PROCORE TECHNOLOGIES, INC. 10-Q

Item 1. Financial Statements Procore Technologies, Inc. Condensed Consolidated Balance Sheets (unaudited) (in thousands, except number of shares and par value) December 31, 2020 June 30, 2021 Assets Current assets Cash and cash equivalents $ 379,907 $ 1,060,512 Accounts receivable, net 77,692 66,782 Contract cost asset, current 13,598 15,324 Prepaid expenses and other current assets 16,772 23,243 Total current assets 487,969 1,165,861 Capitalized software development costs, net 18,538 18,946 Property and equipment, net 30,252 31,470 Right of use assets - finance leases 42,108 40,770 Right of use assets - operating leases 49,756 46,094 Contract cost asset, non-current 19,454 22,749 Intangibles, net 33,241 43,935 Goodwill 125,966 137,335 Restricted cash, non-current 3,104 3,104 Other assets 10,379 7,883 Total assets $ 820,767 $ 1,518,147 Liabilities, Redeemable Convertible Preferred Stock and Stockholders’ (Deficit) Equity Current liabilities Accounts payable $ 9,012 $ 6,513 Accrued expenses 28,492 42,964 Deferred revenue, current 213,438 226,151 Other current liabilities 10,768 11,953 Total current liabilities 261,710 287,581 Deferred revenue, non-current 6,373 4,612 Finance lease liabilities, non-current 48,835 48,003 Operating lease liabilities, non-current 46,558 43,601 Other liabilities, non-current 1,919 7,688 Total liabilities 365,395 391,485 Contingencies (Note 6) Redeemable convertible preferred stock, $ 0.0001 par value, 85,734,623 and 0 shares authorized at December 31, 2020 and June 30, 2021, respectively; 85,331,278 and 0 shares issued and outstanding at December 31, 2020 and June 30, 2021, respectively. 727,474 — Stockholders’ (deficit) equity Preferred stock, $ 0.0001 par value, 0 and 100,000,000 shares authorized at December 31, 2020 and June 30, 2021, respectively; 0 shares issued and outstanding at December 31, 2020 and June 30, 2021. — — Common stock, $ 0.0001 par value, 138,490,810 and 1,000,000,000 shares authorized at December 31, 2020 and June 30, 2021, respectively; 30,707,113 and 131,067,005 shares issued and outstanding at December 31, 2020 and June 30, 2021, respectively. 3 13 Additional paid-in capital 124,755 1,687,184 Accumulated other comprehensive income (loss) 187 ( 37 ) Accumulated deficit ( 397,047 ) ( 560,498 ) Total stockholders’ (deficit) equity ( 272,102 ) 1,126,662 Total liabilities, redeemable convertible preferred stock and stockholders’ (deficit) equity $ 820,767 $ 1,518,147 The accompanying notes are an integral part of these condensed consolidated financial statements. 3 Procore Technologies, Inc. Condensed Consolidated Statements of Operations and Comprehensive Loss (unaudited) (in thousands, except share and per share amounts) Three Months Ended June 30, Six Months Ended June 30, 2020 2021 2020 2021 Revenue $ 96,553 $ 122,790 $ 188,890 $ 236,728 Cost of revenue 17,069 25,493 34,526 45,852 Gross profit 79,484 97,297 154,364 190,876 Operating expenses Sales and marketing 42,638 99,905 90,700 153,870 Research and development 26,518 88,627 54,751 123,172 General and administrative 13,467 57,827 29,450 75,754 Total operating expenses 82,623 246,359 174,901 352,796 Loss from operations ( 3,139 ) ( 149,062 ) ( 20,537 ) ( 161,920 ) Interest expense, net ( 538 ) ( 576 ) ( 920 ) ( 1,138 ) Change in fair value of Series I redeemable convertible preferred stock warrant liability ( 10,605 ) — ( 10,605 ) — Other income (expense), net 741 ( 44 ) ( 477 ) ( 227 ) Loss before provision for income taxes ( 13,541 ) ( 149,682 ) ( 32,539 ) ( 163,285 ) Provision for income taxes 208 37 244 166 Net loss $ ( 13,749 ) $ ( 149,719 ) $ ( 32,783 ) $ ( 163,451 ) Net loss per share attributable to common stockholders, basic and diluted $ ( 0.50 ) $ ( 2.04 ) $ ( 1.22 ) $ ( 3.11 ) Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted 27,346,530 73,539,568 26,893,572 52,564,840 Total comprehensive loss Net loss $ ( 13,749 ) $ ( 149,719 ) $ ( 32,783 ) $ ( 163,451 ) Foreign currency translation adjustment 72 ( 200 ) ( 32 ) ( 224 ) Comprehensive loss $ ( 13,677 ) $ ( 149,919 ) $ ( 32,815 ) $ ( 163,675 ) The accompanying notes are an integral part of these condensed consolidated financial statements. 4 Procore Technologies, Inc. Condensed Consolidated Statements of Redeemable Conve rtibl e Preferre d S toc k an d Stockholders ’ ( Deficit) Equity (unaudited) Redeemable Convertible Preferred Stock Common Stock Additional Paid-in Accumulated Other Comprehensive Accumulated Total Stockholders’ (Deficit) (in thousands, except share amounts) Shares Amount Shares Amount Capital Income (Loss) Deficit Equity Balances as of December 31, 2019 78,863,035 $ 442,897 25,394,082 $ 3 $ 47,043 $ 20 $ ( 300,824 ) $ ( 253,758 ) Cumulative- effect of accounting change due to adoption of ASU 2016-13 — — — — — — ( 56 ) ( 56 ) Exercise of stock options — — 1,726,099 — 5,727 — — 5,727 Issuance of Series I redeemable convertible preferred stock, net of issuance costs of $ 60 4,355,502 152,941 — — — — — — Stock-based compensation — 683 — — 5,300 — — 5,300 Foreign currency translation adjustment — — — — — ( 104 ) — ( 104 ) Net loss — — — — — — ( 19,034 ) ( 19,034 ) Balances as of March 31, 2020 83,218,537 $ 596,521 27,120,181 $ 3 $ 58,070 $ ( 84 ) $ ( 319,914 ) $ ( 261,925 ) Exercise of stock options — — 703,096 — 4,497 — — 4,497 Issuance of Series I redeemable convertible preferred stock for cash, net of issuance costs of $ 9 132,046 4,991 — — — — — — Stock-based compensation — 683 — — 6,124 — — 6,124 Foreign currency translation adjustment — — — — — 72 — 72 Net loss — — — — — — ( 13,749 ) ( 13,749 ) Balances as of June 30, 2020 83,350,583 $ 602,195 27,823,277 $ 3 $ 68,691 $ ( 12 ) $ ( 333,663 ) $ ( 264,981 ) Redeemable Convertible Preferred Stock Common Stock Additional Paid-in Accumulated Other Comprehensive Accumulated Total Stockholders’ (Deficit) (in thousands, except share amounts) Shares Amount Shares Amount Capital Income (Loss) Deficit Equity Balances as of December 31, 2020 85,331,278 $ 727,474 30,707,113 $ 3 $ 124,755 $ 187 $ ( 397,047 ) $ ( 272,102 ) Exercise of stock options — — 1,264,484 — 11,038 — — 11,038 Stock-based compensation — 676 — — 9,710 — — 9,710 Foreign currency translation adjustment — — — — — ( 24 ) — ( 24 ) Net loss — — — — — — ( 13,732 ) ( 13,732 ) Balances as of March 31, 2021 85,331,278 $ 728,150 31,971,597 $ 3 $ 145,503 $ 163 $ ( 410,779 ) $ ( 265,110 ) Exercise of stock options — — 1,644,603 — 17,658 — — 17,658 Stock-based compensation — 225 — — 138,055 — — 138,055 Conversion of redeemable convertible preferred stock to common stock upon initial public offering ( 85,331,278 ) ( 728,375 ) 85,331,278 9 728,366 — — 728,375 Issuance of common stock upon initial public offering, net of underwriting discounts and offering costs — — 10,410,000 1 657,617 — — 657,618 Issuance of common stock, net of common stock withheld for tax liability upon settlement of restricted stock units — — 1,709,527 — ( 15 ) — — ( 15 ) Foreign currency translation adjustment — — — — — ( 200 ) — ( 200 ) Net loss — — — — — — ( 149,719 ) ( 149,719 ) Balances as of June 30, 2021 — $ — 131,067,005 $ 13 $ 1,687,184 $ ( 37 ) $ ( 560,498 ) $ 1,126,662 The accompanying notes are an integral part of these condensed consolidated financial statements. 5 Procore Technologies, Inc. Condensed Consolidated Statements of Cash Flows (unaudited) Six Months Ended June 30, (in thousands) 2020 2021 Operating activities Net loss $ ( 32,783 ) $ ( 163,451 ) Adjustments to reconcile net loss to net cash (used in) provided by operating activities Stock-based compensation 12,326 147,746 Depreciation and amortization 12,397 15,120 Change in fair value of Series I redeemable convertible preferred stock warrant liability 10,605 — Abandonment of long-lived assets 966 554 Noncash lease expense 3,150 3,735 Unrealized foreign currency (gain) loss, net ( 370 ) 691 Deferred income taxes — ( 99 ) Changes in operating assets and liabilities, net of effect of business combinations Accounts receivable 6,484 11,113 Deferred contract cost assets 796 ( 5,062 ) Prepaid expenses and other assets ( 123 ) ( 5,723 ) Accounts payable ( 88 ) ( 2,908 ) Accrued expenses and other liabilities ( 11,498 ) 14,535 Deferred revenue ( 776 ) 10,845 Operating lease liabilities ( 2,046 ) ( 1,929 ) Net cash flow (used in) provided by operating activities ( 960 ) 25,167 Investing activities Purchases of property and equipment ( 5,311 ) ( 4,194 ) Capitalized software development costs ( 6,930 ) ( 5,716 ) Strategic investments — ( 3,450 ) Acquisition of businesses, net of cash acquired ( 3,325 ) ( 19,982 ) Net cash flow used in investing activities ( 15,566 ) ( 33,342 ) Financing activities Proceeds from issuance of redeemable convertible preferred stock, net of issuance costs 157,942 — Proceeds from issuance of Series I redeemable convertible preferred stock warrant 11,923 — Proceeds from initial public offering, net of underwriting commissions and discounts — 665,129 Proceeds from stock option exercises 10,059 29,126 Payment of debt issuance costs ( 80 ) — Payments of deferred offering costs ( 2,216 ) ( 3,527 ) Payment of deferred business acquisition consideration — ( 475 ) Principal payments under finance lease agreements, net of proceeds from lease incentives ( 658 ) ( 742 ) Net cash flow provided by financing activities 176,970 689,511 Net increase in cash, cash equivalents and restricted cash 160,444 681,336 Effect of exchange rate changes on cash 336 ( 731 ) Cash, cash equivalents and restricted cash, beginning of period 121,828 383,253 Cash, cash equivalents and restricted cash, end of period $ 282,608 $ 1,063,858 The accompanying notes are an integral part of these condensed consolidated financial statements. 6 Procore Technologies, Inc. Condensed Consolidated Statements of Cash Flows (unaudited) Six Months Ended June 30, (in thousands) 2020 2021 Reconciliation of cash, cash equivalents and restricted cash to the consolidated balance sheets Cash and cash equivalents at end of period $ 279,227 $ 1,060,512 Restricted cash, current at end of period included in prepaid expenses and other current assets — 242 Restricted cash, non-current at end of period 3,381 3,104 Total cash, cash equivalents and restricted cash at end of period shown in the consolidated statements of cash flows $ 282,608 $ 1,063,858 Supplemental disclosure of cash flow information Cash paid for interest other than finance leases $ 71 $ 110 Cash (received) paid for income taxes, net ( 39 ) 214 Cash received for lease incentives 1,012 1,070 Cash paid for amounts included in the measurement of lease liabilities Operating cash flows from finance leases 1,073 1,046 Operating cash flows from operating leases 3,696 3,713 Financing cash flows from finance leases 755 835 Noncash investing and financing activities: Purchases of property and equipment included in accounts payable and accrued expenses at period end 1,615 1,158 Capitalized software development costs included in accounts payable and accrued expenses at period end 400 666 Deferred offering costs included in accounts payable and accrued expenses at period end 1,672 641 Conversion of redeemable convertible preferred stock into common stock upon initial public offering — 728,375 Indemnity holdback consideration associated with a business combination — 4,050 Stock-based compensation capitalized for software development 464 920 Right of use assets obtained in exchange for operating lease liabilities 10,334 — The accompanying notes are an integral part of these condensed consolidated financial statements. 