Q1 2025 Procore Technologies Inc Earnings Call
Excuse me, ladies and gentlemen, please remain holding of the conference will begin shortly again, please remain holding of the conference will begin momentarily.
[music].
Speaker Change: Good afternoon. Thank you for attending today's pro core Technologies, Inc. FY 'twenty five Q1 earnings call. My name is to me and I'll be your moderator for today's call all lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question. Please press star one on your telephone keypad.
Speaker Change: I will now surpass the conference over to your host Alexandra Geller head of Investor Relations you May proceed.
Alexandra Geller: Good afternoon, and welcome to cohort 2025 first quarter earnings call I'm Alexandra Geller head of Investor Relations with me today are QE cored, a much sounder, president and CEO and Howard fail CFO.
Alexandra Geller: 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.
Alexandra Geller: Today's call is being recorded and a replay will be available following the conclusion of the call.
Alexandra Geller: Comments made on this call include forward looking statements regarding among other things our financial outlook go to market transition our stock repurchase program.
Alexandra Geller: <unk> customer demand operations and macroeconomic and geopolitical condition.
Alexandra Geller: Should not rely on forward looking statements as predictions of future events.
Alexandra Geller: Looking statements are subject to risks uncertainties and assumptions and are based on management's current expectations and views as of today may 1st 2025.
Alexandra Geller: Pro core undertakes no obligation to update any forward looking statements to reflect new information or unanticipated events.
Alexandra Geller: Sept as required by law.
Alexandra Geller: If this call is replayed or reviewed after today the information presented during the call may not contain current or accurate information.
Therefore, these statements should not be relied upon as representing our views as of any subsequent date, we'll also refer to certain non-GAAP financial measures to provide additional information to investors a reconciliation of non-GAAP to GAAP measures is provided in our press release and our periodic reports filed with the SEC.
Terry: With that let me turn the call over to Terry.
Terry: Thanks, Alex and thank you everyone for joining us today, so I'd like to begin by addressing what's top of mind for everyone.
Terry: Certainties and potential impacts of the tariff policies first and foremost I want you all to know that we have not seen any material change in our customers behavior. So far.
Terry: We are carefully monitoring this very fluid situation and we're staying close with our customers and prospects as it develops.
Terry: Customers are working to understand the impacts of these tariffs on their end customers and their supply chains.
Terry: For example, the typical contractor has a cost structure, that's made up of approximately one half labor and the other half materials.
Terry: Procurement has always been a balance of obtaining the highest quality materials at the optimal price point within the fastest timeframe and the introductions of tariffs do not change that calculus.
Terry: For project requirements stipulated by American tariffs may be less relevant than where domestic procurement might not even be possible tariffs could increase the cost of materials and ultimately the corresponding project costs.
Terry: Modest cost increases could likely be accommodated by contractors and their owner clients, which could benefit our business model.
Terry: Some contracts have allowances or escalation clauses designed to protect gcs and subs from unforeseen cost increases at many firms by materials at the onset of a project to mitigate the risk of future price increases.
Terry: However, should cost rise to a level, where a contractor or owner cannot absorb them. It is possible that projects could get delayed or even canceled.
Terry: Well Theres no way to know for sure. Some believe that if tariffs persist long term they could spark a wave of American re industrialization.
Terry: This outcome could drive substantial growth in nonresidential construction, creating a tailwind for the industry, our customers and ultimately for program.
Terry: Abroad, we have observed a renewed commitment to investment in infrastructure and nonresidential construction is exemplified by Germany's proposed 500 billion Euro infrastructure investment plan.
Terry: Over time, we expect this trend may benefit the growth of our international business.
Terry: We remain optimistic that even if the construction industry in cohort where to face short term headwinds due to the tariffs are business could benefit from long term tailwind.
Terry: At this point in time, we do not have any clarity on how tariffs might change the demand environment over the course of the year cohort.
Terry: <unk> pipeline remains steady and our customers haven't substantially altered their plants.
Terry: We are ready to adapt our strategy by either playing offense or defense based on how things unfold in an effort to optimize our free cash flow and our per share metrics.
Terry: Look construction is no stranger to uncertainty change or rising costs as the industry adapts to the evolving economic policy just like we've seen it do time and time again, we remain committed to driving its ongoing digital transformation.
Terry: Not forget that the world needs to be built and rebuilt and pro court is the industry chosen partner, helping to lead the way.
Terry: Okay. So now I'd like to shift gears and spend a bulk of this call addressing how we're focusing on the things within our control and how we are managing those areas to capitalize on the amazing long term opportunity for <unk>.
Terry: Let's start with our Q1 performance, which represented a solid quarter and a good start to the year.
Terry: Some highlights include we grew revenue 15% year over year.
Terry: non-GAAP operating margins increased quarter over quarter to 10% and we now have over 2400 customers contributing greater than $100000 than they are.
Terry: <unk> continues to win and retain a loyal customer base, because we deliver significant ROI for our stakeholders.
Terry: Today thousands of customers rely on the pro core platform to run their business, improving visibility and predictability, so that they could manage risk and make smarter decisions.
