Q4 2022 Procore Technologies Inc Earnings Call

Good afternoon. Thank you for attending <unk> 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 up an opportunity for questions and answers at the end. If you would like to ask a question. Please press star one on your til.

I'll keep it.

I would now like to pass the conference over to our host Matthew beliefs.

Matthew Please go ahead.

Thanks, Good afternoon, and welcome to <unk> 2022 fourth quarter earnings call I am asking for use of Etfs Canadian Investor Relations with me today are two record March founder President and CEO . Paul you can address CFO Howard <unk> 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 comments made on this call may include forward looking statements regarding our financial results products customer demand operations macroeconomic and geopolitical conditions, including the impact of COVID-19 on our business.

And other matters.

Should not rely on forward looking statements as predictions of future events. All forward looking statements are subject to risks uncertainties and assumptions that are based on management's current expectations and views as of today February 16, 2023 <unk>.

<unk> 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 reviewed 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 will also refer to certain non-GAAP .

The 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 count metrics, we define organic you mean customers under procure cons.

Tracks with that let me turn the call to TUI.

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 pro quarter I'm.

I'm incredibly proud 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.

Alright, so let's dive in.

Two things jumped out at me as I reviewed the results one we saw strength across multiple dimensions of the business and to 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, yes, we won more against them.

We believe this is a testament to our significant value proposition and the widening of our competitive moat as well as cementing <unk> as a clear leader in the industry.

Our market positioning technology and partnership with the industry continues to be recognized externally.

This quarter <unk> was named one of the 2022 top construction technology firms by construction executive and awarded the 2022 check Cares award by Trust radius.

Our achievements would not be possible without our employees, which is why I am particularly honored to share that <unk> was again recognized as one of glass doors best places to work.

I want you to know that as I reflect back in 2022, it's clear to me that pro Cortisol Amendment is only getting stronger.

Overall im 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 were aware of the mixed signals in the news and some economic reports as.

As we shared before I continue to stay close to our customers on this and overall customer sentiment remains positive.

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, well, we don't over index on any one of them in the aggregate. They can serve as a helpful data point.

This quarter, the Aaas architecture billing index experienced that decline.

Indicating softening business conditions for architecture firms.

Yet we saw many other construction indicators trend positively Dod.

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.

The ABC confidence index increase suggesting project backlogs remain robust and customers expect growth over the next several months.

In fact, the ABC as 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 remains 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 grow.

Dodge data and analytics recently released their 2023 construction outlook report.

And while single family residential and area that <unk> has limited exposure to is expected to decline Dodge predicts that sectors like multifamily data centers health care education, and infrastructure all of which broke or has a strong presence and 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.

And the AGC is 2023 construction outlook National survey, 16% of respondents noted that they have either bid on projects been awarded bids or 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.

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.

Turning 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 $19 50 <unk>.

In fact, some research has found that the value added per construction worker in 2020 was about 40% less than it was $19 70.

We believe the productivity gap in construction makes it abundantly clear just kind of massive the opportunity is ahead of us and how important technology will be in closing this gap.

<unk> 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 pro quarter.

We've always been committed to helping the industry drive efficiencies in order to meet demand.

One example of this as Gallup Mckinley County School District could became a new customer this quarter.

Gallup Mckinley is a school district in new Mexico that covers almost 5000 square miles.

Decades of lack of funding have created a huge backlog of major renovations at around 10, new schools that need to be built.

They were recently awarded significant funds from the state to help build these projects.

They have previously relied on manual processes with no project management system in place, but the lack of tools and processes have become challenging.

They selected <unk> to tackle their massive volume of work because of our mobile accessibility, our centralized data storage and are drawing functionality.

We continue to add specialty contractors with platform as well Steve.

Steel fab is one of the largest steel fabricators in the U S.

Frankie number one on <unk> 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 universities chemistry building.

Steel fab had been a longtime customer of a competitive solution and they were dissatisfied with a lack of feature functionality and customer support.

I am pleased to share that this quarter, they became a <unk> 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.

<unk> is a French multinational energy solutions company and their North American Division has been using pro forma for the past several years.

This quarter they are renewables global business unit, which operates in France and is focused on solar fields in wind farms around the world launched a global RFP.

