Q3 2021 Procore Technologies Inc Earnings Call
Such risks delays and costly rework.
Okay. The last big announcement I want to touch on the pro core construction network.
You asked me to find the best place to get dinner in any city I would simply do a yelp search find the great place to eat.
If I want to build a school or a hospital or home and your talent I'd be flying blind when it comes to finding the most reliable suppliers vendors architects engineers and contractors.
The pro forma construction network is the start of a new approach to connecting the construction industry.
Thanks to our vast connected network of over one 8 million construction professionals around the world. We are now piloting a free online construction business director.
The pro forma construction network offers location based search and advanced filtering and will make it easier for construction professionals to expand their online presence promote their business quickly find and connect with new construction partners and submit and receive bids from other stakeholders.
This network will provide our customers with transparency into who they are working with.
A great example of this is that general contractors will have access to historical data on specialty contracts.
Any level sets lean management solution into the pro core platform to manage complex compliance workplace.
The management is also foundation also some of our long term objective, including capitalizing on our data asset.
Next year this will be a priority for us and polished and assure more on these investments shortly.
Additionally, a couple of weeks ago, we announced our acquisition of labor charge.
For those of you who do not know labor is typically the highest and most variable cost for contractors.
For the most part the industry still relies on spreadsheets and analog solutions like white boards to manage their workforces.
Labour chart provides a modern solution to these legacy processes.
Given constructions global labor shortage, managing existing workforces efficiently is critical to managing risk and driving growth.
With the addition of Labor chart cocoa will have in India, and workforce management solution held contractors optimize their workforce maximize productivity and take on more projects.
Labour chart, compliments and strengthens <unk> current workforce management solution.
While our field productivity product tracks and provides insights on historical productivity Labor chart enables contractors to accurately plan and forecast by giving them a real time and forward looking understanding of all workers assignments and commitment.
Additionally, the acquisition gives us the opportunity to come on <unk> industry specific project data set with Labour charts workforce management data, which will provide further insight and connectivity between the office in the field.
Optimizing labor and construction is critical to enabling our customers to take on more work with less waste and ultimately to grow their businesses.
I'm looking forward to sharing our progress in the coming quarters.
So before I hand, it over to Paul I have an exciting announcement to share neck.
Next year, <unk> will be expanding into France and Germany.
The construction industry is globally distributed with the majority of construction volume happening outside the U S.
Europe represents a sizeable portion of the global Tam in France, and Germany are to be biggest markets within that court.
We also believe they're strong product market fit with our platform today and many of our largest customers have operations and projects there already.
Inflation and constrained supply chain continue to disproportionately distract the SMB segment.
The impact has been less pronounced in the mid market and above as we continue to see stronger growth within our larger customer relationships, both from new and existing logos.
While the industry generally scope basis several challenges these can differ in magnitude depending on customer side.
Now, let's discuss our specific financial results and Q3.
Revenue in the quarter with $132 million up 30% year over year and total customers grew up to 11605 up 19% year over year.
Please note that neither the level set nor labor chart acquisitions were closed in Q3, and therefore did not contribute to these results.
Operating loss was $5 2 million, representing an operating margin of negative 4%.
Improvement in our operating margin was due to both better than expected revenue and the timing of hiring start as previously discussed.
Finally, we had strong operating cash flow of $15 1 million and free cash flow of $6 5 billion.
Both metrics benefited from the timing of large customer collections and the operating margin performance in the quarter.
Before I turn to guidance I want to remind everyone that as you review our results and outlook note that our year over year trends are impacted by comparison period in 2020.
If you recall Q2 of 2020 was an incredibly challenging period for the construction industry as a result of COVID-19.
The industry began to see incremental improvements as we entered Q3 last year with more meaningful improvements continuing through Q4 of 2020.
It is important to note that our performance is correlated to the industry's performance.
As a result, our compare periods will have atypical trends, which investors should take into consideration when evaluating 2021 year over year growth.
With that I'd like to provide details on our guidance by providing our specific outlook with and without the recent acquisitions of level set and Labor chart.
For the fourth quarter, we expect revenue to come in between $136 million to $138 million and this includes a contribution of $1 million from level set that of purchase account.
