PROCORE(PCOR) - 2023 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the unaudited condensed consolidated financial statements and management's discussion and analysis for the company Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements for Procore Technologies, Inc., including the balance sheets, statements of operations and comprehensive loss, statements of stockholders' equity, and statements of cash flows Condensed Consolidated Balance Sheets This table presents the company's financial position, detailing assets, liabilities, and stockholders' equity | (in thousands) | Sep 30, 2023 | Dec 31, 2022 | | :--------------- | :----------- | :----------- | | Assets | | | | Total current assets | $841,946 | $799,219 | | Total assets | $1,783,001 | $1,740,410 | | Liabilities and Stockholders' Equity | | | | Total current liabilities | $561,555 | $531,638 | | Total liabilities | $659,250 | $623,630 | | Total stockholders' equity | $1,123,751 | $1,116,780 | Condensed Consolidated Statements of Operations and Comprehensive Loss This table summarizes the company's financial performance, including revenue, gross profit, and net loss | (in thousands, except per share) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Revenue | $247,907 | $186,429 | $689,969 | $518,150 | | Gross profit | $203,782 | $148,650 | $563,338 | $410,304 | | Loss from operations | $(50,351) | $(71,813) | $(178,343) | $(215,252) | | Net loss | $(43,847) | $(71,205) | $(160,175) | $(215,747) | | Net loss per share (basic & diluted) | $(0.31) | $(0.52) | $(1.13) | $(1.59) | Condensed Consolidated Statements of Stockholders' Equity This section details changes in stockholders' equity, including common stock, additional paid-in capital, and accumulated deficit - As of September 30, 2023, the company had 143,452,776 shares of common stock issued and outstanding, an increase from 139,159,534 shares at December 31, 2022. Additional paid-in capital increased from $2,068,225 thousand to $2,235,480 thousand, while the accumulated deficit grew from $(949,143) thousand to $(1,109,318) thousand[27] Condensed Consolidated Statements of Cash Flows This table outlines cash flows from operating, investing, and financing activities, showing changes in cash balances | (in thousands) | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--------------- | :----------------------------- | :----------------------------- | | Net cash provided by (used in) operating activities | $51,272 | $(10,084) | | Net cash used in investing activities | $(58,539) | $(338,646) | | Net cash provided by financing activities | $26,650 | $29,258 | | Net increase (decrease) in cash, cash equivalents and restricted cash | $19,383 | $(319,472) | | Cash, cash equivalents and restricted cash, end of period | $318,318 | $267,726 | Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements 1. Organization and Description of Business This note describes Procore Technologies, Inc.'s business as a cloud-based construction management platform provider - Procore Technologies, Inc. provides a cloud-based construction management platform and related products and services, enabling collaboration among key stakeholders in the construction industry[35][39][40] - The company operates as a single operating segment[39] 2. Summary of Significant Accounting Policies This note outlines the key accounting principles and estimates used in preparing the financial statements - The company's financial statements are prepared in accordance with U.S. GAAP, with management making estimates for revenue recognition, contract cost assets, fair value measurements, stock-based compensation, and other areas[37][38][41][42] - Marketable securities are classified as short-term available-for-sale debt securities, with no credit losses recorded in the periods presented[42] - Procore ceased originations under its materials financing program in October 2023[43] - As of September 30, 2023, gross receivables from this program were $12.4 million, with an allowance for expected credit losses of $4.4 million[44] - The aggregate amount of the transaction price allocated to remaining performance obligations (RPO) was $890.4 million as of September 30, 2023, with $635.0 million (71%) expected to be recognized as revenue in the next 12 months[55] 3. Investments This note details the company's marketable securities and strategic investments, including their fair values Marketable Securities (in thousands) | Type | Amortized Cost (Sep 30, 2023) | Fair Value (Sep 30, 2023) | Amortized Cost (Dec 31, 2022) | Fair Value (Dec 31, 2022) | | :------------------------ | :---------------------------- | :------------------------ | :---------------------------- | :------------------------ | | U.S. treasury securities | $122,063 | $121,932 | $86,666 | $86,477 | | Commercial paper | $72,851 | $72,777 | $73,234 | $72,914 | | Corporate notes and obligations | $96,564 | $96,340 | $65,150 | $65,150 | | Time deposits | $17,115 | $17,113 | $60,951 | $60,952 | | Total | $308,593 | $308,162 | $286,001 | $285,493 | - During the nine months ended September 30, 2023, the company had maturities of marketable securities totaling $287.6 million and sales of $5.5 million[57] - Strategic investments include equity securities, limited partnerships, and available-for-sale debt securities, with a contractual obligation for additional investment funding of up to $5.9 million in limited partnerships[58][59] 4. Fair Value of Financial Instruments This note provides a breakdown of financial assets measured at fair value across different valuation levels Financial Assets Measured at Fair Value (in thousands) | Category | Level 1 (Sep 30, 2023) | Level 2 (Sep 30, 2023) | Level 3 (Sep 30, 2023) | Total (Sep 30, 2023) | | :------- | :--------------------- | :--------------------- | :--------------------- | :------------------- | | Cash equivalents: Money market funds | $286,061 | — | — | $286,061 | | Marketable securities: U.S. treasury securities | $121,932 | — | — | $121,932 | | Marketable securities: Commercial paper | — | $72,777 | — | $72,777 | | Marketable securities: Corporate notes and obligations | — | $96,340 | — | $96,340 | | Marketable securities: Time deposits | — | $17,113 | — | $17,113 | | Strategic investments: Investments in available-for-sale debt securities | — | — | $360 | $360 | | Total | $407,993 | $186,230 | $360 | $594,583 | 5. Leases This note describes the company's lease arrangements, including changes to right-of-use assets and liabilities - Operating lease commencements and modifications resulted in net increases to right-of-use assets and corresponding operating lease liabilities of $13.6 million during the nine months ended September 30, 2023, primarily for office spaces in Dublin, Ireland, Tampa, Florida, and Toronto, Canada[65] 6. Intangible Assets and Goodwill This note details the company's intangible assets and goodwill, including recent acquisitions and amortization - On September 15, 2023, Procore acquired Unearth Technologies, Inc. for $9.2 million, primarily for developed technology with an estimated useful life of five years[66] - Goodwill stood at $539.1 million as of September 30, 2023, with changes primarily due to foreign currency translation[70] Finite-Lived Intangible Assets (in thousands) | Asset Type | Gross Carrying Amount (Sep 30, 2023) | Accumulated Amortization (Sep 30, 2023) | Net Carrying Amount (Sep 30, 2023) | Weighted Average Remaining Useful Life (Years) | | :------------------ | :----------------------------------- | :-------------------------------------- | :--------------------------------- | :--------------------------------------------- | | Developed technology | $166,302 | $(60,547) | $105,755 | 4.5 | | Customer relationships | $66,350 | $(27,878) | $38,472 | 4.4 | | Total | $232,652 | $(88,425) | $144,227 | 4.5 | 7. Accrued Expenses This note itemizes the components of accrued expenses, including bonuses, commissions, and payroll liabilities Components of Accrued Expenses (in thousands) | Component | Sep 30, 2023 | Dec 31, 2022 | | :-------------------------------------- | :----------- | :----------- | | Accrued bonuses | $24,184 | $28,357 | | Accrued commissions | $13,112 | $20,389 | | Accrued salary, payroll tax, and employee benefit liabilities | $42,105 | $34,113 | | Other accrued expenses | $15,729 | $16,323 | | Total accrued expenses | $95,130 | $99,182 | 8. Commitments and Contingencies This note outlines the company's outstanding purchase commitments and potential legal contingencies - The company has outstanding minimum purchase commitments of $34.2 million as of September 30, 2023, primarily for hosting services[72] - No material legal matters or claims are currently pending that would adversely affect financial position[74][75] 9. Stock-Based Compensation This note details the company's stock-based compensation plans, including authorized shares and expense recognition - The 2021 Equity Incentive Plan authorized 44,622,937 shares of common stock for issuance as of September 30, 2023, with 31,407,854 shares available[78] - Total unrecognized stock-based compensation cost for RSUs and PSUs was $416.5 million, expected to be recognized over 2.6 years[84] Total Stock-Based Compensation Expense (in thousands) | Category | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Cost of revenue | $1,931 | $1,835 | $5,509 | $5,339 | | Sales and marketing | $14,310 | $15,483 | $41,781 | $38,351 | | Research and development | $16,347 | $17,758 | $52,395 | $43,910 | | General and administrative | $12,221 | $9,701 | $32,549 | $28,281 | | Total