Procore Technologies, Inc.

Good afternoon. Thank you for attending Procore's fourth quarter 2022 earnings call. My name is Matt and I'll be your operator for today's call. All lines will be muted during the presentation portion of the call for an opportunity for questions and answers at the end. If you would like to ask a question, please press star one on your telephone keypad. I would now like to pass the conference over to our host, Matthew Police. Matthew, please go ahead.

Thanks. Good afternoon and welcome to Procore's 2022 of FP&A and Investor Relations. With me today are Thuy Quartermansh, Founder, President, and CEO, Pauli Andres, CFO, and Howard Fu, SVP of Finance. Further disclosure of our results can be found in our press release issued today, which is available on the Investor Relations section of our website, and our periodic reports filed with the SEC. Today's call is being recorded, and a replay will be available following the conclusion of the call. operations, macroeconomic, and geopolitical conditions, including the impact of COVID-19 on our business and other matters. You should not rely on forward-looking statements as prediction of future events. All forward-looking statements are subject to risks, uncertainties, and assumptions and are based on management's current expectations and views as of today, February 16, 2023. 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 level set. However, with respect to our customer account metrics, we define organic to mean customers under Procore contracts. With that, let me turn the call to Thuy.

Thanks, Matt, and thank you, everyone, for joining us today. I am pleased to share that Q4 was another good quarter, closing out a year of consistent growth for Procore. I'm incredibly proud of what the team has accomplished this past year, and I look forward to carrying this momentum into 2023. Today, I'm going to share some key highlights from 2022 and the fourth quarter and review my key priorities for 2023 and beyond. All right, so let's dive in. You know, two things jumped out at me as I reviewed the results. One, we saw strength across multiple dimensions of the business. And two, our large deal momentum continued in Q4. On this note, I'm happy to share that the number of six-figure transactions booked in Q4 grew 27% year over year, and the number of seven-figure transactions booked grew 100% year over year. Our strong performance was underpinned by the strengthening of our leadership position within construction. For example, in 2022, we saw one of our largest competitors less frequently than we did in 2021, yet we won more ARR against them. We believe this is a testament to our significant value proposition and the widening of our competitive moat. as well as cementing Procore as a clear leader in the industry. Our market positioning, technology, and partnership with the industry continues to be recognized externally. This quarter, Procore was named one of the 2022 Top Construction Technology Firms by Construction Executive and awarded the 2022 Tech Cares Award by Trust Radius. Our achievements would not be possible without our employees, which is why I am particularly honored to share that Procore was again recognized as one of Glassdoor's best places to work. I want you to know that as I reflect back in 2022, it's clear to me that Procore's momentum is only getting stronger. Overall, I'm very encouraged by our performance, despite the backdrop of external uncertainty. So speaking of which, I know the broader demand environment remains top of mind. Like many of you, we are aware of the mixed signals in the news and some economic reports. As we shared before, I continue to stay close to our customers on this. And overall, customer sentiment remains positive. But this quarter, I want to highlight some of the more objective data points we're seeing that lead us to feel optimistic about the business. Every quarter, we monitor a handful of external construction indices. While we don't over index on any one of them, in the aggregate, they can serve as a helpful data point. This quarter, the AIA's Architecture Billing Index experienced a decline indicating softening business conditions for architecture firms. Yet, we saw many other construction indicators trend positively. Dodge starts jumped in December, and across all of 2022, total construction starts were 15% higher than they were in 2021. Both the ABC backlog indicator and the Dodge momentum index reached three-year highs. And the ABC confidence index increased, suggesting project backlogs remained robust, and customers expect growth over the next several months. In fact, the ABC's chief economist recently said this, quote, contractors entered the new year with plenty of optimism. Backlogs remained elevated, and rather than fixate on the possibilities of a recession, many contractors remained focused on growth, unquote. As we've discussed in the past, construction is not a monolith. When demand in one sector wanes, oftentimes demand in other sectors grows. Dodge Data and Analytics recently released their 2023 Construction Outlook Report. And while single-family residential, an area that Procore has limited exposure to, is expected to decline, Dodge predicts that sectors like multifamily, data centers, healthcare, education, and infrastructure, all of which Procore has a strong presence in, will be areas of strength within construction in 2023. We've even started to see signs of government legislation providing a tailwind to public sector construction. In the AGC's 2023 Construction Outlook National Survey, 16% of respondents noted that they have either bid on projects, been awarded bids, or have worked on new projects funded by the infrastructure bill. What's more, according to the latest Civil Quarterly Survey from Dodge, the majority of civil contractors expect their revenue to increase in the next 12 months. in part driven by higher volume of work and increased public funding for infrastructure. Let me remind you that the scale of the infrastructure bill is unprecedented, and this is just one of several pieces of legislation around the world that our customers can benefit from, along with the Inflation Reduction Act and the CHIPS Act. So although the full impact of these bills may take years to materialize, I am very encouraged to see these positive indications of public sector demand picking up. As healthy as demand in construction continues to be, the industry's productivity has actually declined. According to a recent article in the New York Times, the U.S. construction sector has become less productive over the past several decades, in contrast to the overall economy, where labor productivity has risen almost threefold since 1950. In fact, some research has found that the value added per construction worker in 2020 was about 40% less than it was in 1970. We believe the productivity gap in construction makes it abundantly clear just how massive the opportunity is ahead of us and how important technology will be in closing this gap. Procore is proudly