Procore Technologies, Inc.

Good afternoon, everyone. Thank you for attending today's Procore Technologies, Inc. fiscal year 2022 Q2 earnings call. My name is Dante. I'm your moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, please press star 1 on your telephone keypad. I would now like to pass the conference over to our host, Mr. Matthew Pugliese, VP, FP&A, and Investor Relations. Mr. Pugliese,

Thanks. Good afternoon, and welcome to Procore's 2022 Second Quarter Earnings Call. I'm Matthew Pulleys, VP of FP&A and Investor Relations. With me today are Thuy Quartermont, Founder, President, and CEO, and Paul Leandris, CFO. A complete disclosure of our results can be found in our press release issued today, which is available on the Investor Relations section of our website. Today's call is being recorded, and a replay will be available following the conclusion of the call. Comments made on this call may include forward-looking statements regarding our financial results, products, customer demand, operations, the impact of COVID-19 on our business and other matters. These statements are subject to risks and certain assumptions and are based on management's current expectations as of today, August 3rd, 2022. Procore undertakes no obligation to update any forward-looking statements to reflect new information or unanticipated events, except as required by law. If this call is replayed or viewed after today, The information presented during the call may not contain current or accurate information. Therefore, these statements should not be relied upon as representing our views as of any subsequent date. We'll also refer to certain non-GAAP financial measures to provide additional information to investors. A reconciliation of non-GAAP to GAAP measures is provided in our press release. Additionally, we may refer to certain results as organic, which we generally define as business performance or results that exclude the acquisition of levels. And with that, let me turn the call to Tui. Thanks, Matt.

Welcome, everyone, and thank you for joining us today. I am pleased to share that we delivered another solid quarter of growth in Q2. We made strides towards our vision of improving the lives of everyone in construction and continue to see great returns for our platform investments. In Q2, we released over 60 product enhancements to help our customers save time and increase productivity. I'd like to start off by sharing a couple of exciting updates to pre-construction and financials. Two strategic areas that are critical to our customers and are vital components of an end-to-end platform for construction. We continue to build on our estimating functionality within pre-construction with the launch of automated area takeoff. This leverages machine learning technology to significantly reduce the amount of time required to perform area takeoff. which has historically been a very manual process of counting items on blueprints. We also made exciting progress in bid management with the introduction of Bid Management 2.0, which gives bid managers higher quality data and expanded functionality, including the ability to more effectively compare bids. We also continue to innovate in our financial management offers. This quarter, we added new data sets to our enhanced reporting tool for our financials to help our customers better analyze project information and make better financial decisions about their businesses and field operations. These are just a few examples of the product enhancements we've made in the quarter to continue delivering added value to our customers. More recently, we announced the launch of Procore Workforce Management, a powerful labor management solution that brings together Procore's field productivity product with LaborChart's workforce planning product from last year's acquisition. With the persistent labor shortage that our industry faces, I am excited to be able to offer an end-to-end solution that will help our customers better manage their most important resource, their people. I am so proud of the work the team is doing to enhance our platform to put the needs of our customers first. This hard work continues to be recognized. Recently, we earned a 2022 top-rated construction product award from Trust Radius. We maintain top honors across nine categories in G2's 2022 summer report, and we were named as one of the top 100 software companies in 2022 by the software report. This is a testament to our continued partnership with the construction industry. I am very proud of what the Procore team and the industry have continued to accomplish in a dynamic environment. And speaking of, I'm sure you're all interested in hearing our perspective on the demand environment. Currently, we view our continuous strength as being primarily driven by internal factors rather than external. We continue to see positive indicators in our business, and our pipeline generation remains healthy. Most of the external construction indices that we track are trending positively. So objectively speaking, the near-term indications are stable to positive. With that said, we acknowledge the external environment remains highly dynamic, and we are very aware of what we're seeing in the news and hearing from our software peers. While our customers continue to have healthy project backlogs and manage diverse portfolios of work, they are constantly evaluating the mix of their portfolios. In my outreach to the industry, I'm finding