Procore Technologies, Inc. Q2 FY2021 Earnings Call

Good day and thank you for joining us. Welcome to the FY 2021 Q2 Earnings Call. Currently, all participants are in a listen-only mode. Following the presentation, there will be a question-and-answer session. Additionally, please note that this conference is being recorded. I will now turn the call over to Matt Puljiz, Vice President of Investor Relations at Procore. Thank you. Please proceed.

Thanks. Good afternoon, and welcome to Procore's 2021 second quarter earnings call. 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, August 5, 2021, and may not be updated in the future. 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. The reconciliation of non-GAAP to GAAP measures is provided in our press release. With that, let me turn the call over to Tooey.

Thanks so much, Matt, and hello, everyone. Thank you all for spending time with us today. I'm Tooey Courtemanche, Founder, President and CEO of Procore. I'm happy to be with you today to share my thoughts on our company, our opportunity and our Q2 performance. Given that this is our first earnings call, I'd like to take a moment and provide an overview of the company and the industry that we serve. I've always been passionate about building things. And throughout my career, I have straddled two worlds that often felt disconnected, construction and technology. My love for construction started when I was young. In middle school, I had the opportunity to apprentice at a cabinet shop. Then while in high school, I got the chance to work on construction sites as a journeyman carpenter. Then years later, I jumped at the chance to work as a real estate developer before discovering the world of software. Being immersed in the Silicon Valley tech boom inspired me to found my first startup. It showed me firsthand the impact that digital transformation could have on many different industries. Several years later, I found my way back into construction when I started building my own home. I was shocked to discover that despite the sweeping impact technology was having across most sectors, the construction industry still largely relied on manual processes. Across the industry, inefficient practices and costly rework led to uncertain profitability and immense physical waste. That's when I became obsessed with the idea of helping transform the industry that I grew up in and love. I started Procore based on my steadfast belief in the power of connecting people through technology to transform this industry and to improve the lives of everyone in construction. For the past 19 years, Procore has partnered with one of the world's most important industries, ushering it into the digital age. Our mission of connecting everyone in construction on a global platform has never felt more urgent or inevitable. Like so many other industries, the pandemic had a significant impact on construction. The challenge of remote work and the need for greater efficiencies validated the importance of our mission, and it's begun to accelerate the rate at which digital transformation is occurring in construction. Procore is the trusted partner to lead this transformation with our customers and ultimately the entire industry. In summary, we build the software for the people that build the world. The construction industry is large, making up 13% of the global GDP and 7% of the global workforce in 2017. It's responsible for building the world around us, and that challenge is only growing. Over the next 40 years, the UN estimates that we'll have to build over 2.5 trillion square feet of new construction just to keep pace with population growth. That's like building a city the size of New York every single month for the next 40 years. Furthermore, while COVID has been a once-in-a-century disruption to the construction industry, it's enabled an increasingly mobile workforce. With greater workforce mobility comes the need for more construction to build infrastructure, workspaces, and homes in large city centers and less dense areas. As the demand for construction grows, so does spending. By 2025, annual global construction spend is estimated to reach $14 trillion. But growth does not equal productivity. In the last two decades, construction has seen an average of only 1% labor productivity growth annually, which is one-third of the average global growth rate. Moreover, our customers are telling us it's only getting harder to get projects done on time and on budget. So what makes construction so fundamentally difficult? First of all, it's a custom business; every project is a prototype, never to be built again. Imagine that the auto industry worked like construction—a consumer could design a car with seven wheels and four windshields and 11 bumpers. And then they could tell the automaker, 'I need this done in 10 months, or else you’re going to owe me money,' and in the end, we’re likely going to end up in litigation anyway. That’s simply how construction works today. Second, the workforce is mobile and decentralized. Construction happens both in the field and at the office. All the stakeholders involved are working on different pieces of the same project, at the same time. That’s why mobile real-time access to data is so critical. Also, stakeholder dynamics are complex. There are multiple groups coming together to deliver a project and it’s likely they’ve never worked together before. They often have conflicting business interests, but they’re all dependent upon each other and ultimately share the risks. Finally, change is constant. Designs, schedules, and budgets are affected by real-world conditions or decisions made during the building process. The people who power this industry navigate massive complexity, constant uncertainty, and unending risk. That’s why the construction industry needs a platform tailor-made for each stakeholder. And that’s why the time is now for Procore. So to understand why, let’s look at the catalysts enabling the industry to enter the digital age. First, technology could not drive change in this industry without mobile and Wi-Fi, neither of which made it to the job site until around 2012. Today, approximately 93% of construction workers use a smartphone every day. Second, there’s a massive labor shortage, and this cannot be overstated. This is the number one issue I hear from our customers. Even during the pandemic, 83% of contractors are having a hard time finding skilled workers. Third, there’s growing regulatory and contractual complexity in construction. In my lifetime alone, regulations have increased elevenfold. We’re talking about thousands of regulations from health and safety to environmental compliance. And finally, data is severely underutilized. Actual data is