Procore(PCOR) SaaS stock analysis
We look at an innovative, break-even, high-growth SaaS business leader in the Construction industry that offers a unique platform with a long runway for further growth.
Disclaimer: The information provided is not financial, investment, tax or other advice. Nothing contained constitutes a solicitation, recommendation, endorsement or offer to buy or sell any securities or any other financial instruments. For more information read the disclaimer.
Industry Overview
The construction industry is one of the largest industries in the world and is in the very early stages of digitization. The traditional barriers to adopting technology in this industry have been broken down by fast internet, Wi-Fi, mobile devices like phones and tablets. This industry is also highly fragmented and specialized. The workforce is generally decentralized, mobile and needs superior communication and collaboration tools. There is a constant change of plans which leads to a lot of issues. This industry is experiencing a transformation driven by innovations in technology and rising pressures on stakeholders, ranging from labor shortages to increasing project complexity. To truly improve the lives of everyone in construction, it is essential that the modern construction management software platform is accessible by all project team members from any location and on any internet-connected device. This platform needs to address the specific workflows of all key stakeholders on a project while providing a platform that both integrates with other solutions in the market and provides a single, centralized system of record on every project across the entire project lifecycle.
Mission
Our mission is to connect everyone in construction on a global platform.
I love this mission statement as it’s very simple and gives a guide as to what exactly Procore stands for, building a construction cloud platform for everyone involved in the construction industry.
People and Culture
Procore’s culture can be broken down into two key elements:
We live and breathe construction.
We put our customers first.
Procore believes that people are their strongest and most important asset in building and growing their business. People at Procore have three core values:
Openness: “a ready willingness to engage and express as well as to consider new information and ideas.”
Ownership: “a sense of having a personal stake in a project’s or team’s success and the feeling of empowerment and responsibility that goes with it.”
Optimism: “the ability to envision and pursue favorable outcomes – even in the face of challenges, and to believe in the capabilities and goodwill of oneself and others.”
As of March 31, 2021, Procore had 2,063 full-time employees, with 1,864 based in the United States and 199 in international locations.
Business Overview
Procore is a leading provider of cloud-based construction management software. Procore focuses exclusively on construction, connecting and empowering the industry’s key stakeholders, such as owners, general contractors, specialty contractors, architects, and engineers, to collaborate from any location, on any internet-connected device. Their platform is modernizing and digitizing construction management by enabling real-time access to critical project information, simplifying complex workflows, and facilitating seamless communication among key stakeholders, which positions them to serve as the system of record for the construction industry. Adoption of Procore’s platform helps customers increase productivity and efficiency, reduce rework and costly delays, improve safety and compliance, and enhance financial transparency and accountability.
Procore Platform
Procore is revolutionizing the construction industry by changing the way construction projects are managed, providing online and offline access to critical project information, simplifying complex workflows, and enabling collaboration among all project stakeholders.
Procore has built its platform to be modern, intuitive, and open with a modular and extensible architecture that not only includes the breadth and depth of functionality of its products but also integrates with third-party applications.
Procore’s construction management platform offers customers and collaborators capabilities that address a range of evolving needs throughout a project’s lifecycle, including bidding, scheduling, building information modeling, or BIM, labor tracking, financial management, and more. This platform streamlines communication and facilitates compliance with safety and other regulatory standards, which helps increase productivity and efficiency, reduces rework and costly delays, improves safety and compliance, and enhances collaboration and accountability among key stakeholders.
Procore Products
Procore’s Platform consists of the following products categories:
Preconstruction - This product category facilitates collaboration between internal and external stakeholders during the planning, budgeting, estimating, bidding, and partner selection phase of a construction project.
Prequalification streamlines the process of selecting specialty contractors and vendors for construction projects, connecting all stakeholders involved in the process in one place.
Estimating solution offers quantity takeoff and estimating capabilities that streamline the takeoff, estimating, and bidding process, allowing customers to bid and win more projects in less time.
