Procore Technologies Inc

NYSE:PCOR

Earnings Call Analysis

Procore Q2 2024: Revenue Growth and Strategic Changes

Procore's Q2 2024 total revenue surged to $284 million, marking a 24% increase year-over-year, with international revenue up by 32% on a constant currency basis. Key revenue drivers included a $4 million unanticipated implementation deliverable, enhancing the operating margin to 17.6%. However, churn stability and retention rates below expectations led to a cautious outlook. Procore maintained its full-year revenue guidance at $1.141-1.144 billion. The company is investing in a new go-to-market strategy, shifting to a General Manager model to improve customer retention and expansion rates while anticipating near-term disruptions but aiming for long-term growth and efficiency.

Strong Financial Performance and Revenue Growth

In the second quarter, the company reported robust growth with total revenue reaching $284 million, representing a 24% year-over-year increase. Notably, international revenue surged by 31%, although it faced slight headwinds from currency fluctuations【7:0†source】. The non-GAAP operating income stood at $50 million, translating to an operating margin of 17.6%. Additionally, key backlog metrics, such as current RPO and deferred revenue, saw significant year-over-year increases of 16.4% and 18.7%, respectively.

Unexpected Revenue Acceleration

The Q2 revenue figures benefitted from an unexpected $4 million boost, which originated from the recent success in implementation deliverables. This acceleration contributed positively to the reported operating margin. However, this spike in implementation revenue is not anticipated to recur in the latter half of the year, thereby tempering expectations for similar future gains【7:0†source】.

Product Adoption and Client Retention

Procore's new product, 'Pay,' showed encouraging adoption trends early in its availability. Despite this, it is not expected to make a substantial financial impact this year. Meanwhile, customer churn rates have stabilized without worsening, though retention still lags behind historical levels. This discrepancy affects the company’s outlook for the remaining fiscal year【7:2†source】.

Adjusted Expectations Amid Market Realignment

The company has adjusted its revenue and margin expectations in light of a strategic shift in its go-to-market approach. While this transition is expected to disrupt bookings near term, Procore remains committed to long-term stability. The full year 2024 revenue guidance is maintained at the high end, signaling confidence despite these tactical shifts【7:2†source】【7:10†source】.

Investment in Sales Capacity to Drive Future Growth

Procore plans to quicken investments in its sales force starting this fall to better align with long-term growth opportunities. Although these investments might lower Q3 and Q4 operating margins compared to Q2, they are anticipated to enhance overall market positioning eventually. For the third quarter of 2024, the company projects revenue between $286 million and $288 million and maintains an optimistic revenue outlook for the full fiscal year at $1.141 billion to $1.144 billion【7:2†source】【7:10†source】.

Strategic Go-to-Market Transition

Procore is transitioning to a general manager model for its go-to-market operations, moving away from a matrix organizational structure. This change aims to enhance responsiveness to local market needs and improve customer engagement through more streamlined interactions. The evolution is designed to better support the company’s broad and growing product suite, including newer solutions in preconstruction and resource management【7:1†source】【7:13†source】.

Expansion into Public Sector and Channels

In addition to organizational changes, Procore is building out its capabilities to better serve the public sector. The company announced intentions to achieve FedRAMP authorization, which would open new opportunities with federal clients. This public sector push is part of a larger strategy to capture more market share and drive growth through established and new channels【7:13†source】.

Long-term Vision and Leadership Confidence

Leadership is confident that the current strategic initiatives will position Procore for exceptional growth as the macroeconomic environment improves. The company is steadfast in its goal to evolve into a multi-billion dollar revenue entity, riding on its strong market position and continued innovation. Despite short-term disruptions, the firm assures investors of its commitment to maintaining a balance between revenue growth and margin improvement【7:5†source】.

Earnings Call Transcript 2024-Q2

[Operator]

Good afternoon and evening all. I would like to thank you all for attending the Procore Technologies Full Year '24 Q2 Earnings Call. My name is [ Breaker ] and I will be your moderator for today. [Operator Instructions].

I would now like to pass the conference over to your host, Matthew Puljiz with Procore Technologies. So thank you. You may proceed, Matthew.

[Matthew Puljiz, executive]

Thanks. Good afternoon, everyone. Welcome to Procore's 2024 Second Quarter Earnings Call. I'm Matthew Puljiz, SUV of Finance. 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, among other things, 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, August 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 replayed or 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 our periodic reports filed with the SEC.

And now here's Tooey.

[Craig Courtemanche, executive]

Thanks, Matt, and thank you, everyone, for joining us today. So I'd like to start by thanking our team for their continued hard work and our customers for their continued partnership. Despite the tough demand environment, we continue to see bright spots, including revenue growth of 24% year-over-year, and an operating margin of 17.6%.

