Good afternoon. Thank you for attending today's Procore Technologies, Inc. Fiscal Year '24 Q1 Earnings Call. My name is Cameron, and I'll be your moderator for today. [Operator Instructions] And I would now like to turn the conference over to our host, Matthew, you may proceed.

Hey, thanks, everyone. Good afternoon. Welcome to Procore's 2024 First Quarter Earnings Call. I'm Matthew Puljiz, VP of Finance. And with me today are Tooey Courtemanche, Founder, President and CEO; and Howard Fu, CFO. Further disclosure of our results can be found in our press release issued today, which is available on the Investor Relations section of our website, and our periodic reports filed with the SEC. Today's call is being recorded, and a replay will be available following the conclusion of the call. Comments made on this call may include forward-looking statements regarding our financial results, products, customer demand, operations and macroeconomic and geopolitical conditions. You should not rely on forward-looking statements as predictions of future events. All forward-looking statements are subject to risks, uncertainties and assumptions and are based on management's current expectations and views as of today, May 1, 2024. Procore undertakes no obligation to update any forward-looking statements to reflect new information or unanticipated events, except as required by law. If this call is a replay 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 so with that, let me give it to Tooey.

Thanks, Matt, and thank you, everyone, for joining us today. I'd like to start by expressing gratitude for the team's hard work this past quarter and by thanking all of our customers for their continued trust and partnership with Procore. Some notable highlights were, in Q1, we grew revenue 26% year-over-year. We continue to make improvements to our efficiency profile, delivering strong margin performance in the quarter. And Procore was ranked #8 among G2's Top 100 Global Software Companies for 2024. This is our fourth year of being included on this list and our first time ranking in the top 10, a huge testament to the strength of the Procore brand and the value that we continue to deliver to our customers. The standout event of the quarter was hosting our ECAB, which stands for our Executive Customer Advisory Board at our Carpinteria offices. This is an event that we hold twice a year. And this quarter, we brought together executives from over 30 of our largest owners, GCs and specialty contractor customers, along with several members of the Procore leadership team from across the organization. This event is an invaluable opportunity for us to share Procore's strategy, hear feedback on their needs, discuss construction dynamics and ultimately determine how Procore can become an even stronger partner to the industry. So I'd like to share 5 major takeaways I took from the event. First is industry sentiment. Overall, customers expressed more long-term optimism than I had anticipated. Despite the very real uncertainties and challenges in the near term, these customers are increasingly optimistic about the long-term future of construction and their businesses. They shared that this optimism is in part driven by the pockets of strength that they continue to see in construction. Those that have diversified portfolios are benefiting…

Thanks, Tooey, and thank you to everyone for joining us. Today, I'll recap our Q1 financial results, share some color on the quarter and conclude with our outlook. Total revenue in Q1 was $269 million, up 26% year-over-year, and international revenue grew 32% year-over-year. Our Q1 international results were slightly impacted by currency headwinds. On a year-over-year basis, FX contributed approximately 1 point of headwind to international revenue growth. Therefore, on a constant currency basis, international revenue grew 33% year-over-year. Q1 non-GAAP operating income was $37 million, representing an operating margin of 14%. In our key backlog metrics, specifically current RPO and current deferred revenue, grew 20% and 21% year-over-year, respectively. Now let me take a step back and share some additional color on our Q1 performance. First, as Tooey described, while the industry is beginning to develop a stronger sense of long-term optimism, we continue to see the challenges we saw last year. However, the theme that persisted when reviewing the quarter's business results was stability within our renewal activity. Specifically, the higher than historical contraction we began to experience last year has not worsened, but rather has held steady. While Q1 is an early indicator of the year, it is an important data point given the large size of the renewal book. Furthermore, the results appear to validate one of our planning assumptions for the year, which was that the demand environment will remain challenging throughout 2024. Second, we continue to believe that the back half of the year will be stronger than the first half, driven primarily by our expansion motion. While the stability we saw in our Q1 renewals is just one data point, it is an encouraging outcome that reinforces this perspective. Based on this trajectory, we expect cRPO growth to decelerate further in Q2…

And the first question is from the line of Saket Kalia with Barclays.

