Procore Technologies, Inc. Q3 FY2021 Earnings Call

Thanks. Good afternoon and welcome to Procore's 2021 Third Quarter Earnings Call. With me today are Tooey Courtemanche, Founder, President and CEO, and Paul Lyandres, CFO. The 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, November 4, 2021. 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. With that let me turn the call to Tooey.

Thank you, Matt, and thank you, everyone, for joining us today. Over the last 90 days we've been hard at work advancing Procore's short- and long-term objectives while continuing to reduce risk and unlock growth for our customers. We invested heavily in our platform, which benefits all customers, from owners to general contractors, especially contractors globally. We released many new product features and updates and we announced two very exciting acquisitions. We're continuing to innovate in preconstruction and financials and we are doubling down on what we believe is the most robust suite of products for specialty contractors. Last month we hosted our annual construction conference, Groundbreak, which gives us a great opportunity to hear from our customers and industry leaders from around the globe. Overall our customers made a few things very clear. Procore's mission is resonating and the progress we made is having a direct and positive impact on the industry. As always, we believe our role in transforming this industry goes well beyond our technology. We recently announced a number of new partnerships with organizations like Associated Builders and Contractors, the National Association of Minority Contractors and the Associated America. These partnerships provide a variety of benefits such as discounted buying programs, free product training and a new scholarship program to assist minority students who are studying construction at historically Black colleges and universities. The partnerships, innovation and support that we provide to our industry continues to be recognized. We recently received the Trust Radius Tech Cares Award, the National Institute of Building Sciences Innovator Award, and we took top honors in G2 Crowd's fall report where we led in eight categories. At Procore we know it takes more than technology to improve the lives of everyone in construction. It takes partnership. As I mentioned before, the construction industry has been and always will be highly dynamic. For the most part, backlogs are healthy and growing and our customers tell me they are optimistic about the future. But like many industries, construction is grappling with a skilled labor shortage, increased labor and material costs and over-extended supply chains. It is clear that in an industry that is highly under-digitized, technology provides a clear and accessible path to building more efficiently. Procore has and will continue to help one of the world's most important industries navigate its short- and long-term challenges. One of our largest owner customers recently mentioned something that really validated the impact Procore can have on businesses as a whole. They said, 'I don't view Procore as just helping with construction; Procore is also helping me with the success of our business, given how vital construction is to our bottom line.' I've mentioned before that construction touches all of our lives. And what is so amazing to me is that this quote didn't come from a top ENR general contractor, it came from a Fortune 500 global food company. Another customer shared the role Procore's broader partnership has played in helping them digitize. They said, 'Procore's culture, technology and vision all converge for us to be able to make this transformation and is helping our company cross the tech chasm.' Speaking of partnering with the industry, I'd like to share a few customer wins for Q3. Let's start with two new public sector owners. Cladding Safety Victoria, or CSV for short, is an initiative by the Victorian government in Australia. They set out to reduce the fire hazard risks of combustible cladding on both residential and public owned buildings. CSV recognized that their current solution is not scalable for their long-term success. They chose Procore because quality, safety and financial management are key in the government sector. Historically they had been an as a free collaborator and now they are a customer, demonstrating the power of Procore's flywheel effect. Utah Transit Authority is a public transportation agency serving seven counties, which represents more than 80% of Utah's population. Procore replaced their proprietary system that became outdated and difficult to maintain. Procore helps them simplify their processes, provides them with a single project data source and comprehensive mobile capabilities. This will enable them to improve project delivery while having better budget oversight. OZ Group in Canada is a specialty contractor with new leadership and a vision to digitize and better coordinate their business. They had disconnected