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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 following the conclusion of the call.
Comments made on this call may include forward-looking statements regarding our financial results, products, customer demand, operations, the impact of COVID-19 on our business and other matters. These statements are subject to risks, uncertainties and assumptions and are based on management's current expectations as of today, 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 have 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 to specialty contractors globally. We released many new product features and updates, and we announced 2 very exciting acquisitions. We're continuing to innovate in preconstruction and financials, and we're 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've made is having a direct and positive impact on the industry.
As always, we believe that 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 General Contractors of 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 TrustRadius 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 8 categories.
At Procore, we know it takes more than technology to improve the lives of everyone in construction. It takes partnership. As I've 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.
Unlike many industries, construction is grappling with a skilled labor shortage, increased labor and material costs and overextended supply chains. It is clear that in an industry that is highly underdigitized, technology provides a clear and accessible path to building more efficient. 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's 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 converged for us to be able to make this transformation and is helping our company cross the tech chasm."
Speaking and partnering with the industry, I'd like to share a few customer wins from Q3. Let's start with 2 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 recognizes 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 avid Procore user as a free collaborator and now they're a customer, demonstrating the power of Procore's flywheel effect.
Utah Transit Authority is a public transportation agency serving 7 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.
OS 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 3 divisions working in silos, 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.
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 offerings 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 to document management will not only add 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 overemphasize 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 estimate. 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're making exciting progress on streamlining and automating estimating processes with smart takeoff. Smart takeoffs remain possible by leveraging really powerful artificial intelligence, which is really cool. We're 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 2 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 ask me to find the best place to get dinner in any city, I would simply do a Yelp search to 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're working with.
A great example of this is that general contractors will have access to historical data on specialty contractors, and they'll 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'll 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 risks.
Many of you heard about our agreement to acquire Levelset back in September. This represents the single biggest investment we've 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 asset. 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 workforces. LaborChart provides a modern solution to these legacy processes.
Given construction's global labor shortage, managing existing workforces efficiently is critical to managing risks 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 tracks and 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 combine Procore's industry-specific project dataset 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.
Now 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 U.S. Europe represents a sizable portion of the global TAM, and France and Germany are 2 of the biggest markets within that continent.
We also believe there's strong product market fit with our platform today and many of our largest customers have operations and projects there already. Expanding into these 2 countries was a natural next step, and I look forward to updating you after our launch next summer.
So in summary, in Q3, we continue to be a strategic partner to the industry, and 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 for 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 a 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 2 areas is we are just at the beginning of our international expansion and our integration of Levelset should only further benefit 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 start was more back-end 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 disruption associated with the difficult labor market, inflation and constrained supply chain 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 start 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 improvement 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'd like to provide details on our guidance by providing our specific outlook with and without the recent acquisitions 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 head count.
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 a 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 stand-alone 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 2 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 impact, 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, et cetera.
Like our guidance for Q4, we approximate next year's non-GAAP operating margin to be in the negative mid-teens inclusive of the acquisition, which will contribute a relatively similar amount of headwind as in Q4. Given the magnitude of the long-term growth opportunity, we firmly believe that this is what's best for the business and our shareholders.
Please note that we are providing these insights into next year earlier than typical due to the acquisitions that closed so late this year. In the future, we do not intend to provide next year commentary during Q3 earnings calls.
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.
[Operator Instructions] First question, we have Tom Roderick with Stifel.
Congratulations on wonderful results here. Tooey, I guess, I'll throw the first one at you here. I mean, I think we've been talking about construction volumes and 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 the summer and even last year, there were some 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're 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. Well, first of all, thank you for the great question because I do -- I get a chance to talk to our customers and prospects just about every day, and this is definitely the #1 topic that we talk about. It is -- 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'm talking to our customers and prospects. And I hear on these calls recently about 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 concern around all of these challenges around employee -- 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 those 90 container ships that are out there, and I know that that's holding a lot 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 very -- it's a world with 2 different stories in it, that optimism plus all of 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're so overwhelmed. If it wasn't hard enough to be a contractor prior to COVID, imagine if you're a small construction company and where you're wearing 5 different hats. You're doing operations and you're doing -- you're selling the next job and you're trying to get the materials that you need, trying 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 that when things revert back to more of a normal state there, 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, it's a great commentary. I mean 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 to it. 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 kind of 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 that they need to do.
