Procore will expand into fintech services, says CEO

Diving brief:

  • Construction software company Procore is expanding into the fintech sector, hoping to capitalize on payment discrepancies in the hardware procurement process for contractors, CEO Tooey Courtemanche said during the conference. company’s second quarter earnings call Last week. Popular in a variety of industries, fintech products are software and other online innovations used to enable financial or banking services.
  • The expansion is partly made possible by Acquisition of Procore in 2021 from payment and lien management company Levelset. Both Procore and Levelset have a long-term interest in resolving “capital constraints” that prevent subcontractors from working on larger jobs than their finances would otherwise permit, Courtemanche said on the call.
  • The news comes as Procore announced a 40% year-over-year increase in revenue to $172 million. Dylan Becker, an analyst for financial services firm William Blair, said the results were in line with his expectations and he was encouraged by Procore’s move into fintech.

Overview of the dive:

In an interview with Construction Dive, Courtemanche pointed out that the company’s focus on fintech is still in its infancy, but that it has conducted a variety of different “experiments” in areas such as insurance, payments and more.

These experiences are flexible, Courtemanche said, and can be prioritized to focus on successful projects. A key component of these bets is the first party data available to Procore, through Levelset and other Procore products.

“We wouldn’t really be able to start these businesses if we didn’t have this data set under us,” Courtemanche said.

Software vendors in other industries, such as hospitality, airlines and multi-family development, have leveraged data extracted from customer transactions to launch new products such as data-driven pricing solutions.

Becker said demand for Procore’s current services, ranging from workforce scheduling and management to bid and invoice management software, is robust, particularly as contractors seek to become more operationally efficient.

“There is such a need for digitization in the industry that the demand far exceeds the available supply to go out and actually finish and run these projects,” Becker said.

Courtemanche referred to the subcontractor payment discrepancywhere subcontractors can wait up to 120 days for a check, while having to pay the money for the materials needed for a job.

With its new materials procurement payment initiative, Procore would purchase materials for subcontractors prior to payment by CGs or project owners and move materials to the jobsite. In return, Procore will charge an assembly fee plus a weekly finance charge, with the expectation that the contractors will repay the company in about four months, Courtemanche said on the call.

Courtemanche said that because Procore buys the materials directly, the company would be able to secure liens, thereby securing financing on the property itself.

“If a large entity builds the building, they are the ones who are ultimately obligated to pay us,” Courtemanche said.

The company invested a small amount of capital in the project, Courtemanche said, but strongly emphasized that it was still in the learning stage.

Imminent slowdowns

The earnings call focused in part on the overall economic conditions facing the construction industry. The threat of recession became real at the end of June, when US GDP contracted for the second consecutive quarter. The Federal Reserve’s rate hike campaign to rein in historic inflation also shows few signs of slowing down.

However, entrepreneurs in general may be better prepared to weather the storm than usual as the federal government pumps money into the industry through the bipartisan $1.2 trillion infrastructure act, guaranteeing a nest of funds to the States to carry out infrastructure projects.

Courtemanche said different pockets of construction react differently to recessions, so the results won’t be uniform across the industry.

For example, construction technology companies thrived at the start of the pandemic in 2020, raking hundreds of millions of funding rounds.

“All that to say, no two recessions are alike,” Courtemanche said on the earnings call. “And while the construction industry is not immune to downturns as a whole, it has historically remained resilient.”

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