Coupa Software Incorporated

Good afternoon, ladies and gentlemen, and welcome to the Coupa Software second quarter fiscal year 2023 earnings conference call. Our host for today's call is Stephen Horowitz. At this time, all participants will be in a listen-only mode. Later, we will conduct a question and answer session. I would now like to turn the call over to your host. Mr. Horowitz, you may begin, sir.

Thank you. Good afternoon and welcome to Coupa Software's second quarter conference call. Joining me today are Rob Bernstein, Coupa's 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 10Q. 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 comparisons are against the same period of the prior year. With that, I will now turn the call over to Rob.

Thanks, Stephen. Hello, and welcome back from what I hope was a safe and enjoyable Labor Day weekend for everyone. Let me begin by sharing a few key metrics that best illustrate our financial performance for the second quarter, our 54th quarter of execution. We delivered $193 million in subscription revenue and $217 million in subscription calculated billings, representing year-over-year growth of 23% and 25%, respectively. And with a continued focus on profitability, we demonstrated strong operating efficiency by delivering an 80% subscription gross margin, 74% total gross margin, and an 11% operating margin for the quarter. In Q2, we saw very strong performance in the North America enterprise market. New customers such as Avianz, LinkedIn, and Royal Caribbean chose our ROI-driven business management platform to optimize their spend. While demand in North America continued to be very strong, it's worth noting that European demand remains softer. Now, when looking at our business holistically going forward, we're encouraged by our largest ever pipeline and the training, enablement, and ramp of our new sales colleagues. We added earlier in the year, continues to progress well. The question that continues to be debated broadly in the market is whether we are headed for a recession or a soft landing. Our most recent business spend index provides some interesting insights into this topic with respect to macroeconomic data on employment and inflation. Just as an example, we have seen significant increases in airfare prices, yet despite the uptick in prices, demand has not fallen, but rather has increased as businesses progress towards returning to pre-pandemic levels of travel. The net effect of the underlying data shows some signs of projected growth in certain areas and signs of potential contraction in others. For broader insights, I once again suggest exploring our business spend index on spendindex.com. Now, as many of you have come to know, we pride ourselves on managing our business with discipline. We've done so during times of strong prosperity as well as during times of contractions. This approach has become a foundational element of our management philosophy and stewardship of Coupa. I'm sure we can all agree that the current environment is highly dynamic and how the macro picture plays out is yet to be known. That ambiguity is being contemplated by leaders across industries and businesses globally. For Coupa, let me articulate what we mean by thoughtful, disciplined execution. and share our current thinking in this area. If we take a moment to isolate the variable of future demand uncertainty, there are several scenarios that could play out. First scenario would be that the economy experiences a softer landing and the demand environment remains relatively healthy. In this scenario, we will continue to thoughtfully invest for growth and as always balance with profitability. Of course, a recession is possible. So another scenario would be that we enter an environment that impacts IT spending budgets in the near term. In this scenario, we are prepared to moderate our investments appropriately, resulting in increased profitability and cash flows. In more extreme cases, we will show spend discipline at significantly increased levels. Now, near-term scenarios aside, we are proudly the clear leader in business management. Our total addressable market is massive and underpenetrated. And we are excited as ever in our pursuit to revolutionize this market and deliver customer success like never seen before. Speaking of customer success, we now have well over 2,500 Coupa customers and thousands of prospects who seek to partner with us and benefit from our value as a service solutions. They need to have BSM discipline and use it a lot. And so with that, let me share some examples of customers investing in BSM transformation done in the context of our three-wave strategy. Wave one, of course, is capturing all spend. It's a strategy to capture all spend through our highly scalable and configurable transactional core. The first example I'll share is that of ProPetro, an oil field services company. They implemented the Coupa platform to enable process improvements, efficiencies, and increased controls. 94% of their spend is now pre-approved, and they are electronically processing 89% of their purchase orders and 80% of their invoices. By capturing the spend, they have visibility and control, freeing them to focus on growth-oriented initiatives. Another energy company, Talos Energy, requires timely operational support to keep their 60 drilling operations platforms running 24-7. Manual procurement processes left the company vulnerable to duplicate or missed orders, resulting in inventory overages, shortages, and costly overnight delivery orders. Previously, their accounts payable personnel dedicated nights and weekends to verify receipts, assigning GL codes, and posting accruals. Talos implemented Coupa in just three months and was able to automate their processes and reduce invoice cycle times by 90%. Their procurement lead stated, our platform operations now run more smoothly while spend visibility and control helps our reporting and our bottom line. These are examples of our wave one strategy in action for our customers. Let me also share a few of the most recent enhancements from our September release related to our first wave. In this release, we streamlined the mobile app for expenses, we improved visibility into reimbursable spend, we made it easier to manage unused travel tickets, and we integrated virtual cards into our travel offering and much, much more. Integrating virtual cards into T&E allows our customers to unlock additional synergistic value. It also provides another avenue to drive incremental total payment volume through our platform. To that end, our cumulative total payment volume reached nearly $15 billion by quarter end as more customers continue to come online. That's nearly a 50% increase in approximately two quarters. Now let me move on to the second wave of our strategy, which is optimizing every dollar spent through suite synergy. Many of our customers