Thanks to our proven use case in the U S. They chose to expand with pro for brokers, helping them drive efficiency gains improved 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 concept that we've been focused on internally.

To me this means continuing to drive durable growth on the topline, while showing improvements to our profitability profile.

Historically, we've ticket typically delivered one or the other from significant margin expansion in 2020 during COVID-19 to investing over the last two years to Reaccelerate growth.

We believe the business has reached a level of scale, where we can accomplish both delivering growth while showing efficiency.

I want shareholders to know that efficient growth is the mantra. We are instilling in the DNA of pro <unk>, we discuss it at every chance we get at the leadership team level and within employee all hands 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.

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, Sara Hodges will be joining as <unk> first ever Chief marketing officer.

Sarah brings deep domain expertise in marketing for the construction industry and a strong background in product management <unk>.

Her experience within go to market improving business performance as well as their thought leadership within the construction industry will be invaluable to <unk>.

Second I want to extend my congratulations to Paul as you've likely seen we've just announced the poll will be assuming a new role at <unk> as president of Fintech effective in early may.

This decision is the culmination of years of discussion between Paul and myself and the board now.

Finding the right leader to take our Fintech initiatives from launch to growth mode.

This is an area of the business as Paul is incredibly passionate about and is uniquely suited to lead <unk>.

Paul is one of our strongest operators and he is the ideal blend of industry knowledge and pro core expertise.

And Paul's nine years here. He has been instrumental in scaling our business for just a few million dollars in revenue to over $700 million today.

I also want to call out the Paul also led <unk> through our successful IPO.

Personally I am thrilled for Paul to pursue this next chapter of leading a critical growth opportunity for <unk> and I'm really excited about our continued partnership and solving constructions biggest challenges.

And on that note I'd also like to congratulate Howard food, 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.

It is a true technology finance leader at SaaS industry veteran and has been operating as Paul's natural successor, since you joined <unk> two years ago and.

In that time, he has 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. It 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 <unk> long term success now.

Now I'd like to hand, it over to Howard to say a few words.

Thank you for the kind introduction Joey Thank you Paul for your leadership and impact <unk> had on per quarter over the years.

I've seen firsthand, how you built such an incredible team strong operations and a company that will last.

It's because of the close Mentorship and guidance, you've given me over the past two years, but I'm well prepared to take the baton and build upon the foundation you've set for <unk> future.

To our shareholders.

I know many of you over the past couple of years and look forward to working closely together in this new capacity.

I am excited and energized by the chance to continue helping pro forma reached new levels of success.

The size of our opportunity.

Value <unk> brings to customers and our people first culture are undeniable differentiators.

As CFO I will continue to work closely with Tuohy, Paul and the rest of the leadership team to advance our vision to improve the lives of everyone in construction.

And to support our next phase of efficient growth.

With that let me turn the call over to Paul to discuss our financial results.

Thanks, Howard and thank you two weeks for the kind words I'm incredibly excited to be taking on this new role as president of Fintech and early Matt over my nine years at <unk> I've always felt that my role was to find the place where I can drive the most value to procure and our long term vision. Since my early years of progress. It has been clear that our data is are you.

<unk> asset that would play a big role in our long term strategy.

Just as we discussed at Investor day, with our expansion to a global platform company with multiple products, serving multiple stakeholders pro forma was ready to start making early investments in its future opportunities around fintech fin.

Fintech is an area I have always been passionate about and believed my experience at <unk> put me in a unique situation to help build.

With this in mind I started planning my succession, a few years ago to ensure we had a strong bench of candidates internally.

This made pro course search for our SVP of finance critical.

When Howard joined <unk> two years ago, he brought with him more than 20 years of experience building finance leadership positions at companies like visa Salesforce Linkedin and most recently Dr.

Having worked closely with him over the past two years I know he will continue his excellent partnership with TUI, the executive team and our board.

Full conviction that Howard is the right person for this role and as <unk> described we believe these changes align our best leaders to the right opportunities, which all employees customers and shareholders will benefit from.

Now onto our results we delivered another strong quarter, which is a continuation of the consistent performance. We've demonstrated since late 2021 today I'll recap, our Q4 and full year results provide some color on our performance and conclude with our outlook.

