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Procore Technologies's (NYSE:PCOR) Q4: Beats On Revenue, Stock Soars


Full Report / February 15, 2024

Construction management software maker Procore Technologies (NYSE:PCOR) reported Q4 FY2023 results topping analysts' expectations, with revenue up 28.7% year on year to $260 million. Guidance for next quarter's revenue was also optimistic at $263 million at the midpoint, 2.2% above analysts' estimates. It made a non-GAAP profit of $0.17 per share, improving from its loss of $0.08 per share in the same quarter last year.

Procore Technologies (PCOR) Q4 FY2023 Highlights:

  • Revenue: $260 million vs analyst estimates of $248.3 million (4.7% beat)
  • EPS (non-GAAP): $0.17 vs analyst estimates of $0.07 ($0.10 beat)
  • Revenue Guidance for Q1 2024 is $263 million at the midpoint, above analyst estimates of $257.4 million (operating margin guidance for this period also beat expectations)
  • Management's revenue guidance for the upcoming financial year 2024 is $1.14 billion at the midpoint, beating analyst estimates by 1.3% and implying 19.9% growth (vs 32.1% in FY2023) (operating margin guidance for this period also beat expectations)
  • Free Cash Flow of $28.99 million, up 29.1% from the previous quarter
  • Customers: 16,367, up from 16,067 in the previous quarter (miss vs. expectations of 16,418)
  • Gross Margin (GAAP): 81.6%, up from 80% in the same quarter last year
  • Market Capitalization: $10.55 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

The demand for rich, interactive 2D, 3D, VR and AR experiences is growing, and while the ubiquitous metaverse might still be more of a buzzword than a real thing, what is real is the demand for the tools to create these experiences, whether they are games, 3D tours or interactive movies.

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 two years, growing from $146.1 million in Q4 FY2021 to $260 million this quarter.

Procore Technologies Total Revenue

This quarter, Procore Technologies's quarterly revenue was once again up a very solid 28.7% year on year. However, its growth did slow down compared to last quarter as the company's revenue increased by just $12.13 million in Q4 compared to $19.37 million in Q3 2023. 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 23.2% year on year to $263 million, slowing down from the 33.9% year-on-year increase it recorded in the same quarter last year. For the upcoming financial year, management expects revenue to be $1.14 billion at the midpoint, growing 19.9% year on year compared to the 31.9% increase in FY2023.

Customer Growth

Procore Technologies reported 16,367 customers at the end of the quarter, an increase of 300 from the previous quarter. That's a little slower customer growth than what we've observed in past quarters, suggesting that the company's customer acquisition momentum is slowing.

Procore Technologies Customers

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 81.6% in Q4.

Procore Technologies Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.82 left to spend on developing new products, sales and marketing, and general administrative overhead. 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. It's also comforting to see its gross margin remain stable, indicating that Procore Technologies is controlling its costs and not under pressure from its competitors to lower prices.

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 $28.99 million in Q4, up 147% year on year.

Procore Technologies Free Cash Flow

Procore Technologies has burned through $47.01 million of cash over the last 12 months, resulting in a negative 4.9% free cash flow margin. This below-average FCF margin stems from Procore Technologies's poor unit economics or a continuous need to reinvest in its business to penetrate the market.

Key Takeaways from Procore Technologies's Q4 Results

This was a solid quarter. Revenue, profit, and EPS beat. Guidance for revenue and operating margin were ahead for next quarter and the full year as well. The stock is up 6.4% after reporting and currently trades at $79.32 per share.

Is Now The Time?

When considering an investment in Procore Technologies, investors should take into account its valuation and business qualities as well as what's happened in the latest quarter.

There are several reasons why we think Procore Technologies is a great business. While we'd expect growth rates to moderate from here, its . Additionally, its impressive gross margins indicate excellent business economics, and its very efficient customer acquisition hints at the potential for strong profitability.

The market is certainly expecting long-term growth from Procore Technologies given its price-to-sales ratio based on the next 12 months is 9.6x. And looking at the tech landscape today, Procore Technologies's qualities stand out, we think that the multiple is justified and we still like it at this price.

Wall Street analysts covering the company had a one-year price target of $76.07 per share right before these results (compared to the current share price of $79.32).

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