Prospectus Summary
PROSPECTUS SUMMARY This summary highlights selected information contained elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in our common stock. You should read this entire prospectus carefully, including the sections titled “Risk Factors,” “Special Note Regarding Forward-Looking Statements,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our consolidated financial statements and the related notes included elsewhere in this prospectus, before making an investment decision. Unless the context otherwise requires, all references in this prospectus to “we,” “us,” “our,” “our company,” and “Procore” refer to Procore Technologies, Inc.PROCORE TECHNOLOGIES, INC.
Overview
Our mission is to connect everyone in construction on a global platform.
We are a leading provider of cloud-based construction management software, and are helping transform one of the oldest, largest, and least digitized industries in the world. We focus exclusively on construction, connecting and empowering the industry’s key stakeholders, such as owners, general contractors, specialty contractors, architects, and engineers, to collaborate from any location, on any internet-connected device. Our platform is modernizing and digitizing construction management by enabling real-time access to critical project information, simplifying complex workflows, and facilitating seamless communication among key stakeholders, all of which we believe affords us the ability to serve as the system of record for the construction industry. Adoption of our platform helps customers increase productivity and efficiency, reduce rework and costly delays, improve safety and compliance, and enhance financial transparency and accountability.
In short, we build software that helps build the world.
Construction is critical to the global economy but is in need of digitization. The construction industry represented approximately 13% of global gross domestic product, or GDP, and employed 7% of the global workforce in 2017. The adoption of technology by the industry, especially at the jobsite, has historically been constrained by the lack of internet, Wi-Fi, and mobile connectivity. Much of the industry still relies on legacy methods of project management, such as paper, email, fax, and on-premise software. These tools were not designed to address the unique, real-time, and often remote collaboration needs of the industry. As a result, project delays, rework, safety and compliance issues, and cost overruns are common.
The lack of modern collaboration tools has contributed to a lower rate of labor productivity growth in the construction sector, approximately one-third that of the global rate over the last two decades. According to a Deloitte report, the construction industry spends half as much on information technology, or IT, compared to the average across all industries. Estimated rework cost over $500 billion in 2018, or approximately 5% of overall construction costs, according to a 2018 report from FMI, or the 2018 FMI Report. On average, 52% of that rework was caused by poor project data and communication. Construction is also among the most dangerous industries, with 19% of U.S. private industry worker deaths in 2017 linked to construction. Additionally, the industry faces an extremely challenging labor dynamic, with 93% of contractors indicating that they are facing difficulties finding skilled workers. Innovations in technology, in particular the proliferation of the internet, Wi-Fi, and mobile devices, combined with the limitations of legacy solutions and labor constraints in the construction market, provide us with the opportunity to leverage our market leadership position to help drive digital transformation in the construction industry on a global basis.
We have established our market leadership through an approach focused on serving the unique needs of the construction industry. We work directly with stakeholders to develop the products they need and provide high-quality support, available to all users at no additional charge. Our four product categories, Preconstruction, Project Management, Resource Management, and Financial Management, automate workflows, provide real-time visibility, offer advanced analytics, and support collaboration across key stages of the construction project lifecycle. Each of our products can be accessed from the office or the jobsite on computers, smartphones, and tablets, enabling users to work wherever the job requires. Our open application programming interfaces, or APIs, and our application marketplace, or App Marketplace, allow our customers to integrate our products with their internal systems and over 180 third-party applications, including accounting, document management, and scheduling software, providing our users with choice and flexibility, and demonstrably increasing the stickiness of our platform as we aim to become the construction industry’s system of record.
Our customers range from small businesses managing a couple million dollars of annual construction volume to global enterprises managing billions of dollars of annual construction volume. Our core customers are owners, general contractors, and specialty contractors operating across the commercial, residential, industrial, and infrastructure segments of the construction industry. We generate substantially all of our revenue from subscriptions to access our products. We 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. Our customers rely on our platform to help run their businesses as evidenced by the fact they have used our platform to create an aggregate of 965,000 projects representing over $880 billion of construction volume since January 1, 2014, with over 370,000 projects created in 2019 alone. In 2019, the average duration of an active project in Procore was approximately 20 months.
