Good afternoon. Thank you for attending today's Procore Technologies FY '22 Q1 Earnings Call. My name is Tia, and I'll be your moderator for today's call. I would now like to turn the call over to Matthew Puljiz, Vice President of FP&A and Investor Relations with Procore Technologies. You may proceed.

Thanks. Good afternoon, and welcome to Procore's 2022 First Quarter Earnings Call. I'm Matthew Puljiz, VP of FP&A and Investor Relations. With me today are Tooey Courtemanche, Founder, President and CEO; and Paul Lyandres, CFO. A complete disclosure of our results can be found in our press release issued today, which is available on the Investor Relations section of our website. Today's call is being recorded, and a replay will be available following the conclusion of the call. Comments made on this call may include forward-looking statements regarding our financial results, products, customer demand, operations, the impact of COVID-19 on our business and other matters. These statements are subject to risks, uncertainties and assumptions, and are based on management's current expectations as of today, May 4, 2022. 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. 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. Additionally, we may refer to certain results as organic, which we generally define as business performance or results that exclude the acquisition of Levelset. However, with respect to our customer count metrics, we define organic to mean customers under Procore contracts. With that, let me turn the call over to Tooey.

Thanks, Matt, and thank you, everyone, for joining us today. First and foremost, I want to start by acknowledging the events occurring in Ukraine and throughout the region. Although our business has very limited exposure in the region, this situation is devastating, and our thoughts and support are with the people of Ukraine. Procore is continuing to find ways to assist and be helpful where possible. Now turning to the business. We had an excellent Q1 as we exceeded our expectations for the quarter. I continue to be so proud of the team, our momentum and what we've achieved. The strong performance we delivered didn't just come from one place. We saw a notable strength across the spectrum of stakeholders, customer size and geographies, from owners to GCs, from the enterprise to small businesses and from the U.S. to APAC. Additionally, we had a record quarter for pipeline generation, setting us up for great momentum through the rest of the year. It's important to look at our performance in the context of the broader environment we're operating in. Many of the investors we speak with have an initial perception that the macro environment is challenging to our business. But the reality is that despite the challenging environment, construction activity is robust, and customers tell us that they've never seen stronger and healthier project backlogs. That said, the overall environment remains dynamic, and we will continue to inform you of what we see. Our strong performance is demonstrated by our Q1 results, and the positive indicators that we're seeing from the industry today lead us to remain highly optimistic and confident that we'll continue to execute against our plan as we support the industry and our customers in meeting their growing project backlogs. One of those positive indicators is how our…

Thanks, Tooey, and thank you to everyone for joining us today. As Tooey mentioned, we delivered excellent Q1 results that exceeded our expectations. I'll quickly recap our financial results, share some color on the quarter's highlights and conclude with our outlook. Revenue in the quarter was $160 million, up 40% year-over-year and up 34% organically when excluding Levelset's $7 million contribution. On an organic basis, we ended the quarter with 12,809 customers, representing 20% growth year-over-year. Our non-GAAP operating loss was $20 million, representing a consolidated operating margin of negative 12%. Taking a step back, there are a few things I'd like to highlight regarding our Q1 results. First, as Tooey alluded, it's difficult to attribute the quarter's success to any one particular area that outperformed. We saw strength across multiple areas of the business. Multiple stakeholders, geographies and customer sizes performed very well. We believe this reflects the industry's accelerating recovery, our platform's leadership and brand as well as our strong execution. Second, we've continued to sustain healthy overall customer growth, with 616 net new customer adds organically in the quarter. What gives us additional optimism is that this quarter, we started to see small business perform well despite the ongoing macro dynamics. This customer demographic has historically been disproportionately impacted by supply chain delays and inflation, so seeing this performance in Q1 is very promising. Third, we saw record pipeline generation, creating momentum for the year ahead. The improvement in our pipeline reinforces the commentary Tooey shared earlier. Our customers are experiencing higher end demand and they continue to choose Procore because of the value our platform delivers. Lastly, our operating margin came in better than expected this quarter, primarily due to our revenue beat and the timing of expenses within the quarter. But more broadly, it is…

The first question is from the line of Dylan Becker with William Blair.

Congrats on a great quarter here. Maybe first, again, I think you kind of touched on it around the data opportunity here, right? You've got the users, right? You've got the bidding, the preconstruction insights, and that obviously gave you some confidence in the pipeline for the remainder of the year. But how are you thinking about the leveragability here, providing visibility to add and to manage some of the input costs, some of the challenges that those end customers are seeing, the potential marketplace dynamics maybe it ties into, I think, as well with that future payments opportunity or cash flow management dynamics? But how are you thinking about leveraging that data asset, obviously, an important hire here, but as you scale those users and service that industry system of record over time?