shifting from being a competitive advantage to a must-have. Yet around 96% of all engineering and construction data goes unused. McKinsey reports that construction firms could increase their productivity by as much as 50% by implementing cloud-based tools to aggregate and analyze even a small portion of their data in real-time. This industry is complex, and the problems are significant. Construction is high risk, low margin, and has the weight of building the world around us. It needs technology suited to the task. Let me be clear the industry has no shortage of technology at its disposal. The problem is that construction is collaborative at its core, and this technology has been siloed and disjointed by its nature. These siloed solutions, whether point solutions or groups of construction management tools stitched together by a few large aggregators, ultimately create new challenges. Valuable data becomes trapped in silos, and stakeholders can't gain access to actionable real-time information. Even with all of this technology available, 50% of the industry still relies on analog solutions like pen, paper, and spreadsheets. We believe to transform this industry, all stakeholders need to be connected on one easy-to-use platform that facilitates and automates complex workflows, spanning multiple stakeholders and tools. It needs to be backed by best-in-class support. We started our journey with our project management solution which planted the seeds for our platform. We now have 13 products across four categories including pre-construction, project management, resource management, and financial management, all built on a single platform. The platform value comes from how these products seamlessly connect owners to GSEs, the specialty contractors across complex workflows. We connect everyone to the tools they need to get the job done while breaking down the communication and data silos that have held the industry back. Our platform provides a real-time consolidated view of the entire project and a single source of accurate data, reducing miscommunications, errors, and rework because all data lives in one place. This allows us to provide customers with actionable insights to help them continually improve and run better businesses. While our platform focuses on solving construction's most foundational and impactful challenges, our vast ecosystem of integration partners extends the functionality of our platform to deliver even greater value to our customers. Today, I’m excited to share that we have over 300 partners in our marketplace that seamlessly connect with our platform, further enabling our customers to connect all their people, systems, and data in one place. Our ecosystem has also been a great source of strategic acquisitions. We have deep relationships with our marketplace partners, providing us with significant visibility into customer adoption, quality of their technology, and the strength of their company culture. These insights are invaluable as we selectively pursue M&A opportunities to expand our relationships with our customers while also accelerating our long-term business goals. I know that being a leader in construction technology is not just about building the best products and services for the industry; it's about being a true partner. Our connected platform focus and dedication to partnership set us apart. At Procore, we live and breathe construction. It's our only focus, and our products and business models are purpose-built for it. Our annual construction volume pricing means we offer unlimited seat licenses to our customers, allowing every project team member to use Procore. This is critical because, for a project to be successful, all team members must communicate effectively. If just one project team member doesn't have access to the right information, workflows break. Our customers don’t have to sacrifice communication to save on costs. Seat license pricing models are antithetical to how projects are built. We even offer unlimited support to every single user on the project, not just paying customers. This support is provided by construction experts and as a result is award-winning. We've maintained a customer satisfaction score of over 90% for years, with our average response time for customer requests being under 60 seconds. The pain I felt building my home was the genesis of Procore's mission to connect everyone in construction on a global platform. The key word here is everyone. Our unlimited user model is valuable to our customers in the near term, but also creates an incredible long-term opportunity for our customers and the industry. Procore's go-to-market strategy and business model encourage rapid adoption and facilitate a flywheel effect. Our customers can invite everyone they work with onto our platform. Because over 60% of users on our platform are non-paying, we call these people collaborators. They represent potential customers who may advocate for Procore on future projects or help convert companies into paying customers. The data generated by our users creates powerful insights for our customers. The platform collects granular data like costs, materials, safety outcomes, and more in real-time. This data represents a valuable and unique asset for our stakeholders. The more users we have on the platform, the more meaningful our data becomes. Procore represents an incredible opportunity to transform one of the largest, oldest, and most important industries on earth. For me, the past two decades have been a deeply personal pursuit to revolutionize the industry that I love. We’re just getting started, and we feel fortunate to be at the heart of transforming this essential industry. For those looking for a great example of this transformation, please check out the video on our website showcasing our customers, McCarthy building companies and Mortenson, and their efforts to build Allegiant Stadium in Las Vegas, Nevada. It is remarkable that they could finish a project of that size and complexity ahead of schedule and under budget by connecting everyone on the project on the Procore platform. Now let’s discuss the second quarter in more detail. Q2 marked the one-year anniversary of the pandemic not only for Procore but for the entire construction industry. I talk to our customers almost every day. What’s clear to me is that there is significant optimism and things are trending in the right direction. Customers tell me that their backlogs are healthy, getting stronger, and they're eager and excited about the work ahead. That being said, there are still pockets of challenges. In the near term, supply chain disruptions, commodity shortages, and price increases are all putting significant pressure on already low-margin businesses. The