We hosted our Annual Innovation Summit, a virtual product showcase where over 4,000 construction professionals registered to learn about our latest platform and feature enhancements. Our newest product, Pay had good traction in the quarter, and we expect to see continued demand for this offering in the future years. And in June, we are included in U.S. News list of best companies to work for, a testament to the strength of our culture and our employees' belief in our mission as we continue to grow in scale.

In the quarter, we continued to add new customers, including [ Pearlo ] construction, one of the largest locally owned general contractors in the Pacific Northwest. [ Pearlo ] has been using a competitive solution and a number of point solutions. And when they learn that a key part of their tech stack will be phased out and that the replacement options would not meet their needs, they began an extensive competitive evaluation. Procore was selected after joining [ Pearlo ] on site, thanks to our connected platform, brand and best-of-breed solutions to support their continued growth.

We also closed a number of additional transactions with new and existing ENR 400 contractors, including a major expansion with one of the largest GCs in the world, and a partnership with a major nonresidential contractor driven by strong support from their field teams. While our success with large GC has continued to shine this quarter, it also highlighted the diverse range of customers who find value with Procore. We welcome clients for many sectors, including a leading industrial gas company with over 750 production facilities operating in 50 countries, one of the fastest-growing data center owners and operators in the world, a leader in artificial turf installation as well as the Ministry of Health from a country in Asia among others.

All right. Now I'd like to shift gears. Our goal has always been to treat shareholders as partners and to ensure that they understand the journey that we're on as Procore continues to evolve. In that spirit, I'd like to spend some time today discussing changes that we're making to the business. This year, we are guiding to surpass $1 billion in full year revenue. And while this is an important milestone for Procore, it also represents a key inflection point as we move towards becoming a multibillion revenue company.

I've spent a lot of time reflecting on what got us here and what we need to do to prepare ourselves for this next chapter of growth. And it's become clear to me that in order to achieve our long-term goals, we need to refine our approach and mature our operating model. This is a natural and healthy part of growth. And in my 22 years leading Procore, we've gone through many iterations of how we operate. So today, I want to talk about the next evolution of our go-to-market motion.

But first, let me provide an example of a similar evolution we made in technology and share some context around why we believe this is the right decision for the business. We know an important part of setting ourselves up for long-term success was getting the right leadership team in place to bring our vision to life and to drive execution. Specifically, one that has successfully managed businesses and navigated growth at the scale that Procore hopes to achieve. Over the last three years, I have strategically reshaped the executive team and the impact that I've witnessed these leaders have on the company has me incredibly excited for the future. One great example of this is the evolution that we've seen in our technology organization. In the last few years, we have brought this organization forward for this next chapter of growth by evolving the technology operating model, topology of solutions and corresponding team structures. We then build out these resources, growing teams in scalable, high talent geographies. And by doing all of this, we've not only improved our velocity in delivering high-quality, high customer value solutions but simultaneously improved gross margins and R&D efficiency.

Our product and technology team has been able to move products from concept to close beta in a matter of months. Frankly, it reminds me of the early days of Procore, when we can roll things out rapidly, except now what we're rolling out is enterprise-grade. And on top of that, we are seeing better platform performance. It is incredibly rewarding to partner with Steve Davis, our President of Product and Technology, and the rest of our technology leaders on maturing not just the engine of how we build our products, but the products themselves.

The improvements that we have seen with our technology team is now what we intend to bring to our go-to-market motion. I've been working closely with my leadership team to develop an evolved go-to-market operating model to set us up for durable growth in the long term. Over the last couple of months, it's become clear that we have an opportunity to accelerate its rollout. Most of my remarks today are going to focus on this evolution in our operating model and our rationale for accelerating the timing of its rollout.

So since joining Procore in February, our Chief Revenue Officer, Larry Stack, has focused on evaluating our entire go-to-market and customer life cycle and has helped us validate and fine-tune our plan. While our current operating structure was the right one to get us where we are today, we need to evolve the current model to take us to the next level of scale. With Larry now ramped and on board, we have pulled this plan forward and are beginning to implement it. We're being intentional with the timing of this decision. We have a lot of conviction in this evolution. And when you believe that you found the right plan, you take action. The sooner we get started, the better we expect it will be for the long-term prospects for the business. And quite frankly, I didn't want to wait until next year. We also believe that there's an added benefit of starting this process now during an economic down cycle to ensure that we are best positioned to capture the market when it inevitably improves.

So now I'd like to walk through some of the specific changes that we're making to our go-to-market operating model. First, we're moving from a matrix organization structure to a general manager model. Today, we have a Global Head of Sales and a Global Head of Customer Success model, which is not uncommon for companies of our size. But this model has constraints that have become more evident as we scale globally as it requires coordination and alignment across departments and geographies in order to move quickly on customer needs. General managers will have combined teams reporting into them, which should streamline engagement across the customer life cycle. The general managers roles will cover the following regions: North America, Europe, Australia, New Zealand and the Middle East, which represents our current geographic coverages. In the future, when we elect to move into new countries within these regions, the general managers of these respective regions are going to be better positioned to determine specific strategies and tactics for that particular country.

