Coupa Software Incorporated

Good day, ladies and gentlemen, and welcome to the Coupa Software 4th Quarter Fiscal Year 2022 Earnings Release Conference Call. At this time, all participants are in a listen-only mode. At the conclusion of our prepared remarks, we will conduct a question and answer session. If you would like to ask a question, you may press star 1 on your touchstone pad at any time. If anyone should require assistance during the conference, please press star zero on your touchstone pad at any time. As a reminder, this call is being recorded. I would now like to introduce your host for today's conference call, Mr. Stephen Horwitz, VP of Investor Relations. Mr. Horwitz, you may begin conference.

Thank you very much. Good afternoon and welcome to Coupa Software's fourth quarter and year-end conference call. Joining me today are Rob Bernstein, Coupa CEO, and Tony Tiscornia, 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 risk 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. 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 comparisons are against the same period of the prior year. With that, I will now turn the call over to Rob.

Thanks, Stephen. Welcome, everyone. Before I share our business results for the quarter, let me first convey how saddened we all are by what's happening in Ukraine and throughout the region. Our hearts are with everyone impacted by this crisis, and we hope for a speedy resolution and certainly for peace. Our business is very limited direct exposure in the region. Nonetheless, we are first and foremost focused on supporting the safety and well-being of the small team of contractors we do have there. We're also working with our customers that have suppliers in Ukraine, Russia, and Belarus to reroute supply bases and keep business moving forward as best as possible. Obviously, none of us know how long this conflict will last, but we all know the humanitarian crisis that will be with us for a long time to come. Because of this, we're matching employee contributions to appropriate global humanitarian organizations, and we're making a sizable donation to the International Committee of the Red Cross. We'll continue to look for ways to do more, both in terms of financial support and through various avenues across our global CUPA community. As we look to the results of our business, let me start by sharing a few financial highlights from the fourth quarter, our 52nd quarter of execution as a company. In Q4, we delivered record results in multiple areas, including $193 million of total revenue and $318 million of calculated billings. We also achieved record adjusted free cash flows of $61 million for Q4 and $156 million for fiscal 2022. Looking back at fiscal 22, our core business is healthy and strong, and our new business grew more than 60% compared to fiscal 21. By new business, I'm referring to recurring revenue from new logos and new add-ons from existing customers. Digital and back-office transformation continues to be at the forefront as companies strive to build agility and resiliency in their businesses amid current and future uncertainty. As a result, Business spend management is squarely in the spotlight. Amid these market dynamics, we've grown our community to include well over 2,500 customers, more than 3,000 employees, and over 7,000 trained consultants, all working together to unlock vast amounts of business efficiency. Our fully cloud, highly scalable core transactional platform is unmatched in the market. We continue to capitalize upon our market leadership position to create a platform that the likes of which has never existed in our industry. This is exactly how it is, not how it might be. Before I dive further into our business updates, let me take a moment to expand on the opportunity we believe lies ahead. We have a massive total addressable market. We have a clear vision and strategy. We have a history of successful execution. And finally, we have a rich portfolio of untapped growth factors that we are maniacally focused on addressing. Let me lay them out for you. First is our enterprise business. Many of the largest companies in the world have partnered with Coupa and are seeing incredible success. We have strong retention rates. We have an incredibly rich library of customer advocacy. And we frequently see business leaders who have used Coupa and then bring Coupa to their new employers when they change companies. Even with incredible organizations such as Amazon, BMW, Procter & Gamble, Unilever, and Walmart, already among our community of customers, our core penetration into the global 2000 is still below 20%. Next, we have our mid-market segment. Tens of thousands of mid-market companies around the globe are in the process of taking their first steps into the world of digital transformation. We're seeing meaningful growth in our mid-market business over the last two years, and with less than 2,000 mid-market customers in our community thus far, We're in the very early stages of penetration in this segment. Another exciting growth area is geographic and sector expansion. We already have a strong presence in the US and in Europe. To build on our presence, we have been meaningfully investing in Latin America and Asia Pacific and are starting to see some early success and momentum in these regions. We've also been investing in the public sector, which we estimate has tremendous upside and is also in its early stages. And there are many other expansion opportunities across our broad business management platform. As we highlighted in our analyst day, our current customers are subscribing to less than a fifth of our total platform, and new customers are landing with increasingly more modules. Some of the growth areas I'll highlight here are supply chain, Coupa Pay, treasury, as well as travel and expense, all of which are in the very early stages in their respective journeys. We anticipate all these sectors to be accelerators for our long-term growth rate. Now, while we can't predict the future, we have deep conviction in our value proposition and its growing need in the marketplace. Therefore, coming off fiscal 22, where we saw greater than 60% new business growth, we plan to invest assertively this year to capitalize on our opportunity to win and own the markets. We intended for our fiscal 23 investments to result in accelerated growth in fiscal 24 and beyond. Now, never hesitant, we continue executing on our path to becoming one of the world's best enterprise cloud software companies by remaining focused on our visionaries as exemplified by the letters in the name Coupa. C-O-U-P-A stands for comprehensive, open, user-centric, prescriptive, and accelerated in all aspects. And it's through the consistent execution of our three-wave strategy of one, capturing all spend, two, optimizing every dollar