systems, disparate tools and three divisions working in silence, making it difficult to report on data and gain project insights. They migrated to Procore to improve internal processes and bring all of their divisions into a connected environment, which will ultimately enable growth and deliver greater profitability. You know, I also want to take a moment to congratulate our long-time customer Robins & Morton on their 75th anniversary. Robins & Morton is a privately held general contractor consistently ranked in the top 100 contractors in the United States. Their business continues to grow and they've expanded the amount of construction volume they run on our platform in the third quarter. We consider Robins & Morton to be a true partner and we look forward to supporting their continued success in the years to come. Part of the reason why these customers choose Procore is our commitment to innovation. We shared a number of exciting product updates at Groundbreak and throughout the quarter. I'd now like to highlight some of our investments in our global platform and our preconstruction and financial management offering and talk a bit about how they each connect to our long-term vision. I want to start by reminding everyone that one of Procore's key differentiators is our connected platform. We have a highly intentional product strategy of building an open platform that connects people, workflows, data and tools with a single user experience available on mobile and web from preconstruction all the way through project closeout. We offer hundreds of deep partner integrations through our app marketplace. We provide flexibility and configurability to our customers of all sizes doing work across all types of construction. Our customers are able to leverage advanced analytics so they can continually improve how they run their projects and their businesses. To be clear, the products themselves are world-class. But the real power comes from connecting everything and everyone on a single platform. We announced a number of updates to our platform in Q3, including greater availability of custom configurable fields, additional global cloud data center support and a new and improved workflow engine and that's just to name a few. One of the biggest areas of investment in the platform was around collaborative document management. This provides a flexible and configurable approach value to our existing customer base, but will also accelerate our international expansion by helping address both common data environment requirements as well as ISO compliance standards. We also continue to innovate in preconstruction. I cannot over-emphasize how critical preconstruction is to our customers. Since mistakes made in this phase are amplified and felt throughout the entire course of construction that follows. Bringing transparency to preconstruction can substantially minimize risk for our customers. In addition to key announcements around bid forms and bid leveling, we also continue to make strong progress in estimating. As many of you know, last year we acquired Esticom and we have now fully integrated takeoff and estimating into the preconstruction module of the Procore platform. We are making exciting progress on streamlining and automating estimating processes with smart takeoff. Smart takeoff is made possible by leveraging really powerful artificial intelligence which is really cool. We are also working to further integrate the estimating workflows with our financial management module. With Procore Estimating customers can manage workflows to forecast budgets, conduct change management and initiate purchase orders. Everyone benefits from more accurate estimates prior to breaking ground. This is one of the most important mechanisms available for ensuring project profitability. However, for builders in particular speed is critical. Fast estimating and takeoff enables builders to bid more efficiently and competitively. In this way, Procore estimating makes it more likely that our customers will win the work that they bid on. We also made notable announcements about our financial management module. One of the most critical ways we can help our customers is providing them with a centralized and accurate data source that connects all of their stakeholders. We recently released a number of new ERP connectors. These connectors will provide our customers with unprecedented real-time visibility into the financial health of their construction projects. People often think that project execution is separate from project accounting when they are both really two sides of the same coin. Without the connectivity that Procore provides gaps exist between accounting and operation systems, and teams are forced to make important decisions without the information they need. These connectors help us to close the gaps between the office and field teams, removing blind spots, risks, delays and costly rework. Okay, the last big announcement I want to touch on is the Procore construction