Hello, and welcome to the Procore Technologies, Inc., Full Year '23 Q4 Earnings Call. My name is Elliotte, and I will be coordinating your call today. I'd now like to hand over to Matthew Puljiz, the floor is yours. Please go ahead.

Thanks. Good afternoon, and welcome to Procore's 2023 fourth quarter earnings call. I'm Matthew Puljiz, VP of Finance. With me today are Tooey Courtemanche, Founder, President and CEO; and Howard Fu, CFO. Further disclosure of our results can be found in our press release issued today, which is available on the Investor Relations section of our website and our periodic reports filed with the SEC. Today's call is being recorded, and a replay will be available following the conclusion of the call. Comments made on this call may include forward-looking statements regarding our financial results, products, customer demand, operations and macroeconomic and geopolitical conditions. You should not rely on forward-looking statements as predictions of future events. All forward-looking statements are subject to risks, uncertainties and assumptions and are based on management's current expectations and views as of today, February 15, 2024. Procore undertakes no obligation to update any forward-looking statements to reflect new information or unanticipated events, except as required by law. If this call is 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. So with that, here's Tooey.

Thanks, Matt, and thanks, everyone, for joining us today. We ended the year about as we expected with some bright spots and learnings amid a tough economic environment. Some notable highlights were that we surpassed $1 billion in total ARR, we generated $29 million in free cash flow, and we believe 2024 will be another strong year for cash flow generation. Our net retention rate remained durable at 114%, and we ended the year with over 2,000 customers contributing greater than $100,000 in ARR. So today, I'd like to reflect back on 2023 and share some interesting customer stories and discuss how I'm thinking about the year ahead. So I'd like to start by acknowledging that 2023 proved to be a challenging year amid a tough economic environment. Much of the commentary we shared on our last earnings call is still relevant to what we're seeing today. 2022 and 2023 were very different years for our industry. In 2022, our customers demonstrated optimism in their sentiment and their buying behavior. This optimism largely stemmed from the strength of our customers' backlogs and their confidence in the future pipeline of work. However, 2023 brought a notable shift. While backlogs remain strong, sentiment shifted partially due to rapidly rising interest rates, and the industry began to hedge against future work just in case. Sentiment drove conservatism for the future and led the industry to be cautious about future volume commitments should future demand weigh in. As we all recognize, construction and our economy are cyclical. I've been leading Procore for 22 years and worked in construction well before that, so I've seen a few of these cycles myself. And while I'd like to acknowledge that 2023 was disappointing when compared to 2022. I also firmly believe that every tough period reveals opportunities and strengths. Times like these give us a chance to look inward and determine what's working and what can be improved. We've done that important work, and I'm confident that the path we've laid will set us up for success when the inevitable upswing comes. So I'd like to share 5 bright spots across our customer sentiment and our business operations that continue to fuel my optimism and confidence in the years ahead. First, the conversations we regularly have with customers across all stakeholders and geographies remain largely positive. Many of our customers have been around for a long time and have also seen multiple economic cycles. They tell me that they too are using this as an opportunity to do the necessary planning to ensure that they're ready to capture the inevitable upswing. As I've shared many times before, their primary concern is not just demand but also finding the skilled labor to meet this demand. As you've heard me say, construction is a low-margin, high-risk business, and our customers are always searching for efficiency and predictability. But in times like these, our customers continue to tell me that the efficiencies and predictability Procore delivers are paramount. This is best reflected in our gross revenue retention rate, which remains steady throughout this past year and years prior. Even in downturns, our customers see the value we provide and continue to rely on the Procore platform to run their businesses, which brings me to my second bright spot. Not only do our customers stay with us, but they continue to expand with us. Expansion from the upmarket has historically been a strength of ours and continues to be this quarter. Today, about half of our total ARR comes from the enterprise and historically, much of that comes from expansion. We continue to have incredible room for growth here and expect this to be a bigger contributor in the near term, and I'm going to share more on this shortly. Third, the cyclical nature of construction in the economy gives us an important opportunity to revisit our long-range plans and roadmaps. We reflected on our go-to-market and our product strategy and how effective they may be in both up and down