Revenue in Q4 was $202 million.

38% year over year for the full year revenue was $720 million up 40% year over year. This includes a $9 million contribution in Q4, and a $32 million contribution in 2022 from levels that <unk>.

Excluding levels Thats contribution our full year revenue grew organically by 35%.

Please note that Q4 represents level set fifth quarter as a part of protocol. Therefore Q4 is the first quarter, we no longer benefit from their contribution within our topline growth rate.

Also note that revenue contribution from our material financing program remains a material. Therefore this program has not been a growth driver to the business in 2022, rather it's a long term opportunity. We are excited about that is still in the early stages.

Moving onto expenses non-GAAP operating margin in Q4 was negative 8% for the full year non-GAAP operating margin was negative 10%.

Total <unk> was $798 million with short term RVO, representing approximately 70% of that and growing 34% year over year.

Overall I am very pleased with our Q4 results you may recall from my remarks last quarter that Q3 benefited from large deals representing several million dollars in new bookings that closed in Q3 that were originally anticipated to close in Q4, given that our strong performance in Q4 is particularly notable in the context of Q3 being a challenging <unk>.

<unk> comparison period.

Throughout 2022, which was a volatile time for so many others cohort delivered short term RPM growth in the low to mid thirties organically and consistently this is a testament to our ability to execute and reaffirms the analogy I've referenced in the past that our business is akin to an oil tanker durable and steady for the long haul.

I'd like to take step back and share some color on our performance.

First this quarter, we saw momentum across multiple facets of the business specifically.

Specifically, we saw particular strength in general contractors, and larger enterprises and exceeded our pipeline targets this quarter. This.

This is another positive indication that even in the midst of external uncertainty we continue to see healthy demand across several areas of the business.

Naturally trends are influenced by their respective comparison, Gary while this Q4 was our largest and best new bookings quarter ever 2022 was more linear versus 2021, specifically Q4 of 2021 had a larger proportion of new bookings in that year due to the impact of Covid in the first half of 2021.

Ultimately, we continue to recommend that shareholders evaluate our performance based on short term RPM growth, which has proven to be the best indicator for future revenue for our business.

At our recent Investor day, we demonstrated just how closely correlated short term RPM growth is through revenue growth.

In fact in 2022, we grew total bookings slightly faster than short term RPM, which demonstrates the accuracy and reliability of short term RPM growth.

While our customer count growth of 19% was consistent with prior periods. We saw a sequential drop in net new customer adds from Q3. This was in part due to the 189 customers. We integrated from prior M&A in Q3, as well as higher churn within our smallest paying customers that said dollar churn perform.

As expected and expansion activity exceeded our expectations.

The combination of these factors is evident in our gross retention rate holding at 95% and net retention rate improving sequentially.

And finally similar to last quarter, our Q4 international results were impacted by currency headwinds on a year over year basis FX contributed approximately eight points of headwind to international revenue growth in Q4.

Therefore on a constant currency basis international revenue grew 37% year over year. Additionally.

Additionally, as <unk> mentioned, we have begun to execute on our plan to Reaccelerate international growth I want to reiterate that resolving these internal dynamics will take time, but ultimately we expect to see this trend reverse by the end of the year.

Before I turn to outlook I'd like to take a moment to elaborate further on what efficient growth means to procure.

As you heard from TUI. This mindset is something we're instilling across the leadership and employee base.

As we discussed at our Investor Day, we believe <unk> should be able to continue growing while improving our margin profile incrementally each year as.

As we also shared at our Investor day. The work, we've done and investments we've made over the last five or so years were critical in enabling us to stand up new stakeholder markets launch new products expand globally and multiply our Tam.

With a $1 billion of revenue in our line of sight. We believe we have reached the degree of meaningful scale and have built the foundation to sustain growth, while expanding operating margins free cash flow and ultimately improving per share metrics going forward.

We are measuring and intend to improve everything from revenue per employee to free cash flow per share.

We would like our fellow shareholders to know that this is a priority for us and we look forward to delivering upon this in the coming quarters and years.

Which brings us to our outlook in terms of our guidance philosophy, We said our revenue guidance at a level that we have a very high conviction, we can deliver on and almost any environment, though we do not optimize for a consistent magnitude of upside to that guidance.