skilled labor shortage has been a chronic issue affecting the construction industry for many years and continues to impede the industry’s ability to keep up with demand. These challenges further emphasize the importance of finding ways to do more with less and work more efficiently. Speaking with our customers, many have told me that Procore has enabled them to transition seamlessly to this new working model and has provided the efficiency gains they’ve long needed. We've been working to address these industry challenges in various ways for years, and one recent example is our partnership with Lowe’s. This partnership is designed to streamline materials procurement for general and specialty contractors by offering Procore customers a discount on material purchases. Procore customers in the United States can access Lowe’s in-store and online products at a 5% to 20% tier discount. Now I’d like to share some additional updates from the quarter. We ended Q2 with 11,149 customers, and we grew revenue to $122.8 million, up 27% year-over-year. We're also initiating full-year revenue guidance of $499 million at the high end of the range. Here are some notable customers who contributed to this growth. In Q2, we closed one of our largest European customers, a leader in sustainable energy. They employ over 25,000 people globally and have over 65,000 wind turbines across a dozen countries. They chose Procore because they needed a solution that was easy to use in the field and integrated well with their back office. They valued our deep knowledge of the construction industry and our strong references in the renewable energy space, which extends our platform capabilities without the need for custom development. Once Procore is fully rolled out, they plan to build all future wind turbines using Procore. We’re excited to expand our footprint within Sustainable Energy build-outs, which is a large and growing area for us. Gray Construction and ENR top-ranked general contractors in the U.S. became a new customer who moved to us from a competitive solution that could not meet their needs. They migrated to Procore because they were looking for a true partner that is collaborative and invested in their success. The team at Gray was impressed with the rapid adoption of Procore tools by their teams in the field during the pilot. We noted how easy our products were to use by their field teams; standardizing on Procore will enable Gray's team to share data and knowledge across all projects and enable their teams for success. Additionally, one of the largest municipal utilities in the U.S. meaningfully expanded their relationship with Procore in the quarter. This agency serves millions of residents and needed greater visibility and workflow controls over their projects. Prior to Procore, they didn’t have full visibility into project tracking, and partial sharing of information by project teams was leading to unexpected change orders. Projects were consistently coming in over budget and behind schedule, and Procore was selected to be the system of record now for all of their projects. Procore will unlock the existing data silos and help deliver projects on time, on budget, and within compliance. We also continue to expand internationally as our percentage of revenue from international has steadily increased. While we already have customers worldwide, we recently announced our formal expansion into the UAE and Singapore, meaning that we're now focused on nine countries. Earlier I shared that the global construction market is projected to grow to $14 trillion in 2025. Most of that growth will happen internationally, which presents a massive opportunity. We have lots of room for expansion within these existing markets and will add more countries in coming years. We continue to invest in expanding our platform capabilities and product offerings to deliver greater value to our customers. In Q2, we made some notable announcements, particularly in our financial management offering. These tools provide accurate and real-time data insights into the financial health of construction projects while connecting entire project teams on a single secure platform. The new tools included advanced forecasting to better forecast cash flow, improved financial reporting with a robust and flexible work breakdown structure, the ability to connect time and material tickets to change orders, and an enhanced ERP connector platform. The team is doing great work expanding our offering. However, it’s not just about how many features we ship. What's most important to me is how these solutions ultimately improve our customers' lives. I was recently in San Diego with a client who shared that for a decade, they have been searching for a financial solution for their field teams that could integrate with their back office. I was proud to hear how Procore had solved this problem for them. They can finally connect their systems to provide a 360-degree real-time view of their jobs. These types of stories get me fired up and motivated every single day. In summary, Q2 was a very successful first quarter for Procore as a public company. We are pleased with our performance and excited about the customers that began their partnership with us. We enhanced our products and integrations as well as expanded internationally. The funds we raised from our recent IPO will provide capital to continue investing in our growth and create new relationships with shareholders that I look forward to working with over the coming years. I’d also like to extend a huge thank you to our employees. I am humbled by your unwavering commitment to our customers and our industry. You rise to every challenge and raise the bar each day. I'm grateful to have you at Procore, helping us transform this industry. I also want to thank our customers and the industry we serve. Many of you have been with us for years, and your partnership and insights have shaped Procore into what we are today. You're building the world around us, and we're honored to be working alongside you. Before I hand it over to Paul, I encourage you to join us at Groundbreak on October 12 through 14th. Groundbreak is our Annual Construction Conference where industry leaders from around the globe gather to learn, network, and shape the future of construction. It's a powerful event. The leaders there are building new horizons in safety, inclusion and diversity, technology, workforce development, and come together to find creative and innovative solutions to construction's biggest challenges. We refer to these individuals as groundbreakers, and we are humbled every day to work alongside them all. We encourage you to join us this October. Now I'd like to hand it over to our CFO, Paul Lyandres.

