I'm very happy to welcome Howard Fu, the VP of finance, almost CFO, to our conference. Many of you may know Howard, but would love to get a sense of maybe your background, your experience at Procore, and then what makes you so excited about being a CFO. Yeah, sure. Thanks for having me. My background, you know, maybe it's by accident, maybe it's subconscious. I feel like my job here at Procore and what it's going to be as CFO has been a culmination of a lot of things that I've done in my career. You all may not know, I was actually trained as a civil engineer, so I know the space quite well, and this is somewhat of a homecoming for me. I've also spent a number of years with Visa working on pricing and incentives for the issuing banks and as well as prepaid, so I know a little bit about payments, which is kinda where we're going. I also have spent a number of years at some pretty high-profile SaaS companies, and so I feel like this is a culmination of a lot of those experiences for me. Just that in and of itself is very exciting for me. My formal responsibilities at Procore were in FP&A, sales compensation, I mean, procurement. That's just the formal responsibilities. Over the last couple years, Paul and Tooey and the rest of the executive team have done a really nice job of really getting everybody, including myself, getting exposed to what Procore has to offer to our customers and getting really exposed to the industry, and that's what I'm really excited about. I'm really excited about the opportunity that's right in front of Procore. I'm really excited about what's to come over the medium and long term as well, and the role that I have to play along with the other executives and our customers, in terms of moving forward the industry. Okay. Perfect. Maybe we'll just start off with some warm-up questions that you probably get a lot. You know, I guess you just posted a very solid quarter, put up some impressive guidance for the year, you know, what are you seeing in terms of macro? Another macro question. Yeah, look. Sorry. No, no. That's great. That's great. It's on everybody's minds, and it's certainly something that we continue to monitor. If I were to break this down in terms of macro, it's really as simply put as the imbalance between the demand that's out there for construction and the supply, which is our customers and their and their supply to deliver against the demand on that construction. It's really that imbalance that's showing up in the backlogs that our customers are telling us that they have, and that average backlog could be, you know, one, two years or so forth. In terms of the overall macro environment, we have to be clear, and there's a nuance there where you see a lot of the indicators, and most of the indicators, if not all of them, are actually trending quite positive. The ones that are most volatile are the ones that we are not actually exposed to at Procore, which is the single-family homes. When you look at that backdrop and even back up a little bit more than that, even the level of digitization in the industry itself where Procore plays, there's enough tailwind, even in a macro recessionary environment, where there's opportunity for Procore to grow. Even in those environments, you can see that the folks that are still doing construction, and there's plenty of construction to go around, there's an impetus to really look for opportunities to operate more efficiently, and that's where Procore sits, right? That's where Procore can come in and add a ton of value. Okay. Then maybe regardless of macro, you know, Procore's been executing pretty well. We've seen two straight quarters of large deal strength, and I think last quarter you highlighted 27% growth in six-figure deals, 100% growth in seven-figure deals. I guess, what's driving this strength in large deals? I think it's a number of factors, both internal and external, some subjective and some objective, and I'll call out a couple of them. The first one is I think over the last several years, Procore as a brand has just become more well-known. As you become more well-known as a brand, it makes some of the initial conversations and follow-up conversations, to be frank, in terms of renewals and expansions and so forth, that much easier. That's the first thing. The other piece that goes along with that I think has allowed us to accelerate in terms of some of those large deals, is really the progress we've made against products, in owners and also in GC and also in SC. As an example, when we look at some of these stakeholders, we've made progress against financials, which will be highly valuable in the owners market. We've made progress downmarket in terms of workforce management, bidding, estimating. A combination of the brand that's recognized, the progress against the product, and then also really internally, how we've organized our go-to-market against those backdrops that has really allowed us to start to land some of the larger deals. Okay. When we think about the other, you know, popular investor item right now, it's margin expansion Yeah. Margin improvement. Yeah. You've committed to 350 basis points of annual margin expansion, but where would that leverage come from? The first thing I'll say is in my seat and my seat to be, I don't think I will ever stop thinking about pushing for more efficiency throughout the company. That's the first thing. Where that will come from, I don't think it's any one