Construction management software maker Procore Technologies (NYSE:PCOR) announced better-than-expected results in Q1 CY2024, with revenue up 26.2% year on year to $269.4 million. The company expects next quarter's revenue to be around $275 million, in line with analysts' estimates. It made a non-GAAP profit of $0.30 per share, improving from its profit of $0.01 per share in the same quarter last year.
Procore Technologies (PCOR) Q1 CY2024 Highlights:
- Revenue: $269.4 million vs analyst estimates of $262.8 million (2.5% beat)
- EPS (non-GAAP): $0.30 vs analyst estimates of $0.16 ($0.14 beat)
- Revenue Guidance for Q2 CY2024 is $275 million at the midpoint, roughly in line with what analysts were expecting
- The company reconfirmed its revenue guidance for the full year of $1.14 billion at the midpoint
- Gross Margin (GAAP): 83%, up from 81.3% in the same quarter last year
- Free Cash Flow of $57.54 million, up 98.5% from the previous quarter
- Customers: 16,598, up from 16,367 in the previous quarter
- Market Capitalization: $10.01 billion
Used to manage the multi-year expansion of the Panama Canal that began in 2007, Procore Technologies (NYSE:PCOR) offers a software-as-service project, finance and quality management platform for the construction industry.
Construction projects tend to be complex, featuring numerous architects, engineers, contractors, and subcontractors as well as stakeholders with different goals and objectives. Construction delays and hiccups make plenty of sense given this. Furthermore, project delays, rework, or safety issues can mean wasted time and money.
Procore's key product is a cloud-based platform that centralizes project workflows by providing tools for project management, scheduling, budgeting, and communication/collaboration. This digitizes what has historically been a very paper-based, disparate approach and also facilitates information flow to keep all parties abreast of responsibilities, progress, bottlenecks, and other issues related to a construction project. The platform can be accessed through desktop or mobile devices, and it integrates with a range of other popular construction software tools.
Procore’s key customers are construction companies, contractors, architects, and engineers. The company generates revenue through a subscription-based model, with pricing based on the number of users and the level of functionality required. The company also offers add-on products and services, such as analytics and training.
Design Software
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Competitors in engineering and design software include Autodesk (NASDAQ:ADSK), Oracle (NYSE:ORCL), and Trimble (NASDAQ:TRMB).Sales Growth
As you can see below, Procore Technologies's revenue growth has been very strong over the last three years, growing from $113.9 million in Q1 2021 to $269.4 million this quarter.
This quarter, Procore Technologies's quarterly revenue was once again up a very solid 26.2% year on year. However, its growth did slow down compared to last quarter as the company's revenue increased by just $9.39 million in Q1 compared to $12.13 million in Q4 CY2023. While we'd like to see revenue increase by a greater amount each quarter, a one-off fluctuation is usually not concerning.
Next quarter's guidance suggests that Procore Technologies is expecting revenue to grow 20.3% year on year to $275 million, slowing down from the 32.7% year-on-year increase it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 18.6% over the next 12 months before the earnings results announcement.
Customer Growth
Procore Technologies reported 16,598 customers at the end of the quarter, an increase of 231 from the previous quarter. , suggesting that the company's customer acquisition momentum is slowing.
Profitability
What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. Procore Technologies's gross profit margin, an important metric measuring how much money there's left after paying for servers, licenses, technical support, and other necessary running expenses, was 83% in Q1.
That means that for every $1 in revenue the company had $0.83 left to spend on developing new products, sales and marketing, and general administrative overhead. Significantly up from the last quarter, Procore Technologies's excellent gross margin allows it to fund large investments in product and sales during periods of rapid growth and achieve profitability when reaching maturity.
Cash Is King
If you've followed StockStory for a while, you know that we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills. Procore Technologies's free cash flow came in at $57.54 million in Q1, up 200% year on year.
Procore Technologies has generated $85.4 million in free cash flow over the last 12 months, or 8.5% of revenue. This FCF margin enables it to reinvest in its business without depending on the capital markets.
Key Takeaways from Procore Technologies's Q1 Results
It was good to see Procore Technologies beat analysts' revenue and EPSÂ expectations this quarter. On the other hand, its billings unfortunately missed analysts' expectations and its customer growth decelerated. Overall, this was a mediocre quarter for Procore Technologies. The company is down 3.3% on the results and currently trades at $66 per share.
Is Now The Time?
Procore Technologies may have had a bad quarter, but investors should also consider its valuation and business qualities when assessing the investment opportunity.
There are several reasons why we think Procore Technologies is a great business. While we'd expect growth rates to moderate from here, its revenue growth has been impressive over the last three years. Additionally, its impressive gross margins indicate excellent business economics, and its customers are increasing their spending quite quickly, suggesting they love the product.
The market is certainly expecting long-term growth from Procore Technologies given its price-to-sales ratio based on the next 12 months is 8.3x. But looking at the tech landscape today, Procore Technologies's qualities stand out, and we think that the multiple is justified. We still like the stock at this price.
Wall Street analysts covering the company had a one-year price target of $86.91 right before these results (compared to the current share price of $66), implying they see short-term upside potential in Procore Technologies.
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