for future issuance under our 2021 Plan; and

 

   

2,600,000 shares of our common stock reserved for future issuance under our ESPP.

Our 2021 Plan provides for annual automatic increases in the number of shares reserved thereunder, and for increases to the number of shares that may be granted thereunder based on shares under our 2014 Plan that expire, terminate, are forfeited or are repurchased by us. See the section titled “Executive Compensation—Employee Benefit and Stock Plans” for additional information.

To the extent any outstanding options are exercised, there will be further dilution to new investors. If all of such outstanding options had been exercised as of March 31, 2021, the pro forma as adjusted net tangible book value per share after this offering would be $7.26, and total dilution per share to new investors would be $59.74.

If the underwriters exercise their option to purchase additional shares in full, our existing stockholders would own 91.9%, and the investors purchasing shares of our common stock in this offering would own 8.1% of the total number of shares of our common stock outstanding immediately after completion of this offering.

 

63


Table of Contents

SELECTED CONSOLIDATED FINANCIAL DATA

The following tables set forth our selected consolidated financial data. The selected consolidated statements of operations data for the years ended December 31, 2018, 2019, and 2020 and the selected consolidated balance sheet data as of December 31, 2019 and 2020 are derived from our audited consolidated financial statements included elsewhere in this prospectus. The selected consolidated statements of operations data for the three months ended March 31, 2020 and 2021 and the selected consolidated balance sheet data as of March 31, 2021 have been derived from our unaudited interim condensed consolidated financial statements included elsewhere in this prospectus. In our opinion, the unaudited interim condensed consolidated financial statements have been prepared on a basis consistent with our audited consolidated financial statements and contain all adjustments, consisting only of normal and recurring adjustments, necessary for a fair statement of such interim financial statements. You should read the following selected consolidated financial and operating data together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited consolidated financial statements, our unaudited interim condensed consolidated financial statements, and the related notes included elsewhere in this prospectus. The selected consolidated financial data in this section is not intended to replace our audited consolidated financial statements, our unaudited interim consolidated financial statements, and the related notes, and is qualified in their entirety by the audited consolidated financial statements, unaudited interim condensed consolidated financial statements, and the related notes included elsewhere in this prospectus. Our historical results are not necessarily indicative of our results in any future period, and our operating results for the three months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021 or any other interim periods or any future year or period.

 

    Year Ended December 31,     Three Months Ended March 31,  
    2018     2019     2020     2020     2021  
    (in thousands, except share and per share data)  

Consolidated Statements of Operations Data:

         

Revenue

  $ 186,396     $ 289,194     $ 400,291     $ 92,337     $ 113,938  

Cost of revenue(1)(2)(3)

    37,401       53,166       71,663       17,457       20,359  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    148,995       236,028       328,628       74,880       93,579  

Operating expenses:

         

Sales and marketing(1)(2)(3)

    112,723       173,472       189,032       48,062       53,965  

Research and development(1)(2)(3)

    55,950       87,022       124,661       28,233       34,545  

General and administrative(1)(3)

    35,365       58,158       73,465       15,983       17,927  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    204,038       318,652       387,158       92,278       106,437  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

    (55,043     (82,624     (58,530     (17,398     (12,858

Interest expense, net

    (1,394     (930     (2,060     (382     (562

Change in fair value of Series I redeemable convertible preferred stock warrant liability

                (36,990            

Other income (expense), net

    16       518       420       (1,218     (183
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before provision for (benefit from) income taxes

    (56,421     (83,036     (97,160     (18,998     (13,603

 

64


Table of Contents
    Year Ended December 31,     Three Months Ended March 31,  
    2018     2019     2020     2020     2021  
    (in thousands, except share and per share data)  

Provision for (benefit from) income taxes

    250       71       (993     36       129  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

    (56,671     (83,107     (96,167     (19,034     (13,732

Less: Recognition of beneficial conversion feature on preferred stock as a deemed dividend

                (3,024            
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to common stockholders

  $ (56,671   $ (83,107   $ (99,191   $ (19,034   $ (13,732
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per share attributable to common stockholders, basic and diluted(4)

  $ (2.77   $ (3.41   $ (3.56   $ (0.72   $ (0.44
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted

    20,430,502       24,361,173       27,895,546       26,440,615       31,357,060  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma net loss per share, basic and diluted (unaudited)(4)

      $ (1.16)       $ (0.29
     

 

 

     

 

 

 

Weighted-average shares used in computing pro forma net loss per share, basic and diluted (unaudited)

        111,650,157         117,731,615  
     

 

 

     

 

 

 

 

     Year Ended December 31,     Three Months Ended March 31,  
         2018             2019             2020                 2020                     2021          
     (dollars in thousands)  

Other Financial Data:

          

Gross margin(5)

     80     82     82     81     82

Operating margin(6)

     (30 )%      (29 )%      (15 )%      (19 )%      (11 )% 

Non-GAAP gross profit(7)

   $ 149,749     $ 238,766     $ 333,792     $ 75,908     $ 95,826  

Non-GAAP gross margin(7)

     80     83     83     82     84

Non-GAAP loss from operations(7)

   $ (47,339   $ (61,015   $ (4,373   $ (10,411   $ (807

Non-GAAP operating margin(7)

     (25 )%      (21 )%      (1 )%      (11 )%      (1 )% 

 

(1)

Includes stock-based compensation expense as follows:

 

    Year Ended December 31,     Three Months Ended March 31,  
    2018     2019     2020             2020                     2021          
    (in thousands)  

Cost of revenue

  $ 567     $ 1,095     $ 1,722     $ 267     $ 1,161  

Sales and marketing

        2,790           7,463           13,385                     2,119                     3,252  

Research and development

    2,380       6,584       12,930       1,937       3,246  

General and administrative

    1,752       4,096       15,923       1,377       2,644  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total stock-based compensation expense

  $ 7,489     $ 19,238     $ 43,960     $ 5,700     $ 10,303  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

65


Table of Contents
(2)

Includes amortization of acquired intangible assets as follows:

 

    Year Ended December 31,     Three Months Ended March 31,  
    2018     2019     2020             2020                     2021          
    (in thousands)  

Cost of revenue

         

Amortization of acquired technology intangible assets

  $ 187     $ 1,643     $ 3,315     $ 761     $ 1,086  

Sales and marketing

         

Amortization of other acquired intangible assets

    28       728       1,728       404       479  

Research and development

         

Amortization of acquired technology and other acquired intangible assets

                721       122       183  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total amortization of acquired intangible assets

  $         215     $         2,371     $         5,764     $             1,287     $             1,748  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(3)

Includes restructuring-related charges as follows:

 

    Year Ended December 31,     Three Months Ended March 31,  
    2018     2019     2020             2020                     2021          
    (in thousands)  

Cost of revenue

  $     $     $ 127     $     $  

Sales and marketing

                1,824              

Research and development

                1,681              

General and administrative

                801              
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total restructuring-related charges

  $             —     $             —     $         4,433     $                     —     $                     —  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(4)

See Notes 2 and 14 to our audited consolidated financial statements included elsewhere in this prospectus for more information regarding net loss per share attributable to common stockholders, basic and diluted, and pro forma net loss per share, basic and diluted, for the year ended December 31, 2020. See Notes 2 and 9 to our unaudited interim condensed consolidated financial statements included elsewhere in this prospectus for more information regarding pro forma net loss per share, basic and diluted, for the three months ended March 31, 2021.

 

(5)

Gross margin reflects our gross profit as a percentage of revenue.

 

(6)

Operating margin reflects our loss from operations as a percentage of revenue.

 

(7)

Non-GAAP gross profit, non-GAAP gross margin, non-GAAP loss from operations, and non-GAAP operating margin are financial measures that are not calculated in accordance with GAAP. See the section titled “Selected Consolidated Financial Data—Non-GAAP Financial Measures” below for information regarding our use of these non-GAAP financial measures and a reconciliation to the most comparable GAAP measures.

 

     As of December 31,     As of March 31,  
     2019     2020     2021  
     (in thousands)  

Consolidated Balance Sheet Data:

      

Cash and cash equivalents

   $ 118,452     $ 379,907     $ 413,761  

Right of use assets—finance leases

     44,784       42,108       41,439  

Total assets

     503,664       820,767       835,274  

Deferred revenue, current and non-current

     177,911       219,811       226,470  

Finance lease liabilities, current and non-current

     51,681       50,339       50,025  

Redeemable convertible preferred stock

     442,897       727,474       728,150  

Total stockholders’ deficit

     (253,758     (272,102     (265,110

Non-GAAP Financial Measures

In addition to our results determined in accordance with GAAP, we believe non-GAAP gross profit, non-GAAP gross margin, non-GAAP loss from operations, and non-GAAP operating margin are

 

66


Table of Contents

useful in evaluating our operating performance. We use this non-GAAP financial information, collectively, to evaluate our ongoing operations and for internal planning and forecasting purposes. We believe that non-GAAP financial information, when taken collectively, is helpful to investors because it provides consistency and comparability with past financial performance, and may assist in comparisons with other companies, some of which use similar non-GAAP financial information to supplement their GAAP results. The non-GAAP financial information is presented for supplemental informational purposes only, and should not be considered a substitute for financial information presented in accordance with GAAP, and may be different from similarly-titled non-GAAP measures used by other companies. A reconciliation is provided below for each non-GAAP financial measure to the most directly comparable financial measure stated in accordance with GAAP. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures.

Non-GAAP Gross Profit and Non-GAAP Gross Margin

We define non-GAAP gross profit and non-GAAP gross margin as gross profit and gross margin, respectively, excluding stock-based compensation expense, amortization of acquired technology intangible assets and restructuring-related charges.

