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PROCORE TECHNOLOGIES, INC.

(PCOR)
  Report
Delayed Nyse  -  04:00 2022-10-06 pm EDT
56.40 USD   +0.57%
09/26Procore Technologies Opens Middle East and North Africa Office in Dubai
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09/26Procore Opens First MENA Office in Dubai to Reinforce Industry Commitment
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09/26Procore Opens First MENA Office in Dubai to Reinforce Industry Commitment
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PROCORE TECHNOLOGIES, INC. Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

08/05/2022 | 04:55pm EDT
You should read the following discussion and analysis of our financial condition
and results of operations in conjunction with our condensed consolidated
financial statements and the related notes and other financial information
included elsewhere in this Quarterly Report on Form 10-Q and our audited
consolidated financial statements and notes thereto and the related Management's
Discussion and Analysis of Financial Condition and Results of Operations
included in our Annual Report on Form 10-K dated March 4, 2022. You should
review the disclosure under "Part II, Item 1A - Risk Factors" in this Quarterly
Report on Form 10-Q 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. These statements, like all statements in this
report, speak only as of their date (unless another date is indicated), and we
undertake no obligation to update or revise these statements in light of future
developments. Unless the context requires otherwise, references in this
Quarterly Report on Form 10-Q to the "Company", "Procore," "we," "us" and "our"
refer to Procore Technologies, Inc. and its consolidated subsidiaries.

                                    Overview

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


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

In short, we build the software for the people that build the world.


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.

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

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

                   Certain Factors Affecting Our Performance

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


We are highly focused on continuing to acquire new customers to support our
long-term growth. We intend to efficiently drive new customer acquisitions by
continuing to invest across our sales and marketing engine to engage our
prospective customers, increase brand awareness, and drive adoption of our
products and platform. We added 594 net new customers in the second quarter of
2022. The number of customers on our platform has increased from 11,149 as of
June 30, 2021 to 13,403 as of June 30, 2022, reflecting a year-over-year growth
rate of 20%. All customer counts aforementioned exclude the customers acquired
from Levelset, LaborChart, and Esticom, Inc. ("Esticom"), as they are on
non-standard legacy contracts.

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Levelset, LaborChart, and Esticom customers will be included in our customer
metrics when they are renewed onto standard Procore annual contracts or upon
integration of the sales process. Levelset has more than 3,000 customers as of
June 30, 2022.

Our ability to continue to grow our business and serve the broader needs of the
construction industry depends on acquiring new customers, customers purchasing
new products, renewing and expanding their use of existing products, and
maintaining or increasing the price of our existing products.

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
introduced new products developed in-house and through our acquisitions of
Zimfly, Inc., Honest Buildings, Inc., Construction BI, LLC, Esticom, LaborChart,
and Levelset.

In connection with our acquisition of Levelset, we assumed, and continue to
develop, a materials financing program for our customers. Purchasers of
construction materials, typically specialty contractors, generally pay their
materials suppliers on 30-day payment terms but typically do not recoup their
costs for such materials for 60 to 120 days after they submit invoices for those
materials to the general contractors. This disconnect between payment terms set
by suppliers and when specialty contractors receive payment for those materials
can pose risk and uncertainty to specialty contractors and their ability to
manage their cash flow. Our materials financing program facilitates the purchase
of construction materials from fulfillment partners (our suppliers) on behalf of
our customers, allowing such customers to pay us for the materials on deferred
payment terms. We typically charge an origination fee upon purchase of the
materials and a weekly finance charge until receipt of deferred payment in full.
We use internal data where available on the performance and payment history of
other project participants (like the property owner and general contractor) who
are involved in the construction project to help determine whether to provide
materials financing for such project, and we secure such financing with
mechanic's lien rights. In circumstances of customer non-payment, our lien
rights help enforce payment collections from property owners, lenders, and
general contractors who are involved in such project, which in turn strengthens
the collectability of amounts we finance for our customers. We are currently
using capital from our balance sheet for our materials financing program.
Ultimately, we anticipate partnering with a capital provider at the appropriate
time to dedicate the financing needed to scale this program. Until that time, we
may use up to approximately 10% of our current cash position to support the
program.

We intend to continue to invest in building additional products, financial
offerings, 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 acquisitions of LaborChart and Levelset closed
in the fourth fiscal quarter of 2021, and, as such, we expect that expenses,
both in dollars and as a percentage of total revenues, may increase from the
current or historical periods. 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. We have started to grow our presence internationally with the opening of
sales and marketing offices in Sydney, Australia and Vancouver and Toronto,
Canada in 2017; London, England in 2018; Mexico City, Mexico in 2019; and
Singapore, Republic of Singapore; Paris, France; Dublin, Ireland; and Dubai,
United Arab Emirates in 2022. We have also developed focused sales and marketing
efforts in Germany, where we do not yet maintain an office location. As a result
of our international efforts, we support multiple languages and currencies.

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.