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 to engage with our platform as part of a project team. In 2019, on average, each customer invited over 170 project participants. This includes the customer’s employees and its collaborators, who are other project participants who engage with our platform but do not pay us for such use. Collaborators have access to relevant project information and product features for the duration of their involvement in a project and are incentivized to become customers as collaborators do not control what information they get access to, may not be able to access project information after a job is complete, and cannot run their complete portfolio of projects on our platform. In 2019 we had over 1.3 million users, which we define as our customers’ employees and their collaborators who have logged in to our platform, of which more than 60% were collaborators. Once collaborators have used our platform, they may potentially become customers and evangelize Procore on future projects. We believe our business model creates a flywheel effect that has helped increase our customer count from 4,310 as of December 31, 2017, to 6,095 as of December 31, 2018, to 8,506 as of December 31, 2019, reflecting year-over-year growth rates of 41% in 2018 and 40% in 2019. We have also seen an increase in the number of customers that contributed more than $100,000 of annual recurring revenue, or ARR, which grew from 230 as of December 31, 2017, to 412 as of December 31, 2018, to 655 as of December 31, 2019, reflecting year-over-year growth rates of 79% in 2018 and 59% in 2019.
Our success in building our customer base, expanding usage for existing customers, and helping digitize the industry has allowed us to achieve significant growth. We generated revenue of $112.3 million in 2017, $186.4 million in 2018, and $289.2 million in 2019, representing year-over-year growth of 66% in 2018 and 55% in 2019. We had net losses of $55.5 million in 2017, $56.7 million in 2018, and $83.1 million in 2019.
Our Industry
Despite being one of the largest industries in the world, construction has been slower to adopt innovations in process and technology, and is in the early stages of digitization. Given growing pressures on the industry, key stakeholders face an increasing imperative to adopt modern technology or jeopardize future business success. In fact, 80% of contractors surveyed in a USG Corporation and U.S. Chamber of Commerce survey believe that they will use some newer technology by 2022.
Construction represents one of the largest industries in the world and is in the early stages of digitization.
Annual worldwide construction spend, which consists of new construction and ongoing maintenance and modifications, is expected to grow from approximately $10 trillion in 2017 to approximately $14 trillion by 2025, according to McKinsey. Despite the industry’s large scale, it has historically lagged behind nearly every other industry in digitization. According to McKinsey’s Industry Digitization Index, construction ranks second from last in digitization across all major sectors, ahead of only agriculture and hunting. We believe that a principal reason for this is that, prior to the proliferation of the internet, Wi-Fi, and mobile devices, this field-based industry faced technology adoption barriers that other industries did not have to overcome.
The growth outlook for the construction industry is strong and favorable, driven by population growth, urbanization, and the need for ongoing maintenance.
The construction ecosystem is highly fragmented and specialized.
The construction process relies on coordination among highly fragmented and specialized groups, including key stakeholders such as owners, general contractors, specialty contractors, architects, and engineers. These stakeholders engage in financing, budgeting, designing, building, and maintaining commercial, residential, industrial, and infrastructure projects while navigating varying responsibilities, risk profiles, and motives. Completing a project safely, on time, and within budget requires effective collaboration between stakeholders across work streams, sharing information in a timely and effective manner, and navigating increasing contractual and regulatory complexity.
Key stakeholders in the construction ecosystem are:
include corporations, universities, government entities, and commercial and residential real estate developers.
The construction industry has four defining characteristics.
Legacy approaches to managing project workflows, financials, and risks were not designed for a field-driven workforce and contribute to project inefficiencies and material waste.