The following table presents a reconciliation of our GAAP gross profit to our non-GAAP gross profit and our GAAP gross margin to our non-GAAP gross margin as of the periods presented:

 

     Year Ended December 31,     Three Months Ended March 31,  
           2018                 2019                 2020                 2020                 2021        
     (dollars in thousands)  

Revenue

   $ 186,396     $ 289,194     $ 400,291     $     92,337     $     113,938  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

   $ 148,995     $ 236,028     $ 328,628     $ 74,880     $ 93,579  

Stock-based compensation expense

     567       1,095       1,722       267       1,161  

Amortization of acquired technology intangible assets

     187       1,643       3,315       761       1,086  

Restructuring-related charges

                 127              
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP gross profit

   $ 149,749     $ 238,766     $ 333,792     $ 75,908     $ 95,826  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross margin

     80     82     82     81     82

Non-GAAP gross margin

     80     83     83     82     84

Non-GAAP Loss from Operations and Non-GAAP Operating Margin

We define non-GAAP loss from operations and non-GAAP operating margin as GAAP loss from operations and GAAP operating margin, respectively, excluding stock-based compensation expense, amortization of acquired intangible assets and restructuring-related charges.

 

67


Table of Contents

The following table presents a reconciliation of our GAAP loss from operations to our non-GAAP loss from operations and our GAAP operating margin to our non-GAAP operating margin as of the periods presented:

 

     Year Ended December 31,     Three Months Ended March 31,  
     2018     2019     2020           2020                 2021        
     (dollars in thousands)  

Revenue

   $ 186,396     $ 289,194     $ 400,291     $     92,337     $     113,938  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

   $ (55,043   $ (82,624   $ (58,530     (17,398     (12,858

Stock-based compensation expense

     7,489       19,238       43,960       5,700       10,303  

Amortization of acquired intangible assets

     215       2,371       5,764       1,287       1,748  

Restructuring-related charges

                 4,433              
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP loss from operations

   $ (47,339   $ (61,015   $ (4,373   $ (10,411   $ (807
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating margin

     (30 )%      (29 )%      (15 )%      (19 )%      (11 )% 

Non-GAAP operating margin

     (25 )%      (21 )%      (1 )%      (11 )%      (1 )% 

 

68


Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read together with our consolidated financial statements and accompanying notes included elsewhere within this prospectus. This discussion includes both historical information and forward-looking information that involves risk, uncertainties, and assumptions. You should review the sections titled “Special Note Regarding Forward-Looking Statements” and “Risk Factors” for a discussion of forward-looking statements and important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. The last day of our fiscal year is December 31. Our fiscal quarters end on March 31, June 30, September 30, and December 31.

Overview

Our mission is to connect everyone in construction on a global platform.

We are a leading provider of cloud-based construction management software, and are helping transform one of the oldest, largest, and least digitized industries in the world. We focus exclusively on construction, connecting and empowering the industry’s key stakeholders, such as owners, general contractors, specialty contractors, architects, and engineers, to collaborate from any location, on any internet-connected device. Our platform is modernizing and digitizing construction management by enabling real-time access to critical project information, simplifying complex workflows, and facilitating seamless communication among key stakeholders, all of which we believe positions us to serve as the system of record for the construction industry. Adoption of our platform helps customers increase productivity and efficiency, reduce rework and costly delays, improve safety and compliance, and enhance financial transparency and accountability.

In short, we build software that helps build the world.

Craig “Tooey” Courtemanche, Jr., our founder, President, and Chief Executive Officer, started Procore in 2002 to address the frustrations he personally experienced during his own home construction project. Getting information about something as simple as what work had been completed or how the budget was changing as project plans evolved was surprisingly difficult, as most of this work was done manually. The limited technologies that existed at the time were not designed to address the unique collaboration needs of the industry.

From the beginning, our focus has been to develop products that are user-centric and simple to use. Our initial product, Project Management, was first released as a web portal that enabled residential general contractors to easily manage schedules, tasks, and online communications. However, given the software was only accessible in the office and the actual construction work occurred at the jobsite, our first release experienced little market traction. We spent the next decade developing additional product functionality, and by 2012 we began to see technological advances in internet, Wi-Fi, and mobile connectivity along with the proliferation of smartphones and tablets, which presented us with a unique opportunity to accelerate the adoption of our products, and therefore, drive our growth.

Since the early years of Procore, Mr. Courtemanche understood that addressing the unique challenges of the construction industry required a global platform that serviced the various stakeholders across the industry. As a result, we have grown our product focus from our roots as a provider of project management software for general contractors in the United States to a robust and modern set of products designed to meet the needs of owners, general contractors, and specialty contractors around the world.

 

69


Table of Contents

The following table shows an overview of our customer growth and other significant developments.

 

 

LOGO

In 2017, we expanded to a multi-product offering with the addition of our Quality & Safety and Project Financials products. In 2018 we acquired Zimfly, Inc., or BIManywhere, and in 2019 we launched Procore BIM, which enables users in the field to view and collaborate on three dimensional models. Our acquisition of Construction BI, LLC, or Construction BI, in 2019 led to the release of Procore Analytics, providing advanced analytics and business intelligence solutions to our customers. In 2018 and 2019, we announced our Bid Management and Prequalification products, respectively,

 

70


Table of Contents

which simplify cross-stakeholder collaboration and enable users to streamline the process of selecting specialty contractors and vendors for construction projects. In 2020, we acquired Esticom, adding an estimating product to our platform.

To complement our multi-product offering, we have launched additional products tailored to other stakeholders beyond the general contractor. We extended our platform to specialty contractors with the introduction of our Field Productivity product in 2018, and to owners in 2019 with our acquisition of Honest Buildings, Inc., or Honest Buildings, and subsequent release of our Portfolio Financials product.

In addition to our many purpose-built products for industry stakeholders, we launched an open API in 2015 and our App Marketplace in 2016. This significantly expanded our value proposition by allowing our customers to integrate our products with their third-party applications and internal systems, providing our users with choice and flexibility, and increasing the stickiness of our platform as we position ourselves to become the industry’s system of record. As of December 31, 2020, over 250 applications were available on our App Marketplace.

As our customer base grew within the United States, we also began to see increasing inbound demand internationally. In 2017, we began to focus on growing our international footprint and opened offices in Sydney, Australia and Vancouver and Toronto, Canada. We subsequently opened offices in London, England in 2018 and Mexico City, Mexico in 2019. We have also developed focused sales and marketing efforts in Singapore and the United Arab Emirates in 2021, where we do not yet maintain office locations. These offices and local sales teams allow us to better serve our customers’ needs, bringing our products to stakeholders worldwide. In 2020, 12.2% of our revenue was generated from customers outside the United States.

We serve customers ranging from small businesses managing a couple million dollars of annual construction volume to global enterprises managing billions of dollars of annual construction volume. Our core customers are owners, general contractors, and specialty contractors operating across the commercial, residential, industrial, and infrastructure segments of the construction industry. We primarily sell subscriptions to access our products through our direct sales team, which is specialized by stakeholder, region, size, and type. Additionally, as of December 31, 2020, out of 13 available products, 60% of our customers subscribed to three or more of our products, which we believe illustrates the successful introduction of new products that meet the needs of our customers and the broader construction ecosystem.

Our products are offered on our cloud-based platform and are designed to be easy to configure and deploy. Our users can access our products on computers, smartphones, and tablets through any web browser or from our mobile application available for both the iOS and Android platforms.

We generate substantially all of our revenue from subscriptions to access our products and have an unlimited user model that is designed to facilitate adoption and maximize usage of our platform by all project stakeholders. We sell our products on a subscription basis for a fixed fee with pricing generally based on the number and mix of products and the annual construction volume contracted to run on our platform. As our customers subscribe to additional products, or increase the annual construction volume contracted to run on our platform, we generate more revenue. We do not provide refunds for unused construction volume, or charge customers based on consumption or on a per project basis. Subscriptions to access our products include customer support and allow for unlimited users as we do not charge a per-seat or per-user fee. Customers can invite all project participants to engage with our platform as part of a project team. This includes the customer’s employees and its collaborators, who are other project participants who engage with our platform but do not pay us for such use. Further, multiple stakeholders can be customers on the same project and retain access to project information for the duration of their subscription.

 

71


Table of Contents

Our success in building our customer base, expanding usage for existing customers, and helping digitize the industry has allowed us to achieve significant growth. Our revenue was $186.4 million in 2018, $289.2 million in 2019, and $400.3 million in 2020, representing annual revenue growth of 55% in 2019 and 38% in 2020. We had a net loss of $56.7 million in 2018, $83.1 million in 2019, and $96.2 million in 2020.

Certain Factors Affecting Our Performance

Acquiring New Customers and Retaining and Expanding Existing Customers’ Use of Our Platform

We have a history of growing our customer base. The number of customers on our platform has increased from 6,095 as of December 31, 2018, to 8,506 as of December 31, 2019, to 10,166 as of December 31, 2020, reflecting year-over-year growth rates of 40% in 2019 and 20% in 2020. The number of customers on our platform was 10,668 as of March 31, 2021. Our rate of customer growth slowed in 2020 with the onset of the COVID-19 pandemic as fewer owners began construction projects and builders saw projects get delayed and construction volumes decline, causing them to delay or reduce their spend on construction software. Starting in the third quarter of 2020, we began to see our rate of customer growth increase again. While growth in our customer base has not yet returned to its pre-COVID pace and remains subject to fluctuations amid ongoing economic uncertainty, as the global construction industry recovers from the COVID-19 pandemic we believe there is a significant opportunity to continue to grow our customer base and expand their use of our products. We intend to efficiently drive new customer acquisitions by continuing to diligently invest across our sales and marketing engine to engage our prospective customers, increase brand awareness, and drive adoption of our products and platform. We define the number of customers at the end of a particular period as the number of entities that have entered into one or more subscriptions with us for which the term has not ended, or with which we are negotiating a subscription renewal. An entity with multiple subsidiaries, segments, or divisions, is defined and counted as a single customer, even if we have separate subscriptions with multiple subsidiaries, segments, or divisions that are part of the same entity.

