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[Abrupt Start] I will be your moderator today. [Operator Instructions] I would now like to pass the conference over to our host, Matthew Puljiz with Procore. Please proceed.

Thanks. Good afternoon and welcome to Procore’s 2023 third quarter earnings call. I am 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, November 1, 2023. 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 will 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. And with that, let me hand it to Tooey.

Thanks, Matt and thank you everyone for joining us today. This quarter, we continue to expand the depth and breadth of our platform as well as make great progress on our efficient growth journey. While Q3 proved to be a challenging quarter amidst an increasingly difficult demand environment, I’d like to start by sharing a few highlights in the quarter. In Q3, we grew revenue 33% year-over-year and surpassed 16,000 customers by the end of the quarter. We made improvements on our efficiency profile, returning to non-GAAP operating profitability this quarter and our partnership in the industry continues to be recognized. We are ranked number four on the Software Report’s top 100 software companies in 2023, our highest ranking to-date. We are awarded the TrustRadius 2023 Tech Cares award for the third year in a row. And we received the Stevie award for most innovative tech company in the year in the 2023 Annual International Business Awards. These results reflect our continued focus on innovation, delivering technology that transforms the way people build and our partnership with the construction industry. In September, we hosted our annual user conference, Groundbreak, where we showed a number of exciting product announcements and I want to highlight a few now. Starting with Procore Connectability, we are introducing platform-level functionality beginning with drawings, which is commonly known as blueprints. All project stakeholders will be able to collaborate on a project and share data with one another, all while staying within their own accounts. This means that when the general contractor updates the drawings, those updates will automatically be pushed to the specialty contractors’ account. Procor Connectability is a major milestone in our efforts to deepen the connection across all people, workflows and data on our platform. It reduces elevated entry, thereby driving further efficiencies and is only made possible through our connected platform strategy. But the real benefit of better connecting everyone’s construction is that the data generated on our platform becomes even more powerful. Data that can power generative AI technologies to help our customers, not just resolve issues, but to anticipate them. Last quarter, I shared some of our existing AI and machine learning capabilities and why we are well-positioned to further leverage this technology. Now with the introduction of Procore Copilot, we will be bringing a truly conversational and predictive experience to the Procore platform. Procore Copilot essentially serves as an extension of the project team, automating time-consuming processes, surfacing information in real-time and suggesting next best actions. Construction professionals spend an estimated 35% of their time looking for project data, resolving conflicts, we are dealing with mistakes and rework. Innovations like Procore Copilot can greatly reduce these inefficiencies and free up time for more protective activities potentially returning many hours per person per week to the industry. At Groundbreak, we also announced the launch of Procore Pay, which tackles one of the biggest pain points in construction, getting paid. As we have talked about in the past, the real challenges stem not necessarily from the moving of money but from all of the complicated upstream workflows and processes that must come first. All of these processes exist in the Procore platform today. The beauty of Procore Pay is it essentially automates the last mile of the payments workflow. We now seamlessly facilitate the payments and lean labor process between general contractors and specialty contractors, thereby minimizing complicated paperwork and ultimately giving our customers full transparency into their entire payments flow. Additionally, we recently announced our acquisition of Unearth, a leader in geospatial information mapping for construction. This is a small tuck-in acquisition that’s going to allow us to better support all types of construction on our platform, but in particular, civil and infrastructure projects that are horizontal in nature. These horizontal infrastructure projects can be vast. So think of a highway that stretches many miles or an airport that covers a wide expanse of lands. These projects often lack easily identifiable reference points, which could make them incredibly challenging to manage. Every minute spent determining the location of materials, equipment and teams can increase the risk of delays and negatively impact the project’s budget and performance. The importance of location intelligence on these massive budgets cannot be overstated. Simply put, the Unearth acquisition allows us to put construction automate, adding a new dimension to Procore data in the context of geo locations. With Groundbreak, I love getting to share some of the latest innovations Procore is bringing to the construction industry. But for me, what’s most valuable is getting to connect with so many customers and industry leaders from around the globe. Overall, it is clear that Procore’s vision is resonating. Our connected platform is driving value for our customers, especially as they seek ways to find efficiencies and maximize productivity in a dynamic environment. The majority of my conversations with Groundbreak have been positive, yet I recognize that these groundbreakers represent a small sample size, which is typically the