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Item 7. Management’s Discussion and Analysis

2025-02-26 compared with 2024-02-26 · 132 added, 95 removed, 412 unchanged (36% of the section changed)

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You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and the related notes and other financial information included elsewhere in this Annual Report on Form 10-K.

You should review the disclosure under Part I, Item 1A, “Risk Factors” in this Annual Report on Form 10-K for a discussion of forward-looking statements and important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

You should review the disclosures under the section titled “Special Note Regarding Forward-Looking Statements” in this Annual Report on Form 10-K and under Part I, Item 1A, “Risk Factors” in this Annual Report on Form 10-K for a discussion of forward-looking statements and important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

These statements, like all statements in this report, speak only as of their date (unless another date is indicated), and we undertake no obligation to update or revise these statements in light of future developments, except as required by law.

A discussion of our financial condition and results of operations for the fiscal year ended December 31, 2024 compared to the fiscal year ended December 31, 2023 is presented below.

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.

A discussion of our financial condition and results of operations for the fiscal year ended December 31, 2023 compared to the year ended December 31, 2022 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, 2023, filed with the SEC on February 26, 2024.

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

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

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

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

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

We serve customers ranging from small businesses managing a few million dollars of annual construction volume to global enterprises managing billions of dollars of annual construction volume.

Our core customers are owners, general contractors, and specialty contractors operating across the commercial, residential, industrial, and infrastructure segments of the construction industry.

We primarily sell subscriptions to access our products through our direct sales team, which is specialized by stakeholder, region, size, and type.

Our customers range from small businesses managing a few million dollars of annual construction volume to global enterprises managing billions of dollars of annual construction volume.

Our core customers are owners, general contractors, and specialty contractors operating across the residential and non-residential segments of the construction industry.

We primarily sell subscriptions to access our products through our direct sales team, which is specialized by geography, followed by size and type of stakeholder.

Our products are offered on our cloud-based platform and are designed to be easy to configure and deploy.

Our users can access our products on computers, smartphones, and tablets through any web browser or from our mobile application available for both the iOS and Android platforms.

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

We 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.

We generate substantially all of our revenue from subscriptions to access our products.

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

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

We do not provide refunds for unused construction volume, or charge customers based on consumption or on a per-project basis.

Subscriptions to access our products include customer support and allow for unlimited users as we do not charge a per-seat or per-user fee.

Customers can invite all project participants to engage with our platform as part of a project team, including customers’ employees and collaborators, who are other project participants who engage with our platform but do not pay us for such use.

Further, multiple stakeholders can be customers on the same project and retain access to project information for the duration of their subscription.

Our business model is designed to encourage rapid, widespread adoption of our products by allowing for unlimited users, meaning we do not charge a per-seat or per-user fee.

Customers can invite all project participants, including owners, general contractors, specialty contractors, architects, and engineers, to engage with our platform as part of a project team without incurring additional fees.

Customers typically invite participants to join our platform, including their employees and collaborators, who are other project participants that engage with our platform but do not pay us for such use.

Although we do not charge a per-seat or per-user fee, multiple participants can be customers on the same project, which allows

each of them to retain access to project information for the duration of their subscription and allows us to receive revenue from multiple customers on the same project.

Certain Factors Affecting Our Performance

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

We are highly focused on continuing to acquire new customers 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.

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.

We believe that the market for our platform is large, and we are highly focused on our long-term growth.

Our ability to generate revenue, continue to grow our business, and serve the broader needs of the construction industry depends on our ability to efficiently acquire new customers, retain existing customers and expand their use of our products, services, and platform, and maintain or increase the pricing of our products and services.

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

We drive retention of existing customers and expansion of their use of our products, services, and platform by focusing on our customers’ success.

To support these efforts, in July 2024 we began to evolve our GTM operating model by, among other things, transitioning to a general manager model, with general managers for our North America, Europe, Asia-Pacific, and Middle East regions and our public sector business, each of whom will be empowered to assess and deploy the appropriate strategies and tactics for customers within their respective regions.

We are also adding new product and technical specialists to our GTM teams, who we believe can add value for our customers by matching the evolving needs of our customers’ diverse buyer personas with our products and services, and helping our customers understand and implement the full potential of our platform.

Evolving our GTM operating model involves new investment, particularly as we increase our sales headcount, ramp and invest in additional enablement for our sales teams, and add the new specialists to our teams.