network. If you asked me to find the best place to get dinner in any city, I would simply do a Yelp search, find a great place to eat. And yet if I want to build a school, a hospital or a home in your town, I'd be flying blind when it comes to finding the most reliable suppliers, vendors, architects, engineers and/or contractors. The Procore construction network is the start of a new approach to connecting the construction industry. Thanks to our vast connected network of over 1.8 million construction professionals around the world, we are now piloting a free online construction business directory. The Procore construction network offers location-based search and advanced filtering and will make it easier for construction professionals to expand their online presence, promote their business, quickly find and connect with new construction partners, and submit and receive bids from other stakeholders. This network will provide our customers with transparency into who they are working with. A great example of this is that general contractors will have access to historical data on specialty contractors and they will have access to predictive information on project costs. And specialty contractors, before they take on a job, will know what the propensity is for the owner and the general contractor to pay them on time. And this is critical so they can better solve their persistent cash flow challenges. And on top of that they will be able to choose the most cost-effective and reliable products from a transparent marketplace. Over time we believe the Procore construction network will also provide a new way for the industry to discover the power of the Procore platform. This is going to be a great way to create a bigger, faster flywheel. We've recently made significant acquisitions this quarter. This allows us to better serve all stakeholders, but in particular specialty contractors. This group represents the majority of the people within the industry. They perform the lion's share of the actual construction activity while assuming significant physical and financial risk. Many of you heard about our agreements in September. This represents the single biggest investment we have ever made. We closed this acquisition earlier this week and are looking forward to our journey ahead. In the medium-term, our priority will be integrating Levelset's lean management solution into the Procore platform to manage complex compliance workflows. Lean management is also foundational to some of our long-term objectives including capitalizing on our data assets. Next year this will be a priority for us and Paul is going to share more on these investments shortly. Additionally, a couple of weeks ago we announced our acquisition of LaborChart. For those of you who do not know, labor is typically the highest and most variable cost for contractors. For the most part, the industry still relies on spreadsheets and analog solutions like whiteboards to manage their workloads. LaborChart provides a modern solution to these legacy processes. Given construction's global labor shortage, managing existing workforces efficiently is critical to managing risk and driving growth. With the addition of LaborChart, Procore will have an end-to-end workforce management solution to help contractors optimize their workforce, maximize productivity and take on more projects. LaborChart complements and strengthens Procore's current workforce management solution. While our field productivity product traction provides insights on historical productivity, LaborChart enables contractors to accurately plan and forecast by giving them a real-time and forward-looking understanding of all workers, assignments and commitments. Additionally, the acquisition gives us the opportunity to align Procore's industry-specific project data set with LaborChart's workforce management data, which will provide further insights and connectivity between the office and the field. Optimizing labor and construction is critical to enabling our customers to take on more work with less waste and ultimately to grow their businesses. And I'm looking forward to sharing our progress in the coming quarters. So, before I hand it over to Paul, I have an exciting announcement to share. Next year Procore will be expanding into France and Germany. The construction industry is globally distributed with the majority of construction volume happening outside the US. Europe represents a sizable portion of the global total addressable market and France and Germany are two of the biggest markets within that continent. We also believe their strong product market fits with our platform today and many of our largest customers have operations and projects there already. Expanding into these two countries was a natural next step and I look forward to updating you after our launch next summer. So, in summary, we continue to make progress toward our vision of improving the lives of everyone in construction. Now I'll hand it over to Paul.

