PROCORE TECHNOLOGIES, INC. Q2 2026 earnings call

Good morning, and welcome to Procore's 2026 second quarter earnings call. I'm Matthew Puljiz, SVP of Finance. With me today are Ajei Gopal, President and CEO, and Rachel Pyles, 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 include forward-looking statements regarding, among other things, our financial performance, platform and products, customer demand, business strategies, transactions, and operations. 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, July 30th, 2026.

Procore undertakes no obligation to update any forward-looking statements except as required by law. If this call is replayed after today, the information presented may not contain current or accurate information. Therefore, statements made during this call 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. With that, let me turn the call over to Ajei.

Good morning, and thank you for joining us today. I'm delighted to report that our core business continues to perform very well, as evidenced by our outstanding financial and operational results for the quarter. Nearly nine months into my tenure as CEO, I have a clear view on Procore's go-forward strategy and the operational rigor needed to execute it, and I'm more excited than ever about our prospects for the short and long terms. Procore has built one of the most essential vertical software platforms in the industry, a system of collaboration that creates a powerful network effect across the industry's stakeholders. We sit at the intersection of the physical and the digital world, where the decisions made on paper meet the realities of the job site.

I believe we have the opportunity to lead in the AI era by continuing to build a true next-generation, AI-native construction management application that delivers meaningful efficiency and safety gains across the construction life cycle, saving our customers time and money. We have taken concrete steps towards that vision through both organic development and two targeted acquisitions, including our agreement to acquire DroneDeploy, which we announced yesterday. Even as we've pursued our strategy, we have continued to execute, recruit key personnel, and organize ourselves for success. This quarter's outstanding results and our raised expectations for the year reflect that discipline. My conversations with customers these past months have only fortified my conviction in our business and in our path to long-term value creation.

I'm confident that the strength of our business, our ability to execute, and the depth of our customer relationships give us a clear runway to durable growth, meaningful margin expansion, and compounding free cash flow per share. Let me start with the quarter. Q2 was an outstanding quarter for Procore, where we delivered 15.8% year-over-year revenue growth and 21.5% non-GAAP operating margin, which represents 800 basis points of year-over-year margin expansion. I'm excited that in Q2, we signed a contract for the King Salman International Airport, or KSIA, in the Kingdom of Saudi Arabia. This public investment fund project, which will become one of the largest airports in the world, is implementing Procore for unified digital construction management. Working with strategic delivery partner, TASAMA, KSIA will use Procore to have one connected source of project data from design through delivery, with stronger governance and transparency from the earliest stages.

To reflect our momentum in the market, I'm pleased that we have raised our annual guidance, just as we did last quarter. I'm also excited about the margin expansion we have delivered over the past few years, the operating leverage we are building, and our commitment to sustained profitability. Rachel will walk through the details in a few minutes. Our core U.S. residential and multifamily construction market has experienced significant growth deceleration over the past two and a half years, leading to negative growth in late 2025. Despite this, Procore has sustained mid-teens top-line growth, significantly outperforming the end market and reflecting the critical nature of our products and our ongoing success across stakeholders. Today, we are seeing an uneven end market with weakness in certain sub-sectors, such as manufacturing, and unprecedented strength in data center construction, driven by ongoing investments in AI.

In the U.S. alone, construction spending in the data center sub-sector has tripled over the last three years, according to Goldman Sachs Research. Commercial real estate services company JLL reports that nearly 100 gigawatts of new data centers will be added between 2026 and 2030, doubling global capacity. The enormous magnitude of spending on data center construction will continue to drive top-line benefit to Procore. Of course, any acceleration in data center construction would be an additional tailwind for us. Procore is the market leader in data centers with nine of the 10 largest North American data center sites using our solutions during construction. Because data centers are highly sophisticated facilities built under tight deadlines, our customers rely on Procore to automate approvals and communication, and to keep every stakeholder collaborating in real-time on a single platform.

We are expanding our solution set with new product capabilities in connected commissioning and asset workflows. Through our NVIDIA partnership, we're streaming Omniverse-powered 3D digital twins of data centers directly inside Procore. In Q2, we closed our largest contract in EMEA history. A nearly $7 million agreement with a European company that builds hyperscale AI data centers across Europe, the U.S., and APAC. This company will use Procore as its system of record for the entire global construction program, including project execution, document control, and cost management. In the process, this customer will replace site spreadsheets with a single standardized audit-ready platform integrated into its ERP. Moving to our products, Procore was founded with a mission to bring efficiency and collaboration to the job site. Since then, we have expanded our market leadership, evolving from a system of record to a global system of collaboration.