Tooey, maybe just to start with you. I'd love to zoom out a little bit and just get your perspective on the competitive environment and whether that's changed at all. Despite sort of the macro discussion and uncertainties out there, this is still very clearly a rising tide market. And so maybe the question is, what are you seeing out there from competitors vis-a-vis Procore?

Well, Saket, nice to hear your voice, first and foremost. I have to say that there has really been no change at all in win rates and really has been true for a long time. So there's really no news on that front. But as you know, Saket, Procore is a premium product, and we do command a premium price. But when I said earlier about Bernards saving 50% to 80% on their BIM expenditures, the industry recognizes that we drive a tremendous amount of value. And as we've just met with all of our Enterprise Customer Advisory Board members, the industry is rooting for our success because they know that all we do is focus on them, and we get rewarded for that because that's all we do. So yes, really nothing to report on the competitive side, but it is encouraging to see the industry really pulling for us.

Absolutely. That's good to hear. Howard, maybe for my follow-up for you. A lot of great ENR 400 examples in the prepared remarks. And so maybe the question is, as Procore starts selling to larger enterprise customers, maybe more so in the back half of this year, how do you sort of feel about how your sales resources are aligned to that objective? And are there any early signs of success in sort of that pivot in the go to market? Does that make sense?

Yes, it makes sense. Yes, so the first thing is, there is a nuance I want to make sure I clarify. We are not just starting to sell to the enterprise. This is more of a shift that we started to make towards the back part of last year when we started to see relative strength in our enterprise and upmarket and in our expansion motion. And at that time is when we really started to make that shift in terms of aligning our resources to where that relative strength is. So it's not something that we started or pivoted or started this year, it's really a progression of what we started to see last year and a shift and an extension of what we have already been doing in selling into the enterprise market.

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

Quick question on kind of -- I wanted to pair two together, Tooey, maybe on infrastructure and international because infrastructure seems to be an area of focus, too. There's certainly U.S. mandates in play, but there's a ton globally as well, and I'm sure U.S. and international businesses will focus on. So I guess, given your focus on both of those segments, how do you think about maybe the infrastructure opportunity help serving as a wedge to catalyze international adoption, too, just given kind of some of the network dynamics there, maybe as a support vector for both kind of compounding on each other?

Yes, Dylan, that's actually a really good question. And it really speaks to something that we say rather often in these calls. But the industry itself is made up of lots of different segments and components. Some of which are firing on all cylinders. Some of which may be not performing as well as others. And so clearly, especially in the U.S. market right now, the infrastructure investment is very large. It's a bit of a mixed bag when you look into internationally globally. Some countries have large investment in infrastructure and others not quite so much. And I've been speaking a lot to our global international customers. And where they see strength in infrastructure spend, it's usually just part of their portfolio. So it's not really distorting anything in their book of business. It's just one component of their portfolio. And where they see weakness -- in fact, I talked to several of our customers in the U.K. market where they think that the infrastructure spend is going to be relatively flat this year, given a few things like the fact that there's going to be an election and a few other things that they just think there's not going to be a lot of investment this year. But the rest of their portfolio mix is strong, mostly on the private sector. So it's always that mixed bag, which is infrastructure is a component of it. But in aggregate, our customers are running those diversified portfolios. So it really doesn't distort anything as it relates to Procore.

Okay. That makes sense. Maybe switching over to Howard, one for you as well, too. Just kind of pairing the commentary some improving long-term sentiment here, we're coming up on some renewal cycles where we've noted some initial volume conservatism. I guess, how to think about those with the stabilization comments you've seen kind of sequentially as it relates to maybe some of the back half ramp, if that makes sense?