Thanks, Tooey, and thank you to everyone for joining us today. Before we discuss the quarter's performance, I'd like to formally welcome both the Levelset and LaborChart teams to Procore. As Tooey mentioned, we believe that there are tremendous synergies in both the near- and long-term with these businesses. Additionally, please note that both these acquisitions closed in the fourth quarter and, therefore, did not contribute to our Q3 results. Overall, we are pleased with our performance in the third quarter. We remain excited about our long-term opportunity as ultimately this industry is large, under-digitized and historically has been underserved in regards to a best-in-class technology partner. With that there are few things in particular I want to call out with respect to Q3. First, similar to last quarter, we saw continued strength in our international business and financial management products. What's most exciting about these two areas is we are just at the beginning of our international expansion and our integration of Levelset's financial management adoption in the coming years. Second, we were very pleased with our hiring momentum. We ended the quarter with more headcount than we assumed, but the timing of those starts was more backend-loaded in the quarter than anticipated. This caused a dynamic of better non-GAAP operating margin in Q3 while simultaneously ending the quarter with more headcount. More to come on this topic when we discuss our updated guidance. Lastly, in aggregate, our overall expansion and upsell rate continues to improve from where it ended in 2020. However, as Tooey shared, the industry disruptions associated with the difficult labor market, inflation and constrained supply chains continue to disproportionately distract the SMB segment. The impact has been less pronounced in the mid-market and above, as we continue to see stronger growth within our larger customer relationships, both from new and existing logos. While the industry generally still faces several challenges, these can differ in magnitude depending on customer size. Now, let's discuss our specific financial results in Q3. Revenue in the quarter was $132 million, up 30% year-over-year, and total customers grew to 11,605, up 19% year-over-year. Please note that neither the Levelset nor LaborChart acquisitions were closed in Q3 and, therefore, did not contribute to these results. Operating loss was $5.2 million representing an operating margin of negative 4%. Improvement in our operating margin was due to both better-than-expected revenue and the timing of hiring starts, as previously discussed. Finally, we had strong operating cash flow of $15.1 million and free cash flow of $6.5 million. Both metrics benefited from the timing of large customer collections and the operating margin performance in the quarter. Before I turn to guidance I want to remind everyone that, as you review our results and outlook, note that our year-over-year trends are impacted by comparison periods in 2020. If you recall, Q2 of 2020 was an incredibly challenging period for the construction industry as a result of COVID-19. The industry began to see incremental improvements as we entered Q3 last year, with more meaningful improvements continuing through Q4 of 2020. It's important to note that our performance is correlated to the industry's performance. As a result, our compare periods will have atypical trends which investors should take into consideration when evaluating 2021 year-over-year growth. With that I would like to provide details on our guidance by providing our specific outlook with and without the recent acquisition of Levelset and LaborChart. For the fourth quarter we expect revenue to come in between $136 million to $138 million, and this includes a contribution of $1 million from Levelset net of purchase accounting. Given the size of LaborChart and the effects of purchase accounting, we are not expecting a material revenue contribution from that business in the quarter. Q4 non-GAAP operating margin is expected to be between negative 14% to negative 15%. And this includes a combined margin headwind of 400 basis points from these recent acquisitions as well as the impact of ending Q3 with greater headcount. For the full fiscal year we expect revenue to come in between $505 million and $507 million, and this includes the same contributions from Levelset and LaborChart that I described within our Q4 revenue guidance. Non-GAAP operating margin is expected to be negative 6% to negative 7%, and that includes a margin headwind of 100 basis points from our recent acquisitions. Additionally, when we report our Q4 results in February, we will also provide formal guidance for 2022. Until that time, there are a few items investors should consider as they update their models for next year. One, as I stated when we announced Levelset, on a standalone basis they would have achieved 2021 revenue within the low 8 figures and are growing moderately faster than Procore is today. Please note that their 2022 revenue contribution will be impacted by the effects of purchase accounting, which we intend to finalize later this quarter. This will naturally lead to a suppressed revenue contribution in 2022. Two, LaborChart is at an earlier stage than Levelset and, therefore, will only have a marginal revenue contribution next year. While our 2022 planning process remains ongoing, we are comfortable with today's consensus estimate of our 2022 organic revenue growth rate. As it relates to the acquisitions that recently closed, we currently anticipate they will contribute approximately two incremental percentage points of revenue growth to that estimate. Finally, I want to provide some color around 2022 operating margin. Levelset will receive substantial investment next year as we begin our longer-term collective effort of helping the industry get paid faster, better manage risk and start to explore early-stage fintech opportunities. Those investments, combined with purchase accounting impacts, will decrease the Company's total operating margin in 2022. At the same time, we will continue to prioritize growth investments in our organic business and see business activities return that were more frequent in 2019, such as in-person events, travel, etc. Like our guidance for Q4, we approximate next year's non-GAAP operating margin to be in the negative mid-teens, inclusive of the acquisitions, which will contribute a relatively similar amount of headwind as in Q4. Given the magnitude of the effort we believe this is what's best for the business and our shareholders. I'd like to close, again, by sharing my gratitude to our customers, the construction industry, our partners, employees, shareholders, as well as the communities we serve for giving us this opportunity. Now let's turn it over to the operator to begin the Q&A session.

