PROCORE TECHNOLOGIES, INC. Management report and analysis of the financial situation and operating results. (Form 10-K)

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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. 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. Unless the
context requires otherwise, references in this Annual Report on Form 10-K to the
"Company", "Procore," "we," "us" and "our" refer to Procore Technologies, Inc.
and its consolidated subsidiaries. A discussion of the year ended December 31,
2020 compared to the year ended December 31, 2019 has been reported previously
in our final prospectus dated May 19, 2021 filed with the SEC on May 21, 2021
pursuant to Rule 424(b)(4) (File No. 333-236789) of the Securities Act, under
the heading "Management's Discussion and Analysis of Financial Condition and
Results of Operations".

                                    Overview

Our mission is to connect everyone in construction on one 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 positions us 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 the software for the people who build the world.

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

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

Recent Developments

On May 24, 2021, we completed our IPO, in which we issued and
sold 10,410,000 shares of our common stock at a price of $67.00 per share,
including 940,000 shares of common stock pursuant to the exercise in full of the
underwriters' option to purchase additional shares. We received net proceeds of
$665.1 million, after deducting underwriting discounts and commissions. In
connection with the IPO, all outstanding shares of convertible preferred stock
were automatically converted into an aggregate of 85,331,278 shares of our
common stock on a one-for-one basis.

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On October 21, 2021, the Company completed the acquisition of all outstanding
equity of LaborChart, a labor management solution that facilitates labor
scheduling, forecasting, office-to-field communications, certification tracking,
data management, and labor analysis. The purchase consideration to acquire
LaborChart was $76.2 million, subject to customary adjustments for working
capital, transaction expenses, cash, indebtedness, and the determination of any
consideration for post-combination services.

On November 2, 2021, the Company completed the acquisition of all outstanding
equity of Levelset, a lien rights management company. Levelset also has a
materials finance business that offers customers deferred payment terms on their
purchases of construction materials. The materials finance business is currently
immaterial, but may grow in the future. Pursuant to the merger agreement, the
purchase consideration to acquire Levelset was $484.1 million, which consisted
of $426.1 million in cash, subject to customary adjustments for working capital,
transaction expenses, cash, indebtedness, and the determination of any
consideration for post-combination services, and $58.0 million in shares of
Procore common stock.

                   Certain Factors Affecting Our Performance

Acquire new customers and retain and grow the use of our platform by existing customers

We are highly focused on continuing to acquire new customers 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 and platform. The number of customers on our platform has increased
from 8,506 as of December 31, 2019, to 10,166 as of December 31, 2020, to 12,193
as of December 31, 2021, reflecting a consistent year-over-year growth rate of
20% in both 2020 and 2021. All customer counts aforementioned exclude the
customers acquired from Levelset, LaborChart, and Esticom, as they are on
non-standard legacy contracts. Levelset, LaborChart, and Esticom customers will
be included in our customer and ARR metrics when they are renewed onto standard
Procore annual contracts. Levelset has more than 3,000 customers as of December
31, 2021. 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. For
multi-year subscriptions, ARR at the end of a particular period is measured by
using the stated contractual subscription fees as of the period end date on
which ARR is measured. 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 should be viewed independently of
revenue and does not represent our GAAP revenue on an annualized basis. ARR is
not intended to be a replacement or forecast of revenue.

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, renewing and expanding their use of existing products, and
maintaining or increasing the price of our existing products.

Continuous technological innovation and expansion of our platform

We plan to continue to invest in technology innovation and product development
to enhance the capabilities of our platform. 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 developed in-house and through our acquisitions of
Zimfly, Inc., Honest Buildings, Construction BI, LLC, Esticom, LaborChart, and
Levelset. 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 also intend to continue to
evaluate strategic acquisitions and investments in businesses and technologies
to drive product and market expansion, such as our recent acquisitions of
LaborChart and Levelset in October and November 2021, respectively. The
acquisitions closed in the fourth fiscal quarter, and therefore the financial
results post-acquisition of LaborChart and Levelset are included in the
accompanying financial statements. In addition, we expect that expenses, both in
dollars and as a percentage of total revenues, may increase from the current or
historical periods. Our future success is dependent on our ability to
successfully develop or acquire, market, and sell existing and new products 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 and Mexico City, Mexico in 2019. We have
also developed focused sales and marketing efforts in Singapore, the United Arab
Emirates, France, and Germany in 2021, where we do not yet maintain office
locations. As a result of our international efforts, we support multiple
languages and currencies. Non-U.S. revenue as a percentage of our total revenue
was 14.6% in 2021, 12.2% in 2020, and 11.3% in 2019. We determine the percentage
of non-U.S. revenue based on the billing location of each subscription.

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Furthermore, we believe global demand for our products will continue to increase
as we expand our international sales and marketing efforts, and the awareness of
our products 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, 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. While these investments may adversely
affect our operating results in the near term, we believe they will contribute
to our long-term growth.

COVID-19 Update

The ongoing COVID-19 pandemic has caused general business disruption worldwide
beginning in January 2020. Some local governments temporarily closed
construction jobsites or imposed restrictions on construction activity, such as
limiting the number of workers allowed on site. Construction teams had to learn
to navigate pandemic safety protocols on jobsites and coordinate already complex
construction processes with increasingly distributed workforces. Owners had to
reconfigure existing buildings to improve safety and consider new distancing
requirements in project designs, all amid increased materials and labor costs.
We believe that the COVID-19 pandemic has begun to change the way construction
stakeholders operate by pushing them to adopt digital solutions that enable
distanced, distributed workforces. The impact of the COVID-19 pandemic and its
effects on the construction industry continue to evolve, and the impact on our
financial condition and results of operations remains uncertain.