Terry: In a dynamic and uncertain macroeconomic environment the need for productivity gains at risk management becomes even more Paramount. This is exactly what the <unk> platform was built for to help our customers complete their projects on time and on budget.
Terry: <unk> real time reporting and analytics provide valuable insights into project costs and potential risks associated with tariff induced price changes.
Terry: Brokers document management and workflow capabilities enable meticulous documentation and change order management, which help stakeholders protect their margins in an environment, where cost can fluctuate rapidly due to tariffs.
Terry: Brokers platform fosters seamless communication and collaboration among project stakeholders, enabling quicker response to supply chain issues and cost changes.
Terry: So these are just a few examples of how our platform unlocks efficiency gains and reduces risk to help customers navigate a heightened cost environment and increased complexity.
Terry: Cohort continues to prioritize our platform capabilities deepening our ability to connect all stakeholders from the office to the field and across owners gcs and specialty contractors.
Terry: We are focused on creating an even more unified collaborative experience that further break down silos and streamlines communication across the entire project lifecycle a key part of this effort is harnessing the power of AI.
Terry: And when it comes to the value that we can deliver to our customers with AI, we've only scratched the surface.
Terry: Our agent strategy remains a key focus within our product roadmap, we have a number of agents in development across the platform from productivity Enhancers to potentially game changing next best action agents.
Terry: All of these agents are being built in direct response to customer feedback.
Terry: The agent potential is far reaching from uncovering revenue opportunities to improving productivity and reducing risk in some of the most challenging aspects of construction.
Terry: We are still very much in the early stage of building. These agents, but we are incredibly excited to test our first round of agents with our customers.
Terry: As we advance our connected platform strategy, we see greater potential to unlock value for our customers. We can achieve this potential by combining the integrated data on our platform with AI agents.
Terry: So take for instance, the two things that matter, most and construction time and money both of which <unk> helps customers better managed today.
Terry: In the future you're going to be able to task agents 24 hours, a day with monitoring and schedules and budgets alongside the data inside both the appropriate platform and our partner ecosystem.
Terry: These agents are being built to identify emerging patterns of real time, hoping teams proactively address issues that could impact time and budget at the project level.
Terry: So to give you. An example, many contracts have schedule obligations.
Terry: <unk> agents will help ensure that those specific timelines are met AI agents will seek to find the best conditions and timing for tasks identifying the relevant stakeholders and optimizing for their availability and then automatically sharing those recommendations with a human approver to schedule the tasks.
Terry: Historically, the only way to solve these problems was to add head count to the payroll.
Terry: So these agents have the potential to drive meaningful productivity gains reduce risk and improve margins.
Terry: Not only that these investments are going to better enable our customers to manage their businesses in a time of uncertainty or for that matter in times of strong demand, thereby strengthening our partnership and deepening the value that we provide to our customers.
Speaker Change: Look this is an incredibly exciting time, especially for someone like me who's deeply involved in our product and further in the adoption of AI in the construction industry and I believe that the possibilities ahead of us are endless.
Speaker Change: In the near term as we navigate this dynamic environment, we believe the measurable ROI that we deliver through our existing platform and our ability to help customers do more with less will drive continued growth for pro forma.
Speaker Change: Over the long term our opportunity remains as exciting as ever with several growth vectors as discussed in our last investor day to drive sustained and continued growth.
Speaker Change: First is acquiring new customers, which includes underpenetrated segments like owners and specialty contractors. We believe that there is more than 360000 logos in the markets that we serve today of which we have a little over 17000.
Speaker Change: Second is through volume expansion, we have less than half of our customers existing volume, meaning that we could double our committed construction volume without adding a single new customer.
Speaker Change: Third as product cross sell to help customers increase their efficiency and eliminate Siloed point solutions.
Speaker Change: Fourth is international expansion the Tam outside the U S is significantly larger than the U S. Yet it represents only 15% of revenue today.
Speaker Change: And last but not least we remain committed to investing in our platform to launch innovative products that enhance our customers' productivity.
Speaker Change: Our customer wins this quarter demonstrates success across all of these growth levels in.
Speaker Change: In Q1, we added new customers across all stakeholders, including and in our $2 50 specialty contractor global software leader Workday, a major social media platform and the Iowa Army National Guard.
Speaker Change: In the quarter. We also added a large semiconductor company as a new customer with growing investments in U S chip manufacturing they needed a scalable platform to manage complex multibillion dollar construction projects more efficiently.
Speaker Change: They intend to leverage <unk> to build a large scale semiconductor fabrication construction and retrofits as well as capital expansion programs across the U S and Asia.
Speaker Change: This was a competitive evaluation and <unk> ability to offer a single connected platform across the entire project life cycle was a key differentiator and a big reason we won the deal.
Speaker Change: Another large new logo win for the quarter was the European Division of a global commercial real estate firm.
Speaker Change: They've been using a number of point solutions, leading to operational inefficiencies and siloed and out of data information.
Speaker Change: They wanted a unified platform with integrated project management, and financials and powerful analytics to reduce risk and drive efficiency.
Speaker Change: In Q1, they chose <unk> to be the operating system for the future of their commercial delivery in Europe, adopting products and pre construction project management and financials.
