Q3 2020 Earnings Call
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I would now like to introduce your host for todays conference call Ms, Nicole and you'd see US Investor Relations. This news, yes, you may begin your conference.
Good afternoon, and welcome to computer software third quarter Conference call joining me today, our Rob or anything, but CEO and Todd for you, but CFO remarks. Today includes forward looking statements about guidance, if future results of operation strategy, Marketsite products competitive position and potential growth opportunities.
Our actual results may be materially different.
Forward looking statements involve risks uncertainties assumptions that are described in our most recently filed 10-Q.
Before they can statements are based on our beliefs and assumptions today, and we disclaim any obligation to update any forward looking statements.
Just call it replayed after today information presented it may not contain current are accurate information well 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 if you've referred to access a replay of via phone you can find that information in the earnings release.
Unless otherwise stated growth comparisons are against the same period of the prior year with that I'll turn the call over to Ross.
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. The 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 a trailing 12 month growth rate of 48%.
On an annual run rate for more than $400 million.
Also we are yet again profitable this quarter on a non-GAAP basis.
My colleague Cod will of course cover our strong financial results with much greater depth. After my remarks.
With that I have 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 community is a big step.
The only the first step in the customer journey with US. We then quickly move to focusing on the results of getting a customer live in production. So they can begin driving meaningful value through our platform.
Let me showcase this with some real metrics from a group of customer the went live earlier in the year.
Diagnostic goes down South America, or dasa, the largest diagnostic medicine company in Latin America based in Brazil implemented Cooper to digitize their business spend management.
Cooper has made it faster and easier for end users to procure supplies for more than 700 healthcare facilities across Brazil.
A great example of the letter you in Cuba, which stands for user Centricity.
Only five months on Cooper Das as already reached 95% spend under management issuing 84% of goods peos from catalogs.
It's not uncommon for us to see this type of accelerated BSM 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 with coupon finnair digitizing processes, and increasing PEO coverage by offering the best purchasing experiences to all employees, including cabin crew members and pilots.
Next 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 deduplication of activities with the solution that can scale with their growth.
Multibank.
Panamanian banking and financial services firm went live with Cooper BSM and is using coupon rates increase on contract spent and also cut its budget request cycle times and half.
With Kupol Multibank has not only increased catalog usage and streamlined workflows to allow for fully controlled traceable in order to bulk budget pre approval, but they have also lowered the use of paper and ink, helping reduce their carbon footprints and preserve our planet.
Novo Nordisk, a multinational pharmaceutical company headquartered in Denmark recently went live with sourcing contract management management and purchasing in the first phase of a global deployment.
In fact, our European community benefited from their Accenture hosted presentation at our recent inspire event in London, just a few weeks ago.
Ron saw us part of a global family of companies specializing in flexible workforce and HR services went live with Cooper at a rapid BSM implementation.
Replacing what they described as extremely manual processes with streamlined workflows roadside is increasing peel back spend by 70% in the first year and reducing invoiced cycle times to less than five days.
In addition to these efficiency gains drawn side 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 Cuba.
As part of its strategic transformation initiative for spend visibility compliance and risk reduction.
In addition to achieving greater spend under management.
Data is targeting 100% electronic purchase orders and a reduction of fuel cycle times down to two days within the first six months of being lives.
So as you can see our customers are leveraging the comprehensive nature of our platform also known as the literacy in Cooper to drive meaningful bottom line results by addressing all areas of business spend in their organization and we couldn't be more excited to see it.
Now 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 this Dell.
Fueled would energy immunomedics indigo, our agriculture Maersk drilling.
Relay Therapeutics saga, Samba Novus systems and wildcard.
In Q3, we welcome these and dozens of other new customers to our community.
Now as many of you know our success is supported by this growing Cooper 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.
Helping 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 leverage Cooper community intelligence to pinpoint specific opportunities. This managed spend more effectively.
For example community intelligence help James identify an opportunity to increase the percentage of invoices processed electronically.
Prior to using community intelligence, James did not realize the Providence Providences electronic invoicing percentage was slightly significantly lower than best in class companies within his peer group.