Furthermore, the COVID-19 pandemic has spurred changes in the way we work as we
move to a more hybrid workforce. We are currently planning for a number of our
employees to return to in-person offices in 2022; however, our plans may change
if the number of COVID-19 cases rises where our offices are located or if there
is an increase in new variants, and we may take further actions as may be
required by government authorities or that we determine are in the best
interests of our employees, customers, and business partners.

The full extent to which the COVID-19 pandemic, including any new variants, 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" for
further discussion of the possible impact of the COVID-19 pandemic on our
business and financial results.

                      Components of Results of Operations

Income

We generate substantially all of our revenue from subscriptions to access our
products and related support. Subscriptions are sold for a fixed fee and revenue
is recognized ratably over the term of the subscription. Our subscriptions
generally have annual or multi-year terms, are typically subject to renewal at
the end of the subscription term, and are non-cancelable. To the extent we
invoice our customers in advance of revenue recognition, we record deferred
revenue. Consequently, a portion of the revenue that we report each period is
attributable to the recognition of revenue previously deferred related to
subscriptions that we entered into during previous periods.

Revenue cost

Cost of revenue primarily consists of customer support personnel-related
compensation expenses, including salaries, bonuses, benefits, payroll taxes, and
stock-based compensation expense, third-party hosting costs, software license
fees, amortization of capitalized software development costs, amortization of
acquired technology intangible assets, and allocated overhead. 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. The level and timing of investment in these areas could
affect our cost of revenue in the future.

Costs related to the development of internal-use software for new products and
major platform enhancements are capitalized until the software is substantially
complete and ready for its intended use. 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.

We incurred significant additional cost of revenue expenses starting the second
quarter of 2021 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. In addition, subsequent to our IPO, we
have incurred higher employer payroll taxes related to employee stock
transactions. We anticipate additional stock-based compensation expense and
employer payroll tax related

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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 the recent acquisitions in the fourth quarter
of 2021.

Operating Expenses

Our operating expenses consist of sales and marketing, research and development,
and general and administrative expenses. For each of these categories of
expense, personnel-related compensation expenses are the most significant
component, which include salaries, stock-based compensation, commissions,
benefits, payroll taxes, and bonuses. To support the growth of our business, we
also increased our headcount in each of these categories both organically and,
to a lesser extent, through our acquisitions.

We incurred significant additional operating expenses starting the second
quarter of 2021 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. In addition, subsequent to our IPO, we
have incurred 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.

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. 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.

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 and platform.

General and administrative

General and administrative expenses primarily consist of personnel-related
compensation expenses for our finance, human resources, executive, information
technology, legal, and other administrative functions. Additionally, general and
administrative expenses include non-personnel-related expenses, such as
professional fees for audit, legal, tax, and other external consulting services,
including acquisition-related transaction expenses, costs associated with
operating as a public company, including insurance costs, professional services,
investor relations, and other compliance costs, property and use taxes,
licenses, travel and entertainment costs, and allocated overhead. We expect to
increase the size of our general and administrative functions to support the
growth of our business, including our international expansion.

Interest expense, net

Interest expense, net consists primarily of interest expense associated with our
finance leases and undrawn fees associated with our Credit Facility, which is
partially offset by interest income from money market funds.

Change in fair value of liability related to Series I convertible redeemable preferred share purchase warrants

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 (expenses) income, net

Other (expense) income, net, mainly includes gains or losses on foreign exchange transactions and miscellaneous other income.

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(Benefit from) provision for income taxes

(Benefit from) provision for 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 are an available source of income to realize
our deferred tax assets. As we expand our international operations, we expect to
incur increased foreign tax expenses. We have a full valuation allowance for net
U.S. and U.K. deferred tax assets. The U.S. valuation allowance includes NOL
carryforwards, and tax credits related primarily to research and development for
our operations in the United States. The U.K. valuation allowance is primarily
comprised of NOL carryforwards. We expect to maintain this full valuation
allowance for our net U.S. and U.K. deferred tax assets for the foreseeable
future.

                             Results of Operations

The following tables present data from our Consolidated Statements of Income and such data as a percentage of revenue for each of the periods indicated. Some percentages below may not add up due to rounding.

                                                         Year Ended December 31,
                                                    2021           2020           2019
                                                              (in thousands)
Revenue                                          $  514,821     $  400,291     $  289,194
Cost of revenue (1)(2)(3)(4)(5)                      98,312         71,663  

53,166

Gross profit                                        416,509        328,628  

236,028

Operating expenses:
Sales and marketing (1)(2)(3)(4)(5)                 308,511        189,032  

173,472

Research and development (1)(2)(3)(4)(5)            237,290        124,661  

87,022

General and administrative (1)(3)(4)(5)             156,635         73,465         58,158
Total operating expenses                            702,436        387,158        318,652
Loss from operations                               (285,927 )      (58,530 )      (82,624 )
Interest expense, net                                (2,153 )       (2,060 )         (930 )
Change in fair value of Series I redeemable
  convertible preferred stock warrant
liability                                                 -        (36,990 )            -
Other (expense) income, net                            (843 )          420  

