Coupa Software Incorporated

Good day, ladies and gentlemen, and welcome to the Coupa Software third quarter fiscal year 2021 earnings release conference call. At this time, all participants are in listen-only mode. At the conclusion of the prepared remarks, we will conduct a question-and-answer session. If you would like to ask a question during that time, simply press star 1 on your telephone keypad. If anyone should require assistance during the call, please press star 0 on your touch-and-phone. As a reminder, this call is being recorded. I would now like to introduce your host for today, Mr. Stephen Horowitz. Please begin, sir.

Thank you. Good afternoon and welcome to Coupa Software's third quarter conference call. Joining me today are Rob Bernstein, Coupa CEO, and Tony Toscornia, CFO. Our remarks today include forward-looking statements about guidance and future results of operations, strategies, market size, products, competitive position, and potential growth opportunities. Our actual results may be materially different. Forward-looking statements involve risks and uncertainties and assumptions that are described in our most recently filed 10-Q. These forward-looking statements are based on our beliefs and assumptions today, and we disclaim any obligation to update any forward-looking statements. If this call is replayed after today, the information presented may not contain current or accurate information. We also present both GAAP and non-GAAP financial measures. A reconciliation of certain of these measures is included in today's earnings release, which you can find on our investor relations website. A replay of this call will also be available unless otherwise stated growth comparison are against the same period of the prior year. With that, I will now turn the call over to Rob.

Thanks, Stephen. Welcome, everyone, and thanks once again for joining us. Let me start with a few financial highlights from our 51st quarter of execution as a business. We had strong performance. including 38% calculated billings growth and $186 million of total revenue. We also delivered a record profitability of $0.30 per share, representing 67% growth over last year and a $28 million of adjusted free cash flows for Q3, bringing us to $130 million on a trailing 12-month basis. During the quarter, we continue to see strength in the enterprise segment with respect to large, strategic, multi-year deals. We're also firing on all cylinders in our mid-market segment with incredible growth and a very strong deal size momentum. And we are seeing an increased level of prospect engagement, including a significant desire to return to in-person meetings, which we believe to be a very positive trend. These results are all being driven by a massive push for digital transformation of the back office, resulting in widespread adoption of our comprehensive business management platform by customers of all sizes and across many industries. Companies that develop a sound strategy for this transformation and put in the work to see it implemented are seeing their status escalate. To capitalize on this digital transformation of the back office, we have a winning strategy. based on the three waves of capturing all spend, optimizing every dollar through switch synergy, and then amplifying community value. The first wave of capturing all spend is centered on our robust transactional core. Simply put, we believe that we have the best solution in the game, a fully cloud-based scalable transactional core that processes tens of millions of daily transactions while maintaining an easy-to-use intuitive interface. This enables our customers to quickly drive meaningful adoption of the platform across their organizations, even when operating with many siloed ERPs. One example is Jabil, a global Fortune 500 company focused on manufacturing solutions with more than $29 billion in revenue. 260,000 employees and 100-plus plants across 30-plus countries and a particular concentration in Asia Jabil needed one platform to integrate with their many ERPs. They migrated from an older legacy platform to Coupa and have now processed billions of dollars in spend through our platform over the past three years, including 96% of their 1.4 plus million POs issued to over 27,000 active suppliers. Most importantly, they now have visibility into and control over their business spending. Now, another key component of our transactional core is Coupa Pay, where we continue to see strong uptake with our highest attach rate ever on new deals this quarter. One of the key drivers for the Coupa Pay acceleration phase we discussed during analyst day was for us to further strengthen our partner ecosystem. To that end, we signed a partnership agreement this quarter with a major global financial services firm to expand the ability of our European and Asia Pacific customers to make fast, seamless, and secure payments via virtual cards. New and expanded partnerships are one of the areas of focus as we build to maximize our payment solution for our customers. Travel and expense is also an integral part of our transactional core. We've been thoughtfully investing in this area with the aspiration to provide our customers with the industry's most comprehensive end-to-end T&E solution, including a bookings engine, optimized pricing, and direct integration with Coupa Pay for reimbursements. We are planning to release this solution soon. Now let's surf onto the second wave of our winning strategy, where we're looking to optimize with Sweet Synergy. Our platform capabilities are helping customers unlock more value from the more than $3 trillion of spend they have cumulatively