cycles. We've reexamined our product roadmap to ensure it aligns with where we believe the industry is headed. This exercise reinforced that we are on the right track and that we are indeed skating to where the puck is going. A great example of this is the upcoming boom in infrastructure spending. I am more confident than ever that we will continue our leadership position in serving this industry and its evolving needs. The fourth bright spot that I'm happy to share is that Procore was ranked number 5 on Glassdoor's Best Places to Work list for U.S. large companies, and that's up from 61 in 2022. It doesn't feel all that long ago that I started this business, and one of the many early challenges we faced was attracting talent to build software for an underserved industry. From the beginning, we committed to fostering and prioritizing our culture, and I could not be more proud that we've grown into being an employer of choice, attracting high-caliber team members from across industries and geographies. Finally, we delivered significant efficiency improvements in 2023. In past quarters, you've heard me say that efficient growth has become a company-wide mantra at Procore. We emphasized this when we began planning for 2023. As the year progressed, we identified areas for incremental improvement, from only adding additional employees when necessary to consolidating vendor spend to obtain better discounting. I'm proud of the team for demonstrating this discipline as it provides us with the fuel to continue to invest in the most important opportunities ahead. I'm especially proud of this in the context of the other bright spots that I shared previously. The efficiency improvements we delivered did not come at the cost of our employee experience nor our ability to build lasting customer relationships. I believe that building a fantastic business, fostering strong customer relationships, and treating employees well are not mutually exclusive. Speaking of customer relationships, I'd like to share a few recent examples. Performance Contracting, Inc., is one of the largest specialty contractors in the U.S. For more than 6 decades, PCI has delivered top-tier construction services across the country, performing work on large projects including data centers, life sciences and semiconductor clean rooms, traditional and clean energy plants, stadiums, multifamily residential and more. In years past, PCI leveraged our workforce planning solution as well as a number of competitive and custom in-house technologies to execute their projects. They decided to significantly expand their usage of Procore, adopting several products and making Procore their primary construction management platform. After in-depth research of available technology solutions, PCI chose Procore because of our dedication to specialty contractors and our superior customer success organization, which is critical for successful change management at scale. With Procore, Performance Contracting can now standardize and streamline operations across all of their branches. I'm personally looking forward to building upon the close relationship I have with Pat, Jason, and the rest of the PCI team in the years to come. Not only are we continuing to expand with existing customers, but we're also adding notable new customers. Penske Transportation Solutions, which became a Procore customer in Q4, is a leading transportation and logistics service provider with a North American footprint of approximately 1,500 truck leasing and maintenance facilities as well as distribution centers. They recognize that they needed a robust system to support their continuing growth over the coming years. Penske wanted to find a best-in-class construction management solution to help them across all project verticals, including renovations to existing facilities, new facilities construction, electrical vehicle supply equipment infrastructure, and other capital improvement projects across this portfolio. I am happy to share that Penske chose to partner with Procore over several others to help scale and consolidate processes into a single platform and improve their project management operations and project financial controls over the long term. In addition to owners and specialty contractors, we continue to deepen our close relationships with leading general contractors. Burns and McDonnell, which ranks number 31 on ENR's Top 400 Contractors list, recently expanded significantly with us and will be rolling Procore out across more of its business. The team is looking for a solution that was modern, easy to use, quick to implement, enable collaboration and help them deliver better project outcomes across various sectors, including power generation, manufacturing and industrial, government, transportation, water, oil, gas and chemicals, commercial and retail, telecommunications and more. Procore will now serve as Burns and McDonnell's standard construction management platform for these projects. This is just one of the incredible partnerships we continue to build with the ENR 400 and is a great example of the massive opportunity we see with this group, which I'm going to talk about shortly. So now I'd like to shift gears and discuss how we're thinking about the year ahead. Internally, I'd like to describe 2024 as a year of focusing on our core, which means doubling down on our strengths while investing in related areas that could further