Yes. So look, what we -- how we feel about that back half is the same as we felt 90 days ago. In fact, the stability that we saw in Q1 actually reinforces some of those assumptions. And we still expect the back half of the year to be stronger than the first half from a booking standpoint. And we still expect that to come from the enterprise and upmarket as well as the expansion motion. So things are playing out as we had expected, and there's no change in terms of how we feel about the back half of the year.

The next question is from the line of Brent Bracelin with Piper Sandler.

I guess, Tooey, let's continue with the demand threat here, long-term optimism, some near-term challenges. My question is specifically around the data center. I'm getting a lot of excitement around data center expansion and builds, Microsoft spending a ton of money here. Is data center big enough to help offset some of these near-term challenges? Or should we think of that as more incremental to help stabilize the business in a challenging environment?

So Brent, I hate to give you the same answer I gave Dylan, but it's very much in the same vein, which is where you see these really strong portions of the construction economy. They are generally kind of making up for other sectors, which maybe not be performing as well. So in aggregate, the overall construction volume isn't increasing all that much. But you're just reading a lot about these data centers. And by the way, I had the opportunity about a month ago to visit a bunch of data centers up in the Pacific Northwest. And when you're flying in and you see these data centers from miles away because there are so many and they're so big, you get a sense of how big they are. But it doesn't create any sort of distortion in our business because our customers, that's just part of their diversified portfolio. As a matter of fact, I'm taking the leadership team to Madrid next -- in 2 weeks, and we're going to go tour some more data centers. It's fun to see because they're big and they're kind of exciting to view, but I wouldn't over-index on that. But I do want to say one thing. I don't -- I personally don't believe that there's any software company out there that builds more data centers or supports the build in more data centers than Procore technologies. And it's something I am really, really proud of. And it's an area where we have a tremendous fit and our brand is strong. And frankly, there's not a -- there's no reason why we shouldn't be on every data center getting built on the planet.

Makes sense here. And then as a follow-up for Howard, I apologize. I'm actually on the street to New York, there's still a lot of construction happening in New York. Howard, for you, of backlog, RPO and cRPO year-over-year growth was actually healthier than we had expected. Just trying to parse that out. And you talked about stability. It looks a little stronger than we thought. Was there some maybe early renewals that aided RPO this quarter that came out of next quarter that got pulled forward? Just trying to think through the commentary around renewals and the strength you saw in RPO and cRPO this quarter versus kind of what you expected?

There was nothing extraordinary from that perspective in terms of nuances or anything specific that caused that. Q1 actually turned out the way that we expected. And in fact, Q1 -- the way that Q1 turned out is actually consistent with our expectation of the back half of the year being stronger. And with that, you're going to -- we're going to expect to see our cRPO growth continue to go down in Q2 before it levels off and turns around. And that's consistent with the seasonality that we mentioned. So there's nothing specific or nothing nuanced about Q1 that caused those deltas. It's just in some of the noise that happens in any particular quarter.

The next question is from the line of DJ Hynes with Canaccord Genuity.

This is Ryan on for DJ. I just have a quick question. So I guess a few months ago, we spoke about contemplated, I guess, professional services build-out to kind of like cultivate and bring home these enterprise relationships and limit this Procore attributed churn. Have you guys put any more thought into that? I guess I'm just curious if you have any like internal or external metrics that you're tracking that would kind of make that case more filling.

Look, we continue to make sure that we invest in our professional services with the intent to make our customers more successful. And our shift towards that upmarket motion and enterprise is consistent with that shift. And so we continue to do that, and we'll continue to make progress there. There's nothing extraordinary to give an update on. Professional services from a top line standpoint is still a very small part of our revenue, but we still continue to make investments there to make our customers successful.

Okay. Great. And then just a quick follow-up. So we spoke about new labor demand is usually a pretty acute pain point in construction. To what extent do you think Copilot is going to alleviate these pressures? Because I think we all hear about AI has a really strong value prop for, I guess, a traditional knowledge workers. So I'm just kind of curious what kind of effects it will have on more like a boots on the ground hands-on environment?