Our ability to continue to grow our business and serve the broader needs of the construction industry depends on our customers purchasing new products, and renewing and expanding their use of existing products. We have a history of existing customers increasing their annual spend with us by buying additional construction volume or products as well as through price increases. These factors, in concert with our growing customer base, have driven an increase in the number of customers that contributed more than $100,000 of ARR, which grew from 412 as of December 31, 2018, to 655 as of December 31, 2019, to 843 as of December 31, 2020, reflecting year-over-year growth rates of 59% in 2019, and 29% in 2020. We believe, because our larger customers have relatively long project backlogs and larger cash reserves, the growth rate in customers contributing more than $100,000 of ARR in 2020 is higher than the growth rate of our overall customer base, highlighting the resiliency of our larger customers. However, these larger customers still experienced project delays and saw fewer new projects break ground than prior to the pandemic, resulting in fewer new sales and expansions, and in slower growth in customers contributing more than $100,000 in ARR in 2020 compared to 2019. We define ARR at the end of a particular period as the annualized dollar value of our subscriptions from customers as of such period end date. For multi-year subscriptions, ARR at the end of a particular period is measured by using the stated contractual subscription fees as of the period end date on which ARR is measured. For example, if ARR is measured during the first year of a multi-year contract, the first year subscription fees are used to calculate ARR. ARR at the end of a particular period includes the annualized dollar value of subscriptions for which the term has not ended, and subscriptions for which we are negotiating a subscription renewal. ARR should be viewed independently of revenue and does not represent our GAAP revenue on an annualized basis. ARR is not intended to be a replacement or forecast of revenue.

 

72


Table of Contents

Once a customer has subscribed to our products, we use a net retention rate to measure our ability to retain and expand the ARR generated from our existing customers on a trailing four-quarter basis. Our net retention rate compares the ARR from the same set of customers across comparable periods. To calculate our net retention rate at the end of a particular period, we first calculate the ARR from the cohort of active customers at the end of the period 12 months prior to the end of the period selected. We then calculate the value of ARR from the same cohort of customers at the end of the current period selected, giving effect to expansion, contraction, or churn (as discussed below) from this group of customers over the 12 months preceding the end of the period selected. We then divide (a) the total current period ARR by (b) the total prior period ARR to calculate the net retention rate. Our net retention rate was 121% as of December 31, 2018, 117% as of December 31, 2019, and 107% as of December 31, 2020. Many of our customers saw their annual construction volumes slow in growth, stall, or decline as a result of the COVID-19 pandemic, meaning that they needed to run less construction volume on our platform than they otherwise would have. This limited contract expansion and in some cases created a reduction in contract value at renewal, impacting our net retention. However, even throughout the pandemic, our net retention rate remained above 100% and our customer base continued to expand, giving us confidence that our customers are continuing to heavily rely on our platform, and that customers will continue to expand their subscriptions as construction volumes normalize.

We use a gross retention rate to measure our ability to retain our customers. Our gross retention rate reflects only customer losses and does not reflect customer expansion or contraction. We believe our high gross retention rates demonstrate that we serve a vital role in our customers’ operations, as the vast majority of our customers continue to use our products and platform and renew their subscriptions. To calculate our gross retention rate at the end of a particular period, we first calculate the ARR from the cohort of active customers at the end of the period 12 months prior to the end of the period selected. We then calculate the value of ARR from any customers whose subscriptions terminated and were not renewed during the 12 months preceding the end of the period selected, which we refer to as churn. We then divide (a) the total prior period ARR minus churn by (b) the total prior period ARR to calculate the gross retention rate. Our gross retention rate was 94% as of December 31, 2018, 95% as of December 31, 2019, and 94% as of December 31, 2020. Despite the impact of the COVID-19 pandemic in 2020, our gross retention decreased only slightly, indicating that our customers continue to see our platform as mission-critical. Despite the decrease in our net retention rate due to the effects of the pandemic, we believe that the fact that our gross retention rate remained at pre-pandemic levels indicates that the vast majority of our pre-pandemic customers will remain on our platform, and signifies that as their businesses recover from the pandemic, they will increase their use of our platform and expand their contracts with us again.

While our gross retention rate has been stable, over time our net retention rate has fluctuated and our gross and net retention rates may fluctuate on a go-forward basis as a result of a number of factors, including our ability to renew existing customer subscriptions, sell additional products to our customers, maintain or increase the price of our existing products, and add additional construction volume to our customers’ subscriptions. We may not be able to sustain price increases at historical rates or ensure our customers’ satisfaction with our platform, both of which the COVID-19 pandemic has temporarily impacted our ability to do and either of which could adversely impact our gross and net retention rates.

Continued Technology Innovation and Expansion of Our Platform

We plan to continue to invest in technology innovation and product development to enhance the capabilities of our platform. Additional features and products will also enable customers and collaborators to manage new workflows on our platform and allow us to attract a broader set of stakeholders. We have recently introduced new products developed in-house and through our

 

73


Table of Contents

acquisitions of BIManywhere, Honest Buildings, Construction BI, and Esticom. We intend to continue to invest in building additional products, features, and functionality that expand our capabilities and facilitate the extension of our platform. We also intend to continue to evaluate strategic acquisitions and investments in businesses and technologies to drive product and market expansion. Our future success is dependent on our ability to successfully develop or acquire, market, and sell existing and new products to both new and existing customers.

International Growth

We see international expansion as a major, and largely greenfield, opportunity for growth as we look to capture a larger part of the worldwide construction market. As of December 31, 2020, our customers were running projects in over 125 countries, even though we do not have focused sales and marketing efforts in most of these countries. We have started to grow our presence internationally with the opening of offices in Sydney, Australia and Vancouver and Toronto, Canada in 2017, London, England in 2018 and Mexico City, Mexico in 2019. We have also developed focused sales and marketing efforts in Singapore and the United Arab Emirates in 2021, where we do not yet maintain office locations. As a result of our international efforts, we support multiple languages and currencies. Non-U.S. revenue as a percentage of our total revenue was 10.1% in 2018, 11.3% in 2019, and 12.2% in 2020. We determine the percentage of non-U.S. revenue based on the billing location of each subscription.

Furthermore, we believe global demand for our products will continue to increase as we expand our international sales and marketing efforts and the awareness of our products and platform grows. However, our ability to conduct our operations internationally will require considerable management attention and resources and is subject to the particular challenges of supporting a rapidly growing business in an environment of multiple languages, cultures, customs, legal, tax and regulatory systems, alternative dispute systems, and commercial markets. We have made, and plan to continue to make, significant investments in existing and select additional international markets. While these investments may adversely affect our operating results in the near term, we believe they will contribute to our long-term growth.

Impact of COVID-19

As governments worldwide scrambled to control the spread of COVID-19, some local governments temporarily closed construction jobsites or imposed restrictions on construction activity, such as limiting the number of workers allowed on site, which delayed progress on ongoing projects. According to an October 2020 survey of general contractors assessing the impact of COVID-19 on their businesses conducted by the Associated General Contractors of America, or the AGC Survey, 78% of the respondents reported having a project delayed or disrupted due to many factors stemming from the COVID-19 pandemic. Construction teams had to learn to navigate new pandemic safety protocols on jobsites and coordinate already complex construction processes with increasingly distributed workforces. Owners had to reconfigure existing buildings to improve safety and consider new distancing requirements in project designs, all amid increased materials and labor costs.

As uncertainty around the wider macroeconomic environment intensified, owners began to freeze spending on new construction, negatively impacting revenue for many contractors. According to data from Dodge Data & Analytics, total U.S. construction starts fell 9% from 2019 to 2020. In April 2020, the American Institute of Architects’ Architectural Billings Index fell to 29.3, the lowest value on record, and ended 2020 at 42.6, indicating that most firms surveyed were still seeing contracting billings. However, governments in the U.S. and abroad largely exempted construction from long-term business shutdowns given the importance of construction in supporting healthcare facilities, residential and commercial spaces, transportation, and other vital infrastructure.

 

74


Table of Contents

Our customers’ reliance on our platform, coupled with the growth of our customer base throughout the pandemic, give us confidence that the impact of the COVID-19 pandemic on our industry and our business is short-term and will ultimately accelerate the digital transformation in the industry and support our growth in the long term. Notably, the pandemic has begun to change the way construction stakeholders operate by pushing them to adopt digital solutions that enable distanced, distributed workforces. Many have discovered how Procore’s platform can make their operations more efficient. In addition to our 13 products and our App Marketplace, within weeks of the initial shutdowns, we provided our customers with direct API-based integrations to Zoom, Microsoft Teams, and GoToMeeting in order to help maintain business continuity in a safe and efficient manner, all without leaving the Procore platform. We also quickly integrated an embedded digital whiteboard app with our platform and added templates to our Inspections tool helping users to document COVID-19-related safety measures and comply with preventative health requirements.

We believe the temporary slowdown in construction during the pandemic will increase the backlog of new construction and may drive further construction in the future. We have developed a highly efficient and resilient business model that we expect to flourish from these strong industry tailwinds and believe we are in a unique position to continue to drive forward the digitization of global construction. The impact of the COVID-19 pandemic and its effects on the construction industry continue to evolve, and the impact on our financial condition and results of operations remains uncertain. Furthermore, because of our subscription-based business model, the effect of the COVID-19 pandemic may not be fully reflected in our results of operations and overall financial condition until future periods. See the section titled “Risk Factors” for further discussion of the possible impact of the COVID-19 pandemic on our business and financial results.

Components of Results of Operations

Revenue

We generate substantially all of our revenue from subscriptions to access our products and related support. Subscriptions are sold for a fixed fee and revenue is recognized ratably over the term of the subscription. Our subscriptions generally have annual or multi-year terms, are typically subject to renewal at the end of the subscription term, and are non-cancellable. To the extent we invoice our customers in advance of revenue recognition, we record deferred revenue. Consequently, a portion of the revenue that we report each period is attributable to the recognition of revenue previously deferred related to subscriptions that we entered into during previous periods.

Cost of Revenue

Cost of revenue primarily consists of customer support personnel-related compensation expenses, including salaries, bonuses, benefits, payroll taxes, and stock-based compensation expense, third-party hosting costs, software license fees, amortization of capitalized software development costs, amortization of acquired technology intangible assets, and allocated overhead. We expect our cost of revenue to increase on an absolute dollar basis as our revenue increases. We intend to continue to invest additional resources in platform hosting, customer support, and software development as we grow our business and to ensure that our customers are realizing the full benefit of our products. The level and timing of investment in these areas could affect our cost of revenue in the future.

