PROCORE TECHNOLOGIES, INC. 10-K

Item 8. Financial Statements and Supplementary Data. Index to Consolidated Financial Statements Page(s) Report of Independent Registered Public Accounting Firm (PCAOB: 238 ) 63 Consolidated Financial Statements: Consolidated Balance Sheets 64 Consolidated Statements of Op er ations and Comprehensive Loss 65 Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ (Equity) Deficit 66 Consolidated Statements of Cash Flows 67 Notes to Consolidated Financial Statements 69 62 Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of Procore Technologies, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Procore Technologies, Inc. and its subsidiaries (the “Company”) as of December 31, 202 1 and 20 20 , and the related consolidated statements of operations and comprehensive loss, of redeemable convertible preferred stock and stockholders’ equity (deficit) and of cash flows for each of the three years in the period ended December 31, 202 1 , including the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 202 1 and 20 20 , and the results of its operations and its cash flows for each of the three years in the period ended December 31, 202 1 in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ PricewaterhouseCoopers LLP Los Angeles, California March 4, 202 2 We have served as the Company’s auditor since 2015. 63 Procore Technologies, Inc. Consolidated Balance Sheets December 31, (in thousands, except number of shares and par value) 2021 2020 Assets Current assets Cash and cash equivalents $ 586,108 $ 379,907 Accounts receivable, net 113,977 77,692 Contract cost asset, current 17,030 13,598 Prepaid expenses and other current assets 35,173 16,772 Total current assets 752,288 487,969 Capitalized software development costs, net 27,062 18,538 Property and equipment, net 36,837 30,252 Right of use assets - finance leases 39,623 42,108 Right of use assets - operating leases 44,052 49,756 Contract cost asset, non-current 25,889 19,454 Intangible assets, net 201,977 33,241 Goodwill 540,922 125,966 Restricted cash, non-current 3,104 3,104 Other assets 18,903 10,379 Total assets $ 1,690,657 $ 820,767 Liabilities, Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit) Current liabilities Accounts payable $ 15,490 $ 9,012 Accrued expenses 65,907 28,492 Deferred revenue, current 301,557 213,438 Other current liabilities 20,750 10,768 Total current liabilities 403,704 261,710 Deferred revenue, non-current 4,024 6,373 Finance lease liabilities, non-current 47,344 48,835 Operating lease liabilities, non-current 41,573 46,558 Other liabilities, non-current 4,723 1,919 Total liabilities 501,368 365,395 Commitments and contingencies (Note 10) Redeemable convertible preferred stock, $ 0.0001 par value, 0 and 85,734,623 shares authorized at December 31, 2021 and 2020, respectively; 0 and 85,331,278 shares issued and outstanding at December 31, 2021 and 2020, respectively. - 727,474 Stockholders' equity (deficit) Preferred stock, $ 0.0001 par value, 100,000,000 and 0 shares authorized at December 31, 2021 and 2020, respectively; 0 shares issued and outstanding at December 31, 2021 and 2020, respectively. - - Common stock, $ 0.0001 par value, 1,000,000,000 and 138,490,810 shares authorized at December 31, 2021 and 2020, respectively; 134,046,926 and 30,707,113 shares issued and outstanding at December 31, 2021 and 2020, respectively. 13 3 Additional paid-in capital 1,852,071 124,755 Accumulated other comprehensive (loss) income ( 583 ) 187 Accumulated deficit ( 662,212 ) ( 397,047 ) Total stockholders' equity (deficit) 1,189,289 ( 272,102 ) Total liabilities, redeemable convertible preferred stock and stockholders' equity (deficit) $ 1,690,657 $ 820,767 The accompanying notes are an integral part of these consolidated financial statements. 64 Procore Technologies, Inc. Consolidated Statements of Operations and Comprehensive Loss Year Ended December 31, (in thousands, except share and per share amounts) 2021 2020 2019 Revenue $ 514,821 $ 400,291 $ 289,194 Cost of revenue 98,312 71,663 53,166 Gross profit 416,509 328,628 236,028 Operating expenses Sales and marketing 308,511 189,032 173,472 Research and development 237,290 124,661 87,022 General and administrative 156,635 73,465 58,158 Total operating expenses 702,436 387,158 318,652 Loss from operations ( 285,927 ) ( 58,530 ) ( 82,624 ) Interest expense, net ( 2,153 ) ( 2,060 ) ( 930 ) Change in fair value of Series I redeemable convertible convertible preferred stock warrant liability - ( 36,990 ) - Other (expense) income, net ( 843 ) 420 518 Loss before (benefit from) provision for income taxes ( 288,923 ) ( 97,160 ) ( 83,036 ) (Benefit from) provision for income taxes ( 23,758 ) ( 993 ) 71 Net loss $ ( 265,165 ) $ ( 96,167 ) $ ( 83,107 ) Less: Recognition of beneficial conversion feature on preferred stock as a deemed dividend - ( 3,024 ) - Net loss attributable to common stockholders $ ( 265,165 ) $ ( 99,191 ) $ ( 83,107 ) Net loss per share attributable to common stockholders, basic and diluted $ ( 2.86 ) $ ( 3.56 ) $ ( 3.41 ) Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted 92,673,453 27,895,546 24,361,173 Total comprehensive loss Net loss $ ( 265,165 ) $ ( 96,167 ) $ ( 83,107 ) Foreign currency translation adjustment ( 770 ) 167 100 Comprehensive loss $ ( 265,935 ) $ ( 96,000 ) $ ( 83,007 ) The accompanying notes are an integral part of these consolidated financial statements. 65 Procore Technologies, Inc. Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) Redeemable Accumulated Convertible Additional Other Total Preferred Stock Common Stock Paid-in Comprehensive Accumulated Stockholders' (in thousands, except share amounts) Shares Amount Shares Amount Capital (Loss) Income Deficit Equity (Deficit) Balances as of December 31, 2018 73,999,921 $ 254,172 21,243,625 $ 2 $ 18,109 $ ( 80 ) $ ( 217,717 ) $ ( 199,686 ) Exercise of stock options - - 2,771,067 1 6,687 - - 6,688 Stock-based compensation - 1,164 - - 19,327 - - 19,327 Conversion of redeemable convertible preferred stock to common stock ( 1,379,390 ) ( 249 ) 1,379,390 - 249 - - 249 Adjustment to Series H issuance costs - 23 - - - - - Issuance of Series H-1 redeemable convertible preferred stock 3,865,667 97,913 - - - - - - Options granted for business combination attributed to pre-combination services - - - - 2,671 - - 2,671 Issuance of Series I redeemable convertible preferred stock for cash, net of issuance costs of $ 126 2,376,837 89,874 - - - - - - Foreign currency translation adjustment - - - - - 100 - 100 Net loss - - - - - - ( 83,107 ) ( 83,107 ) 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 - - 5,214,282 - 32,040 - - 32,040 Stock-based compensation - 2,748 - - 41,787 - - 41,787 Issuance of Series I redeemable convertible preferred stock for cash, net of issuance costs of $ 83 5,015,734 177,916 - - - - - - Issuance of common stock for business combination - - 96,749 - 3,885 - - 3,885 Issuance of Series I redeemable convertible preferred stock upon exercise of Series I redeemable convertible preferred stock warrant 1,452,513 103,913 - - - - - - Cancelation of Series H-1 redeemable convertible preferred stock held in escrow for business acquisition ( 4 ) - - - - - - - Beneficial conversion feature on Series I redeemable convertible preferred stock - ( 3,024 ) - - 3,024 - - 3,024 Recognition of beneficial conversion feature as a deemed dividend - 3,024 - - ( 3,024 ) - - ( 3,024 ) Vesting of restricted stock units - - 2,000 - - - - - Foreign currency translation adjustment - - - - - 167 - 167 Net loss - - - - - - ( 96,167 ) ( 96,167 ) 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 - - 4,083,461 - 42,321 - - 42,321 Stock-based compensation - 901 - - 231,507 - - 231,507 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 1 657,634 - - 657,635 Issuance of common stock, net of common stock withheld for tax liability upon settlement of restricted stock units - - 2,538,535 - ( 15 ) - - ( 15 ) Issuance of common stock for employee stock purchase plan - - 166,370 - 9,475 - - 9,475 Issuance of common stock for business combination - - 610,499 - 58,028 - - 58,028 Issuance of restricted stock awards - - 199,670 - - - - - Foreign currency translation adjustment - - - - - ( 770 ) - ( 770 ) Net loss - - - - - - ( 265,165 ) ( 265,165 ) Balances as of December 31, 2021 - $ - 134,046,926 $ 13 $ 1,852,071 $ ( 583 ) $ ( 662,212 ) $ 1,189,289 The accompanying notes are an integral part of these consolidated financial statements. 66 Procore Technologies, Inc. Consolidated Statements of Cash Flows Year Ended December 31, (in thousands) 2021 2020 2019 Operating activities Net loss $ ( 265,165 ) $ ( 96,167 ) $ ( 83,107 ) Adjustments to reconcile net loss to net cash provided by (used in) operating activities Stock-based compensation 227,161 43,960 19,238 Depreciation and amortization 36,376 25,994 14,881 Change in fair value of Series I redeemable convertible preferred stock warrant liability - 36,990 - Abandonment of long-lived assets 554 3,505 502 Noncash operating lease expense 7,569 6,578 4,457 Unrealized foreign currency loss (gain), net 685 ( 832 ) 182 Deferred income taxes ( 24,493 ) ( 1,311 ) ( 42 ) Changes in operating assets and liabilities, net of effect of business combinations Accounts receivable ( 34,157 ) ( 19,570 ) ( 19,609 ) Deferred contract cost assets ( 10,157 ) ( 2,023 ) ( 7,427 ) Prepaid expenses and other assets ( 16,741 ) ( 6,183 ) ( 6,663 ) Accounts payable 3,954 724 805 Accrued expenses and other liabilities 38,176 ( 5,433 ) 12,376 Deferred revenue 78,671 41,810 61,622 Operating lease liabilities ( 5,703 ) ( 6,189 ) ( 4,219 ) Net cash flow provided by (used in) operating activities 36,730 21,853 ( 7,004 ) Investing activities Purchases of property and equipment ( 12,383 ) ( 7,202 ) ( 13,054 ) Capitalized software development costs ( 15,248 ) ( 11,764 ) ( 14,936 ) Strategic investments ( 4,300 ) - - Acquisition of businesses, net of cash acquired ( 509,837 ) ( 14,545 ) ( 38,695 ) Net cash flow used in investing activities ( 541,768 ) ( 33,511 ) ( 66,685 ) Financing activities Proceeds from issuance of redeemable convertible preferred stock, net of issuance costs - 177,916 90,000 Proceeds from issuance of Series I redeemable convertible preferred stock warrant - 11,923 - Proceeds from initial public offering 665,129 - - Proceeds from stock option exercises 43,086 31,176 6,688 Proceeds from exercise of Series I redeemable convertible preferred stock warrant - 55,000 - Payment of debt issuance costs - ( 93 ) - Proceeds from employee stock purchase plan 9,475 - - Payments of deferred offering costs ( 3,880 ) ( 2,300 ) ( 1,044 ) Payment of deferred business acquisition consideration ( 475 ) ( 165 ) ( 1,761 ) Principal payments under finance lease agreements, net of proceeds from lease incentives ( 1,509 ) ( 1,340 ) ( 1,126 ) Net cash flows provided by financing activities 711,826 272,117 92,757 Net increase in cash, cash equivalents and restricted cash 206,788 260,459 19,068 Effect of exchange rate changes on cash ( 829 ) 966 ( 61 ) Cash, cash equivalents and restricted cash, beginning of period 383,253 121,828 102,821 Cash, cash equivalents and restricted cash, end of period $ 589,212 $ 383,253 $ 121,828 The accompanying notes are an integral part of these consolidated financial statements. 67 Procore Technologies, Inc. Consolidated Statements of Cash Flows Year Ended December 31, (in thousands) 2021 2020 2019 Reconciliation of cash, cash equivalents and restricted cash to the consolidated balance sheets Cash and cash equivalents at end of period $ 586,108 $ 379,907 $ 118,452 Restricted cash, current at end of period included in prepaid expenses and other current assets - 242 - Restricted cash, non-current at end of period 3,104 3,104 3,376 Total cash, cash equivalents and restricted cash at end of period shown in the consolidated statements of cash flows $ 589,212 $ 383,253 $ 121,828 Supplemental disclosure of cash flow information Cash paid for interest other than finance leases $ 186 $ 150 $ 149 Cash paid for income taxes, net of refunds received 419 32 310 Cash received for lease incentives 1,490 1,117 201 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from finance leases 2,076 2,131 2,177 Operating cash flows from operating leases 8,346 8,613 5,440 Financing cash flows from finance leases 1,710 1,542 1,327 Noncash investing and financing activities: Purchases of property and equipment included in accounts payable and accrued expenses at year end 2,758 1,091 1,693 Capitalized software development costs included in accounts payable and accrued expenses at year end 1,287 168 788 Deferred offering costs included in accounts payable and accrued expenses at year end 270 1,636 1,719 Costs associated with the issuance of redeemable convertible preferred stock included in accrued expenses at year end - - 126 Indemnity holdback consideration associated with business combinations included in other current liabilities at year end 4,050 475 165 Stock-based compensation capitalized for software development 5,247 575 1,253 Conversion of redeemable convertible preferred stock to common stock 728,375 - 249 Issuance of redeemable convertible preferred stock as consideration in a business combination - - 97,913 Issuance of common stock as consideration in business combinations 58,028 3,885 - Options granted for business combination attributed to pre-combination services - - 2,671 Right of use assets obtained in exchange for operating lease liabilities 1,857 22,063 17,081 Noncash net change due to operating lease remeasurement 9 ( 1,592 ) - The accompanying notes are an integral part of these consolidated financial statements. 