Q1 2022 Procore Technologies Inc Earnings Call
First customers responded that <unk> enables their project teams to manage an average of 48% more construction volume per person. The importance of this cannot be understated given the persistent labor shortage the industry is facing.
When the industry can't hire more people to get more work done.
Only answer is improving efficiencies so each person can accomplish more <unk>, helping making this possible.
Second 75% of customer survey agreed <unk> has helped reduce the amount of rework on their projects and of those who agree. They report an average reduction in rework of 16% and so let me remind you on average contractors run single digit gross margin businesses and our customers have little room.
For air and yet as we've shared before on average the industry spends over $500 billion a year on rework.
Reducing unnecessary rework by 16% can have a massive impact on these businesses.
That reduction will only increase as our customers adopt more products leveraged more integrations and roll <unk> out across all of their projects.
This way, we can help them grow their businesses is enabling them to run more efficiently.
And finally, 74% of customer surveyed who are using <unk> app integrations agree that these integrations have made their businesses more scalable.
This is so important for extending the value of the <unk> platform. So that we can provide our customers with an ecosystem of solutions, that's both comprehensive and customizable.
I wouldn't say that I am incredibly proud of the positive impact, we're having on our customers and the industry and it's especially rewarding to see how <unk> is helping our customers build more scalable and efficient businesses. So they can tackle the industry's biggest challenges and focus on what they do best which is building the world around us.
We're able to help our customers tackle these challenges not only through the deep partner integrations, we have but also with the highly strategic acquisitions, we've made to build out the platform.
What are the biggest challenges the industry faces as managing risks, including financial risks and the ability to get paid on time.
On this front I'd like to share an update on one of our most recent acquisitions.
Last November we closed level set and the business continues to perform well.
As I previously shared one of the reasons, we acquired level set is because of their strength and lean management, a critical component of enabling <unk> to manage complex compliance workflows and I am thrilled to share that I was recently able to see an early demo of how the lien waiver experience is being integrated with our invoice management.
<unk>.
It is so exciting to see such progress and I cannot wait to release it into production. So our customers can benefit from this integration.
This is an important step towards our goal of creating be best invoicing compliance experience for the industry and it also gets us one step closer to the payments opportunity.
I am incredibly excited for what's to come and I look forward to updating you all as we progress.
I also want to emphasize that our broader M&A philosophy remains unchanged.
By nature of the broad and evolving industry. We serve we will occasionally make acquisitions to ensure that we have been most comprehensive platform that can solve constructions unique challenges.
The majority of the time these acquisitions will be smaller tuck ins are companies that we know very well and in many cases, they integrate with us through our app marketplace.
But both the volume and cadence of M&A in 2021 were unique and folks should not expect that volume or cadence to be the norm.
We are entirely focused on integrating what we acquired last year and ensuring our collective teams and products come together in an elegant solution that advances our mission to connect everyone in construction on a global platform.
As CEO I focus a lot of my energy on finding our next great leaders as <unk> scales. We are continually investing in our people and building up the best leadership team to drive long term durable growth.
You've also heard me talk about how passionate I am about the impact data will have on the construction industry and my intentions to make <unk> data first company.
So I'd like to share an exciting update on both of these fronts.
Just last week, we welcome Joy drilling as our first ever Chief data officer.
She'll be acting in an elevated and expanded CIO role, leading brokers data strategy as well as our information technology Joy held various leadership roles at <unk> and Adobe systems, where she focused on elevating customer and employee experience.
The team as we continue our journey towards.
So it's becoming a data first company.
In summary, I am incredibly proud of the results we achieved this quarter.
Sure on <unk>.
Another year of growth.
And exciting opportunities.
We believe the investments, we're making in term growth and enabled us to win.
Return to steady margin expansion and cash flow in the future.
With that let me turn it over to Paul to walk you through the financial results.
Thanks, Terry and thank you to everyone for joining us today.
We mentioned, we delivered excellent Q1 results that exceeded our expectations.
I'll quickly recap our financial results share some color on the quarter's highlights and conclude with our outlook.
Revenue during the quarter was $160 million.
Year, and up 34% organically when excluding levels at $7 million contribution.
On an organic basis, we ended the quarter with 12809 customers, representing 20% growth year over year.
Our non-GAAP operating loss was $20 million, representing a consolidated operating margin of negative 12%.
