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As filed with the Securities and Exchange Commission on February 28, 2020.

Registration No. 333-                    

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

PROCORE TECHNOLOGIES, INC.

(Exact name of Registrant as specified in its charter)

 

 

 

Delaware   7372   73-1636261

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

6309 Carpinteria Avenue

Carpinteria, California 93013

(866) 477-6267

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

 

 

Craig F. Courtemanche, Jr.

President and Chief Executive Officer

Procore Technologies, Inc.

6309 Carpinteria Avenue

Carpinteria, California 93013

(866) 477-6267

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies to:

 

Rachel B. Proffitt

Bradley M. Libuit

Jon C. Avina

Peter N. Mandel

Cooley LLP

101 California Street, 5th Floor

San Francisco, California 94111

(415) 693-2000

 

Benjamin C. Singer

Chief Legal Officer and Corporate

Secretary

Procore Technologies, Inc.

6309 Carpinteria Avenue

Carpinteria, California 93013

(866) 477-6267

 

Steven B. Stokdyk

Latham & Watkins LLP

10250 Constellation Blvd.

Los Angeles, CA 90067

(424) 653-5500

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement is declared effective.

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  

If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer      Smaller reporting company  
     Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.  

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of Each Class of
Securities To Be Registered
  Proposed Maximum
Aggregate Offering
Price(1)(2)
  Amount of
Registration Fee

Common Stock, $0.0001 par value per share

  $100,000,000   $12,980

 

 

(1)

Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.

(2)

Includes the aggregate offering price of additional shares that the underwriters have the option to purchase.

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

Subject to Completion. Dated February 28, 2020

                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. It is currently estimated that the initial public offering price will be between $        and $        per share. We have applied to list our common stock on 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 16 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

   $                        $                    

Underwriting discount(1)

   $        $    

Proceeds, before expenses, to us

   $        $    

 

(1)

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

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

 

 

The underwriters expect to deliver the shares against payment in New York, New York on                     , 2020.

 

 

 

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

 

 

 

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

 

 

Prospectus dated                     , 2020


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LOGO

 

Connecting everyone in construction on a global platform.


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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.


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LOGO

 

$289M 55% 82% Revenue Revenue Growth GAAP Gross Margin CUSTOMER 8,506 650+ GROWTH Customers > $100K ARR 59% 6,095 Customers Subscribe to 3+ Products 4,310 1.3M+ Total Users 125+ Countries with Active Projects on Procore ($7M) Cash Used in Operating Activities 2017 2018 2019 Note: All figures are as of, or for the year ended, December 31, 2019.


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LOGO

 

“Innovation is essential for “Procore is the only platform that we’ve come across that is our future success and built for owners. I believe that it Procore enables our teams should be used by every leader in the industry, by every major real to scale with the needs of estate company around our clients. the world.” MICHAEL TURNER We selected Procore PRESIDENT OF OXFORD PROPERTIES GROUP to connect our people, applications, and devices through a united platform to The relationship we have with help manage risk and deliver Procore is making our success maximum value throughout easier and more achievable. Today the world demands the project lifecycle. instantaneous access to information, and using Procore KASEY BEVANS is part of what makes us successful. CHIEF INFORMATION OFFICER FOR BALFOUR BEATTY IN THE UNITED STATES 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


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Through and including                 , 2020 (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.


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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 affords us the ability 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 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. Estimated rework cost over $500 billion in 2018, or approximately 5% of overall construction costs, according to a 2018 report from FMI, or the 2018 FMI Report. On average, 52% of that rework was caused by poor project data and communication. Construction is also among the most dangerous industries, with 19% of U.S. private industry worker deaths in 2017 linked to construction. Additionally, the industry faces an extremely challenging labor dynamic, with 93% of contractors indicating that they are facing difficulties finding



 

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skilled workers. 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.

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 our customers to integrate our products with their internal systems and over 180 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 as evidenced by the fact they have used our platform to create an aggregate of 965,000 projects representing over $880 billion of construction volume since January 1, 2014, with over 370,000 projects created in 2019 alone. In 2019, the average duration of an active project in Procore was approximately 20 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 2019, on average, each customer invited over 170 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 their involvement in a project and are incentivized to become customers as collaborators do not control what information they get access to, 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 2019 we had over 1.3 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 4,310 as of December 31, 2017, to 6,095 as of December 31, 2018, to 8,506 as of December 31, 2019, reflecting year-over-year growth rates of 41% in 2018 and 40% in 2019. We have also seen an increase in the number of customers that contributed more than $100,000 of annual recurring revenue,



 

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or ARR, which grew from 230 as of December 31, 2017, to 412 as of December 31, 2018, to 655 as of December 31, 2019, reflecting year-over-year growth rates of 79% in 2018 and 59% in 2019.

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 $112.3 million in 2017, $186.4 million in 2018, and $289.2 million in 2019, representing year-over-year growth of 66% in 2018 and 55% in 2019. We had net losses of $55.5 million in 2017, $56.7 million in 2018, and $83.1 million in 2019.

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 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, urbanization, and the need for ongoing maintenance.

 

   

Global population growth coupled with ongoing urbanization 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 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



 

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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 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 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,



 

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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, the typical non-residential construction project runs 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 2017, approximately 1.5% of worldwide construction revenue was spent on IT solutions. Furthermore, Gartner estimates that in 2018, application software spending represented 6.1% of total IT spend, calculated as application software spend divided by total IT spend across all industries. We therefore estimate that the construction industry spends approximately $9.2 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 1.5% 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 $9.2 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.



 

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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 November 2019 Frost & Sullivan report that we commissioned, by our median ARR, as of December 31, 2019, for each company size (categorized by enterprise, mid-market, and small business). 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, and New Zealand. 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, 2019, 59% of our customers subscribed to three or more of our products. However, as of December 31, 2019, only 41% 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 the 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 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, trade unions, and non-profits through our in-house social impact team, Procore.org. We offer over 100 on-demand online courses, as well as training and networking events. Someone earns a Procore certification on average every four minutes and we have issued over 200,000 certifications to date. In addition, 86% 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.



 

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We put our customers first.    We make our products 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 products. A core part of our strategy is our user-centric development culture. We engage with the construction community to understand their needs and work with our customers to develop, iterate, and improve our products and technology. 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 on our platform at no additional cost, as well as numerous online resources, because we believe that if all users of our platform are successful, then our customers will be successful. As of December 31, 2019, we had published over 3,500 publicly available tutorials and FAQs. We also believe time-to-resolution is critical, which is why in 2019 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.

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, 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.



 

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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 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 pre-construction 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.

 

   

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. In 2018 we conducted a survey of our customers’ employees, or the 2018 Procore Survey. The 2018 Procore Survey concluded that 90% of individual respondents said their client satisfaction has increased since using Procore. See the section titled “Market and Industry Data” for additional information on the 2018 Procore Survey.



 

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We offer excellent customer success and support, driving ease-of-use and fast time to value.    Our customer support team provides unlimited live support to all users on our platform 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:

 

   

our rapid growth may not be indicative of our future growth and we may fail to properly manage future growth;

 

   

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;

 

   

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;

 

   

we are continuing to expand our operations outside the United States, where we may be subject to increased business, regulatory, and economic risks;

 

   

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 may not continue to compete effectively;



 

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

 

   

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;

 

   

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.



 

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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.



 

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THE OFFERING

 

Common stock offered by us

                    shares

Common stock to be outstanding after this offering

  


                 shares

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

  


                 shares

Use of proceeds

  

We estimate that our net proceeds from the sale of our common stock in this offering will be approximately $         million (or approximately $         million if the underwriters’ option to purchase additional shares is exercised in full), assuming an initial public offering price of $         per share, the midpoint of the estimated price range set forth on the cover page of this prospectus, and 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,    % of the voting power of our outstanding capital stock.

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.

Proposed NYSE trading symbol

   “PCOR”


 

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The number of shares of our common stock that will be outstanding after this offering is based on 104,332,087 shares of our common stock (including shares of our redeemable convertible preferred stock on an as converted basis) outstanding as of December 31, 2019, and excludes:

 

   

18,875,815 shares of our common stock issuable upon the exercise of options to purchase shares of our common stock outstanding as of December 31, 2019, with a weighted-average exercise price of $11.03 per share;

 

   

             shares of our common stock issuable upon the exercise of options to purchase shares of our common stock granted after December 31, 2019, with a weighted-average exercise price of $             per share.

 

   

1,600,787 shares of our common stock subject to restricted stock units, or RSUs, outstanding as of December 31, 2019 that would not have satisfied the service-based vesting condition as of December 31, 2019;

 

   

            shares of our common stock subject to RSUs granted after December 31, 2019;

 

   

130,012 shares of our redeemable convertible preferred stock issued in January 2020 that will automatically convert into an equal number of shares of our common stock immediately prior to the completion of this offering; and

 

   

             shares of our common stock reserved for future issuance under our 2020 Equity Incentive Plan, or our 2020 Plan.

Our 2020 Plan provides for annual automatic increases in the number of shares reserved thereunder, and our 2020 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.

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 78,863,035 shares of our redeemable convertible preferred stock outstanding as of December 31, 2019 into an equal number of shares of our common stock immediately prior to the completion of this offering;

 

   

no exercise of the outstanding options or settlement of the RSUs described above other than the vesting of 74,970 RSUs, for which the service-based condition was satisfied as of December 31, 2019 and for which the performance-based vesting condition will be 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                  shares of our common stock in this offering.



 

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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, 2017, 2018, and 2019 and the summary consolidated balance sheet data as of December 31, 2019, have been derived from our audited consolidated financial statements included elsewhere in this prospectus.

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 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 and the related notes and are qualified in their entirety by our audited 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.

 

     Year Ended December 31,  
     2017     2018     2019  
     (in thousands, except share and per share data)  

Consolidated Statements of Operations Data:

      

Revenue

   $ 112,251     $ 186,396     $ 289,194  

Cost of revenue

     25,353       37,401       53,166  
  

 

 

   

 

 

   

 

 

 

Gross profit

     86,898       148,995       236,028  

Operating expenses:

      

Sales and marketing

     77,748       112,723       173,472  

Research and development

     39,762       55,950       87,022  

General and administrative

     24,516       35,365       58,158  
  

 

 

   

 

 

   

 

 

 

Total operating expenses

     142,026       204,038       318,652  
  

 

 

   

 

 

   

 

 

 

Loss from operations

     (55,128     (55,043     (82,624

Interest expense, net

     (157     (1,394     (930

Other (expense) income

     (17     16       518  
  

 

 

   

 

 

   

 

 

 

Loss before provision for income taxes

     (55,302     (56,421     (83,036

Provision for income taxes

     238       250       71  
  

 

 

   

 

 

   

 

 

 

Net loss

   $ (55,540   $ (56,671   $ (83,107
  

 

 

   

 

 

   

 

 

 

Net loss per share, basic and diluted

   $ (3.15   $ (2.77   $ (3.41
  

 

 

   

 

 

   

 

 

 

Weighted-average shares used in computing net loss per share, basic and diluted

     17,613,517       20,430,502       24,361,173  
  

 

 

   

 

 

   

 

 

 

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

       $ (0.84
      

 

 

 

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

         99,220,500  
      

 

 

 


 

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     Year Ended December 31,  
     2017     2018     2019  
     (dollars in thousands)  

Other Financial Data:

      

Gross margin(2)

     77     80     82

Operating margin(3)

     (49 )%      (30 )%      (29 )% 

Non-GAAP gross profit(4)

   $   87,089     $ 149,749     $ 238,766  

Non-GAAP gross margin(4)

     78     80     83

Non-GAAP loss from operations(4)

   $ (51,696   $ (47,339   $ (61,015

Non-GAAP operating margin(4)

     (46 )%      (25 )%      (21 )% 

 

(1)

See Notes 2 and 14 to our consolidated financial statements included elsewhere in this prospectus for more information regarding pro forma net loss per share, basic and diluted.

(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.”