Historically, construction industry participants regularly stored physical copies of project documents in binders and boxes. Legacy software solutions were often not user-friendly or lacked collaboration and integration capabilities. Further, software was not easily accessible on a computer, smartphone, and tablet, at both the construction site and the office, and by the wide range of stakeholders on a construction project. The 2018 FMI Report estimates that employees at construction companies spend 35% of their time on “non-optimal” tasks. Time spent on non-optimal activities such as dealing with mistakes and rework, looking for project data, and handling conflict resolution cost the U.S. construction industry an estimated $177.5 billion in labor costs in 2018. In fact, according to McKinsey, the typical non-residential construction project runs 80% over budget and 20 months behind schedule. In addition, the European Commission estimates that construction and demolition waste accounts for approximately 25%–30% of all waste generated in the European Union, which we believe is generally representative of the construction industry’s contribution to global waste levels.
Multiple catalysts have emerged to bring construction into the digital age.
Recent advancements of key technologies such as cloud computing, mobile networks, and smart devices are disrupting legacy approaches by making technology adoption significantly easier in the construction industry. Simultaneously, additional drivers such as labor shortages and general shifts in the labor market, mounting technical and regulatory complexity of construction projects, and the growing importance of data to aid in decision-making are increasingly compelling stakeholders to change their historic practices. Stakeholders that fail to digitize their business models sacrifice efficiency, productivity, and safety, and risk being outpaced by their competitors as the use of technology solutions increasingly becomes the industry standard.
The construction industry needs an end-to-end, cloud-based software platform.
The construction industry is experiencing a transformation driven by innovations in technology and rising pressures on stakeholders, ranging from labor shortages to increasing project complexity. We believe that in order to truly improve the lives of everyone in construction, it is essential that modern construction management software is accessible by all project team members from any location and on any internet-connected device. The solution needs to address the specific workflows of all key stakeholders on a project, while providing a platform that both integrates with other solutions in the market and provides a single, centralized system of record on every project, across the entire project lifecycle.
Our Opportunity
We believe that the current total addressable market, or TAM, for construction software is large and significantly underpenetrated. McKinsey estimates that annual worldwide construction revenue in 2017 was approximately $10 trillion. Separately, Deloitte estimates that in 2017, approximately 1.5% of worldwide construction revenue was spent on IT solutions. Furthermore, Gartner estimates that in 2018, application software spending represented 6.1% of total IT spend, calculated as application software spend divided by total IT spend across all industries. We therefore estimate that the construction industry spends approximately $9.2 billion worldwide annually on application software.
Based on our experience with customers, however, we believe we address a greater opportunity not yet quantified by this estimate because we are digitizing analog and manual processes which are not captured in Deloitte’s estimate of construction IT spend. Given that globally, on average, other industries spend over 3% annually on IT as a percentage of revenue, compared to 1.5% in the construction industry, we believe that IT spend and application software spend in the construction industry as a percentage of revenue may increase as the industry continues to digitize. Additionally, we believe the $9.2 billion figure understates our total addressable market, as it does not account for our ability to sell our products to multiple stakeholders who participate in the same construction project, therefore allowing us to monetize the same dollar of construction volume multiple times.
We estimate that the annual potential market opportunity for our current products is approximately $9.4 billion. We calculate this figure by multiplying an estimate of the number of total owner, general contractor, and specialty contractor companies in our addressable geographies as reported in a November 2019 Frost & Sullivan report that we commissioned, by our median ARR, as of December 31, 2019, for each company size (categorized by enterprise, mid-market, and small business). We limited our addressable geographies to only those geographies where we currently have focused sales and marketing efforts—the United States, Canada, Mexico, the United Kingdom, Ireland, Australia, and New Zealand. We also exclude general contractors and specialty contractors with annual revenues of less than $2.5 million and owners with less than $2.5 million in annual construction spend from our addressable market estimates given we do not actively market to those organizations.