Costs related to the development of internal-use software for new products and major platform enhancements are capitalized until the software is substantially complete and ready for its intended use. Capitalized software development costs are amortized on a straight-line basis over the developed software’s estimated useful life of two years and the amortization is recorded in cost of revenue.

 

75


Table of Contents

We anticipate incurring significant additional cost of revenue expenses during the period in which we complete our initial public offering as a result of the stock-based compensation expense associated with our RSUs as described in the subsection titled “Critical Accounting Policies and Estimates — Stock-Based Compensation,” as well as additional stock-based compensation expense going forward.

Operating Expenses

Our operating expenses consist of sales and marketing, research and development, and general and administrative expenses. For each of these categories of expense, personnel-related compensation expense is the most significant component, which include salaries, bonuses, commissions, benefits, payroll taxes, stock-based compensation, and severance expenses as a result of restructuring in the third quarter of 2020. By restructuring, we streamlined our organization to better align with our current strategic goals and future scale. Refer to Note 17 to the audited consolidated financial statements included elsewhere in this prospectus.

We anticipate incurring significant additional operating expenses during the period in which we complete our initial public offering as a result of the stock-based compensation expense associated with our RSUs as described in the subsection titled “Critical Accounting Policies and Estimates — Stock-Based Compensation,” as well as additional stock-based compensation expense going forward.

Sales and Marketing

Sales and marketing expenses primarily consist of personnel-related compensation expenses for our sales and marketing organizations, advertising costs, marketing events, travel, trade shows and other marketing activities, amortization of acquired customer relationship intangible assets, and allocated overhead. We expense advertising and other promotional expenditures as incurred. We expect sales and marketing expenses to increase on an absolute dollar basis and vary from period to period as a percentage of revenue, as we increase our investment in sales and marketing efforts over the foreseeable future, primarily from increased headcount in sales and marketing and investment in marketing to drive customer growth.

Research and Development

Research and development expenses primarily consist of personnel-related compensation expenses for our engineering, product, and design teams, contractor costs to supplement our staff levels, consulting services, amortization of certain acquired intangible assets used in research and development activities, and allocated overhead. We expect research and development expenses to increase on an absolute dollar basis and vary from period to period as a percentage of revenue for the foreseeable future as we continue to invest in headcount to build, enhance, maintain, and scale our products and platform.

General and Administrative

General and administrative expenses primarily consist of personnel-related compensation expenses for our finance, human resources, IT, legal, and other administrative functions. Additionally, general and administrative expenses include non-personnel-related expenses, such as professional fees for audit, legal, tax, and other external consulting services, including acquisition-related costs, costs associated with preparing for this offering, property and use taxes, licenses, travel and entertainment costs, and allocated overhead. Following the completion of this offering, we expect to incur additional expenses as a result of operating as a public company, including increased expenses for insurance costs, professional services, investor relations, and other compliance costs applicable to companies listed on a national securities exchange. We also expect to increase the size of our general and administrative functions to support the growth of our business, including our international expansion.

 

76


Table of Contents

Interest Expense, Net

Interest expense, net consists primarily of interest expense associated with our finance leases and undrawn fees associated with our Credit Facility, which is partially offset by interest income from money market funds.

Change in Fair Value of Series I Redeemable Convertible Preferred Stock Warrant Liability

Change in fair value of Series I redeemable convertible preferred stock warrant liability consists of losses from the remeasurement of the Series I redeemable convertible preferred stock warrant to fair value from issuance in March 2020 to December 2020 when the warrants were exercised.

Other Income (Expense), Net

Other income (expense), net primarily consists of gain or loss on foreign currency transactions, and miscellaneous other income.

Provision for (Benefit from) Income Taxes

Provision for (benefit from) income taxes consists primarily of income taxes of U.S. state franchise taxes and certain foreign jurisdictions in which we conduct business, net of the release of valuation allowance as a result of deferred tax liabilities from acquisitions that are an available source of income to realize our deferred tax assets. As we expand our international operations, we expect to incur increased foreign tax expenses. We have a full valuation allowance for net U.S. and U.K. deferred tax assets. The U.S. valuation allowance includes net operating loss carryforwards, and tax credits related primarily to research and development for our operations in the United States. The U.K. valuation allowance is primarily comprised of net operating loss carryforwards. We expect to maintain this full valuation allowance for our net U.S. and U.K. deferred tax assets for the foreseeable future.

 

77


Table of Contents

Results of Operations

The following tables set forth our consolidated statements of operations data and such data as a percentage of revenue for each of the periods indicated. Certain percentages below may not sum due to rounding.

 

     Year Ended December 31,     Three Months Ended March 31,  
     2018     2019     2020           2020                 2021        
     (in thousands)  

Revenue

   $ 186,396     $ 289,194     $ 400,291     $     92,337     $     113,938  

Cost of revenue

     37,401       53,166       71,663       17,457       20,359  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     148,995       236,028       328,628       74,880       93,579  

Operating expenses:

          

Sales and marketing

     112,723       173,472       189,032       48,062       53,965  

Research and development

     55,950       87,022       124,661       28,233       34,545  

General and administrative

     35,365       58,158       73,465       15,983       17,927  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     204,038       318,652       387,158       92,278       106,437  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

     (55,043     (82,624     (58,530     (17,398     (12,858

Interest expense, net

     (1,394     (930     (2,060     (382     (562

Change in fair value of Series I redeemable convertible preferred stock warrant liability

                 (36,990            

Other income (expense), net

     16       518       420       (1,218     (183
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before provision for (benefit from) income taxes

     (56,421     (83,036     (97,160     (18,998     (13,603

Provision for (benefit from) income taxes

     250       71       (993     36       129  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (56,671   $ (83,107   $ (96,167   $ (19,034   $ (13,732
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

     Year Ended December 31,     Three Months Ended March 31,  
     2018     2019     2020     2020     2021  
     (as a percentage of revenue)  

Revenue

     100     100     100     100     100

Cost of revenue

     20       18       18       19       18  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     80       82       82       81       82  

Operating expenses:

          

Sales and marketing

     60       60       47       52       47  

Research and development

     30       30       31       31       30  

General and administrative

     19       20       18       17       16  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     109       110       97       100       93  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

     (30     (29     (15     (19     (11

Interest expense, net

     (1           (1            

Change in fair value of Series I redeemable convertible preferred stock warrant liability

                 (9            

Other income (expense), net

                       (1      
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before provision for (benefit from) income taxes

     (30     (29     (24     (21     (12

Provision for (benefit from) income taxes

                              
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

     (30 )%      (29 )%      (24 )%      (21 )%      (12 )% 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

78


Table of Contents

Comparison of the Three Months Ended March 31, 2020 and 2021

Revenue

 

     Three Months Ended
March 31,
     Change  
     2020      2021      Dollar      Percent  
     (dollars in thousands)  

Revenue

   $  92,337      $  113,938      $  21,601        23

Our revenue increased $21.6 million, or 23%, compared to the three months ended March 31, 2020, of which approximately 89% was attributable to revenue from existing customers and 11% was attributable to revenue from new customers during the three months ended March 31, 2021. The increase in revenue from existing customers includes the net benefit of a full quarter of subscription revenue in the three months ended March 31, 2021 from customers that were new in 2020 and continued their subscriptions in 2021, and customers that expanded their subscriptions in 2020 and the first quarter of 2021 through the purchase of additional construction volume or products, as well as price increases.

Cost of Revenue, Gross Profit, and Gross Margin

 

     Three Months Ended
March 31,
    Change  
     2020     2021     Dollar      Percent  
     (dollars in thousands)  

Cost of revenue

   $ 17,457     $ 20,359     $ 2,902        17

Gross profit

     74,880       93,579       18,699        25

Gross margin

     81     82     

The increase in cost of revenue during the three months ended March 31, 2021 was primarily attributable to an increase of $2.2 million in personnel-related expenses, including an increase of $0.9 million in stock-based compensation expense. Personnel-related expenses increased primarily due to annual merit increases approved during the third quarter of 2020, an increase in average headcount of 5%, and stock-based compensation expense associated with transactions in which certain of our investors acquired outstanding common stock from our employees at a purchase price greater than the estimated fair value of our common stock at the time of the transactions, or Secondary Transactions, during the three months ended March 31, 2021.

Operating Expenses

 

     Three Months Ended
March 31,
     Change  
     2020      2021      Dollar      Percent  
     (dollars in thousands)  

Sales and marketing

   $ 48,062      $ 53,965      $ 5,903        12

The increase in sales and marketing expense during the three months ended March 31, 2021 was primarily attributable to an increase of $5.1 million in personnel-related expenses, including an increase of $1.1 million in stock-based compensation expense. Personnel-related expenses increased primarily due to annual merit increases approved during the third quarter of 2020, and stock-based compensation expense associated with Secondary Transactions during the three months ended March 31, 2021. The increase in sales and marketing expense was also attributable to a $1.2 million

 

79


Table of Contents

increase in marketing events and expenses, and was offset by a $1.8 million decrease in travel-related costs due to COVID-19 travel restrictions.

 

     Three Months Ended
March 31,
     Change  
     2020      2021      Dollar      Percent  
     (dollars in thousands)  

Research and development

   $ 28,233      $ 34,545      $ 6,312        22

The increase in research and development expense during the three months ended March 31, 2021 was primarily attributable to an increase of $6.9 million in personnel-related expenses, including an increase of $1.3 million in stock-based compensation expense. Personnel-related expenses increased primarily due to annual merit increases approved during the third quarter of 2020, and stock-based compensation expense associated with Secondary Transactions during the three months ended March 31, 2021.

 

     Three Months Ended
March 31,
     Change  
     2020      2021      Dollar      Percent  
     (dollars in thousands)  

General and administrative

   $ 15,983      $ 17,927      $ 1,944        12

The increase in general and administrative expense during the three months ended March 31, 2021 was primarily due to an increase of $3.0 million in personnel-related expenses, including an increase of $1.3 million in stock-based compensation expense. Personnel-related expenses increased primarily due to annual merit increases approved during the third quarter of 2020, and stock-based compensation expense associated with Secondary Transactions during the three months ended March 31, 2021.

