Q3 2019 Earnings Call
Good day, ladies and gentlemen, and welcome to the Cooper Software's third quarter fiscal year 2020 earnings release Conference call.
At this time, all participants are in listen only mode.
The conclusion of her prepared remarks, we will conduct a question and answer session.
If you would like to ask your question, let me per store one on your touched on pod anytime.
If anyone should require assistance during the conference. Please press star zero on your touched on odd anytime.
This call is being recorded I.
I would now like to introduce your host for todays conference call Miss Nicole.
Mr Relations.
You may begin your conference.
Good afternoon, and welcome to keep the software third quarter conference call joining me today or Robert.
But.
For <unk> CFO remarks today includes forward looking statements about guidance in future results of operations strategies market side products.
Position and potential growth opportunities, our actual results may be materially different.
Forward looking statements involve risks uncertainties assumptions that I described in our most recently filed.
Before these statements are based on our beliefs and assumptions.
And we disclaim any obligation to update any forward looking statements.
This call it replayed after today.
Nation presented it may not be paying current are accurate information.
So present, both GAAP and non-GAAP financial measure a reconciliation of certain of these measures is included in today's earnings release.
Can find on our Investor Relations website.
A replay of this call will also be available if you've referred to access a replay of yes.
You can find information in the earnings release.
Unless otherwise stated growth comparisons are against the same period.
With that I'll turn the call over to Rob.
Thank you Nicole Hello to everyone joining us live on this call and to those who will read the transcript I'm excited to share that we delivered strong business and financial results for the third quarter as we continue relentlessly executing on our vision for the business spend management category and further solidifying our leadership position.
Financial highlights from Q3 include 102 million of total revenues, representing trailing 12 month well trade.
8%.
And an annual run rate more than $400 million.
So we're yet again profitable this quarter on a non-GAAP basis.
Like all the Cod will of course cover our strong financial results.
Greater depth.
After my remarks.
With that many other exciting business updates to share with you today, so let's get after.
As many of you know, bringing a new customer into the could be community is a big stuff.
The only the first step in the customer journey with us.
Then quickly move to focusing on the result.
Getting a customer lives in production so they can begin driving meaningful value our platform.
Let me showcase this with some real metrics from a couple of customer the went live earlier in the year.
Not because.
America or dasa, the largest diagnostic medicine company Latin America based in Brazil.
Well not that Cooper to digitize their business spend management.
Cooper has made it faster and easier for end users to procure supplies for more than 700 health care facilities across Brazil.
Good example of the letter you and Cooper, which stands for user Syntricity.
In only five months on Cooper Das has already reached 95% spend under management issuing 84% goods peos from catalog.
It's not uncommon for us to see this type of accelerated some success in our customer base.
So on that note, let me highlight some Cooper customer go lives just from Q3.
Let's start with Finnair, an airline that specializes in flights between Europe and Asia.
Finnair implemented Cuba in a rapid eight month deployment.
The coupon finnair, digitizing processes, and increasing fuel coverage by offering the best purchasing experiences to all employees, including cabin crew members and pilot.
No Genesis energy, New Zealand's largest energy retailer recently went live with Cooper to consolidate their business spend management onto one platform.
Going from multiple systems onto one platform Genesis is reducing the duplication of activities with a solution that can scale with their growth.
Multi bank.
Panamanian banking and financial services firm went live with Cooper BSM and is using coupons to increase on contracts, but.
And also cut its budget request cycle times and how.
With Kupol multi bank because not only increased catalog usage and streamline workflows to allow for fully control traceable in order to both budget pre approval.
Well they have also lowered the use of paper any helping reduce their carbon footprint and preserve our planet.
Novo Nordisk, a multinational pharmaceutical company headquartered in Denmark recently went live with sourcing contract manager management and purchasing in the first phase of the global deployment.
Dr. European community benefited from their Accenture hosted presentation at our recent inspire event in London, just a few weeks ago.
Ron Sod U.S. portable global family of companies specializing and flexible workforce in HR services went live with Cooper after a rapid via some implementation.
Replacing what they described as extremely manual processes with streamlined workflows roadside is increasing fuel backed spend by 70% in the first year and reducing invoiced cycle times to less than five days.
In addition to these efficiency gains ronstadt is expected to achieve enough savings from coop advantage alone to realise 100% ROI on their subscription costs.
Toyota Motor Corporation, Australia, the country's leading automotive company recently implemented Cooper.
As part of its strategic transformation initiative for spend visibility compliance and risk reduction.
In addition to achieving greater spend under management.
So you know that is targeting 100% electronic purchase orders and a reduction of fuel cycle times down to two days within the first six months or being lives.
So as you can see our customers are leveraging the comprehensive nature of our platform also known as the letter see in Cooper to drive meaningful Bottomline results by addressing all areas of business spend in the organization and we couldn't be more excited to see it.
No.
In terms of new customers, let me highlight just a few of our fantastic wins from the quarter touching on all target segments Q3 wins include affinity education cloud flare Deloitte services DFS venture Singapore dimension data.