COVID-19 Update

The ongoing COVID-19 pandemic has caused general business disruption worldwide
beginning in January 2020. Some local governments temporarily closed
construction jobsites or imposed restrictions on construction activity, such as
limiting the

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number of workers allowed on site. Construction teams had to learn to navigate
pandemic safety protocols on jobsites and coordinate already complex
construction processes with increasingly distributed workforces. Owners had to
reconfigure existing buildings to improve safety and consider new distancing
requirements in project designs, all amid increased materials and labor costs.
We believe that the COVID-19 pandemic has helped bring to light the need for
construction stakeholders to digitize their operations and adopt technological
solutions that enable distanced, distributed workforces. The impact of the
COVID-19 pandemic and its effects on the construction industry continue to
evolve, and the impact on our financial condition and results of operations
remains uncertain.

Furthermore, the COVID-19 pandemic has spurred changes in the way we work as we
move to a more hybrid workforce. Some of our employees have begun to return to
in-person offices in 2022; however, that may change if the number of COVID-19
cases rises where our offices are located or if there is an increase in new
variants, and we may take further actions as may be required by government
authorities or that we determine are in the best interests of our employees,
customers, and business partners.

The full extent to which the COVID-19 pandemic, including any new variants, may
directly or indirectly impact our business, results of operations, and financial
condition will depend on future developments that are highly uncertain and
cannot be accurately predicted. See the section titled "Risk Factors" for
further discussion of the possible impact of the COVID-19 pandemic on our
business and financial results.

                      Components of Results of Operations

Revenue


We generate substantially all of our revenue from subscriptions to access our
products and related support. Subscriptions are sold for a fixed fee and revenue
is recognized ratably over the term of the subscription. Our subscriptions
generally have annual or multi-year terms, are typically subject to renewal at
the end of the subscription term, and are non-cancelable. 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, stock-based compensation, benefits,
payroll taxes, commissions, and bonuses, third-party hosting costs, software
license fees, amortization of acquired technology intangible assets,
amortization of capitalized software development costs, and allocated overhead.
We expect our cost of revenue to increase on an absolute dollar basis as our
revenue and acquisition activities increase. 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.

Subsequent to our IPO in 2021, we have incurred higher cost of revenue expenses
as a result of stock-based compensation expense associated with restricted stock
units ("RSUs") where the performance condition was satisfied upon the effective
date of the registration statement for our IPO, and higher employer payroll
taxes related to employee stock transactions. We anticipate additional
stock-based compensation expense and employer payroll tax related to employee
stock transactions going forward. In addition, we recorded and will continue to
record significant amortization of acquired developed technology intangible
assets as a result of our acquisitions of Levelset and LaborChart in the fourth
quarter of 2021.

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 expenses are the most significant
component, which include salaries, stock-based compensation, commissions,
benefits, payroll taxes, and bonuses. To support the growth of our business, we
also increased our headcount in each of these categories, including, to a
limited extent, through our acquisitions.

Subsequent to our IPO in 2021, we have incurred higher operating expenses as a result of stock-based compensation

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expense associated with RSUs where the performance condition was satisfied upon
the effective date of the registration statement for our IPO, and higher
employer payroll taxes related to employee stock transactions. We anticipate
additional stock-based compensation expense and employer payroll tax related to
employee stock transactions going forward.

Sales and Marketing


Sales and marketing expenses primarily consist of personnel-related compensation
expenses for our sales and marketing organizations, advertising costs, marketing
events, travel, trade shows and other marketing activities, contractor costs to
supplement our staff levels, consulting services, 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 as well as investment in marketing to drive
customer growth.

Research and Development

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

General and Administrative


General and administrative expenses primarily consist of personnel-related
compensation expenses for our finance, executive, information technology, legal,
human resources, 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 transaction expenses, costs associated with
operating as a public company, including insurance costs, professional services,
investor relations, and other compliance costs, property and use taxes,
licenses, travel and entertainment costs, and allocated overhead. We expect to
increase the size of our general and administrative functions to support the
growth of our business, including our international expansion.

Interest Income (Expense), Net


Interest income (expense), net consists primarily of interest income from money
market funds, and is partially offset by interest expense associated with our
finance leases and undrawn fees associated with our former credit agreement (the
"Credit Facility"), terminated as of April 29, 2022, which was provided by
Silicon Valley Bank.

Other Expense, Net

Other expense, net primarily consists of gains or losses on foreign currency transactions and miscellaneous other income and expenses.

Provision for Income Taxes


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


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                             Results of Operations

The following tables set forth our condensed 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.