We are taking a prudent approach and are factored in continued external uncertainty and potential for weakness in the economy.

To be clear, we have experienced minimal external impact on our financial results today.

So here's our guidance for Q1 and full year 2023.

For the first quarter of 2023, we expect revenue between $202 million and $204 million representing year over year growth between 27% and 28%.

Q1, non-GAAP operating margin is expected to be between negative eight 5% and negative 90, okay.

For the full year 2023, we expect revenue between $895 million and $900 million Rep.

Representing year over year growth between 24 and 25%.

non-GAAP operating margin for the year is expected to be between negative six five and negative seven 5%.

This represents 350 basis points of improvement from our non-GAAP operating margin in 2022, which.

Which is consistent with the trend line of improvement. We described at our recent Investor day, and reflective of our commitment to delivering greater margin efficiency at scale.

With that I'd like to close out by again thanking our customers the construction industry, our partners employees shareholders as well as the communities we serve for giving US this opportunity now, let's turn it over to the operator to begin the Q&A.

Thank you if you'd like to ask a question. Please press star followed by one on your telephone keypad. If for any reason you would like to remove the question. Please press star followed by two again to ask a question press Star one.

Reminder, if youre using a speakerphone. Please remember to pick up your handset before asking your question, we will pause briefly as questions are registered.

The first question is from the line of breakthrough with Jefferies. Your line is now open.

Hi, This is love soda on for Brent Thill.

Thank you for taking my questions.

First congrats to Paul and Howard.

Promotions.

Maybe first I'll just kick off.

Just wanted to get your sense in terms of new versus contribution from existing customers.

At the Investor Day, you guys showcase the slide where you can get 50% more growth from existing customers. So.

Going forward, how should we think of contribution from new versus existing customers.

Yes, So I think we mentioned this but very happy by the way love criteria voice.

The.

Happy with the results in Q4, especially on our ability to expand with our customers and I'll tell you that that is just a true testament to not only our ability to capture more construction volume, but provide more products to them to add all the value that they need and so I'm incredibly proud and theres a lot more work to do here, but it's an area of strength.

Yes, as we shared at Investor Day was one of the things that we really love about this business is that when you look at the contribution that come from new customers versus expansion. It was very much near $50 50 kind of it was 50 50, we believe that as we go forward, we may see movement here or there, but in general that we've got so much room still within the expansion Bay, but at the same.

Time, there is such a massive greenfield of new logos that we don't expect that that contribution mix will change to weekly.

Got it and a quick follow up Paul for you I guess on the guide revenue guide for next year.

Just wanted to make sure what assumptions youre, making in there could you just level set us.

Assuming macro stays the same or does it worsen.

Any color there would be helpful. Thank you.

Yeah, so similar to the prepared remarks in general our guidance philosophy has not changed our guidance philosophy for some time now as Dan that we are guiding to a number that we believe we will hit even if the macro environment deteriorate. In this case, we're not seeing that and so we are definitely being prudent in that guide the one thing to take from the prepared remarks.

<unk> is well, it's just that we aren't optimizing for particular upside in that guide we are optimizing to ensure that the numbers we share with you all we can hit in almost any environment.

Got it perfect. Thank you.

Thank you for your question.

The next question is from the line of Kelly <unk> with Barclays. Your line is now open.

Okay, Great Hey, good afternoon, guys. Thanks for taking my questions here.

Thanks.

Hey.

Maybe we'll just start with you listen really straightforward quarter and guide.

Maybe just hit on one topic from from from Analyst day and from the user conference around pro core payments, obviously still very early but but maybe question for you to use can you just talk about some of the initial customer reception that <unk> gotten from the beta there with that product in and whats going to be the.

Profile of some of the early adopters there.

Yeah, well and by the way the second just gives me a good kind of excuse to explain to everyone. How we build software program.

We have been working very closely with a with a certain group of folks that are our biggest customers to try to come up with a solution that is right for the industry and this has been a long time coming.

So.

We are well on our way.

Those are the folks that we're primarily focused on at the beginning are general contractors and the enterprise down to the mid market all of which have the need to have a payments platform.

