PCOR - NYSE

Good afternoon. Thank you for attending today's Procore Technologies, Inc. Fiscal Year '24 Q1 Earnings Call. My name is Cameron, and I'll be your moderator for today. [Operator Instructions] And I would now like to turn the conference over to our host, Matthew, you may proceed.

Hey, thanks, everyone. Good afternoon. Welcome to Procore's 2024 First Quarter Earnings Call. I'm Matthew Puljiz, VP of Finance. And 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, May 1, 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 a replay reviewed 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. And so with that, let me give it to Tooey.

Thanks, Matt, and thank you, everyone, for joining us today. I'd like to start by expressing gratitude for the team's hard work this past quarter and by thanking all of our customers for their continued trust and partnership with Procore. Some notable highlights were, in Q1, we grew revenue 26% year-over-year. We continue to make improvements to our efficiency profile, delivering strong margin performance in the quarter. And Procore was ranked #8 among G2's Top 100 Global Software Companies for 2024. This is our fourth year of being included on this list and our first time ranking in the top 10, a huge testament to the strength of the Procore brand and the value that we continue to deliver to our customers. The standout event of the quarter was hosting our ECAB, which stands for our Executive Customer Advisory Board at our Carpinteria offices. This is an event that we hold twice a year. And this quarter, we brought together executives from over 30 of our largest owners, GCs and specialty contractor customers, along with several members of the Procore leadership team from across the organization. This event is an invaluable opportunity for us to share Procore's strategy, hear feedback on their needs, discuss construction dynamics and ultimately determine how Procore can become an even stronger partner to the industry. So I'd like to share 5 major takeaways I took from the event. First is industry sentiment. Overall, customers expressed more long-term optimism than I had anticipated. Despite the very real uncertainties and challenges in the near term, these customers are increasingly optimistic about the long-term future of construction and their businesses. They shared that this optimism is in part driven by the pockets of strength that they continue to see in construction. Those that have diversified portfolios are benefiting from increased spend in sectors such as data centers and infrastructure. So while it's clear the environment remains dynamic in the near term, sentiment is trending in a positive direction and the industry's confidence in the long term is getting stronger. Second is our product road map. Last quarter, I shared that a key focus area within our product road map would be improving the flexibility, configurability and connectability of our products to meet the needs of all types of stakeholders. Customers at the event overwhelmingly validated that our road map is aligned with where the industry is headed. These customers report that the complexity of projects is increasing, placing large demands on workers' time and attention, which cohort can help alleviate by focusing on enhancing our current product capabilities and integrations. Ultimately, doing so will solidify Procore as the system of record and engagement at the center of our customers' operations. This brings me to my third takeaway, which is data. It's clear that these customers believe that they are at an inflection point dealing with massive amounts of data. The biggest challenges with data are aggregating it across systems, connecting it from one phase of construction to another and knowing what data to focus on. Our customers see Procore as central to their technology and operations because of our ability to act as a true data aggregator. Unlike other solutions in the market that are comprised of multiple disconnected point solutions, Procore's single platform connects products, stakeholders and workflows across the entire construction life cycle and enables customers to centralize data and run analytics across their entire business. Data is foundational to our connected platform, which creates possibilities for conversational experiences within projects through upcoming products such as Procore Copilot. I had an interesting conversation with one of the most forward-thinking contractors on this topic. And they shared that they are particularly concerned about productivity rates and identifying early warning signs before job goes sideways. They asked a host of questions that can't be answered by any one system and spend a lot of time putting these answers together to anticipate if a job will be profitable or not. This is why we're so excited about things like Copilot. With Procore Copilot, they're going to be able to create customer reports to look across multiple systems and allow them to identify those early warning signs and take action sooner, which is only made possible by our aggregated data platform. This is just one example of how Procore's foundational data asset is enabling us to leverage AI to help customers analyze, optimize and change how they operate their businesses. I'm often asked about the transformational shift in AI and whether or not it may threaten jobs and construction. There was a strong consensus across these customers on themes: one, the potential for AI to transform how our customers build is real; and two, there are no shortcuts in construction. Our customers continually seek ways to build more efficiently, but not at the expense of quality or safety. AI's best use is likely not to do what someone forgot to do or replace what someone might do but rather to act as a force multiplier by automating processes, surfacing information in real time and recommending next best actions. Customers are clearly excited about how AI can be used to solve the biggest challenges for the industry, and Procore is well positioned to leverage this technology. I pride myself on being the earliest customer of our products. And in fact, I am currently an early beta customer of Procore Copilot and tested it on my own personal construction projects. I was recently able to have my first conversation with Copilot on one of my projects, where I asked it to show me which RFIs have an associated scope change. Copilot responded with a specific RFI name and number the scope of work, the estimated cost of the change, which subcontractor was responsible and the status. Previously, this would have taken me hours of coming through hundreds of RFIs, cross-checking drawings and change orders and running several reports to glean this information myself. The simple actions saved me valuable time and eliminated risk. While still early to predict the full impact of AI on construction, it's clear that the conversational and predictive capabilities of this technology are going to be game changers for the industry. And finally, partnership. Ultimately, my goal for these types of events is to strengthen our understanding of how we can help our customers tackle challenges in construction, one of the biggest being the persistent labor shortage. Customers are responding in a variety of ways, including instituting mentoring