A Member of Pat McKeough’s Inner Circle recently asked for his advice on Procore Technologies a software company that specializes in cloud-based construction management.
Pat likes the company’s strong revenue growth and the fact that the firm is a leader in its niche with high R&D spending and a dominant market position. However, Pat notes the firm is also a recent IPO and new listings should be treated with caution.
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Procore Technologies Inc. (Symbol PCOR on New York; www.procore.com) is a leading provider of cloud-based construction management software.
Procore’s software platform aims to let all parties in a construction project communicate with each other online, share data and programs that are stored on remote servers, and manage their workflows more effectively. The software has four product categories: Preconstruction, Project Management, Resources Management, and Financial Management. Procure has more than 16,598 customers who use those offerings.
The company went public on May 19, 2021, selling 10.41 million shares at $67 a share. It raised $665.1 million in net proceeds. The stock gained 31% on its first day as a public company but is now just below the IPO price.
On November 3, 2021, Procore completed the acquisition of Levelset, a New Orleans-based construction software company. It paid $425 million in cash and $75 million in stock for the Louisiana firm. This was its first acquisition as a public company and remains its largest.
The Levelset purchase has provided the company with the software to help its customers better manage lien rights. Specifically, the software helps construction companies get paid faster by avoiding issues regarding liens and other claims a creditor can attach to a debtor’s real estate assets. More than 250,000 users, representing 3,300 customers, have worked with Levelset software on more than 6.5 million construction projects.
Inner Circle: Revenue growth remains strong and the outlook is positive for Procore Technologies
Procore’s revenue rose 176.2% between 2018 and 2021, from $186.4 million to $514.8 million. Then, in 2022, revenue jumped 39.9%, to $720.2 million, on increased customer activity. The 2022 revenue included a $32-million contribution from Levelset. In 2023, revenue then rose a further 31.9% to $950.0 million.
Excluding one-time items, the company lost $45.0 million, or $0.49 a share, in 2020. That was followed by a loss of $32.6 million, or $0.35 a share, in 2021. (No earnings figures are available from before the 2021 IPO.) Procore then reported a loss of $70.3 million, or $0.51 a share, in 2022. In 2023, the company made $44.5 million or $0.31 a share.
Meanwhile, in the three months ended March 31, 2024, the company’s revenue rose 26.1%, to $269.4 million from $213.5 million. The company also added 231 net new organic customers. Excluding one-time items, Procore made $45.0 million, or $0.31 a share. That was up sharply from $1.8 million, or $0.01.
With a positive outlook and a commitment to innovation, Procore’s strategic investments in technology and customer growth position it well in the competitive market of construction management software. The company’s financial health, as reflected in the latest quarterly data, suggests a strong foundation for continued success.
Note that the stock is a 2021 new issue, and it’s important to keep in mind that IPOs come to the market when it’s a good time for the company or its insiders to sell shares. That may not be a good time for investors to buy.
Recommendation in Pat’s Inner Circle: Procore Technologies Inc. is a hold.