                                               Three Months Ended June 30,           Six Months Ended June 30,
                                               2022                 2021               2022               2021
                                                                       (in thousands)
Revenue                                    $     172,205       $       122,790     $     331,721       $  236,728
Cost of revenue (1)(2)(3)                         36,735                25,493            70,067           45,852
Gross profit                                     135,470                97,297           261,654          190,876
Operating expenses:
Sales and marketing (1)(2)(3)(4)                 103,283                99,905           197,198          153,870
Research and development (1)(2)(3)(4)             63,822                88,627           124,076          123,172
General and administrative (1)(3)(4)              40,667                57,827            83,819           75,754
Total operating expenses                         207,772               246,359           405,093          352,796
Loss from operations                             (72,302 )            (149,062 )        (143,439 )       (161,920 )
Interest income (expense), net                       111                  (576 )            (380 )         (1,138 )
Other expense, net                                  (890 )                 (44 )            (347 )           (227 )
Loss before provision for income taxes           (73,081 )            (149,682 )        (144,166 )       (163,285 )
Provision for income taxes                            42                    37               376              166
Net loss                                   $     (73,123 )     $      (149,719 )   $    (144,542 )     $ (163,451 )



                                               Three Months Ended June 30,              Six Months Ended June 30,
                                              2022                   2021              2022                  2021
                                                                  (as a percentage of revenue)
Revenue                                            100 %                   100 %            100 %                 100 %
Cost of revenue (1)(2)(3)                           21 %                    21 %             21 %                  19 %
Gross profit                                        79 %                    79 %             79 %                  81 %
Operating expenses:
Sales and marketing (1)(2)(3)(4)                    60 %                    81 %             59 %                  65 %
Research and development (1)(2)(3)(4)               37 %                    72 %             37 %                  52 %
General and administrative (1)(3)(4)                24 %                    47 %             25 %                  32 %
Total operating expenses                           121 %                   201 %            122 %                 149 %
Loss from operations                               (42 %)                 (121 %)           (43 %)                (68 %)
Interest income (expense), net                       0 %                    (0 %)            (0 %)                 (0 %)
Other expense, net                                  (1 %)                   (0 %)            (0 %)                 (0 %)
Loss before provision for income taxes             (42 %)                 (122 %)           (43 %)                (69 %)
Provision for income taxes                           0 %                     0 %              0 %                   0 %
Net loss                                           (42 %)                 (122 %)           (44 %)                (69 %)





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  (1) Includes stock-based compensation expense as follows:



                                               Three Months Ended June 30,             Six Months Ended June 30,
                                               2022                 2021               2022                2021
                                                                        (in thousands)
Cost of revenue                            $       2,046       $         4,918     $      3,504       $        6,079
Sales and marketing                               12,572                42,855           22,868               46,107
Research and development                          13,144                51,317           26,152               54,563
General and administrative                         6,133                38,353           18,580               40,997

Total stock-based compensation expense $ 33,895 $ 137,443 $ 71,104 $ 147,746




  (2) Includes amortization of acquired intangible assets as follows:



                                              Three Months Ended June 30,           Six Months Ended June 30,
                                               2022                2021              2022                2021
                                                                       (in thousands)
Cost of revenue                            $       5,654       $       1,086     $      11,308       $      2,172
Sales and marketing                                3,106                 466             6,212                945
Research and development                             895                 680             1,797                863
Total amortization of acquired
intangible assets                          $       9,655       $       2,232     $      19,317       $      3,980



  (3) Includes employer payroll tax on employee stock transactions as follows:



                                                  Three Months Ended June 30,           Six Months Ended June 30,
                                                   2022                2021              2022               2021
                                                                          (in thousands)
Cost of revenue                                $          68       $         330     $        149       $        334
Sales and marketing                                      317               1,215              925              1,357
Research and development                                 523               1,748            1,550              1,822
General and administrative                               182                 635              727                715

Total employer payroll tax on employee stock

  transactions                                 $       1,090       $       3,928     $      3,351       $      4,228



  (4) Includes acquisition-related expenses as follows:



                                               Three Months Ended June 30,               Six Months Ended June 30,
                                                 2022                  2021              2022                  2021
                                                                          (in thousands)
Sales and marketing                        $            208         $       110     $           415         $       110
Research and development                              1,090                 191               2,191                 191
General and administrative                            1,081                 442               2,119                 442

Total acquisition-related expenses $ 2,379 $ 743 $ 4,725 $ 743





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Comparison of the Three Months Ended June 30, 2022 and 2021

Revenue

              Three Months Ended June 30,                 Change
               2022                 2021           Dollar       Percent
                              (dollars in thousands)
Revenue   $      172,205       $      122,790     $ 49,415            40 %


During the three months ended June 30, 2022, our revenue increased by $49.4
million, or 40%, compared to the three months ended June 30, 2021, which is
primarily due to expansion within our existing customers and revenue from new
customers added during the year. The acquisition of Levelset in November 2021
contributed $7.3 million in revenue in the second quarter of 2022. Revenue from
our other acquisitions in 2021 was not material in the second quarter of 2022.
The increase in revenue from existing customers includes the net benefit of a
full quarter of subscription revenue in the second quarter of 2022 from
customers that were newly acquired in the first quarter of 2022 and continued
their subscriptions in the second quarter of 2022, and customers that expanded
their subscriptions in the second quarter of 2022 through the purchase of
additional construction volume or products.