We are where physical assets and activities are digitized, and where actions are taken to change the physical world. Our technology strategy is anchored by four key pillars. Our extensive dataset and depth of context, fueled by nearly 3 million active users, the trust we have established through a secure and compliant infrastructure, the powerful network effect of having dozens of stakeholders collaborating on every project, and our focus on moving work forward in addition to providing insights. Building on this foundation, we are now integrating AI into our platform's core to address the industry's most pressing challenges, including a labor shortage of nearly 350,000 workers in the U.S. alone. Our AI-powered digital coworkers are designed to bridge this gap by delivering purpose-built capabilities for every project stakeholder. To accelerate our ambitious roadmap, we are driving organic innovation alongside strategic acquisitions.

Specifically, Datagrid, which joined our portfolio in January, and DroneDeploy, our latest announcement yesterday. After closing the Datagrid acquisition, we focused on technical integration and launched Procore AI through a dedicated specialist team working as an overlay alongside our core sales force. Our product enables customers to use construction-specific AI natively and with full context within their existing Procore environment. In the last week, we've expanded our library of pre-built digital coworkers to 20 AI agents purpose-built for construction, and we expanded sales to include our broader go-to-market organization. Initial customer interest has been very positive with leading companies including Haskell and Level 10 Construction amongst the early adopters. Another great example is Consigli, a top North American general contractor and Procore customer for more than a decade.

As part of our early limited availability program, the company moved from an internal AI hackathon to deploying four Procore AI agents in three test projects to help with common workflows like reviewing submittals or drafting RFIs. Searching drawings that once took their project engineers 30 minutes now takes five. Material verifications that took 10 minutes can be accomplished in seconds. With that success, Consigli is now deploying the generally available Procore AI across 50 projects. We are very excited about the speed at which Datagrid has been integrated, the reception by our customers to our Procore AI strategy, and the momentum we are building in our AI business. This early success gives us further confidence to make another AI-accelerating acquisition in DroneDeploy. I will cover the strategy around DroneDeploy while Rachel will discuss the financial details.

As a leader in reality capture and robotic automation, what we are calling visual intelligence, DroneDeploy bridges the physical construction site with the digital world, delivering critical real-time visibility into job site activity. While its name reflects its origins in drone-based imaging, the company has evolved over the last 13 years into a fully unified platform for three-dimensional ground and aerial imaging, spanning drones to ground-deployed robots, as well as mobile, fixed, and wearable cameras. Their products are based on artificial intelligence and machine learning, with particular focus on computer vision and image recognition. Their robotic solutions enable robots and docked drones to conduct scheduled, fully autonomous missions, launching, capturing, and uploading data without on-site personnel. DroneDeploy is being used on over 3 million job sites across more than 180 countries, including many of the large data centers that I mentioned earlier.

It is important to note that Procore and DroneDeploy offer complementary solutions that do not overlap. Longtime partners, we have market-tested integrations that joint customers are using today. Soon as the transaction closes, we intend to rapidly build on those integrations to deliver AI-enabled, intelligent, multimodal capture via cameras, drones, and robots, deeply integrated into the Procore platform. We expect our augmented solutions will address some of the most challenging pain points customers are facing. Building on their strong AI and technology foundation, DroneDeploy has recently developed three AI agents to enable customers to track progress, flag safety risks, and monitor asset conditions. These agents, which are in the early stages of commercialization, are intended to optimize entire workflows. They help point the way to how Procore AI will transform construction management software. To illustrate, I'll reference the customer scenario I mentioned in our Q4 call.

I described how, during a job site inspection, a supervisor manually took videos of a column to share with stakeholders. An early incarnation of a Procore digital coworker analyzed the audio and visual cues and the specifications, determined that the column had been coded incorrectly and ordered remediation. What would have normally demanded several hours of manual effort and specialized expertise to navigate across project specifications was solved by Procore AI in minutes. With DroneDeploy added to the scenario, the manual job site inspection and logging of observations will no longer be the trigger. Instead, a multimodal perception capability driven by a range of cameras, drones, robots, and other devices will regularly evaluate the construction site and automatically initiate any appropriate response securely, compliantly, and in the right context.