Dell Fieldwood energy Immunomedics Indigo argued agriculture.
Maersk drilling relay.
There are few tricks.
Alga Samba know the systems and wildcard.
In Q3, we welcome these and dozens of other new customers to our community.
No as many of you know our success supported by this growing Cuba community.
Today I'll share some tangible examples of how our individual customers are benefiting from our community.
Let's start with Provident financial group, one of the UK is leading suppliers of personal credit.
Hoping over 2.4 million customers, who do not have access to mainstream lending products get on a path to stronger and more secure financial future.
James Wagstaff, Chief procurement officer provenance knows that every penny Providence spends may ultimately lead to increased costs for provident customers.
James takes very seriously and to that end he's levers Cooper community intelligence to pinpoint specific opportunities. This managed spend more effectively.
For example, really intelligence helped James identifying opportunities to increase the percentage of invoices processor electronically.
Prior to using community intelligence, James did not realize the Providence provenance electronic invoicing percentage was slightly significantly lower than best in class companies within his peer group.
See I not only identify the problem, but also prescribed litter PMD Cooper.
Waste increased electronic invoicing.
Including shown James which of the suppliers were already transacting electronically with others in the Cooper community, making it easy for him to target the right suppliers for electronic invoicing enablement.
Increase of Tronic invoicing is freed up Providence resources for processing manual invoices.
James and his team are targeting process efficiency savings of three British pounds for every invoiced move from manual Telectronic.
These efficiency savings will ultimately benefit provenance customers, who rely on Providence credit products to build their credit and pay for important life events.
Now we're of course still in the very early stages of tapping into the full value committed intelligence can drive for our customers now powered by nearly 1.5 trillion dollars in cumulative spend under management.
I'm more excited than ever for all that's yet to come in this area.
Let me also highlight.
But source together in industry first program that connects members of the Cooper community to collaborate on groups sourcing events utilizing the scale of the community to match businesses that have common purchasing needs.
These companies are leveraging their group buying power to attract more suppliers negotiate better pricing and realize greater savings than they would be able to do on their own.
Since launching source together mid year, we've seen tremendous traction with group sourcing events globally, which have generated millions of dollars in negotiated saving.
Hundreds of companies have indicated interest in participating in upcoming events.
Source together to get to participants are capturing over 15% negotiated savings across diverse categories.
Recently, and just a single event five companies came together to source IC hardware and peripherals negotiating over $1 million and savings in three weeks.
These companies have never worked with each other before.
But through source together, they are able to collaborate and capture value in an accelerated fashion as represented by the letter a in Cooper.
Among these companies with Zocdoc fast growing medical care appointment booking platform that is helping patients by reducing the wait time for doctors' appointments and incentivizing value based care.
Philip Thomas a business spend leader is off dock was charged with building in new business spend management function, including the implementation of Cooper.
To help fuel Soc docs growth.
Philip wanted to deliver a quick win to establish credibility.
Resource together soap achieve a 9.1% negotiated savings.
Opt outs desktops keyboards monitors and headsets.
That could not have been achieved with just a zone companies spend volume.
First of all socket capture these savings before even going live with the full coop implementation.
This is empowered Philip and his team to demonstrate immediate value.
Source together strongly represents our open division also known as the letter own Cooper.
With an open spirit to collaboration our community of customers spending smarter together and we want and nothing more.
Now, let's move onto Cooper pay and inspire London, our largest and best ever European event. This year.
We're excited to announce American express as a new Cooper virtual card partner.
We continue to see incredible interest and strong early traction for all available pay modules, including the cards accelerate and invoice payments.
Were still in the early stages with pay and we'll look forward to updating you further on our progress in the coming quarters as more and more customers deploy and go live with these solutions.
Now, let's move on to Cooper's business spend index or DSI.
A leading indicator of economic growth based on analyzing hundreds of billions of dollars in aggregated and Anonymized business spend.
Today, we publish the Q4 coupe of be ASI.
For going into the results, let me once again make it clear that what we're seeing in that side data is not indicative of the trends we're seeing in two parts business.
Our Q4 Viasat suggests that although sentiment has ticked up slightly overall us businesses continued to be cautious about the economy.
At an industry level confidence in the financial services that sector continues to slow quarter over quarter.
Also manufacturing sentiment continues to be low trend, perhaps somewhat due to global trade tensions which has continued since last quarter.
This quarter as part of the via site. We also began looking at changes and spend for major products services and categories.
For major product and services categories.
Spend on commodities, such as appliances, and electrical equipment increased quarter over quarter, while spend on property buildings and engineering services decreased.
For a deeper dive into the Q4 be OSI I invite you to visit spend index Dot com.
Now, let's move onto core values every quarter, we are proud and excited to share examples of colleagues or customers, who exemplify our three core values of ensuring customer success focusing on results.
Striving for excellence.
This quarter, we recognized our colleague Newhall Ahmed for ensuring customer success NOL is known for is meaningful deep engagement with customers and for working tirelessly across all teams to advocate for customers until they are measurably successful.