Given the size of Labor chart, and the effects of purchase accounting, we are not expecting a material revenue contribution from that business in the quarter.
Q4, non-GAAP operating margin is expected to be between negative <unk> 14 to negative 15% and this includes a combined margin headwind of 400 basis points from these recent acquisitions as well as the impact of ending Q3 with greater head count.
For the full fiscal year, we expect revenue to come in between 505 and $507 million and this includes the same contributions from level set and Labor chart that I described within our Q4 revenue guidance.
Non-GAAP operating margin is expected to be negative six to negative <unk>, 7% and that includes a margin headwind of 100 basis points from our recent acquisitions.
Additionally, when we report our Q4 results in February we will also provide our formal guidance for 2022.
Until that time, there are few items investors should consider as they update their models for next year.
One as I stated when we announced level set on a standalone basis. They would've achieved 2021 revenue within the low eight figures and our growing moderately faster and so for us today.
Please note that there are 2022 revenue contribution will be impacted by the effects of purchase accounting, which we intend to finalize later this quarter. This will naturally lead to a suppressed revenue contribution in 2022.
Two labor charges at an earlier stage and level set and therefore, we'll only have a marginal revenue contribution next year.
While our 2022 planning process remains ongoing we are comfortable with today's consensus estimate of our 2022 organic revenue growth rate as it relates to the acquisitions that recently closed. We currently anticipate they will contribute approximately two incremental percentage points of revenue growth to that estimate.
Thank you.
To ask a question you will need to press star one on your telephone do withdraw your question press the pound key.
Please stand by while we compile the Q&A roster.
First question, we have Tom Roderick with Stifel.
Your line is open.
Fantastic. Thank you for taking my questions and congratulations on a wonderful results here.
I guess I'll take the first one at you here I mean, I think again, we've been talk.
Okay.
And projects broadly speaking when they would start coming back in and it seems like.
There is a push and pull factor on this the demand has never been higher the supply chain is maybe a little bit still messed up in and enabling materials to get through but I'd love to hear what you're seeing in different pockets because I think as we went through this.
Real strong pockets, whether it was residential or data centers and things like that and then there is the long term to you about.
Commercial so would just love for you to give some comments in terms of what Youre seeing on the ground from your from your big builders and owners Gcs.
These different push and pull factors that are impacting volumes.
If you're a small construct a construction company and where you are wearing five different hats, you doing operations and Youre doing.
Selling the next job and you are trying to get the materials that you need trying to do that and this and this and this and this COVID-19 world.
It's hard and they've got a lot going on and so for them. They are.
They're they're platzer full so when we look at the the challenges we actually look at it more by segment and now what we do believe Tom and I talk to these folks all the time is that when things revert back to more of a normal state.
There I believe they're all going to want to come to a solution like pro core that's going to help them do more with less and.
So I think the over the long run this is going to we're going to see these folks coming back and coming back strongly but for now.
They are having a tough time, it's a tough time to be a small contractor anywhere.
Yeah, it's great commentary and no doubt there is some pent up demand for automation and Digitization, So I'm guessing that bodes well for Ya quick.
Quick follow up to it I don't want to get too much in the week, but I couldn't help but notice your enthusiasm announcing the.
Broke or construction network.
Is it too simplistic to say this is Angie list of construction and maybe.
Wouldn't mind, taking just another 30 seconds talking a little bit more about that and just the business model that you see underneath that in terms of how it can help pro four and the customer base.
Yeah by the way you you asked me the questions about the things I love to talk about so yes, I am very excited about pro course construction network. It is it's basically the recognition that every company and eventually every person in the construction industry.
Needs to have their own unique profile and needs to be discoverable and be a part of a community where they can.
Find more work and promote their brand and do all of the things that they need to do as I mentioned I think my Yelp examples of great. One there's there's really is no overall kind of registry for all of this and if you think about what we can do from pro course standpoint, as we can enrich these profiles over time, we know what folks quality score we know how.
To help move through these processes getting closer to the place where the money can actually flow quicker. So yes, no. It's a it's been a it's been a.
I think our success from from a lot of places and now we have a lot of work to do to integrate them over the next year.
But we're up for the task and I think the industry is ready for us to do so.
Sounds great and then Paul for you I mean, you've had two quarters here of improving revenue growth.
