Company and Market Overview

Procore Technologies, the leading construction management software provider, filed an amended S-1 this week ahead of its IPO.

Procore's mission is to "connect everyone in construction on a global platform" and it operates in one of the oldest and least digitized industries in the world -- construction -- which represented ~13% of GDP, and employed 7% of the global workforce in 2017.

The software provider estimates the annual potential market opportunity for its products at approximately $9.4 billion in the markets it covers: United States, Canada, Mexico, United Kingdom, Ireland, Australia, New Zealand, Singapore, and United Arab Emirates.

Procore does not count general contractors or owners with less than $2.5 million in construction revenues or spend from its addressable market estimates because the firm does not actively market to them.

The company offers an integrated SaaS platform that spans 4 product categories

1. Pre-construction

2. Project Management

3. Resource Management

4. Financial Management

This allows customer to manage projects through the entire lifecycle when needed.

The company did $289.2M in revenue in 2019, up 55% YoY with 8,506 customers running projects in 125+ countries. In 2020, revenues reached $400M of ARR, up 38% YoY. Procore has 1,920 full-time employees.

Products

Procore's products span the construction lifecycle for their customers and include bidding, scheduling, labor tracking, financial management, building information modeling. Procore also offers a suite of APIs as well.

The Procore App Marketplace, which enables customers to integrate the Procore product with their internal systems and 180+ 3rd party applications for accounting, document management, scheduling, and more.

~72% of customers have at least 1 integration and 60%+ have at least 3. The company's platform streamlines communication and facilitates compliance with safety & regulatory standards, increases efficiency & reduces rework and delays, improves safety, and enhances collaboration and accountability among key stakeholders.

Across 8,500+ customers, the company had 1.6 million users in 2020 and active projects in 125 countries.

Procore's product is run on AWS. More on their main product categories and descriptions below:

  • Pre-construction: facilitate collaboration between internal and external stakeholders during the planning, budgeting, and partner selection phase of a construction project.
  • Project Management: connect 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.
  • Resource Management: help customers track labor productivity and manage profitability on construction projects.
  • Financial Management: provide customers with visibility into the financial health of their individual construction projects and portfolios and facilitate access to financial data, linking the field and the office in real-time.

Procore's aims to become the system of record for customers' construction projects and as of the end of 2019, Procore's user activity generated 3,000+ terabytes of data and in 2019 on average added 110+ terabytes of data per month.

Market Opportunity‍

Procore arrives at a ~$9.2B TAM number based on taking the Gartner estimate of 6.1% for application software spend and applying that to the $10T number of total construction revenue estimate from 2017.

Procore believes they're only 2% penetrated among their total addressable customer base. The company also has limited international revenue to date and is another area of opportunity.

Competition‍

Procore believes they compete against multiple other horizontal and vertical-specific software vendors, as well as in-house tools.

Oracle and Autodesk have made significant strides in this market and are likely the most fierce competitors, especially at the higher end of the market.

Acquisitions

Over the last 3 years, Procore has gone on a mini acquisition spree. The first "growth" round Procore raised was in 2018, a $75M Series H.

Shortly thereafter, Procore began buying companies. These acquisitions have mostly been to add new features like analytics or new assets like HVAC to the platform, but one Avata Intelligence added AI as a capability for the entire platform.

In total, Procore has spent about $60M to upgrade their platform through these bolt on acquisitions.

Investors and Ownership

According to Pitchbook, Procore has raised $490M to date from investors including Bessemer, ICONIQ, Dragoneer, Tiger, Lead Edge, Persistence Capital Partners, and others via Series A through I financings.

ICONIQ owns a whopping 44.3% of Procore first entering the business during the company's Series E round, their ownership is now worth ~$4.2B.

Bessemer also owns a sizable 14.9% and joined at the Series C round. It is worth noting that the Series C round, in this case, was $360K on a $5.3M post-money valuation.

Both large venture investors deserve a lot of credit for backing Procore, but for what appears to be very different reasons.  BVP joined in the Series C in a down round. So often, we're told investments must look a certain way, Bessemer broke that mold here and it paid off in a big way.

Then, we have ICONIQ who owns almost half of Procore despite being later to the party. The data is tough to find, but it appears ICONIQ was able to gather shares through secondaries in each round because the rounds they participated in according to Pitchbook only account for ~23% of total equity.

These world-class firms deployed different strategies, but will exit with extraordinary outcomes - conviction comes in many different forms.

Financial Metrics

Procore is larger than most companies at IPO, especially when compared to those of the last 18-24 months.

The 2020 revenue growth lags behind some of its peers in the high-growth SaaS category - a trend Procore ties to COVID-19's effect on the construction business. Still, despite those headwinds, Procore ranks above the median in YoY revenue growth and implied ARR growth.

Because Procore is still an emerging technology business, its percentage of spend across all operating categories, particularly R&D and OpEx, is still on the high side.

Comparing Procore with 50 high-growth SaaS Firms

Valuation

Procore will trade like other high-growth SaaS companies: on a multiple of forward revenue. The output below uses NTM (next-twelve-months) revenue based on an illustrative range of growth rates and comparable EV (enterprise value) / NTM revenue multiples from other public, high-growth SaaS businesses.

Companies filing for a traditional IPO do not release projections or guidance in S-1's. While the markets have been volatile over the past week, multiples for high-growth public SaaS companies are still healthy and have grown significantly since Procore's initial filing last year.

Procore's Potential Valuation Ranges

I suspect Procore will easily trade over its last valuation of $5B and will likely make it into the $10-12B range post-IPO.

Despite some concerns last year,  it appears COVID-19's impact on Procore's growth was minimal. At its best, Procore may be the most exciting vertical-specific SaaS company to file since Veeva, which continues to be one of my favorite companies. If Procore can replicate those results, they'll be in elite company.