Procore Technologies, Inc.

Thank you for standing by. The Procore Technologies Inc. full year 23 Q4 earnings call will begin shortly. If you would like to register a question at any time, please press star followed by one on your telephone keyboard. Thank you. Hello and welcome to the Procore Technologies Inc. Full Year 23 Q4 Earnings Call. My name is Elliot and I'll be coordinating your call today. If you would like to register a question during today's events, please press star followed by one on your telephone keypad. I'd now like to hand it to Matthew Pulleys. The floor is yours. Please go ahead.

Thanks. Good afternoon and welcome to Procore's 2023 Fourth Quarter Earnings Call. I'm Matthew Pulleys, VP of Finance. With me today are Thuy Kordamanch, founder, president, and CEO, and Howard Fu, CFO. Further disclosure of our results can be found in our press release issue 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. Comments made on this call may include forward-looking statements regarding our financial results, products, customer demand, operations, and macroeconomic and geopolitical conditions. you should not rely on forward-looking statements as predictions 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 15, 2024. 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. Reconciliation of non-GAAP to GAAP measures is provided in our press release. So with that, here's Dewey.

Hey, thanks, Matt. And thanks, everyone, for joining us today. We ended the year about as we expected, with some bright spots and learnings amid a tough economic environment. Some notable highlights were that we surpassed $1 billion in total ARR, we generated $29 million in free cash flow, and we believe 2024 will be another strong year for cash flow generation. Our net retention rate remained durable at 114%, and we ended the year with over 2,000 customers contributing greater than $100,000 in ARR. So today I'd like to reflect back on 2023 and share some interesting customer stories and discuss how I'm thinking about the year ahead. So I'd like to start by acknowledging that 2023 proved to be a challenging year amid a tough economic environment. Much of the commentary we shared in our last earnings call is still relevant to what we're seeing today. 2022 and 2023 were very different years for our industry. In 2022, our customers demonstrated optimism in their sentiment and their buying behavior. This optimism largely stemmed from the strength of our customers' backlogs and their confidence in the future pipeline of work. However, 2023 brought a notable shift. While backlogs remained strong, sentiment shifted, partially due to rapidly rising interest rates, and the industry began to hedge against future work just in case. Sentiment drove conservatism for the future. and led the industry to be cautious about future volume commitments should future demand wane. As we all recognize, construction and our economy are cyclical. You know, I've been leading Procore for 22 years and worked in construction well before that, so I've seen a few of these cycles myself. And while I'd like to acknowledge that 2023 was disappointing when compared to 2022, I also firmly believe that every tough period reveals opportunities and strengths. Times like these give us a chance to look inward and determine what's working and what can be improved. We've done that important work and I'm confident that the path we've laid will set us up for success when the inevitable upswing comes. So I'd like to share five bright spots across our customer sentiment and our business operations that continue to fuel my optimism and confidence in the years ahead. First, The conversations we regularly have with customers across all stakeholders and geographies remain largely positive. Many of our customers have been around for a long time and have also seen multiple economic cycles. They tell me that they too are using this as an opportunity to do the necessary planning to ensure that they're ready to capture the inevitable upswing. As I've shared many times before, their primary concern is not just demand, but also finding the skilled labor to meet this demand. As you heard me say, construction is a low margin, high risk business, and our customers are always searching for efficiency and predictability. But in times like these, our customers continue to tell me that the efficiencies and predictability Procore delivers are paramount. This is best reflected in our gross revenue retention rate, which remained steady throughout this past year and years prior. Even in downturns, our customers see the value we provide and continue to rely on the Procore platform to run their businesses. Which brings me to my second bright spot. Not only do our customers stay with us, they continue to expand with us. Expansion from the upmarket has historically been a strength of ours and continued to be this quarter. Today, about half of our total ARR comes from the enterprise, and historically, much of that comes from expansions. We continue to have incredible room for growth here and expect this to be a bigger contributor in the near term, and I'm going to share more on this shortly. Third, the cyclical nature of construction and the economy gives us an important opportunity to revisit our long-range plans and roadmaps. We reflected on our go-to-market and our product strategy and how effective they may be in both up and down cycles. We've reexamined our product roadmap to ensure