Good afternoon, everyone. Thank you again for joining us. My name is Luv Sodha. I'm part of the Software Equity Research Team here at Jefferies, and super lucky to have Procore CFO Howard Fu join us, Howard Fu. He joined Procore, you know, in 2021, but he's been CFO since 2023. He has an awesome background, you know, was at Docusign, LinkedIn, Salesforce previously, so thank you again, Howard, for joining us. Maybe to start out at a high level, you know, for those who might not be as familiar with the Procore story, could you just talk a little bit about, you know, how the story's evolved over the past year or so, and your big growth levers that you have? Yeah, sure. Well, first of all, thanks for having me. It's always great to be here with you and the rest of the team. In terms of the Procore story, I mean, how far back do you want me to go? If I think back to maybe when I first joined, which was during the height of the pandemic, and I was joining at a time when we were coming off a time when job sites were literally empty. So that was pretty catastrophic for a company that was focused on construction management software, right? The good part about that is coming out of that period, there was a tremendous amount of pent-up demand that we ultimately felt the tailwind of going into 2021, not just in the U.S. but globally. And, we did what we could to invest, according to that growth across all areas of the business, and then that brought us into 2021 and 2022, which is where we saw a tremendous amount of growth from that pent-up demand. In 2023, obviously, we started to see some of the macroeconomic headwinds, which was a bit delayed from when the rest of software saw those headwinds. And well before that, we started to, with my predecessor, Paul, hopefully you all know, really started to think about what this would look like, not just up to this point but going forward, past where we are today, in terms of how we think about capital allocation. How do we think about deploying our resources appropriately? Where do we wanna put our resources? What is our strategic direction? And I think where we are today is you're seeing the execution against a lot of what we've been putting in place over the last several years, regardless of what the macroeconomic environment is doing. And so that's a really high level kind of over the last several years. That's perfect. You know, the macro challenges, you know, all these all of the software companies are facing. Maybe talk about, like, obviously, you've been seeing them over the past year or so. Maybe talk about how the environment's changed and what are your expectations going forward. Yeah. So, as I mentioned before, we started to see some of the impacts of this in Q1 of last year. Going into this year, fiscal 2024, we actually had to make an assumption and a prediction about what we wanted to assume in terms of the macroeconomic environment going into this year. Our assumption was that it would remain steady at a much depressed level throughout the remainder of this year. What we started to see towards the back part of last year in terms of how the customer base specifically impacted our business at Procore is that we saw some relative strength in the enterprise space and in our expansion motion. What we started to do going into fiscal 2024 is made some shifts in our base business from a proportionality standpoint of where we focus, where we put our investments, consistent where we saw that relative strength, in addition to assuming that the macroeconomic environment continues to remain at a depressed level throughout this fiscal year. How that's progressed into this Q1 and the first part of Q2 is that hypothesis and that assumption about the stability, although at a lower level, has maintained, has proven out, right? and one data point that we talked about was when we first started to see the macroeconomic impacts from last Q1, we looked at the cohort of customers that signed with Procore either as a new customer or as an expansion deal, a renewal deal last Q1, and what do they do in Q1 of this year? And what, what gave us confidence and what gives us confidence that that stability is there and that our assumptions are appropriate for the remainder of the year is that cohort of that cohort, the customers that actually downgraded significantly last Q1 largely renewed flat this Q1. And the customers that renewed flat Q1 of last year largely upgraded a little bit in Q1 of this year. And those that renewed in Q1 of last year a little bit also renewed a little bit in Q1 of this year, expanded, Q1 of this year. Now, they aren't expanding at the levels that we had seen back in 2021 and 2022 coming out of the height of the pandemic, but this gives us a lot of confidence that there is starting to be some stability in the market and in the industry and in construction, and it gives us confidence to maintain that assumption throughout the remainder of the year. Got it. That's perfect. On the, I mean, CRPO is clearly a key metric. Yeah. That everyone tracks. On the story, you know, you obviously have a tough comp coming up in Q2, but, you know, you've indicated that you expect to see some stabilization in the back half of the year. Maybe walk through some of the key assumptions there and what gives you the confidence around that stabilization, let's say, in the second half. Yeah. Just to really clarify, the stabilization, actually from Q4 and back half of last year persists into Q1 and Q2, and we expect that to persist throughout this year. So that stabilization, we're already starting to see. I think what you're referring to is our comments and my comments around CRPO growth starting to pick up in the back part of the year and CRPO growth declining in Q2 and CRPO growth will decline in Q2 before picking back up towards the latter part of the year. There's a couple of things going on there. One is the back part of last year is just an easier comp. And so with that easier comp, you're gonna see CRPO growth accelerate towards the back part of the year. The second piece of it, I think, is