Taking a step back there are a few things I'd like to highlight regarding our Q1 results first as Joey alluded, it's difficult to attribute the quarter success to any one particular area that outperformed we saw strength across multiple areas of the business multiple stakeholders geographies and customer sizes performed very well we.
Believe this reflects the industry's accelerating recovery, our platforms leadership and brand as well as our strong execution.
We've continued to sustain healthy healthy overall customer growth with 616 net new customer adds organically in the quarter. While gives us additional optimism is that this quarter. We started to see small business performed well despite the ongoing macro dynamics. This customer demographic has historically been disproportionately.
Impacted by supply chain delays and inflation. So seeing this performance in Q1 is very promising.
Third we saw record pipeline generation, creating momentum for the year ahead the improvement in our pipeline reinforces the commentary we shared earlier our customers are experiencing higher end demand and they continue to choose <unk> because of the value our platform delivers.
Our operating margin came in better than expected this quarter, primarily due to our revenue beat and the timing of expenses within the quarter.
But more broadly it is reflective of our ability to deliver more on the topline with greater margin efficiency compared to what was originally factored into our guidance.
With that here's our guidance for Q2 and full year 2022 for.
For the second quarter of 2022, we expect revenue between $161 million and $163 million representing year over year growth between 31% and 33% Q.
Q2, non-GAAP operating margin is expected to be between negative <unk> 14 and negative 15%.
For the full fiscal year 2022, we expect revenue between $676 million and $680 million, including a contribution of $28 million from level, representing total year over year growth between 31 and 32% non.
non-GAAP operating margin for the year is expected to be between negative 13, 5% and negative 14, 5%. This represents a 150 basis points of improvement as compared to our previously issued guidance.
To put our guidance into context, there are two additional points I wanted to mentioned.
First I want to refer back to the initial guidance, we gave last quarter on level <unk> contribution to operating margin for the year.
As our teams come together and the acquisition becomes more integrated the delineation of inorganic contribution to market margins becomes more blurry as such beginning this quarter.
Contribution to our operating margin.
And second although we do not guide to provide color on free cash flow margin for the.
Yes, specifically, our updated operating margin guidance implies a year over year decline of approximately eight percentage points and we would reiterate that this trend line can be.
However, it is important to note.
Note that due to the timing of collection and various outflows the distribution of free cash flow by quarter is not linear.
In summary, we are thrilled with.
Results this quarter I'd like to close by thanking our customers the construction industry, our partners employees shareholders as well as the communities we serve for continuing to support us as we work toward our vision to improve the lives of everyone in construction.
Now, let's turn it over to the operator to begin the Q&A session.
Thank you we will now begin the Q&A session. If you will.
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The first question is from the line of Dylan Becker with William Blair You May proceed.
Hey, guys. Thanks for taking the question and congrats on a great quarter here.
Eric.
Maybe <unk> again, I think you kind of touched on it.
The data opportunity here right.
<unk> got the users right you've got the bidding the pre construction and site.
And that obviously gives you some capability to add and to manage some of the input costs some of the challenges that.
Those end customers are seeing.
The potential marketplace dynamic maybe it ties into I think as well.
Future payments opportunity or cash flow management dynamic.
But how are you thinking about leveraging that data out, but obviously in <unk>.
Higher here, but as you scale.
With users and serve as the industry system of record overtime.
Yes, I appreciate the question I think when we think about the data that the <unk> platform generates if theres a tremendous amount of opportunities to help make our customers more efficient across a broader spectrum everything from cost to safety to schedule. One of the things that we're just really proud of is in the process of digitizing a number of these businesses.
We are able to show them back information about their own projects about benchmarks more broadly as well as visibility into many things that do cost money or slow down their projects and so for US. This is going to be a long journey, but we absolutely believe that the data. We have is only going to help make these contractors more efficient across a broad spectrum, including the challenges across the <unk>.
Fly chain and input costs.
One of the ways to look at this as for years, we've been helping our customers manage risk with the data.
And that's been great because that helps to prevent them from going out of business, but I think the greatest compliment we've been receiving over the last few years is that the insights that we reflect with that data back to our customers enable them now to run better businesses in and do more work and actually expand their businesses. So we've gone from playing defense to playing offense and that's really.
Data has really played a huge part of that.
No I appreciate it.
