Good afternoon. Thank you for attending Procore’s Fourth Quarter 2022 Earnings Call. My name is Matt and I will be your operator for today’s call. [Operator Instructions] I would now like to pass the conference over to our host, Matthew Puljiz. Matthew, please go ahead.

Thanks. Good afternoon and welcome to Procore’s 2022 fourth quarter earnings call. I am Matthew Puljiz, VP of FP&A and Investor Relations. With me today are Tooey Courtemanche, Founder, President and CEO; Paul Lyandres, CFO; and Howard Fu, SVP of Finance. Further disclosure of our results can be found in our press release issued today, which is available on the Investor Relations section of our website and our periodic reports filed with the SEC. Today’s call is being recorded and a replay will be available following the conclusion of the call. Comments made on this call may include forward-looking statements regarding our financial results, products, customer demand, operations, macroeconomic and geopolitical conditions, including the impact of COVID-19 on our business and other matters. You should not rely on forward-looking statements as a prediction 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 16, 2023. 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 reviewed after today, the information presented during the call may not contain current or accurate information. Therefore, these statements should not be relied upon as representing our views as of any subsequent date. We will also refer to certain non-GAAP 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 to Tooey.

Thanks, Matt and thank you everyone for joining us today. I am pleased to share that Q4 was another good quarter, closing out a year of consistent growth for Procore. I am incredibly proud of what the team has accomplished this past year and I look forward to carrying this momentum into 2023. Today, I am going to share some key highlights from 2022 and the fourth quarter and review my key priorities for 2023 and beyond. Alright. So let’s dive in. Two things jumped out of me as I reviewed the results. One, we saw strength across multiple dimensions of the business; and two, our large deal momentum continued in Q4. On this note, I am happy to share that the number of 6-figure transactions booked in Q4 grew 27% year-over-year and the number of 7-figure transactions booked grew 100% year-over-year. Our strong performance was underpinned by the strengthening of our leadership position within construction. For example, in 2022, we saw one of our largest competitors less frequently than we did in 2021, yet we won more ARR against them. We believe this is a testament to our significant value proposition and the widening of our competitive moat as well as cementing Procore as a clear leader in the industry. Our market positioning, technology and partnership with the industry continues to be recognized externally. This quarter, Procore was named one of the 2022 Top Construction technology firms by Construction Executive and awarded the 2022 Tech Cares award by TrustRadius. Our achievements would not be possible without our employees, which is why I am particularly honored to share that Procore was again recognized as one of Glassdoor’s Best Places to Work. I want you to know that as I reflect back in 2022, it’s clear to me that Procore’s momentum…

Thank you for the kind introduction, Tooey, and thank you Paul for your leadership and impact you’ve had on Procore over the years. I have seen firsthand how you’ve built such an incredible team, strong operations and a company that will last. It’s because of the close mentorship and guidance you have given me over the past 2 years that I’m well prepared to take the baton and build upon the foundation you’ve set for Procore’s future. To our shareholders, I’ve gotten to know many of you over the past couple of years and look forward to working closely together in this new capacity. I am excited and energized by the chance to continue helping Procore reaching new levels of success. The size of our opportunity, the value Procore brings to customers, and our people-first culture, are undeniable differentiators. As CFO, I will continue to work closely with Tooey, Paul and the rest of the leadership team to advance our vision to improve the lives of everyone in construction and to support our next phase of efficient growth. With that, let me turn the call over to Paul to discuss our financial results.

