Procore Technologies, Inc. (NYSE:PCOR) Q4 2023 Earnings Call Transcript

Procore Technologies, Inc. (NYSE:PCOR) Q4 2023 Earnings Call Transcript February 15, 2024

Procore Technologies, Inc. beats earnings expectations. Reported EPS is $0.17, expectations were $0.07. Procore Technologies, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Hello, and welcome to the Procore Technologies, Inc., Full Year ’23 Q4 Earnings Call. My name is Elliotte, and I will be coordinating your call today. [Operator Instructions] I’d now like to hand over to Matthew Puljiz, the floor is yours. Please go ahead.

Matthew Puljiz: Thanks. Good afternoon, and welcome to Procore’s 2023 fourth quarter 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, February 15, 2024. 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.

So with that, here’s Tooey.

Tooey Courtemanche: Thanks, Matt, and thanks, everyone, for joining us today. We ended the year about as we expected with some bright spots and learnings amid a tough economic environment. Some notable highlights were that we surpassed $1 billion in total ARR, we generated $29 million in free cash flow, and we believe 2024 will be another strong year for cash flow generation. Our net retention rate remained durable at 114%, and we ended the year with over 2,000 customers contributing greater than $100,000 in ARR. So today, I’d like to reflect back on 2023 and share some interesting customer stories and discuss how I’m thinking about the year ahead. So I’d like to start by acknowledging that 2023 proved to be a challenging year amid a tough economic environment.

Much of the commentary we shared on our last earnings call is still relevant to what we’re seeing today. 2022 and 2023 were very different years for our industry. In 2022, our customers demonstrated optimism in their sentiment and their buying behavior. This optimism largely stemmed from the strength of our customers’ backlogs and their confidence in the future pipeline of work, however, 2023 brought a notable shift. While backlogs remain strong, sentiment shifted partially due to rapidly rising interest rates and the industry began to hedge against future work just in case. Sentiment drove conservatism for the future and led the industry to be cautious about future volume commitments should future demand weigh in. As we all recognize, construction and our economy are cyclical.

I’ve been leading Procore for 22 years and worked in construction well before that, so I’ve seen a few of these cycles myself. And while I’d like to acknowledge that 2023 was disappointing when compared to 2022. I also firmly believe that every tough period reveals opportunities and strengths. Times like these give us a chance to look inward and determine what’s working and what can be improved. We’ve done that important work and I’m confident that the path we’ve laid will set us up for success when the inevitable upswing comes. So I’d like to share 5 bright spots across our customer sentiment and our business operations that continue to fuel my optimism and confidence in the years ahead. First, the conversations we regularly have with customers across all stakeholders and geographies remain largely positive.

Many of our customers have been around for a long time and have also seen multiple economic cycles. They tell me that they too are using this as an opportunity to do the necessary planning to ensure that they’re ready to capture the inevitable upswing. As I’ve shared many times before, their primary concern is not just demand but also finding the skilled labor to meet this demand. As you’ve heard me say, construction is a low margin, high-risk business, and our customers are always searching for efficiency and predictability. But in times like these, our customers continue to tell me that the efficiencies and predictability Procore delivers are paramount. This is best reflected in our gross revenue retention rate, which remains steady throughout this past year and years prior.

Even in downturns, our customers see the value we provide and continue to rely on the Procore platform to run their businesses, which brings me to my second bright spot. Not only do our customers stay with us, they continue to expand with us. Expansion from the upmarket has historically been a strength of ours and continue to be this quarter. Today, about half of our total ARR comes from the enterprise and historically, much of that comes from expansion. We continue to have incredible room for growth here and expect this to be a bigger contributor in the near term, and I’m going to share more on this shortly. Third, the cyclical nature of construction in the economy gives us an important opportunity to revisit our long-range plans and road maps.

