Q1 2023 Procore Technologies Inc Earnings Call

Speaker 1: Good afternoon everyone. I would like to welcome you all to the Pro Core Technology Think 4-year 23Q1 Erning School. My name is Breaker and I'll be your event specialist operating today's call. After the speech presentation today, you will conduct a question and answer session.

Speaker 1: To ask a question at this time, please press star then 1 on your telephone keypad. If you change your mind and would like to withdraw your question, please press star 2. And if you need operator assistance at any point today, it's star 0. Thank you. I would now like to turn the conference over to...

Speaker 1: Matthew, please.

Speaker 2: So, Matthew, please go ahead when you're ready. Thanks. Good afternoon, everyone. Welcome to ProCourse 2023 First Quarter Learning School. I'm Matthew Plees, VP of Finance. With me today, our two-week-order, founder, president, and CEO , Paul Leandress, CSO, and Howard Foo, FACI-B of Finance. Further disclosure of our results can be found in our press release issue today, which is available on the Investor Relations section of our website and our periodic reports filed with the SEC.

Speaker 2: Today's call is being recorded and a replay will be available following the conclusion of the call. Common statements on this call may include forward-looking statements regarding our financial results, products, customer demand, operations, and macroeconomic and geopolitical conditions. You should not rely on forward-looking statements as predictions of future events. All forward-looking statements are subject to risks and certain needs and assumptions and are based on management's current expectations and views as of today, May 3rd, 2023.

Speaker 2: We'll also refer to certain non- GAAP financial measures to provide additional information to investors. A reconciliation of non-gap to gap managers is provided in our press release. And with that, let me add it to Tilly. Hey, thanks, Matt. And welcome, everyone. And thank you for joining us today. I'm going to begin by expressing my sincere gratitude for the team's hard work to deliver RQ1 results. So let me dodge straight in and share a few highlights from the quarter.

Speaker 2: We saw this with a small portion of our customers that came up for renewal in the quarter. Let me give you a hypothetical example, which I believe will help illustrate this. Imagine that you're a construction company here in the U.S. You're hearing in the news about a potential recession and difficulty obtaining financing. But you're also reading about new government spending, record employment, and on top of that, you have a fully committed project backlog, which means that you have secured work for the future and are not necessarily concerned about the future pipeline and jobs.

Speaker 2: These next signals may be confused and naturally lead you to be more cautious. Just in case your business takes the turn for the worst.

Speaker 2: Paul will elaborate further on these points later. They help illustrate why it's important to take each individual data point in context and to look at all of the internal and external indicators in aggregate to gauge the overall health of the industry. Another nuanced topic investors regularly bring up is the commercial real estate crisis and its impact on office construction. Let me be very clear. We did not believe that this is a notable headwind to our business for two reasons.

Speaker 2: First, office construction has been muted since 2019, and largely did not contribute to our success over the past two years.

Speaker 2: Second, office construction represents only a small percentage of the overall industry. Historically we've described the construction industry as commercial, infrastructure, and residential. This has created some confusion because folks often mistakenly equate office buildings with commercial construction.

Speaker 2: Great place to start is with the US Census Bureau's definitions for construction spending. The highest level they break down the construction landscape between residential and non-residential. Within non-residential there are over 70 subcategories, cross-logging, commercial, health care, education, office buildings, public infrastructure, transportation, and much, much more. To give you some perspective, office buildings comprise less than 5% of the total US construction value put in place in 2022.

Speaker 2: As I've shared before, when demand in one sector wanes, oftentimes demand in other sectors grow. And while some areas within non-residential, like office buildings, have been impacted for a long time, more recently we have seen healthy growth in other areas, such as manufacturing, education and data centers.

Speaker 2: Longer term, we also anticipate seeing further tailwinds from public infrastructure spend.

Speaker 2: Ultimately, our customers manage diverse portfolios of work, and they will go to where the demand is.

Speaker 2: This is why when investors ask me about commercial real estate and office construction, my answer is more holistic.

Speaker 2: It's the aggregate construction volume and overall demand that matters most.

Speaker 2: While the broader environment continues to evolve in the near term, what is clear is that in times of uncertainty, customers prioritize efficiencies in the construction process.

Speaker 2: Let me share a few examples, starting with a new specialty contractor customer. Tri-City Electric Company of Iowa is one of the oldest and largest electrical contractors in the US. They work on a diverse portfolio, spanning the industrial, commercial, multi-family, and sports markets. Their legacy solutions lack the functionality that they required, and as a result, their field staff pushed for a change. Upon evaluating ProCorp, Tri-City Electric estimated that ProCorp could help them save over 300 hours per week in labor hours.