general optimism, with some folks beginning to integrate more recession-proof work into their portfolios. Overall, demand still exceeds supply, with labor continuing to be the primary limiting factor in meeting this demand. Related to this point, analyzing what has happened in construction over the past decades is a helpful guide on potential outcomes. In the last 30 years, there have been a few recessions from the dot-com bubble to the financial crisis to the COVID pandemic. Yet total construction spend actually grew through many of these recessions, the one exception being the global financial crisis of 2008. If you dig a layer deeper, you'll find that during the financial crisis, residential construction took the largest hit by far, while commercial construction saw a modest decline and infrastructure remained resilient and even grew. Fast forward to COVID in 2020, commercial and infrastructure spend remained fairly flat, while residential construction spiked. to buoy the overall spend. Procore has a diversified customer base in that we don't have concentrated exposure to any one particular sector of construction. And history has shown that not all pockets of construction respond the same to downturns. Which is why when investors ask me how will we perform during a potential recession, my answer is nuanced. It all really depends upon the severity and length of a recession. and how different sectors within the industry may respond. Customers often remind me that their larger projects can take 24 to 36 months or even longer, so many of their projects span the duration of previous recessions. All of this is to say that no recession looks the same, and while the construction industry isn't immune to downturns, as a whole, it has historically remained resilient. We will continue to focus on what we can control, which is executing on our mission of connecting everyone in construction on a global platform. I maintain conviction that we are solving the industry's most pressing challenges. And if anything, we're hearing the industry say more and more that they're seeking efficiencies in the construction process, efficiencies that Procore's platform provides. Over the past few quarters, you've heard us talk about the strategic value that Levelset brings to our long-term fintech initiatives. These initiatives tie back to our overarching goal of helping our customers manage risk and accelerate growth to ultimately run better businesses. You've also heard us talk about our focus on creating a robust set of solutions for specialty contractors, which you may know as subcontractors or subs. One of the FinTech initiatives we have been exploring is a material financing program specifically aimed at addressing a core challenge that many subs face. When subs start a new job, one of the biggest upfront expenses is the procurement of materials. Subs typically receive 30-day payment terms from their material suppliers, but they may not get paid by the general contractor for approximately 120 days after procuring the material. This mismatch in payment timing creates working capital constraints for subs. Subs represent the majority of firms on a given project, and yet they often have limited credit history and difficulty accessing capital from traditional sources. Due to the complex nature of construction, traditional sources of capital typically have limited insights into the industry-specific information that they need to evaluate the full financial health of subs on a given project, including the upstream stakeholders that they're working with. This lack of capital often forces subs to juggle funds between projects and hold off on bidding on new projects that they could otherwise be qualified. Ultimately, this adds uncertainty to subs' cash flow, constricting their ability to grow, which in turn constrains the industry's overall growth and efficiency. Both Procore and Levelset have shared a long-term interest in solving these working capital constraints for the industry. This is an area we've discussed with you in the past, and I'd like to dig deeper on this today. as we've made some early strides and started to deploy a small amount of capital. At the highest level, our material financing program facilitates the purchase of construction materials on behalf of subs. POCR helps to alleviate working capital constraints by purchasing materials directly from suppliers and then selling them to subs on deferred payment terms that are better aligned with their time. We charge an origination fee at the beginning of the arrangement, as well as a weekly finance charge with the expectation that the subs will typically pay us back in approximately 120 days. So let me walk you through an example. When a sub starts a new job and needs to procure materials, rather than paying the supplier up front, that sub would come to us with the project details and its list of materials needed, and we would conduct a short underwriting process. During that underwriting process, we leverage our available proprietary data, including creditworthiness of not just the sub, but also other upstream stakeholders to determine whether to provide financing. Once an applicant is approved, Procore purchases the materials directly from the supplier, who then ships the materials to the job site. And because we purchase the materials directly and sell them to the subs for use on the job, we are able to obtain lien rights, which means our financing can be secured