$PCOR Procore IPO | S-1 Breakdown

Procore Technologies, Inc., a provider of construction management software, filed its SEC S-1 form on February 28th, 2020. Goldman Sachs and J.P. Morgan are acting as joint lead book-running managers for the proposed offering. The company will trade on the NYSE under the symbol “PCOR.”

Company overview

Company’s mission is to “connect everyone in construction on a global platform”. Having worked for ~4 years in the construction industry, I realized early on that it is an industry in need of digitization and automated workflows. Procore enables collaboration and workflows through the entire construction value chain across owners, general contractors, specialty contractors, architects, and engineers. It was founded in 2002 and is headquartered in Carpinteria, California, with a total of ~1,900 employees.

Construction market: the need for change

The construction industry represented ~13% of GDP, and employed 7% of the global workforce in 2017. It has traditionally trailed behind most industries in terms of technology adoption.

It is a sector which involves collaborating cross functionally across various stakeholders, often in different geographies. Collaboration is needed at every step of a construction project, which lasts~ 20 months on average on the platform.

It is a regulated sector where audit trails are important for regulatory, compliance and safety reasons (from permitting to local employment contracts to safety assessments). Today a lot of those are still paper based and create a massive liability for the different stakeholders.

Example of the change order workflow

A change order is a request to change the scope and possibly design of a construction project. It involves multiple stakeholders and is traditionally handled through fax and exchanges of heavy binders. Resolution can take weeks to months leading to overcost and resource allocation inefficiencies.

Market opportunity

Procore estimates its current addressable market at $9–10b, based on existing products. This estimate is based on a full potential looking at current ARR per existing customer applied to the number of companies in Procore’s addressable geographies. Currently Procore has a presence in the US, Canada, Mexico, the UK, Ireland, Australia, and New Zealand. So still a lot of expansion opportunities around Europe and Asia.

In addition, the company is building a nice better together story as, as of December 2019, ~60% of customers subscribed to three or more products.

Competitive environment

Company competes against

• General Project Portfolio Management tools including Planview, Microsoft MS Project;
• Other aggregated construction management products, including those offered by Oracle (including through its acquisitions of Primavera Systems, Aconex, and Textura), Autodesk (including through its acquisitions of PlanGrid, Assemble Systems, and BuildingConnected), and Trimble (including through its acquisitions of Viewpoint and e-Builder);
• in some instances accounting software vendors, such as ComputerEase Software, Foundation Software, and Jonas Software;
• General point solution software vendors in various categories, including analytics, bidding, BIM, compliance, and scheduling, among others; and
• In-house specialized tools or processes built by or for existing or prospective customers.

The biggest competitor to watch for among those is certainly Autodesk, which has been pushing an end to end project management and workflow stories for a few years now.

Product offering

Procore offers 4 types of products (total of 13 products as of now) and a marketplace with 180 pre-built integrations. Procore started its product expansion journey in 2017 only and has seen good adoption of new products since. I believe that we could see a lot more in the coming years, specially around distributed workforce management and contract management.

Preconstruction: Procore expanded in the preconstruction phase of the value chain in September 2019 with the launch of two new products: Procore Bid Management and Procore Prequalification which help prepare a bid package and manage the entire qualification process through a digital interface.

Project Management: it is a project management enabling project planning, real time communication and document centralization on a cloud-based platform. You can think about it as a Planview but tailored for the construction industry.

Resource Management: this tool is specially addressing labor productivity and project planning from a resource management standpoint (e.g. timesheets and tasks management).

Financial Management: this product supports the capital planning process for a construction project from budgeting to expense tracking.

Platform: the Procore platform includes an app store where developers can build and release tailored applications and workflows on top of Procore.

Procore Platform — S-1

Top line metrics and Go To Market

Below are selected top line metrics

• $289M revenues for FY 2019, 55% yoy growth
• 8.6k customers, ~40% growth yoy, including 655 customers spending $100k ARR or more
• 117% net retention rate

Even though those metrics are less “exceptional” than what the market saw for companies like Zoom in 2019, I believe that they are very promising given that Procore’s growth model relies less on individual users but more on entire players of the construction value chain adopting their products (e.g. no viral bottom up adoption play here).

Procore spends ~60% of its revenue in Sales & Marketing, which makes sense in this growth phase. Company has a top down selling motion and relies on a professional sales force to acquire its customers. It combines an inside sales model with a field sales team targeting large accounts, specialized by stakeholder type and geography. Procore’s ability to decrease its acquisition costs over time will be critical to reach profitability in the future. Sellers are supported by a Marketing team to create top of the funnel opportunities (campaigns, demos, events)

Leadership team

Below is a summary of Procore’s leadership as of now:

Procore leadership team — S-1

I find it refreshing that 4 out of 5 top executives in the company are less than 45 years old (everyone apart from the CEO) — noticeable CFO who is 29 years old, former investor at Bessemer and a Wharton Undergrad. nb: CFO and CRO are siblings. Hopefully we can see some gender diversity as well in a few years.

In terms of governance, 3 of the Board members come from venture capital backgrounds (Bessemer, Iconiq and ScOp VC), and all have deep software experience. From a diversity standpoint they have one woman Board member (requirement for Goldman Sachs to take the IPO mandate as announced recently)

Investors and ownership

In the last five years, Procore has raised $500M, including a last round of $100M in 2019 for a valuation of ~$3.3B (I could not fact check this number). Financial backers include crossover funds Tiger Global Management and Dragoneer in addition to Iconiq Capital (since 2015) and Bessemer VP (since 2014). Rumors mention a $4b valuation at IPO.

Summary of past rounds:

• 2004: $940k, round | $4M valuation
• Jan. 2007: $4M | $14.3M
• Nov. 2014: $16.2M | $74M
• Mar. 2015: $30M | $209M
• Feb. 2016: $80M | $507M
• Dec. 2016: $50M | $981M
• Dec. 2018: $75M | $3B
• July 2019: $100M | $3.3B

Prior to IPO, as per S-1, Iconiq owns ~44% of the company and Bessemer ~15%.

Company’s shareholders will be restricted by a standard 6 months lock-up post IPO before they can sell their shares.

Past acquisitions

It’s almost always informative to look at companies inorganic strategy. In the case of Procore, they acquired the following companies:

• BIManywhere, also called Zimfly in September 2018 for a $4M cash consideration. Company was a 3D engine viewing layer tool for building information modeling (BMI).
• Honest Building in July 2019 for $150M (including $50M in cash). the company helped accelerate the financial planning management product roadmap now provided by Procore
• Construction BI in August 2019 for a $1M cash consideration. The purpose of this acquisition was to accelerate the development of the Procore’s business intelligence and data analytics solutions

Selected P&L items

Considering all aspects, as well as those that cannot be disclosed in this topic. I see the great potential of the company and I’m going to buy shares to build a long-term strategy for the portfolio of Tech companies.

About the Author

Mr. Koch — a serial entrepreneur and late-stage investor specializing in secondary shares.

Previously: Twilio, Xiaomi, iQiyi, Tilray, Livongo, Bandwidth.

Currently: Robinhood, Grab, Toss, Coursera, Epic Games, Chime, and other companies.

Contact — here, If you are a startup building in this space — email or DM me to be included on this article.

—

The content was collected from various open sources, approved by companies, and does not provide any one-stop recommendation for the purchase of shares. All data was used for only informational purposes and does not contain insider information that may be malicious or refuted by the company and SEC.

This communication does not represent an offer or solicitation to buy or sell securities. Such an offer must be made via definitive legal documentation by the buyer or seller of securities, please check the SEC rules before buying shares from any stock-suppliers.