We reflected on our go-to-market and our product strategy and how effective they may be in both up and down cycles. We’ve reexamined our product road map to ensure it aligns with where we believe the industry is headed. This exercise reinforced that we are on the right track and that we are indeed skating to where the puck is going. A great example of which is the upcoming boom in infrastructure spending. I am more confident than ever that we will continue our leadership position in serving this industry and its evolving needs. The fourth bright spot that I’m very happy to share is that Procore was ranked number 5 on Glassdoor’s Best Places to Work list for U.S. large companies and that’s up from 61 in 2022. It doesn’t feel all that long ago that I started this business and one of the many early challenges we faced was attracting talent to build software for an underserved industry.

From the beginning, we committed to fostering and prioritizing our culture, and I could not be more proud that we’ve grown into being an employer of choice, attracting high-caliber team members from across industries and geographies. Finally, we delivered significant efficiency improvements in 2023. In past quarters, you’ve heard me say that efficient growth has become a company-wide mantra at Procore. We deeply emphasized this when we began planning for 2023. And as the year progressed, we continued to identify areas for incremental improvement from only adding additional employees when necessary to consolidating vendor spend to obtain better discounting. I’m proud of the team for demonstrating this discipline as it provides us with the fuel that we need to continue to invest in the most important opportunities ahead.

I’m especially proud of this in the context of the other bright spots that I shared previously. The efficiency improvements we delivered did not come at the cost of our employee experience nor our ability to build lasting customer relationships. I believe that building a fantastic business, fostering strong customer relationships and treating employees well are not mutually exclusive. Speaking of customer relationships, I’d like to share a few recent examples. Performance Contracting, Inc., is one of the largest specialty contractors in the U.S. For more than 6 decades, PCI has delivered top-tier construction services across the country, performing work on large projects, including data centers, life sciences and semiconductor clean rooms, traditional and clean energy plans, stadiums, multifamily residential and more.

In years past, PCI leveraged our workforce planning solution as well as a number of competitive and custom in-house technologies to execute their projects. They decided to significantly expand their usage of Procore, adopting several products and making Procore their primary construction management platform. After in-depth research of available technology solutions, PCI chose Procore because our dedication to specialty contractors and our superior customer success organization, which is critical for successful change management at scale. With Procore, Performance Contracting is now able to standardize and streamline operations across all of their branches. I’m personally looking forward to building upon the close relationship I have with Pat, Jason and the rest of the PCI team in the years to come.

Now not only are we continuing to expand with existing customers, but we’re also adding notable new customers. Penske Transportation Solutions, which became a Procore customer in Q4, is a leading transportation and logistics service provider with a North American footprint of approximately 1,500 truck leasing and maintenance facilities as well as distribution centers. They recognize that they needed a robust system to support their continuing growth over the coming years. Penske wanted to find a best-in-class construction management solution that would help them across all project verticals, including renovations to existing facilities, new facilities construction, electrical vehicle supply equipment infrastructure and other capital improvement projects across this portfolio.

I am happy to share that Penske chose to partner with Procore over several others to help scale and consolidate processes into a single platform and improve their project management operations and project financial controls over the long term. In addition to owners and specialty contractors, we continue to deepen our close relationships with leading general contractors. Burns and McDonnell, which ranks number 31 on ENR’s Top 400 Contractors list recently expanded significantly with us and we’ll be rolling Procore out across more of its business. The team is looking for a solution that was modern, easy-to-use, quick to implement, enable collaboration and help them deliver better project outcomes across a number of sectors, including power generation, manufacturing and industrial, government, transportation, water, oil, gas and chemicals, commercial and retail, telecommunications and more.

Today, Procore will serve as Burns and McDonnell’s standard construction management platform for these projects. This is just one of the incredible partnerships we continue to build with the ENR 400, and is a great example of the massive opportunity we see with this group, which I’m going to talk about shortly. So now I’d like to shift gears and discuss how we’re thinking about the year ahead. Internally, I’d like to describe 2024 as a year of focusing on our core, which means doubling down on our strengths while investing in related areas, which could further bolster our core offerings. Within the platform, we’re going to focus on 3 areas. First, cementing ourselves as the solution the industry utilizes for civil and infrastructure work. Today, many Procore customers build airports, municipal facilities, both traditional and clean energy plants and much more.