Yes, I appreciate the question, Dylan. I think when we think about the data that the Procore platform generates, that there's a tremendous amount of opportunities to help make our customers more efficient across a broader spectrum, everything from cost to safety to schedule. One of the things that we're just really proud of is in the process of digitizing a number of these businesses, we are able to show them back information about their own projects, about benchmarks more broadly, as well as visibility into many things that do cost them money or slow down their projects. And so for us, this is going to be a long journey, but we absolutely believe that the data we have is only going to help make these contractors more efficient across a broad spectrum, including the challenges across supply chain and input costs.

Yes. And I will say, Dylan, that one of the ways to look at this is for years, we've been helping our customers manage risk with the data. And that's been great because that helps to prevent them from going out of business. But I think the greatest compliment we've been receiving over the last few years is that the insights that we reflect with that data back to our customers enable them now to run better businesses and do more work and actually expand their businesses. So we've gone from playing defense to playing offense, and it's really -- data has really played a huge part of that.

No, I appreciate it. That's great. And obviously, the demand is very apparent in the kind of core adoption trends you guys are seeing. I guess maybe honing in on kind of the opportunity across stakeholders as well, right? So you've got that -- a unique perspective around the opportunity to monetize maybe that same dollar in construction volume across those kind of 3 core stakeholders as well, right? So as you think about kind of the opportunity there, driving value across each of those stakeholders and the nuances, how are you maybe thinking about monetizing the same kind of construction dollars, thinking about maybe the overall opportunity and penetration being lower than maybe the construction volume might imply as well as leveraging that collaborator model too, right, from a cross-sell effort perspective as well?

Well, I appreciate the question, Dylan. So there's a lot in there, but essentially, -- so essentially, if you think about what our mission is, it's to connect everyone in construction on a global platform. So we're not going to be successful until that -- until we are able to take all those stakeholders and effectively connect them. But if you're looking for one example, for instance, in how we can create opportunity for Procore in that environment, you could look at where we're moving with being in the flow of funds for the way construction gets funded. So for instance, we were able to provide the ability for owners in GCs and subs to be able to manage their lien waiver process in the future, which is what we've already been talking about, but then beyond that, in the next phase of being able to be in the flow of funds for moving cash and moving payments to the system, opens up a tremendous number of opportunities for us to look at for these other fintech businesses. So there's -- that's just one aspect of what it means to connect people.

That's great. And again, congrats on an excellent quarter.

The next question is from the line of Saket Kalia with Barclays.

Okay, great. Tooey, maybe just to start with you. Just obviously, a lot of the questions that we get are around macro, and feels like your commentary here is palpably more positive. So I just want to stress test it a little bit. Can you just talk about the impact that inflation is having on your customer base? And sort of what gives you that confidence? Because I know you spend time with customers every day. What gives you that confidence that the building backlog that you're seeing is ultimately going to get built on schedule and then have that sort of follow-on benefit to Procore?

I appreciate the question, Saket. I get asked this question all the time. So yes, first, I want to start by saying I do talk to customers every day, and the customers do tell me that their backlogs have never been bigger or stronger, which is a massive indicator. Now we have other indicators. The -- our ability to increase pipeline, like I mentioned in the earlier remarks, is actually -- gives us a lot of faith that the business is going to do well over the year. And so we also see a lot of just overall optimism when we talk to the industry. There's also external sources. There's the Architectural Billing Index, there's the Dodge Momentum Index. But one of the things I look at, which I think is really interesting in terms of external data, is employment in construction is back to pre-COVID numbers. The folks in the construction industry would not be hiring these people if they didn't have so much confidence in their backlogs. So that to me is one of those unassailable facts that you just have to take into account. The other one -- the other way to look at this is that we've been talking a lot about this lately, but there is a supply and demand disparity in construction. There is so much demand for construction, which is evident by these backlogs, but our customers have the lack of folks on staff to build them so there's a supply challenge. And there is a very large discrepancy between the demand for construction and what is able to be supplied by the industry. And so what we -- the way we look at it is any sort of impact to the overall demand, so for any one of those macro sources that you're talking about, would have to be very large in order to have such an impact on the macro demand to lower it to a level where we believe it would actually have an impact on Procore. And also, the other thing is all of the catalysts that we've seen are actually helping accelerate the digital transformation. Because all the companies that we're selling to, like Lee Lewis, for instance, I mentioned before, they aren't looking for cheap software, they're looking for software to help drive efficiencies in their business so they can run better businesses. So ultimately, we think that we're well positioned.

Got it. That makes a ton of sense. Paul, maybe just on the back of that, again, just great to hear of the backdrop in construction. But can you just maybe talk anecdotally of where we stand on the net revenue retention sort of relative to pre-pandemic levels?