programs, lobbying to incentivize trade school placements in high schools, leverage AI to support new talent and focusing more on field staff. This clearly aligns with our procore.org efforts to help bridge the gap for skilled labor and inspire the next generation of construction professionals. This event underscores just how important it is that we continue to partner with the industry beyond the technology we provide to help solve for the challenges of construction. Our customers deal with so much complexity. I'd like to share a real-world story of a customer that attended the event to help illustrate our partnership. A group of Procore leaders recently joined our customer, Haugland Group, a large energy and infrastructure contractor, for a site visit to a wind energy project in Long Island, New York. This important project will connect offshore wind farms to the main power grid and involves the construction of a converter station over 17 miles of trenched power lines and a final connection station to the grid. For this project, Haugland has to contend with a multiple of regulatory bodies. They have to meet environmental regulations, control traffic and safety, secure multiple permits, get scheduled clearance from multiple government agencies and conduct night work in all types of weather. The sheer complexity and the amount of data involved in these heavy civil projects cannot be overstated. Haugland, with a reputation in the industry for safety, efficiency and a tech-forward approach, turned to Procore as a technology solution and partner to manage this project. Beyond ramping team usage of Procore's post implementation, their leaders are working with our team to find better ways to build. They see the opportunity to strategically leverage Procore to identify and roll out new standard operating procedures that reduce risk around quality, safety, schedule and improved visibility into their project budget. They will be leveraging Procore's action plans to standardize project performance and capture insightful data. Procore empowers Haugland's management to ensure consistency across projects, powering their analytics and ultimately helping save costs and meaningfully reduce risks on projects. Haugland's willingness to collaborate at this level underscores the value of Procore's comprehensive solution, partnership and industry expertise. This reflects a clear trend we've seen, especially within the enterprise. Construction executives on become better builders to grow their margins in the face of a tougher economic environment and are turning to Procore to help them accomplish this goal. I'm honored that Haugland chose Procore to help, and I look forward to continuing to serve them and support them. Speaking of choosing Procore, I'd like to share a few notable customer wins in the quarter. Alberici is a leading North American construction company that's ranked #39 on ENR's top 400 contractors list and has been a Procore customer for over 5 years. This quarter, Alberici expanded their construction volume with us and decided to implement Procore Pay on top of the robust suite of products that they're already using. This is a great example of how our largest customers believe in our vision to streamline the construction payment process. Alberici will continue to use Procore on innovative projects such as Canada's first large-scale lithium-ion battery production plant and the U.S. Navy's Kings Bay facility, which has been overhauled for the very first time in its 30-year history and was nominated for ENR's 2023 Project of the Year. We continue to strengthen our relationships with leading general contractors, and I'd like to share another example of our deepening partnership with the ENR 400. McGough is an ENR 400 contractor with a nearly 70-year legacy serving the commercial, educational and government sectors. They recently expanded significantly with us, deploying Procore enterprise-wide across their business. Initially, they had purchased Procore as part of a rigorous 2-year pilot program, and I am happy to share that they ultimately chose Procore over competitive solutions due to our ability to streamline the field office experience, integrate with their existing technology solutions and support their data strategies and ambitious growth plans over the next several years. Additionally, McGough saw Procore as a tool to help them attract and retain top talent, given how adamantly their field teams advocated for it. Not only did their employees want to use Procore, but McGough also saw the value of using the platform that many recruits have already used through university programs or at their prior companies. With Procore, McGough plans to continue to expand into markets like health care, industrial and multifamily and renew their focus on data centers and federal projects. In addition to expanding with customers, we continue to build new customer relationships. DataBank Holdings is a leading provider of enterprise class data center, cloud and interconnection services in the U.S. and became a Procore customer in Q1. They have an infrastructure footprint consisting of over 65 data centers, representing over 3 million of combined square footage. Their team was looking for a solution that could standardize processes across their business, provide a single source of truth to better manage their growing number of projects, provide portfolio-level reporting and to help them scale efficiently as they set out to double the number of their capital projects in the next 5 to 7 years. After in-depth research of available technology solutions, I am happy to share that they chose Procore as their primary construction management platform. And they shared that the unmatched value Procore provides far outweighs the cost. So before I close, I'd like to leave you with an anecdote that brings to life the ROI that Procore provides. In construction, our customers allocate a budget for BIM expenses. These expenses effectively reflect the large amount of high-priced labor hours spent on design coordination, fixing design issues, minimizing rework and ensuring the designs are feasible for builders in the field. Every labor hour saved on this process increases our customers' profit margins. Recently, one of our ENR 400 general contractor customers, Bernards, began deploying our BIM solution on their projects. Their VP of BIM shared the following, "Based on the initial set of projects that we have deployed Procore's BIM solution on, we've been able to reduce our BIM expenses by anywhere from 50% to 80%. These significant savings allow us to reduce our BIM budget, which our estimators are going to leverage to make us more competitive on future bids." So these stories, along with the conversations I've had with customers and events like our Customer Advisory Board meeting, all directly influence how I think about the strategy and the direction of the business. You've heard me say before that we are greatly emphasizing focus on how we plan and operate. My time with customers not only reinforces that our decision to focus is the right one but that we're focusing our efforts on the right areas that are going to deliver the greatest value to our customers in both the short and the long term. So with that, let me turn it over to Howard to walk through the financial results.

