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Item 7. Management’s Discussion and Analysis

2024-02-26 compared with 2023-03-01 · 221 added, 213 removed, 286 unchanged (60% of the section changed)

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A discussion of our financial condition and results of operations for the fiscal year ended December 31, 2023 compared to the fiscal year ended December 31, 2022 is presented below.

A discussion of our financial condition and results of operations for the fiscal year ended December 31, 2021 compared to the year ended December 31, 2020 has been reported previously under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K filed with the SEC on March 4, 2022.

A discussion of our financial condition and results of operations for the fiscal year ended December 31, 2022 compared to the year ended December 31, 2021 has been reported previously under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 1, 2023.

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

We are a leading provider of cloud-based construction management software, and are helping transform one of the oldest, largest, and least digitized industries in the world.

We are the leading global provider of cloud-based construction management software, and are helping transform one of the oldest, largest, and least digitized industries in the world.

We focus exclusively on connecting and empowering the construction industry’s key stakeholders, such as owners, general contractors, specialty contractors, architects, and engineers, to collaborate and access our capabilities from any location, on any internet-connected device.

Our platform is modernizing and digitizing construction management by enabling real-time access to critical project information, simplifying complex workflows, and facilitating seamless communication among key stakeholders, all of which we believe positions us to serve as the system of record for the construction industry.

We are also developing other programs and services, such as our materials financing program, to address related challenges faced by the construction industry’s key stakeholders.

We are also continuing to develop other programs and services to address related challenges faced by the construction industry’s key stakeholders.

Adoption of our products, services, and platform helps our customers increase productivity and efficiency, reduce rework and costly delays, improve safety and compliance, and enhance financial transparency and accountability.

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We generate substantially all of our revenue from subscriptions to access our products and have an unlimited user model that is designed to facilitate adoption and maximize usage of our platform by all project stakeholders.

We primarily sell our products on a subscription basis for a fixed fee with pricing generally based on the number and mix of products and the annual construction volume contracted to run on our platform.

We primarily sell our products on a subscription basis for a fixed fee with pricing generally based on the number and mix of products to which a customer subscribes and the fixed aggregate dollar volume of construction work contracted to run on our platform annually, which we refer to as annual construction volume.

As our customers subscribe to additional products or increase the annual construction volume contracted to run on our platform, we generate more revenue.

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

We are highly focused on continuing to acquire new customers to support our long-term growth.

We are highly focused on continuing to acquire new customers and expand existing customers’ use of our platform to support our long-term growth.

We intend to efficiently drive new customer acquisitions by continuing to invest across our sales and marketing engine to engage our prospective customers, increase brand awareness, and drive adoption of our products, services, and platform.

We added 2,295 net new customers in 2022, including 189 customers from LaborChart when it was integrated into the sales process in the third quarter of 2022.

The number of customers on our platform has increased from 10,166 as of December 31, 2020, to 12,193 as of December 31, 2021, to 14,488 as of December 31, 2022, reflecting year-over-year growth rates of 20% in 2021 and 19% in 2022.

All customer counts aforementioned exclude customers acquired from Levelset and Esticom which have not yet been renewed onto standard Procore annual contracts.

Remaining Levelset and Esticom legacy customers will be included in our customer metrics once they are renewed onto standard Procore annual contracts or upon integration of the sales process.

As of December 31, 2023, 2022, and 2021, the number of customers on our platform was 16,367, 14,488, and 12,193, respectively, reflecting year-over-year growth rates of 13% in 2023 and 19% in 2022.

We intend to expand existing customers’ use of our platform by capturing more projects, which increases annual construction volume, selling additional existing products and services, and offering new products and services that address additional customer needs.

As a result of our focus on acquiring new customers and expansion of existing customers’ use of our platform, we have also seen an increase in the number of customers that contributed more than $100,000 of ARR, which was 2,008, 1,576, and 1,111 as of December 31, 2023, 2022, and 2021, respectively, reflecting year-over-year growth rates of 27% in 2023 and 42% in 2022.

Customers that contributed more than $100,000 of ARR represented 60%, 57%, and 52% of total ARR in each of the annual periods ending December 31, 2023, 2022, and 2021, respectively.

The number of customers that contributed more than $1,000,000 of ARR was 62, 47, and 30 as of December 31, 2023, 2022, and 2021, respectively, reflecting year-over-year growth rates of 32% in 2023 and 57% in 2022.

Customers that contributed more than $1,000,000 of ARR represented 14%, 12%, and 10% of total ARR in each of the annual periods ending December 31, 2023, 2022, and 2021, respectively.

All aforementioned customer counts exclude Levelset and Esticom customers that do not have standard Procore annual contracts.

We define ARR at the end of a particular period as the annualized dollar value of our subscriptions from customers as of such period end date.

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(“GAAP” or “U.S.

GAAP”) and does not represent our GAAP revenue on an annualized basis.

GAAP”) and does not represent our U.S.

GAAP revenue on an annualized basis.

ARR is not intended to be a replacement or forecast of revenue.

We use a gross retention rate to measure our ability to retain our customers.

Our gross retention rate reflects only customer losses and does not reflect customer expansion or contraction.

We believe our high gross retention rates demonstrate that we serve a vital role in our customers’ operations, as the vast majority of our customers continue to use our products and platform and renew their subscriptions.

To calculate our gross retention rate at the end of a particular period, we first calculate the ARR from the cohort of active customers at the end of the period 12 months prior to the end of the period selected.

We then calculate the value of ARR from any customers whose subscriptions terminated and were not renewed during the 12 months preceding the end of the period selected, which we refer to as churn.

We then divide (a) the total prior period ARR minus churn by (b) the total prior period ARR to calculate the gross retention rate.

Our gross retention rate was 95% as of December 31, 2022 and 2021.

We consider gross retention rate (“GRR”) to be a key metric and indication of our ability to retain our customer base and to evaluate whether our products and platform are addressing our customers’ needs throughout the year.

Our GRR reflects only customer losses and does not reflect customer expansion or contraction.

We believe our high GRR demonstrates that we serve a vital role in our customers’ operations, as the vast majority of our customers continue to use our products and platform and to renew their subscriptions.

To calculate GRR at the end of a particular period, we first calculate our ARR from the cohort of active customers at the end of the period 12 months prior to the end of the period selected.

We then calculate the value of ARR from any customers whose subscriptions terminated and were not renewed during the 12 months preceding the end of the period selected, which we refer to as cancellations.

We then divide (a) the total prior period ARR minus cancellations by (b) the total prior period ARR to calculate GRR.

Our GRR was 95% as of December 31, 2023, 2022, and 2021.

Net retention rate (“NRR”) compares ARR from existing customers on a trailing 12-month basis.

To calculate NRR at the end of a particular period, we first calculate ARR from the cohort of active customers at the end of the period 12 months prior to the end of the period selected.

