PROCORE TECHNOLOGIES, INC. Q3 FY2024 earnings call

• Q3 revenue grew 19% y-o-y. Non-GAAP operating margins were 9%, lower than Q2 due to onetime and seasonal investments but on track to expand operating margins by 900 basis points for the full year. • Implemented go-to-market changes, including moving to a general manager model and introducing new technical roles, receiving positive feedback. • Authorized a stock repurchase program of up to $300 million. • Upcoming Groundbreak Conference in Denver to showcase product innovations. • Strong customer wins in Q3, including expansions with large contractors and new customers in various sectors like real estate and fire safety. • International revenue growth of 26% y-o-y, with constant currency growth higher.

In Q3, total revenue was $296 million, up 19% year-over-year. International revenue grew 26% year-over-year, though slightly impacted by currency headwinds which contributed approximately 1 point of headwind to international revenue growth on a year-over-year basis.

• For fiscal 2024, revenue is raised to between $1.146 billion and $1.148 billion, representing 21% year-over-year growth. Non-GAAP operating margin for the year is maintained between 10.5% and 11%, implying year-over-year margin expansion between 850 and 900 basis points. • For fiscal 2025, expected revenue is $1.275 billion, representing 11% year-over-year growth, and non-GAAP operating margins of 13%, implying year-over-year margin expansion of 200 to 250 basis points. The fiscal 2025 guide is an early conservative guide.

• Macroeconomic and geopolitical conditions pose challenges. • Go-to-market transition may cause short-term disruption. • Currency headwinds impacted international revenue growth in Q3.

Q: Hey, guys. Thanks for the early look at ‘25, I appreciate that. I think maybe that’s a good place to start. So I don’t know if this is for you, Tooey or Howard, but look, I know calculated billings and CRPO-based bookings aren’t a perfect indicator for you guys. But if I look at the growth rates there year-to-date, it doesn’t look like we’re setting up for 11% growth next year. So I guess the question is, what are you guys seeing in the business that these metrics might not be picking up that gives you reason to guide growth as you have for 2025?

A: DJ, this is Howard. Thanks for the question. Look, I’m going to reiterate that the fiscal ‘25 guide that we provided, both on the top line and the bottom line, but specifically on the top line, it’s an early guide, right. And so we are applying that incremental conservatism there. We’ve always talked about in-year guide on our revenue is something that we have high confidence that we can achieve. And there’s incremental conservatism on top of that. And remember that it’s not only an early guide, we’ve got our biggest quarter that we still have to get through in Q4, and we’ve just gotten into the early stages of this go-to-market transformation. And so the early guide, coupled with those pieces, really makes it such that we want to provide something that’s a little bit more conservative. And the other thing on that is, look, when we get into next year, we’ll have a better sense of what this transformation is going to hold.

Q: Great. Good to be on the call and thanks for taking my questions. Just on the early view on 2025, when you say the go-to-market changes you’ll see the benefits more in the back half, does that also translate to revenue growth rates that are likely higher in the back half? And relatedly, is there anything you would point to during the first half that we, on the outside, can be watching as evidence things are moving in the right direction?

A: At this point, I’m not going to comment about the shape of anything in terms of from a quarterly basis. But what I will say is that in fiscal ‘25, it does represent conservatism. But we’re doing this such that it’s going to eventually result in better top line growth as well as bottom line growth. The other thing I’ll just add on top of that is we recognize that fiscal ‘25 is a transition year, and the P&L and our guidance reflects that. The thing that I would note, that is, going into fiscal ‘26, the P&L is going to look better than it does in fiscal ‘25. And that’s the way that I would think about fiscal ‘25. In terms of some of the things that you’ll start to see, the progression of that really internally is going to be things like pipeline generation. It’s going to be velocity through the pipeline. It’s going to be conversion rates. And that’s ultimately going to result in higher AE productivity, better retention metrics. And then eventually, as those flow through, it will show up in our financial results. The last thing I’ll add to that is, keep in mind, we’ve always talked about this transition causing a disruption to our go-to-market, and that’s going to dovetail into fiscal ‘25. And again, that’s why we talk about fiscal ‘25 and view that as a transition year. As we then exit fiscal ‘25 going into fiscal 2016, you’ll see a better P&L.