Speaker Change: This is a great example of a customer who isn't just looking to manage their projects. They are engineering transformation across their operations by using <unk>.
Speaker Change: We also had strong expansion wins across stakeholders in Q1, including the University of Alabama, a premier space exploration company, a fortune 40 retailer one of Canada's largest subcontractors and Burns and Mcdonald and Ian are 38 general contractor.
Speaker Change: One of the largest wins in the quarter was an expansion win with a leading U S health care system.
Speaker Change: Since 2020, they had seen tremendous success using <unk> for one of their regions, but the other regions were still using a mix of manual processes and point solutions, resulting in limited visibility across their overall construction operation and disjointed reported.
Speaker Change: I am proud to share that this customer expanded their use of <unk> to all regions in Q1 to streamline processes across their business drive greater consistency in reporting and provide better visibility into construction operations moving forward. They will use <unk> to build all aspects of hospital construction.
Speaker Change: These customer wins stories highlight the wide range of use cases, where <unk> delivers value across the industry. We take great pride in our customers continued growth and we remain committed to delivering value as they navigate a dynamic economic environment.
Speaker Change: Now, let's shift gears to another area within our control, which is our go to market transition.
Speaker Change: As a reminder, we believe this transition will position us for continued topline growth, while allowing us to build deeper lasting partnerships with our customers.
Speaker Change: We remain confident in this operating model as.
Speaker Change: As previously shared we completed the early milestones up hiring and enabled our attention and focus has now shifted to adapting to the new operating model managing change effectively minimizing disruption and continuing to deliver customer value and growth.
Speaker Change: Q1 was the first quarter with this new operating model in place and it's already being well received by our teams customers and partners as expected we did experience some disruption in the quarter as the teams are ramping into their new roles and are adapting to the new business processes.
Speaker Change: We have certainly had some learnings, but we are all seeing some encouraging signs our customers are benefiting from the tailored market specific approach our general managers are taking as well as from the support that they're receiving from our new technical resources.
Speaker Change: And our sellers are diligently collaborating as they build pipeline and account plans for the year.
Speaker Change: All of this leads us to believe that we are on the right track.
Speaker Change: So when it comes to areas within our control. We are pleased with the progress that we've made there is still more work ahead and we anticipate change management will continue through at least Q2 as the organization acclimate. This new model, but we remain highly optimistic about our long term trajectory.
Speaker Change: This operating model is beneficial to our customers and creates a more aligned go to market effort that deepens, our customer relationships and better position <unk> to succeed in both stronger or weaker demand environments.
Speaker Change: So now I'd like to give you an update on our CEO succession plan in March we announced that I decided to initiate the search for my successor.
Speaker Change: We clearly stated that there is no set timeframe for the search and it's business as usual approach until we bring on the right candidate.
Speaker Change: Our performance this quarter reflects that continued focus.
Speaker Change: Announcing this early has already started to pay dividends in the form of strong referrals and I am personally very thankful to our shareholders and fellow technology and construction leaders who are passed along qualified recommendations.
Speaker Change: We recently hired a search firm and we're taking a thoughtful and patient approach as we search for <unk> next CEO.
Speaker Change: We're not in a hurry our priority is finding the right candidate and excellent operator with experienced leading companies at scale, who shares our passion for connecting everyone and construction on our global platform.
Speaker Change: So I want you all to know that I am as committed as ever and I could not be more excited about <unk> promising long term potential and with that I'll turn it over to Howard to share more on our business performance Howard.
Howard: Thanks, Julie and thank you to everyone for joining us the main topics I would like to cover today, our Q1 financial results additional color on the quarter and our outlook.
Howard: Total revenue in Q1 was $311 million up 15% year over year.
Howard: International revenue grew 18% year over year.
Howard: Our Q1 international results were slightly impacted by currency headwinds on a year over year basis.
Howard: <unk> contributed approximately two points of headwind to international revenue growth.
Howard: Therefore on a constant currency basis international revenue grew 20% year over year.
Howard: Q1, non-GAAP operating income was $32 million.
Howard: Representing a non-GAAP operating margin of 10%.
Howard: As for our key backlog metrics.
Howard: Current RPI grew 20% year over year.
Howard: Deferred revenue grew 15% year over year.
Howard: Now, let me share some additional color on the business.
Howard: In addition to our execution in the quarter current RP O continues to primarily benefit from a longer contract duration.
Howard: This is reflected in the notably higher growth rates in our non current <unk> over the last two quarters.
Howard: Longer contract durations can result in greater stability in current RPI growth for a longer period of time.
Howard: For example, a customer on a 12 month contracts that renewed at the end of Q4 would have approximately nine months of contract value in <unk>. When we report Q1.
Howard: But if that same customer renewed for 24 months at the end of Q4 <unk> would reflect 12 months of contract value. When we report Q1.
Howard: When normalizing CRP award this dynamic the year over year growth continues to be in the mid teens.
Howard: We expect this dynamic to continue to benefit <unk> for at least the second quarter of fiscal 'twenty, five which May result in a continued disparity between <unk> growth and our quarter revenue growth.