68 Procore Technologies, Inc. Notes to Consolidated Financial Statements 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 globally. 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 (the “NYSE”) 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 11 and 12 to these 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 consolidated statement of operations and comprehensive loss, 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 12 to these consolidated financial statements. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of presentation The accompanying consolidated financial statements include the financial statements of Procore Technologies, Inc. and its subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Use of estimates The preparation of 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 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, 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 consolidated financial statements were issued, the impacts of the COVID-19 pandemic did not have a significant impact on our estimates or judgments. Judgments and assumptions may change, as new events occur and additional information is obtained, 69 Procore Technologies, Inc. Notes to Consolidated Financial Statements as well as other factors related to COVID-19 and economic recovery that could result in a meaningful impact on our consolidated financial statements in future reporting periods . Segments We operate as a single operating segment. Operating segments are defined as components of an enterprise for which separate financial information is evaluated regularly by the chief operating decision maker (“CODM”), in deciding how to allocate resources and assess performance. Our CODM is our Chief Executive Officer. In recent years, we have completed a number of acquisitions. These acquisitions have allowed us to expand our products offered on our platform. Our CODM evaluates the Company’s financial information for purposes of assessing financial performance and allocating resources on a consolidated basis. Cash, cash equivalents and restricted cash The Company considers all highly liquid investments with an original maturity of three months or less at the date of purchase to be cash equivalents. Cash includes cash held in checking and savings accounts. As of December 31, 2021 and 2020, cash equivalents comprised money market funds that were recorded at fair value which approximates amortized cost. From time to time, the Company posts cash collateral to satisfy certain contractual arrangements that may arise in the normal course of business and that is contractually restricted as to use. Restricted cash consisted of the following (in thousands): December 31, 2021 2020 Collateral letters of credit and bank guarantees related to leases $ - $ 242 Funds required to secure certain corporate credit card accounts 3,104 3,104 Total restricted cash $ 3,104 $ 3,346 Concentrations of credit risk Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, restricted cash, and accounts receivable. The Company maintains cash, cash equivalents and restricted cash balances in excess of the Federal Deposit Insurance Corporation insurance limits. Accounts receivable are recorded at the invoiced amounts, do not require collateral or bear interest, and mainly result from subscriptions to access the Company’s software products. The Company regularly assesses the need for allowances for expected losses from these accounts receivable. We estimate the expected credit losses for trade receivables by applying the estimated credit loss percentages based on our historical credit loss experience to an aging schedule. At December 31, 2021 and 2020, the Company’s allowance for expected credit losses was $ 2.4 million and $ 1.6 million, respectively. No customer represented 10 % or more of the consolidated accounts receivable balance as of December 31, 2021 and 2020. No single customer accounted for 10 % or more of total revenue for the years ended December 31, 2021, 2020, and 2019. Foreign currency transactions and translation The functional currency of the Company’s foreign subsidiaries in Australia, Canada, and England is primarily their local currencies and the functional currency of the Company’s subsidiaries in Mexico, Egypt, Singapore, and United Arab Emirates is U.S. dollars. For foreign subsidiaries where the functional currency is their local currencies, assets and liabilities are translated into U.S. dollars at exchange rates in effect at the balance sheet date, stockholders’ equity is translated at the applicable historical exchange rate, and revenue and expenses are translated using the average exchange rates during the period. The effect of exchange rate changes resulting from the translation of the foreign subsidiary financial statements is accounted for as a component of accumulated other comprehensive (loss) income. 70 Procore Technologies, Inc. Notes to Consolidated Financial Statements In addition, we incur foreign currency transaction gains and losses, including those related to intercompany agreements among us and our subsidiaries, which are recorded in other (expense) income, net in the consolidated statements of operations and comprehensive loss. Foreign currency gains and losses were not material for the years ended December 31, 2021, 2020, and 2019. Property and equipment, net Property and equipment are stated at cost less accumulated depreciation. Expenditures for repairs and maintenance are expensed as incurred, while renewals and betterments are capitalized. Depreciation expense is computed on a straight-line basis over the estimated lives of the assets as follows: Asset Classification Estimated Useful Life Leasehold improvements Lesser of 15 years or lease term Building improvements Lesser of 20 years or lease term Furniture and fixtures 5 years Computers and equipment 3 years Purchased software 3 years Leases We determine an arrangement is a lease at inception if we are both able to identify an asset and conclude we have the right to control the identified asset. Leases are classified as finance or operating based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is comprised of amortization of the right of use (“ROU”) asset and interest expense recognized based on an effective interest method for finance leases, or as a single lease cost recognized on a straight-line basis over the term of the lease for operating leases. Leases are included in ROU assets, other current liabilities, and long-term finance and operating lease liabilities within our consolidated balance sheets. Leases with expected terms of 12 months or less are not recorded on the consolidated balance sheets. Certain leases contain provisions that allow us to be reimbursed by the landlord for specified tenant improvements that are subject to final approval prior to being paid. We estimate the likelihood that we will incur and be reimbursed for such costs at the commencement of the lease and reduce the ROU liability for the discounted future cash receipt, with a corresponding offset to the ROU asset. ROU assets represent our right to control an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the commencement date of the lease based on the present value of lease payments over the expected lease term. Our leases do not provide an implicit rate, therefore we use our incremental borrowing rate based on the information available at the lease commencement date in determining the discount rate used to calculate the present value of minimum lease payments. The incremental borrowing rate used is estimated based on what we would be required to pay for a collateralized loan over a similar term. Our leases do not include any residual value guarantees, bargain purchase options, or asset retirement obligations. We have lease agreements with lease and non-lease components, which are accounted for as a single lease component. Our agreements may contain variable lease payments. We include variable lease payments that depend on an index or a rate in the calculation of the ROU lease liabilities and exclude those which depend on facts or circumstances occurring after the commencement date, other than the passage of time. Deferred Offering Costs Deferred offering costs of $ 5.0 million were recorded as other assets on the 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 December 31, 2021. 71 Procore Technologies, Inc. Notes to Consolidated Financial Statements Strategic Investments Investments in Equity Securities We hold investments in equity securities of certain privately held companies, which do not have readily determinable fair values. We do not have a controlling interest or significant influence in these companies. We have elected to measure the non-marketable equity securities 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 such equity securities, realized and unrealized, are recorded in other (expense) income, net on the consolidated statements of operations and comprehensive loss. 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 consolidated statements of operations and comprehensive loss for the amount by which the carrying value exceeds the fair value of the investment. During the year ended December 31, 2021, the Company purchased $ 3.8 million of investments in equity securities of privately held companies, which are recorded in other assets in the consolidated balance sheet . There were no impairments, changes in fair value, or realized gains or losses related to the investments during the year ended December 31, 2021. The Company held no equity securities of privately held companies as of December 31, 2020. Available-for-sale Debt Securities In connection with the acquisition of Express Lien inc. (d/b/a Levelset) (“Levelset”) in November 2021, further discussed in Note 5, the Company acquired a convertible promissory note (“Convertible Note”) in a privately held company. At the acquisition date, the fair value of the Convertible Note was $ 3.0 million. The Convertible Note is classified as an available-for-sale debt security. The available-for-sale debt security is recorded at fair value with changes in fair value recorded in other comprehensive income or loss. We periodically review our available-for-sale debt securities to determine if there has been an other-than-temporary decline in fair value. If the impairment is deemed other-than-temporary, the portion of the impairment related to credit losses is recognized in other (expense) income in the accompanying consolidated statements of operations and comprehensive loss, and the portion related to non-credit related losses is recognized as a component of comprehensive loss. As of December 31, 2021, the Company held available-for-sale debt securities of $ 3.5 million, included within other assets in the consolidated balance sheet. The Company held no available-for-sale debt securities as of December 31, 2020 . No changes in fair value or impairments have been recorded for available-for-sale debt securities during the year ended December 31, 2021. Business Combinations The Company assesses whether an acquisition is a business combination or an asset acquisition. If substantially all of the gross assets acquired are concentrated in a single asset or group of similar assets, then the acquisition is accounted for as an asset acquisition, where the purchase consideration is allocated on a relative fair value basis to the assets acquired. Goodwill is not recorded in an asset acquisition. If the gross assets are not concentrated in a single asset or group of similar assets, then the Company determines if the set of assets acquired represents a business. A business is an integrated set of activities and assets capable of being conducted and managed for the purpose of providing a return. Depending on the nature of the acquisition, judgment may be required to determine if the set of assets acquired is a business combination or not. The Company applies the acquisition method of accounting for a business combination. Under this method of accounting, assets acquired and liabilities assumed are recorded at their respective fair values at the date of the acquisition. Any excess of the purchase price over the fair value of the net assets acquired is recognized as goodwill. During the measurement period, which may be up to one year from the acquisition date, the Company adjusts the provisional amounts of assets acquired and liabilities assumed with the corresponding offset to goodwill to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded within the Company’s consolidated statements of operations and comprehensive loss. Determining the fair value of assets acquired and liabilities assumed requires management’s judgment and often involves the use of significant estimates and assumptions, including assumptions with respect to estimated level of effort and related costs of reproducing or replacing the assets acquired, future cash inflows and outflows, and discount rates, among other items. 