Thanks, Tooey and thank you to everyone for joining us today. First and foremost, I’d like to reiterate Tooey's comments recognizing the entire Procore team for all they've accomplished in our journey to become a public company. Though we are only getting started, without your collective determination and dedication, we wouldn’t be here today. I’d also like to welcome and thank our new shareholders. Your partnership goes a long way in helping us transform and support one of the oldest, largest, and least digitized industries in the world. As Tooey mentioned earlier, we had a strong quarter in Q2, with solid execution across the business. However, before I talk about the quarter, as this is our first earnings call, I’d like to spend a few minutes outlining Procore's business model and go-to-market. I want to start by reviewing our pricing model because, as Tooey mentioned, we see our unlimited user pricing model as a critical part of achieving our mission of connecting everyone in construction on a global platform. Unlike many software companies, we do not price based on individual users; we base price on the construction volume that a customer will run on our platform and the mix and number of products they buy. Not only does this allow for unlimited users to collaborate on a project, but it’s also how our industry thinks about their capacity to build, how they buy their insurance, and think about their profits. Once an annual subscription price is determined, we recognize revenues daily over the contract term. We do not charge our customers based on consumption or on a per-project basis. Nearly all of our customers sign up for annual or multi-year contracts, and our revenue is primarily subscription-based, providing us with excellent visibility and predictability into the business. We organize our go-to-market by stakeholder, region, and size. Our tailored and focused approach is a significant reason why we can forge such close partnerships with our customers. The three stakeholders we serve are owners, general contractors, and specialty contractors. Each of these stakeholders is critical to the overall success of the job and requires constant collaboration for a project to be successful. While each of these stakeholders shares common challenges, they also possess unique characteristics best served via dedicated personnel. In geographic expansion, we focus our go-to-market on the U.S. as it has the strongest product-market fit. We started a deliberate international expansion in 2018 and have seen continued success overseas since then. Outside of the U.S., we currently focus on Canada, Mexico, the UK, Ireland, Australia, New Zealand, Singapore, and the UAE, with plans to expand further and leverage these operations to service broader regions across EMEA, APAC, and Latin America. In addition to stakeholders and geography, we also operate our business by customer size. We serve firms with a few million in construction volume to the largest builders overseeing billions in annual volume. We operate our go-to-market on the same metric we price our customers—the annual construction volume they manage. We define emerging categories as firms with annual construction volumes of $2.5 million to $20 million, mid-market customers as firms with volumes between $20 million and $100 million, and enterprise customers as those with volumes greater than $100 million. Today, each of these stakeholders, geographies, and segments represent material opportunities for Procore. All of them are still early in their market penetration, and we believe we have significant runway across these dimensions. Now let’s turn to our second quarter results. Overall, we're pleased with the quarter's performance as we saw growth across every geography, segment, and stakeholder we serve today. A few things I want to highlight regarding Q2. First, as Tooey mentioned, customer sentiment continues to improve. Practically, this means we are beginning to see retention trends gradually return to more normalized levels. Additionally, customers are increasing versus decreasing their forecasted construction volumes as their sentiment and backlog improve. Second, our international performance remains strong. We see increasing demand across all our geographies and are excited about these markets' potential. International now