Second, we will begin building out more robust public sector and channel motions. A few weeks ago, you may have seen that we announced our intentions to obtain FedRAMP authorization, which we expect to open up an incredible amount of opportunity with the federal government. And given Larry's experience working directly within the public sector, is uniquely equipped to help us capture this opportunity. And we're going to share more on this as this initiative continues to develop.

And finally, it is natural for changes in operating models to be accompanied by changes in roles, responsibilities, reporting lines and eventually compensation plans, all of which will follow as part of our go-to-market evolution. We expect some disruption with this evolution of our go-to-market motion, which Howard is going to outline shortly, but I am confident these changes will take us to the next level of scale and that this is in the best interest of both our customers and our shareholders.

As I shared, I see many parallels to how we've fine-tuned our technology organization over the past couple of years to how I expect our go-to-market organization to benefit. It's been exciting for me to be a part of, and I look forward to reflecting back on this time as a critical period that enabled the durability of our long-term growth. We expect that a variety of benefits will come from this go-to-market model, including ensuring our customers get the greatest value out of Procore by helping them run more efficient, productive and profitable businesses.

Here are some ways that we intend to evaluate our performance in this evolved model. First, we expect to see even stronger and deeper customer relationships. This model is designed to create greater focus and to enable our teams to be more strategic with each customer. These advisory relationships are expected to not only lead to improvements in retention rates, but in expansion rates as well. We also have an opportunity to improve adoption rates of our newer solutions within preconstruction, resource management and pay. This includes a greater number of product specialists who are experts in these solutions and will be working on-site with customers to help ensure that they are successful.

Second, this creates nimble teams that can quickly address on-the-ground dynamics as they arise. General managers will have the autonomy to respond to the local nature of construction and to tailor and customize their own motions specific to the needs of the markets that they serve. This approach aligns with our belief that the best decisions for customers are made in the field, not back at headquarters.

And third, we believe that this will ultimately improve our go-to-market efficiency. As customer relationships become deeper and more strategic, we expect that product adoption and usage is going to increase, leading to stronger retention and expansion rates and improving the lifetime value of a given customer, which in time will be reflected on the P&L.

So I want to close by reiterating how much conviction I have in our path ahead. This evolution is a natural part of scaling. And this model is more suited to serve our increasingly diverse product suite, global customer base and upmarket focus. We're proactively making these changes from a position of strength to maintain Procore's leadership position and ensure that we are ready to capitalize on the next upturn construction is going to experience. This is an incredibly exciting chapter for Procore, where I have the privilege of guiding our business towards becoming a multibillion revenue enterprise. We are the undisputed leader in the early innings of transforming one of the world's largest and least digitized industries. And we're confident that the path that we've laid out will set us up for even greater success, especially when the economic cycle improves.

And with that, let me hand it over to Howard.

[Howard Fu, executive]

Thanks, Tooey, and thank you to everyone for joining us today. Today, I'll recap our Q2 financial results, share some color on the business and conclude with our outlook. Total revenue in Q2 was $284 million, up 24% year-over-year, and international revenue grew 31% year-over-year. Our Q2 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 32% year-over-year. Q2 non-GAAP operating income was $50 million, representing an operating margin of 17.6%. And our key backlog metrics specifically current RPO and current deferred revenue grew 16.4% and 18.7% year-over-year, respectively.

Now let me take a step back and share some additional color on the business. Q2 benefited from approximately $4 million in revenue that we did not anticipate within our previously issued guidance from Q1 earnings. The primary driver of this benefit pertains to the recent success and magnitude of implementation deliverables, which accelerated this revenue stream based upon service delivery. While we intend to continue expanding our professional services motion, we do not anticipate an implementation revenue benefit of this magnitude in the second half of this year. This $4 million in revenue acceleration also contributed to our strong operating margin performance in the quarter. Without this benefit, Q2 revenue would have been 22.8% growth and operating margin would have been 16.5%.

Moving on to an update on Pay. Q2 represented only the second full quarter of general availability, and we continue to see strong adoption here. Given the ramp period associated with onboarding Pay, we do not expect this to be a material contributor to our financial results this year, but we are pleased with the progress we have seen thus far and believe this represents a significant opportunity to drive greater cross-sell as we further extend our platform functionality throughout the construction life cycle.