 

     As of December 31, 2019  
     Actual     Pro Forma(1)      Pro Forma
As Adjusted(2)(3)
 
     (in thousands)  

Consolidated Balance Sheet Data:

       

Cash and cash equivalents

   $ 118,452     $ 118,452      $                    

Right of use assets—finance leases

     44,784       44,784     

Total assets

     503,664       503,664     

Deferred revenue, current and non-current

     177,911       177,911     

Finance lease liabilities, current and non-current

     51,681       51,681     

Redeemable convertible preferred stock

     442,897           

Total stockholders’ (deficit) equity

   $ (253,758   $ 189,139     

 

(1)

The pro forma column in the balance sheet data above reflects (i) the automatic conversion of an aggregate of 78,863,035 shares of our outstanding redeemable convertible preferred stock into an equivalent number of shares of common stock immediately prior to the completion of this offering; (ii) stock-based compensation expense of approximately $12.7 million associated with RSUs subject to service- and performance-based vesting conditions, as further described in Note 2 to our 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 $         million in net proceeds from our sale of                  shares of common stock in this offering at an assumed initial public offering price of $         per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

(3)

Each $1.00 increase or decrease in the assumed initial public offering price of $         per share, which is the midpoint of the assumed offering price range set forth on the cover of this prospectus, would increase or decrease, as applicable, the amount of our pro forma as adjusted cash and cash equivalents, total assets, and total stockholders’ (deficit) equity by $         million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, after deducting estimated underwriting discounts and commissions payable by us. We may also increase or decrease the number of shares we are offering. An increase or decrease of 1.0 million shares in the number of shares offered by us would increase or decrease, as applicable, the amount of our pro forma as adjusted cash and cash equivalents, total assets, and total stockholders’ (deficit) equity by $         million, assuming the assumed initial public offering price remains the same, and after deducting estimated underwriting discounts and commissions.



 

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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 $112.3 million in 2017, $186.4 million in 2018, and $289.2 million in 2019. 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.

 

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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 $55.5 million in 2017, $56.7 million in 2018, and $83.1 million in 2019. As of December 31, 2019, we had an accumulated deficit of $300.8 million. We are not certain whether or when we will be able to achieve or sustain profitability in the future. We also expect our costs and 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

 

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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

 

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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 11.3% of our revenue in 2019 was generated from customers outside the United States. As of December 31, 2019, 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;

 

   

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;

 

   

changes in diplomatic and trade relationships, including the imposition of new trade restrictions, trade protection measures, import or export requirements, trade embargoes, and other trade barriers;

 

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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, 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

 

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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, and BuildingConnected), 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

 

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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;

 

   

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.

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 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.

 

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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.

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

 

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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 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.

 

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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. If we do not provide effective ongoing support, 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.

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

 

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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 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.

 

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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, patent licenses, trade secret and domain name protection, and trademark and copyright laws, as well as confidentiality and license agreements with our employees, consultants, and third parties, to protect our intellectual property and proprietary rights. As of December 31, 2019, we had two issued patents, 17 pending, non-provisional patent applications in the United States, and three Patent Cooperation Treaty international patent applications. 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 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. 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 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

 

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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. 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 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.

 

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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 recently enacted legislation, the California Consumer Privacy Act of 2018, or the CCPA, that will afford consumers expanded privacy protections when it goes into effect on January 1, 2020. The CCPA was recently amended, and it is possible that it will be amended again before it goes into effect. 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 costs and 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.

 

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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.

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. 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

 

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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 February 14, 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 facilities 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 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.

 

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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, 2019, our products integrated with over 180 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 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

 

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platform relies on may not be able to sufficiently adapt to any increased demand for our products. Frequent or persistent interruptions 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.

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 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

 

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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.

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

 

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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.

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

 

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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, such as coronavirus, 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 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 would 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.

 

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Changes in tax laws or regulations that are applied adversely to us or our customers could materially adversely affect our business, financial condition, results of operations, and prospects.

The December 2017 Tax Cuts and Jobs Act, or TCJA, enacted many significant changes to the U.S. tax laws. Future guidance from the IRS and other tax authorities with respect to the TCJA may affect us, and certain aspects of the TCJA could be repealed or modified in future legislation. Changes in corporate tax rates, the realization of net deferred tax assets relating to our U.S. operations, the taxation of foreign earnings, and the deductibility of expenses under the TCJA or future tax reform legislation could have a material impact on the value of our deferred tax assets, could result in significant one-time charges in the current or future taxable years, and could increase our future U.S. tax expense. The foregoing items, as well as any other future changes in tax laws, could have a material adverse effect on our business, financial condition, results of operations, and prospects. In addition, it is uncertain if and to what extent various states will conform to the TCJA or any newly enacted federal tax legislation.

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 tax 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, and ad valorem taxes, fees, or surcharges in jurisdictions where we believe we do not have sufficient “nexus.” There is uncertainty as to what constitutes sufficient nexus for a state or local jurisdiction to levy taxes, fees, and surcharges for 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 recent U.S. Supreme Court decision in South Dakota v. Wayfair, Inc., states and local jurisdictions may now in certain circumstances levy sales and use tax obligations 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 sales and use tax collection 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 liabilities 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

 

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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. If we are unsuccessful in collecting such taxes from our customers, we could be held liable for such costs, which 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 the various 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 positions and our worldwide provision for taxes is complicated and requires significant judgment to be exercised by our internal finance team in consultation with external advisors. 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 and 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 be materially different 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, 2019, we had $327.0 million of U.S. federal and $219.7 million of state net operating loss carryforwards available to reduce taxable income we may have in the future. It is possible that we will not generate taxable income in time to use any or all of these net operating loss carryforwards. Under legislative changes made by the TCJA, 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 is limited. It is uncertain if and to what extent various states

 

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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. State net operating loss carryforwards and other state tax credits may be subject to similar limitations under state tax laws. We performed a study to determine whether net operating loss and credit carryover limitations exist under Section 382 as of December 31, 2019, 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. If an ownership change occurs and our ability to use our net operating loss carryforwards and tax credits is limited, our business, financial condition, results of operations, and prospects could be materially adversely affected.

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 or active private market for our common stock. We have applied to list our common stock 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 will be 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;

 

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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;

 

   

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, 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

 

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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,     % of the voting power of our outstanding capital stock. Furthermore, ICONIQ Strategic Partners, one of our current stockholders and their affiliates will hold, in aggregate,     % 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. We refer to such period as the lock-up period. Pursuant to the lock-up agreements with Goldman Sachs & Co. LLC and J.P. Morgan Securities LLC, if (i) at least 120 days have elapsed since the date of this prospectus, (ii) the lock-up period is scheduled to end during a blackout period (as defined below) or within ten trading days prior to a blackout period, and (iii) we have publicly announced through a major news service or on a Form 8-K the date of the Blackout-Related Release (as defined below), then the last day of the lock-up period will be the later of (x) the commencement of the last trading window preceding the blackout period and (y) 120 days after the date of this prospectus, but only if the 120th day is at least five trading days prior to the commencement of the blackout period. We refer to the broadly applicable period during which trading

 

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in our securities would not be permitted under our insider trading policy as the blackout period. Any expiration of the lock-up period prior to the 180th day after the date of this prospectus pursuant to the lock-up early release provision described in the immediately preceding sentence is referred to as the “Blackout-Related Release.” 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 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              shares of our common stock, based on the number of options outstanding and exercisable as of December 31, 2019 and the initial public offering price of $         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 the date of this prospectus, an aggregate of              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 that fully vest subsequent to the completion of this offering and as early as May     , 2020, an aggregate of              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 that fully vest subsequent to May     , 2020; and

 

   

beginning 181 days after the date of this prospectus (subject to the terms of the lock-up agreements and market standoff agreements described above), the remainder of the shares of our common stock will be eligible for sale in the public market from time to time thereafter.

The shares of our common stock that may be available in the public market prior to 181 days 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              shares of our common stock may be issued upon exercise of outstanding stock options or upon settlement of outstanding RSUs (including those outstanding options and RSUs that may be eligible for sale in the public market in order to satisfy tax withholding obligations), and              shares of our common stock are available for future issuance under our 2020 Plan and our 2014 Plan, as the case may be. We intend to file a registration statement to register shares reserved for future issuance under our equity compensation plans. Upon effectiveness of that registration statement, subject to the satisfaction of

 

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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 December 31, 2019, upon completion of this offering, we will have                  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.

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

The assumed initial public offering price of $        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 $        per share as of December 31, 2019, based on the assumed initial public offering price of $        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.

 

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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;

 

   

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

 

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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 that will be in effect at the closing of this offering will provide that the Court of Chancery of the State of Delaware will be the exclusive forum for certain disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or employees.

Our amended and restated certificate of incorporation that will be in effect at the closing of this offering, will provide that the Court of Chancery of the State of Delaware is the exclusive forum for the following types of actions or proceedings under Delaware statutory or common law:

 

   

any derivative action or proceeding brought on our behalf;

 

   

any action asserting a breach of fiduciary duty;

 

   

any action asserting a claim against us arising under the Delaware General Corporation Law, our amended and restated certificate of incorporation, or our amended and restated bylaws;

 

   

any action to interpret, apply, enforce, or determine the validity of our amended and restated certificate of incorporation or our amended and restated bylaws; and

 

   

any action asserting a claim against us that is governed by the internal-affairs doctrine.

However, this exclusive forum provision would not apply to suits brought to enforce a duty or liability created by the Securities Act or the Exchange Act. Our amended and restated certificate of incorporation that will be in effect at the closing further provides that the federal district courts of the United States of America will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act, subject to and contingent upon a final adjudication in the State of Delaware of the enforceability of such exclusive forum provision.

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 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

 

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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, 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.

 

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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.

 

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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;

 

   

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.

 

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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.

 

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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 sources of certain statistical data, estimates, and forecasts contained in this prospectus are the following independent industry publications or reports:

 

   

Deloitte Insights, Technology budgets: From value preservation to value creation, November 28, 2017.

 

   

FMI, 2018 Industry Report—Construction Disconnected, 2018.

 

   

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

 

   

Gartner, Forecast Enterprise Application Software Worldwide, 2017-2023 3Q19 Update, September 17, 2019.

 

   

JBKnowledge, 2018 Construction Technology Report, 2018.

 

   

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

 

   

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

 

   

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

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, November 2019.

Certain statistical information in this prospectus is also based on a 2018 survey of our customers’ employees, which we refer to as the 2018 Procore Survey. The number of individuals who responded to each survey question cited in this prospectus ranged from approximately 360 to 540. Each of these individuals at the time of response, were customer employees.

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

 

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USE OF PROCEEDS

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

A $1.00 increase (decrease) in the assumed initial public offering price of $        per share of common stock would increase (decrease) the net proceeds to us from this offering by approximately $        million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting underwriting discounts and commissions. Similarly, each increase (decrease) of 1.0 million shares in the number of shares of common stock offered by us would increase (decrease) the net proceeds to us from this offering by approximately $        million, assuming the assumed initial public offering price of $        per share of common stock remains the same, and after deducting underwriting discounts and commissions.

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.

 

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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.

 

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CAPITALIZATION

The following table sets forth our cash and cash equivalents, and our capitalization as of December 31, 2019 as follows:

 

   

on an actual basis;

 

   

on a pro forma basis to reflect (i) the automatic conversion of 78,863,035 shares of our redeemable convertible preferred stock as of December 31, 2019 into an equal number of shares of common stock immediately prior to the completion of this offering; (ii) stock-based compensation expense of approximately $12.7 million associated with RSUs subject to service- and performance-based vesting conditions, as further described in Note 2 to our consolidated financial statements included elsewhere in this prospectus; (iii) the vesting of 74,970 RSUs for which the service-based condition was satisfied as of December 31, 2019 and for which the performance-based vesting condition will be 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                  shares of common stock in this offering at an assumed initial public offering price of $         per share, the midpoint of the price range set forth on the cover page of this prospectus, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.

 

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The pro forma and pro forma as adjusted information below is illustrative only, and our capitalization following the completion of this offering will be adjusted based on the actual initial public offering price and other terms of this offering determined at pricing. 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 December 31, 2019  
     Actual    

Pro Forma

   

Pro Forma
as
Adjusted(1)

 
     (in thousands, except share and per share
data)
 

Cash and cash equivalents

   $ 118,452     $ 118,452     $                
  

 

 

   

 

 

   

 

 

 

Finance lease liabilities, current and non-current

   $ 51,681     $ 51,681     $    
  

 

 

   

 

 

   

 

 

 

Redeemable convertible preferred stock, $0.0001 par value per share; 80,452,757 shares authorized; 78,863,035 shares issued and outstanding, actual; no shares authorized, issued and outstanding, pro forma and pro forma as adjusted

     442,897          

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; 133,208,944 shares authorized, 25,394,082 shares issued and outstanding, actual; 1,000,000,000 shares authorized, 104,332,087 shares issued and outstanding, pro forma; 1,000,000,000 shares authorized,                  shares issued and outstanding, pro forma as adjusted

     3       11    

Additional paid-in capital

     47,043       502,607    

Accumulated other comprehensive loss

     20       20    

Accumulated deficit

     (300,824     (313,499  
  

 

 

   

 

 

   

 

 

 

Total stockholders’ (deficit) equity

     (253,758     189,139    
  

 

 

   

 

 

   

 

 

 

Total capitalization

   $ 240,820     $ 240,820     $    
  

 

 

   

 

 

   

 

 

 

 

(1)

Each $1.00 increase (decrease) in the assumed initial public offering price of $        per share of common stock, the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted amount of each of cash and cash equivalents, total stockholders’ (deficit) equity and total capitalization by approximately $        , assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions. Similarly, each increase (decrease) of 1.0 million shares in the number of shares offered by us at the assumed initial public offering price per share would increase (decrease) the pro forma as adjusted amount of each of cash and cash equivalents, total stockholders’ (deficit) equity, and total capitalization by approximately $        , assuming the assumed initial public offering price of $        per share of common stock remains the same, and after deducting underwriting discounts and commissions.