processed through the platform. Let me share a couple of examples with you. Our first example is that of a leader in the beauty and personal care industry that manufactures cosmetics in 14 nations across South and Central America, generating more than $1 billion in annual revenue. They are using Coupa supply chain design and planning to optimize their inventory, improve service to their customers, and save money. Their supply chain is very complex, with factories in four countries, 250 plus new products being introduced every year in a rapidly changing demand environment. To properly forecast, they need to understand how much inventory to build, the trade-offs between service levels and inventory holding costs, and which factories should produce which new products. Using the Coupa supply chain design and planning solution, this organization improved their overall service levels while driving a 25% reduction of total inventory, 35% reduction of their safety stock, and saved millions of dollars in the process. The second sweet synergy example I'd like to share with you highlights a multi-billion dollar frozen food delivery company that is among the first Coupa community members to take advantage of the synergistic integration between our supply chain design and strategic sourcing capabilities. First, the customer used Coupa's supply chain design capabilities to evaluate and optimize multi-stop routes for their more than 100 million of annual logistics spend across almost 300 different carriers. Then the design simulations were put into action. The simulations were driven downstream to strategic sourcing, capturing one-way direct lane full truckload costs and per mile costs for a subset of dedicated carriers. This resulted in lower costs and increased asset utilization. This is a great example of maximizing value through the combined capabilities of our supply chain design and our strategic sourcing solutions. Now let's drop in on the final and third wave of our winning strategy, amplifying community value. More specifically, amplifying the value of the data and the collective community through prescriptive insights and community interactions. First, let me give you a sense of just how much data our customer base is generating. As I noted a moment ago, we have now surpassed $3 trillion in cumulative spend on our management. with $1 trillion coming in the last year. This equates to over $80 billion per month, more than $2.7 billion per day, and well over $100 million during this earnings call alone. More importantly, our customers have saved tens of billions of dollars over the years. And as our community of customers has grown, so has our ability to increase average deal sizes fairly. When we started this journey over a decade ago, we were closing deals in the thousands and tens of thousands of dollars. Today, our largest deals are in the mid seven figures annually, and we see a path to doing eight figure deals. And it's not just with our enterprise customers. As I mentioned last quarter, we closed our first seven figure deal in the mid market as well. With proven measurable impact and a rapidly growing data set converging to drive higher annual subscription fees, let's dive deeper into the data. Our customers have taken advantage of thousands of prescriptive insights derived from our community.ai initiative this quarter alone. These prescriptions are ranked and displayed based on the total estimated impact that actions will have on the business, empowering customers to make the right choices to optimize business results. But the vision is far broader. The power of our community comes not just from data, but also from the exponential brainpower that exists across our robust customer community, which lives directly within our core platform. One customer shared with us that prior to Coupa, every four months, their team would spend more than 60 hours reading software documentation and performing regression tests to gain insights. To optimize this process, they leveraged Coupa's user community and identified a fellow customer who had automated testing. Conversations with the customer and their IT team led to an internal development project, which allowed them to reduce cycle times by 80%. They continued to use the online community often, conducting research and trading insights on industry best practices within the community. With prescriptive insights and community interactions delivering measurable value, Expanding the size of the community and the available functionality greatly benefits our customers. Further, building on the power of community from customers to partners, last quarter we launched our Coupa app marketplace. We already have nearly 100 apps that are enabled. We're in the process of being enabled for our customers. Within these apps, there are two ways our customers are attracting value. The first is through pre-built integrations that make our customers' investments in other enterprise software more valuable. The second is where they have gained access to new functionality, such as tax engines, supplier collaborations, ESG and corporate responsibility, and many more. Let me share an example of one of the new applications in our app marketplace, an integrated tax engine that focuses on customer taxes for supplier transactions. In this ever-changing environment, it's obviously imperative that our customers understand if they're being charged the correct sales tax. The Vertex built integration supports tax calculation on invoice validation, empowering our customers with more control and oversight by pairing tax automation with KUPA's procurement transformation. And there are many other great