In regards to the demand environment, Q2 represented a second consecutive quarter of stability within our churn activity. The underlying health of our customer sentiment is not worsening, rather it continues to stabilize, similar to what we saw in Q1. However, while churn is stabilizing, our retention metrics are still below what we saw in the past as we are not seeing the level of expansion that we anticipated. This dynamic is contributing to how we think about our outlook for the rest of the year.

With that, I'd like to provide additional commentary on the impacts of our go-to-market transition. While we believe this change is the right shift for the business in the long term, we know that it will take time. And as a result, we'll create near-term disruption to bookings. Therefore, we will be adjusting expectations for this year and next to reflect this disruption. Specifically, we will be maintaining our full year 2024 revenue guidance. Also, we no longer expect CRPO growth to accelerate in Q4. And we expect this disruption to carry into next year as a significant headwind to fiscal '25 revenue growth. While these expectations represent a shift from my commentary last quarter, we believe it is prudent to apply incremental conservatism given the changes we are making. We intend to keep investors informed as we get better clarity on the impacts of this transition.

On the margin side, as we evolve our go-to-market operating model, we will accelerate investments in sales capacity beginning this fall. These investments reflect our confidence in our long-term opportunity and our conviction in the go-to-market model we are building. As Tooey mentioned, we also believe these investments will best position us to capture the market opportunity when the macro improves. Recall that our previously issued full year margin guidance incorporated the flexibility for incremental investments like the ones we are making for this go-to-market transition. Note that these investments should result in Q3 and Q4 operating margins that are lower than Q2. Even with these investments, our updated margin guidance will continue to reflect strong margin improvement for the year.

If I take a step back, I recognize that the financial framework we provided at Investor Day last year may need to be updated in the future to contemplate the significant and accelerated changes we are now making to the go-to-market model. Therefore, we intend to revisit the structure of the framework once we transition to this new model. To be clear, in all paths going forward, we remain committed to appropriately balancing revenue growth with margins and dilution across multiple years, which is the spirit of why we provided the framework. Over the long term, we believe this new go-to-market model approach will result in numerous benefits, which will ultimately be reflected in our financial performance.

First, I believe this model will enable more durable long-term growth. In particular, this should help our retention and expansion metrics. Second, the efficiency we anticipate once we have successfully transitioned to this new model, should provide incremental confidence in achieving best-in-class terminal margins.

Now moving on to our outlook. As a reminder, our guidance philosophy remains unchanged from 90 days ago. For the third quarter of 2024, we expect revenue between $286 million and $288 million, representing year-over-year growth of 15% and 16%. Q3 non-GAAP operating margin is expected to be between 9% and 10%. For the full year fiscal 2024, we are maintaining the high end of our revenue guide between $1.141 billion and $1.144 billion, representing total year-over-year growth of 20%. We are raising our non-GAAP operating margin for the year to be between 10% and 11%, which implies year-over-year margin expansion between 800 and 900 basis points.

To wrap up, we are optimistic about this next evolution of the business as we move towards our goal of generating multibillion in revenue. It's never easy to make big changes, and we will communicate our progress as we move forward. Long-term growth remains our priority, and we have strong conviction that we are investing appropriately to best position the company to capture the massive and underpenetrated opportunity ahead of us. 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.

[Operator]

[Operator Instructions]. We have first question from Dylan Becker with William Blair.

[Dylan Becker, analyst]

Obviously, a couple of moving parts here. Maybe Tooey starting with you on the go-to-market reorg. I guess, you kind of touched on it, but why now? What was kind of the impetus for change? What sparked that? Any way to think about kind of the time line of this transition and how we should assess kind of the progress as this evolves over time?

[Craig Courtemanche, executive]

So yes, so you've been along with us on this journey for several years now when we've been talking about the maturationing and the transformation of my leadership team. And so think of it this way, which is as we had been going through this journey, we went through the whole Steve Davis journey early on, and we were maturing our whole P&T organization and then as that evolved, we knew we were going to be evolving our leadership in our go-to-market organization as well as the operating model. So think of this as just the next logical step in that journey. And we have been planning on this for quite some time.

We didn't plan on it coming down. We were thinking more in the '25 or the '26 time frame. But then when Larry joined the team and he reviewed the plan that we had in place, he was very enthusiastic. He's seen this play before, and he was very much behind it. And then taking into account the fact that the macroeconomic -- the demand environment was the -- how it is right now, that we thought that let's get this thing going and let's get the transformation started now. So when the macroeconomic environment improves, we're in a really good place to capitalize on that. And frankly, when I see a plan that makes a ton of sense and it's the right thing to do for Procore, it's time to move, and so we made the decision that we're going to move now.

[Dylan Becker, analyst]

And I know you kind of quickly touched on the FedRAMP opportunity as well, too. I know you guys do [ someone ] in the government space as well, too. It sounds like [ in a broader ] macro remains stable, which is encouraging but really kind of digging into kind of what you think the FedRAMP opportunity unlocks and I think with Larry as well too having some of that expertise to really double down in that segment.