Thanks, Howard and thank you Tooey for the kind words. I am incredibly excited to be taking on this new role as President of Fintech in early May. Over my 9 years at ProCore, I have always felt that my role was to find the place where I could drive the most value to Procore and our long-term vision. Since my early years at Procore, it has been clear that our data is a unique asset that would play a big role in our long-term strategy. Just as we discussed at our Investor Day, with our expansion to a global platform company with multiple products serving multiple stakeholders, Procore was ready to start making early investments in its future opportunities around fintech. Fintech is an area I’ve always been passionate about and believe my experience at Procore put me in a unique situation to help build. With this in mind, I started planning my succession a few years ago to ensure we had a strong bench of candidates internally. This made Procore’s search for our SVP of Finance critical. When Howard joined Procore 2 years ago, he brought with him more than 20 years of experience holding finance leadership positions at companies like Visa, Salesforce, LinkedIn and most recently, DocuSign. Having worked closely with him over the past 2 years, I know he will continue his excellent partnership with Tooey, the executive team and our Board. I have full conviction that Howard is the right person for this role. And as Tooey described, we believe these changes align our best leaders to the right opportunities, which all employees, customers and shareholders will benefit from. Now on to our results. We delivered another strong quarter, which is a continuation of the consistent performance we’ve demonstrated since late 2021. Today, I’ll recap…

Thank you. [Operator Instructions] The first question is from the line of Brent Thill with Jefferies. Your line is now open.

Hi, this is Luv Sodha on for Brent Thill. Thank you for taking my questions. First, congrats to Paul and Howard for your promotions, maybe first, just to kick off. Tooey, I just wanted to get your sense in terms of new versus contribution from existing customers? I know at Investor Day, you guys showcased this slide where you can get 50% more ARR growth from existing customers. So going forward, how should we think of contribution from new versus existing customers?

Yes. So I think we mentioned this, but very happy – by the way, Luv, great to hear your words. The – we’re very happy with the results in Q4, especially on our ability to expand with our customers. And I’ll tell you that, that is just a true testament to not only our ability to capture more construction volume but provide more products to them that add all the value that they need. And so I’m incredibly proud, proud, and there is a lot more work to do here, but it’s an area of strength. And Paul, you want to...

Yes. As we shared at Investor Day, one of the things that we really love about this business is that when you look at the contributions that come from new customers versus expansion, it was very much near 50-50 time – it was 50-50. We believe that as we go forward, we may see movement here or there. But in general, that we’ve got so much room still within the expansion base, but at the same time, there is such a massive greenfield of new logos that we don’t expect that, that contribution mix will change to meaningfully.

Got it. And a quick follow-up, Paul, for you, I guess, on the guide, revenue guide for next year, I just want to make sure what assumptions you’re making in there. Could you just level set us? Is it – are you assuming macro stays the same or does it worsen? Just any color there would be helpful. Thank you.

Yes. So similar to the prepared remarks, in general, our guidance philosophy has not changed. Our guidance philosophy for some time now has been that we are guiding to a number that we believe we will hit, even if the macro environment deteriorates. In this case, we are not seeing that. And so we are definitely being prudent in that guide. The one thing to take from the prepared remarks as well is just that we aren’t optimizing for particular upside in that guide, we are optimizing to ensure that the numbers we share with you all, we can hit in almost any environment.

Got it. Perfect. Thank you.

Thank you for your question. The next question is from the line of Saket Kalia with Barclays. Your line is now open.

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

Hey, Saket.

Hey, Tooey, maybe we will just start with you. Listen, really straightforward quarter and guide. I’d love to maybe just hit on one topic from Analyst Day and from the user conference around Procore payments. Obviously, still very early. But maybe a question for you, Tooey, is, can you just talk about some of the initial customer reception that you’ve gotten from the beta there with that product? And what’s going to be the profile of some of the early adopters there?

Yes. Well – and by the way, Saket, this gives me a good kind of excuse to explain to everyone how we built software at Procore. We have been working very closely with a certain group of folks that are our biggest customers to try to come up with a solution that’s right for the industry. And this has been a long time coming. And so we are well on our way. And then those – the folks that we’re primarily focused on in the beginning are general contractors in the enterprise down to the mid-market, all of which have the need to have a payments platform. And I will tell you that the customers I know that have been involved in the helping us get there, they are very excited about where we’re going with this, and they can’t wait for it to be launched at the end of this year.

Got it. Got it. That’s really helpful. Paul, maybe a few – first off, congrats to you and Howard on your respective transitions. Glad we’re keeping a family business, let’s say. Maybe the question for you, Paul, is how do we think about the investment in international as part of the margin expansion this year, right? I mean, I think at Analyst Day, there was a really interesting slide that showed that outsized investment in international versus a revenue contribution that is still scaling, how do you think about that relationship changing here in fiscal ‘23, if at all?