The number of shares of our common stock that will be outstanding after this offering is based on 104,332,087 shares of our common stock (including shares of our redeemable convertible preferred stock on an as converted basis) outstanding as of December 31, 2019, and excludes:

 

   

18,875,815 shares of our common stock issuable upon the exercise of options to purchase shares of our common stock outstanding as of December 31, 2019, with a weighted-average exercise price of $11.03 per share;

 

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                 shares of our common stock issuable upon the exercise of options to purchase shares of our common stock granted after December 31, 2019, with a weighted-average exercise price of $         per share;

 

   

1,600,787 shares of our common stock subject to RSUs outstanding as of December 31, 2019 that would not have satisfied the service-based vesting condition as of December 31, 2019;

 

   

                 shares of our common stock subject to RSUs granted after December 31, 2019;

 

   

130,012 shares of our redeemable convertible preferred stock issued in January 2020 that will automatically convert into an equal number of shares of our common stock immediately prior to the completion of this offering; and

 

   

                 shares of our common stock reserved for future issuance under our 2020 Plan.

Our 2020 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.

 

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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 December 31, 2019, we had a pro forma net tangible book value (deficit) of $        million, or $        per share. Pro forma net tangible book value per share represents the amount of our total tangible assets less our total liabilities, excluding operating lease right of use assets and liabilities, divided by the number of shares of our common stock outstanding as of December 31, 2019, after giving effect to (i) the automatic conversion of 78,863,035 shares of our redeemable convertible preferred stock as of December 31, 2019 into an equal number of shares of common stock immediately prior to the completion of this offering; (ii) the vesting of 74,970 RSUs for which the service-based condition was satisfied as of December 31, 2019 and for which the performance-based vesting condition will be 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                  shares of common stock that we are offering at an assumed initial public offering price of $        per share, the midpoint of the price range set forth on the cover page of this prospectus, and 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 December 31, 2019 would have been approximately $        million, or approximately $        per share of common stock. This amount represents an immediate increase in pro forma net tangible book value of $        per share to our existing stockholders and an immediate dilution in pro forma as adjusted net tangible book value of approximately $        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):

 

Assumed initial public offering price per share

      $                

Pro forma net tangible book value per share as of December 31, 2019

   $                   

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

     
  

 

 

    

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

     
     

 

 

 

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

      $    
     

 

 

 

The dilution information discussed above is illustrative only and may change based on the actual initial public offering price and other terms of this offering. Each $1.00 increase (decrease) in the assumed initial public offering price of $        per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) our pro forma as adjusted net tangible book value per share after this offering by approximately $        per share, and increase (decrease) the dilution in the pro forma as adjusted net tangible book value per share to new investors by approximately $        per share, in each case, assuming that the number of shares of common stock offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the underwriting discounts and commissions. Each increase (decrease) of 1.0 million shares in the number of shares of

 

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common stock offered by us would increase (decrease) our pro forma as adjusted net tangible book value per share after this offering by approximately $        per share and decrease (increase) the dilution to investors participating in this offering by approximately $        per share, in each case assuming that the assumed initial public offering price remains the same, and after deducting the underwriting discounts and commissions.

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 $        per share, the increase in pro forma net tangible book value per share to existing stockholders would be $        per share and the dilution per share to new investors would be $        per share, in each case assuming an initial public offering price of $        per share, the midpoint of the price range set forth on the cover page of this prospectus.

The following table summarizes the pro forma as adjusted basis described above, as of December 31, 2019, 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 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 assumed initial public offering price of $        per share, the midpoint of the price range set forth on the cover page of the prospectus, 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      Percent  

Existing stockholders

                                            $                                       $                

New investors

             $    
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total

        100        100  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

The number of shares of our common stock that will be outstanding after this offering is based on 104,332,087 shares of our common stock (including shares of our redeemable convertible preferred stock on an as converted basis) outstanding as of December 31, 2019, and excludes:

 

   

18,875,815 shares of our common stock issuable upon the exercise of options to purchase shares of our common stock outstanding as of December 31, 2019, with a weighted-average exercise price of $11.03 per share;

 

   

        shares of our common stock issuable upon the exercise of options to purchase shares of our common stock granted after December 31, 2019, with a weighted-average exercise price of $        per share.

 

   

1,600,787 shares of our common stock subject to RSUs outstanding as of December 31, 2019 that would not have satisfied the service-based vesting condition as of December 31, 2019;

 

   

        shares of our common stock subject to RSUs granted after December 31, 2019;

 

   

130,012 shares of our redeemable convertible preferred stock issued in January 2020 that will automatically convert into an equal number of shares of our common stock immediately prior to the completion of this offering; and

 

   

         shares of our common stock reserved for future issuance under our 2020 Plan.

Our 2020 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.

 

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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 December 31, 2019, the pro forma as adjusted net tangible book value per share after this offering would be $        , and total dilution per share to new investors would be $        .

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

 

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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, 2017, 2018, and 2019 and the selected consolidated balance sheet data as of December 31, 2018 and 2019 are derived from our audited consolidated financial statements included elsewhere in this prospectus. 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 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 and the related notes and is qualified in their entirety by the audited 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.

 

     Year Ended December 31,  
     2017      2018      2019  
     (in thousands, except share and per share data)  

Consolidated Statements of Operations Data:

        

Revenue

   $ 112,251      $ 186,396      $ 289,194  

Cost of revenue(1)(2)

     25,353        37,401        53,166  
  

 

 

    

 

 

    

 

 

 

Gross profit

     86,898        148,995        236,028  

Operating expenses:

        

Sales and marketing(1)(2)

     77,748        112,723        173,472  

Research and development(1)

     39,762        55,950        87,022  

General and administrative(1)

     24,516        35,365        58,158  
  

 

 

    

 

 

    

 

 

 

Total operating expenses

     142,026        204,038        318,652  
  

 

 

    

 

 

    

 

 

 

Loss from operations

     (55,128      (55,043      (82,624

Interest expense, net

     (157      (1,394      (930

Other (expense) income, net

     (17      16        518  
  

 

 

    

 

 

    

 

 

 

Loss before provision for income taxes

     (55,302      (56,421      (83,036

Provision for income taxes

     238        250        71  
  

 

 

    

 

 

    

 

 

 

Net loss

   $ (55,540    $ (56,671    $ (83,107
  

 

 

    

 

 

    

 

 

 

Net loss per share, basic and diluted

   $ (3.15    $ (2.77    $ (3.41
  

 

 

    

 

 

    

 

 

 

Weighted-average shares used in computing net loss per share, basic and diluted

     17,613,517        20,430,502        24,361,173  
  

 

 

    

 

 

    

 

 

 

Pro forma net loss per share, basic and diluted (unaudited)(3)

         $ (0.84
        

 

 

 

Weighted-average shares used in computing pro forma net loss per share, basic and diluted (unaudited)(3)

           99,220,500  
        

 

 

 

 

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     Year Ended December 31,  
    

    2017    

   

    2018    

   

    2019    

 
     (dollars in thousands)  

Other Financial Data:

      

Gross margin(4)

     77     80     82

Operating margin(5)

     (49 )%      (30 )%      (29 )% 

Non-GAAP gross profit(6)

   $ 87,089     $ 149,749     $ 238,766  

Non-GAAP gross margin(6)

     78     80     83

Non-GAAP loss from operations(6)

   $ (51,696   $ (47,339   $ (61,015

Non-GAAP operating margin(6)

     (46 )%      (25 )%      (21 )% 

 

(1)

Includes stock-based compensation as follows:

 

                                            
     Year Ended December 31,  
     2017      2018      2019  
     (in thousands)  

Cost of revenue

   $ 191      $ 567      $ 1,095  

Sales and marketing

     1,446        2,790        7,463  

Research and development

     1,103        2,380        6,584  

General and administrative

     692        1,752        4,096  
  

 

 

    

 

 

    

 

 

 

Total stock-based compensation expense

   $         3,432      $         7,489      $ 19,238  
  

 

 

    

 

 

    

 

 

 

 

(2)

Includes amortization of acquired intangible assets as follows.

 

                                            
     Year Ended December 31,  
     2017      2018      2019  
     (in thousands)  

Cost of revenue

        

Amortization of acquired technology intangible assets

   $      $ 187      $ 1,643  

Sales and marketing:

        

Amortization of acquired customer relationships intangible assets

            28        728  
  

 

 

    

 

 

    

 

 

 

Total amortization of acquired intangible assets

   $                 —      $             215      $ 2,371  
  

 

 

    

 

 

    

 

 

 

 

(3)

See Notes 2 and 14 to our consolidated financial statements included elsewhere in this prospectus for more information regarding pro forma net loss per share, basic and diluted.

 

(4)

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

 

(5)

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

 

(6)

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,  
     2018     2019  
     (in thousands)  

Consolidated Balance Sheet Data:

    

Cash and cash equivalents

   $ 94,853     $ 118,452  

Right of use assets—finance leases

     47,157       44,784  

Total assets

     274,996       503,664  

Deferred revenue, current and non-current

     111,753       177,911  

Finance lease liabilities, current and non-current

     52,568       51,681  

Redeemable convertible preferred stock

     254,172       442,897  

Total stockholders’ (deficit) equity

     (199,686     (253,758

 

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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 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 and amortization of acquired technology intangible assets.

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,  
     2017     2018     2019  
     (dollars in thousands)  

Revenue

   $ 112,251     $ 186,396     $ 289,194  
  

 

 

   

 

 

   

 

 

 

Gross profit

   $ 86,898     $ 148,995     $ 236,028  

Stock-based compensation expense

     191       567       1,095  

Amortization of acquired technology intangible assets

           187       1,643  
  

 

 

   

 

 

   

 

 

 

Non-GAAP gross profit

   $ 87,089     $ 149,749     $ 238,766  
  

 

 

   

 

 

   

 

 

 

Gross margin

     77 %     80     82

Non-GAAP gross margin

     78 %     80     83

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 and amortization of acquired intangible assets.

 

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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,  
     2017     2018     2019  
     (dollars in thousands)  

Revenue

   $ 112,251     $ 186,396     $ 289,194  
  

 

 

   

 

 

   

 

 

 

Loss from operations

   $ (55,128   $ (55,043   $ (82,624

Stock-based compensation expense

     3,432       7,489       19,238  

Amortization of acquired intangible assets

           215       2,371  
  

 

 

   

 

 

   

 

 

 

Non-GAAP loss from operations

   $ (51,696   $ (47,339   $ (61,015
  

 

 

   

 

 

   

 

 

 

Operating margin

     (49 )%      (30 )%      (29 )% 

Non-GAAP operating margin

     (46 )%      (25 )%      (21 )% 

 

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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 affords us the ability 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 cloud-based products designed to meet the needs of owners, general contractors, and specialty contractors around the world.

 

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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 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 in 2019 led to the recent release of Procore Analytics, offering advanced analytics and business intelligence solutions to certain of our customers. In 2018 and 2019, we announced our

 

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Bid Management and Prequalification products, respectively, both of which enable users to streamline the process of selecting specialty contractors and vendors for construction projects.

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 and subsequent release of our Capital Planning and Portfolio Financials products.

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, 2019, over 180 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. These offices allow us to better serve our customers’ needs, bringing our products to stakeholders worldwide. In 2019, 11.3% 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, 2019, out of 13 available products, 59% 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 the project information for the duration of their subscription.

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 $112.3 million in 2017, $186.4 million in 2018, and $289.2 million in 2019, representing annual revenue growth of 66%

 

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in 2018 and 55% in 2019. We had a net loss of $55.5 million in 2017, $56.7 million in 2018, and $83.1 million in 2019.

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 4,310 as of December 31, 2017, to 6,095 as of December 31, 2018, to 8,506 as of December 31, 2019, reflecting year-over-year growth rates of 41% in 2018 and 40% in 2019. 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 230 as of December 31, 2017, to 412 as of December 31, 2018, to 655 as of December 31, 2019, reflecting year-over-year growth rates of 79% in 2018 and 59% in 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.