7 Procore Technologies, Inc. Notes to Condensed Consolidated Financial Statements (unaudited) 1. ORGANIZATION AND DESCRIPTION OF BUSINESS Description of Business Procore Technologies, Inc. and subsidiaries (together “Procore”, the “Company”, “we”, “us”, or “our”) provide a cloud-based construction management platform and related software products that allow the construction industry’s key stakeholders, such as owners, general contractors, specialty contractors, architects, and engineers, to collaborate on construction projects. The Company was incorporated in California in 2002 and re-incorporated in Delaware in 2014. The Company is headquartered in Carpinteria, California, and has operations in California, New York, Texas, Minnesota, and Oregon in the United States, and internationally in Australia, Canada, England and Mexico. Initial Public Offering The Company’s registration statement on Form S-1 related to its initial public offering (“IPO”) was declared effective on May 19, 2021, and the Company’s common stock began trading on the New York Stock Exchange on May 20, 2021. On May 24, 2021, the Company completed its IPO, in which it issued and sold 10,410,000 shares of common stock at a price of $ 67.00 per share, including 940,000 shares of common stock pursuant to the exercise in full of the underwriters’ option to purchase additional shares. The Company received $ 665.1 million in net proceeds, after deducting underwriting discounts and commissions of $ 32.3 million and before other offering costs of $ 7.5 million. At the closing of the IPO, all outstanding shares of redeemable convertible preferred stock were automatically converted into an aggregate of 85,331,278 shares of common stock on a one -for-one basis, further discussed in Note 8 and 9 to these condensed consolidated financial statements. Upon the effectiveness date of the registration statement for the IPO, the performance vesting condition of restricted stock units (“RSUs”) was met and the Company recognized $ 115.3 million of stock-based compensation expense in its condensed consolidated statement of operations, for the portion of the service period completed by employees and non-employees from the grant date through the effectiveness date of the registration statement for the IPO, as further described in Note 10 to these condensed consolidated financial statements. 2 . SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of presentation The accompanying condensed consolidated financial statements include the interim financial statements of Procore Technologies, Inc. and its subsidiaries, and have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and are unaudited. Certain information and disclosures normally included in consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. Accordingly, these condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes for the year ended December 31, 2020. The condensed consolidated balance sheet information as of December 31, 2020 has been derived from our audited consolidated financial statements. The condensed consolidated financial statements have been prepared on a basis consistent with that used to prepare the audited annual consolidated financial statements and include, in the opinion of management, all adjustments, consisting of normal recurring items, necessary for the fair statement of the condensed consolidated financial statements. All intercompany balances and transactions have been eliminated in consolidation. The accounting policies used in the preparation of these condensed consolidated financial statements are the same as those disclosed in the audited consolidated financial statements and related notes for the year ended December 31, 2020. Use of estimates The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Management periodically evaluates its estimates and assumptions for continued reasonableness, primarily with respect to revenue recognition, the period of benefit of contract cost assets, the fair value of assets acquired and liabilities assumed in a business combination, stock-based compensation expense, the fair value of the Company’s common stock prior to the effective date of its IPO , the recoverability of goodwill and long-lived assets, useful lives of long-lived assets, capitalization of software development costs, the fair value of the Series I redeemable convertible preferred stock warrant liability , and income taxes, including related reserves and allowances. Appropriate adjustments, if any, 8 Procore Technologies, Inc. Notes to Condensed Consolidated Financial Statements (unaudited) to the estimates used are made prospectively based upon such periodic evaluation. Management bases its estimates on historical experience and on various other assumptions that management believes to be reasonable. Actual results could differ from our estimates. In light of the currently unknown duration and severity of the COVID-19 pandemic, we face a greater degree of uncertainty than normal in making the judgments and estimates needed to apply our significant accounting policies. As of the date these condensed consolidated financial statements were issued, we are not aware of any specific event or circumstance that would require us to update our estimates or judgments or to revise the carrying value of our assets or liabilities. Judgments and assumptions may change, as new events occur and additional information is obtained, as well as other factors related to COVID-19 that could result in a meaningful impact on our condensed consolidated financial statements in future reporting periods. Segments We operate as a single operating segment. Our chief operating decision maker is our Chief Executive Officer who regularly reviews financial information presented on a consolidated basis for purposes of assessing financial performance and allocating resources. Deferred Offering Costs Deferred offering costs of $ 5.0 million were recorded as other assets on the condensed consolidated balance sheet as of December 31, 2020, and consisted of costs incurred in connection with the sale of the Company’s common stock in the IPO, including certain legal, accounting, printing, and other IPO related costs. Upon the closing of the IPO, deferred offering costs of $ 7.5 million were reclassified to stockholders’ equity as a reduction from the proceeds of the offering. There are no deferred offering costs as of June 30, 2021. Strategic Investments We hold investments in equity securities of certain privately held companies, which do not have readily determinable fair values. We have elected to measure these non-marketable investments at cost, with remeasurements to fair value only upon the occurrence of observable price changes in orderly transactions for the identical or similar securities of the same issuer, or in the event of any impairment. This election is reassessed each reporting period to determine whether a