industry’s most tech forward and productive businesses. On a broader scale, it is clear that the demand environment has become incrementally more challenging. The construction industry reserve while massive and scale and highly diversified is not immune to broader economic conditions. We have continued to see heightened cautiousness from customers in response to external uncertainty around a potential downturn, which has translated to increased scrutiny and purchasing decisions. However, we’ll expand on this dynamic and how we plan to continue growing while improving our efficiency in this tougher demand environment. While we anticipate these headwinds will continue in the near-term, my conviction in the long-term opportunity for cohort has not changed. What I do now and think about the opportunity ahead of us, a few things remain constant. First, we are serving a massive critical industry that must continue to build the world around us. Second, our customers work across a diverse array of sectors and third, many of these customers have been operating for decades and have successfully navigated multiple economic cycles. The keyword here is cycles. These customers have experienced these cycles and expect the markets to accelerate and decelerate over time. Many see times like this has a chance to invest in their businesses so that they are ready to capture the next acceleration. In this way, technology could be a deflationary lever, they further invest in to streamline their operations and do more with less. In fact, I recently spoke to my good friend and our customer, John Cowles, who has been working in the construction industry for over 30 years. He is the COO at Hathaway Dinwiddie, one of the oldest largest general contractors in the U.S. and he shared with me the following “construction is cyclical. We know the market will dip and we know it will pick back up. Similar to the Navy Seals, who have two modes either training or fighting we are either training or building. And we are obviously not Navy Seals, but we use a similar mantra. When the markets dip, it’s actually a great opportunity for training, an opportunity for us to retool, add new workflows and technology and train ourselves up so that we’re ready to take full advantage of the inevitable upswing.” This illustrates how even in the midst of a more tempered demand environment, Procore has multiple levers to sustain our efficient growth trajectory, thanks to the evolution and expansion of our product portfolio over the past 6 years. So I’d like to share an example of the customer that’s doing just that, adopting new products. McCownGordon is an ENR top 200 general contractor with a long history of building projects in education, health care, manufacturing, science and technology and more. As a long-time Procore customer, they have embraced the Procore platform as a best-of-breed solution for their business needs. They previously managed their payments and lean waiver processes manually through banks, credit cards, Excel as well as another industry point solution. We have continually search for ways to improve and consolidate processes on our platform as they grow their business. A critical piece of this was bringing efficiency to their payment process, which is why they participated in our beta payments program. And I am thrilled to share that this quarter, McCownGordon added Procore Pay to their existing suite of Procore solutions. Procore Pay ties in with the tools that they already use everyday and will help automate and centralize their entire payments process. ServoTech is a full-service general contractor operating internationally and is one of the current European leaders in the [indiscernible] utility sector or utility scale solar power. They delivered over 500 ground master projects with a capacity of over 7.2 gigawatts. They have seen substantial growth in their business, but they’re still managing their projects manually. ServoTech decided they needed a robust project management solution that can provide productivity and efficiency gains as they continue to scale. After evaluating the competitive point solution, ServoTech chose Procore as the best fit for enabling collaboration across both the field and the office, enhancing visibility across projects, with more than 40 projects running concurrently at any given time and in the future, integrating with our ERP system. Royal Electric is a leading specialty contractor for electrical and underground projects throughout the Central and Western United States. They previously relied on multiple competitive tools, and we’re in the process of a full tech audit to migrate systems onto a single platform. They recognize the value of the Procore platform and providing standardization and efficiency across their operations. They selected Procore as their single source of truth to improve communications between the field and the office teams, provide greater visibility across projects and drive efficiencies across functions, including labor scheduling and management. Their goal is to leverage Procore for the vast majority of the projects, beginning with a vitally visible improvement project of the Hollister Municipal Airport in California. The partnership we are building with Royal Electric will undoubtedly help them set themselves apart as an industry leader. So in summary, this quarter, we continue to innovate and bolster our platform capabilities while meaningfully improving our operating leverage. Looking ahead, my excitement and conviction in the long-term opportunity for Procore and our ability to execute on that opportunity has not wavered. We continue to focus on delivering value to our customers while thoughtfully balancing growth and profitability. Navigating the increasing pressure of the demand environment with discipline will ensure that we optimize for the best outcomes in the near and the long-term. With that, let me hand it over to Howard.