However, I know we can do more to tailor our platform to meet the needs for civil and infrastructure. Late last year, we acquired Unearth, a leader in geospatial information mapping for construction. This acquisition, while small, will allow us to better support all types of construction, but in particular, horizontal infrastructure projects. That integration is going well, and we are excited about what’s to come. Second, is increasing the adoption of our financial suite. Today, less than half of our customers use project financials and invoice management. This means there is ample opportunity within these offerings before we even take payments into consideration. Speaking of which, we are excited about payments and the early feedback has been very positive.

It’s important to note that we are the only solution in the market that connect estimating to contracts to compliance documents to invoices to payment workflows, all on a single platform. Third is improving the flexibility of our product to meet the needs of all of construction, and specifically to facilitate easier adoption and configuration for the enterprise. Procore excels at solving the discrete needs of a vast range of individuals from those running billion-dollar CapEx projects, to folks with mud on their boots, entering timecards in the field. The biggest difference between an enterprise and SMB customer is how much the former values and requires the ability to heavily configure Procore to meet their needs. No two enterprise clients perform the same task the same way.

We believe we can improve this configurability and become more effective for the enterprise and all customers, which should further improve expansion and retention metrics down the road. So I’d like to share a couple of priorities within our go-to-market motion. First, we see more opportunities to grow our base via expansion. So I’d like to share some color on why I think some may underestimate the opportunity given our strong market presence today. While some entities are running their entire portfolio on Procore, it’s important to remember that others are using Procore on a portion of their total volume. I’d like to provide an example of this and use the ENR 400 opportunity to do so. The ENR 400 represents the largest 400 general contractors in the United States and reported approximately $500 billion in annual construction volume in 2022.

While Procore has approximately 70% of this group’s logos, we have just over 40% of the $500 billion committed to Procore. This disparity given these figures is in part due to our land-and-expand motion. Some customers are still ramping into their annual volume and others operate independent divisions whose business we have yet to win. Plus our average ENR 400 customer uses about 5 of our products. This is slightly more than the average product adoption across our entire customer base but is still well short of the 10-plus products available to the market today. Keep in mind, the enterprise category in construction is very broad. And this list only represents the largest, most global and technologically sophisticated group within the enterprise, and represents only about 1/4 of the U.S. construction industry.

If we still have this much room to grow within this tech forward group, I hope it’s becoming clear just how much opportunity there is outside of it. On top of that, the ENR 400 does not account for the broader opportunity across other stakeholders and customer sizes. All sorts of owners in the market today are not represented in this list, including the Fortune 500, universities, hospitals, real estate developers and more. There’s also a broader specialty contractor landscape of all sizes, geographies and trades. Taking all of this into account, we see plenty of opportunity to grow and serve this industry. These are the kind of details that motivate me and keep me so optimistic about Procore in the coming years. We believe we are in a winner takes most market category.

And these are a few great examples of just some of our growth opportunities ahead. The second go-to-market-related update I’d like to share is the addition of our Chief Revenue Officer, Larry Stack. Larry comes to us with a wealth of revenue leadership experience, most recently having spent 6 years heading up global sales and services at Red Hat. During that time, Larry helped lead the company to impressive size and scale, a similar opportunity Procore finds itself in today. In the past, you’ve heard me mention that I always have an eye out for new leaders who may be a good fit for our growth journey. In particular, I’m focused on talent that has previously achieved what Procore hopes to in the future. I believe Larry has this experience and can be instrumental in growing us to a multibillion-dollar revenue company.