As I mentioned, I think my Yelp example is a great one. There's really is no overall kind of registry for all of this. And if you think about what we could 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 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, 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.
We have Brent Bracelin with Piper Sandler.
Tooey, Paul, nice to see a recovery in the business here the last couple of quarters. One question for Tooey and one for Paul. I guess, Tooey, we'll start with you. I know you talked a little bit about Levelset being kind of 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've made it and the timing of when that could maybe really accelerate within the installed base? Do you have to integrate that or not?
Yes. So Brent, I think the highest kind of 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.
There's a -- what Levelset does is they solve that, and I mentioned this in our last call, but 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 last time we all spoke, about completing these complex workflows from the very beginning of -- from bidding and estimating all the way through pain. 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 the 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're up for the task, and I think the industry is ready for us to do so.
Sounds great. And then, Paul, for you, I mean you've had 2 quarters here of improving revenue growth. Calculated billings and deferred -- short-term deferred revenue are both up over 30% for the last 2 quarters. But you did talk a little bit about some of the mix 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 that sounds a little more mixed. Walk us through just the puts and takes as you think about pipeline visibility going into next year.
Yes. I go back to the earlier question from Tom and say that the industry is seeing that push and pull dynamic. And to kind of Tooey's comments, it's just hardest right now for the SMBs, but we don't believe that to be a sustained problem nor something that 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 to 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.
Next, we have Brian Schwartz with Oppenheimer.
In terms of the strength that you were saying or you pointed out in the larger customers in international mid-market, just wondering if you're seeing any change in terms of the cycles, 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 from 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 motions, the ways that we can better leverage our collaborator 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, that there hasn't -- to Paul's point, there's nothing that's going to -- 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're really proud of.
And then if I could ask one follow-up question. It's just a strategic question, I guess, Tooey, for you. Just thinking about the appetite here for further M&A. The company's history, you've always done a really good job in terms of adding technologies organically and inorganically. How should we think about maybe the company's ability to digest LaborChart and Levelset versus potentially adding new inorganic R&D here over the next several quarters?
Yes, it's a great question. So yes, we -- our focus is -- after we make an acquisition like these is really the -- as we always say, the real work begins after the deal closes, right? So we're putting a lot of our energy on ensuring that these are integrated in the most efficient way so we can get them in the hands of our customers on our platform as fast as possible. So that's where all of our focus is.
But in general, when you think about M&A from Procore's perspective, there's a couple of things I want to point out because I get this question a lot so I'll just take this opportunity to preempt it, which is we had 2 acquisitions that happened relatively close together. I would say do not read anything into that cadence. That is a byproduct of 2 deals that moved to different speeds that actually came together, very close to each other.
Procore is very disciplined when we come to making these decisions around M&A., and so we're always looking to solve the needs of our customers. We're always looking for ways to accelerate our mission to connect everyone in construction on a global platform. And if there is a partner in our app marketplace or there is a solution out there that is doing that well and we believe that will help us get to that mission and accelerate our time line, we will take into consideration that they would be a great opportunity. But we are super disciplined, and I really do caution people thinking that this cadence is something to extrapolate on when it's really not.
We have DJ Hynes with Canaccord.
I'll echo congrats that everyone else has already mentioned. I want to ask you about international expansion. I mean it sounds like the international markets that you're in now are growing really well. Obviously, exciting with France and Germany coming online next year. Maybe you could just talk about kind of platform readiness for the push into Europe kind of go-to-market logistics. Like what needs to happen between now and go-live? And how are you thinking about timing there?