Yes. Look, I think one of the things that also continues to give us optimism on the business is just how we are watching these metrics across the board from retention, growth and . We continue to see really positive trends in those dynamics, and it's a function of customers buying more products, customers buying and expanding in their volume, but it is an area that is a bright spot for our business.

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

Maybe for Tooey, so it's great to hear about the recovery in the end markets that you've been talking about, even in the SMB part. But let me even just ask a broader question. So it's been about 6 months since the infrastructure bill was passed, and you talked already about the strong backlog. But I was curious here, what kind of impact that, that's having yet, if anything, on the AGC industry? And remind us of how that could trickle out to impacting you guys in the future.

Yes. So great question, Adam. The -- we have not seen a direct impact yet. In fact, we work very closely with the AGC. And they -- even their head economist said that this is something for later in the year as these projects start coming online. It takes a long time to get these shovel-ready. But ultimately, we believe it will have a positive impact on the industry. And we always come back, Adam, to the analogy that Paul likes to talk about, which is the oil tanker, which is this industry is very large and is so large that it takes a long time for change to impact it. But when it does and these stimulus bills, those infrastructure bills are large, we believe it will actually have a positive impact on the overall construction industry, thus on Procore.

Yes. The only thing I'd add to that, Adam, is one of the things that gives us that conviction and excitement is that when we think about who will ultimately be building these projects, it is these municipalities, it is the GCs that are our customers. So this is less about whether we will see it and more about the timing of when that funding is actually going to come through.

Incredibly clear. That's a great answer. And then maybe just as a quick follow-up or a separate question. Just on Levelset, so obviously, there's a lot of focus on Lien Rights Management, excited for that product to see the integration that you were referring to earlier, Tooey. But if I think beyond just Lien Rights, they did have some really interesting newer areas that they were focusing on around material financing and legal support. So I know, obviously, this is still not the primary focus today, but which of these newer areas that they were focusing on really gets you excited?

Yes. So back to the original investment thesis, yes, Lien Rights Management is critical to solving these complex workflows. But one of the other areas that we really valued Levelset for was their innovation and their thinking around things like material finance in particular. And so that's an area where we are exploring, I think, is the best way to put it. It's way too early to talk more about it, but it's an area that we -- has piqued our interest. And as something material happens there, we will definitely let you know.

The next question is from the line of Kash Rangan with Goldman Sachs.

Congratulations on the quarter. Tooey, I'm curious to get your take on the construction industry, the value proposition of Procore vis-à-vis rising rates and what could be higher cost of capital. And also secondly, with respect to the fintech solutions, you've launched them. I think you talked about it in the last quarterly earnings conference call. What is the feedback you're hearing from customers with respect to the propensity uptake? And how does it make you feel about the revenue uptake you might get from this category of solutions next year?

Sure, Kash. By the way, great to hear from you. So the -- I'll answer the first one and I'll pass the second one off to Paul. The question is the impact of interest rates on our customers. It actually brings up a really interesting point. Not every project in construction is financed through a loan. So it's interesting if you think about it, but every city, state, municipal, federal government job is funded through bonds. Every corporate campus expansion, most of them are actually financed through balance sheet financing. So not all of construction is interest rate sensitive. And the other thing is just because the industry is so large, and again, back to my supply and demand discrepancy, and there's so much demand for what needs to get built, we think that interest rates would have to go wildly out of control in order for us to even begin to see some sort of an impact on Procore. It's just such a big industry and it's so diversified across all these different areas, it just leaves us a lot of room currently for growth.

And then maybe touching on the second question. As we think about the conversations we've had around fintech, both with the investor and the analyst community as well as the broader industry, I'd bring you back to what we've talked about around the time of the Levelset acquisition, that as we've been in this industry now for 20 years, that the appreciation of the problem set that this customer base faces is quite wide. But we have come to particularly appreciate the challenges around managing working capital and risk. And that is where we continue to innovate and explore because what we know with confidence is that the problem statement, the need from the industry is there. We've been talking to these customers for decades about it. It is more about the best way to solve it and where and how Procore helps to drive that value to the industry, and that's where we're continuing to learn, continue to experiment, and we will share more as we get more conviction on a particular approach.

The next question is from the line of Brent Thill with Jefferies.

Tooey, just to follow up on Kash's question. When you think about just critical infrastructure that isn't interest rate-sensitive, can you just talk through are you seeing that as a percent of your business rise versus kind of the other nice-to-have areas or areas that could be deflected? Can you talk to how that mix is building? And then I had a quick follow-up for Paul.