518

Loss before (benefit from) provision for
income taxes                                       (288,923 )      (97,160 )      (83,036 )
(Benefit from) provision for income taxes           (23,758 )         (993 )           71
Net loss                                         $ (265,165 )   $  (96,167 )   $  (83,107 )



                                                             Year Ended December 31,
                                                    2021                  2020             2019
                                                           (as a percentage of revenue)
Revenue                                                  100 %                 100 %           100 %
Cost of revenue (1)(2)(3)(4)(5)                           19 %                  18 %            18 %
Gross profit                                              81 %                  82 %            82 %
Operating expenses:
Sales and marketing (1)(2)(3)(4)(5)                       60 %                  47 %            60 %
Research and development (1)(2)(3)(4)(5)                  46 %                  31 %            30 %
General and administrative (1)(3)(4)(5)                   30 %                  18 %            20 %
Total operating expenses                                 136 %                  97 %           110 %
Loss from operations                                     (56 %)                (15 %)          (29 %)
Interest expense, net                                     (0 %)                 (1 %)           (0 %)

Change in Fair Value of Series I Redeemable

  convertible preferred stock warrant
liability                                                  0 %                  (9 %)            0 %
Other (expense) income, net                               (0 %)                  0 %             0 %
Loss before (benefit from) provision for
income taxes                                             (56 %)                (24 %)          (29 %)
(Benefit from) provision for income taxes                 (5 %)                 (0 %)            0 %
Net loss                                                 (52 %)                (24 %)          (29 %)




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



                                               Year Ended December 31,
                                           2021          2020         2019
                                                   (in thousands)
Cost of revenue                          $   8,094     $  1,722     $  1,095
Sales and marketing                         68,755       13,385        7,463
Research and development                    85,040       12,930        6,584
General and administrative                  65,272       15,923        4,096

Total stock-based compensation expense $227,161 $43,960 $19,238




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



                                                       Year Ended December 31,
                                                     2021        2020        2019
                                                            (in thousands)
Cost of revenue                                    $  7,522     $ 3,315     $ 1,643
Sales and marketing                                   3,600       1,728         728
Research and development                              2,674         721           -

Total amortization of acquired intangible assets $13,796 $5,764 $2,371



(3) Includes employer payroll tax on employee stock transactions as follows:



                                                   Year Ended December 31,
                                                  2021          2020      2019
                                                        (in thousands)
Cost of revenue                                $      457       $   7     $   7
Sales and marketing                                 2,325         205        71
Research and development                            2,606          88        16
General and administrative                          1,127         272        18

Total employer social charges on employee shares

  transactions                                 $    6,515       $ 572     $ 112


(4) Includes acquisition-related expenses as follows:


                                         Year Ended December 31,
                                       2021         2020       2019
                                              (in thousands)
Cost of revenue                      $       2      $   -     $     -
Sales and marketing                        488          -           -
Research and development                 1,348          -           -
General and administrative               7,442        792       1,218

Total Acquisition-Related Expenses $9,280 $792 $1,218

(5) Includes restructuring charges as follows:


                                           Year Ended December 31,
                                      2021            2020         2019
                                                (in thousands)
Cost of revenue                       $   -       $        127     $   -
Sales and marketing                       -              1,824         -
Research and development                  -              1,681         -
General and administrative                -                801         -

Total restructuring charges – $ $4,433 $-



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Comparison of the years ended December 31, 2021 and 2020

Income


            Year Ended December 31,                Change
              2021             2020         Dollar        Percent
                           (dollars in thousands)
Revenue   $    514,821       $ 400,291     $ 114,530            29 %


In 2021, our revenue increased by $114.5 million, or 29%, compared to 2020,
which is primarily due to expansion within our existing customers and revenue
from new customers added during the year. The acquisition of Levelset in
November 2021 contributed $4.2 million in revenue in 2021. Revenue from our
other acquisitions in 2021 was not material. The increase in revenue from
existing customers includes the net benefit of a full year of subscription
revenue in 2021 from customers that were new in 2020 and continued their
subscriptions in 2021, and customers that expanded their subscriptions in 2021
through the purchase of additional construction volume or products, as well as
price increases.

Cost of revenue, gross profit and gross margin


                    Year Ended December 31,                Change
                      2021             2020         Dollar       Percent
                                  (dollars in thousands)
Cost of revenue   $     98,312       $  71,663     $ 26,649            37 %
Gross profit           416,509         328,628       87,881            27 %
Gross margin                81 %            82 %


The increase in cost of revenue in 2021 was primarily attributable to an
increase of $14.1 million in personnel-related expenses, including an increase
of $6.4 million in stock-based compensation expense and $5.5 million in salaries
and wages driven by headcount and merit increases. Stock-based compensation
expense increased primarily due to RSUs where the performance condition was
satisfied upon the effectiveness date of the registration statement for the IPO.
The increase in cost of revenue was also attributable to a $4.5 million increase
in third-party cloud hosting and related services as we grow our customer base,
a $4.2 million increase in amortization of acquired developed technology
intangible assets related to recent acquisitions, and a $1.5 million increase in
amortization of capitalized software. We increased our cost of revenue headcount
by 44% since December 31, 2020 in order to support the growth of our business.