Not only identify the problem, but also prescribed the letter pm kouba.
Weights increased electronic invoicing.
Including showing James which of the suppliers were already transacting electronically with others in the coupon community, making it easy for him to target the right suppliers for electronic invoicing enablement.
Increase of Tronic invoicing has freed up provenance resources from processing manual invoices.
James and his team are targeting process efficiency savings of three British pounds for every invoice 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. The community intelligence can drive for our customers now powered by nearly 1.5 trillion dollars in cumulative spend under management.
Im more excited than ever for all that's yet to come in this area.
Let me also highlight.
Super source together in industry first program that connects members of the could become entity 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 have seen tremendous traction with group sourcing events globally, which have generated millions of dollars in negotiated savings.
Hundreds of companies have indicated interest in participating in upcoming events.
Source to get to together participants are capturing over 15% negotiated savings across diverse categories.
Recently, when 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 Zalk dock and 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 Zalk dock was charged with building in new business spend management function, including the implementation of Cooper to help fuels OCC docs growth.
Filled wanted to deliver a quick win to establish credibility.
Through source together, Philip achieve a 9.1% negotiated savings laptops desktops keyboards monitors and headsets.
That could not have been achieved with just a zone companies spend volume.
Best of all dock capture these savings before even going live with the full coop implementation.
This is an power Philip and his team to demonstrate immediate value.
Source together strongly represents our open vision also known as the letter own Cooper.
With an open spirit to collaboration our community of customers is spending smarter together and we want and nothing more.
Now, let's move onto Cooper pay and inspire London, our largest and best several European event this year.
We're excited to announce American express as a new Kubot 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 published the Q4 Cooper be ASI.
Before going into the results, let me once again make it clear that what we're seeing in the BSA data is not indicative of the trends we're seeing in Cooper's 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 of confidence in the financial services that sector continues to slow quarter over quarter.
Also manufacturing sentiment continues to below trend, perhaps somewhat due to global trade tensions which have continued since last quarter.
This quarter as part of the via site. We also began looking at changes in 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 and striving for excellence.
This quarter, we recognized our colleague Newhall Ahmed for ensuring customer success.
The hall 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 Novo 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 changes colleagues noted that when he takes on a task heeded livers. He delivers the result, fast and adds valuable input and perspective to make the output that much more meaningful for all parties.
Future congratulations to our colleagues now Kevin and James for this well recognized.
Well deserved recognition.
Super proud.
Now, let me touch on a few more highlights from the quarter.
First off we were we were honored to be name to a 2019 gardener peer insights customers choice for procure to pay suites. In fact, coupal 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 in corners in Gartners 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 and 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 help Barclays achieved 92% on contracts spend.
Or Rick Quaintance, senior director of procurement and contract management at the USLV, who helped reduce invoice cycle times to 2.7 days using community benchmarking, while helping us troops get the goods and services they need it all times.
And Thomas Sebastian Global head of sourcing and procurement and Zurich insurance.
Who led the 27 billion dollar insurance company achieved 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 dotcom 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 kinds cubic 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.
And well we're focused on closing out the year strong.
With 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 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, where $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 in 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, our 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.
A $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 revenue.
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 the 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 product profile for Q4.
We expect Q4, non-GAAP gross margin to be between 70, and 71% and 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 cents 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 in $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 remind 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 queue of 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 Touchtone Pelephone. 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 add ons it sounds like you're seeing in some of these existing customer wins and 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 XR 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 parts to answer that we are definitely seeing real healthy progress with the power apps and it doesn't just include our advanced contract lifecycle management capability. It includes our risk risk aware and risk assessment capabilities. It includes our spend optimization capability.
As a whole host of others, but what's even more.
Ladies and gentlemen.
Just one moment will get reconnected with their speaker.
Yes.
Yes.
Goal or more.
Okay.
Yes.
Okay.
Ladies and gentlemen, again this is the operator, we have lost connection. Please wait one moment when we get reconnected. Thank you.
Yes.
The backup line involvement.
Okay.