Kevin Devaul was recognized for focusing on results Kevin's colleagues acknowledged that he has created incredible value for some of the largest and most prestigious companies in the world fueled by his commitment to getting customers. The results they need versus the results. They might initially think they want.
And finally, James Sweeney was recognized for striving for excellence James's colleagues noted that when he takes on a task heated livers. He delivers the result, fast and adds valuable input and perspective to make the output that much more meaningful for all parties.
Huge congratulations to our colleagues now Kevin and James for this well recognized.
Well deserves recognition.
Throughput proud.
Now, let me touch on a few more highlights from the quarter.
First off we were honored to be named a 2019 Gardner peer insights customers choice for procure to pay suites. In fact Cooper was the only procure to pay platform to receive this distinction.
We were also excited to be the only vendor to appear in the customers choice zone is partners in gardeners pure insights procure to pay voice of the customer report.
These accolades offer a clear endorsement from our customers.
That we've built a world class platform ended inspired group of colleagues dedicated 200 toward ensuring customer success.
It's rewarding to know that our customers know how we do it.
Speaking of customers, let me showcase a few leaders from our customer community.
There are people like Al Williams, the Chief procurement officer at Barclays, who helped Barclays achieved 92% on contracts spend.
Rick Quaintance senior director of procurement and contract management at the U.S.. So we helped reduce invoiced cycle times to 2.7 days using community benchmarking, while helping us troops get the goods and services they need at all times.
Thomas Sebastian global head of sourcing and procurement and Zurich insurance.
Let the 27 billion dollar insurance company achieve a 99% electronic PEO environment.
We call. These people spend centers and you could see a lot more of their personal stories on spend setters dot com as well as at our events and across media.
So in closing, let me say that we could not be more energized about our continued pursuit of our vision.
We're committed to delivering.
For our wonderful kind could the community in a truly comprehensive open user centric prescriptive and accelerated fashion.
Our fourth quarter of the year, and our 44th quarter of execution is well underway.
Well, we're focused on closing out the year strong.
That let me now hand, the call over to our Chief Financial Officer, Tom Ford.
Who will review, our Q3 financial results and provide our outlook for the fourth quarter and full fiscal year Todd.
Thanks, Robin and good afternoon, everyone, the third quarter with another solid quarter of execution.
Total revenues for Q3 grew 51% year over year to $102 million subscription revenues for Q3 were $90 million up 49% compared to Q3 of last year.
Professional services and other revenues were $11.6 million, which includes the benefit of a few strategic direct services arrangements that continued into Q3.
For the trailing 12 month calculated billings were $416 million up from $272 million and the previous trailing 12 month period.
Representing a 53% year over year increase.
Total deferred revenue at quarter end was $193 million.
Up from $130 million at the end of Q3 of last year, a year over year increase of 48%.
Let's now turn to margins and results of operations.
Our Q3, non-GAAP gross margin was 72.1% exceeding our previous expectations of 71%.
This included subscription non-GAAP gross margin of 80.9% and professional services and other non-GAAP gross margin of 3.3%.
We delivered non-GAAP operating income of $11.6 million as well as non-GAAP net income.
Of $14.2 million or 20 cents per share on 71.7 million diluted shares.
All of which were well ahead of our previous commitments.
Cash and investments at quarter end were $842 million up from $808 million at the end of Q2.
Operating cash flows for Q3 were $26 million and free cash flows were $22 million.
On a trailing 12 month basis operating cash flows were $55 million or 16% of total revenues.
And free cash flows were $43 million or 12% of total revenues after taking into account $12 million and purchases of property and equipment.
Cash flows for the quarter were favorable due to strong performance by our M&A integration team, our billings team and our collections team, which drove accelerated customer payments.
Now, let's turn to guidance.
We expect total revenues for Q4 to be between 101.5 and $102.5 million. This includes subscription revenues of between 91.5 and $92.5 million and professional services revenues of approximately $10 million.
For calculated billings on a trailing 12 month basis, we expect to exit Q4 at a growth rate of approximately 40%.
As a reminder, in Q4 of last year, we had a benefit of approximately $6 million. Two are calculated billings from the acquired deferred revenue from Hypergrowth, which was on our balance sheet as a 131 19.
For Q4 free cash flow, we expect to be breakeven to slightly positive.
Now, let's look at the expense profile for Q4.
We expect Q4, non-GAAP gross margin to be between 70 and 71%.
non-GAAP operating income.
To be between three and $4.5 million.
This results in a non-GAAP net income per share of between three and six.
On approximately 72 million weighted average diluted shares for the quarter.
For the fiscal year, ending January 30, Onest 2020.
We expect total revenues to be between $380 million to $381 million with non-GAAP gross margin of approximately 72%.
We expect non-GAAP operating income for the year to be between 21 and $23 million.
We expect non-GAAP net income per diluted share in the range of 34 to 37 cents based upon an estimated 70 million weighted average diluted shares for the year.
We will provide applied 21 guidance on our next call, but as you roll your models forward, we'd like to reminds you that we recognize revenue based on the number of days in the quarter and since there are fewer days in Q1 due to February steady state subscription revenues are lower in Q1 compared to Q4.