enabling the industry to be more productive and efficient. In fact, in our 2022 ROI report, our customers reported being able to manage almost 50% more construction volume per person when using Procore. We've always been committed to helping the industry drive efficiencies, in order to meet demand. One example of this is Gallup-McKinley County School District, who became a new customer this quarter. Gallup-McKinley is a school district in New Mexico that covers almost 5,000 square miles. Decades of lack of funding have created a huge backlog of major renovations and around 10 new schools that need to be built. And they were recently awarded significant funds from the state to help build these projects. They had previously relied on manual processes with no project management system in place, but the lack of tools and processes had become challenging. They selected Procore to tackle their massive volume of work because of our mobile accessibility, our centralized data storage, and our drawings functionality. We continue to add specialty contractors to the platform as well. SteelFab is one of the largest steel fabricators in the U.S. ranking number one on ENR's top specialty contractors in the Southeast. They've been involved in notable projects like the Cleveland Clinic utility plant, Daytona International Speedway renovation, and Princeton University's chemistry building. Steel Fab had been a longtime customer of a competitive solution, and they were dissatisfied with the lack of feature functionality and customer support. I am pleased to share that this quarter they became a Procore customer based on our ability to connect the field to the office, as well as our multiple accounting integrations, enabling accurate financial tracking and reporting. Not only are we continuing to add new customers, but we're also expanding with them. NG is a French multinational energy solutions company, and their North American division has been using Procore for the past several years. This quarter, their renewables global business unit, which operates in France and is focused on solar fields and wind farms around the world, launched a global RFP. Thanks to our proven use case in the US, they chose to expand with Procore. Procore is helping them drive efficiency gains, improve communication across their teams, and ultimately work towards the goal of scaling to 80 gigawatts of installed renewable capacity by 2030. Now I want to share what's top of mind for me as I look into 2023 and beyond. Last quarter, I talked about efficient growth, a concept that we've been focused on internally. To me, this means continuing to drive durable growth on the top line while showing improvements to our profitability profile. Historically, we've typically delivered one or the other, from significant margin expansion in 2020 during COVID to investing over the last two years to re-accelerate growth. We believe the business has reached a level of scale where we can accomplish both, delivering growth while showing efficiencies. I want shareholders to know that efficient growth is a mantra we are instilling in the DNA of Procore. We discuss it at every chance we get at the leadership team level and within employee all-hand meetings, because every team member has a role to play in ensuring we operate more efficiently without sacrificing our growth objectives. Ultimately, I expect our commitment to efficient growth to translate to continued improvement in free cash flow and per share metrics. International performance continues to be one of my key priorities in 2023. As we mentioned in the past couple of quarters, our international business has experienced lower than expected productivity, which we continue to believe is driven by internal operational factors rather than external economic factors. We've done a lot of work to evaluate our international operations, and we've identified a number of impactful changes that we've already begun to execute on. Among the first of these changes is streamlining reporting structures to drive execution. Restoring productivity in this part of the business is going to take some time, but we anticipate seeing improvements towards the end of 2023, and we will continue to share more as we progress. And finally, none of this would be possible without the right leaders at the helm, which is why another focus of mine in 2023 is to continue developing and enhancing our leadership team to ensure we're well positioned for our next phase of growth. On that note, I'd like to share a few exciting leadership updates with you. First, I am thrilled to announce that later this month, Sarah Hodges will be joining as Procore's first ever chief marketing officer. Sarah brings deep domain expertise in marketing for the construction industry and a strong background in product management. Her experience within go-to-market, improving business performance, as well as her thought leadership within the construction industry will be invaluable to Procore. Second, I want to extend my congratulations to Paul. As you've likely seen, we've just announced that Paul will be assuming a new role at Procore as president of FinTech effective in early May. This decision is the culmination of years of discussion between Paul and myself and the board about finding the right leader to take our FinTech initiatives from launch to growth mode. This is an area of the business that Paul is incredibly passionate about. and he's uniquely suited to lead. Paul is one of our strongest operators, and he has the ideal blend of industry knowledge and Procore expertise. You know, in Paul's nine years here, he has been instrumental in scaling our business from just a few million dollars in revenue to over $700 million today. I also want to call out that Paul also led Procore through our successful IPO. Personally, I am thrilled for Paul to pursue this next chapter of leading a critical growth opportunity for Procore. And I'm really excited about our continued partnership in solving construction's biggest challenges. And on that note, I'd also like to congratulate Howard Fu, our current SVP of Finance, who will be promoted to CFO in May in conjunction with Paul's transition. Many of you have already met Howard and no doubt appreciate why we feel we're in great hands with Howard at the helm. Howard is a true technology finance leader and SaaS industry veteran. And he's been operating as Paul's natural successor since he joined Procore two years ago. In that time, he's developed deep working relationships with our executive team and our board and has garnered tremendous respect across our organization. I look forward to working closely with Howard as we continue to scale. As we grow, our ability to align our best people to the most critical aspects of the business means that we're doing right by our employees, customers, and shareholders. These changes reinforce the incredible caliber of leadership we have and cements my personal confidence in Procore's long-term success. Now I'd like to hand it over to Howard to say a few words.