Speaker 2: Over the course of our partnership, they continue to add new product offerings and expand construction volumes, including billions of dollars in construction value for two major hotel casino resorts this quarter.

Speaker 2: They plan to leverage our continued partnership to secure additional large-scale projects throughout Las Vegas.

Speaker 2: In addition to general contractors, we continue to expand with owners. You know, I mentioned earlier that data centers are an area within non-residential construction experiencing continued growth. Vantage data centers is a leading provider of hyperscale data center campuses around the world.

Speaker 2: Over the past five years, they have grown exponentially to become a global operator across North America, Amia, and Asia-Pacific. Having been a pro-core customer in each of these regions, this quarter they committed all of their construction volume to us globally to manage the execution and financials of their projects.

Speaker 2: Previously, they've been using project management, quality and safety, and analytics globally, and testing out our financials and ERP connector products in each region. As part of this expansion, they are now using financials globally and are actively evaluating additional broker products. These customer relationships underscore the value our customers...

Speaker 2: goal of helping our customers manage risk and accelerate growth.

Speaker 2: In March, we announced the launch of Procore Risk Advisors, one of our fintech initiatives aimed at solving one of the construction industry's biggest challenges and largest upfront costs, insurance.

Speaker 2: As a reminder, insurance and construction is complicated, cumbersome and expensive.

Speaker 2: All stakeholders on a project are contractually obligated to have relevant coverage for each individual project they work on.

Speaker 2: Insurance brokerage processes are still highly manual and time consuming, and insurance carriers lack visibility into new sources of risk data to properly select and price risk, which means construction as one of the most expensive insurance costs as a percentage of the industry's revenues.

Speaker 2: typically comprising multiple percentage points of a project's budget across all of these stakeholders.

Speaker 2: This represents a great opportunity for ProCore to help solve one of our customers' biggest pain points. ProCore risk advisors is a modern construction brokerage that offers enhanced insurance and surey solutions.

Speaker 2: Ultimately, ProQo will serve as a broker and in some cases help underwrite a subset of our customers' policies by leveraging our unique risk data.

Speaker 2: We aim to reward our customers for leveraging our technology and data to mitigate risk by providing them with better insurance pricing and terms.

Speaker 2: But to be very clear, ProCorp is not incurring any exposure to insurance claims with this program. The program is not incurring any exposure to insurance claims with this program.

Speaker 2: We believe that we are uniquely positioned to solve this challenge for a couple of reasons. First, we developed a trusted brand with over 15,000 customers and millions of users.

Speaker 2: Given its valuable access to and relationships with the construction industry. Therefore, we have a unique opportunity to expand our platform solutions.

Speaker 2: enabling a virtuous cycle of product adoption. What I mean by that is the more product lines and the higher adoption a customer has, the more data they generate that can help them drive insurance savings.

Speaker 2: And second, our customers generate proprietary data that we can leverage to help them obtain favorable terms, as well as enable us to offer proprietary insurance programs.

Speaker 2: This can also help our customers realize direct and tangible value from adopting ProCore in the form of insurance savings.

Speaker 2: initiative, we do look forward to sharing our progress as we continue to evolve and grow this offering.

Speaker 2: Finally, many of you know that effective next week, Paul's gonna be starting a new role at ProCore as the president of Fintech, and he will be passing the CFO torch on to Howard.

Speaker 2: Look, personally, I want to just take a moment and thank Paul for his tremendous leadership and partnership over the past four years as CFO , helping to scale the business to where we are today. And I am thrilled to continue to partner with him to help unlock further value for our customers in his new role as president of Vintech.

Speaker 2: I also want to take a moment to welcome Howard as our new CSO, and I look forward to working more closely with them as we continue to scale.

Speaker 2: on executing on the long-term opportunities in front of us, and advancing our mission of connecting everyone in construction on a global platform.

Speaker 2: I believe our close partnership with the industry, the exceptional team we have in place, and our commitment to solving the biggest challenges in construction will create significant value for our customers and shareholders over the long term. With that, let me hand it over to Paul.

Speaker 3: Good afternoon everyone and thank you to you for the kind words. As Tui indicated, today marks my last earnings call as CFL. It has truly been a privilege working with all of you and I want to thank you for the partnership as I embark on my next chapter at ProCore, leading our Fintech organization. Now, on to the quarter.

