Third-quarter earnings call, November 4, 2026: Largest dollar beat since 2023, guidance raised, FY27 margin target of 25% reiterated

Procore Technologies reported third-quarter results that showed a clear reacceleration in its core business. Excluding DroneDeploy, revenue was $397 million, up 17.1% year-over-year, versus 15.8% in the second quarter. That was $13 million above the high end of guidance and the company's largest dollar beat since 2023. CFO Rachel Pyles attributed the upside "primarily" to stronger bookings and the consistency with which they landed through the quarter. Including $5 million from DroneDeploy, reported revenue was $402 million, up 18.7%. Non-GAAP operating margin was 23.5%, 400 basis points above the high end of the guided range and roughly 620 basis points higher year-over-year.

Large-deal execution is the swing factor

Management was explicit about what changed. The improvement in large-deal execution flagged in the second quarter "was the single biggest contributor to our booking strength," according to Pyles, who credited the new go-to-market leadership team. CEO Ajei Gopal, who is a week from his one-year anniversary in the role, said the sales chief Walt "is a proven operator" who has been personally involved in some of the largest deals and is building relationships at the most senior levels of customers. Gopal said the macro backdrop was unchanged from last quarter, so the acceleration is being framed as company-specific rather than a market tailwind. Large contractors, he said, are "oversubscribed" with "significant backlogs," and their binding constraint is a shortage of labor, not demand.

Growth was described as broad-based across general contractors (about 60% of the business), specialty contractors and owners, and across domestic and international markets. International revenue rose 30%, or 26% in constant currency, helped by a common data environment product built specifically for the U.K., Ireland and European markets. Gross revenue retention remained at 95%, which Gopal said has been consistent for several quarters, with nothing standing out by segment or geography.

Current remaining performance obligations grew 22.6% excluding DroneDeploy, up about 70 basis points from the second quarter, and 28.9% including it, with the acquisition contributing about 6 points. Contract duration is still lengthening, though more slowly than last quarter. Pyles was candid that "we have not yet seen that duration stabilize," and that on a normalized basis CRPO is growing in line with revenue and ending ARR. Investors should therefore treat some of the CRPO strength as a function of longer commitments, not only of bookings.

DroneDeploy: financials and the strategic logic

Procore closed the $845 million cash acquisition of DroneDeploy on September 9. It was funded with cash and the proceeds of $950 million of 0% convertible notes due 2031, alongside a roughly $175 million share repurchase. The company's board also approved a new $300 million buyback authorization. Cash and investments ended the quarter at $614 million.

DroneDeploy added $5 million of revenue over roughly three weeks, and guidance embeds about $19 million in the fourth quarter and $24 million for the year. Pyles said trailing 12-month revenue as of September was about $83 million, and that revenue is "tracking slightly ahead" of plan. The deal remains accretive to growth, dilutive to margin and cash-flow breakeven, as originally framed. Acquired deferred revenue was about $37 million. The two companies shared roughly 600 customers at signing, and management sees cross-sell in both directions, including introducing Procore's owner products to DroneDeploy's many owner customers. Gopal cited DroneDeploy's roughly 20 trillion square feet of visual data as an additional input to Procore's data advantage.

One cost to note: free cash flow of $73 million, an 18.1% margin, included about $19 million of one-time closing costs, mainly accelerated vesting of DroneDeploy equity awards. Excluding them, free cash flow was $92 million, a 23% margin, up 36%.

The AI product push: from "see" to "understand" to "act"

Gopal framed the strategy as a see-understand-act loop, with DroneDeploy supplying the "see." The company made its Digital Coworkers generally available this quarter. One example is the Submittal Review Agent, which checks subcontractor responses against specs and contract and drafts a reply, which Gopal described as "a problem software hadn't previously solved." At McCownGordon, the agent caught 10 door openings missing from a submittal before the error reached the field. Procore AI Go, a voice-first mobile app now in beta, will also run hands-free on Meta AI glasses. An NVIDIA-backed digital twin offering, now in closed beta, extends beyond data centers to healthcare and public infrastructure projects.

Adoption data was thin. Asked for Digital Coworker statistics, Gopal said only that the company is three months into general availability, demand is strong and "we're early in the adoption cycle." Named references so far are McCownGordon and OVG. Investors should regard the AI products as strategically important but not yet visible in the numbers.

Responding to a Goldman Sachs question on what Procore must own as underlying models improve, Gopal pointed to a multimodal index covering drawings, photos and meeting minutes, a construction ontology that he described as "a live map of the construction logic" connecting documents, actions and decisions, and the Magpie reasoning engine. Magpie 3.0 decomposes tasks into sub-agents, routes each to the right model, including open-weight models, and cites the drawing or specification behind each answer. Management said internal testing shows Magpie outperforming leading frontier models on construction tasks, though that is an unaudited claim. Gopal also noted that the company's exposure is tied to annual construction volume, and that the labor budget is the prize: "we believe that AI will help us unlock labor budgets that sit outside traditional software spend."

Margins: AI cost is contained, for now

Gross margin held at 84% despite DroneDeploy and the early agent rollout. Pyles acknowledged "some gross margin impact" from the Digital Coworkers but said it is offset by efficiencies elsewhere and is already built into the 25% FY27 operating margin target. She gave three reasons AI is not a structural risk: agents are priced on committed usage with cost as an input, model costs are falling and the right model can be matched to each task, and customers want spend certainty, which the new Control Tower tool addresses. "We're not selling an all-you-can-eat AI solution," she said. Procore also disclosed that more than 80% of its code is now written by AI. Pyles said the company no longer needs to grow operating expenses in proportion to revenue, particularly in G&A, so incremental margins are higher without cutting investment.

Packaging is a secondary lever. Four new good-better-best bundles introduced this year are performing well, particularly with new logos, and management intends to place some AI capabilities in higher tiers to monetize them.

Guidance and open questions

For the fourth quarter, Procore guided reported revenue of $420 million to $422 million, up 20.9% at the high end, or $401 million to $403 million (15.4%) excluding DroneDeploy. Non-GAAP operating margin is guided to 15.5% to 16%, reflecting seasonally lower profitability and DroneDeploy dilution. For fiscal 2026, revenue is now $1.557 billion to $1.559 billion, up about 17.9% at the high end, a $45 million raise that includes $24 million from DroneDeploy. Operating margin guidance rose 50 basis points to 19% to 19.5%. Free cash flow margin guidance holds at 19.5% excluding one-time costs, or 18% reported. Pyles said the guidance philosophy is unchanged and the Q3 beat was flowed through. Notably, the Q4 organic guide implies growth decelerating to 15.4% from 17.1%, which suggests either conservatism or a tougher comparison.

Gopal declined to call the current growth rate a new baseline, saying the company is "not giving any kind of long-term view." FY27 revenue guidance will come with fourth-quarter results, and the 25% margin target is independent of it.

Two other points are worth noting. Data center exposure is "roughly in line with the overall market," Gopal said, which tempers the AI-infrastructure bull case, even though Schneider Electric Secure Power was one of the quarter's largest contracts. And in response to an analyst's observation that open customer success roles have been flat while sales openings have risen, despite a more complex portfolio, management gave a non-answer, saying the go-to-market leader is "organizing his teams in the most effective way." That is a potential execution risk as new AI products require more implementation support. A new U.S. government agency win, enabled by the FedRAMP Moderate authorization, replaced a competitor and spreadsheets, and management said the certification also reassures private contractors that do federal work.