bolster our core offerings. Within the platform, we're going to focus on three areas. First, cementing ourselves as the solution the industry utilizes for civil and infrastructure work. Many Procore customers today build airports, municipal facilities, both traditional and clean energy plants, and much more. However, I know we can do more to tailor our platform to meet the needs for civil and infrastructure. Late last year, we acquired Unearth, a leader in geospatial information mapping for construction. This acquisition, while small, will allow us to better support all types of construction, but in particular, horizontal infrastructure projects. That integration is going well, and we are excited about what's to come. Second, is increasing the adoption of our financial suite. Today, less than half of our customers use project financials and invoice management. This means there is ample opportunity within these offerings before we even take payments into consideration. Speaking of which, we are excited about payments, and the early feedback has been very positive. It's important to note that we are the only solution in the market that connects estimating to contracts to compliance documents to invoices to payment workflows, all on a single platform. Third is improving the flexibility of our product to meet the needs of all of construction, and specifically to facilitate easier adoption and configuration for the enterprise. Procore excels at solving the discrete needs of a vast range of individuals, from those running billion-dollar CapEx projects, to folks with mud on their boots entering timecards in the field. The biggest difference between an enterprise and SMB customer is how much the former values and requires the ability to heavily configure Procore to meet their needs. No two enterprise clients perform the same task the same way. We believe we can improve this configurability and become more effective for the enterprise and all customers, which should further improve expansion and retention metrics down the road. So I'd like to share a couple of priorities within our go-to-market motion. First, we see more opportunities to grow our base via expansion. So I'd like to share some color on why I think some may underestimate the opportunity given our strong market presence today. While some entities are running their entire portfolio on Procore, it's important to remember that others are using Procore on a portion of their total volume. I'd like to provide an example of this and use the ENR 400 opportunity to do so. The ENR 400 represents the largest 400 general contractors in the United States and reported approximately $500 billion in annual construction volume in 2022. While Procore has approximately 70% of this group's logos, we have just over 40% of the $500 billion committed to Procore. This disparity, given these figures, is in part due to our land-and-expand motion. Some customers are still ramping into their annual volume, and others operate independent divisions whose business we have yet to win. Plus our average ENR 400 customer uses about 5 of our products. This is slightly more than the average product adoption across our entire customer base but is still well short of the 10-plus products available to the market today. Keep in mind, the enterprise category in construction is very broad. And this list only represents the largest, most global and technologically sophisticated group within the enterprise and represents only about 1/4 of the U.S. construction industry. If we still have this much room to grow within this tech-forward group, I hope it's becoming clear just how much opportunity there is outside of it. On top of that, the ENR 400 does not account for the broader opportunity across other stakeholders and customer sizes. All sorts of owners in the market today are not represented in this list, including the Fortune 500, universities, hospitals, real estate developers, and more. There's also a broader specialty contractor landscape of all sizes, geographies, and trades. Taking all of this into account, we see plenty of opportunities to grow and serve this industry. These are the kind of details that motivate me and keep me so optimistic about Procore in the coming years. We believe we are in a winner-takes-most market category. And these are a few great examples of just some of our growth opportunities ahead. The second go-to-market-related update I'd like to share is the addition of our Chief Revenue Officer, Larry Stack. Larry comes to us with a wealth of revenue leadership experience, most recently having spent 6 years heading up global sales and services at Red Hat. During that time, Larry helped lead the company to impressive size and scale, a similar opportunity Procore finds itself in today. In the past, you've heard me mention that I always have an eye out for new leaders who may be a good fit for our growth journey. In particular, I'm focused on talent that has previously achieved what Procore hopes to in the future. I believe Larry has this experience and can be instrumental in growing us to a multibillion-dollar revenue company. So in closing, while 2023 wasn't the growth year I'd hoped it would be, I am proud of our efficiency improvements, our culture, and our brand within this industry we serve, and I remain confident in the opportunity ahead. And now Howard is going to share more on our business performance.