I will tell you that the customers I know that had been involved in the.

Helping us to get there. They are very excited about where we're going with this and they can't wait for it to be launched at the end of this year.

Got it got it that's really helpful.

Paul maybe a few first off congrats to you and Howard on on your respective transitions glad.

Glad we're keeping a family business, let's say.

Maybe the [laughter] maybe the question for you Paul is.

How do we think about the investment in international as part of the margin expansion. This year right. I mean, I think at analyst day. There was a really interesting slide that showed that outsized investment in international versus versus a revenue contribution that is still scaling how do you think about that relationship changing here.

In fiscal 'twenty three if at all.

Yeah, I mean, here's what's really exciting for us when we think about our current guide, where we're showing 350 basis points of improvement year over year that is largely not a result of the international right that is just continued efficiencies across the business now I will tell you international is not a monolith chewy likes to say either and so you should think about different countries being different.

The more mature markets are showing more efficiency gains, but in general it's still very early stages, there and so we do believe we're going to continue to need to invest there, but that we will continue to show more and more progression as time goes on and we get more mature in those markets.

Makes sense thanks, guys.

Thanks, Doug.

Thank you for your question.

The next question is from the line of Sterling of TUI with SBB. Your line is now open.

Hey, Thanks, Hi, guys, Paul Congratulations Howard Congratulation to me, maybe the diverse you've been proactive with some of the management changes, especially.

Especially over the last two years can you give us an update especially in the impact of some of the sales leadership management changes that you've made and maybe just the productivity that you're seeing is it tracking in a direction that.

That you want at this point.

Yes, thanks Sterling by the way I, apparently you've changed your last name.

Yes so.

So here's something I am incredibly proud of.

I wanted to kind of zoom back out.

I've always kind of been very happy with the fact that we've been able to put the right leaders in the right position at the right time to get us to the next level of growth and.

That includes the folks who got us to where we are today, but as I had been building. The leadership team for this next phase of growth, where I think about it from we have line of sight to $1 billion of revenue to $5 billion.

<unk> been very intentional I think as you know as to how do we get the right players in place to get us there.

I will tell you that the over the last quarter or so seeing that came in general gel has been extremely rewarding for me. There is a lot of pattern recognition. There's a lot of previous experience that's been brought.

That's really helping us.

A lot actually.

On the sales side.

We have been very focused on making sure that we have.

The right people in place and so far I would tell you that the team has been very performing.

And Theres really nothing to report there.

No that's great to hear and then one follow up question as you look at 'twenty. Three can you give us a sense of what your intentions are around managing head count and head count growth as we've seen so many companies laying off maybe not from a position of strength.

What's your intention.

Yes, so we are being very intentional and trying to be very thoughtful as to our hiring strategy.

The headline is that we are going to continue to hire through the end of the year.

We are going to be very focused to make sure that we have the.

The quota carriers online in order to make our numbers, but ultimately what I wanted to kind of stay to everybody is that we're being very intentional here because of that the concept of nutrition growth.

So we're making sure that every head that we add is absolutely necessary in order for us to meet our objectives.

Yeah.

Makes sense. Thank you.

Thank you.

Next question.

Operator next question is from the line of DJ Hynes with Canaccord. Your line is now open.

Hey, how are you doing guys.

Congrats that everyone else has shared.

Paul maybe just given kind of your forthcoming transition on the Fintech side of the business maybe I can just ask you like a wildly open ended question like what excites you. The most about the opportunity on that side of the house.

Yes, no I appreciate the question.

As I shared in the prepared remarks, one of the things that has just been so great about my journey at <unk> now gone through several transitions is that I've always found my role to be where can I drive the most value and the truth is when you look at the finance operations, you've got you're such an amazing leader in Howard in such a strong bench there and as we look forward, we talked about this a bit.

Investor Day, we see such a big opportunity, whether you look at the Tam the market opportunity the pain that our customers feel the need that is out there. We're just that unique position we're in with our massive going to market in our phenomenal data set that I just can't wait to go back to being able to really think about building that strategy, helping to scale something.

And finding new and innovative ways to solve problems and frankly, I'm, just humbled and grateful for the opportunity.

Yes.

Youre a perfect fit for it so big things to come.