Thanks, Tooey, and thank you to everyone for joining us today. Today, I’ll recap our Q3 financial results, share some color on the quarter and conclude with our outlook. So let’s jump in. Total revenue in Q3 was $248 million, up 33% year-over-year, and international revenue grew 30% year-over-year. Similar to prior quarters, our Q3 international results were impacted by currency headwinds. On a year-over-year basis, FX contributed approximately 5 points of headwind to international revenue growth. Therefore, on a constant currency basis, international revenue grew 35% year-over-year. Q3 revenue benefited from approximately $2.5 million in one-time overage payments from customers that materially exceeded their volume commitments. While this dynamic can occur from time-to-time, it’s rare to have this level of materiality in a single quarter. Therefore, we do not expect this level of materiality to continue and consider this a one-off anomaly unique to Q3. Q3 non-GAAP operating income was $8 million, representing an operating margin of 3%, and our key backlog metrics, specifically current RPO and current deferred revenue grew 27% and 29% year-over-year, respectively. Now let me take a step back and share some additional color on our Q3 performance. First, I’d like to provide an update on the dichotomy and customer behavior at renewal that we observed over the last two quarters. In our last earnings call, we described how this dichotomy became more pronounced from Q1 to Q2. We’re abiding greater share of customers demonstrated strong expansion activity while at the same time, the greater share of customers, also demonstrated cautiousness in construction volume commitments. In Q3, this dichotomy stabilized or improved slightly as compared to H1, though still remain elevated relative to historical norms. Specifically, we saw an increase in the proportion of customers renewing flat for the quarter, signaling greater stability in our installed base, particularly driven by large enterprise customers. Moving to our backlog metrics. I want to acknowledge the deceleration seen in CRPO as compared to prior quarters this year. As a reminder, Q3 last year was a strong quarter that benefited from large deal activity that was anticipated to close in Q4 of 2022 but instead closed in Q3 of 2022, making it a difficult comparison period. Out of the 6 point sequential decline in CRPO growth, approximately 2 points can attributed to the large deal activity in the year ago period. However, even when taking this dynamic into consideration, the quarter still fell short of our expectations. As Tooey described, the demand environment has clearly become increasingly difficult. More broadly, we are seeing increased scrutiny on deals, causing sales cycles to elongate. Customers are taking longer to finalize purchasing decisions with more decision-makers involved and more layers of required approvals. As an example, deals that used to get approved timely by the internal champion are now requiring CFO approval and deals that used to require CFO approval may now require board approval. While this dynamic is not overly concentrated in any particular facet of the business, generally, we are finding more success expanding with large enterprises. In Q3, some deals that we would have expected to close in a more stable environment slipped out of the quarter. This is an indication that the heightened sense of conservatism among customers have continued and we are seeing evidence of this both during renewal conversations and in new business. Similarly, this also impacted new customer growth with 363 net new customer adds in Q3, which is lower than previous quarters. That said, this was not a function of increased loan as our gross revenue retention rate has remained healthy at 95% despite the sequential decline in new logo pads. On the one hand, a cohort of the industry, particularly down market is demonstrating more hesitation to make new purchases given the external uncertainty. On the other hand, this is also a reflection of our focus and strength with an expansion opportunities, particularly within upmarket customers. This is a trend we believe will continue in the near-term as larger customers continue to prioritize their investments in Procore. That said, we are assuming that, in aggregate, these headwinds will continue into fiscal 2024. While the demand environment is outside of our control, we remain focused on what is within our control, which brings me to our efficiency profile. At our recent Investor Day, we shared a financial framework for how we plan to manage the business through various economic conditions over the next few years. Specifically, we noted that a potential driver that could move us to the left of that framework is further deterioration in our demand environment. Given the softening demand we are seeing, and that we are assuming this dynamic will persist into fiscal 2024. We anticipate progressing towards the far left side of the revenue growth range in the framework over the next upcoming quarters. This means we intend to be even more disciplined in managing spend as well as equity dilution. Our Q3 margin performance is as an example of that as our incrementally-disciplined approach resulted in our first non-GAAP profitable quarter since 2020. Just like our customers are displaying a higher level of scrutiny in the purchasing decisions, Tooey, myself and the broader leadership team are aligned and exercising a higher level in our own investment decisions and challenging ourselves to ensure a meaningful ROI. Above all, we are committed to being disciplined stewards of capital with a focus on compounding free cash flow per share through various economic environments. Now moving on to our outlook. Our guidance assumes current macroeconomic headwinds persist through the remainder of the year. As a reminder, we have taken a prudent approach to guidance over the past several quarters to factor in the external uncertainty of potential for incremental weakness in the market. From a revenue perspective, we continue to set guidance at a level that we have very high conviction we can deliver on even in a weaker economic environment. While we are disappointed by the headwinds on the top line, we remain more committed than ever to driving incremental operating leverage in the current environment. As a reflection of our increased focus on efficiency, we are guiding operating margins with less conservatism but still with high conviction we can deliver on to give shareholders greater visibility into the margin trajectory that we intend to achieve. We will naturally continue to monitor demand trends and we will provide formal guidance for fiscal 2024 when we report Q4 results in February. However, as previously mentioned, we are not anticipating that the demand environment will improve and expect to move to the far left side of our financial framework over the next upcoming quarters. With that, here is our guidance for Q4 and full year 2023. For the fourth quarter of 2023, we expect revenue between $247 million and $249 million, representing year-over-year growth between 22% and 23%. Given the size of the Unearth acquisition, we are not expecting a material revenue contribution from that business. Q4 non-GAAP operating margin is expected to be between 2% and 3%. For the full year of fiscal 2023, we expect revenue between $937 million and $939 million, representing total year-over-year growth of 30%, which is an increase of $15 million from our previous full year guide. Non-GAAP operating margin for the year is expected to be between 0.5% and 1%, which represents an improvement of 500 basis points from our previously issued guidance last quarter and implies year-over-year margin expansion of 1,100 basis points. With this guidance, we now expect to reach non-GAAP operating profitability in both Q4 and for the full year and are optimistic about maintaining a positive cadence within our future guidance. To close, it is clear that we are operating in a demand environment that has become more challenging. We are actively managing the business to optimize our efficient growth trajectory while continuing to expand our market leadership and build towards our longer-term vision. 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.