that when you think about CRPO, the CRPO is a reflection of not just what happened within that particular quarter. It's a reflection of what has happened in four quarters before. So just like CRPO growth declined from quarter to quarter, takes time to work through the system as our internal ARR and bookings are struggling relative to the macroeconomic demand environment, there's gonna be a same lag as that starts to pick up and when that shows up in CRPO. And that's what you're seeing when we talk about CRPO growth in Q2 likely dropping to the mid-teens in Q2 and then exiting the year in the high-teens. And that's what you're seeing is that lag effect when we start to see the booking seasonality in the back part of the year start to pick up. The other piece is, remember, I mentioned earlier towards the back part of the last year, we saw relative strength in enterprise and in expansion. When we started to move our focus and our resources towards enterprise, there's a couple of elements going on. One, those resources are gonna take time to ramp, but more importantly, the deal cycles in the upper end of the market are gonna take longer, and that naturally moves our business more towards the back part of the year. Got it. You know, talk a little bit about this new enterprise focus, if you will. Obviously, you've had it for some time. Right. You know, the traction you're getting in there, and what types of deals are these, you know, just additional color there? Yeah. So I wanna I wanna double down on a point. When you look at, we've made some disclosures over the last couple of investor days where we talk about the proportion of our ARR that's from enterprise. So, one clarification is we're not just moving into enterprise. We've been in enterprise. It's it's about shifting the higher proportion of our business to that enterprise business because we, we saw some relative strength there. So that's, that's the first thing. And, when you think about the progress and what, what some of the, the positivity that we've seen and some of the changes that we've made is we've continued to evolve how we think about going to market in that space. And that's something that naturally we would do in every single segment as well. In this, in particular, there are things around things like making evolutions and better account planning, making sure that we have better account coverage ratios for the major accounts, getting better and more insightful about identifying the potential in each one of these accounts, and making sure that we line up our resources to support that. And so those are just a few of the examples that we've done, in terms of making that shift more towards the enterprise space. A lot of what we've seen so far has been good, has been positive. Now, when you think about what that means for the back part of the year and the shift more towards a proportion in enterprise, what you're going to see is that those there are gonna be larger deals, which could have some volatility, which is why, you know, we continue to be cautious but optimistic about what that looks like for the back part of the year, assuming that the macroeconomic environment stays consistent. Got it. I mean, one of the big areas of focus for a lot of investors is, you know, generally tends to be a lot of conversation around interest rates and how that would impact the overall construction environment. Is lower interest rates a key factor to drive higher growth for you, or, you know, would you be able to attain some of the success even without that happening? The relative strength in the back part of the year does not assume any benefit from interest rate reductions for this year. I wanna make that piece very, very clear. Now, if I step back a little bit, we shouldn't think about and you shouldn't think about interest rate reduction as a direct and immediate correlation to the buying decision of our customer. Okay. What that will impact is one data point that impacts the sentiment of our buyer. And there's a lot of other things that our buyers will look at, inclusive of what does their backlog look like, inclusive of actually what the interest rate impact is on inflation, and more so what the interest rate impact is on labor and inflation on labor. And those are some of the considerations that our end customers are thinking about in terms of their buying behavior. So, look, over the longer term, if interest rates continue to decline, yes, that will be a likely boost to our business because it flows through to a benefit to our customers. The other thing, though, if interest rates stay where they are and inflation stays where it is, I think it's only fair that we ask ourselves, "Is this a new normal that we are dealing with?" Recall that several quarters ago, we talked about customers acclimating to this new environment of inflation and higher interest rates and higher labor costs. Just as an example of that, of the backlogs that are in our customers' backlogs today, when you think about it from a funding perspective, from an owner's perspective remember, there's owners, GCs, and subcontractors. From an owner's perspective, those deals were penciled at an interest rate that was much lower. So even if this inflationary and interest rate environment continues, at some point, the customers that we have already on the books and the backlogs that they have are gonna work through that backlog, and then new deals are gonna come online with higher interest rates penciled in to make those deals viable for the owners and ultimately those projects happening through GCs and SCs. And so that's the acclimation that even if the interest rate environment stays where it is, that ultimately construction will get done somehow. Got it. That's super helpful. I wanted to maybe, I, you know, turn the focus on AI. Yeah. I think I mean, on the vertical side, it's I wanna say, I don't wanna say it's insulated, but it's a little more protected, in terms of that AI cannot disrupt, you know, the processes, if you will. But maybe just talk a little bit about Procore Copilot, you know, what type