[Craig Courtemanche, executive]

Yes. It's really exciting. Again, this is one of those things that's not a decision that just came out of the blue. We've been talking about being FedRAMP compliant for years. In fact, a lot of infrastructure work has gone on to get us that journey started a while ago, but the announcement was around our intention to be able to satisfy the needs of our customers that do work for the federal government. And you're right. Today, a lot of our customers use Procore on these federal projects. But it's really important that we get to that level of certification and authorization in order to be able to capture additional project volume from our existing customers and from new customers. So it's also part of the evolution of our business strategy, and it's something that we're incredibly excited about.

[Operator]

We now have Saket Kalia with Barclays.

[Saket Kalia, analyst]

Tooey maybe just to start with you. Lots of change to get through. But maybe if we could just focus on sort of the idea of building out a channel. Procore clearly has a very strong direct sales business. Tooey, maybe as you think about the business, as you fast forward a couple of years in the future, how do you sort of envision the mix of the business coming from the channel versus direct?

[Craig Courtemanche, executive]

Yes. So it's a huge opportunity for Procore to capitalize on the opportunity for channel, both in the U.S. and globally. And one of the things that Larry Stack brings to the table with Procore, is a tremendous amount of experience not only from himself, but the team that he's building underneath him on being very effective at this. And so we really have a lot of high hopes that over time that this is going to be a real big contributor to our growth. And it's one of those areas where I'm spending a lot of time, and I do think that the industry is ready for it. And yes, we're really enjoying building this team out right now.

[Saket Kalia, analyst]

Howard, maybe for my follow-up for you. I think you made in your prepared remarks, a very helpful comment, which was just a point around sort of balancing growth and margin expansion. Understanding that it's just very early to kind of give a framework for looking forward. But even anecdotally, how do you -- particularly on the margin expansion point, how do you think about sort of margins through these changes? Clearly, there's some top line impact, but how do you think about sort of expanding margins as that go-to-market motion sort of changes. Does that make sense?

[Howard Fu, executive]

Yes, it makes sense. Thanks for the question, Saket. So a couple of things. One is that from a margin perspective, I want to make sure folks understand that we did a tremendous amount, and we are proud of the fact that over the last couple of years, when you think about our guidance at the high end, we'll be giving back about 21 percentage points of operating margin improvement over the last couple of years. And as I think about how we deploy our capital and specifically [ the perspective ] to this go-to-market change I'm thinking about the returns on that capital over multiple years. And so that means that I'm not specifically solving for fiscal '25, but I'm solving for '26, '27 and forward and what that looks like over time.

Now when I think about this investment, we are taking the perspective that we're going to make the investments that are the right moves for the long-term optimization of the company, and that means accelerating these investments into Q4 or into the back half of this year. And when I think about the margin perspective, you got to think about what that looks like, not just in fiscal '25, but also in fiscal '26.

Now to the extent that we are able to bring on the capacity that we can in fiscal '24, then that will impact the expenses in fiscal '24 and provide us a higher probability of higher margins in fiscal '25 and also vice versa. Even if we kept the margins next year the same as we are guiding in terms of the top end of our guidance, we would still be well ahead of our margin framework. But the important thing to note is that we're thinking about this over multiple years.

[Operator]

We now have Jason Celino with KeyBanc Capital Markets.

[Jason Celino, analyst]

Tooey, construction is totally a relationship-based business. So it makes sense to be getting closer to the regions you outlined and moving to this general manager approach. Is that part of the reasoning? And then second, do you have the right leaders in those areas already in place or should we be expecting some key announcements?

[Craig Courtemanche, executive]

I love that you asked this question because one of the things that has really been Procore's kind of hidden secret has been our customer centricity over the years. And it's one of those things that really makes us different from the competitors in the space. And what I've noticed over the last couple of years is we've been focusing more and more upmarket is that we are the trusted partner to these big construction firms. And so yes, the closer we can get to them, the more we can service their needs and provide more services to them. So absolutely, that is one of the driving factors.

And then when I looked at the business as we became more of a global business, I realized that what we did so well in the U.S., which was being hyper local, very connected to the pulse of the North American market by being very, very integrated with our customers in that market that having this GM model in these regions made a ton of sense because that will allow them to do what we've done here which is to react very, very quickly to the needs of the businesses on the ground. And the partner like we have in the U.S., extremely well and by adding more resources to provide more product overlays to help our customers get the most value out of Procore. And all of that has really driven my passion behind this in this transformation because the essence of Procore's success has been customer centricity. And I think that doing more there is only going to benefit the business in the long run. And then you asked about the leaders, you want me to address the leaders?

[Jason Celino, analyst]

Yes, sure.