And then look we just lapped level set right, which is the big lots of big kind of inorganic bite that you guys took how are you thinking about M&A kind of rounding out the strategy in 'twenty three what are you seeing out there in terms of opportunities valuation expectations any high level commentary would be interesting.

Yeah.

Yes look I think right now we feel really good about the depth of our product portfolio. We feel like we still have more work ahead in terms of just the areas we want to drive our own business value that we are certainly always staying close to our partners to benefit of our app ecosystem and what we have built in terms of our community instead, we have incredibly strong relay.

<unk> chips for these folks continue to drive more and more partnership, but you shouldn't look to us for doing any meaningful acquisition anytime soon.

Perfect. Okay, great. Thanks, guys congrats on the results.

Thanks C J.

Thank you for your question.

The next question is from the line of Brent <unk> with Piper Sandler Your line is now open.

Thank you good afternoon, Paul Congrats rarely have we seen.

Folks go from outside investors to Corp, Dev to CFO to now president of Fintech.

Over a nine year period look forward to seeing what what else you can kind of bring.

Going forward is now president there Howard look forward to working with you to me I wanted to start maybe with you just as we think about the composition of of the construction business. The durability of the business I think investors have been a little more nervous going into this year around maybe a slowdown in the resilient residential slowdown in commercial <unk>.

Buildings, but if you look at that Dodge construction index forecast that we are seeing big shifts in highway highways and bridges hospitals schools are you seeing that mix shift in your own business.

In Q4 or is that still yet to come relative to the pipeline and RFP activity Youre seeing so far in the first half of the year. Thanks.

Yes, absolutely Brian So I'll tell you. This from the perspective of our customers, who I talk to who are actually the ones that are managing the mix of their portfolio of work.

They are always looking at the current environment trying to figure out where the puck is going to go and make sure that they've got the right people in place and the job setup for that.

I guess, maybe one way I would look at it as a lot of the folks I'm talking to are setting up like alternative energy divisions or whatever just specialize in those projects that are going to come online.

And the anticipation that those dollars are coming so there is a little bit of that but our customers are always managing their mix of portfolio and it has nothing to do with the macro today, that's just how they look at their business.

And so it's not unusual for them to be looking at areas of growth and also kind of investing in areas that are soft softened and weekend.

And maybe the only thing I would add is that you've heard us talk a lot about this over the years that the industry is not a monolith that that's.

All about looking at the overall growth and understanding that there will always be a shift there and if anything I think what you're seeing right now Brent is that playing out in real time, where youre seeing different pockets of the industry see some weakness while different pockets excel and really grow and that is what's so great about our business and our industry is it's very diverse and it gives us that.

Flexibility in different times.

Great and then just one last quick follow up here for maybe Paul or Howard on a free cash flow. If I look back. This is a business model has generated positive free cash flow two out of the last three years, obviously, you've made some investments here internationally last year.

But as you think about on a go forward basis.

How should we think about the free cash flow generation, obviously, you gave us the op margin.

Yes, so like we've talked about before the free cash flow margin improvement should be a little bit ahead of what we see in terms of our operating margin improvement trajectory of 350 basis points on average per year of course free cash flow is not something that we officially guide, but we do manage to overall.

Free cash flow on an annual basis internally and it's a very.

Focus metric that we have both in terms of magnitude as well as on a per share basis. So it's something that we are absolutely focused on continuing to improve.

Helpful color. Thank you.

Thanks, Brett.

Thank you for your question.

The next question is from the line of Adam Borg with Stifel. Your line is now open.

Awesome, Thanks for taking the questions and I'll Echo congrats.

Paul in for Howard.

Maybe just level set.

A little bit over a year since that acquisition closed in.

I guess I would just love a broader update on how that's performing relative to expectations in the <unk>.

Upsell cross sell opportunity that Youre seeing and then I have a follow up.

Yeah happy to touch on that one in general we continue to see the progress they are chugging, along well as we've talked about in the past when we did the acquisition. It is important to remember there were a number of different facets that really drove that the biggest ones being around our opportunity to really go out there and accelerate our path to payments, bringing in the compliance workflow.