Fantastic, thank you for taking my questions and congratulations on wonderful results here. Tooey, I guess I'll throw the first one at you here. I think we've been talking about projects broadly speaking when they would start coming back. And it seems like there's a push-and-pull factor on this. The demand has never been higher, the supply chain is maybe a little bit still messed up and enabling materials to get through. But I'd love to hear what you're seeing in different pockets. Because I think as we went through this, there were real strong pockets, whether it was residential or data centers or things like that. And then there was the long-term fear about commercial. So, would just love for you to give some comments in terms of what you are seeing on the ground from your big builders and owners and GCs about these different push-and-pull factors that are impacting volumes.

Yes, Tom, first of all thank you for the great question, because I get a chance to talk to our customers and prospects just about every day, and this is definitely the number one topic that we talk about. Push and pull is exactly the right way to think about this in the mental model, which is there has never been higher optimism when I am talking to our customers and prospects than I hear on these calls recently about their backlogs and about all the potential building that needs to happen. So, there's that on one side of the coin. And on the other side of the coin there's the concern around all of the challenges around finding the right employees and skilled labor, which has been here since before COVID but has only gotten more difficult since. And then with the supply chain disruptions. I was flying over Long Beach the other day and I saw all those 90 container ships that are out there and I know that that's holding a lot of the construction materials that our customers need to build. So, there's a lot of disruption there. Commodity prices are affected by all of that too. So, it is a world with two different stories in it, that optimism on the other side. Now, when you talk about sectors, I tend to think that it's more about the way we look at how we segment our customers, which is much more around we sell into the enterprise and the mid-market. But the SMB is the group that is actually just having the biggest challenges because they are so overwhelmed. If it wasn't hard enough to be a contractor prior to COVID, imagine if you are a small construction company where you are wearing five different hats. You're doing operations, you're doing selling the next job and you're trying to get the materials that you need, trying to do that in this COVID world. It's hard and they've got a lot going on. And so, for them, they are - their plates are full. So, when we look at the challenges, we actually look at it more by segment. And now, what we do believe, Tom - and I talk to these folks all the time - is when things revert back to more of a normal state, I believe they're all going to want to come to a solution like Procore that's going to help them do more with less. And so, I think over the long run this is going to - we're going to see these folks coming back and coming back strongly. But for now they are having a tough time. It's a tough time to be a small contractor anywhere.

Yes, that's great commentary. No doubt there's some pent-up demand for automation and digitization. So, I'm guessing that bodes well for you. A quick follow-up. I don't want to get too much in the weeds, but I couldn't help but notice your enthusiasm announcing the Procore construction network. Is it too simplistic to say this is the Angie's List of construction? And maybe if you wouldn't mind taking just another 30 seconds talking a little bit more about that, and just the business model that you see underneath that in terms of how it can help Procore and the customer base.

Yes, no, and by the way, you asked me the questions about the things I love to talk about. So yes, I am very excited about Procore's construction network. It's basically the recognition that every company and eventually every person in the construction industry needs to have their own unique profile and needs to be discoverable and be a part of a community where they can find more work and promote their brand and do all of the things they need to do. As I mentioned, I think my Yelp example is a great one. There really is no overall kind of registry for all of this. And if you think about what we can do from Procore's standpoint is we can enrich these profiles over time. We know what folks quality score, we know how they change order, we know how they perform on scheduling. We know so much about them that we can help make that information available so then when they go out to be discovered or they go out to discover other folks to work with, they can actually stop flying blind and start actually making informed decisions about who to work with. And so, I think it's really an exciting time. And I think the concept of making that happen, enriching it with all this data that Procore is generating through our data graph of knowing who everybody is is really going to be the future of construction.