Interest Expense, Net, Other Expense, Net and Provision for Income Taxes

 

     Three Months Ended March 31,     Change  
         2020             2021             Dollar             Percent      
     (dollars in thousands)  

Interest expense, net

   $ (382   $ (562   $ (180     *  

Other expense, net

     (1,218     (183     1,035       *

Provision for income taxes

     36       129       93       258

 

*

Percentage not meaningful

Other expense, net during the three months ended March 31, 2020 was primarily due to foreign currency losses related to changes in Canadian dollar and Australian dollar exchange rates. The impact of foreign currency was immaterial in the three months ended March 31, 2021.

Comparison of the Years Ended December 31, 2019 and 2020

Revenue

 

     Year Ended December 31,      Change  
           2019                  2020            Dollar      Percent  
     (dollars in thousands)  

Revenue

   $ 289,194      $ 400,291      $ 111,097        38

 

80


Table of Contents

Our revenue increased $111.1 million, or 38%, compared to 2019, of which approximately 69% was attributable to revenue from existing customers and 31% was attributable to revenue from new customers in 2020. The increase in revenue from existing customers includes the net benefit of a full year of subscription revenue in 2020 from customers that were new in 2019 and continued their subscriptions in 2020, and customers that expanded their subscriptions in 2020 through the purchase of additional construction volume or products, as well as price increases.

Cost of Revenue, Gross Profit, and Gross Margin

 

     Year Ended December 31,     Change  
            2019                   2020            Dollar      Percent  
     (dollars in thousands)  

Cost of revenue

   $ 53,166     $ 71,663     $ 18,497        35

Gross profit

     236,028       328,628       92,600        39

Gross margin

     82     82     

The increase in cost of revenue in 2020 was primarily attributable to an increase of $7.5 million in personnel-related expenses, primarily due to an increase in average headcount of 22%, $5.4 million in amortization of capitalized software development costs due to major product and platform enhancements and the release of new products, $3.5 million in third-party cloud hosting and related services, and $1.7 million in amortization of acquired technology intangible assets primarily from the acquisition of Honest Buildings in 2019.

Operating Expenses

 

     Year Ended December 31,      Change  
           2019                  2020            Dollar      Percent  
     (dollars in thousands)  

Sales and marketing

   $ 173,472      $ 189,032      $ 15,560        9

The increase in sales and marketing expense in 2020 was primarily attributable to an increase of $28.0 million in personnel-related expenses, including an increase of $5.9 million in stock-based compensation expense, and to a lesser extent, restructuring-related charges of $1.8 million. Personnel-related expenses including stock-based compensation increased primarily due to an increase in average headcount of 18% to support and drive our customer growth and $4.4 million associated with Secondary Transactions. These increases were partially offset by a $10.9 million decrease in travel-related costs due to COVID-19 travel restrictions, and a $4.5 million decrease in marketing events and expenses primarily due to the COVID-19 pandemic’s impact on in-person events.

 

     Year Ended December 31,      Change  
           2019                  2020            Dollar      Percent  
     (dollars in thousands)  

Research and development

   $ 87,022      $ 124,661      $ 37,639        43

The increase in research and development expense in 2020 was primarily attributable to an increase of $35.7 million in personnel-related expenses, including an increase of $6.3 million in stock-based compensation expense, and restructuring-related charges, primarily severance, of $1.7 million. Personnel-related expenses including stock-based compensation increased primarily due to an increase in average research and development headcount of 15% and $5.2 million associated with Secondary Transactions. In addition, research and development expenses increased by $3.2 million for capitalized projects which were abandoned prior to completion due to changes in development

 

81


Table of Contents

priorities, and by $2.6 million for outsourced development costs, to build, enhance, maintain, and scale our products and platform.

 

     Year Ended December 31,      Change  
           2019                  2020            Dollar      Percent  
     (dollars in thousands)  

General and administrative

   $ 58,158      $ 73,465      $ 15,307        26

The increase in general and administrative expense in 2020 was primarily due to an increase of $17.2 million in personnel-related expenses, including an increase of $11.8 million in stock-based compensation expense, partially offset by a $2.9 million decrease in travel-related costs due to COVID-19 travel restrictions. Personnel-related expenses including stock-based compensation increased primarily due to an increase in average general and administrative headcount of 13% to support our growth and $10.7 million associated with Secondary Transactions.

Interest Expense, Net, Change in Fair Value of Series I Redeemable Convertible Preferred Stock Warrant Liability, Other Income, Net and Provision for (Benefit from) Income Taxes

 

     Year Ended December 31,     Change  
           2019                 2020           Dollar     Percent  
     (dollars in thousands)  

Interest expense, net

   $ (930   $ (2,060   $ (1,130     *  

Change in fair value of Series I redeemable convertible preferred stock warrant liability

           (36,990     (36,990     *  

Other income, net

     518       420       (98     (19 %) 

Provision for (benefit from) income taxes

     71       (993     (1,064     *  

 

*

Percentage not meaningful

The increase in interest expense, net in 2020 was primarily due to a decrease of $1.2 million in interest income as interest rates declined in 2020.

The change in fair value of Series I redeemable convertible preferred stock warrant liability in 2020 was due to $37.0 million of losses recognized from the remeasurement to fair value of the Series I redeemable convertible preferred stock warrant liability, which was issued to a new investor in March 2020 and was exercised in December 2020. The losses recognized are primarily due to the increase in the fair value of the Series I redeemable convertible preferred stock from the issuance date through December 2020. Refer to Note 11 to the audited consolidated financial statements included elsewhere in this prospectus.

The change in the provision for (benefit from) income taxes was primarily due to an income tax benefit in 2020 from the release of a portion of our valuation allowance as a result of deferred tax liabilities recorded from the acquisition of Esticom that are an available source of income to realize our deferred tax assets.

 

82


Table of Contents

Comparison of the Years Ended December 31, 2018 and 2019

Revenue

 

     Year Ended December 31,      Change  
           2018                  2019            Dollar      Percent  
     (dollars in thousands)  

Revenue

   $ 186,396      $ 289,194      $ 102,798        55

Honest Buildings, which was acquired on July 30, 2019, contributed $4.6 million of revenue in 2019. Excluding the impact of Honest Buildings, our revenue increased $98.2 million, or 53%, compared to 2018, of which approximately 63% was attributable to revenue from existing customers and 37% was attributable to revenue from new customers in 2019. The increase in revenue from existing customers includes the net benefit of a full year of subscription revenue in 2019 from customers that were new in 2018 and continued their subscriptions in 2019, and customers that expanded their subscriptions in 2019 through the purchase of additional construction volume or products, as well as price increases.

Cost of Revenue, Gross Profit, and Gross Margin

 

     Year Ended December 31,     Change  
           2018                 2019           Dollar      Percent  
     (dollars in thousands)  

Cost of revenue

   $ 37,401     $ 53,166     $ 15,765        42

Gross profit

     148,995       236,028       87,033        58

Gross margin

     80     82     

The increase in cost of revenue in 2019 was primarily attributable to an increase of $5.5 million in personnel-related expenses, primarily due to an increase in average headcount of 32%, $4.5 million in third-party cloud hosting and related services, $2.3 million in amortization of capitalized software development costs due to the release of new products and major product and platform enhancements, and $1.5 million in amortization of acquired technology intangible assets primarily from the acquisition of Honest Buildings. The overall increase in gross profit reflects our increased revenue for the period, as well as our focus on managing costs related to our third-party hosting service.

Operating Expenses

 

     Year Ended December 31,      Change  
           2018                  2019            Dollar      Percent  
     (dollars in thousands)  

Sales and marketing

   $ 112,723      $ 173,472      $ 60,749        54

The increase in sales and marketing expense in 2019 was primarily attributable to an increase of $39.9 million in personnel-related expenses, including an increase of $4.7 million in stock-based compensation expense, primarily due to an increase in average headcount of 39% to support and drive our customer growth. In addition, there was an increase of $8.2 million in marketing and advertising expenses and an increase of $3.8 million in travel-related costs.

 

     Year Ended December 31,      Change  
           2018                  2019            Dollar      Percent  
     (dollars in thousands)  

Research and development

   $ 55,950      $ 87,022      $ 31,072        56

 

83


Table of Contents

The increase in research and development expense in 2019 was primarily attributable to an increase of $22.7 million in personnel-related expenses, including an increase of $4.2 million in stock-based compensation expense, primarily due to an increase in average research and development headcount of 35%, and an increase of $1.6 million in outsourced development costs, to build, enhance, maintain, and scale our products and platform.

 

     Year Ended December 31,      Change  
           2018                  2019            Dollar      Percent  
     (dollars in thousands)  

General and administrative

   $ 35,365      $ 58,158      $ 22,793        64

The increase in general and administrative expense in 2019 was primarily due to an increase of $14.6 million in personnel-related expenses, including an increase of $2.3 million in stock-based compensation expense, primarily due to an increase in average general and administrative headcount of 45% to support our growth. In addition, there was an increase of $3.9 million in professional services, of which $1.1 million relates to Honest Buildings’ acquisition transaction costs, primarily for legal and accounting services.

Interest Expense, Net, Other Income, Net and Provision for Income Taxes

 

     Year Ended December 31,     Change  
           2018                 2019           Dollar     Percent  
     (dollars in thousands)  

Interest expense, net

   $ (1,394   $ (930   $ 464       *  

Other income, net

     16       518       502       *  

Provision for income taxes

     250       71       (179     (72 )% 

 

*

Percentage not meaningful.

The decrease in interest expense, net in 2019 was primarily due to an increase of $0.9 million in interest income as the average cash balances held in interest-bearing accounts and money market funds grew, partially offset by an increase in interest expense of $0.5 million primarily relating to lease liabilities associated with our financing lease arrangements. The increase in other income, net in 2019 was primarily due to an increase of $0.3 million in credit card rebates.

 

84


Table of Contents

Quarterly Results of Operations

The following table sets forth our unaudited quarterly statements of operations data for each of the quarters indicated. The unaudited quarterly statements of operations data set forth below have been prepared on the same basis as our audited annual consolidated financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, that are necessary for the fair statement of such data. Our historical results are not necessarily indicative of the results that may be expected in the future, and the results for any quarter are not necessarily indicative of results to be expected for a full year or any other period. The following quarterly financial data should be read together with our consolidated financial statements and the related notes included elsewhere in this prospectus.