We then calculate the value of ARR from the same cohort of customers at the end of the current period selected, giving effect to expansion, contraction, or cancellations from this group of customers over the 12 months preceding the end of the period selected.

We then divide (a) the total current period ARR by (b) the total prior period ARR to calculate NRR.

Our NRR was 114% and 117%, as of December 31, 2023 and 2022, respectively.

However, as further described below, we do not believe NRR is a key metric due to the impact of pooled volume contracts.

To help our customers address the variable nature of their construction volume, we offer (a) annual subscription contracts with construction volume over a one-year period;

(b) multi-year subscription contracts with construction volume measured annually over successive one-year periods;

and (c) pooled volume

contracts with fixed flat annual fees based on anticipated construction volume measured over multiple years (typically, two- or three-year periods).

Pooled volume contracts are most commonly purchased by customers whose project portfolios include large-scale, multi-year construction projects (typically larger customers) because pooled volume contracts give these customers the flexibility to deploy construction volume as the needs within their project portfolios change.

Pooled volume contracts allow our customers to avoid defining their construction volume commitments in a given year and the attendant risk of their construction volume usage exceeding their contracted-for amount.

With pooled volume contracts, our customers can benefit from paying the same amount over multi-year periods regardless of any changes in their project portfolios.

Pooled volume contracts may also help these customers secure volume-based price discounts from us at contract inception, as well as allow us to secure larger up-front commitments from these customers.

In pooled volume contracts, NRR does not capture a customer’s increase in construction volume usage because the fixed annual fees in these arrangements result in 100% NRR.

Pooled volume contracts generally result in lower NRR than what would have been reflected had those customers signed annual subscription contracts with construction volume measured over a one-year period or multi-year subscription contracts measured over successive one-year periods, as customers tend to increase usage of our platform year-over-year.

Because NRR does not properly capture our customers’ actual construction volume usage under the pool volume model, we do not believe NRR is the best indicator of our ability to retain and grow our customer base.

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

Remaining Performance Obligations

Our subscriptions typically have a term of one to three years.

The transaction price allocated to RPO under our subscriptions represents the contracted transaction price that has not yet been recognized as revenue, which includes deferred revenue and amounts under non-cancelable subscriptions that will be invoiced and recognized as revenue in future periods.

Our current RPO (“cRPO”) represents future revenue under existing contracts that is expected to be recognized as revenue in the next 12 months.

The following table presents our cRPO and non-current RPO at the end of each period:

Year Ended December 31, % Growth Year Ended December 31,

2023 2022 2021 2023 2022

(dollars in thousands)

cRPO $ 698,284 $ 561,200 $ 418,800 24 % 34 %

Non-current RPO 302,215 236,300 183,800 28 % 29 %

Total RPO $ 1,000,499 $ 797,500 $ 602,600 25 % 32 %

We believe that cRPO is a key metric to track our ability to win fixed revenue commitments from new customers and to expand and retain existing customers.

cRPO increased by $137.1 million in 2023 and $142.4 million in 2022, representing a year-over-year growth rate of 24% in 2023 and 34% in 2022.

We believe that macroeconomic factors have resulted in cautious customer spending, contributing to a decline in the cRPO annual growth rate.

During 2023, approximately 34% of the increase was attributable to existing customers and 66% was attributable to new customers acquired during the year.

During 2022, approximately 48% of the increase was attributable to existing customers and 52% was attributable to new customers acquired during the year.

We expect RPO to change from period to period primarily due to the size, timing, and duration of new customer contracts and customer renewals.

Continued Technology Innovation and Strategic Expansion of Our Products and Services

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Additional features and products will also enable customers and collaborators to manage new workflows on our platform and allow us to attract a broader set of stakeholders.

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

In connection with our acquisition of Levelset, we assumed, and continue to develop, a materials financing program for our customers.

Purchasers of construction materials, typically specialty contractors, generally pay their materials suppliers on 30-day payment terms but typically do not recoup their costs for such materials for 60 to 120 days after they submit invoices for those materials to the general contractors.

This disconnect between payment terms set by suppliers and when specialty contractors receive payment for those materials can pose risk and uncertainty to specialty contractors and their ability to manage their cash flow.

Our materials financing program facilitates the purchase of construction materials from fulfillment partners (our suppliers) on behalf of our customers, allowing such customers to pay us for the materials on deferred payment terms.

We typically charge an origination fee upon purchase of the materials and a weekly finance charge until receipt of deferred payment in full.

We use internal data where available on the performance and payment history of other project participants (like the property owner and general contractor) who are involved in the construction project to help determine whether to provide materials financing for a given project, and we secure such financing with mechanic’s lien rights.

In circumstances of customer non-payment, our lien rights help enforce payment collections from property owners, lenders, and general contractors who are involved in such project, which in turn strengthens the collectability of amounts we finance for our customers.

We are currently using capital from our balance sheet for our materials financing program.

Ultimately, we anticipate partnering with a capital provider at the appropriate time to dedicate the financing needed to scale this program.

Until that time,

we may use up to approximately 10% of our current cash , cash equivalents, and marketable securities position to support the program.

We intend to continue to invest in building additional products, financial offerings, features, and functionality that expand our capabilities and facilitate the extension of our platform.

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

We intend to continue to invest in building additional products, offerings, features, and functionality that expand our capabilities and facilitate the extension of our platform.

For example, in March 2023, we launched Procore Risk Advisors, a modern construction brokerage that offers insurance and surety solutions;

in September 2023, we launched Procore Pay, a payment solution that handles all aspects of the payment processes between general contractors and subcontractors;

and in September 2023, we acquired Unearth, a geographic information systems asset management platform that helps general contractors and infrastructure providers connect assets, data, and field teams.

We also intend to continue to evaluate strategic acquisitions and investments in businesses and technologies to drive product and market expansion.

Our acquisitions of LaborChart and Levelset closed in the fourth fiscal quarter of 2021, and, as such, expenses, both in dollars and as a percentage of total revenues, increased and may continue to increase from historical periods.

Our future success is dependent on our ability to successfully develop or acquire, market, and sell existing and new products and services to both new and existing customers.

While the impact of these developments, including Procore Pay, is not yet material to our business, our future success is dependent on our ability to successfully develop or acquire, market, and sell existing and new products and services to both new and existing customers.

International Growth

We see international expansion as a major, and largely greenfield, opportunity for growth as we look to capture a larger part of the worldwide construction market.

We have started to grow our presence internationally with the opening of sales and marketing offices in Sydney, Australia and Vancouver and Toronto, Canada in 2017;

London, England in 2018;

Mexico City, Mexico in 2019;

and Singapore, Republic of Singapore;

We have been growing our presence internationally with sales and marketing offices in Sydney, Australia;

Toronto, Canada;

London, England;

Paris, France;

Dublin, Ireland;

and Dubai, UAE in 2022.

We have also developed focused sales and marketing efforts in Germany, where we do not yet maintain an office location.

and Dubai, UAE.