Q: Hey, guys. Maybe just to stay on the go-to-market transition. Sorry if I missed it in the prepared remarks, but can we just talk about how many salespeople you brought on this quarter, where you want to be by the end of the year, broad brush, of course, and how you’re sort of planning on minimizing that disruption? I think we’re doing the really smart thing of sort of manhandling estimates for next year, but from a tactical perspective, how do you minimize disruption next year?

A: Yes. So Saket, I’m probably not going to go into the detail of how many heads and which roles and all of that, there’s just too many to annotate here. But as I mentioned in the opening remarks, it’s a couple of hundred net new. And so it is a considerable amount of change and there’s a lot of work that goes into it. But how we manage it, I think Howard is going to add something to this, but how we manage it really starts with a great plan and then communicating that plan effectively and so people understand not only what is happening, but why we’re doing, what we’re doing, but. Howard: Yes, absolutely. Communication is definitely a part of that, Saket, making sure that folks are brought into the process of enablement, compensation planning and the actual design and organization of the GM structures and the technical roles. That’s what we’re doing right now. Keep in mind that a lot of these changes, particularly around things like territories and comp plans, are not going to take effect until January. And so it’s really human nature to want to look ahead. And so part of what we’re doing to make sure that we communicate early, bring folks into the fold and to participate in this evolution is to really balance looking ahead and being prepared for that but also making sure that they’re focused on delivering Q4, which we still have to get through 2/3 of, which is the biggest quarter of the year. And so really focusing on those communications enablement is key for us.

Q: Okay, great. Hey, Tooey. Hey, Howard. Thanks for taking my questions here. Maybe just to stay on the go-to-market transition. Sorry if I missed it in the prepared remarks, but can we just talk about how many salespeople you brought on this quarter, where you want to be by the end of the year, broad brush, of course, and how you’re sort of planning on minimizing that disruption? I think we’re doing the really smart thing of sort of manhandling estimates for next year, but from a tactical perspective, how do you minimize disruption next year?

A: Yes. So Saket, I’m probably not going to go into the detail of how many heads and which roles and all of that, there’s just too many to annotate here. But as I mentioned in the opening remarks, it’s a couple of hundred net new. And so it is a considerable amount of change and there’s a lot of work that goes into it. But how we manage it, I think Howard is going to add something to this, but how we manage it really starts with a great plan and then communicating that plan effectively and so people understand not only what is happening, but why we’re doing, what we’re doing, but. Howard: Yes, absolutely. Communication is definitely a part of that, Saket, making sure that folks are brought into the process of enablement, compensation planning and the actual design and organization of the GM structures and the technical roles. That’s what we’re doing right now. Keep in mind that a lot of these changes, particularly around things like territories and comp plans, are not going to take effect until January. And so it’s really human nature to want to look ahead. And so part of what we’re doing to make sure that we communicate early, bring folks into the fold and to participate in this evolution is to really balance looking ahead and being prepared for that but also making sure that they’re focused on delivering Q4, which we still have to get through 2/3 of, which is the biggest quarter of the year. And so really focusing on those communications enablement is key for us.

Q: Awesome and thanks for taking the question, and I do appreciate the early look into next year. Maybe for Tooey, in the past, a lot of growth has come from ACV and we have talked a little bit earlier about how things have been kind of status quo this quarter versus earlier in the year. And I think – as I think about kind of the go-to-market evolution and then we think about the opportunity to further penetrate module adoption, how do you think about how that mix evolves over time and the incremental opportunity to sell more of the platform to your customer base?

A: Well, that is one of the big driving forces behind why we are making this change, Adam, is that we believe that demonstrating the value of our adjacent products to project management, when we do it effectively, we sell a lot of products. So, for us, changing the way we do our go-to-market to really be more customer-centric and then create these tiger teams that are really effective at helping share the value of different products, because remember, we used to sell to just project managers, right, we are selling now to the CFO, we are selling now the head of the VDC department. We’re selling now to the head of safety for an organization. So, these sales motions are all unique and they require specialists. So, for us, the mix will definitely move more towards new product when this new model comes to fruition because we were really heavily weighted towards volume increases for a long time, and we believe that that’s going to change.