maximize their savings and efficiency by leveraging power user applications within our suite. One of these companies is Maersk, a Danish multinational shipping and container logistics giant. They digitized their entire procurement process and are using Coupa for procure-to-pay, supplier risk management, and sourcing optimization. With sourcing optimization, Maersk identified over $100 million of potential savings by utilizing reverse auctions where several shippers are bidding for their business. It's not just savings. It's about efficiency. With the help of Coupa, Maersk only needs seven people to cover thousands of supplier negotiations and auctions per year. We were humbly appreciative of their comment. They said, it's actually relatively easy from a technical point of view. Since it's SaaS, you can get it up and running, generating impact for your business in weeks. Maersk is also leveraging our platform to support their sustainability goal of achieving carbon neutrality by 2050. We truly are thrilled to be part of this journey with Maersk. We're very proud to have Maersk and many other customers amongst our ever-expanding community, which has now driven more than $3.8 trillion in cumulative spend under management through the platform. The resulting data from this spend is what fuels the third wave of our winning strategy, amplifying community value. As you may recall, community.ai can be broken into three areas, the pooling of customer spend, such as with Coupa Advantage, the pooling of brainpower and collaboration amongst community members, and the pooling of data through AI and machine learning, the intelligence component. This quarter, I'll share an example of how our spend guard solution utilizes this third area, the pooling of data, for fraud protection and prevention. SpendGuard leverages AI and machine learning technology to automatically analyze a customer's business spend and flag suspicious transactions in real time. So let me share a real-life customer example from the Selling Group. Selling is a diverse European retail group that processes several hundred thousand invoices, POs, and expense reports through our platform annually. Immediately upon implementing SpendGuard, they halted a large duplicate invoice before a payment could be made. Now, I can't emphasize how important it is to catch these issues before money leaves a customer's bank account. It saves them from having to recover cash. This importance wasn't lost on one of their leaders who said, Coupa Community AI is a must-have. Within three days of uptime, it has paid back our investment. Another example is that of a globally recognized provider of electronic solutions with over 45,000 employees in more than 40 countries. By identifying non-compliant purchase order spend, SpendGuard allowed them to edit or withdraw certain purchase orders prior to their suppliers incurring any costs or invoicing them. In less than a year, SpendGuard helped this company save tens of millions of dollars. Now, as I've mentioned before, this is just the tip of the iceberg of what our community.ai platform can do. And we are still in the early days of delivering true value of service in this area at the scale that we envision. These solutions will only become more and more valuable as we continue to develop the third wave of our strategy and our community.ai vision becomes fully realized. This three-wave strategy is, of course, underscored by our vision areas, as exemplified by the letters in the name CUPA, which stand for Comprehensive, Open, User-Centric, Prescriptive, and accelerated. Now, switching to our core values, let me highlight this quarter's most valuable players who best represent each value as selected by our colleagues. I'll start with Sunil Gautam from our technology support team who won the award for our first core value of ensuring success. Sunil goes above and beyond when helping others across groups and across regions. He's incredibly effective at understanding where problems exist and determining the best approach to solving them. His colleagues have conveyed to us that his contributions are so meaningful that they typically save at least 50% of a developer's time. Next is Jake Sells from our cloud operations support team, the winner of our second core value of focusing on results. Jake has put forth significant time and effort that has yielded multiple platform improvements. He co-led an automation effort that tremendously improved the workflow for our colleagues. Jake's contributions have been key to enabling platform agility, automating security, and allowing for continuous improvement on our platform. Last but certainly not least, Bonnie Ho from our channel marketing team won the award for our third core value of striving for excellence. Bonnie goes above and beyond to promote a collaborative environment with our partners and her Coupa colleagues. She is passionate and is dedicated to driving more effective events, which in turn helps us bring more customers into the community. As Bonnie excels at her job, it saves Coupa time, money, and ensures that the right customers are being introduced to the right products. Congratulations and thank you, Sunil, Jake, and Bonnie, for embodying the core values which lay the foundation for the special culture we're developing at Coupa. which just last month has once again globally been certified as a great place to work. We're really proud that the Great Place to Work survey revealed that 95% of our employee respondents ascribe to each of our three core values. Now, obviously, our third core value dictates that we still have work to do to get the other 5% on board, and we plan to continue our efforts to do just that. We were also recently recognized by Fast Company as a best workplace for innovators. Additionally, we earned a leading position on the Software Reports Top 100 Software Companies of 2022 list. We're building something really special here, and we'll work tirelessly to continue to build a stronger company, a stronger platform, and a stronger community. Now, before I close, let me make you aware of our second annual ESG report. which can be found on the corporate sustainability page of our website. I'll share our mission statement with you. Through the power of trillions of dollars in business spend, our mission is to unlock our customers' full potential to do well and do good, anchored in a shared belief that we are smarter together. Before I hand the call over to Tony, let me emphasize, that managing business spend to drive agility, savings, and increased profitability is now more important than ever. Solutions with a demonstrable and measurable ROI are rightfully moving to the forefront. Together, we can leverage the strength of the Coupa platform and our community to help our customers navigate through these uncertain times. With that, let me turn the call over to our CFO, Tony Scornia. Tony?