[Craig Courtemanche, executive]

Yes. So we have made some hires. Now remember, Larry is only, I think, four months into his tenure. So -- but yes, I'm very pleased with the quality and the caliber of the talent that he is bringing on board. And yes, I guess I'll just leave it at that. It's been very impressive.

[Jason Celino, analyst]

Great. And then similarly, with the potential channel expansion, what might that look like? Like do the big construction customers you have, do they use the global SIs? Or would it be expanding into other types of resellers? I guess how would that kind of look like?

[Craig Courtemanche, executive]

We have very defined plans there, but I think we'll probably not go into great depth on that because it's a little early in the game to be releasing that. But there will definitely be more to come because it's an area of excitement for all of us.

[Operator]

We now have D.J. Heinz with Canaccord Genuity.

[Ryan Shanahan, analyst]

This is Ryan on for D.J. So I just want to double click on Procore Pay for a minute. We've spoken in the past how some customers are -- they're sort of hesitant to make that switch over the product mid project. So I guess as the industry faces these headwinds and presumably the number of project falls, are you seeing customers sort of retool between projects? Or are they sort of just sitting on their hands waiting for the market to turn for them?

[Craig Courtemanche, executive]

Ryan, so I can tell you one thing I know for sure. Our customers never sit on their hands. So there's no hand sitting here. I think what you're referencing, though, is that, yes, it doesn't make a ton of sense to bring a project online in the middle of a project on to pay because that's actually changing the way you pay your vendors and that's probably not scalable. But the reality is, is that our customers run dozens, if not hundreds of projects that are all staggered over time. So just because they're not bringing on an existing project that's 3/4 of the way done, it doesn't mean that they don't have a project starting tomorrow that they can bring on to the platform. So that's the beauty of this industry is our customers start and stop jobs every day of the week. And so we are very diversified across their book of business and their portfolio. So we don't really worry about the next job, not the last job not coming on, we worry about the next job coming on.

[Ryan Shanahan, analyst]

And then if I could sneak one in for Howard. Just maybe a little clarification. I thought you might have read somewhere that you guys are either in the process of or you might have already winded down the materials financing effort. Is this right? And if so, like can you talk a little bit about what that new model looks like and what kind of traction you're seeing there?

[Howard Fu, executive]

Yes. So the materials financing product that we had was our attempt to address the working capital problem in the industry. That problem still exists and we continue to explore different options to address that working capital problem. But we did wind down the materials finance business last year, and we continue to look at opportunities and ways to address those issues in the industry.

[Operator]

We now have Alexei Gogolev With JPMorgan.

[Alexei Gogolev, analyst]

Tooey, if I may ask about the incremental signs that you may be seeing with regards to stability of renewals.

[Howard Fu, executive]

What's the question?

[Craig Courtemanche, executive]

Well, I think it's about the challenges with renewals for Q2 or something [indiscernible].

[Howard Fu, executive]

Alexei, this is Howard. I can provide an answer. The stability that we're seeing is really in our churn performance, and that's consistent with what we saw in Q1. Recall last quarter, we talked about the cohort of customers that made purchases with Procore last Q1 and the stability we saw in this past Q1. We're seeing the similar dynamics in Q2. What we are still seeing though is challenges in terms of the expansion of those customers and what that is doing is actually -- we're not -- we didn't perform as well as we wanted to in Q2, and it's primarily driven by that expansion component. And what that does is it was -- the performance was a bit lower in terms of what we expected from a retention standpoint. But churn is the piece that is stabilizing.

[Alexei Gogolev, analyst]

And in terms of the average win rates, I think last quarter, you talked about those win rates being stable. Have you seen any improvements in win rates lately?

[Howard Fu, executive]

The win rates still remain stable. Just like we said last quarter, we are not seeing any significant variations in those win rates at all.

[Operator]

Your next question comes from Nick Altmann with Scotia Bank.

[Nicholas Altmann, analyst]

Howard, I appreciate the update on the CRPO framework for the end of the year. But it does sound like there's some strength with Procore Pay and some of these products that don't necessarily flow into CRPO. So how should we be thinking about the delta between CRPO growth and revenue growth on a go-forward basis as some of these newer products, Procore Pay, [ risk it buyers ], et cetera, don't necessarily move the needle on RPO?

[Howard Fu, executive]

Yes. I'll say from a revenue standpoint, I'll specifically talk about Procore Pay because the other ones are even more smaller. It's still going to be immaterial to our revenue results this year and also for next year for that matter. We are still very excited about it. But remember, we talked about the ramp period and the adoption period could take up to 24 months. And so for this year and for next year, those will still be very small contributions and immaterial. So I wouldn't look at that in terms of a significant delta with the comments I made about CRPO.