We believe that these investments will allow us to build stronger and deeper customer relationships and improve our operating efficiency over time which, in turn, will result in better customer experiences and provide additional value to our customers, some of whom continue to face macroeconomic and other pressures that have negatively impacted their spending decisions.

We anticipate some disruptions and adverse impacts to our financial and operating results in the near-term as we invest in and implement the evolved GTM operating model.

Over the longer term, if we fail to successfully implement, or realize the benefits of, our evolved GTM operating model, or otherwise fail to acquire new customers, retain existing customers, or expand existing customers’ use of our products, services, and platform, our business, financial condition, results of operations, and prospects will be adversely affected, potentially materially.

Notwithstanding these risks, we believe that implementing the evolved GTM operating model will improve our long-term operating efficiency, best position us for sustainable long-term growth, and enhance our ability to capture our large market opportunity.

Despite macroeconomic challenges, we have seen an increase in the number of customers that contributed more than $100,000 of ARR, which was 2,333, 2,008, and 1,576 as of December 31, 2024, 2023, and 2022, respectively, reflecting year-over-year growth rates of 16% in 2024 and 27% in 2023.

Customers that contributed more than $100,000 of ARR represented 63%, 60%, and 57% of total ARR in each of the annual periods ending December 31, 2024, 2023, and 2022, respectively.

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Customers that contributed more than $1,000,000 of ARR represented 17%, 14%, and 12% of total ARR in each of the annual periods ending December 31, 2024, 2023, and 2022, respectively.

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

As of December 31, 2024, 2023, and 2022, the number of customers on our platform was 17,088, 16,367, and 14,488, respectively, reflecting year-over-year growth rates of 4% in 2024 and 13% in 2023.

Our total customer count is heavily influenced by the number of SMB customers we add in a given period.

Furthermore, SMB customers represent a small portion of our total ARR, whereas Enterprise and Mid Market customers represent the vast majority of our total ARR.

As a result, we believe the better metric to assess our business performance is the growth in the number of customers that contributed more than $100,000 of ARR.

All aforementioned customer counts exclude customers acquired from business combinations 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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For example, if ARR is measured during the first year of a multi-year contract, the first-year subscription fees are used to calculate ARR.

ARR at the end of a particular period includes the annualized dollar value of subscriptions for which the term has not ended, and subscriptions for which we are negotiating a subscription renewal.

ARR at the end of a particular period includes the annualized dollar

value of subscriptions for which the term has not ended, and subscriptions for which we are negotiating a subscription renewal.

ARR should be viewed independently of revenue determined in accordance with accounting principles generally accepted in the U.S.

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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.

Our GRR was 94%, 95%, and 95% as of December 31, 2024, 2023, and 2022, respectively.

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

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(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).

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.

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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

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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.

Our 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:

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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, 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 have introduced and continue to develop new products and services organically and through our acquisitions.

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

For example, in May 2024, we acquired Intelliwave, a construction materials management company that enhances our Resource Management solution;

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;

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

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

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.

While the impact of these developments, including Procore Pay, are 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 been growing our presence internationally with sales and marketing offices in Sydney, Australia;

We have an international sales and marketing presence with offices in Sydney, Australia;

Toronto, Canada;

London, England;

Paris, France;

Dublin, Ireland;

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% for the years ended December 31, 2023 and 2022, respectively .

revenue as a percentage of our total revenue was 15% and 14% for the years ended December 31, 2024 and 2023, respectively .

We determine the percentage of non-U.S.

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Furthermore, we believe global demand for our products, services, and platform will continue to increase as we expand our international sales and marketing efforts, and the awareness of our products, services, and platform grows.

However, our ability to conduct our operations internationally will require considerable management attention and resources and is subject to the particular challenges of supporting a rapidly growing business in an environment of multiple languages, 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 international markets.

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, and commercial markets, as well as differing legal, tax, regulatory, and alternative dispute systems.

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

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.

Macroeconomic factors and geopolitical events that impact the construction industry, such as elevated inflation and responses by governments to address it, higher interest rates than we've seen in recent history, volatility in capital markets, bank failures, fluctuations in foreign exchange rates, global pandemics, trade wars or shifting tariffs, evolving and potentially conflicting regulatory requirements, and wars and other conflicts 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 and increased customer pricing sensitivity, contributing to the decline in our cRPO annual growth rate, among other impacts.