of innovation are you bringing with that, and what efficiencies would that drive, be it at the job site or other parts of the ecosystem? Yeah. We're quite excited about AI and Copilot, and we'll certainly have more to announce as we get to the latter part of this year at our Groundbreak user conference. But here's how I think about Copilot and AI as it relates to our business. When you think about what humans have to do in the construction process, there's a lot of what humans in that ecosystem do that they have to be proactive about identifying areas to go explore, going and getting the information, processing that information, and determining if there's something that they need to do if there's an issue that exists somewhere. And they have to do it with a level of accuracy. So an example would be for AI in the construction industry and specifically for Procore is as an enhancement to that process. So instead of me being, with my dirt on my boots, having to be proactive about that, imagine an AI Copilot and assistant proactively serving up to me areas that I need to focus on, and not only serving up to me and identifying the areas I need to focus on in a construction process or in a construction site, but also identifying areas of potential issues. And not only identifying areas of potential issues, but actually doing it in a more accurate way, in a faster way, in a more efficient way. And think about what that does to me as somebody who's working on that site, whether I'm actually hammering a nail or if I'm a superintendent. It takes a tremendous amount of risk. It reduces the amount of time, and it actually allows me to build that project much safer, better, more on budget, and more quickly. And so think about that as somebody, a Copilot or, or an AI in construction, as somebody that enhances what I would have to do as a human proactively, but now it's something that's more proactively served up to me. So that's the best way that I think I'd describe it. Got it. You obviously have a new CRO in Larry Stack. Yeah. He brings a lot of federal experience with him. It just wanted to ask, you know, what potential additional changes is he making on the ground, and how could he drive better traction, be it on the infrastructure dollars that might potentially come or on the federal side, especially as it relates to Procore? Yeah. So first of all, Larry's been here about a quarter. I think he's just passed 93 days or something like that. I would say that it's the short answer is yes to everything that you just talked about. I think that what Larry is doing is coming in and I think augmenting and accelerating the places that we knew we had to move to already, okay? That could be things like in the public sector space. That could be things like standing up a public or a partner motion for different parts of the business. That definitely includes things like being more prescriptive and more deliberate about our enterprise motion and what that should look like, both in the U.S. go-to-market as well as in some of our international Geos and the evolution that the international Geos are in, let's say, in U.K. or in Asia Pacific. So he's definitely bringing those pieces. In terms of the specific changes he's making so far, I think it's a little bit too early given it's 90 days. He spent most of the first 90 days, visiting a lot of customers, getting grounded in what construction is and what it means and how it relates to Procore, and what Procore can do to add additional value to our customers, and then bringing that back and integrating into the motions that we run from a go-to-market perspective. And that's what he's been doing in his first 90 days. We'll get more specifics as he gets another quarter under his belt, but he's having a positive impact already. Got it. Yeah. Wanted to dive, talk about the fintech opportunity. You've obviously made a few product announcements in that space, most notably Procore Pay, which, you know, you mentioned you have hundreds of customers on that. Could you maybe talk about the opportunity with Procore Pay, you know, the different payment models that you have. Sure. What the opportunity could be over the medium term? Yeah. Sure. So first clarification, we actually think about Procore Pay as something separate from fintech. Fintech, we refer to two things: PRA, Procore Risk Advisors, I think, insurance, and then, working capital, right? So, remember that we started to explore solving the working capital problem in the construction industry via a business we call Materials Finance. We have since wound that down and are exploring other ways to solve the the working capital issue, largely with things like early pay and things like that, but those are very early on. Procore insurance, Procore Risk Advisors is around insurance and around managing risk. It's about using the data that Procore has to make sure that we reduce the risk for our customers. The important thing to keep in mind there is that we are not the underwriters in that case. We are the brokers, and so we do not take any type of risk from that standpoint, but that's also very early on. Specifically for pay, I just wanna make sure it's not hundreds. It's that we were at about 100 customers, as of the end of last quarter, end of Q1. And the two business models that Luv you're referring to is we our assumption, based on what we've seen in the market, is that in the upper end of the market, there's a more of a shared pricing model, meaning there's a subscription fee that the general contractor would pay, but there's also a transaction-based fee that the subcontractor would pay that's based on a per-transaction basis. When you start to get to mid-market and below, the model that largely persists is going to be the single-payer model, which is the GC pays model, where the GC pays a larger proportion of a subscription fee, and that will flow through like subs like subscription. When you think about the relative value and the take rate, you have to, the best way to look at it is as a proportion of, let's say, project management. If a customer is