And obviously the demand is very apparent in the kind of core adoption trends you guys are seeing I guess, maybe Tony in on kind of the opportunity across stakeholders as well right. So you've got that unique perspective around the opportunity to monetize maybe that same dollar and construction volume across those.
Kind of three core stakeholders as well right.
As you think about the opportunity there driving value across each of those stakeholders and are nuances. However, you may be thinking about monetizing the same kind of construction dollars thinking about maybe.
The overall opportunity be in penetration being lower than maybe the construction volume might imply as.
As well as leveraging that collaborator model too right from a cross sell effort perspective as well.
Well I appreciate the question dealing so theres a lot in there but essentially.
So essentially if you think about what our mission is to connect everyone in construction on a global platform. So we're not going to be successful until that until we are able to take all of those stakeholders and effectively connect them, but if youre looking for one example for instance of how we can.
To create opportunity for <unk> in that environment, you could look at where we're moving with being in the flow of funds for.
For the wave construction gets funded so for instance, we were able to provide the ability for owners and gcs and subs to be able to manage their lien waiver process in the future, which is what we've already been talking about but then beyond that in the next phase of being able to be in the flow of funds for moving cash.
And moving payments through the system opens up a tremendous number of opportunities for us to look at for these other fintech businesses. So there is.
That's just one aspect of what it means to connect people.
That's great. Thanks, guys and again, congrats on an excellent quarter.
Thanks Darren.
Thank you.
The next question is from the line of to keep Calia with Barclays. You May proceed.
Okay, Great Hey, guys. Thanks for taking my questions here.
Two we maybe maybe just to start with you.
Obviously all of the questions that we get are around macro and it feels like your commentary here is palpably more and more positive. So just want to stress test it a little bit can you just talk about the impact that that inflation is having on your customer base and sort of what gives you that confidence because I know you spend and spend time with.
Customers every day, what gives you that confidence that the building backlog that youre seeing is ultimately going to get built on schedule and then have that sort of follow on benefits in <unk>.
I appreciate the question sorry.
I get asked this question all the time so.
Yes, first I want to start by saying I do talk to customers every day and the customers do tell me that their backlogs have never been bigger or stronger which is.
A massive indicator now we have other indicators.
Our ability to increase pipeline like.
I mentioned in the earlier remarks is actually.
It gives us a lot of.
Say that the business is going to do well over the year.
So we also see.
A lot of just overall optimism when we talk to the industry. There is also external sources.
The architectural billing index is the jobs.
Dodge momentum index.
But one of the one of the things I look at which I think is really interesting in terms of external data is employment and construction has been these people if they didn't have so much confidence in their backlogs. So that to me is one of those.
Unassailable facts that you just have to take into account.
The other one the other way to look at this instruction there is so much demand.
And for construction, which is.
Customers have the lack of folks on staff to build them. So there is a supply challenge.
Between the demand for construction.
And so what we the way we look at it as any sort of.
Impact to the overall demand so from any one of those macro sources that you are talking about.
We'd have to be very large in order to have to have such an impact on the macro demand to lower to a level, where we believe it would actually have an impact.
The other thing is the all of the catalysts that we've seen are actually helping.
Accelerate the digital transformation because all of the companies that we're selling too like Lee.
Looking for cheap software, they're looking for.
And their business. So they can run better businesses. So ultimately we think that we're well positioned.
That makes a ton of sense Paul maybe.
Again, just great great to hear.
Sure the backdrop in construction, but.
Thank you.
Where we stand on the net revenue.
Revenue retention sort of relative to pre pandemic levels.
Yeah look I think one of the things that also continues to give us optimism on the business. It's just how we are watching these metrics across the board from retention growth in that track. We continue to see really positive trends in those dynamics and its a function of customers buying more products customers buying in expanding in their volume but.
It is an area that is a bright spot for our business.
Awesome I'll get back in queue. Thanks, guys.
Thank you.
Okay.
Thank you.
The next question is from the line of Adam Borg with Stifel. You May proceed.
Hey, guys. Thanks for taking the question maybe.
Maybe.
The part, but let me just ask him.
A broader question so it's been about.
Six months in the infrastructure Bill is passed and you've talked already about the backlog, but I was curious.
Industry and.
And remind us of how that could trickle out.
Back to you guys.
Uhm.
Yes, so great question Adam.