[Operator Instructions] Our first question comes from Brent Bracelin with Piper Sandler. Please proceed.

Hi, good afternoon. Tooey, obviously, Procore is not immune to the high interest rate environment here and some of the pressures it’s putting on construction. I was hoping you could provide a little more visibility on the Q4 backlog and pipeline that you see. You talked about increasing deal scrutiny, lengthening sales cycles, how does that look relative to historical Q4 trends, given what we saw with CRPO in Q3? Thanks.

Yes, Brad. Well, great question. So I would just say the trend, actually, if we rewind time a little bit, the trend actually started long before the quarter that we’re in right now. where we were seeing more scrutiny on deals. We’re seeing elongated sales cycles. But in Q3 in particular, we saw that step up significantly. So we think it’s coming into Q4 that it’s going to be much the same. We don’t see any real improvement in that on that front. But we do kind of just are preparing ourselves for tougher demand environment going forward. And that’s just the market we’re in. I’m actually particularly disappointed that as a business, we’re facing these demand environment, macro environment problems because we have so much to offering the industry’s rooting for us. You saw a Groundbreak how much the industry wants us to win. So this is just the reality of the time. The other thing I want to point out is that the industry goes through cycles. As I mentioned in the opening remarks, and this is just one more cycle. That’s pretty much the sentiment I’m getting from all of my contacts that I called out in the industry is that, yes, there is more cautiousness, but these cycles happen, and they just are inevitable.