We have also developed focused sales and marketing efforts in Germany, where we do not maintain an office location.

As a result of our international efforts, we support multiple languages and currencies.

revenue as a percentage of our total revenue was 14% in 2022, 15% in 2021, and 12% in 2020.

revenue as a percentage of our total revenue was 14% for the years ended December 31, 2023 and 2022, respectively .

We determine the percentage of non-U.S.

revenue based on the billing location of each subscription.

revenue based on the billing location of each customer.

Fluctuations in foreign currencies may positively or negatively impact the amount of revenue that we report for our foreign subsidiaries upon the translation of these amounts into U.S.

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However, our ability to conduct our operations internationally will require considerable management attention and resources and is subject to the particular challenges of supporting a rapidly growing business in an environment of multiple languages, currencies, cultures, customs, legal, tax and regulatory systems, alternative dispute systems, and commercial markets.

We have made, and plan to continue to make, significant investments in existing and select additional international markets.

We have made, and plan to continue to make, significant investments in international markets.

While these investments may adversely affect our operating results in the near term, we believe they will contribute to our long-term growth.

Macroeconomic Factors and COVID-19 Update

Macroeconomic factors such as rising inflation, rising interest rates, volatility in capital markets, and fluctuations in foreign exchange rates, may impact our operating expenses, customers’ spending, and cash flows.

We do not currently believe that these macroeconomic factors have had a material impact on our business;

Macroeconomic Factors

Macroeconomic and geopolitical factors such as trends within the commercial construction industry, rising inflation, rising interest rates, volatility in capital markets, bank failures, fluctuations in foreign exchange rates, global pandemics (such as the COVID-19 pandemic), and wars and other conflicts (such as the Russia-Ukraine war) may impact our customers’ spending as well as our operating expenses and cash flows.

We believe that macroeconomic factors have resulted in cautious customer spending, contributing to a decline in the cRPO annual growth rate.

However, as they develop, we continue to monitor the ways in which such factors may directly or indirectly impact our business, results of operations, and financial condition.

See the section titled “Quantitative and Qualitative Disclosures About Market Risk” in Part II, Item 7A of this Annual Report on Form 10-K for further discussion.

The COVID-19 pandemic has caused and continues to cause business disruption worldwide.

Governments and businesses have taken unprecedented measures, including restrictions on business operations, temporary closures, and other mandates that have, at times, caused significant disruption in global financial markets and disrupted our customers’ workflow and payment cycles.

The full extent to which the COVID-19 pandemic, including any new variants and the measures taken by governments and businesses in response, may directly or indirectly impact our business, results of operations, and financial condition will depend on future developments that are highly uncertain and cannot be accurately predicted.

See the section titled “Risk Factors” in Part I of this Annual Report on Form 10-K for further discussion.

Components of Results of Operations

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Cost of revenue primarily consists of personnel-related compensation expenses for our customer support team, including salaries, benefits, stock-based compensation, payroll taxes, commissions, and bonuses.

Cost of revenue also includes third-party hosting costs, software license fees, amortization of acquired technology intangible assets, amortization of capitalized software development costs related to our platform, and allocated overhead.

Additionally, cost of revenue includes non-personnel-related expenses, such as third-party hosting costs, amortization of acquired technology intangible assets, amortization of capitalized software development costs related to our platform, software license fees, and allocated overhead.

We expect our cost of revenue to increase on an absolute dollar basis as our revenue and acquisition activities increase.

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Capitalized software development costs are amortized on a straight-line basis over the developed software’s estimated useful life of two years and the amortization is recorded in cost of revenue.

Subsequent to our IPO in 2021, we have incurred higher cost of revenue expenses as a result of stock-based compensation expense associated with restricted stock units (“RSUs”) where the performance condition was satisfied upon the effective date of the registration statement for our IPO, and higher employer payroll taxes related to employee stock transactions.

We anticipate additional stock-based compensation expense and employer payroll tax related to employee stock transactions going forward.

In addition, we recorded and will continue to record significant amortization of acquired developed technology intangible assets as a result of our acquisitions of Levelset and LaborChart in the fourth quarter of 2021.

Operating Expenses

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For each of these categories of expense, personnel-related compensation expenses are the most significant component, which include salaries, stock-based compensation, commissions, benefits, payroll taxes, and bonuses.

To support the growth of our business, we also increased our headcount in each of these categories, including, to a limited extent, through our previous acquisitions.

Subsequent to our IPO in 2021, we have incurred higher operating expenses as a result of stock-based compensation expense associated with RSUs where the performance condition was satisfied upon the effective date of the registration statement for our IPO, and higher employer payroll taxes related to employee stock transactions.

We anticipate additional stock-based compensation expense and employer payroll tax related to employee stock transactions going forward.

To support the growth of our business, we also increased our headcount in each of these categories.

Sales and Marketing

Sales and marketing expenses primarily consist of personnel-related compensation expenses for our sales and marketing organizations, advertising costs, marketing events, travel, trade shows and other marketing activities, contractor costs to supplement our staff levels, consulting services, amortization of acquired customer relationship intangible assets, and allocated overhead.

Sales and marketing expenses primarily consist of personnel-related compensation expenses for our sales and marketing organizations.

Additionally, sales and marketing expenses include non-personnel-related expenses, such as advertising costs, marketing events, travel, trade shows, and other marketing activities;

amortization of acquired customer relationship intangible assets;

contractor costs to supplement our staff levels;

consulting services;

and allocated overhead.

We expense advertising and other promotional expenditures as incurred.

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Research and Development

Research and development expenses primarily consist of personnel-related compensation expenses for our engineering, product, and design teams, contractor costs to supplement our staff levels, consulting services, amortization of certain acquired intangible assets used in research and development activities, and allocated overhead.

We expect research and development

expenses to increase on an absolute dollar basis and vary from period to period as a percentage of revenue for the foreseeable future as we continue to invest in headcount to build, enhance, maintain, and scale our products , services, and platform.

Research and development expenses primarily consist of personnel-related compensation expenses for our engineering, product, and design teams.

Additionally, research and development expenses include non-personnel-related expenses, such as contractor costs to supplement our staff levels, consulting services, amortization of certain acquired intangible assets used in research and development activities, and allocated overhead.

We expect research and development expenses to increase on an absolute dollar basis and vary from period to period as a percentage of revenue for the foreseeable future as we continue to invest in headcount to build, enhance, maintain, and scale our products, services, and platform.

General and Administrative

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

Additionally, general and administrative expenses include non-personnel-related expenses, such as professional fees for audit, legal, tax, and other external consulting services, including acquisition-related 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.

General and administrative expenses primarily consist of personnel-related compensation expenses for our human resources, IT, finance, legal, executive, and other administrative functions.

costs associated with operating as a public company, including insurance costs, professional services, investor relations, and other compliance costs;

property and use taxes;

licenses, travel and entertainment costs;

and allocated overhead.