Thanks, Tooey, and thank you to everyone for joining us today. Today, I'll recap our Q4 results, share some color on the quarter and year, and conclude with our outlook. So let's jump in. Total revenue in Q4 was $260 million, up 29% year-over-year, and international revenue grew 32% year-over-year. Similar to prior quarters, our Q4 international results were impacted by currency headwinds. On a year-over-year basis, FX contributed approximately 3 points of headwind to international revenue growth. Therefore, on a constant currency basis, international revenue grew 35% year-over-year. Q4 non-GAAP operating income was $17 million representing an operating margin of 7%. Our key backlog metrics, specifically current RPO and current deferred revenue, grew 24% and 27% year-over-year, respectively. Before we dive into specifics, I want to call out that in general, our business performance in Q4 and as of today is similar to what we described back in November and December. The demand environment remains challenging, but we continue to have confidence we will operate within the left side of our financial framework. Now let me share some color on 5 specific topics. The first topic is related to the mechanics of cRPO. This metric slightly benefited from the timing of early renewals. Without this benefit, cRPO growth is in line with the low 20s revenue growth within the left side of our financial framework that we indicated on our last earnings call. The second topic is related to the mix of our business. The fourth quarter was emblematic of a trend we saw throughout 2023, which is that expansion performed better than new logo. This can be seen in a couple of areas. One, in customer count growth, which decelerated slightly, and two, in net revenue retention, which remains stable. In general, we expect these trends to continue through 2024. We are seeing strength in the upper end of the market, and typically, this has come from customers expanding their volumes and adding products. Product cross-sell, which we define as expansion that comes from new product adoption, rose in the fourth quarter with the majority from higher adoption of products such as financials and analytics. This is a positive dynamic and one we are excited about continuing to improve in the years ahead. The third topic is payments. As I mentioned to many of you in our conversations last year, we are excited and confident about this opportunity. We believe we have a unique advantage because we are the only end-to-end connected solution on a single platform. The early customer feedback has been positive, and we have already closed the majority of customers that were in our closed beta. As a reminder, it can take upwards of 24 months for our customer to be fully ramped onto pay. Therefore, while it's still too early to provide any quantitative disclosures, in the near term, we are focused on customer adoption. Over the long term, we expect our payments offering will contribute to our overall growth. The fourth topic is related to our efficiency improvements, specifically how we are managing margins and share count dilution. We improved non-GAAP operating margins by 1,200 basis points in 2023. This is strong evidence of our continued focus and commitment to improving how we operate across all aspects of the business. The momentum around operational efficiency has increased significantly over the last several quarters. This is not just a CFO initiative; our entire leadership team advocates for operational efficiency, motivating their teams to continuously get better at what they do. I'm very pleased with the way that the leadership team is managing headcount, which in every software business represents the majority of expenses. We've been redistributing resources to our highest need and highest ROI areas. This resulted in headcount growth of only 4% year-over-year while still maintaining our confidence that we have the right amount of resources to be successful in 2024. An example of this is the decline of sales and marketing expense from Q2 to Q4, notwithstanding our annual user conference, Groundbreak, in Q3. The majority of these efficiency gains are from prioritizing headcount and marketing spend toward our most promising motions and opportunities. These motions are ones we believe can generate the most optimized ROI balanced across the near- and long-term and that represent the core of our business. With respect to share count, we limited this growth rate in 2023 to the low single digits. This result, combined with free cash flow generation of $47 million, led to free cash flow per share of $0.32 for the full year 2023, which is a significant increase year-over-year. As you've heard from us before, we believe free cash flow per share is the single most important metric reflecting the overall financial health of our business and are confident in our ability to improve this metric in the coming years according to our financial framework. This brings me to my fifth topic, which is our 2024 outlook. As I described last quarter, we expect to operate within the left side of the financial framework this year. Let me share some context for what we expect in 2024. Based on our current line of sight, we believe the second half of 2024 may have stronger bookings performance than the first half, partially due to our increasing focus on the upper end of the market, which typically has longer sales cycles. This will likely result in cRPO growth falling below 20% earlier in the year and then likely rising towards the end of the year. With respect to operating efficiency, our guidance indicates that we expect 2024 to be another year of significant margin improvement. This would represent 2 years of outsized margin expansion according to our financial framework. Specifically, our guidance implies a combined 1,800 basis points of improvement across 2023 and 2024. While we are proud of our margin expansion in 2023 and feel confident in our guidance, we do not expect 2025 to have nearly the same magnitude of margin expansion given our long-term growth opportunities and the investments required to capture those opportunities. With that, let's move on to our outlook. Our guidance continues to assume current economic headwinds persist through the remainder of the year. As a reminder, over the past several quarters, we have taken a prudent approach to guidance to factor in external uncertainty and the potential for incremental weakness in the market. However, going forward, given our previously disclosed financial framework and commentary, we intend to have smaller revenue outperformance versus our guidance than in prior quarters and for the full year; though we still have strong conviction we will outperform our guidance. Note that while our margin guidance implies significant improvements to our efficiency profile, it still allows for the flexibility to invest into a potential upswing in the construction cycle that would benefit growth in future years. Growth is still our primary objective and will still be a significant driver of how we compound free cash flow per share over the next few years. With that, here is our guidance for Q1 and full year 2024. For the first quarter of 2024, we expect revenue between $262 million and $264 million, representing year-over-year growth of 23% and 24%. Q1 non-GAAP operating margin is expected to be between 7% and 8%. For the full year fiscal 2024, we expect revenue between $1.137 billion and $1.142 billion, representing total year-over-year growth of 20%. Non-GAAP operating margin for the year is expected to be between 7% and 8%, which implies year-over-year margin expansion between 500 and 600 basis points. In conclusion, while we operate in the current demand environment, we are going to accelerate our progress on operational efficiency and make greater improvements in our margin profile. However, growth remains our long-term opportunity, and we intend to prioritize growth when appropriate and do so in an efficient manner. I'd like to close by again thanking our customers, partners, employees, shareholders, and the industry as well as the communities we serve for giving us this opportunity. With that, let's turn it over to the operator for Q&A.