Similarly, as noted last year.
That concludes our prepared remarks.
As we move to Q on ebay. Please be mindful that we have a long to your questions in order to accommodate everyone. Please limit your questions to one and we'll circle back time permitting.
Now we'd be happy to begin fielding your questions operator.
Thank you Mr. board, ladies and gentlemen, if you have a question. Please press star one on your Touchstone telephone. Our first question comes from Brad tools with Bank of America Merrill Lynch. Your line is open.
Oh, Hey, great. Thanks, guys for taking my question.
Wanted to ask about.
Some of the at odds it sounds like Youre seeing some of these existing customer wins a lot deeper.
Penetration with the rest of with the broader suite.
And contracts in particular seems like it's doing well any any comments you could parse out on the impact that exone is having on that business and then just maybe even more commentary on other other add on products that you're seeing the power apps.
Sure sure. Thanks, Thank you for the question.
There's really two part answer that we are definitely seeing real healthy progress with the power apps and doesn't just include our advanced contract lifecycle management capability. It includes our risk risk aware and risk assess capabilities. It includes our spend optimization.
Ladies and a whole host of others, but what's even more.
Hey syndrome.
Just one moment will get reconnected with their speaker.
Well.
Yes.
No.
Yes.
Okay.
Ladies gentlemen, again this is the operator, we have lost connection. Please wait one moment when we get reconnected.
Yes.
The backup blindness.
Okay.
Yes.
Okay. So let me continue our left off but it sounds like we got disconnected in wasn't on our side it seems to be up.
Somewhere at the core let's.
You mean, good to hear me now just continue with it with the answer the question. So so that did two parts are that the distinct our user applications and in all areas. We're seeing very strong progress both an add on businesses walls.
Landing net new deals include a more comprehensive footprint upon.
But more importantly, though not all which is the second part of the answer to your question that is that we're seeing a.
A btwoc with our existing customers on perspective customers around a comprehensive set of capabilities all.
Of the visionaries on business for long they want all of these teams working together. So they can optimize gone up spend control have spent visibility although compliant way the moms, what Google frankly drive greater and greater operational efficiency and profitability. So its book is working on on both Backfills and what we're pretty excited about it.
That's great. Thanks, Rob.
Your next question comes from a Terry Tillman with Suntrust. Your line is open.
Hey, guys. This is Eric Lemus on for Terry. Thanks for taking my question I just had a question on it in international markets in the overall adoption curve. There are you seeing similar patterns to what you saw in the U.S. with landing versus expanding.
Well, we're seeing patterns.
And then two parts as well we're seeing similar patterns first of all broadly we go into new market. We gets a handful of highly referenceable referenceable customers, we get them highly successful and then they are.
Thanks, Lee and frankly more than willing to help us with incremental customer growth. So we grow these businesses organically. That's how we did Europe . That's how we did Canada. That's how we're doing Latin America, South Africa and areas of Asia now in terms of specific capabilities in terms of add on or net new kind of lands I don't think there's anything.
There that is.
A very different trends in what we what we've seen historically.
There is this again this vision lock around comprehensive business spend management that we're seeing and we enter that that overall vision via a number of different.
Functional functional dimensions.
So very very healthy in that regard.
Great. Thanks, Rob.
Your next question comes from Brent Bracelin with Piper Jaffray. Your line is open.
Thanks, Rob, but I'd love to get your early thoughts here on your strategic priorities for 2020, the scale of the business now as an excess of a $400 million run rate.
Still growing at a really are robust organic clip.
What are you thinking about relative to next year you'd have a greater emphasis on M&A international kind of partner expansion.
Give us a early preview of kind of what you're thinking about for for calendar 2020, and what that holds for the business. One quick follow up for Todd If I could.
Sure sure all guys. Appreciate the question in my my answer maybe a little bit boring for some of the books on.
I've been following us now for quite some time, you know going at this.
43 quarters than in our 44 and in many ways. It's all of the bulk of the things you mentioned, we continue to build a really strong army of certified systems integrators all of the World. We're obviously going to continue to do that we're going to continue to invest in our enterprise business was showing very.
Very real strength in terms of air Oxford deal growth will continue to invest in our mid market business, where we're seeing a really nice well managed well structured more predictable business with every quarter.
No where we're in it and working can going to continue to look at our product depth and breadth expansion and not resting on a laurel than any of our core products while at the same time.
Expanding more broadly through both organic and if it makes sense in acquisitive boys as well. So it's really more of the same but doing it at a greater scale and underneath all of that.
The thing that is really the most important to myself and now nearly 2000 colleagues around the world is to continue evolve our culture.
To be the the company that anyone everywhere I would want to work with to help them optimize their spending get their business spend under control improved their profitability and be prepared for anything that could face them and uncertain economic times.
Helpful color, there and then Todd just real quickly, we typically don't see high growth companies double operating profit sequentially here really strong performance.
Was the doubling of op margins to 11% here driven solely by integration are there other factors at play relative just timing hires.
She really strong performance what drove that in and is that sustainable.