represents 14% of total revenue, a 200-basis-point increase year-over-year. Third, regarding enhancements within our financial management offerings that Tooey mentioned, we continue to see strong customer demand and are pleased with the product attach rates we saw in the quarter. Lastly, M&A continues to be a core focus area. We are excited about the customer reception we have received since acquiring Esticom and INDUS.AI and remain on track concerning our plans to integrate both businesses. We remain committed to ensuring that we deliver a single connected platform, as we believe a connected ecosystem is critical to the success of all stakeholders in construction. Now let’s dive into the specific financial outcomes for Q2. Revenue in the quarter was $122.8 million, up 27% year-over-year, and total customers grew to 11,149, up 19% year-over-year. Regarding expenses, gross margin was 84% in the quarter, representing a year-over-year improvement of 100 basis points. Recall that gross margin includes expenses associated with supporting not only our paying users but our collaborators as well. Our sales and marketing spend came in at $55.4 million, a 42% increase year-over-year. As we see the industry recover and recognize the opportunities within current and future markets, we will continue to invest to sustain growth. Additionally, we continue to invest in R&D, which was $34.9 million, up 43% year-over-year. R&D has been a priority for us, and we intend to maintain this effort. The construction industry has no shortage of opportunities for software to drive efficiencies. We're in the early stages of transforming this industry and do not plan to slow down our investments in existing and new products nor in deepening the robustness of our platform as we look to drive further innovation. Moving to G&A, which came in at $18.8 million, growing 56% year-over-year, our biggest investment areas in G&A were focused on scaling our operations for public company readiness and supporting sustained revenue growth. Overall, these investments led to an operating loss of $5.5 million, representing an operating margin of negative 4%. Finally, operating cash outflow was $3.1 million. CapEx was $1.8 million, capitalized software was $3.5 million, all leading to free cash outflow of negative $8.4 million. Before I turn to guidance, keep in mind that our year-over-year trends are influenced by comparison periods from 2020. If you recall, Q2 of 2020 was an incredibly challenging period for the construction industry due to COVID-19. The industry began to see incremental improvements as we entered Q3 of last year, with more meaningful improvements continuing through Q4 of 2020. Our performance correlates to the industry's performance. As a result, our comparison periods will have atypical trends, which investors should take into account when examining 2021 year-over-year growth. With that, I’d like to provide context for our guidance. Our financial philosophy prioritizes growth while also focusing on the long-term opportunity in front of us. While industry recovery may be gradual, we intend to invest in building for the future. Our guidance reflects this investment philosophy while also considering that expenses will ramp slower than we previously anticipated due to remaining uncertainties around the pandemic, delaying both the return to office, travel and entertainment, as well as the increasingly competitive hiring market facing the entire technology industry today. The rationale behind this strategy is to benefit from the industry's recovery and our unwavering belief that this industry will continue to grow, and that the only path to meeting demand is by becoming more efficient and leveraging technology. In short, this is a tremendous opportunity, and we have grand ambitions to become the industry's leading partner. Our guidance for Q3 and FY 2021 is as follows: For Q3, we expect revenue to be $125 million to $127 million, while non-GAAP operating margin is expected to be negative 7% to negative 8%. For the full fiscal year, we expect revenue to be $496 million to $499 million, while non-GAAP operating margin is expected to be negative 6% to negative 7%. I'd like to close by again sharing my gratitude to the industry, our partners, employees, and the communities we serve for giving us this opportunity.