So the best way for me to quantify that is just to talk about what our customers tell me, which is they -- our customers run diversified books of business. They'll do a lot of -- while they'll do infrastructure, they'll also do commercial or they'll do warehousing or data centers. So I would say that the overall excitement is -- it's kind of -- it's muted but it's there, like they believe it's going to have an impact over time, but again, these things take a long time to come to fruition. So I wouldn't say they're betting the farm on it by any means, but we believe ultimately, because of the scale and because of our diversified portfolio, that we will benefit kind of across the board.

And Paul, I believe you have over 13 products, but 37% of your ARR is generated from 4 or more and you have a lot of cross-sell. Where are you starting to see that big cross-sell and adoption of areas maybe you haven't seen? Can you drill into a couple of those areas?

Yes. Look, I think you've heard us talk a lot about the financial suite over time and that -- there's a reason we continue to talk to it. It's an area we've invested quite a bit for many years. It's a highly differentiated product and something that we're continuing to see more and more demand from the end industry. The other side I would talk about that you've heard me say a lot is that when we then think about the value of the cross-sell and how we get customers to want to adopt more products, it is less about calling out a specific product and more about how we continue to weave together these different workflows across products and drive that value. So you've heard us talk a lot about how Estimating and Takeoff are going to come to Project Management, labor management ties to financials. These are all things that we continue to invest in and are driving cross-sell for those stakeholders that really benefit from those connective elements. And we continue to have a lot of conviction that as we invest more and more in the platform, we're only going to see that momentum continue.

The next question is from the line of Matthew Broome with Mizuho Securities.

Congratulations on a strong quarter. How are you thinking about increasing the number of quota-carrying reps this year? And I guess, how are you finding the recruiting environment?

We continue to see that our ability to find top talent and fill our roles is something that, while challenging in this environment, as we have appreciated that it was going to be challenging, we've invested in the resources and the focus. And so we feel really good about the hiring cadence, our ability to fill quota. At this point, we think we have everything we need in order to deliver what we've told the Street we would based on a quota capacity framework.

And Matthew, I'd be remiss not to say that a big shout-out to our talent acquisition team for all the hard work that they do to bring in the top talent that we have. We could not do it without all of their efforts.

All right, perfect. And then obviously, nice to see the very strong customer growth in the quarter. Has the profile of new customers changed the tool over the last year or so just in terms of the sort of size, the type of customer or really anything else worth calling out?

No. As I mentioned earlier, the -- we saw strength across all of our segments. And so the one area we'll call out is that the SMB, though it's still probably the most impacted by economic headwinds, it seems to be coming kind of anecdotally back and doing a little bit better, which is something that we're really, really happy to see.

The next question is from the line of Jason Celino with KeyBanc.

Nice to see the record pipeline generation comment. Top of funnel seems really healthy. Maybe taking a step further, are you also seeing any improvements in some of the execution-related things like sales cycles, close rates or win rates?

Candidly, nothing material enough to talk about. We just continue to see that the demand side, the top of funnel is getting better and better, and that's probably the only thing we're calling out at this point.

Okay, perfect. And then on the margin flow-through from the top line performance, also nice to see. Maybe more broadly, can you just remind us of the current philosophy around margin improvement?

Yes. Look, I think when we think about margin, when we think about the way we want to invest, we are constantly being thoughtful to how we look at the longer-term ROI, the lifetime value associated with these investments and what we believe is best for the long-term shareholder. So as we think about margin improvement, we believe that we will continue to demonstrate operating leverage year-over-year, but that when we think about how we want to deploy capital, we're really thoughtful to the appreciation that we're in the early days of a really big market, and that we want to find the right balance, knowing that we think there is just a tremendous opportunity still ahead.

The final question is from the line of Mauro Molina with Piper Sandler.

Great. Just filling in for Brent here. So was just curious if you saw any significant effect on customer demand from the Omicron variant as it sort of ramped up in January and persisted through February. Or did you find that construction activity overall was more insulated from that wave during those months? And then I'll have one follow-up.

So yes, Mauro, we have not -- there's no correlation. We haven't seen anything that would indicate that at all, so I don't really have much more to add.

Got it, got it. And then you had some commentary around broad-based success resonating with stakeholders, different geographies and customer sizes. Is that the same thing you're seeing as it relates to Levelset? Or is there a certain segment of the market where Levelset is kind of resonating more?

Levelset is, in general, more focused or historically has been more focused on the subcontractor and the vendor. And so what I would tell you is the stakeholders that they service, they're continuing to see success, and we continue to be really bullish on the opportunity of what we can do by bringing the businesses together, serving newer stakeholders as well as continuing to get deeper into their existing stakeholders.

There are no additional questions at this time. I would now pass it back to the management team for any closing remarks.

Thanks, everyone. Take care.

That concludes today's conference call. Thank you. You may now disconnect your lines.