non-marketable equity security has a readily determinable fair value, in which case they would no longer be eligible for this election. All gains and losses on privately held equity securities, realized and unrealized, are recorded in other income (expense), net on the condensed consolidated statements of operations. We evaluate our non-marketable equity securities for impairment at each reporting period based on a qualitative assessment that considers various potential impairment indicators. If an impairment exists, a loss is recognized in the condensed consolidated statements of operations for the amount by which the carrying value exceeds the fair value of the investment. As of June 30, 2021, the Company had investments in equity securities of $ 3.5 million, included within other assets in the condensed consolidated balance sheet. The Company had no equity securities as of December 31, 2020. No impairments were recorded as of June 30, 2021. Fair value measurements Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Fair value measurements are based on a fair value hierarchy using three levels of inputs, of which the first two are considered observable and the last is considered unobservable, as follows: Level 1 Quoted prices in active markets for identical assets or liabilities. Level 2 Quoted prices for identical or similar assets and liabilities in markets that are not active or observable inputs other than quoted prices in active markets for identical or similar assets or liabilities. Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. 9 Procore Technologies, Inc. Notes to Condensed Consolidated Financial Statements (unaudited) As of December 31, 2020 and June 30, 2021, the carrying value of the Company’s financial instruments included in current assets and current liabilities (including restricted cash, accounts receivable, accounts payable and accrued expenses) approximate fair value due to the short- term nature of such items. The Company classifies its money market funds recorded in cash equivalents within Level 1 of the hierarchy as the values are derived from quoted prices in active markets. As of December 31, 2020 and June 30, 2021, cash equivalents of $ 363.1 million and $ 1,046.6 million, respectively, were held in money market funds. In March 2020, the Company issued a warrant to purchase Series I redeemable convertible preferred stock (“Series I warrant”). The Series I warrant was recorded as a liability on the condensed consolidated balance sheet at fair value of $ 11.9 million at the time of issuance. Subsequent changes in the fair value of the Series I warrant each reporting period were recorded in the condensed consolidated statements of operations and comprehensive loss, until the earlier of the exercise or expiration of the Series I warrant. The Series I warrant was exercised in December 2020. The fair value measurements used in determining the fair value of the Series I warrant liability were categorized as Level 3 on the fair value hierarchy because they were based on unobservable inputs and management’s judgment due to the absence of quoted market prices and inherent lack of liquidity of such financial instruments. Refer to Note 8 to these condensed consolidated financial statements for further information. The Company's investments in privately held equity securities are recorded at fair value on a non-recurring basis. The estimation of fair value for these investments requires the use of significant unobservable inputs, and as a result, the Company classifies these assets as Level 3 within the fair value hierarchy. For investments without a readily determinable fair value, the Company looks to observable transactions, such as the issuance of new equity by an investee, as indicators of investee enterprise value and are used to estimate the fair value of the investments. Deferred revenue Contract liabilities consist of revenue that is deferred when we have the contractual right to invoice in advance of transferring services to our customers. The Company recognized revenue of $ 83.7 million and $ 103.6 million during the three months ended June 30, 2020 and 2021, respectively, that was included in deferred revenue balances at the beginning of the respective periods. The Company recognized revenue of $ 128.1 million and $ 156.1 million during the six months ended June 30, 2020 and 2021, respectively, that was included in deferred revenue balances at the beginning of the respective periods. Remaining Performance Obligation The transaction price allocated to remaining performance obligations represents the contracted transaction price that has not yet been recognized as revenue, which includes deferred revenue and amounts under non-cancellable contracts that will be invoiced and recognized as revenue in future periods. As of June 30, 2021, the aggregate amount of the transaction price allocated to remaining performance obligations was $ 478.4 million, of which the Company expects to recognize approximately 72 % as revenue in the next 12 months and substantially all of the remainder between 12 and 36 months thereafter. Recently issued accounting pronouncements — Not yet adopted Simplifying the Accounting for Convertible Instruments In August 2020, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No. 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40) - Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”). The new guidance simplifies the accounting for certain financial instruments by removing certain separation models required under current U.S. GAAP, including the beneficial conversion feature and cash conversion feature. ASU 2020-06 also improves and amends the related Earnings Per Share guidance for both Subtopics. ASU 2020-06 is effective for public business entities for fiscal years beginning after December 15, 2021 and interim periods within that fiscal year. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company is evaluating the impact of the adoption of ASU 2020-06 on its condensed consolidated financial statements. 