First question today comes from Brent Bracelin with Piper Sandler.

Tooey, one for you here. It sounds like you're doubling down ENR 400, appreciate the color there between logo and actually volume penetration. Question here is, as you think about that opportunity and the focus on some of these larger GCs, we are seeing a slowdown in the total number of maybe smaller customers that we had in Q4. And just thinking through the implications of the focus on larger GCs, what does that mean from a customer count add perspective going into next year?

Well, Brent, thank you. Great question. Something that we get asked a lot. We do not over-index on the customer count as we mentioned before, I think in previous quarters primarily because the SMB market has been probably overly impacted by the macro headwinds more than any other sector, and so our focus has been that market. But as you see, we've actually done very well with expansion in the enterprise. They're bringing on more volume and buying more products. So the implications are, is that, that segment of the industry is performing well. Therefore, we're going to continue our focus on it going forward.

Brent, this is Howard. I just want to add on what Tooey said about the customer count. Remember that a large proportion of that is concentrated down market. I'd also want to point you to the fact that we actually have really good gross retention rates. We still have gross retention at 95%, so customers aren't leaving us and also point you to the metric around net retention, net revenue retention, which is still stable at 114%.

Helpful color there. And then one quick follow-up for you, Howard. cRPO had a nice snapback here during Q4, clearly aided by some of these deals that slipped out of Q3, but you're still guiding to some cRPO volatility in the first half. How much volatility have you seen 45 days here into Q1? Is that informing the cRPO guide? Just trying to understand what you've seen so far in the booking side of the business, 45 days in.

Yes, good question. So not really. It hasn't really changed at all in terms of what we told you in Q4 and what was occurring. So the dynamics are still remaining pretty much the same, and we're still facing that challenging demand environment. The one thing that I will add in there is that when we talked about in terms of the potential beta of outcomes that was historically larger, that beta has started to stabilize and then get a little bit less. And so that's some of the dynamics that we are seeing. But nothing has really changed from Q4 into Q1.

We now turn to Saket Kalia with Barclays.

Tooey, maybe I'll start with you. You mentioned earlier in the call, you've seen a couple of construction cycles in the past. And we all see the construction metrics out there. I guess one of the questions that I get is whether Procore's bookings are going to see a lagging impact or more of a real-time impact if and when we see that market upswing to your point. And so maybe the question is for you, Tooey, as you look back at prior cycles with Procore, what have you seen in terms of that timing element? Does that make sense?

Yes, no, it does make sense, Saket. The advantage Procore has is that our pricing model has our customers paying us upfront for volume, as you know. And so it's neither a lagging indicator or a current indicator; it's actually more of a forward indicator because people are committing to future volume. And so if you're looking at just other data sources like census data, for instance, for 2023, what you're going to see is actually volume commitments that we actually saw in 2021 and 2022. And I hope that makes sense because that really indicates that we're much more of a forward-looking metric.

Got it. Got it. That does make sense. Howard, maybe for you, great to see the margin improvement. I guess the question is, could you maybe touch on some of the growth areas that we've talked about in the past, like international and fintech. And maybe give us a sense for whether you're still able to invest in those future growth drivers while also showing this great margin improvement.

Yes, sure. Thanks for the question. So the short answer is yes. Our margin guide has enough flexibility really for us to continue to make investments as we see areas of strength to develop. And so we have plenty of room in that flexibility overall. So the short answer is yes. Specifically on international, we still continue to make progress on international. We still believe that it is a big opportunity for us going forward over the medium and long-term. And we are starting to see some signs of strength in Q4 coming out of the EMEA region. And so, we are starting to see some signs there. There's still a lot of work left to be done, but we are starting to see signs there. Specifically, with respect to fintech, I just want to make sure I reiterate again that it has essentially negligible contribution to our top-line this year. But we still have opportunities to invest there as we think about the growth opportunities over the long term, and we have the flexibility to do that within our current profile and still continue to improve margins.

Our next question comes from Ken Wong with Oppenheimer.

Great. Fantastic. I wanted to maybe dive into the comment around the margin expansion in fiscal '25. I realize that's pretty far out, but you guys did kind of float it out there. I guess if I was kind of thinking through the framework, you guys are at 500 basis points of expansion now. So if you'll get less, that kind of puts you in that middle tier. I guess would it be fair to assume that kind of baked in those '25 assumptions with like the back half bookings improving that you guys are expecting an acceleration in '25?

So the first thing is, it's a little bit early to provide any specifics on fiscal '25. We've got a lot to get through this year in terms of how performance plays out and how we can react to that in terms of our investments and what we see for fiscal '25. And for '25, the framework still applies across the board, both from the top line to the profitability metrics. But keep in mind that, that framework is across a multiyear average over the next few years. And so that was the intent of that comment. The framework is still valid, but it's a multiyear average. And keep in mind also that we have the flexibility to continue to invest in growth as we see things materialize for this year.

Got it. Okay. Perfect. And then, one for Tooey. I mean you mentioned that kind of given the backdrop, perhaps, some of your customers are being a little cautious on construction dollar volume. I guess kind of based on what you guys have seen in Q4, Q1, I guess is it more likely that as we kind of wrap up the year, that those numbers likely play out more favorably than perhaps what's being messaged to you guys now? I'm not sure if you've got enough visibility today to give us a sense on how that might look.

Well, I can give you my personal sense from the industry folks that I talk to, which is it's pretty much a continuation of what we had said last quarter. Sentiment is still muted. The folks are seeing that there are challenges obviously out there. I will say this, though, that just like last quarter, conversations still remain rather optimistic about the future, but I would say, just to be really straightforward, no real change from last quarter. When they talk about the year to come, they still are waiting for more positive signals to come in. So essentially, it's been pretty flat and muted.

We now turn to DJ Hynes with Canaccord Genuity.

