Q4 2023 Procore Technologies Inc Earnings Call

Operator: Ladies and gentlemen, thank you for standing by. The Procore Technologies Inc. 4 Year 23 Q4 Earnings Call will begin shortly. If you would like to register a question at any time, please press star followed by one on your telephone key. Thank you. If you would like to register a question during today's event, please press star followed by one on your telephone keypad. I'd now like to hand over to Matthew Police.

Ladies and gentlemen, thank you for standing by the Protocol Technologies, Inc. Full year 'twenty Q4 earnings call will begin shortly.

If you'd like to register a question at any time. Please press star followed by one on your telephone keypad.

Thank you.

[music].

Hello, and welcome to the Protocol Technologies, Inc. Full year 'twenty, three Q4 earnings call.

My name is <unk> and I'll be coordinating your call today.

If you would like to register your question Joan stage events. Please press star followed by one on your telephone keypad.

And I'd like to hand over to Matthew. Please the floor is yours. Please go ahead.

Matthew Pugliese: The floor is yours; please go ahead. Thanks. Good afternoon, and welcome to Procore's 2023 fourth quarter earnings call. I'm Matthew Pugliese, VP of Finance. With me today are Thuy Kordmonch, founder, president, and CEO, and Howard Phu, CFO. 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.

Thanks, Good afternoon, and welcome to <unk> 2023 fourth quarter earnings call Imac employees VP of finance with me today are two record much sounder, President and CEO Howard <unk>.

So.

Further disclosure of our results can be found in our press release issued today, which is available on the Investor Relations section of our websites 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.

Matthew Pugliese: Comments made on this call may include forward-looking statements regarding our financial results, products, customer demand, operations, and macroeconomic and geopolitical conditions. You should not rely on forward-looking statements as predictions of future events. All forward-looking statements are subject to risks, uncertainties, and assumptions and are based on management's current expectations and views as of today, February 15, 2024. Procore undertakes no obligation to update any forward-looking statements to reflect new information or unanticipated events except as required by law. If this call is replayed or viewed after today, the information presented during the call may not contain current or accurate information.

Operations and macroeconomic and geopolitical conditions, you should not rely on forward looking statements as predictions of future events. All forward looking statements are subject to risks uncertainties and assumptions that are based on management's current expectations and views as of today February 15th 2024 cohort undertakes no obligation to update any.

Forward looking statements to reflect new information or unanticipated events, except as required by law. If this call is replayed or viewed after today. The information presented during the call may not contain current or accurate information. Therefore, these statements should not be relied upon as representing our views as of any subsequent date, we will also refer to certain non.

Matthew Pugliese: Therefore, these statements should not be relied upon as representing our views as of any subsequent date. We'll also refer to certain non-GAAP financial measures to provide additional information to investors; reconciliation of non-gap to gap measures is provided in our press release. So with that, here's Dewey.

non-GAAP financial measures to provide additional information to investors reconciliations of non-GAAP to GAAP measures is provided in our press release, so with that here's Dewey.

Dewey: Hey, thanks, Matt. And thanks, everyone, for joining us today. We ended the year about as we expected, with some bright spots and learning amid a tough economic environment. Some notable highlights were that we surpassed $1 billion in total ARR, we generated $29 million in free cash flow, and we believe 2024 will be another strong year for cash flow generation. Our net retention rate remained durable at 114%, and we ended the year with over 2,000 customers contributing greater than $100,000 in ARR.

Hey, Thanks, Matt and thanks, everyone for joining us today.

We ended the year about as we expected with some bright spots and learnings amid a tough economic environment. Some notable highlights where we surpassed $1 billion in total <unk>.

We generated $29 million in free cash flow and we believe 2024 will be another strong year for cash flow generation.

Our net retention rate remained durable at 114% and we ended the year with over 2000 customers contributing greater than $100000 in IRR.

Dewey: So today, I'd like to reflect back on 2023 and share some interesting customer stories and discuss how I'm thinking about the year ahead. So I'd like to start by acknowledging that 2023 proved to be a challenging year amid a tough economic environment. Much of the commentary we shared in our last earnings call is still relevant to what we're seeing today. 2022 and 2023 were very different years for our industry.

So today I'd like to reflect back on 2023 and share some interesting customer stories and discuss how I'm thinking about the year ahead.

So I'd like to start by acknowledging that 2023 proved to be a challenging year amid a tough economic environment.

Much of the commentary we shared in our last earnings call is still relevant to what we're seeing today.

2022, and 2023 were very different years for our industry and.

Dewey: In 2022, our customers demonstrated optimism in their sentiment and their buying behavior. This optimism largely stemmed from the strength of our customers' backlogs and their confidence in the future pipeline of work. However, 2023 brought a notable shift.

In 2022, our customers demonstrate the optimism in their sentiment and their buying behavior.

This optimism largely stem from the strength of our customers' backlogs and our confidence in the future pipeline of work.

However, 2023 brought a notable shift while backlogs remained strong sentiment shifted partially due to rapidly rising interest rates in the industry began to hedge against future work just in case.

Dewey: While backlogs remain strong, sentiment shifted, partially due to rapidly rising interest rates, and the industry began to hedge against future work just in case. This sentiment drove conservatism for the future and led the industry to be cautious about future volume commitments should future demand wane. As we all recognize, construction and our economy are cyclical. You know, I've been leading Procore for 22 years and worked in construction well before that, so I've seen a few of these cycles myself.

Sentiment drove conservatism for the future and lead the industry to be cautious about future volume commitments should future demand wane.

As we all recognize construction in our economy are cyclical.

I've been leading <unk> for 22 years and worked in construction well before that so I've seen a few of these cycles myself.

Dewey: And while I'd like to acknowledge that 2023 was disappointing when compared to 2022, I also firmly believe that every tough period reveals opportunities and strength. Times like these give us a chance to look inward and determine what's working and what can be improved. We've done that important work, and I'm confident that the path we've laid will set us up for success when the inevitable upswing comes. So I'd like to share five bright spots across our customer sentiment and our business operations that continue to fuel my optimism and confidence in the years ahead. First, the conversations we regularly have with customers across all stakeholders and geographies remain largely positive.

And while I'd like to acknowledge that 2023 was disappointing when compared to 2022.

I also firmly believe that every tough period reveals opportunities and strengths.

Like these give us a chance to look inward and determine what's working and what can be improved.

We've done that important work and I'm confident that the path. We've laid will set us up for success when the inevitable upswing comes so I'd like to share five bright spots across our customer sentiment and our business operations that continue to fuel my optimism and confidence in the years ahead.

First the conversations we regularly have with customers across all stakeholders and geographies remain largely positive.

Dewey: Many of our customers have been around for a long time and have also seen multiple economic cycles. They tell me that they, too, are using this as an opportunity to do the necessary planning to ensure that they're ready to capture the inevitable upswing. As I've shared many times before, their primary concern is not just demand but also finding the skilled labor to meet this demand.

Many of our customers have been around for a long time and I've also seen multiple economic cycles.

They tell me that they too are using this as an opportunity to do the necessary planning to ensure that they are ready to capture the inevitable upswing.

As I've shared many times before their primary concern is not just demand, but also finding the skilled labor to meet this demand.

Dewey: As you heard me say, construction is a low margin, high risk business, and our customers are always searching for efficiency and predictability. But in times like these, they continue to tell me that the efficiencies and predictability Procore delivers are paramount. This is best reflected in our gross revenue retention rate, which has been steady throughout this past year and years prior. Even in downturns, our customers see the value we provide and continue to rely on the Procore platform to run their business. Which brings me to my second bright spot.

As you've heard me say construction is a low margin high risk business and our customers are always searching for efficiency and predictability.

But in times like these our customers continue to tell me that the efficiencies and predictability PROQUAD delivers are paramount.

This is best reflected in our gross revenue retention rate, which remained steady throughout this past year and years prior.

Even in downturns, our customers see the value, we provide and continue to rely on the <unk> platform to run their businesses.

Which brings me to my second bright spot.

Dewey: Not only do our customers stay with us, they continue to expand with us. Expansion from the up market has historically been a strength of ours and continued to be this quarter. Today, about half of our total ARR comes from the enterprise. And historically, much of that comes from expansion. We continue to have incredible room for growth here and expect this to be a bigger contributor in the near term. And I'm going to share more on this shortly.

Not only do our customers stay with us they continue to expand with us.

Pension from the upmarket has historically been a strength of ours and continued to be this quarter.

Today about half of our total <unk> comes from the enterprise and historically much of that comes from expansion.

We continue to have incredible room for growth here and expect this to be a bigger contributor in the near term and I'm going to share more on this shortly.

Dewey: Third, the cyclical nature of construction in the economy gives us an important opportunity to revisit our long-range plans and roadmaps. We reflected on our go-to-market and our product strategy and how effective they may be in both up and down cycles. We've re-examined our product roadmap to ensure it aligns with where we believe the industry is headed. This exercise reinforced that we are on the right track and that we are indeed skating to where the puck is going, a great example of which is the upcoming boom in infrastructure spending. I am more confident than ever that we will continue our leadership position in serving this industry and its evolving needs. The fourth bright spot that I'm very happy to share is that Procore was ranked number five on Glassdoor's Best Places to Work list for U.S. large companies, and that's up from 61 in 2022. You know, it doesn't feel all that long ago that I started this business.

Third the cyclical nature of construction and the economy gives us an important opportunity to revisit our long range plans add roadmaps.

We reflected on our go to market and our product strategy and how effective they may be in both up and down cycles, we have reexamined, our product roadmap to ensure it aligns with where we believe the industry is headed.

This exercise reinforced that we are on the right track and that we are indeed skating to where the puck is going the greatest example of which is the upcoming boom in infrastructure spending.

I am more confident than ever that we will continue our leadership position in serving this industry and it's evolving needs.

The fourth bright spot that I'm very happy to share is that pro forma was ranked number five on glass doors best places to work list for U S large companies and that's up from 61 in 2022.

It doesn't feel all that long ago that I started this business and one of the many early challenges we face was attracting talent to build software for an underserved industry.

Dewey: And one of the many early challenges we faced was attracting talent to build software for an underserved industry. From the beginning, we committed to fostering and prioritizing our culture. And I could not be more proud that we've grown into being an employer of choice, attracting high-caliber team members from across industries and geography. Finally, we delivered significant efficiency improvements in 2023. In recent quarters, you've heard me say that efficient growth has become a company-wide mantra at Procore. We deeply emphasize this when we began planning for 2023, and as the year progressed, we continue to identify areas for incremental improvement, from only adding additional employees when necessary to consolidating vendor spend to obtain better discounts. You know, I'm proud of the team for demonstrating this discipline, as it provides us with the fuel that we need to continue to invest in the most important opportunities ahead. I'm especially proud of this in the context of the other bright spots that I shared previously.