We expect general and administrative expenses to increase on an absolute dollar basis and vary from period to period as a percentage of revenue, as we continue to increase the size of our general and administrative functions to support the growth of our business, including our international expansion.

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Interest income consists primarily of interest income earned on our marketable securities, money market funds, and cash savings accounts.

Interest income also includes accretion of discounts, net of amortization of premiums, related to our available-for-sale marketable debt securities.

Interest Expense

Interest expense consists primarily of costs associated with our finance leases and undrawn fees associated with our former credit agreement (the “Credit Facility”), terminated as of April 29, 2022, which was provided by Silicon Valley Bank.

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

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

Other (Expense) Income, Net

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

Provision for (Benefit from) Income Taxes

Provision for (benefit from) income taxes consists primarily of income taxes of U.S.

state franchise taxes and certain foreign jurisdictions in which we conduct business, net of the release of valuation allowance as a result of deferred tax liabilities from acquisitions that were an available source of income to realize our deferred tax assets.

Interest expense consists primarily of costs associated with our finance leases.

Accretion Income, Net

Accretion income, net consists of accretion of discounts, net of amortization of premiums, related to our available-for-sale marketable debt securities.

Other Expense, Net

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

Provision for Income Taxes

Provision for income taxes consists primarily of income taxes of U.S.

state franchise taxes and certain foreign jurisdictions in which we conduct business.

As we expand our international operations, we expect to incur increased foreign tax expenses.

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deferred tax assets.

valuation allowance includes NOL carryforwards and tax credits related primarily to research and development for our operations in the U.S.

valuation allowance is primarily comprised of NOL carryforwards.

valuation allowance primarily includes NOL carryforwards and tax credits related primarily to research and development for our operations in the U.S.

We expect to maintain this full valuation allowance for our net U.S.

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Year Ended December 31,

2023 2022 2021

(in thousands)

Revenue $ 950,010 $ 720,203 $ 514,821

Cost of revenue (1)(2)(3)(4)

174,462 148,416 98,312

Gross profit 775,548 571,787 416,509

Operating expenses

Sales and marketing (1)(2)(3)(4)

494,908 424,976 308,511

Research and development (1)(2)(3)(4)

300,571 270,982 237,290

General and administrative (1)(3)(4)

195,746 166,283 156,635

Total operating expenses 991,225 862,241 702,436

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Interest expense (1,957) (2,135) (2,328)

Change in fair value of Series I redeemable

convertible preferred stock warrant liability

Other (expense) income, net

Accretion income, net 9,794 2,035 —

Other expense, net (360) (1,737) (843)

Loss before provision for (benefit from) income taxes (188,421) (286,465) (288,923)

Provision for (benefit from) income taxes 1,273 466 (23,758)

Net loss $ (189,694) $ (286,931) $ (265,165)

Year Ended December 31,

2023 2022 2021

(as a percentage of revenue)

Revenue 100 % 100 % 100 %

Cost of revenue (1)(2)(3)(4)

18 % 21 % 19 %

Gross profit 82 % 79 % 81 %

Operating expenses

Sales and marketing (1)(2)(3)(4)

52 % 59 % 60 %

Research and development (1)(2)(3)(4)

32 % 38 % 46 %

General and administrative (1)(3)(4)

21 % 23 % 30 %

Total operating expenses 104 % 120 % 136 %

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Interest expense 0 % 0 % 0 %

Change in fair value of Series I redeemable

convertible preferred stock warrant liability

Other (expense) income, net

Accretion income, net 1 % 0 % 0 %

Other expense, net 0 % 0 % 0 %

Loss before provision for (benefit from) income taxes (20 %) (40 %) (56 %)

Provision for (benefit from) income taxes 0 % 0 % (5 %)

Net loss (20 %) (40 %) (52 %)

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

Year Ended December 31,

2023 2022 2021

(in thousands)

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Total stock-based compensation expense* $ 179,334 $ 162,886 $ 227,161

* Includes amortization of capitalized stock-based compensation of $4.5 million for the year ended December 31, 2023, which was initially capitalized as capitalized software and cloud-computing arrangement implementation costs.

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

Year Ended December 31,

2023 2022 2021

(in thousands)

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Year Ended December 31,

2023 2022 2021

(in thousands)

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General and administrative 1,910 1,202 1,127

Total employer payroll tax on employee stock

Total employer payroll tax on employee stock transactions $ 8,433 $ 5,939 $ 6,515

(4) Includes acquisition-related expenses as follows:

Year Ended December 31,

2023 2022 2021

(in thousands)

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Total acquisition-related expenses $ 8,888 $ 9,402 $ 9,280

Includes restructuring-related charges as follows:

Year Ended December 31,

(in thousands)

Cost of revenue

Sales and marketing

Research and development

General and administrative

Total restructuring-related charges

Comparison of the Years Ended December 31, 2023 and 2022

Year Ended December 31,

Year Ended December 31, Change

2023 2022 Dollar Percent

(dollars in thousands)

In 2022, our revenue increased by $205.4 million, or 40%, compared to 2021, which is primarily due to expansion within our existing customers and revenue from new customers added during the year.

Our acquisition of Levelset in the fourth quarter of 2021 contributed $31.6 million of revenue in 2022.

The increase in revenue from existing customers includes the net benefit of a full year of subscription revenue in 2022 from customers that were new in 2021 and continued their subscriptions in 2022, and customers that expanded their subscriptions in 2022 through the purchase of additional construction volume or products, as well as price increases.

Revenue $ 950,010 $ 720,203 $ 229,807 32 %

In 2023, our revenue increased by $229.8 million, or 32%, compared to 2022, of which approximately 68% was attributable to revenue from existing customers and approximately 32% was attributable to revenue from new customers acquired during 2023.

The increase in revenue from existing customers includes the net benefit of a full year of subscription revenue in 2023 from customers that were newly acquired in 2022 and continued their subscriptions in 2023, and customers that expanded their subscriptions in 2023 through the purchase of additional construction volume or products and services.

Cost of Revenue, Gross Profit, and Gross Margin

Year Ended December 31,

Year Ended December 31, Change

2023 2022 Dollar Percent

(dollars in thousands)

Cost of revenue $ 174,462 $ 148,416 $ 26,046 18 %

The increase in cost of revenue in 2022 was primarily attributable to an increase of $ 18.4 million in personnel-related expenses, including an increase of $ 19.3 million in salaries and wages driven by headcount and merit increases, partially offset by a decrease of $ 0.8 million in stock-based compensation expense.

Stock-based compensation expense was higher in 2021 primarily due to a cumulative catch-up expense recorded for RSUs where the performance condition was satisfied upon the effectiveness date of the registration statement for the IPO in May 2021.