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 125% as of December 31, 2017, 121% as of December 31, 2018, and 117% as of December 31, 2019.

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

 

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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 gross retention rate. Our gross retention rate was 94% as of December 31, 2017, 94% as of December 31, 2018, and 95% as of December 31, 2019.

Though 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, 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 acquisitions of BIManywhere, Honest Buildings, and Construction BI. 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, 2019, 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. 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 8.2% in 2017, 10.1% in 2018, and 11.3% in 2019. 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.

 

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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.

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, and stock-based compensation expense.

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, 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.

 

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General and Administrative

General and administrative expenses primarily consist of personnel-related compensation expenses for our finance, information technology, human resources, 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.

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 and other interest-bearing instruments.

Other (Expense) Income, Net

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

Provision for Income Taxes

Provision for income taxes consists primarily of income taxes in certain foreign jurisdictions in which we conduct business. As we expand our international operations, we expect to incur increased foreign tax expenses. We have a full valuation allowance for net U.S. deferred tax assets, including net operating loss carryforwards, and tax credits related primarily to research and development for our operations in the United States. We expect to maintain this full valuation allowance for our net U.S. deferred tax assets for the foreseeable future.

 

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Results of Operations

The following tables set forth selected 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,  
     2017     2018     2019  
     (in thousands)  

Revenue

   $ 112,251     $ 186,396     $ 289,194  

Cost of revenue

     25,353       37,401       53,166  
  

 

 

   

 

 

   

 

 

 

Gross profit

     86,898       148,995       236,028  

Operating expenses:

      

Sales and marketing

     77,748       112,723       173,472  

Research and development

     39,762       55,950       87,022  

General and administrative

     24,516       35,365       58,158  
  

 

 

   

 

 

   

 

 

 

Total operating expenses

     142,026       204,038       318,652  
  

 

 

   

 

 

   

 

 

 

Loss from operations

     (55,128     (55,043     (82,624

Interest expense, net

     (157     (1,394     (930

Other (expense) income, net

     (17     16       518  
  

 

 

   

 

 

   

 

 

 

Loss before provision for income taxes

     (55,302     (56,421     (83,036

Provision for income taxes

     238       250       71  
  

 

 

   

 

 

   

 

 

 

Net loss

   $ (55,540   $ (56,671   $ (83,107
  

 

 

   

 

 

   

 

 

 
     Year Ended December 31,  
     2017     2018     2019  
     (as a percentage of revenue)  

Revenue

     100     100     100

Cost of revenue

     23       20       18  
  

 

 

   

 

 

   

 

 

 

Gross profit

     77       80       82  

Operating expenses:

      

Sales and marketing

     69       60       60  

Research and development

     35       30       30  

General and administrative

     22       19       20  
  

 

 

   

 

 

   

 

 

 

Total operating expenses

     127       109       110  
  

 

 

   

 

 

   

 

 

 

Loss from operations

     (49     (30     (29

Interest expense, net

           (1      

Other (expense) income, net

                  
  

 

 

   

 

 

   

 

 

 

Loss before provision for income taxes

     (49     (30     (29

Provision for income taxes

                  
  

 

 

   

 

 

   

 

 

 

Net loss

     (49 )%      (30 )%      (29 )% 
  

 

 

   

 

 

   

 

 

 

 

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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 who were new in 2018 and continued their subscriptions in 2019, and customers who 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 continued commitment to operational efficiencies and 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

 

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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.

Comparison of the Years Ended December 31, 2017 and 2018

Revenue

 

     Year Ended December 31,      Change  
           2017                  2018                 Dollar              Percent     
     (dollars in thousands)  

Revenue

   $ 112,251      $ 186,396      $ 74,145        66

Approximately 63% of the increase in revenue was attributable to existing customers. This includes the net benefit of a full year of subscription revenue in 2018 for customers that were new in 2017 who continued their subscriptions in 2018, and customers who expanded their subscriptions in 2018 through the purchase of additional construction volume or products, as well as price increases to certain products. The remaining 37% of the increase in revenue was attributable to revenue from new customers in 2018.

 

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Cost of Revenue, Gross Profit, and Gross Margin

 

     Year Ended December 31,     Change  
           2017                 2018           Dollar      Percent  
     (dollars in thousands)  

Cost of revenue

   $ 25,353     $ 37,401     $ 12,048        48

Gross profit

     86,898       148,995       62,097        71

Gross margin

     77     80     

The increase in cost of revenue in 2018 was primarily attributable to an increase of $5.3 million in personnel-related expenses, primarily due to an increase in average headcount of 40%, $5.0 million in third-party cloud hosting and related services, and $0.5 million in amortization of capitalized software development costs and acquired technology intangible assets. The overall increase in gross profit reflects our increased revenue for the period, as well as our continued commitment to operational efficiencies and managing costs related to our third-party hosting service.

Operating Expenses

 

     Year Ended December 31,      Change  
           2017                  2018            Dollar      Percent  
     (dollars in thousands)  

Sales and marketing

   $ 77,748      $ 112,723      $ 34,975        45

The increase in sales and marketing expense in 2018 was primarily attributable to an increase of $24.8 million in personnel-related expenses, including an increase of $1.3 million in stock-based compensation expense, primarily due to an increase in average headcount of 46% to support and drive our customer growth. In addition, there was an increase of $3.8 million in marketing and advertising expenses and an increase of $2.8 million in travel-related costs.

 

     Year Ended December 31,      Change  
           2017                  2018            Dollar      Percent  
     (dollars in thousands)  

Research and development

   $ 39,762      $ 55,950      $ 16,188        41

The increase in research and development expense in 2018 was primarily attributable to an increase of $13.5 million in personnel-related expenses, including an increase of $1.3 million in stock-based compensation expense, primarily due to an increase in average research and development headcount of 36% to build, enhance, maintain, and scale our products and platform.

 

     Year Ended December 31,      Change  
           2017                  2018            Dollar      Percent  
     (dollars in thousands)  

General and administrative

   $ 24,516      $ 35,365      $ 10,849        44

The increase in general and administrative expense in 2018 was primarily due to an increase of $9.0 million in personnel-related expenses, including an increase of $1.1 million in stock-based compensation expense, primarily due to an increase in average general and administrative headcount of 46% to support our growth. In addition, there was an increase of $1.3 million in professional services for legal and accounting services.

 

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

 

     Year Ended December 31,     Change  
           2017                 2018               Dollar             Percent      
     (dollars in thousands)  

Interest expense, net

   $ (157   $ (1,394   $ (1,237     *  

Other (expense) income, net

     (17     16       33       *  

Provision for income taxes

     238       250       12       5

 

*

Percentage not meaningful.

The increase in interest expense, net in 2018 was primarily due to an increase of $1.2 million in the interest on lease liabilities associated with our financing lease arrangements.

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 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,
2018
    June 30,
2018
    Sept. 30,
2018
    Dec. 31,
2018
    March 31,
2019
    June 30,
2019
    Sept. 30,
2019
    Dec. 31,
2019
 
    (in thousands)  

Revenue

  $   38,532     $   43,594     $   49,067     $   55,203     $   60,760     $   67,372     $   76,164     $   84,898  

Cost of revenue(1)(2)

    7,988       9,276       9,546       10,591       11,340       12,048       14,044       15,734  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    30,544       34,318       39,521       44,612       49,420       55,324       62,120       69,164  

Operating expenses:

               

Sales and marketing(1)(2)

    25,135       25,710       28,780       33,098       36,921       42,048       45,089       49,414  

Research and development(1)

    11,826       12,976       15,587       15,561       16,183       19,111       24,549       27,179  

General and administrative(1)

    7,591       8,287       9,587       9,900       11,355       14,581       16,162       16,060  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    44,552       46,973       53,954       58,559       64,459       75,740       85,800       92,653  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

    (14,008     (12,655     (14,433     (13,947     (15,039     (20,416     (23,680     (23,489

Interest expense, net

    (201     (294     (416     (483     (144     (134     (349     (303

Other (expense) income, net

    (33     (118     128       39       135       178       (166     371  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before provision for income taxes

    (14,242     (13,067     (14,721     (14,391     (15,048     (20,372     (24,195     (23,421

Provision for income taxes

    45       45       74       86       166       34       102       (231
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

  $ (14,287   $ (13,112   $ (14,795   $ (14,477   $ (15,214   $ (20,406   $ (24,297   $ (23,190
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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(1)

Includes stock-based compensation expense as follows:

 

                                                                                                                                                                                                       
    Three Months Ended  
    March 31,
2018
    June 30,
2018
    Sept 30,
2018
    Dec 31,
2018
    March 31,
2019
    June 30,
2019
    Sept 30,
2019
    Dec 31,
2019
 
    (in thousands)  

Cost of revenue

  $ 93     $ 103     $ 171     $ 200     $ 201     $ 287     $ 293     $ 314  

Sales and marketing

    400       463       779       1,148       1,285       1,880       2,156       2,142  

Research and development

    359       480       725       816       945       1,189       2,097       2,353  

General and administrative

    295       347       472       638       745       1,016       1,164       1,171  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total stock-based compensation expense

  $ 1,147     $ 1,393     $ 2,147     $ 2,802     $ 3,176     $ 4,372     $ 5,710     $ 5,980  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(2)

Includes amortization of acquired intangibles assets as follows:

 

                                                                                                                                                                                                       
    Three Months Ended  
    March 31,
2018
    June 30,
2018
    Sept 30,
2018
    Dec 31,
2018
    March 31,
2019
    June 30,
2019
    Sept 30,
2019
    Dec 31,
2019
 
    (in thousands)  

Cost of revenue

               

Amortization of acquired technology intangible assets

  $     $     $ 27     $ 160     $ 161     $ 161     $ 561     $ 760  

Sales and marketing

                                                                           

Amortization of acquired customer relationships intangible assets

                4       24       24       24       277       403  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total amortization of acquired intangible assets

  $     $     $ 31     $ 184     $ 185     $ 185     $ 838     $ 1,163  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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,
2018
    June 30,
2018
    Sept. 30,
2018
    Dec. 31,
2018
    March 31,
2019
    June 30,
2019
    Sept. 30,
2019
    Dec. 31,
2019
 
     (as a percentage of revenue)  

Revenue

     100     100     100     100     100     100     100     100

Cost of revenue

     21       21       19       19       19       18       18       19  

Gross profit

     79       79       81       81       81       82       82       81  

Operating expenses:

                

Sales and marketing

     65       59       59       60       61       62       59       58  

Research and development

     31       30       32       28       27       28       32       32  

General and administrative

     20       19       20       18       19       22       21       19  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     116       108       110       106       106       112       113       109  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

     (36     (29     (29     (25     (25     (30     (31     (28

Interest expense, net

     (1     (1     (1     (1                        

Other (expense) income, net

                                                
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss before provision for income taxes

     (37     (30     (30     (26     (25     (30     (32     (28

Provision for income taxes

                                                
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

     (37 )%      (30 )%      (30 )%      (26 )%      (25 )%      (30 )%      (32 )%      (27 )% 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Quarterly Revenue Trends

Revenue increased sequentially in each quarter presented primarily due to the increase in revenue from existing customers, the sale of subscriptions to new customers, and the acquisition of Honest Buildings on July 30, 2019, which contributed $4.6 million of revenue for the period from the acquisition date to December 31, 2019. 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 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.

Quarterly Expense Trends

Cost of revenue and total operating expenses increased sequentially in each quarter presented 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 June 30, 2019 compared to the immediately preceding three-month period was impacted by the annual promotion and merit increase cycle for our employees. 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. 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 December 31, 2019, our principal sources of liquidity are cash and cash equivalents of $118.5 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 December 31, 2019, $50.0 million, less $6.7 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, and general and administrative expenses to support our growth, including international expansion. 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.

 

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

 

     Year Ended December 31,  
     2017     2018     2019  
     (in thousands)  

Net cash used in operating activities

   $ (24,660   $ (21,103   $ (7,004

Net cash used in investing activities

     (9,117     (23,957     (66,685

Net cash provided by financing activities

     715       78,149       92,757  

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 the last several years, we have generated negative cash flows from operating activities and have supplemented working capital requirements through net proceeds from the sale of equity securities.

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 $39.3 million and net cash inflow of $36.8 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 $12.3 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 $23.0 million and net cash inflow of $12.6 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 $7.5 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.