No. We've always had a disciplined growth approach to Cooper, where they're not only that 30% plus grew up on topline, but continuing to show operating leverage at the bottom line and I think it very strategic investments when we have an incremental dollar to invest we think about a very thoughtfully your point on them.
It is absolutely true we've done actually what I would consider a very good job and integrating our acquisitions and no that was part of the the strong cash flows in Q3 as well. So I would expect we took some near term hip and if you look at it sorry. For example, we're still haven't reached steady state run rate there because the specifics in the deferred.
Revenue haircuts, so that will continue to improve but by integrating the acquisitions quickly getting them profitable and cash flow positive and.
The very accretive to our bottom line is also helps I would say, it's a combination of strong M&A integration and just general scaling of the business in a disciplined manner.
Helpful color. Thank you.
Your next question comes from period to Willa with first analysis. Your line is open.
Hey, good afternoon and congratulations.
Just want you to give a little more color on your traction in the mid market. A are you seeing increased close rates are you seeing you'd spoken last quarter about significant traction and I'm just wondering about the relative contribution of that that market to the to the outperformance versus guidance.
Sure sure I appreciate the question I would say the most.
Interesting point I would think from an investment investor perspective around this is the level of up fidelity. We have is in understanding that business in terms of.
All vectors of a price speed and win rate right. So we have a very good sense for the value, we're able to deliver on a fair price point, we could charge for that and that continues to trend upward. We have a really good sense now runs speed from awareness to close and then to deployment go live in the best practices way and we're continuing to see.
Really nice trajectory around the actual win rates.
Because we really offer something that nobody else in the marketplace.
Has ever offered a comprehensive fully integrated platform for all methods of spending and mid market companies are really really drawn to this and you have been sand. The platform has also enabled with.
Prenegotiated saving that sometimes more than pay.
For the software subscription itself. So in many ways. This has become an area. The business that we can really move the dial up and down on and have a greater level of predictability and stability that weve never had before and that so thats really exciting for us.
Great. Thanks, so much.
Your next question comes from Chris Merwin with Goldman Sachs. Your line is open.
Okay. Thanks, very much for taking my question I know that expansion has been very consistent over time and on the last call. I think you talked about 120% being a long term goal. There now that you started the so called the pay module has there been any uptick in that expansion relative to that historical range and is there any countervailing effect from larger lands in the mid market, where it sounds like there's.
Then some really strong track traction there as well just curious how thats been trending thanks.
Yes, the the renewal rates than expansion rate have remained largely the same and.
Band change over time will increase them and we do expect overtime, which is a longer term target that we could get to 120%, but from a gross renewal rate and that dollar based expansion rate I would still say they are consistent with what were your we reported the past few quarters.
Sure.
Great is or is there anything you could share just on adoption. So far for that Copay module is just started selling up.
Yes look I mean, there is very strong continued interest we now have dozens of customers in that area.
We had I would say a bit more traction in Q3, especially since we launched our invoice payments module, but that's now available, but I would also say at the same rate. It's still too early begin that specific details on.
Attach rates I mean time, it'll take some time.
But that though to continue to play out I think what's most interesting is just the level of interest and synergistic element of that capability, but everything else that we offer is that something that customers and prospective customers are are very excited about and many are already well into the points. So so it's exciting area.
Great. Thanks very much.
Sure.
Your next question comes from Daniel Jester with Citi. Your line is open.
Okay.
Hi, Thanks for taking my question in your prepared remarks, you talked about an example of a new new go lives that was got to 95% spend under management and the first I think I heard five month since they launched I'm wondering can you step back in generalized kind of where that is for sort of your go lives more recently and.
Maybe how that has trended just trying to get a sense of how quickly.
You knew go lives had been adopting the platform. Thanks.
No I really appreciate that question, though it's a very interesting one for US we got going in this market or whatever was over a decade ago. The reports then they have a change that much by the way is that on average companies get somewhere between 45% to 55% of their spend under management and these some of these were best in class kind of companies and our cut.
Summer community is getting to levels like the one you noted very very rapidly and frankly getting to them, especially in the long tail spend which is very very difficult to get your arms around.
And we're consistently perfecting our method of doing that obviously the UN Cooper's used centricity. Our focus there is relentless we've done some industry first in that area of getting rid of a whole host of different click pads and convoluted approaches to getting an individual the most casual user to the most expert user to get the.
Goods and services they need in front of them at the point would they need them like an order them at the right price points, Compliantly and giving the company visibility to their spend so we continue to improve and improve that every quarter through the learnings now we're generating with our customer community I anticipate that to continue to grow in our vision is to help every company.
New world get 100% of their spend or management understand where it's going at the agility to hot swap from suppliers that are risky to those that aren't get the best price points manage all their commodities of spending every format from preapproved to post approved ongoing expenditures and to pay.
With the right cash management.
For those goods and services. So we've got a long way to go but we're making credible progress.
Great. Thanks very much.
Your next question is from Ryan Macdonald with Needham Your line is open.
Hi, good after noon hour Robin Todd.