Cost of Revenue, Gross Profit, and Gross Margin


                      Three Months Ended June 30,                 Change
                       2022                 2021           Dollar       Percent
                                      (dollars in thousands)
Cost of revenue   $        36,735       $      25,493     $ 11,242            44 %
Gross profit              135,470              97,297       38,173            39 %
Gross margin                   79 %                79 %


The increase in cost of revenue during the three months ended June 30, 2022 was
primarily attributable to increases of $4.6 million in amortization of acquired
developed technology intangible assets related to recent acquisitions, and $3.1
million in third-party cloud hosting and related services as we grow our
customer base. The increase in cost of revenue was also attributable to a $1.6
million increase in personnel-related expenses, including an increase of $4.8
million in salaries and wages driven by headcount and merit increases, partially
offset by a decrease of $2.9 million in stock-based compensation expense.
Stock-based compensation expense was higher in the second quarter of 2021
primarily due to RSUs where the performance condition was satisfied upon the
effectiveness date of the registration statement for the IPO in May 2021. We
increased our cost of revenue headcount by 47% since June 30, 2021 in order to
continue to support the growth of our business.

Operating Expenses


                          Three Months Ended June 30,                Change
                           2022                 2021          Dollar       Percent
                                         (dollars in thousands)
Sales and marketing   $       103,283       $      99,905     $ 3,378             3 %




The increase in sales and marketing expenses during the three months ended June
30, 2022 was primarily attributable to increases of $3.1 million in
travel-related costs, $2.7 million in marketing events and expenses, and $2.6
million in amortization of acquired customer relationship intangible assets
related to recent acquisitions. The increase in sales and marketing expenses was
partially offset by a $9.4 million decrease in personnel-related expenses,
including a decrease in stock-based compensation expense of $30.3 million,
offset by increases of $16.9 million in salaries and wages driven by headcount
and merit increases and $4.9 million in commissions. Stock-based compensation
expense was higher in the second quarter of 2021 primarily due to RSUs where the
performance condition was satisfied upon the effectiveness date of the
registration statement for the IPO in May 2021. We increased our sales and
marketing headcount by 49% since June 30, 2021 in order to continue to drive
customer growth.


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                               Three Months Ended June 30,                 Change
                                2022                 2021           Dollar        Percent
                                               (dollars in thousands)
Research and development   $       63,822       $       88,627     $ (24,805 )         (28 %)


The decrease in research and development expenses during the three months ended
June 30, 2022 was primarily attributable to a decrease of $28.5 million in
personnel-related expenses, including a decrease of $38.2 million in stock-based
compensation expense, partially offset by an increase of $10.9 million in
salaries and wages driven by headcount and merit increases. Stock-based
compensation expense was higher in the second quarter of 2021 primarily due to
RSUs where the performance condition was satisfied upon the effectiveness date
of the registration statement for the IPO in May 2021. The decrease in research
and development expenses was partially offset by an increase of $1.6 million in
professional fees primarily for contractors to supplement our staff levels. We
increased our research and development headcount by 41% since June 30, 2021 in
order to continue to build, enhance, maintain, and scale our products and
platform.

                                 Three Months Ended June 30,                 Change
                                  2022                 2021           Dollar        Percent
                                                 (dollars in thousands)

General and administrative $ 40,667 $ 57,827 $ (17,160 ) (30 %)



The decrease in general and administrative expenses during the three months
ended June 30, 2022 was primarily attributable to a decrease of $23.6 million in
personnel-related expenses, including a decrease of $32.2 million in stock-based
compensation expense, partially offset by an increase of $9.1 million in
salaries and wages driven by headcount and merit increases. Stock-based
compensation expense was higher in the second quarter of 2021 primarily due to
RSUs where the performance condition was satisfied upon the effectiveness date
of the registration statement for the IPO in May 2021. The decrease in general
and administrative expenses was partially offset by an increase of $2.7 million
in professional fees, primarily for contractors and consultants to supplement
our staff levels. We increased our general and administrative headcount by 66%
since June 30, 2021 in order to continue to support the growth of our business.

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

                                               Three Months Ended June 30,                   Change
                                               2022                  2021            Dollar         Percent
                                                                   (dollars in thousands)
Interest income (expense), net             $        111         $         (576 )   $      687               *
Other expense, net                                  890                     44            846               *
Provision for income taxes                           42                     37              5              14 %


* Percentage not meaningful


The change in other expense, net during the three months ended June 30, 2022 was
primarily due to foreign currency losses related to changes in Australian and
Canadian dollar exchange rates. The change in interest expense, net during the
three months ended June 30, 2022 was primarily due to an increase in interest
income from money market funds.