Operating Expenses


                        Year Ended December 31,                Change
                          2021             2020         Dollar        Percent
                                       (dollars in thousands)
Sales and marketing   $    308,511       $ 189,032     $ 119,479            63 %


The increase in sales and marketing expenses during 2021 was primarily
attributable to an increase of $92.0 million in personnel-related expenses,
including an increase of $55.4 million in stock-based compensation expense, a
$23.1 million increase in salaries and wages driven by headcount and merit
increases, and a $2.1 million increase in employer payroll tax related to
employee stock transactions. Stock-based compensation expense increased
primarily due to RSUs where the performance condition was satisfied upon the
effectiveness date of the registration statement for the IPO. The increase in
sales and marketing expenses was also attributable to a $9.6 million increase in
professional fees primarily for contractors to supplement our staff levels, a
$9.1 million increase in marketing events and expenses, a $2.0 million increase
in travel-related costs, and a $1.9 million increase in amortization of acquired
customer relationship intangible assets related to recent acquisitions. We
increased our sales and marketing headcount by 47% since December 31, 2020 in
order to continue to drive customer growth.



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                             Year Ended December 31,                Change
                               2021             2020         Dollar        Percent
                                            (dollars in thousands)
Research and development   $    237,290       $ 124,661     $ 112,629            90 %


The increase in research and development expenses during 2021 was primarily
attributable to an increase of $102.0 million in personnel-related expenses,
including an increase of $72.1 million in stock-based compensation expense, a
$25.3 million increase in salaries and wages driven by headcount and merit
increases, and a $2.5 million increase in employer payroll tax related to
employee stock transactions. Stock-based compensation expense increased
primarily due to RSUs where the performance condition was satisfied upon the
effectiveness date of the registration statement for the IPO. The increase in
research and development expenses was also attributable to a $5.5 million
increase in professional fees primarily for contractors to supplement our staff
levels, and a $2.0 million increase in amortization of acquired developed
technology intangible assets. We increased our research and development
headcount by 60% since December 31, 2020 in order to continue to build, enhance,
maintain, and scale our products and platform.


                               Year Ended December 31,                Change
                                 2021              2020        Dollar       Percent
                                             (dollars in thousands)

general and administrative $156,635 $73,465 $83,170

113%


The increase in general and administrative expenses during 2021 was primarily
due to an increase of $61.1 million in personnel-related expenses, including an
increase of $49.3 million in stock-based compensation expense and an $8.9
million increase in salaries and wages driven by headcount and merit increases.
Stock-based compensation expense increased primarily due to RSUs where the
performance condition was satisfied upon the effectiveness date of the
registration statement for the IPO. The increase in general and administrative
expenses was also attributable to a $10.2 million increase in non-acquisition
related professional fees primarily for contractors and consultants to
supplement our staff levels, a $6.7 million increase in acquisition-related
expenses primarily as a result of acquisitions in the fourth quarter of 2021, a
$3.1 million increase in insurance related costs associated with operating as a
public company, and a $1.6 million increase in travel-related costs. We
increased our general and administrative headcount by 48% since December 31,
2020 in order to continue to support the growth of our business.

Interest Expense, Net, Change in Fair Value of Series I Redeemable Convertible
Preferred Stock Warrant Liability, Other (Expense) Income, Net, and Benefit from
Income Taxes
                                              Year Ended December 31,                  Change
                                               2021              2020         Dollar         Percent
                                                              (dollars in thousands)
Interest expense, net                      $       2,153       $   2,060     $      93                5 %
Change in fair value of Series I
redeemable
  convertible preferred stock warrant
liability                                              -          36,990       (36,990 )              *
Other (expense) income, net                         (843 )           420        (1,263 )              *
Benefit from income taxes                        (23,758 )          (993 )     (22,765 )              *


* Percentage not meaningful

In 2020, we recognized an expense of $37.0 million related to an increase in the
fair value of warrants to purchase Series I redeemable convertible preferred
stock which were remeasured to fair value each period. The warrants were
exercised in December 2020, at which time remeasurement ceased. The loss
recognized was primarily due to the increase in the fair value of the Series I
redeemable convertible preferred stock from the issuance date through December
2020.

The change in other (expense) income, net in 2021, was mainly due to foreign exchange losses related to changes in the Australian and Canadian dollar exchange rates.

The change in 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.

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Non-GAAP Financial Measures

In addition to our results determined in accordance with accounting principles
generally accepted in the United States of America ("GAAP"), we believe certain
non-GAAP measures, as described below, are useful in evaluating our operating
performance. We use this non-GAAP financial information, collectively, to
evaluate our ongoing operations as well as for internal planning and forecasting
purposes. We believe that non-GAAP financial information, when taken
collectively, is helpful to investors because it provides consistency and
comparability with past financial performance, and may assist in comparisons
with other companies, some of which use similar non-GAAP financial information
to supplement their GAAP results.

The non-GAAP financial information is presented for supplemental informational
purposes only, and should not be considered a substitute for financial
information presented in accordance with GAAP, and may be different from
similarly-titled non-GAAP measures used by other companies. A reconciliation is
provided below for each non-GAAP financial measure to the most directly
comparable financial measure stated in accordance with GAAP. Investors are
encouraged to review the related GAAP financial measures and the reconciliation
of these non-GAAP financial measures to their most directly comparable GAAP
financial measures.

Non-GAAP Gross Profit, Non-GAAP Gross Margin, Non-GAAP Operating Expenses, Non-GAAP Operating Loss 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. We excluded
acquisition-related expenses for the first time during 2021 and have
retrospectively adjusted comparable periods. 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. 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 17 in the audited consolidated financial
statements included elsewhere in this Annual Report on Form 10-K regarding the
2020 restructuring event.