it aligns with where we believe the industry is headed. This exercise reinforced that we are on the right track and that we are indeed skating to where the puck is going, a great example of which is the upcoming boom in infrastructure spending. I am more confident than ever that we will continue our leadership position in serving this industry and its evolving needs. The fourth bright spot that I'm very happy to share is that Procore was ranked number five on Glassdoor's best places to work list for US large companies. And that's up from 61 in 2022. You know, it doesn't feel all that long ago that I started this business. And one of the many early challenges we faced was attracting talent to build software for an underserved industry. From the beginning, we committed to fostering and prioritizing our culture. And I could not be more proud that we've grown into being an employer of choice, attracting high caliber team members from across industries and geographies. Finally, we delivered significant efficiency improvements in 2023. In past quarters, you've heard me say that efficient growth has become a company-wide mantra at Procore. We deeply emphasized this when we began planning for 2023. And as the year progressed, we continued to identify areas for incremental improvement, from only adding additional employees when necessary to consolidating vendor spend to obtain better discounting. You know, I'm proud of the team for demonstrating this discipline as it provides us with the fuel that we need to continue to invest in the most important opportunities ahead. I'm especially proud of this in the context of the other bright spots that I shared previously. The efficiency improvements we delivered did not come at the cost of our employee experience, nor our ability to build lasting customer relationships. You know, I believe that building a fantastic business, fostering strong customer relationships, and treating employees well are not mutually exclusive. Speaking of customer relationships, I'd like to share a few recent examples. Performance Contracting, Inc. is one of the largest specialty contractors in the U.S., For more than six decades, PCI has delivered top-tier construction services across the country, performing work on large projects including data centers, life sciences and semiconductor clean rooms, traditional and clean energy plants, stadiums, multifamily residential, and more. In years past, PCI leveraged our workforce planning solution as well as a number of competitive and custom in-house technologies to execute their projects. They decided to significantly expand their usage of Procore, adopting several products and making Procore their primary construction management platform. After in-depth research of available technology solutions, PCI chose Procore because of our dedication to specialty contractors and our superior customer success organization, which is critical for successful change management at scale. With Procore, performance contracting is now able to standardize and streamline operations across all of their branches. You know, I'm personally looking forward to building upon the close relationship I have with Pat, Jason, and the rest of the PCI team in the years to come. Now, not only are we continuing to expand with existing customers, but we're also adding notable new customers. Penske Transportation Solutions, which became a Procore customer in Q4, is a leading transportation and logistics service provider with a North American footprint of approximately 1,500 truck leasing and maintenance facilities, as well as distribution centers. They recognized that they needed a robust system to support their continuing growth over the coming years. Penske wanted to find a best-in-class construction management solution that would help them across all project verticals, including renovations to existing facilities, new facilities construction, electrical vehicle supply equipment infrastructure, and other capital improvement projects across its portfolio. I am happy to share that Penske chose to partner with Procore over several others to help scale and consolidate processes into a single platform and improve their project management operations and project financial controls over the long term. In addition to owners and specialty contractors, we continue to deepen our close relationships with leading general contractors. Burns & McDonald, which ranks number 31 on ENR's top 400 contractors list, recently expanded significantly with us and will be rolling Procore out across more of its business. The team was looking for a solution that was modern, easy to use, quick to implement, enable collaboration, and help them deliver better project outcomes across a number of sectors, including power generation, manufacturing and industrial, government, transportation, water, oil, gas and chemicals, commercial and retail, telecommunications, and more. Today, ProQOL will serve as Burns & McDonald's standard construction management platform for these projects. This is just one of the incredible partnerships we continue to build with the ENR 400 and is a great example of the massive opportunity we see with this group, which I'm going to talk about shortly. So now I'd like to shift gears and discuss how we're thinking about the year ahead. Internally, I like to describe 2024 as a year of focusing on our core, which means doubling down on our strengths while investing in related areas which could further