Net cash used in operating activities was $24.7 million in 2017, which resulted from a net loss of $55.5 million, adjusted for non-cash charges of $15.7 million and net cash inflow of $15.2 million from changes in operating assets and liabilities. Non-cash charges primarily consisted of $5.5 million of non-cash lease expense relating to the amortization of the right-of-use operating lease assets, $5.5 million of depreciation and amortization, and $3.4 million of stock-based compensation expense. The net cash inflow from changes in operating assets and liabilities was primarily due to a $32.9 million increase in deferred revenue, partially offset by a $11.8 million increase in accounts receivable, a $5.2 million increase in deferred contract cost assets, and a $4.5 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.

 

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Investing Activities

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.

Net cash used in investing activities of $9.1 million in 2017 consisted of purchases of property and equipment of $5.2 million primarily related to improvements to our leased office spaces and computer equipment purchases, and capitalized software development costs of $3.9 million.

Financing Activities

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.

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.

Net cash provided by financing activities of $0.7 million in 2017 primarily consisted of proceeds from stock option exercises of $1.1 million.

Credit Facility

Our Credit Facility provides for debt financing of up to $50.0 million to be used for general corporate purposes, including the financing of working capital requirements. The Credit Facility has a maturity date of October 23, 2020, and carries a fee of 0.30% applied to unused balances and an interest rate equal to the Wall Street Journal prime rate applied to all amounts outstanding. 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, 2019, no amounts had been drawn down under the Credit Facility, and we were in compliance with all financial covenants.

We amended and restated the Credit Facility on February 14, 2020. The purpose of the amendment was to establish minimum annual recurring revenue thresholds for the remainder of the term of the Credit Facility, as required under the Credit Facility, and make certain other changes. The amendment did not change the borrowing capacity or term of the Credit Facility.

The Credit Facility also provides us with the ability to issue standby letters of credit for up to $10.0 million, which if issued reduce the amount available for borrowing under the Credit Facility. As of December 31, 2019, we had issued letters of credit totaling $6.7 million to secure various U.S. leased office facilities.

 

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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, 2018

   $ 167,924      $ 96,193      $ 264,117  

As of December 31, 2019*

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

 

*

Includes $10.0 million of remaining performance obligations related to the Honest Buildings acquisition, including contracts executed subsequent to acquisition, of which $7.7 million is expected to be recognized as revenue in the next 12 months.

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.

Commitments and Contractual Obligations

The following table summarizes our non-cancellable contractual obligations as of December 31, 2019:

 

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

Operating lease obligations

   $ 55,056      $ 5,705      $ 13,138      $ 11,781      $ 24,432  

Finance lease obligations

     74,501        3,472        7,254        7,530        56,245  

Non-cancellable purchase commitments

     39,246        12,727        23,729        2,790         
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total contractual obligations

   $ 168,803      $ 21,904      $ 44,121      $ 22,101      $ 80,677  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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, 2019, 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, and Great British pounds. Our expenses are generally denominated in the currencies of the jurisdictions in which we conduct our operations,

 

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which are primarily in the United States, Australia, Canada, and England. We opened our Mexico City, Mexico office in 2019. 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 consolidated financial statements in 2017, 2018, and 2019. 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 $102.8 million as of December 31, 2018 and $121.8 million as of December 31, 2019. 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. 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 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, 2019, 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 consolidated financial statements are described below.

Revenue Recognition

We adopted Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers, or ASC 606, effective January 1, 2017, using the modified retrospective approach. Accordingly, revenues for the years ended December 31, 2017, 2018, and 2019 are presented under ASC 606. We applied ASC 606 only to contracts that are not completed as of the date of initial application.

In accordance with ASC 606, revenue is recognized 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.

 

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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.

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.

 

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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 restricted stock awards, or RSAs, is based on the 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 Black-Scholes option pricing model requires the input of highly subjective assumptions and estimates relating to the fair value of our common stock underlying the stock options and, to a lesser extent, the expected term of the option, the expected volatility of the price of our common stock, risk-free interest rates, and the expected dividend yield of our common stock. The assumptions used to determine the fair value of the stock-based awards represent management’s best estimates. These estimates 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.

The assumptions and estimates we use in the Black Scholes option pricing model are as follows:

 

   

Fair Value of Common Stock.    Because there is no public market for our common stock, our board of directors determined the fair value of our common stock on the date of grant of stock option and stock awards by considering several objective and subjective factors, as discussed below. The fair value of our underlying common stock will be determined by our board of directors until such time as our common stock is listed on an established stock exchange or national market system.

 

   

Risk-Free Interest Rate.    The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for zero-coupon U.S. Treasury notes with maturities approximately equal to the option’s expected term.

 

   

Expected Term.    The expected term of employee stock options represents the weighted-average period that the stock options are expected to remain outstanding. The expected term assumptions were determined based upon actual historical exercises and post-vesting cancellations, adjusted for expected future exercises.

 

   

Expected Dividend Yield.    We have never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable future. Consequently, an expected dividend yield of zero was used.

 

   

Expected Volatility.    The expected volatility of stock options is estimated based upon the historical volatility of a group of publicly traded companies, selected by management, that are in similar stages of development and comparable industries for a period commensurate with the expected term of the awards.

 

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The Black-Scholes assumptions used are as follows:

 

     2017     2018     2019  

Fair value of common stock per share

   $ 3.60 to $10.23     $ 10.23 to $13.64     $ 21.32 to $30.34  

Risk-free interest rate

     1.9% to 2.2%       2.6% to 3.0%       1.4% to 2.2%  

Expected term (in years)

     5.6 to 5.9       5.4 to 5.5       5.4  

Estimated dividend yield

     0%       0%       0%  

Estimated volatility

     41% to 45%       39% to 41%       39% to 41%  

We will continue to use judgment in evaluating the assumptions related to our stock-based compensation expense and as we continue to accumulate additional data, we may refine our estimation process, which could materially impact our future stock-based compensation expense.

As of December 31, 2019, we had $59.9 million of unrecognized stock-based compensation cost related to stock options, which is expected to be recognized over a weighted-average period of 2.63 years. Based on the assumed initial public offering price of $         per share, which is the midpoint of the estimated offering price range set forth on the cover of this prospectus, the aggregate intrinsic value of stock options outstanding as of December 31, 2019 was $         million, with $         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 will be satisfied on the effective date of a registration statement for our initial public offering, or IPO. Because an IPO was not probable as of December 31, 2019, 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, 2019. As of December 31, 2019, unrecognized compensation cost relating to RSUs was $40.7 million. Upon the effective date of the registration statement of which this prospectus is a part, we will record an expense of $        million relating to these RSUs for the cumulative service period from grant date to the completion 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 December 31, 2019, none of the RSAs have vested. During 2019, we recognized stock-based compensation expense of $1.2 million 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 on the date of each option grant, with input from management, based on several objective and subjective factors. Factors considered by our board of directors include:

 

   

our historical performance, financial condition, and prospects at the approximate time of grant of stock awards;

 

   

the value of companies that we consider peers based on several factors, including similarity to us with respect to industry, business model, profitability, stage of growth, and financial risk;

 

   

recent sales of our redeemable convertible preferred stock and private stock sale transactions;

 

   

the economic and competitive environment, including the industry in which we operate;

 

   

the rights, preferences, and privileges of our redeemable convertible preferred stock relative to those of our common stock;

 

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the likelihood of achieving a liquidity event, such as an IPO or sale of all or a portion of the company;

 

   

the lack of an active market for our common stock; and

 

   

third-party valuations completed near the time of the grant.

Since our inception, we have prepared valuations in a manner consistent with the method outlined in the American Institute of Certified Public Accountants Practice Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation.

For each valuation performed since 2016, we estimated the valuation of our common stock based on values implied by recent transactions in our stock in close proximity to the valuation date, if any, and based on a Probability Weighted Expected Return Method, or PWERM, valuation model. The valuations for each of these methods closely reconciled to each other.

In estimating the valuation of our common stock using the PWERM, we calculated our equity value considering various exit scenarios including IPO and sale transactions, and staying private.

Our equity value in an IPO scenario was determined using the Guideline Public Company Method. Under the Guideline Public Company Method we analyzed the equity value compared to trailing and forecast revenues multiples of our Guideline Public Companies in software and technology industry and then applied those multiples to our 12 months trailing and projected revenue, as of the estimated liquidity, or exit, date.

Our equity value in the sale transactions scenario was determined using the Recent Transaction Method. Under the Recent Transaction Method, we analyzed trailing and forecasted revenue multiples implied by recent acquisitions of companies similar to our business and then applied those multiples to our 12 months trailing and projected revenue, as of the estimated liquidity, or exit, date. Judgment is required on the selection of comparable companies, transactions, and the selection of the multiples. The selection of the multiples included judgments of our relative growth prospects, margin, and risks compared to the guideline companies. In addition, we are required to estimate our forecast revenues at the time of the exit event. We allocated the overall equity value implied by each of these scenarios to our common stock to estimate a per share value of our common stock.

The fair value of our common stock in a stay private scenario was determined using an income approach and market approach. Under the income approach, we forecast discrete cash flows over several years and a terminal value for a residual period beyond the discrete forecast period, which we discount at our estimated weighted average cost of capital to estimate our enterprise value. Under the market approach, we estimated revenue multiples based on comparable guideline companies and applied these revenue multiples to our trailing 12 months and forecasted revenue. Judgment is required in our estimating our future cash flows, discount rates, comparable companies, and multiples. We allocated the equity value implied by these valuation models in the private company scenario to our common stock using an option pricing model.

Each of the above valuations was prepared on a minority, non-marketable interest basis.

After determining a per share equity value for each scenario, we discounted the per share value for the estimated timing of the exit and then assigned a probability to each scenario to determine a probability weighted per share value of our common stock. Lastly, we applied a discount for lack of marketability as our stock is not publicly traded. Judgment is required on estimating the timing and exit event probabilities and discount for lack of marketability.

 

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For stock awards after the completion of this offering, our board of directors intends to determine the fair value of each share of underlying common stock based on the closing price of our common stock as reported on the date of grant.

JOBS Act Accounting Election

The Jumpstart Our Business Startups Act of 2012, or the JOBS Act, permits an “emerging growth company” such as us to delay the adoption of new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards, and therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. We intend to rely on other exemptions provided by the JOBS Act, including not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act.

We will remain an emerging growth company until the earliest to occur of: (1) the last day of our first fiscal year in which we have total annual revenues of more than $1.07 billion; (2) the date we qualify as a “large accelerated filer,” with at least $700 million of equity securities held by non-affiliates; (3) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period; and (4) the last day of the fiscal year ending after the fifth anniversary of our initial public offering.

Recent Accounting Pronouncements

See “Summary of Business and Significant Accounting Policies” in Note 2 to our consolidated financial statements included elsewhere in this prospectus for a description of recently issued accounting pronouncements.

 

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A Letter from Procore Founder, President, and Chief Executive Officer Tooey Courtemanche

Dear Prospective Investors,

The construction industry is one of the most important industries in the world. It is responsible for building and maintaining the places where we live, learn, work, and play. However, it’s also one of the toughest industries to work in, defined by massive complexity, constant uncertainty and high risk. But when you look past the chaos of the job site, you find incredible individuals — the builders, designers, developers, engineers, and tradespeople — who are up for the challenge and find great purpose in their work.

The Intersection of Construction and Technology

I’ve always been passionate about building things, and I’ve often straddled two worlds that felt disconnected: construction and technology. In my student days, I worked in a cabinet shop and on construction job sites. After later leaving my professional career as a real estate developer, I discovered the world of software. Being immersed in the Silicon Valley 1990s tech boom inspired me to found my first startup, Webcage. That company enabled Fortune 1000 companies to move from analog call centers to web-enabled self-service intranet technologies. I learned firsthand the impact digital transformation could have on many different industries.

Several years later, I started building my own home. I was shocked to discover that, despite the sweeping impact of technology across most sectors, the construction industry had been left behind. So I started Procore, based on my steadfast belief that technology can improve the lives of everyone in construction. I chose the name Procore since our technology would enable people in the construction industry to focus on their PROfessional CORE competencies, i.e. their craft.

The product didn’t immediately take off as the industry didn’t have the tools to fully benefit from a cloud-based offering at the time. In fact, it took over a decade for devices like smartphones and tablets, as well as Wi-Fi, to become ubiquitous on job sites. But once that happened, our customers were able to fully leverage the power of Procore in the field, and our growth really accelerated. We started to build more solutions for our existing customers, and expanded to serve new stakeholders and international markets.

The Journey Ahead

Though I founded Procore eighteen years ago, it still feels like we’re just getting started. We are in the early stages of a once-in-a-lifetime, industry-wide digital transformation. Procore is well-positioned to realize our mission of connecting everyone in construction on a global platform, and to empower our customers to do their best work. Procorians thrive when they’re in the field with customers, learning about the difficulties they face, and working alongside them to develop solutions. We will continue building customer-first products and culture-first teams.