Into that solution that we had already built around invoicing and you've seen that continue to progress we feel really good and we've shared what we shared a groundbreaking as to a charity has gotten a lot of positive feedback from our customers. The other areas around data material financing fintech. Those were areas that were really exciting for us we continue to invest in those areas, though very early.

We do continue to believe there's huge opportunities that so overall, we feel that the integration has gone. According to plan and that there is more to come as we finish up the payments out.

I'd also it dovetails very nicely with the fact that we.

We now have integrated a lot of this already in the protocol and so now it's time for a leader to come in and build on that foundation and launch us into growth mode and Thats. One of the reasons why now is the time for Paul to take on this role.

And also I do want to point out that I <unk>.

Wouldn't be this confident in this move if I didn't have a great relationship with Howard he both as a great partner, but also challenges me on where I need to be challenge, which is what you want in your dynamic between your CEO and CFO right Howard.

Yes, I think this is a testament for why it's time for Paul to take the helm.

That's awesome and then maybe just as a quick follow up just on the demand environment for the first six weeks of 2023 any changes that youre seeing here relative to the trends, we just talked about in the December quarter. Thanks again.

Yes, no nothing nothing significant to report nothing that has really been changing I will say that the.

The sentiment that the customers I talked to us remains very positive and optimistic going forward.

Backlogs do remains strong so we are feeling pretty good.

Great. Thanks again.

Yeah.

Yes, Thanks Adam.

Okay.

Thank you for your question.

The next question is from the line of <unk> Becker with William Blair. Your line is now open.

Hey, gentlemen, thanks for taking the question and I'll Echo the congrats for Paul and Howard maybe just digging on.

The backlog commentary you've called out in the broader macro landscape understanding that provide visibility for the next several quarters, but are you seeing any dynamic from the pre construction side, obviously youre looking to drive efficiency enabled these.

These contractors to work through those.

Backlogs quicker.

But at the same time, how theyre thinking about <unk>.

Positioning for for this next leg of growth in replenishing that activity.

As they see fit have you seen any.

To elaborate on any of the puts and takes from the backlog side that you guys are seeing.

And nothing to report, but I will tell you, though the analog that I think we should all think about is that all of our customers that I talked to you. They have all of this work, which obviously is part of their backlog.

And so therefore, it and they only have a certain number of folks that they can deploy to do these projects and so there is a constant governor on the amount of work that they can flow through their business.

And so theres not a lot, but they can do in order to increase that flow, but to your point.

There has been a realization not just because of the macro but this has been over the last three or four years that Preconstruction is where all your money is won and lost on the project and so a lot of effort is being put on that and and the cool thing is because you can't they can't put more people to work.

Cohort provides them the ability to do more with less people right.

Note that we had in the earlier stat was it broker enables our customers to run about 50% more construction volume per person, which gives them a force multiplier to be able to create more throughput and revenue.

Got it that makes total sense.

Wonder as well too and maybe this is too a year, Paul but to the extent.

Of digital twins can solve as the adoption driver and maybe a potential expansion opportunity area for you guys. As you think about that data connectivity.

<unk> the owner of sub segment right.

Thinking about moving from just that initial build phase.

All the way through to the operational phase of those assets.

I guess, how do you think about that is that serving as a tailwind to adoption or maybe is that an incremental monetization opportunity down the road as well. Thanks.

In General I think when we think about the digital is growing we're all like it's early days still it's something that we believe can be really excited over the longer period of time, but it is an area for us today that we really look to partner with different players out there. We have a number of really great partners in our ecosystem that focus on this it fits for us goes back to understanding where we.

We want to put army focus and energy in ensuring that regardless of if we deliver that solution that we are tightly integrated to solve these problems for the customers and at least with respect to digital twin and Thats, where our focus is and you may know this but I just so everyone else knows the digital twin can't live like.

<unk> generated without all the information that pro core systems like broker generates.

We are a huge input to any digital twin strategy. So over time, you can imagine that that might be an area of interest for us, but thats over the over the horizon.

Super helpful. Thanks, guys.

Thank you.

Thank you for your question.

The next question is from the line of Ken along with Oppenheimer. Your line is now open.

Okay.

Great Fantastic. Thanks for taking my question.

One for you Paul and then I'll follow up with <unk>.