bolster our core offerings. Within the platform, we're going to focus on three areas. First, submitting ourselves as the solution the industry utilizes for civil and infrastructure work. Today, many Procore customers build airports, municipal facilities, both traditional and clean energy plants, and much more. However, I know we can do more to tailor our platform to meet the needs for civil and infrastructure. Late last year, we acquired Unearth, a leader in geospatial information mapping for construction. This acquisition, while small, will allow us to better support all types of construction, but in particular, horizontal infrastructure projects. That integration is going well, and we are excited about what's to come. Second is increasing the adoption of our financial suite. Today, less than half of our customers use project financials and invoice management. This means there is ample opportunity within these offerings before we even take payments into consideration. Speaking of which, we're excited about payments, and the early feedback has been very positive. You know, it's important to note that we are the only solution in the market that connect estimating to contracts, to compliance documents, to invoices, to payment workflows, all on a single platform. Third is improving the flexibility of our product to meet the needs of all of construction, and specifically to facilitate easier adoption and configuration for the enterprise. Procore excels at solving the discrete needs of a vast range of individuals, from those running billion-dollar CapEx projects to folks with mud on their boots entering time cards in the field. You know, the biggest difference between an enterprise and SMB customer is how much the former values and requires the ability to heavily configure Procore to meet their needs. No two enterprise clients perform the same tasks the same way. We believe we can improve this configurability and become more effective for the enterprise and all customers, which should further improve expansion and retention metrics down the road. So I'd like to share a couple of priorities within our go-to-market motion. First, we see more opportunities to grow our base via expansions. So I'd like to share some color on why I think some may underestimate the opportunity given our strong market presence today. While some entities are running their entire portfolio on Procore, it's important to remember that others are using Procore on a portion of their total volume. I'd like to provide an example of this and use the ENR 400 opportunity to do so. The ENR 400 represents the largest 400 general contractors in the United States. and reported approximately $500 billion in annual construction volume in 2022. While Procore has approximately 70% of this group's logos, we have just over 40% of the $500 billion committed to Procore. This disparity, given these figures, is in part due to our land and expand motion. Some customers are still ramping into their annual volume, and others operate independent divisions whose business we have yet to win. Plus our average ENR 400 customer uses about five of our products. This is slightly more than the average product adoption across our entire customer base, but it's still well short of the 10 plus products available to the market today. Keep in mind, the enterprise category in construction is very broad, and this list only represents the largest, most global and technologically sophisticated group within the enterprise and represents only about a quarter of the U.S. construction industry. If we still have this much room to grow within this tech forward group, I hope it's becoming clear just how much opportunity there is outside of it. You know, on top of that, the ENR 400 does not account for the broader opportunity across other stakeholders and customer sizes. All sorts of owners in the market today are not represented in this list, including the Fortune 500, universities, hospitals, real estate developers, and more. There's also a broader specialty contractor landscape of all sizes, geographies, and trades. Taking all of this into account, we see plenty of opportunity to grow and serve this industry. These are the kind of details that motivate me and keep me so optimistic about Procore in the coming years. We believe we are in a winner takes most market category, and these are a few great examples of just some of our growth opportunities ahead. The second go-to-market related update I'd like to share is the addition of our Chief Revenue Officer, Larry Stack. Larry comes to us with a wealth of revenue leadership experience, most recently having spent six years heading up global sales and services at Red Hat. During that time, Larry helped lead the company to impressive size and scale, a similar opportunity Procore finds itself in today. In the past, you've heard me mention that I always have an eye out for new leaders who may be a good fit for our growth journey. In particular, I'm focused on talent that has previously achieved what Procore hopes to do in the future. I believe Larry has this experience and can be instrumental in growing us to a multi-billion dollar revenue company. So in closing, while 2023 wasn't the growth year I'd hoped it would be, I am proud of our efficiency improvements, our culture, and our brand within this industry we serve, and I remain confident and the opportunity ahead. And now, Howard's going to share more on our business performance. Howard?