[Nicholas Altmann, analyst]

Okay. Great. And then Tooey, in your prepared remarks, you talked about sort of the necessary changes that need to be made as you scale past $1 billion in revenue here. The construction network has amassed, I think it's like over 300,000 entities in the relatively short order. I know there's no plan to directly monetize that, but as you think about the next couple of years, can you just talk about maybe some of the underappreciated benefits there, how you envision the network sort of playing a broader role in the company and stakeholders in the ecosystem. And additionally, with the rollout of this channel network, does that sort of fit into the equation here as well?

[Craig Courtemanche, executive]

Yes, Nick, by the way, this gets me to be able to promote our mission at Procore, which is to connect everybody in construction on a global platform, which I love. But if you think about it, the more folks that we can get engaged on our platform, not just collaborators who are the free users and our customers' accounts, but people that are actually benefiting from the Procore construction network as getting -- receiving a bit invitations for instance, on the network, just gets them more engaged and really what drives network effects is engagement. And so the more folks that are engaged on our platform on a daily basis, the more opportunity we have to be able to provide them with services that they value. And so for me, this is just one more solution that we can provide to actually drive adoption of the platform. So it's a very exciting piece of the equation, but it's just one piece to get that flywheel spinning of all of the folks that are involved to become Procore customers.

[Operator]

We now have Robert Trout with Macquarie.

[Robert Trout, analyst]

And if I could just, I guess, my first question, a follow-up on the previous discussion. I think it makes a ton of sense [indiscernible] long-term adoption.

[Howard Fu, executive]

Robert, we can't hear you.

[Craig Courtemanche, executive]

Bob, we lost you. Can you speak up?

[Robert Trout, analyst]

Sorry about that. I think you're exactly right, what we need is a pro quarter [indiscernible].

[Craig Courtemanche, executive]

Yes, we got you.

[Robert Trout, analyst]

So just following up on the last point. I thought one of the best things that you guys did in the last couple of months even my first quarter, covering you all was really take a more active leadership position with demonstrating via the webinars or whatever, the immediate impact of adoption to the largest potential cohort of of your TAM, which would be the subs. And I realize the GC will always be the flywheel. But when you think about kind of shrinking back on kind of 18, 24 months kind of muted period for construction activity. You guys become -- with the solution you offer, which is the -- here's how you stay in business during periods that are not the rosiest from a macro standpoint. So I'm wondering, and that's why I thought those webinars were great, I'm wondering how from, within the context of the new go-to-market framework, you're sort of pitching that to the most vulnerable part of the pie. The one -- the subs with the cash flow issues for whom stretching things out and smaller deals might be the difference between staying alive or shutting down. Hopefully, that wasn't too long.

[Craig Courtemanche, executive]

So listen, it sounds to me like you might be referencing the Innovation Summit that we just hosted and as well as a lot of the other efforts that we do. And I do think that you're absolutely right. Your hypothesis is true, which is during challenging economic times, everyone that I know that works in construction that's successful is always looking for ways to optimize their business, right? They're always looking for ways that they can do more with less, that they can solve their cash flow challenges that they can avoid risk and that they can actually find opportunities that they can exploit in order to increase their margins, right? So yes, I mean we don't only promote that to the lower end of the market, the smaller folks. But we do it to the upper end of the market, too. I mean Procore, enables our customers to run [ 48% ] more construction volume per person when they run Procore, which is just a staggering number, if you think about it and we actually do help our customers drive better businesses. So in challenging times, it's really important, in good times it's really important. But yes, it is part of the message that we deliver to the industry is that we are a force multiplier to help them run better businesses. I hope that answers your question.

[Operator]

We now have Brent Thill with Jefferies on the line.

[Brent Thill, analyst]

Tooey, if you can just put this go-to-market change in context, if you looked at like what percentage of the go-to-market team you're making a change to, and I guess when you think about the time line of how this settles in, kind of when you started this, when do you expect it to kind of reach kind of peak change. Can you just maybe walk us through an easy way to think of it, that would be super helpful.

[Craig Courtemanche, executive]

Yes. So I think if I go with the kind of the what we're doing, it will help you understand. So really, it does touch the vast majority of the go-to-market engine because this is a GM model, right? So reporting lines will change for a lot of folks because they're going to report up through a GM instead of directly into a Global Head of Sales or a Global Head of customer success, so that's number one. And that's going to drive that customer centricity, as I talked about earlier and allowing the autonomy of the GMs to be able to run their businesses.

The second piece is going to be around roles and responsibilities. And that doesn't change a lot of folks' jobs but it does emphasize to them the importance of becoming a trusted adviser and partner to the customers that they support and that they sell to. So it's an enablement opportunity for us, it's getting folks in the right roles. And then there's that roles and responsibilities piece at the end, which is we are going to add new roles, the product specialists is going to be another one, which is really going to be these overlays that are going to help our customers get more value out of what they bought with Procore and then those are people that are going to actually have mud on their boots. They're going to go on to job sites and help our customers run better businesses. So it's going to touch a broad swath of the revenue organization. And it's something that you asked when we made the decision. We started acting on this quarter.