expense | $44,809 | $44,777 | $132,234 | $115,881 | 10. Income Taxes This note reports income tax expenses and the company's valuation allowance on deferred tax assets - Income tax expenses were $0.2 million and $0.6 million for the three and nine months ended September 30, 2023, respectively[96] - The company maintains a full valuation allowance on its U.S. federal and state net deferred tax assets[96] 11. Net Loss Per Share This note explains the calculation of basic and diluted net loss per share, noting anti-dilutive securities - Due to net losses, all potentially dilutive securities are anti-dilutive, meaning basic and diluted net loss per share are equal[99] - For the three months ended September 30, 2023, basic and diluted net loss per share was $(0.31), and for the nine months, it was $(1.13)[21][99] 12. Geographic Information This note provides a breakdown of revenue by geographic region, highlighting U.S. versus international contributions Revenue by Geographic Region (in thousands) | Region | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :-------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | U.S. | $212,902 | $159,585 | $593,135 | $442,963 | | Rest of the world | $35,005 | $26,844 | $96,834 | $75,187 | | Total revenue | $247,907 | $186,429 | $689,969 | $518,150 | | Percentage of revenue: U.S. | 86% | 86% | 86% | 85% | | Percentage of revenue: Rest of the world | 14% | 14% | 14% | 15% | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations, highlighting key performance drivers, revenue components, operating expenses, and liquidity Overview This section introduces Procore's business as a cloud-based construction management software provider and its market approach - Procore is a leading global provider of cloud-based construction management software, aiming to connect and empower construction industry stakeholders[104][106] - The platform modernizes construction by providing real-time access to project information, simplifying workflows, and facilitating communication, with pricing generally based on products and annual construction volume[108] Certain Factors Affecting Our Performance This section discusses key drivers and trends influencing the company's financial performance, including customer growth and RPO - Customer count increased 14% year-over-year to 16,067 as of September 30, 2023[110] - The Gross Retention Rate (GRR) remained strong at 95% for both September 30, 2023, and 2022, indicating high customer retention[112] Remaining Performance Obligations (in thousands) | Category | Sep 30, 2023 | Sep 30, 2022 | Change (Dollar) | Change (Percent) | | :------- | :----------- | :----------- | :-------------- | :--------------- | | Current RPO | $635,000 | $501,400 | $133,600 | 27% | | Non-current RPO | $255,381 | $213,600 | $41,781 | 20% | | Total RPO | $890,381 | $715,000 | $175,381 | 25% | - The company continues to invest in technology innovation and product development, including the launch of Procore Risk Advisors in March 2023[116][117] - The materials financing program, assumed from the Levelset acquisition, ceased originations in October 2023[118] - International expansion is a key growth opportunity, with non-U.S. revenue accounting for 14% of total revenue for the nine months ended September 30, 2023[119][120] Components of Results of Operations This section details the various revenue and expense categories that constitute the company's operating results - Revenue is primarily generated from subscriptions, recognized ratably over the term[124] - Cost of revenue includes personnel, hosting, and amortization of acquired technology and capitalized software development costs[125] - Operating expenses (sales & marketing, R&D, G&A) are heavily influenced by personnel-related compensation and are expected to increase with business growth and international expansion[127][128][129][130] - Other financial items include interest income from marketable securities, interest expense from finance leases, accretion income from marketable debt securities, and other net expenses (foreign currency, equity securities)[131][132][133][134] - The company maintains a full valuation allowance for U.S. deferred tax assets[135] Results of Operations This section provides a comparative analysis of the company's financial performance for the reported periods Revenue and Gross Profit Comparison (in thousands) | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | Change (Dollar) | Change (Percent) | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | Change (Dollar) | Change (Percent) | | :------------ | :-------------------------- | :-------------------------- | :-------------- | :--------------- | :-------------------------- | :-------------------------- | :-------------- | :--------------- | | Revenue | $247,907 | $186,429 | $61,478 | 33% | $689,969 | $518,150 | $171,819 | 33% | | Cost of Revenue | $44,125 | $37,779 | $6,346 | 17% | $126,631 | $107,846 | $18,785 | 17% | | Gross Profit | $203,782 | $148,650 | $55,132 | 37% | $563,338 | $410,304 | $153,034 | 37% | | Gross Margin | 82% | 80% | 2% pts | | 82% | 79% | 3% pts | | Operating Expenses Comparison (in thousands) | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | Change (Dollar) | Change (Percent) | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | Change (Dollar) | Change (Percent) | | :---------------------- | :-------------------------- | :-------------------------- | :-------------- | :--------------- | :-------------------------- | :-------------------------- | :-------------- | :--------------- | | Sales and marketing | $129,672 | $109,608 | $20,064 | 18% | $372,397 | $306,806 | $65,591 | 21% | | Research and development | $72,708 | $71,493 | $1,215 | 2% | $225,960 | $195,569 | $30,391 | 16% | | General and administrative | $51,753 | $39,362 | $12,391 | 31% | $143,324 | $123,181 | $20,143 | 16% | | Loss from operations | $(50,351) | $(71,813) | $21,462 | 30% | $(178,343) | $(215,252) | $36,909 | 17% | - Interest income significantly increased by $2.8 million (3 months) and $11.9 million (9 months) due to higher interest rates and purchases of marketable securities[148][149] - Accretion income, net, also saw substantial increases of $2.3 million (3 months) and $5.9 million (9 months) for similar reasons[156][157] Non-GAAP Financial Measures This section reconciles GAAP to non-GAAP financial measures, providing alternative views of core business performance - The company uses non-GAAP measures (Gross Profit, Gross Margin, Operating Expenses, Income/Loss from Operations, Operating Margin) to evaluate performance, excluding stock-based compensation, amortization of acquired intangibles, employer payroll tax on stock transactions, and acquisition-related expenses[158][160] - These adjustments aim to provide a clearer view of core business performance[160] Non-GAAP Operating Margin Reconciliation (in thousands) | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :----- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | GAAP Loss from operations | $(50,351) | $(71,813) | $(178,343) | $(215,252) | | Total adjustments | $58,005 | $58,447 | $178,945 | $156,994 | | Non-GAAP income (loss) from operations | $7,654 | $(13,366) | $602 | $(58,308) | | GAAP Operating margin | (20%) | (39%) | (26%) | (42%) | | Non-GAAP operating margin | 3% | (7%) | 0% | (11%) | Liquidity and Capital Resources This section assesses the company's ability to meet short-term and long-term obligations, including cash flow and capital needs - As of September 30, 2023, principal liquidity sources were cash, cash equivalents, and marketable securities totaling $626.5 million[165] - The company ceased originations under its materials financing program in October 2023, with $8.0 million in net receivables outstanding[168] - Despite an accumulated deficit of $1.1 billion, existing liquidity is believed to be sufficient for the next 12 months, though additional capital may be required for strategic initiatives[169][170] Cash Flow Summary (in thousands) | Activity | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :------- | :----------------------------- | :----------------------------- | | Net cash provided by (used in) operating activities | $51,272 | $(10,084) | | Net cash used in investing activities | $(58,539) | $(338,646) | | Net cash provided by financing activities | $26,650 | $29,258 | - Net cash provided by operating activities was $51.3 million for the nine months ended September 30, 2023, a significant improvement from net cash used of $10.1 million in the prior year, driven by increased deferred revenue and accounts receivable collections[175][177] - Net cash used in investing activities decreased to $58.5 million from $338.6 million, primarily due to marketable securities maturities and sales offsetting purchases[178][179] Critical Accounting Policies and Estimates This section highlights accounting policies requiring significant management judgment and their impact on financial reporting - The company's critical accounting policies and estimates, detailed in Note 2 and the Annual Report on Form 10-K, involve significant judgment in areas such as revenue recognition, fair value measurements, and stock-based compensation[183] - No significant changes to these policies were reported for the nine months ended September 30, 2023[184] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section discusses the company's exposure to various market risks, including foreign currency, interest rate, and inflation risks, and how these might impact its financial condition and results