Procore will expand into fintech services, says CEO

Dive card:

• Construction software firm Procore is expanding into the fintech sector, hoping to exploit payment loopholes in the materials procurement process for subcontractors, CEO Tooey Courtemanche said during the company’s earnings for the 2nd quarter 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 Procore’s acquisition in 2021 by the payment and lien process management company Levelset. Both Procore and Levelset have a long-term interest in solving “capital constraints” that prevent subcontractors from working on larger jobs than their finances would otherwise allow, 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 at financial firm William Blair, said the results were in line with his expectations and he was encouraged by Procore’s move into fintech.

Diving Insights:

In an interview with Construction Dive, Courtemanche emphasized that the firm’s focus on fintech is still in its infancy, but that it had a number of different “experiments” in areas such as insurance, payments and more.

These experiments are flexible, Courtemanche said, and can be prioritized to focus on successful businesses. A key part of these games is the first-party data that Procore has available through Levelset and Procore’s other products.

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

Software providers in other sectors, such as hospitality, airlines and multifamily development, have leveraged data obtained from customer transactions to launch new products such as data-based pricing solutions.

Becker said demand for Procore’s current services, which range from workforce planning and management to bid and invoice management software, is robust, especially as contractors look to become more operationally efficient.

“There is so much need for digitization in the industry that the demand far exceeds the supply available to go out and actually complete and execute on these projects,” Becker said.

Courtemanche referred to gap in subcontractor paymentswhere subs can wait as long as 120 days for a check, while still having to front the money for materials needed on a job.

With its new material purchase payment initiative, Procore would purchase the material from subcontractors prior to payment from the GCs or project owners and move the material to the job site. In return, Procore will charge a startup fee plus a weekly finance fee, with the expectation that the subs will pay the company back in about four months, Courtemanche said on the call.

Courtemanche said that because Procore buys the materials directly, the company will be able to obtain liens, securing financing against the property itself.

“If a large entity builds the building, they’re ultimately on the hook to pay us,” Courtemanche said.

The company has put a small amount of capital into the project, Courtemanche said, but strongly emphasized that it was still in the learning phase.

Threatening recessions

Part of the focus of the earnings call was the general economic conditions facing the construction industry. The threat of recession became real at the end of June, when US GDP fell for the second consecutive quarter. The Federal Reserve’s rate hike campaign to curb historical inflation also shows few signs of abating.

However, contractors in general may be better prepared to weather the storm than usual, as the federal government pumps money into the industry through the $1.2 trillion bipartisan infrastructure law, securing a nest of funds for states to carry out infrastructure projects.

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

For example, construction technology firms thrived during the outbreak of the 2020 pandemic, reaching out hundreds of millions in financing rounds.

“All of this is to say that no recession looks the same,” Courtemanche said during the earnings call. “And while the construction industry is not immune to downturns as a whole, it has historically been resilient.”