Tooey, Paul, nice to see a recovery in the business here the last couple of quarters. One question for Tooey and one for Paul. Tooey, We'll start with you. I know you talked a little bit about Levelset being the first step in a broader construction fintech strategy. My question is what's been the early feedback on Levelset? I'd be curious to hear lean management pain points. Is this resonating most with GCs or subs? Just would love to hear a little bit more what's been the feedback on that acquisition since you made it and the timing of when that could maybe really accelerate within the installed base. Do you have to integrate that or not? Thanks.

So, Brent, I think the highest praise you can get when you go out and make an acquisition like this is to get a lot of calls from your customers who are saying thank you for solving this problem. Cash flow is - getting people paid faster is critical in our industry, and the industry and our customers have been very grateful for the fact that we are tackling this. What Levelset does is they solve the complexity around compliance. And the fact is that there's a lot of complexity involved in all of that. So, for us to be able to tack that into that broader picture, which I described before the last time we all spoke, about completing these complex workflows from the very beginning of - from bidding and estimating all the way through paying. So, there's a lot to it, getting a lot of folks in the industry that are very excited about that. And also our partners in the app marketplace saw that as being a big win, because it actually does help move through these processes, getting closer to the place where money can actually flow quicker. So, yes, no, it's been a - I think a success from a lot of places. Now we have a lot of work to do to integrate them over the next year. But we are up for the task and I think the industry is ready for us to do so.

And then, Paul, for you, you've had two quarters here of improving revenue growth, calculated billings and deferred - short-term deferred revenue are both up over 30% for the last two quarters. But you did talk a little bit about some of the mixed dynamics in SMB. My question here is on the pipeline build. As you think about the pipeline opportunity, do you think the international and mid-market enterprise strength can offset SMB with just the puts and takes as you think about pipeline visibility going into next year? Thanks.

Yes, I'd go back to the earlier question from Tom and say that the industry is seeing that push-and-pull dynamic. And to Tooey's comment, it's just hardest right now for the SMBs. But we don't believe that to be sustained problem nor something that in the immediacy has an impact on our pipeline opportunity. We believe we're still so early in the market that we serve today, the opportunity to continue to land so many new logos while continuing to focus on cross-sell, and thinking about our international expansion opportunities leaves us remaining really bullish on the long-term opportunity here and the ability to continue to acquire new customers as well as grow within the customer base that we have.

Yes, hi, thanks for taking my questions this afternoon. In terms of the strength that you were saying or you pointed out in the larger customers in international midmarket, just wondering if you're seeing any change in terms of the cycle of the activities that are coming on the platform. And if you dug into that, is it possible to distinguish between how much of that is maybe some release of some pent-up demand versus what you're doing internally to create more awareness or better productivity on your sales force?

I'd tell you I think we believe it to be a mixture of all of the above. We continue to think that, when you look at the macro environment, even with that push and pull, backlogs are still stronger than they've ever been and that customers remain really optimistic about where the world is going. At the same time, we continue to invest heavily in our market - our go-to-market motion, the ways that we can better leverage our collaborators, stakeholders and think through all the different opportunities that we have, being the unique platform, to go out there and better - become more efficient but also just think through how we can better serve the industry along the way.

I will add, too, there hasn't - to Paul's point, there's nothing that's going - there's no outlier here, there's no one thing. But there is - we do see a lot of demand around our construction financials product line. I think that's much more of a realization that a connected system on a platform like Procore, that solves a problem that, frankly, just has never really been done before through a connected SaaS environment. It's starting to take on more and more awareness and it's something that we are really proud of.

Good to talk to you guys and nice job there. Let me jump in a couple of the acquisitions, but more around building. I'm interested in, A, how that's tracking vis-à-vis expectations. But B, more strategically, if you're selling that software, that component, that technology to owners for ongoing stuff, is that a potential - it is not big enough to be a huge impact, but is that an offset to some of the volatility in the construction space? How should we think about that segment driving a lower volatility base left by the business? And I'd love to understand how it's doing and then I've got a quick follow-up.