10 Procore Technologies, Inc. Notes to Condensed Consolidated Financial Statements (unaudited) 3. BUSINESS COMBINATION Indus.ai Inc. On May 3, 2021, the Company completed the acquisition of Indus.ai Inc. (“Indus”), a Canadian based privately held company that offers an artificial intelligence-powered analytics platform to provide actionable insights for the construction industry, by acquiring 100 % of the outstanding voting interests in Indus for preliminary purchase consideration of approximately $ 24.3 million in cash. Of the total purchase consideration, $ 4.1 million was held back to secure certain indemnification obligations (“Holdback Consideration”) in accordance with the stock purchase agreement and will be paid in 2022 on the 18-month anniversary of the acquisition. The Holdback Consideration is recorded in other liabilities on the condensed consolidated balance sheet as of June 30, 2021. The purpose of this acquisition is to accelerate the development of the Company’s artificial intelligence and machine learning solutions. The purchase consideration was primarily allocated to developed technology intangible assets with an estimated fair value of $ 14.8 million at the acquisition date, which was valued using the cost to rebuild method. The fair value of the remaining acquired tangible and intangible net assets was immaterial. We also recorded deferred tax liability of $ 2.0 million as a result of the acquisition. The Company recorded goodwill, which represents the excess of the purchase consideration over the tangible and intangible assets acquired and liabilities assumed, of $ 11.5 million relating to this acquisition. Goodwill is not deductible for income tax purposes. The goodwill balance is primarily attributed to the synergies expected and the skilled workforce acquired. The measurement periods for the valuation of assets acquired and liabilities assumed end as soon as information on the facts and circumstances that existed as of the acquisition date becomes available, but do not exceed 12 months. The purchase price allocation is subject to future adjustments as a result of finalizing the closing net working capital. Developed technology acquired is amortized on a straight-line basis, which approximates the pattern in which the economic benefits of the technology is expected to be consumed, over its estimated useful life of five years . The amortization expense is recorded in research and development in the condensed consolidated financial statements of operations and comprehensive loss, as the acquired developed technology will be used to improve our internal research and development capabilities. The Company has not separately presented pro forma results reflecting the acquisition of Indus, or revenue and operating losses of Indus for the period from the acquisition date through June 30, 2021 as the impacts were not material to the condensed consolidated financial statements. The transaction costs associated with the acquisition were not material and expensed as incurred, as general and administrative expenses in the consolidated statements of operations and comprehensive loss. 4. INTANGIBLE ASSETS AND GOODWILL Intangible assets Our finite-lived intangible assets are summarized as follows (in thousands): December 31, 2020 Gross Carrying Accumulated Net Carrying Amount Amortization Amount Developed technology $ 25,141 $ ( 5,817 ) $ 19,324 Customer relationships 16,450 ( 2,533 ) 13,917 Total $ 41,591 $ ( 8,350 ) $ 33,241 June 30, 2021 Gross Carrying Accumulated Net Carrying Amount Amortization Amount Developed technology $ 39,808 $ ( 8,845 ) $ 30,963 Customer relationships 16,450 ( 3,478 ) 12,972 Total $ 56,258 $ ( 12,323 ) $ 43,935 11 Procore Technologies, Inc. Notes to Condensed Consolidated Financial Statements (unaudited) We estimate that there is no significant residual value related to our intangible assets. Intangible assets amortization expense is summarized as follows (in thousands): Six Months Ended June 30, 2020 2021 Cost of revenue $ 1,522 $ 2,172 Sales and marketing 808 945 Research and development 305 863 Total amortization of acquired intangible assets $ 2,635 $ 3,980 Goodwill The following table presents the changes in carrying amount of goodwill during the six months ended June 30, 2021 (in thousands): Beginning balance $ 125,966 Additions 11,464 Other adjustments (1) ( 95 ) Ending balance $ 137,335 (1) Adjustments include the effect of foreign currency translation. The addition to goodwill was due to the acquisition of Indus, as disclosed in Note 3 to these condensed consolidated financial statements. There was no impairment of goodwill during the periods presented . 5. ACCRUED EXPENSES The following represents the components of accrued expenses contained within our condensed consolidated balance sheets at the end of each period (in thousands): December 31, June 30, 2020 2021 Accrued commissions and bonuses $ 14,120 $ 17,262 Accrued salary and payroll tax liabilities 5,818 11,588 Other accrued expenses 8,554 14,114 Total accrued expenses $ 28,492 $ 42,964 6. CONTINGENCIES Litigation From time to time, the Company may be subject to various litigation matters arising in the ordinary course of business. The Company however is not aware of any currently pending legal matters or claims that could have a material adverse effect on its financial position, results of operations or cash flows should such litigation be resolved unfavorably. Indemnifications In the ordinary course of business, the Company may provide indemnification of varying scope and terms to customers, vendors, investors, directors, and officers with respect to certain matters, including, but not limited to, losses arising out of its breach of such agreements, services to be provided by the Company, or from intellectual property infringement claims made by third parties. These indemnification provisions may survive termination of the underlying agreement and the maximum potential amount of future payments the Company could be required to make under these indemnification provisions may not be subject to maximum loss clauses. The maximum potential amount of future payments the Company could be required to make under these indemnification provisions is indeterminable. 