particular place. I see opportunity across all the OpEx lines. The one thing that I'll say is our gross margin will probably be remaining fairly stable, that we have a fairly strong gross margin. If I look across the different OpEx lines, I'll take them one by one. If I look across R&D and P&E, we are now at the third year of a three-year product strategy where we invested heavily. The next three-year strategy will really be about how do we monetize what we've already delivered in those three years. Obviously, we'll continue to make enhancements to the product and deliver product, but it's really about making that shift to really monetizing what we've already delivered. To do that, we actually need to add less resources over the next several years from a P&E standpoint. Similarly, from a sales and marketing standpoint, we came out of COVID where in COVID, where job sites were empty, and we actually pulled back quite a bit on the go-to-market piece because we were responding to demand. Over the last couple of years, we had to catch up in terms of that capacity, and we've done that. As we go into fiscal 2023 and beyond, getting huge leverage out of that sales and marketing component is a key focus of ours, not just in the U.S., by the way, in international as well, when we talk about some of the execution aspects that we have to make progress on. There's a number of dimensions across there that we're gonna get leverage. G&A is in there as well, leading up to the IPO and post-IPO. Obviously, a ton of investment in G&A. There's some things that just weren't there before, like D&O and those types of things. As we go throughout the next several years, there's really opportunity across all of those lines. Okay, interesting. If I think about the environment, it's definitely not growth at all costs, but it doesn't sound like it's, you know, drive profitability at all costs. What areas are you not willing to compromise on in terms of investment and opportunity? I would say that it's not necessarily not willing to compromise on. The way I think about capital allocation and where we're putting our resources is a balance across a number of dimensions. I think about when the return is gonna happen in terms of where our investments are going, so short, medium, long term. I look at what the demand environment is and say, "What is necessary to meet that demand?" Then I also look at how do those things play into the trajectory of the top line and bottom line growth that we're trying to achieve. It's really about balancing all of those pieces in the situation that we have. I'll give you an example, going back to COVID again. When job sites were empty, we pulled back on go to market, but we continued investing in our product and technology and our R&D because we knew that there was a lot that we still need to make progress on in terms of that product roadmap and that product portfolio. That has kinda paid off. Profitability is not something new to us. It's something that we have already been planning for. It just so happens that it coincides with the entire market also focusing on this at the same time. It's something that has always been in our plans and in our focus areas for some time. Okay. Good. Glad we were able to get those hard questions out of the way. I do wanna talk about your opportunity with GCs. I think at the Investor Day, it was surprising to see that you were still only capturing, you know, less than 25% of the volume. I think when people think of Procore, think you're already, you know, killing it with the GCs. Mm-hmm. Clearly, you haven't captured all that opportunity. Yeah. Like, where would that share come from? I think it's gonna come from multiple different places, multiple different dimensions. There's gonna be a new logo component of it, obviously, because the penetration is at 25%. Anytime in a verticalized SaaS industry or verticalized industry, that penetration can get well beyond 50%. There's definitely a new logo aspect of it as well. Where we've seen strength in fiscal 2022 and continue to see strength is around actually expansions. Expansions in around not just ACV expansion or average construction volume expansion, but also cross-sell opportunities as well. There's those two components as well. As we think about the GCs across both cross-sell and ACV expansion, you know, typically it takes several years for GCs to actually migrate all of their volume over to Procore. There could be a number of reasons for that, right? There could be a company, let's say Turner, where they have different divisions and different geographical locations working on different projects, and it just kinda takes time to take down all those components. It takes time for the volume to move over. It could just be there are in-flight projects in any particular company, and it takes time for those projects to either close out and then migrate new projects over to Procore. There's multiple dimensions that we see in terms of growth, even with specifically in GC. Okay. Interesting. It was surprising to see how fast your other stakeholder groups were growing. Yeah. I think that with the owners and specialty contractors, Well, let me take a step back. When we think of owners, you know, that segment's growing 40%. Why would an owner need Procore? Yeah, good question. You know, every project in some way, shape, or form is going to start with an owner, okay? Every project is going to also touch a GC and an SE at some point. When you think about an owner and what the responsibility is and what they manage, they certainly take on a lot of the risk of a project. They also manage large capital budgets, and they also manage multiple projects at the same time. There's value in having a system of record for all of that data and all the capital that they're managing and all the budgets that they're managing and all the projects that they're managing in one place. There's definitely value in terms of just the bread and butter project management software. There's also, when you think about from an owner standpoint, there's a big component that's the financial aspects of what they manage. The financial management products that we have will also have a lot of value to owners because they wanna make sure budgets, their projects are delivered on time, and they also wanna ensure that their projects are delivered on budget. The other component is also gonna be around analytics. When you look at what the owner has to manage across that breadth of dimensions, they wanna know and they wanna understand and learn from what they've done in their existing projects and apply that to the next project that they do and the next project that they do. There's certainly an analytics component to that as well. It spans a breadth of projects and products and so forth, that an owner can find value in Procore. Okay. Can an owner l ike, when we think of these six, seven-figure deals, can an owner be that big? Absolutely. You know, we had strength, as you mentioned, in our seven-figure deals. Go back to the Investor Day content that we, that we showed. I think something nearly 40%+ of our seven-figure deals actually come from the combination of owners and subcontractors. There's absolutely opportunity for seven-figure deals and large deals there. Okay. When we think about your subcontractors, specialty contractors, I think the number two and number three products are like workforce planning and estimating. Those were launched within, I think, the last two years. I guess, what are some other fast-growing products for the subs? One clarification there. What we showed was not necessarily the products by stakeholder that were the highest growing. Okay. They were the highest pain points by stakeholder. Got it. Right. When you look at specifically specialty contractor, the highest pain points are going to be around field productivity, and then as you mentioned, the two workforce management as well as estimating that you mentioned as well. When you think about specialty contractors, they by far make up the most logos in the industry, and what they're responsible for are things like labor and materials. They're responsible for making sure that people are on the project at the right time with the right materials. They also have to make sure that they are delivering their projects on budget. Therefore, the estimating component is gonna be very important for them as well. That's just one distinction that I wanna make sure. Okay, yeah. Yeah. Yeah. Yeah. Would you say that those products with the specialty contractors... I guess, how far along are you on the install base with them? Sorry. Well, the workforce planning, the estimating, the field productivity. How much opportunity have you captured within your install base for those products? I think there's still tremendous opportunity there. Like, as you mentioned, those pro-products were launched fairly recently. One of the things that we've done to improve our go-to-market is we started to bundle some of these products down market, and we've done a lot of research and a lot of work to see what products make sense to put together, and those bundles have actually been very well received. So we still have a tremendous opportunity to definitely to make progress there. Okay. If we change subjects a little bit to the fintech opportunity, I know it's still, you know, relatively early, but it's a big topic to talk about. Last year, you announced materials financing. Yeah. Curious how, you know, that's going, you know, product market fit, maybe what are some of the, you know, pain points so far that you've seen? Curious any feedback there? Yeah. The first thing that I will say is we still believe strongly, and we know, not believe, we know that working capital is absolutely one of the biggest pain points for subcontractors. We believe in the value that we're adding and we're going to add in terms of the materials finance product. The second thing that I'll say is, we will continue to say this, we are still very early stages here. We are very much in the test and learn phase. Okay. In that phase, we're deliberately casting a wider net to see what's going to hit and what's going to bite, right? It's really, and we've I know Paul's used this term, I've used this term, is building that game tape to say, "What's that end product and the form of that end product in terms of what we're going to offer to our customers?" It's very early stages. We have seen traction there, but it's it'd be premature for me to say anything more definitive than that. Okay. That's fair. The other product that you've mentioned is Procore Pay. Yes. It's gonna, I think, launch in the second half. I guess for people who are maybe unfamiliar with the construction industry and, you know, what you're trying to do here, who is that geared for, and for what use cases? The first thing is launch in the second half. Yes, we've mentioned that at Investor Day. It doesn't necessarily mean GA. Similar to MatFi, it's very early stages, so I wanna make sure that that's clear. Don't put, you know, don't put this in your models or anything for fiscal 2023. Where this is geared towards is really gonna be that relationship and the workflow between the GC and the SC, right? It's important to note that Procore Pay, it's not really about the payment itself- Okay Or the act of that payment itself. It's really about getting in the flow of funds and getting into that workflow. There's the payment itself, but then there's getting the folks comfortable to pay, okay? That's where the complexity comes in, right? We've invested heavily in our invoicing product. Now Procore Pay will be able to now have the actual movement of money, and then with Levelset and with their experience in liens, that's starting to now make progress into that comfort area, getting folks comfortable to make that payment. It's really about getting in that workflow and that flow of funds. Once you're in that flow of funds, there's other products that you can start to conceive of, off of the information that we get from that flow of funds. For example, from a SC standpoint, getting paid earlier as an example of something like that. That's the way to really think about it. It's not really just the payment itself. Okay. Interesting. When we think about the fintech portfolio as a whole, I know insurance is an area that comes up frequently. Yeah. Why would it make sense to expand to that? Why is that potentially attractive? Yeah. Yeah. First of all, insurance, there's three things about insurance in any construction project. One, it's required. Two, it's expensive. Three, it's highly manual and highly tedious to get through that process. Okay? Those three things are important to recognize. Why does it make sense for Procore to enter this? First thing is, in general, philosophically, we're trying to connect everyone in construction, and we're trying to mitigate all of these pain points and provide value and services across all these pain points. We feel like we're uniquely positioned to offer this to our customers. Because of two things. One, it's really about managing data and managing the risk based on the insights from that data, and there are specifics of that for the construction industry. There's no FICO score for a subcontractor, right? Procore has spent the last 20+ years building up this database where we believe we can kind of be that equivalent of a FICO score. That helps companies then manage risk and also manage the insurance component of it, and you can branch off in a number of different directions from that, from that risk profile. Okay. Maybe potentially not an insurance underwriter, but a go-to-market channel for insurance companies. That's definitely one permutation of it, yes. Okay. I think we only have a few minutes left. I don't know if there's any questions from the audience. I did wanna ask about your international segment. Yeah. Yeah, of course. I think, I know it's been a successful, you know, grower, but Tooey and Paul have mentioned that, you know, there are some growing pains. I guess. All right, what are some of the changes you've made so far for the international business? Yeah. So far, what we've done is made organizational changes to have more of a direct line responsibility and visibility into the operations of each GO. Previously, we looked at international from an operational standpoint, almost as one group. The fact that we are now splitting it out into specific leaders that go directly into the global head of sales will just have us more of a direct line visibility into what's going on and allow us to actually make improvements specifically to the nuances of each GO. We believe that we'll start to see the impacts of this and other components as we get towards the back half of the year. Some of those components that I mentioned are going to be largely around enabling the sales force to be able to sell in those nuances for those particular markets. That's frankly one of the misses that we had is not recognizing that early enough, and then making moves to make sure that that was addressed, and we're full bore going to make sure that that is the case. You know, we know that the product market fit is there, right? We also know, fairly certainly that it's not the macro environment that's impacting the performance there. Mainly because when you look within a region, you have folks that are successful, you have reps that are successful. When you dig just a few layers deeper and you talk to those folks, these were people that just knew how to work the region, and they knew how to do multiple different jobs in that GO to be successful. Now you're hitting a scale where just there isn't enough bandwidth for those individuals to do all those things anymore. We need to start thinking about how to compartmentalize those activities and how to work those compartmentalizations into the enablement for all the new resources that we're bringing on in each GO. Okay. Perfect. I think we're out of time. I've been asking this question to all the CFOs. I know you live in the Bay Area. I do, yes. What's your favorite restaurant? my favorite restaurant, probably a steakhouse in Danville called Forbes Mill Steakhouse. Okay, great. In a couple weeks when you're a CFO and anyone wants to take Howard to dinner, you know where to go. All right. Thank you.