From the beginning we committed to fostering and prioritizing our culture.

Could not be more proud that we've grown into being an employer of choice attracting high caliber team members from across industries and geographies.

Finally, we delivered significant efficiency improvements in 2023.

In past quarters, you've heard me say that efficient growth has become a companywide mantra at <unk>.

We deeply emphasize this when we began planning for 2023 and as the year progressed, we continued to identify areas for incremental improvement from only adding additional employees when necessary to consolidate and vendor spend to obtain better discounting.

I'm proud of the team for demonstrating this discipline as it provides us with the fuel that we need to continue to invest in the most important opportunities ahead.

I'm, especially proud of this in the context of the other bright spots as I shared previously.

Dewey: The efficiency improvements we delivered did not come at the cost of our employee experience nor our ability to build lasting customer relationships. You know, I believe that building a fantastic business, fostering strong customer relationships, and treating employees well are not mutually exclusive. Speaking of customer relationships, I'd like to share a few recent examples. Performance Contracting, Inc. is one of the largest specialty contractors in the US. For more than six decades, PCI has delivered top-tier construction services across the country, performing work on large projects including data centers, life sciences and semiconductor clean rooms, traditional and clean energy plans, stadiums, Multifamily Residential, and more.

The efficiency improvements, we delivered did not come at the cost of our employee experience, nor our ability to build lasting customer relationships.

I believe that building a fantastic business fostering strong customer relationships and treating employees well are not mutually exclusive.

Speaking of customer relationships I'd like to share a few recent examples.

Performance contracting and because one of the largest specialty contractors in the U S.

For more than six decades, PCI has delivered top tier construction services across the country perf.

Performing work on large projects, including data centers life Sciences, and semiconductor clean rooms, traditional and clean energy plants.

Adm's multifamily residential and more in.

Dewey: In years past, PCI leveraged our workforce planning solution, as well as a number of competitive and custom in-house technologies, to execute their projects. They decided to significantly expand their usage of Procore, adopting several products and making Procore their primary construction management platform. After in-depth research of available technology solutions, PCI chose Procore because of our dedication to specialty contractors and our superior customer success organization, which is critical for successful change management at scale.

In years past PCI leveraged our workforce planning solution as well as a number of competitive and custom in house technologies to execute their projects.

They decided to significantly expand their usage of protocol adopting several products and making procured their primary construction management platform.

After in depth research of available technology solutions, PCI chose <unk> because of our dedication to specialty contractors and our superior customer success organization, which is critical for successful change management at scale.

With pro Gore performance contracting is now able to standardize and streamline operations across all of their branches.

Dewey: With Procore, performance contracting is now able to standardize and streamline operations across all of their, Now, not only are we continuing to expand with existing customers, but we're also adding notable new customers. Penske Transportation Solutions, which became a Procore customer in Q4, is a leading transportation and logistics service provider with a North American footprint of approximately 1,500 truck leasing and maintenance facilities, as well as distribution centers.

I am personally looking forward to building upon the close relationship I have with Pat Jason in the rest of the PCI team in the years to come.

Now not only are we continuing to expand with existing customers, but we're also adding notable new customers.

Penske transportation solutions, which became a <unk> customer in Q4 is a leading transportation and logistics service provider with a north American footprint of approximately 1500 truck leasing and maintenance facilities as well as distribution centers.

Dewey: They recognized that they needed a robust system to support their continuing growth over the coming year. Penske wanted to find a best-in-class construction management solution that would help them across all project verticals, including renovations to existing facilities, new facility construction, electrical vehicle supply equipment infrastructure, and other capital improvement projects across its portfolio. I am happy to share that Penske chose to partner with Procore over several others to help scale and consolidate processes into a single platform and improve their project management operations and project financial controls over the long term.

They recognize that they needed a robust systems to support their continuing growth over the coming years.

Penske wanted to find a best in class construction management solution that would help them across all project verticals, including renovations to existing facilities, new facilities construction electrical vehicle supply equipment infrastructure and other capital improvement projects across the portfolio.

I am happy to share that Penske chose to partner with broker over several others to help scale and consolidate processes into a single platform and improve their project management operations and project financial controls over the long term.

Dewey: In addition to owners and specialty contractors, we continue to deepen our close relationships with leading general contractors. Burns & McDonnell, which ranks number 31 on ENR's top 400 contractors list, recently expanded significantly with us and will be rolling Procore out across more of its business. The team was looking for a solution that was modern, easy to use, quick to implement, enabled collaboration, and helped them deliver better project outcomes across a number of sectors, including power generation, manufacturing, and industrial, government, transportation, water, oil, gas, and chemicals, commercial and retail, telecommunications, and more. Today, Procore will serve as Burns and McDonald's standard construction management platform for these projects.

In addition to owners and specialty contractors, we continue to deepen our close relationships with leading general contractors.

Burns <unk> Mcdonnell, which ranks number 31 on Anr is top 400 contractors list recently expanded significantly with us and we'll be rolling <unk> out across more of its business.

The team was looking for a solution that was modern easy to use quick to implement enabled collaboration and help them deliver better project outcomes across a number of sectors, including power generation manufacturing and industrial government transportation water oil gas and chemicals.

Commercial and retail telecommunications and more.

Today, <unk> will serve as Burns Mcdonalds standard construction management platform for these projects. This is just one of the incredible partnerships. We continue to build with the INR 400 and is a great example of the massive opportunity we see with this group, which I'm going to talk about shortly.

Dewey: This is just one of the incredible partnerships we continue to build with the ENR 400 and is a great example of the massive opportunity we see with this group, which I'm going to talk about shortly. Now, I'd like to shift gears and discuss how we're thinking about the year ahead. Internally, I like to describe 2024 as a year of focusing on our core, which means doubling down on our strengths while investing in related areas which could further bolster our core offering. Within the platform, we're going to focus on three areas. First, cementing ourselves as the solution the industry utilizes for civil and infrastructure work. Today, many Procore customers build airports, municipal facilities, both traditional and clean energy plants, and much more. However, I know we can do more to tailor our platform to meet the needs of civil and infrastructure. Late last year, we acquired UNR, a leader in geospatial information mapping for construction.

So now I'd like to shift gears and discuss how we're thinking about the year ahead and.

Internally I like to describe 2024 is a Europe, focusing on our core which means doubling down on our strengths while investing in related areas, which could further bolster our core offerings.

Within the platform, we're going to focus on three areas first cementing ourselves as these solution the industry utilizes for civil and infrastructure work.

Today, many appropriate customers build airports municipal facilities, both traditional and clean energy plants and much more.

However, I know, we can do more to tailor our platform to meet the needs for civil and infrastructure.

Late last year, we acquired <unk>, a leader in geospatial information mapping for construction.

Dewey: This acquisition, while small, will allow us to better support all types of construction, but in particular, horizontal infrastructure projects. That integration is going well, and we are excited about what's to come. Second, we are increasing the adoption of our financial suite. Today, less than half of our customers use Project Financials and Invoice Management.

This acquisition, while small will allow us to better support all types of construction, but in particular horizontal infrastructure projects.

That integration is going well and we're excited about what's to come.

Second is increasing the adoption of our financial suite.

Today less than half of our customers use project financials and invoice management.

Dewey: This means there is ample opportunity within these offerings before we even take payments into consideration. Speaking of which, we're excited about payments, and the early feedback has been very positive. You know, it's important to note that we are the only solution in the market that connects estimating to contracts, to compliance documents, to invoices, to payment workflows, all on a single platform. Third, we are improving the flexibility of our product to meet the needs of all construction and specifically to facilitate easier adoption and configuration for the enterprise. Procore excels at solving the discrete needs of a vast range of individuals, from those running billion-dollar CapEx projects to folks with mud on their boots entering time cards in the field. You know, the biggest difference between an enterprise and SMB customer is how much the former values and requires the ability to heavily configure Procore to meet their needs. No two enterprise clients perform the same tasks in the same way.

This means there is ample opportunity within these offerings before we even take payments into consideration.

Speaking of which we're excited about payments and the early feedback has been very positive.

It is important to note that we are the only solution in the market that connect estimating to contracts to compliance documents to invoices to payment workflows all on a single platform.

Third is improving the flexibility of our product to meet the needs of all of construction and specifically to facilitate easier adoption and configuration for the enterprise.

<unk> sells at solving the discrete needs of a vast range of individuals from those running $1 billion capex projects to folks with mud on their boots entering time cards in the field.

The biggest difference between the enterprise and SMB customer is how much the former values and requires the ability to heavily configure procure to meet their needs.

No to enterprise clients perform the same tasks the same way.

Dewey: We believe we can improve this configurability and become more effective for the enterprise and all customers, which should further improve expansion and retention metrics down the road. So I'd like to share a couple of priorities within our go-to-market strategy. First, we see more opportunities to grow our base via expansion, so I'd like to share some color on why I think some may underestimate the opportunity given our strong market presence today. While some entities are running their entire portfolio on Procore, it's important to remember that others are using Procore on a portion of their total volume. I'd like to provide an example of this and use the ENR 400 opportunity to do so.

We believe we can improve this configure ability and become more effective for the enterprise and all customers, which should further improve expansion and retention metrics down the road.

So I'd like to share a couple of priorities within our go to market motion.

First we see more opportunities to grow our base via expansion.

So I'd like to share some color on why I think some may underestimate the opportunity given our strong market presence today.

While southern entities are running their entire portfolio of <unk>. It's important to remember that others are using <unk> on a portion of their total volume.

Like to provide an example of this and use the <unk> 400 opportunity to do so.

Dewey: The ENR 400 represents the largest 400 general contractors in the United States and reported approximately $500 billion in annual construction volume in 2022. While Procore has approximately 70% of this group's logos, we have just over 40% of the $500 billion committed to Procore. This disparity, given these figures, is in part due to our land and expand motion.

The INR 400 represents the largest 400 general contractors in the United States and reported approximately $500 billion in annual construction volume in 2022.

<unk> has approximately 70% of this group's logos, we have just over 40% of the 500 billion.

Committed to procure.

This disparity given these figures is in part due to our land and expand motion.