So in closing, while 2023 wasn’t the growth year I’d hoped it would be, I am proud of our efficiency improvements, our culture and our brand within this industry we serve and I remain confident in the opportunity ahead. And now Howard is going to share more on our business performance. Howard?

Howard Fu: Thanks, Tooey, and thank you to everyone for joining us today. Today, I’ll recap our Q4 results, share some color on the quarter and year and conclude with our outlook. So let’s jump in. Total revenue in Q4 was $260 million, up 29% year-over-year, and international revenue grew 32% year-over-year. Similar to prior quarters, our Q4 international results were impacted by currency headwinds. On a year-over-year basis, FX contributed approximately 3 points of headwind to international revenue growth. Therefore, on a constant currency basis, international revenue grew 35% year-over-year. Q4 non-GAAP operating income was $17 million representing an operating margin of 7%. Our key backlog metrics, specifically current RPO and current deferred revenue grew 24% and 27% year-over-year, respectively.

Before we dive into specifics, I want to call out that in general, our business performance in Q4 and as of today is similar to what we described back in November and December. The demand environment remains challenging, but we continue to have confidence we will operate within the left side of our financial framework. Now let me share some color on 5 specific topics. The first topic is related to the mechanics of cRPO. This metric slightly benefited from the timing of early renewals. Without this benefit, cRPO growth is in line with the low 20s revenue growth within the left side of our financial framework that we indicated on our last earnings call. The second topic is related to the mix of our business. The fourth quarter was emblematic of a trend we saw throughout 2023, which is that expansion performed better than new logo.

This can be seen in a couple of areas. One, in customer count growth, which decelerated slightly, and two, in net revenue retention, which remains stable. In general, we expect these trends to continue through 2024. We are seeing strength in the upper end of the market, and typically, this has come from customers expanding their volumes and adding products. Product cross-sell which we define as expansion that comes from new product adoption rose in the fourth quarter with the majority from higher adoption of products such as financials and analytics. This is a positive dynamic and one we are excited about continuing to improve in the years ahead. The third topic is payments. As I mentioned to many of you in our conversations last year, we are excited and confident about this opportunity.

We believe we have a unique advantage because we are the only end-to-end connected solution on a single platform. The early customer feedback has been positive, and we have already closed the majority of customers that were in our closed beta. As a reminder, it can take upwards of 24 months for our customer to be fully ramped on to pay. Therefore, while it’s still too early to provide any quantitative disclosures, in the near term, we are focused on customer adoption. And over the long term, we expect our payments offering will contribute to our overall growth. The fourth topic is related to our efficiency improvements, specifically how we are managing margins and share count dilution. We improved non-GAAP operating margins by 1,200 basis points in 2023.

This is strong evidence of our continued focus and commitment to improving how we operate across all aspects of the business. The momentum around operational efficiency has increased significantly over the last several quarters. And this is not just a CFO initiative, our entire leadership team advocates for operational efficiency, motivating their teams to continuously get better at what they do. I’m very pleased with the way that the leadership team is managing headcount, which in every software business represents the majority of expenses. We’ve been redistributing resources to our highest need and highest ROI areas. This resulted in headcount growth of only 4% year-over-year while still maintaining our confidence that we have the right amount of resources to be successful in 2024.

An example of this is in the decline of sales and marketing expense from Q2 to Q4, notwithstanding our annual user conference Groundbreak in Q3. The majority of these efficiency gains are from prioritizing headcount and marketing spend toward our most promising motions and opportunities. These motions are ones we believe can generate the most optimized ROI balanced across the near- and long-term and that represent the core of our business. With respect to share count, we limited this growth rate in 2023 to the low single digits. This result combined with free cash flow generation of $47 million led to free cash flow per share of $0.32 for the full year 2023, which is a significant increase year-over-year. As you’ve heard from us before, we believe free cash flow per share is the single most important metric, reflecting the overall financial health of our business, and are confident in our ability to improve this metric in the coming years according to our financial framework.

