Operator: We now turn to Adam Borg with Stifel.
Adam Borg: Maybe, Tooey, for you. In the script, you talked a lot about the opportunity in infrastructure and civil. Maybe you could go a little bit deeper there. Thanks.
Tooey Courtemanche: Yes. A large portion of the global construction market is infrastructure and civil. And a lot of our customers today, think of the largest contractors that you would know a name of have a certain portion of their construction run as civil and infrastructure. Now a lot of our customers build using Procore’s tools today very effectively on civil and infrastructure projects. But we feel like that we can do more, and so we’ve been listening to the industry trying to figure out what it is that we can do to meet those demands. Our Unearth acquisition, as I mentioned, was a good example of that. When you’re building a highway, you need to know where the items are on that highway. It’s a very large expense. And so adding the mapping capabilities that we got from that acquisition add a lot of value.
So we are going to continue to listen to the industry and allow our customers ultimately to run all of their volume on Procore across every project type that they run and this is just such a big opportunity. It’s one that we’re really, really excited about.
Operator: We now turn to Nick Altmann with Scotiabank.
Nick Altmann: Awesome. Thanks guys. Just given the focus on expansion and improving NRR, can you maybe just talk about some of the underlying assumptions there and the guidance and whether that embeds expansion or contraction in NRR.
Howard Fu: NRR right now, again, I want to remind folks, there’s a lot of dynamics that go into NRR. Remember that we have a dynamic in our pooled models where we could actually sign a lot more cool models that actually hurt NRR, but it’s good for our business. And so in terms of some of those assumptions, it’s not really only key metric that we look at for NRR, there’s a lot of things that go into that. So it’s not as simple as just we’re assuming expansion in NRR. In terms of expansion, some of the dynamics that we talked about in terms of the strength that we saw in expansion in the upmarket, that’s actually what we’re focusing and that’s where we’re starting to shift some of our resources to focus on that. And that’s another example again of us moving our resources to where we see the strength.
So that’s kind of where it’s going. Look. Our guide, I just want to make sure everyone understands that our revenue guide assumes actually that things get worse, but we still have high conviction that we are going to be able to beat that guidance.
Nick Altmann: Okay. Great. And then, second question is just on cRPO and RPO, given the RPO kind of mix picked up. I mean, I would think in a more challenging macro customers may have a little bit less visibility and you’d see the cRPO hold up a little bit better. But maybe customers are seeing elevated backlog in sort of out of years and they’re willing to sign longer duration deals. So can you just kind of talk about cRPO and RPO mix just in context of the macro? And then, any more specifics you can give on the cRPO number ex early renewals?
Howard Fu: Ex early renewals. So the cRPO growth in Q4 at 24%. I’d say the tailwind from early renewals is probably in the 1% to 2% range in terms of that growth rate. And so when you adjust for that, it’s squarely in what we told everyone last quarter in the low 20s, which is what we would expect in terms of the left side of the framework in terms of our revenue growth rate. Outside of that, the mix between short-term and long-term, there’s some dynamics that go into that from a timing of deals and when things happen. So it’s not as simple as just looking at the mix and how that impacts our results.
Operator: Our next question comes from Daniel Jester with BMO Capital Markets.
Daniel Jester: Maybe to touch on the third key focus area for 2024 about financial management and the financial suite. Can you just expand there? Like how much can you control in terms of pushing that, or versus how much of that is just a duration story in which when projects get completed and new projects come online that becomes a natural transition point to implement that.
Tooey Courtemanche: Well, so look, there’s always a good time to implement our financials product. We like to tell our salespeople, so there’s never a bad time to be having those conversations. So I don’t think it really — financials isn’t tied as closely to projects as one would think. Project management, our product there, is very tied to projects, right, because it’s all the way down to the project level. But our buyer when it comes to our financial product suite is not the field personnel. It’s the back office, it’s the CFO. And so it’s a wholly different environment. So yes, I wouldn’t look at it that way and it’s always a good time to buy Procore Financials. And if you’re looking to buy, someone got them to sell to you.
Daniel Jester: Great. Yes. And then maybe just another one on the enterprise and going deeper there. As you think about sort of resourcing there in an environment in which you’re really trying to expand margins, is there anything you’re trying to do differently in terms of the go-to-market to drive that, or maybe expand on, any comments you had there? Thank you.
Tooey Courtemanche: Yes. Can I start with the —
Howard Fu: Yes.
Tooey Courtemanche: I think I would be remiss to not say that having Larry on board is going to be a big help here because he has so much experience there. But ultimately, we’re not shifting very much as to what we’re doing. We have been focused and we have been an enterprise-grade software company for many, many years. And so the motion is not going to change dramatically but we are going to do a lot more of — there just will be more focused internally there.
Howard Fu: Yes. And I’ll jump in, Dan. So there is a capacity piece to this, which is the simplest form in terms of adding capacity to where we expect our business will go and the growth piece there. But I’ll also answer your question in the context of this is another example of how we’re actually improving the way that we’re operating and how we’re getting more efficient by looking at where our distribution of resources are, and moving towards where we see that strength, not just for sales capacity, but also for all the supporting headcount and infrastructure around that capacity as well. So that’s the way that I would say to answer your question.
Operator: We now turn to Dylan Becker with William Blair.