Dewey: Some customers are still ramping up to their annual volume, and others operate independent divisions whose business we have yet to win. Plus, our average E&R 400 customer uses about five of our products. This is slightly more than the average product adoption across our entire customer base but is still well short of the 10 plus products available to the market today. Keep in mind, the enterprise category in construction is very broad, and this list only represents the largest, most global, and technologically sophisticated group within the enterprise. And it represents only about a quarter of the U.S. construction industry.

Some customers are still ramping into their annual volume and others operate independent divisions, whose business we have yet to win.

Plus our average in our 400 customer uses about five of our products. This is slightly more than the average product adoption across our entire customer base, but is still well short of the 10 plus products available to the market today.

Keep in mind, the enterprise category and construction is very broad and this list only represents the largest most global and technologically sophisticated group within the enterprise and represents only about a quarter of the U S. Construction industry.

Dewey: If we still have this much room to grow within this Tech Forward group, I hope it's becoming clear just how much opportunity there is outside of it. You know, on top of that, the ENR 400 does not account for the broader opportunity across other stakeholders and customer sites. All sorts of owners in the market today are not represented in this list, including the Fortune 500, universities, hospitals, real estate developers, and more.

If we still have this much room to grow within this tech forward group I hope, it's becoming clear just how much opportunity there is outside of it.

On top of that the Anr 400 does not account for the broader opportunity across other stakeholders and customer sizes.

All sorts of owners in the market today are not represented in this list, including the Fortune 500 universities hospitals real estate developers and more.

Dewey: There is also a broader specialty contractor landscape of all sizes, geographies, and trades. Taking all of this into account, we see plenty of opportunity to grow and serve this industry. These are the kind of details that motivate me and keep me so optimistic about Procore in the coming years. We believe we are in a winner-takes-most market category, and these are just some of our growth opportunities ahead. The second go-to-market-related update I'd like to share is the addition of our Chief Revenue Officer, Larry Stack. Larry comes to us with a wealth of revenue leadership experience, most recently having spent six years heading up global sales and services at Red Hat. During that time, Larry helped lead the company to impressive size and scale, a similar opportunity Procore finds itself in today. In the past, you've heard me mention that I always have an eye out for new leaders who may be a good fit for our growth journey. In particular, I'm focused on talent that has previously achieved what Procore hopes to do in the future.

There is also a broader specialty contractor landscape of all sizes geographies and trades.

Taking all of this into account, we see plenty of opportunity to grow and serve this industry.

These are the kinds of details that motivate me and keep me so optimistic about <unk> in the coming years.

We believe we are in a winner takes most market category and these are a few great. Examples of just some of our growth opportunities ahead.

The second go to market related update I'd like to share is the addition of our Chief revenue Officer, Larry Stack, Larry comes to us with a wealth of revenue leadership experience. Most recently, having spent six years heading up global sales and services at Red hat.

During that time, Larry helped lead the company to impressive size and scale a similar opportunity Pro court finds itself in today.

In the past you've heard me mentioned that I always have an eye out for new leaders, who may be a good fit for our growth journey.

In particular I'm focused on talent that has previously achieved with <unk> in the future.

Dewey: I believe Larry has this experience and can be instrumental in growing us to a multi-billion dollar revenue company. So, in closing, while 2023 wasn't the growth year I'd hoped it would be, I am proud of our efficiency improvements, our culture, and our brand within this industry we serve, and I remain confident in the opportunity ahead. And now Howard's going to share more on our business performance. Howard.

I believe Larry has this experience and can be instrumental in growing us to a multibillion dollar revenue company.

So in closing while 2023 wasn't the growth year I'd hoped it would be I am proud of our efficiency improvements our culture and our brand within this industry, we serve and I remain confident in the opportunity ahead.

And now how it is going to share more on our business performance Howard.

Howard Phu: Thanks, Dewey, and thank you to everyone for joining us today. Today, I'll recap our Q4 results, share some color on the quarter and year, and conclude with our outlook. So let's jump in. Total revenue in Q4 was $260 million, up 29% year-over-year, and international revenue grew 32% year-over-year.

Thanks, Julie and thank you to everyone for joining us today.

Today I'll recap, our Q4 results share some color on the quarter and year and conclude with our outlook. So let's jump in.

Total revenue in Q4 was $260 million up 29% year over year and international revenue grew 32% year over year.

Howard Phu: Similar to prior quarters, our Q4 international results were impacted by currency headwinds. On a year-over-year basis, FX contributed approximately three points of headwind to international revenue growth. Therefore, on a constant currency basis, international revenue grew 35% year-over-year. Q4 non-GAAP operating income was $17 million, representing an operating margin of 7%.

Similar to prior quarters, our Q4 international results were impacted by currency headwinds.

On a year over year basis, FX contributed approximately three points of headwind to international revenue growth.

Therefore on a constant currency basis international revenue grew 35% year over year.

Q4, non-GAAP operating income was $17 million, representing an operating margin of 7%.

Howard Phu: Our key backlog metrics, specifically current RPO and current deferred revenue, grew 24% and 27% year-over-year, respectively. Before we dive into specifics, I want to call out that, in general, our business performance in Q4 and as of today is similar to what we described back in November and December. The demand environment remains challenging, but we continue to have confidence we will operate within the left side of our financial framework. Now, let me share some color on five specific topics. The first topic is related to the mechanics of CRPO.

Our key backlog metrics, specifically current RPI in current deferred revenue grew 24% and 27% year over year, respectively.

Before we dive into specifics I want to call out that in general our business performance in Q4 and as of today is similar to what we described back in November and December.

The demand environment remains challenging, but we continue to have confidence we will operate within the left side of our financial framework.

Now, let me share some color on five specific topics.

The first topic is related to the mechanics of <unk>.

Howard Phu: This metric slightly benefited from the timing of early renewals. Without this benefit, CRPO growth is in line with the low 20s revenue growth within the left side of our financial framework that we indicated on our last earnings call. The second topic is related to the mix of our business. The fourth quarter was emblematic of a trend we saw throughout 2023, which is that expansion performed better than the new logo. This can be seen in a couple of areas, one, customer account growth, which decelerated slightly, and two, net revenue retention, which remained stable.

This metric slightly benefited from the timing of early renewals without this benefit <unk> growth is in line with the low twenty's revenue growth within the less side of our financial framework and we indicated on our last earnings call.

The second topic is related to the mix of our business the.

The fourth quarter was emblematic of a trend we saw throughout 2023, which is that expansion performed better than new logo.

This can be seen in a couple of areas one in customer count growth, which decelerated slightly and two in net revenue retention, which remains stable.

Howard Phu: In general, we expect these trends to continue through 2024. We are seeing strength in the upper end of the market, and typically, this has come from customers expanding their volumes and adding products. Product cross-sell, which we define as expansion that comes from new product adoption, rose in the fourth quarter, with the majority coming from higher adoption in products such as financials and analytics.

In general we expect these trends to continue through 2024, we are seeing strength in the upper end of the market and typically this has come from customers expanding their volumes and adding products.

Product cross sell which we define as expansion that comes from new product adoption rose in the fourth quarter with the majority from higher adoption of products, such as financials and analytics.

Howard Phu: This is a positive dynamic and one we are excited about continuing to improve in the years ahead. The third topic is payment. As I mentioned to many of you in our conversations last year, we are excited and confident about this opportunity. We believe we have a unique advantage because we are the only end-to-end connected solution on a single platform. The early customer feedback has been positive, and we have already closed the majority of customers that were in our closed beta. As a reminder, it can take upwards of 24 months for a customer to be fully ramped up to pay.

This is a positive dynamic and one we are excited about continuing to improve in the years ahead.

The third topic is payments as I mentioned to many of you in our conversations last year, we are excited and confident about this opportunity.

We believe we have a unique advantage because we are the only end to end connected solution on a single platform.

The early customer feedback has been positive.

And we have already closed the majority of customers that were in our closed beta as a reminder.

Can take upwards of 24 months for a customer to be fully ramped onto pay therefore, while it is still too early to provide any quantitative disclosures in the near term we are focused on customer adoption and over the long term, we expect our payments offering will contribute to our overall growth.

Howard Phu: Therefore, while it's still too early to provide any quantitative disclosures, in the near term, we are focused on customer adoption, and over the long term, we expect our payments offering will contribute to our overall growth. The fourth topic is related to our efficiency improvement, specifically how we are managing margins and share count. We improved non-GAAP operating margins by 1,200 basis points in 2023.

The fourth topic is related to our efficiency improvements specifically, how we are managing margins and share count dilution.

We improved non-GAAP operating margins by 200 basis points in 2020 through this is strong evidence of our continued focus and commitment to improving how we operate across all aspects of the business.

Howard Phu: This is strong evidence of our continued focus and commitment to improving how we operate across all aspects of the business. The momentum around operational efficiency has increased significantly over the last several quarters, and this is not just the CFO initiative. Our entire leadership team advocates for operational efficiency, motivating their teams to continuously get better at what they do. I'm very pleased with the way that the leadership team is managing headcount, which in every software business represents the majority of expenses.

The momentum around operational efficiency has increased significantly over the last several quarters and this is not just the CFO initiative, our entire leadership team advocates for operational efficiency motivating their teams to continuously get better at what they do.

I am very pleased with the way that the leadership team is managing head count.

Which in every software business represents the majority of expenses, we've been redistributing resources to our highest need and highest ROI areas. This resulted in head count growth of only 4% year over year, while still maintaining our confidence that we have the right amount of resources to be successful in 2024.

Howard Phu: We've been redistributing resources to our highest need and highest ROI areas. This resulted in headcount growth of only four percent year over year, while still maintaining our confidence that we have the right amount of resources to be successful in 2024. An example of this is the decline in sales and marketing expense from Q2 to Q4, notwithstanding our annual user conference groundbreaker in Q3. The majority of these efficiency gains are from prioritizing headcount and marketing spend toward our most promising promotions and opportunities. These actions are ones we believe can generate the most optimized ROI, balanced across the near and long term, and that represent the core of our business. With respect to share count, we limited this growth rate in 2023 to a low single digit.

An example of this is in the decline of sales and marketing expense from Q2 to Q4.

Notwithstanding our annual user conference ground break in Q3.

The majority of these efficiency gains are from prioritizing head count and marketing spend toward our most promising emotions and opportunities.

These motions are ones, we believe can generate the most optimized ROI balanced across the near and long term and that represent the core of our business.

With respect to share count we limited this growth rate in 2023 to the low single digits.