Yes. I mean, here’s what’s really exciting for us. When we think about our current guide where we’re showing 350 basis points of improvement year-over-year, that is largely not a result of international, right? That is just continued efficiencies across the business. Now I will tell you, international is not a monolith, as Tooey likes to say, either. And so you should think about different countries being different. The more mature markets are showing more efficiency gains. But in general, it’s still very early stages there. And so we do believe we’re going to continue to need to invest there, but that we will continue to show more and more progression as time goes on and we get more mature in those markets.

Makes sense. Thanks, guys.

Thanks, Saket.

Thank you for your question. The next question is from the line of Sterling Auty with SVB. Your line is now open.

Hi, thanks. Hi, guys. Paul, congratulations. Howard, congratulations. Tooey, maybe to dive in, you’ve been proactive with some of the management changes, especially over the last 2 years. Can you give us an update, especially in the impact of some of the sales leadership, management changes that you’ve made? And maybe just the productivity that you’re seeing, is it tracking in a direction that you want at this point?

Yes. Thanks, Sterling. By the way, apparently, you’ve changed your last name. So yes, so here’s something I am incredibly proud of. And I want to kind of zoom back out. I’ve always kind of been very happy with the fact that we’ve been able to put the right leaders in the right position at the right time to get us to the next level of growth. And that’s – that includes the folks who got us to where we are today. But as I have been building the leadership team for this next phase of growth, where I think about it from, we have line of sight to $1 billion of revenue to $5 billion. I’ve been very intentional, I think, as you know, as to how do we get the right players in place to get us there. I’ll tell you that the – over the last quarter or so, seeing that team in general gel has been extremely rewarding for me. There is a lot of pattern recognition. There is a lot of previous experience that’s being brought that’s really helping us a lot actually. And on the sales side, we have been very focused on making sure that we have the right people in place. And so far, I’ll tell you that the team has been very performing, and there is really nothing to report there.

No, that’s great to hear. And then one follow-up question. As you look at ‘23, can you give us a sense of what your intentions are around managing headcount and headcount growth as we’ve seen so many companies laying off that maybe not from a position of strength, what’s your intention?

Yes. So we are being very intentional and trying to be very thoughtful as to our hiring strategy. The headline is that we are going to continue to hire through the end of the year. We are going to be very focused to make sure that we have the quota carriers online in order to make our numbers. But ultimately, what I want to kind of state to everybody is that we’re being very intentional here because of that – the concept of efficient growth. And so we’re making sure that every head that we add is absolutely necessary in order for us to meet our objectives.

Makes sense. Thank you.

Thank you. Next question.

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

Hey, how are you doing, guys? I’ll echo the congrats that everyone else has shared. Paul, maybe just given kind of your forthcoming transition to the fintech side of the business, maybe I can just ask you like a wildly open-ended question, like what excites you the most about the opportunity on that side of the house?

Yes. No, I appreciate the question. So like as I shared in the prepared remarks, one of the things that has just been so great about my journey at Procore, I’ve now gone through several transitions is that I’ve always found my role to be where can I drive the most value. And the truth is, as we look at the finance operations, we’ve got just such an amazing leader in Howard, it’s such a strong bench there. And as we look forward, we talked about this at the Investor Day, we see such a big opportunity, whether you look at the TAM, the market opportunity, the pain that our customers feel, the need that is out there, or just the unique position we are in with our massive go-to-market and our phenomenal data set that I just can’t wait to go back to being able to really think about building that strategy, helping to scale something and finding new and innovative ways to solve problems. And frankly, I’m just humbled and grateful for the opportunity.

Yes, yes. Well, you’re a perfect fit for it. So big things to come. And then look, we just lapped Levelset, right, which was the big – last big kind of inorganic bite that you guys took. How are you thinking about M&A kind of rounding out the strategy in ‘23? What are you seeing out there in terms of opportunities, valuation expectations? Any high level commentary would be interesting.