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 72 Procore Technologies, Inc. Notes to Consolidated Financial Statements between market participants at the measurement date. Market participants are assumed to be buyers and sellers in the principal (most advantageous) market for the asset or liability. Additionally, fair value measurements for an asset assume the highest and best use of that asset by market participants. As a result, the Company may be required to value the acquired assets at fair value measures that do not reflect its intended use of those assets. Use of different estimates and judgments could yield different results . Although the Company believes the assumptions and estimates it has made are reasonable and appropriate, they are based in part on historical experience and information that may be obtained from management of the acquired company and are inherently uncertain. Intangible Assets and Goodwill All of our intangible assets are amortized using the straight-line method over their estimated period of benefit, ranging from three to 10 years. We evaluate the recoverability of intangible assets periodically by considering events or changes in circumstances that may warrant revised estimates of useful lives or that indicate the asset may be impaired. Goodwill is tested for impairment at the reporting unit level (i.e., the operating segment or one level below an operating segment). We have one reporting unit and test goodwill impairment on an annual basis during the fourth quarter of our fiscal year, and between annual tests if an event occurs or circumstances change that indicate that goodwill may be impaired. In assessing impairment, we have the option to first assess qualitative factors to determine whether or not a reporting unit is more likely than not impaired. Alternatively, we may perform a quantitative impairment assessment or if the qualitative assessment indicates that it is more likely than not that the reporting unit’s fair value is less than its carrying amount, a quantitative analysis is required. The quantitative analysis compares the estimated fair value of the reporting unit with its respective carrying amount, including goodwill. If the estimated fair value of the reporting unit exceeds its carrying amount, including goodwill, goodwill is considered not to be impaired. If the fair value is less than the carrying amount, including goodwill, then a goodwill impairment charge is recorded by the amount that the carrying value exceeds the fair value, up to the carrying amount of goodwill. Capitalized software development costs The Company capitalizes certain development costs incurred in connection with the development of internal-use software. Costs incurred in the preliminary stages of development are expensed as incurred. Once the preliminary stage is complete, internal and external direct costs are capitalized until the developed software is substantially complete and ready for its intended use. Costs incurred for post implementation activities, training, maintenance, and minor upgrades and enhancements without adding additional functionality are expensed as incurred. Capitalized internal-use software costs primarily relate to the development of and major enhancements to the Company’s cloud-based software as a service (“SaaS”) construction management platform and related software products. Capitalized software development costs related to the SaaS construction management platform are amortized on a straight-line basis over the developed software’s estimated useful life of two years and the related amortization expense is recorded in cost of revenue within the accompanying consolidated statements of operations and comprehensive loss. 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. As of December 31, 2021 and 2020, 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 73 Procore Technologies, Inc. Notes to Consolidated Financial Statements within Level 1 of the hierarchy as the values are derived from quoted prices in active markets. As of December 31, 2021 and 2020, cash equivalents of $ 514.9 million and $ 363.1 million, respectively, were held in money market funds. The Company's investments in equity securities of privately held companies are recorded at fair value on a non-recurring basis. The Company’s investments in available-for-sale debt securities are remeasured at fair value each reporting period. 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. Impairment and abandonment of long-lived assets The Company evaluates long-lived assets, including finite-lived intangible assets, property and equipment, leases, and capitalized software development costs, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. Impairment testing is performed at an asset level that represents the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities, or an asset group. Recoverability of asset groups to be held and used is measured by comparison of the carrying value of the asset group to the estimated undiscounted future cash flows expected to be generated from the use of such assets. If the undiscounted future cash flows are less than the carrying value of the asset group, an impairment is recognized based on the amount by which the carrying value exceeds the estimated fair value of the asset group. Assets to be abandoned with no remaining future service potential are written down to amounts expected to be recovered. Revenue recognition The Company generates substantially all of its revenue from subscriptions for access to its software products and related support. The software products are hosted on its cloud-based SaaS construction management platform. Subscriptions are sold for a fixed fee and revenue is recognized ratably over the term of the subscription. The Company’s subscription agreements generally have annual or multi-year terms, are typically subject to renewal at the end of the subscription term, are generally non-cancelable, and do not provide for refunds to customers or any other right of return. The Company generally invoices its customers at the beginning of each annual subscription period, and to a lesser extent, on a quarterly or monthly basis. To the extent we invoice our customers in advance of revenue recognition, we record deferred revenue. Consequently, a portion of the revenue that is reported each period is attributable to the recognition of revenue previously deferred and related to subscriptions that the Company entered into during previous periods. Subscription fees are generally due and payable upon receipt of invoice by our customers or within 30 days of the stated billing date. The Company does not provide the customer with the right to take possession of its software products at any time. The Company determines revenue recognition through the following steps: • Identification of the contract, or contracts, with a customer • Identification of the performance obligations in the contract • Determination of the transaction price • Allocation of the transaction price to the performance obligations in the contract • Recognition of revenue when, or as, the Company satisfies a performance obligation The Company executes a signed contract with the customer that specifies services to be provided, the payment amounts and terms, and the period of service, among other terms. The Company’s contracts with customers often include promises to perform multiple services. Determining whether services are considered distinct performance obligations that should be accounted for separately or together may require judgment. The contracts with customers include access to the Company’s products and support over the subscription period. Access to the products and support represents a series of distinct services as the Company fulfills its obligation to the customer and the customer receives and consumes the benefits of the software products and support over the subscription term. The series of distinct services represents a single performance obligation. 74 Procore Technologies, Inc. Notes to Consolidated Financial Statements The transaction price is determined by the stated fixed fees in the contract, excluding any related sales tax. None of the Company’s contracts include a significant financing component. The Company recognizes revenue ratably over the term of the subscription agreement beginning on the date that access to our products is made available to the customer. 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. Substantially all deferred revenue at the beginning of 2021, 2020, and 2019 was recognized as revenue within the following 12 month period. 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-cancelable contracts that will be invoiced and recognized as revenue in future periods. As of December 31, 2021, the aggregate amount of the transaction price allocated to remaining performance obligations was $ 602.6 million, of which the Company expects to recognize approximately 70 % as revenue in the next 12 months and substantially all of the remainder between 12 and 36 months thereafter. Assets recognized from the costs to obtain a contract with a customer The Company recognizes an asset for the incremental and recoverable costs of obtaining a contract with a customer if the Company expects the benefit of those costs to be one year or longer. The Company elected the practical expedient that allows an entity to expense incremental contract costs as incurred if the amortization period of the assets would have otherwise been recognized in one year or less. The Company has determined that sales commissions paid for new contracts, including certain incremental sales to existing customers, meet the requirements to be capitalized as contract acquisition costs. The contract cost assets are deferred and then recognized in sales and marketing expense on a straight-line basis over the expected period of benefit, which the Company has determined to be four years . Sales commissions and bonuses for renewal contracts are not considered commensurate with sales commissions for new contracts, and therefore, the expected period of benefit for costs capitalized for initial contracts extends beyond the term of the initial contract. Judgment is required to determine the expected period of benefit, for which the Company considers estimates of customer lives and SaaS product technology life in making this determination. There were no impairment losses of contract cost assets for the periods presented. The following table presents the changes in contract cost assets (in thousands): Year Ended December 31, 2021 2020 2019 Beginning balance $ 33,052 $ 30,799 $ 23,306 Additions 25,978 16,019 18,452 Amortization ( 16,111 ) ( 13,766 ) ( 10,959 ) Ending balance $ 42,919 $ 33,052 $ 30,799 Cost of revenue Cost of revenue primarily consists of customer support personnel-related compensation expenses, including salaries, bonuses, benefits, payroll taxes, and stock-based compensation expense, as well as expenses related to third-party hosting costs, software license fees, amortization of capitalized software development costs, amortization of acquired technology intangible assets, and allocated overhead. 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, bonuses, and severance expenses. 