Howard Phu: This result, combined with free cash flow generation of $47 million, led to free cash flow per share of $0.32 for the full year 2023, which is a significant increase year-over-year. As you've heard from us before, we believe free cash flow per share is the single most important metric reflecting the overall financial health of our business and are confident in our ability to improve this metric in the coming years, according to our financial framework. This brings me to my fifth topic, which is our 2024 outlook. As I described last quarter, we expect to operate within the left side of the financial framework this year. Let me share some context for what we expect in 2024. Based on our current line of sight, we believe the second half of 2024 may have stronger bookings performance than the first half, partially due to our increasing focus on the upper end of the market, which typically has longer sales cycles. This will likely result in CRPO growth falling below 20% early in the year and then likely rising towards the end of the year.

This results combined with free cash flow generation of $47 million.

It's a free cash flow per share of 32 for the full year 2023, which is a significant increase year over year.

As you've heard from US before we believe free cash flow per share is the single most important metric, reflecting the overall financial health of our business and are confident in our ability to improve this metric in the coming years, According to our financial framework.

This brings me to my fifth topic, which is our 2024 outlook as I described last quarter, we expect to operate within the left side of the financial framework. This year, let me share some context for what we expect in 2024.

Based on our current line of sight, we believe the second half of 2024 may have stronger bookings performance in the first half.

Partially due to our increasing focus on the upper end of the market, which typically have longer sales cycles.

This will likely result in <unk> growth falling below 20% earlier in the year, and then likely rising towards the end of the year.

Howard Phu: With respect to operating efficiency, our guidance indicates that we expect 2024 to be another year of significant margin improvement. This would represent two years of outsized margin expansion according to our financial framework. Specifically, our guidance implies a combined 1,800 basis points of improvement across 2023 and 2024.

With respect to operating efficiency, our guidance indicates that we expect 2024 to be another year of significant margin improvement.

This would represent two years of outsized margin expansion according to our financial framework.

Specifically, our guidance implies a combined 800 basis points of improvement across 2023 and 2024.

Howard Phu: While we are proud of our margin expansion in 2023 and feel confident in our guidance, we do not expect 2025 to have nearly the same magnitude of margin expansion, given our long-term growth opportunities and the investments required to capture those opportunities. With that, let's move on to our outlook. Our guidance continues to assume current economic headwinds persist through the remainder of the year.

While we are proud of our margin expansion in 2023 and feel confident in our guidance. We do not expect 2025 to have nearly the same magnitude of margin expansion, given our long term growth opportunities and the investments required to capture those opportunities.

With that let's move onto our outlook.

Our guidance continues to assume current economic headwinds persist through the remainder of the year as a reminder, over the past several quarters, we have taken a prudent approach to guidance to factor in external uncertainty and potential for incremental weakness in the market.

Howard Phu: As a reminder, over the past several quarters, we have taken a prudent approach to guidance to factor in external uncertainty and the potential for incremental weakness in the market. However, going forward, given our previously disclosed financial framework and commentary, we intend to have smaller revenue outperformance versus our guidance than in prior quarters and for the full year. Though we still have strong conviction, we will outperform our guidance. Note that while our margin guidance implies significant improvements to our efficiency profile, it still allows for the flexibility to invest in a potential upswing in the construction cycle that would benefit growth in future years. Growth is still our primary objective and will still be a significant driver of how we compound free cash flow per share over the next few years. With that in mind, here is our guidance for Q1 and full year 2024. For the first quarter of 2024, we expect revenue between $262 million and $264 million, representing year-over-year growth of 23% and 24%. Q1 non-GAAP operating margin is expected to be between 7% and 8%.

However, going forward.

Given our previously disclosed financial framework and commentary, we intend to have smaller revenue outperformance versus our guidance has been in prior quarters and for the full year.

Though we still have strong conviction, we will outperform our guidance.

Note that while our margin guidance implies significant improvements to our efficiency profile is still allows for flexibility to invest into a potential upswing in the construction cycle I wouldn't benefit growth in future years growth is still our primary objective and we will still be a significant driver of how we compound free cash flow per share.

Over the next few years.

With that here's our guidance for Q1 and full year 2024.

For the first quarter of 2024, we expect revenue between $262 million and $264 million.

Representing year over year growth of 23% and 24%.

Q1, non-GAAP operating margin is expected to be between 7% and 8%.

Howard Phu: For the full year of fiscal 2024, we expect revenue between $1.137 billion and $1.142 billion, representing total year-over-year growth of 20%. Non-GAAP operating margin for the year is expected to be between 7% and 8%, which implies year-over-year margin expansion between 500 and 600 basis points. In conclusion, while we operate in the current demand environment, we are going to accelerate our progress on operational efficiency and make greater improvements in our margin profile However, growth remains our long-term opportunity, and we intend to prioritize growth when appropriate and do so in an efficient manner. I'd like to close by again thanking our customers, partners, employees, shareholders, and the industry, as well as the communities we serve for giving us this opportunity. With that, let's turn it over to the operator for Q&A. Thank you. If you would like to ask a question, please press star followed by 1 on your telephone keypad. If you would like to withdraw your question, please press star followed by 2.

For the full year fiscal 2024, we expect revenue between $103 7 billion.

And one one for $2 billion, representing total year over year growth of 20%.

non-GAAP operating margin for the year is expected to be between 7% and 8%, which implies year over year margin expansion between 500 600 basis points.

In conclusion, while we operate in the current demand environment, we are going to accelerate our progress on operational efficiency and make greater improvements in our margin profile. However growth remains our long term opportunity and we intend to prioritize growth when appropriate and do so in an efficient manner.

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

Thank you.

Like to ask a question. Please press star followed by one on that sounds from keypad. If you would like to withdraw your question. Please press star followed by two.

Brent Bracelin: When preparing to ask your question, please ensure your device is unmuted. OK. The first question today comes from Brent Bracelin with Piper Sandler. Your line is open, please go ahead. Thank you. Good afternoon. 2E14U here.

When preparing to ask a question. Please ensure your devices on mute locally.

First question today comes from Brent <unk> with Piper Sandler. Your line is open. Please go ahead.

Thank you good afternoon, two one for you here it sounds like you're doubling down on our 400 I appreciate the color there between logo and actually volume penetration.

Dewey: It sounds like you're doubling down on ENR 400. Appreciate the color contrast there between the logo and actual volume penetration. The question here is, as you think about that opportunity and the focus on some of these larger GCs, we are seeing a slowdown in the total number of maybe smaller customers that we had in Q4. And just thinking through the implications of the focus on larger GCs, what does that mean from a customer count ad perspective going into next year? Well, Brent, thank you. Great question, something that we get asked a lot.

Ocean here is as you think about that opportunity and the focus on some of these larger gcs, we are seeing a slowdown in the total number of maybe smaller customers that we added in Q4 and just thinking through the implications of the focus on larger gcs, what does that mean from a customer count add perspective going into next year.

<unk>.

Well, Brian. Thank you great question, something that we get asked a lot I would we do not over index on the customer count as we mentioned before I think in previous quarters.

Dewey: We do not over-index on the customer count, as we mentioned before, in previous quarters, primarily because the SMB market has probably been overly impacted by the macro headwinds more than any other sector. And so our focus has been that market. But as you see, we've actually done very well with expansion with the enterprise. They're bringing out more volume and buying more products. So the implications are that that segment of the industry is performing well, and therefore, we're going to continue our focus on it going forward. Hey Brent, this is Howard.

Primarily because the SMB market has been probably overly impacted by the macro headwinds more than any other sector and so our focus has been that market, but as you see we've actually done very well with expansion with the enterprise.

Bringing up more volume and buying more products. So.

The implications are is that that segment of the industry is performing well.

And therefore, we're going to continue our focus on it going forward.

Hey, Brent this is Howard I just wanted to add on.

Howard Phu: I just want to add to what Tui said about the customer count. Remember that a large proportion of that is concentrated down market. I'd also want to point you to the fact that we actually have really good gross retention rates. We still have gross retention at 95%, so customers aren't leaving us. And also point you to the metric around net retention, net revenue retention, which is still stable at 114%. Some helpful color there.

Two we said about the customer count remember that a large proportion of that is concentrated down market.

I'd also want to point you to the fact that we actually have really good gross retention rates. We still have gross retention is at 95%. So customers are leaving US and also point you to to the metric around net retention net revenue retention, which is still stable at 114%.

Helpful color there and then one quick follow up for you Howard.

Howard Phu: And then one quick follow-up for you, Howard. CRPO had a nice snap back here during Q4, clearly aided by some of these deals that slipped out of Q3, but you're still guiding us through CRPO volatility in the first half. How much volatility have you seen 45 days into Q1? Is that informing the CRPO guy? Just trying to understand what you've seen so far in the booking side of the business 45 days in. Yeah, yeah, good question.

<unk> had a nice snapback here during Q4, clearly aided by some of these deals that slipped out of Q3.

But you still guide you to some CRP or volatility in the first half.

How much volatility have you seen 45 days here into Q1 is that informing the CRP Guy just trying to understand what you've seen so far in the bookings side of the business 45 days in.

Yes, yes. Good question, so no not really it hasnt really changed at all in terms of what we've told you in Q4, what was occurring so the dynamics are still remaining pretty much the same and we are still facing that challenging demand environment.

Howard Phu: So, not really. It hasn't really changed at all in terms of what we told you in Q4 and what was happening. So, the dynamics are still remaining pretty much the same, and we're still facing that challenging demand environment. The one thing that I will add is that, you know, what we talked about in terms of the potential beta of the outcomes, which was historically larger, that beta has started to stabilize and then get a little bit less. And so, that's some of the dynamics that we are seeing, but nothing has really changed from Q4 to Q1. Help With Color.

The one thing that I will add in there is that.

When we talked about in terms of the potential beta of the outcomes that was historically larger that beta has started to stabilize and then get a little bit less and so and so that's some of the dynamics that we are seeing but nothing has really changed from Q4 into Q1.

Helpful color. Thank you guys.

Brent Bracelin: Thank you, guys. Thanks, Brent. We now turn to Saket Kalia with Barclays.

Thanks Brent.

We now turn to <unk> Kalia with Barclays. Your line is open. Please go ahead.

Saket Kalia: Your line is open, please go ahead. Okay, great. Hey guys, thanks for taking my questions here. How are you? Hello, Saket. How are you?

Okay, Great Hey, guys. Thanks for taking my questions here how are you.

Good how are you.