Brent, this is Howard. Just a quick comment on your pipeline question. We still are generating a pipeline at the top of the funnel. However, with the cautious sentiments that we’re seeing out there from our customers, it is taking longer for that pipeline to flow through to flow through the funnel. And that’s what we mentioned in terms of elongated sales.

Yes, completely makes sense there. And then I guess one quick follow-up for you, Howard. In the efficiency profile, you outlined at the Analyst Day super helpful. But as you think about growth next year, there are scenarios where growth could slow to the mid-teens or high teens if it does slow below 20, do you think you could still drive 500 to 600 basis points of margin improvement in that type of environment?

Yes. It’s a good question. So first of all, we believe that the framework is actually a reasonable range of outcomes given certain economic conditions. And in this case, on the [indiscernible] in the perspective. And in that case, we would absolutely still be able to drive improvements in our operating margin that is consistent with that framework. And keep in mind, it’s not just the margin, the operating margin, it’s also the free cash flow per share that we will continue to focus on.

Helpful color. Thank you.

Our next question comes from DJ Hynes with Canaccord. Please proceed.

Hey, thanks, guys. Tooey, Brent asked about the demand environment as it pertains to kind of new business, and I think that’s pretty clear. I actually would take the other side of that and asked about behavior in the base because it sounds like actually things maybe are getting more stable, if not a little bit better there. Can you just double quick on kind of what you’re seeing for customers that are coming up for renewal and kind of their appetite and behavior?

Yes, DJ. So you’ve heard us talk about this dichotomy that we had on our renewal book last quarter. What we are seeing this quarter is that to kind of your point that there is a slight improvement with that, which is actually good news for Procore, because it means that our book is a lot more. It is more predictable. And so I’m sure, Howard, do you want to add something that?

Yes. So the dichotomy still is there still more elevated than what we’ve seen historically. In Q3, what we’ve seen in terms of the stabilization is a little bit more of the proportion renewal was flat. Remember, in the last couple of quarters, I talked about when there is a lower proportion of the flat renewals. It increases the beta of the potential outcomes. And so this quarter, we saw a greater proportion return back to flat renewals, which gives me a sense that there is more stability and a lower beta. But keep in mind, it’s still more elevated in terms of that dichotomy than what we’ve seen historically.

Yes. Got it. Fair enough. And then maybe as a follow-up, a non-macro question, maybe tied to Procore Pay. Curious what percent of your GC customers today are using accounting integrations and invoice management. And is that a correct way to kind of think about the serviceable addressable opportunity today inside of the base for Procore Pay?

Yes. Well, in order to use Procore Pay, you have to be using at least invoice management on our side. So that is probably a good way to think about it. But keep in mind, too, we are still only providing this to a select group of U.S. general contractors who are invoicing customers as we launch this program. So it’s still super early days.

Okay, got it. Thank you.

Sure.

Our next question comes from Saket Kalia with Barclays. Please proceed.

Okay. Great. Hey, it’s Saket at Barclays. Thanks, guys for taking my questions here. Tooey, maybe for you, just to zoom out a little bit. I was wondering if you could just talk a little bit about where Procore is in its international build-out. I think at Analyst Day that the market share there that we showed was really, I think, in the low single digits. So clearly, a big opportunity. Can you just maybe talk through how you’re thinking about building out international and whether you’re seeing anything different there, just in terms of the adoption curve versus maybe what you’ve seen in the U.S. Does that make sense?

Yes, it makes at sense, Saket so love to answer this. So first and foremost, when we go into a new market, I think the most important thing that Procore has to focus on is brand. The industry globally is – they are cautious when they engage in new partnerships. So having the brand established is really important. And the beauty of our SaaS platform is that when we do enter a new market, we will already have folks that our Procore customers likely doing projects there. So we focus heavily on building the brand, getting the referenceable customers, putting in the customer success and support that is necessary and then capitalizing on that brand to expand those markets. The other thing that’s interesting about construction is the way construction is done globally is very much the same. So when we go into a market, a new market, the good news is that the product line that we’re carrying with us has a pretty high product market that fit. And so those, there are some regulatory requirements that are going to be needed to be addressed with the product itself. In general, the product is usable from day 1. So yes, definitely start with brand and then we go with expansion. Focus matters for Procore 2. So when we’re in a market, we focus on that, and we don’t get distracted by adjacencies.