of operations Foreign Currency and Exchange Risk This section discusses the company's exposure to foreign currency fluctuations and its current hedging strategy - The company is exposed to foreign currency exchange rate fluctuations as revenue is primarily in USD, but expenses are in various foreign currencies[186] - Currently, no derivative or hedging transactions are in place, but this may change if exposure becomes more significant[186] Interest Rate Risk This section addresses the company's exposure to interest rate changes on its cash and marketable securities - With $626.5 million in cash, cash equivalents, and marketable securities, the company is subject to interest rate risk[187] - However, due to the short-term nature of its investments, material risks from interest rate changes are not anticipated, and no derivative financial instruments are used for hedging[187] Inflation Risk This section evaluates the potential impact of inflation on the company's operations, costs, and pricing - Inflation can positively impact pricing by increasing construction volume, but it can also lead to higher personnel costs, supply chain challenges, and delayed projects[188] - The company does not believe inflation has had a material effect on its business to date[188] Item 4. Controls and Procedures This section details management's evaluation of the company's disclosure controls and procedures and internal control over financial reporting, concluding on their effectiveness and noting any changes (a) Evaluation of Disclosure Controls and Procedures This section reports management's conclusion on the effectiveness of the company's disclosure controls and procedures - As of September 30, 2023, management, including the CEO and CFO, concluded that the company's disclosure controls and procedures are effective at a reasonable level to ensure timely and accurate reporting of required information[190][191] (b) Changes in Internal Control Over Financial Reporting This section addresses any material changes in the company's internal control over financial reporting during the quarter - There have been no changes in internal control over financial reporting during the quarter ended September 30, 2023, that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[191] (c) Limitations on Effectiveness of Controls and Procedures This section acknowledges inherent limitations of control systems, including the risk of circumvention or management override - Management acknowledges that control systems provide only reasonable, not absolute, assurance and can be circumvented by individual acts, collusion, or management override, leading to potential undetected errors or fraud[192] PART II. OTHER INFORMATION This section includes legal proceedings, risk factors, equity sales, other information, and exhibits Item 1. Legal Proceedings The company is not currently involved in any legal proceedings that are expected to have a material adverse effect on its business, results of operations, financial condition, or cash flow - Procore is not currently a party to any legal proceedings that, if determined adversely, would reasonably be expected to have a material adverse effect on its business, results of operations, financial condition, or cash flow[195] Item 1A. Risk Factors This section outlines significant risks that could materially adversely affect the company's business, financial condition, results of operations, and prospects. These risks span various categories, including business and industry-specific challenges, human capital and culture, regulatory and legal compliance, intellectual property, acquisition-related issues, tax matters, and financial market risks Risks Related to Our Business and Industry This section details risks associated with the company's growth, industry competition, economic sensitivity, and operational reliance - The company's rapid growth may not be indicative of future performance, and it has a history of losses, with no assurance of future profitability[198][200] - Its business is highly susceptible to economic changes and spending fluctuations within the construction industry, which could reduce revenue[203] - Failure to adapt to the rapidly evolving construction management software industry, develop new products, or provide adequate customer support could materially affect the business[205][206][207] - International expansion, while a growth opportunity, introduces increased business, regulatory, and economic risks, including foreign currency fluctuations[209][212] - Maintaining a strong brand and expanding sales and marketing capabilities are crucial for customer acquisition and retention[213][214] - The company operates in a highly competitive market, facing potential price pressures and competitors with greater