Speaker 3: Today, I'll quickly recap our results, share some color on our performance, and hand it over to Howard to conclude with our outlook.

Speaker 3: Revenue in Q1 was $214 million, up 34% year-over-year. Our non-gap operating loss was $4 million, representing an operating margin of negative 2%.

Speaker 3: And our key balance sheet metrics, specifically short-term RPO and short-term deferred revenue, should be growing 30% or greater year over year.

Speaker 3: Our Q-1 performance was well-rounded in that we saw growth across multiple facets of the business.

Speaker 3: I'd like to take a step back and share some additional color on our performance. First, you may recall back in Q4, we noted a sequential drop in net new customer ads from Q3, primarily driven by higher logo churn within our smallest customers. As we shared, this did not have a material impact on our performance.

Speaker 3: As Tui mentioned, this quarter we started to see a small portion of our customers exercise in cautiousness in their construction volume commitment.

Speaker 3: Although this wasn't apparent in our financial results, in the interest of transparency, we wanted to provide some color on what we saw.

Speaker 3: We believe this reflects a heightened sense of conservatism within a minority of customers only committing volume for work that has already been awarded.

Speaker 3: Despite this, we still saw an increase in the share of our customers growing construction volumes within ProGor, representing the majority of our customer base.

Speaker 3: As Howard will explain shortly, our previous and current outlook already factor in the potential for cautious customer sentiment. Similar to prior quarters, our Q1 International results were impacted by currency headwinds.

Speaker 3: On a year-over-year basis, FX contributed approximately 8 points of headwind to international revenue growth and 1 point of headwind to total revenue growth.

Speaker 3: Therefore, on a constant currency basis, international revenue grew 35% year over year and total revenue grew 35% year over year.

Speaker 3: And finally, over the past few quarters, you've heard us reference our pursuit of efficient growth and how this is being instilled across the organization as a priority we need to improve upon. This quarter, we saw this mindset manifest in the business.

Speaker 3: Specifically, our lower expense profile in Q1 was unique as it was a result of relatively smaller savings across numerous areas that in aggregate resulted in meaningful outperformance as compared to our guidance.

Speaker 3: While this included things like less travel and one-time hosting efficiencies unique to Q1, notably, it did not consist of intentional hiring delays, lower commission expenses, or other reductions typically related to sacrificing top line objectives. In fact, we actually had a lower employee attrition rate in Q1 than anticipated. While we intend to continue making improvements to our efficiency profile.

Speaker 3: The magnitude of the savings captured in Q1 is not necessarily something investors should expect to repeat in Q2. Before I turn it over to Howard to provide our outlook, I want to spend a few minutes sharing a bit more on Procore Risk Advisors.

Speaker 3: Proger is a unique opportunity to help alleviate a major pain point for construction in the world of insurance. I want to emphasize that we are in the early stages of this offering and are expecting a long journey ahead in growing the types of coverage we can broker and help underwrite.

Speaker 3: In terms of monetization, there are currently two avenues. The first is through serving as a broker by which we sell policies from third-party carriers and earn a brokerage commission which varies by policy type.

Speaker 3: And the second is through serving as an underwriting agent for select policies, whereby Procorp partners with the carrier who is taking on the claims risk in their evaluation of the policy, providing additional industry expertise and enhanced data in exchange for a share of the preview.

Speaker 3: It's important to note that in both of these cases, we take on zero-balanced sheet exposure to cliques. Because to be clear, we are a distribution partner for the insurance carrier who bears the risk of the insurance cliques.

Speaker 3: From a financial perspective, we do not expect material top-line contribution over the next few years related to this effort. I'm incredibly proud of the work our team has done to launch Pro Corp Rescue Vigers, and I look forward to nurturing this initiative in my next role as President of Vintech. With that, I'll pass it over to Howard to provide our outlook. I'm proud of the work we have done to launch Pro Corp Rescue Vigers, and I look forward to the future of the project.

Speaker 4: Thanks Paul and thank you to everyone on the call. Before I share our outlook, I want to remind folks of our guidance philosophy.

Speaker 4: call and thank you to everyone on the call. Before I share our outlook, I want to remind folks of our guidance philosophy, which remains unchanged.