Howard: From a profitability standpoint, we expect to deliver continued margin improvement for the year.
Howard: The entire management team remains aligned and committed to continuously improving our profitability additions.
Howard: Additionally, we believe we have levers to deliver incremental margin improvements should tariffs result in notable headwinds to demand.
Optimizing free cash flow per share remains our primary focus in driving shareholder value and one lever we have is to opportunistically repurchase shares.
Howard: In the first quarter, we returned approximately $100 billion in capital to shareholders by repurchasing approximately one 5 million shares at an average price of $68 96.
Howard: We intend to continue repurchasing shares in Q2 should market conditions appear attractive.
Howard: With another $200 billion authorized under the existing program. We will continue to look for opportunities to use this lever to compound free cash flow per share as we remain convicted as ever in the long term opportunity for <unk>.
Speaker Change: Moving to tariffs as you heard from TUI. This is a fluid and evolving environment, we do not have clarity on how tariffs could change the demand environment. This year.
Speaker Change: As of today, we have not seen meaningful impacts to our pipeline from the tariff policies for that reason, we have not made material changes to our internal expectations. So far. However, we are continuously monitoring the situation closely and evaluating a range of potential scenarios to prepare for various.
Speaker Change: Outcomes.
Speaker Change: Spend discipline and operating leverage parked in our control regardless of external factors.
Speaker Change: Should a material demand headwind arise as a result of tariffs we are prepared to pull various financial and operational levers to deliver incremental margin expansion without sacrificing long term growth opportunities.
Speaker Change: We have a history of balancing growth and margin and challenging times. For example, we delivered more than 2000 basis points of non-GAAP operating margin improvement in 2020 during COVID-19.
Speaker Change: As we communicated at our Investor day, we remain confident in our path to achieve 25% free cash flow margins in the medium term and 40% free cash flow margins as a long term.
Speaker Change: And a prolonged slower growth environment, we believe we could achieve these profitability targets even faster.
Speaker Change: While the tariff policies have not materially changed our optimism about the long term opportunities for <unk>. It has influenced how we're choosing to guide for this year.
Speaker Change: When we initially shared our conservative fiscal 'twenty five revenue guidance, our intent was to flow through our quarterly revenue beats to the updated full year guide.
Speaker Change: In light of the tariff situation and despite our strong Q1 performance we are maintaining the high end of our previously issued full year guidance.
Speaker Change: We remain very confident in our ability to achieve our guidance. Despite the increased uncertainty due to the evolving tariff policies.
Speaker Change: With that let's move on to our outlook.
Speaker Change: For the second quarter of 2025, we expect revenue between $310 million and $312 million.
Speaker Change: Representing year over year growth of 9% to 10%.
Speaker Change: Q2, non-GAAP operating margin is expected to be between 11 and 11, 5%.
Speaker Change: For the full year fiscal 'twenty five we are maintaining the high end of our revenue guidance with a range between $1 86 billion and $1 two 9 billion representing.
Speaker Change: Representing total year over year growth of 12%.
Speaker Change: We are maintaining our non-GAAP operating margin guidance for the year to be between 13% and 13, 5%, which implies year over year margin expansion between 300 and 350 basis points.
Speaker Change: To wrap up we are pleased with how we started the year and we remain very optimistic and confident that we have multiple paths to improve our financial profile over the long term.
Speaker Change: We are the category leader, serving one of the world's largest industries, and we will prioritize efficient growth and strong per share improvements.
Speaker Change: With that let's turn it over to the operator for Q&A.
Speaker Change: Thank you we will now begin the question and answer session. If you would like to ask a question. Please press star followed by one on your telephone keypad.
Speaker Change: And who isn't at all you would like to remove that question. Please press star followed by two again to ask a question. Please press star one.
Zack Calia: The first comes from socket Calia with Barclays. You May proceed.
Zack Calia: Okay, Great, Hey, <unk>, Hey, Howard Thanks for taking my questions here and nice start to the year.
Zack Calia: Thank you thanks for that target.
Speaker Change: Hey, guys Howard maybe maybe for you.
Zack Calia: The CRP acceleration was great to see.
Zack Calia: And appreciate some of the dynamics that you called out with non current RPM, maybe thinking about the normalized growth.
Zack Calia: Called out can you just talk about some of the drivers there qualitatively in terms of strengths that would be the logos versus maybe net revenue retention from your existing.
Zack Calia: And when does that benefit from non current RP or maybe normalize.
Zack Calia: Yeah sure. Thanks so.
Zack Calia: I think in Q1, we had a strong new logo quarter.
Zack Calia: Think that definitely contributed to our performance in Q1, some additional color that I'll talk about as you know remember were viewed as partners strategic partners to our customers and one of the things that drove the.
Zack Calia: Kris and duration is really from the increase in terms of the pooled models that we think.
Zack Calia: <unk> signed up for.
Zack Calia: In Q3, and Q4 and the reason that's important is because it really gives our customers some flexibility to consume the volume that they buy from pro core over a longer period of time. So we think that that's what drove some of the longer duration.