We believe there is further potential to expand our market opportunity because the median ARR is based on the current number of products purchased by our customers, which we believe will continue to gradually increase as we further penetrate our existing customer base and release additional products. Many of our products are new, given that for the majority of our history we only offered one product. We have recently rapidly grown our product offering from four products in 2017 to 13 products today. Despite how recent these new product releases were, as of December 31, 2019, 59% of our customers subscribed to three or more of our products. However, as of December 31, 2019, only 41% of our customers subscribed to four or more of our products, and we believe this percentage will increase over time as we see increased customer adoption of our newer products and as we continue to successfully introduce products that meet the needs of our customers and the construction ecosystem. Additionally, our estimates only contemplate international markets where we currently have focused sales and marketing efforts. While we have historically focused on North America, we believe the international opportunity is many times larger, with similar industry dynamics across the globe. As our international footprint continues to expand, we believe our potential market opportunity will increase.
Our Approach
We believe we are well positioned to extend our market leadership, not only through promoting the rapid adoption of our construction management platform, but also through our dedicated efforts to invest in and positively impact the future success of the construction community. We believe that our success is driven by the quality of our platform and our strong relationships with our customers and the broader construction industry. Our approach is based on two key elements:
Our Platform
We are helping revolutionize the construction industry by changing the way construction projects are managed, providing online and offline access to critical project information, simplifying complex workflows, and enabling collaboration among all project stakeholders.
We have built our platform to be modern, intuitive, and open with a modular and extensible architecture that not only includes the breadth and depth of functionality of our own products but also integrates with third-party applications and our customers’ own customized applications. While we offer a broad set of products that we monetize through subscriptions, our platform also includes a wide range of technical services that are shared across our products and open APIs that enable us to extend the capabilities of our platform to the broader ecosystem of software that our customers use.
Our construction management platform offers our customers and collaborators capabilities that address a range of evolving needs throughout a project’s lifecycle, including bidding, scheduling, building information modeling, or BIM, labor tracking, financial management, and more. Our platform streamlines communication and facilitates compliance with safety and other regulatory standards, which helps increase productivity and efficiency, reduces rework and costly delays, improves safety and compliance, and enhances collaboration and accountability among key stakeholders.
We offer these industry-transforming capabilities through an integrated, user-centric platform that features four product categories, our extensive App Marketplace, our proprietary data and analytics layer, and a powerful range of shared technical services leveraged across our products.
Product Categories
Our Business Model
We generate substantially all of our revenue from subscriptions to access our products and have an unlimited user model that is designed to facilitate adoption and maximize usage of our platform by all project stakeholders. We sell our products on a subscription basis for a fixed fee with pricing generally based on the number and mix of products and the annual construction volume contracted to run on our platform. As our customers subscribe to additional products, or increase the annual construction volume contracted to run on our platform, we generate more revenue.
Why We Win
We have a number of distinct competitive advantages that result from our deep domain expertise, singular focus on construction, user-centric approach, and broad and extensible platform:
Our Growth Strategy
We intend to leverage our existing products and industry presence to establish our platform and products as the industry standard in construction, both domestically and internationally. The key elements of our strategy to accomplish these objectives are as follows:
Risk Factors Summary
Investing in our common stock involves numerous risks, including the risks described in the section titled “Risk Factors” and elsewhere in this prospectus. You should carefully consider these risks before making an investment. The following are some of these risks, any one of which could materially adversely affect our business, financial condition, results of operations, and prospects:
Corporate Information
We were incorporated as Butterfly Lane, Inc. in California in January 2002, and changed our name to Procore Technologies, Inc. in May 2002. We reincorporated in Delaware in June 2014. Our principal executive offices are located at 6309 Carpinteria Avenue, Carpinteria, CA 93013. Our telephone number is (866) 477-6267. Our website address is https://www.procore.com. Information contained on, or that can be accessed through, our website is not incorporated by reference into this prospectus, and you should not consider information on our website to be part of this prospectus.
The Procore design logo, “Procore,” “Procore Technologies,” and our other registered or common law trademarks, service marks, or trade names appearing in this prospectus are the property of Procore Technologies, Inc. Other trade names, trademarks, and service marks used in this prospectus are the property of their respective owners.