Procore Technologies, Inc. (PCOR) Earnings Call Transcript & Summary

Welcome, everyone. My name is Tooey Courtemanche. I'm the Founder and CEO of Procore. I am excited and honored to kick off today's webinar to introduce Procore Risk Advisors. Procore's vision is to improve the lives of everyone in construction. And we believe that Procore Risk Advisors presents an opportunity to further our vision by modernizing the construction insurance space. Our mission is to connect everyone in construction on a global platform, which has clear benefits to the industry like better communication, better collaboration, fewer mistakes, which means less rework and all of this serves to mitigate risk. We believe that our platform is ideally suited to assimilate the massive amount of data that you and all of our other users generate. This enables you to run better and safer businesses. This is the information that insurance companies need, which can lead to better terms for contractors, which is why we launched Procore Risk Advisors. We are building a modern insurance and surety brokerage with exclusive programs for our customers. These offerings are backed by A+ rated carriers and reinsured by Swiss Re. We fully intend to reward our customers with better insurance terms by leveraging technology to mitigate risk. We tell you a quick story. One of my mentors many years ago, who is running a large construction company, when I first met him asked me what Procore was doing. And I said, we're building project management software. And after he heard me go through the pitch, he stopped me and he said, "No, you don't understand, you're building risk management software." In the construction industry, we deal with risk every day in and out. It doesn't matter what we're thinking about. We're always trying to manage risk. So to us, project management software is risk management software. And I just want to say before I hand it off that I am so proud of all the hard work the teams have been doing to launch Procore Risk Advisors. So with that, I'm honored to hand it over to Peter and Anthony in New York to share more.

Thanks, Tooey. We're live from New York. Welcome, everyone. Excited to be here to talk about Procore's entry into the insurance space. I'm Peter O'Brien, GM of Procore Risk Advisors, and I'm joined by Anthony Dietz, Head of our Insurance Brokerage. Today, we're going to cover the launch of Procore Risk Advisors, a modern construction insurance and surety brokerage built exclusively for Procore customers. On this webinar, we'll touch on the challenges facing the construction insurance markets and why Procore is uniquely positioned to help our customers solve these challenges and to help our customers get the insurance terms they've earned. A few housekeeping items before we kick off. One, please submit your questions by entering them in the chat box. We have a team of experts on standby, ready to answer them. And two, if we don't get to your questions today, we'll be sure to follow up after.

All right, Anthony, let's kick things off. You made the jump from a traditional insurance brokerage to a construction technology company, which is very unorthodox. Can you give us a little background on yourself and why you joined Procore Risk Advisors?

Sure, Peter. And thanks for all of you being here today. I've been in the construction insurance space for over 25 years now. The first 22 years on the underwriting side, analyzing, assessing and pricing construction risks, then about 4 years ago, I moved over to the broker side to build out a national construction practice that serve this industry. Well, the reason why I joined Procore Risk Advisors is that I was frustrated with the status quo. I wanted to focus in on helping customers. And this was a unique opportunity to be the best client advocate and solve some of the industry's toughest challenges through the utilization of technology.

I love your background, Anthony. And clearly, you are an expert in this space. So diving into it. Insurance has traditionally been slow to adopt technology. Have you seen any advancements in this space over the course of your career?

Well, there has been a ton of innovation over the past 25 years. I remember when I started this business, we were using fax machines, typewriters, wide out. But there's been some modest improvements over the years, most notably wearable PPE, water mitigation sensors, but Procore has come to the forefront with the utilization of data to really change that game. Procore will enhance the information that will be sent to carriers for underwriting. Historically, carriers were hyper-focused on quantitative data. We're going to supplement that submission now with material qualitative and behavioral data that will change how deals are assessed and underwritten in the future.

Yes, the data piece is such a massive opportunity. And I sort of laugh when you're talking about the typewriter component, when I was learning about the surety space, you still actually need a typewriter to execute some bonds in certain states. But at the highest level, what we have believed is construction technology is essentially risk technology. Now so kind of moving on to the next question. You've been focused on construction insurance for the better part of 2 decades. What do you see as the core industry challenges and customer pain points regarding their risk management?

Well, that's a great question. It's something I've been thinking about a lot. I think it really comes down to 2 key issues. One is the antiquated customer experience, manual applications, spreadsheets, weeks, months to get quotes. I mean it's just totally unacceptable. Secondly is the cost increases and the decrease in capacity. I know the industry in 2022 lost billions of dollars. And I understand that the industry needs to get rate increases when they're losing money, but those increases need to be assessed to the appropriate parties. We need to avoid those broad brush increases across the industry.

Yes, that's very much aligned with what we've heard from our customers during our research. Now given how core insurance is to a contractor's business, it's mandated on all projects, and it's a massive cost on the project. Why haven't these challenges been solved to date?

Well, there are multiple unique factors that make this very difficult to solve. First and foremost, there was a lack of customer focus. I mean over the last few decades, there's been a massive amount of private equity buying up brokerages across this country, whose focus is on profits over innovation and customer service. Secondly, there's limited data to differentiate risks. Most underwriting models are decades old and failed to leverage the new data that's been unlocked through technology that Procore has brought to the table. This has led to good contractors subsidizing bad contractors, which is terrible for this business.