<unk> billings and deferred short term deferred revenue are both up over 30% for the last two quarters, but you did talk a little bit about some of the mixed dynamics in SMB. My question here is on on the pipeline build as you think about the pipeline opportunity do you think the.
International in mid market enterprise strength can can offset SM.
But just the puts and takes as you think about pipeline visibility going into next year. Thanks.
Yeah, I would go back to the earlier question from Tom and say that the industry is seeing that push and pull dynamic into kind of two weeks comment. It's just hardest right now for the SMB, but we don't believe that to be a sustained problem nor something that immediately has an impact on our pipeline opportunity. We believe we are still.
So early in the market that we serve today the opportunity to continue to land just so many new logos, while continuing to focus on cross sell and thinking about our international expansion opportunities leaves us remaining really bullish on the long term opportunity here and the ability to continue to acquire new customers as well as grow within the customer.
Basically we have.
Sounds great. Thanks for taking my questions. Thank you.
Okay. Thank you.
Next we have Brian Schwartz with Oppenheimer.
There's no one thing, but there is we do see a.
A lot of demand around our construction financials product line I think that's much more of a realization that are connected.
System on a platform like <unk> that solves a problem that frankly, just has never really been done before through a connected SaaS environment, it's starting to take on more and more.
Awareness and it's something that we're really proud of.
And then if I could ask one follow up question. It's just a strategic strategic question I guess to wait for you just thinking about the appetite here for further M&A in the Companys history, you've always done a really good job in terms of adding technologies organically and inorganically.
Should we think about maybe the company's ability to digest labor Labor Labor chart and levels that verse.
Potentially adding.
New arent inorganic R&D here over the next several quarters.
It's a great question. So yes, we our focus is after we make an acquisition like this is really the.
We always say the real work begins after the deal closes right. So we're putting a lot of our energy on ensuring that these.
Our integrated in the in the most efficient way. So we can get them in the hands of our customers on our platform as fast as possible. So that's where all of our focus is but in general when you think about M&A from Pro course perspective, Theres a couple of things I want to point out because I get this question a lot. So I'll just take this opportunity to preempt it which is.
Two acquisitions that happened relatively close together I would say do not read anything into that cadence that is.
That is a.
Byproduct of two deals that moved to different speeds that actually came together very close to each other <unk> is very disciplined when we come to making these decisions around M&A.
And so we're always looking to solve the needs of our customers. We're always looking for ways to accelerate our mission to connect everyone in construction on a global platform and if there is a partner in our app marketplace or there is a solution out there that is doing that well and we believe that will help us get to that mission and accelerate our timeline, we will take into.
<unk> consideration that they would be a great opportunity, but we are super disciplined and I really do caution people thinking that thats cadence as something to extrapolate on when it's really not.
Thank you very much for taking my questions.
Sure.
Thank you next we have DJ Hynes with Canaccord.
Hey, guys.
We're releasing that.
It was going to allow for common data environment and ISO compliance. So we can take the show on the road. So I think we're well positioned from a product standpoint, as well as our customers have been referenced bowl in those areas to continue this expansion, but doing it.
Yeah, the only thing I would maybe at US when we think about how we look at what it takes to go live in how we think about performance in the early days of newer markets were really mindful that as to you had mentioned we are fortunate to have projects running at over 125 countries already and that when we think about what it means to be successful.
Resourceful in that way, so, yes, but I would say that the headwinds are there, but they are doing everything that they can in order to kick those projects off and get going because that's when they make thats, where they make their money.
Great and then maybe.
Next question outside of your bread, and butter, preconstruction and quality and safety and project financials.
Some of the other modules that you are seeing a lot of interest at the moment.
What are you left out our flagship project management is a proud as a proud father I can't let that happen.
Yes.
Right.
But I'd, rather just giving you a hard time.
We have 13 products in market and the beauty of what we offer is depending on what we'll use.
Perform in any construction job there is a product a set of products are going to be there available ready for you. So if youre doing design coordination and euro have been Modeler, we have all of those products. If youre a project manager we have your core feature set that you need if you are an estimator. So that's the beauty of the platform is it's not a.
Financial management suite of products, we offer.