 

    Three Months Ended  
    March 31,
2019
    June 30,
2019
    Sept. 30,
2019
    Dec. 31,
2019
    March 31,
2020
    June 30,
2020
    Sept. 30,
2020
    Dec. 31,
2020
    March 31,
2021
 
    (in thousands)  

Revenue

  $ 60,760     $ 67,372     $ 76,164     $ 84,898     $ 92,337     $ 96,553     $ 101,891     $ 109,510     $ 113,938  

Cost of revenue(1)(2)(3)

    11,340       12,048       14,044       15,734       17,457       17,069       18,063       19,074       20,359  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    49,420       55,324       62,120       69,164       74,880       79,484       83,828       90,436       93,579  

Operating expenses:

                 

Sales and marketing(1)(2)(3)

    36,921       42,048       45,089       49,414       48,062       42,638       47,410       50,922       53,965  

Research and development(1)(2)(3)

    16,183       19,111       24,549       27,179       28,233       26,518       34,504       35,406       34,545  

General and administrative(1)(3)

    11,355       14,581       16,162       16,060       15,983       13,467       18,320       25,695       17,927  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    64,459       75,740       85,800       92,653       92,278       82,623       100,234       112,023       106,437  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

    (15,039     (20,416     (23,680     (23,489     (17,398     (3,139     (16,406     (21,587     (12,858

Interest expense, net

    (144     (134     (349     (303     (382     (538     (573     (567     (562

Change in fair value of Series I redeemable convertible preferred stock warrant liability

                                  (10,605     1,002       (27,387      

Other income (expense), net

    135       178       (166     371       (1,218     741       248       649       (183
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before provision for (benefit from) income taxes

    (15,048     (20,372     (24,195     (23,421     (18,998     (13,541     (15,729     (48,892     (13,603

Provision for (benefit from) income taxes

    166       34       102       (231     36       208       224       (1,461     129  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

  $ (15,214   $ (20,406   $ (24,297   $ (23,190   $ (19,034   $ (13,749   $ (15,953   $ (47,431   $ (13,732
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

Includes stock-based compensation expense as follows:

 

    Three Months Ended  
    March 31,
2019
    June 30,
2019
    Sept. 30,
2019
    Dec. 31,
2019
    March 31,
2020
    June 30,
2020
    Sept. 30,
2020
    Dec. 31,
2020
    March 31,
2021
 
    (in thousands)  

Cost of revenue

  $ 201     $ 287     $ 293     $ 314     $ 267     $ 268     $ 633     $ 554     $ 1,161  

Sales and marketing

        1,285           1,880           2,156           2,142           2,119           3,115           3,410           4,741           3,252  

Research and development

    945       1,189       2,097       2,353       1,937       1,912       2,898       6,183       3,246  

General and administrative

    745       1,016       1,164       1,171       1,377       1,331       3,074       10,141       2,644  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total stock-based compensation expense

  $ 3,176     $ 4,372     $ 5,710     $ 5,980     $ 5,700     $ 6,626     $ 10,015     $ 21,619     $ 10,303  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

85


Table of Contents

 

(2)

Includes amortization of acquired intangible assets as follows:

 

    Three Months Ended  
    March 31,
2019
    June 30,
2019
    Sept. 30,
2019
    Dec. 31,
2019
    March 31,
2020
    June 30,
2020
    Sept. 30,
2020
    Dec. 31,
2020
    March 31,
2021
 
    (in thousands)  

Cost of revenue

                 

Amortization of acquired technology intangible assets

  $         161     $         161     $         561     $         760     $         761     $         761     $         761     $ 1,032     $ 1,086  

Sales and marketing

                 

Amortization of other acquired intangible assets

    24       24       277       403       404       404       404               516               479  

Research and development

                 

Amortization of acquired technology and other acquired intangible assets

                            122       183       183       233       183  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total amortization of acquired intangible assets

  $ 185     $ 185     $ 838     $ 1,163     $ 1,287     $ 1,348     $ 1,348     $ 1,781     $ 1,748  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(3)

Includes restructuring-related charges as follows:

 

    Three Months Ended  
    March 31,
2019
    June 30,
2019
    Sept. 30,
2019
    Dec. 31,
2019
    March 31,
2020
    June 30,
2020
    Sept. 30,
2020
    Dec. 31,
2020
    March 31,
2021
 
    (in thousands)  

Cost of revenue

                                      $ 127              

Sales and marketing

                                        1,763       61        

Research and development

                                        1,681              

General and administrative

                                        801              
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total restructuring-related charges

  $     $     $     $     $     $     $ 4,372     $ 61     $  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

86


Table of Contents

The following table sets forth our unaudited quarterly statements of operations data for the specified periods as a percentage of our revenue for those periods. Certain percentages below may not sum due to rounding.

 

    Three Months Ended  
    March 31,
2019
    June 30,
2019
    Sept. 30,
2019
    Dec. 31,
2019
    March 31,
2020
    June 30,
2020
    Sept. 30,
2020
    Dec. 31,
2020
    March 31,
2021
 
    (as a percentage of revenue)  

Revenue

    100     100     100     100     100     100     100     100     100

Cost of revenue

    19       18       18       19       19       18       18       17       18  

Gross profit

    81       82       82       81       81       82       82       83       82  

Operating expenses:

                 

Sales and marketing

    61       62       59       58       52       44       47       46       47  

Research and development

    27       28       32       32       31       27       34       32       30  

General and administrative

    19       22       21       19       17       14       18       23       16  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    106       112       113       109       100       86       98       102       93  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

    (25     (30     (31     (28     (19     (3     (16     (20     (11

Interest expense, net

                                  (1     (1     (1      

Change in fair value of Series I redeemable convertible preferred stock warrant liability

                                  (11     1       (25      

Other income (expense), net

                            (1     1             1        
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss before provision for income taxes

    (25     (30     (32     (28     (21     (14     (15     (45     (12

Provision for (benefit from) income taxes

                                              (1      
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

    (25 )%      (30 )%      (32 )%      (27 )%      (21 )%      (14 )%      (16 )%      (43 )%      (12 )% 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Quarterly Revenue Trends

Revenue increased sequentially in each quarter presented primarily due to the increase in revenue from existing customers and the sale of subscriptions to new customers. We generally sell a higher percentage of subscriptions to new customers and renewals to existing customers in the fourth quarter compared to other quarters. However, because we recognize revenue ratably over the subscription period, a substantial portion of the revenue that we report in each period is attributable to

 

87


Table of Contents

recognition of revenue previously deferred related to new subscriptions or renewals of subscriptions that we entered into during previous periods. Consequently, increases or decreases in new subscriptions or renewals in any one period are not immediately reflected in our revenue for that period and impact our revenue in future periods.

In December 2019, a novel strain of Coronavirus disease was reported and by March 2020, the World Health Organization had declared a global pandemic related to the rapidly growing outbreak of the disease COVID-19, caused by a novel strain of Coronavirus. The COVID-19 outbreak negatively impacted our net retention rates and the number of new customers added to our platform in each quarter during 2020 and in the first quarter of 2021. However, because of our subscription-based business model, the effect of the COVID-19 pandemic may not be fully reflected in our revenue trends until future periods.

Quarterly Expense Trends

Cost of revenue and total operating expenses increased sequentially in each quarter in 2019 primarily due to increases in personnel-related expenses for increases in our headcount. Cost of revenue also reflects investments in our hosting and customer support organization. Operating expenses reflect investments in our sales and marketing, research and development, and general and

administrative organizations. The increase in operating expenses during the three months ended September 30, 2019 compared to the immediately preceding three-month period was impacted by personnel-related expenses for increases in headcount and acquisition-related expenses, both relating to the acquisition of Honest Buildings.

Cost of revenue and operating expenses fluctuated during 2020 as we significantly reduced hiring, temporarily suspended our corporate bonus program in the first quarter of 2020, and temporarily suspended annual merit increases in the second quarter of 2020, in response to the uncertainty of the COVID-19 pandemic. We suspended business travel and entertainment activities starting in March 2020 due to COVID-19 travel restrictions. In the third quarter of 2020, we reinstated our corporate bonus program, approved company-wide merit increases, and removed temporary hiring freezes. We incurred restructuring-related charges of $4.4 million during the third quarter of 2020. There were also changes in the fair value of the Series I redeemable convertible preferred stock warrant liability that was issued to a new investor in March 2020 and exercised in December 2020, primarily due to an increase in the fair value of the Series I redeemable convertible preferred stock from the issuance date through December 2020.

Stock-based compensation expenses recorded in the third and fourth quarters of 2020 and in the first quarter of 2021 were higher than the amounts recorded in the previous quarters, due to stock-based compensation expense associated with Secondary Transactions. Refer to Note 12 to the audited consolidated financial statements and Note 7 to the unaudited interim condensed consolidated financial statements included elsewhere in this prospectus.

We intend to continue to invest in headcount in customer support and sales and marketing to drive customer retention and future customer and revenue growth, research and development to build, enhance, maintain, and scale our products and our platform, and general and administrative expenses to support our growth.

Liquidity and Capital Resources

To date, we have financed our operations principally through private placements of our equity securities. As of March 31, 2021, our principal sources of liquidity are cash and cash equivalents of

 

88


Table of Contents

$413.8 million, which were held in checking accounts, savings accounts, and highly liquid money market funds. We also have our Credit Facility with Silicon Valley Bank that may be used for general corporate purposes. As of March 31, 2021, $75.0 million, less $6.9 million in outstanding letters of credit, was available to be drawn under the Credit Facility.

We believe our existing cash and cash equivalents will be sufficient to meet our needs for at least the next 12 months. This assessment is a forward-looking statement and involves risks and uncertainties. Our future capital requirements will depend on many factors, including our revenue growth rate, new customer acquisition and subscription renewal activity, timing of billing activities, the timing and extent of spending to support further sales and marketing and research and development efforts, general and administrative expenses to support our growth, including international expansion, and the ongoing impact of the COVID-19 pandemic. We may in the future enter into arrangements to acquire or invest in complementary businesses, services, and technologies, including intellectual property rights. We may be required to seek additional equity or debt financing to fund these activities. If we are unable to raise additional capital when desired, or on acceptable terms, our business, results of operations, and financial condition could be materially adversely affected.

