Good evening. Thank you for attending today's Procore Technologies, Inc. FY '21 Q4 Earnings Call. My name is Salina and I will be your moderator. All lines will be muted during the presentation portion of the call, with an opportunity for questions and answers at the end. I would now like to pass the conference over to our host, Matthew Puljiz with Procore Technologies. Please go ahead.

Thanks. Good afternoon nd welcome to Procore's 2021 fourth quarter earnings call. I'm Matthew Puljiz, VP of 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 upon 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, February 22, 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 recent acquisition of Levelset. However, with respect to our customer account metrics, we define organic to mean customers under Procore contracts. With that, let me turn the call over to Tooey.

Thank you, Matt, and thank you, everyone, for joining us today. In the fourth quarter, we delivered excellent results and continued to make great progress towards our mission of connecting everyone in construction on a global platform. I am very proud of the work our team did by closing out the year strong, continuing to integrate our recent acquisitions, expanding the depth and breadth of our platform and as always, investing in our people and culture. Today, I'll start by providing additional color on our results and I'll share what I'm looking forward to this year and beyond. So let's dive in. Annual revenue surpassed a $0.5 billion for the first time in our history. And I very grateful to our customers and employees for getting us to this milestone. Our deep and expanding customer relationships drove this outstanding performance. On an organic basis, we ended 2021 with greater than 12,000 customers. The number of organic customers contributing more than a $100,000 in ARR grew by 32% to end the year north of 1100. We also ended 2021 with a total of 30 organic customers contributing more than $1 million in ARR an increase of over 50% from the previous year. Most of these customers initially landed with much smaller contract sizes and grew to surpass a million dollars in ARR in just a few years. This progression underscores how we are really just beginning to digitize this industry. Our customers are also heavily engaged with our platform. We now have over two million active users. These users uploaded 400 million photos, documents and inspections last year, reflecting continued growth in our platform usage. We expanded the depth and breadth of our platform adding nearly 100 new partners to our app marketplace in 2021, bringing total integrations to nearly 350…

Thanks Tooey, and thank you to everyone for joining us today. As Tooey described, Q4 was a very strong close to an important year for Procore. I'm incredibly proud of our performance in 2021 and I'd like to share some specific highlights as I reflect on our fourth quarter and full year. Revenue in Q4 was $146 million up 33% year over year and up 30% organically when excluding Levelset's $4 million contribution. Non-GAAP operating margin was negative 13% in Q4 and this includes approximately 130 basis points of headwind from Levelset. As we shared during our Q3 earnings call, our organic operating margin declined meaningfully from Q3 to Q4 due to an acceleration of attractive growth investments. I'll share more on how investors view our investment levels and run rate expenses in a moment. Turning to the balance sheet metrics, short term deferred revenue in Q4 was $302 million up 41% year over year. Total RPO in Q4 with $603 million with short term RPO representing approximately 70% of that and growing 35% year over year. In addition to strong new business and renewal performance, our backlog metrics benefited from better invoice duration mix, as well as earlier renewal timing and invoicing. This dynamic contributed to why short term DR is growing faster than short term RPO. It's worth noting that Levelset's revenue contribution came in higher than our guidance primarily driven by our early adoption of the new purchase accounting standard issued by the FastBee late last year. This new standard allows acquirers to essentially forego the deferred revenue writedown that was originally factored into our guidance. We no longer expect any deferred revenue writedown from Levelset or future acquisitions given our early adoption of this new standard. Taking a step back, our strong Q4 results are a…

The first question comes from Brent Thill with Jefferies. Please proceed.

Hi, this is on for Brent Thill. Thank you for taking my question. Tooey maybe first one for you, wanted to ask about, you mentioned the construction demand environment and playing off in 2022. Could you talk a little bit about the dynamics impacting the industry from inflammation to labor tightness and how that will impact your outlook in 2022?

Absolutely so yeah, no, I'm glad you asked that question, because that is probably the number one question that people ask me. So the way we look at it is, is pretty simple. First we look at the fact that the industry is facing some significant headwinds, like I just said a few minutes ago and that is around the cost of commodities, the challenge with getting actually materials and equipment to job sites with all the supply chain challenges as well as inflation. All of those things are creating a headwind for the industry. Before I move into the tailwinds, I do want to assure you that I talk to our customers every day and they all remain very optimistic about the future. But beyond that, we also see that we have these tailwinds and the way I look at it is the there's like a from today's vantage point, there's really a net neutral impact on Procore. The tailwinds are real. These are the overall digital transformation and these new ideas around people working remote now having to use a platform like Procore and the fact that the older generations leaving the industry faster than we've anticipated. So those are all tailwinds that ultimately net out to be against the headwinds to be very net neutral in how we look at the world. The reason I remain so highly optimistic is that these tailwinds that I keep talking about, they are not going away. They are going to be at this for the long haul. The fact that digital transformation's only going to accelerate across this, this $14 trillion opportunity over time and then we look at the headwinds, we really do think that those headwinds will work themselves out to some degree or another over time. So, over the long run, I remain very optimistic about the opportunity ahead of us but don't want to discount the challenges that we're faced today.