Q: Hey guys. Appreciate the question. Tooey, maybe starting for you since you called it out kind of the ample opportunity on the owners side of the equation, not to front-run Groundbreak here either, but could you dive a bit deeper there, because I do think the general perception is that’s kind of largely bucketed as developers, but it feels like there is ample opportunity as we think about kind of global CapEx from other large enterprises.

A: Yes. No, absolutely. By the way, this is one of my favorite topics because people don’t give us enough credit for the owners business that we have built. I am very proud of our owners business. So, yes, when people think of owners, they usually think of real estate developers. And that’s such a small portion of it. A great way to think about owners, the way I do is, I can tell you 1,000 of them right now, the Fortune 1000 are all owners, right. All of those represent some form of opportunity for Procore. And then you get into hospitality, you get into university, you get into the pub sector, where those folks are owners as well. Every project has an owner. And frankly, every owner has more money than the contractor they are working with. And to me, it’s just a very, very large opportunity in an area where we have already demonstrated tremendous success across all of those sectors. But yes, it’s just an area where doing more is going to yield, I think great results.

Q: Hey Tooey. Hey Howard. Thanks for fitting me in. So, maybe one question on the quarter, you saw a 16.4% cRPO growth, it really didn’t budge from last quarter. So, with these go-to-market changes, I guess any way to quantify how disruptive they were because the numbers themselves looks pretty good?

A: Yes. Look, we are seeing the disruption, Jason, that we anticipated. The cRPO may not be, from a sequential standpoint reflective of that. There is going to be some noise in that, but we are seeing the disruption that we anticipated, and that’s going to continue into Q4. And as I talked about before, it’s going to continue into fiscal ‘25. But things are progressing as we expected, and we are addressing those things proactively to make sure that we still focus on Q4. But it’s progressing as expected in terms of the impacts.

Q: Awesome. Thank you. Tooey, in your prepared remarks, you guys talked about how you are seeing some encouraging signs on the go-to-market changes, how it’s resonating with reps and international leaders. But can you maybe share how it’s resonated from the customers’ perspective? I know it’s kind of early days and maybe it’s a little bit more of a 2025 dynamic, but maybe just kind of share how it’s resonating with the installed base?

A: No, I am glad you asked that question because I have obviously talked to our customers a lot about this and get their feedback. A lot of our customers are just really excited about the customer centricity. We have a customer on site today that was talking about the fact that we surround them with resources, and this is one of our test cases that we are running, and have what a difference it makes that we bring the right people and at the right time to help them be successful. And it’s just a much more coordinated and kind of purposeful engagement. So, the customers are really excited about it. Yes, I have not heard anything negative, but you can imagine, from their perspective, they are getting more resources and they are going to be able to realize more value out of the dollars they are spending with Procore every day, which is great for Procore and it’s great for them.

Q: Hi. This is Sameer calling in for Siti. Thanks for taking the question. Just wanted to get a sense of the GTM roles that you were hiring for, you mentioned you are 25% along in the plans. Are you like able to hire the talent as you need or any challenges you see in especially the technology side of things? And second part to that is, when do you expect these new reps to be like fully productive? You mentioned that you will have all sales quotas and territories assigned in Q1. But how long does it take for the sales reps to be like 100% productive? Thank you.

A: Yes, sure. So, we are not seeing, Sameer, any challenges in any particular roles that we are trying to fill. That’s a very big bright spot for us. On the technical roles, interestingly enough, a fair number of people we are hiring for those technical roles come from industry. So, they actually understand at a very fundamental basis that the problem space in which they are helping to solve for. In a lot of cases, they are Procore users, so they actually understand the solution to that problem as well. And they are very, very effective at speaking to prospects about and customers about these products. So, in general, no, no particular challenges on the hiring front. Howard: Yes. We have seen a tremendous amount of enthusiasm and receptiveness to these roles as we have gone out to hire. So, I don’t think there is an issue there. To your question about when these folks will be ramped, it’s going to depend on the segment that they are in. Obviously, when you start to get into the enterprise and above segments, those ramp times are going to be a little bit longer, and they get shorter as you go mid-market and down. And part of that is the reason why we wanted to get started as early as possible in the middle of this year to make sure that we get those folks onboard and they get started on the ramping, so that more are ramped as we go into the start of next year.