For our first question, we have Sterling Auty from JPMorgan. Sterling, your line is open.

Thanks. Hi, guys. To get started, you talked about the improving sentiment out of your customers and improving pipelines, but then talked about the challenges they’re facing in the supply chain. Are you concerned at all that those supply chain risks may actually start to bubble up and cause projects to get put on hold?

Hey, Sterling, it's Tooey. To answer your question, yes, there are some headwinds. Definitely, supply chain is one, and commodity prices is another. But what I find fascinating is across the board, everyone I speak with has very positive sentiment, primarily around their backlog, which is all the future work they will receive. Their biggest challenges tend to be staffing. So just finding the right people to do the work is their top challenge. But when they talk about their backlog, they're excited about the opportunities ahead. Backlog is future work that must become shovel ready and turn into actual projects to flow through Procore. I'm very optimistic about the future. I think these challenges around supply chain and materials pricing are somewhat temporary. But again, the sentiment is positive.

That's good to hear. And then one follow-up question, Tooey for you. Payments were something that investors during the Roadshow were very interested in. Can you give us a sense of where you see Procore participating in the payments opportunity within the construction industry?

Absolutely. Well, it's not a matter of if, but a matter of when with payments. As I mentioned during the Roadshow, this is a priority for Procore. We have to make it right, so we're taking our time and staffing up for it, but I want to set the expectation that it’s not in any of the models we've shared. But it is coming. We're still building the team at this point and looking forward to keep answering questions and providing updates.

Okay, great. Hey, guys, thanks for taking my questions and congrats on becoming a public company.

Thanks, Saket.

Thanks, Saket. Appreciate it.

Well, hey, maybe first for you, Tooey. Can you just talk a little bit about customer interests across the portfolio? I think the project management part of the business has always been popular. But can you just talk a little bit about interest across the other three product families, meaning pre-construction, resource management, financials, maybe just broad strokes?

Sure. Absolutely. We've mentioned before; the best way to look at this is that our project management tool for general contractors has always been our biggest product since we've been in market longer than the others. The newer product lines are still smaller but they’re growing faster. When you look at our stakeholders, across owners, general contractors, and specialty contractors, the owners and specialty contractor businesses are big as well. I never want to miss the opportunity to explain the breadth of what we're doing. Our mission is to connect everyone in construction on a global platform.

That's great. Very helpful. Maybe for my follow-up for you, Paul. It's great to see the billings growth this quarter; I think it was 40%. Can you just talk about high-level billings as a metric? And what we should sort of keep in mind on that metric in terms of puts and takes or just anything you want us to know about billings as a metric, as we gauge the health of the business?

We understand that investors will use that to evaluate how to think about the quarter. However, we do caution them not to overly rely on it. This is not a metric we manage the business to. It's based on invoicing and has noise, particularly quarter-to-quarter. This is especially true since Q2 in 2020 was an incredibly challenging period for the construction industry due to COVID-19. So you'll see some atypical comparisons and I’d advise all to be cautious.

Thank you very much and hearty congratulations on becoming a public company. That's awesome.

Thanks, Kash.

One for you, Tooey, thank you. One for you, Paul. So Tooey, you talked about the $14 trillion opportunity in construction by 2025. Broadly, how much of that spending do you think Procore could realistically target with your current product portfolio? Hypothetically, if you had all the distribution in the world and could target the industry, what could the product solve for customers?

Great question, Kash. Procore has approached solving problems for the industry by focusing on foundational challenges. Project management is at the core; you can't have a project without some form of project management. While I would caution you, don't create averages because we sell to high-end and low-end markets, our business model supports our strategy. The industry is looking for a focused provider like Procore that builds a single platform and believes in partnership.

Got it. And while that first part is important, over the long-term, if I do some rough math, you have about 11,000-plus customers, and it seems like you've collected roughly 10 to 13 basis points of construction volume. As you expand your value, how much of that spend do you see as being applicable to Procore?

I would caution you against creating an average because we serve various market segments. Ultimately, our clients gain significant value, especially those fully penetrated with our offerings. However, our growth will not follow a linear path across segments as the averages do not hold up well in this environment.

To add on Tooey’s sentiment, the number of products our customers have will skew averages. We are quickly increasing product adoption, offering our customers numerous services. While we can derive significant value from the core project management module, this is a constant evolution. We believe we are just scratching the surface of market and wallet share we can capture.

Understood, thank you. Also, regarding the improving sentiment you noted, are you factoring that into your forecasts? Are you anticipating customer sign-ups as sentiment improves?

We aim to be thoughtful when evaluating the industry’s landscape. Importantly, we believe sentiment and leading indicators depict a positive market direction. However, given the industry’s massive scale, we think of it as an oil tanker versus a speedboat—progress is gradual, and we remain cautious but optimistic.

Hey guys, good start here. Congrats on the IPO and everything that's happened since. Tooey, I want to ask you about the product roadmap as it pertains to the immense data asset you have. I’ll leave it intentionally open-ended regarding the most interesting things you could do with all the data you have but are not currently doing.

