Procore Technologies (NYSE:PCOR), a provider of construction management and workflow software, is aiming to bring the construction industry into the digital age. Following its introduction to the public markets in May, Procore just announced its first-ever quarterly report as a public company. Despite industry challenges plaguing construction companies globally, it delivered strong growth across the board.
Let’s see what this quarter’s results could mean for the company in the long term.
The business model
Before diving into Procore’s financial results, it’s worth looking at the service the company provides.
According to its S-1, Procore “builds software that helps build the world.” In other words, it helps construction companies across the globe to manage their projects through a complete suite of digital tools. Although many construction companies still use more generic software products like Microsoft‘s (NASDAQ:MSFT) Office365, the true building process requires a specific solution.
The construction industry is unique in that it brings together several different teams and stakeholders, and requires collaboration from different locations. While some team members work from the office, others are stationed at various job sites. Regardless of where they are, everyone needs to stay connected and up to date to avoid costly mistakes that could lead to project delays. That’s where Procore comes in.
Its cloud-based platform is a system of record and helps connect all members of the construction process. In order to properly serve this purpose, Procore uses a unique pricing strategy. Unlike traditional software providers, which typically charge on a per-seat basis, it charges a fixed fee based on the dollar volume of construction that a customer is running on its platform. This unorthodox approach has helped the company establish a market-leading position since it lets customers add an unlimited number of users to the platform and helps everyone involved in a project stay connected.
A quick look at the second quarter
A number of recent factors have led to challenges for construction companies. With rising commodity prices, logistics issues, and general labor shortages, the industry is seeing some pressure on its profit margins. But amid these issues, Procore was still able to deliver growth in several categories in its most recent quarterly report.
During the second quarter, it added 481 net new customers to reach a total customer count of 11,149, a 19% increase from the year prior. This growth in customers also helped Procore generate $123 million in revenue, which is 27% more than the same period a year ago.
But it’s not just the financial results that should have investors excited. Procore is also helping drive value to its customers through a number of new initiatives. During the quarter, the company added several enhancements to its financial management product that should ultimately help teams improve their cash-flow forecasts for projects.
And in June, the company entered into a new partnership with the home improvement chain Lowe’s (NYSE:LOW). This platform integration will allow Procore customers to seamlessly acquire the necessary materials for a project while also providing various discounts. Since materials can often account for up to 40% of a project’s costs, this should not only help existing customers but could also entice new ones.
The big picture
Although the short-term challenges facing the industry might seem like a major headwind, they bode fairly well for Procore.
Due to the constraints on resources and overall high demand for new projects, many construction companies are now facing hefty backlogs, and efficiency on the job site is becoming more important than ever. CFO Paul Lyandres stated on the company’s conference call that for its customers, “the only path to meeting their end demand is by getting more efficient and leveraging technology.”
While it might seem like having a modern solution would be a no-brainer for most companies, many businesses still rely on legacy systems. In fact, according to management consultant McKinsey, construction remains one of the least digitized sectors in the world despite accounting for roughly 13% of global GDP.
Thanks in part to its successful IPO, Procore now has more than $1 billion in cash and equivalents on its balance sheet to help acquire customers and invest in platform development. Since it continues to provide the most complete, unified platform to an underserved industry, the opportunity ahead should leave shareholders with plenty to be optimistic about.
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