Speaker 4: We set our revenue and margin guidance at a level that we have very high conviction we can deliver on in almost any environment. Specifically, our guidance not only takes into account the cautious customer sentiment we observed this quarter, but also the

Speaker 4: but also allows flexibility for it to become further pronounced. With that, here's our guidance for Q2 and full year 2023. For the second quarter of 2023, we expect revenue between $216 million and $218 million.

Speaker 4: representing year-over-year growth between 25% and 27%.

Speaker 4: Q2 non-GAAP operating margin is expected to be between negative 7.5% and negative 8.5%.

Speaker 4: For the full year of fiscal 2023, we expect revenue between $908 million and $912 million.

Speaker 4: representing total year-over-year growth between 26% and 27%, which is an increase of $12 million from our previous full year guide.

Speaker 4: As Paul noted, given the early stages of our ProCore risk advisers insurance offering, we are not expecting material revenue contribution from that initiative this year.

Speaker 4: Non-GAP operating margin for the year is expected to be between negative 5.5% and negative 6.5%.

Speaker 4: which represents an improvement of 100 basis points from the guidance we issued last quarter and implies year over year margin expansion of 450 basis points.

Speaker 4: As Tui and Paul indicated, next week I will be starting my next chapter with Procore SCFO.

Speaker 4: Over the last two years, I have had the opportunity to work with Tui, Paul, and the leadership team. And I have developed an appreciation both for everything Procore has accomplished over the past two decades.

Speaker 4: as well as the tremendous potential ahead. I look forward to working closely with all of you and continuing to advance Procore's mission to my new capacity as CFO . To close, I'd like to thank our customers, partners, employees, shareholders, and the industry.

Speaker 4: As well as the communities we serve for giving us this opportunity. Now let's turn it over to the operator to begin Q&A.

Speaker 1: Thank you. If you would like to ask a question please press star then 1 on your telephone keypad.

Speaker 1: Thank you. If you would like to ask a question, please press the star then one on your telephone keypad. If you change your mind, please press star two.

Speaker 2: We have the first question, the phone line is from standing RT of Moffett-Nathanson. Yeah, thanks. Hi guys. Paul, what a way to finish a CFO with the mic drop on these results. But maybe for my question, I'll turn to Tui. You talked about broader indices for construction being stable.

Speaker 2: What would you say to investors in terms of what should they be looking at in terms of these broader industries to determine whether they should be encouraged or maybe concerned about the performance of Procore as we move through the remainder of the year? Yeah. Well, by the way, Sterling, great to hear from you and great question. That's a really great question.

Speaker 2: Very largely positive as they have been in the past backlogs remain strong labor shortage is still the number one challenge But as I mentioned in the opening remarks, there are some kind of mixed signals A great example of this is I was talking to a customer the other day and I asked them about their backlog

Speaker 2: and he literally referenced a tsunami of work that he has to deal with. But then in a follow-up call to another customer as they were talking about their backlog they said it was all good except they had one project that was unable to obtain financing after talking to many many banks and he was convinced that a year ago this this deal would have been financed.

Speaker 2: There's all these different contradicting data points, but we haven't heard anything from our customers that indicate that these challenges are widespread or systematic. But when we come back to thinking about what we are thinking, I want you to know that we are confident in our ability to deliver upon what's in our control, but we do, just like all of you do, look at these external data points.

Speaker 2: that customers would decide to either delay or cancel projects that are currently in AGC's backlog.

Speaker 2: Well, let me zoom out a little bit, Sterling, and say that this is a single example in many, many phone calls that I had. So I don't know the specifics behind that particular deal. I just know that the sentiment was that this deal might have been financed last year when it wasn't financed today. But again, that's just one small data point. But I'm trying to illustrate the fact that there...

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Speaker 5: Hey guys, thanks for having me on the call. Great quarter. Paul, maybe one for you.

Speaker 5: Sticking with some of the headwinds or the pockets of challenges that you're seeing, what do you see in terms of duration on new deals? And I guess the reason I'm asking is I'm just trying to kind of triangulate around what we're seeing in RPO growth versus CRPO growth. I mean, the latter is obviously much better. Is it duration? Is it duration? Is it duration? Is it duration? Is it duration? Is it duration? Is it duration? Is it duration? Is it duration? Is it duration? Is it duration?

Speaker 3: Is that where there's some of the conservatism? When you look at the long-term RPO, which I imagine is what you're referencing here, what I would tell you is there's a component of it that comes tied to that conservatism that Tui was talking about, but I would not over-index that as the meaningful driver of it as much as long-term RPO has a lot of moving variables around the timing of multiple

Speaker 5: Yeah, okay. And then maybe a more strategic question. So quality of case, I think one of your more mature products.