The following tables provide reconciliations of our GAAP financial measures to our non-GAAP financial measures for the periods presented:

Reconciliation of gross profit and gross margin to non-GAAP gross profit and
non-GAAP gross margin:
                                                              Year Ended December 31,
                                                         2021           2020           2019
                                                               (dollars in thousands)
Revenue                                               $  514,821     $  400,291     $  289,194
Gross profit                                             416,509        328,628        236,028
Stock-based compensation expense                           8,094          1,722          1,095
Amortization of acquired intangible assets                 7,522          3,315          1,643
Employer payroll tax on employee stock transactions          457              7              7
Acquisition-related expenses                                   2              -              -
Restructuring-related charges                                  -            127              -
Non-GAAP gross profit                                 $  432,584     $  333,799     $  238,773
Gross margin                                                  81 %           82 %           82 %
Non-GAAP gross margin                                         84 %           83 %           83 %




                                       53
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Reconciliation of operating expenses with non-GAAP operating expenses:

                                                         Year Ended December 31,
                                                    2021           2020           2019
                                                          (dollars in thousands)
Revenue                                          $  514,821     $  400,291     $  289,194
GAAP sales and marketing                            308,511        189,032        173,472
Stock-based compensation expense                    (68,755 )      (13,385 )       (7,463 )
Amortization of acquired intangible assets           (3,600 )       (1,728 )         (728 )
Employer payroll tax on employee stock
transactions                                         (2,325 )         (205 )          (71 )
Acquisition-related expenses                           (488 )            -              -
Restructuring-related charges                             -         (1,824 )            -
Non-GAAP sales and marketing                     $  233,343     $  171,890     $  165,210
GAAP sales and marketing as a percentage of
revenue                                                  60 %           47 %           60 %

Non-GAAP sales and marketing as a percentage

  of revenue                                             45 %           43 %           57 %

GAAP research and development                       237,290        124,661         87,022
Stock-based compensation expense                    (85,040 )      (12,930 )       (6,584 )
Amortization of acquired intangible assets           (2,674 )         (721 )            -
Employer payroll tax on employee stock
transactions                                         (2,606 )          (88 )          (16 )
Acquisition-related expenses                         (1,348 )            -              -
Restructuring-related charges                             -         (1,681 )            -
Non-GAAP research and development                $  145,622     $  109,241     $   80,422
GAAP research and development as a percentage
of revenue                                               46 %           31 %           30 %

Non-GAAP research and development as a

  percentage of revenue                                  28 %           27 %           28 %

GAAP general and administrative                     156,635         73,465  

58 158

Stock-based compensation expense                    (65,272 )      (15,923 )       (4,096 )
Employer payroll tax on employee stock
transactions                                         (1,127 )         (272 )          (18 )
Acquisition-related expenses                         (7,442 )         (792 )       (1,218 )
Restructuring-related charges                             -           (801 )            -
Non-GAAP general and administrative              $   82,794     $   55,677     $   52,826
GAAP general and administrative as a
percentage of revenue                                    30 %           18 %           20 %

General and administrative non-GAAP as

  percentage of revenue                                  16 %           14 %           18 %


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

                                                               Year Ended December 31,
                                                         2021            2020            2019
                                                                (dollars in thousands)
Revenue                                               $  514,821      $  400,291      $  289,194
Loss from operations                                    (285,927 )       (58,530 )       (82,624 )
Stock-based compensation expense                         227,161          43,960          19,238
Amortization of acquired intangible assets                13,796           5,764           2,371
Employer payroll tax on employee stock transactions        6,515             572             112
Acquisition-related expenses                               9,280             792           1,218
Restructuring-related charges                                  -           4,433               -
Non-GAAP loss from operations                         $  (29,175 )    $   (3,009 )    $  (59,685 )
Operating margin                                             (56 %)          (15 %)          (29 %)
Non-GAAP operating margin                                     (6 %)           (1 %)          (21 %)


                                       54
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                        Liquidity and Capital Resources

Historically, we have funded our operations primarily through private placements of our equity securities. In May 2021we received $665.1 million of the net proceeds of our IPO.

As of December 31, 2021, our principal sources of liquidity are cash and cash
equivalents of $589.2 million, which were held in checking accounts, savings
accounts, and highly liquid money market funds. A portion of the cash and cash
equivalents were used to complete the acquisitions of LaborChart and Levelset
during the fourth quarter of 2021, and Indus.ai, Inc. ("Indus") in the second
quarter of 2021. The preliminary purchase consideration to acquire Levelset was
$484.1 million, of which $426.1 million was paid in cash on the acquisition date
of November 2, 2021. The preliminary purchase consideration to acquire
LaborChart was $76.2 million, all of which was paid in cash on the acquisition
date of October 21, 2021. The purchase consideration to acquire Indus was $24.3
million, of which $20.3 million was paid in cash on the acquisition date of May
3, 2021.

We also have our Credit Facility that may be used for general corporate purposes
and is available until the Credit Facility's maturity on May 7, 2022. As of
December 31, 2021, $75.0 million, less $6.5 million in outstanding letters of
credit, was available to be drawn under the Credit Facility.