Yes, Ryan. Good question because, as I mentioned in the opening remarks, that was a topic that came up in our Enterprise Customer Advisory Board, which was really like what is the impact of AI on construction. And it's very -- the consensus across -- and remember, these are 30 of the largest owners GCs and specialty contractors around. And the consensus of across these folks who are pretty well versed in all of this was that this wasn't really about taking jobs and eliminating jobs. It was about making people who have their jobs more effective at doing their job and getting them back to doing what they got into this industry to do, which is to build and not to do double data entry and not to do searching through Excel spreadsheets and Word docs on some foreign drive system somewhere. So it is a force multiplier, for sure, and it seemed that way. And I'm reaping the benefits of it myself in our beta program. So I think it's going to have a big impact on our industry, but not necessarily -- I don't think we're going to see it pouring the foundation anytime soon.

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

Howard, Tooey kicked off talking about the good efficiency gains you're seeing in the margin improvement. And I'm curious if you could just lay out, assuming we kind of stick in a tougher environment in the short term, how you're going to lean on those efficiency gains as a lever? Where are you going to see those? How are you getting those? Can you give us just a little more color in terms of where the biggest opportunity is and how you're getting that?

Yes. Look, the efficiency gains has been the same as we've seen in prior quarters, which said it's really coming from across all the different functional areas. And in terms of what we're investing in and how we're investing, keep in mind that regardless of what happens, we still continue to invest in our product, technology and R&D organization to make sure that we make progress on our road map and to continue to bring value to our customers. In the more short and medium term, the levers that we pull are particularly around the go-to-market side of things in terms of how to flex based on the demand environment and then you'll continue to see that. Specifically for Q1 and for the remainder of the year, what you're seeing is that, remember, we've built flexibility into our plan to be able to have that flexibility to invest back into the business or take it back to margin, depending on what we're seeing and what we're comfortable with. And in Q1, you saw most of that poured back into the margin profile. But even with our guide, Brett, for the year and for Q2, we still have room to continue to have that flexibility to invest back into the business.

The next question is from the line of Ken Wong with Oppenheimer.

The first one for you, Howard, and we're probably kind of splitting hairs here. But when thinking about that cRPO commentary, I think last quarter, it was kind of assumed that it would rise in the second half. And I think this time around, we've got kind of stabilized in Q3 and then kind of improve in Q4. I guess, would you characterize kind of how you're thinking about cRPO going forward is similar to 3 months ago? Or has there been any kind of adjustment in kind of the trough and rebound?

Our perspective really hasn't changed in terms of what that trajectory is going to look like. Still H2 stronger than H1 from a booking standpoint and how that's going to flow through to cRPO is a further drop in growth in Q2 and then stabilization. Now remember, having said that, Q3 and Q4 are our biggest quarters. So we've got some ways to go to execute against the back half of the year. But particularly with our results in Q1 in the renewal base, that actually is reinforcing our perspective and our assumption that, that will happen at this point. So nothing has really changed, Ken, over -- from 90 days ago.

Got it. Okay. Perfect. And then, Tooey, just wanted to maybe pick your brain on the enterprise side. I mean just looking at the metrics, total RPO is a lot better, long-term RPO is a lot better. And I know you guys are still cautious on the environment. But would you characterize kind of the -- what you guys are seeing at enterprise as being maybe a little more upbeat than how you were thinking 3 months ago?

Yes. It was interesting. So Ken, when I had our Executive Customer Advisory Board here, I asked the same question. And so the first question I asked them was like how do you all feel about the future? And interestingly enough, their optimism level had -- was really high for the long term. But in the short term, they realized that there are macro headwinds and there were challenges that they had to face. So it was almost the exact same story that they've been telling us over time. There was a little bit more optimism over the long run, which came out in those calls. Backlogs being big and getting bigger. So the best way to characterize it is they're facing the challenges of a tough economic environment right now, but they're really excited about the pent-up demand for the future and how their backlogs are shaping up.