So maybe if we can just build on that last conversation point. So if I think about your comments on the bookings environment, the slowdown implied in the guide. And I'm not sure if this is the right way to ask it, but how much is being driven by longer sales cycles impacting new business activity, which to me, kind of reflects like real-time or acute headwinds versus the lower upfront volume commitments, which, I guess, in that case, kind of feel more like speculative headwinds. Does that make sense, is that a fair way to ask the question?

I think it's a fair way to ask it. I would definitely say that the longer sales cycles are definitely playing into the headwinds that we're seeing. As we mentioned last quarter, the commitments that are being made are now going all the way up to the C-suite in a lot of cases, which is slowing down deals. But Howard, do you want to add anything?

Hey, DJ. Part of the comments around the seasonality between H1 and H2, there's a number of factors, and long sales cycles is definitely part of those. But part of those long sales cycles is also where our focus is going and where we're seeing our strength in terms of expansion and focusing on the upmarket. That's one factor. The other factor that we're thinking about in terms of the dynamics between H1 and H2, DJ, is really around as our customers are able to further diversify the portfolio and get more acclimated to operating in this environment, there's a potential that they could likely get stronger sentiment and flow through to their buying behavior for Procore in the back half of the year. So all of those factors factor into kind of what we're thinking about in terms of how things progress for this year.

Yes, DJ, let me just build on that just really quickly, which is the key word there is sentiment, right? Our customers are going to look at a lot of factors when they make commitments to Procore regardless of how long the sales cycle is. And a lot of it is going to be the durability of their backlog, how confident they are in it, but also just all of the third-party inputs that they get that drive sentiment. One of the common questions comes around interest rates. Not all construction projects are driven off of debt, but that is one input on sentiment. There's a lot of input. So it's rather complicated but because sentiment plays into it, when you see improvements in sentiment, we think we're going to see improvements in commitments.

We now turn to Adam Borg with Stifel.

Maybe, Tooey, for you. In the script, you talked a lot about the opportunity in infrastructure and civil. Maybe you could go a little bit deeper there. Thanks.

Yes. A large portion of the global construction market is infrastructure and civil. And a lot of our customers today, think of the largest contractors that you would know, have a certain portion of their construction run as civil and infrastructure. Now a lot of our customers build using Procore's tools today very effectively on civil and infrastructure projects. But we feel like that we can do more, and so we've been listening to the industry trying to figure out what it is that we can do to meet those demands. Our Unearth acquisition, as I mentioned, was a good example of that. When you're building a highway, you need to know where the items are on that highway. It's a very large expense. Adding the mapping capabilities that we got from that acquisition adds a lot of value. So we are going to continue to listen to the industry and allow our customers ultimately to run all of their volume on Procore across every project type that they run, and this is just such a big opportunity. It's one that we're really, really excited about.

We now turn to Nick Altmann with Scotiabank.

Awesome. Thanks guys. Just given the focus on expansion and improving NRR, can you maybe just talk about some of the underlying assumptions there and the guidance and whether that embeds expansion or contraction in NRR.

NRR right now, again, I want to remind folks, there's a lot of dynamics that go into NRR. Remember that we have a dynamic in our pooled models where we could actually sign a lot more cool models that actually hurt NRR, but it's good for our business. And so in terms of some of those assumptions, it's not really only key metric that we look at for NRR; there's a lot of things that go into that. So it's not as simple as just we're assuming expansion in NRR. In terms of expansion, some of the dynamics that we talked about in terms of the strength that we saw in expansion in the upmarket, that's actually what we're focusing on and that's where we're starting to shift some of our resources to focus on that. And that's another example again of us moving our resources to where we see the strength. So that's kind of where it's going. Look. Our guide, I just want to make sure everyone understands that our revenue guide assumes actually that things get worse, but we still have high conviction that we are going to be able to beat that guidance.

Okay. Great. And then, second question is just on cRPO and RPO, given the RPO kind of mix picked up. I mean, I would think in a more challenging macro customers may have a little bit less visibility and you'd see the cRPO hold up a little bit better. But maybe customers are seeing elevated backlog in sort of out of years, and they're willing to sign longer duration deals. So can you just kind of talk about cRPO and RPO mix just in the context of the macro? And then, any more specifics you can give on the cRPO number ex early renewals?

Ex early renewals. So the cRPO growth in Q4 at 24%. I'd say the tailwind from early renewals is probably in the 1% to 2% range in terms of that growth rate. And so when you adjust for that, it's squarely in what we told everyone last quarter in the low 20s, which is what we would expect in terms of the left side of the framework in terms of our revenue growth rate. Outside of that, the mix between short-term and long-term, there's some dynamics that go into that from a timing of deals and when things happen. So it's not as simple as just looking at the mix and how that impacts our results.

Our next question comes from Daniel Jester with BMO Capital Markets.