Speaker 5: So part A is like where are you in terms of attach rates there and then more interestingly like part P, does the entrance into insurance and kind of potential to deliver these data driven cost savings in any way accelerate adoption of quality and safety in the base?

Speaker 3: Great question. I'd actually bring you back to the investor day. We had a long-time ground break where we talked about what the share of our wallet looked like in terms of which products drive which amount of our overall AR and if you'll recall the narrative we've always given is the older product is, the more penetrated is in our market, among our customer base, and quality and safety is one of our oldest products. We have a pretty healthy majority penetration there.

Speaker 3: And we do believe that will not only help us as we think about the data we can provide to carriers and partners as we go about this insurance initiative, but to your point, it does in our mind believe there create this opportunity to bring the rest of the folks along for that right with quality and safety because we do believe that the more you adopt these solutions and the more we can prove to carriers that you're adopting best practices, the better rates we'll be able to get you.

Speaker 2: insurance folks to encourage the adoption of all of our product suites.

Speaker 5: Yeah, yeah, make sense. Thanks for the call guys.

Speaker 5: Yeah, yeah, make sense. Thanks for the call regards. Yeah, thanks, DJ.

Speaker 1: We now have Sake Kalia of BRCSI.

Speaker 4: Okay, hey guys, thanks for taking the questions here.

Speaker 4: Too, we maybe just to change it up a little bit from the environment. I'd love to talk a little bit about the competitive landscape. I think you've talked about this a little bit in protocol, just maybe some slight shifts in the competitive landscape. Curious if you could just give us an update on that, particularly as maybe there are, I don't know, some changes in the macro backdrop as well. Yeah, so, second good question. Here's the short answer. Is that there really has been no major updates from last? Yeah.

Speaker 2: competitive dynamic changes that are meaningful. And remember, you know this probably very well, that the 50% of the folks we talk to every day are coming from analog, pen and paper, greenfield opportunities and it's not a competitive dynamic. So not much to report on that part.

Speaker 4: Got it, got it. And yes, that was the 1 that I was referring to very helpful update Paul. Maybe maybe for you, you know, I know it's hard to break out the exposure that pro core has to. I think I think you said 70 or 2 said 70 categories or subcategories of construction.

Speaker 4: But I think we mentioned something like 5% or under 5% from office construction. I don't want to put words in your mouth, but I know it's really hard to break this out, but is that industry mix a good proxy for Procore? Yeah. I would clarify the 5% we're referencing is

Speaker 3: of how to think about it, I would tell you looking at the distribution of those 70 categories, it's the best proxy we can give you to how to think about the distribution of our own business, and it's why we consistently point back to the aggregate of construction volume being the critical metric to watch.

Speaker 3: I would tell you looking at the distribution of those 70 categories is the best proxy we can give you how to think about the distribution of our own business. And it's why we consistently point back to the aggregate of construction volume being the critical metric to watch. Very helpful. I've learned a fair bit of what production volume is compared to, on average, almost

Speaker 6: Thanks, Doug.

Speaker 1: Thank you. Your next question comes from Ben Latham with Piper Sansa.

Speaker 2: Good afternoon. I wanted to go back to just the diversification of the model here, just as we think about the strength in RPO, that really stood out to us, particularly given an environment where you had, I think, residential starts down 29%, overall market down 9%. So, it's drilling over a rock in any order, Bella. It has been a medicalacy.

Speaker 2: non-res, it was up 11. So walk us through the business model. Is this just more diversified relative to your ability to sell more products into the base? Are you just seeing a shift in where the construction is coming from? Any color to help us pinpoint the strength you are seeing versus?

Speaker 2: what looks like a challenging kind of cyclical industry, kind of headwinds. I get there's mixed signals, you know, we're going to be in a environment with mixed signals for a while, but in the quarter.

Speaker 3: Pretty good strength here. I'm trying to understand why. Yeah, I mean, I look you kind of spelled it out when you started to describe the numbers you have seen, right? We saw residential take a pretty meaningful hit where you saw non-residential actually show strength and resilience. And what we were kind of trying to call out what we were speaking to earlier in this remark is when we really think about ProCore, we certainly have meaningful, you know, business.

Speaker 3: that our customers touch all of the categories that make up non-residential, and they themselves manage a very diverse five book. And so we have the benefit of really going alongside with them in this journey of watching the industry shift, but watching overall construction volume continue to increase. And so that is obviously a very healthy contributor for us in terms of that CR.