Dewey: Thillie, I'm good. I'm fine. Thillie, maybe I'll start with you. You know, you mentioned earlier in the call that you've seen a couple construction cycles in the past, and we all see the construction metrics out there. I guess one of the questions that I get is whether Procore's bookings are going to see a lagging impact or more of a real-time impact if and when we see that market upswing, to your point. And so maybe the question is for you, Thillie, as you look back at prior cycles with Procore, what have you seen in terms of that timing element? Does that make sense? Yeah, no, it does make sense, Saket.

Good I'm good two way, maybe maybe I'll start with you.

You mentioned earlier in the call <unk> seen a couple of construction cycles in the past.

And we all see the construction metrics out there I guess one of the questions that I get is.

As wasn't pro <unk> bookings are going to see a lagging impact or more of a real time impact if and when we see that market upswing to your point and so maybe the question is for you too as you look back at prior cycles with four core one have you seen in terms of that timing element that makes it.

Yes, it does it makes sense.

<unk>.

Dewey: The advantage Procore has is that our pricing model has our customers paying us up front for volume, as you know. And so it's neither a lagging indicator or a current indicator. It's actually more of a forward indicator because people are committing to future volume. And so if you're looking at just other data sources, like census data, for instance, for 2023, what you're going to see is actually volume commitments that we actually saw in 2021 and 2022. And I hope that makes sense, because that really indicates that we're much more of a forward-looking metric. I got it.

The advantaged pro forma has is that our pricing model has our customers paying us upfront for volume as you know.

So it's neither a lagging indicator or a current indicator is actually more of a forward indicator because people are committing to future volume.

So if youre looking at just other data sources like census data for instance for 2023, whats Youre going to see is actually volume commitments that we actually saw in 2021, and 2022 and I hope that makes sense because that really indicates that we are much more of a forward looking.

Trick.

Howard Phu: That does make sense. Howard, maybe for you, great to see the margin improvement. I guess the question is, could you maybe touch on some of the growth areas that we've talked about in the past, like international and fintech, and maybe give us a sense for whether you're still able to invest in those future growth drivers while also showing this great margin improvement? Yeah, sure. Thanks for the question.

Got it got it that doesn't make sense Howard maybe maybe for you.

Great to see the margin improvement I guess the question is could you maybe touch on some of the some of the growth areas that we've talked about in the past like international and Fintech and maybe give us a sense for whether youre still able to invest in those future growth drivers.

While also showing this great margin improvement.

Yeah sure. Thanks for the question. So the short answer is yes, our margin guide has enough flexibility really for us to continue to make investments as we see areas of strength and develop.

Howard Phu: So the short answer is... Our margin guide has enough flexibility for us to continue to make investments as we see areas of strength develop. And so we have plenty of room for that flexibility overall.

And so we have plenty of room in that flexibility overall, so the short answer is yes, specifically on international we still continue to make progress on international we still believe that it is a big opportunity for us going forward over the medium and long term and we are starting to see some signs of strength in Q4 coming out of the EMEA region.

Howard Phu: Specifically, on international trade, we still continue to make progress on international trade. We still believe that it is a big opportunity for us going forward over the medium and long term. And we are starting to see some signs of strength in Q4 coming out of the EMEA region. There is still a lot of work left to be done, but we are starting to see signs there.

We are starting to see some signs there and there's still a lot of work left to be done, but we are starting to see signs there specifically with respect to Fintech I just wanted to make sure I reiterate again that has essentially negligible contribution to our top line. This year, but we still have opportunities to invest there.

Saket Kalia: Specifically with respect to fintech, I just want to make sure I reiterate again that it has essentially made a negligible contribution to our top line this year. But we still have opportunities to invest there as we think about the growth opportunities over the long term. And we have the flexibility to do that within our current profile and still continue to improve margins. Very helpful. Thanks, guys. Thanks, Saket. Our next question comes from Ken Wong with Oppenheimer. Your line is open, please go ahead.

As we think about the growth opportunities over the long term and we have the flexibility to do that within our current profile and still continue to improve margins.

Very helpful. Thanks, guys.

Thanks.

Our next question comes from Ken Wong with Oppenheimer. Your line is open. Please go ahead.

Ken Wong: Great, fantastic. I wanted to maybe dive into the comment around the margin expansion in fiscal 25. I realize that's pretty far out, but you guys did kind of float it out there. I guess if I was kind of thinking through the framework, you guys are at 500 basis points of expansion now. So if you get less, that kind of puts you in that middle tier.

Okay, great fantastic.

Wanted to maybe dive into the comments around the margin expansion in fiscal 'twenty five I realize that that's pretty far out, but you guys did kind of floated out there I.

I guess, if I was kind of thinking through the framework you guys are at 500 basis points of expansion now so if youll get less kind of puts you in that middle tier I guess would it be fair to assume that kind of baked in those 25 assumptions with like the back half bookings improving that you guys are expecting an acceleration in 'twenty five.

Howard Phu: I guess, would it be fair to assume that kind of baked in those 25 assumptions with the backup bookings and proving that you guys are expecting an acceleration in 25? So, the first thing is, you know, it's a little bit early to provide any specifics on Fiscal 25. We've got a lot to get through this year in terms of how performance plays out and how we can react to that in terms of our investments and what we see for Fiscal 25. And for fiscal 25, the framework still applies across the board, both from the top line to the profit billing metrics. But keep in mind that that framework is across a multi-year average over the next few years. And so that was the intent of that comment.

So the first the first thing is.

It's a little bit early to provide any specifics on fiscal 'twenty five we've got a lot to get through this year in terms of how performance plays out.

How we can react to that in terms of our investments are what we'd see for fiscal 'twenty five.

And for 'twenty five the framework still applies across across the board both on the top line to the profitability metrics, but keep in mind that that framework is framework is across a multi year average over the next next few years and so that was the intent of that comment the framework is still valid, but it's a multi year average and Keith.

Dewey: The framework is still valid, but it's a multi-year average. And keep in mind also that we have the flexibility to continue to invest in growth as we see things materialize this year.

In mind also that we have the flexibility to continue to invest in growth as we see things materialize for this year.

Got it okay, perfect and then one for <unk>.

Dewey: Okay, perfect. And then one for Thuy, I mean, you mentioned that, kind of, given the backdrop that, you know, perhaps some of your customers are being a little cautious on construction dollar volumes, I guess, kind of, based on what you guys have seen in Q4, Q1, is it more likely that as we kind of wrap up the year, those numbers will likely kind of play out more favorably than perhaps what's being messaged to you guys now? I'm not sure if you've got enough visibility today to kind of give us a sense of how that might look. I can give you my personal sense from the industry folks that I talked to, which is that it's pretty much a continuation of what we had said last quarter. You know, sentiment is still muted.

You mentioned that kind of given the backdrop that perhaps some of your customers.

<unk> being a little cautious on construction dollar volumes I guess kind of based on what you guys have seen in Q4 Q1.

I guess is it is it is it more likely that as we kind of wrap up the year that those numbers likely kind of play out more favorably than perhaps what's being message to you guys now I'm not sure if you've got enough visibility today to kind of give us a sense on how that might look.

Well I can give you my personal sense from the industry folks that I talk to which is pretty much a continuation of what we had said last quarter.

Sentiment is still muted.

Ken Wong: Folks are seeing that there are challenges, obviously, out there. I will say this, though, that just like last quarter, conversations still remain rather optimistic about the future. But, to be really straightforward, no real change from last quarter. When they talk about the year to come, they are still waiting for more positive signals to come in. So, essentially, it's been pretty flat and muted.

Folks are seeing that there are challenges obviously out there.

I will say this though that just like last quarter conversation still remain rather optimistic about the future.

So, but I would tell you that just to be really straightforward no real change from last quarter. When they talk about the year to come they still are waiting for Pos.

Positive more positive signals to come in so essentially it's been pretty flat and muted.

Dewey: Okay, perfect. Thank you for that call. Sure, Ken. We now turn to DJ Hynes with Canaccord Genuity.

Okay perfect. Thank you for that color.

Sure Ken.

We now turn to DJ Hynes with Canaccord Genuity. Your line is open. Please go ahead.

David E. Hynes: Your line is open, please go ahead. Hey guys, maybe we can just build on that last conversation point. So as I think about your comments on the bookings environment, the slowdown implied in the guide, and I'm not sure if this is the right way to ask it, but, How much is being driven by longer sales cycles impacting new business activity, which to me kind of reflects real-time or acute headwinds versus the lower upfront volume commitment, which, I guess, in that case, kind of feel more like speculative headwinds. Does that make sense? Is that a fair way to ask the question?

Hey, guys.

And if we can just build on that last conversation point. So as I think about your comments on the bookings environment. The slowdown implied in the guide and I'm not sure. If this is the right way to ask it but.

How much is being driven by longer sales cycles impacting new business activity, which to me kind of reflects real time or acute headwinds versus the lower upfront volume commitments.

Which I guess in that case kind of feel more like speculative headwinds does that make sense, you've got a fair way to ask the question.

Dewey: I think it's a fair way to ask it. I would definitely say that the longer sales cycles are definitely playing into the headwinds that we're seeing. As we mentioned last quarter, the commitments that are being made are now going all the way up to the C-suite in a lot of cases, which is slowing down the deals. Howard, do you want to add to that?

I think it's a fair way to ask it I would definitely say that there is.

The longer sales cycles are definitely playing into.

The headwinds that we're seeing as we mentioned last quarter, it's going.

The commitments that are being made are now going all the way up to the C suite and a lot of cases, which is slowing down deals.

But how would you want to partner.

Howard Phu: Yeah. Part of the comment around the seasonality between H1 and H2, there's a number of factors, and long sales cycles are definitely part of those. But part of those long sales cycles is also where our focus is going and where we're seeing our strength in terms of expansion and focusing on the upmarket. That's one factor.

The comment around kind of the seasonality between each one in age to now there is a number of factors and long sales cycles is definitely part of those but part of those long sales cycles is also where our focus is going to where we're seeing our strength in terms of expansion and focusing on the upmarket that's one factor.

Howard Phu: The other factor that we're thinking about in terms of the dynamics between H1 and H2 is really around as our customers are able to further diversify their portfolio and get more acclimated to operating in this environment, there's a potential that they could likely get stronger sentiment and pull it through to their buying behavior for Procore in the back half of the year. So all of those factors factor into what we're thinking about in terms of how things progress this year. Yeah,

Other factor that we're thinking about in terms of the dynamics between <unk> and <unk> is really around as our customers are able to further diversify their portfolio and get more acclimated to operating in this environment. There is a potential that they could they could likely get get stronger.