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

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

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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.

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.

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

Cost of revenue also includes severance costs incurred related to the restructuring event in January 2024, which is described in Note 17 of our consolidated financial statements.

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

We intend to continue to invest additional resources in platform hosting, customer support, and software development as we grow our business and to ensure that our customers are realizing the full benefit of our products.

We intend to continue to invest additional resources in platform hosting, customer support, and software development as we grow our business, evolve our GTM operating model, and ensure that our customers are realizing the full benefit of our products.

The level and timing of investment in these areas could affect our cost of revenue in the future.

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Our operating expenses consist of sales and marketing, research and development, and general and administrative expenses.

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

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 costs incurred related to the restructuring event in January 2024, which is described in Note 17 of our consolidated financial statements.

Sales and Marketing

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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;

amortization of acquired customer relationship intangible assets;

consulting services;

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We expense advertising and other promotional expenditures as incurred.

We expect sales and marketing expenses to increase on an absolute dollar basis and vary from period to period as a percentage of revenue, as we increase our investment in sales and marketing efforts over the foreseeable future, primarily from increased headcount in sales and marketing as well as investment in marketing to drive customer growth.

We expect sales and marketing expenses to increase on an absolute dollar basis and vary from period to period as a percentage of revenue, as our business continues to grow, as we evolve our GTM operating model, and as we increase our investment in sales and marketing to drive customer growth.

Research and Development

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

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

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.

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 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 human resources, IT, finance, legal, executive, and other administrative functions.

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

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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.

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 our business continues to grow, including in relation to our international expansion.

Interest Income

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Other expense, net (3,136) (360) (1,737)

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)

Loss before provision for income taxes (104,181) (188,421) (286,465)

Provision for income taxes 1,775 1,273 466

Net loss $ (105,956) $ (189,694) $ (286,931)

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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 %)

Loss before provision for income taxes (9 %) (20 %) (40 %)

Provision for income taxes 0 % 0 % 0 %

Net loss (9 %) (20 %) (40 %)

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Total stock-based compensation expense* $ 194,833 $ 179,334 $ 162,886

* 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.

*Includes amortization of capitalized stock-based compensation of $8.0 million and $4.5 million, respectively, for the years ended December 31, 2024 and 2023, which was initially capitalized as capitalized software and cloud-computing arrangement implementation costs, and was primarily amortized in cost of revenue.

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

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(in thousands)

Cost of revenue $ — $ — $ 2

Sales and marketing 1,448 2,483 1,725

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Gross margin 82 % 82 %

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.

The increase in cost of revenue during 2024 was primarily attributable to an increase of $13.7 million in amortization of capitalized software development costs.

The increase in cost of revenue was also attributable to a $9.6 million increase in third-party cloud hosting and related services as we grow our customer base;

a $4.1 million increase in personnel-related expenses, including increases of $2.7 million in salaries and wages, $0.9 million in stock-based compensation expense, and $0.3 million in severance costs incurred related to the restructuring event in January 2024;

and a $3.0 million increase in amortization of developed technology intangible assets.

Our cost of revenue headcount remained consistent since December 31, 2023, as we continue to focus on improving operating efficiency.

Operating Expenses

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Sales and marketing $ 552,019 $ 494,908 $ 57,111 12 %

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.

The increase in sales and marketing expenses during 2024 was primarily attributable to an increase of $18.7 million in marketing events and expenses to drive customer growth.

The increase in sales and marketing expenses was also attributable to a $15.1 million increase in professional fees, including contractors to support our staff levels and professional service fees to support our GTM operating model;

a $13.6 million increase in personnel-related expenses, including increases of $9.3 million in salaries and wages, $2.6 million in stock-based compensation expense, and $1.3 million in severance costs incurred related to the restructuring event in January 2024;

a $5.5 million increase in travel-related costs;

and a $3.0 million increase in computer software expenses.

We increased our sales and marketing headcount by 7% since December 31, 2023 to support our GTM operating model.

Year Ended December 31, Change

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Research and development $ 312,987 $ 300,571 $ 12,416 4 %

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.

The increase in research and development expenses during 2024 was primarily attributable to an increase of $13.5 million in professional fees, including contractors to support our staff levels.