Let me -- I'm going to answer it to the high level, and I know Paul has something he's going to want to add to this. But -- so we -- when we look at going into a market, we always start with -- we're going to go into a market that generally start with TAM. Is it a -- is there -- we look at population, we look at gross domestic product, we look at those things. But we also really heavily lean on the fact we're looking for good product market fit and in an area where we actually have customers that have operations and projects. And so that's how France and Germany came up on the list, was it was -- is a huge opportunity for us to expand into those markets.
We also think that back to the product market fit that when we go into these markets, especially those 2, that what we have today actually has good product market fit. So there are always the international regulatory requirements that we have to look to. And I mentioned before just a few minutes ago about Document Control, this new product that we're releasing that is going to allow for a common data environment and ISO compliance, so we can take the show on the road. So I think we're well positioned from a product standpoint as well as our customers have been referenceable in those areas to continue this expansion. But do you want to add something?
Yes. Look, the only thing I'd maybe add is when we think about how we look at what it takes to go live and how we think about performance in the early days of newer markets, we're really mindful that, as Tooey mentioned, we are fortunate to have projects running in over 125 countries already. And that when we think about what it means to be successful, it really is a byproduct of can we attract the right people who understand the market opportunity, who understand the industry and can we get the right attention from those customers that are in market from the folks who will effectively form the early innings of our pipeline that define our ability to hit our shorter- and longer-term goals. I'd say across those fronts, we remain really optimistic that we continue to see all the right signs as we do our international expansion.
I will point out one last piece, which was I mentioned before about Cladding Safety Victoria, a new customer win that we had, is a prime example of how we're in country and then our collaborators that are using our system are now able to convert to become customers because they're already using the platform. So it's kind of the beauty of our flywheel model, and that is just another example.
Next, we have Jason Celino with KeyBanc.
I wanted to ask about customer confidence. As we head into the end of the year and next year, obviously, we have the push and pull dynamics. But with backlog growing and maybe start dates shifting, the customer, your consortium customer, where do they focus on more in terms of their sources of confidence?
It's interesting. I don't think there's a single answer on that front, Jason. I think the backlog is a huge component for them, but also appreciating, can they get the labor to staff it, can they put those people to work at the right times, can they predict when those materials are going to arrive do continue to weigh on folks' mind. And so I think when we think about that confidence, it is a positive sign towards how we think about customer acquisition and continuing to grow with those customers. It's much more a function of timing. And I would always remind folks that this industry is not a speed boat, it's an oil tanker, and so these things are going to move slower than potentially some other industries. But that confidence is a really important sign to the longer term and, frankly, even the medium term as we think about the industry growth and our own opportunity.
Jason, again, I, again, talk to our customers all the time. And one thing that we should never underestimate, the scrappiness and the capability of the folks that run construction companies in this world. So no matter what's ahead of them, they find ways to get stuff done. They are very, very resourceful in that way. So yes. But I would say that they -- the headwinds are there, but they are doing everything that they can in order to kick those projects off and get going because that's where they make their money.
Great. And then maybe a product question. Outside of your bread-and-butter preconstruction, quality and safety and project financials, what are some of the other modules that you're seeing a lot of interest at the moment?
Well, you left out our flagship, Project Management. So as a proud father, I can't let that happen.
Sorry, I misspoke a little bit.
I got it. I'm just giving you a hard time. We have 13 products in market. And the beauty of what we offer is depending on what role you perform in any construction job, there is a product -- a set of products that are going to be there available ready for you. So if you're doing design coordination and you're a BIM model or we have all of those products. If you're a project manager, we have your core feature set that you need. If you're an estimator -- so the beauty of the platform is it's not a one size fits all. We are here to connect everybody in construction on a global platform, and I think we're doing it really well.
Next, we have Bhavan Suri with William Blair.