12 Procore Technologies, Inc. Notes to Condensed Consolidated Financial Statements (unaudited) The Company has never paid a material claim, nor has the Company been sued in connection with these indemnification arrangements. To date, the Company has not accrued a liability for these guarantees, because the likelihood of incurring a payment obligation, if any, in connection with these guarantees is not probable or reasonably estimable. 7. CREDIT FACILITY The Company has a credit agreement (the “Credit Facility”) provided by Silicon Valley Bank, to be used for general corporate purposes, including the financing of working capital requirements. As of December 30, 2020 and June 30, 2021, the aggregate principal amount available under the Credit Facility was up to $ 75.0 million with the option to increase the availability up to $ 100.0 million. The Credit Facility contains financial covenants that require the Company to maintain minimum annual recurring revenue, as defined in the credit 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 pay dividends, make distributions or payments to stockholders, or redeem, retire, or purchase any capital stock, make any restricted investments, and engage in changes in business, key personnel, control, or business locations. As of each period presented, no amounts had been drawn down under the Credit Facility, and the Company was in compliance with all financial covenants. As of December 31, 2020 and June 30, 2021, the Company had letters of credit outstanding of $ 7.0 million and $ 6.9 million, respectively, to secure various U.S. leased office facilities. 8. REDEEMABLE CONVERTIBLE PREFERRED STOCK Upon the closing of the IPO, all of the outstanding redeemable convertible preferred stock were automatically converted into an aggregate of 85,331,278 shares of our common stock on a one -for-one basis, and the carrying value, totaling $ 728.4 million, was reclassified into common stock and additional paid-in capital on the condensed consolidated balance sheet. Series I redeemable convertible preferred stock warrant In March 2020, the Company issued a warrant to purchase 1,452,513 shares of Series I redeemable convertible preferred stock with a term that expired upon the earlier of (a) the one-year anniversary from the issuance date, or (b) the occurrence of a liquidity event (either on the effective date of a registration statement for our IPO or a change in control). At the issuance date, we recorded the fair value of the Series I warrant liability of $ 11.9 million as a discount to the carrying value of the Series I redeemable convertible preferred stock. The Series I warrant liability was remeasured at its fair value through the date of exercise with changes in fair value recorded in the condensed consolidated statements of operations and comprehensive loss. In December 2020, the Series I warrant holder exercised the warrant and the Company issued 1,452,513 shares of Series I redeemable convertible preferred stock for proceeds of $ 55.0 million. The following inputs were used in the Black-Scholes option pricing model in determining the fair value of the Series I warrant liability for the period from issuance date to June 30, 2020: March 31, June 30, 2020 2020 Fair value of Series I redeemable convertible preferred stock per share $ 35.04 $ 47.67 Expected term (in years) 1.00 0.75 Expected volatility 66.90 % 67.80 % Risk-free interest rate 0.16 % 0.16 % Dividend yield 0.00 % 0.00 % 13 Procore Technologies, Inc. Notes to Condensed Consolidated Financial Statements (unaudited) The following table provides a summary of the changes in the fair value of the Company’s Series I warrant liability (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2020 2021 2020 2021 Beginning balance $ 11,923 $ - $ $ - Issuance of Series I warrant - - 11,923 - Change in fair value measurement of Series I warrant liability 10,605 - 10,605 - Ending balance $ 22,528 $ - $ 22,528 $ - 9. COMMON STOCK Upon the closing of the IPO, the Company filed an Amended and Restated Certificate of Incorporation which authorized 1,000,000,000 shares of common stock with a par value of $ 0.0001 per share, and 100,000,000 shares of undesignated preferred stock with a par value of $ 0.0001 per share. Each share of common stock is entitled to one vote per share. 10. STOCK-BASED COMPENSATION 2021 Equity Incentive Plan In May 2021, the Company’s board of directors adopted, and the stockholders approved the 2021 Equity Incentive Plan (the "2021 Plan") with the purpose of granting stock-based awards, including stock options, stock appreciation rights, restricted stock awards, restricted stock units, performance awards and other forms of awards, to employees, directors, and consultants, including employees and consultants of our affiliates. A total of 30,962,615 shares of common stock are available for issuance under the 2021 Plan. Stock options The following table summarizes the stock option activity during the six months ended June 30, 2021: Weighted Number of Average Shares Exercise Price Outstanding at December 31, 2020 12,410,041 $ 12.51 Exercised ( 2,909,087 ) 9.86 Cancelled/Forfeited ( 399,256 ) 19.99 Outstanding at June 30, 2021 9,101,698 13.03 Exercisable at June 30, 2021 6,228,194 $ 10.38 Restricted stock units Beginning in 2018, the Company began issuing RSUs to certain employees, officers, non-employee consultants and directors. The RSUs granted prior to the IPO vest upon the satisfaction of both a service and a performance condition, if both conditions are met before the award’s expiration date. For certain awards the performance condition was satisfied solely on the effective date of a registration statement for our IPO and for other awards the performance condition was satisfied on the earlier of either the effective date of a registration statement for our IPO or a change in control. RSUs granted with service vesting conditions are generally satisfied over four years on either a quarterly or annual vesting schedule. Upon the effective date of the registration statement for the IPO, the performance vesting condition for all RSUs granted was satisfied and the Company recognized on a graded vesting basis a cumulative catch-up stock-based compensation adjustment of $ 115.3 million in its condensed consolidated statement of operations for the portion of the service period satisfied from the grant date through the effective date of the registration statement. All RSUs granted subsequent to the IPO vest based on continued service, which is generally over four years. 