We're really important and things we were going to focus on it and so today when we think about the opportunity in front of us some of the constraints and challenges.
They affect all the stakeholders right the inability to get projects or materials or labor that is that is not unique to the general contractor the subcontractor, but the progress we have seen in getting more and more penetration across the enterprise Fortune 500, all the way through the examples you heard too we talked about today with two government customers continue to give us.
A lot of optimism on the opportunity ahead within the world of owners Levonne I'll add to that prior to the honest buildings acquisition, we actually had a a respectable owner's business at the time. So this was just a this was to augment that but yes today.
We service owners of all types as Paul mentioned and.
I don't.
I don't I don't think that.
We would be where we are today because again this is not connecting to everyone. If we didn't have the owner customer base that we do it it's critical to our success and therefore that gets a lot of attention.
What Ya got Ya got Ya.
Let's talk about most helpful. Let's talk about levels that a little bit on the lien waiver process. There was accompanied the past acquired by Oracle.
That had to lean River management offering and one of the interesting pieces there was kind of.
The ability to have a GCN enforce cannot force, but enforce the subs and a big on the platform I'd love to sign of levels that works that way I'm in two is that a way to kind of get a broader range of subcontractor specialty contractors onto the platform for a paid the how should I really think about that dynamic vis-a-vis what the law.
Legacy Blair had done I'd love to get an understanding that.
Well I can assure you, but one that we're not going to take that playbook, we do not believe in.
That is not how we operate we believe the value that is created by all parties involved in the payment process, especially around the complexities of lien waivers everyone benefits from getting the money to move faster and more effectively and more efficiently.
I don't think you need to.
Hold the proverbial gun to anyone's when his head to do that I think there's a lot of value for all in the process. Paul you want to talk about the business model of this yeah. So I think that when you think about the level of that business today. They are actually a subscription largely the majority of their revenue was coming from a subscription business, where they are actually helping anywhere from general.
Contractor sub contractors suppliers to manage their own compliance processes into that's everything from sending notices generating lien waivers and really overall, making sure that the documentation. The compliance process is enabled to facilitate that payment workflow I think the reference.
You're kind of referring to is actually a different part of that businesses workflow and less about charging for the exchange of the compliance information itself.
Got Ya got the Super helpful. Thanks, guys think taking my questions.
My favorite color.
Thank you. Thanks, we have rent till the Jeffries your line is open.
Thanks, You mentioned hiring was had a plan and a quarter can you just give us a sense of what are those ads are going where your added.
Ultimately or European up more quota carrying rep capacity given the recover your scene.
Yeah, I would tell you that the hiring is going across the board alright, we are investing and standing up more operations in developing new technologies and further expanding on our platform and thinking through how we expand into new markets and of course, adding quota carrying capacity as we go about planning for the next year, but I wouldn't.
Focus your attention to any part of the organization. It really is hiring across the board.
I know you mentioned the international pushed but you did move into France, and Germany is that can you just ruined does that through partners your own your own boots underground give us a sense of what's happening in those regions.
Just to be Super clear, we're moving to France, and Germany. So that's a that's a process and.
Starting to take place.
So I'll go to market in those in those two are going to be very similar to how we go to market anywhere which is we're going to take a look at how the buying happens in that in those markets and so I am certain there will be a lot of direct go to market pro core folks there.
But then certain segments in certain countries by through.
Service provider. So we will obviously use the the approach that gets the deals done we like to sell the software the way people like to buy software. So we will match those those two together as we go to market.
Thanks.
Sure.
Thank you.
Next to him.
Leah with Barclays.
Okay, Great, Hey, Hey, Paul Thanks for taking my questions here and squeezing me in.
Yes.
Hey, Paul maybe maybe just to start with you.
Not a lot of good stuff on the financial management.
Of the portfolio.
I know, we don't talk about different parts of the portfolio, but can you just maybe give us some broad brushes on even qualitatively sort of attach right to customers and maybe how the pricing.
For something like project management.
Sort of compares.
Portfolio.
Makes sense.
Yeah Yeah.
I think when we think about the attach rates. We continue to think about kind of the stats, we had shared in the past or the percentage of customers that buy multiple products and continue to reiterate that financials are among one of the most demanded products, we have and something that we continue to see a healthy attach rate and expanded attach right particular, as we think about.