spent, and three, amplifying community value that we will continue to drive into this market. Let me share an example from each of our three waves. For the first wave, capturing all spend, let me highlight Coupa Pay. With Coupa Pay, we are transforming the world of payments by delivering a fully unified solution that leverages the Coupa Business Spend Management platform to centralize and streamline payments for organizations. We continue to see strong customer growth momentum. Q4 was yet another quarter where the attach rate on new customer deals was meaningfully above 30%. But mid-market specifically, the Q4 attach rate was well over 50%. Though we are still in the early stages of the Coupa Pay trajectory that we laid out at our analyst day, we're starting to see noticeable increases in our total payment volume, or TPV, being processed to our payments hub as more and more customers go live. We expect our cumulative TPV, which includes ACHs, wires, and virtual card usage, to eclipse $10 billion in the first quarter. In fiscal 22, TPV grew more than 4x compared to fiscal 21. Relative to our spend under management numbers, these TPV figures are still very modest, and the fiscal 22 growth is on a small basis. But this early traction is very encouraging. We believe it shows the demand for our payment solutions and the need for organizations to make payments from the same single cloud instance that houses their supplier master record, all their POs, and all their invoices and expense reports. The second way of our strategy is to optimize every dollar spent through suite synergy. Let me highlight this with a supply chain design and planning customer example where the integrated experience between our supply chain solution and our strategic sourcing solution is yielding differentiated knowledge and savings. We have a large South American company in the gas station and convenience store business who is using our supply chain offering to design their delivery network. and to identify their transportation needs. These insights are then being used to execute sourcing events using the Coupa sourcing optimization solution. This customer has a distribution-centric business. The margins are thin, and every bit of savings counts. By using our supply chain and sourcing solutions in tandem, they're seeing clear optimization of their supply chain-related quality as well as spend. Another supply chain example is that of Onsemi, a $6 billion semiconductor manufacturing company who's using our supply chain solution to improve efficiency. Onsemi reduced their supply chain decisions from about two and a half weeks to just a few days, while also generating 10% to 15% improvements in capital efficiency and savings. This reminds me of the story Akia told at our Accenture event last summer about using Coupa's platform to un-silo their supply chain and sourcing teams to shorten the time it takes to make actionable decisions. IKEA was able to reduce their average decision-making time from five days all the way down to five minutes. These are great examples of how having access to the right data to drive business decisions increases efficiency and reduces costs. Spend optimization, our second wave in action. Our third wave is all about amplifying community value. Community.ai combines the power of AI with human connections, the key to unlocking business value. With our cumulative spend under management now at more than $3.3 trillion, real-time spend data is being analyzed to prescribe ways for our customers to be more efficient, profitable, and sustainable. Let me share some examples. St. Covain, a global multi-billion dollar manufacturing company, is leveraging community data to reach its goal of being carbon neutral by 2050. They have reduced transport emissions by an average of 13%, and in some cases by as much as 60%. CHEF, a pallet and container pooling company, has used Coupa to help improve the efficiency of their supply chain, reducing CO2 emissions per unit of delivery by 33%. The American Red Cross is using context-aware prescriptions to increase spend with diverse suppliers, thus far by 37%. Community.ai represents the third wave of our company's strategy and is unlike anything ever contemplated at scale within the enterprise software industry. It truly unites businesses like never before to better discover, decide, and deliver success, making all of our customers smarter together. To tie it all together, let me finally share a great example that elegantly incorporates all three waves of our strategy simultaneously. Let's look at Coupa travel and expense. Historically, companies have relied on cumbersome siloed travel tools that don't provide any real insight into their travel spend. With our new travel and expense release last month, we have given our customers a user-centric solution designed to maximize program adoption. In line with our first wave of capturing all spend, this solution scales for companies with high volumes of expense report transactions while giving finance significantly increased visibility into the control of their travel spend. Our T&E offering also incorporates our second wave of maximizing every dollar spent by delivering a unified program to a single BSM platform. The solution can be used to search for travel, book the travel, and provide a seamless transactional experience with one-click expense reports and credit card transaction matching. Customers can also ensure they have best pricing through TravelSaver or by leveraging pre-negotiated prices from Coupa Advantage. All these capabilities are further enhanced through our third wave of amplifying through Community.ai, where our customers can make smarter decisions with community-powered insights. Using SpendCoach, customers are able to influence behavior by providing employees that book travel outside of Coupa insights into how much they could have saved by using the travel solution. We're also changing the way employees think about travel with context-aware suggestions. Rather than searching for travel to JFK Airport, employees can input their final destination, for example, Coupa's New York office. And Coupa will help prescriptively guide them to the optimal means of transportation to get there, in line with their company policies. With the power of insights driven by our global community, Coupa delivers a radically different solution that transforms corporate travel to be simpler, smarter, and more sustainable. To summarize, our three-wave strategy when working together, solutions across all the waves yield exponential value for our customers. as each wave builds upon the other. The values of service we are delivering for our customers is totally different than anything that's ever been offered before in our industry. Let me now share some updates on our federal business. I'm pleased to announce that we