The following table summarizes our cash flows for the periods presented:

 

     Year Ended December 31,     Three Months Ended March 31,  
         2018             2019             2020               2020                 2021        
     (in thousands)  

Net cash (used in) provided by operating activities

   $ (21,103   $ (7,004   $ 21,853     $ 4,638     $ 28,296  

Net cash used in investing activities

     (23,957     (66,685     (33,511     (10,554     (4,586

Net cash provided by financing activities

     78,149       92,757       272,117       168,784       10,773  

Operating Activities

Our largest source of operating cash is collections from the sales of subscriptions to our customers. Our primary uses of cash from operating activities are for personnel expenses, marketing expenses, hosting expenses, and overhead. In 2020, we generated positive cash flows from operating activities due to cost saving measures implemented in response to the uncertainty created by the COVID-19 pandemic. These cost saving measures included reducing hiring, reduced commissions and corporate bonuses, reduced business travel, lower in-person marketing event costs, and delayed annual merit increases. We supplemented working capital requirements through net proceeds from the sale of equity securities in 2020. We continued to generate positive cash flows from operating activities during the three months ended March 31, 2021.

Net cash provided by operating activities was $28.3 million during the three months ended March 31, 2021, which resulted from a net loss of $13.7 million, adjusted for non-cash charges of $20.6 million and net cash inflow of $21.4 million from changes in operating assets and liabilities. Non-cash charges primarily consisted of $10.3 million in stock-based compensation expense, $7.3 million of depreciation and amortization, and $1.9 million of non-cash lease expense relating to right-of-use operating lease assets. The net cash inflow from changes in operating assets and liabilities was primarily due to a $20.7 million decrease in accounts receivable, a $6.6 million increase in deferred revenue, and $5.1 million increase in accrued expenses and other liabilities, partially offset by a $4.6 million increase in prepaid expenses and other assets and a $3.5 million decrease in accounts payable, which primarily resulted from the growth of our business, timing of billings and cash receipts from customers, timing of cash payments to our vendors, and timing of payroll.

 

89


Table of Contents

Net cash provided by operating activities was $4.6 million during the three months ended March 31, 2020, which resulted from a net loss of $19.0 million, adjusted for non-cash charges of $14.6 million and net cash inflow of $9.1 million from changes in operating assets and liabilities. Non-cash charges primarily consisted of $6.0 million of depreciation and amortization, $5.7 million in stock-based compensation expense, and $1.5 million of non-cash lease expense relating to right-of-use operating lease assets. The net cash inflow from changes in operating assets and liabilities was primarily due to a $16.6 million decrease in accounts receivable and a $4.9 million increase in deferred revenue, partially offset by a $12.2 million decrease in accrued expenses and other liabilities, which primarily resulted from the growth of our business, timing of cash receipts from customers, timing of billings and cash payments to our vendors, and timing of 2019 corporate bonus payout to our employees in the first quarter of 2020.

Net cash provided by operating activities was $21.9 million in 2020, which resulted from a net loss of $96.2 million, adjusted for non-cash charges of $114.9 million and net cash inflow of $3.1 million from changes in operating assets and liabilities. Non-cash charges primarily consisted of $44.0 million in stock-based compensation expense, $37.0 million losses recognized from the remeasurement of the Series I redeemable convertible preferred stock warrant liability, $26.0 million of depreciation and amortization, $6.6 million of non-cash lease expense relating to right-of-use operating lease assets, $3.5 million of capitalized software development costs abandoned prior to completion, and $1.3 million of deferred income taxes. The net cash inflow from changes in operating assets and liabilities was primarily due to a $41.8 million increase in deferred revenue, partially offset by a $19.6 million increase in accounts receivable, a $6.2 million decrease in operating lease liabilities related to lease payments, a $6.2 million increase in prepaid expenses and other assets, and a $5.4 million decrease in accrued expenses and other liabilities, which primarily resulted from the growth of our business, timing of cash receipts from customers, timing of cash payments to our vendors, and timing of payroll.

Net cash used in operating activities was $7.0 million in 2019, which resulted from a net loss of $83.1 million, adjusted for non-cash charges of $39.2 million and net cash inflow of $36.9 million from changes in operating assets and liabilities. Non-cash charges primarily consisted of $19.2 million in stock-based compensation expense, $14.9 million of depreciation and amortization, and $4.5 million of non-cash lease expense relating to right-of-use operating lease assets. The net cash inflow from changes in operating assets and liabilities was primarily due to a $61.6 million increase in deferred revenue and a $12.4 million increase in accrued expenses and other liabilities, partially offset by a $19.6 million increase in accounts receivable, a $7.4 million increase in deferred contract cost assets, a $6.7 million increase in prepaid expenses and other assets, and a $4.2 million decrease in operating lease liabilities related to lease payments, which primarily resulted from the growth of our business, timing of cash receipts from customers, and timing of cash payments to our vendors.

Net cash used in operating activities was $21.1 million in 2018, which resulted from a net loss of $56.7 million, adjusted for non-cash charges of $23.1 million and net cash inflow of $12.4 million from changes in operating assets and liabilities. Non-cash charges primarily consisted of $8.3 million of depreciation and amortization, $7.5 million in stock-based compensation expense, and $5.6 million of non-cash lease expense relating to right-of-use operating lease assets. The net cash inflow from changes in operating assets and liabilities was primarily due to a $35.4 million increase in deferred revenue, and a $7.3 million increase in accrued expenses and other liabilities, partially offset by a $15.4 million increase in accounts receivable, a $7.1 million increase in deferred contract cost assets, and a $5.9 million decrease in operating lease liabilities related to lease payments, which primarily resulted from the growth of our business, timing of cash receipts from customers, and timing of cash payments to our vendors and landlords.

 

90


Table of Contents

Investing Activities

Net cash used in investing activities of $4.6 million during the three months ended March 31, 2021 consisted of purchases of property and equipment of $2.4 million primarily related to computer equipment purchases, and capitalized software development costs of $2.2 million.

Net cash used in investing activities of $10.6 million during the three months ended March 31, 2020 consisted of capitalized software development costs of $4.0 million, the acquisition of Avata Intelligence, Inc., or Avata, net of cash acquired, of $3.3 million, and purchases of property and equipment of $3.3 million primarily related to improvements to our leased office spaces and computer equipment purchases.

Net cash used in investing activities of $33.5 million in 2020 consisted of the acquisition of Avata and Esticom, net of cash acquired, of $14.5 million, capitalized software development costs of $11.8 million, and purchases of property and equipment of $7.2 million primarily related to improvements to our leased office spaces and computer equipment purchases.

Net cash used in investing activities of $66.7 million in 2019 consisted of the acquisition of Honest Buildings and Construction BI, net of cash acquired, of $38.7 million, capitalized software development costs of $14.9 million, and purchases of property and equipment of $13.1 million primarily related to improvements to our leased office spaces and computer equipment purchases.

Net cash used in investing activities of $24.0 million in 2018 consisted of purchases of property and equipment of $13.7 million primarily related to improvements to our leased office spaces and computer equipment purchases, capitalized software development costs of $8.1 million, and the acquisition of BIManywhere, net of cash acquired, of $2.1 million.

Financing Activities

Net cash provided by financing activities of $10.8 million during the three months ended March 31, 2021 primarily consisted of proceeds from stock option exercises of $11.6 million, partially offset by payments of offering costs of $0.5 million in connection with the anticipated sale of our common stock in this offering.

Net cash provided by financing activities of $168.8 million during the three months ended March 31, 2020 primarily consisted of the proceeds of $164.9 million from the issuance of our Series I redeemable convertible preferred stock and preferred stock warrant and proceeds from stock option exercises of $5.7 million, partially offset by payments of offering costs of $1.6 million in connection with the anticipated sale of our common stock in this offering.

Net cash provided by financing activities of $272.1 million in 2020 primarily consisted of the proceeds of $189.8 million from the issuance of our Series I redeemable convertible preferred stock and preferred stock warrant, proceeds from the exercise of the Series I redeemable convertible preferred stock warrant of $55.0 million, and proceeds from stock option exercises of $31.2 million, partially offset by payments of offering costs of $2.3 million in connection with the anticipated sale of our common stock in this offering.

Net cash provided by financing activities of $92.8 million in 2019 primarily consisted of the proceeds of $90.0 million from the issuance of our Series I redeemable convertible preferred stock and proceeds from stock option exercises of $6.7 million, partially offset by payments of $1.8 million relating to our acquisition of BIManywhere and $1.0 million of offering costs paid in connection with the anticipated sale of our common stock in this offering.

 

91


Table of Contents

Net cash provided by financing activities of $78.1 million in 2018 primarily consisted of the proceeds of $74.8 million from the issuance of our Series H redeemable convertible preferred stock and proceeds from stock option exercises of $3.2 million.

Credit Facility

Our Credit Facility provides for debt financing of up to $75.0 million to be used for general corporate purposes, including the financing of working capital requirements, and is secured by a blanket lien on the Company’s assets. The Credit Facility has a maturity date of May 7, 2022, and carries a fee of 0.225% applied to unused balances and an interest rate equal to the Wall Street Journal prime rate plus 1.25% applied to all amounts outstanding, with a floor of 3.25%. The Credit Facility contains financial covenants that require us to maintain minimum annual recurring revenue, as

defined in the loan and security agreement, and a liquidity ratio, if the Credit Facility is drawn, of at least 1.25 to 1.00. The Credit Facility also contains restrictions on our ability to dispose of our business or property, engage in changes in business, merge with or acquire another business, incur indebtedness, encumber the collateral securing the Credit Facility, pay dividends, make distributions or payments to stockholders or redeem, retire, or repurchase any capital stock, or make any restricted investments. As of December 31, 2020 and March 31, 2021, no amounts had been drawn down under the Credit Facility, and we were in compliance with all covenants.

The Credit Facility also provides us with the ability to issue standby letters of credit for up to $15.0 million, which if issued reduce the amount available for borrowing under the Credit Facility. As of December 31, 2020 and March 31, 2021, we had issued letters of credit totaling $7.0 million and $6.9 million, respectively, to secure various U.S. leased office facilities.