75 Procore Technologies, Inc. Notes to Consolidated Financial Statements Sales and marketing Sales and marketing expenses primarily consist of personnel-related compensation expenses for the Company’s sales and marketing organizations, advertising costs, marketing events, travel, trade shows and other marketing activities, contractor costs to supplement the Company’s staff levels, consulting services, amortization of acquired customer relationship intangible assets, and allocated overhead. Advertising costs are expensed as incurred. During the years ended December 31, 2021, 2020 and 2019, the Company incurred advertising costs of $ 27.2 million, $ 18.2 million and $ 22.6 million, respectively. Research and development Research and development expenses primarily consist of personnel-related compensation expenses associated with the Company’s engineering, product, and design teams, contractor costs to supplement the Company’s staff levels, consulting services, amortization of certain acquired intangible assets used in research and development activities, and allocated overhead. General and administrative General and administrative expenses primarily consist of compensation expenses associated with the Company’s finance, human resources, executive, information technology, legal, and other administrative functions. Additionally, general and administrative expenses include non-personnel-related expenses, such as professional fees for audit, legal, tax, and other external consulting services, including acquisition-related 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. Stock-based compensation The Company recognizes stock-based compensation cost equal to the grant date fair value of stock-based awards. Stock-based awards include stock options, RSUs, employee stock purchase plan (“ESPP”), and restricted stock awards (“RSAs”). The fair value of RSUs and RSAs is based on the estimated fair value of the Company’s common stock on the grant date. The fair value of stock options and ESPP purchase rights is estimated on the grant date using the Black-Scholes option pricing model. For awards that vest solely based on continued service, the grant date fair value is recognized as compensation expense on a straight-line basis over the requisite service period of the awards, which is generally four years . For awards that contain both performance and service vesting conditions, the grant date fair value is recognized as compensation expense using a graded vesting attribution model. No expense is recognized for awards with performance conditions until that condition is probable of being met. Forfeitures are recorded when they occur. Series I redeemable convertible preferred stock warrant liability In March 2020, the Company issued a warrant to purchase Series I redeemable convertible preferred stock (the “Series I warrant”). The Series I warrant was recorded as a liability on the 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 consolidated statements of operations and comprehensive loss, until 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 11 to these consolidated financial statements for further information. Income taxes The Company accounts for income taxes for the anticipated tax consequences of the reported results of operations using the asset and liability method. Under this method, deferred income tax assets and liabilities are determined based on the differences between the carrying amounts for financial reporting purposes and the tax bases of assets and liabilities. Deferred income tax assets and liabilities are measured using enacted tax rates anticipated to be in effect when those tax assets and liabilities are expected to be realized or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in the consolidated statements of operations and comprehensive loss in the period that includes the enactment date. 76 Procore Technologies, Inc. Notes to Consolidated Financial Statements A valuation allowance is established if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The Company considers all available evidence, both positive and negative, including historical levels of income, expectations and risk associated with estimates of future taxable income in assessing the need for a valuation allowance. Significant judgment is required in determining the (benefit from) provision for income taxes and deferred tax assets and liabilities. The Company recognizes a tax benefit from an uncertain position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on its technical merits. If this threshold is met, the Company measures the tax benefit as the largest amount of the benefit that is greater than fifty percent likely of being realized upon ultimate settlement. The Company recognizes penalties and interest accrued with respect to uncertain tax positions, if any, in the (benefit from) provision for income taxes in the consolidated statements of operations and comprehensive loss. As of December 31, 2021 and 2020, accrued penalties and interest related to uncertain tax positions were not significant. Recently adopted accounting pronouncements Accounting for Contract Assets and Contract Liabilities from Customer Contracts Acquired in a Business Combination In October 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2021-08, Business Combinations (Topic 805) - Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”). The new guidance requires the recognition and measurement of contract assets and contract liabilities from contracts with customers acquired in a business combination to be assessed in accordance with ASC 606, Revenue from Contracts with Customers (“ASC 606”). The adoption of ASU 2021-08 would generally result in the acquirer recognizing contract assets and contract liabilities at amounts consistent with those recorded by the acquiree if the assessment concludes that the acquiree properly applies ASC 606. ASU 2021-08 is effective for public business entities for fiscal years beginning after December 15, 2022 and interim periods within that fiscal year. Early adoption is permitted, including interim periods within the fiscal year. An entity that early adopts in an interim period should apply the amendments (1) retrospectively to all business combinations for which the acquisition date occurs on or after the beginning of the fiscal year that includes the interim period of early application and (2) prospectively to all business combinations that occur on or after the date of initial application. The Company early adopted ASU 2021-08 in the fourth quarter of 2021 and recognized deferred revenue related to its acquisitions of Levelset and LaborChart Inc. (“LaborChart”) consistent with the amounts previously recorded by each company, as disclosed in Note 5. The early adoption did not have a material impact on the Company's other acquisition in 2021. Recently issued accounting pronouncements – Not yet adopted Simplifying the Accounting for Convertible Instruments In August 2020, the FASB issued 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 does not expect the adoption of ASU 2020-06 to have a material impact on its consolidated financial statements. 77 Procore Technologies, Inc. Notes to Consolidated Financial Statements 3. PROPERTY AND EQUIPMENT Property and equipment, net consisted of the following (in thousands): December 31, 2021 2020 Leasehold improvements $ 25,529 $ 19,762 Building improvements 6,311 6,311 Furniture and fixtures 10,339 9,911 Computers and equipment 14,772 8,427 Purchased software 771 1,188 Property and equipment 57,722 45,599 Less: accumulated depreciation and amortization ( 20,885 ) ( 15,347 ) Property and equipment, net $ 36,837 $ 30,252 Depreciation and amortization expense was $ 7.8 million, $ 6.9 million, and $ 4.8 million for the years ended December 31, 2021, 2020, and 2019, respectively. 4. LEASES We have primarily entered into lease arrangements for office space, in addition to other miscellaneous equipment. Our leases have initial non-cancelable lease terms ranging from one to 10 years . Some of our lease arrangements include options to extend the term of the leases for up to 10 years. However, the lessor does not have the option to cancel any of our leases prior to the end of the remaining contractual term. Judgment is required when determining the minimum non-cancelable term of the lease. We include options to extend or terminate the lease term that are reasonably certain of exercise. If facts and circumstances regarding those judgments change in future periods, we reassess our initial estimate of the term. Our corporate headquarters offices have initial lease terms expiring in 2027, and a 10 year renewal option that we are reasonably certain we will exercise. We determined that the present value of lease payments represents substantially all of the fair value of the underlying leased asset and therefore recognize our corporate headquarters as a finance lease. The components of lease expense were as follows (in thousands): Year Ended December 31, 2021 2020 2019 Finance lease cost: Amortization of right of use assets $ 2,683 $ 2,676 $ 2,612 Interest on lease liabilities 2,076 2,131 2,177 Operating lease cost 8,943 8,045 5,675 Short-term lease cost 47 1,643 1,296 Variable lease cost 4,370 4,410 3,924 Total lease cost $ 18,119 $ 18,905 $ 15,684 78 Procore Technologies, Inc. Notes to Consolidated Financial Statements Supplemental information related to leases is as follows (in thousands): December 31, 2021 2020 Operating Leases Operating right of use assets $ 44,052 $ 49,756 Amount included within other current liabilities 6,158 5,022 Operating lease liabilities, non-current 41,573 46,558 Total operating lease liabilities $ 47,731 $ 51,580 Finance Leases Finance right of use assets $ 39,623 $ 42,108 Amount included within other current liabilities 1,684 1,504 Finance lease liabilities, non-current 47,344 48,835 Total finance lease liabilities $ 49,028 $ 50,339 December 31, 2021 2020 2019 Weighted-average remaining lease term (in years) Finance leases 15.2 16.2 17.2 Operating leases 7.8 8.7 9.4 Weighted-average discount rate Finance leases 4.20 % 4.20 % 4.20 % Operating leases 2.76 % 2.86 % 3.53 % Maturities of lease payments for leases where the lease commencement date commenced on or prior to December 31, 2021 are as follows (in thousands): Years Ending December 31, Operating Finance Total 2022 $ 6,813 $ 3,700 $ 10,513 2023 8,435 3,734 12,169 2024 6,144 3,844 9,988 2025 6,153 3,964 10,117 2026 6,044 4,088 10,132 Thereafter 20,063 48,332 68,395 Total lease payments $ 53,652 $ 67,662 $ 121,314 Less imputed interest ( 5,921 ) ( 18,634 ) ( 24,555 ) Total $ 47,731 $ 49,028 $ 96,759 As of December 31, 2021, operating lease payments for leases greater than one month, but less than twelve months in duration were not significant. As of December 31, 2021, we had undiscounted commitments of $ 4.3 million for an operating lease that has not yet commenced, and therefore are not included in the right-of-use assets or operating liabilities in the consolidated balance sheet. This operating lease commenced in 2022 with a lease term of 5 years. 79 Procore Technologies, Inc. Notes to Consolidated Financial Statements 5. BUSINESS COMBINATIONS Levelset On November 2, 2021, the Company completed the acquisition of all outstanding equity of Levelset, a lien rights management company. The purpose of this acquisition is to add lien rights management to the Procore platform, enabling Procore to manage complex workflows and improve the payment process in construction. The acquisition was accounted for as a business combination. The preliminary purchase consideration totaled $ 484.1 million, which consisted of the following (in thousands): Cash consideration $ 426,076 Fair value of common stock 58,028 Total purchase consideration $ 484,104 At closing, the Company issued 610,499 shares of common stock valued at $ 95.05 per share for aggregate purchase consideration of $ 58.0 million. The fair value of the common stock of $ 95.05 per share was determined using the closing stock price of the Company’s common stock on the acquisition date. Of the total purchase consideration, $ 35.0 million of cash was placed in an escrow account held by a third party for potential breaches of representations and warranties. The escrow amount, net of any claims for such indemnifiable matters, is scheduled to be released from escrow to shareholders of Levelset 18 months after the acquisition date. The purchase consideration was allocated to the following assets and liabilities (in thousands): Fair value Useful life Assets acquired Cash and cash equivalents $ 10,951 Accounts receivable 1,250 Prepaid expenses and other current assets 5,289 Other non-current assets 5,740 Developed technology intangible asset 105,500 7 years Customer relationships intangible asset 38,800 4 years Goodwill 348,318 Total assets acquired $ 515,848 Liabilities assumed Accounts payable $ ( 1,037 ) Accrued expenses ( 1,945 ) Deferred revenue, current ( 5,426 ) Other current liabilities ( 2,437 ) Other non-current liabilities ( 1,639 ) Net deferred tax liabilities ( 19,260 ) Total liabilities assumed $ ( 31,744 ) Net assets acquired $ 484,104 Developed technology intangible asset represents the fair value of the Levelset’s technology, which was valued considering both the cost to rebuild and relief from royalty methods. Key assumptions under the cost to rebuild method include the estimated level of effort and related costs of reproducing or replacing the acquired technology. Key assumptions under the relief from royalty method include forecasted revenue to be generated from the developed technology, an estimated royalty rate applicable to the technology, and a discount rate. Developed technology is amortized on a straight-line basis, which approximates the pattern in which the economic benefits of the technology are consumed, over its estimated useful life of seven years . The amortization expense is recorded in cost of revenue in the consolidated statements of operations and comprehensive loss. 80 Procore Technologies, Inc. Notes to Consolidated Financial Statements Customer relationships represent the fair value of the underlying relationships with Levelset’s existing customers, which were valued using the avoided loss of income method, which quantifies the acquiree’s loss of income if it loses the right to existing customers. Key assumptions under the avoided loss of income method include forecasted revenue to be generated from and expenses to service the customer relationships, customer churn rate, and a discount rate. The customer relationship intangible asset is amortized on a straight-line basis, which approximates the pattern in which the economic benefits of the customer relationships are consumed, over its estimated useful life of four years . The amortization expense is recorded in sales and marketing expenses in the consolidated statements of operations and comprehensive loss. The $ 348.3 million goodwill balance is primarily