Yes. Look, I think right now, we feel really good about the depth of our product portfolio. We feel like we still have more work ahead in terms of just the areas we want to drive our own business value, that we are certainly always staying close to our partners, the benefit of our app ecosystem and what we have built in terms of our community means that we have incredibly strong relationships with these folks, continue to drive more and more partnerships. But you shouldn’t look to us for doing any meaningful acquisition anytime soon.

Prefect. Okay, great. Thanks guys. Congrats on the results.

Thank you, DJ.

Thank you for your question. The next question is from the line of Brent Bracelin with Piper Sandler. Your line is now open.

Thank you. Good afternoon. Paul, congrats. Rarely, have we seen folks go from outside investors to CorpDev to CFO to now President of Fintech over a 9-year period. Look forward to seeing what else you can kind of bring going forward as now President there. Howard, look forward to working with you. Tooey, wanted to start maybe with you, just as we think about the composition of the construction business, the durability of the business, I think investors have been a little more nervous going into this year around maybe a slowdown in residential, slowdown in commercial buildings. But if you look at the Dodge Construction Index forecast, we are seeing big shifts in highways and bridges, hospitals, schools. Are you seeing that mix shift in your own business like in Q4, or is that still yet to come relative to the pipeline and RFP activity you are seeing so far in kind of the first half of the year? Thanks.

Yes, absolutely, Brent. So, I will tell you this from the perspective of our customers, who I talk to, who are actually the ones that are managing the mix of their portfolio of work. They are always looking at the current environment, trying to figure out where the puck is going to go and make sure that they have got the right people in place and the job set up for that. I guess maybe one way I would look at it is a lot of the folks I am talking to are setting up like alternative energy divisions or whatever to specialize in those projects that are going to come online in the anticipation that those dollars are coming. So, there is a little bit of that. But our customers are always managing their mix of portfolio. It has nothing to do with the macro today. That’s just how they look at their business. And so it’s not unusual for them to be looking at areas of growth and also kind of be investing in areas that are softened and weakened.

Yes. Maybe the only thing I would add is that you have heard us talk a lot about this over the years that the industry is not a monolith that it’s all about looking at the overall growth and understanding that there will always be a shift there. And if anything, I think what you are seeing right now, Brent, is that playing out in real time, where you are seeing different pockets of the industry see some weakness, while different pockets excel and really grow. And that is what’s so great about our business and our industry is it’s very diverse, and it gives us that flexibility in different types.

Great. And then just one last quick follow-up here for maybe Paul or Howard on free cash flow. If I look back, this is a business model that’s generated positive free cash flow 2 years out of the last 3 years. Obviously, you made some investments here international last year. But as you think about it on a go-forward basis, how should we think about the free cash flow generation, obviously you gave us the op margin?

Yes. So, like we have talked about before, the free cash flow margin improvement should be a little bit ahead of what we see in terms of our operating margin improvements trajectory of 350 basis points on average per year. Of course, free cash flow is not something that we officially guide, but we do manage to overall free cash flow on an annual basis internally. And it’s a very focused metric that we have, both in terms of magnitude as well as on a per share basis. So, it’s something that we are absolutely focused on continuing to improve.

Helpful color. Thank you.

Thanks Brent.

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

Awesome. Thanks for taking the questions and I will echo congrats to both Paul and to Howard. Maybe just on Levelset, it’s been a little bit over a year since that acquisition closed, and I guess I just will have a broader update on how that’s performing relative to expectations and then kind of the up-sell, cross-sell opportunities that you are seeing? And then I have a follow-up.

Yes. Happy to touch on that one. In general, we continue to see the progress there chugging along well. As we have talked about in the past when we did the acquisition, it’s important to remember there were a number of different facets that really drove that. The biggest ones being around our opportunity to really go out there and accelerate our path to payments, bringing in the compliance workflow into that solution that we had already built around invoicing. And you have seen that continue to progress. We feel really good. We have shared, what we shared Groundbreak. As Tooey had shared, it’s gotten a lot of positive feedback from our customers. The other areas around data material financing, fintech, those were areas that were really exciting for us. We continue to invest in those areas. Though very early, we do continue to believe there is huge opportunities there. And so overall, we feel that the integration has gone according to plan and that there is more to come as we finish out the payments.