Zack Calia: And just to give you a little bit more specifics of duration uptick from historically about 20 months to about 21, and a half lets and the proportion of our <unk> that is on multiyear deals increase from roughly about 38% of the AAR to about 43% of the AAR.
Zack Calia: In terms of when this might normalize we're probably looking at.
Zack Calia: The back part of the year, probably in Q4 is when this will normalize and we just wanted to provide color in the quarter to make sure folks understood that.
Zack Calia: That delta between where <unk> growth of our revenue growth is really in the mid teens in terms of <unk>.
Speaker Change: Yeah, absolutely that's really that's really helpful call out TUI, maybe maybe for you I'd love to dig into some of the changes from last year.
Zack Calia: Particularly international.
Zack Calia: As you brought on more management and at the local level.
Zack Calia: Some of the early signs that youre seeing on things like pipeline or customer conversations or any other metrics that you use to gauge success internationally.
Zack Calia: Yes, great question, it's actually the other way.
Zack Calia: Well into the middle of our transition so there's a lot that's happened since the last time, we spoke but yeah on the international front. This is really one of the big reasons why we made this change moving to the GM model was we really wanted to create more of a bespoke go to market effort in the markets that we're serving in a one size fits all just wasn't.
Zack Calia: It wasn't going to scale so.
Zack Calia: The thing that I can point to as I said I talked to customers all the time and I Freaking love it.
Zack Calia: One of the things that I hear often is hey, these new technical resources that you guys have been contributing to our accounts have actually made our adoption in our engagement go up and they are grateful for it and other resources they didn't have access to before.
Zack Calia: And so all of that just leads us to believe that growth will growth.
Paul in line and things are going to continue to move in a very positive direction. So we are very happy with where we are in the process of making this transition and the.
Zack Calia: The Green shoots are there one other area to just note is when you look at our project team that account manager and the customer success engineering all the folks that are swarming in account when those teams are operating as a unit and they are really fired up and they're finishing each other's sentences. You know you've got the right Org design and I'm seeing that again.
Zack Calia: And again so.
Zack Calia: Very very positive.
Zack Calia: All great to hear thanks, guys.
Zack Calia: Thanks Jack.
Speaker Change: Thank you the following comes from Dylan Becker with William Blair You May proceed.
Speaker Change: Hey, guys nice job here, maybe two maybe kind of sticking on that on the go to market front. The customers. Obviously are facing a lot of complexity in the current backdrop, but how that emphasis and swarming kind of plays into that long term strategic partnership positioning addressing things like rising input costs labor constraints.
Speaker Change: You have the like you kind of maybe how that enables you what gives you confidence in your ability to continue cross selling expanding.
Speaker Change: The volume base and several of them kind of the core tenants of the growth algorithm that you pointed to.
Speaker Change: Yes.
Speaker Change: One thing that just pointed out which I know you know us.
Speaker Change: What procure really was built for was to drive efficiency and productivity into our customers' businesses and so what we're seeing is in this time of additional stress and uncertainty in the marketplace.
Speaker Change: The customers are actually very grateful that we are actually providing the services that we do I was talking to one of our largest customers yesterday and they were saying that.
Speaker Change: They are grateful that we are a partner and not a vendor in these moments because we do so much more than just provide them. The software and then we partner with them on how to work through these big challenges and how to create the transparency on the job site. So people can see where the risk lies so.
Speaker Change: Yes, I think this is where <unk> shines and I'd say its.
Speaker Change: It's an honor to be a partner with the industry. During these challenging times.
Speaker Change: Great. Okay. That's helpful and then not going to Miss the AI opportunity. This time for you to me but.
Speaker Change: How do you think about your positioning in light of what you just said as well too given where you sit in a construction ecosystem today any access to curated data and the workflows to drive level of automation and productivity I mean, how does that give you the perception of the right to win.
Speaker Change: In an increasingly identical oriented thank you.
Speaker Change: By the way I Love. This deal and this is my this is where I spent a lot of my passion at time.
Speaker Change: So yes, what we have and we have this unique vantage point, which no. One else has because we were built in the cloud we only serve construction where a single code base, we have everything and we are a great partner ecosystem that debt.
Speaker Change: That provides data into the ecosystem. So because we have the corpus of data that we do across so many different project types across so many different stakeholders across so many different geos. We have the data to look for pattern recognition to help our customers run better businesses and that is exactly what it <unk>.
Speaker Change: Work is all about let me give you. An example, we have a.
Speaker Change: We have an agent that we're building with some customers right now around daily logs on the job site and a daily about going to job site is essentially a very important document that fills out who was onsite what accidents happened what observations happened, what photoshop and what visitors what deliveries all of that information has to be gathered on a daily basis. If the project manager doesn't do it they incur a loss.
Speaker Change: Risk for their business, so our customers the executives come to us all the time, saying, we need to repay somebody to go look at all of those daily reports everyday to see who hasnt build them out and now we have agents that are doing that 24, 7% with.
Speaker Change: With a couple of customers in the pilot and it is just game changing if not it is not.
Speaker Change: It's not like Super technical, but it's Super valuable and that's what we're focusing on is delivering value and productivity tools to our customers.
Speaker Change: Terrific. Thanks Duane.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Question comes from Joe Breunig with Baird You May proceed.