Nice job there. Let me jump in a couple of the acquisitions, but more around the product piece and how they impact it. So if we talk about Honest Buildings. I'd love to understand, A, how that's tracking vis-a-vis expectations. But B, I guess, more strategically, if you're selling that software, that component, that technology to owners for kind of ongoing stuff, is that sort of a potential -- it's not big enough to be a huge impact, but is that an offset to some of the volatility in the construction space? Like how should we think about sort of that segment kind of driving a lower volatility base, that part of the business? And then I'd love to understand how it's doing, and I've got a quick follow-up.
Yes. Honest Buildings for us was really a big foray into the market of 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. Tooey talked 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 have 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, governments that their need around construction, project management, financial management, the suite of products we offer were really important and 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, right? The inability to get projects or materials or labor, that's 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 2 government customers continue to give us a lot of optimism on the opportunity ahead within the world of owners.
Yes, 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 a -- this was 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.
Got you. Got you. Well, let's then talk about -- and that's helpful. Let's talk about Levelset a little bit on the lean waiver process. There was a company in the past acquired by Oracle that had a lead waiver management offering. And one of the interesting pieces there was kind of the ability to have a GC and then force -- kind of not force but in-force the subs kind of being on the platform. I'd love to see if Levelset works that way.
And then two, is that a way to kind of get a broader range of subcontractor, specialty contractors onto the platform for a paid fee? How do we think about that dynamic vis-a-vis what the legacy player had done? I'd love to get an understanding of that.
Well, I can assure you, Bhavan, that we are not going to take that playbook. We do not believe in -- that is not how we operate. We believe the value that is created by all parties involved in the payment process, especially around the complexities of lean waivers. Everyone benefits from getting the money to move faster and more effectively and more efficient than -- so I don't think you need to hold the proverbial gun to anyone's head to do that. I think there's a lot of value for all in the process. Paul, you want to talk about the business model a little bit?
Yes. So I think that -- when you think about the Levelset business today, they are actually a subscription. Largely, the majority of their revenue is coming from a subscription business where they're actually helping anywhere from general contractor, subcontractors, suppliers to manage their own compliance processes. And so that's everything from sending notices, generating lean waivers and really overall, making sure that the documentation, the compliance process is enabled to facilitate that payment workflow. I think the reference that you're kind of referring to is actually a different part of that business' workflow and less about charging for the exchange of the compliance information itself.
Next, we have Brent Thill with Jefferies.
You mentioned hiring was ahead of plan in the quarter. Can you just give us a sense of where those adds are going, where you're ahead? And ultimately, are you opening up more quota-carrying rep capacity given the recovery you're seeing?
Yes. I would tell you that the hiring is going across the board, right? We are investing in standing up more operations in developing new technologies and further expanding on our platform and thinking through how we expand into new markets and, of course, adding quota carrying capacity as we go about planning for the next year. But I wouldn't focus your attention to any part of the organization, it really is hiring across the board.
And Tooey, I know you mentioned the international push, but you did move into France and Germany. Is that -- can you just drill in? Is that through partners, your own boots on the ground? Give us a sense of what's happening in those regions.
Just to be super clear, we're moving into France and Germany. So that's a process, and that's starting to take place. So our go-to-market in those 2 are going to be very similar to how we go to market anywhere, which is we're going to take a look at how the buying happens in that -- in those markets, and so I am certain there will be a lot of direct go-to-market Procore folks there. But then certain segments and certain countries buy through service providers, so we will obviously use the approach that gets the deals done. We like to sell the software the way people like to buy software, and so we will match those 2 together as we go to market.
Next, we have Saket Kalia with Barclays.
Okay. Great. Paul, maybe just to start with you. A lot of good stuff on the financial management part of the portfolio. I know we don't talk about different parts of the portfolio, but can you just maybe give us some broad brushes on, even qualitatively, sort of attach rate to customers and maybe how the pricing for something like project management sort of compares to the portfolio? Does that make sense?
Yes, yes. So look, I think when we think about the attach rates, we continue to think about kind of the stats we had shared in the past of the percentage of customers that buy multiple products and continue to reiterate that Financial is among one of the most demanded products we have and something that we continue to see a healthy attach rate and expanded attach rate, particularly as we think about a lot of the new deliverables. And as we think about what those new deliverables that Tooey had talked about will drive in the future.
Pricing is an area that Financial is a very valuable product to the market. It's something that solves a big problem, and so we don't talk about specific products, specific prices. I would tell you that it is a meaningful share of what T&M costs.
Got it. That's very helpful. Tooey, maybe for my follow-up for you, I was wondering if you could just double-click a little bit on the competitive landscape. I know a lot of us think about Autodesk when we think about a competitor. But I was wondering if you're just seeing any differences, of course, from them but also from the Oracles and Trimbles of the world?
The short answer is no. We're not. Everything is -- our close rates are remaining as they were, if not improving. And so I would say we don't -- we haven't seen anything different at all from any one of those 3 different competitors.
And if anything, I'd just kind of reiterate that when we think about the market opportunity ahead, we're still in such early days that we are facing an industry that is still on analog processes, pen, paper, fax machines, in-house solutions, and it's still such early days that we continue to just be hyper focused on helping these customers and these prospects digitize the workflows that they have today.
Saket, quick story, one of the largest contractors in America, they are like around 100 in size. I was talking to recently, and they were saying, "Thank you for buying LaborChart because labor is our most variable cost and controlling and managing labor is really, really, if we don't do it right, can cost us a lot of money." And I said, how are you doing it today? Like who are we competing with? And he said, white boards. This is a very large company that manages their people using white boards. So when we think about competition, it's generally not about a big multinational. It's usually about things like white boards.
Last question, we have Kash Rangan with Goldman Sachs.
Paul and Tooey, congratulations. As the economy continues to stabilize from a construction standpoint, I'm wondering how we should think about calendar '22. I would assume that you've got a healthier base of renewals in '21. And the renewal rates should start to pick up, and your net expansion rate should also start to slowly inch back up to the pre-COVID days, especially as you start to have success with [ Smart Flow ] as you mentioned, Tooey, to some of the newer modules, higher value-added modules. So how does this all play out in calendar '22?
If I could ask you a question on payments because you don't want to be the only software company not to have a payments module, everybody seems announcing it. I do know that you have an invoicing module that does there are payments, but could you be on to something here that we may not be quite aware of, that we should not be surprised by if it happens in the future, if not, more questions.
I'll maybe touch on the first side. When we think about the economy stabilizing from conception standpoint and how that plays out from a renewal rate perspective, I'd draw your attention actually back to the F -- one of the metrics we had talked about with the renewal rate. Even through the midst of COVID, our renewal rate, obviously, from an expansion standpoint, that is more coupled to the industry performance. And we have seen the industry slowly return to kind of 2019 numbers.
But backlog that Tooey mentioned is driven, to some extent, by the uncertainty. And so while we don't have a crystal ball per se and how the economy will perform. We do believe that we will continue to see improvement in those retention rates in that expansion rate and that our customers are going to continue to need us more than ever as the world continues to come back.
I'll ask -- 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 that not have a payment tool, but what we say is that to think about this in years and not quarters. Because we -- the thing that we do, Kash, and I think you know this as Procore, 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 -- we will get there. 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.
Yes, I should have caveated saying only company pure play a $13 trillion construction market -- $13 trillion of spending, sorry.
We think of it as $13 trillion.
$14 trillion by 2025.
That concludes today's conference call -- I mean the Q&A for today. Turning the call back over to the speakers.
Thanks for joining us, everyone. Have a good holiday.
Thank you, everyone.
Ladies and gentlemen, this concludes today's conference call. Thank you all for participating. You may now disconnect.