Speaker 2: As we think about the transition, Paul to Howard, you're obviously going to be entering a new role next week. I appreciate the low bar you're creating for yourself talking about new materials from fintech services. I look forward to the conversation.

Speaker 2: with Howard next quarter on contribution but in all seriousness as you think about the portfolio growing portfolio of fintech services risk advisors pro core pay materials financing, you know PCN in there What do you spend your time on next week? What are you most excited about?

Speaker 3: relative to what impact you can have, dedicating your attention to CODOS 34 area, thanks. Yeah, look, that's the wonderful thing about the transition. Sorry, I'll enter it on my behalf, but I'll let Howard speak to it as well. I'm going to be setting my time across those.

Speaker 3: opportunity here to go focus and dedicate that energy to where I can have the biggest impact. So pretty excited to get a focus across the board, but I might have taken Howard to it. That's okay, thanks, friends. So I too am continuing to be very excited about where ProCore is going. A couple of things I want to make sure I call out is that look.

Speaker 4: For better or for worse, Paul and I have been joined at the hip over the last two years. And so we are very aligned in terms of where the business is going from a strategic, operational, and financial standpoint. Specifically about where I'm going to focus my time, I typically would break it up into three categories, and there's a lot of different directions to go in those different categories. First.

Speaker 2: your point is around monetization and making sure that we have lined up monetization across both the short, the immediate term, the short term, the middle term and the long term. And then to connect both those two things together, the third category is really about capital allocation in terms of where we deploy our resources by geo by product and all across all the different functions within the company. And that is actually really a continuation of what we've been already doing and what I've already been focusing over the last couple years along with Paul and Tui and the rest of the leadership team.

Speaker 5: Just back to the simple headwinds you started to see, can you just give us a sense of the magnitude? Are there any commonalities in terms of where you saw that? Did you see it later in the quarter, earlier in the quarter? Just any additional color there. And I guess for Paul and Howard, your guidance is above the magnitude of the beat. So many are asking kind of the confidence of raising above the magnitude of the beat. What's enabling you to do that. Thanks.

Speaker 2: Sure, well I'll start with the trends which I will tell you are there we don't see any at this point so the commonalities are really hard to tie together but I think what you're doing is you know I really sympathize with anybody who's thinking about their business right now because if you read the news you know there's a lot of reasons to be you know a little spooked about the economy.

Speaker 2: And so in general, we think it's just coming up in conservatism kind of across the board, but there isn't one segment, there isn't one geo, there isn't one stakeholder that's standing out.

Speaker 3: Yeah, and then to touch on the guidance piece, you know, Howard mentioned this, I mentioned this in our overall call, you know, the reason we're bringing up the theme of conservatism here is that we really want to be transparent with y'all as to the various different data points we're seeing in our business. But when we set our guide at the beginning of the year, we were very intentional to tell investors.

Speaker 3: put out there and that you all should feel very comfortable that even in a world where we see this cautiousness get worse that we will still deliver on the guide we provided. Howard anything to add? Yeah just just a couple of one one small thing is just to echo that we are highly confident in hitting the guide keep in mind that we not only put had that philosophy in Q1.

Speaker 2: But we have that philosophy in Q2 in addition to also continuing to raise our guidance on the top and bottom line and we still feel that way with that raise.

Speaker 2: that philosophy in Q2 in addition to also continuing to raise our guidance on the top and bottom line we still feel that way with that race. Thanks.

Speaker 4: Your next question comes from Dylan Becker of Williams. Hey guys, nice job here. Maybe two from a high level to the extent that that. Recurper thing or retrofitting maybe some of the office dynamics you called out and how that plays into maybe broader sustainability and ESG initiatives. Is that coming up in kind of customer decisioning? Another's a lot of historical waste and construction. You've got a complex regulatory environment and. In layering and kind of visibility trans and transparency, but is that something that customers are prioritizing and kind of maybe driving some of the decision process here as well?

Speaker 2: That's a great question. We're seeing a lot more of this outside of the US market, so Amia in particular, where this is a topic that will come up with conversations with our customers there. But I think you're right, which is, you know, ProCore has been trying to solve this challenge of the $500 billion worth of waste and rework that happens every year. And that is a tremendous impact on both our economy as well as our environment. So, you know, we've been heavily focused on it. We had an enterprise customer advisory board meeting recently, and I would say that...