A lot of the new deliverables.
And as we think about what those new deliver both that you had talked about will drive in the future.
Pricing is an area that financial is a very valuable product to the market at something that solved a big problem and so I don't talk about specific specific prices I would tell you that it is a meaningful share of of what pm costs.
Yeah.
Got it.
Very helpful.
Two week, maybe for my follow up for you.
I I was wondering if you just just double click a little bit on the competitive landscape.
I know a lot of us think about autodesk when we think about.
A competitor, but I was wondering if you're just seeing any differences of course from them, but also from the oracles and trembles of the world.
The short answer is no we're not and everything is.
Close rates are remaining as they were if not improving and so I would say we don't we haven't seen anything different at all from any one of those three different competitors and if anything I just kind of reiterate that when we think about the market opportunity ahead, where we're still in such early days that we are.
<unk> an industry that is still on analog processes pen paper fax machines, and how solutions and it's still such early days that we continue to just be hyper focused on helping these these customers in these prospect to digitize the workflows that they have today socket quick story of one of the one of the largest contractors in America there like around one.
Hundreds and size I was talking to recently and they were saying. Thank you for buying Labor chart, because labour is our most variable costs and controlling and managing labor is really really if we don't do a right can cost us a lot of money and I said, how are you doing it today like who would be competing with and he said Whiteboards. This is a very large company that manages their people using <unk>.
Whiteboards so.
When we think about competition is generally not about Ah Ah.
Multinational it's usually about things like Whiteboards.
Got it very helpful guys. Thanks again.
Thank you and ask.
Thank you. That's question, we have cash rung at Goldman Sachs.
Thank you very much.
Paul into a congratulations.
The economy continues to stabilize from a construction standpoint.
I am wondering how we should think about counted 42, I would assume that you've got a healthier base of renewals in 2021, and the renewal rate should start to pick up and you're not expansion rates should also start to slowly inch back up to the premium Cobra days.
Especially as you start to have success with smart as you as you mentioned to me some of the newer modules higher value added modules. So how does it all play out in calendar 22, if I could ask you a question on payments.
Because you don't want to be the only software company not down with payments module, everybody seems to be announcing it [laughter] I do know that you have an invoicing module that does their payments but.
Could you be onto something here that we may not be quite aware of that should not be surprised if it happens in the future.
Yes.
[laughter] already touched on the first slide when we think about the economy stabilising consumption.
Standpoint, and how that plays out from a renewal rate perspective.
I would draw your attention actually back to the Salon in the metrics, we had talked about what the renewal rate even through the mists of COVID-19 or renewal rate.
Obviously from an expansion standpoint data is more coupled to the industry performance.
We have seen the industry slowly return to kind of 2019 numbers, but that backlog that you mentioned is driven to some extent by the uncertainty and so while we we don't have a crystal ball or saying how the economy will perform we do believe that we will continue to see improvement in those retention rates in that expansion rates and.
That.
Our customers are going to continue to need us more than ever as the world continues to come back.
Awesome.
And cash by the way I'll answer the second part of it.
I think that really I can't answer the payments question without just double clicking on the level of set acquisition and why getting lean management is so critical to this process because everyone focuses on the fact that we need we need to move money I need to move money, but really in the construction world getting the okay to move the money is where all of the effort happens and.
So we're spending all of our considerable effort on this integration of level set to solve that particular problem with that problem is done then it's time to move the money and so we will definitely not be the only company in the world without have payments tool, but what we say.
We want you to think about this in years and not quarters, because we the thing that we do cash and I think there's a pro course, we do things intentionally to do it right and to do well not to just stick again I'll get something up on our website. So we're going to.
It's going to take some time and really the focus right now is the integration of all the lean management that level set brought to US yeah I should have a copy of the saying only company pure play a 13 trillion dollar construction market third between jobs.
Sorry.
Think of it as okay trillion 14.
[laughter]. Thank you guys.
Right.
Alright.
That concludes today's conference call.
I mean, the Q&A for today is there anything on the call back over to the speakers.
Thanks for joining us everyone have a good holiday. Thank you everyone.
Ladies and gentlemen, this concludes today's conference call. Thank you all for participating you may now disconnect.
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