Thanks, Ajei, and thanks, everyone, for joining us. Before I get into the results, you will notice we are introducing a new supplemental earnings presentation this quarter, which can be found alongside our press release on our investor relations website. We had an excellent Q2, beating the high end of our revenue guidance by approximately 2.5% and delivering our first quarter of GAAP operating profitability. Total revenue in Q2 was $375 million, up 15.8% year-over-year. Our Q2 international revenue grew 23% year-over-year or 19% on a constant currency basis. Q2 non-GAAP operating income was $81 million, representing a non-GAAP operating margin of 21.5% up 800 basis points year-over-year. Free cash flow was $65 million, up 507% year-over-year. We ended Q2 with broad-based momentum, driven by strong operational performance and robust demand across our portfolio.

Large deal execution led the way. We are seeing customers increasingly commit to larger, more strategic partnerships with us, which speaks to the critical role we play in their operations. When we look under the hood of the large deal performance, the strength was multifaceted. We gained significant traction landing high-profile new logos across both domestic and international markets, while rapidly accelerating our momentum in large-scale data center opportunities. This ability to win across multiple vectors gives us confidence as we head into the back half of the year. Our strength in the quarter also contributed to improvement in CRPO, where our year-over-year growth rate accelerated by 100 basis points. The primary driver of this quarter's acceleration was stronger underlying booking performance. CRPO also benefited from an increase in our average contract duration.

When normalizing CRPO, the year-over-year growth remains highly consistent with both our Q2 revenue growth and ending ARR growth. As a reminder, once contract duration stabilizes, reported and normalized CRPO growth will eventually converge with revenue growth. Turning to profitability, we are pleased with the margin expansion delivered this quarter, which is reflected in both our non-GAAP and GAAP results, the latter reflecting the company's first quarter of GAAP operating profit. This reflects not only strong execution across our teams, but also the growing inherent operating leverage in our business model. This quarter's performance is an initial step in a broader trajectory of profitable growth. Looking ahead we are committed to driving sustained efficiency. Specifically, we are initiating FY 2027 guidance for non-GAAP operating margin at 25%, which would represent nearly 1,100 basis points of improvement versus FY 2025.

As we scale further, we will continue to optimize our cost structure, which includes tailwinds from AI efficiencies. We intend to build on the significant margin expansion we've delivered over the past few years, carrying that same upward momentum into the future. Next, I want to discuss our exciting agreement to acquire DroneDeploy for $845 million in cash. We approach M&A with a high bar for both strategic alignment and financial rigor. We selectively evaluate targets that can accelerate our strategy but maintain strict discipline by ensuring every deal is financially accretive to our business over time. That dual focus on strategic acceleration and financial returns remains central to our capital allocation philosophy. As Ajei detailed, this acquisition represents an important component of our AI strategy, and we see significant synergy opportunities across the combined businesses that will directly benefit customers.

To give you a sense of scale, DroneDeploy has generated approximately $78 million in trailing 12-month revenue. We expect this transaction to be accretive to organic revenue growth, and importantly, we expect to absorb their near-term margin headwind with no changes to the FY 2026 and FY 2027 margin outlook we have shared today. We remain confident in our multi-year margin expansion roadmap. In terms of funding, we have arranged committed bridge financing to fund a majority of the purchase price while we evaluate and finalize our long-term capital structure solution in the most EPS accretive manner. Because we expect the deal to close later this year, we will provide formal financial details along with any relevant capital updates at the appropriate time. With that, let's move on to our outlook. To reiterate, this outlook represents our organic business and does not reflect any contributions from DroneDeploy.

For the third quarter of 2026, we expect revenue between $382 million and $384 million, representing year-over-year growth of 13.3% at the high end. Q3 non-GAAP operating margin is expected to be between 19% to 19.5%. For the full year 2026, we are raising our revenue guide to a range of $1.51 billion to $1.514 billion, representing total year-over-year growth of 14.5% at the high end. We are also raising our non-GAAP operating margin guidance for the year by 50 basis points to be between 18.5% and 19%, which implies year-over-year margin expansion of 440 to 490 basis points. Finally, we are raising our free cash flow margin guidance by 50 basis points to 19.5%, which implies year-over-year free cash flow margin expansion of approximately 310 basis points.

It is important to note, we are confident that we can maintain our margin guidance post the closing of our acquisition of DroneDeploy. In summary, we delivered an excellent quarter that highlights both our top-line growth and expanding margin profile. By pairing our underlying business momentum with the synergistic acquisition of DroneDeploy, which bolsters our AI strategy, we are setting up the business for sustained, profitable growth. We remain focused on relentless execution and building on this momentum to generate compounding free cash flow per share over the long term. With that, let's turn it over to the operator for Q&A.