When people ask me what my goal is for the future of Procore, my answer is simple: I never want to stop providing people in the construction industry with technology that makes their lives easier, safer, and more productive. I’m excited about the road ahead, and I welcome you to join Procore on this journey.

Let’s build a better future together.

Tooey

 

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BUSINESS

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 collectively 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 in need of digitization. The construction industry represented approximately 13% of global 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 IT compared to the average across all industries. Estimated rework cost over $500 billion in 2018, or approximately 5% of overall construction costs, according to the 2018 FMI Report. On average, 52% of that rework was caused by poor project data and communication. Construction is also among the most dangerous industries, with 19% of U.S. private industry worker deaths in 2017 linked to construction. Additionally, the industry faces an extremely challenging labor dynamic, with 93% of contractors indicating that they are facing difficulties finding skilled workers. 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.

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 APIs and our App Marketplace, allow customers to integrate our products with their internal systems and over 180 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.

 

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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 as evidenced by the fact they have used our platform to create an aggregate of 965,000 projects representing over $880 billion of construction volume since January 1, 2014, with over 370,000 projects created in 2019 alone. In 2019, the average duration of an active project in Procore was approximately 20 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 2019, on average, each customer invited over 170 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 their involvement in a project and are incentivized to become customers as collaborators do not control what information they get access to, 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 2019 we had over 1.3 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 4,310 as of December 31, 2017, to 6,095 as of December 31, 2018, to 8,506 as of December 31, 2019, reflecting year-over-year growth rates of 41% in 2018 and 40% in 2019. We have also seen an increase in the number of customers that contributed more than $100,000 of ARR, which grew from 230 as of December 31, 2017, to 412 as of December 31, 2018, to 655 as of December 31, 2019, reflecting year-over-year growth rates of 79% in 2018 and 59% in 2019.

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 $112.3 million in 2017, $186.4 million in 2018, and $289.2 million in 2019, representing year-over-year growth of 66% in 2018 and 55% in 2019. We had net losses of $55.5 million in 2017, $56.7 million in 2018, and $83.1 million in 2019.

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 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

 

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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.

McKinsey Industry Digitization Index

 

 

LOGO

The persistence of manual and paper-based processes, combined with the failure of legacy software solutions to adequately address the needs of stakeholders in the construction sector, creates a significant opportunity to improve productivity. McKinsey estimates that over the past two decades labor productivity growth in the construction sector has averaged approximately 1.0% each year, compared to 2.8% annually for the global economy, and bridging this gap through strategic productivity initiatives, such as widespread adoption of technology, improving jobsite execution, and retraining workers could add $1.6 trillion of global GDP annually. Additionally, McKinsey reports that construction firms could boost productivity by as much as 50% through implementing cloud-based tools to assemble and analyze data in real-time.

 

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

 

   

Global population growth coupled with ongoing urbanization is driving the need for more construction.    The UN estimates that the world’s population will reach 9.8 billion by 2050, with 68% of the population living in urban areas, a substantial increase from the 55% of the population that lived in urban areas in 2018. This represents an incremental 2.5 billion people who are expected to live in cities by 2050. In 2017, the UN estimated that over the next 40 years, 2.5 trillion square feet of new construction will need to be built globally in order to meet population growth and urbanization expectations. Construction at this rate would be roughly equivalent to building a city the size of New York City every month for the next 40 years. Furthermore, McKinsey estimates that $57 trillion will need to be spent globally on infrastructure from 2013 to 2030 across various infrastructure categories, such as airports, bridges, dams, transportation, and utilities.

 

   

Ongoing maintenance and repairs require billions of dollars of annual construction.    Construction spending does not stop once a project is completed. Nearly everything that is built must be maintained. Structures like office buildings, bridges, and skyscrapers have long lives but require continued maintenance to remain safe and operational. For example, New York City’s aging infrastructure vulnerabilities have led the city to more than double its four-year capital funding from $26.7 billion in 2015 to $58.2 billion in 2020, adjusted for inflation, according to the Center for an Urban Future. New York City is not unique, as other cities around the world are facing similar challenges that will require significant investment in the coming years.

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 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. Once a project is completed, owners are responsible for operating, leasing or selling the structure, or outsourcing such processes to a third party.

 

   

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

 

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responsible for designing the aesthetic look and feel of a structure, while engineers focus on safety and functionality, materials, and structural design.

Additional ecosystem participants include:

 

   

Financiers.    Equity investors and lenders provide financing to owners to fund construction projects. Equity capital is typically received prior to or at the onset of a project, while lenders often release funds in increments over the course of a project, in what is called the draw management process, based on predefined milestones.

 

   

Insurers.    Insurers provide coverage for unforeseen events that may occur during a construction project, such as worker injuries, defects, and natural disasters. Insurers analyze information such as historical loss ratios and quality and safety procedures to underwrite customer policies.

 

   

Materials and equipment suppliers.    Materials and equipment suppliers furnish the materials, equipment, and supplies needed to complete construction, including lumber, drywall, fasteners, concrete, heavy machinery, and steel beams.

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. For example, a concrete contractor may not be able to pour concrete on a project until the mechanical, electrical, and plumbing, or MEP, contractors complete their scope of work. If the MEP contractors fail to complete their tasks as scheduled and that delay is not properly communicated to all affected stakeholders, then not only could the project fall behind schedule but the concrete may still arrive at the jobsite as originally scheduled, become unusable, and need to be disposed of, driving up costs and impacting profit margins. 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 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.

 

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One example of the interdependencies among stakeholders is the prevalence and complexity of a change order, which is a request to add, change or remove work from the original scope or design of a project and is generally required for any degree of structural revisions. To resolve a change order, multiple stakeholders must address a myriad of time-consuming tasks and approvals. Using traditional or legacy methods of project management, such as paper, email, fax, or on-premise software, a simple change order can take weeks to resolve given the multiple handovers that must occur (as the diagram below indicates). When multiplied by the numerous change orders that may be open at any given time on a project, resolution in days can quickly turn into weeks or even months, leading to costly rework, schedule delays and often triggering ripple effects to labor availability and project sequencing.

An Illustrative Example of Progress Hurdles:

Change Order Workflow

 

 

LOGO

The complexities and collective interdependencies of construction projects, as demonstrated by the change order management process, contribute to the challenges in building trust among stakeholders. This combination of complexity, interdependence, and lack of trust leads to frequent disputes and stakeholders attempting to shift responsibility. We believe better collaboration, communication, and transparency across all stakeholders can help strengthen trust across the industry and reduce the time and resources spent on litigation, which ultimately benefits all stakeholders.

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. Technology adoption was primarily reactive in nature and intended to address discrete issues, such as implementing an accounting system or using time tracking software to record hours worked. While these methods may improve the specific workflow for which they were designed, they have limited ability to improve overall project efficiency because of the lack of integration between various point solutions as well as the office and the field. 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

 

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$177.5 billion in labor costs in 2018. In fact, according to McKinsey, the typical non-residential construction project runs 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.

 

   

Mobile accessibility.    The availability of Wi-Fi, and mobile networks like 4G and LTE, have allowed users to access the internet on mobile devices with unprecedented speed and flexibility. According to a 2018 JBKnowledge construction survey, approximately 93% of construction workers surveyed use a smartphone and 62% use a tablet every day. The prevalence of mobile devices and the adoption of cloud technologies in the construction industry facilitate easy access to software from anywhere in the field and dramatically lower the cost of ownership and deployment of software on the jobsite. For example, workers can upload photos of potential issues from the construction site and receive updated instructions in real-time, reducing downtime and providing unprecedented transparency.

 

   

Labor shortage necessitates increased productivity.    The industry faces an extremely challenging labor dynamic, with 93% of contractors indicating that they are facing difficulties finding skilled workers. As of August 2019, the BLS estimated there were 384,000 unfilled construction jobs in the United States, an increase of nearly 22% year-over-year, suggesting that an already large shortage continues to worsen. Furthermore, in order to meet global infrastructure needs, it is estimated that the construction industry may demand up to 80 million more jobs globally by 2030. The shortage of skilled workers in construction is driving industry stakeholders to look for opportunities to increase worker productivity, such as implementing technology solutions. Moreover, the current generation of construction workers grew up with more information technology exposure than prior generations and is increasingly demanding technology solutions on the jobsite. These trends lead to increased pressure to adopt technology as industry stakeholders compete for talent.

 

   

Regulatory and contractual complexities.    Construction is subject to extensive local laws, regulations, and compliance standards intended to ensure the health and safety of workers and promote environmental sustainability. According to McKinsey, in North America, the number of construction-related regulations has grown from 463 in 1970 to 5,198 in 2017. In addition, demand for greater innovation and planning has increased project management complexity, leading stakeholders to rely on contracts to help shift risk among each other, which in turn can lead to increased frequency of litigation. Software solutions that enable shared project information increase transparency and can reduce the frequency and cost of litigation.

 

   

Data is underutilized.    Historically, construction data has been siloed and unstructured. According to the 2018 FMI Report, approximately 96% of all data goes unused in the engineering and construction industry. Workers may not consistently update blueprints or schematics to reflect work completed, leaving future workers and owners uncertain of what is behind a wall or in the ceiling. While some stakeholders recognized the value of capturing and

 

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leveraging their data as a competitive advantage, in recent years more stakeholders have started to see data as an operational necessity.

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 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 2017, approximately 1.5% of worldwide construction revenue was spent on IT solutions. Furthermore, Gartner estimates that in 2018, application software spending represented 6.1% of total IT spend, calculated as application software spend divided by total IT spend across all industries. We therefore estimate that the construction industry spends approximately $9.2 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 1.5% 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 $9.2 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 a November 2019 Frost & Sullivan estimate of the number of total owner, general contractor, and specialty contractor companies in our addressable geographies, by our median ARR as of December 31, 2019, for each company size (categorized by enterprise, mid-market, and small business). 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, and New Zealand. 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, 2019,

 

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59% of our customers subscribed to three or more of our products. However, as of December 31, 2019, only 41% 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 the 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 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. For example, attendance at Groundbreak has grown from approximately 200 attendees in 2015 to over 3,400 attendees in 2019. We also offer additional resources to the construction community, including certified continuing education courses, training programs, online content libraries, and free software to universities, trade unions, and non-profits through our in-house social impact team, Procore.org. We offer over 100 on-demand online courses, as well as training and networking events. Someone earns a Procore certification on average every four minutes and we have issued over 200,000 certifications to date. In addition, 86% 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 products 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 products. A core part of our strategy is our user-centric development culture. We engage with the construction community to understand their needs and work with our customers to develop, iterate, and improve our products and technology. For example, as part of our Innovation Labs program, customers work closely with our engineers, designers, and product managers to develop creative solutions to common problems faced in construction. 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, 2019, we had published over 3,500 publicly available tutorials and FAQs. We also believe time-to-resolution is critical, which is why in 2019 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%.

 

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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, 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.

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.

 

 

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Product Categories

 

   

Preconstruction.    Selecting the right specialty contractors and vendors for a construction project is critical to the successful outcome of the project. The process is often manual, disorganized, time-consuming and resource-intensive, requiring the collection of extensive documentation and multi-faceted bids that typically include sensitive information. Our

 

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Preconstruction products facilitate collaboration between internal and external stakeholders during the planning, budgeting, and partner selection phase of a construction project. Our products are designed to help reduce financial and operational risk before construction begins.

 

   

Project Management.    Construction teams struggle with poor communication between the field and office, time-consuming processes, and getting updated and accurate information to all project stakeholders. Teams often lack the ability to effectively collaborate on workflows, such as structure design, or changes to plans that become necessary in the field. Tracking project progress and ensuring procedures are in line with quality and safety standards is often manual or done using disparate point solutions. These dynamics lead to risky work environments, rework, training gaps, and strained relationships, often resulting in millions of dollars in cost overruns and litigation. 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. Our products and platform enable real-time collaboration, information storage, design, and regulation compliance for teams on the jobsite and in the back office.

 

   

Resource Management.    Construction teams responsible for performing work on the jobsite are often unable to efficiently track labor productivity, which leads to schedule delays, inefficient use of time, margin loss, and rework. Our Resource Management product helps customers address these problems by tracking labor productivity to improve time management and by managing profitability on construction projects. By using our product, customers are also creating detailed productivity records that can be referenced during the bidding process.