Thanks, Tooey, and thank you to everyone for joining us. Today, I'll recap our Q1 financial results, share some color on the quarter and conclude with our outlook. Total revenue in Q1 was $269 million, up 26% year-over-year, and international revenue grew 32% year-over-year. Our Q1 international results were slightly impacted by currency headwinds. On a year-over-year basis, FX contributed approximately 1 point of headwind to international revenue growth. Therefore, on a constant currency basis, international revenue grew 33% year-over-year. Q1 non-GAAP operating income was $37 million, representing an operating margin of 14%. In our key backlog metrics, specifically current RPO and current deferred revenue, grew 20% and 21% year-over-year, respectively. Now let me take a step back and share some additional color on our Q1 performance. First, as Tooey described, while the industry is beginning to develop a stronger sense of long-term optimism, we continue to see the challenges we saw last year. However, the theme that persisted when reviewing the quarter's business results was stability within our renewal activity. Specifically, the higher than historical contraction we began to experience last year has not worsened, but rather has held steady. While Q1 is an early indicator of the year, it is an important data point given the large size of the renewal book. Furthermore, the results appear to validate one of our planning assumptions for the year, which was that the demand environment will remain challenging throughout 2024. Second, we continue to believe that the back half of the year will be stronger than the first half, driven primarily by our expansion motion. While the stability we saw in our Q1 renewals is just one data point, it is an encouraging outcome that reinforces this perspective. Based on this trajectory, we expect cRPO growth to decelerate further in Q2 before stabilizing and subsequently improving. Third, we continued to improve our margin profile in the first quarter. This is yet another proof point of our continued focus on improving efficiency and driving operating leverage across all areas of the business, particularly in times of softening demand. As we said before, our entire leadership team is aligned on being disciplined stewards of capital and challenging ourselves to deploy resources in order to generate the most optimized ROI. Our priority remains on striking the right balance of driving top line growth, improving our margin profile and allowing ourselves the flexibility to react to our business landscape. As such, we intend to manage the business with enough flexibility to either invest in go-to-market should attractive near-term growth opportunities arise or, in the absence of those opportunities, prioritize even greater margin improvement this year. In both cases, we intend to continue investing in long-term R&D opportunities to strengthen our platform capabilities and release solutions to better serve construction. And fourth, we continue to be excited and optimistic about the opportunity for Procore Pay. Q1 was the first full quarter that this product was available in the market and early customer adoption has been promising. By the end of Q1, we had approximately 100 total customers, primarily upmarket logos, that adopted Pay. We are particularly encouraged that some of the largest and highest profile firms in construction by [indiscernible] are adopting Pay and entrusting us to help manage and streamline their payment processes. As a reminder, given the ramp period required for customers to onboard pay, we do not anticipate material financial benefit from this offering this year. However, over the long term, we expect our payments offering to be a contributor to overall growth. Moving on to our outlook. As a reminder, our guidance philosophy remains unchanged from 90 days ago. The magnitude of our revenue outperformance versus our guidance is consistent with the commentary we shared last quarter and generally in line with what investors should expect this year. I would encourage you to refer to our remarks on the last quarter's earnings call for more color on our guidance philosophy. With that, here is our guidance for Q2 and full year 2024. For the second quarter of 2024, we expect revenue between $274 million and $276 million, representing year-over-year growth of 20% and 21%. Q2 non-GAAP operating margin is expected to be between 11% and 12%. For the full year fiscal 2024, we expect revenue between $1.14 billion and $1.144 billion, representing total year-over-year growth of 20%. Non-GAAP operating margin for the year is expected to be between 9% and 10%, which implies year-over-year margin expansion between 700 and 800 basis points. To wrap up, while we continue to operate in a challenging demand environment in the near term, we remain excited about the long-term opportunity ahead. We will continue to manage the business thoughtfully to optimize our efficiency profile while continuing to invest in the areas we believe will expand our market leadership and drive long-term growth. I'd like to close again by 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.