Okay. So let me continue where I left off it sounds like we got disconnected and it wasn't on our side it seems to be at the well thats somewhere at the core.
Can you give you hear me now I will just continue with it with the answer the question. So so that did two parts are that the in distinct power user applications and in all areas. We're seeing very strong progress both an add on businesses walls.
Landing net new deals that include a more comprehensive footprint upon.
But more importantly, even that all which is the second part of the of the answer to your question and that is that we're seeing a a digital off with our existing customers on prospective customers around a comprehensive set of capabilities all of the visionaries on business for moms want they want all of these teams working together so we'll make.
[noise] optimized gone up spend control have spent visibility although compliant way the moms mobile frankly drive greater and greater operational efficiency and profitability. So its book is working on on both bottles on 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 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 of so let me answer then two parts as well we're seeing similar patterns first of all broadly right. We go into new market. We gets a handful of highly referenceable ratable customers, we get them highly successful and then they are.
Thankfully 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 does.
Anything there that is.
A very different trends than what we what we've seen historically.
There is this again this vision lock around comprehensive business spend management, there, 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 is in excess of a $400 million run rate.
So growing at a really are robust organic clip.
What are you thinking about relative to next year, you would 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 calendar 2020, and whether 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 buxom.
I've been following us now for quite some time when 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 bid.
This was showing very.
Very real strength in terms of after 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.
Where we're in it and Workington 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 improve 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 only had at a disciplined growth approach to Cooper, where they're not only the 30% plus growth on top line, but continuing to show operating leverage at the bottom line and I think it yeah very strategic investments when we have an incremental dollar to invest we think about a very thoughtfully.
A point on M&A 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 assist us back then.
The deferred revenue haircuts, so that will continue to improve but by integrating the acquisitions quickly and getting them profitable and cash flow positive in.
The very accretive to our bottom line also helps I would say, it's a combination of strong M&A integration and just general scaling the business in a disciplined manner.
Helpful color. Thank you.
Your next question comes from theory Kubala with first analysis. Your line is open.
Hey, good afternoon, and congratulations I 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 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 the fair price point with the charge for that and I continues to trend upward we have a really good sense now runs speed from awareness to close and then to deployment go live in a 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.
Creep prenegotiated saving that sometimes more than pay.
For for the software license 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 infidelity that weve never had before 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 net 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 thank you pay module has there been any uptick in net 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 been some really strong track traction there as well I'm just curious how thats been trending thanks.
Yes, the the renewal rate than expansion rate have remained largely the same and as band change overtime will increase them and we do expect overtime, which have 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 there.
The similar what were your we recorded the past few quarters.
Okay.
Great is or is there anything you could share just on adoption so far for that to pay module is just started selling up.
Yes look I mean, there's 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 the specific detailed on the attach rates I mean time it'll take some time.
But that does continue to play out I think what's most interesting is just the level of interest and the synergistic element of that capability, but everything else that we offer it's just something that customers and prospective customers are are very excited about and had many are already well into the points. So so it's exciting area.
Great. Thanks very much.
Your next question comes from Daniel Jester with Citi. Your line is open.
Yes, hi, Thanks for taking my question indifferent paired remarks, you talked about an example of a new a new go lives that was got to 95% spend under management and the first I think I heard five month since day. 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 to just trying to get a sense of how quickly.
You knew go lives have been adopting the platform. Thanks.
No I really appreciate that question, it's a very interesting one for us when we got going in this market or whatever was a over a decade ago. The report 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 with best in class kind of companies and our cuts.
Summer community is getting to level 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 yoon Cooper's use centricity.
Our focus there is relentless we've done some industry first in that area of getting rid of a whole host the different click pads and convoluted approaches to getting an individual the most the casual users. The most expert user to get the goods and services they need in front of them at the point, where they need them thinking ordered 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 world get 100% of their spender management understand where it's going to have the agility to hot swap from suppliers the risky.
To those an honest gets the best price points manage older commodities of spending every format from preapproved supposed to prove to 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 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 sort of the pipeline strength was in the public sector. Thanks.
Sure sure so things are going well in that area we.
Yeah, we're getting the right stamps of approval around that ramp as you know supported by the.
