Dive Brief:

• Construction software firm Procore is expanding into the fintech sector, hoping to capitalize on payment gaps in the material procurement process for subcontractors, CEO Tooey Courtemanche said during the company’s Q2 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 enabled by Procore's 2021 acquisition of payment and lien process management firm Levelset. Both Procore and Levelset have a long-term interest in solving “capital constraints” that keep subcontractors from working on more jobs than their finances otherwise would 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 for financial services company William Blair, said the results were in line with his expectation and that he was encouraged by Procore’s move into fintech.

Dive Insight:

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

Those experiments are flexible, Courtemanche said, and can be prioritized to focus on successful ventures. A key part of these bets 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 underneath us,” Courtemanche said.

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

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

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

Courtemanche referenced the gap in subcontractor payments, where 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 procurement payment initiative, Procore would purchase the materials for subcontractors ahead of payment by the GCs or project owners. In return, Procore will charge an origination fee plus a weekly finance charge, with the expectation that the subs will pay the company back in about four months, Courtemanche said during the call. 

Courtemanche said that because Procore directly purchases the materials, the company would be able to obtain lien rights, securing financing against the property itself.

“If a large entity is building the building, they are the ones that are ultimately on the hook to pay us,” Courtemanche said.

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

Looming downturns

Part of the focus of the earnings call was the overall economic conditions that the construction industry is facing. The threat of a recession became real at the end of June, when U.S. GDP contracted for the second consecutive quarter. The Federal Reserve's rate hiking campaign to curb historic 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 act, securing a nest of funds for states to perform infrastructure projects. 

Courtemanche said that 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 onset of the pandemic in 2020, raking in hundreds of millions in funding rounds.

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