attributable to synergies and expanded market opportunities that are expected to be achieved from the integration of Levelset with the Company’s offerings and assembled workforce. The goodwill balance is not deductible for income taxes purposes. The measurement period for the valuation of assets acquired and liabilities assumed ends as soon as information on the facts and circumstances that existed as of the acquisition date becomes available, but does not exceed 12 months. The purchase price allocation is subject to future adjustments as a result of finalizing the closing net working capital. To retain certain Levelset employees, the Company issued 199,670 RSAs which vest based on their continued employment over two years , further discussed in Note 12. The total grant date fair value of shares issued of $ 19.0 million has been excluded from the purchase consideration and is recognized as post-combination expense over the service period on a straight-line basis. In addition to issuing the RSAs discussed above, the Company also paid $ 11.0 million of cash retention payments that vest based on continued employment, at the close of the acquisition. The cash retention payments vest quarterly over a two-year service period and are subject to clawback if the service vesting condition is not met. The related compensation is recognized as post-combination expense over the service period on a straight-line basis. The unvested amounts of cash retention payments are recorded in prepaid expenses and other current assets and in other assets on the consolidated balance sheet as of December 31, 2021. The acquisition-related transaction costs incurred by the Company of $ 5.0 million were expensed as incurred in the consolidated statements of operations and comprehensive loss. Levelset’s results of operations have been included in the Company’s consolidated financial statements from the acquisition date through December 31, 2021. The Company has not separately presented the revenue and operating losses of Levelset for the period from the acquisition date through December 31, 2021 as the impacts were not material to the consolidated financial statements. The following unaudited pro forma financial information combines the results of operations for Procore and Levelset as if the closing of the acquisition had occurred on January 1, 2020 and adjusts for amortization of acquired intangible assets, transaction costs associated with the acquisition, compensation expense assuming the retention payments discussed above vested, stock-based compensation expense for RSUs granted to continuing employees discussed in Note 12 and the 199,670 shares of RSAs issued to certain key Levelset employees as discussed above, and tax benefits recorded as a result of the acquisition. The unaudited pro forma results do not reflect any cost saving synergies from operating efficiencies or the effect of the incremental costs incurred from integrating these companies. Accordingly, these unaudited pro forma results are presented for informational purposes only and are not necessarily indicative of what the actual results of operations of the combined company would have been if the acquisitions had occurred at the beginning of 2020, nor are they indicative of future results of operations (in thousands): Year Ended December 31, 2021 2020 Revenue $ 532,690 $ 415,757 Net Loss $ ( 355,612 ) $ ( 134,133 ) 81 Procore Technologies, Inc. Notes to Consolidated Financial Statements LaborChart On October 21, 2021, the Company completed the acquisition of all outstanding equity of LaborChart for $ 76.2 million in cash purchase consideration. LaborChart is a labor management solution that facilitates labor scheduling, forecasting, office-to-field communications, certification tracking, data management, and labor analysis. The purpose of this acquisition is to enhance Procore’s existing labor management solution. The acquisition was accounted for as a business combination. The preliminary purchase consideration was allocated to the following assets and liabilities (in thousands): Fair value Useful life Assets acquired Cash and cash equivalents $ 2,149 Accounts receivable 730 Prepaid expenses and other current assets 737 Other non-current assets 417 Developed technology intangible asset 12,800 4 years Customer relationships intangible asset 11,100 10 years Goodwill 55,700 Total assets acquired $ 83,633 Liabilities assumed Accrued expenses $ ( 120 ) Deferred revenue, current ( 1,704 ) Other current and non-current liabilities ( 690 ) Net deferred tax liabilities ( 4,891 ) Total liabilities assumed $ ( 7,405 ) Net assets acquired $ 76,228 Developed technology intangible asset represents the fair value of LaborChart’s technology, which was valued considering both the cost to rebuild and relief from royalty methods. Key assumptions under the cost to rebuild method include the estimated level of effort and related costs of reproducing or replacing the acquired technology. Key assumptions under the relief from royalty method include forecasted revenue to be generated from the developed technology, an estimated royalty rate applicable to the technology, and a discount rate. Developed technology is amortized on a straight-line basis, which approximates the pattern in which the economic benefits of the technology are consumed, over its estimated useful life of four years . The amortization expense is recorded in cost of revenue in the consolidated statements of operations and comprehensive loss. Customer relationships represent the fair value of the underlying relationships with LaborChart’s existing customers, which were valued using the multi-period excess earnings method. Key assumptions under the multi-period excess earnings method include estimated future revenues, costs, cash flows, and a discount rate. The customer relationship intangible asset is amortized on a straight-line basis, which approximates the pattern in which the economic benefits of the customer relationships are consumed, over its estimated useful life of ten years . The amortization expense is recorded in sales and marketing expenses in the consolidated statements of operations and comprehensive loss. The Company recorded goodwill, which represents the excess of the purchase consideration over the tangible and intangible assets acquired and liabilities assumed, of $ 55.7 million relating to the acquisition. The goodwill balance is primarily attributed to the synergies and expanded market opportunities that are expected to be achieved from the integration of LaborChart with the Company’s offerings and assembled workforce. Goodwill is not deductible for income tax purposes. 82 Procore Technologies, Inc. Notes to Consolidated Financial Statements The measurement period for the valuation of assets acquired and liabilities assumed ends as soon as information on the facts and circumstances that existed as of the acquisition date becomes available, but does not exceed 12 months. The purchase price allocation is subject to future adjustments as a result of finalizing the closing net working capital. To retain certain LaborChart employees , the Company held back $ 9.0 million of the cash purchase price, which will vest based on continued employment over a three-year period. The cash holdback amount is excluded from the purchase consideration and will be recorded as post combination expense over the service period on a straight-line basis. The Company has not separately presented pro forma results reflecting the acquisition of LaborChart, or revenue and operating losses of LaborChart for the period from the acquisition date through December 31, 2021 as the impacts were not material to the consolidated financial statements. The acquisition-related transaction costs were not material, and were expensed as incurred in the consolidated statements of operations and comprehensive loss. Indus.ai Inc. On May 3, 2021, the Company completed the acquisition of Indus.ai Inc. (“Indus”), a Canada-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 purchase consideration of $ 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, subject to any indemnification claims, in November 2022 on the 18-month anniversary of the acquisition. The Holdback Consideration is recorded in other current liabilities on the consolidated balance sheet as of December 31, 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. Key assumptions under the cost to rebuild method include the estimated level of effort and related costs of reproducing or replacing the acquired technology. The fair value of the remaining acquired tangible and intangible net assets was immaterial. We also recorded a 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 the acquisition. The goodwill balance is primarily attributed to the synergies expected and the skilled workforce acquired. Goodwill is not deductible for income tax purposes. 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 consolidated 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 December 31, 2021 as the impacts were not material to the consolidated financial statements. The transaction costs associated with the acquisition were not material, and were expensed as incurred as general and administrative expenses in the consolidated statements of operations and comprehensive loss. Esticom On October 14, 2020, the Company acquired 100 % of the outstanding voting interests of Esticom, Inc. ("Esticom"), a company that provides an estimating solution which enables contractors to determine the quantities of materials needed from project plans and specifications, and calculate the cost estimates for the labor hours and materials required on a job. The purpose of this acquisition is to accelerate the development of the Company’s preconstruction solutions. The acquisition was accounted for as a business combination. 83 Procore Technologies, Inc. Notes to Consolidated Financial Statements The total purchase consideration is comprised of the following (in thousands): Cash consideration $ 11,239 Fair value of common stock 3,885 Total purchase consideration $ 15,124 At closing, the Company issued 96,749 shares of common stock for aggregate purchase consideration of $ 3.9 million. The fair value of the common stock was determined by the Company’s Board of Directors, taking into account a contemporaneous independent valuation by a third-party valuation specialist commissioned by the Board. The fair value is estimated based on numerous objective and subjective factors including the Company’s historical performance, financial condition, and prospects, the value of companies that the Company considers peers, recent private stock sale transactions, the economic and competitive environment, the rights, preferences, and privileges of the Company’s redeemable convertible preferred stock, and the likelihood of achieving a liquidity event, such as an IPO. In connection with the acquisition, 58,049 of the 96,749 shares of common stock were held back for potential breaches of representations and warranties, and will be assigned to Esticom shareholders 18 months after the closing date. The transaction costs associated with the acquisition were not material, and were expensed as incurred as general and administrative expenses in the consolidated statements of operations and comprehensive loss. The major classes of assets and liabilities to which we allocated the purchase price were as follows (in thousands): Fair value Useful life Assets acquired Cash and cash equivalents $ 19 Developed technology intangible asset 6,500 5 years Other acquired intangible assets 300 Less than 12 months Goodwill 9,835 Total assets acquired $ 16,654 Liabilities assumed Other current liabilities $ ( 54 ) Deferred revenue ( 100 ) Net deferred tax liabilities ( 1,376 ) Total liabilities assumed $ ( 1,530 ) Net assets acquired $ 15,124 Developed technology is amortized on a straight-line basis, which approximates the pattern in which the economic benefits of the technology are consumed, over its estimated useful life of five years . The amortization expense is recorded in cost of revenue in the consolidated statements of operations and comprehensive loss. The goodwill was primarily attributable to synergies that are expected to be achieved from the integration of Esticom with the Company’s current product offerings and assembled workforce. The goodwill balance is not deductible for income taxes purposes. The Company has not separately presented pro forma results reflecting the acquisition of Esticom, or revenue and operating losses of Esticom for the period from the acquisition date through December 31, 2020 as the impacts are not material to the consolidated financial statements. Avata Intelligence On February 3, 2020, the Company acquired intellectual properties, rights and agreements from Avata Intelligence Inc. (“Avata”) for $ 3.8 million in cash consideration. As part of the acquisition, the Company also entered into employment agreements with the majority of Avata’s employees. The purpose of this acquisition is to accelerate the development of the Company’s artificial intelligence and machine learning solutions. 