Can you give us an update on your fed ramp certification and how that's progressing is this something that we're still expecting to be on track to be completed by year end and then just more broadly how are you using the sort of the pipeline strength was in the public sector. Thanks.
Sure sure so things are going well in that area.
We're getting the right stamp of approval around fed ramp as you know supported by.
The United States Postal service, our pipeline and Federals building up.
In a measured in a measured way and we anticipate that.
Vertical of you will to build out very similarly to the way many of our other verticals of built out from retail.
Financial services.
Pharmaceuticals to automotive has been and a host of others. So that's on track and going well and sort of measured with the expectations we had going.
Yes.
Your next question is from Brian Peterson with Raymond James Your line is open.
Congrats gentlemen, you definitely have my respect so Rob just just one for you on the value of the community I think there was a clear message out it inspire.
And your comments on source together it sounds like that's resonating with customers I think it's pretty intuitive how that would drive customers to utilize more offerings from Cooper, but I'm curious it has that had any impact on net new logos either through competitive bake offs or sales cycles any thoughts on that.
You know I think what's interesting. Thank you for that question, Brian I think what's very interesting in our in our market is that were when we when we got going here.
The vast majority of prospective customers were engaging with we're struggling with whatever solutions there were using whether they'd be so old incumbent technology solutions are some point solutions in certain areas and if it goes a long time to get to a place to really established ourselves established our platform samples Referenceability now we are.
Hundreds and hundreds of customers of all sizes now on our platform. So, yes, I would say as of probably.
A year or so after our IPO about two years ago were eight quarters ago. We started seeing this real pool from our community towards the innovation that the we're developing for them our innovation around coop advantage, our innovation around community intelligence, our innovation around community collaboration and now this innovation around source together.
So there is real pull into the committees without now how it could attribute that to.
Our our per customer exactly it's hard to make the attribution, but what I can tell you is we've had 43 quarters, where virtually every quarter is gone up in terms of a our or average.
Recurring revenue per customer. So you have to believe that these innovations and our and our reputation on our credibility and our ability to do what we say we're going to do for every customer is playing into that in a meaningful way and we're definitely in the very early stages of leveraging this is incredible power of our community to help them.
I will spend smarter together and the way that they'll wants it.
Thanks.
Your next question is from a Joseph Foresi with Cantor Fitzgerald to your line is open.
Hi.
You mentioned in your prepared remarks about Cooper pay and the progress you've made there any chance that we might be able to get some statistics around some of the progress you're making there.
Even if it's anecdotal outside of obviously the American express relationship.
And any thoughts on sort of contribution both short and long term. Thanks.
Well I'll, let Todd adds my remarks on this but I would say look first of all there's great customer feedback and the desire to work with us in this area that's on questionable.
All the metric that were tracking our up into the right now of course to built off of a small base as you understand but all the metrics opens right. We are seeing meaningful traction in those modules as a standalone and we're also seeing it meaningfully impacting our win loss percentage in our average Jr. So thats, what I think were.
The more than wont to share at this time, a very healthy a part of our business emerging here.
Hey, Joe I mean, we're we're really looking at metrics right now and what's metric to present at the right time as Rob mentioned it is a bit earlier, we do have dozens and dozens of customers that are implementing coupe of pay and we should start to see some more meaningful transactional volume HCV volumes et cetera.
And once we have a little bit more history will start providing more metric and no. One of the fact that Roger highlighted is that we are winning more often and we're definitely winning bigger when Cooper pay is involved from an average deal size, it's actually quite meaningful and hopefully in the near term will they'll start provide it's more metrics to you, but we're not ready to do so at this time.
Thank you.
Your next question is from Steve Koenig with Wedbush Securities. Your line is open.
Hi, guys. Thanks for taking my question.
I was wondering if you could maybe just give us a little color on.
The importance of partners to your various payment rails, how they help.
And what more do you want to do with them.
And since I'm on I, just wondered if you had any comments on seeing new entrants like workday and the source you spacing and how you see your differentiation across.
Procure to pay landscape.
Yes sure I appreciate the question. So those are probably two distinct questions as one around partners. We since the very beginning knew that we want to build a business that allows us to quote focus on our core competencies. If there are other players in the world that can do things that they're very good at where more than inclined to partner with them I mean thats the olin.
But it stands for open so when you think about systems integrators, now well well over two thirds bard yields are focused on systems integrators same methodology and thought process taken into the pay area. What do we great with great at mass transactional platform processing of spend done in a highly intuitive.
Reasonable way that encodes best practices for all a whole host of business processes, if their players in and around our ecosystem that our.
Focused on things that they are extremely strong financial services firms other technology providers were more than happy.
To partner with them and that's exactly how we're taking it if you look at the partnerships we've established state.
Regarding workday and the announcement that I heard about about them buying.
So smaller sourcing company I will say that we're excited you know we're excited for the additional validation of a category that we've been creating a cultivating now for over a decade in business spend management.
We have a lot of confidence in our buyer remember our buyers the key spender over in Oregon within an organization. They know how to identify value and were more than excited to continue delivering exceptional value to them for many quarters in years ago.