The increase in research and development expenses was also attributable to a $2.5 million increase in computer software expenses, and a $1.3 million increase in travel-related costs.

The increases in research and development expenses were partially offset by a decrease of $6.2 million in acquisition-related expenses, including $4.9 million related to the acceleration of cash retention payments in the first quarter of 2023 upon the departure of certain employees from our previous acquisitions;

and a decrease of $0.2 million in personnel-related expenses, including decreases of $1.9 million in salaries and wages and $0.3 million in stock-based compensation expense, partially offset by an increase of $1.8 million in severance costs incurred related to the restructuring event in January 2024.

We increased our research and development headcount by 42% since December 31, 2023 in order to continue to build, enhance, maintain, and scale our products, services, and platform as part of our global workforce strategy.

Year Ended December 31, Change

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General and administrative $ 217,513 $ 195,746 $ 21,767 11 %

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.

The increase in general and administrative expenses during 2024 was primarily attributable to an increase of $19.2 million in personnel-related expenses, including increases of $9.4 million in salaries and wages, $8.9 million in stock-based compensation expense, and $0.8 million in severance costs incurred related to the restructuring event in January 2024.

The increase in general and administrative expenses was also attributable to a $10.3 million increase in professional fees, including contractors to support our staff levels and professional service fees to support our corporate strategic initiatives;

a $2.6 million increase in computer software expenses;

and a $1.8 million increase in travel-related costs.

The increases in general and administrative expenses were partially offset by a $7.1 million decrease in bad debt expenses primarily relating to the receivables from our materials financing business, which we ceased originations under in the fourth quarter of 2023.

We increased our general and administrative headcount by 2% since December 31, 2023 in order to continue to support the efficiency of other departments and the growth of our business.

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*Percentage not meaningful

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.

During 2024, our interest income increased by $3.9 million due to an increase in the balances of our money market funds, cash savings accounts, and marketable securities;

accretion income, net increased by $3.8 million due to an increase in the balances of our marketable securities;

and other expense, net increased due to foreign currency losses.

Non-GAAP Financial Measures

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There are limitations in using non-GAAP financial measures because non-GAAP financial measures are not prepared in accordance with GAAP, non-GAAP financial measures may be different from similarly-titled non-GAAP measures used by other companies since other companies may calculate such non-GAAP financial measures differently, and non-GAAP financial measures exclude expenses that may have a material impact on our reported financial results.

Unlike stock-based compensation expense, employer payroll tax related to employee stock transactions is a cash expense that we will continue to incur in the future.

The presentation of non-GAAP financial information is not meant to be considered in isolation or as a substitute for the directly comparable financial measures prepared in accordance with GAAP.

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

Non-GAAP gross margin is the ratio calculated by dividing non-GAAP gross profit by total revenue.

Non-GAAP operating margin is the ratio calculated by dividing non-GAAP income from operations by total revenue.

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.

Because of varying available valuation methodologies, subjective assumptions, and the variety of equity instruments that can impact a company’s non-cash expenses, we believe that providing non-GAAP financial measures that exclude stock-based compensation expense allow for meaningful comparisons between our operating results from period to period.

The expense related to amortization of acquired intangible assets is dependent upon estimates and assumptions, which can vary significantly and are unique to each asset acquired;

Because of varying available valuation methodologies, subjective assumptions, and the variety of equity instruments that can impact a company’s non-cash expenses, we believe that providing non-GAAP financial measures that exclude stock-based compensation expense allows for meaningful comparisons between our operating results from period to period.

The expense related to amortization of acquired intangible assets is a non-cash expense is and dependent upon estimates and assumptions, which can vary significantly and are unique to each asset acquired;

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.

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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).

Since the amount of employer payroll tax-related items on employee stock transactions is highly variable due to factors outside our control, and unrelated to our core operations, operating results, revenue-generating activities, business strategy, industry, or regulatory environment, management does not consider employer payroll tax on employee stock transactions in the evaluation of the business or in making operating plans.

Accordingly, we believe this adjustment in arriving at our non-GAAP measures provides investors with a better understanding of the performance of our core business in a manner that is consistent with management’s view of the business.

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

These expenses are unpredictable and generally would not have otherwise been incurred in the periods presented as part of our continuing operations.