Stronger sentiment and flow through to our buying behavior for <unk> in the back half of the year. So all of those factors factor into kind of what we're thinking about in terms of how things progress for this year, Yes, TJ. Let me just build on that just really quickly which is the keyword there is sentiment right.

David E. Hynes: DJ, let me just build on that just really quickly: the key word there is sentiment. Our customers are going to look at a lot of factors when they make commitments to Procore regardless of how long the sales cycle is. And a lot of it is going to be the durability of their backlog, how confident they are in it, but also just all of the third-party inputs that they get that drive sentiment. One of them is the common question around interest rates, that not all construction projects are driven off of debt, but that is one input on sentiment, and there's a lot of input. And so it's rather complicated, but because sentiment plays into it, when you see improvements in sentiment, we think we're going to see improvements in commitment. Yeah, yeah. Okay. It makes sense.

Our customers are going to look at a lot of factors when they make commitments to <unk>, regardless of how long the sales cycle is.

And a lot of it is going to be the durability of their backlog how confident they are in it but also just all of the third party inputs that they get that drive sentiment one common question comes around.

<unk> rates that not all construction projects are driven off of that but that is one input on sentiment and theres a lot of input so.

It's rather complicated, but because sentiment plays into it.

When you see it.

Improvements in sentiment, we think we're going to see improvements in income index.

Yeah, Yeah, Okay makes sense and then maybe a second question. So one of the initiatives you talked about in the prepared remarks is driving configure ability at the high end of the market.

Dewey: And then maybe a second question. So one of the initiatives you talked about in the prepared statement, driving configurability at the high end of the, is that entirely enabled by product? and there's a lot of services component there. And I guess the question is like, how do you think about ushering those customers along with maybe a higher touch? Yeah, so as we've gone up market, and we've been successful there, configurability. You can't just deliver configurability and product; you actually have to bring the customer along on the journey. And so our customer success group is trained in that. But also, we have a very, very robust professional services organization that is adept at understanding how the construction lifecycle is operating within particular companies and getting them up to speed on, you know, the best practices, frankly, that we've learned from working with 17,000 customers.

Is that entirely enabled by product.

We're a services component there and then I guess the question is like how do you think about ushering those customers along with maybe a higher touch approach.

Yes, so as we've gone up market and we've been successful there.

Our ability you can't just deliver configure ability and product you actually have to bring the customer along in the journey.

And so our customer success group is trained in that but also we have a very we have a very very rare.

<unk> professional services organization, who has adapted understanding how the construction lifecycle is operating within particular companies and getting them up to speed on that.

The best practices, frankly that we've learned across working with 17000 customers.

So we can bring a lot of value through.

This configure ability that goes far beyond just the product, yes, just to add on Vijay that's a great example.

Some of the distribution of optimizing our resources that we've mentioned that we've been doing over the past few quarters, which in this case to align for example, Rps organization and the requirements of that organization that line up to some of the strength that we're seeing in the configure ability to going towards the upper end of the market. So this is a great example of that.

Howard Phu: And so we can bring a lot of value through this configurability that goes far beyond just the product. Yeah, just to add, DJ, that's a great example of some of the distribution of optimizing our resources that we've mentioned and we've been doing over the past few quarters, which in this case is to align, for example, our PS organization and the requirements of that organization that line up to some of the strength that we're seeing in the configurability going towards the upper end of the market. So this is a great example of that.

Yeah makes sense. Thank you guys.

Thank you.

We now turn to Adam Borg with Stifel. Your line is open. Please go ahead.

Awesome. Thanks, so much for taking the question.

Maybe two for you in the script you talked a lot about the opportunity in infrastructure and civil maybe you could go a little bit deeper there. Thanks.

Yes. So there is a large portion of the global construction market is infrastructure and civil and a lot of our customers. Today I think it is the largest contractors that you would know the name of having a certain portion of their construction run as civil and infrastructure.

David E. Hynes: Yep, makes sense. Thank you guys. Thank you. We now turn to Adam Borg with Stifel.

Now a lot of our customers built using per course tools today very effectively on civil and infrastructure projects, but we feel like we can do more and so we've been listening to the industry.

Adam Charles Borg: Your line is open, please go ahead. Awesome, thanks so much for taking the question. Maybe, Thuy, for you, in the script, you talked a lot about the opportunity and Civil. Maybe you could go a little bit deeper there.

To figure out what it is that we can do.

Dewey: Thanks. Yeah, so there's, you know, a large portion of the global construction market is infrastructure and civil. And a lot of our customers today, think of the largest contractors that you would know a name for, have a certain portion of their construction projects run as civil and infrastructure. Now a lot of our customers build using Procore's tools today very effectively on civil and infrastructure projects, but we feel like we can do more.

To meet those demands.

Our <unk> acquisition as I mentioned was a good example of that when Youre building a highway you need to know where the items are on that highway it's a very large expense.

So, adding the mapping capabilities that we got from from that acquisition.

<unk> add a lot of value. So we're going to continue to listen to the industry and allow our customers ultimately to run all of their volume on pro core across every project type that they run in and this is just such a big opportunity. It's one that we're really really excited about.

Great. Thanks, so much.

Sure.

We now turn to Nick Holtzman with Scotiabank. Your line is open. Please go ahead.

Dewey: And so we've been listening to the industry, trying to figure out what it is that we can do to, you know, meet those demands that, you know, our unearthed acquisition, as I mentioned, was a good example of that. When you're building a highway, you need to know where the objects are on that highway. You know, it's a very large expanse.

Awesome. Thanks, guys.

Just given the focus on expansion and improving NRI can you maybe just talk about sort of the underlying assumptions there in the guidance and whether that embeds expansion or contraction and NRI.

Right.

Right now again I want to remind folks there's a lot of dynamics that go into NR remember that we have a dynamic in our pooled models, where we could actually sign a lot more pool models that actually hurt NR, but it's good for our business and so in terms of some of those assumptions is not really.

Dewey: And so adding the mapping capabilities that we got from that acquisition adds a lot of value. So we are going to continue to listen to the industry and allow our customers ultimately to run all of their volume on Procore across every project type that they run. This is just such a big opportunity. It's one that we're really, really excited about. Great, thanks so much. We now turn to Nick Altman with Scotiabank. Your line is open; please go ahead.

The only key metric that we look at for NR Theres a lot of things that go into that so it's not as simple as just.

Assuming expansion in <unk> in terms of expansion.

Some of the dynamics that we've talked about in terms of the strength that we saw an expansion in the upmarket, that's actually where we're focusing and that's where we're starting to shift some of our resources to focus on that and that's another example, again of us moving our resources to where we see the strength so.

Nick Altman: Thanks guys. Just given the focus on expanding and improving NRR, can you maybe just talk about the sort of the underlying assumptions there and the guidance and whether that embeds, you know, expansion or contraction in NRR? Look, NRR right now, again, I want to remind folks, there's a lot of dynamics that go into NRR. Remember that we have a dynamic in our pooled models where we could actually find a lot more pool models that actually hurt NRR, but it's good for our business. And so in terms of some of those assumptions, it's not really the only key metric that we look at for NRR.

So that's kind of where it's going to look at.

Our guide I, just want to make sure everyone understands that our revenue guide assumes actually that things get worse, but we still have high conviction that we are going to be able to beat that guidance.

Okay, Great and then.

Second question is just on <unk> and <unk>.

Given the RPI kind of mixed picked up I mean, I would think in a more challenging macro customers Matt.

Howard Phu: There are a lot of things that go into that, so it's not as simple as just assuming an expansion of NRR. In terms of expansion, some of the dynamics that we talked about in terms of the strength that we saw in expansion and in the upmarket are actually what we're focusing on, and that's where we're starting to shift some of our resources to focus on that. And that's another example, again, of us moving our resources to where we see strength. So that's kind of where it's going. Look, our guide. I just want to make sure everyone understands that our revenue guide assumes that things get worse, but we still have high conviction that we are going to be able to beat that guide. Okay, great. And then?

A little bit less visibility than you would see the <unk> hold up a little bit better but.

Maybe customers are seeing elevated backlog and sort of outer years, and they're willing to sign longer duration deals. So can you just kind of talk about <unk> and <unk> mix just in context of the macro and then any more specifics you can give on the CRP number ex early renewals.

X early renewals so the <unk> growth in Q4 at 24% I would say the impact that the.

Tailwind from early renewals is probably in the 1% to 2% range in terms of that growth rate and so when you adjust for that it's squarely in what we told everyone last quarter in the low twenties.

Which is what we would expect in terms of the left side of the framework in terms of our revenue growth rate.

Howard Phu: Second question is just on CRPO and RPO. Given the RPO kind of mix picked up, I would think in a more challenging macro, customers may have, you know, may have a little bit less visibility, and you'd see the CRPO hold up a little bit better. But maybe customers are seeing elevated backlogs and sort of out of years, and they're willing to sign longer duration deals. So can you just kind of talk about the CRPO and RPO mix just in context of the macro, and then any more specifics you can give on the CRPO number x early renewal?

Outside of that the mix between short term and long term there are some dynamics that go into that from a timing of deals and when the when things happen. So it's not as simple as just looking at the mix and how that impacts impacts our results.

Alright, thanks, guys.

Thanks, Nick.

Our next question comes from Daniel Jester with BMO capital markets. Your line is open. Please go ahead.

Great. Thanks for taking my question.

Maybe to touch on the third key focus area for 2024 about <unk>.

Management and the <unk>.

Financial suite.

Nick Altman: Next, early renewals. Oh, so the CRPO growth in Q4 at 24%, I'd say the impact, the tailwind from early renewals, is probably in the 1% to 2% range in terms of that growth rate. And so when you adjust for that, it's squarely in what we told everyone last quarter in the low 20s, which is what we would expect in terms of the left side of the framework in terms of our revenue growth rate. Outside of that, the mix between short-term and long-term, there's some dynamics that go into that from the timing of deals and when things happen. So it's not as simple as just looking at the mix and how that impacts our results.

Can you just expand there like how much can you control in terms of pushing that are versus how much of that is just a duration story in which when projects get completed and new projects come online and it becomes a natural transition point to implement that.

Yeah.

Well. So look there is always a good time to implement our financials product, we'd like to tell our salespeople. So theres never a bad time to be having those conversations.

So I don't think it really.

Financials isn't tied as closely to projects.