The increase in cost of revenue was also attributable to a $ 14.9 million increase in amortization of acquired developed technology intangible assets related to recent acquisitions, and a $ 9.7 million increase in third-party cloud hosting and related services as we grow our customer base.

We increased our cost of revenue headcount by 28 % since December 31, 2021 in order to support the growth of our business.

Gross profit 775,548 571,787 203,761 36 %

Gross margin 82 % 79 %

The increase in cost of revenue during 2023 was primarily attributable to an increase of $11.2 million in personnel-related expenses, including an increase of $10.8 million in salaries and wages driven by headcount and merit increases.

The increase in cost of revenue was also attributable to a $7.4 million increase in amortization of capitalized software development costs, and a $6.8 million increase in third-party cloud hosting and related services as we grow our customer base.

We increased our cost of revenue headcount by 2% since December 31, 2022, as we operate more efficiently with less headcount growth than in prior years, compared to revenue growth.

Operating Expenses

Year Ended December 31,

Year Ended December 31, Change

2023 2022 Dollar Percent

(dollars in thousands)

Sales and marketing $ 494,908 $ 424,976 $ 69,932 16 %

The increase in sales and marketing expenses during 2022 was primarily attributable to an increase of $ 77.2 million in personnel-related expenses, including an increase of $ 92.9 million in salaries and wages driven by headcount and merit increases, partially offset by a decrease of $ 15.4 million in stock-based compensation expense.

The increase in sales and marketing expenses was also attributable to a $ 9.9 million increase in marketing events and expenses, an $ 8.8 million increase in amortization of acquired customer relationship intangible assets related to recent acquisitions, an $ 8.2 million increase in travel-related costs, and a $3.4 million increase in computer software expenses.

We increased our sales and marketing headcount by 31 % since December 31, 2021 in order to continue to drive customer growth.

Year Ended December 31,

The increase in sales and marketing expenses during 2023 was primarily attributable to an increase of $61.0 million in personnel-related expenses, including increases of $58.7 million in salaries and wages and $1.5 million in stock-based compensation expense driven by headcount and merit increases.

The increase in sales and marketing expenses was also attributable to a $5.9 million increase in marketing events and expenses to drive customer growth, and a $1.4 million increase in computer software expenses.

The increase in sales and marketing expenses was partially offset by a decrease of $3.5 million in professional fees primarily due to the transition of certain contractors to full-time employees.

We increased our sales and marketing headcount by 2% since December 31, 2022 as we operate more efficiently with less headcount growth than in prior years, compared to revenue growth.

Year Ended December 31, Change

2023 2022 Dollar Percent

(dollars in thousands)

Research and development $ 300,571 $ 270,982 $ 29,589 11 %

The increase in research and development expenses during 2022 was primarily attributable to an increase of $ 21.7 million in personnel-related expenses, including an increase of $ 43.6 million in salaries and wages driven by headcount and merit increases, partially offset by a decrease of $ 21.8 million in stock-based compensation expense.

The increase in research and development expenses was also attributable to a $4.7 million increase in computer software expenses, and a $ 3.0 million increase in professional fees primarily for contractors to supplement our staff levels.

We increased our research and development headcount by 13 % since December 31, 2021 in order to continue to build, enhance, maintain, and scale our products, services, and platform.

Year Ended December 31,

The increase in research and development expenses during 2023 was primarily attributable to an increase of $25.0 million in personnel-related expenses, including increases of $19.3 million in salaries and wages and $5.0 million in stock-based compensation expense driven by headcount and merit increases.

The increase in research and development expenses was also attributable to a $4.7 million increase in computer software expenses.

We increased our research and development headcount by 2% since December 31, 2022 as we operate more efficiently with less headcount growth than in prior years, compared to revenue growth.

Year Ended December 31, Change

2023 2022 Dollar Percent

(dollars in thousands)

General and administrative $ 195,746 $ 166,283 $ 29,463 18 %

The increase in general and administrative expenses during 2022 was primarily due to a $6.1 million increase in professional fees primarily for accounting, tax, and legal services and a $3.5 million increase in computer software expenses.

The increase in general and administrative expenses was also attributable to an increase of $0.6 million in personnel-related expenses, including an increase of $26.9 million in salaries and wages driven by headcount and merit increases, partially offset by a decrease of $26.3 million in stock-based compensation expense.

We increased our general and administrative headcount by 18% since December 31, 2021 in order to continue to support the growth of our business.

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

Year Ended December 31,

The increase in general and administrative expenses during 2023 was primarily attributable to a $23.4 million increase in personnel-related expenses, including increases of $17.4 million in salaries and wages and $5.3 million in stock-based compensation expense driven by headcount and merit increases.

The increase in general and administrative expenses was also attributable to a $7.0 million increase in bad debt expenses relating to our materials financing receivables, which we do not expect to collect.

The increase in general and administrative expenses was partially offset by a decrease of $2.1 million in acquisition-related expenses.

We increased our general and administrative headcount by 14% since December 31, 2022 in order to continue to support the efficiency of other departments and the growth of our business.

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

Year Ended December 31, Change

2023 2022 Dollar Percent

(dollars in thousands)

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Interest expense 1,957 2,135 (178) (8 %)

Accretion income, net 9,794 2,035 7,759 *

Other expense, net 360 1,737 (1,377) (79 %)

Provision for (benefit from) income taxes

Provision for income taxes 1,273 466 807 *

* Percentage not meaningful

In 2022, our interest income increased due to interest earned as a result of our purchases of marketable securities starting in the third quarter of 2022 and an increase in interest rates on our money market funds and cash savings accounts.

Our marketable securities generated $4.0 million in interest income and accretion income in excess of amortization of premiums during the year ended December 31, 2022.

The increase in other expense, net during 2022 was primarily due to foreign currency losses related to changes in Australian and Canadian dollar exchange rates.

The benefit from income taxes during 2021 was primarily due to income tax benefits related to the release of a portion of our valuation allowance as a result of deferred tax liabilities recorded related to the acquisitions of Levelset and LaborChart that are available sources of income to realize our deferred tax assets .

During 2023, our interest income increased by $7.3 million due to an increase in interest rates on our money market funds and cash savings accounts and by $6.6 million due to interest earned as a result of our purchases of marketable securities, which began in the third quarter of 2022.

During 2023, accretion income, net increased by $7.8 million due to accretion income in excess of amortization of premiums as a result of our purchases of marketable securities, which began in the third quarter of 2022.

Non-GAAP Financial Measures

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Investors should not rely on any single financial measure to evaluate our business.

Non-GAAP Gross Profit, Non-GAAP Gross Margin, Non-GAAP Operating Expenses, Non-GAAP Loss from Operations, and Non-GAAP Operating Margin

We define these non-GAAP financial measures as the respective GAAP measures, excluding stock-based compensation expense, amortization of acquired intangible assets, employer payroll tax related to employee stock transactions, acquisition-related expenses, and restructuring-related charges.