 

   

Financial Management.    Managing construction financials is often a slow, expensive, and manual data entry process. Construction teams need to be able to monitor budgets on individual projects and across entire portfolios of projects in order to maximize project profitability and plan for the long-term. Teams lack real-time access to accurate financial data that is critical to managing changes that impact budgets or allow for efficient invoicing. Traditionally, construction teams have not had access to collaborative financial applications that connect the field to the office. 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 products improve cost management, invoice collection and review, budget forecasting and tracking, and capital planning. Our platform also supports integrations with a majority of the industry’s preferred accounting systems.

Procore App Marketplace

Our platform gives customers the freedom to connect with over 180 third-party applications currently in our App Marketplace. Our App Marketplace extends the functionality of our existing products, connecting critical business workflows and processes, and enabling customers to maintain a single system of record while being able to leverage software solutions providing an array of functionality. This ecosystem provides customers with support in analytics, accounting, scheduling, compliance, and customer relationship management, among many other categories. While our customers may pay fees to certain third-party developers in order to use their applications that integrate with our platform, we do not earn any fees or commissions from either our customers or these third-party developers for accessing or using our App Marketplace.

Our App Marketplace represents a key competitive differentiator for us and has been widely adopted by our customers, providing significant value while demonstrably increasing the stickiness of our products and providing a future pipeline for potential acquisitions. As of December 31, 2019, approximately 72% of our customers use at least one integration and over 40% use two or more.

 

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Within the construction industry, integration of third-party applications with our platform and a presence in the App Marketplace are increasingly seen as requirements for adoption and usage by our customer base.

Procore Analytics

Our analytics product offers advanced analytics and business intelligence, or BI, capabilities, allowing customers to monitor projects and drive more informed decision-making for their business. Procore Analytics provides access to approximately 100 pre-built reports and the ability to build custom visualizations leveraging their enterprise data in Microsoft Power BI. Cross-tool reporting, configurable dashboards, and advanced data visualization all help turn project data into business insight. We launched Procore Analytics to a limited number of customers in October 2019 as a response to increasing customer demand for enhanced visibility into their data on our platform.

Procore Shared Technology Services

Our platform includes a number of shared services that underlie our products and enable us to launch new products and extend the capabilities of our existing products. The user directory, reporting, tasks, search, and other components of our platform are examples of the underlying shared services that our customers can use across our products. In order to create a centralized hub for construction project information, we have developed an open and extensible platform that connects our customers’ business applications, people, devices, and data. We have also developed highly configurable forms, data fields, and workflows, enabling our customers to centralize their data on our platform. Our platform services are designed around four defining attributes that increase the breadth and depth of our offering, improve usability, and enable a unified experience. These include:

 

   

UI Customization.    Our platform is designed to be flexible and adaptable, providing native mobile and desktop user interfaces, or UI, to both our internal and third-party developers. This means developers can accelerate design and development efforts by accessing Procore’s core UI components and design guidelines helping ensure a consistent user experience. We also offer third-party developers the ability to create embedded applications, which we call Embedded Apps, a feature that allows developers to insert their apps directly into our UI. This creates an experience that reduces user friction and context switching between different applications, while providing our familiar UI to users when introducing new third-party applications.

 

   

Customizable Business Logic.    Our products are designed to work the way our users work. Customers can create designated workflows to match the approval sequence and processes that are appropriate for their businesses. Our platform offers configurable fields and forms, improving the degree of precision with which customers can track data and secure documentation. Additionally, our platform offers comprehensive user permission functionality. These permissions define who has access to certain project and company-level information. By default, we provide customers with several role-based permission templates, and these permissions are configurable down to the tool access level by user.

 

   

APIs.    Our platform features developer-friendly open APIs and tools that are designed to empower our customers and third-party developers to build their own integrations or customized applications, thereby expanding the functionality of our products.

 

   

Data.    As data is generated on our platform, it is securely stored in centralized databases. Our platform enables our customers to search across their data, empowering real-time analytics and customizable reporting. Users have access to insights that can be derived from data generated by their account usage across our platform. Additionally, our platform allows us to collect aggregated, anonymized data that we can use to develop new products and features, as

 

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well as better support our customers as they navigate challenging industry and market conditions.

Our platform typically serves as a system of record for our customers’ projects, meaning 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 the number of projects and the construction volume managed on our platform grows, so does the amount of data that our platform captures. This enables our customers to analyze their data and derive insights to better operate their business. As of December 31, 2019, user activity generated over 3,000 terabytes of data and on average added over 110 terabytes of data per month in 2019.

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.

Our business benefits from powerful network effects, which can increase our value creation, provide competitive advantages, and drive higher return on investment to our existing and potential customers. As we grow, the value of our business increases across three key dimensions:

 

   

Ecosystem.    Our business model is designed to encourage rapid, widespread adoption 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 2019, on average, each customer invited over 170 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 are incentivized to participate on a project using our platform as it enables them to ensure they have real-time access to necessary project information and allows them to more easily complete complex business workflows digitally. Additionally, although collaborators can participate in projects they are invited to for free, they still have an incentive to become customers, as collaborators do not control what information they get access to, may not be able to access project information after a project is complete, and cannot run their complete portfolio of projects on our platform. In 2019 we had over 1.3 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.

 

   

Products.    We believe our expertise in construction and close relationship with our customers and collaborators enable us to deliver easy-to-use and feature-rich products, specifically tailored to solve the problems of the industry’s key stakeholders and help them manage their businesses more effectively. Our products are offered à la carte and are integrated into our cloud-based platform.

 

   

Data.    Our platform captures extensive data across stakeholders and each stage of a project, which enables us to create a system of record for all stakeholders and to analyze project and industry trends. Our platform captures data encompassing bidding, safety, cost, quality, scheduling, materials, supplier information, and other types of data. Our powerful data assets also allow us to have deeper insights into the construction industry that we can, in turn, offer to our customers.

 

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Benefits to Our Core Customer Stakeholders

We believe that our ability to deliver products that address our customers’ specific needs while enabling streamlined communication and real-time access to data is essential to driving increased productivity and efficiency, improved safety and compliance, and enhanced collaboration and accountability. According to the 2018 Procore Survey, 93% of individual respondents say their company is more protected against claims or litigation due to the data tracked in Procore.

The 2018 FMI Report estimates that employees at construction companies spend 35% of their time on “non-optimal” tasks, such as dealing with mistakes and rework. According to the 2018 Procore Survey, our customers report improved efficiency across many critical project workflows and tasks which helps customers save time, and we believe meaningfully help reduce the non-optimal time customers spend. For example, in the 2018 Procore Survey:

 

   

87% of individual respondents reported that after using our products, submittals were processed faster;

 

   

84% of individual respondents reported they were able to process requests for information, or RFIs, faster with our products; and

 

   

85% of individual respondents reported closing punch list items faster after using our products.

While we currently serve key stakeholders in varying capacities, our target customers are owners, general contractors, and specialty contractors.

Owners

Owners are the beneficiaries of the end result of a construction project, but if the project is over budget, or not completed on schedule, the owner can be responsible for funding the overage or incurring lost revenue. Owners need the ability to plan capital expenditures, accurately estimate project costs, source high quality general contractors to manage construction work, and track project progress with a high degree of visibility. By reducing friction that hinders collaboration, our products can help owners track cost updates, project status, and change orders. We help owners save significant time and money by providing financial and operational visibility into their projects. It is critical for owners’ bottom lines that they remain informed of what work has been completed, when it was completed, and what specifically was built or installed. Not only is this information crucial for ongoing projects, but it is also necessary for long-term asset management, as the underlying data allows for more efficient, effective, and predictive maintenance.

General contractors

General contractors operate under immense pressure, with little room for error, as they often manage their businesses with small profit margins. Inadequate information flows, such as not providing specialty contractors with the latest set of plans, can result in costly project delays, overages, and unfulfilled expectations. General contractors are also compelled to perform duplicate data entry in disparate systems and are accustomed to dealing with invoicing errors, information silos, and disconnected point solutions. For example, general contractors must often collect and consolidate dozens of invoices from their specialty contractors each month before invoicing the owner. This process can require days or even weeks of effort, depending upon a project’s complexity and the number of specialty contractors. With our platform, that process can be greatly condensed. We have developed a cloud-based platform to allow general contractors to manage their projects from a smart device in their hand, with the goal of facilitating exceptional teamwork, reducing costly rework, mitigating risk, and improving profit margins.

 

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Specialty contractors

For specialty contractors to be successful, it is imperative that they are able to effectively track and manage their crews, materials, and equipment. Specialty contractors have to get the right people to the right jobsite at the right time with the correct materials and equipment. However, specialty contractors often utilize disparate point software solutions or antiquated documentation systems, such as pen and paper and even white boards, which means they lack a consistent way to track labor production rates, monitor safety compliance and quality of work, ensure they are working off the latest set of plan and schedules, or document work completed as part of the invoicing process. Specialty contractors frequently experience delays and disruptions in work progress as a result of not having timely access to the most up-to-date information, such as when other stakeholders make changes to project plans or schedules and do not effectively communicate those changes to specialty contractors. For example, when a specialty contractor submits a change order, they typically cease work until the change order is approved by the owner and the decision is communicated back to the specialty contractor, which can take weeks. Our products feature intuitive, easy-to-use tools that allow specialty contractors to leverage accurate, real-time information, reduce unnecessary data entry, visualize productivity trends, document completed work, and get paid the correct amounts faster.

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. In contrast, construction software solutions that use a per-seat pricing model ultimately restrict adoption, limiting access to project data to a limited number of project participants and preventing the centralization of all information on a jobsite. 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 workflows spanning the construction lifecycle, from pre-construction 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. Importantly, by offering products that integrate workflows throughout the entire project lifecycle, customers can manage projects and perform many of their day-to-day tasks without leaving their Procore account or needing to access multiple systems. The power of our platform is evidenced by our scale and user engagement. For example, in 2019, our customers uploaded or created more than 80 million photos, 61 million documents, and 55 million inspection items.

 

   

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

 

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and benefit from the power of our products. We believe that enabling construction workers to complete complex workflows and consume critical project data from the jobsite, all from a simple user interface, drives customer adoption and success.

 

   

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 2018 Procore Survey, which concluded that 90% of individual respondents said their client satisfaction has increased since using Procore.

 

   

We offer excellent customer success and support, driving ease-of-use and fast time to value.    We have 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 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. In addition to live chat and email support offered across multiple languages, our customer success organization provides our customers with trainings, educational programs, and industry seminars to help them grow and manage their businesses. We believe that our focus on customer success helps our customers quickly realize value from our platform.

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.    We believe the investments we have made in research and development to build our technology have been a core differentiator of our products and platform. We plan to continue to invest in technology innovation and product development, and we believe that our customers will benefit from new features and products that enable them to manage additional workflows on our centralized platform.

 

   

Acquire new customers.    We believe the market for construction technology and collaboration tools is in its early phases of adoption. As of December 31, 2019, we had 8,506 customers, which we believe represents just 2% of the total number of customers to whom we can sell, based on Frost & Sullivan’s estimated addressable customers. We plan to continue to expand our sales and marketing efforts to drive awareness of our products and grow our customer base, focusing on owners, general contractors, and specialty contractors. The portion of our current user base made up of collaborators invited to participate in our customers’ projects represents a significant opportunity to increase our revenue. These users are incentivized to become customers in order to gain visibility and control across their projects with actionable insights from a single system. In the future, we have the potential to monetize additional adjacent stakeholders, including a broad set of industry participants who are potential customers of our existing products and those whom we plan to address with targeted new products over time.

 

   

Increase spend within our customer base.    We plan to drive additional spend from existing customers by capturing more projects, selling them additional existing products, and offering new products that address additional customer needs. We started 2017 with four products and in 2018 we introduced Invoice Management, Design Coordination and Bid Management, followed by 2019, when we added Capital Planning, Portfolio Financials, BIM, Invoice Management and Analytics, to our installed base and announced the launch of Prequalification.

 

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These products present significant opportunities for cross-selling. We also plan to offer additional products designed to support specific stakeholders. For example, Capital Planning and Portfolio Financials are a new set of products tailored to the needs of owners, which include the functionality from our recent acquisition of Honest Buildings.

 

   

Expand internationally.    We believe there is a global need for construction management software and that the global market is currently underpenetrated, representing a significant opportunity. As of December 31, 2019, our customers were running projects in over 125 countries. In 2019, only 11.3% of our revenue was generated from customers outside of the United States. We believe this presents us with a large opportunity for continued international expansion. We recently opened offices in London, England and Mexico City, Mexico, and have had offices in Sydney, Australia and Vancouver and Toronto, Canada since 2017. We plan to open offices and hire sales and customer experience teams in additional countries, and expand our presence in the countries where we already operate.