[Howard Fu, executive]

And Brent, this is Howard. I can touch a little bit on your time line question going forward. This is something that is going to touch a lot of areas to Tooey's point, and it will cause disruption. Frankly, it's a bit early to provide any specific time lines on when we might be able to expect the returns on these. Now obviously, we're going to move as quickly as possible in terms of making these changes. And we've always tried to be as transparent as possible with everyone. And so as we go through this transition, we'll provide more insights to you at the first opportunity.

The couple of other things to think about, we're making this change in the middle of the year that will impact -- and the disruption will impact the back half of the year and specifically Q4, which typically is the largest bookings quarter for any SaaS company, and we're doing that proactively and deliberately. And if that's the case, we are building in incremental conservatism in terms of what that looks like and what that's going to do in terms of the impact on fiscal '25 revenue. And so we'd encourage everyone to do that as well in terms of buying an incremental conservative.

[Brent Thill, analyst]

Just one quick one, this is super helpful. When you think about how long it takes to communicate and get this in place, is this two months, three months, a month, two weeks? How do you think about just the execution when everyone knows where they're going to be at?

[Howard Fu, executive]

This is Howard again. The natural point to make all of these changes active is going to be obviously at the beginning of the fiscal year. We know that the amount of change that we're going through is going to take time, which is why we're trying to start as early as possible. And so while we're going to get a lot of the mechanics, the decisions are made where while we're trying to get as much as the mechanics done as we can by the beginning of the year, the reality of it is it will likely trickle into next year in terms of the mechanics and then it will take time for us to [ went ] through a learning curve and get acclimated to that model as we think about when we'll get the returns from that going into next year and hence going forward.

[Operator]

We have our final question on the line from Andrew Sherman with TD Cowen.

[Andrew Sherman, analyst]

Tooey, the move to the GM model, I think, makes sense and has been done by other companies as you said. And Larry, I think you said has done this before, but it's a big undertaking for a new CRO. But it would be great to hear how his experience helps this effort. And also how you've mentioned doing a similar process in the tech organization. So it would be great to hear how learnings from that can inform the go-to-market changes and how you've kind of -- you've been here before and you have confidence that you can do this.

[Craig Courtemanche, executive]

Yes. So Steve Davis did -- when he came on board, he did put in a whole new topology in the P&T organization. And generally, those kind of transitions starts with talent, right? And Steve did a wonderful job bringing in a leadership team underneath him and the folks that actually had that pattern recognition.

Larry is doing exactly the same thing. So Larry seen this before. He's bringing in the right folks underneath him. And he's also bringing the entire organization along with them. You cannot do this in a silo. There's nothing more important in these kind of transformations than clear and concise communications. And so we're spending a lot of energy and effort on that too.

But you're right, here's the interesting thing is Procore, is not doing this as a one-off. When I looked at a lot of companies that had the privilege of reaching the scale that Procore has had, this is not an uncharted territory. Most of them, if not -- like a lot of them have gone through this transformation. So it's not something that we have to invent from scratch. And so I'm very confident we've got the right team, we've got the right plan in place. And now it's a matter of execution, and I'm confident we're going to do it.

[Howard Fu, executive]

Andrew, this is Howard. I'm going to just add one more thing. Larry certainly does bring a tremendous amount of experience that's applicable to what we, as Procore is trying to embark on in terms of things like public sector. But one of the things that I think is a great asset that Larry brings is his ability to manage through large transformations, which is what we're trying to -- which is what we're going through in terms of this evolution. And so I think that will be a big asset for us.

[Andrew Sherman, analyst]

That's great. And then a separate topic, but the construction macro data that we all look at has been fairly weak recently, kind of all year, but would love to hear what signals you're seeing and looking for that things could turn around, especially as interest rates drop.

[Craig Courtemanche, executive]

I have to tell you that we look at the same data you look at. So we're not going to disagree with you on the data in general. And then I get this opportunity every day to talk to our customers. So I'd never miss an opportunity when I'm getting off the phone to ask our customers about the macro impact on their business, what they're looking forward to and what's changed. And frankly, because it's such a sentiment-driven industry, I mean, I think an interest rate drop would probably have some help here. But in general, they all tell me that even if we get better macro, we still have this headwind around getting qualified folks into the industry to actually do the work. And so there's no real silver bullet into making this industry accelerate again. But some good news on the economy would go a long way [indiscernible].

[Operator]

I can confirm that does conclude the Q&A session and today's conference call. Please enjoy the rest of the day, and you may now disconnect from the call.