14 Procore Technologies, Inc. Notes to Condensed Consolidated Financial Statements (unaudited) A summary of activity in connection with our RSUs during the six months ended June 30, 2021 are as follows: Weighted Average Number of Grant Date Shares Fair Value Outstanding at December 31, 2020 5,357,120 $ 31.20 Granted 2,541,676 64.33 Released ( 1,710,026 ) 29.20 Cancelled/Forfeited ( 304,119 ) 40.11 Outstanding at June 30, 2021 5,884,651 $ 45.51 Total unrecognized stock ‑ based compensation expense related to unvested RSUs was $ 185.8 million as of June 30, 2021, which is expected to be amortized over a weighted ‑ average vesting period of 1.6 years. Restricted stock awards In July 2019, we granted 205,464 restricted Series H-1 redeemable convertible preferred stock awards (“RSAs”) at a grant date fair value of $ 26.75 to employees in connection with the acquisition of Honest Buildings. These shares are released from restriction 50 % on the first anniversary and 50 % on the second anniversary of the acquisition date based on the key employees providing service to the Company. As of June 30, 2020 and 2021, zero and 102,732 of the RSAs have vested, respectively. Upon the closing of the IPO, the RSAs automatically converted into shares of restricted common stock on a one -for-one basis. During the three months ended June 30, 2020 and 2021, the Company recognized stock-based compensation expense of $ 0.7 million and $ 0.7 million, respectively, for these RSAs. During the six months ended June 30, 2020 and 2021, the Company recognized stock-based compensation expense of $ 1.4 million and $ 1.4 million, respectively, for these RSAs. Sales of common stock During the three months ended March 31, 2021, certain of the Company’s investors acquired outstanding common stock from the Company’s employees. For the shares acquired at a price in excess of the estimated fair value of the Company’s common stock, the Company recorded stock-based compensation expense of $ 5.5 million for the three months ended March 31, 2021 for the difference between the price paid by the investors and the estimated fair value on the date of the transactions. There were no sales of common stock to the Company’s investors at a price in excess of the estimated fair value in the three months ended June 30, 2021. Employee Stock Purchase Plan In May 2021, the Company’s board of directors adopted, and the stockholders approved the 2021 Employee Stock Purchase Plan (“ESPP”), which became effective, immediately prior to the effective date of the Company's IPO date. A total of 2,600,000 shares of common stock were initially reserved for issuance under the ESPP. The number of shares of our common stock reserved for issuance under the ESPP will automatically increase on January 1 of each year for a period of ten years , beginning on January 1, 2022 and continuing through January 1, 2031, by the lesser of (i) 1 % of the total number of shares of our common stock outstanding on December 31 of the immediately preceding year; and (ii) 3,900,000 shares, except before the date of any such increase, our board of directors may determine that such increase will be less than the amount set forth in clauses (i) and (ii). The ESPP provides for consecutive offering periods that will typically have a duration of 12 months in length and is comprised of two purchase periods of six months in length. The offering periods are scheduled to start on May 16 and November 16 of each year. The first offering period commenced on the Company’s first day of trading on May 20, 2021 and is comprised of three purchase periods of approximately six months in length, scheduled to end on November 15, 2022. 15 Procore Technologies, Inc. Notes to Condensed Consolidated Financial Statements (unaudited) The ESPP provides eligible employees with an opportunity to purchase shares of the Company’s common stock through payroll deductions of up to 15 % of their eligible compensation. A participant may purchase a maximum of 2,500 shares of common stock during a purchase period. Amounts deducted and accumulated by the participant are used to purchase shares of common stock at the end of each six-month purchase period. The purchase price of the shares shall be 85 % of the lower of the fair market value of the common stock on (i) the first trading day of the applicable offering period and (ii) the last trading day of each purchase period in the related offering period. However, in the event the fair value of the common stock on the purchase date is lower than the fair value on the first trading day of the offering period, the offering period is terminated immediately following the purchase and a new offering period begins the following day. Participants may end their participation at any time during an offering period and will be repaid their accrued contributions that have not yet been used to purchase shares of common stock. Participation ends automatically upon termination of employment. We estimate the fair value of the ESPP purchase rights on the date of grant using the Black-Scholes option pricing model with the following assumptions during the six months ended June 30, 2021. Risk-free interest rate 0.03% to 0.05% Expected term (in years) 0.5 to 1.5 Estimated dividend yield 0.00 % Estimated weighted-average volatility 63.42% to 69.39% The term for the ESPP purchase rights is the offering period. We estimate volatility using historical volatilities of a group of public companies in a similar industry and stage of life cycle, selected by management, for a period commensurate with the term. The interest rate is derived from government bonds with a similar term to the ESPP purchase right granted. We have not declared, nor do we expect to declare dividends in the foreseeable future. Consequently, an