Got it. Got it. That’s super helpful. Howard, maybe for you to zoom back.

Sakat, did we lose you.

Apologies. Basically, his line did drop, so we will move on to the next question. Our next question comes from Adam Borg with Stifel. Please proceed.

Hi, everyone. This is Mike Richards on for Adam Borg at Stifel. Thanks for taking the questions. I was just hoping if you could comment on the competitive landscape overall? And if there is any changes there, whether that be by geography or product area? Thanks.

Yes, I wish I had an exciting answer for you on this, but it’s pretty much business as usual. The competitive dynamics have not changed meaningfully in any direction. So no, there is really no update to provide there, unfortunately.

Thank you.

Our next question comes from Jason Celino with KeyBanc. Please proceed.

Great. Thanks for taking my questions. Maybe just first as a follow-up question from the Analyst Day on Procore Pay. If we think about the opportunity, and there is obviously the greenfield of customers who might not be using an automated payments process and then there is the share gain opportunity from other legacy payments providers. How should we think about these two opportunities? And maybe what you might focus on over the next near-term?

You said two opportunities. We’re talking about Pay. Is there another one? Did I miss?

Yes, while the customers who might not be using a payments product from anyone and then legacy providers, therefore, share gains?

Yes. So the legacy provider customers have been rooting for Procore for a while to come to market with this product line. And we’re having a lot of success there. But we’re also having equal success with folks that have never been on it before. I actually listened to a customer call yesterday where the woman said that when she learned what Procore Pay was going to do for her by saving her so much time every day that she started to cry. So those kind of stories are kind of fun to listen to. But yes, so I think that the opportunity is there for everybody. Remember, this is really a big pain point for anybody who does construction. And so it’s being received well.

Hey, Jason, this is Howard. I just want to follow up on Tooey’s answer. I want to just make sure that everyone understands, we are still pretty early in terms of the implementation of the rollout of this product. And there is no significant contribution at this point to our results or do we see significant contribution at this point going into in the next fiscal year. It’s going to take time for us to roll this out to the customer base and even in our targeted USGC customers.

Yes. Okay. That’s fair. And then Howard, maybe just to focus on efficiency, I think it makes a lot of sense moving left on the margin framework. As you think about the leverage, help us understand what the near-term drivers you have at your disposable?

Yes. So, similar to what has happened throughout this year, the efficiencies have actually come across of all the different parts of Procore, from cost of revenue to all the different OpEx lines. And the company has really rallied around this efficient growth mantra that we have put forth internally. And so specifically, I think we are still going to see that operating margin benefits from sales and marketing, R&D as well as G&A.

Great. Thanks Howard.

Our next question comes from Daniel Jester with BMO. Please proceed.

Great. Thanks for taking my question. Maybe to start off and not to the labor sort of the macro point, but I would love to kind of hear like, when did you actually start seeing the softness, was it in September, or is this October? I am just wondering, and at the Analyst Day was six weeks ago, and I am just wondering can we kind of dig in there. And then tactically as you think about the near-term macro, is the U.S. and international trends, you expect any divergence, or should we see similarities?

Hi Dan, this is Howard. It’s good to meet you here. The first thing is, when we issued our framework at Investor Day, we still have about two weeks to three weeks left in the quarter. And those two weeks to three weeks at the end of the quarter typically have a fairly outsized impact on how the full quarter performs. And frankly, we were surprised. I was surprised at the downside in terms of what we expected to close in those last two weeks. There were a number of deals, some of them are fairly large. And frankly, we expected to close in those two weeks to three weeks that didn’t close, and that had an impact on our Q3 performance. With respect to your comment about when did we know and when do we start to see this trend, keep in mind that we have always tried to be as transparent as possible in terms of what we have seen and to communicate that to everybody. This starts back all the way back to mid-2022 when we started to take a much more cautious approach in our guidance just in case something like this happens. And then going back to Q1 of this year, we started to share some insights about the business specifically about the economy and the customer behavior that may not have shown that would not have shown up in our financial results, and we have continued to provide updates to that dichotomy and also about the sentiment and the cautiousness in our customer base. So, this wasn’t something that kind of was just strong on this, and it’s something that we did see progress from Q1 to Q2 and Q3. Regarding international versus U.S., the macroeconomic headwinds in the tough demand environment is not something that’s domestically based. It’s both U.S. and international and non-U.S. We don’t right now see any type of diversion. But as we get more information and we see more signals, we will communicate what we see to you.