The next question is from the line of Aaron Kimson with Citizens JMP.

Just going back to the operating margin guidance, I'd like a little more color there. So you did a 4% risk a month into Q1, just did 13.8% adjusted operating margin and guided 9% to 10% of the year. I know you talked about the flexibility stuff in there, Howard. Can you talk about where that investment may go and how much conservatism is in that number?

Where the investment would go, I think I've already talked about a little bit. In all cases, we continue to invest in our R&D organization, and because we want to make sure that we continue to make progress in that long-term product road map. In the short term, we will flex and invest in our go-to-market as we see fit. Specifically, as it relates to the workforce reduction that we did, about 4%, it was roughly about a $4 million impact or so in Q1.

Great. And then just as a follow-up. So Larry Stack is now a full quarter in as your CRO. What changes [indiscernible] to the go-to-market motion thus far?

Well, Aaron, by the way, I think he might argue with you. I don't think -- I think he's almost a full quarter in. But -- so Larry has been on the road. And really the first several months has been -- he's been all over the earth, visiting our offices and visiting our customers and visiting job sites and just really steeping himself in everything that he needs to know to do his job and just doing a wonderful job at that. I'm really enjoying working with him. But still early days for him. I want to give him a little chance to get settled and learn where the cafeteria is. But in general, he's really a great person to work with, and I'm enjoying every minute of it.

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

This is Devin on for Jason today. I want to ask about Procore Pay. I'm encouraged to hear that now you guys have around 100 customers adopting it. I know, Tooey, in the remarks, you kind of talked about 1 customer adopting Procore Pay. Could you just dive into that a little bit more, what ultimately drove them to go to Procore instead? And with Procore Pay now as one of your product suite, I mean, does that help your win rate as you move up market?

So Alberici is the one that you're referring to. It's actually been a customer for 5 years, and they have adopted many of our products. And they were well positioned to become a Procore pay customer because they were already running our financials product as well as our invoicing and our ERP connector. So they were very well primed, and they knew what the benefits of having all of that in place. And then tacking on Procore Pay, we're going to be -- was going to deliver some tremendous value. And maybe if you come to Groundbreak, you can ask them directly as to their opinion on all this. But I'll say, they've been nothing but great partners. And there's a lot of customers that are really excited about Procore Pay. But I do always like to caution people, it does take time to get these accounts fully online because they're not going to bring a job online that's halfway done because it wouldn't make sense to start paying people differently during the middle of the job. And the way construction companies run is, new jobs come online every month or so. So it takes a bit of time to get these folks ramped up. But the good news is that it's a very solid product, and it's been very well received. And we're just loving the feedback we're getting from the market.

Understood. And just one follow-up. On the customer addition in the quarter, I mean, it seems like net adds is -- continued to decel. Any additional color you can share there? Is that just a function of your efforts targeting the enterprise segment? And also, just curious how net adds have kind of performed across different geos versus your expectations?

Your assumption is correct is that it is a function of us making that shift towards the upper end of the market, keeping in mind that most of our customer count is going to be concentrated down market in the SMB. Now there still is likely a bit of a macro challenge impact in terms of the SMB customer count. But it is that and our focus and our shift towards the upper end of the market. The other thing to keep in mind is, one, it's not -- customer count is not something that we actively manage to. I'd rather point you to our actual gross retention rate, which is still in the healthy mid-90% range or 95%. And that is indicative of actually customers not leaving us. And so that's a much better number to look at.

That concludes all questions. I would now like to pass the conference over to the management team for closing remarks.

Thanks, everybody. Talk soon.

That concludes the Procore Technologies, Inc. Fiscal Year '24 Q1 Earnings Call. Thank you for your participation, and enjoy the rest of your day.