Got it. And maybe a quick one for Paul, if I could. Thank you for disclosing those additional metrics in terms of the number of customers using four plus and six plus products. Could you maybe tell us how to think about the contribution to growth from like new customers versus existing customers and your expectations for the future?

Yeah, look, I think we continue to believe that there's a massive opportunity within our existing install base. And that's a reflection of what you heard us talk about in the earning script around continue to see the platform payoff and continue to see further pen with our customers. At the same time Tooey talked a lot about where we are within just the overall market opportunity in his comment to single digit penetration and so today we continue to see our revenue being driven by a healthy combination of both of those. And when we forecast out in the future, we don't foresee that changing. We have tremendous opportunity that still remains within our install base our new logo, and we're pretty focused on going after both.

Got it. Perfect. Thank you.

Thank you. The next question comes from Brent Bracelin with Piper Sandler. Please proceed.

Thank you for taking the question and good afternoon. Tooey we'll start with you, impressive here to see the highest number of new customer ads, I think in two years also putting up the highest billings growth in two years, how much of this acceleration would you attribute to improving conditions after this really challenging 2020 versus more company specific share gains and these digitization tailwinds really kicking in?

Well, Brent, great to hear your voice. It's hard to parse them apart, frankly. I will say that we -- when we look at what's happened over the last say three years we do realize that we are returning to a state of normalcy. So things are reverting back to how they were pre COVID in a lot of ways. However we are facing, like I mentioned, these headwinds that might not have been there before. But yes, the digital transformation acceleration is something that we're seeing and we're seeing it in lots of places. Like for instance, I'm really proud of our performance with our international book of business and the fact that it grew 56% last year. We are able to see the global market opportunity as being so much bigger than the US market and we're actually seeing the performance there. So lots of bright spots. We're also seeing a lot of bright spots around adoption of our financial products. They continue to sell very, very well across the board to all of our stakeholders. So I wish I could tease it apart, but it's hard to say I would -- I think it's a combination of both, but over time I think these tailwinds are going to pay off and I think our ability to execute just gets better and better over time with this opportunity. So I'm bullish on both fronts.

Got it. And then quick follow for Paul in short term RPO, particularly strong this quarter, I think north of $6 million sequential ad short term RPO accelerated 36%. Could you just maybe compare, contrast the backlog of the business as it stands today and your visibility into this year versus maybe where you were a year ago? Any thoughts on just the durability and visibility you have in the growth would be helpful here?

Yeah. Look, I think the call out short term RPO is the right one. As we talk to investor, that is the metric we would point you to as the closest proxy for how to think about our growth go forward. I would call out, we shared that our short term RPOs up 35% year over year. If you back out the impact of M&A, that would actually get closer to 33%. And so, ultimately as we think through our guidance in the short term RPO, you think those are good numbers to try and get it against when you think about kind of growth go forward. And as I hope you've taken from our earnings call so far, we're very bullish about the opportunity ahead.

Great. Great to hear and thanks for the color. Thank you.

Thank you, Brent. The next question comes from DJ Hines with Canaccord. Please proceed.

Hey guys congrats on the strong results. Tooey, I really appreciate the market penetration color, especially in the enterprise GC market. I get that question. My follow up there would be if you guys have 25% of construction spend in that most penetrated market, the other 75%, how much is owned by competitors versus being true white space, right? And if this end of the market is more replacement, like what's typically the catalyst that needs to happen for a prospect swap out an incumbent.