expected dividend yield of zero was utilized. Employee payroll contributions accrued in connection with the ESPP were $ 2.0 million as of June 30, 2021, and are included within accrued expenses in the condensed consolidated balance sheet. Employee payroll contributions ultimately used to purchase shares will be reclassified to stockholders' equity on the purchase date. Stock-based compensation expense related to the ESPP is recognized on a straight-line basis over the offering period. Forfeitures are recognized as they occur. During the three and six months ended June 30, 2021, the Company recorded stock-based compensation of $ 1.1 million in connection with the ESPP. As of June 30, 2021, no shares of our common stock have been purchased under the ESPP. As of June 30, 2021, unrecognized stock-based compensation expense related to the ESPP was $ 20.7 million, which is expected to be recognized over a weighted-average period of 0.9 years. Stock-based compensation The Company recorded total stock-based compensation cost from RSUs, stock options, RSAs, ESPP and sales of stock by employees in excess of fair value as follows (in thousands): Three Months Ended Six Months Ended June 30, June 30, 2020 2021 2020 2021 Cost of revenue $ 268 $ 4,918 $ 535 $ 6,079 Sales and marketing 3,115 42,855 5,234 46,107 Research and development 1,912 51,317 3,849 54,563 General and administrative 1,331 38,353 2,708 40,997 Total stock-based compensation expense $ 6,626 $ 137,443 $ 12,326 $ 147,746 Stock-based compensation capitalized for software development 181 837 464 920 Total stock-based compensation cost $ 6,807 $ 138,280 $ 12,790 $ 148,666 16 Procore Technologies, Inc. Notes to Condensed Consolidated Financial Statements (unaudited) 11. INCOME TAXES For the three months ended June 30, 2020 and 2021, the Company recorded an income tax expense of $ 0.2 million and $ 0.0 million, respectively. For the six months ended June 30, 2020 and 2021, the Company recorded an income tax expense of $ 0.2 million and $ 0.2 million, respectively. As of June 30, 2021, the Company maintained a full valuation allowance on its U.S. federal, state, and certain foreign net deferred tax assets as it was more likely than not that those deferred tax assets would not be realized. In determining quarterly provisions for income taxes, we use the annual estimated effective tax rate applied to the actual year-to-date income or loss, adjusted for discrete items, if any, arising in that quarter. The Company’s annual estimated effective tax rate differs from the U.S. federal statutory rate of 21 % primarily as a result of state taxes, foreign taxes, and changes in the Company’s valuation allowance. In March 2021, the President of the United States signed into law the American Rescue Plan Act (the “ARP Act”). The ARP Act, among other things, includes certain income tax provisions for individuals and corporations. However, since the Company has recorded a full valuation allowance against its U.S. deferred tax assets, these changes to U.S. tax law did not have a material impact on the Company’s provision for income taxes. 12. NET LOSS PER SHARE Basic and diluted net income (loss) per share is presented in conformity with the two-class method required for participating securities. The Company’s redeemable convertible preferred stock were participating securities as the holders of the redeemable convertible preferred stock were entitled to participate in dividends with common stock. In periods of net income, net income was attributed to common stockholders and participating securities based on their participation rights, and basic net income per share was calculated by dividing the net income attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. The Company’s common stock which was converted from redeemable convertible preferred stock upon the closing of the IPO is weighted based on the period of time it was outstanding after conversion. Net losses were not allocated to the redeemable convertible preferred stock as the holders of the redeemable convertible preferred stock did not have a contractual obligation to share in any losses. Basic net loss per share attributable to common stockholders is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. Diluted net income per share attributable to common stockholders adjusts basic net income per share for the potentially dilutive impact of stock options and redeemable convertible preferred stock. As the Company has reported net losses attributable to common stockholders for all periods presented, all potentially dilutive securities are antidilutive and accordingly, basic net loss per share attributable to common stockholders equals diluted net loss per share attributable to common stockholders. The following weighted-average potentially dilutive shares are excluded from the calculation of diluted earnings per share as they are anti-dilutive: 17 Procore Technologies, Inc. Notes to Condensed Consolidated Financial Statements (unaudited) Three Months Ended Six Months Ended June 30, June 30, June 30, June 30, 2020 2021 2020 2021 Shares of common stock issuable upon conversion of redeemable convertible preferred stock 83,280,932 49,698,437 81,177,419 67,416,424 Shares of common stock issuable upon conversion of Series I warrant 1,452,513 — 742,218 — Restricted stock units subject to future vesting 4,109,934 6,710,345 2,886,750 6,171,789 Shares issuable pursuant to the ESPP — 177,679 — 89,330 Shares of common stock issuable from stock options 16,398,679 10,006,631 17,015,450 10,800,054 Total 105,242,058 66,593,092 101,821,837 84,477,597 13. GEOGRAPHIC INFORMATION The following table sets forth the Company’s revenues by geographic region, which is determined based on the billing location of the customer (in thousands): Three Months Ended Six Months Ended June 30, June 30, June 30, June 30, 2020 2021 2020 2021 United States $ 85,110 $ 105,331 $ 166,482 $ 203,937 Rest of the world 11,443 17,459 22,408 32,791 Total revenue $ 96,553 $ 122,790 $ 188,890 $ 236,728 14. SUBSEQUENT EVENTS On July 2, 2021, the Company granted 154,709 RSUs at a grant date fair value of $ 93.07 per share. 18