resources[215][217] - Service interruptions, performance issues, and reliance on third-party data centers (like AWS) pose significant operational risks[218][223] - The materials financing program, which ceased originations in October 2023, exposed the company to credit, performance, and liquidity risks, including potential financial losses from customer defaults and challenges in enforcing mechanic's lien rights across various jurisdictions[226][227][228] Risks Related to Our Employees and Culture This section addresses risks concerning talent acquisition, retention, and the preservation of corporate culture - The company's future success is highly dependent on its ability to attract, retain, and motivate key management personnel, including its CEO, and other qualified employees[230][232] - Failure to maintain its corporate culture, especially with growing remote work, could hinder innovation, teamwork, and execution[233] Risks Related to Our Regulatory and Legal Environment This section covers risks from data privacy laws, cybersecurity threats, evolving regulations, and potential legal challenges - The company is subject to stringent, evolving, and potentially inconsistent data privacy and security laws globally (e.g., CCPA, CPRA, EU/UK GDPR, LGPD)[235][237][238][240] - Non-compliance or perceived failures could lead to regulatory actions, litigation, significant fines, reputational harm, and operational disruptions, especially concerning cross-border data transfers[246] - Information technology systems and data, including those of third parties, are vulnerable to cyberattacks, fraud, and other compromises, which could result in security incidents, operational disruptions, and severe consequences[247][248][250][251][252] - Remote work and acquisitions further increase these risks[257] - The company faces a wide range of evolving laws and regulations (e.g., internet, marketing, taxation, labor), with uncertainty in their application and enforcement[262][263] - Increased government scrutiny of the technology industry, potential changes to Section 230 of the CDA, and export/import controls, along with anti-corruption laws (FCPA, UK Bribery Act), could negatively affect business operations and lead to penalties[265][267][269][271][275] - Lien rights management services may subject the company to Unlicensed Practice of Law (UPL) allegations, with varying and vague laws across jurisdictions[276][277] - The materials financing program also faced regulatory scrutiny, with a risk of being re-characterized as loans, leading to additional compliance requirements and potential penalties[279][281][283] Risks Related to Our Intellectual Property This section discusses risks concerning intellectual property protection, third-party licenses, and platform misuse - Failure to adequately protect intellectual property rights (patents, copyrights, trademarks, trade secrets) could diminish brand value and allow competitors to replicate the platform[285][287][288] - Reliance on third-party licenses means an inability to maintain these could limit product development[291] - The use of open-source software also carries risks of litigation and potential public release of proprietary code[292] - Misuse of the platform by customers or users for unauthorized, offensive, or illegal activities (e.g., spam, scams, copyright infringement) could damage the company's reputation and lead to litigation and liability, especially with potential changes to Section 230 of the CDA[293][294] Risks Related to Our Acquisitions This section outlines challenges in integrating acquisitions and realizing their anticipated strategic and financial benefits - The company may be unsuccessful in making, integrating, and maintaining acquisitions, joint ventures, and strategic investments, potentially failing to realize anticipated benefits, disrupting ongoing business, increasing expenses, and leading to impairment charges[295][296] - Financing these transactions could also affect financial condition or stock value[297] Risks Related to Tax Matters This section addresses potential liabilities from sales taxes, transfer pricing, and changes in tax laws - Tax authorities may successfully assert that the company should have collected sales and use, VAT, or similar taxes, leading to substantial liabilities due to uncertainties in 'nexus' and taxability of online services, especially with evolving economic nexus laws post-Wayfair[299][300][301][302] - The company's corporate structure and intercompany arrangements subject it to complex transfer pricing regulations, risking additional taxes, interest, and penalties if tax authorities disagree with its determinations[303][304] - Changes in tax laws (e.g., TCJA, Inflation Reduction Act, BEPS 2.0) could significantly increase tax