Bid Management organizes the complex bidding process, from bid package creation to bid award, allowing customers to track and assess the significant volume of bids that are typically submitted to work on a given construction project.
Project Management - This product category connects entire construction project teams by ensuring project information is aggregated in a cloud-based platform, available to all project participants, and accurate so that work on the job site is completed correctly.
Project Management provides every team member on a construction project with real-time access to the information they need via a single, accurate, up-to-date source. Project Management centralizes and facilitates collaboration on schedules, specifications, submittals, drawings, requests for information, or RFIs, and outstanding tasks.
Quality & Safety allows field teams to continuously record, monitor, evaluate, and improve procedures in order to maximize compliance with safety regulations and quality specifications.
Design Coordination helps users identify and resolve design and constructability issues prior to construction, thereby minimizing the cost of RFIs, change orders, and rework.
Building Information Model enables all users in the field to view and collaborate on 3-D models, which allow project teams to more efficiently plan and construct their projects.
Resource Management - This product category helps customers track labor productivity and manage profitability on construction projects.
Field Productivity enables specialty contractors to capture real-time labor data for payroll, out-of-scope work, and productivity tracking. This data deeply integrates into Procore Project Financials, powering critical labor cost analysis and change management workflows that maximize job profitability.
The financial management category provides customers with visibility into the financial health of their individual construction projects and portfolios and facilitates untethered access to financial data, linking the field and the office in real-time.
Project Financials is a robust solution for managing the financial health of a construction project. Customers can track, forecast, and manage project costs, budgets, and change orders with reliable data drawn from the field.
Invoice Management expedites the invoice creation, collection, review, and approval process across stakeholders.
Portfolio Financials is purpose-built for owners, enabling these stakeholders to track and approve expenditures across their portfolio of construction projects.
Accounting Integrations integrates with customers’ accounting systems to minimize manual data entry and reduce errors created through the double entry.
Procore Analytics gives customers the ability to generate deep insights across data aggregated from across all projects, various products, and integrated accounting software. Customers can track trends and conduct analysis using approximately 130 pre-built reports, all of which are customizable to suit individual customer needs.
Procore App Marketplace gives customers the freedom to connect with over 250 third-party applications. It extends the functionality of their existing products, connecting critical business workflows and processes, and enabling customers to maintain a single system of record while being able to leverage software solutions providing an array of functionality. This ecosystem provides customers with support in analytics, accounting, scheduling, compliance, and customer relationship management, among many other categories.
Procore Business Model
Procore generates all of its revenue from subscriptions to its products and has an unlimited user model that is designed to facilitate adoption and maximize usage of its platform by all project stakeholders. They sell their products on a subscription basis for a fixed fee with pricing generally based on the number and mix of products and the annual construction volume contracted to run on their platform. As their customers subscribe to additional products or increase the annual construction volume contracted to run on their platform, Procore generates more revenue.
Procore TAM
Procore estimates that the annual potential market opportunity for their current products is approximately $9.4 billion. This was calculated by multiplying an estimate of the number of the total owners, general contractor, and specialty contractor companies in their addressable geographies, by their median ARR as of December 31, 2020, for each company size (categorized by enterprise, mid-market, and small business). Their addressable geographies are the United States, Canada, Mexico, the United Kingdom, Ireland, Australia, New Zealand, Singapore, and the United Arab Emirates.
Procore Subscription Plans
Procore has flexible subscription plans offering one, two, and all products from the platform.
Procore Growth Strategies
Maintain leadership by growing organically and innovating by doing investments in research and development to build technology to remain a core differentiator of their products and platform.
Acquire new customers by continuing to expand sales and marketing efforts to drive awareness of their products and grow their customer base, focusing on owners, general contractors, and specialty contractors.
Increase spend within their current customer base by capturing more projects, selling them additional existing products, and offering new products that address additional customer needs.
Expand internationally in Australia, Canada, England, and Mexico City, Mexico, Singapore, and the United Arab Emirates.