Great. That’s really helpful. Thank you. And then just on the expansion opportunity, it sounds like incremental focus there. Can you kind of share any details about sort of incrementally what you may be doing differently over the next year to supplement the opportunity there? Thank you.

Yes. So, I think as with any type of opportunities that we look at, we are constantly adjusting to where we see strength and where we see strengthen us immediately. So, far in terms of what we have seen some of the impacts is we have seen more of the impacts in the lower end of the market in terms of where the macroeconomic environment is having a bigger impact. Now, that’s not to say it’s only focused there. It’s definitely throughout all the different segments and all the different stakeholders. And when we see that, what we have seen is that in the enterprise space in the upper end of the market, those customers have been more steep. They have been more well prepared and more well prepared to be able to weather the macroeconomic conditions. Now having said that, those conditions in the tough demand environment is still being felt there, but that’s where we believe that we have more stability.

Thank you very much.

Our next question comes from Dylan Becker with William Blair. Please proceed.

Hi gentlemen. Maybe sticking with that same theme around kind of the enterprise stability, Tooey, you called out the opportunity for retooling and kind of strengthening around a potential cyclical recovery at some point in time. As we think about the bifurcation kind of between enterprise and SMB, how you maybe expect that incremental kind of projects, share gain fueling that Procore network of kind of that incentive of collaborator conversion where more project stakeholders need to be on the ecosystem around that recovery to gain and capture share of more of that scope of work over time.

Yes. So Dylan, the good news is that the way construction is delivered, everyone benefits from being on the same team. So, it doesn’t matter small, medium or large. Where I would say we are going to be putting some of our focus is on the upper end of the market, the enterprise customers that are more stable and they are more optimistic right now on looking at the projects that they are working on and trying to bring their collaborators onto the Procore platform. The higher up we go in the market, the better the sentiment is. And actually, I want to point out, one of the reasons why the sentiment is better up-market than it is down-market is simply because they run a much more diversified portfolio, the bigger they are. And those diversified portfolios gives them the confidence to make bigger purchasing decisions and to partner with people. And then the inverse is true as you go down market, they have less optionality. So, we are going to focus on converting as many collaborators as possible, but we do see a lot of opportunity at the upper end of the market because of the stability that we are seeing there.

Got it. Okay. That makes sense. And then, Howard, to going back to kind of the confidence in that range of scenarios, you called out kind of normalized cRPO momentum there in the high 20-ish type of range. I guess wondering to what extent obviously, that gives you good visibility in kind of the next 12-month cycle there. But to what extent also does project duration layer into some of the stability from a volume perspective, if that makes sense?

Let me come back to the project duration to get more clarity there. But I just want to be clear, we do not expect the demand alignment and the challenges that we are facing, right now in the demand environment to improve. In fact, we expect it to get more pronounced into Q4 as well as into 2024. And that likely will get reflected in our financial metrics going forward. Specifically on project duration, can you clarify that question? I am not quite sure what the question is there.

Tied to the volume exposure for multiyear projects in nature, so some of the larger scale mega projects, maybe it ties into the enterprise segment as well, but given kind of some of the visibility into the volumes.

I think – let me try to answer and see if this answers your question. This cautiousness in the sentiment has actually caused our customers to be less receptive to committing higher volumes upfront, even if they have those projects lined up. And so even if there are longer project durations, that will still impact their overall portfolio in terms of what they are loan to commit based on what they have got in their portfolio. And so even if that happens, keep in mind when they commit to lower volumes upfront, they are paying a higher basis point for it and they are willing to pay that higher basis point even if they had that backlog. So, to the extent that project durations work itself into that equation for our customers, it still impacts what they are going to commit.

Got it. Okay. Thanks guys.