obligations[305][306] - The ability to use Net Operating Loss (NOL) carryforwards and other tax attributes may be limited by ownership changes under IRC Section 382 and 383, potentially accelerating or permanently increasing state taxes owed[307] Risks Related to Capital Requirements, Credit Concentration, Liquidity, and Our Marketable Securities Portfolio This section covers risks related to capital needs, investment portfolio value, and financial services industry stability - The company may need to raise additional capital for business growth, which may not be available on acceptable terms, potentially hindering its ability to compete[309][310] - Its marketable securities portfolio is subject to credit, liquidity, market, and interest rate risks, which could cause its value to decline[311] - Adverse developments in the financial services industry, such as bank failures (e.g., Silicon Valley Bank), could materially affect the company's liquidity and ability to access its cash, cash equivalents, and marketable securities, as balances often exceed FDIC insurance limits[312][313] General Risks Related to Our Business and Investing in Our Common Stock This section covers risks concerning financial reporting, operational disruptions, stock volatility, and corporate governance - Failure to maintain effective disclosure controls and internal control over financial reporting could impair the ability to produce timely and accurate financial statements, leading to a loss of investor confidence and potential regulatory sanctions[314][317] - Revenue recognition over subscription terms means that downturns or upturns in new business are not immediately reflected in results[318][319] - Excessive fraudulent activity or inability to meet evolving credit card association merchant standards could result in substantial costs and loss of credit card acceptance[322][323] - The business is also vulnerable to disruptions from catastrophic occurrences like natural disasters or conflicts[324][325] - The market price of common stock may be volatile due to macroeconomic factors and industry trends[327] - Concentration of ownership among executive officers, directors, and principal stockholders may limit the influence of new investors[328] - Provisions in organizational documents and Delaware law could make company acquisition more difficult and limit stockholder actions[330] - Exclusive forum provisions in the certificate of incorporation (Delaware Court of Chancery for certain disputes, U.S. federal district courts for Securities Act claims) could limit stockholders' ability to choose a judicial forum, potentially increasing costs or discouraging lawsuits[332][334][335] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section states that there were no unregistered sales of equity securities or use of proceeds during the reporting period - There were no unregistered sales of equity securities or use of proceeds during the quarterly period ended September 30, 2023[336][337] Item 5. Other Information This section provides information on insider trading arrangements adopted by directors and officers during the quarter Insider Trading Arrangements (Rule 10b5-1) | Name and Position | Action | Adoption Date | Rule 10b5-1 | Total Shares of Common Stock to be Sold (Max) | Expiration Date | | :---------------------------- | :------- | :--------------- | :---------- | :-------------------------------------------- | :----------------- | | Howard Fu, Chief Financial Officer and Treasurer | Adoption | August 9, 2023 | x | 28,084 | August 9, 2024 | | Graham V. Smith, Director | Adoption | September 7, 2023 | x | 11,057 | September 7, 2024 | | Benjamin C. Singer, Chief Legal Officer and Corporate Secretary | Adoption | September 8, 2023 | x | 80,454 | September 9, 2024 | | Nanci E. Caldwell, Director | Adoption | September 11, 2023 | x | 29,597 | September 11, 2024 | | Elisa A. Steele, Director | Adoption | September 14, 2023 | x | 23,417 | September 14, 2024 | Item 6. Exhibits This section lists all exhibits filed as part of the Quarterly Report on Form 10-Q, including organizational documents, certifications, and XBRL-related files - The report includes exhibits such as the Amended and Restated Certificate of Incorporation, Amended and Restated Bylaws, Section 302 and 906 Certifications of Principal Executive and Financial Officers, and Inline XBRL documents[345] Signatures This section contains the official signatures of the company's President and Chief Executive Officer, and Chief Financial Officer and Treasurer, certifying the filing of the Quarterly Report on Form 10-Q - The Quarterly Report on Form 10-Q was signed on November 2, 2023, by Craig F. Courtemanche, Jr., President and Chief Executive Officer, and Howard Fu, Chief Financial Officer and Treasurer[349]