Non-GAAP Gross Profit, Non-GAAP Gross Margin, Non-GAAP Operating Expenses, Non-GAAP Income (Loss) from Operations, and Non-GAAP Operating Margin

Stock-based compensation expense includes the net effects of capitalization and amortization of stock-based compensation expense related to capitalized software and cloud-computing arrangement implementation costs.

Stock-based compensation expense has been, and will continue to be for the foreseeable future, a significant recurring expense in our business and an important part of the compensation provided to our employees.

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therefore, we believe that non-GAAP measures that adjust for the amortization of acquired intangible assets provide investors a consistent basis for comparison across accounting periods.

The amount of employer payroll tax-related items on employee stock transactions is dependent on RSU settlements, option exercises, related stock price, and other factors that are beyond our control and that do not correlate to the operation of our business.

When evaluating the performance of our business and making operating plans, we do not consider these items (for example, when considering the impact of equity award grants, the Company places a greater emphasis on overall stockholder dilution than the accounting charges associated with such grants).

The amount of employer payroll tax-related items on employee stock transactions is dependent on restricted stock unit (“RSU”) settlements, option exercises, related stock price, and other factors that are beyond our control and that do not correlate to the operation of our business.

When evaluating the performance of our business and making operating plans, we do not consider these items (for example, when considering the impact of equity award grants, we place a greater emphasis on overall stockholder dilution than the accounting charges associated with such grants).

Acquisition-related expenses include external and incremental transaction costs, such as legal and due diligence costs, and retention payments.

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In addition, the size and complexity of an acquisition, which often drives the magnitude of acquisition-related expenses, may not be indicative of such future costs.

We believe excluding acquisition-related expenses facilitates the comparison of our financial results to the Company’s historical operating results and to other companies in our industry.

Restructuring-related charges are the result of the Company streamlining our organization in 2020 to better align with our strategic goals and future scale.

Refer to Note 19 in the audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K regarding the 2020 restructuring event.

We believe excluding acquisition-related expenses facilitates the comparison of our financial results to our historical operating results and to other companies in our industry.

Overall, we believe it is useful to exclude these expenses in order to better understand the long-term performance of our core business and to facilitate comparison of our results period-over-period and to those of peer companies.

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Year Ended December 31,

2023 2022 2021

(dollars in thousands)

Revenue $ 950,010 $ 720,203 $ 514,821

Gross profit 775,548 571,787 416,509

Stock-based compensation expense 11,491 7,253 8,094

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Acquisition-related expenses — — 2

Restructuring-related charges

Non-GAAP gross profit $ 809,975 $ 601,776 $ 432,584

Gross margin 82 % 79 % 81 %

Non-GAAP gross margin 85 % 84 % 84 %

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Year Ended December 31,

2023 2022 2021

(dollars in thousands)

Revenue $ 950,010 $ 720,203 $ 514,821

GAAP sales and marketing 494,908 424,976 308,511

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Acquisition-related expenses (2,483) (1,725) (488)

Restructuring-related charges

Non-GAAP sales and marketing $ 422,072 $ 355,474 $ 233,343

GAAP sales and marketing as a percentage of revenue 52 % 59 % 60 %

Non-GAAP sales and marketing as a percentage

Non-GAAP sales and marketing as a percentage of revenue 44 % 49 % 45 %

GAAP research and development $ 300,571 $ 270,982 $ 237,290

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Acquisition-related expenses (6,370) (5,549) (1,348)

Restructuring-related charges

Non-GAAP research and development $ 219,952 $ 196,169 $ 145,622

GAAP research and development as a percentage of revenue 32 % 38 % 46 %

Non-GAAP research and development as a

percentage of revenue

Non-GAAP research and development as a percentage of revenue 23 % 27 % 28 %

GAAP general and administrative $ 195,746 $ 166,283 $ 156,635

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Acquisition-related expenses (35) (2,128) (7,442)

Restructuring-related charges

Non-GAAP general and administrative $ 149,395 $ 123,979 $ 82,794

GAAP general and administrative as a percentage of revenue 21 % 23 % 30 %

Non-GAAP general and administrative as a

percentage of revenue

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

Non-GAAP general and administrative as a percentage of revenue 16 % 17 % 16 %

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

Year Ended December 31,

2023 2022 2021

(dollars in thousands)

Revenue $ 950,010 $ 720,203 $ 514,821

Loss from operations (215,677) (290,454) (285,927)

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Acquisition-related expenses 8,888 9,402 9,280

Restructuring-related charges

Non-GAAP loss from operations

Non-GAAP income (loss) from operations $ 18,556 $ (73,846) $ (29,175)

Operating margin (23 %) (40 %) (56 %)

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Liquidity and Capital Resources

Prior to our IPO, we financed our operations principally through private placements of our equity securities.

In May 2021, we received $665.1 million in net proceeds from our IPO.

As of December 31, 2022, our principal sources of liquidity are cash, cash equivalents, and marketable securities totaling $582.2 million, which were held in checking accounts, savings accounts, money market funds, U.S.

treasury securities, commercial paper, corporate notes and obligations, and time deposits.

As of December 31, 2023, our principal sources of liquidity were cash, cash equivalents, and marketable securities totaling $678.0 million, which were held in money market funds, U.S.

treasury securities, corporate notes and obligations, time deposits, commercial paper, checking accounts, and savings accounts.

Our investments in marketable securities are exposed to interest rate risk;

however, due to the short-term nature of our investments, we do not anticipate being exposed to material risks due to changes in interest rates.

On April 29, 2022, we terminated our Credit Facility.

Upon termination of the Credit Facility, our outstanding letters of credit, issued by Silicon Valley Bank, remain outstanding on an unsecured basis, without any requirement to set aside restricted cash.

Our cash sources primarily consist of cash generated from sales to our customers, proceeds from employees through stock option exercises and our employee stock purchase plan (“ESPP”), and interest income on our marketable securities and savings account balances.

As of December 31, 2023, we had outstanding letters of credit on an unsecured basis totaling approximately $5.6 million to secure various leased office facilities in the U.S.

and Australia.

Our cash sources primarily consist of cash generated from sales to our customers, maturities of our marketable securities, proceeds from employees through stock option exercises and our employee stock purchase plan (“ESPP”), and interest income on our marketable securities, money market funds, and savings account balances.

Our cash requirements are primarily for operating expenses, which include personnel-related costs, purchase obligations primarily for hosting and software license and other services, lease obligations, and capital expenditures for our employees and offices.

We also fund investments which help drive our strategic business growth through acquisitions and investments in equity securities and limited partnership funds.

We also have a materials financing program that finances our customers’ purchases of construction materials on deferred payment terms.

We are currently using capital from our balance sheet for our materials financing program.

Ultimately, we anticipate partnering with a capital provider at the appropriate time to dedicate the financing needed to scale this program.

Until that time, we may use up to approximately 10% of our current cash, cash equivalents, and marketable securities position to support the program.