Comparison of the Six Months Ended June 30, 2022 and 2021

Revenue

            Six Months Ended June 30,                Change
              2022               2021         Dollar       Percent
                           (dollars in thousands)
Revenue   $     331,721       $  236,728     $ 94,993            40 %


During the six months ended June 30, 2022, our revenue increased by $95.0
million, or 40%, compared to the six months ended June 30, 2021, which is
primarily due to expansion within our existing customers and revenue from new
customers added during the year. The acquisition of Levelset in November 2021
contributed $14.2 million in revenue in the first half of

                                       27
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2022. Revenue from our other acquisitions in 2021 was not material in the first
half of 2022. The increase in revenue from existing customers includes the net
benefit of a full six months of subscription revenue in 2022 from customers that
were newly acquired in 2021 and continued their subscriptions in the first half
of 2022, and customers that expanded their subscriptions in 2022 through the
purchase of additional construction volume or products.

Cost of Revenue, Gross Profit, and Gross Margin


                    Six Months Ended June 30,                Change
                      2022               2021         Dollar       Percent
                                   (dollars in thousands)
Cost of revenue   $      70,067       $   45,852     $ 24,215            53 %
Gross profit            261,654          190,876       70,778            37 %
Gross margin                 79 %             81 %


The increase in cost of revenue during the six months ended June 30, 2022 was
primarily attributable to increases of $9.1 million in amortization of acquired
developed technology intangible assets related to recent acquisitions and $6.2
million in personnel-related expenses, including an $8.9 million increase in
salaries and wages driven by headcount and merit increases, partially offset by
a $2.6 million decrease in stock-based compensation expense. Stock-based
compensation expense was higher in the first half of 2021 primarily due to RSUs
where the performance condition was satisfied upon the effectiveness date of the
registration statement for the IPO in May 2021. The increase in cost of revenue
was also attributable to an increase of $5.4 million in third-party cloud
hosting and related services as we grow our customer base. We increased our cost
of revenue headcount by 47% since June 30, 2021 in order to continue to support
the growth of our business.

Operating Expenses

                        Six Months Ended June 30,                Change
                          2022               2021         Dollar       Percent
                                       (dollars in thousands)
Sales and marketing   $     197,198       $  153,870     $ 43,328            28 %


The increase in sales and marketing expenses during the six months ended June
30, 2022 was primarily attributable to an increase of $18.9 million in
personnel-related expenses, including increases of $33.4 million in salaries and
wages driven by headcount and merit increases and $9.2 million in commissions,
partially offset by a decrease of $23.2 million in stock-based compensation
expense. Stock-based compensation expense was higher in the first half of 2021
primarily due to RSUs where the performance condition was satisfied upon the
effectiveness date of the registration statement for the IPO in May 2021. The
increase in sales and marketing expenses was also attributable to a $5.3 million
increase in amortization of acquired customer relationship intangible assets
related to recent acquisitions, a $5.0 million increase in marketing events and
expenses, a $5.0 million increase in travel-related costs, and a $3.0 million
increase in professional fees primarily for contractors to supplement our staff
levels. We increased our sales and marketing headcount by 49% since June 30,
2021 in order to continue to drive customer growth.

                             Six Months Ended June 30,                Change
                               2022               2021         Dollar       Percent
                                            (dollars in thousands)
Research and development   $     124,076       $  123,172     $    904             1 %


The increase in research and development expenses during the six months ended
June 30, 2022 was primarily attributable to increases of $2.3 million in
professional fees primarily for contractors to supplement our staff levels, $1.6
million in computer software expenses, $1.1 million in travel-related costs, and
$1.0 million in amortization of acquired developed technology intangible assets.
The increases were partially offset by a decrease in personnel-related expenses
of $6.6 million, including a decrease of $28.4 million in stock-based
compensation expense and an increase of $22.2 million in salaries and wages
driven by headcount and merit increases. Stock-based compensation expense was
higher in the first half of 2021 primarily due to RSUs where the performance
condition was satisfied upon the effectiveness date of the registration
statement for the IPO in May 2021. We increased our research and development
headcount by 41% since June 30, 2021 in order to continue to build, enhance,
maintain, and scale our products and platform.

                                       28
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                                 Six Months Ended June 30,                Change
                                 2022                2021          Dollar       Percent
                                               (dollars in thousands)

General and administrative $ 83,819 $ 75,754 $ 8,065

11 %



The increase in general and administrative expenses during the six months ended
June 30, 2022 was primarily due to increases of $6.0 million in professional
fees primarily for contractors and consultants to supplement our staff levels,
$1.8 million in travel-related costs, and $1.6 million in insurance-related
expenses. The increase in general and administrative expenses was partially
offset by a decrease of $5.7 million in personnel-related expenses, including a
decrease of $22.4 million in stock-based compensation expense, partially offset
by an increase of $16.7 million in salaries and wages driven by headcount and
merit increases. Stock-based compensation expense was higher in the first half
of 2021 primarily due to RSUs where the performance condition was satisfied upon
the effectiveness date of the registration statement for the IPO in May 2021. We
increased our general and administrative headcount by 66% since June 30, 2021 in
order to continue to support the growth of our business.