recently became FedRAMP authorized. It is no easy task to complete the authorization process. We are appreciative of the partnership we've had with our agency sponsor and customer, the Federal Reserve System Board of Governors. We believe this, along with some of the key partnerships we've announced, and our continued investment in driving new business in this sector, will increase the pace of deals in this marketplace in the coming quarters and years. To share a few more highlights, new customers in the federal, and more broadly the public sector, include the Department of Energy's Supply Chain Management Center and the Suffolk County in New York. We're also proud to have the House of Representatives live on the Coupa BSM platform with the members of the House and their staff now using Coupa. All these highlights I've shared today help illustrate that Coupa is creating an opportunity for finance, procurement, and IT leaders to be incrementally strategic and elevate their standing within their own organizations. On that note, we couldn't be more excited about welcoming them and many others to our upcoming Inspire Conference, which will be in Las Vegas from April 3rd through April 7th. There, the business by management community will have the opportunity to share case studies, interact, brainstorm, strategize, and partner on driving valuable transformational change. Due to the COVID pandemic, this will be our first Inspire Conference in three years, and our eighth overall. It will also be the first time that procurative pay, supply chain, treasury, and payments, all part of the Coupa platform, will be unified at the same conference. We're excited to be welcoming three fantastic keynote speakers to the event in Las Vegas, Barbara Corcoran to speak about innovation, John Taffer to discuss teamwork, and then Sylvester Stallone to inspire us. We look forward to welcoming you. Before I share our MVP awards, let me provide you with an update on our supply chain design and planning integration. We continue to be excited by the significant value that we are bringing to our customers through this offering. As I mentioned before, oftentimes deals that don't currently include supply chain now are still being influenced by the fact that we have supply chain as part of our portfolio, especially for large enterprise deals. It's been just over a year since we closed this acquisition. And during this time, we've been largely focused on customer alignment and strategy, converting existing on-premise customers to SaaS, arming partners with the expertise to deploy the solution, connecting the supply chain solution with our strategic sourcing solution, and of course, integrating our people and processes. As we look ahead, we plan to focus on integrating supply chain with our risk solutions and our community AI capabilities. We're also working with our customers to unlock the value that our core P2P and our supply chain customers can achieve through suite synergy. As we continue on pace along this timeline of integration for supply chain that we originally shared at the time of the acquisition, we're excited about our progress to date, and most importantly, the clear growth opportunity we see in the coming quarters and years. Now let's move on to this quarter's MVP award winners. who best exemplify our values as voted by our colleagues across the world. I'll begin with Matthias Kind, who personifies our first core value of ensuring customer success. Matthias leads by example, taking on issues outside of his direct responsibility, but necessary for our customer success. He exhibits outstanding leadership through the transition to Coupa Treasury, enabling his team to grow and drive incremental success for our customers. Next, Anton Wall was recognized for epitomizing our second core value, focusing on results. Anton is an absolute expert in finding and delivering the best solution. He has been an incredible asset to our customers in bringing together different departments and teams by applying his knowledge to improve processes and ensure customers get optimal results from the changes applied. And finally, Angie Evangelista exemplifies our third core value, striving for excellence. Angie goes above and beyond to deliver excellence, both internally and with customers. She's eager to dive headfirst into complex tasks and find solutions. She has successfully taken on some of our larger implementations, leading the UnitedHealthcare, BMO, and United Airlines projects. Congratulations and thank you, Santias, Anton, and Angie. These MVPs are obviously just a few of the people that represent the immense talent throughout our organization. To further cultivate this talent, we have started a new program called CUPA Rising Stars. This program is focused on elevating employees who model our core values, have already demonstrated stellar execution in their current role, and are clearly capable of broader impact. By providing an additional level of mentorship for these colleagues, we are both improving their careers and the value that they deliver for CUPA and all stakeholders. I'm very excited to begin this program. can see it kicked off. Before we close, let me share some interesting observations that we're seeing from our Coupa Spend Institute data. We analyzed data across our Coupa community to give us insights as to what's happening in the global economy, specifically around what's happening with Ukraine and the global community. While it's still early, here are some of the indications we're seeing. Our data is on-the-ground proof of international economic support for Ukraine. Businesses outside of Russia and Belarus are accelerating their shipments to Ukraine, especially in key supporting sectors. In just one month, within our KUPA community, warehouse and distribution services jumped 300%, healthcare services climbed 189%, manufacturing and industrial processing shipments increased 44%. Again, these are early data points, but they show a singular truth. Business spend is powerful. And when we are united by the power of spend, we can drive tremendous change. We'll of course continue to look at these numbers and share them as we go forward. In summary, we have what it takes to win this massive business spend management market. We have a wide portfolio of rich growth vectors, many of which are very early in their journey. We have a winning three-wave strategy. Our vision is comprehensive, open, user-centric, prescriptive, and accelerated in a way that has never been attempted, let alone achieved in our industry. And we're proud to have some of the most talented, thoughtful professionals in the world as colleagues and partners. With these pieces in place, it's all about continuing our proven track record of execution and reaching new heights. With that, let me hand the call over to our CFO, Tony Cifone.