paying us $1 for project management, when you think about the opportunity for pay, it's probably around $0.50 on that dollar. Now, whether it's the shared pay model with GC and SC pay or just the GC pay model, the proportion within that $0.50 might be different, right? So in the shared model, the SC pay portion might be $0.45 out of that $0.50, and the GC pay might be about $0.05 out of that. And so those are the two models. The feedback so far has been extremely positive. Our focus right now is not necessarily on generating revenue as fast as possible. It's one, to sign up as many customers that we think will be successful on the platform, which is gonna be largely customers that are running financials today. And then two is to get them to run as much payment volume through Procore Pay as quickly as possible because that's when we'll start to see the inflection. That's when we'll start to see the revenue start to come in. But the focus right now is really to get payment volume running through Procore Pay. Got it. That's perfect. Wanted to ask you one on the competitive environment. Sure. You know, Autodesk is obviously the competitor, one of the competitors that you run into. Could you talk about how the win rates have been trending in the space, and do you see them fairly often out in the field or not as much? You know, certainly in the enterprise space and in the other upper end of the market, they're likely going to be in that competitive set. In terms of win rates, we actually haven't seen any changes to our win rates at all, actually. The pricing deltas between Procore and Autodesk is not something that's new. It's something that's been there forever. We understand and know how to deal with that situation in a head-to-head instance. At the end of the day, it's about value and price and what the customer is willing to pay for given that value. And the win rates really haven't changed. We it's something that we're used to dealing with. Got it. One of the big things, especially around the TAM, you know, the international opportunity is huge. It's over 50% of the TAM, but, you know, today, you only have 15% of revenue coming from there. So what, what are the key initiatives in place to drive that, and could that be a bigger portion of the revenue, over the next few years? Yeah. So two things. One is it absolutely could be a bigger proportion of the revenue, and that is absolutely what we wanna get it to. And then the second thing is it's 50 greater than 50% of the TAM just in the countries that we are in today, in the markets that we are in today. As we start to enter new markets, that TAM becomes even well above 50% and well higher than the U.S. Some of the initiatives that we're going through right now are some of the transformations that we've mentioned in the past where we ran into, frankly, some operational issues back in 2022 when we saw that large growth. It's really foundational, making sure we get the right teams, the right proportion of investments, the right type of investments for the evolution of the market that we are in. Newer markets might have more brand investments. More developed markets will have more pipeline generation and field capacity to close deals. Nuances of each individual market in terms of how we invest in the different markets depending on the dynamics between the owner, the GC, and the subcontractor, let's say, between a MENA market versus a UKI market, making sure that we take those nuances into consideration as we design our go-to-market motion. In addition to that, we also continue to make product improvements that are specifically tailored to international GCs but would be applicable across the globe. And so we continue to make those enhancements as well, largely related to some regulatory requirements on some of the international markets. So we're excited. We think that there could be a tremendous amount of opportunity there. The management team and myself, we're just, for example, out in the Dublin offices out in EMEA meeting with the team and going deep on the business. There's a tremendous amount of energy out there that we were all really excited to see. And the folks are in a good spot, and they're really excited about the opportunity that they're there to build. Got it. Maybe I'll ask one last one around the framework. You know, you obviously laid out a framework back at Investor Day around growth and profitability. Yeah. What that would look like in different scenarios. Obviously, you know, in this environment, we have the left side of that framework. Yeah. Sort of playing out. But just talk about your thought process in terms of giving margin leverage in the different growth environments. Yeah. A few things. One is remember that that framework, one, is valid for the medium term over the next several years. Two is that that framework is meant to represent a CAGR over multiple years. And we wanna make sure that that's clear, but that leaves us room to make decisions and execute depending on what's going on in the environment. The main thing to realize is that we are going to manage the business prudently based on the demand environment that we see in the short term, and we'll adjust our investment profile to continuously give back operating margin improvements and the magnitude of that improvement that's consistent with where the growth operating the growth numbers are. And we'll continue to do that. Over the next, you know, couple of years, we'll likely need to revamp that or revamp that, that framework depending on what we see. That's why we set a timeframe in terms of the medium term in the next several years depending on what we see. But the intent is that the higher the growth, we'll continue to invest more in the business and give back less margin, but we continue to give back margin. And if we see in the short term that demand environment start to, to continue to be, challenging, we'll give back more margin. Got it. Perfect. That's awesome. Thank you so much, Howard, for joining us, and really appreciate you making the trip out here. Of course. Thanks for having me.