The United States Postal service, our pipeline in Federals building up.
In a measured in a measured way and we anticipate that you know vertical of you will to build out very similarly to the way many of our other verticals adult out from retail.
Financial services.
To pharmaceuticals to automotive into that and a host of others. So that's on track and going well and a set of measured with it with the expectations, we had a going.
Yes.
Your next question is from Brian Peterson with Raymond James Your line is open [noise].
Congrats gentlemen, you definitely have my respect so Rob just just one for you on the value that community I think there was a clear message out of didn't spire.
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 when when we when we got going here.
The vast majority perspective customers were engaging with we're I'm struggling with whatever solutions there were using whether they be so old income is technology solutions are some point solutions in certain areas and if it goes a long time to get to place to really established ourselves established our platform established Referenceability now we.
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's real pull into the committees, but I'd now how it could attribute that to.
Air Opera customer exactly it's hard to make that tradition, 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 were 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.
Then smarter together and the way that they'll wants it.
Thanks Mark.
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 American express relationship.
And any thoughts on sort of contribution both short and long term. Thanks.
Well I'll, let Todd Thats 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 unquestionable.
All the metric that we're tracking or up into the right now of course, the built off of a small base as you understand but all the metrics options 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 where.
I'd be more than want to share at this time, a very healthy.
Part of our business emerging here.
Hey, Joe I mean, we're we're really looking at metrics right, now and which 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 there's some more meaningful transactional volume HCV volumes et cetera.
And you know once we have 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, we'll be able to start providing more metrics to you, but we're not ready to do so at the time.
Thank you.
Your next question is from Steve County, 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 you know seeing new entrants like workday and the source you spacing and how you see your differentiation across up.
Procure to pay landscape.
Yes sure I appreciate the questions. So probably two distinct questions. There's one around pardon me 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, that's the.
And Cooper it stands for open so when you think about systems integrators, now well well over two thirds of our yields are focused on systems integrators same methodology and thought process is taken into the pay area. What do we great well great at mass transactional platform processing of span done in a highly intuitive.
Usable way that encodes best practices for all a whole host the business processes, if their players in and around our ecosystem that are.
Focused on things that they are extremely strong financial services firms other technology providers were more than happy.
Pardon with them and that's exactly how we're taking it if you look at the partnerships we've established date.
Regarding our work day in and the announcement that I heard about about them buying.
So smaller sourcing a 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 and we have a lot of confidence in our buyer well remember our buyers the key spender over an organization 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 to count.
Awesome. Thanks.
Your next question is from the stands blocky with Morgan Stanley . Your line is open.
Hey, guys.
Thank you so much for taking my question, maybe a a somewhat tactical question for off for Todd.
On.
On the subscription revenue line was there anything from your deferred revenue write downs, though maybe impacted the quarter this revenue in a quarter or 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 [laughter] either some duration changes are also early renewals affects anything.
To help us so I just can't triangulate those a these numbers.
And so on the subscription revenues if you look at the deferred revenue bleed off for big sorry, it's not a.
Hey, equally amortized 30 deferred revenue bleed off in Q2 was 1.9 million the deferred revenue bleed off in Q3 was 1.6 million. So there was a net golf is there.
600 brands.
On the authority acquisition.
Everything else I would say was pretty standard if you look at Q2 versus Q3, two Q2 was very consistent linearity in booking.
In Q3, we saw seasonal patterns that you would expect were August .
Given all the holiday.
So when when you look at revenue contribution in quarter Q2 was higher right. Because there is 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 <unk>. The other question was with respect to look at 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 hey, early renewals perhaps.
No I didn't know there's always the couple of renewals that come in early and stuff like that that might get pushed out a month or so but.
On balance I would say, there's nothing I would call out from 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 because the spend index.
I guess I'm curious in aggregate you look at it and say that its healthier or that it's 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 the 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 didn't break it out geographically, but you can see the breakdown overall.
Quarter over quarter in year over year on spend index that dot com 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 indicator of certain things I will tell you. When we did the spend index last quarter, there's a slight uptick in Oh.