84 Procore Technologies, Inc. Notes to Consolidated Financial Statements The purchase consideration was primarily allocated to developed technology intangible assets with an estimated fair value of $ 2.2 million. The excess of the purchase consideration over the net assets acquired of $ 1.6 million was recorded as goodwill. The amount of goodwill that is deductible for income tax purposes as of December 31, 2020 is $ 1.6 million. Construction BI On August 8, 2019, the Company completed the acquisition of Construction BI, LLC, (“CBI”), an Ohio limited liability company, by acquiring 100 % of the outstanding voting interests of CBI for $ 1.1 million in cash consideration. The purchase price was primarily allocated to developed technology intangible assets. The purpose of this acquisition is to accelerate the development of the Company’s business intelligence and data analytics solutions. Honest Buildings On July 30, 2019, the Company entered into a Merger Agreement with Honest Buildings, Inc. (“Honest Buildings”) to acquire all of Honest Buildings’ outstanding stock. Honest Buildings was an App Marketplace partner that already had an integration with Procore’s platform and is a provider of financial and project management software for owners. This acquisition allowed the Company to extend its software products and platform to this core customer group. The total purchase consideration is comprised of the following (in thousands): Cash consideration $ 51,361 Fair value of Series H-1 redeemable convertible preferred stock 97,913 Fair value of exchanged options relating to pre-combination services 2,671 Total purchase consideration $ 151,945 At closing, the Company issued 3,660,203 shares of Series H-1 redeemable convertible preferred stock valued at $ 26.75 per share for aggregate purchase consideration of $ 97.9 million. In addition, the Company issued 205,464 shares of Series H-1 redeemable convertible preferred stock with an acquisition date fair value of $ 5.5 million to certain key employees of Honest Buildings which vest based on their continued employment. These shares have been excluded from the purchase consideration and will be recorded as post-combination expense over two years as discussed in Note 12 to the consolidated financial statements. The fair value of the Series H-1 redeemable convertible preferred stock of $ 26.75 per share was determined by the Company’s Board of Directors, taking into account a contemporaneous independent valuation by a third-party valuation specialist commissioned by the Board. The fair value is estimated based on numerous objective and subjective factors including the Company’s historical performance, financial condition, and prospects, the value of companies that the Company considers peers, recent private stock sale transactions, the economic and competitive environment, the rights, preferences, and privileges of the Company’s redeemable convertible preferred stock, and the likelihood of achieving a liquidity event, such as an IPO. The Company also granted options to purchase 334,655 shares of common stock at a weighted-average exercise price of $ 4.72 per share in exchange for options held by Honest Buildings employees at the acquisition date. The aggregate fair value of these options at the acquisition date was $ 6.9 million, of which $ 2.7 million was attributed to pre-combination services and recorded as purchase consideration, and $ 4.2 million was attributed to post-combination services and will be recorded as additional stock-based compensation expense over the remaining vesting periods of the options, which range between four to 48 months from the acquisition date. 85 Procore Technologies, Inc. Notes to Consolidated Financial Statements The purchase consideration was allocated to the following assets and liabilities (in thousands): Fair value Useful life Assets acquired Cash and cash equivalents $ 13,588 Other current and non-current assets 2,784 Developed technology intangible asset 12,800 6 years Customer relationships intangible asset 15,200 10 years Goodwill 113,503 Total assets acquired 157,875 Liabilities assumed Accounts payable and accrued expenses ( 1,430 ) Deferred revenue ( 4,500 ) Total liabilities assumed ( 5,930 ) Net assets acquired $ 151,945 Developed technology intangible asset represents the fair value of Honest Buildings’ technology, which was valued using the relief-from royalty method. Key assumptions to estimate the fair value of developed technology include forecasted revenue to be generated from the developed technology and an estimated royalty rate applicable to the technology. Developed technology is amortized on a straight-line basis, which approximates the pattern in which the economic benefits of the technology are consumed, over its estimated useful life of six years , and the amortization expense is recorded in cost of revenue in the consolidated statements of operations and comprehensive loss. Customer relationships represent the fair value of the underlying relationships with Honest Buildings’ customers, which were valued using the multi-period excess earnings method. Key assumptions to estimate the fair value of customer relationships include forecasted revenue to be generated from and expenses to service the customer relationships, customer churn rate, and a discount rate. The customer relationship intangible asset is amortized on a straight-line basis, which approximates the pattern in which the economic benefits of the customer relationships are consumed, over its estimated useful life of 10 years, and the amortization expense is recorded in sales and marketing expenses in the consolidated statements of operations and comprehensive loss. The goodwill balance is primarily attributable to synergies and expanded market opportunities that are expected to be achieved from the integration of Honest Buildings with the Company's offerings and assembled workforce. The goodwill balance is not deductible for income taxes purposes. The acquisition-related costs incurred by the Company of $ 1.1 million were expensed as incurred, as general and administrative expenses in the consolidated statements of operations and comprehensive loss. The results of operations of Honest Buildings have been included in the Company’s consolidated financial statements from the date of acquisition. For the period from the acquisition date to December 31, 2019, Honest Buildings contributed $ 4.6 million to Procore’s consolidated revenue. Due to the integration of operations post acquisition, presenting the operating losses that Honest Buildings contributed to Procore’s consolidated operating loss since the acquisition date is impracticable. The following unaudited pro forma financial information combines the results of operations for Procore and Honest Buildings for the year ended December 31, 2019, as if the closing of the acquisition had occurred on January 1, 2018 and adjusts for amortization of acquired intangible assets, transaction costs associated with the acquisition, stock-based compensation expense for (i) options exchanged in the acquisition and (ii) 205,464 shares of Series H-1 redeemable convertible preferred stock granted to certain key employees in Honest Buildings as discussed above, and fair value adjustment to deferred revenue. 86 Procore Technologies, Inc. Notes to Consolidated Financial Statements The unaudited pro forma results do not reflect any cost saving synergies from operating efficiencies or the effect of the incremental costs incurred from integrating these companies. Accordingly, these unaudited pro forma results for the year ended December 31, 2019, are presented for informational purposes only and are not necessarily indicative of what the actual results of operations of the combined company would have been if the acquisition had occurred at the beginning of 2018, nor are they indicative of future results of operations (in thousands): Revenue $ 295,629 Net Loss $ ( 96,360 ) 6. INTANGIBLE ASSETS AND GOODWILL Intangible assets Our finite-lived intangible assets are summarized as follows (in thousands): December 31, 2021 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Developed technology $ 157,773 $ ( 16,013 ) $ 141,760 Customer relationships 66,350 ( 6,133 ) 60,217 Total $ 224,123 $ ( 22,146 ) $ 201,977 December 31, 2020 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Developed technology $ 25,141 $ ( 5,817 ) $ 19,324 Customer relationships 16,450 ( 2,533 ) 13,917 Total $ 41,591 $ ( 8,350 ) $ 33,241 We estimate that there is no significant residual value related to our intangible assets. Intangible assets amortization expense is summarized as follows (in thousands): Year Ended December 31, 2021 2020 2019 Cost of revenue $ 7,522 $ 3,315 $ 1,643 Sales and marketing 3,600 1,728 728 Research and development 2,674 721 - Total amortization of acquired intangible assets $ 13,796 $ 5,764 $ 2,371 87 Procore Technologies, Inc. Notes to Consolidated Financial Statements The following table outlines the estimated future amortization expense related to finite-lived intangible assets (in thousands): Years Ending December 31, 2022 $ 38,446 2023 37,207 2024 36,990 2025 33,547 2026 18,750 Thereafter 37,037 Total $ 201,977 Goodwill The following table presents the changes in carrying amount of goodwill (in thousands): Year Ended December 31, 2021 2020 Beginning balance $ 125,966 $ 114,528 Additions 415,482 11,438 Other adjustments, net (1) ( 526 ) - Ending balance $ 540,922 $ 125,966 (1) Includes post-closing working capital adjustments and the effect of foreign currency translation. The additions to goodwill in 2021 were due to the acquisitions of Levelset, LaborChart, and Indus, and the additions in 2020 were due to the acquisitions of Esticom and Avata, respectively, as disclosed in Note 5 to the consolidated financial statements. There was no impairment of goodwill during 2021, 2020, or 2019. 7. CAPITALIZED SOFTWARE DEVELOPMENT COSTS Our capitalized software development costs are summarized as follows (in thousands): December 31, 2021 2020 Gross carrying amount $ 60,580 $ 40,499 Accumulated amortization ( 33,518 ) ( 21,961 ) Net capitalized software costs $ 27,062 $ 18,538 Amortization of capitalized software was $ 12.0 million, $ 10.4 million, and $ 5.0 million for the years ended December 31, 2021, 2020, and 2019, respectively, and is recorded primarily in cost of revenue within our statements of operations and comprehensive loss. During 2021, 2020, and 2019, the Company recorded expense for certain software development costs of $ 0.6 million, $ 3.7 million and $ 0.5 million, respectively, within research and development expense in the consolidated statements of operations and comprehensive loss, relating to development projects the Company decided to abandon prior to completion. 88 Procore Technologies, Inc. Notes to Consolidated Financial Statements The estimated amortization is comprised of (i) amortization of released products and (ii) the expected amortization for products that are not yet complete based on their estimated economic lives and projected general release dates. The following table presents the remaining estimated amortization of capitalized software development costs as of December 31, 2021 (in thousands): Years Ending December 31, 2022 $ 10,566 2023 10,523 2024 5,305 2025 324 2026 267 Thereafter 77 Total $ 27,062 8. ACCRUED EXPENSES The following represents the components of accrued expenses contained within our consolidated balance sheets at the end of each period (in thousands): December 31, 2021 2020 (1) Accrued commissions and bonuses $ 29,676 $ 14,120 Accrued salary, payroll tax, and employee benefit liabilities 25,997 9,297 Other accrued expenses 10,234 5,075 Total accrued expenses $ 65,907 $ 28,492 (1) Certain balances have been reclassified to conform to current year presentation. 9. 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, 202 1 and 2020 , 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 has a maturity date of May 7, 2022 , and carries a fee of 0.225 % applied to unused balances and an interest rate equal to the Wall Street Journal prime rate plus 1.25 % applied to all amounts outstanding, with a floor of 3.25 %. The Credit Facility contains financial covenants that require 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, 2021 and 2020 the Company had letters of credit outstanding of $ 6.5 million and $ 7.0 million, respectively, to secure various U.S. and Australia leased office facilities. 89 Procore Technologies, Inc. Notes to Consolidated Financial Statements 10. COMMITMENTS AND CONTINGENCIES Purchase commitments As of December 31, 2021, future unconditional purchase commitments for software service subscriptions and other services were as follows (in thousands): Years Ending December 31, 2022 $ 19,787 2023 7,652 2024 2,725 2025 2,660 2026 2,780 Thereafter 5,400 Total $ 41,004 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. The Company has never paid a material claim, nor has the Company been sued in connection with these indemnification arrangements. As of December 31, 2021 and 2020, 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. 11. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT) 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 consolidated balance sheet. 