And the first question is from the line of Saket Kalia with Barclays.

Tooey, maybe just to start with you. I'd love to zoom out a little bit and just get your perspective on the competitive environment and whether that's changed at all. Despite sort of the macro discussion and uncertainties out there, this is still very clearly a rising tide market. And so maybe the question is, what are you seeing out there from competitors vis-a-vis Procore?

Well, Saket, nice to hear your voice, first and foremost. I have to say that there has really been no change at all in win rates and really has been true for a long time. So there's really no news on that front. But as you know, Saket, Procore is a premium product, and we do command a premium price. But when I said earlier about Bernards saving 50% to 80% on their BIM expenditures, the industry recognizes that we drive a tremendous amount of value. And as we've just met with all of our Enterprise Customer Advisory Board members, the industry is rooting for our success because they know that all we do is focus on them, and we get rewarded for that because that's all we do. So yes, really nothing to report on the competitive side, but it is encouraging to see the industry really pulling for us.

Absolutely. That's good to hear. Howard, maybe for my follow-up for you. A lot of great ENR 400 examples in the prepared remarks. And so maybe the question is, as Procore starts selling to larger enterprise customers, maybe more so in the back half of this year, how do you sort of feel about how your sales resources are aligned to that objective? And are there any early signs of success in sort of that pivot in the go to market? Does that make sense?

Yes, it makes sense. Yes, so the first thing is, there is a nuance I want to make sure I clarify. We are not just starting to sell to the enterprise. This is more of a shift that we started to make towards the back part of last year when we started to see relative strength in our enterprise and upmarket and in our expansion motion. And at that time is when we really started to make that shift in terms of aligning our resources to where that relative strength is. So it's not something that we started or pivoted or started this year, it's really a progression of what we started to see last year and a shift and an extension of what we have already been doing in selling into the enterprise market.

The next question is from the line of Dylan Becker with William Blair.

Quick question on kind of -- I wanted to pair two together, Tooey, maybe on infrastructure and international because infrastructure seems to be an area of focus, too. There's certainly U.S. mandates in play, but there's a ton globally as well, and I'm sure U.S. and international businesses will focus on. So I guess, given your focus on both of those segments, how do you think about maybe the infrastructure opportunity help serving as a wedge to catalyze international adoption, too, just given kind of some of the network dynamics there, maybe as a support vector for both kind of compounding on each other?