Overall sentiment, but there are certain industries that is showing very interesting signs I called out two of them.
In my in my.
<unk> prepared remarks in in financial services as well as in.
In manufacturing in other industries like let's say high Tech industry, which includes software and hardware and all can all 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 a number of arc buys that 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. It gets a full picture of it because I I think just a few words really don't do justice to to the insight that does that that the ESI 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 is the business based on aggregate dollar volume or is that based on the 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 rent you don't have to dollar cost average its average spend per employee is based on time for approval. So from the point when someone makes to request to the point that the purchase order.
It goes out in aggregate across obviously hundreds of billions of dollars and in spent is based on the the approval rates in other words have rejections of spend increased or have they decrease to show a sentiment is what 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 happened 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 decision all of these indicators that part of the overall index.
And the uptick is on the overall index itself. So if you look at the total number on the index. The index itself has 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. So Robinson for taking my question your sort payments.
Assuming a majority well leased your larger customers already using a payment solution.
When customers are will customers use multiple vendors to tickets sold say payments and you know the conversations what you're having with your larger customers that you know that already have a solution in place here, how do you initiate those conversations here how do they play 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 is 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 didnt have a point in time virtual credit card number that you can apply to pre approved spend with the given supplier in the have all that reconciliation the 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 you know 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 their yeah.
As 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 well for their own cash flow needs, we're helping in that collaborative environment and then the invoice payments area.
Well, we're 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 you have.
All that in one market environment be able to kick off batch payment runs across any rail.
Internationally, so byproduct it yeah, it's different by product, but in all areas. This very real interest and there is real value to add to 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 that you are more excited about is it more on the you know some of the geography or is it more certain you know 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 a along it very simple model that 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.
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 that 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.
Thank you.
Your next question is from Koji Ikeda with Oppenheimer. Your line is open.
Hi, This is Chad Shane on for Coty, Thanks for taking the question.
The past you guys. It talks 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, it's not sure it's definitely a growth area for us we're doing.
Some very interesting deals in Japan for example, retail and 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 a in Asia Pac So a very real interest and very real growth for us that really makes many other regions we ventured overtime.
Obviously, most notably Europe and various countries across Europe , we plan to continue that and of course huh.
Thanks, that's helpful.
Your next question is from Alex Zukin with RBC. Your line is open.
Hey, guys. Thanks for taking the questions.
Absolutely the first one and 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 shouldn't be 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 we're could the the most.
Impact come from our with respect to their students for modules with Kubota.
Sure sure. Thanks, Alex you know its a little bit difficult to answer that question that sense that we didn't launch all three of the same time, we launched Vicari first then accelerate the most recently in voice pay and all three have gone into sort of measured growth pattern. One after the other but at the second part of your question in terms of most excited I think invoice pages.
Incredibly.
Incredibly big opportunity across I mean, it is just being done in a very subpar way today.
There's a lack of agility in that area. A there is a lack of Bob efficiency and how that's being handled in a really calls for being pulled into a centralized.
Business by management function and out of a whole host of different backend ERP systems, where it's a where it's sort of being locked that's what we're hearing from our customers and I'm I became.
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 that could come through over the next couple of quarters as well.
[noise] nothing that I would necessarily call out of that is a major I am.
Obviously, we expect margins to improve as you know it's already gets to steady run rate. The inorganic contribution from regarding Q3 was 3.7 million and as we noted last quarter, we expect that to.
Get up to 25 million next year. We also on the gross margin line, we've had additional amortization of capped out.
In the back half of the year due to more Cooper pay products being released most notably the invoice payments product.
So previously this was a benefit to gross margin and now the come through in the next few quarters and they're also some costs that are nonrecurring in nature.
Then as we continue to consolidate optimize the hosting architectures. The companies acquired so we moved them onto our what we would consider more efficient platforms are some onetime costs and the cost of sale.
Besides that we have still been assertively hiring and we hired quite a few people in Q3, we'll update the the headcount numbers that the into Q4, but you'll see some additional impact in Q4, <unk>, which is reflected in guidance out those people that came on board.
Have a full 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.