Adam, also it dovetails very nicely with the fact that we now have integrated a lot of this already into Procore. And so now it’s time for a leader to come in and build on that foundation and launch us into growth mode. And that’s one of the reasons why now it’s the time for Paul to take on this role. And also, I do want to point out that I wouldn’t be this confident in this move if I didn’t have a great relationship with Howard. He both is a great partner, but also challenges me on where I need to be challenged, which is what you want in your dynamic between your CEO and your CFO, right, Howard? So, anyhow, yes, I think this is a testament for why it’s time for Paul to take the helm.

That’s awesome. And maybe just as a quick follow-up. Just on the demand environment for the first six weeks of 2023, any changes that you are seeing here relative to the trends we just talked about in the December quarter? Thanks again.

Yes. No, nothing significant to report, nothing that has really been changing. I will say that the sentiment of the customers I talk to remains very positive and optimistic going forward, and backlogs do remain strong. So, we are feeling pretty good.

Great. Thanks again.

Yes. Thanks Adam.

Thank you for your question. The next question is from the line of Dylan Becker with William Blair. Your line is now open.

Hey gentlemen. Thanks for taking the question and I will echo the congrats for Paul and Howard. Maybe Tooey, just digging on the backlog commentary you have called out in the broader macro landscape, understanding how that provides visibility for the next several quarters. But are you seeing any dynamics from the preconstruction side, obviously, you are looking to drive efficiency to enable these contractors to work through those backlogs quicker. But at the same time, how they are thinking about positioning for this next leg of growth and replenishing that activity as they see fit? Have you seen any – or elaborate on any of the puts and takes from the backlog side that you guys are seeing.

Nothing to report, but I will tell you though, the analog that I think we should all think about is that all of our customers that I talk to, they have all of this work, which obviously is part of their backlog. And so therefore – and they only have a certain number of folks that they can deploy to do these projects. And so there is a constant governor on the amount of work that they can flow through their business. And so there is not a lot that they can do in order to increase that flow. But to your point, there has been a realization, not just because of the macro, but this has been over the last 3 years or 4 years, that preconstruction is where all your money is won and lost on the project. And so a lot of effort is being put on that. And the cool thing is, because you can’t – they can’t put more people to work, Procore provides them the ability to do more with less people, right. The quota that we had in the earlier stat was that Procore enables our customers to run about 50% more construction volume per person, which gives them a force multiplier to be able to create more throughput and revenue.

Got it. That makes total sense. I wonder as well to – and maybe this is, Tooey or Paul, but to the extent and the uptake of digital twins, can solve as an adoption driver and maybe a potential expansion opportunity area for you guys as you think about that data connectivity to the owner sub-segment, right? As they think about moving from just that initial build phase, all the way through to the operational phase of those assets. I guess how do you think about that? Is that serving as a tailwind to adoption, or maybe is that an incremental monetization opportunity down the road as well? Thanks.

In general, I think when we think about the digital twin world, like it’s early days still. It’s something that we believe can be really excited over the longer period of time. But it is an area for us today that we really look to partner with different players out there. We have a number of really great partners in our ecosystem that focus on this. And this, for us, goes back to understanding where we really want to put our main focus on energy, and ensuring that regardless of if we deliver that solution that we are tightly integrated to solve these problems for the customers, at least with respect to digital twin, that’s where our focus is now.

And you may know this, but just so everyone else knows this. The digital twin can’t – won’t like be generated without all the information that Procore or systems like Procore generates. So, we are a huge input to any digital twin strategy. So over time, you can imagine that, that might be an area of interest for us, but that’s over the horizon.

Thanks guys.

Thank you.

Thank you for your question. The next question is from the line of Ken Wong with Oppenheimer. Your line is now open.