 

   

Extend our industry connectivity and our position as a trusted brand.    We believe there are powerful network effects to our business, and to capitalize on these effects we intend to focus on driving higher engagement with customers, collaborators, and the broader construction community. We will continue to invest in expanding our ecosystem, developing new partnerships, and supporting more integrations, which we believe will drive more functionality, richer data, improved user experiences, and higher collaboration and connectivity on our platform. In addition, we plan to continue to invest in growing our brand and expanding on our key community and user initiatives including Procore.org, Procore Community, Jobsite, and our annual Groundbreak construction industry conference. By bringing a large and diverse user base to our platform, from customers and collaborators, to students and volunteers as part of our non-profit programs, we grow our ecosystem and revenue opportunity with new and existing customers.

 

   

Pursue targeted acquisitions.    We have made and may in the future make select acquisitions to add innovative features and functionality to our platform, accelerate our end-to-end cloud-based platform strategy, and bring talent to our team. Our App Marketplace provides us with visibility into our customers’ interactions with many third-party applications. For example, in 2019, we acquired Honest Buildings, an existing App Marketplace application and a provider of financial and project management software for owners, allowing us to further extend our products and platform to this group of key stakeholders. We believe that our industry brand and App Marketplace provide us with an advantage in pursuing our acquisition strategy.

Our Products

Our platform features four integrated product categories, allowing data and workflows to transparently cross the phases of a construction project. Our customers typically purchase subscriptions to access our products on a product-by-product basis.

Preconstruction

 

   

Prequalification.    Procore Prequalification streamlines the process of selecting specialty contractors and vendors for construction projects, connecting all stakeholders involved in the process in one place. Customers can easily send out requests for documentation to potential partners, which are then collected, standardized, and aggregated within the Prequalification product. From there, customers can evaluate which partners have the capability, capacity, and resources to be hired for their project. Customers can also access and store financial data, increasing project team visibility without compromising confidentiality.

 

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Bid Management.    Procore Bid Management organizes the complex bidding process, from bid package creation to bid award, allowing customers to track and assess the significant volume of bids that are typically submitted to work on a given construction project. Bid Management also provides vendors with a single location to access bid package details, files, and communications to simplify the bid submission process.

Project Management

 

   

Project Management.    Procore Project Management provides every team member on a construction project with real-time access to the information they need via a single, accurate, up-to-date source. Project Management centralizes and facilitates collaboration on schedules, specifications, submittals, drawings, RFIs, and outstanding tasks. Users have the ability to log critical information, track project progress, and escalate issues for approvals from the correct team members. Project Management is designed to increase transparency and accountability across the entire project team, reducing litigation risk and the shifting of responsibilities.

 

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Quality & Safety.    Procore Quality & Safety allows field teams to continuously record, monitor, evaluate, and improve procedures in order to maximize compliance with safety regulations and quality specifications. Additionally, the product helps users identify, understand, and proactively resolve the causes of issues and risky behaviors before they result in an injury or accident.

 

 

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Design Coordination.    Procore Design Coordination helps users identify and resolve conflicts in a building’s structural and systems plan before construction begins, thereby reducing the need for change orders during construction. Our product improves the virtual design and construction process so all necessary stakeholders can work collaboratively with the team designing the 3-D building model.

 

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Building Information Model.    BIM enables users in the field to view and collaborate on 3-D models, which allow construction teams to more efficiently construct buildings. Users can access project models with an easy-to-use navigation interface that ties 3-D models to drawings that field teams are comfortable using. Field workers have real-time, constant access to the BIM model, improving decision-making and quality of work.

 

 

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Resource Management

 

   

Field Productivity.    Procore Field Productivity enables specialty contractors to track hours worked and quantities installed in real-time so they can make daily decisions that help keep projects on schedule and within budget, while maximizing profitability. In using Field Productivity, customers are also creating a detailed record of historical productivity rates, which streamlines the time-intensive payroll process for smaller contractors and can also be leveraged in order to more accurately bid for future jobs.

 

 

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Financial Management

 

   

Project Financials.    Procore Project Financials is a robust solution for managing the financial health of a construction project. Customers can track, forecast, and manage project costs, budgets, and change orders with reliable data drawn from the field. These real-time insights help customers facilitate more accurate communication, generate faster approvals, and reduce financial risk.

 

   

Invoice Management.    Procore Invoice Management expedites the invoice creation, collection, review, and approval process across stakeholders. Our products allow customers to automate the creation of invoices while helping to ensure accuracy and reduce delays in payment. By streamlining the payment process, Invoice Management helps to reduce schedule delays arising from disruptions in cash flow.

 

   

Portfolio Financials.    Procore Portfolio Financials is purpose-built for owners, enabling these stakeholders to track and approve expenditures across their portfolio of construction projects.

 

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Users can compare bids across different general contractors and manage budgets, change orders, and invoices all in one place.

 

   

Capital Planning.    Procore Capital Planning enables owners to track, analyze, and forecast budgets across an entire portfolio, with a focus on long-term planning. Our product aggregates project cost data, enabling our customers’ to update capital plans in real-time and inform their forecasts.

 

   

Accounting Integrations.    Procore Accounting Integrations integrates with our customers’ accounting systems to minimize manual data entry and reduce errors created through double entry. Accounting integrations sync project information between the field and office so informed decisions can be made using up-to-date project and cost data.

Procore Analytics

 

   

Procore Analytics.    Our Procore Analytics product gives customers the ability to generate deep insights across data aggregated from across all projects, various products, and integrated accounting software. Customers can track trends and conduct analysis using approximately 100 pre-built reports, all of which are customizable to suit individual customer needs.

 

 

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Our Customers

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. As of December 31, 2019, our customers were running projects in over 125 countries. No single customer, including customers that have separate subsidiaries, segments, or divisions that have subscriptions for our products, accounted for more than 10% of our revenue in 2017, 2018, and 2019.

 

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Customer Stories


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Boston Children’s Hospital Situation Since its founding in 1869, Boston Children’s Hospital (“BCH”) has grown to become the number one hospital in the United States for pediatric and adolescent health care. Each year, BCH opens its doors to approximately 25,000 critically ill-children, young adults, their families, and the hospital staff that care for them. As BCH prepared for their ten-year, three billion dollar plan to expand their healthcare services, they needed something better than their in-house project management system. Solution and Benefits BCH replaced their in-house system with Procore products, recognizing that custom-built solutions were more expensive and less effective. Our products empowered the project managers executing BCH’s vision to work with high efficiency, agility, and less rework. BCH achieved this without expensive custom-built systems, instead opting for Procore’s centralized and integrated project management system. Since adopting our products, BCH has reported the following benefits: + Mitigated risk of costly inefficiencies with oversight of project locations, collaborators, and information. + Reduced rework with standardized processes and Boston Children’s Hospital up-to-date drawings across all teams. uses Procore to empower + Improved safety and compliance across teams. project managers to accelerate efficiency with + Centralized visibility and insights with a secure less rework. document retention plan. Every one of our When I started at BCH, my job was consumed major contractors by a homegrown system and dashboard. Our has adopted project managers were closing out projects Procore. with banker boxes full of invoices, contracts, ALBERT NOVER documents, transmittals, and RFIs. These BCH FINANCE AND project managers were managing this all in CONTRACT MANAGER Microsoft Outlook. The extra work that this created for them was mind boggling. ALBERT NOVER BCH FINANCE AND CONTRACT MANAGER


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Boston Children’s Hospital Situation Since its founding in 1869, Boston Children’s Hospital (“BCH”) has grown to become the number one hospital in the United States for pediatric and adolescent health care. Each year, BCH opens its doors to approximately 25,000 critically ill-children, young adults, their families, and the hospital staff that care for them. As BCH prepared for their ten-year, three billion dollar plan to expand their healthcare services, they needed something better than their in-house project management system. Solution and Benefits BCH replaced their in-house system with Procore products, recognizing that custom-built solutions were more expensive and less effective. Our products empowered the project managers executing BCH’s vision to work with high efficiency, agility, and less rework. BCH achieved this without expensive custom-built systems, instead opting for Procore’s centralized and integrated project management system. Since adopting our products, BCH has reported the following benefits: + Mitigated risk of costly inefficiencies with oversight of project locations, collaborators, and information. + Reduced rework with standardized processes and Boston Children’s Hospital up-to-date drawings across all teams. uses Procore to empower + Improved safety and compliance across teams. project managers to accelerate efficiency with + Centralized visibility and insights with a secure less rework. document retention plan. Every one of our When I started at BCH, my job was consumed major contractors by a homegrown system and dashboard. Our has adopted project managers were closing out projects Procore. with banker boxes full of invoices, contracts, ALBERT NOVER documents, transmittals, and RFIs. These BCH FINANCE AND project managers were managing this all in CONTRACT MANAGER Microsoft Outlook. The extra work that this created for them was mind boggling. ALBERT NOVER BCH FINANCE AND CONTRACT MANAGER


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Oxford Properties Group Situation Oxford Properties Group (“Oxford”) is a global real estate investor, manager, and developer. Oxford owns and manages over 100 million square feet of premier real estate in North America, Europe, and Asia Pacific. Oxford was looking for improved access to project data in order to make better decisions and view their entire portfolio. Solution and Benefits Oxford strives for faster, better, cheaper and Procore products gave them a better way to run their business, with a single platform and dashboard to manage decision making rather than multiple spreadsheets and PDF files. Since adopting our products, Oxford has reported the following benefits: + Data driven insights. + Improved execution, and bid tracking and comparisons. + Cost savings through efficiency gains. Oxford Properties Group is a global real estate company that uses Procore is the only platform that we’ve come Procore to better manage decisions across that is built for owners. I believe that it through a single platform. should be used by every leader in the industry, by every major real estate company around the world. MICHAEL TURNER PRESIDENT OF OXFORD PROPERTIES GROUP


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Earth Bound Homes Situation Earth Bound Homes is a custom home building and remodeling company that is rated one of the top Green Builders in California. Earth Bound Homes used five separate software programs, including internally developed tools, to manage construction projects. The separate tools frequently broke or only worked with a WiFi connection, creating data silos and making project management time-consuming. As their business was growing, Earth Bound Homes needed a software solution that would help them to scale. Solution and Benefits By adopting Procore products, Earth Bound Homes consolidated all their project information in one place. With offline access, teams can view and update documents anytime and anywhere. Earth Bound Homes has reported the following benefits: + Procore products helped the company scale quickly, as they quintupled their income. + Reduced software solutions from five to two, while also reducing the amount of administrative work for employees. + Saved each team member, on average, an estimated two hours per week. Earth Bound Homes is a custom home builder that consolidated all We’ve quintupled in size income-wise. We’ve project information in one place tripled in size manpower-wise. And our profitability with Procore. is 15 times what it used to be. Procore has absolutely played a role in allowing us to scale. I can honestly say that we would not have been able to do what we’ve done as profitably or as efficiently—and without any headaches—if we didn’t have Procore. DAVE EDWARDS PRESIDENT AND CEO OF EARTH BOUND HOMES


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Facility Solutions Group Situation Facility Solutions Group (“FSG”) is a full-service electrical specialty contractor. FSG was looking for standardized methods for handling construction documentation across its 29 branches, for all types of projects. They needed to streamline communications and implement an inventory tracking system to ensure they were not accidentally releasing products before they were approved. Solution and Benefits FSG adopted Procore products to standardize document handling procedures and consolidate the data for its branches. Prior to Procore, members of the FSG team had used a few other software packages and struggled with them, but they were excited about our products’ breadth of features and user-friendliness. During the evaluation stage, one construction manager said, If FSG chooses not to go with Procore, we’re going to go with Procore as a branch. Since adopting our products, FSG has reported the following benefits: + Improved communications between the office and field personnel, reducing errors in installation and cost. + Streamlined workflow processes and reduction of errors in document management. + Flexibility in permissions and user privileges, allowing FSG to control access to its projects. + Reduced need for IT resources, while increasing adoption from workers, including older trade workers. Facility Services Group is a specialty contractor that adopted Procore for ease of use and breadth The more we use Procore, the more we of features. find creative ways to streamline our internal processes, such as quality assurance and quality control, team meetings, job reporting, daily activity tracking, submittals, and RFIs. This is the next level of success.” DEON SNIDER DIRECTOR OF CONSTRUCTION DEVELOPMENT AT FSG


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Sales and Marketing

We primarily sell subscriptions to access our products through our direct sales team, which is specialized by stakeholder region, size, and type, and is serviced regionally from offices in the United States and Canada, Australia, England, and Mexico. We combine an inside sales model with a field sales team targeting large accounts. Our install base team focuses on renewals and account expansion. Our construction volume-based pricing model and number of product offerings create multiple opportunities for expansion.