Yes, Dylan, that's actually a really good question. And it really speaks to something that we say rather often in these calls. But the industry itself is made up of lots of different segments and components. Some of which are firing on all cylinders. Some of which may be not performing as well as others. And so clearly, especially in the U.S. market right now, the infrastructure investment is very large. It's a bit of a mixed bag when you look into internationally globally. Some countries have large investment in infrastructure and others not quite so much. And I've been speaking a lot to our global international customers. And where they see strength in infrastructure spend, it's usually just part of their portfolio. So it's not really distorting anything in their book of business. It's just one component of their portfolio. And where they see weakness -- in fact, I talked to several of our customers in the U.K. market where they think that the infrastructure spend is going to be relatively flat this year, given a few things like the fact that there's going to be an election and a few other things that they just think there's not going to be a lot of investment this year. But the rest of their portfolio mix is strong, mostly on the private sector. So it's always that mixed bag, which is infrastructure is a component of it. But in aggregate, our customers are running those diversified portfolios. So it really doesn't distort anything as it relates to Procore.

Okay. That makes sense. Maybe switching over to Howard, one for you as well, too. Just kind of pairing the commentary some improving long-term sentiment here, we're coming up on some renewal cycles where we've noted some initial volume conservatism. I guess, how to think about those with the stabilization comments you've seen kind of sequentially as it relates to maybe some of the back half ramp, if that makes sense?

Yes. So look, what we -- how we feel about that back half is the same as we felt 90 days ago. In fact, the stability that we saw in Q1 actually reinforces some of those assumptions. And we still expect the back half of the year to be stronger than the first half from a booking standpoint. And we still expect that to come from the enterprise and upmarket as well as the expansion motion. So things are playing out as we had expected, and there's no change in terms of how we feel about the back half of the year.

The next question is from the line of Brent Bracelin with Piper Sandler.

I guess, Tooey, let's continue with the demand threat here, long-term optimism, some near-term challenges. My question is specifically around the data center. I'm getting a lot of excitement around data center expansion and builds, Microsoft spending a ton of money here. Is data center big enough to help offset some of these near-term challenges? Or should we think of that as more incremental to help stabilize the business in a challenging environment?

So Brent, I hate to give you the same answer I gave Dylan, but it's very much in the same vein, which is where you see these really strong portions of the construction economy. They are generally kind of making up for other sectors, which maybe not be performing as well. So in aggregate, the overall construction volume isn't increasing all that much. But you're just reading a lot about these data centers. And by the way, I had the opportunity about a month ago to visit a bunch of data centers up in the Pacific Northwest. And when you're flying in and you see these data centers from miles away because there are so many and they're so big, you get a sense of how big they are. But it doesn't create any sort of distortion in our business because our customers, that's just part of their diversified portfolio. As a matter of fact, I'm taking the leadership team to Madrid next -- in 2 weeks, and we're going to go tour some more data centers. It's fun to see because they're big and they're kind of exciting to view, but I wouldn't over-index on that. But I do want to say one thing. I don't -- I personally don't believe that there's any software company out there that builds more data centers or supports the build in more data centers than Procore technologies. And it's something I am really, really proud of. And it's an area where we have a tremendous fit and our brand is strong. And frankly, there's not a -- there's no reason why we shouldn't be on every data center getting built on the planet.

Makes sense here. And then as a follow-up for Howard, I apologize. I'm actually on the street to New York, there's still a lot of construction happening in New York. Howard, for you, of backlog, RPO and cRPO year-over-year growth was actually healthier than we had expected. Just trying to parse that out. And you talked about stability. It looks a little stronger than we thought. Was there some maybe early renewals that aided RPO this quarter that came out of next quarter that got pulled forward? Just trying to think through the commentary around renewals and the strength you saw in RPO and cRPO this quarter versus kind of what you expected?

There was nothing extraordinary from that perspective in terms of nuances or anything specific that caused that. Q1 actually turned out the way that we expected. And in fact, Q1 -- the way that Q1 turned out is actually consistent with our expectation of the back half of the year being stronger. And with that, you're going to -- we're going to expect to see our cRPO growth continue to go down in Q2 before it levels off and turns around. And that's consistent with the seasonality that we mentioned. So there's nothing specific or nothing nuanced about Q1 that caused those deltas. It's just in some of the noise that happens in any particular quarter.

The next question is from the line of DJ Hynes with Canaccord Genuity.