Maybe to touch on the third key focus area for 2024 about financial management and the financial suite. Can you just expand there? Like how much can you control in terms of pushing that, or versus how much of that is just a duration story in which when projects get completed and new projects come online that becomes a natural transition point to implement that.

There's always a good time to implement our financials product. We encourage our salespeople to have those conversations at any time. Financials are not as closely linked to projects as one might think. Project management is very connected to projects because it operates at the project level. However, the buyer for our financial product suite is not the field personnel, but rather the back office and the CFO. It's a completely different environment. Therefore, it's not accurate to think of it that way; it's always a good time to purchase Procore Financials. If you're looking to buy, it means someone is ready to sell to you.

Great. Yes. And then maybe just another one on the enterprise and going deeper there. As you think about sort of resourcing there in an environment in which you're really trying to expand margins, is there anything you're trying to do differently in terms of the go-to-market to drive that, or maybe expand on any comments you had there? Thank you.

Yes. Can I start with the question?

Yes.

I believe it's important to mention that having Larry join us will be a significant advantage due to his extensive experience. However, our overall strategy remains consistent. We have long been dedicated to being an enterprise-grade software company, and while our approach won't change drastically, we will be increasing our internal focus.

Yes. And I'll jump in, Dan. So there is a capacity piece to this, which is the simplest form in terms of adding capacity to where we expect our business will go and the growth piece there. But I'll also answer your question in the context of this as another example of how we're actually improving the way that we're operating and how we're getting more efficient by looking at where our distribution of resources are and moving towards where we see that strength, not just for sales capacity but also for all the supporting headcount and infrastructure around that capacity as well. So that's the way that I would say to answer your question.

We now turn to Dylan Becker with William Blair.

I appreciate all the color here within the enterprise cohort and segments. But relative to the overall kind of customer mix here, too, it seems pretty small for those that are kind of spending 100k or a million annually. I guess, how should we think about that kind of runway or that opportunity for customers to continue graduating into these cohorts? I know we've got kind of the share of ENR 400 spend. But how should we think about kind of the expansion opportunity within this space relative to either volume or product? And I'm sure it's a combination of both. Thanks.

Yes. A couple of things. One, just a reminder, Dylan, that remember, while the vast majority of our customer count is concentrated down market, the vast majority of our dollars are bookings dollars in ARR comes from mid and up market. So it's almost a direct opposite in terms of that inverted pyramid. The other way to think about this is one of the things that we disclosed is we've got now, Tooey talked about more than 2,000 customers with greater than $100,000 of ARR at a growth clip that's pretty healthy. So that's one way to look at how we're making progress in terms of that enterprise base.

Okay, I understand. That's helpful. Tooey, could you elaborate on the civil opportunity? Are you beginning to see spending from the backlog related to some of the stimulus initiatives we've observed, or is that still something expected to develop over several years? Thank you.

It's definitely a multiyear growth runway. The folks that I'm talking to are saying that it's still a lot more talk than dollars, but they are gearing up for getting ready for it. And that's one of the reasons why I remain so optimistic is very few dollars have actually been deployed, and the opportunity is all right ahead of us.

We now turn to Jason Celino with KeyBanc Capital Markets.

Great. Thanks for fitting me in. Maybe for Tooey, it looks like one of your competitors recently made a small acquisition in the construction payment space. Obviously, it's a validation of your strategy here. But how do you feel about your positioning today? And how do you think the competitive environment is going to evolve from here? Thanks.

Yes, I always like to think imitation is the sincerest form of flattery, first and foremost. But in all seriousness, I feel as great now as I ever have about our strategy around payments. I want to remind everyone that payments are just that last step in a very long process from doing an estimate all the way through contract management, change orders, and invoicing and lean waiver management, to pay. So having a payment tool that just kind of stands alone isn't all that interesting, I don't think. But boy, when you put it together on a platform like you have with Procore, where everything is connected, there is a tremendous amount of power and horsepower behind that because now all of a sudden, you are managing every dollar that flows all the way through to the final payment into the bank account, which is just that last yard.

Perfect. Interesting. And then for Howard, the framework for cRPO in the first half of '24, the variability you mentioned, is that a function of those early renewals moving into '23? Or is it an assumption that the macro continues to get worse? Or is it purely just the year-over-year comps? Curious on kind of the rationale there. Thanks.

Well, the first thing is we don't have cRPO in our financial framework. That's the first thing I want to make sure. But I think the framework that you're referring to is my commentary around H1 and H2. And so I think there's a combination of things that go into that, Jason. One is that the macro environment is continuing on based on what we saw in the back part of last year, and that's going to proliferate and we assume through the full part of this year. The reason for some of the H1 versus H2 dynamic is, one, the focus on enterprise, where those sales cycles are going to be longer. Another factor that would go into that I talked about in the previous answer is the companies and our customers are going to get better at being able to manage their portfolio and their diversification within this environment. Now as we get to the back part of this year, that would be roughly about 1.5 years or 18 to 20 months, which is about the average length of our contract. So a lot of the customers that we saw renewing starting in the beginning of last year are going to come up for renewal again, and there's an opportunity for that to pick up towards the back part of this year.