90 Procore Technologies, Inc. Notes to Consolidated Financial Statements The following table summarizes the authorized, issued and outstanding redeemable convertible preferred stock of the Company as of December 31, 2020 (in thousands, except share and per share amounts): Issuance Price per Share Shares Authorized Shares Issued and Outstanding Carrying Value net of Issuance Costs Liquidation Preference Series A $ 0.1000 6,657,873 6,657,873 $ 666 $ 666 Series B 0.2575 11,322,904 11,322,904 2,913 2,916 Series C 0.1000 1,942,320 1,942,320 194 194 Series D 0.9625 16,645,641 16,645,641 15,773 16,021 Series E 2.4931 12,033,211 12,033,211 29,827 30,000 Series F 5.0940 15,704,747 15,704,747 79,795 80,000 Series G 9.3110 5,369,992 5,369,992 49,914 50,000 Series H 25.4769 2,943,843 2,943,843 74,864 75,000 Series H-1 26.7508 3,870,826 3,865,663 101,825 103,410 Series I 37.8654 9,243,266 8,845,084 371,703 334,922 85,734,623 85,331,278 $ 727,474 $ 693,129 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. 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 on the consolidated balance sheet. The Series I warrant liability was remeasured quarterly at its fair value through the date of exercise with changes in fair value recorded in the 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 September 30, 2020: Fair value of Series I redeemable convertible preferred stock per share $35.04 to $49.95 Expected term (in years) 0.50 to 1.00 Expected volatility 59.10% to 67.80% Risk-free interest rate 0.10% to 0.16% Dividend yield 0.00 % On the date the Series I warrant was exercised, the Company remeasured its fair value using the Series I redeemable convertible preferred stock fair value of $ 71.54 per share as of that date. The following table provides a summary of the changes in the fair value of the Series I warrant liability (in thousands): Balance as of December 31, 2019 $ - Issuance of Series I warrant 11,923 Change in fair value measurement of Series I warrant liability 36,990 Fair value of Series I warrant reclassified to Series I redeemable convertible preferred stock upon exercise ( 48,913 ) Balance as of December 31, 2020 $ - 91 Procore Technologies, Inc. Notes to Consolidated Financial Statements 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. 12. STOCK-BASED COMPENSATION Equity Incentive Pl an 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, RSAs, RSUs, performance awards and other forms of awards, to employees, directors, and consultants. A total of 30,962,615 shares of common stock were authorized for issuance under the 2021 Plan. As of December 31, 2021, a total of 26,286,192 shares of common stock were available for issuance under the 2021 Plan. No options have been issued under the 2021 Plan. In June 2014, the Company adopted the 2014 Equity Incentive Plan (the “2014 Plan”), which was amended in April 2020 to increase the number of shares of common stock authorized for issuance. The 2014 Plan provides for the issuance of incentive and non-statutory stock options to purchase common shares and the grant of other common stock awards to employees, officers, consultants, and directors of the Company. The 2014 Plan served as the successor to the Company’s 2012 and 2004 Plans. On the date the Company adopted the 2014 Plan, any options issued and outstanding under the 2012 and 2004 Plans were substituted by options with identical terms to purchase the Company’s common stock under the 2014 Plan. On the date the 2021 Plan was adopted, no further shares could be issued under the 2014 Plan, however all shares outstanding under the 2014 Plan remain subject to the terms of the 2014 Plan. Options issued under the 2014 Plan generally are exercisable for periods not to exceed 10 years and generally vest over a four to five-year period. The Company issues new shares upon exercise of stock-based awards. Stock options No stock options were granted during 2021 or 2020. During the year ended December 31, 2019, the fair value of each stock option was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions: Risk-free interest rate 1.4% to 2.2% Expected term (in years) 5.4 Estimated dividend yield 0 % Estimated weighted-average volatility 39% to 41% Use of the Black-Scholes option-pricing model requires the input of subjective assumptions. The assumptions used in the Company’s option-pricing model represent management’s best estimates and are as follows: Fair value of common stock Prior to the IPO, given the Company’s common stock was not publicly traded, its board of directors exercised significant judgment in determining the fair value of its common stock with input from management, based on several objective and subjective factors. Factors considered by the Company’s board of directors include the price paid by investors for its common and preferred stock, actual and forecasted operating and financial performance, market conditions, performance of comparable publicly traded companies and transactions of comparable companies, developments and milestones within the Company, the rights, preferences, and privileges of its common and preferred stock, the likelihood of achieving a liquidating event, and the results of contemporaneous third-party valuations. The fair value was determined in accordance with applicable elements of the practice aid issued by the American Institute of Certified Public Accountants, Valuation of Privately Held Company Equity Securities Issued as Compensation. 92 Procore Technologies, Inc. Notes to Consolidated Financial Statements Expected term The expected term of employee stock options represents the weighted-average period that the stock options are expected to remain outstanding. The expected term assumptions were determined based upon actual historical exercises and post-vesting cancelations, adjusted for expected future exercises. Expected volatility The expected volatility of stock options is estimated based upon the historical volatility of a group of publicly traded companies, selected by management, which are in similar stages of development and comparable industries for a period commensurate with the expected term. Risk-free interest rate The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for zero-coupon U.S. Treasury notes with maturities approximately equal to the option’s expected term. Dividend yield The Company has never declared or paid any cash dividends and does not presently plan to pay cash dividends in the foreseeable future. Consequently, an expected dividend yield of zero was utilized. The following table summarizes the stock option activity during the year ended December 31, 202 1 (aggregate intrinsic value in thousands): Weighted- Weighted- Average Average Remaining Aggregate Number of Shares Exercise Price Contractual Life Intrinsic Value Outstanding at December 31, 2020 12,410,041 $ 12.51 7.0 $ 577,185 Exercised ( 4,083,461 ) 10.36 262,381 Canceled/Forfeited ( 683,890 ) 20.07 Outstanding at December 31, 2021 7,642,690 12.98 6.1 511,979 Exercisable at December 31, 2021 6,019,786 $ 11.15 5.8 $ 414,298 The weighted-average grant date fair value of options granted for the year ended December 31, 2019 was $ 9.17 per share. No options were granted in 2021 or 2020. As of December 31, 2021, the total unrecognized stock-based compensation cost for unvested stock options was $ 12.2 million, which is expected to be recognized over a weighted-average period of 1.1 years. As of December 31, 2020, the total unrecognized stock-based compensation cost for unvested stock options was $ 31.9 million, which was expected to be recognized over a weighted-average period of 1.9 years. Restricted stock units 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, generally vest over four years on either a quarterly or annual vesting schedule. Prior to the Company’s IPO, the grant date fair value of RSUs was determined based upon the fair value of the Company’s common stock as described above under stock options. Subsequent to the completion of the Company’s IPO in May 2021, the fair value of RSUs was determined based on the trading price of our publicly traded common stock. The grant date fair value of RSUs granted during 2021, 2020, and 2019 was $ 350.6 million, $ 132.4 million and $ 32.2 million, respectively. 93 Procore Technologies, Inc. Notes to Consolidated Financial Statements Prior to the effective date of the registration statement for our IPO, achievement of the performance conditions was not probable. 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 consolidated statement of operations and comprehensive loss 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 . The intrinsic value of RSUs vested during the year ended December 31, 2021 was $ 187.7 million. As of December 31, 202 1 , the total unrecognized stock-based compensation cost for all RSUs outstanding at that date was $ 281.0 million, which is expected to be recognized over a weighted-average vesting period of 2.0 years . The following table summarizes the RSU activity during the year ended December 31, 202 1 : Number of Shares Weighted-Average Grant Date Fair Value Unvested at December 31, 2020 5,357,120 $ 31.20 Granted 4,595,003 76.30 Vested ( 2,539,034 ) 33.81 Canceled/Forfeited ( 790,405 ) 46.05 Unvested at December 31, 2021 6,622,684 $ 59.72 During 2021, we granted an aggregate of 1,024,946 RSUs in connection with the acquisitions of Levelset, LaborChart, and Indus at grant date fair values ranging from $ 64.55 to $ 100.10 per share, for a total grant date fair value of $ 90.6 million. These RSUs are included in the number of shares granted during 2021 and are accounted for as post-acquisition stock-based compensation expense as they vest over a period of four years based on continued employment. Restricted stock awards In November 2021, the Company issued 199,670 RSAs to certain key Levelset employees in connection with the acquisition of Levelset that vest based on their continued services over a two-year period. The fair value of the RSAs issued was $ 95.05 per share, which was the closing trading stock price of the Company’s common stock on the acquisition date. These shares are released from restriction quarterly over a two-year period assuming the continued service of the employees. As of December 31, 2021, no shares have vested. During 2021, the Company recognized stock-based compensation expense of $ 1.6 million relating to these shares. In July 2019, the Company issued 205,464 restricted Series H-1 redeemable convertible preferred stock awards (“Series H-1 RSAs”) to certain employees at a grant date fair value of $ 26.75 in connection with the acquisition of Honest Buildings. These shares were released from restriction 50 % on the first anniversary and 50 % on the second anniversary of the acquisition date based on the continued service of the employees. As of December 31, 2021 and 2020, 205,464 and 102,732 of the Series H-1 RSAs have vested, respectively. Upon the closing of the IPO, the Series H-1 RSAs automatically converted into shares of restricted common stock on a one -for-one basis. During the year ended December 31, 2021 and 2020, the Company recognized stock-based compensation expense of $ 1.6 million and $ 2.7 million, respectively, for these shares. Sales of common stock During the years ended December 31, 2021 and 2020, 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 during the period from January 1, 2021 through the Company’s IPO on May 20, 2021 and $ 21.0 million during the year ended December 31, 2020, for the difference between the price paid by the investors and the estimated fair value on the date of the transactions. 94 Procore Technologies, Inc. Notes to Consolidated Financial Statements Employee Stock Purchase Plan In May 2021, the Company’s board of directors adopted, and the stockholders approved, the ESPP, which became effective immediately prior to the effective date of the Company's IPO. 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 offering periods are scheduled to start in May and November of each year. The first offering period commenced on the Company’s first day of trading on May 20, 2021 and comprises three purchase periods of approximately six months in length, scheduled to end on November 15, 2022. The ESPP provides for consecutive offering periods that will typically have a duration of 12 months in length and comprise two purchase periods of six months in length. 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, subject to a maximum of $ 25,000 of stock per calendar year. 