This brings me to my fifth topic, which is our 2024 outlook. As I described last quarter, we expect to operate within the left side of the financial framework this year. Let me share some context for what we expect in 2024. Based on our current line of sight, we believe the second half of 2024 may have stronger bookings performance than the first half, partially due to our increasing focus on the upper end of the market, which typically have longer sales cycles. This will likely result in cRPO growth falling below 20% earlier in the year and then likely rising towards the end of the year. With respect to operating efficiency, our guidance indicates that we expect 2024 to be another year of significant margin improvement. This would represent 2 years of outsized margin expansion according to our financial framework.

Specifically, our guidance implies a combined 1,800 basis points of improvement across 2023 and 2024. While we are proud of our margin expansion in 2023 and feel confident in our guidance, we do not expect 2025 to have nearly the same magnitude of margin expansion given our long-term growth opportunities and the investments required to capture those opportunities. With that, let’s move on to our outlook. Our guidance continues to assume current economic headwinds persist through the remainder of the year. As a reminder, over the past several quarters, we have taken a prudent approach to guidance to factor in external uncertainty and potential for incremental weakness in the market. However, going forward, given our previously disclosed financial framework and commentary, we intend to have smaller revenue outperformance versus our guidance than in prior quarters and for the full year, though we still have strong conviction we will outperform our guidance.

Note that while our margin guidance implies significant improvements to our efficiency profile, it still allows for the flexibility to invest into a potential upswing in the construction cycle that would benefit growth in future years. Growth is still our primary objective and will still be a significant driver of how we compound free cash flow per share over the next few years. With that, here is our guidance for Q1 and full year 2024. For the first quarter of 2024, we expect revenue between $262 million and $264 million, representing year-over-year growth of 23% and 24%. Q1 non-GAAP operating margin is expected to be between 7% and 8%. For the full year fiscal 2024, we expect revenue between $1.137 billion and $1.142 billion, representing total year-over-year growth of 20%.

Non-GAAP operating margin for the year is expected to be between 7% and 8%, which implies year-over-year margin expansion between 500 and 600 basis points. In conclusion, while we operate in the current demand environment, we are going to accelerate our progress on operational efficiency and make greater improvements in our margin profile. However, growth remains our long-term opportunity, and we intend to prioritize growth when appropriate and do so in an efficient manner. I’d like to close by again 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.

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Q&A Session

Operator: [Operator Instructions] First question today comes from Brent Bracelin with Piper Sandler.

Brent Bracelin: Tooey, one for you here. It sounds like you’re doubling down ENR 400, appreciate the color there between logo and actually volume penetration. Question here is, as you think about that opportunity and the focus on some of these larger GCs, we are seeing a slowdown in the total number of maybe smaller customers that we had in Q4. And just thinking through the implications of the focus on larger GCs, what does that mean from a customer count add perspective going into next year?

Tooey Courtemanche: Well, Brent, thank you. Great question. Something that we get asked a lot. We do not over-index on the customer count as we mentioned before, I think in previous quarters primarily because the SMB market has been probably overly impacted by the macro headwinds more than any other sector, and so our focus has been that market. But as you see, we’ve actually done very well with expansion with the enterprise. They’re bringing on more volume and buying more products. So the implications are, is that, that segment of the industry is performing well. And therefore, we’re going to continue our focus on it going forward.

Howard Fu: Brent, this is Howard. I just want to add on what we Tooey said about the customer count, remember that a large proportion of that is concentrated down market. I’d also want to point you to, though, the fact that we actually have really good gross retention rates. We still have gross retentions at 95%, so customers aren’t leaving us and also point you to the metric around net retention, net revenue retention, which is still stable at 114%.

Brent Bracelin: Helpful color there. And then one quick follow-up for you, Howard. cRPO had a nice snapback here during Q4, clearly aided by some of these deals that slipped out of Q3, but you’re still guiding to some cRPO volatility in the first half, how much volatility have you seen 45 days here into Q1? Is that informing the cRPO guide? Just trying to understand what you’ve seen so far in the booking side of the business, 45 days in.