We now turn to Joshua Tilton with Wolfe Research.

I just have a few clarifications. My first one is, I think you kind of quantified the impact from the early renewal to cRPO in Q4. Could you kind of just talk to what drove it? You're kind of talking to trends. It sounds like things are still challenging, but then you're talking to early renewals, which I feel like people would be pushing things off in this kind of environment. So what drove the early renewal dynamic in Q4?

Yes. So look, first thing is the quantification of the early renewals to the cRPO growth, I said is roughly around 1% to 2%. In terms of what drives that, I think a lot of it's going to be dependent quarter-on-quarter. It's not necessarily in terms of any specific dynamic that we're saying, hey, this is stronger and folks are going to start pulling deals in. I want to make a distinction also, Josh, between an early renewal versus pulling a deal that's from the future. This is a pure timing thing that has nothing to do with anything that's related to the macro environment.

Okay, that makes sense. As a follow-up, I understand that the macro environment has remained relatively unchanged this quarter compared to last quarter. However, regarding the outlook you provided for 2024, what factors are you considering from an environmental perspective? Are you expecting that a year from now, the environment will still be the same as we experienced in Q4, or do you anticipate it will improve or worsen? How should we interpret that?

Yes. When I talk about the H1, H2 dynamic, and the bookings dynamic, and the seasonality between H1 and H2, that assumes that the dynamic remains the same, and it still remains challenging. Keep in mind, I'll say again that the revenue guide assumes things that assume things get worse. And again, we have very high conviction that we will beat the revenue guidance.

Our final question today comes from Kash Rangan with Goldman Sachs.

Congrats on a very good end of the year, Tooey and Howard. Tooey, one thing for you is that you have a new Head of Sales. Generally, when there is a Head of Sales change in software or a CFO change in software, in your case it was a very seamless transition with your CFO change. But Head of Sales change, we always ponder if that's going to lead to any changes in go-to-market, territory reassignments, quota reassignments, maybe that's a little bit too radical to expect something like that happening in such a short time horizon. Can you just walk us through what are the things that your new Head of Sales, Larry, is going to be tweaking and what are the things that are going to stay unchanged? And one for you, Howard, you laid out a margin framework at your Analyst Day, and you are absolutely right in calling caution at the bottom end of the market. It looks like the customer count in Q4, your call was absolutely right. But it also appears to be the case that revenue growth is coming better for two straight quarters, the September quarter and December quarter. The margin outcome has also been better than expected. So when I look at your margin guidance, 8 percentage points, non-GAAP op margin for fiscal '24. It's not a whole lot different than how you exited Q4 with, which was 7%, I think. And those numbers were better than expected versus the guidance you laid out. So either the revenue growth is really understated, and you're more confident, or you have a higher conviction today than you did back at the Analyst Day, or the margins have a lot more upside. Can you just help us gauge one for you, each question for you, can you help us to gauge how we should be interpreting your guidance? Thank you so much and congrats once again.

Let me take the question first...

Let me do the second question first. Hi, Kash. This is Howard. So just I want to make sure you and everyone else understands the revenue guide, while we have high conviction that we will beat that revenue guide, the magnitude of the beat is not going to be as big as we saw in the past, okay? I just want to make sure that that is extremely clear. In terms of the margin guide relative to what we did in Q4, frankly, in Q4, it's an example of the commitment and the reflection of the commitment and our focus on getting better and getting fit. And it's not just something that's from my perspective; it's the entire company that has really taken this mantra and taken it to how they operate every single day. In terms of the margin guide for fiscal '24, I can't also stress enough that this leaves us enough room to continue to invest in the flexibility to invest as we see the opportunities arise for additional investments into the growth that could come in fiscal '25. So hopefully, that's clear, and that answers your question.

Actually, that dovetails very nicely into mine. So by the way, today is Larry's first day. So I want to give him a little latitude to get his bearings while he gets settled. We've spent a considerable amount of time with Larry, of course, before he has come in. He's going to be our CRO, not only Head of Sales but also Customer Success as well, just to be super clear. A couple of things about Larry. Larry obviously has lots of experience. We are very aligned around a lot of things. So one thing that Larry and I are in lockstep with is efficient growth. He knows how important growth is for Procore, and he knows how important doing it efficiently is. It's one of those things that he and I talked about in every conversation. So I have high hopes that he's going to help us continue on this journey, but yes, he's going to get his bearings first before any major changes happen, and I don't anticipate anyhow. Thank you.

Ladies and gentlemen, this concludes our Q&A and today's conference call. We'd like to thank you for your participation. You may now disconnect your lines.