examples like this from the app marketplace that help our customers unlock more value from our comprehensive business management platform. Because our customers are unlocking such significant value, they love to share their experiences with their colleagues. To that end, we are thrilled to be bringing back our in-person community conference in April, Coupa Inspire. As in previous years, this event will include inspirational stories of BSM transformation from some of the most well-respected companies in the world and offer attendees the opportunity to network with their peers as well as industry thought leaders and analysts. Inspire is the premier event in business spend management. It's always been a dynamic, energetic forum for our customers to interact, exchange ideas, and help new prospects behold the power of spend. To summarize our three-wave strategy, we believe that we've brought to market the world's best platform for capturing spend transactions. We've developed ways to optimize value for the spend with sweet synergy. And those two waves have helped us grow our user community and a treasure trove of data, fueling the third wave, where our community can come together to unlock exponential value that would otherwise simply not be possible. This three-way strategy grounds our vision of becoming the industry's most comprehensive, open, user-centric, prescriptive, and accelerated solution in the market. With these vision areas in mind, let me share a recent new customer win report that emphasizes why companies choose to partner with Coupa. As has happened so often over the years, the CPO was offered a free subscription from a legacy provider. But we all know that there is no such thing as free. In fact, free can be quite costly. As he evaluated his choice of partner, he found that Coupa represented the lowest risk and highest likelihood for success. What's more, the win report highlights the customer's trust in us to keep their best interests in mind and their confidence that we will continue to have an industry-leading roadmap. To help seal the deal, his previous employer has also chosen Coupa, giving him undeniable certainty of value creation. I chose to share this win report with you because it really does hit on the key reasons we win. Clear vision, strategy, shared values, history of execution, and how tightly we partner with our customers to ensure their success. It also demonstrates an increasingly prevalent trend, a thriving community of decision makers choosing to work with us wherever they go based on proven success. It's these reasons why across all industries, companies of all sizes continue to select Coupa and stay with us year in and year out. Adding these and so many other great organizations to our community is rewarding. However, this is still just the beginning. We have a massive opportunity in front of us. And as much as we're competing to win the BSM market as it currently exists, we're also galvanizing market interest. Tens of thousands of companies are still leaving value on the table by not adopting a comprehensive approach to managing their business spending. To drive awareness, we recently invested in amplifying our brands. during the World Series, F1 racing, Premier League soccer, and Bundesliga soccer. The result of these efforts was hundreds of millions of impressions and a 5x increase of traffic to Coupa.com. We believe that great companies build great brands, and we are setting out to do just that. And we're doing so grounded in our core values as a company. So as has become our custom, let me share this quarter's Most Valuable Player award winners. who best exemplify our values as voted by our colleagues across the world. I'll start with Abhijit Mukherjee, who exemplifies our first core value of ensuring customer success. Abhijit works tirelessly to ensure that our integration partners are delivering solutions with outside value for every Coupa customer. Next, Neeraj Puri was recognized for embodying our second core value, focusing on results. Neeraj expanded the depth and breadth of our competitive analysis library. He also improved our reporting to demonstrate how business value engineering impacts sales successes. Finally, Ben Simmons epitomizes our third core value, striving for excellence. Ben is best in class in how he leads his team to excellence by fostering an environment where questions are encouraged and authenticity is welcomed. Now, before I close, I'd like to mention that Gardner has selected Coupa as the leader for our procure-to-pay offering for the sixth consecutive time. We don't take this leadership designation lightly as we continue to assertively grow our business. To that end, I'd like to celebrate that we welcomed our 3,000th colleague just this quarter. On the foundation of our differentiated culture, which is grounded in a deep commitment to our core values, we aspire to operate with the agility of 300 and the might of 30,000 people. This approach continues to help us attract top talent while investing in unlocking the personal and professional aspirations of our colleagues. And speaking of talent, in the recent Great Place to Work survey results, well over 90% of our employees self-reported as ascribing to our core values. This is particularly promising given that roughly half of our current employees joined remotely during the pandemic. We're incredibly proud of the clear, measurable value that we are delivering to our community. We're proud to play a leading role in this industry as we help transform how companies do business for the better. And with that, let me now hand the call over to our Chief Financial Officer, Tony Cascogna.