Yes. That makes a lot of sense. And I think the opportunity to educate the underwriting community on how to utilize this new data set that's been unlocked through sort of the innovation in the construction space will be massive. Now -- So in your opinion, how will Procore Risk Advisors help contractors run safer businesses and improve their overall insurance programs?

Well, at the end of the day, insurance is a data business that leverages insights to differentiate and price risk. Procore is uniquely positioned to be the best client advocate, firstly, because of our expertise. Every broker on the team is a construction expert. Construction is very risky. And even an expert in this space versus the generalist. The experts understand all aspects of your business. And then secondly, technology-enabled brokerage, we want to simplify the workflows and enhance submissions. And third, we have exclusive insurance programs just for our customers.

Yes, it sounds like the winning trifecta. We're building the insurance brokerage for the construction industry. Now with our earliest customers, I've seen this firsthand. We've been able to leverage their Procore data to strengthen their submissions. As a result, underwriters are able to improve their rates and capacity. I know sort of data is a big buzzword these days. So to put things into perspective for you and everyone else on the webinar, I wanted to share some stats. Over 200 terabytes of data are generated on Procore platform every month. To put that into perspective, a single terabyte of data is equivalent to 500 hours of video. In 2021, approximately 400 million documents, photos and inspection items were uploaded into Procore and nearly 300 million invoices were submitted for approval. In addition, we know Procore customers reduce risk on a daily basis by using technology. Now when we surveyed over 2,000 customers from around the globe, it was clear how technology mitigates risk. We then are able to use this behavioral data within the broker application to enhance their submissions to unlock better insurance terms for our clients. Now sort of moving forward, this leads me to my next question. Now in your opinion, when construction risk expertise and data are combined, who do you think wins?

Everybody wins, contractors, carriers, brokers, risk transfer is about properly selecting and pricing risk. When the contractor's best-in-class operations are objectively demonstrated, this gives underwriters more confidence in taking on that risk.

Yes. That makes total sense. You also mentioned exclusive insurance programs tailored to customer needs. Can you elaborate more on this and how it helps contractors get better terms?

Yes, without a doubt. Procore's in-house underwriting team has partnered with A+ rated carriers to build out exclusive products, rewarding our customers for their technology adoption, which, as we already noted before, reduces risk. We'll watch more of these programs with best-in-class coverage and competitive pricing in the future, which, by the way, our first in-house program has gone out to market with our Builder's Risk program. We're super excited to deliver this to our customers starting in April. And you might be asking why is this important to a Procore customer, because we have preferred pricing. That's why we're super excited to roll this out for future programs.

Now let's talk about the insurance industry experts on your team. How do you think we're going to leverage our connection to Procore's platform and data in order to deliver faster and better results to customers?

Well, our team of brokers have been dedicated to the construction industry, their entire career, just like Procore, they're going to be with you every step of the way when it comes to mitigating risk. We have proactive risk advisory. We're going to leverage the latest technology and our deep industry expertise, so we could provide customers advisory service that identify opportunities to mitigate and manage risk efficiently. This will ultimately help you maximize your insurance outcomes. Second, we'll validate the efficacy of how well you're doing, making the carrier more confident pricing your risk -- this is not demonstrating a traditional insurance submission now. And then thirdly, we'll streamline the underwriting process. Having digital applications and enhanced submissions, we're eliminating the back and forth between you, the broker and the carrier.

Yes, that sounds like a winning recipe. Customers might be wondering now what coverages are we providing through the brokerage?

We're a full service brokerage that handles all lines of coverage in addition to having access to exclusive capacity, which we just talked about.

Yes, I think that's a great transition to highlighting some of the successes that we're seeing with our early clients. Now a good example is a $35 million general contractor that we're working with in Pacific Northwest. They were looking to grow their business and take on more federal work. However, they are hampered by their current surety program. They didn't have the capacity they needed and they had really struggled with personal indemnity and the required collateral pieces. Utilizing their operational data and their financial data within the Procore platform, we were able to build a really strong submission, which were rewarded by the market by growing their program by 25% and removing personal indemnity and lowering the required collateral piece. This allowed the executive team to feel much more secure and sleep better at night. It was a huge win just showing how we can work on behalf of our clients, utilize their data to strengthen these submissions and to improve the outcomes for them.

Peter, I love the story. It reminds me of why I actually got into this business to help customers solve problems and grow their business.

Yes. Well, I know we covered a lot today. So I just want to say thank you, Anthony, for joining. We feel so lucky to have you and your team to have joined Procore to help build out this strategy. And I want to just thank you all on the webinar for joining us to learn more about Procore Risk Advisors. Now we know that the construction industry faces unique challenges when it comes to risk management, and we're committed to helping our clients navigate those challenges through the use of data and technology. Now hopefully, this webinar was useful. If our team didn't get to your questions, we'll certainly follow up to make sure that we get answers for you. And if you have any questions for the strategy or you want to learn more, please don't hesitate to reach out to us. Thank you again for your time, and we look forward to the opportunity to work with you.