Dylan Becker: I appreciate all the color here within the enterprise cohort and segments. But relative to the overall kind of customer mix here, too, it seems pretty small for those that are kind of spending 100k or a million annually, I guess, how should we think about that kind of runway or that opportunity for customers to continue graduating into these cohorts? I know we’ve got kind of the share of ENR 400 spend. But how should we think about kind of the expansion opportunity within this space relative to either volume or product? And I’m sure it’s a combination of both. Thanks.
Howard Fu: Yes. A couple of things. One, just a reminder, Dylan, that remember, that while the vast majority of our customer count is concentrated down market, the vast majority of our dollars are bookings dollars in ARR comes from mid and up market. So it’s almost a direct opposite in terms of that inverted pyramid. The other way to think about this is one of the things that we disclosed is we’ve got now, Tooey talked about more than 2,000 customers with greater than $100,000 of ARR at a growth clip that’s pretty healthy. So that’s one way to look at how we’re making progress in terms of that enterprise base.
Dylan Becker: Okay. Got it. Helpful. And then, Tooey, maybe for you to stick with kind of the civil opportunity. Is that something that you’re starting to actually see flow-through to spend in backlogs from some of the stimulus initiatives we’ve seen? Or is that kind of still something that remains in the [comm] [ph] and kind of a multiyear growth runway? Thanks.
Tooey Courtemanche: It’s definitely a multiyear growth runway. The folks that I’m talking to are saying that it’s still a lot more talk than dollars but they are gearing up for getting ready for it. And that’s one of the reasons why I remain so optimistic is very few dollars have actually been deployed, and the opportunity is all right ahead of us.
Operator: We now turn to Jason Celino with KeyBanc Capital Markets.
Jason Celino: Great. Thanks for fitting me in. Maybe for Tooey, it looks like one of your competitors recently made a small acquisition in the construction payment space. Obviously, it’s a validation of your strategy here. But how do you feel about your positioning today? And how do you think the competitive environment was going to evolve from here? Thanks.
Tooey Courtemanche: Yes. I always like to think imitation is the sincerest form of flattery, first and foremost. But in all seriousness, I feel as great now as I ever have about our strategy around payments. I want to remind everyone that payments are just that last step in a very long process from doing an estimate all the way through contract management, change orders and invoicing and lean waiver management, to pay. So having a payment tool that just kind of stands alone isn’t all that interesting, I don’t think. But boy, when you put it together on a platform like you have with Procore where everything is connected, there is a tremendous amount of power and horsepower behind that because now all of a sudden, you are managing every dollar that flows all the way through to the final payment into the bank account, which is just that last yard.
Jason Celino: Perfect. Interesting. And then for Howard, the framework for cRPO in the first half of ’24, the variability you mentioned, is that a function of those early renewals is moving into ’23? Or is it an assumption the macro continues to get worse? Or is it purely just the year-over-year comps, curious on kind of the rationale there. Thanks.
Howard Fu: Well, the first thing is, we don’t have cRPO in our financial framework. That’s the first thing I want to make sure. But I think the framework that you’re referring to is my commentary around H1 and H2. And so I think there’s a combination of things that go into that, Jason. One is that the macro environment is continuing on based on what we saw in the back part of last year and that’s going to proliferate and we assume through the full part of this year. The reason for some of the H1 versus H2 dynamic is, one, the focus on enterprise, where those sales cycles are going to be longer. Another factor that would go into that I talked about in the previous answer is the companies and our customers are going to get better at being able to manage their portfolio and their diversification within this environment.
Now as we get to the back part of the year, depending on what happens with things like interest rates, those are going to be inputs into that seasonality but there’s a lot of other factors. Another factor is when we get to the back part of this year, that would be roughly about 1.5 years or 18 to 20 months, which is about the average length of our contract. So a lot of the customers that we saw renewing starting in the beginning of last year are going to come up for renewal again, and there’s an opportunity for that to pick up towards the back part of this year.
Operator: We now turn to Joshua Tilton with Wolfe Research.
Joshua Tilton: I just have a few clarifications. My first one is, I think you kind of quantified the impact from the early renewal to cRPO in Q4. Could you kind of just talk to what drove it? You’re kind of talking to trends. It sounds like things are still challenging, but then you’re talking to early renewals, which I feel like people would be pushing things off in this kind of environment. So what drove the early renewal dynamic in Q4?
Howard Fu: Yes. So look, first thing is the quantification of the early renewals to the cRPO growth, I said is roughly around 1% to 2%. In terms of what drives that, I think a lot of it’s going to be dependent quarter-on-quarter. It’s not necessarily in terms of any specific dynamic that we’re saying, hey, this is stronger and folks are going to start pulling deals in. I want to make a distinction also, Josh, between an early renewal versus pulling a deal and that’s from the future. This is a pure timing thing that has nothing to do with anything that’s related to the macro environment.
Joshua Tilton: Okay. Totally makes sense. And then just as a follow-up, I understand macro relative — or just environment relatively unchanged this quarter from last quarter. But I guess when we look to the outlook that you gave for ’24? Like, what are you baking in from an environment perspective? Does it assume that 12 months from now you’re going to sit here and say environment unchanged from what we saw in Q4, does it assume it gets better, worse? Like how should we think about that?
Howard Fu: Yes. When I talk about the H1, H2 dynamic and the bookings dynamic and the seasonality between H1 and H2, that assumes that the dynamic remains the same, and it still remains challenging. Keep in mind, I’ll say again that the revenue guide assumes things that assumes things get worse. And again, we have very high conviction that will beat the revenue guidance.