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

                                  Six Months Ended June 30,                 Change
                                2022                  2021           Dollar       Percent
                                                (dollars in thousands)
Interest expense, net        $       380         $         1,138     $  (758 )         (67 %)
Other expense, net                   347                     227         120            53 %
Provision for income taxes           376                     166         210           127 %

The change in interest expense, net during the six months ended June 30, 2022 was primarily due to an increase in interest income from money market funds.

Non-GAAP Financial Measures


In addition to our results determined in accordance with accounting principles
generally accepted in the United States of America ("GAAP"), we believe certain
non-GAAP measures, as described below, are useful in evaluating our operating
performance. We use this non-GAAP financial information, collectively, to
evaluate our ongoing operations as well as 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, Non-GAAP Gross Margin, Non-GAAP Operating Expenses, Non-GAAP Loss from Operations, and Non-GAAP Operating Margin


We define these non-GAAP financial measures as the respective GAAP measures,
excluding stock-based compensation expense, amortization of acquired intangible
assets, employer payroll tax related to employee stock transactions, and
acquisition-related expenses. Acquisition-related expenses include external and
incremental transaction costs, such as legal and due diligence costs, and
retention payments. These expenses are unpredictable, and generally would not
have otherwise been incurred in the periods presented as part of our continuing
operations. In addition, the size and complexity of an acquisition, which often
drives the magnitude of acquisition-related expenses, may not be indicative of
such future costs. We believe excluding acquisition-related expenses facilitates
the comparison of our financial results to the Company's historical operating
results and to other companies in our industry.

                                       29
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The following tables present reconciliations of our GAAP financial measures to our non-GAAP financial measures for the periods presented:

Reconciliation of gross profit and gross margin to non-GAAP gross profit and non-GAAP gross margin:


                                               Three Months Ended June 30,           Six Months Ended June 30,
                                                2022                 2021              2022               2021
                                                                   (dollars in thousands)
Revenue                                    $      172,205       $      122,790     $     331,721       $  236,728
Gross profit                                      135,470               97,297           261,654          190,876
Stock-based compensation expense                    2,046                4,918             3,504            6,079
Amortization of acquired technology
intangible assets                                   5,654                1,086            11,308            2,172
Employer payroll tax on employee stock
transactions                                           68                  330               149              334
Non-GAAP gross profit                      $      143,238       $      103,631     $     276,615       $  199,461
Gross margin                                           79 %                 79 %              79 %             81 %
Non-GAAP gross margin                                  83 %                 84 %              83 %             84 %



Reconciliation of operating expenses to non-GAAP operating expenses:


                                               Three Months Ended June 30,           Six Months Ended June 30,
                                                2022                 2021              2022               2021
                                                                   (dollars in thousands)
Revenue                                    $      172,205       $      122,790     $     331,721       $  236,728
GAAP sales and marketing                          103,283               99,905           197,198          153,870
Stock-based compensation expense                  (12,572 )            (42,855 )         (22,868 )        (46,107 )
Amortization of acquired intangible
assets                                             (3,106 )               (466 )          (6,212 )           (945 )
Employer payroll tax on employee stock
transactions                                         (317 )             (1,215 )            (925 )         (1,357 )
Acquisition-related expenses                         (208 )               (110 )            (415 )           (110 )
Non-GAAP sales and marketing               $       87,080       $       55,259     $     166,778       $  105,351
GAAP sales and marketing as a percentage
of revenue                                             60 %                 81 %              59 %             65 %
Non-GAAP sales and marketing as a
percentage
  of revenue                                           51 %                 45 %              50 %             45 %



GAAP research and development              $  63,822     $  88,627     $ 124,076     $ 123,172
Stock-based compensation expense             (13,144 )     (51,317 )     (26,152 )     (54,563 )
Amortization of acquired intangible
assets                                          (895 )        (680 )      (1,797 )        (863 )
Employer payroll tax on employee stock
transactions                                    (523 )      (1,748 )      (1,550 )      (1,822 )
Acquisition-related expenses                  (1,090 )        (191 )      (2,191 )        (191 )
Non-GAAP research and development          $  48,170     $  34,691     $  92,386     $  65,733
GAAP research and development as a
percentage of
  revenue                                         37 %          72 %          37 %          52 %
Non-GAAP research and development as a
  percentage of revenue                           28 %          28 %          28 %          28 %




                                       30
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GAAP general and administrative            $  40,667     $  57,827     $  83,819     $  75,754
Stock-based compensation expense              (6,133 )     (38,353 )     (18,580 )     (40,997 )
Employer payroll tax on employee stock
transactions                                    (182 )        (635 )        (727 )        (715 )
Acquisition-related expenses                  (1,081 )        (442 )      (2,119 )        (442 )
Non-GAAP general and administrative        $  33,271     $  18,397     $  62,393     $  33,600
GAAP general and administrative as a
percentage of
  revenue                                         24 %          47 %          25 %          32 %
Non-GAAP general and administrative as a
  percentage of revenue                           19 %          15 %        