Howard Phu: All right, thanks guys. Thank you. Our next question comes from Daniel Jester with BMO Capital Markets. Your line is open, please go ahead.

As you would think project management, our product there is very tied to projects right because it's all the way down to the project level.

But our buyer when it comes to our financial product suite is not the field personnel.

Daniel Jester: Great, thanks for taking my question. Maybe I could touch on the third key focus area for 2024, financial management and the financial suite. Can you just expand there, like how much can you control in terms of pushing that or versus how much of that is just a duration story in which when projects get completed and new projects come online, that becomes a natural transition point. Well, so look, there's always a good time to implement our financials product. We like to tell our sales people, so there's never a bad time to be having those conversations.

It's the back office as the CFO.

So it's a wholly different environment. So, yes, I don't think I would I would.

Look at it that way and just it's always a good time to buy broker financials, and if youre looking to buy somewhat accustomed to Sylvia.

Great.

And then maybe just another one on the enterprise and going deeper there as you think about sort of resourcing. There in an environment in which you are really trying to expand margin and is there anything youre trying to do differently in terms of the go to market to drive that or maybe expand on any comments you have there. Thank you.

Dewey: So I don't think it really – finances aren't tied as closely to projects as one would think. Project management, our product there, is very tied to projects, right, because it's all the way down to the project level. But our buyer, when it comes to our financial product suite, is not the field personnel. It's the back office. It's the CFO. And so it's a wholly different environment. So yeah, I don't think I would have – I wouldn't look at it that way.

Can I start with <unk>.

I think I'd be remiss to not say that having Larry on board is going to be a big is going to be a big health care because he has so much experience there, but but ultimately we're not shifting very much as to what we're doing we have been focused and we have been an enterprise grade software company for many many years and so the motion is not going to change dramatically.

Dewey: And just – it's always a good time to buy Procore financials. And if you're looking to buy some, I've got some to sell to you, and Great. And then maybe just another one on the.

But we are going to do a lot more.

There just will be more focused internally there.

Dewey: Enterprise and going deeper there. As you think about it, especially, thank you all for joining me. Yeah, can I start with the I think I'd be remiss not to say that having Larry on board is going to be a big help here because he has so much experience there. But, but ultimately, we're not changing very much as to what we're doing. We have been focused, and we have been an enterprise-grade software company for many, many years. And so the direction is not going to change dramatically.

Yeah, and I'll jump in then.

There is there is a capacity piece to this which is the simplest form in terms of adding capacity to where we expect our business will go in the growth piece there, but I'll also answer your question in the context of this is another example of how we're actually improving the way that we're operating in how we're getting more efficient by looking.

At where our distribution of resources are moving towards where we see that strength not just for sales capacity, but also for all the supporting headcount and infrastructure around that capacity as well. So that's the way that I would I would say to answer your question.

Howard Phu: But we are going to do a lot more of that. There will just be more focus internally there. Yeah, and I'll jump in, Dan. So there is a capacity piece to this, which is the simplest form in terms of adding capacity to where we expect our business will go and the growth piece there. But I'll also answer your question in the context of this being another example of how we're actually improving the way that we're operating and how we're getting more efficient by looking at where our distribution of resources is and moving towards where we see that strength, not just for sales capacity but also for all So that's the way that I would say to answer your question. Great, thank you very much. Thanks, Jeff. We now turn to Dylan Becker with William Blair. Your line is open. Please go ahead.

Great. Thank you very much.

Thanks, Dan.

We now turn to Dylan Becker with William Blair. Your line is open. Please go ahead.

Hey, gentlemen, I appreciate all the color here within the enterprise cohort in segments.

Relative to the overall kind of customer mix here too it seems pretty small for those that are kind of spending a 100, K or a $1 million.

Annually I guess, how should we think about that kind of runway or that opportunity for customers to continue graduating into these cohorts I know, we've got kind of this year of INR 400 spend but how should we think about kind of the expansion opportunity within within this base relative to either volume or product and I'm sure. It's a combination of both.

Dylan Becker: Hey, gentlemen, I appreciate all the color here within the enterprise cohort and segment. But relative to the overall kind of customer mix here, too, it seems pretty small for those that are kind of spending $100K or $1 million annually. I guess, how should we think about that kind of runway or that opportunity for customers to continue graduating into these cohorts? I know we've got a share of E&R 400 spend, but how should we think about the kind of the expansion opportunity within this base relative to either volume or product? And I'm sure it's a combination.

Yes, a couple of things one just a reminder, dylan that remember that while the vast majority of our customer count is concentrated down market. The vast majority of our dollars.

Our bookings dollars.

It comes from mid and upmarket. So it's a it's almost a direct opposite in terms of that inverted inverted pyramid.

Howard Phu: Yeah, a couple of things. One, just a reminder, Dylan, to remember that while the vast majority of our customer count is concentrated down market, the vast majority of our dollars, our bookings dollars in AR come from mid and up market. So it's almost a direct opposite in terms of that inverted pyramid.

The other way to think about this is one of the things that we did disclose is that we've got now two we talked about more than 2000 customers with greater than $100000 of a R.

Added growth clip.

Pretty healthy so that's one way to look at how we're making progress in terms of that enterprise space.

Okay got it helpful. And then maybe for you to sticking with kind of a civil opportunity is that something that youre, starting to actually see flow through to spend in backlogs.

Dewey: The other way to think about this is one of the things that we just disclosed is that we've got now, as we talked about, more than 2,000 customers with greater than $100,000 of ARR at a growth clip that's pretty healthy. So that's one way to look at how we're making progress in terms of that enterprise. Okay, I got it. Helpful. And then Tui, maybe you should stick it with kind of a civil opportunity.

Some of the stimulus and initiatives, we've seen or is that still something that remains on the come in kind of a multiyear growth runway.

It's definitely a multi year growth runway the folks that I'm talking to are saying that it is still a lot more talk than dollars.

But they are gearing up for getting ready for it and Thats one of the reasons why I remain so optimistic.

Very few dollars have actually been deployed and it's the opportunity is all right ahead of us.

Dewey: Is that something that you're starting to actually see flow through to spend and backlogs from some of the stimulus and initiatives we've seen? Or is that kind of still something that remains in the future and kind of a multi-year growth runway? It's definitely a multi-year growth runway. The folks that I'm talking to are saying that, you know, it's still a lot more talk than dollars. But they are, you know, gearing up for getting ready for it.

Got it thanks guys.

Thank you thanks, Tom.

We now turn to Jason <unk> with Keybanc capital markets. Your line is open. Please go ahead.

Great. Thanks for fitting me in.

Maybe for <unk> it looks like one of your competitors.

We made a small acquisition in the construction payment space, obviously, it's a validation of your strategy here, but how do you feel about your positioning today and how did you think the competitive environment was going to evolve.

Dewey: And that's one of the reasons why I remain so optimistic because, you know, very few dollars have actually been deployed. And it's, it's, the opportunity is all right ahead of us. Got it. Thanks, guys. Thank you. Thanks, Bob. We now turn to Jason Celino with KeyBank Capital Markets. The line is open, please go ahead.

From here thanks.

Yeah.

So like I always like to think imitation is the sincerest form of flattery, and first and foremost but.

Jason Celino: Great, thanks for fitting me in. Maybe for TUI, it looks like one of your competitors recently made a small acquisition in the construction payment space. Obviously, it's a validation of your strategy here, but how do you feel about your positioning today, and how do you think the competitive environment is going to evolve from here? Thanks.

In all seriousness I feel.

Great now as I ever have about our strategy around payments I want to remind everyone that payments are just that last step in a very long process.

Doing an estimate all the way through contract management change orders and invoicing.

Dewey: Yeah, so I always like to think imitation is the sincerest form of flattery, first and foremost, but in all seriousness, I feel as great now as I ever have about our strategy around payments. I want to remind everyone that payments are just that last step in a very long process, you know, from doing an estimate all the way through contract management and change orders and invoicing and, you know, lien waiver management to pay. So having a payments tool that just kind of stands alone isn't all that interesting, I don't think.

And lien waiver management to pay so having a payments tool that just kind of stand alone isn't all that interesting I don't think but boy when you put it together on a platform like you have a pro forma where everything is connected.

There is a tremendous amount of power in horsepower.

Behind that because now all of a sudden you are managing every dollar of that flows all the way through to the final payment into the bank account, which is just that last yard.

Perfect perfect interesting.

Dewey: But boy, when you put it together on a platform, like you have with Procore, where everything is connected, there is a tremendous amount of power and horsepower behind that, because now all of a sudden, you are managing every dollar that flows all the way through to the final payment into the bank account, which is just that last yard. Perfect. Perfect. Interesting. And then Howard, the framework for CRPO in the first half of 24, the variability you mentioned, is that a function of those early renewals, this moving into 23, or is it an assumption that the macro continues to get worse? Or is it purely just your comps?

And then for Howard the framework for <unk> in the first half of 'twenty for the variability you mentioned is that a function of those early renewals. This moving in 'twenty three or is it an assumption of macro continues to get worse or is it purely just the year over year comps.

I'm curious on kind of the rationale there. Thanks.

Well. The first thing is we don't have <unk> in our financial framework. That's the first thing I want to make sure but I think the framework that you are referring to is my commentary around H, one and H two.

So I think there's a combination of things that go into that Jason what is that the macro environment is continuing on based on what we saw in the back part of last year and Thats going to proliferate and we assume through the full part of this year. The reason for some of the H one versus <unk> II dynamic is one that focus on enterprise where those.

Jason Celino: I'm curious about the kind of rationale there. Well, the first thing is that we don't have CRPO in our financial framework. That's the first thing I want to make sure.

Howard Phu: But I think the framework that you're referring to is my commentary around H1 and H2. And so I think there's a combination of things that go into that, Jason. One is that the macro environment is continuing on based on what we saw in the back part of last year, and that's going to proliferate, and we assume through the full part of this year. The reason for some of the H1 versus H2 dynamic is, one, the focus on enterprise, where those sales cycles are going to be longer. Another factor that I talked about in a previous answer is that companies and our customers are going to get better at being able to manage their portfolios and their diversification within this environment. Now, as we get to the back part of the year, depending on what happens with things like interest rates, those are going to be inputs into that seasonality, but there are a lot of other factors.

Sales cycles are going to be longer another factor that would go into that I talked about.

Previous answer is.

The companys and our customers are going to get better at being able to manage their portfolio and their diversification within this environment now as we get to the back part of the year.

Pending on what happens with things like interest rates those are going to be inputs into into that seasonality.