Grow inorganically through acquisitions by making select acquisitions to add innovative features and functionality to the Procore platform, accelerate end-to-end cloud-based platform strategy, and bring talent to their team. Procore’s App Marketplace provides them with visibility into their customers’ interactions with many third-party applications and provides them with an advantage.
Procore Past Acquisitions
BIManywhere
On September 19, 2018, Procore completed the acquisition of Zimfly, Inc. (“Zimfly” or “BIManywhere”) to increase Procore’ss technology capabilities in building information modeling (“BIM”).
Honest Buildings
On July 30, 2019, Procore entered into a Merger Agreement with Honest Buildings, Inc. (“Honest Buildings”) to extend its software platform to financial and project management software for owners.
Construction BI
On August 8, 2019, Procore completed the acquisition of Construction BI, LLC, (“CBI”) to accelerate the development of Procore’s business intelligence and data analytics solutions.
Avata Intelligence
On February 3, 2020, Procore acquired intellectual properties, rights, and agreements from Avata Intelligence Inc. (“Avata”) to accelerate the development of Procore’s artificial intelligence and machine learning solutions.
Esticom
On October 14, 2020, Procore acquired 100% of the outstanding voting interests of Esticom, Inc. (“Esticom”) to accelerate the development of Procore’s preconstruction solutions.
Indus.AI
On May 6, 2021, Procore announced it has acquired Indus.AI to add computer vision capabilities to the Procore platform, helping owners, general contractors, and specialty contractors realize greater efficiencies, safety, and profitability.
Insider Ownership
Procore has high insider ownership at 44.5%. The management is highly invested in their own business, so we can see that they have a long-term vision and focus.
Competition
Procore’s competitors primarily exist across the following four categories:
Aggregated construction management tools, including products offered by Oracle (including through its acquisitions of Primavera Systems, Aconex, and Textura), Autodesk (including through its acquisitions of PlanGrid, Assemble Systems, BuildingConnected, and Pype), and Trimble (including through its acquisitions of Viewpoint and e-Builder). Procore integrates with some of these products, such as Autodesk’s BIM software and Oracle’s Primavera scheduling tool.
Accounting software vendors, such as ComputerEase Software, Foundation Software, and Jonas Software. These providers offer accounting software and supplement their solutions with project management tools and other offerings, which are often bundled with their accounting solutions as lower-value add-ons. The project management tools offered by these software vendors have historically not been a primary focus of theirs. Procore integrates with many of these accounting solutions on their platform and through their App Marketplace.
Point solution software vendors in various categories, including analytics, bidding, BIM, compliance, and scheduling, among others. These providers offer solutions targeted at solving a particular problem for a specific type of stakeholder. Many of the point solutions these vendors provide integrate with the Procore platform and are available in their App Marketplace.
In-house specialized tools or processes built by or for existing or prospective customers.
Competitive Advantage
Procore is the only platform built for the construction industry.
All types of stakeholders within the construction industry use Procore.
Procore is a true partner of the construction industry providing really awesome return on investment for the construction industry.
The Procore platform integrates with a lot of other software providers and is highly extensible with its own application ecosystem./marketplace.
Key SaaS/Financial Metrics
Revenue 2020 - $400M
Revenue Growth - 38%
TAM - 9.4B
Subscription Revenue as part of Total revenues - 100%
Gross Margin - 82%
Free Cash Flow as part of Total revenues - 3%
Net Expansion Rate - 107%(2020), 117%(2019), 121%(2018)
Rule of 40 - 40%+ (38% growth + 3% FCF)
Total customers - 10K+
EV/Revenue TTM - 29x
EV/Revenue NTM(Assuming 30%growth) - 22x
Final Thoughts
Procore is a SaaS Construction industry leader with a unique highly integrated, open, and extensible platform that enables businesses to accelerate and manage their entire construction projects and enables them to move very fast and save them a lot of money along the way. They have moats with their platform integrations, products portfolio, innovation, and have a proven acquisition strategy. Procore is a high-growth, break-even business with a large runaway for further growth.
Note: A lot of information in this article is compiled from Procore’s website, SEC filings, and recent presentations/conferences.