Awesome. Thanks.
Your next question is from stands Lucky with Morgan Stanley . Your line is open.
Hi, guys.
Thank you so much for taking my question.
Maybe a somewhat tactical question for off for Todd.
On.
On the subscription revenue line was there anything from your deferred revenue write downs, though it may be impacted the quarter. This revenue in the quarter a little bit more.
Then in prior quarters, maybe more than you had expected and then a similar kind of onetime.
Item was there anything one time in billings.
Hi, there is some duration changes are also early renewals FX anything.
To help us side, just triangulate those are these numbers.
So on the subscription revenues if you look at the deferred revenue bleed off or make sorry, it's not a.
Equally amortize the deferred revenue bleed off in Q2 was 1.9 million the deferred revenue bleed off in Q3 was 1.6 month. So there was a a net Gulf would there.
600 brands.
From the very acquisition everything else I would say was pretty standard. If you look at Q2 versus Q3, Q O Q2 was very consistent linearity in booking.
In Q3, we saw seasonal patterns that you would expect were August .
Given all the holidays.
So when when you look at revenue contribution in quarter Q2 was higher right. Because there was it was more frontloaded and Q2 is more in the second and third month. So that there was a little bit of an impact from that as well.
And then.
The other question once with respect to.
Once again Tim.
If there was anything any any kind of FX or any already been duration changes billing duration changes in the quarter or anything like that early renewals perhaps.
Non interest there is always the couple of renewals that come into related.
Get pushed out a month or so but.
On balance I would say, there's nothing I would call out for me, a onetime billings perspective and door renewal perspective.
Okay perfect. Thank you so much.
Your next question comes from Merck Murphy with JP Morgan Your line is open.
Yes. Thank you for taking my question much appreciated Rob regarding the business spend index.
Yes, I'm curious in aggregate you look at it and say that its healthier or that softer than it was a one year ago and based on your some of your commentary around that does it supports the idea of a gradual recovery in overseas activity heading into early next year.
With some softening in the U.S. what is that what you were trying to describe there.
Yes, Thanks, Mark we didnt break it out geographically, but you can see the breakdown overall quarter over quarter in year over year on spend index that dot com and actually go in and looking to buy vertical as well as you know spends about maybe actually looking at the spend categories as well, which I think this quarter is not only new but pretty interesting indicate.
After a certain things I will tell you when we did the spend index last quarter. There is a slight uptick in overall sentiment, but there are certain industries that is showing very interesting signs I called out two of them.
In my in my Premier prepared remarks in financial services as well as in.
In manufacturing in other industries like let's say high Tech industry, which includes software and hardware in all come.
Elements of high technology companies.
Sentiment remains fairly stable.
But there are a slight upticks and downticks in the components such as you know time to approve spend approval rates average spend per person.
Data such as you know number of arc five they're going out in the aggregate across the world. The number of orders that are what percent of orders there actually on contracts. So I invite you to spend some time on spend index dotcom, they get the full picture of it because I.
I think just a few words really don't do justice to the insight that this that the Viasat provides.
Hey, Rob just to clarify when you when you say, there's a slight uptick in overall sentiment is that are your dollar waiting that by customer and by industry or is it the business based on aggregate dollar volume or is that based on the number of customers.
That is based on an index that has components, which include average spend per employee which was the one component you'll have to average that you don't have to dollar cost average is average spend per employee is based on time for approval. So from the point when someone makes to request the point that the purchaser.
It goes out in aggregate across obviously hundreds of billions of dollars and in spend is based on the the approval rates in other words have rejections of spend increased or how they decrease to show a sentiments will will be happening next quarter. However, these types of components Weve never had a leading indicator.
We never know, we typically see spend that already happens we never have had a chance to see spend that got rejected that would have otherwise.
Never never pass through well, we've never had the opportunity to understand how long is taking companies in aggregate to make spend decisions. All of these are indicators that part of the overall index.
And the uptick is on the overall indepth itself. So if you look at the total number on the index. The index itself as a slight uptick across all industries and geographies in our Q4 report.
Okay understood. Thank you.
Your next question is from Peter Levine with Evercore. Your line is open.
Great. Thanks, Robin talk for taking my question here.
So on payments.
Assuming a majority well leased your larger customers already using a payment solution.
Customers are will customers use multiple vendors to typically sold it payments and the conversations that you're having with your larger customers that you know that already have a solution in place here, how do you initiate those conversations theoretically out thanks.
Sure sure. Thank you for the question.
There's components to the answer because we now have three products.
In the pay area and so the answer that question. It's different by product you look at the virtual card area. That's been an area that's been very difficult for companies to adopt because it wasn't very usable you didn't have a point in time virtual credit card number that you can apply to pre approved spend with it given supplier in the have all that reconciliation.
Reconciliation done in the backend we've done in a very unique way and so we're taking spend that was largely maverick and on corporate cards and.
Sort of on expense reports and pulling in it into a controlled environment and we're getting we'll pull for that amongst the customer base. When you look at dynamic discounting or elements of coop accelerate there you have a whole host of companies that are not really managing their early payment discounts effectively they're not taking advantage of the ability to pay.