We have not seen a direct impact yet in fact, we worked very closely with the AGC and they even their head economist said that this is this is something for later in the year as these projects start coming online. It takes a long time to get these shovel ready, but ultimately we believe it will have a.
Positive impact on the industry and we will.
Talk about which is the oil tanker, which is this industry is very large.
So large that it takes a long time for change to impact it but when it does in the stimulus bill.
Infrastructure builds or large we believe it will actually have a positive impact on the overall construction industry. Thus on program, yes, the only thing.
That gives us that conviction and excitement.
That when we think about who will ultimately be building. These projects with the gcs that our customers. So this is less about whether we will see a bit more about the timing of when.
Yes, yes.
Incredibly incredibly clear that's a great answer and then maybe just as a quick follow up or separate question just on level. So obviously, there's a lot of focus on right management problems.
Yes product.
And the integration that you were referring to earlier, but if I think beyond that lean right.
It has some really interesting newer area that they were focusing on around.
Thanks again.
Yes, so back to the original investment thesis, yes lien rights management is critical to solving these complex workflows.
But one of the other areas that we really valued level set for was their innovation and their.
Where we are exploring.
I think it's the best way to put it it's too way too early to talk more about it piqued, our interest and as something material happens there we will definitely let you know.
Excellent. Thanks again guys.
Sure. Thanks, Adam.
Thank you.
The next question.
Can you let it Goldman Sachs you may have.
Proceed.
Hi, Thank you very much congratulations on the quarter to you I'm curious to get your take on.
And also secondly.
With respect to the Fintech solutions, you've launched them.
You've talked about it in the last quarterly earnings conference call.
What is the fee with respect to the propensity.
Uptake and how does it make you feel about the revenue uptake you might get from here. Thank you so much once again.
Yes, sure cash by the way great to hear.
So the.
I'll answer the first one and I'll pass the second one off to Paul.
If the question is the impact of interest rates on our customers. It actually brings up a really interesting point.
Not every project and construction is financed through alone. So it's interesting if you think about it but every city state municipal Federal got corporate campus campus expansion most of them are actually financed through banks.
Balance sheet financing, so not all of construction as interest rate sensitive and the other thing is just because the industry is so large and again back to my supply and demand discrepancy and theres. So much demand for what needs to get built we think that interest rates would have to go wildly out of control.
In order for us to even begin to see some sort of a.
Impact on <unk>.
As such a big industry and so diversified across all these different areas.
It just leaves us a lot of room currently for <unk>.
As we think about that.
The conversations we've had around Tac, both with the Investor and analyst community as well as the broader industry and bring you back to what we've talked about around the time of the level of that acquisition.
As we've been in this industry now for 20 years that the appreciation of the problems at this customer base basis is quite wide, but we have come to particularly appreciate the challenges around managing working capital and risk and that is where we continue to innovate and explore because what we know with confidence is that the problem.
Statement the need from the industry is there we've been talking to these customers for decades about it. It is more about the best way to solve it and where and how pro CT helps to drive that value to the industry and that's where we're continuing to learn continue to experiment and we will share more as we get more conviction on our particular approach.
Yeah.
Super insightful. Thank you so much.
Thanks Kash.
Yes.
Thank you.
The next question is from the line of Brent Thill with Jefferies. You May proceed.
Thanks to just to follow up on cash. This question. When you think about just critical infrastructure that.
That isn't interest rate sensitive.
Can you can you just talk through.
Are you seeing that as a percent of your business rise versus kind of the the other nice to have areas or areas that could be deflected can you talk to.
How that makes US building and then a quick follow up for Paul.
So the best way for me to quantify that is just to talk about what our customers tell me, which is they are customers run diversified books of business. They will do a lot of what they'll do infrastructure. They will also do commercial although they were.
Warehousing or data centers, so I would say that the the overall excitement is.
It's kind of it's muted, but it's there they believe it's going to have an impact over time, but again these things take a long time to come to fruition. So I wouldn't say, they're betting the farm on it by any by any means but we believe ultimately because of the scale and because of our diversified portfolio that we will benefit kind of across the board.
And Paul I believe you have over 13 products, but 37% of the <unk> generated from four or more and can you have a lot of cross sell.
Or are you starting to see that the cross sell and adoption of of areas. Maybe haven't seen can you drill into a couple of those areas.