You guys consistently pointed out the IPO is the best measure for our topline and another strong showing at 34% can you just remind us kind of what are some of the consideration that keep your revenue growth from lining up closer to <unk> as your guide is nearly conservatism or kind of what else could be.

In consideration that keeps you cautious.

Yes look I would reiterate what you had said <unk> remains the best metric to track, we had a slide at the Investor day.

Home.

As always Theres, a number of puts and takes that go into it but in general I would tell you the way to think about it is that go back to the commentary you made around the wide philosophy and understanding that today. What we are very mindful of when we think about our guide philosophy is that regardless of almost any environment and we are and that we can deliver on that.

And that is the way we think about the distinction.

Got it okay perfect.

Then to the international side, just wanted to kind of make sure that.

Understood.

As far as product and as far as people and leadership do you feel that is all squared away.

Far as being able to get to market on the international side, and it's just a matter of execution and seeing demand come in or are there are still pieces that you still need to put in place.

Get get get get get the rate started.

Well.

The fundamentals are that we are we've done an org design change, which is actually going to drive.

More productivity we believe.

And ultimately there are other things that we.

We're planning on doing but.

We are feeling very optimistic about what's going on in the international markets.

And I just have to reiterate this because I get this question all the time.

It is strictly in our opinion and internal operating challenge not an external macroeconomic challenge and actually you may ask the question like how do we know that when we actually look at all the territories in which we are selling.

And we and we can see that in each one of the territories, we are highly productive and successful sales.

But we also have newer reps.

<unk> does not ramp yet that are having a little bit more of a challenge. So we believe that getting our.

Our reps more ramps more rapidly as well.

One of the keys to us driving success.

Sure.

Got it okay perfect. Thanks, a lot guys great job.

Sure. Thank you.

Thank you for your question.

The next question is from the line of Nick <unk> with Scotiabank. Your line is now open.

Awesome, great. Thanks, guys.

I wanted to talk about the seven figure deal count was up 100% year over year, which is very impressive.

Can you maybe just talk about what's driving those large deals.

Is it you are landing at a higher ACB with customers upfront is it more multi product adoption as it did in a specific geo just any incremental color on what's driving some of those large seven figure deals I think it would be really interesting.

Yeah, I think what we're seeing is this is just the evolution of our brands right instead of customer starting with a small amount of construction volume on one product.

Of the health of our brands.

We were able to land accounts for the much larger.

Stan.

Amount upfront.

Which I think is leading a lot to it but also we.

We are really resonating with the enterprise customers because of our platform strategy and all of the data that we have so.

<unk> believes that there is a.

Multi factors here.

Awesome and then just.

Another one Paul congratulations on the new role and I Love to talk about it and you guys kind of already addressed this earlier, but.

In your prepared remarks, too we noted earlier that.

This is the move you guys have been contemplating for years and it's something that you've been passionate about for a while you guys have talked about how you are constantly talking with customers around product road mapping.

With some of these fintech initiatives. So is the decision to become the president of Fintech now is that more related to what youre hearing from customers seeing some of those industry specific pain points actually get worse or youre, just seeing sort of heightened demand for some of these fintech initiatives just any incremental color you can give.

On why now I think it would be really helpful. Thanks.

Yes.

I would actually Italian has more to do with the evolution of <unk> business. This really goes back to that commentary, we made at Investor day talking about the chapter of starting the journey that cohort has really been through the investments into the expansion to new markets, new stakeholders, new products and the massive set of data that we've built over that period of time, putting us in a position.

We're ready to really go tackle this problem.

Would not tell you that risk and working capital as a new problem for the industry. It has been around for as long as we can pick up and therefore this is the pain that customers have always had this is more about being in a position to really finally go after and address that pain and because of our data strategy and the platform that we have we are now uniquely suited to solve.

These problems.

Prior to this I don't think these problems could've been solved in a way that it was meaningful so the timing was perfect.

Awesome. Thanks, guys.

Yes. Thank you.

Thank you for your question there are no additional questions waiting at this time, so I'll pass the conference back to the management team for any closing remarks.

Thank you to everybody talk soon.

Yeah.

That concludes the conference call. Thank you for your participation you may now disconnect your lines.