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 prior to the last 15 days of a purchase 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 year ended December 31, 2021. Risk-free interest rate 0.03% to 0.18% Expected term (in years) 0.5 to 1.5 Estimated dividend yield 0 % Estimated weighted-average volatility 44.81% 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. The fair value of the Company’s common stock used to value ESPP purchase rights is determined based upon the fair value of the Company’s common stock as described above under stock options. Employee payroll contributions accrued in connection with the ESPP were $ 4.5 million as of December 31, 2021 , and are included within accrued expenses in the 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 year ended December 31, 2021, the Company recorded stock-based compensation of $ 8.5 million in connection with the ESPP. During the year ended December 31, 2021 , 166,370 shares of our common stock were purchased under the ESPP. As of December 31, 2021 , unrecognized stock-based compensation expense related to the ESPP was $ 13.8 million, which is expected to be recognized over a weighted-average period of 0.6 years. Stock-based compensation The Company recorded total stock-based compensation cost from stock options, RSUs, ESPP, RSAs, and sales of stock by employees in excess of fair value as follows (in thousands): 95 Procore Technologies, Inc. Notes to Consolidated Financial Statements Year Ended December 31, 2021 2020 2019 Cost of revenue $ 8,094 $ 1,722 $ 1,095 Sales and marketing 68,755 13,385 7,463 Research and development 85,040 12,930 6,584 General and administrative 65,272 15,923 4,096 Total stock-based compensation expense $ 227,161 $ 43,960 $ 19,238 Stock-based compensation capitalized for software development 5,247 575 1,253 Total stock-based compensation cost $ 232,408 $ 44,535 $ 20,491 There were no net tax benefits recognized in the consolidated statements of operations and comprehensive loss for stock-based compensation arrangements for the years ended December 31, 2021, 2020 and 2019 due to the Company having a full valuation allowance against its deferred tax assets. 13. INCOME TAXES The domestic and foreign components of loss before (benefit from) provision for income taxes consisted of the following (in thousands): Year Ended December 31, 2021 2020 2019 Domestic $ ( 289,187 ) $ ( 98,439 ) $ ( 84,429 ) Foreign 264 1,279 1,393 Total $ ( 288,923 ) $ ( 97,160 ) $ ( 83,036 ) The (benefit from) provision for income taxes is comprised of the following (in thousands): Year Ended December 31, 2021 2020 2019 Current: State $ 480 $ 109 $ 112 Foreign 255 209 1 Total 735 318 113 Deferred: Federal ( 17,841 ) ( 1,072 ) ( 556 ) State ( 6,301 ) ( 297 ) ( 46 ) Foreign ( 351 ) 58 560 Total ( 24,493 ) ( 1,311 ) ( 42 ) (Benefit from) provision for income taxes $ ( 23,758 ) $ ( 993 ) $ 71 96 Procore Technologies, Inc. Notes to Consolidated Financial Statements The following table provides a reconciliation between income taxes computed at the U.S. federal statutory rate and the Company's (benefit from) provision for income taxes (in thousands): Year Ended December 31, 2021 2020 2019 Computed expected income tax benefit $ ( 60,674 ) $ ( 20,404 ) $ ( 17,437 ) State income taxes - net of federal income tax benefit ( 9,917 ) ( 2,663 ) ( 2,879 ) Change in valuation allowance 90,488 26,747 27,836 Non-deductible expenses 8,667 453 1,366 Series I warrant - 9,082 - Stock-based compensation ( 36,693 ) ( 5,320 ) ( 2,980 ) Tax credits (federal and state) ( 15,753 ) ( 8,258 ) ( 6,338 ) Foreign rate differential ( 491 ) ( 701 ) 269 Other 615 71 234 (Benefit from) provision for income taxes $ ( 23,758 ) $ ( 993 ) $ 71 Significant components of the Company's deferred tax assets and liabilities are presented below (in thousands): December 31, 2021 2020 Deferred tax assets: Net operating loss $ 194,839 $ 96,942 Tax credits 42,845 26,666 Lease liabilities 24,032 24,933 Stock-based compensation 24,461 4,306 Other 3,871 1,241 Total deferred tax assets 290,048 154,088 Valuation allowance ( 204,182 ) ( 112,389 ) Total deferred tax assets, net 85,866 41,699 Deferred tax liabilities: Lease assets ( 20,696 ) ( 22,200 ) Acquired intangible assets ( 48,163 ) ( 7,412 ) Capitalized software ( 6,724 ) ( 4,553 ) Contract cost asset ( 10,179 ) ( 8,083 ) Prepaid and accrued expenses ( 2,021 ) ( 417 ) Other ( 1,015 ) ( 24 ) Total deferred tax liabilities ( 88,798 ) ( 42,689 ) Total $ ( 2,932 ) $ ( 990 ) 97 Procore Technologies, Inc. Notes to Consolidated Financial Statements In assessing the realizability of deferred tax assets, management considers whether it is "more likely than not" that some portion or all of the deferred tax assets will be realized. Realization of future tax benefits is dependent on the Company's ability to generate sufficient taxable income within the carryforward period. Based on all available objective evidence management believes it is "more likely than not" that the net deferred tax assets will not be fully realizable in the U.S. and U.K. as of December 31, 2021 and 2020. Accordingly, the Company’s U.S. and U.K. net deferred tax assets have been fully offset by a valuation allowance. The Company periodically evaluates the recoverability of the deferred tax assets and when it is determined to be "more likely than not" that the deferred tax assets are realizable, the valuation allowance is reduced. The net deferred tax liability position at December 31, 2021 and 2020 was primarily related to the Company's Australia and Canada tax jurisdictions. The following table summarizes the activity related to the valuation allowance (in thousands): Year Ended December 31, 2021 2020 2019 Beginning balance $ 112,389 $ 85,642 $ 51,703 Current year change 114,639 28,123 28,438 (Release of) increase in valuation allowance as a result of purchase accounting for business combinations ( 22,846 ) ( 1,376 ) 5,501 Ending balance $ 204,182 $ 112,389 $ 85,642 At the date of acquisition of Levelset and LaborChart, each entity was in a net deferred tax liability position, primarily as a result of acquired intangible assets. These net deferred tax liabilities are an available source of income to realize the Company’s deferred tax assets. Accordingly, the Company released $ 24.2 million of valuation allowance which resulted in an income tax benefit in the consolidated statements of operations and comprehensive loss for 2021. The Company did not provide for U.S. income taxes on the undistributed earnings and other outside temporary differences of foreign subsidiaries as they are considered indefinitely reinvested outside the United States. At December 31, 2021 and 2020, the amount of temporary differences related to undistributed earnings and other outside temporary differences upon which U.S. income taxes have not been provided is immaterial to these consolidated financial statements. As of December 31, 2021, the Company had federal net operating loss ("NOL") carryforwards of $ 794.5 million which comprise of definite and indefinite net operating losses. At December 31, 2021 the Company had federal net operating loss carryforwards of approximately $ 156.5 million, which expire at various intervals from the years 2025 through 2037 and had NOL carryforwards of $ 638.0 million which do not expire. As of December 31, 2021, the Company has state net operating losses of $ 509.0 million which will begin to expire in 2029. The Internal Revenue Code (“IRC”) of 1986, as amended, imposes restrictions on the utilization of net operating losses and credits when a Company experiences a cumulative change in ownership of more than 50 % over a three-year period. As of December 31, 2021, the Company completed an analysis to determine if the Company was subject to the provisions of IRC Section 382. Although a portion of the net operating losses and credit carryovers are subject to annual limitations, the Company has determined that it should be able to fully utilize these net operating losses and credit carryovers before they expire, provided the Company generates sufficient taxable income. As of December 31, 2021, the Company had credits for research activities available for carryforward for federal income tax purposes of $ 36.8 million and for state income tax purposes of $ 23.2 million, which are available to offset future income tax in those jurisdictions and which begin to expire in 2022 for federal and have no expiration for state. The following table summarizes the activity related to unrecognized tax benefits (in thousands): Year Ended December 31, 2021 2020 2019 Beginning balance $ 8,369 $ 6,749 $ 5,100 Increases related to current period positions 7,158 2,439 1,869 Increases (decreases) related to prior period positions 1,483 ( 819 ) ( 220 ) Ending balance $ 17,010 $ 8,369 $ 6,749 98 Procore Technologies, Inc. Notes to Consolidated Financial Statements Due to the Company’s full valuation allowance on federal and state taxes, no ne of the unrecognized tax benefits would affect the Company’s effective tax rate, if recognized. The Company does not anticipate any significant increases or decreases to its unrecognized tax positions within the next 12 months. The Company’s practice is to recognize interest and penalties related to income tax matters in income tax expense. As of December 31, 2021 and 2020, accrued interest and penalties related to income tax positions were not significant. The Company files U.S. federal, various state, and foreign income tax returns. In the normal course of business, the Company is subject to examination by taxing authorities. The tax years from 2003 forward remain subject to examination for federal purposes. Generally, state and foreign tax authorities may examine the Company’s tax returns for four years and five years, respectively, from the date an income tax return is filed. However, the taxing authorities may continue to examine the Company’s federal and state NOL carryforwards until the statute of limitations closes on the tax years in which the federal and state net operating losses are utilized. The Company is not currently under exam in any jurisdiction. 14. 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 is attributed to common stockholders and participating securities based on their participation rights, and basic net income per share is calculated by dividing the net income attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. 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. 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. Diluted net income per share attributable to common stockholders adjusts basic net income per share for the potentially dilutive impact of stock options, stock awards, 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: Year Ended December 31, 2021 2020 2019 Shares of common stock issuable upon conversion of redeemable convertible preferred stock 33,431,158 82,428,289 74,925,035 Shares of common stock issuable upon conversion of Series I warrant - 1,059,620 - Restricted stock units and restricted stock awards subject to future vesting 6,155,387 3,826,250 878,693 Shares issuable pursuant to the ESPP 326,819 - - Shares of common stock issuable from stock options 9,618,882 15,749,829 17,883,037 Unvested early exercised common stock - - 12,254 Total 49,532,246 103,063,988 93,699,019 99 Procore Technologies, Inc. Notes to Consolidated Financial Statements 15. EMPLOYEE BENEFIT PLANS The Company has a defined-contribution plan in the U.S. intended to qualify under Section 401 of the Internal Revenue Code (the “401(k) Plan”). The 401(k) Plan covers substantially all U.S. employees who meet minimum age and service requirements and allows participants to defer a portion of their annual compensation on a pre-tax basis. The Company makes contributions to the plan up to 4 % of the participating employee’s W-2 earnings and wages. Matching contributions to the 401(k) Plan totaled $ 9.6 million, $ 7.6 million, and $ 6.4 million for the years ended December 31, 2021, 2020, and 2019, respectively. The Company also has defined-contribution plans in certain other countries. The Company made matching contributions to these plans totaling $ 1.8 million, $ 1.0 million, and $ 0.8 million for the years ended December 31, 2021 , 2020 , and 2019 , respectively. 16. 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): Year Ended December 31, 2021 2020 2019 Revenue by geographic region United States $ 439,871 $ 351,323 $ 256,522 Rest of the world 74,950 48,968 32,672 Total revenue $ 514,821 $ 400,291 $ 289,194 Percentage of revenue by geographic region United States 85 % 88 % 89 % Rest of the world 15 % 12 % 11 % The following table sets forth the total of property and equipment, net, and right of use lease assets by geographic region (in thousands): December 31, 2021 2020 United States $ 113,208 $ 116,629 Rest of the world 7,304 5,487 Total $ 120,512 $ 122,116 17. RESTRUCTURING In July 2020 , the Company approved, committed to and initiated a business transformation plan which resulted in the termination of 139 employees, which represented approximately 7 % of the Company’s workforce. By restructuring, the Company intended to streamline its organization to better align with the Company’s current strategic goals. The restructuring event was completed by December 31, 2020 . During the year ended December 31, 2020, the Company recorded severance and other benefit costs of $ 4.4 million in connection with the business transformation plan. There have been no restructuring events or expenses in the year ended December 31, 2021. The following table summarizes the above restructuring-related expenses for 2020 by line item within the consolidated statement of operations and comprehensive loss (in thousands): Cost of revenue $ 127 Sales and marketing 1,824 Research and development 1,681 General and administrative 801 Total $ 4,433 100 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. None.