Yeah. So when we focus in on the, and I appreciate you calling that out because we really did want to create an example of how big this opportunity is at the US enterprise GC market. So when we look at that particular segment, when the customers that we are going after in that market tend to be on legacy solutions that they have yet to replace and they tend to have been old school ERP client server type applications that have some bolt-on project management tools for instance and they just haven't made the leap yet to come over. But actually in a lot of cases, we actually will have a percentage of that customer's business already be it a owner's mandate that we're working with an owner that wants them to use Procore or they may be running us in a division within their company. So we generally are displacing some legacy solution and the way we look at it in general is there's so much opportunity ahead of us because of this. Like I said, with only 25% penetration, this is our most digitized market that we actually serve, which leads us to be very, very optimistic about the global opportunity as the rest of the global construction market actually starts becoming more and more digitized. So yeah, lots of opportunity and I do want to assure you because people ask this question too, which is, this is not a product market fit challenge, our product works great across the enterprise. It's a time to adoption challenge, which is the longer our products have been to market, the longer we've been working with customers, the more they're going to adopt. So it's just for us, it's green space for us to capture from now and into the mid and the longer term.

Yeah, that's great to hear and then a follow up for Paul. So 47% headcount growth in sales and marketing in '21. I don't know if these numbers are in the filing, but if we looked at sales and marketing headcount growth over a two year period, what would that kind of look like? And then the follow up would be like what's contemplate in the margin guide in terms of sales and marketing headcount growth in '22.

Yeah, I think that the thing I'll actually point you to and that it's important to take away is if you look at that 47% number, it is reflective of the Levelset acquisition as well. And so if you want to think about sales and marketing on an organic perspective, it's closer to the low thirties. In general, as we talked about 2020 was really the biggest slowdown for us in sales and marketing growth. I don't have the numbers off top hand for '21 to '22, but I would tell you that we have expect that those numbers will normalize and start to align closer and closer with revenue growth as we get through this catch period of kind of that three year window I talked about.

Yep. Yep. Okay. Makes sense. Thanks guys.

Thank you, DJ. The next question comes from Kash Rangan with Goldman Sachs. Please proceed.

Hi, thank you very and much. Congratulations on a very nice end of the year. Tooey I is encouraged to cure some of the commentary that you've provided. One was net new customer growth was pretty significantly stronger in the quarter than what we had expected. I'm curious if we could parse out, how much of that is because of I know that there are headwinds, which you acknowledge, which we appreciate, how much of that is real improvement in the fundamental of the business versus maybe customers that came through the acquisition. Also, secondly, very intrigued by a commentary on FinTech. I don't think you formally talked about this particular product line. Can you just take a step back for us and explain what is the big problem that construction industry faces from a payments perspective and what is the uniqueness of what Procore can do and what kind of impact you're having on your financials, maybe that could be handled by Paul. Thank you so much. Yeah.

Yeah, Kash. Great to hear your voice. Well let me just clear the air on the first question or after that. We are not getting any contribution from M&A on that front. So this is the success that we're seeing is all is based on the fundamentals of the business that you know, so well. But you know that I will love to talk to you about these FinTech businesses because this is an area where I'm really passionate. Let me just start by saying Procore is celebrating our 20-year anniversary. So I'm going to shamelessly plug our 20 year anniversary, because I think it's really, it's a fun one for Procore. We've been in -- we've been providing solutions to this industry for those two decades and if you think about what we do for the industry, we're really in helping our customers manage risk, right? So project management is really risk management and so we've been doing this for a long time and we realized over the years that not only are we providing all this risk management solutions to the industry, but because we're a platform we're able to capture all of this data and trust me a tremendous amount of data around project risk and so we realized that we can reflect that data back into insights to our customers today to allow them to run better bit. But we also realize is that there's other services that the industry needs in order to be successful. So we now are getting really good at understanding how where risk lies in construction. So the way we're looking at 2022 is, is that we're building the foundation for these FinTech businesses around creating risk profiles that allow us to better identify how we can do things around, let's…

Yeah. And then maybe just to round out on the couple of other points specific to myself, to reinforce the customer account piece Kash as Tooey said, there's no M&A inclusive in that. And if anything, frankly, the headwinds that, we talked about on the macro front still do persist largely for the SMB. So it's important to note, as we have talked about in the last quarter that customer count actually still faces some degree of a headwind largely in the SMB. And it's why you see such a big disparity in the growth rates between our total customer count and the 100 K plus customer. On the margin impact associated with some of the FinTech investments that Tooey just spoke about, I point you to where we talk about the headwind associated with the Levelset acquisition. We talk about how it's 400 basis points of headwind to our overall guidance. That is an area where we are looking at that acquisition as an acceleration of these investments and a big part of that dollars that we're spending with the Levelset team is going deeper on this data foundation and on start to experiment and really invest in these FinTech solutions and so that's a place I would point you to think about the margin impact.