Speaker 2: About 5% of the time was talking about ESG tracking and management. So it is out there, but it's still relatively muted in the North America market. But I think over time we're going to see a lot more of this. That makes sense. And I did, I kind of closed into the second question on international. I know kind of a progression and path to improvement here. But...

Speaker 3: but thinking about maybe that regionalized segmentation and maybe how partners can play a role in supporting some of that broader productivity ramp you guys have called out that you expect to kind of layer in over time as well. Yeah, look, I think we've talked about this in the past in terms of how we think about partners internationally, and the honest answer is we see it similar to how we approach the U.S. market in the sense that we will meet the customers where they are. And so different markets have a different motion in leveraging partners, and that's true of resellers, but it's also true of integration partners. It's true of lots of different components of how these industries go about digitizing.

Speaker 3: And so as we think about our international markets, we're very thoughtful to understand how the different markets need to be served differently. And we are prepared to meet the customers, as I said, where they are.

Speaker 3: about our international markets, we're very thoughtful to understand how the different markets need to be served differently, and we are prepared to meet the customers, as I said, where they are. Got it. Humble, thanks, guys.

Speaker 7: Thank you. Thank you. We now have Adam Ball with CIFIL. Awesome. Thanks, guys, for taking the question. Maybe two. First, just on the international business, going back to that, where are we with the operational changes that we've been talking about and when can we expect improvements in that as a follow-up? SB 20

Speaker 2: Yeah, so we mentioned this last quarter, so I want to say for this quarter there are no major updates. We continue to make improvements, which I'm very pleased with, but this is one of the things that's not going to be fixed overnight. So as we shared before, we expect to see improvements toward the end of this year, but there's nothing kind of significant right now to call out, but when there is, you'll certainly hear it from us.

Speaker 7: Awesome. Thanks so much. Maybe just a quick follow-up. You talked obviously a lot about the pockets of macro concern. Just curious to first call it four plus weeks of the second quarter of the month of March. Any change in the demand environment overall or any change in those macro commentaries that you talked about earlier. Thanks so much.

Speaker 3: I tell you there's nothing meaningful to call out there. We're still very early into Q1 and we will keep you posted when we report here in 90 minutes.

Speaker 1: Awesome. Thanks so much. Thank you. Thank you. We now have Ken Wong.

Speaker 5: Thanks for taking my question. Tui, we touched on financing earlier and we all see the headlines with the regional banks. I guess, do you have a view on kind of what that impact could be? What is the consolidation in the banking sector potentially?

Speaker 5: you know, what that impact is on your end market customer. And then to Paul, or I guess maybe you as well, Tui, do you potentially see any pullback from regional bank lending to construction as a potential opportunity for your own capital lending aspirations? Thank you. Im

Speaker 2: So on the first point, yeah, we, this is not a topic that has been a trend that I've gotten enough information on to, you know, speak in terms of something that's going to impact broker. But again, we do hear these anecdotal stories, but they are still somewhat few and far between. Yeah, I think we really, it's one of the mixed signals.

Speaker 3: There's a lot of positive trends. There are some that provide cautiousness. And we are committed to keeping you all posted as we continue to learn more. But at this point, there's a lot of contradicting comments out there. In terms of your other question on the pullback of banking, I think I can be very simple. No, no way. Our material financing program is a very unique specific program. This is not a business. We do not plan to become

Speaker 8: Howard, congratulations on your new role. It's pretty remarkable you guys are putting up these numbers, whether it's a good economy, bad economy, whatnot. If you get a constructor, deconstruct the growth algorithm, so let's say commercial construction is going to grow four or 5% and Procore is going to grow, I don't know, pick a number of 30%. If you can just help us understand what are the broader parts of the...

Speaker 8: the multi-hundred-billion-dollar construction industry that you're particularly leveraged, so we can understand what really drives your growth. Because I think as you mentioned, it's very hard to not react to the headlines, slowing economy, you know, banks lending less, credit crisis, whatnot.

Speaker 8: At the same time, you guys are putting up, you added 609 new customers, which is more than what you added in Q4. Typically, software companies have the seasonality in Q1, but you're bucking it. So we can just deconstruct that growth algorithm. What are the, as I mentioned, one part of commercial construction is, or offers is one out of 70 subsets, things like that.