I love that you brought this up. Our data is a tremendous asset, both for our customers and ourselves. We have 1.6 million users generating structured data covering bidding, quality and safety, materials, and labor costs. This data provides opportunities to leverage insights for better decision-making, allowing customers to operate more effectively. The future with our data holds immense potential.

Makes sense. Just a quick follow-up, Paul, regarding atypical compares in 2020, could you elaborate on customer adds seasonality? Are any quarters particularly stronger or weaker for Procore that we should consider?

I think we align closely with industry norms, experiencing strong Q4s. However, as I mentioned earlier, the atypical nature of these comparisons is due to COVID's severe impact on the industry in 2020. Growth opportunities exist across segments since some may fluctuate based on market demands.

Thanks. Paul, regarding the last quarter, how do you view expansion? Could you break down what stemmed from volume recovery versus selling additional products, and what the drivers of that successful period might be?

It was a combination of both. For new customers, we had broad discussions about their growth plans and how we could support them. We’re pleased with the attach rates in our financial management product but continue to see traction across our broader portfolio as well.

And Tooey, you've been very clear that the vast majority of your TAM resides outside the U.S., but only 14% of revenue comes from those areas. How aggressively do you plan to approach the international market to capture that opportunity?

You're correct. We take international expansion very seriously. For Q2, our international team performed well. We believe establishing beachheads in regional areas allows us to serve customers better. Construction is hyperlocal, so it’s essential to get close to buyers. Expansion will focus on quality over quantity, and you’ll see continued progress in coming quarters.

Thanks, and I want to delve deeper into international. As you think about how it's developing, what have you learned over the last couple of years, and is it moving faster especially post-COVID?

The learnings suggest that our focus on foundational building challenges allows our product lines to translate well into new markets. Construction principles are universal; everyone manages schedules, budgets, and people. Adoption rates depend on how quickly technology is accepted in various countries. Regulations might make certain markets more sophisticated, leading to the potential for increased technology adoption.

From our vantage point, we expect to see growth across segments. Our customers are doing well and winning business where demand is strong. While not linear, growth will occur across various markets, and we will work alongside our customers to support them.

I want to touch on the network effect you've discussed with previous questions. With so many platform users, what specific tactics are being deployed to monetize this user base?

We call the 60% of our users collaborators. When a general contractor is a customer of Procore, they bring on specialty contractors. Those collaborators see Procore's value and are likely to want to become customers. We have means of engagement and ways to touch them. Often they reach out to us due to the value they perceive.

We're already seeing that connection. Many new customers come to us after being collaborators. While we still have the opportunity to optimize our outreach, this dynamic continues to foster healthy growth.

Let's talk about competition. You've mentioned partnerships with various providers. How is the competitive environment shaped, especially with more players entering the core market?

Indeed, the opportunity remains vast, with a $14 trillion total addressable market by 2025. Since we are solving the foundational challenges, our competitive win rates remain steady. Many partners with connections to Procore operate as frenemies—with integrated solutions that complement our offerings rather than being purely competitive.

Hi, Tooey and Paul. Great to hear from you, and congratulations on a great first quarter. I want to ask if the dynamics on labor and raw material costs impacting construction volumes. Is that a favorable dynamic for your business?

Yes, challenges with supply chains and material costs might affect future projects. However, backlogs are still increasing. I'm trying not to overstate it, but there's optimism regarding upcoming projects. Procore prices on construction volume, which could impact our growth positively.

While it poses challenges, the industry remains resilient. They continue to partner with collaborators to get projects done. As prices rise, construction volumes may surge, which is beneficial for long-term growth. We see rising demand for our technology as businesses realize the need for efficiencies.

I want to acknowledge the uncertainty and challenges. However, the industry has shown its resilience. We think we have strong guarantees in place to navigate these dynamics effectively, ensuring we remain active participants in the recovery.

Tooey, you're clear about payments being an important feature in your future offerings. Do you believe integrating payment solutions will be a simple process—either through mergers or internal development?

I don’t want to say too much too soon, but payments naturally follow tracking the budget and invoices. This area requires careful attention, which is why we’re focusing heavily on getting it right. It may require a mix of both integrations and internal development, but we will definitely implement payments in the future.

Thanks, everyone, for joining us. We hope to see you all at Groundbreak. Thanks again.

Thanks, everyone.

And ladies and gentlemen, this concludes today's conference call. Thank you all for participating. You may now disconnect.