Our next question comes from Brent Thill with Jefferies. Please proceed.

Thanks. Just on the customer count, your sixth quarter rolling average or more than 200 customers shy of what your average was. And I know you mentioned the low end. But are you seeing the high end tail off as well?

We are definitely seeing a more concentrated down market than it is up market, primarily because we think it’s driven by just the macro, the overall demand environment that’s impacting the that segment. But what we are finding is that the lower you go down in the market to the smaller businesses, the less likely they are to want to enter into a new relationship right now, they are trying to figure out the challenges of their business.

Yes. And just to follow-up on Tooey’s answer, we are not seeing that same level of deterioration on the upper end of the market. The other thing that I will add is that even though our net adds are down, our gross retention rate is still strong at 95%. So, it’s not necessarily customers leading the platform or canceling. It’s really about that willingness to make new purchase decisions. The other thing to keep in mind is our customer count is heavily skewed towards the down market towards the SMB space. And so that’s what you are seeing in terms of that split in terms of emerging versus the enterprise space. And most of our ARR is actually up-market as well. So, keep that in mind.

And Tooey, just as a follow-up, if you look across all your software payers at $1 billion of revenue, the average margin is 12%, you are guiding to 1 to 2. The question is, why not going to hurry up offense on expense control, trying to get the margins moving? It’s clearly on investors’ minds. What’s causing the non-hurry up offense on the expense side or maybe there is, maybe there is a greater sense of urgency that we are not hearing out of your commentary.

Hey Brent, this is Howard. I will answer that one. I actually don’t think that we need to go into hurry up office because this is something that we have been doing for a number of quarters now. Remember thinking back when we were coming out of ‘22 and going into 2023, we talked about being way more intentional about our hiring of our resources. And then also, when we talked about at Investor Day was 2023 being a catch-up year in terms of our margin profile. And so some of what you are seeing is that catch-up in that plan to be above the framework this year and in terms of our margin expansion. And then on top of that, we have been even more intentional and more disciplined in terms of improving our spend and margin profile. So, to answer your question more directly, it’s not a hurry-up office because we have been doing this and we are guiding to a place where we are at 1100 [ph] basis points improvement year-over-year.

Great. Thank you for the color.

Our next question comes from Nick Altmann with Deutsche Bank. Please proceed.

Awesome. Thanks guys. I wanted to circle back to DJ’s question, just around how you guys made comments as it pertains to the installed base, how the installed base is actually pretty healthy relative to sort of the net new side of the equation. So, I am wondering if you could comment what’s sort of driving the strength there? Is it more on the volume side, or is it more kind of on cross-selling additional modules into the installed base?

Yes. Hey, this is Howard. The installed base, there is two things. One is the proportion and the actions of the installed bases are bases taking, which is out that a bigger proportion of the installed base is renewing flat versus that dichotomy, right. So, that makes me feel better about the predictability and the narrowing of the range of potential. In terms of the strength of expansion, expansion is still outweighing downgrades. And so on the net, it’s still a positive for Procore. And then in terms of – further in terms of that expansion, it’s still largely going to be more focused and more strength in terms of that enterprise space versus down in the emerging side.

Well, also I think to answer the rest of the question was, most of the increases historically has been volume, and that’s true today. And as though we are working more and more on cross-sell, but it’s more like a – yes, it’s more like an 80-20 mix of volume to new products.

Okay. Super helpful. And then just one more quick one, if I may. You guys had mentioned that there were a handful of larger deals that sort of slipped out of October – out of September, excuse me. Just to clarify, are those deals that did slip out of 3Q, did they close, are you still sort of working on them, just wondering if you could comment on that. Thanks.

Yes, sure. There is a good portion of those that have closed, not all of them have closed. But I want to be clear though, even if the remaining of those deals that slip from Q3 into Q4 close, we still anticipate continuing and pronounced deterioration in the demand environment, going into Q4 as well as going into 2024.

Okay. Thank you.

Sure.

Thank you all for your questions. That will conclude the question-and-answer session for today’s call. So, I will now pass the call back to management for any closing remarks.

Thanks for joining us today. Bye-bye everybody.

Thank you.