Howard Fu: Yes, good question. So not really. It hasn’t really changed at all in terms of what we told you in Q4 and what was occurring. So the dynamics are still remaining pretty much the same and we’re still facing that challenging demand environment. The one thing that I will add in there is that when we talked about in terms of the potential beta of outcomes that was historically larger that beta has started to stabilize and then get a little bit less. And so that’s some of the dynamics that we are seeing. But nothing has really changed from Q4 into Q1.

Operator: We now turn to Saket Kalia with Barclays.

Saket Kalia: Tooey, maybe I’ll start with you. You mentioned earlier in the call, you’ve seen a couple of construction cycles in the past. And we all see the construction metrics out there. I guess one of the questions that I get is, whether Procore’s bookings are going to see a lagging impact or more of a real-time impact if and when we see that market upswing to your point. And so maybe the question is for you, Tooey, as you look back at prior cycles with Procore, what have you seen in terms of that timing element? Does that make sense?

Tooey Courtemanche: Yes. No, it does make sense, Saket. The advantage Procore has is that our pricing model has our customers paying us upfront for volume, as you know. And so it’s neither a lagging indicator, or a current indicator, it’s actually more of a forward indicator because people are committing to future volume. And so if you’re looking at just other data sources like census data, for instance, for 2023, what you’re going to see is actually volume commitments that we actually saw in 2021 and 2022. And I hope that makes sense because that really indicates that we’re much more of a forward-looking metric.

Saket Kalia: Got it. Got it. That does make sense. Howard, maybe for you, great to see the margin improvement. I guess the question is, could you maybe touch on some of the growth areas that we’ve talked about in the past, like international and fintech. And maybe give us a sense for whether you’re still able to invest in those future growth drivers while also showing this great margin improvement.

Howard Fu: Yes, sure. Thanks for the question. So the short answer is yes. Our margin guide has enough flexibility really for us to continue to make investments as we see areas of strength to develop. And so we have plenty of room in that flexibility overall. So the short answer is yes. Specifically on international, we still continue to make progress on international. We still believe that it is a big opportunity for us going forward over the medium and long-term. And we are starting to see some signs of strength in Q4 coming out of the EMEA region. And so, we are starting to see some signs there. And there’s still a lot of work left to be done, but we are starting to see signs there. Specifically with respect to fintech, I just want to make sure I reiterate again that has essentially negligible contribution to our top-line this year.

But we still have opportunities to invest there as we think about the growth opportunities over the long term and we have the flexibility to do that within our current profile and still continue to improve margins.

Operator: Our next question comes from Ken Wong with Oppenheimer.

Ken Wong: Great. Fantastic. I wanted to maybe dive into the comment around the margin expansion in fiscal ’25. I realize that’s pretty far out, but you guys did kind of float it out there. I guess if I was kind of thinking through the framework, you guys are at 500 basis points of expansion now. So if you’ll get less that kind of puts you in that middle tier. I guess would it be fair to assume that kind of baked in those ’25 assumptions with like the back half bookings improving that you guys are expecting an acceleration in ’25?

Howard Fu: So the first thing is, it’s a little bit early to provide any specifics on fiscal ’25. We’ve got a lot to get through this year in terms of how performance plays out and how we can react to that in terms of our investments and what we see for fiscal ’25. And for ’25, the framework still applies across the board, both from the top line to the profitability metrics. But keep in mind that, that framework is across a multiyear average over the next few years. And so that was the intent of that comment. The framework is still valid but it’s a multiyear average. And keep in mind also that we have the flexibility to continue to invest in growth as we see things materialize for this year.