As of December 31, 2022, we had receivables for amounts financed for customers, net of the related allowance for expected credit losses, of $11.5 million on our consolidated balance sheet.

We expect this business to grow in the future, which may impact our liquidity.

In the next 12 months, we have contractual commitments consisting of operating lease obligations of $12.0 million, finance lease obligations of $3.9 million, and non-cancelable purchase commitments of $37.5 million, as disclosed in Note 6 and Note 11 of the audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

In addition, in the next 12 months, we have contractual commitments of $1.2 million for an operating lease that had not yet commenced as of December 31, 2022, and purchase commitments of $22.5 million for an agreement we renewed and executed in January 2023.

We believe our existing cash, cash equivalents, and marketable securities will be sufficient to meet our needs for at least the next 12 months.

While we have begun to generate positive cash flows from operations in recent years, we have continued to generate losses from operations, as reflected in our accumulated deficit of $949.1 million as of December 31, 2022.

While we have generated positive cash flows from operations in recent years, we have continued to generate losses from operations, as reflected in our accumulated deficit of $1.1 billion as of December 31, 2023.

We may not achieve profitability in the foreseeable future and may require additional capital resources to execute strategic initiatives to grow our business.

This assessment is a forward-looking statement and involves risks and uncertainties.

Beyond the next 12 months, we have contractual commitments that we are reasonably likely to incur consisting of operating lease obligations of $41.8 million, finance lease obligations of $60.3 million, and non-cancelable purchase commitments of $28.8 million, as disclosed in Note 6

and Note 12 of the audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

In addition, beyond the next 12 months, we have contractual commitments of $1.5 million for an operating lease that had not yet commenced as of December 31, 2022, and purchase commitments of $22.5 million for an agreement we renewed and executed in January 2023.

Our additional future capital requirements will depend on many factors, including our revenue growth rate, new customer acquisition and subscription renewal activity, timing of billing activities, our ability to integrate the companies or technologies we acquire and realize strategic and financial benefits from our investments and acquisitions, other strategic transactions or investments we may enter into, the timing and extent of spending to support further sales and marketing and research and development efforts, general and administrative expenses to support our growth, including international expansion, the timing and extent of amounts financed and customer repayments under our materials financing program, and inflation.

Beyond the next 12 months, we have contractual commitments that we are reasonably likely to incur consisting of operating lease obligations of $41.1 million, finance lease obligations of $56.4 million, and non-cancelable purchase commitments of $22.5 million, as disclosed in Note 6 and Note 11 of the audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

research and development efforts, general and administrative expenses to support our growth, including international expansion and inflation.

We may in the future enter into arrangements to acquire or invest in complementary businesses, services, and technologies, including intellectual property rights.

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Year Ended December 31,

(in thousands)

2023 2022 2021

(dollars in thousands)

Net cash provided by operating activities $ 92,015 $ 12,608 $ 36,730

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Our primary uses of cash from operating activities are for personnel expenses, marketing expenses, hosting and software license expenses, and overhead.

Net cash provided by operating activities was $92.0 million in 2023 which resulted from a net loss of $189.7 million, adjusted for non-cash charges of $258.3 million and a net cash inflow of $23.4 million from changes in operating expenses and liabilities.

The $23.4 million of net cash inflows provided as a result of changes in our operating assets and liabilities primarily reflected the following:

• a $106.6 million increase in deferred revenue primarily due to the growth of our business and timing of billings;

• a $4.8 million increase in accrued expenses and other liabilities primarily due to the size of bonus and payroll accruals, and cash payments to our vendors.

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

• a $57.5 million increase in accounts receivable primarily due to the growth of our business and timing of billings and cash receipts from customers;

• a $13.8 million decrease in operating lease liabilities related to lease payments;

• a $9.3 million increase in deferred contract cost assets related to commissions as a result of additional customer contracts closed during the period;

• a $6.4 million increase in prepaid expenses and other current assets primarily due to timing of cash payments to our vendors.

Net cash provided by operating activities was $12.6 million in 2022, which resulted from a net loss of $286.9 million, adjusted for non-cash charges of $237.8 million and a net cash inflow of $61.7 million from changes in operating assets and liabilities.

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• a $3.8 million increase in prepaid expenses and other assets primarily due to timing of cash payments to our vendors.

Net cash provided by operating activities was $36.7 million in 2021, which resulted from a net loss of $265.2 million, adjusted for non-cash charges of $247.9 million and a net cash inflow of $54.0 million from changes in operating expenses and liabilities.

The $54.0 million of net cash inflows provided as a result of changes in our operating assets and liabilities primarily reflected the following:

a $78.7 million increase in deferred revenue primarily due to the growth of our business and timing of billings;

a $38.2 million increase in accrued expenses and other liabilities primarily due to timing of payroll and cash payments to our vendors, and accrued ESPP contributions;

a $4.0 million increase in accounts payable primarily due to timing of cash payments to our vendors.

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

a $34.2 million increase in accounts receivable primarily due to timing of billings and cash receipts from customers;

a $16.7 million increase in prepaid expenses and other assets primarily due to cash retention payments made to certain Levelset employees at the close of the acquisition which are subject to vest based on future service, further described in Note 7 of our audited consolidated financial statements, and timing of cash payments to our vendors;

a $10.2 million increase in deferred contract cost assets related to commissions as a result of additional customer contracts closed during the period;

a $5.7 million decrease in operating lease liabilities related to lease payments.

Investing Activities

Net cash used in investing activities of $340.5 million in 2022 consisted of purchases of marketable securities of $369.2 million, capitalized software development costs of $ 33.6 million, originations for materials financing of $ 23.5 million, purchases of property and equipment of $ 15.8 million, and purchases of strategic investments of $ 4.0 million, partially offset by $85.6 million of maturities of marketable securities, $ 18.7 million of customer repayments for materials financing, and $ 1.3 million in cash receipts from the settlement of post-close working capital adjustments related to our acquisitions of Levelset and LaborChart in the fourth quarter of 2021.

Net cash used in investing activities of $541.8 million in 2021 consisted of the acquisitions of Levelset, LaborChart, and Indus.ai Inc.

(“Indus”), net of cash acquired, of $509.8 million, capitalized software development costs of $15.2 million, purchases of property and equipment of $12.4 million, and purchases of strategic investments of $4.3 million.

Net cash used in investing activities of $76.1 million in 2023 consisted of cash outflows for purchases of marketable securities of $402.4 million, capitalized software development costs of $34.7 million, originations for materials financing of $24.0 million, purchases of property and equipment of $10.3 million primarily related to improvements to our leased office spaces and computer equipment purchases, and asset acquisitions of $7.8 million.

Such outflows were partially offset by $372.2 million in maturities of marketable securities, $26.2 million of customer repayments for materials financing, and $5.5 million in sales of marketable securities.