19 % 14 %

Reconciliation of loss from operations and operating margin to non-GAAP loss from operations and non-GAAP operating margin:


                                             Three Months Ended June 30,           Six Months Ended June 30,
                                               2022                2021              2022               2021
                                                                  (dollars in thousands)
Revenue                                    $     172,205        $   122,790      $     331,721       $  236,728
Loss from operations                             (72,302 )         (149,062 )         (143,439 )       (161,920 )
Stock-based compensation expense                  33,895            137,443             71,104          147,746
Amortization of acquired intangible
assets                                             9,655              2,232             19,317            3,980
Employer payroll tax on employee stock
transactions                                       1,090              3,928              3,351            4,228
Acquisition-related expenses                       2,379                743              4,725              743
Non-GAAP loss from operations              $     (25,283 )      $    (4,716 )    $     (44,942 )     $   (5,223 )
Operating margin                                     (42 %)            (121 %)             (43 %)           (68 %)
Non-GAAP operating margin                            (15 %)              (4 %)             (14 %)            (2 %)




                                       31
--------------------------------------------------------------------------------



                        Liquidity and Capital Resources

Prior to our IPO, we financed our operations principally through private placements of our equity securities. In May 2021, we received $665.1 million in net proceeds from our IPO.


As of June 30, 2022, our principal sources of liquidity are cash and cash
equivalents of $563.2 million, which were held in checking accounts, savings
accounts, and highly liquid money market funds. On April 29, 2022, we terminated
our Credit Facility. Upon termination of the Credit Facility, our outstanding
letters of credit, issued by Silicon Valley Bank, remain outstanding on an
unsecured basis, without any requirement to set aside restricted cash.

We also have a materials financing program that finances our customers'
purchases of construction materials on deferred payment terms. As of June 30,
2022, we had receivables for amounts financed for customers of $12.0 million on
our condensed consolidated balance sheet. The related allowance recorded on our
materials financing receivables is primarily based on expectations of credit
losses based on historical loss data as well as macroeconomic factors and was
immaterial as of June 30, 2022. We expect this business to grow in the future,
which may impact our liquidity.

We believe our existing cash and cash equivalents will be sufficient to meet our
needs for at least the next 12 months. We have generated operating losses and
negative cash flows from operations in certain periods as reflected in our
accumulated deficit and condensed consolidated statements of cash flows. We may
not achieve profitability in the foreseeable future and may require additional
capital resources to execute strategic initiatives to grow our business.

This assessment is a forward-looking statement and involves risks and
uncertainties. Our additional future capital requirements will depend on many
factors, including our revenue growth rate, new customer acquisition and
subscription renewal activity, timing of billing activities, our ability to
integrate the companies or technologies we acquire and realize strategic and
financial benefits from our investments and acquisitions, other strategic
transactions or investments we may enter into, the timing and extent of spending
to support further sales and marketing and research and development efforts,
general and administrative expenses to support our growth, including
international expansion, the timing and extent of amounts financed and customer
repayments under our materials financing program, and the ongoing impact of the
COVID-19 pandemic. We may in the future enter into arrangements to acquire or
invest in complementary businesses, services, and technologies, including
intellectual property rights. We may be required to seek additional equity or
debt financing to fund these activities. If we are unable to raise additional
capital when desired, or on acceptable terms, our business, results of
operations, and financial condition could be materially adversely affected.

There have been no material changes to our contractual obligations from those
discussed in "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in our Annual Report on Form 10-K dated March 4, 2022.
Further, as of June 30, 2022, 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.

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

                                                        Six Months Ended June 30,
                                                          2022               2021
                                                              (in thousands)

Net cash (used in) provided by operating activities $ (16,671 ) $

25,167

Net cash used in investing activities                       (30,410 )        (33,342 )
Net cash provided by financing activities                    25,003          689,511


Operating Activities

Our largest source of cash from operating activities 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 and software
license expenses, and overhead.

                                       32
--------------------------------------------------------------------------------



Net cash used in operating activities was $16.7 million during the six months
ended June 30, 2022 which resulted from a net loss of $144.5 million, adjusted
for non-cash charges of $107.1 million and a net cash inflow of $20.8 million
from changes in operating expenses and liabilities. The $20.8 million of net
cash inflows provided as a result of changes in our operating assets and
liabilities primarily reflected the following:

• a $24.3 million decrease in accounts receivable primarily due to timing of

billings and cash receipts from customers;

• a $15.7 million increase in deferred revenue primarily due to the growth

of our business and timing of billings; and

• a $5.9 million increase in accounts payable primarily due to timing of

cash payments to our vendors.