Ken Wong: Got it. Okay. Perfect. And then, one for Tooey. I mean you mentioned that kind of given the backdrop that, perhaps, some of your customers are being a little cautious on construction dollar volume. I guess kind of based on what you guys have seen in Q4, Q1, I guess is it more likely that as we kind of wrap up the year that those numbers likely kind of play out more favorably than perhaps what’s being messaged to you guys now. I’m not sure if you’ve got enough visibility today to kind of give us a sense on how that might look.

Tooey Courtemanche: Well, I can give you my personal sense from the industry folks that I talk to, which is it’s pretty much a continuation of what we had said last quarter. Sentiment is still muted. The folks are seeing that there are challenges obviously out there. I will say this, though, that just like last quarter, conversations still remain rather optimistic about the future, but I would say, just to be really straightforward. No real change from last quarter. When they talk about the year to come, they still are waiting for more positive signals to come in. So essentially, it’s been pretty flat and muted.

Operator: We now turn to DJ Hynes with Canaccord Genuity.

DJ Hynes: So maybe if we can just build on that last conversation point. So if I think about your comments on the bookings environment, the slowdown implied in the guide. And I’m not sure if this is the right way to ask it, but how much is being driven by longer sales cycles impacting new business activity, which to me, kind of reflects like real-time or acute headwinds versus the lower upfront volume commitments, which, I guess, in that case, kind of feel more like speculative headwinds. Does that make sense, is that a fair way to ask the question?

Tooey Courtemanche: I think it’s a fair way to ask it. I would definitely say that the longer sales cycles are definitely playing into the headwinds that we’re seeing. As we mentioned last quarter, the commitments that are being made are now going all the way up to the C-suite in a lot of cases, which is slowing down deals. But Howard, do you want to add anything?

Howard Fu: Hey, DJ. Part of the comments around kind of the seasonality between H1 and H2, there’s a number of factors and long sales cycles is definitely part of those. But part of those long sales cycles is also where our focus is going and where we’re seeing our strength in terms of expansion and focusing on the upmarket. That’s one factor. The other factor that we’re thinking about in terms of the dynamics between H1 and H2, DJ, is really around as our customers are able to further diversify the portfolio and get more acclimated to operating in this environment, there’s a potential that they could likely get stronger sentiment and flow through to their buying behavior for Procore in the back half of the year. So all of those factors factor into kind of what we’re thinking about in terms of how things progress for this year.

Tooey Courtemanche: Yes. DJ, let me just build on that just really quickly, which is the key word there is sentiment, right? Our customers are going to look at a lot of factors when they make commitments to Procore regardless of how long the sales cycle is. And a lot of it is going to be the durability of their backlog, how confident they are in it, but also just all of the third-party inputs that they get that drive sentiment. One of the common question comes around interest rates. Not all construction projects are driven off of debt, but that is one input on sentiment. There’s a lot of input. So it’s rather complicated but because sentiment plays into it, when you see improvements in sentiment, we think we’re going to see improvements in commitments.

DJ Hynes: Yes. Okay. Makes sense. And then maybe a second question. So one of the initiatives you talked about in the prepared remarks is driving configurability at the high end of the market. Is that entirely enabled by product? Is there a services component there? And then I guess the question is like how do you think about ushering those customers along with maybe a higher touch approach?

Tooey Courtemanche: Yes. So as we’ve gone up market, and we’ve been successful there. Configurability, you can’t just deliver configurability in product, you actually have to bring the customer along in the journey. And so our customer success group is trained in that. But also, we have a very, very robust professional services organization who has adapted understanding how the construction life cycle is operating within particular companies and getting them up to speed on the best practices, frankly, that we’ve learned across working with 17,000 customers. And so we can bring a lot of value through this configurability that goes far beyond just the product.

Howard Fu: Yes. Just to add on, DJ, that’s a great example, some of the distribution of optimizing our resources that we’ve mentioned and we’ve been doing over the past few quarters, which in this case is to align. For example, our PS organization and the requirements of that organization that line up to some of the strength that we’re seeing and the configurability to going towards the upper end of the market. So this is a great example of that.