Got it. So Paul, these investments in calendar '22, should we expect a positive outcome in calendar '23? Because you conservatively rightly so, you're planning -- you're guiding to slower revenue growth in calendar '22 versus 2021, but should we expect that to reverse scores as a result of what could be positive effecting the investments? That's it for me? Thank you so much and happy 20th anniversary.

Hey, thanks Kash. We think across the spectrum of the investments we are making across international product, these various areas that we're going to be able to sustain durable growth in the outer years. I would not tell you or anyone on this call to model in direct revenue impacts associated with these FinTech investments, anytime in the foreseeable future.

Thank you, Kash. Next question comes from Brian Schwartz with Oppenheimer. Please proceed.

Oh yeah. Hi. And I had my congratulations to a real nice finish to the business for the year. And thank you for taking my questions. Tooey, I wanted to circle back. You mentioned in your opening commentary, you talked about the structural changes that the pandemic has unleashed on the end mark. Specifically, you talked about the new hybrid work model and the technology demands of the younger workers in the labor force. The question I wanted to ask you, maybe in your conversations or you look at the pipeline just specifically for these structural changes, how much of this new investment cycle has taken place, or maybe saying it another way, how much of this new investment cycle do you think is still out there in the end market?

That's a tough one. So Yeah, I don't know. Maybe Paul, do you have any,

Well, can you elaborate what you mean investments in this cycle? I'm not sure I follow exactly what you mean that Brian.

Yeah, maybe more directly. I think there's a big debate around pull forward to demand and from the structural changes that got unleashed, from the pandemic, now we're in the third year of the pandemic. So just trying to see how much of that end market has already made these investment versus how much is, is still left out there to go. Thanks.

Got it. Appreciate the clarity there, Brian. Yeah, I think we are actually one of those industries that had the opposite effects. We did not benefit from pull forward. As we think through the structural dynamics that TUI was referencing earlier, we see those as long term tailwinds things like digitization picking up in this industry. So we pointed to, we're still single percent penetrated here. This market has a ton of runway and really what COVID has done is more brought to light the need to digitize for these stakeholders who otherwise might have sat on the sidelines longer. We do not believe that has resulted in a pull forward in any sense,

Thanks Paul, for that color. And then the one follow up. I actually had it for you unless Tooey wants to take it. You did mention qualitatively that you saw improvements in the net revenue retention number. And I was just wondering if you could just provide any clarity or any call on how much of that is coming from increasing spend, from the existing customers versus those customers adding the new products that you've disclosed. Thanks.

Yeah. It's a combination of both. It's why we, we went ahead and wanted to speak to the kind of additional growth we've seen in the four and six customer penetration. It's hard for us to suss it out specifically as these deals. In many cases, customers will come in and they'll expand volume while also buying additional products. At the same time, we look at really that adoption of the products and, and overall are very pleased with the ability to further penetrate into the platform and think there's a lot more runway and that we'll continue to see construction volume being a driver of expansion, but at the same time, we will continue to see our further and further push into expanding wallet chair also help contribute to that growth.

Great. Thanks for taking my questions and congrats on real nice finish to the year.

Thank you, Brian. The next question comes from Adam Borg with Stifel. please proceed.

Hi, this is Austin with ion Adam Borg Thank you for taking the question do for tooi. You know, pro's historically on the market via a direct footprint and just given the start of the year, I was curious, like, how are you thinking about the opportunity for building out the channel, especially as you'd love to increase your international presence in coming years?

Yeah, absolutely. So by the way I appreciate the question Austin. The when we look at any international expansion, our go to market strategy will look very closely at what the buying patterns are of how our, how the, you know, the prospects there want to buy software. And so we're very attuned to the fact that some markets are very channel heavy and some markets are, you know, expect more direct sales. So it really depends on which market you're talking about as to, you know, how we're gonna look at it. But ultimately what ends up happening is we will generally have a direct sales force. That's augmented by channel partners. And so it's, it's a big part of our international go to market, but yeah, so it's, it's really market dependent, frankly.

Great. That's it for me? Thank you.

Thank you. The next question comes from Saket Kalia with Barclays. Please proceed.

Okay, great. Hey Tooey, Hey Paul, thanks for taking my questions here. Two, we maybe, Hey to we maybe just start with you. You know, I think it was mentioned earlier, but it, it feels like PROCO financials has been doing, doing really well lately. And so I was wondering if you just talk a little bit about what sort of adoption do you have within the customer base for financial specifically and, and who are you displacing, or what you're displacing there when you make that sale?