Yes, so Honest Buildings for us was really a big foray into the market of the owners, really making the announcement to the broader construction industry that that's a big focus area for us and a really important constituency in the process. You heard Tooey talk about this quarter how subcontractors was a big area that we continue to invest in. When we think about our expectations for Honest Buildings, we remain really happy with that acquisition and believe that it did what we wanted it to do, which is go out there and make it clear that this was an area that mattered, that these stakeholders - and I do want to remind you all that when we think of owners, these are everyone from Fortune 500 companies, real estate, hospitals, government - that there needs around construction project management, financial management, the suite of products we offer were really important things we were going to focus on. And so, today when we think about the opportunity in front of us, some of the constraints and challenges, they affect all the stakeholders. The inability to get projects or materials or labor, that is not unique to the general contractor or the subcontractor. But the progress we have seen in getting more and more penetration across the enterprise, Fortune 500, all the way through the examples you heard Tooey talk about today with two government customers, continue to give us a lot of optimism on the opportunity ahead within the world of owners.

Bhavan, I'll add too that prior to the Honest Buildings acquisition, we actually had a respectable owners business at the time. So, this was just to augment that. But yes, today - we service owners of all types, as Paul mentioned, and I don't think that we would be where we are today, because, again, this is about connecting everyone, if we didn't have the owner customer base that we do. It's critical to our success and therefore it gets a lot of attention.

Thank you very much. Paul and Tooey, congratulations. As the economy continues to stabilize from a construction standpoint, I'm wondering how we should think about calendar 2022. I would assume that you've got a healthier base of renewals in 2021, and the renewal rates should start to pick up. And your net expansion ratio should also start to slowly inch back up to the pre-COVID days, especially as you start to have success with some of your - as you mentioned, Tooey, some of the modules, higher value-added modules. So, how does it all play out in calendar 2022? And if I could ask a question on payments, because you don't want to be the only software company not to have a payments module; everybody seems to be announcing it. I do know that you have an invoicing module that does payments. But could you be onto something here that we may not be quite aware of that we should not be surprised by if it happens in the future? That's an oxymoron of a question.

I'll maybe touch on the first one. When we think about the economy stabilizing from a construction standpoint and how that plays out from a renewal rate perspective, I'd draw your attention actually back to the S1 and the metrics we had talked about with the renewal rate. Even through the midst of COVID, our renewal rate remained strong. Obviously from an expansion standpoint that is more coupled to the industry performance. And we have seen the industry slowly return to 2019 numbers. But that backlog that Tooey mentioned is driven to some extent by the uncertainty. And so, while we don't have a crystal ball per se on how the economy will perform, we do believe that we will continue to see improvement in those retention rates, in the expansion rates and that our customers are going to continue to need us more than ever as the world continues to come back.

Kash, by the way, I'll answer the second part of it. I think that really - I can't answer the payments question without just double-clicking on the Levelset acquisition and why getting lean management is so critical to this process. Because everyone focuses on the fact that when you need to move money you need to move money. But really in the construction world getting the okay to move the money is where all of the effort happens. And so, we are spending all of our considerable effort on this integration of Levelset to solve that particular problem. When that problem is done, then it's time to move the money. And so, we will definitely not be the only company in the world to not have a payments tool. But what we say is that we want you to think about this in years and not quarters. Because the thing that we do, Kash, and I think you know this at Procore, is we do things intentionally to do it right and to do it well, not to just get something up on our website. So, we are going to - it's going to take us some time. And really the focus right now is the integration of all the lean management that Levelset brought to us.

That concludes today's conference call. I mean, the Q&A for today. Turning the call back over to the speakers.

Thank you, everyone.

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