Levelset also has a materials finance business that finances customers'
purchases of construction materials and offers customers deferred payment terms.
The materials finance business is currently immaterial, but is expected 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 $12.9 million, finance lease obligations of $3.7 million,
and non-cancelable purchase commitments of $19.8 million, as disclosed in Note 4
and Note 10 of the audited consolidated financial statements included elsewhere
in this Annual Report on Form 10-K. We believe our existing cash and cash
equivalents will be sufficient to meet our needs for at least the next 12
months. While we have generated positive cash flows from operations in recent
years, we have generated losses from operations in the past as reflected in our
accumulated deficit of $662.2 million as of December 31, 2021. We may not
achieve profitability in the foreseeable future due to the investments we intend
to make 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
$46.8 million, finance lease obligations of $64.0 million, and non-cancelable
purchase commitments of $21.8 million, as disclosed in Note 4 and Note 10 of the
audited consolidated financial statements included elsewhere in this Annual
Report on Form 10-K. 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, 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 the ongoing impact of the COVID-19 pandemic. We may
in the future enter into arrangements to acquire or invest in complementary
businesses, services, and technologies, including intellectual property rights.
We may be required to seek additional equity or debt financing to fund these
activities. If we are unable to raise additional capital when desired, or on
acceptable terms, our business, results of operations, and financial condition
could be materially adversely affected.

Further, as of December 31, 2021, we did not have any relationships with
unconsolidated organizations or financial partnerships, such as structured
finance or special purpose entities, that would have been established for the
purpose of facilitating off-balance sheet arrangements or other contractually
narrow or limited purposes.

The following table summarizes our cash flows for the periods presented:

                                                              Year Ended December 31,
                                                         2021           2020           2019
                                                                   (in thousands)

Net cash provided by (used in) operating activities $36,730 $21,853 ($7,004)
Net cash used in investing activities

                   (541,768 )      (33,511 )      (66,685 )
Net cash provided by financing activities                711,826        272,117         92,757


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Operational activities

Our largest source of cash from operating activities is collections from the
sales of subscriptions to our customers. 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 $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 mainly due to growth

our business and billing schedule;

• a $38.2 million increase in accrued charges and other liabilities

primarily due to the timing of payrolls and cash payments to our suppliers, and

accumulated contributions to the Employee Stock Purchase Plan (“ESPP”); and

• a $4.0 million increase in accounts payable mainly due to timing

cash payments to our suppliers.

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

• a $34.2 million increase in accounts receivable mainly due to timing

invoicing and collections from customers;

• a $16.7 million increase in prepaid expenses and other assets mainly

due to cash retainer payments made to certain Levelset employees upon

closing of the acquisition that are subject to acquisition based on future

service, described in more detail in note 5 of our audited consolidated financial statements

        statements, and timing of cash payments to our vendors;


    •   a $10.2 million increase in deferred contract cost assets related to

commissions following additional customer contracts closed during the

period; and

• a $5.7 million decrease in operating lease liabilities related to leases

Payments.


Net cash provided by operating activities was $21.9 million in 2020, which
resulted from a net loss of $96.2 million, adjusted for non-cash charges of
$114.9 million and net cash inflow of $3.1 million from changes in operating
assets and liabilities. The $3.1 million of net cash inflows provided as a
result of changes in our operating assets and liabilities primarily reflected
the following:

• a $41.8 million increase in deferred revenue mainly due to growth

of our activities and the billing schedule.

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

• a $19.6 million increase in accounts receivable mainly due to timing

invoicing and collections from customers;

• a $6.2 million decrease in operating lease liabilities related to leases

Payments;

• a $6.2 million increase in prepaid expenses and other assets mainly

        to timing of cash payments to our vendors; and


    •   a $5.4 million decrease in accrued expenses and other liabilities
        primarily due to timing of cash payments to our vendors and timing of
        payroll.


Investing Activities

Net cash used in investing activities of $541.8 million in 2021 consisted of the
acquisitions of Levelset, LaborChart and Indus, net of cash acquired, of $509.8
million, capitalized software development costs of $15.2 million, purchases of
property, plant, and equipment of $12.4 million, and strategic investments of
$4.3 million.

Net cash used in investing activities of $33.5 million in 2020 consisted of the acquisition of Esticom and Avata Intelligence Inc. (“Avata”), net of cash acquired, $14.5 millioncapitalized software development costs of $11.8 millionand purchases of property, plant and equipment of $7.2 million mainly related to the improvement of our leased office space and the purchase of computer equipment.

Fundraising activities

Net cash provided by financing activities was $711.8 million in 2021, which consisted mainly of $665.1 million the net proceeds of our IPO, $43.1 million the proceeds from the exercise of stock options, and $9.5 million of the product of the ESPP partially offset by $3.9 million in deferred offering fee payments and $1.5 million in payments on our finance lease obligations.

                                       56

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Net cash provided by financing activities of $272.1 million in 2020 primarily
consisted of the proceeds of $189.8 million from the issuance of our Series I
redeemable convertible preferred stock and preferred stock warrant, proceeds
from the exercise of the Series I redeemable convertible preferred stock warrant
of $55.0 million, and proceeds from stock option exercises of $31.2 million,
partially offset by payments of offering costs of $2.3 million in connection
with the anticipated sale of our common stock.