Speaker Change: Alright, great. Thanks, guys for taking my questions.
Speaker Change: You made the comment in the past that the length of the recession that is as much of the depth of recession and I know all of the tariff data is fairly fresh but.
Speaker Change: Maybe when you audit customer decisions and I guess this would be more of the annual variety.
Speaker Change: It seems like there is maybe any bracing for a shorter downturn and I guess, one takes the view of that.
Speaker Change: The downturn is short before the long term tailwind to we spoke too I would imagine, they're probably not changing their volume commitments because that.
Speaker Change: Impedes them on the other side is there may be that thought process that's helping.
Speaker Change: Kenneth preserved our financial performance in the quarter.
Speaker Change: Well, Joe I would look at it a little bit differently, which is our customers. They tend to be they tend to plan over the long term more than they they react to the short term, they're running projects and a lot of cases that are two years long so that for them their business is way out over the horizon theyre not going to make rash decisions based off of.
Speaker Change: News new cycles.
Speaker Change: But that doesn't mean that they're not very aware of what's going on and all of the folks I'm talking to are doing all of the prudent things that any other business owner would do which is running scenario planning putting in some cases subcommittees together they'll have folks that are focusing on commodities and pricing and pre purchasing of materials before jobs.
Speaker Change: And of course, our legal team is trying to get their escalation clauses into every contract that they have in order to be prepared but the takeaway on this one Joe is no. One is sounding the alarm. This is just people doing what they do when they're running a great business and then when I think about what <unk> is doing as much as there is a lot of noise out there and trust me we.
Speaker Change: Do the scenario planning like everyone else, we focus on what's in our control and we put all of our energy and the things that we can do to make our customers more productive and make them have better margins and so to us that's where our focus is.
Speaker Change: Okay.
Speaker Change: That's great and then touching on something you just said and then with tariffs there's going to be.
Speaker Change: A lot of little changes in the contractual arrangement and owners and contractors have with one another.
Speaker Change: <unk> management of the project itself trend differently.
Speaker Change: When you think about your financial and resource management solutions are you seeing a spike in interest there can those kind of serve as new conversation starters or lead generation maybe.
Speaker Change: Maybe pitch the broader suite.
Speaker Change: I would say, we haven't seen any material change not to say that our customers and the prospects out there don't value highly our financial products.
Speaker Change: They basically are.
Speaker Change: They are basically.
Speaker Change: Not overreacting and again like I said, they're not making quick decisions and actually Joe. This gives me an opportunity an analogy I'd like to share with folks is if you and I walked into an emergency room on a Friday night at 10 PM as lay people and we looked at what was going on in the chaos that may have the fear that the GOR and everything else, we would have one perspective.
Speaker Change: But if you turn to your prospective briefly to what the ER Doctor who has been working in that same ER room for the last 10 years their perspective, which is they're used to dealing with uncertainty they're used to dealing with chaos and regulation.
Speaker Change: And so that's the way I look at the industry is that these folks deal with this all the time look I've been doing this for many years and since two.
Speaker Change: <unk> 2002, I've seen time and time again, Theres, a new issued as yours, but they have to deal with but what they do is they deal with it and they deal with it consistently and they deal with it well and the best ones deal with it really well and they come out better than they when they went into it with.
Speaker Change: Thank you.
Jeff: Sure Jeff.
Speaker Change: Thank you.
Speaker Change: The next question comes from Brent bracelet with Piper Sandler you May proceed.
Brent: Thank you good afternoon, I wanted to maybe double click into kind of customer growth. If we think about the opportunity here I get the revenue and backlog could be impacted by a slowdown in construction.
Brent: Good to see it's not happening yet.
Brent: As you think about.
Brent: What would how would you measure progress and let's say a year from now.
Brent: You added 200, new customers. This quarter, you can't control the volume they come on but you can control the number of customers that decided to standardize on <unk>. So is that theyre. The northstar over the next year is it all about customer adds walk through the metrics if you can't control revenue.
Speaker Change: Would it be customers and logos that we should really look to see where you're having the most success.
Speaker Change: So one thing that I pointed out Brent was that we have 2400 customers that are contributing over $100000 in IRR for us it's much more about the.
Speaker Change: About the the dollar volume then it is the customer volume because.
Speaker Change: And our world. There is a lot of of SMB folks that do less than $5 million a year.
Speaker Change: They are.
Speaker Change: It's not an area, where we spend a lot of our time and so that's where we get the logo count increase that you're talking about now of course, I always want more and that's my job correct, so, but and we have been seeing success. The owners' businesses has been showing some success and so our international business, our cross selling our upsell and then when I zoom way.
Speaker Change: Mike.
Speaker Change: The Tam that we are focusing on is so big and there is so much untapped.
Speaker Change: Opportunity for us out there and that we have like I mentioned in the opening remarks, we have half of our customers volume.
Speaker Change: Scott the other App, we would double the size of this great business.
Speaker Change: Just so much ahead of US and then you got to be thinking about like all the things that we're doing I think doing well like our go to market transition like all of the work that we're doing with agents and AI just the future is very bright.