Remaining Performance Obligations

Our subscriptions typically have a term of one to three years. The transaction price allocated to remaining performance obligations under our subscriptions represents the contracted transaction price that has not yet been recognized as revenue, which includes deferred revenue and amounts under non-cancellable subscriptions that will be invoiced and recognized as revenue in future periods. The aggregate transaction price of remaining performance obligations is expected to be recognized as revenue as follows (in thousands):

 

     Next 12
Months
     Thereafter      Total  

As of December 31, 2019

   $ 250,105      $ 125,365      $ 375,470  

As of December 31, 2020

   $ 309,835      $ 125,697      $ 435,532  

Substantially all of the transaction price allocated to remaining performance obligations included in the “thereafter” column above is expected to be recognized as revenue between 12 and 36 months from the December 31 date. We expect remaining performance obligations to change from period to period primarily due to the size, timing and duration of new customer contracts and customer renewals.

As of March 31, 2021, the aggregate amount of the transaction price allocated to remaining performance obligations was $449.9 million, 73% of which is expected to be recognized as revenue in the next 12 months and substantially all of the remainder between 12 and 36 months thereafter.

 

92


Table of Contents

Commitments and Contractual Obligations

The following table summarizes our non-cancellable contractual obligations as of December 31, 2020:

 

     Total      Less than
1 Year
     1 - 3
Years
     3 - 5
Years
     More Than
5 Years
 
     (in thousands)  

Operating lease obligations

   $ 60,788      $ 6,333      $ 15,563      $ 12,703      $ 26,189  

Finance lease obligations

     71,029        3,579        7,385        7,760        52,305  

Non-cancellable purchase commitments

     31,803        16,082        15,507        214         
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total contractual obligations

   $ 163,620      $ 25,994      $ 38,455      $ 20,677      $ 78,494  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Our leases have initial non-cancellable lease terms ranging from one to 10 years. Some of our lease arrangements include options to extend the term of the leases for up to 10 years. We include options to extend the lease term that we are reasonably certain to exercise.

Off-Balance Sheet Arrangements

As of December 31, 2020 or March 31, 2021, we did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities, that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Quantitative and Qualitative Disclosures About Market Risk

Foreign Currency and Exchange Risk

The vast majority of our cash generated from revenue is denominated in U.S. dollars, with a small amount denominated in Australian dollars, Canadian dollars, Great British pounds, and Euros. Our expenses are generally denominated in the currencies of the jurisdictions in which we conduct our operations, which are primarily in the United States, Australia, Canada, England, and Mexico. Our results of current and future operations and cash flows are, therefore, subject to fluctuations due to changes in foreign currency exchange rates. The effect of a hypothetical 10% change in foreign currency exchange rates applicable to our business would not have had a material impact on our audited consolidated financial statements in 2018, 2019, and 2020, and for the three months ended March 31, 2021. As the impact of foreign currency exchange rates has not been material to our historical operating results, we have not entered into derivative or hedging transactions, but we may do so in the future if our exposure to foreign currency becomes more significant.

Interest Rate Risk

We had cash, cash equivalents, and restricted cash of $121.8 million as of December 31, 2019, $383.3 million as of December 31, 2020, and $417.1 million as of March 31, 2021. Cash, cash equivalents, and restricted cash consist of checking accounts, savings accounts, and money market funds. The cash and cash equivalents are held for working capital and general corporate purposes. The restricted cash is used as collateral to satisfy certain contractual arrangements related to leased office space and corporate credit cards. Interest-earning instruments carry a degree of interest rate risk. Interest rates earned by our cash, cash equivalents, and restricted cash declined in 2020, resulting in a decrease in interest income compared to 2019. The primary objective of our investment activities is to preserve principal while maximizing income without significantly increasing risk. We do not enter into investments for trading or speculative purposes and have not used any derivative

 

93


Table of Contents

financial instruments to manage our interest rate risk exposure. Due to the short-term nature of our investments, we have not been exposed to, nor do we anticipate being exposed to, material risks due to changes in interest rates. As of December 31, 2020 and March 31, 2021, a hypothetical 10% increase or decrease in interest rates would not have a material effect on the fair market value of our portfolio. We therefore do not expect our results of operations or cash flows to be materially affected by a sudden change in market interest rates.

Critical Accounting Policies and Estimates

Critical accounting policies and estimates are those accounting policies and estimates that are both the most important to the portrayal of our net assets and results of operations and require the most difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. These estimates are developed based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Critical accounting estimates are accounting estimates where the nature of the estimates are material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change and the impact of the estimates on financial condition or operating performance is material.

The critical accounting policies and estimates, assumptions, and judgments that we believe have the most significant impact on our audited consolidated financial statements are described below.

Revenue Recognition

We recognize revenue when a customer obtains control of promised services. The amount of revenue recognized reflects the consideration that we expect to receive in exchange for these services.

We determine revenue recognition through the following steps:

 

   

Identification of the contract, or contracts, with the customer;

 

   

Identification of the performance obligations in the contract;

 

   

Determination of the transaction price;

 

   

Allocation of the transaction price to the performance obligations in the contract; and

 

   

Recognition of the revenue when, or as, we satisfy a performance obligation.

We execute a signed contract with the customer that specifies the services to be provided, the payment amounts and terms, and the period of service, among other terms. The transaction price is determined by the stated fixed fees in the contract, excluding any sales related taxes.

Our subscriptions often include promises to transfer multiple services. Determining whether services are considered distinct performance obligations that should be accounted for separately or together may require judgment. Our subscriptions include access to our products and customer support over the subscription period. Access to the products and customer support represent a series of distinct services as we fulfill our obligation to the customer and the customer receives and consumes the benefits of the products and support over the subscription term. The series of distinct services represents a single performance obligation.

We recognize revenue ratably over the term of the subscription beginning on the date that service is made available to the customer.

 

94


Table of Contents

Costs to Obtain a Contract with a Customer

We recognize an asset for the incremental and recoverable costs of obtaining a contract with a customer if we expect the benefit of those costs to be one year or longer. We have determined that sales commissions and bonuses paid for new contracts, including certain incremental sales to existing customers, meet the requirements to be capitalized as contract acquisition costs. The contract cost assets are deferred and then recognized on a straight-line basis over the expected period of benefit, which we estimate to be four years, which may exceed the term of the initial contract if commissions expected to be paid upon renewal are not commensurate with that of the original contract. Judgment is required to determine the expected period of benefit, which is based on estimates of customer lives and product technology life.

Business Combinations

We account for business combinations using the acquisition method of accounting. We allocate the fair value of purchase consideration to the tangible assets acquired, liabilities assumed, and intangible assets acquired based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. Accounting for business combinations requires us to make estimates primarily relating to the valuation of intangible assets. Intangible assets consist primarily of acquired developed technology and acquired customer relationships. Valuations of acquired intangible assets require us to make judgments about the selection of valuation methodologies and also significant estimates and assumptions, including, but not limited to, (1) future expected cash flows from using the acquired

customer relationships and technology, including future expected revenue, the rate of customer non-renewals of subscriptions, and operating expenses to deliver such expected revenue, (2) discount rates, and (3) estimated royalty rate specifically used to value the acquired technology. Our estimates of fair value are based upon assumptions believed to be reasonable.

During the measurement period, which is one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded in the consolidated statement of operations.

Stock-Based Compensation

Stock-based compensation expense related to stock awards is recognized based on the fair value of the awards granted. The fair value of RSUs and RSAs is based on the estimated fair value of our stock on the grant date. The fair value of each option award is estimated on the grant date using the Black-Scholes option pricing model. The primary input in determining the fair value of the stock-based awards is the value of our common stock. Because our common stock is not publicly traded the valuation of our common stock requires estimates which involve inherent uncertainties and the application of management’s judgment. If factors change and different assumptions are used, our stock-based compensation expense could be materially different in the future.

For awards that vest solely based on continued service, the grant date fair value is recognized as compensation expense on a straight-line basis over the requisite service period of the awards, which is generally four to five years. For awards that contain both performance and service vesting conditions, the grant date fair value is recognized as compensation expense using a graded vesting attribution model. No expense is recognized for awards with performance conditions until that condition is probable of being met. We account for forfeitures as they occur instead of estimating the number of awards expected to be forfeited.

 

95


Table of Contents

As of March 31, 2021, we had $26.0 million of unrecognized stock-based compensation cost related to stock options, which is expected to be recognized over a weighted-average period of 1.7 years. Based on the initial public offering price of $67.00 per share, the aggregate intrinsic value of stock options outstanding as of March 31, 2021 was $589.5 million, with $412.8 million related to vested stock options.

We have granted RSUs to certain employees and non-employee consultants that contain both liquidity- and service-based vesting conditions. The liquidity-based condition is satisfied on the effective date of a registration statement for our initial public offering, or IPO, or a change in control. Because an IPO was not probable as of March 31, 2021, the liquidity condition was not met as of such date. Accordingly, no RSUs vested and no stock-based compensation expense was recognized associated with RSUs for the year ended December 31, 2020 and for the three months ended March 31, 2021. As of March 31, 2021, unrecognized compensation cost relating to RSUs was $290.9 million. Upon the effective date of the registration statement of which this prospectus is a part, we expect to record an expense of $115.3 million relating to these RSUs for the cumulative service period from grant date to the effective date of this offering.

We have granted RSAs to certain employees in connection with the acquisition of Honest Buildings in July 2019. The fair value of the RSAs is based on the fair value of the awards granted. These shares are released from restriction 50% on the first anniversary and 50% on the second anniversary of the acquisition date assuming the continued service of the key employees. As of March 31, 2021, 102,732 of the RSAs have vested. During 2020 and the three months ended March 31, 2021, we recognized stock-based compensation expense of $2.7 million and $0.7 million, respectively, relating to these RSAs.

Common Stock Valuations

Because our common stock is not publicly traded, our board of directors exercises significant judgment in determining the fair value of our common stock with input from management, based on several objective and subjective factors. Factors considered by our board of directors include:

 

   

our historic