                                Credit Facility

Our Credit Facility provides for debt financing of up to $75.0 million to be
used for general corporate purposes, including the financing of working capital
requirements, and is secured by a blanket lien on the Company's assets. The
Credit Facility has a maturity date of May 7, 2022, and carries a fee of 0.225%
applied to unused balances and an interest rate equal to the Wall Street Journal
prime rate plus 1.25% applied to all amounts outstanding, with a floor of 3.25%.
The Credit Facility contains financial covenants that require us to maintain
minimum annual recurring revenue, as defined in the loan and security agreement,
and a liquidity ratio, if the Credit Facility is drawn, of at least 1.25 to
1.00. The Credit Facility also contains restrictions on our ability to dispose
of our business or property, engage in changes in business, merge with or
acquire another business, incur indebtedness, encumber the collateral securing
the Credit Facility, pay dividends, make distributions or payments to
stockholders or redeem, retire, or repurchase any capital stock, or make any
restricted investments. As of December 31, 2021, no amounts had been drawn down
under the Credit Facility, and we were in compliance with all covenants.

The Credit Facility also provides us with the ability to issue standby letters
of credit for up to $15.0 million, which if issued reduce the amount available
for borrowing under the Credit Facility. As of December 31, 2021, we had issued
letters of credit totaling $6.5 million to secure various U.S. and Australia
leased office facilities. We may need to secure our leases with restricted cash
in the future if the Credit Facility is not renewed at maturity.

                       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, 2021, the aggregate amount of the transaction price allocated
to remaining performance obligations was $602.6 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. Remaining performance obligations are also impacted by
acquisitions

                   Critical Accounting Policies and Estimates

Critical accounting policies and estimates are those accounting policies and
estimates that are both the most important to the portrayal of our net assets
and results of operations and require the most difficult, subjective, or complex
judgments, often as a result of the need to make estimates about the effect of
matters that are inherently uncertain. These estimates are developed based on
historical experience and various other assumptions that we believe to be
reasonable under the circumstances. Critical accounting estimates are accounting
estimates where the nature of the estimates are material due to the levels of
subjectivity and judgment necessary to account for highly uncertain matters or
the susceptibility of such matters to change and the impact of the estimates on
financial condition or operating performance is material.

The significant accounting policies and estimates, assumptions and judgments that we believe have the most significant impact on our audited consolidated financial statements are described below.

Revenue recognition

We recognize revenue when a customer obtains control of promised services. The amount of revenue recognized reflects the consideration we expect to receive in exchange for these services.

We determine revenue recognition through the following steps:

  • Identification of the contract, or contracts, with the customer;


  • Identification of the performance obligations in the contract;


  • Determination of the transaction price;


    •   Allocation of the transaction price to the performance obligations in the
        contract; and


                                       57
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• Recognition of revenue when, or over time, we satisfy a performance obligation.


We execute a signed contract with the customer that specifies the services to be
provided, the payment amounts and terms, and the period of service, among other
terms. The transaction price is determined by the stated fixed fees in the
contract, excluding any sales related taxes.

Our subscriptions often include promises to transfer multiple services.
Determining whether services are considered distinct performance obligations
that should be accounted for separately or together may require judgment. Our
subscriptions include access to our products and customer support over the
subscription period. Access to the products and customer support represent a
series of distinct services as we fulfill our obligation to the customer and the
customer receives and consumes the benefits of the products and support over the
subscription term. The series of distinct services represents a single
performance obligation.

We recognize revenue pro rata to the length of the subscription from the date the service is made available to the customer.

Costs to obtain a contract with a customer

We recognize an asset for the incremental and recoverable costs of obtaining a
contract with a customer if we expect the benefit of those costs to be one year
or longer. We have determined that sales commissions and bonuses paid for new
contracts, including certain incremental sales to existing customers, meet the
requirements to be capitalized as contract acquisition costs. The contract cost
assets are deferred and then recognized on a straight-line basis over the
expected period of benefit, which we estimate to be four years, which may exceed
the term of the initial contract if commissions expected to be paid upon renewal
are not commensurate with that of the original contract. Judgment is required to
determine the expected period of benefit, which is based on estimates of
customer lives and product technology life.

Business combinations

We account for business combinations using the acquisition method of accounting.
We allocate the fair value of purchase consideration to the tangible assets
acquired, liabilities assumed, and intangible assets acquired based on their
estimated fair values. The excess of the fair value of purchase consideration
over the fair values of these identifiable assets and liabilities is recorded as
goodwill. Accounting for business combinations requires us to make estimates
primarily relating to the valuation of intangible assets. Intangible assets
consist primarily of acquired developed technology and acquired customer
relationships. Valuations of acquired intangible assets require us to make
judgments about the selection of valuation methodologies and also significant
estimates and assumptions, including, but not limited to, (1) the estimated
level of effort and related costs of reproducing or replacing the assets
acquired, (2) future expected cash flows from using the acquired customer
relationships and technology, including future expected revenue, the rate of
customer non-renewals of subscriptions, and operating expenses to deliver such
expected revenue, (3) discount rates, (4) estimated royalty rate specifically
used to value the acquired technology, and (5) selection of comparable
companies. Fair value estimates are based on the assumptions management believes
a market participant would use in valuing the asset or liability. 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.

Stock-Based Compensation

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 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 our common stock. Prior to becoming publicly traded, the valuation of
our common stock required estimates which involve inherent uncertainties and the
application of management's judgment, as described below. The determination of
the grant date fair value using the Black-Scholes option-pricing model is
affected by the estimated fair value of our common stock as well as 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.