Speaker Change: Helpful color and then.
Howard You mentioned, one thing I just wanted to double click on relative to longer duration, I think you talked about mix.
Speaker Change: Mix of <unk>.
Speaker Change: There are.
Speaker Change: 20 plus months.
Speaker Change: How does that impact.
Speaker Change: <unk> recognition.
Speaker Change: Customer signed large larger contract because they slow consumption of those contracts maybe in year. One do you see a little bit of a change in Rev. Rec, there or not that we just only have an impact on <unk> and not revenue.
Speaker Change: Yes, Hey, Brett.
Speaker Change: Actually it doesn't impact of Rev Rec at all.
Speaker Change: And you can think about it this way what the longer durations of the lager proportion of customers with multi year deals. What it does is actually reloads CRP O sooner. So for example, instead of reloading <unk> in Q3 of this year those longer durations allowed us to read those CRP Oh in Q1 and Q2.
Speaker Change: And Thats why we wanted to call that out.
Speaker Change: That separation, if you control for that Brett our CRP growth would still be in that mid teens range.
Speaker Change: Helpful. Thank you so much guys.
Speaker Change: Thanks Brent.
Speaker Change: Thank you.
Our next question comes from Kash Rangan with Goldman Sachs. You May proceed.
Speaker Change: Hey, Thanks for taking my question. This is Matt Marciano on for Kash Rangan TUI, one for you I imagine with all the uncertainty out there pro quarters deflationary value prop to the construction industry should really start to resonate with customers. It seems like especially with the recent go to market enablement efforts, there could be a greater opportunity to cross sell some of these newer products, where there's still a lot of white space.
Speaker Change: I'd love to get your thoughts on any areas or products. We believe pro court can lean into to help customers navigate through a more dynamic macro.
Speaker Change: Yes, Matt So one of the big reasons why we did this transition that we're going through is we wanted to get closer to the customer and we wanted to drive adoption and engagement, which we believe gives us an opportunity and the right to have a conversation with the customer about these other productivity enhancement tools that we have to offer them and so that is really the journey that we're on and so.
Speaker Change: And it really depends on the stakeholders, so owners need different tool sets than the specialty contractors in gcs need a a different a different set too so.
Speaker Change: Theres always an opportunity to increase the number of products that our customers adopt of ours and I'm glad that we now have the teams in place to have those conversations.
Speaker Change: Okay.
Speaker Change: To remove on Matthew there.
Speaker Change: I think you said.
The next question comes from DJ Hynes with Canaccord you May proceed.
DJ Hynes: Hey, how you doing guys, maybe sticking with that go to market realignment threat. I mean, you alluded to kind of modest disruption in Q1, but you also said there were some learnings that you picked up as part of this process. If you could just double click on what those learnings were and kind of how that informs or changes in strategy. If at all kind of going into Q2.
Speaker Change: Three.
Yes, let me share some learnings with you, but I think the big takeaway here D. J is that everything is kind of going pretty much to plan right and by the way when you embarked on a journey to do a go to market transition to the scale and the scope in which we did you go through scenario planning and not everything ends up in your scenarios, where you would hope they would.
Speaker Change: I would honestly say that we believe that we have ended up in a great place in this transition.
Speaker Change: To your point, yes, there have been some learnings along the way of change management is never easy right.
Speaker Change: Communication is key and if you don't get some of the communication right you got to go back and fix it but in general I really believe that we have done a great job on this and that we're making great progress Hey, DJ. This is Howard I'll, just I'll, just really quickly add on.
Speaker Change: Sure. The short answer is we are about exactly where we thought we would be both in terms of the disruption that we expected as well as some of the green shoots that we expected and we expect to continue on this journey through Q2.
Speaker Change: And then we still expect to get some of this benefit.
Speaker Change: Going into the back part of this year.
Speaker Change: And we're about where we thought we would be and that's a sign and it gives us additional confidence that this is the right model to go towards as we as we go after this long term opportunity for <unk>.
Speaker Change: Yes, I would say definitely not mission accomplished I don't want to I don't want to send that DJ but we have work left to be done, but I'm definitely happy with where we've ended up.
Speaker Change: Good that's great to hear how maybe the financial follow up to that would be just looking at like Q1 sales and marketing Opex I was a little surprised to see it below Q3, 'twenty four levels right, especially given kind of the incremental hiring you did in the back half of last year. So there are efficiencies that are being drawn out elsewhere in the model like how should we think.
Speaker Change: About.
Speaker Change: And of that Opex line, specifically as you continue to scale the Oregon.
Speaker Change: Yes in the back part of fiscal 'twenty four D. J there were a lot of one time things that we that we actually deploy.
Speaker Change: <unk> deployed and invested in that we talked about last year. Those are one time and did not persist into fiscal 'twenty five.
Speaker Change: However, we still did continue to add resources and a significant amount of resources to support this changes on the go to market side in Q4 into the first part of Q1, which that offset that which then offset that a little bit but it was really about a lot of the a lot of the onetime pieces from last year and just to remind everyone look what we're optimizing for is.
Speaker Change: Any particular expense in the quarter or CRP quarter or anything like that is really about optimizing free cash flow per share and compounding free cash flow per share overtime.