Yes look I think you've heard us talk a lot about the financial suite over time and that continues a reason we continue to talk to it. It's an area we've invested quite a bit for many years, it's a highly differentiated product and something that we're continuing to see more and more demand from me on the industry.
The other side I would talk about that you've heard me say a lot is that when we then think about the value of the cross sell and how we get customers to want to adopt more products. It is less about calling out a specific product and more about how we continue to weave together these different workflows across products and drive that value. So you've heard us talk a lot about how estimating and take off are going to come to <unk>.
Management Labor management tied to financial these are all things that we continue to invest in our driving cross sell for those stakeholders that really benefit from those connective elements and we continue to have a lot of conviction that as we invest more and more on the platform, we're only going to see that momentum continue.
Thank you Mr Thiel.
The next question is from the line of Matthew Broome with Mizuho Securities You May proceed.
Hi, Thanks for taking my questions and congratulations on a strong quarter.
How are you thinking about increasing the number of quota carrying reps this year end.
And I guess, how are you finding the recruiting environment.
Yes.
We continue to see that our ability to find top talent and fill our roles is something that while challenging in this environment. As we have appreciated that it was going to be challenges challenging we've invested in the resources and the focus and so we feel really good about the hiring cadence our ability to fill quota at this.
Point, we think we have everything we need in order to deliver what we've told the street, we would based on a quota capacity framework, Matthew I'd be remiss not to say that a big shout out to our talent acquisition team for all the hard work that they do to bring in the top talent that we have is that we could not do it without all of their efforts.
Alright.
And then let's see.
Nice to see the very strong customer growth in the quarter that has the profile of new customers changed the tool.
So just in terms of the suite.
What type of customer or really anything else worth calling out.
No as I mentioned earlier, we saw strength across all all of our segments.
So the one area, we will call out is that the SMB, though it is still.
It's still probably the most impacted by economic headwinds.
It seems to be coming in kind of anecdotally back.
Doing a little bit better, which is something that we're really really happy to see.
Alright, perfect. Thanks very much.
Sure. Thank you.
Yes.
Thank you.
The next question is from the line of Jason <unk>.
Keybanc you May proceed.
Great. Thanks for fitting me in here.
Nice to see the record pipeline generation comment.
On top of funnel is really healthy maybe taking a step further and are you also seeing any improvements in some of the execution related things like sales cycles close rates or win rate.
Candidly nothing material enough to talk about we just continue to see that the demand side. The top of funnel is getting better and better and thats, probably the only thing worth calling out at this point.
Okay, perfect and then.
On the margin flow through.
From the topline performance also nice to see maybe more broadly can you just remind us of that.
Current philosophy around around margin improvement.
Yes look I think when we think about margin when we think about the way we want to invest we are constantly being thoughtful as to how we look at the longer term ROI the lifetime value associated with these investments and what we believe is best for the long term shareholder.
Think about margin improvement, we believe that we will continue to demonstrate operating leverage year over year, but that when we think about how we wanted to deploy capital we're really thoughtful about the appreciation that we're in the early days of a really big market and that we want to find the right balance knowing that we think there is just a tremendous opportunity still ahead.
Yes.
Great.
Thanks.
Thank you.
Thank you.
The final question is from the line of Mario Molina with Piper Sandler You May proceed.
Hi, Greg Yeah, just filling in for Brent here, Thanks for taking our questions.
Was just curious if you saw any significant effect on customer demand from the omicron variant is it sort of ramped up in January and persisted through February where did you find that construction activity overall is more insulated from that wave during those months and then I'll have one follow up.
So yes, we have not we there is no correlation we haven't seen anything that would indicate that at all so I don't really have much more to add.
Yes.
Got it got it and then.
You had some commentary around broad based success resonating with stakeholders.
Different geographies and customer sizes is that the same thing youre seeing as it relates to level set or is there a certain segment of the market we're level set kind of resonating more.
Level set is in general more focused story historically has been more focused on the subcontractor and the vendor and so what I would tell you is with the stakeholders that based service, they're continuing to see success and we continue to be really bullish on the opportunity of what we can do by bringing the businesses together, serving newer stakeholders as well as some.
And you're going to get deeper into their existing stakeholders.
Very helpful. Thank you.
Thank you.
Thank you.
There are no additional questions at this time I will now pass you back to the management team for any closing remarks.
Thanks, everyone take care.
That concludes today's conference call. Thank you you may now disconnect your line.