These changes in our operating assets and liabilities were partially offset by the following:

• an $8.9 million decrease in accrued expenses and other liabilities

primarily due to timing of payroll, 2021 corporate bonus payout to our

employees in the first quarter of 2022, cash payments to our vendors, and

employee payroll contributions used to purchase shares in connection with

        our employee stock purchase plan ("ESPP");


    •   a $7.4 million increase in deferred contract cost assets related to

commissions as a result of additional customer contracts closed during the

period;

• a $4.5 million increase in prepaid expenses and other assets primarily due

to timing of cash payments to our vendors; and

• a $4.4 million decrease in operating lease liabilities related to lease

payments.



Net cash provided by operating activities was $25.2 million during the six
months ended June 30, 2021, which resulted from a net loss of $163.5 million,
adjusted for non-cash charges of $167.8 million and net cash inflow of
$20.9 million from changes in operating assets and liabilities. The $20.9
million of net cash inflows provided as a result of changes in our operating
assets and liabilities primarily reflected the following:

• an $11.1 million decrease in accounts receivable primarily due to timing

of billings and cash receipts from customers;

• a $14.5 million increase in accrued expenses and other liabilities

primarily due to timing of payroll and cash payments to our vendors; and

• a $10.8 million increase in deferred revenue primarily due to the growth

of our business and timing of billings.

These changes in our operating assets and liabilities were partially offset by the following:

• a $5.7 million increase in prepaid expenses and other assets primarily due

        to timing of cash payments to our vendors;


  • a $5.1 million increase in deferred contract cost assets; and

• a $2.9 million decrease in accounts payable primarily due to timing of

cash payments to our vendors.

Investing Activities


Net cash used in investing activities of $30.4 million during the six months
ended June 30, 2022 consisted of capitalized software development costs of $16.3
million, purchases of property and equipment of $9.4 million primarily related
to improvements to our leased office spaces and computer equipment purchases,
$9.3 million of originations for materials financing, and strategic investments
of $3.0 million, partially offset by $6.3 million of customer repayments for
materials financing and $1.3 million in cash receipts from post-close working
capital adjustments related to our acquisitions of Levelset and LaborChart in
the fourth quarter of 2021.

Net cash used in investing activities of $33.3 million during the six months
ended June 30, 2021 consisted of the acquisition of Indus.ai Inc., net of cash
acquired, of $20.0 million, capitalized software development costs of $5.7
million, purchases of property and equipment of $4.2 million primarily related
to computer equipment purchases, and $3.5 million in strategic investments.

Financing Activities


Net cash provided by financing activities of $25.0 million during the six months
ended June 30, 2022 consisted of $14.6 million in proceeds from stock option
exercises and $11.5 million in proceeds from our ESPP, partially offset by $0.8
million in payments on our finance lease obligations.

                                       33
--------------------------------------------------------------------------------


Net cash provided by financing activities of $689.5 million during the six
months ended June 30, 2021 primarily consisted of proceeds from issuance of
common stock in IPO, net of underwriting discounts and commissions, of $665.1
million, proceeds from stock option exercises of $29.1 million, partially offset
by payments of deferred offering costs of $3.5 million.

                                Credit Facility

Our Credit Facility provided for debt financing of up to $75.0 million to be
used for general corporate purposes, including the financing of working capital
requirements, and was secured by a blanket lien on our assets, until it was
terminated on April 29, 2022, prior to its maturity date on May 7, 2022.

As of June 30, 2022, we had issued letters of credit totaling $6.5 million to
secure various U.S. and Australia leased office facilities. Upon termination of
the Credit Facility, our current letters of credit, issued by Silicon Valley
Bank, remain outstanding on an unsecured basis, without any requirement to set
aside restricted cash.

                       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-cancelable
subscriptions that will be invoiced and recognized as revenue in future periods.
As of June 30, 2022, the aggregate amount of the transaction price allocated to
remaining performance obligations was $653.9 million, 72% of which is expected
to be recognized as revenue in the next 12 months and substantially all of the
remainder between 12 and 36 months thereafter. We expect remaining performance
obligations to change from period to period primarily due to the size, timing
and duration of new customer contracts and customer renewals.

                   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.

Our significant accounting policies are more fully described in Note 2 of our
condensed consolidated financial statements. Our critical accounting policies
and more significant judgments and estimates used in the preparation of our
financial statements are discussed in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in our Annual Report on Form 10-K
dated March 4, 2022. There have been no significant changes to these policies
for the six months ended June 30, 2022.

        JOBS Act Accounting Election and Emerging Growth Company Status

The Jumpstart Our Business Startups Act of 2012 (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 IPO. Based on the market
value of our common stock held by non-affiliates as of the last business day of
our fiscal second quarter ended June 30, 2022, we will cease to be an emerging
growth company as of December 31, 2022.

                        Recent Accounting Pronouncements

See "Summary of Significant Accounting Policies" in Note 2 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for a description of recently issued accounting pronouncements.

                                       34

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