Such outflows were partially offset by $85.6 million of maturities of marketable securities, $18.7 million of customer repayments for materials financing, and $1.3 million in cash receipts from the settlement of post-close working capital adjustments related to our acquisitions of Levelset and LaborChart in the fourth quarter of 2021.

Financing Activities

Net cash provided by financing activities was $38.7 million in 2022, which primarily consisted of $22.4 million in proceeds from stock option exercises and $22.1 million in proceeds from our ESPP, partially offset by $3.9 million in deferred payments related to our acquisition of Indus in 2021, and $1.7 million in payments on our finance lease obligations.

Net cash provided by financing activities was $711.8 million in 2021, which primarily consisted of $665.1 million in net proceeds from our IPO, $43.1 million in proceeds from stock option exercises, and $9.5 million in proceeds from our ESPP partially offset by $3.9 million in payments of deferred offering costs and $1.5 million in payments on our finance lease obligations.

Credit Facility

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

As of December 31, 2022, we had issued letters of credit totaling $6.5 million to secure various U.S.

and Australia leased office facilities.

Upon termination of the Credit Facility, our current letters of credit, issued by Silicon Valley Bank, remain outstanding on an unsecured basis, without any requirement to set aside restricted cash.

Remaining Performance Obligations

Our subscriptions typically have a term of one to three years.

The transaction price allocated to remaining performance obligations under our subscriptions represents the contracted transaction price that has not yet been recognized as revenue, which includes deferred revenue and amounts under non-cancelable subscriptions that will be invoiced and recognized as revenue in future periods.

As of December 31, 2022, the aggregate amount of the transaction price allocated to remaining performance obligations was $ 797.5 million, of which approximately 70 % is expected to be recognized as revenue in the next 12 months and substantially all of the remainder between 12 and 36 months thereafter.

We expect remaining performance obligations to change from period to period primarily due to the size, timing, and duration of new customer contracts and customer renewals.

Net cash provided by financing activities of $41.2 million in 2023 consisted of $25.4 million in proceeds from employee purchases under the ESPP and $17.6 million in proceeds from stock option exercises, partially offset by $1.8 million in payments on our finance lease obligations.

in 2021, and $1.7 million in payments on our finance lease obligations.

Critical Accounting Policies and Estimates

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Stock-based compensation expense related to stock awards is recognized based on the fair value of the awards granted.

The fair value of RSUs and restricted stock awards (“RSAs”) is based on the estimated fair value of the Company’s common stock on the grant date.

The fair value of RSUs, performance-based restricted stock units (“PSUs”), and restricted stock awards is based on the estimated fair value of our common stock on the grant date.

The fair value of each option award and ESPP purchase right is estimated on the grant date using the Black-Scholes option pricing model.

The primary input in determining the fair value of the stock- based awards is the value of the Company’s common stock.

The primary input in determining the fair value of the stock-based awards is the value of our common stock.

The determination of the grant date fair value using the Black-Scholes option-pricing model is affected by volatility, expected term, dividend yield, and risk-free rate.

These assumptions represent management’s best

estimates and if different assumptions had been used, our stock-based compensation expense could have been materially different .

These assumptions represent management’s best estimates and if different assumptions had been used, our stock-based compensation expense could have been materially different.

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.

No expense is

recognized for awards with performance conditions until that condition is probable of being met.

We account for forfeitures as they occur instead of estimating the number of awards expected to be forfeited.

Prior to our IPO, we had granted RSUs to certain employees and non-employee consultants that contained both liquidity- and service-based vesting conditions.

Upon the effective date of the registration statement for our IPO in May 2021, the liquidity-based condition for all RSUs granted was satisfied and we recognized a cumulative catch-up stock-based compensation adjustment of $115.3 million in our 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.

Substantially all RSUs granted subsequent to the IPO vest based on continued service, which is generally over four years.

As of December 31, 2022, the total unrecognized stock-based compensation cost for all RSUs outstanding at that date was $399.3 million, which is expected to be recognized over a weighted-average vesting period of 2.5 years.

As of December 31, 2022, the total unrecognized stock-based compensation cost for unvested stock options was $ 1.8 million, which is expected to be recognized over a weighted-average period of 0.4 years.

We issued 199,670 RSAs to certain key employees in connection with the acquisition of Levelset in November 2021 that vest based on their continued service 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 our 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, 2022, 99,833 shares have vested.

During 2022 and 2021, we recognized stock-based compensation expense of $ 9.5 million and $1.6 million, respectively, relating to these shares.

We issued RSAs to certain employees in connection with the acquisition of Honest Buildings in July 2019.

The fair value of the RSAs was based on the fair value of the underlying stock issued.

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 key employees.

As of December 31, 2021, all of the RSAs were fully vested.

During 2021, we recognized stock-based compensation expense of $1.6 million relating to these RSAs.

We issued 551,753 and 166,370 shares of common stock in connection with the ESPP in 2022 and 2021, respectively.

Employee payroll contributions used to purchase these shares were 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.

During 2022 and 2021, we recognized stock-based compensation expense of $ 15.0 million and $8.5 million, respectively, relating to the ESPP.

Prior to our initial public offering (“IPO”), we had granted RSUs to certain employees and non-employee consultants that contained both liquidity- and service-based vesting conditions.

Upon the effective date of the registration statement for our IPO in May 2021, the liquidity-based condition for all RSUs granted was satisfied and we recognized a cumulative catch-up stock-based compensation adjustment in our 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.

Substantially all awards granted subsequent to the IPO vest based on continued service, which is generally over four years.

In 2022 and 2023 we granted PSUs to certain employees, which vest based on the achievement of certain operating performance targets.

Such awards also require the employees' continued service through the date the related shares vest.

We recognize compensation expense for such awards on a graded vesting basis, through the expected vest date, beginning in the period in which it becomes probable that the performance target will be achieved.

Management reassesses the probability of achievement for such awards each reporting period.

The portion of expense recognized in any period may fluctuate depending on changing estimates of the achievement of the performance conditions.

Business Combinations

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Amounts recorded in a business combination may change during the measurement period, which is a period not to exceed one year from the date of acquisition, as additional information about conditions existing at the acquisition date becomes available.

JOBS Act Accounting Election and Emerging Growth Company Status

Effective as of December 31, 2022, we are no longer an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”).

Prior to losing our status as an emerging growth company, the JOBS Act permitted us to delay the adoption of new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies.

We had irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards, and therefore, we were subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

We had previously intended to rely on other exemptions provided by the JOBS Act, including not being required to comply with the auditor attestation requirements of Section 404.

We can no longer take advantage of these exemptions because we are no longer an emerging growth company.

Recent Accounting Pronouncements

See “Summary of Business and Significant Accounting Policies” in Note 2 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K for a description of recently issued accounting pronouncements.

See “Summary of Significant Accounting Policies” in Note 2 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K for a description of recently issued accounting pronouncements.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis