Good afternoon. Thank you for attending the Procore Technologies 2023 Q2 earnings call. My name is Matt, I'll be your moderator for today's call. All lines will be muted during the presentation portion of the call for an opportunity for questions and answers at the end. If you would like to ask a question, please press star one on your telephone keypad. I will now pass the conference over to our host, Matthew Puljiz, VP of Finance. All right, thanks. Good afternoon, everyone. Welcome to Procore's 2023 Q2 earnings call. I'm Matthew Puljiz, VP of Finance. With me today are Tooey Courtemanche, Founder, President, and CEO, and Howard Fu, CFO. Further disclosure of our results can be found in our press release issued today, which is available on the investor relations section of our website and our periodic reports filed with the SEC. Today's call is being recorded, and a replay will be available following the conclusion of the call. Comments made on this call may include forward-looking statements regarding our financial results, products, customer demand, operations, and macroeconomic and geopolitical conditions. You should not rely on forward-looking statements as predictions of future events. All forward-looking statements are subject to risks, uncertainties, and assumptions and are based on management's current expectations and views as of today, August second, 2023. 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, here's Tooey. Thanks, Matt, and thank you everyone for joining us today. I am proud of the results that we delivered this quarter, despite the challenges we continue to see in the demand environment. Let me start by sharing a few highlights from the quarter. In Q2, we grew revenue 33% year-over-year and added over 600 net new customers, reaching a total of over 15,700 customers by the end of the quarter. We continue to make progress on our journey of efficient growth by improving operating leverage in the business while sustaining revenue growth. Procore was once again ranked number one across 11 construction categories in G2's 2023 summer report. I've had the opportunity to spend a lot of time on the road this past quarter, and I want to share something that is top of mind from my travels. At Procore, we have a vision to improve the lives of everyone in construction. The only way to further this vision is to protect the industry's most precious asset, its people. Over the last century, we have made tremendous progress to improve the physical health and safety of workers in construction. What's becoming increasingly clear is that we must prioritize mental health alongside physical health. You know, in the U.S., the rate of suicide for men in construction is about four times higher than the general population. That's why this quarter, we came together with The B1M, a leading construction video channel, to officially launch Get Construction Talking, a global initiative to improve mental health in construction. By combining The B1M's reach of over 2.9 million YouTube subscribers with Procore's network of over 2 million users across more than 150 countries, we can bring awareness to mental health and construction and raise money to amplify the efforts of charities working in the space. I'm honored to work alongside construction industry leaders to destigmatize mental health in the industry and provide resources to workers and organizations in need. During my travels, I had an amazing opportunity to tour the International Thermonuclear Experimental Reactor, also known as ITER. As an alternative energy and construction enthusiast, this was a real career highlight for me. The complexities and the scale of this project cannot be overstated. It's one of the largest construction projects on the planet, and it's a collaborative effort between 35 countries and over 700 contractors. I'm incredibly proud that Procore's customer, Ferrovial, is one of the prime contractors on this project and is contributing to building this game-changing technology. Examples like ITER that illustrate the sheer complexity of construction are an important reminder of why the industry continues to seek ways to optimize their efficiency and position themselves for continued growth. This is only becoming more important given the current demand environment. You know, in the past, we've talked about the many puts and takes in construction and how the aggregate construction volume and overall demand is what really matters most. As the demand environment continues to evolve, a tale of two stories has emerged. While some sectors in construction remain muted, other subsectors are experiencing unprecedented growth. The dichotomy we're seeing in the broader industry is not unlike the behavior we're seeing within our customer base. On our last earnings call, we shared a new dynamic that has surfaced in Q1, in which a portion of customers began demonstrating cautiousness in construction volume commitments, while at the very same time, a greater portion expanded their volumes. In Q2, this dynamic became more pronounced. Relative to Q1, a greater portion of the industry showed incremental conservativism, while at the same time, a greater portion grew their construction volumes with Procore. Similar to last quarter, both the incremental cautiousness and expansion activity was not concentrated in any particular facet of the business, but rather spanned multiple stakeholders, customer sizes, and geographies. Given this is the Q2 of seeing this dynamic, it's no longer just a data point, but it's becoming a trend that we're paying close attention to, and Howard's going to elaborate on this further. Speaking of strong expansion momentum, we continue to build upon our partnership with the industry with a number of notable customer wins in the quarter. I'd like to share a few examples, starting with P.J. Hegarty & Sons, a leading general contractor with over 95 years experience undertaking projects across the UK and Ireland. They manage a diverse portfolio across commercial, office, healthcare, education, industrial, and civil, with a particular focus on large scale, complex projects. P.J. Hegarty initially bought Procore, displacing competitive solutions, in order to consolidate their field and desktop solutions onto one connected platform and enable easier adoption for their project teams. They particularly valued our mobile accessibility, which allowed them to have better visibility into what was happening on site. They had previously been using Procore for their data center projects. Expanded this quarter and now will be using our platform across all of their projects. As part of this expansion, they're adding Procore BIM and analytics to their product suite to enable collaboration on BIM models and enhance their analytical capabilities. You know, during my travels, I had the pleasure of meeting the P.J. Hegarty team in person in their offices in Dublin. This is a great example of the relationships we continue to foster with our customers around the world. I'd like to share another example. Guilford County School District is the third largest school district in North Carolina, serving nearly 70,000 students across 126 schools. They originally purchased Procore for our intuitive collaborative platform, particularly the real-time insights, analytics, and data ownership we provide. Guilford County recently passed two major public bonds totaling approximately $2 billion to support much-needed construction, expansion, and improvements across 12.5 million sq ft of school facilities. As a result of these bonds, Guilford County is partnering with Procore to build several new schools, ultimately expanding their commitment with, with Procore by 4x. Our expanded partnership will benefit students, teachers, the surrounding community, and the long-term educational goals for all of Greensboro, North Carolina. Procore is contributing to build the schools, hospitals, and homes that we desperately need, and the infrastructure that powers them and brings them to life. This is just one great example of why I am proud to support the industry that builds the world around us. Another great example is Pomerleau, one of Canada's leading construction companies with nearly 200 active project sites. They've been involved in building incredible projects across Canada, including the Grand Théâtre de Québec, the University of Toronto student residences, and the Burgoyne Bridge. Since becoming a Procore customer in 2019, Pomerleau is focused on standardizing on the Procore platform, reducing the need for multiple other software solutions. This quarter, Pomerleau increased their investment with Procore, expanding construction volume on the platform. As part of this expansion, Pomerleau has started this journey, bringing BIM models onto Procore for easier viewing and collaboration. Pomerleau will also be leveraging the Procore Extracts application as part of their data strategy to more easily digest data and enable flexible reporting. You know, it's been fascinating to see how quickly our customers have evolved from talking about data to talking about how they can leverage AI to get as much value out of that data as possible. In fact, AI now comes up in most of my customer conversations. We're going to share more on our perspective on this at our upcoming Groundbreak conference, but I wanted to take a moment to share how I'm thinking about the AI opportunity for Procore. You know, it's becoming abundantly clear that we are on the cusp of a transformational shift in generative AI. This powerful technology has the potential to transform how we work, how we think, how we operate as a business, and how we serve our customers. We have been expanding our AI and machine learning capabilities for years, from our acquisitions of Avata Intelligence and Indus.ai, to reporting enhancements in Procore Analytics, to new product features like search functionality, submittals, automated area takeoffs, and voice-enabled capture. With the advent of large language models, we have yet another tool in our toolbox to unlock the value of the project data and drive greater efficiencies for our customers. By nature of being built on a single platform, generating a massive amount of data, Procore is well positioned to leverage this technology to deliver even greater value to our customers and further our vision of improving the lives of everyone in construction. To achieve this vision, we must begin thinking of ourselves not just as tech providers or partners, but as trusted co-pilots for all of our users. The future of our business is to be there for them, to guide them, to assist them, and help them increase their productivity. You know, I've heard this referred to as customer intimacy, which makes sense when you think about what conversational AI will mean for our end users. Connecting users across workflows on our platform has been the key to our success. We're evolving to provide intelligence to all of the work that is done in Procore every single day. We ultimately want our users to instinctively turn to Procore to help them do their jobs. Generative AI is one of the tools that will enable us to do this, allowing us to create solutions that are not just reactive, but proactive. Solutions that understand our users' needs even before they do. Solutions that can adapt, learn, and improve over time. We're not just building products, we are building partnerships. We're not just solving problems, we're anticipating them. We're not just reacting to the industry, we are shaping it. To wrap up, I want to invite all of you to our 2023 Investor Day, which will be held alongside our annual user conference, Groundbreak, on September nineteenth and twentieth in Chicago. This is shaping up to be our largest Groundbreak ever, with thousands of construction leaders from dozens of countries expected to join us. We've planned a jam-packed couple of days, including over 80 breakout sessions, an expo hall showcasing the latest advancements in construction technology, and an exciting lineup of keynote speakers, including renowned athletes like Michael Phelps and Laila Ali, and the founder and former executive director of Stanford's Disruptive Technology Program, Michael Steep. I couldn't be more thrilled to get together with our customers, our partners, and our shareholders, and I hope to see you all there. With that, let me hand it over to Howard. Thanks, Tooey, and thank you to everyone for joining us today. We are pleased with the results we delivered against a challenging demand environment. Today, I'll quickly recap our financial results, share some color on the quarter, and conclude with our outlook. Let's jump into our Q2 results. Total revenue in Q2 was $229 million, up 33% year-over-year. International revenue grew 29% year-over-year. Similar to prior quarters, our Q2 international results were impacted by currency headwinds. On a year-over-year basis, FX contributed approximately seven points of headwind to international revenue growth. Therefore, on a constant currency basis, international revenue grew 36% year-over-year. Our non-GAAP operating loss was $3 million, representing an operating margin of negative 1%. Our key backlog metrics, specifically current RPO and current deferred revenue, grew 33% and 32% year-over-year, respectively. I'd like to take a step back and share some additional color on our Q2 performance. As Tooey mentioned, the dichotomy in customer behavior we saw in Q1 became more pronounced in Q2. This quarter, we saw a greater share of customers demonstrate strong expansion activity, both in the form of additional construction volume, as well as the addition of new products. This expansion momentum was well-rounded across multiple facets of the business, and we believe is a positive reflection of the continued optimism within cohorts of the construction industry. Conversely, we also saw an increase in customers demonstrating cautiousness in construction volume commitments, which we continue to believe reflects a heightened sense of conservatism within other cohorts of the industry. This has translated to longer sales cycles and smaller initial deal sizes. While we managed to be resilient in Q2 through these headwinds, should this cautious sentiment persist, it may further impact us in future quarters. Similar to the expansion activity we saw, this cautiousness was not concentrated in any particular part of the business, but rather spanned multiple stakeholders, customer sizes, and geographies. The elevated expansion and cautiousness as compared to historical norms had partially offsetting impacts, and therefore isn't obvious when reviewing our financial results. Nonetheless, it represents an unusual occurrence that has persisted and that we wanted to share to help illustrate why the current demand environment remains dynamic and challenging. Moving further down the P&L, given this is our Q2 of stronger margin performance, I want to share some context on how we view our margin trajectory as a whole. At last year's Investor Day, we provided a framework of approximately 350 basis points on average of non-GAAP operating margin expansion per year with our current revenue growth rate. We continue to believe this is the right balance of improving our margin profile, sustaining top-line growth, and allowing the flexibility to react to our business landscape. This year, we set a plan for 2023 that included meaningful margin expansion incremental to this framework. We recognize the need for our margin profile to catch up relative to our revenue scale and set a plan to accelerate that path of improvement without compromising our business needs. Additionally, you've heard us refer to efficient growth previously. Internally, leaders and teams have leaned into this concept, evaluating every expense and investment opportunity to identify ways to improve operational efficiency and scale the business. This has resulted in an accumulation of smaller savings across multiple areas of the business that has allowed us to meaningfully outperform our margin expectations over the past 2 quarters, while giving us the flexibility to continue investing in future growth opportunities. Ultimately, the combination of these dynamics has translated to faster margin expansion this year. Investors should not expect the same magnitude of margin expansion in future years. Going forward, we continue to believe the framework we provided at last year's Investor Day is what investors should expect. At our upcoming Investor Day, we plan to share more about our philosophical approach to managing our financial profile at various revenue trajectories. With that, let me move on to our outlook. We continue to operate in a challenging demand environment. As a reminder, our guidance philosophy takes into account this uncertainty and factors in the potential for incremental weakness in the market. We have taken a similar approach over the last several quarters to set guidance at a level we have very high conviction we can deliver on in almost any environment. Additionally, when reviewing our future results, investors should note that the second half of 2022 serves as a challenging compare period. As we noted on our Q3 earnings call last year, our backlog metrics benefited from large deal activity that was anticipated to close in Q4 of 2022, but instead closed in Q3 of 2022. As a result, current RPO in Q3 of 2022 accelerated to 38% growth year-over-year on an organic basis, approximately four points higher than any other quarters in 2022. With that, here's our guidance for Q3 and full year 2023. For the Q3 of 2023, we expect revenue between $232 million and $234 million, representing year-over-year growth between 24% and 26%. Q3 non-GAAP operating margin is expected to be between -6% and -5%. For the full year of fiscal 2023, we expect revenue between $921 million and $924 million, representing total year-over-year growth of 28%, which is an increase of $12 million from our previous full year guide. Non-GAAP operating margin for the year is expected to be between -4.5% and -4%, which represents an improvement of 150 basis points from our previously issued guidance last quarter and implies year-over-year margin expansion of 600 basis points. Finally, although we do not guide free cash flow, you may recall that we provided a framework at last year's Investor Day that free cash flow margin should expand in line or slightly faster than non-GAAP operating margin. With our updated guidance this quarter, I am pleased to share that we are on track to reach positive and sustainable free cash flow in 2023. We expect this to be the first of many years of generating free cash flow as we continue our pursuit of efficient growth. Looking ahead, we remain focused on delivering growth at scale in a disciplined manner, which allows us to both invest in extending our market leadership as well as drive operating leverage, ultimately improving free cash flow per share. Before I wrap up, I'd like to build on Tooey's comments and invite you all to join us at our 2023 Investor Day, taking place on September 20th in conjunction with Groundbreak in Chicago. Please reach out to our investor relations team if you would like to attend. I'd like to close by thanking our customers, partners, employees, shareholders, and the industry, as well as the communities we serve, for giving us this opportunity. With that, let's turn it over to the operator for Q&A. If you would like to ask a question, please dial star followed by one on your telephone keypad. If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, press star one. As a reminder, if you're using a speakerphone, please remember to pick up your handset before asking your question. We'll pause here briefly as questions are registered. The first question is from the line of DJ Hynes with Canaccord. Your line is now open. Hey, guys, thanks for taking the question. I, want to follow up on the dynamics that you talked about with, you know, some pockets of some conservatism, some pockets of faster expansion. It, it wasn't totally clear to me if that's a net positive or a net negative in terms of growth for Procore. I mean, it's, it's hard to discern in your numbers. Then maybe the, the second part of that question that I've been asked a couple of times from investors is just with the customers that are opting for smaller commitments, if they were to exceed those commitments, remind us how the business model works. Like, how common is that and, and, and how do you guys... Are there overcharges, or how do you handle that? Yeah, thanks, DJ. This is Howard. The first thing is in terms of the net impact. The net impact is actually positive, so we're seeing greater amounts of expansion versus downgrades, and that's why it's not apparent in our financial results. The dichotomy has continued to get more pronounced, but the net impact is positive. In terms of the lower volume commits, one of the things that we do when customers exceed those volume commits is we actually, they actually have to pay a higher basis point, typically, when they exceed the volume commits that they have. It's an incentive for customers typically to commit to higher volume upfront. As they do that, then, then they have to pay higher basis points. We typically certainly don't see a ton of that, and so we typically get more volume commits upfront. Yep. Make, makes sense. Then, Howard, I want to ask you on, on margins. You know, you, you did a good job laying out that this year was kind of a catch-up year. I mean, they've obviously been really strong in the first half. You know, guidance seems consistent with your underpromise, overdeliver mantra, but are, are there any kind of notable planned investments in the back half of the year that would drive margins materially lower than what we've seen in the first half? You know, there, there really isn't. Keep in mind that our margin guide, you know, it's something that we believe leaves us enough room to continue to make investments as those opportunities arise and as we evaluate our environment and what's available to us towards the back part of the year. If those investments and that flexibility and, and we don't see a great opportunity to do that, there could be potential upside to that margin profile. Yep, makes sense. Okay, thank you guys for the color. Thanks, DJ. Thank you for your question. Next question is from the line of Saket Kalia with Barclays. Your line is now open. Okay, great. Hey, guys. Thanks for taking my questions here. Howard, maybe for you, just zooming out a little bit from the quarter, I was wondering if you could just talk a little bit about the international business right now. You know, clearly a lot of investment there for the future. I think we reviewed that at last year's Analyst Day. How do you sort of think about that business growing and eventually contributing to this operating leverage in an even bigger way? Yeah, thanks, Saket. You know, we continue to remain focused on that investment on the international side, and it is, it, it is something that we view as growth investments. Remember that our framework that we have provided on an ongoing basis of that 350 basis points average expansion, that actually does not contemplate any additional upside that we would see from the international investments and the leverage there. That's how I'm thinking about the components of our margin profile going forward relative to international. We still remain focused on that investment, particularly in the back part of this year. We still expect improvements to come about in the international business towards the back part of this year. We'll provide an update later on in the year. Got it. Got it. Very clear. Tooey, maybe for my follow-up for you, realize it's still very early, but any early observations from, from your payments product here in, in beta testing? I mean, just high level, anything just in terms of customer preferences or, or, you know, comments on pricing, anything you want to say about payments? Saket, you know, I love talking about payments, I love talking about our products. You know what I would say is we have learned a lot. We have partnered very, very close with the industry to deliver this solution. I am constantly gratified by the enthusiasm that I see in the market and the customers that I'm talking to about us solving this problem of getting people paid faster. I would encourage you all to come to Groundbreak Investor Day, because you may learn a little bit more at that, at that moment. Got it. Looking forward to it. Thanks, guys. Thanks, guys. Thank you. Thank you for your question. The next question is from the line of Adam Borg with Stifel. Your line is now open. Great, thanks so much for taking the question. Maybe just for, for you, Tooey, in the past, you've talked a little bit about adopting more of a product-led growth strategy. I was just curious, kind of where are we with this and in terms of, you know, better refining product and packaging to serve the lower end of the market? Yeah. Well, so the product-led growth is definitely not an event, it's a journey, right? This has been something we've been working on for quite some time. If I was to characterize where we are in the process, I would say we're still in early days. You know, we talked a little bit about PCN in the past. The things like PCN, our connected strategy, is going to help support expanding our customer base across our collaborators, as that becomes more prevalent and adopted. You know, early innings yet, but a journey. Yeah, just to add on a little bit there. you know, remember to not think about PLG as specifically for the lower end of the market. It is a broader, broader strategy around how we go to market across the board, as Tui mentioned, including things like PCN. just keep that in mind in terms of when we talk about PLG, and it is very early innings. Yeah, Adam, I'm, I'm gonna throw on top of this that we, we know so much about our customers, and we have so much of their data that we have the opportunity to present them with the next best offering or next best action for them to take in expanding their relationship with Procore. Those are areas that it's not dependent upon size of customer. Everybody benefits from learning about how they can use Procore to run better businesses. That's super helpful, and maybe just as a super fast follow-up, just on the insurance front. Again, I'm sure we'll hear more at Groundbreak, but just on Procore Risk Advisors, again, know it's super early, but any interesting customer feedback or any initial learnings there you're willing to share? Thanks so much. Yeah, sure. Still, again, very early days, I would encourage you to definitely come to Investor Day. Our friend Paul will be there, he will have a lot to talk about. But yeah, I would say, stay tuned. There's gonna be more to come. I will say that it's a, it's an area where I think there is a lot of opportunity. We're a trusted partner to the industry, that trust goes a long way. Great. Thanks again. Thanks, Adam. Thanks, Adam. Thank you for your question. The next question is from the line of Sterling Auty with MoffettNathanson. Your line is now open. Yeah, thanks. Hi, guys. I appreciate the, the commentary on, on the macro, bringing this home to, to Procore specifically, can you talk to us a little bit about how you view your current sales pipeline and your pipeline coverage ratios in light of those dynamics? In other words, is it gotten stronger? Is it getting weaker? Are you doing anything specific to manage that pipeline coverage in light of the, the trends that you mentioned? Hey, Sterling, this is Howard here. Thanks for the question. The first, the first part of this is that our pipeline generation still remains strong. When we talk about the cautiousness that we're seeing in certain pockets of the business, it really has to do with that pipeline taking a little bit longer in terms of the deal cycle and the smaller lands. In terms of what we're doing in terms of internally, our investments and where we focus, that is something that I think we continuously do in terms of managing the mid business and making adjustments, and we're certainly evaluating those, those options each and every single quarter. That's what I would say is how things are showing up from pipeline down to what we're seeing in terms of the cautiousness. Got it. Thank you, guys. Yeah, thanks, Sterling. Thank you for your question. Next question is from the line of Brent Thill with Jefferies. Your line is now open. Hi, Tooey. Hi, Howard. This is Luv Sodha on for Brent Thill. Thank you again for taking my questions. Hello. I wanted to ask. Sure ... one, on the expansion activity that you saw this quarter, one of the comments you made was it's not just volume-based expansion, but it's also adoption of additional products. Could you just give us some insight into, you know, are you working with the go-to-market team to incentivize them to sell additional products? What additional products are being adopted? Great question, Love. The good news is that our products are in demand from our customers. Great example is that with folks that are coming on board and they're buying project management, they're quickly seeing the need for Procore to help them manage their financials. I think that's been one of the reasons why we've been successful. Really what sets us apart is the fact that project management and financials aren't disjointed, separate pieces of software. We acknowledge the integration that is required between project management and financial management on a platform, so it's kind of a natural progression. Then it really depends on the type of customers. Owners are gonna purchase different products than GCs in the beginning, and then specialty contractors are gonna choose more workforce management, you know, BIM tools that they need for the field. It really depends on the person that we're talking to as to how they progress through purchasing our different products. Yeah, from an incentive standpoint, we don't have anything that's overly specific or direct in terms of product incentives at this point. There is a lot of opportunity to continue to cross-sell, as most of our expansion is still from a volume, volume perspective. Got it. That's helpful. Then just one quick one, Howard, if I may, on the gross retention side. Could you just elaborate, was there anything that led to the moderation to 94% or any additional color you could share there? Thank you. Sure. You know, the 94%, you know, likely there was some of the cautiousness that made its way into that 94% gross retention. Keep in mind that that 94% is still within our historical range of 94%-95%. We still feel good about that gross retention number. Thank you for your question. Thanks, Love. Next question is from the line of Matt Broome with Mizuho. Your line is now open. All right, thanks very much, Tooey and Howard. Congrats on another strong and consistent quarter. I guess in terms of the increased polarization of customer behavior, I'd just be, you know, interested to understand a little bit more about, you know, what's really causing that behavior, and did those trends sort of, you know, become more pronounced as the quarter progressed and indeed, sort of carry on into, into July? Yeah, so it, so we mentioned this earlier, but I, I'm gonna say, say it again, which is I wish I could tell you, Matt, that we have data that points to one particular area, one segment, one geo, one stakeholder, where this was, this was happening more than others. It was, it was generalized across the entire portfolio, which is a little, you know, a little bit, gives, gives us a little bit more interest in looking deeper into this. You know, it's really interesting. If you were gonna ask my personal opinion, Matt, what, what, I think is happening is, you know, if I look over the last few quarters, you know, and forget about construction, but anybody, you know, when you read the news, things haven't gotten more rosy. Things seem to continue to get a little bit more scary about the overall macro environment. I think sentiment goes a long way in that. Also there's a, you know, a lot of optimism 'cause you hear about the infrastructure bills, you hear about all these big mega projects coming online, you hear about data centers, you hear about, you know, all the manufacturing. There's this kind of world where there's things to be very optimistic about, and then things that, you know, can concern you. It's really interesting. I, I, I was talking to a customer this quarter, he said to me, he goes, "We are increasingly optimistic that we may dodge a bullet," right, about the economy. He goes, "But we're increasingly worried that we may not be right in that optimism." That to me is like, it shows how you can hold two thoughts in your head that are counter to each other and, and actually, articulate it, which I think illustrates it well. All right. No, that's, that's helpful. I guess just in terms of the incremental cautiousness from, from some of your customers and those volume commitments, are there any sort of early signs that this is sort of ultimately translating into lower usage? Or, or what is the effect on usage there, if any? Yeah, no. We do not believe there's any correlation at all. We track usage very closely, and there has been no. In fact, usage is on the increase, it's not on the decrease. Right. Okay, thanks so much. Thanks, Matt. Thank you. Thank you for your question. Next question is from the line of Josh Tilton with Wolfe Research. Your line is now open. Hey, guys. Thanks for, thanks for taking my questions. I kind of want to go back to, to that last one actually, and maybe go back to some of these customer conversations that you're having. I get that, you know, there's no, like, data points or trend in the customers who are spending more versus customers who are spending less, but I guess when you go out and talk to customers who are choosing to expand, like, what exactly is, is it that they're pointing to that's giving them the confidence in spending more? Kind of how does that compare to what you're hearing from those customers who are spending less? You know, what are they pointing to and being like, "This is why we're spending less?" Is it as obvious as macro? Is it more than that? You know, maybe go back to some of those conversations. Yeah, I can just tell you my anecdotal stories of the conversations that I've been having. By the way, as I mentioned, I've been on the road a lot, so a lot of these conversations were deep, in-person, you know, conversations and not just quick phone calls. You know, what I found in some cases were these businesses were running more volume 'cause they were newer to Procore, but they may have only been running their data center business with us, but not the rest of their business. And/or they had been awarded a large project or two that they hadn't anticipated, and that led them to want to increase their volume to Procore. The other piece is, is that though customers will start off with project management, as I mentioned earlier, there's an opportunity for us to expand those accounts for the people that are you know, betting on the future, around things like quality and safety, around things like financials, around things like invoice management. I, I think there's, you know, on that side, the optimism side, that's, that's, that's kind of how we see it. By the way, I, I would say I, I have a biased sample, though, to be honest with you, Josh. I talk to our biggest and best customers, I don't wanna over generalize here. But clearly, with 15,700+ customers, you're gonna get all area all, all ends of the spectrum in terms of optimism. I have, I have not spoken to many customers who are pessimistic, but, so I can't really speak to that. Obviously, in the numbers, there is some. Howard, do you wanna- Yeah, Josh. On the, on the downgrade side of things, I think it's we have to come back to really it's about the sentiment in those customers and, and what they're feeling in terms of what they're seeing for themselves. It, it, it may not be necessarily because their backlogs aren't there or anything like that. It's purely about the sentiment that they're feeling, and they, they, they decide to downgrade. Keep in mind, when they downgrade, and if they do overachieve or overuse on the volume, they do have to pay a higher basis point at that point. The good news is when you look at that in relation to our gross retention, it still remains relatively stable. Totally, totally makes sense. I guess just my follow-up, sticking with this topic is, you know, it sounds like it was an offset in the quarter, but a net positive. I think in the prepared remarks, you also, you know, very appropriately warned us that if this continues, it could be a negative in the future. I guess outside of the obvious answer, which is you need more cautious customers than expanding customers, like, what would... what from your perspective, would have to change for this to kind of flip from still being a net positive to going to being a net negative? What would have to change? Let me answer it in, in a couple of different ways. First, in terms of that, that cautiousness that we are calling out, from my seat, when I look at the proportion of customers that are expanding, that are renewing, or that are downgrading, when you see a smaller proportion of customers that are renewing and then either going expansion or downgrading, that profile in and of itself actually causes the predictability of the business to be a bit, little bit less, less accurate. So from that standpoint, where I said I have to prudently make sure that we call out that cautiousness. So what will we have to see for that cautiousness to, to materialize? We would have to see the sentiment on the downside really start to, like, really start to get to a place that, that outpaces the expansion side. Just the profile of what we're seeing really causes that predictability to be a little bit less accurate and the volatility potential to increase. Super helpful, guys. Thank you so much. Thanks, Josh. Sure. Thank you for your question. The next question is from the line of Brent Bracelin with Piper Sandler. Your line is now open. Thank you. Good afternoon. Tooey, maybe starting with you, the volume of net new customers on a year-over-year basis had declined for two quarters, which totally makes sense given the challenges out there. I guess I was a little surprised in net new adds that were strong in the quarter, 615, back to year-over-year growth there, a little stronger than seasonally we've seen in the last two years. What's driving the net adds? Is there a profile, either specialty or owner or a unique cohort that's, you know, driving some of that? Just wanted to get a little more color on the net new customers that looks a little healthier than I would have thought, given the environment. Thanks. Brent, I would, I would not over-index on customer count. The, the thing is, because we have so much, such a large SMB business, that, that really creates a lot of variability in those numbers. So we don't really see it as being something that we track re- really closely. It's much more about the construction volume our customers bring on to the platform, and that remains strong. Yeah, I'll just jump in. Look, we're happy with the customer adds. Historically, we've been in that 500-600 range in terms of a quarter-on-quarter increase, and that still remains consistent in Q2. To Tooey's point, we're really managing to the dollars that those customers bring in versus the actual count of the customer, and so we feel good about the customer count. Great. Then, Howard, one quick follow-up on the renewal discussions and dollar volumes you're seeing on expansion versus contractions. I think we heard from AvidXchange earlier today. They had a call out around commercial building being a subsegment for them, where they're seeing softness. As you think about the. ... you know, contracts that are up for renewal, that are shrinking. Is it tied to commercial building erosion? Is it hard to predict? Just trying to get a little more color on those contracts that are downgrading. Is it tied to commercial office building, where we're clearly seeing weakness? Brent, I'm gonna jump in over Howard, and then Howard can jump in on this one. The answer is simply no. That's not. That doesn't come up in the conversations. I think what Howard said is something I've been trying to say for a long time, which is, our success is driven primarily by, by sentiment. It's, it's more about how do these executives feel, about the opportunity ahead, than it is about any particular segment that's, that's on the downturn. You know, as we've mentioned before, and, I'll say it again, that the, Our customers run these diversified portfolios, and they don't, you know, the ones that were in heavy into commercial office buildings two years ago, they have shifted their portfolio mix dramatically away from that to data centers and, and manufacturing and warehousing, in areas where they can actually, you know, see some success. No, it, it, it really is not. Remember, there's 70 subsegments in the construction industry, and that's just one, and it's in the single-digit% of the overall industry. Sorry, Howard. No, no. You got anything else? You covered everything too. All right. 70 subsegments certainly helps explain maybe the diversification that some don't appreciate. Really helpful color there. Thanks. Sure. Thank you. Thank you. Thank you for your question. The next question is from the line of Nick Altmann with Deutsche Bank. Your line is now open. Awesome. Thanks, guys. Just with, with some of the, the pockets of weakness on the volume commitments, I'm, I'm wondering how you guys are sort of combating that from a go-to-market perspective. I, think you had mentioned earlier that financials is, is an area or a SKU that you guys continue to gain traction with. I, guess, what is sort of the remedy or, or how are you guys sort of combating some of the weakness in, in volume commitments? Is it, you know, incentives in place to drive expansion through new SKUs? Is it, you know, a shift in focus to other product categories or areas? Just any sort of color you can give around sort of how you plan on, on combating some of that, that weakness in, in volume commitments, I think, would be really helpful. Yeah, sure, Nick. Thanks. Similar to what I mentioned before, a regular part of what we do in evaluating and determining where we put our resources on a quarter-on-quarter basis takes these things into account, and not necessarily specifically around products or... although that could be part of the equation. We'll look at things like, where do we want to double down on things like driving pipeline or specific geos or specific teams, and we continuously make those adjustments as we execute throughout the quarter and throughout the year. Those are things that are a normal part of the decisions that we make in any particular quarter. Those adjustments are definitely happening as we move throughout, throughout the year. Great. Then just a quick follow-up on the margins. It's great to see the outlook on the margins and some of the comments around free cash flow. Just given you're cleaning up the expense line a bit, can you maybe just talk about the areas where you're maybe adding the incremental dollar and where you guys want to sort of double down on the expense line? Maybe on the flip side of the equation, where are sort of the areas you're, you're maybe cleaning up a little bit more? You know, if you could talk about product categories, international, et cetera, I think that'd be interesting. Thanks. Yeah, you know, the, the margin improvement really was, was planned in terms of being above that, that framework that we've, we've been given about the 350 basis points on average. It really has come from a diverse and wide range of areas, from go-to-market to R&D to, to G&A. That's the first thing. The second thing is we continue to invest in the business, largely in the front office because of the, the demands that we see and that we're reacting to there. We still invest in, in the go-to-market. We're still investing in the product side. Keep in mind, in terms of the headcount investments and the capacity investments, we've come into fiscal 2023, and we've said before that we're going to add less resources in fiscal 2023 than we have in fiscal 2022. That has certainly contributed also to the margin expansion that we saw, or are seeing this year and will continue to see this year. Thanks, guys. Thanks, Nick. Thanks. Thank you for your question. The next question is from the line of Dylan Becker with William Blair. Your line is now open. Hey, guys. It's Faith on for Dylan. Thanks for taking our question. I wanted to touch on the evolution of the business outside of the pure macro dynamics. Now that there is more of a platform approach versus a point solution tool, when you guys started, wondering how we should think about the resiliency in your durable growth framework, maybe now that the equation shifts more to a balanced mix of both product and volume to support business efficiency versus solely relying on the volume growth as it's done historically, which understandably still has a lot of white space in itself. Yeah. Well, Faith, thank you. Procore has been a multiproduct platform for since 2017. I wouldn't characterize us as having just shifted to being a more of a platform play. What we have done is we've matured the products- ... that we have had that, that accompany our project management, you know, kind of flagship product. That's giving us the opportunity to now provide, you know, obviously, additional value by providing more products. By virtue of the fact that we're helping our customers run their entire business, we think we can grab more of their volume because it doesn't make a ton of sense to run your business on a platform that not all of your projects are on. Right. No, that's super cool. Then just quickly, if I can ask a follow-up, wanted to touch on Procore Construction Network, and how this can drive efficiency to the sales process by enabling more self-serve optionality or that collaborator conversion efforts to open up new scopes of work to the different stakeholders. How are you guys thinking about this? Yeah. The way we think about PCN is if, our, our mission is to connect everybody in construction on a global platform, PCN is just one tool that we use to, to, to acknowledge that the collaborators that are on our platform every single day, are entitled to an experience that will get them and keep them engaged on our platform. It's an enabler, but it's just one of many different ways that we are, you know, we're, we're, we're increasing our customer count just by virtue of the fact that we have more people on our, our platform that are actually engaged and, and using our products. That's just one example, though. We have lots of different examples of how we provide value and get people interested, and, and it helps the sales process. Yeah, and I'll, I'll just add on, on top of that, Faith, when specifically, for example, on PCN, our intent is to increase the volume of, of customers' participation in that PCN, and also engagement. With that participation and engagement comes an ability and increased opportunity to meet the customer at the point of need. When we have that opportunity, it starts to then play into the efficiencies that we have further up the chain in terms of the pipeline and how we generate that pipeline and how we ultimately close that pipeline into a dollar of ARR. All right. Awesome. Thanks for the color. Thank you, guys. Thanks, Faith. Thank you. Thank you for your question. The next question is from the line of Kash Rangan with Goldman Sachs. Your line is now open. Thank you very much, Tooey and Howard Fu. I have a slightly different take. I mean, we're always waiting for this macro recovery, and we're not getting what we want. At the same time, in the 2 years that you've been public, you've been putting up numbers, and your growth rate, in fact, has accelerated from when you went public. In the Q1, you went public, that was 27%. Now, it's 33%, 32%. Your margins are better, free cash flow is better. The number of customers added just keeps growing. I think it's about 15%, 17% growth in your customer base. The revenue per customer is growing, your yield is getting better. What are we waiting for? What if we don't, Tooey... I mean, what if we don't get a recovery, quote, unquote, right? This is the new normal. Now, how does it leave the company? I mean, are you still keeping the same optimism with respect to the TAM, the growth opportunity of the company? Maybe we just need to set aside a notion of a, a, a commercial or whatever recovery. Because you have enough strength in your end markets and, and your business model seems to be doing nothing but just performing and outperforming. Tell us more about why we're all worried about something we should be- we should not be worried about. Well, Kash, good to hear from you, and you are now hired onto our investor relations team officially. Oh, wow! That's probably the nicest thing anybody's ever said to me. Yeah. You know, if the macro demand environment continues to be a challenge, I'm personally convinced that the overall need for construction is gonna be there. It just may shift from one segment to another. That's the beauty of Procore, is that we serve all sectors. That really helps when our customers shift their portfolio. They don't have to shift products or anything. They, they just shift their portfolio. I'm a firm believer that the overall demand for construction is gonna remain. Look, we've seen the 2009 downturn. We saw a COVID downturn. We also saw demand didn't, didn't wane dramatically during those time, time frames. You got to remember, we... I'm gonna say this for our friend, Paul, but Paul used to always use the oil tanker analogy, which these things, even if it does slow, this industry and the way that this works is it's like an oil tanker, and it doesn't speed up fast, and it doesn't slow down fast, and it certainly doesn't turn very agile. We believe that over time, we will be more of a steady Eddie when it comes to riding the ups and downs of the overall macroeconomy just because of that nature of construction. Yeah, just to add on a little bit more there, Kash. you know, the doubling down on the oil tanker analogy, you won't see, any particular period where, where we'll have an outsized, outsized uptick or downtick in the growth because of that dynamic. What we've always talked about, our steady state growth rate in that high twenties to low thirties range, and that still is consistent, and we still maintain that perspective going forward. Got it. Thanks so much, Tooey, appreciate the nice words. You'd make a great analyst, too, in case you decide to pursue that line of work. Right back at you. Thanks, Kash. Thank you, guys. Bye-bye. Thank you for your question. The next question is from the line of Jason Celino with KeyBanc. Your line is now open. Great. Hey, Tooey. Hey, Howard. you know, I'm just trying to gain some perspective here. you know, it sounds like your customers are expanding more than they're decreasing. T his is kind of an extreme comparison, but it, it, you know, I'm just trying to gain perspective. If we go back to 2020, you know, there were really only 1 or 2 quarters where you saw the sequential CRPO grow minimally. You know, to what extent at that time did those renewals, you know, on the down- downsizing, you know, exceed the ones that were upsizing? Thanks. Yeah, Jason. I, wanna make sure folks understand how, how severe the situation was in 2020. When you think about 2020, job sites were literally empty. That is a very different situation than, than we're in right now, because backlogs are still there, construction is still going on, and there's still business out there being, being done. I, I wouldn't necessarily look at that as a, as a fair compare, because literally job sites were, were empty, and that was. That's the only scenario where you would see something that severe happen. Okay. Yeah, no, that's fair. Then just competitively, you know, given these, you know, changing market dynamics, wondering if you've seen any changes to the competitive landscape, competitive tactics? Thanks. Jason, no, no changes whatsoever, really, as far as we're concerned. You know, again, I, I, it's always shocking to me, but, you know, the, the vast majority of people that we're talking to every day to join the Procore platform are coming from more analog solutions, Microsoft Office, those type of things, as opposed to competitors. We don't really look at it that way. If anything, just to kind of put a bow on it, no, no changes to report. Perfect. Thank you. Thanks, Jason. Thank you, Jason. Thank you for your question. The next question is from the line of Mark Chappell with Loop Capital Markets. You know, is that open? Hi, this is Tim Greaves on for Mark. One for me is, last quarter, you guys noted that employee attrition came in lower than anticipated. I wanna know, did that trend continue over Q2? Yeah, attrition, attrition remains at low levels, and we're really happy with where we are from a hiring perspective. If I could just add another one and expand that to the international side. Can you provide us an update on these new sales reps that you hired? I rem-- if I recall correctly, you mentioned a few quarters ago that with the changes in the international business, and particularly around the onboarding of new sales reps. Are these new sales reps fully productive yet? Or if not, where do they stand? The way I would characterize it is we are always evolving the kind of maturation of how we enable our sellers. We have been working on this not only internationally, but both domestically as well. I would say, some folks are ramped, the newer ones are not, and it's a never-ending process of enabling and ramping. I would say, the process is getting better. When we think about international kind of as an entity, we really don't think we're gonna see significant changes that we would even talk about until later this year. I hope that helps you. Thank you. Yeah. Yeah, thank you. Thank you. Thank you for your question. There are no additional questions waiting at this call time. That concludes the conference call. Thank you for your participation. You You may now disconnect your line.