Speaker 3: Come up with a deconstruction of the growth algorithm, lift the left, link the left extreme, which is the growth in the industry, to the growth at Procore. That'll be mighty useful. Thank you so much. Yeah, no, happy to take that one, Gash. I think this is the beauty of the business we have in the diversification of the industry. I bring you back to kind of that comment Saket had made earlier in this call. In terms of thinking about those 70 different categories and appreciating that we Procore are pretty diversified across those 70 categories. What?

Speaker 3: that needs to digitize with tons of wallet share opportunity, we're more bringing the short-term components of saying like, hey, it's an unknown macro environment out there and we have to be mindful of that.

Speaker 8: So your point is that even if the industry grows slowly, you're gaining more share of that wallet. So customer count is...

Speaker 8: of the customer base, while the customer base itself is probably not growing that rapidly. Is that the high-level algorithm? And then you have to your point the yield, you have certain basis points of the value of construction, which you continue to gain share as you some more modules. That's the rough way to think about the growth algorithm for the company.

Speaker 8: I think that's a good way to think about it. Super high levels. We'll drill into it at a time when we speak. Talk to you soon. Looking forward to it. Thanks. All right. Thank you.

Speaker 1: Thank you. We now have Matthew Broome of Nazir Securities.

Speaker 8: Thanks very much and congrats on the results guys. So I guess when you spoke about some customers being more cautious to sign up for those larger longer term commitments, just so I'm clear, does that mean the caution was coming from larger customers or was it at our end? Am I hearing that correctly or?

Speaker 8: Thanks very much and congrats on the result, guys. So I guess when you spoke about some customers being more cautious to find up for those larger, longer term commitments, just some clear, does that mean the caution was coming from larger customers or was it? Am I hearing that correctly or if you could clear that up?

Speaker 3: Yeah, no, I would tell you, as we shared earlier, there wasn't any particular call out with respect to where, which type of customer, which segment of customer we saw that from. It was more of a reflection of we saw it in a small pocket of our customer base. Now, it's worth reminding this was where this mixed signal piece really does come to play because we saw the share of our customers that grew their construction volume.

Speaker 2: Yeah, so, by the way, it's an area that we're all very excited about it. It is very much a big part of our connected strategy to bring everybody together on our platform. We are still building and we're still assembling a, you know, trying to get the everything coming together. There's no really new news to announce, but you're going to be hearing more about it in the next couple quarters.

Speaker 2: And it's something I'm particularly very excited about. Okay, perfect. Thanks very much.

Speaker 2: And it's something I'm particularly very excited about. OK, perfect. Thanks very much. Thank you. OK.

Speaker 4: Thank you. Our final question comes from Jason Salino of KeyBank Capital Markets. Hey guys, thanks for fitting me in. Last question here on that small portion of customers exercising the caution. Kind of the way your model works.

Speaker 3: hypothetically they would pay more. So I guess, can you just talk about what the customer is evaluating and the puts and takes? Yeah, I mean, you kind of did a great job summarizing it there yourself, Jason. That is the right way to think about it, right? Our pricing is based on overall construction volume.

Speaker 3: to the extent they end up burning through that amount of construction volume sooner than their contract, they're going to end up upgrading in the middle of that cycle at a higher take rate than they otherwise would have had they committed a larger volume upfront. And I think that's the benefit to our model and something that we're mindful of could be a tailwind to us depending on where the world goes.

Speaker 4: Okay, perfect. Now thanks for the clarification. And then actually one quick one on sales and marketing. It looks like it was flat quarter over quarter and you're showing some really nice leverage. Just wondering if there was any hiring or sales investments that would have gotten moved later. Thanks.

Speaker 2: You know, our hiring you won actually perform quite well. The other thing I'll remind you is we are in our broader hiring across the company, not just in sales and marketing, are very, we're being very deliberate about who we hire, how we hire, when we hire, and what we hire for. And that has been a trend that we've been on.

Speaker 2: and a focus that we've been focused on since last year. So it's actually nothing new. And so we're actually seeing really good dynamics from a hiring standpoint. In fact, our attrition has actually performed really well in Q1. So it's been very successful, not only in the past year but I think we've seen a lot of results.

Speaker 2: focused on since last year. So it's not actually nothing new. And so we're actually seeing really good dynamics from an iron standpoint. In fact, our attrition has actually performed really well into work. Okay, cool, thanks Howard. Thank you.

Speaker 1: Operator. Thank you. I can confirm we have no more questions and this does conclude today's call.

Speaker 1: Please have a lovely day and you may now disconnect your lines.