against the property itself and where need be enforced to ensure repayment. we believe we are uniquely positioned to solve this challenge for several key reasons. First, as a connected platform for the industry, we have a huge audience of cash-strapped subs, both collaborators and customers. Second, thanks to our single global cloud-based platform, we have a unique and massive amount of data, inclusive of Levelset's data set, which provides specific insights into performance and payment history. And third, our deep domain knowledge of lean rights, By structuring this program so that we secure our financing with lien rights, we have a powerful tool to collect outstanding balances, not just from the subs, but in circumstances where they are unable to pay from the upstream stakeholders. Moreover, we can leverage Levelset's core lien management offering to manage, track, and enforce our lien rights with various states and jurisdictions. Also, it's important to note that this program does not require us to warehouse, ship, or otherwise take possession or control of materials, and we are not responsible for the subs' performance on the job. I want to emphasize that we are in the very early stages of this program, and our focus is to continue learning and optimizing. And while it's still early, I am excited for the potential impact and the value this program can bring to the industry. Ultimately, we believe if we're successful with this program, it should provide meaningful expansion to our TAM that is highly complementary to our existing VAP platform, strengthening the Procore Flywheel. Speaking of the Procore Flywheel, we continue to grow our customer base with a number of notable customer wins in the course. I'd like to share a few of these wins, starting with a notable owner. Tampa General Hospital is one of the largest hospitals in America, with a main campus, outpatient facilities, and urgent care centers. They had previously been using the solution that was time consuming and labor intensive, and they desired a platform that was easy to use and that the reporting and integration needs. They selected Procore after the contractors who they frequently worked with urged them to explore us. It was also our existing customer relationships with other hospitals serving as references for our partnership abilities that gave them additional conviction to become a Procore customer, a testament to the flywheel effect of our platform. In addition to owners, we continued to build relationships with general contractors. J.P. Cullen is a fifth-generation family-owned general contractor managing projects across multiple construction sectors in the Midwest and nationally. Their project teams have been struggling with disconnected systems, and they needed an integrated platform that could increase their efficiency improve financial control, and enhance user experience for employees in the field. After evaluating several options, they ultimately chose Procore, given their confidence in our platform to support these needs. Their decision to become a customer was bolstered by the positive feedback they received from their employees who had previous experience using the platform. We also signed Atomy Homes, the largest privately owned home builder in North America with over 40 years of history across the U.S. and Canada. They have plans to grow the residential property offering with speed and scale. Mattamy had been using a number of point solutions and were looking to consolidate their business onto a single platform that could scale along with their growth ambitions. After an extensive evaluation, they selected Procore. Procore is going to be initially used on a large high-res mixed-use development project, but subsequently on future residential projects as they're rolled out. Procore's platform will allow them to have all their project information accessible on a single platform, gain real-time insights into projects, and seamlessly share information across stakeholders as their business grows. We look forward to supporting their continued growth. In addition to expanding our customer base of owners and GCs, we continue to bring specialty contractors onto the platform. Cool Electric is one of British Columbia's largest electrical contractors. They desired an all-in-one platform that could bring together critical business processes like timesheets, productivity, and inspections, and be standardized across the field and office. After a competitive evaluation process, Hulu ultimately chose Procore as their platform of choice with the ROI we could provide in the form of increased efficiency, productivity, and accessibility of information. They particularly valued our strength in open APIs, our local presence in candidates, and our focus on specialty contractors, including our workforce management capabilities. Speaking of building relationships with customers, a huge part of how we connect with the industry is through our annual conference, Groundbreak. I am thrilled to share that after two years of going virtual, Groundbreak will be taking place in person this year. With that, I'd like to invite you all to join us at Groundbreak 2022 in New Orleans from November 7th to November 9th. It's going to be an incredible three days of exchanging ideas, hearing about new products and innovations, and connecting with our customers, partners, and the broader community. We hope to see you all there. Now I'm going to hand it over to Paul.