Speaker Change: Yeah very clear okay. Thank you guys.
Speaker Change: Yeah. Thanks C J.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Adam Borg with Stifel. You May proceed.
Adam Borg: Awesome and thanks, so much for taking the questions.
Speaker Change: The first one.
Speaker Change: <unk> so.
Speaker Change: Your point, obviously, if there is a potential.
Speaker Change: Downturn here.
Speaker Change: It's always a great opportunity to go deeper into the installed base that you talked about having less than half the.
Speaker Change: Our volume in the existing customer then there is another 50, 50% plus remaining any thought or any visibility into this.
Speaker Change: Of the ATV that you do not do not have today.
Speaker Change: What is already in our competitors.
Speaker Change: Our book of business, but not available altogether is just trying to size the size of that opportunity and then I have a follow up.
Speaker Change: Yeah. So.
Adam Borg: By the way one thing to think about Adam is that a lot of the accounts that we're going into right now they don't have an existing system or if they do theyre using Microsoft office or some sort of a.
Adam Borg: Kind of homegrown situation or a bunch of point solutions and in some cases, some old ERP systems to.
Adam Borg: To do their project management. So it's not really is uniformly spread as you would one might think across that.
Adam Borg: Generally the only reluctance our customers have to bring on more volume is it is a matter of change like are they go is there a division within the organization. They have to go through a whole bunch of change management in order to go through.
Adam Borg: Is there a division that's working for a particular sector, where they have some specialized software that they might be using so it's all of that but to me. Its all <unk> its all greenfield and it's all as ours for the taking.
Adam Borg: Just have to go get it.
Adam Borg: So that's super clear and that that's real exciting maybe as a follow up Howard.
Adam Borg: Just on gross margin it was a little bit lower this quarter relative to the <unk>.
Adam Borg: Last number of quarters, just any color there and how we should think about for the rest of the year. Thanks. So much.
Adam Borg: There is really there is really not not nothing to take from that the gross margin ticked down was really a result of some of the changes we made on the go to market side that shifted some of the expense from sales and marketing to cost of revenue, it's neutral to free cash flow, it's neutral to operating margin it's really.
Adam Borg: A function of where it sits on the P&L. So theres nothing really there to to look at over overtime, we still expect gross margin to be in the mid eighties, plus or minus one or two points.
Adam Borg: That's the way that you should think about it.
Adam Borg: Okay.
Adam Borg: Excellent. Thanks again.
Adam Borg: Yes, Thanks Adam.
Speaker Change: Thank you. The final question is from Jason <unk> with Keybanc capital markets. You May proceed.
Speaker Change: Great. Thanks for fitting me in maybe just a couple of questions on the duration update.
Speaker Change: Is this being driven by maybe some of the.
Speaker Change: Go to market changes are there any incentives that the salespeople are getting to.
Speaker Change: Drive some of these pooled deals are these longer deals.
Speaker Change: And then maybe why would it normalize in Q4 is that just a function of lapping.
Speaker Change: Yeah. So the last part of that question is yes. It is just lapping kind of when these these changes started to take place in Q3, and Q4 and you could see that in the growth rate of our long term.
Speaker Change: Long term, our Po I want to be clear there are no special incentives that we are putting in place for our field to sell longer term deals and as I mentioned earlier on the on the Q&A. We believe it's because our customers again looking at us as a strategic partner really wanted the flexibility to consume the ace.
Speaker Change: That they buy from <unk> and things like multi year pool models allow them to do that and we started to see that in Q3, and Q4 and thats whats impacting the duration.
Speaker Change: Okay excellent and then maybe just one question on guidance philosophy I think this earnings season has been.
Speaker Change: Right.
Speaker Change: Different for many companies and different management teams are taking a different approach.
Speaker Change: You spoke about in the prepared remarks, a little bit but can you maybe just speak to how youre thinking about.
Speaker Change: The revenue guidance and conservatism because when I look at the <unk> guidance.
Speaker Change: Decelerates in.
Speaker Change: Implied reacceleration in the back half just curious how you're how you're approaching this thanks, yeah, where.
Speaker Change: We're approaching it very conservatively.
Speaker Change: <unk> has the ability to withstand a significant decline in our demand environment, and we would still be able to hit and beat that guide of internally, we continue to evaluate a range of scenario outcomes.
Speaker Change: And we have conviction that the guide is enough to cover <unk>.
Speaker Change: Significant down case, we continue to control what we can control.
Speaker Change: And we continue to optimize for free cash flow per share.
Speaker Change: <unk>.
Speaker Change: We will we will continue to manage the business appropriately what we can control regardless of what's going on in the external market and we think we have room to just beat the revenue guide, but the opportunity to provide incremental margin improvement should we see the demands.
Speaker Change: Headwinds pickup I want to be clear, though we haven't seen any material changes on that today.
Speaker Change: Okay, perfect very clear thank you Howard.
Speaker Change: Yeah. Thanks, Jason.
Speaker Change: Thank you.
Speaker Change: Thank you for your participation today. This concludes today's conference call you May now disconnect your line.