But theres a lot of other factors. Another factor is when we get to the back part of this year that would be roughly about a year and a half or 18 to 20 months, which is about the average length of our contracts. So a lot of the customers that we saw renewing starting in the beginning of last year are going to come up for renewal again, and there is an opportunity for for that to pick up towards the back part of this.

Sure.

Perfect I appreciate it thank you.

Now turning to Joshua Tilton with Wolfe Research. Your line is open. Please go ahead.

Jason Celino: Another factor is that when we get to the back part of this year, that would be roughly about a year and a half or 18 to 20 months, which is about the average length of our contract. So a lot of the customers that we saw renewing starting in the beginning of last year are going to come up for renewal again, and there's an opportunity for that to pick up towards the back part of this year. Perfect. I appreciate it.

Hey, guys. Thanks for sneaking me in here I just have a few clarification.

My first one is I think you've kind of quantified the impact from the early renewals of <unk> in Q4, but could you kind of just talk to what drove it.

Talking to trends it sounds like things are still challenging, but then youre talking to early renewals, which I feel like people would be pushing things off in this kind of environment. So what drove the early renewals dynamic in Q4.

Joshua Tilton: Thank you. We now turn to Joshua Tilton with Wolf Research. Your line is open, please go ahead. Hey guys, thanks for sneaking me in here.

Yes so.

First thing is the quantification of their own renewals to the CRP growth I said is roughly around 1% to 2% in terms of what drives that I think a lot of it is going to be dependent quarter on quarter.

Howard Phu: I just have a few clarifications. My first one is, I think you kind of quantified the impact from the early renewal to CRPO and Q4, but can you kind of just talk about what drove it? You know, you're kind of talking about trends, it sounds like things are still challenging, but then you're talking about early renewals, which I feel like people would be pushing things off in this kind of environment. So what drives the early renewal dynamic? Yeah, so the first thing is the quantification of their early renewals to the CRPO growth I said is roughly around 1 to 2%.

It's not necessarily in terms of any specific dynamic that we're saying hey, this is stronger and folks are going to start pulling deals in I want to make a distinction also josh between an early renewal versus at pulling a deal and thats from a from the future.

This is a pure timing thing that has nothing to do with anything thats related to the macro environment.

Okay totally makes sense and then.

Just as a follow up.

I understand macro relative or just environment relatively unchanged this quarter from last quarter, but I guess, when we look to the outlook that you gave.

Howard Phu: In terms of what drives that, I think a lot of it's going to be dependent quarter on quarter. It's not necessarily in terms of any specific dynamic that we're saying, hey, this is stronger, and folks are going to start pulling deals in. I want to make a distinction also, Josh, between an early renewal versus pulling a deal in that's from the future. This is a pure timing thing that has nothing to do with anything that's related to the macro environment.

For 'twenty forward like what are you baking in from an environment perspective does it assume that 12 months from now youre going to sit here and say.

<unk> unchanged from what we saw in Q4 does it assume it gets better or worse like how should we think about that.

Yes.

When I talk about the H, one H two dynamic and the bookings dynamic on the seasonality between H, one and H two that assumes that the dynamic remains the same and it still remains challenging.

Howard Phu: Okay, totally makes sense, and then, um... As a follow-up, I understand macro or just the environment being relatively unchanged this quarter from last quarter, but I guess when we look at the outlet that you gave for 24, like what are you baking in from an environment perspective? Does it assume that 12 months from now, you're going to sit here and say, "the environment unchanged from what we saw in Q4"? Does it assume that it gets better or worse?

Keep in mind, I'll say again that the revenue guide assume things that assuming things get worse and again, we have very high conviction that we'll beat the revenue guide.

Super helpful guys. Thank you.

Sure. Thanks, Josh.

Our final question today comes from Kash Rangan with Goldman Sachs. Your line is open. Please go ahead.

Hi, Thank you so much congrats on a very good enter the year TUI and Howard.

One thing for you is do you have a new head of sales.

Generally when there is ahead of sales change in software or a CFO change itself and in their case. It was a very seamless transition with your CFO change, but ahead of sales change.

Howard Phu: Yeah, when I talk about the H1-H2 dynamic and the bookings dynamic on the seasonality between H1 and H2, that assumes that the dynamic remains the same, and it still remains challenging. Keep in mind, I'll say again, that the revenue guide assumes things get worse. And again, we have very high conviction that we'll beat the revenue guide. Super helpful, guys.

Always.

Ponder, if that's going to lead to any changes in go to market territory reassignments quota reassignments, maybe that's a little bit too.

Radical to expect something like that happening in such a short time.

Kash Rangan: Thank you. Sure. Thanks, Josh. Our final question today comes from Kash Rangan with Goldman Sachs. Your line is open, please go ahead.

At a time horizon can you just walk us through what the what are the things that.

Dewey: Thank you so much. Congratulations on a very good end to the year, Tui and Howard. I'll tell you one thing for you is that you have a new head of sales. Generally, when there is a head of sales change in software or a CFO change in software, in your case, it was a very seamless transition with your CFO change. But when there is a head of sales change, we always wonder if that's going to lead to any changes in go-to-market, territory reassignments, Maybe it's a little bit too radical to expect something like that to happen in such a short-term time horizon.

Your new head of sales there is going to be tweaking.

And what are the things that are going to stay unchanged and one for you Howard you you've laid out a margin framework at your analyst day, and you're absolutely right in calling caution at the bottom end of the market. It looks like the customer count in Q4 your call is absolutely right.

But it also appears to be the case that.

The revenue growth is coming better for two straight quarters.

Howard Phu: Can you just walk us through what are the things that your new head-of-sales, Larry, is going to be tweaking, and what are the things that are going to stay unchanged? And one for you, Howard, you laid out a margin framework at your analyst day, and you were absolutely right in calling caution at the bottom end of the market. It looks like the customer count in Q4 was absolutely right.

Number quarter and December quarter. The margin outcome has also been better than expected. So when I look at your margin guidance.

Percentage points non-GAAP op margin with fiscal 'twenty four it is not a whole lot different than how you exited Q4, with which was 7% I think at those numbers or better than expected versus the guidance you've laid out so.

Dewey: But it also appears to be the case that revenue growth has come in better for two straight quarters, the September quarter and the December quarter. The margin outcome has also been better than expected. So when I look at your margin guidance, 8 percentage points, non-GAAP, marginal fiscal 24, it's not a whole lot different from how you exited Q4, which was 7%, I think. And those numbers are better than expected versus the guidance you laid out. So either the revenue growth is really understated and you are more confident, you have higher conviction today than you did back at analyst day, or the margins have a lot more upside. Can you just help us gauge one for you? Each question for you, can you help us gauge how we should be interpreting your guidance? Thank you so much and congratulations. Let me do the second question first.

The revenue growth is really understated and you're more confident.

You have higher conviction today than you did back in back at the Analyst day are the margins have a lot more upside can you just help us gauge one for you. Each question for you can be helped us gauge.

How we should be interpreting your trial.

Guidance. Thank you so much and congrats once again.

Good question.

Let me let me do the second question first Kash this is Howard.

Just I want to make sure you and everyone else understands.

The revenue guide, while we have high conviction that we will beat that revenue guide the magnitude of the beats is not going to be as big as we saw in the past. Okay. I just want to make sure that that is extremely clear in terms of the margin guide relative to what we did in Q4 frankly in Q4.

As an example of the commitment and the reflection of the commitment and our focus on getting better and getting fit and it's not just something that's from my perspective. Its the entire company that has really taken this this mantra and taken it to how they operate every single day.

Howard Phu: Hi Kash, this is Howard. So I want to make sure you and everyone else understands the revenue guide. While we have high conviction that we will beat that revenue guide, the magnitude of the beats is not going to be as big as we saw in the past. Okay, I just want to make sure that that is extremely clear in terms of the margin guide relative to what we did in Q4. Frankly, in Q4, it's an example of the commitment and a reflection of the commitment and our focus on getting better and getting fit. And it's not just something that's from my perspective; it's the entire company that has really taken this mantra and taken it to how they operate every single day.

And in terms of the margin guide for fiscal 'twenty four.

Can also stress enough that this leaves us enough room to continue to invest in the flexibility to invest as we see the opportunities arise for additional investments into the growth that could come in fiscal 'twenty five so hopefully that's clear and that answers your question actually that dovetails very nicely.

In the mine so by the way today is Larry first day, so I want to give a little attitude to get as bearings. While get settled we've spent a considerable amount of time with Larry of course before he has come in he he is going to be our Crs are not only ahead of sales, but also customer success as well just to be super clear.

Howard Phu: In terms of the margin guide for fiscal 24, I can't also stress enough that this leaves us enough room to continue to invest and the flexibility to invest as we see opportunities arise for additional investments into the growth that could come in fiscal 25. So hopefully that's clear, and that answers your question. Actually, that dovetails very nicely in my mind.

Couple of things about Larry Larry.

Obviously has lots of experience we.

We are very aligned around a lot of things, but one thing that Larry and I are in lock step with is efficient growth. He knows how important growth is for <unk> and he knows our important doing it efficiently is.

Dewey: So by the way, today is Larry's first day, so I want to give him a little latitude to get his bearings while he gets settled. We've spent a considerable amount of time with Larry, of course, before he's come in. He's going to be our CRO, so not only head of sales, but also customer success as well. Super clear.

It's one of those things that he and I talk about in every conversation.

So I have high hopes that he's going to he is going to help us continue on this journey, but yes. He is he's going to get this variance first before any any major changes happen and I don't anticipate any anyhow.

Kash Rangan: A couple of things about Larry. Larry obviously has lots of experience. We are very aligned around a lot of things, but one thing that Larry and I are in lockstep with is efficient growth. He knows how important growth is for Procore, and he knows how important doing it efficiently is, and it's one of those things that he and I talk about in every conversation. So I have high hopes that he's going to help us continue on this journey. But yeah, he's going to get his bearings first before any major changes happen, and I don't anticipate any.

But thank you.

Absolutely welcome Larry.

Exactly.

Ladies and gentlemen, this concludes our Q&A on today's conference call.

Thank you for your participation you may now disconnect your lines.

Yeah.

Sure.

Operator: So, thank you. Absolutely. Welcome, Larry. I love you. We'll be back. Ladies and gentlemen, this concludes our Q&A and today's conference call. We'd like to thank you for your participation. You may now disconnect your line.

Yes.

Sure.

Okay.

Okay.

Okay.

Yes.

Yes.

Yeah.