Well, the, so thank you for, yes, we have been we've been very bullish on, on our financial products cuz they have been doing very well and they they've been very well received. So we have we're very fortunate that our financial products are needed by owners, general contractors and specialty contractors. And we, we like to think of our financial product lines as being somewhat of an industry defining solution. Prior to Procore, you would do a lot of your financial management in Excel as a project manager. And then you would VPN into your ERP system and try to make sure that the invoices that you're keeping track of from the job site trailer are making it into the ERP. It was very complicated and it was very prone to have mistakes entered into the systems. And so ultimately what we wanted to do was we wanted to bring the, what Procore so good at is bringing the concept of collaboration workflow and, and ease of use to the tools that the folks in the job site needed in order to get all of the financials under control and then connect to the back office ERP solutions through ERP connectors. And we've been, and this, this has resonated very well again with all segments of the market all stakeholders. In general, it just acknowledges the fact that construction management is done in the job site trailer and financial management for the corporate is done in the, in the corporate office. And we bridge that gap really, really nicely. And it's being very well received.

Got it, got it. That makes a lot of sense. Paul, maybe, maybe for you France and Germany, I, imagine are really interesting markets. I guess if, if you were to sort of look at the equation for, for the market opportunity there in terms of construction volume and whatever you want to call it sort of take rate or, or price, how do you sort of think about that, calculus and sizing the those, those terms either collectively or individually?

Yeah. Appreciate the question. I think that, when we think about our international opportunity, it is important to note that construction's a little different than other markets. We really do have to look at, a number of factors from GDP population growth. When we, we think about the impacts that a market will have when we expand into it, I think it's, it's no surprise that France and Germany are among, if not really the largest markets we see in continental Europe today and represent hundreds of billions of dollars of construction volume. We think we're a great fit in those respective markets and have a, a pretty big, healthy opportunity to build a multi hundred million dollar opportunity within just those regions. And so while it's early days, and while we do believe that, international will be a, a big opportunity to continue to grow in we think that France and Germany represented an awesome opportunity ahead, and one that we think we can build really big businesses in.

Got it. Paul, if I could squeeze in the housekeeping question, if that's all right and, and apologies, I joined late, so I'm not sure if this was asked, but I know we talked about organic growth on revenue. And I think also on CRPO, just to make sure the questions asked, did we see anything about how much acquisitions add to the deferred revenue balance?

We did it it's about two points.

Thank you socket. The next question comes from Jason Celino with KeyBanc , please proceed.

Great. Thanks bid me in maybe Tooey, really interesting to hear your comments on the hybrid model for construction, but maybe for those of us who haven't necessarily set foot on a construction site, what are some of the roles that we're maybe in the trailer that are now moving to hybrid and maybe what, what solutions is?

Yeah, I'm glad you asked that Jason, because yeah, we were not super clear on that one. So, so there's several jobs that were kind of historically done in the job site trailer that don't necessarily have to. And so you think about folks that do bidding on projects or pricing on projects. Those folks can do that from pretty much anywhere. And, and so those are, estimators for instance also the group, which is the visual design group which will be doing updates to models and or updates to designs don't necessarily have to be in the job site trailer every single day to get their job done. In fact, I've heard stories time and time again, about how much more productive they are when they're able to work from home, kind of in isolation, and then come into the job site trailer, a day or two a week. And it's very similar Jason, to what I think we all experience in the work world is there are some folks that just are required to have kind of head space and heads down space. And so those are the folks that, that, don't necessarily have to be there. Now, if you're pouring concrete, of course, you're not gonna do that from your living room. So you got to, there's certain jobs that actually have to be there every day, but then there, there are certain folks that don't.

Perfect. No, that's a good explanation. And then a quick, follow up on the sales hiring, Procore really didn't turn on the sales style until Q2 last year. So my question is, how long does it typically take for a salesperson to contribute or reach for productivity?

Yeah. unfortunately as with many things, Jason, it's not a one size fits all answer. if you go back and think about our go to market approach, we have customers who pay us single digit thousands of dollars up to customers who pay us millions of dollars and the, motions you would expect to see from a sales rep are pretty consistent with the, the size of the customer more than anything. And so when you look at reps who are, very much focused on the SMB you're talking months, and when you start to talk about enterprise reps, it can be quarters, but nothing atypical in terms of our ramp time relative to other software companies.

Thank you, Jason. That concludes today's Q&A session I would like to pass the conference back to the management team for closing remarks. Matt Puljiz Thank you everyone. Talk to you soon.

That concludes the PO pro core technologies, Inc. F Y 21 Q4 earnings call. Thank you for your participation. You may now disconnect your line.