Earlier, but pay less in some cases suppliers are not getting the opportunity get paid earlier.
For their own cash flow needs, we're helping in that collaborative environment and then the invoice payments area.
We are best in class in you know procure to okay to pay fuel and to complete the cycle you have to actually run the payments capability now, we're seeing customers pulling some of that capabilities out of their ERP systems.
And into Kupol, which is a big opportunity for us there's a lot of flexibility in having all that in one market environment be able to kick off batch payment runs across any rail.
Internationally, so by product it is.
It's different by product, but in all areas. This very real interest and there's real value to add two companies who are doing these things in ways that are frankly, just subpar.
Thank you.
Your next question is from Citi Penny grow you with Mizuho. Your line is open.
Hi, Thanks, Thanks for taking my question.
You have been delivering.
Accelerating revenue growth, but as you look at look into 2020 growth opportunity Rob. So one of the things start to your more excited about is it more on the some of the geography or is your more Sutton.
Business segments or verticals, our products anything any color would be helpful.
Yes, not sure. Thank you for that look I mean, it again in May may not be maybe a little bit of a boring answer but it's in all those areas continued expansion around a product depth and breadth continued expansion geographically continued expansion with our global systems integrators, continuing to work with each individual customer to drive more and more value for them.
And we do this across along at very simple model.
We follow now for very long time, which is a model that calls for greater than 30% topline growth in a sustainable way a very balanced expenditure on sales and marketing to achieve that type of growth and then continued scale to the bottom line in terms of our gross margins and operating margins and the castle.
That you're seeing coming off of this business so with those guardrails in mind, we push on all vectors of the business to drive value for our customers.
And doing so one customer at a time so they have the opportunity to keep them forever and continue to grow grow more more and more value for them as we continue our relationship.
Okay.
Thank you.
Your next question is from Koji Ikeda with Oppenheimer. Your line is open.
Hi, This is Chad chain on for CODI. Thanks for taking the question.
The past you guys have talked about Asia Pac kind of being an area of focus I'd be curious to hear just an update on sales productivity or business momentum in the region. There any color just helpful. Anecdotes there would be great. Thanks.
Yeah, not sure. It says it's definitely a growth area for us we're doing.
Some very interesting deals in Japan for example, retail in financial services in Singapore.
Really good volume unhealthy business developing in Australia, and a whole host of other.
Customer sort of hot areas for us in Asia Pac So a very real interest and very real growth for us that really mimics many other regions, we ventured overtime.
Obviously, most notably Europe and various countries across Europe , we plan to continue that the Anacortes huh.
Thanks, that's helpful.
Your next question is from Alex Zukin with RBC. Your line is open.
Hey, guys. Thanks for taking the question.
Absolutely the first one on Cooper pay.
I know it's been hit on a couple of times, but you mentioned the three different respective modules I'm just curious as you're seeing the adoption within your customer base can you talk to which of the modules.
Is coming along faster from an adoption perspective and maybe.
Just looking at over the next call. It 12 to 18 months, where do you expect where are you most excited.
We're where could the the most.
Impact come from one with respect to be students are modules with kubota.
Sure sure. Thanks, Alex.
It's a little bit difficult to answer the question that sets that we didn't launch all three at the same time, we launched the cart first then accelerate most recently in voice pay and all three have gone in a sort of measured growth pattern. One after the other but at the second part of your question in terms of most excited I think in boys page just incredibly incredibly big.
Opportunity for Us I mean, it is just being done in a very subpar way today.
This lack of agility in that area.
There is a lock up.
Efficiency and how thats being handled in a really calls for being pulled into a centralized business spend management function.
And out of a whole host of different backend ERP systems, where it's.
Where it's sort of being locked that's what we're hearing from our customers and I'm I repaying.
Quite optimistic about the growth in an area in coming quarters.
Got it and then Todd just back to the outperformance on the operating line were there any onetime items to consider or are there any kind of repeatable.
And repeatable things that could come through over the next couple of quarters as well.
Nothing that I wouldn't necessarily call out as a major items, obviously, we expect margins to improve as exactly gets to steady run rate. The inorganic contribution from regarding Q3 was 3.7 million and as we noted last quarter, we expect that too.
Get up to 25 million next year, we also on the gross margin line rehab.
Additional amortization of capped out.
In the back half of the year due to more Cooper pay products being released a most notably the invoice payments product. So previously this was a benefit to gross margins.
Now the come through in the next few quarters.
And they're also some cost that are nonrecurring in nature.
As we continue to consolidate optimize the hosting architectures companies acquired so we moved them onto our what we would consider more efficient platforms are some onetime costs and the cost of sale.
Slide that we have still been assertively hiring and we hired quite a few people in Q3, we'll update the the headcount numbers at the into Q4, but you'll see some additional impact in Q4, which is reflected in guidance as those people that came on board.
Four quarter of expense.
Perfect. Thank you guys congrats again.
At this time there are no further questions. This does conclude the conference call for today. We do you think you all for joining you may now disconnect.