This is Ryan on for DJ. I just have a quick question. So I guess a few months ago, we spoke about contemplated, I guess, professional services build-out to kind of like cultivate and bring home these enterprise relationships and limit this Procore attributed churn. Have you guys put any more thought into that? I guess I'm just curious if you have any like internal or external metrics that you're tracking that would kind of make that case more filling.

Look, we continue to make sure that we invest in our professional services with the intent to make our customers more successful. And our shift towards that upmarket motion and enterprise is consistent with that shift. And so we continue to do that, and we'll continue to make progress there. There's nothing extraordinary to give an update on. Professional services from a top line standpoint is still a very small part of our revenue, but we still continue to make investments there to make our customers successful.

Okay. Great. And then just a quick follow-up. So we spoke about new labor demand is usually a pretty acute pain point in construction. To what extent do you think Copilot is going to alleviate these pressures? Because I think we all hear about AI has a really strong value prop for, I guess, a traditional knowledge workers. So I'm just kind of curious what kind of effects it will have on more like a boots on the ground hands-on environment?

Yes, Ryan. Good question because, as I mentioned in the opening remarks, that was a topic that came up in our Enterprise Customer Advisory Board, which was really like what is the impact of AI on construction. And it's very -- the consensus across -- and remember, these are 30 of the largest owners GCs and specialty contractors around. And the consensus of across these folks who are pretty well versed in all of this was that this wasn't really about taking jobs and eliminating jobs. It was about making people who have their jobs more effective at doing their job and getting them back to doing what they got into this industry to do, which is to build and not to do double data entry and not to do searching through Excel spreadsheets and Word docs on some foreign drive system somewhere. So it is a force multiplier, for sure, and it seemed that way. And I'm reaping the benefits of it myself in our beta program. So I think it's going to have a big impact on our industry, but not necessarily -- I don't think we're going to see it pouring the foundation anytime soon.

The next question is from the line of Brent Thill with Jefferies.

Howard, Tooey kicked off talking about the good efficiency gains you're seeing in the margin improvement. And I'm curious if you could just lay out, assuming we kind of stick in a tougher environment in the short term, how you're going to lean on those efficiency gains as a lever? Where are you going to see those? How are you getting those? Can you give us just a little more color in terms of where the biggest opportunity is and how you're getting that?

Yes. Look, the efficiency gains has been the same as we've seen in prior quarters, which said it's really coming from across all the different functional areas. And in terms of what we're investing in and how we're investing, keep in mind that regardless of what happens, we still continue to invest in our product, technology and R&D organization to make sure that we make progress on our road map and to continue to bring value to our customers. In the more short and medium term, the levers that we pull are particularly around the go-to-market side of things in terms of how to flex based on the demand environment and then you'll continue to see that. Specifically for Q1 and for the remainder of the year, what you're seeing is that, remember, we've built flexibility into our plan to be able to have that flexibility to invest back into the business or take it back to margin, depending on what we're seeing and what we're comfortable with. And in Q1, you saw most of that poured back into the margin profile. But even with our guide, Brett, for the year and for Q2, we still have room to continue to have that flexibility to invest back into the business.

The next question is from the line of Ken Wong with Oppenheimer.

The first one for you, Howard, and we're probably kind of splitting hairs here. But when thinking about that cRPO commentary, I think last quarter, it was kind of assumed that it would rise in the second half. And I think this time around, we've got kind of stabilized in Q3 and then kind of improve in Q4. I guess, would you characterize kind of how you're thinking about cRPO going forward is similar to 3 months ago? Or has there been any kind of adjustment in kind of the trough and rebound?

Our perspective really hasn't changed in terms of what that trajectory is going to look like. Still H2 stronger than H1 from a booking standpoint and how that's going to flow through to cRPO is a further drop in growth in Q2 and then stabilization. Now remember, having said that, Q3 and Q4 are our biggest quarters. So we've got some ways to go to execute against the back half of the year. But particularly with our results in Q1 in the renewal base, that actually is reinforcing our perspective and our assumption that, that will happen at this point. So nothing has really changed, Ken, over -- from 90 days ago.

Got it. Okay. Perfect. And then, Tooey, just wanted to maybe pick your brain on the enterprise side. I mean just looking at the metrics, total RPO is a lot better, long-term RPO is a lot better. And I know you guys are still cautious on the environment. But would you characterize kind of the -- what you guys are seeing at enterprise as being maybe a little more upbeat than how you were thinking 3 months ago?