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

                                       58
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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. All RSUs granted subsequent to the
IPO vest based on continued service, which is generally over four years. As of
December 31, 2021, the total unrecognized stock-based compensation cost for all
RSUs outstanding at that date was $281.0 million, which is expected to be
recognized over a weighted-average vesting period of 2.0 years.

As of December 31, 2021, the total unrecognized stock-based compensation cost
for unvested stock options was $12.2 million, which is expected to be recognized
over a weighted-average period of 1.1 years.

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 have vested. During 2021 and 2020, we recognized
stock-based compensation expense of $1.6 million and $2.7 million, respectively,
relating to these RSAs.

We issued 199,670 RSAs to certain Levelset 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, 2021, no shares have vested. During 2021, we recognized stock-based
compensation expense of $1.6 million relating to these shares.

We issued 166,370 shares of common stock in connection with the ESPP in November
2021. 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 2021, we recognized stock-based compensation
expense of $8.5 million relating to the ESPP.

Common Stock Valuations

Subsequent to the completion of our IPO in May 2021, the fair value of our
common stock is determined based on the trading price of our common stock. Prior
to the IPO, given our common stock was not publicly traded, our board of
directors exercised significant judgment in determining the fair value of our
common stock with input from management, based on several objective and
subjective factors. Factors considered by our board of directors include:

• our historical performance, our financial situation and our future prospects

approximate timing of grant of stock awards;

• the value of the companies we have considered as peers based on several factors,

including similarity with us with respect to industry, business model,

profitability, stage of growth and financial risk;

• recent sales of our redeemable convertible preferred shares and private shares

share sale transactions;

• the economic and competitive environment, including the industry in which

we operate;

• the rights, preferences and privileges of our redeemable convertible securities

preference shares over those of our ordinary shares;

• the probability of occurrence of a liquidity event, such as an initial public offering or the sale of

        all or a portion of the company;


  • the lack of an active market for our common stock; and


  • third-party valuations completed near the time of the grant.


Since our inception, we have prepared valuations in a manner consistent with the
method outlined in the American Institute of Certified Public Accountants
Practice Guide, Valuation of Privately- Held-Company Equity Securities Issued as
Compensation.

For each valuation performed since 2016, we have estimated the valuation of our common stock based on the values ​​implied by recent transactions in our shares near the valuation date, if any, and based on a probability-weighted expected return method (“PWERM”). valuation model. The valuations of each of these methods are closely matched to each other.

When estimating the valuation of our common stock using the PWERM, we calculated our equity value considering various exit scenarios, including IPO and sale transactions, and staying private.

                                       59

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Our equity value in an IPO scenario was determined using the Guideline Public
Company Method. Under the Guideline Public Company Method we analyzed the equity
value compared to trailing and forecast revenues multiples of our Guideline
Public Companies in the software and technology industry and then applied those
multiples to our 12 months trailing and projected revenue, as of the estimated
liquidity, or exit, date.

Our equity value in the sale transactions scenario was determined using the
Recent Transaction Method. Under the Recent Transaction Method, we analyzed
trailing and forecasted revenue multiples implied by recent acquisitions of
companies similar to our business and then applied those multiples to our 12
months trailing and projected revenue, as of the estimated liquidity, or exit,
date. Judgment is required on the selection of comparable companies,
transactions, and the selection of the multiples. The selection of the multiples
included judgments of our relative growth prospects, margin, and risks compared
to the guideline companies. In addition, we are required to estimate our
forecast revenues at the time of the exit event. We allocated the overall equity
value implied by each of these scenarios to our common stock to estimate a per
share value of our common stock.

The fair value of our common stock in a stay private scenario was determined
using an income approach and market approach. Under the income approach, we
forecast discrete cash flows over several years and a terminal value for a
residual period beyond the discrete forecast period, which we discount at our
estimated weighted-average cost of capital to estimate our enterprise value.
Under the market approach, we estimated revenue multiples based on comparable
guideline companies and applied these revenue multiples to our trailing 12
months and forecasted revenue. Judgment is required in estimating our future
cash flows, discount rates, comparable companies, and multiples. We allocated
the equity value implied by these valuation models in the private company
scenario to our common stock using an option pricing model.

Each of the above valuations has been prepared on the basis of non-negotiable minority interests.

After determining a per share equity value for each scenario, we discounted the
per share value for the estimated timing of the exit and then assigned a
probability to each scenario to determine a probability weighted per share value
of our common stock. Lastly, we applied a discount for lack of marketability as
our stock is not publicly traded. Judgment is required on estimating the timing
and exit event probabilities and discount for lack of marketability.

                          JOBS Act Accounting Election

The JOBS Act, permits an "emerging growth company" such as 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 have irrevocably elected not to avail ourselves of this exemption
from new or revised accounting standards, and therefore, we will be subject to
the same new or revised accounting standards as other public companies that are
not emerging growth companies. We intend to rely on other exemptions provided by
the JOBS Act, including not being required to comply with the auditor
attestation requirements of Section 404(b) of the Sarbanes-Oxley Act.

We will remain an emerging growth company until the earliest to occur of: (1)
the last day of our first fiscal year in which we have total annual revenues of
more than $1.07 billion; (2) the date we qualify as a "large accelerated filer,"
with at least $700 million of equity securities held by non-affiliates; (3) the
date on which we have issued more than $1.0 billion in non-convertible debt
securities during the prior three-year period; and (4) the last day of the
fiscal year ending after the fifth anniversary of our IPO.

                        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.

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