That’s great. Fantastic. Thanks for taking my question. One for you, Paul, and then I will follow-up with Tooey. You guys consistently pointed out cRPO as the best measure for top line and another strong showing at 34%. Can you just remind us kind of what are some of the considerations that keep your revenue growth from lining up closer to a cRPO as you guide? Is it just nearly conservatism, or kind of what else could be in consideration that keeps you cautious?

Yes. Look, I would reiterate what you had said. cRPO remains the best metric to track. We had a slide at the Investor Day that [Technical Difficulty] home. As always, there is a number of puts and takes that go into it. But in general, I would tell you, the way to think about it is that, go back to the commentary made around the guide philosophy and understanding that today, what we are very mindful of when we think about our guide philosophy is that regardless of almost any environment we are in, that we can deliver on that, and that is the way we think about the distinction is.

Got it. Okay. Perfect. And then Tooey, on the international side, I just wanted to kind of make sure that I understood. As far as products and as far as people and leadership, do you feel that is all squared away from a – as far as being able to get to market on the international side, and it’s just a matter of execution and seeing demand come in, or are there still pieces that you still need to put in place to kind of get the rate started?

Well, the fundamentals are that we are – we have done an org design change, which is actually going to drive more productivity, we believe. And ultimately, there are other things that we are planning on doing. But we are feeling very optimistic about what’s going on in the international markets. And I just have to reiterate this because I get this question all the time. It is strictly, in our opinion, an internal operating challenge, not an external macroeconomic challenge. And actually, you may ask the question like, how do we know that, well, we actually look at all the territories in which we are selling. And we can see that in each one of the territories, we have highly productive and successful sales reps, but we also have newer reps that have not ramped yet that are having a little bit more of a challenge. So, we believe that getting our reps more ramped more rapidly is one of the keys to us driving success.

Got it. Okay. Prefect. Thanks a lot guys. Great job.

Thank you.

Thank you for your question. The next question is from the line of Nick Altmann with Scotiabank. Your line is now open.

Awesome. Great. Thanks guys. I wanted to talk about the seven-figure deal count was up 100% year-over-year, which is very impressive. Can you maybe just talk about what’s driving those large deals? Is it you are landing at a higher ACV with customers upfront? Is it more multiproduct adoption? Is it a specific geo? Just any incremental color on what’s driving some of those large seven-figure deals, I think would be really interesting.

Yes. I think what we are seeing is this is just the evolution of our brand, right. Instead of customers starting with a small amount of construction volume on one product, because of the heft of our brand, we are able to land accounts at a much larger kind of amount upfront, which I think is leading a lot to it. But also, we are really resonating with the enterprise customers because of our platform strategy and all of the data that we have. So, I believe that there are multi-factors here.

Awesome. And then just another one, Paul, congratulations on the new role, and I’d love to talk about it, and you guys kind of already addressed this earlier. But in your prepared remarks, Tooey noted earlier that this is the move you guys have been contemplating for years, and it’s something that you have been passionate about for a while. You guys have talked about how you are constantly talking with customers around product road mapping with some of these fintech initiatives. So, is the decision to become the President of fintech now, is that more related to what you are hearing from customers seeing some of those industry-specific pain points actually get worse or you are just seeing sort of heightened demand for some of these fintech initiatives? Just any incremental color you can give on why now, I think would be really helpful. Thanks.

Yes. I would actually tell you that it has more to do with the evolution of Procore as a business. This really goes back to that commentary we made at our Investor Day talking about the chapters of the journey that Procore has really been through, the investments into expansions of new markets, new stakeholders, new products and the massive set of data that we have built over that period of time, putting us in a position where we are ready to really go tackle this problem. I would not tell you that risk in working capital is a new problem for this industry. It has been around for as long as we can think of, and therefore, this is a pain that customers have always had. This is more about being in a position to really finally go after and address that pain.

And because of our data strategy and the platform that we have, we are now uniquely suited to solve these problems. And prior to this, I don’t think these problems could have been solved in a way that it was meaningful. So, the timing was perfect.

Awesome. Thanks guys.

Yes. Thank you.

Thank you for your question. We have no additional questions waiting at this time. So, I will pass the conference back to the management team for any closing remarks.

Thank you everybody. Talk soon.

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