Yes. It was interesting. So Ken, when I had our Executive Customer Advisory Board here, I asked the same question. And so the first question I asked them was like how do you all feel about the future? And interestingly enough, their optimism level had -- was really high for the long term. But in the short term, they realized that there are macro headwinds and there were challenges that they had to face. So it was almost the exact same story that they've been telling us over time. There was a little bit more optimism over the long run, which came out in those calls. Backlogs being big and getting bigger. So the best way to characterize it is they're facing the challenges of a tough economic environment right now, but they're really excited about the pent-up demand for the future and how their backlogs are shaping up.

The next question is from the line of Aaron Kimson with Citizens JMP.

Just going back to the operating margin guidance, I'd like a little more color there. So you did a 4% risk a month into Q1, just did 13.8% adjusted operating margin and guided 9% to 10% of the year. I know you talked about the flexibility stuff in there, Howard. Can you talk about where that investment may go and how much conservatism is in that number?

Where the investment would go, I think I've already talked about a little bit. In all cases, we continue to invest in our R&D organization, and because we want to make sure that we continue to make progress in that long-term product road map. In the short term, we will flex and invest in our go-to-market as we see fit. Specifically, as it relates to the workforce reduction that we did, about 4%, it was roughly about a $4 million impact or so in Q1.

Great. And then just as a follow-up. So Larry Stack is now a full quarter in as your CRO. What changes [indiscernible] to the go-to-market motion thus far?

Well, Aaron, by the way, I think he might argue with you. I don't think -- I think he's almost a full quarter in. But -- so Larry has been on the road. And really the first several months has been -- he's been all over the earth, visiting our offices and visiting our customers and visiting job sites and just really steeping himself in everything that he needs to know to do his job and just doing a wonderful job at that. I'm really enjoying working with him. But still early days for him. I want to give him a little chance to get settled and learn where the cafeteria is. But in general, he's really a great person to work with, and I'm enjoying every minute of it.

The next question is from the line of Alexei Gogolev with JPMorgan. The next question is from the line of Jason Celino with KeyBanc.

This is Devin on for Jason today. I want to ask about Procore Pay. I'm encouraged to hear that now you guys have around 100 customers adopting it. I know, Tooey, in the remarks, you kind of talked about 1 customer adopting Procore Pay. Could you just dive into that a little bit more, what ultimately drove them to go to Procore instead? And with Procore Pay now as one of your product suite, I mean, does that help your win rate as you move up market?

So Alberici is the one that you're referring to. It's actually been a customer for 5 years, and they have adopted many of our products. And they were well positioned to become a Procore pay customer because they were already running our financials product as well as our invoicing and our ERP connector. So they were very well primed, and they knew what the benefits of having all of that in place. And then tacking on Procore Pay, we're going to be -- was going to deliver some tremendous value. And maybe if you come to Groundbreak, you can ask them directly as to their opinion on all this. But I'll say, they've been nothing but great partners. And there's a lot of customers that are really excited about Procore Pay. But I do always like to caution people, it does take time to get these accounts fully online because they're not going to bring a job online that's halfway done because it wouldn't make sense to start paying people differently during the middle of the job. And the way construction companies run is, new jobs come online every month or so. So it takes a bit of time to get these folks ramped up. But the good news is that it's a very solid product, and it's been very well received. And we're just loving the feedback we're getting from the market.

Understood. And just one follow-up. On the customer addition in the quarter, I mean, it seems like net adds is -- continued to decel. Any additional color you can share there? Is that just a function of your efforts targeting the enterprise segment? And also, just curious how net adds have kind of performed across different geos versus your expectations?

Your assumption is correct is that it is a function of us making that shift towards the upper end of the market, keeping in mind that most of our customer count is going to be concentrated down market in the SMB. Now there still is likely a bit of a macro challenge impact in terms of the SMB customer count. But it is that and our focus and our shift towards the upper end of the market. The other thing to keep in mind is, one, it's not -- customer count is not something that we actively manage to. I'd rather point you to our actual gross retention rate, which is still in the healthy mid-90% range or 95%. And that is indicative of actually customers not leaving us. And so that's a much better number to look at.

That concludes all questions. I would now like to pass the conference over to the management team for closing remarks.

Thanks, everybody. Talk soon.