These expenses are unpredictable and generally would not have otherwise been incurred in the

periods presented as part of our continuing operations.

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

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Employer payroll tax on employee stock transactions 612 540 308

Acquisition-related expenses — — 2

Non-GAAP gross profit $ 987,623 $ 809,975 $ 601,776

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As of December 31, 2024, our principal sources of liquidity were cash, cash equivalents, and marketable securities totaling $821.4 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.

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

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

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

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 February 2025, we began using cash to fund withholding taxes due upon the vesting of employee RSUs by net share settlement, rather than our previous approach of selling shares of our common stock issued to employees to cover applicable withholding taxes.

In the next 12 months, we have net contractual tenant improvement reimbursements benefit from operating leases of $3.2 million, and net contractual commitments consisting of finance lease obligations of $4.0 million and non-cancelable purchase commitments of $28.7 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 February 2025, the Company modified its office leases in Austin, Texas to expand the leased premises and extend the lease terms, which resulted in an $9.2 million net contractual tenant improvement reimbursements benefit in the next 12 months.

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

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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 $41.1 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.

Beyond the next 12 months, we have net contractual commitments that we are reasonably likely to incur consisting of operating lease obligations of $57.8 million, finance lease obligations of $52.4 million, and non-cancelable purchase

commitments of $23.1 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.

The amendment to the office leases in Austin, Texas in February 2025 resulted in an additional $31.2 million operating lease obligation, net of tenant improvement reimbursement, beyond the next 12 months.

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 volume and timing of any stock repurchases under our stock repurchase program, 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), 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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• a $79.1 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.

• a $19.7 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 $39.5 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 $15.5 million decrease in accrued expenses and other liabilities primarily due to the size and timing of bonus accruals, payroll accruals, and cash payments to our vendors;

• a $9.0 million increase in deferred contract cost assets related to commissions as a result of additional customer contracts closed during the period;

• a $7.3 million decrease in operating lease liabilities related to lease payments;

• a $3.3 million increase in prepaid expenses and other current assets primarily due to timing of cash payments to our vendors.

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

• 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;

• an $8.9 million decrease in operating lease liabilities related to lease payments;

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

Investing Activities

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.

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.

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.

Net cash used in investing activities of $150.1 million in 2024 consisted of cash outflows for purchases of marketable securities of $491.5 million, capitalized software development costs of $49.5 million, business combinations of $25.9 million, purchases of property and equipment of $19.1 million, asset acquisitions of $3.8 million, and purchases of strategic investments of $2.4 million.

Such outflows were partially offset by $440.5 million in maturities of marketable securities and $1.6 million of customer repayments for materials financing.

Net cash used in investing activities of $76.1 million in 2023 consisted of 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, and asset acquisitions of $7.8 million.

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

Financing Activities

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.

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.ai Inc.

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

Net cash provided by financing activities of $36.2 million in 2024 consisted of $24.1 million in proceeds from employee purchases under the ESPP and $15.7 million in proceeds from stock option exercises, partially offset by $2.0 million in payments on our finance lease obligations and $1.5 million in deferred business combination consideration.

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

Capital Allocation Strategy

We have a balanced approach to capital allocation based on the following priorities:

driving organic and efficient revenue growth;

investing in accretive mergers and acquisitions;

and returning capital to stockholders through regular evaluation of share repurchases, as appropriate.

Stock Repurchase Program

On October 29, 2024, our Board authorized a stock repurchase program to repurchase up to $300.0 million of our outstanding common stock.

We intend to opportunistically repurchase shares of our common

stock from time to time through the open market (including via pre-set trading plans), or other transactions in accordance with applicable securities laws, in each case, subject to market conditions, applicable legal requirements, and other relevant factors.

The timing of stock repurchases and the actual number of shares repurchased will depend on a variety of factors, including price, general business and market conditions, and alternative investment opportunities, and will be subject to the discretion of our management within its authorization.

The stock repurchase program will be funded using our working capital.

The stock repurchase program does not obligate us to acquire any particular number of shares of our common stock, or any shares at all.

The stock repurchase program expires on October 29, 2025, and may be suspended or discontinued at any time at our discretion and without notice.

We did not repurchase any shares under our authorized stock repurchase program during the year ended December 31, 2024.

Critical Accounting Policies and Estimates

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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 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.

In 2022, we began granting 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.

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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